<PAGE>
SEMI-ANNUAL
REPORT
February 29, 2000
POTOMAC
[LOGO]
FUNDS
100 South Royal Street
Alexandria, Virginia 22314
1311 Mamaroneck Avenue
White Plains, NY 10605
(800) 851-0511
<PAGE>
SEMI-ANNUAL REPORT
FEBRUARY 29, 2000
POTOMAC FUNDS
==================
DEAR SHAREHOLDER,
The last quarter of 1999 capped off another strong year for the US Equity
markets, adding almost 50% of the year's returns. Despite the anxiety caused by
the uncertainty surrounding the impact of Y2K, each of the broad market indexes
finished with gains: the S&P 500 gained 19%, the Nasdaq 100 gained 101%, the
Russell 2000 gained 20% and the Dow Jones Industrial Average gained 25%. In
January and February, the "Old Economy" stocks fell out of favor and the "New
Economy" issues advanced. The Dow Jones Industrial Average and the S&P 500
declined during the first two months of the year while the Nasdaq 100, the
Russell 2000 and Dow Jones Composite Internet Index posted gains.
For the six months ended February 29, 2000, the Potomac OTC Plus Fund continued
its strong performance, adding 98.33%* as the Nasdaq 100 gained 78.02%*. The
Potomac OTC/Short fund, designed to provide performance inverse to the Nasdaq
100, declined 45.30%. The Potomac U.S. Plus Fund gained 3.09% and the Potomac
U.S./Short Fund declined 4.54% as the S&P 500 returned 3.48% over the period.
The Potomac Small Cap Plus Fund gained 40.03% as the Russell 2000 gained 35.03%.
In December of 1999, the Potomac Funds introduced the Potomac Dow 30 Plus Fund,
the Potomac Internet Plus Fund, the Potomac Internet/Short Fund and the Potomac
Small Cap/Short Fund. The performance of those funds will be discussed at length
in the annual report.
Sincerely,
/s/ D. O'Neill
Daniel O'Neill
President and Chief Operating Officer
* The return of the Nasdaq 100 and the Potomac OTC Plus Fund for the six
months ended February 29 were exceptional and should not be considered
indicative of future performance. Further, an investment in the OTC Plus Fund
should be viewed in the context of unusual volatility of many of the
securities that comprise the Nasdaq 100.
<PAGE>
U.S. PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 75.42%*
148,386 Standard & Poor's
Depository Receipts
Trust $ 20,393,801
------------
TOTAL COMMON STOCKS
(Cost $20,481,726) 20,393,801
------------
<CAPTION>
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 17.55%*
$4,750,000 U.S. Treasury Bill 5.05%,
3/9/2000 $ 4,744,669
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $4,744,669) 4,744,669
------------
TOTAL INVESTMENTS -
92.97%*
(Cost $25,226,395) $ 25,138,470
============
<CAPTION>
U.S. PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF FUTURES CONTRACTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
UNREALIZED
CONTRACTS GAIN
- -------------------------------------------------------------------------------
<S> <C>
FUTURES CONTRACTS PURCHASED
58 S&P 500 Index Futures
Contracts Expiring
March 2000 (Underlying Face
Amount at Market Value
$19,894,000) $ 84,739
============
</TABLE>
* Calculated as a percentage of net assets.
See notes to the financial statements.
2
<PAGE>
U.S./SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 77.14%*
$1,225,000 U.S. Treasury Bill 4.64%,
3/9/2000 $1,223,738
----------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $1,223,738) 1,223,738
----------
TOTAL INVESTMENTS -
77.14%*
(Cost $1,223,738) $1,223,738
==========
<CAPTION>
U.S./SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF SECURITIES SOLD SHORT
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
8,600 STANDARD & POOR'S DEPOSITORY
RECEIPTS TRUST $1,181,963
----------
TOTAL SECURITIES SOLD
SHORT
(Proceeds $1,159,246) $1,181,963
==========
</TABLE>
* Calculated as a percentage of net assets.
See notes to the financial statements.
3
<PAGE>
U.S./SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF SHORT FUTURES CONTRACTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
UNREALIZED
CONTRACTS LOSS
- --------------------------------------------------------------------------------
<S> <C>
SHORT FUTURES CONTRACTS
1 S&P 500 Index Futures
Contracts Expiring
March 2000
(Underlying Face Amount
at Market Value $343,000) $ (4,504)
========
</TABLE>
See notes to the financial statements.
