SEMI-ANNUAL REPORT
The Thurlow Growth Fund
DECEMBER 31, 1998
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........................ 9
LETTER TO SHAREHOLDERS
February 10, 1999
Dear Shareholders,
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. During the second half of 1998, Thurlow Growth Fund proved the wisdom
of this approach in completing a banner year for Thurlow Growth--our first full-
year. The total return for the Thurlow Growth Fund in 1998 was 43.3%.
This return compares to 1998 returns of 15.3% for the Dow Jones Industrial
Average, 26.1% for the Standard & Poor's 500 Index, and 38.6% for the NASDAQ
Composite Index. I am especially proud of the fact that in a difficult year
like 1998, Thurlow Growth more than doubled, and almost tripled a conservative
index of stocks like the Dow Jones Industrial Average.
In addition, Thurlow Growth Fund beat the Standard & Poor's 500 Index. Only 10%
of all mutual funds can consistently beat the Standard & Poor's 500 Index, and
in 1998 the Thurlow Growth Fund beat the S&P Index by a wide margin.
1998 was a very rocky year, and many mutual funds had a difficult time even
matching the Standard & Poor's 500 Index. Indeed, the typical stock in the
broader market, as tracked by the Value Line Arithmatic Index, still has not
topped the high that it made in April, 1998.
Going into our second full year, the money invested in the Thurlow Growth Fund
is becoming less dominated by the money invested from relatives and friends who
encouraged me to begin this mutual fund, and more towards members of the
investing public who have noticed our returns as published in the financial
press. To those new investors, I say "welcome." The reasons you have invested
in the Thurlow Growth Fund are probably similar to the reasons our beginning
investors joined us: when the market rallies, Thurlow Growth Fund will
participate, investing in the fastest-growing companies in the strongest sectors
of the market. However, when the market corrects or even crashes, Thurlow
Growth Fund will sidestep or even totally remove itself from the blood-letting
on Wall Street. Over a ten- or twenty-year period, that adds up to quite a good
mutual fund!
Thanks you for your business and we wish you success for the remainder of 1999
and into 2000.
Sincerely,
/s/ THOMAS F. THURLOW
THOMAS F. THURLOW
Fund Manager, Thurlow Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
(Unaudited)
ASSETS:
Investments, at value (cost $671,048) $814,025
Receivable from securities sold 12,351
Organizational expenses, net of accumulated amortization 19,019
Receivable from Adviser 9,692
Dividend and interest receivable 499
Prepaid expenses 5,168
---------
Total assets 860,754
---------
LIABILITIES:
Payable for securities purchased 10,512
Accrued expenses and other liabilities 35,935
---------
Total liabilities 46,447
---------
NET ASSETS $814,307
---------
---------
NET ASSETS CONSIST OF:
Capital stock $593,842
Accumulated undistributed net investment income 215
Accumulated undistributed net realized gain on investments 77,273
Net unrealized appreciation on investments 142,977
---------
Total Net Assets $814,307
---------
---------
Shares outstanding
(500 million shares authorized, $ 0.0001 par value) 65,806
Net Asset Value, Redemption Price and Offering Price Per Share $12.37
---------
---------
See Notes to the Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1998
(Unaudited)
INVESTMENT INCOME:
Dividend income $253
Interest income 3,627
---------
Total investment income 3,880
---------
EXPENSES:
Investment advisory fees 3,454
Administration fees 14,419
Shareholder servicing and accounting costs 25,860
Distribution fees 691
Custody fees 9,770
Federal and state registration 1,396
Professional fees 6,706
Reports to shareholders 3,786
Amortization of organizational expenses 2,652
Other 503
---------
Total expenses 69,237
Less: Waiver of expenses and reimbursement from Adviser (63,849)
---------
Net expenses 5,388
---------
NET INVESTMENT LOSS (1,508)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 141,435
Change in unrealized appreciation on investments 98,935
---------
Net realized and unrealized gain on investments 240,370
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $238,862
---------
---------
See Notes to the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
August 8, 1997
Six Months Ended 1<F1>
December 31, 1998 through
(Unaudited) June 30, 1998
---------- --------------
OPERATIONS:
Net investment loss ($1,508) ($3,564)
Net realized gain (loss) on investments 141,435 (64,162)
Change in unrealized appreciation
on investments 98,935 44,042
-------- --------
Net increase (decrease) in net assets
from operations 238,862 (23,684)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 223,911 467,476
Cost of shares redeemed (81,476) (10,782)
-------- --------
Net increase in net assets from
capital share transactions 142,435 456,694
-------- --------
TOTAL INCREASE IN NET ASSETS 381,297 433,010
-------- --------
NET ASSETS:
Beginning of period 433,010 0
-------- --------
End of period (including
undistributed net investment
income of $215 and $0, respectively) $814,307 $433,010
-------- --------
-------- --------
CHANGES IN SHARES OUTSTANDING:
Shares sold 26,060 48,806
Shares redeemed (7,865) (1,195)
-------- --------
Net increase in shares outstanding 18,195 47,611
-------- --------
-------- --------
1<F1> Commencement of Operations
See Notes to the Financial Statements.