4
<PAGE>
OTC PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 93.45%*
225,176 Microsoft Corporation** $ 20,125,105
150,504 Cisco Systems, Inc.** 19,894,748
149,082 Intel Corporation 16,846,266
108,150 QUALCOMM Inc.** 15,404,616
156,654 Oracle Corporation** 11,631,560
42,274 JDS Uniphase Corporation** 11,144,483
87,803 Sun Microsystems, Inc.** 8,363,236
56,504 Nextel Communications, Inc. -
Class A** 7,726,922
33,901 VERITAS Software
Corporation** 6,708,160
130,378 MCI WorldCom, Inc.** 5,818,118
28,784 Immunex Corporation** 5,683,041
31,540 Yahoo! Inc.** 5,036,544
106,626 Global Crossing Ltd.** 4,971,437
38,169 CMGI Inc.** 4,945,271
118,895 Dell Computer Corporation** 4,852,402
24,895 Applied Materials, Inc.** 4,554,229
54,484 Xilinx, Inc.** 4,345,099
60,369 Amgen Inc.** 4,116,411
28,469 Siebel Systems, Inc.** 3,948,294
20,047 Network Appliance, Inc.** 3,783,871
19,409 PMC-Sierra, Inc.** 3,747,150
52,269 Maxim Integrated Products, Inc.** 3,492,223
30,527 Level 3 Communications, Inc.** 3,476,262
21,029 i2 Technologies, Inc.** 3,438,242
20,570 CIENA Corporation** 3,287,343
28,499 Apple Computer, Inc.** 3,266,698
31,532 Telefonaktiebolaget LM
Ericsson - ADR 3,027,072
28,339 Citrix Systems, Inc.** 2,987,993
35,788 Altera Corporation** 2,854,093
11,261 BroadVision, Inc.** 2,844,106
26,405 Linear Technology Corporation 2,770,875
27,862 Conexant Systems, Inc.** 2,737,441
23,593 Biogen, Inc.** 2,546,569
9,049 Applied Micro Circuits
Corporation** 2,489,041
21,456 Vitesse Semiconductor
Corporation** 2,227,401
22,671 3Com Corporation** 2,221,758
48,317 ADC Telecommunications, Inc.** 2,168,225
27,395 KLA-Tencor Corporation** 2,135,098
26,360 Gemstar International
Group Limited** 2,000,065
10,092 Comverse Technology, Inc.** 1,986,764
27,512 Metromedia Fiber Network,
Inc.** 1,977,855
28,693 Amazon.com, Inc.** 1,976,230
44,360 Comcast Corporation -
Special Class A 1,885,300
4,556 SDL, Inc.** 1,867,960
9,067 MedImmune, Inc.** 1,799,800
12,376 eBay Inc.** 1,774,409
32,631 Intuit Inc.** 1,713,128
12,870 VoiceStream
Wireless Corporation** 1,712,514
50,494 Novell, Inc.** 1,669,458
32,871 Chiron Corporation** 1,643,550
14,346 EchoStar Communications
Corporation - Class A** 1,635,444
4,939 Network Solutions, Inc.** 1,592,519
11,480 RF Micro Devices, Inc.** 1,587,828
17,146 NTL Incorporated ** 1,568,882
15,280 Adobe Systems Incorporated 1,558,560
9,733 QLogic Corporation** 1,518,348
30,325 Paychex, Inc. 1,518,145
29,700 Costco Wholesale Corporation** 1,473,863
47,651 Parametric Technology
Corporation** 1,444,421
16,238 McLeodUSA Incorporated** 1,428,944
29,181 Tellabs, Inc.** 1,400,688
17,791 RealNetworks, Inc.** 1,250,930
25,581 PanAmSat Corporation** 1,248,673
34,827 At Home Corporation -
Series A** 1,195,001
10,693 NEXTLINK Communications,
Inc.** 1,178,235
31,914 Starbucks Corporation** 1,120,979
32,202 American Power
Conversion Corporation** 1,092,855
39,522 Staples, Inc.** 1,067,094
23,096 BMC Software, Inc.** 1,062,416
21,201 Atmel Corporation** 1,049,449
17,135 Lycos, Inc.** 1,021,674
8,697 Sanmina Corporation** 1,018,093
48,655 PeopleSoft, Inc.** 1,006,550
41,826 USA Networks, Inc.** 938,471
15,228 Adelphia Communications
Corporation - Class A** 836,588
</TABLE>
See notes to the financial statements.
5
<PAGE>
OTC PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 93.45%* (CONTINUED)
8,092 Electronic Arts Inc.** $ 809,200
13,567 Genzyme Corporation
(General Division)** 779,255
10,628 CNET, Inc.** 710,747
16,881 Cintas Corporation 674,185
23,723 Bed Bath & Beyond Inc.** 673,140
19,389 Biomet, Inc. 639,837
28,756 Compuware Corporation** 636,226
20,538 Quintiles Transnational Corp.** 609,722
29,336 Concord EFS, Inc.** 573,885
18,622 Network Associates, Inc.** 566,807
9,754 Molex Incorporated 545,005
19,575 Fiserv, Inc.** 533,419
8,066 Microchip Technology
Incorporated** 503,590
11,118 PACCAR Inc. 478,769
10,721 Adaptec, Inc.** 439,561
12,077 Legato Systems, Inc.** 430,243
10,463 Synopsys, Inc.** 417,866
27,390 Smurfit-Stone Container
Corporation** 373,189
12,851 Sigma-Aldrich Corporation 305,211
7,200 Dollar Tree Stores, Inc.** 279,450
5,529 PacifiCare Health Systems,
Inc.** 251,224
9,352 Apollo Group, Inc. - Class A** 213,342
7,939 Herman Miller, Inc. 162,750
9,396 VISX, Incorporated** 159,145
8,712 Northwest Airlines Corporation** 150,282
977 Genzyme Surgical Products** 12,335
192 Genzyme Molecular Oncology** 5,124
538 Momentum Business
Applications, Inc.** 3,968
------------
TOTAL COMMON STOCKS
(Cost $163,784,812) 287,376,563
------------
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACTS VALUE
- --------------------------------------------------------------------------------
<S> <C>
CALL OPTIONS PURCHASED - 6.43%*
198 Nasdaq Index
Expiring March 2000 at
3200 $ 19,770,300
------------
TOTAL CALL OPTIONS
(Cost $18,268,715) 19,770,300
------------
TOTAL INVESTMENTS -
99.88%*
(Cost $182,053,527) $307,146,863
============
</TABLE>
* Calculated as a percentage of net assets.
** Non-income producing security.
See notes to the financial statements.
6
<PAGE>
OTC PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF OPTIONS WRITTEN
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACTS VALUE
- --------------------------------------------------------------------------------
<S> <C>
WRITTEN OPTION CONTRACTS
198 Nasdaq Index - Put
Expiring March 2000
at 3200 $ 84,150
------------
TOTAL OPTIONS WRITTEN
(Premiums received $409,571) $ 84,150
============
<CAPTION>
OTC PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF FUTURES CONTRACTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
UNREALIZED
CONTRACTS GAIN
- --------------------------------------------------------------------------------
<S> <C>
FUTURES CONTRACTS PURCHASED
32 NASDAQ 100 Index
Futures Contracts Expiring
March 2000 (Underlying
Face Amount at Market
Value $13,763,200) $ 899,656
============
</TABLE>
See notes to the financial statements.
7
<PAGE>
OTC/SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 132.51%*
$6,950,000 U.S. Treasury Bill 5.05%,
3/9/2000 $ 6,942,201
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $6,942,201) 6,942,201
------------
TOTAL INVESTMENTS -
132.51%*
(Cost $6,942,201) $ 6,942,201
============
</TABLE>
* Calculated as a percentage of net assets.
See notes to the financial statements.
8
<PAGE>
OTC/SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF SECURITIES SOLD SHORT
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
5,612 Microsoft Corporation** $ 501,573
3,724 Cisco Systems, Inc.** 492,266
3,697 Intel Corporation 417,761
2,656 QUALCOMM Inc.** 378,314
3,752 Oracle Corporation** 278,586
1,039 JDS Uniphase
Corporation** 273,906
2,170 Sun Microsystems, Inc.** 206,693
1,420 Nextel Communications,
Inc. - Class A** 194,185
832 VERITAS Software
Corporation** 164,632