FINANCIAL HIGHLIGHTS
August 8, 1997
Six Months Ended 1<F2>
December 31, 1998 through
(Unaudited) June 30, 1998
---------- --------------
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $9.09 $10.00
-------- --------
GAIN (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss 4<F5> (0.02) (0.07)
Net realized and unrealized
gain (loss) on investments 3.30 (0.84)
-------- --------
Total gain (loss) from
investment operations 3.28 (0.91)
-------- --------
NET ASSET VALUE, END OF PERIOD $12.37 $9.09
-------- --------
-------- --------
TOTAL RETURN 2<F3> 36.08% (9.10%)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $814,307 $433,010
Ratio of net expenses to
average net assets:3<F4>
Before expense reimbursement 25.06% 39.47%
After expense reimbursement 1.95% 1.95%
Ratio of net investment
income to average net assets:3<F4>
Before expense reimbursement (23.65%) (38.75%)
After expense reimbursement (0.54%) (1.23%)
Portfolio turnover rate 425.04% 408.62%
1<F2> Commencement of Operations.
2<F3> Not annualized.
3<F4> Annualized.
4<F5> Net investment loss per share is calculated using ending balances prior
to consideration of adjustments for permanent financial reporting and tax
differences.
See Notes to the Financial Statements.
SCHEDULE OF INVESTMENTS - December 31, 1998 (Unaudited)
SHARES VALUE
- ------ -----
COMMON STOCKS - 99.0%
COMMERCIAL SERVICES- MISCELLANEOUS- 2.4%
500 MedQuist Inc.*<F6> $19,750
---------
COMMERCIAL SERVICES- SECURITY/SAFETY- 2.6%
500 Macrovision Corporation*<F6> 21,125
---------
COMPUTER- INTEGRATED SYSTEMS- 1.7%
400 Unisys Corporation*<F6> 13,775
---------
COMPUTER- MEMORY DEVICES- 0.7%
800 Iomega Corporation*<F6> 5,850
---------
COMPUTER- LOCAL NETWORKS- 5.6%
300 Cisco Systems, Inc.*<F6> 27,843
400 3COM Corporation*<F6> 17,925
---------
45,768
---------
COMPUTER- PERIPHERAL EQUIPMENT- 2.6%
100 Adaptec, Inc.*<F6> 1,756
400 American Power Conversion Corporation*<F6> 19,375
---------
21,131
---------
COMPUTER- SERVICES- 1.6%
200 International Network Services*<F6> 13,300
---------
COMPUTER SOFTWARE- DESKTOP- 3.4%
200 Microsoft Corporation*<F6> 27,738
---------
COMPUTER SOFTWARE- ENTERPRISE- 4.3%
500 Legato Systems, Inc.*<F6> 32,968
100 Saville Systems PLC - ADR*<F6> 1,900
---------
34,868
---------
ELECTRONIC PRODUCTS- MISCELLANEOUS- 0.3%
100 Power Integrations, Inc.*<F6> 2,506
---------
ELECTRONICS- SEMICONDUCTOR EQUIPMENT- 1.1%
200 Applied Materials, Inc.*<F6> 8,538
---------
ELECTRONICS- SEMICONDUCTOR MANUFACTURING- 24.4%
500 Altera Corporation*<F6> 30,438
200 Broadcom Corporation*<F6> 24,150
200 Intel Corporation*<F6> 23,713
200 PMC- Sierra, Inc.*<F6> 12,625
500 Micrel, Inc.*<F6> 27,500
100 Rambus Inc.*<F6> 9,625
400 SDL, Inc.*<F6> 15,850
100 Texas Instruments 8,556
600 TranSwitch Corporation*<F6> 23,363
500 Vitesse Semiconductor Corporation*<F6> 22,813
---------
198,633
---------
INTERNET- E- COMMERCE- 7.3%
200 Cyberian Outpost, Inc.*<F6> 5,500
700 Egghead.com, Inc.*<F6> 14,568
500 E*TRADE Group, Inc.*<F6> 23,390
400 ONSALE, Inc.*<F6> 16,025
---------
59,483
---------
INTERNET- ISP/CONTENT- 21.7%
200 America Online, Inc.*<F6> 32,000
500 At Home Corporation - Ser A*<F6> 37,125
200 go2net, Inc.*<F6> 7,075
300 Lycos, Inc.*<F6> 16,668
200 MindSpring Enterprises, Inc.*<F6> 12,213
400 Netscape Communications Corporation*<F6> 24,300
200 Yahoo! Inc.*<F6> 47,388
---------
176,769
---------
INTERNET- NETWORK SECURITY/SOLUTIONS- 3.2%
200 Inktomi Corporation*<F6> 25,875
---------
MEDICAL- BIOMEDICAL/GENETICS- 7.3%
200 Biogen, Inc.*<F6> 16,600
500 Chiron Corporation*<F6> 13,093
600 Genzyme Corporation*<F6> 29,850
64 Genzyme Molecular Oncology*<F6> 208
---------
59,751
---------
RETAIL- APPAREL/SHOE 1.7%
200 Abercrombie & Fitch Corporation*<F6> 14,150
---------
RETAIL- RESTURANTS- 3.5%
500 Starbucks Corporation*<F6> 28,063
---------
RETAIL- WHOLESALE/OFFICE SUPPLIES- 1.1%
200 Staples, Inc.*<F6> 8,738
---------
TELECOMMUNICATIONS SERVICES- 2.5%
600 Metromedia Fiber Network, Inc.*<F6> 20,100