3,228 MCI WorldCom, Inc.** 144,027
712 Immunex Corporation** 140,576
800 Yahoo! Inc.** 127,750
2,643 Global Crossing Ltd.** 123,230
2,967 Dell Computer
Corporation** 121,091
934 CMGI Inc.** 121,011
618 Applied Materials, Inc.** 113,055
1,337 Xilinx, Inc.** 106,626
1,505 Amgen Inc.** 102,622
700 Siebel Systems, Inc.** 97,081
1,285 Maxim Integrated Products,
Inc.** 85,854
749 Level 3 Communications, Inc.** 85,292
515 CIENA Corporation** 82,304
709 Apple Computer, Inc.** 81,269
778 Telefonaktiebolaget LM
Ericsson ADR** 74,688
673 Citrix Systems, Inc.** 70,959
887 Altera Corporation** 70,738
652 Linear Technology Corporation 68,419
685 Conexant Systems, Inc.** 67,301
583 Biogen, Inc.** 62,928
526 Vitesse Semiconductor
Corporation** 54,605
553 3Com Corporation** 54,194
689 KLA-Tencor Corporation** 53,699
1,184 ADC Telecommunications, Inc.** 53,132
715 Amazon.com, Inc.** 49,246
250 Comverse Technology, Inc.** 49,219
1,109 Comcast Corporation -
Special Class A 47,133
305 eBay Inc.** 43,729
325 VoiceStream Wireless
Corporation** 43,245
1,262 Novell, Inc.** 41,725
788 Intuit Inc.** 41,370
803 Chiron Corporation** 40,150
433 NTL Incorporated** 39,597
372 Adobe Systems Incorporated 37,944
739 Paychex, Inc. 36,996
739 Costco Wholesale Corporation** 36,673
1,156 Parametric Technology
Corporation** 35,041
397 McLeodUSA Incorporated** 34,936
524 Clear Channel
Communications, Inc.** 34,912
725 Tellabs, Inc.** 34,800
443 RealNetworks, Inc.** 31,148
636 PanAmSat Corporation** 31,045
866 At Home Corporation -
Series A** 29,715
801 Starbucks Corporation** 28,135
800 American Power
Conversion Corporation** 27,150
583 BMC Software, Inc.** 26,818
975 Staples, Inc.** 26,325
522 Atmel Corporation** 25,839
424 Lycos, Inc.** 25,281
215 Sanmina Corporation** 25,168
1,200 PeopleSoft, Inc.** 24,825
984 USA Networks, Inc.** 22,079
201 Electronic Arts Inc.** 20,100
333 Genzyme Corporation
(General Division)** 19,127
264 CNET, Inc.** 17,655
594 Bed Bath & Beyond Inc.** 16,855
421 Cintas Corporation** 16,814
480 Biomet, Inc. 15,840
698 Compuware Corporation** 15,443
509 Quintiles Transnational Corp.** 15,111
733 Concord EFS, Inc.** 14,339
457 Network Associates, Inc.** 13,910
244 Molex Incorporated 13,634
485 Fiserv, Inc.** 13,216
202 Microchip Technology
Incorporated** 12,581
277 PACCAR Inc. 11,928
266 Adaptec, Inc.** 10,906
</TABLE>
See notes to the financial statements.
9
<PAGE>
OTC/SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF SECURITIES SOLD SHORT (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
259 Synopsys, Inc.** $ 10,344
675 Smurfit-Stone
Container Corporation** 9,197
317 Sigma-Aldrich Corporation 7,528
179 Dollar Tree Stores, Inc.** 6,947
135 PacifiCare Health Systems, Inc.** 6,134
226 Apollo Group, Inc. - Class A** 5,156
200 Herman Miller, Inc. 4,100
233 VISX, Incorporated ** 3,946
220 Northwest Airlines Corporation** 3,795
97 Genzyme Surgical Products** 1,225
21 Genzyme Molecular Oncology** 560
4 Momentum Business
Applications, Inc.** 30
----------
TOTAL SECURITIES SOLD SHORT
(Proceeds $6,386,531) $6,327,032
==========
<CAPTION>
OTC/SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF FUTURES CONTRACTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
UNREALIZED
CONTRACTS LOSS
- --------------------------------------------------------------------------------
<S> <C>
FUTURES CONTRACTS PURCHASED
3 NASDAQ 100 Index
Futures Contracts
Expiring March 2000
(Underlying Face
Amount at Market
Value $1,290,300) $ (514)
==========
</TABLE>
** Non-income producing security.
See notes to the financial statements.
10
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 64.92%*
4,400 MicroStrategy Incorporated** $ 611,875
2,050 BroadVision, Inc.** 517,753
1,450 Incyte Pharmaceuticals, Inc.** 399,566
1,475 Protein Design Labs, Inc.** 369,027
1,400 Millennium Pharmaceuticals,
Inc.** 364,175
1,400 Celera Genomics** 341,600
1,245 Human Genome Sciences, Inc.** 271,721
1,700 Lam Research Corporation** 265,412
1,625 MRV Communications, Inc.** 254,820
1,100 VerticalNet, Inc.** 242,000
3,300 Advanced Fibre
Communications, Inc.** 224,813
1,650 Markel Corporation** 215,738
1,950 Coherent, Inc.** 206,700
725 Terayon Communications
Systems, Inc.** 186,416
6,000 Eastern Utilities Associates 186,375
975 Cree, Inc.** 183,178
950 Alkermes, Inc.** 182,281
1,100 Emulex Corporation** 176,000
600 Affymetrix, Inc.** 173,775
9,150 Regency Realty Corporation 173,278
4,900 Charles E. Smith
Residential Realty, Inc. 171,194
3,750 Cypress Semiconductor
Corporation** 171,094
1,225 Harmonic Inc.** 167,748
3,660 Pittway Corporation - Class A 166,530
5,450 Avista Corporation 163,841
2,500 PerkinElmer, Inc. 161,563
975 Celgene Corporation** 161,362
2,225 Jones Pharma Incorporated 159,644
1,196 VoiceStream Wireless
Corporation** 159,176
7,500 AMCORE Financial, Inc. 157,031
1,950 Enzo Biochem, Inc.** 154,538
1,175 ImClone Systems Incorporated** 153,998
9,550 Informix Corporation** 152,800
1,000 Aspect Development, Inc.** 148,875
3,700 Cambrex Corporation 148,462
1,725 Techne Corporation** 147,973
2,325 Intermedia Communications
Inc.** 147,202
1,450 S1 Corporation** 145,906
1,475 Powertel, Inc.** 138,097
3,400 Minerals Technologies Inc. 137,912
1,800 Gilead Sciences, Inc.** 137,700
2,350 Methode Electronics, Inc. -
Class A 136,594
5,700 Haemonetics Corporation** 135,731
950 IDEC Pharmaceuticals
Corporation** 133,831
900 Clarify, Inc.** 129,881
3,100 International Rectifier
Corporation** 129,813
5,125 First Midwest Bancorp, Inc. 127,805
900 Micromuse Inc.** 127,631
3,450 Integrated Device
Technology, Inc.** 127,219
950 Credence Systems
Corporation** 126,588
5,800 SIGCORP, Inc. 125,425
4,300 Hawaiian Electric Industries, Inc. 123,894
5,050 National-Oilwell, Inc.** 122,463
1,350 Advanced Digital
Information Corporation** 122,344
2,900 LTX Corporation** 122,344
2,400 Dycom Industries, Inc.** 120,000
1,800 Cephalon, Inc.** 119,644
1,775 RSA Security Inc.** 118,814
1,000 TriQuint Semiconductor, Inc.** 118,750
1,225 The DII Group, Inc.** 118,442
1,585 Kopin Corporation** 117,488
2,250 Amkor Technology, Inc.** 116,859
2,550 Wave Systems Corp. - Class A** 116,344
725 Powerwave Technologies, Inc.** 115,909
10,350 TrustCo Bank Corp NY 114,820
1,075 ISS Group, Inc.** 112,875
2,975 ITC/\DeltaCom, Inc.** 112,864
3,200 Essex Property Trust, Inc. 112,800
1,825 SuperGen, Inc.** 112,352
2,200 C.H. Robinson Worldwide, Inc. 112,200
975 Adaptive Broadband
Corporation** 112,155
1,400 Duff & Phelps Credit Rating Co. 111,825
3,250 Quest Diagnostics
Incorporated** 111,516
3,200 United Water Resources Inc. 111,400
</TABLE>
See notes to the financial statements.
11
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 64.92%* (CONTINUED)
950 Polycom, Inc.** $ 110,497
3,300 Florida Rock Industries, Inc. 109,931
1,750 Harman International
Industries, Incorporated 108,391
4,200 Valero Energy Corporation 107,100
3,450 Hooper Holmes, Inc. 106,087
725 Alpha Industries, Inc.** 105,261
4,400 Superior Industries
International, Inc. 105,050
1,650 Kronos Incorporated** 104,775
2,785 Stillwater Mining Company** 103,393
2,200 Hanover Compressor Company** 103,263
1,400 ADTRAN, Inc.** 102,987
6,100 Kellwood Company 102,937
2,350 Fisher Scientific International
Inc.** 102,225
5,300 Bio-Technology General Corp.** 101,859