---------
TOTAL COMMON STOCKS (Cost of $662,839) 805,911
---------
CONTRACTS (100 SHARES PER CONTRACT)
CALL OPTIONS PURCHASED - 0.6%
10 Egghead.com, Inc.
Expiring March 1999
Expiring Price $20.00 5,000
---------
TOTAL CALL OPTIONS PURCHASED (Cost of $5,095) 5,000
---------
SHORT-TERM INVESTMENTS - 0.4%
Principal
Amount
------
VARIABLE RATE DEMAND NOTES **<F7> - 0.4%
$3,114 Wisconsin Corporate Central Credit Union, 5.2987% 3,114
---------
TOTAL SHORT-TERM INVESTMENTS (Cost of $3,114) 3,114
---------
TOTAL INVESTMENTS - 100.0% (Cost of $671,048) 814,025
---------
Other Assets in Excess of Liabilities - 0.0% 282
---------
TOTAL NET ASSETS - 100.0% $814,307
---------
---------
*<F6> Non-income producing security.
**<F7> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on
specified dates. The rates listed are as of December 31, 1998.
See Notes to the Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
(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. The Fund commenced operations on August 8, 1997.
The costs incurred in connection with the organization, initial registration
and public offering of shares, aggregating $26,399, have been paid 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 Adviser in accordance with procedures approved by
the Board of Directors.
b) Federal Income Taxes - It is the Fund's policy to meet the requirements of
the Internal Revenue Code applicable to regulated investement companies and
the Fund intends to distribute investment company net taxable income and net
capital gains to shareholders. Therefore, no federal income tax provision
is required.
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. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments and U.S. Government Securities, by the Fund for the period July 1,
1998 through December 31, 1998, were $1,805,681 and $1,544,912, respectively.
Purchases and sales of long-term U.S. Government securities for the period
were $152,152 and $157,875, respectively.
At December 31, 1998, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $ 151,614
(Depreciation) (11,939)
--------
Net appreciation
on investments $ 139,675
--------
--------
At December 31, 1998, the cost of investments for federal income tax purposes
was $674,350.
4. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Thurlow
Capital Management, Inc. ("Adviser"). Pursuant to its Investment Advisory
Agreement with the Fund, the 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 Mutual Fund Services, LLC, a subsidiary of Firstar Bank Milwaukee,
N.A., a publicly held bank holding company, serves as transfer agent,
administrator and accounting services agent for the Fund. Firstar Bank
Milwaukee, N.A. serves as custodian 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 Adviser is obligated to reimburse the
Fund for the amount of such excess. Accordingly, for the period ended
December 31, 1998, the Adviser was obligated to reimburse the Fund $63,849.
At December 31, 1998, the outstanding reimbursement due from the Adviser was
$9,692.
5. INVESTMENTS IN OPTIONS
As allowed in the Fund's prospectus the Fund purchased and sold call options.
Option contracts are valued at the last sales price reported on the date of
valuation. If no sale is reported, the option contract purchased is valued at
the current bid price. When option contracts expire or are closed, realized
gains and losses are recognized without regard to any unrealized gains or
losses on the underlying securities. Premiums paid for option contracts
purchased are included in the Statement of Assets and Liabilities as an asset.
Investment Adviser
Thurlow Capital Management, Inc.
P.O. Box 50427
Palo Alto, CA 94303-0427
Administrator, Dividend Paying Agent,
Shareholders' Servicing Agent,
and Transfer Agent
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
Custodian
Firstar Bank Milwaukee, N.A.
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
R. Clint McRee