1,750 Wind River Systems, Inc.** 101,609
6,075 Richmond County Financial Corp. 101,377
1,025 HNC Software Inc.** 100,834
3,750 Camden Property Trust 100,547
1,075 C-Cube Microsystems Inc.** 100,244
3,400 Chemed Corporation 100,088
3,350 The Commerce Group, Inc. 100,081
3,375 IDEXX Laboratories, Inc.** 99,773
2,550 Nordson Corporation 98,813
3,300 RLI Corp. 98,381
1,400 Lattice Semiconductor
Corporation** 98,350
1,100 SanDisk Corporation** 97,900
3,950 IDEX Corporation 97,762
2,400 Stone Energy Corporation** 97,500
1,475 Visual Networks, Inc.** 96,981
675 Proxim, Inc.** 96,863
2,500 Mettler-Toledo International Inc.** 96,562
3,050 ICG Communications, Inc.** 95,694
2,850 Digital Microwave Corporation** 95,119
5,300 PairGain Technologies, Inc.** 94,737
700 ANADIGICS, Inc.** 94,500
2,500 ChoicePoint Inc.** 94,219
2,950 American Management
Systems, Incorporated** 93,847
4,800 Hospitality Properties Trust 93,000
2,900 InterDigital Communications
Corporation** 92,619
1,800 Arthur J. Gallagher & Co. 92,025
1,150 Amphenol Corporation -
Class A** 91,928
1,225 Black Box Corporation** 91,645
5,975 Washington Federal, Inc. 91,492
3,200 CH Energy Group, Inc. 91,400
4,550 Jack in the Box Inc.** 91,284
6,000 BancWest Corporation 91,125
4,550 Mark IV Industries, Inc. 91,000
1,650 Cymer, Inc.** 90,544
5,400 Staten Island Bancorp, Inc. 89,775
2,050 Commonwealth Telephone
Enterprises, Inc.** 89,431
1,450 KEMET Corporation** 89,084
2,200 Dallas Semiconductor
Corporation 88,825
975 Advent Software, Inc.** 88,420
1,475 Ancor Communications,
Incorporated** 88,316
2,050 FileNET Corporation** 87,766
4,200 Cirrus Logic, Inc.** 87,413
4,600 Sensormatic Electronics
Corporation** 87,400
1,625 Concentric Network
Corporation** 87,141
1,125 Project Software &
Development, Inc.** 87,117
2,850 Iron Mountain Incorporated** 86,925
700 Pegasus Communications
Corporation** 86,800
3,450 Polaroid Corporation 86,466
3,150 Roper Industries, Inc. 85,838
1,700 Medicis Pharmaceutical
Corporation - Class A** 85,744
9,750 Pier 1 Imports, Inc. 85,313
4,250 GTECH Holdings Corporation** 85,000
3,425 Andrew Corporation** 84,769
3,400 Harsco Corporation 84,363
3,350 Sybase, Inc.** 83,959
3,300 Chittenden Corporation 83,944
2,500 Elcor Corporation 83,750
725 Micrel, Incorporated** 83,556
11,800 OfficeMax, Inc.** 83,338
2,450 Kent Electronics Corporation** 82,994
3,350 Chateau Communities, Inc. 82,912
</TABLE>
See notes to the financial statements.
12
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 64.92%* (CONTINUED)
1,425 Varian Semiconductor
Equipment Associates, Inc.** $ 82,828
950 Go2Net, Inc.** 82,650
1,500 Peregrine Systems, Inc.** 81,937
1,400 Pinnacle Holdings Inc.** 81,900
1,450 Cohu, Inc. 81,744
4,675 Allied Capital Corporation 81,228
8,050 CompUSA Inc.** 80,500
8,050 United Dominion Realty
Trust, Inc. 80,500
675 SCM Microsystems, Inc.** 80,325
2,050 Suiza Foods Corporation** 80,206
1,000 PRI Automation, Inc.** 79,875
5,700 MascoTech, Inc. 79,800
675 Etec Systems, Inc.** 79,502
3,450 Kaydon Corporation 79,350
1,800 CapRock Communications
Corp.** 79,312
8,550 CBRL Group, Inc. 79,088
2,350 Commerce Bancorp, Inc. 79,019
3,150 Colonial Properties Trust 78,553
1,700 The Dexter Corporation 78,413
4,200 Southwest Gas Corporation 77,700
3,350 Pogo Producing Company 77,469
5,500 NBTY, Inc.** 77,344
1,200 E'Town Corporation 77,325
1,150 Westwood One, Inc.** 76,834
4,250 Universal Foods Corporation 76,766
1,700 Transaction Systems
Architects, Inc. - Class A** 76,712
6,700 Nationwide Health Properties, Inc. 76,631
1,925 National Computer Systems, Inc. 76,519
6,000 IndyMac Mortgage Holdings, Inc. 76,125
2,325 Whitney Holding Corporation 75,853
1,725 Primus Telecommunications
Group, Incorporated** 75,684
3,200 BRE Properties, Inc. - Class A 75,600
5,300 Covance Inc.** 75,525
950 Plantronics, Inc.** 75,466
3,400 Trinity Industries, Inc. 75,225
750 Macrovision Corporation** 74,813
2,150 Alpharma Inc. - Class A 74,444
1,650 National Instruments
Corporation** 74,095
3,150 Bandag, Incorporated 74,025
3,100 Price Communications
Corporation** 74,012
1,850 Varian Medical Systems, Inc. 73,884
5,950 Ohio Casualty Corporation 73,631
925 Kulicke and Soffa Industries,
Inc.** 73,537
1,400 MTI Technology Corporation** 73,413
6,100 Olsten Corporation 72,819
2,500 Barrett Resources Corporation** 72,812
6,850 CK Witco Corporation 72,781
4,850 The Earthgrains Company 72,750
1,450 Open Market, Inc.** 72,681
4,400 Lennar Corporation 72,600
3,625 Glenayre Technologies, Inc.** 72,047
3,250 Primark Corporation** 71,703
3,350 Leucadia National Corporation 71,606
2,500 The MONY Group Inc. 71,562
2,550 Jacobs Engineering Group Inc.** 71,559
4,150 Tupperware Corporation 71,328
1,750 Florida East Coast Industries, Inc. 71,312
1,800 CommScope, Inc.** 70,088
825 TSI International Software Ltd.** 69,970
4,075 Mentor Graphics Corporation** 69,784
2,950 Corn Products International, Inc. 69,509
975 Helix Technology Corporation 69,347
900 Intraware, Inc.** 68,794
4,450 John H. Harland Company 68,697
1,850 True North Communications, Inc. 68,450
4,050 Citizens Banking Corporation 68,091
2,450 Urban Shopping Centers, Inc. 67,988
1,100 H.B. Fuller Company 67,512
1,800 Lone Star Technologies, Inc.** 67,500
2,200 eLoyalty Corporation** 67,238
570 TranSwitch Corporation** 66,975
4,850 Journal Register Company** 66,688
1,750 Potlatch Corporation 66,500
2,900 Marine Drilling Companies, Inc.** 66,156
1,650 Varian Inc.** 65,794
2,050 Harbinger Corporation** 65,728
1,750 The Titan Corporation** 65,625
6,850 El Paso Electric Company** 65,503
1,100 Burr-Brown Corporation** 64,556
1,625 MMC Networks, Inc.** 64,492
3,400 Ferro Corporation 64,175
1,650 Pulitzer Inc. 64,041
</TABLE>
See notes to the financial statements.
13
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 64.92%* (CONTINUED)
1,100 Enzon, Inc.** $ 63,800
1,275 ValueVision International, Inc.** 63,750
675 QRS Corporation** 63,703
2,400 Alaska Air Group, Inc.** 63,600
2,050 Newfield Exploration Company** 63,550
1,700 OM Group, Inc. 63,325
7,600 Pioneer Natural Resources
Company** 63,175
2,050 Polaris Industries Inc. 62,781
3,425 United Bankshares, Inc. 62,720
1,650 Equitable Resources, Inc. 62,288
3,850 Brandywine Realty Trust 61,600
1,375 Aspen Technology, Inc.** 61,531
1,400 Cognex Corporation** 61,513
700 DSP Group, Inc.** 61,469
700 Leap Wireless
International, Inc.** 61,381
950 CTS Corporation 61,275
1,800 SAGA SYSTEMS, Inc.** 61,088
1,750 Radian Group Inc. 60,703
4,200 Hussmann International, Inc. 60,637
1,950 Imation Corp.** 60,328
16,050 Iomega Corporation** 60,188
1,450 Eaton Vance Corp. 60,084
900 Zebra Technologies
Corporation - Class A** 59,906
950 Aware, Inc.** 59,850
3,850 Smithfield Foods, Inc.** 59,675
1,225 Mercury Computer
Systems, Inc.** 59,030
2,550 Cable Design Technologies
Corporation** 58,969
1,450 The United Illuminating
Company 58,906
1,450 Quanta Services, Inc.** 58,725
2,050 Mueller Industries, Inc.** 58,681
2,350 Health Care Property
Investors, Inc. 58,456
2,800 The Geon Company 58,450
1,600 Emmis Communications
Corporation - Class A** 58,400
1,125 Scholastic Corporation** 58,289
2,500 CIBER, Inc.** 58,125
2,350 Footstar, Inc.** 58,016
2,525 Modine Manufacturing Company 57,602
1,725 Mastech Corporation** 57,141
1,750 The Scotts Company - Class A** 56,875
1,800 Storage USA, Inc. 56,587
2,100 The Manitowoc Company, Inc. 56,569
900 Semtech Corporation** 56,250
3,325 TALK.com, Inc.** 56,109
1,475 Whole Foods Market, Inc.** 56,004
2,450 CEC Entertainment Inc.** 55,738
2,900 MDU Resources Group, Inc. 55,281
975 Plexus Corp.** 55,057
950 Eastern Enterprises 54,981
4,200 Wausau-Mosinee Paper
Corporation 54,863
3,050 Delta and Pine Land Company 54,709
1,450 Weingarten Realty Investors 54,375
4,900 Independence Community
Bank Corp. 54,206
2,350 Walden Residential
Properties, Inc. 54,197
4,200 Brightpoint, Inc.** 54,075
1,800 Texas Industries, Inc. 54,000
1,325 Investors Financial
Services Corp. 53,663
950 Dain Rauscher Corporation 53,556
8,925 Charming Shoppes, Inc.** 53,550
3,475 Steel Dynamics, Inc.** 53,428
3,350 MeriStar Hospitality Corporation 53,391
1,075 Hyperion Solutions Corporation** 53,078
600 Entrust Technologies Inc.** 52,950
2,200 Jostens, Inc. 52,938
1,100 Sawtek Inc.** 52,800
1,025 Getty Images, Inc.** 52,723
4,075 Catalytica, Inc.** 52,466
3,150 La-Z-Boy Incorporated 52,369
1,450 Patterson Dental Company** 52,245
750 Great Plains Software, Inc.** 52,172
3,350 Regis Corporation 51,925
900 MasTec, Inc.** 51,863
400 Allaire Corporation** 51,750
1,125 Cytyc Corporation** 51,750
750 MGC Communications, Inc.** 51,750
1,100 E. W. Blanch Holdings, Inc. 51,700
3,625 Community First Bankshares, Inc. 50,750
1,800 Applebee's International, Inc. 50,681
975 Power Integrations, Inc.** 50,639
</TABLE>
See notes to the financial statements.
14
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 64.92%* (CONTINUED)
3,250 Olin Corporation $ 50,375
1,675 ACTV, Inc.** 50,355
1,200 Proxicom, Inc.** 50,250
2,900 A.O. Smith Corporation 50,025
900 MICROS Systems, Inc.** 49,837
4,150 Callaway Golf Company 49,800
925 ZixIt Corporation** 49,748
2,550 Lincoln Electric Holdings, Inc. 49,725
1,400 Cousins Properties, Inc. 49,700
1,825 AXENT Technologies, Inc.** 49,503
3,225 Sky Financial Group, Inc. 49,383
4,900 W.R. Grace & Co.** 49,306
2,500 First Washington Realty Trust, Inc. 49,219
1,650 The Cheesecake Factory
Incorporated** 49,088
2,150 American Italian Pasta Company** 49,047
925 ANTEC Corporation** 48,967
4,300 Ogden Corporation 48,913
700 Jack Henry & Associates, Inc. 48,912
2,350 Lee Enterprises, Incorporated 48,909
5,100 Unifi, Inc.** 48,769
2,350 Rayovac Corporation 48,763
1,800 Bally Total Fitness
Holding Corporation** 48,375
4,350 Varco International, Inc.** 48,122
2,250 Kilroy Realty Corporation 48,094
325 InterVU Inc.** 48,080
2,525 Queens County Bancorp Inc. 47,975
2,000 AptarGroup, Inc. 47,875
3,200 United Asset
Management Corporation 47,800
2,050 Kennametal Inc. 47,662
3,850 Borders Group, Inc.** 47,403
1,450 SPS Technologies, Inc.** 47,397
1,800 Bank United Corp. - Class A 47,137
1,750 United Stationers Inc.** 47,031
1,800 First Industrial Realty Trust, Inc. 46,800
975 King Pharmaceuticals, Inc.** 46,495
2,525 Southwest Bancorporation
of Texas, Inc.** 46,081
1,750 Precision Castparts Corp. 45,172
850 Atwood Oceanics, Inc.** 45,156
900 Transkaryotic Therapies, Inc.** 45,113
950 ATMI, Inc.** 44,828
2,350 Arch Chemicals, Inc. 44,797
1,850 Applied Power Inc. 44,747
1,800 HSB Group, Inc. 44,550
3,850 UNOVA, Inc.** 44,516
5,300 Casey's General Stores, Inc. 44,387
2,050 National Golf Properties, Inc. 44,203
1,125 Greater Bay Bancorp 44,156
1,000 NVR, Inc.** 44,125
2,450 Hughes Supply, Inc. 43,794
2,550 Atmos Energy Corporation 43,669
1,800 First Health Group Corp.** 43,425
2,900 Federal Signal Corporation 43,319
700 Network Peripherals Inc.** 43,269
1,100 Affiliated Managers Group, Inc.** 43,244
7,600 Bethlehem Steel Corporation** 43,225
3,750 Flowserve Corporation 43,125
4,450 STERIS Corporation** 43,109
1,300 The Toro Company 43,062
1,925 Computer Horizons Corp.** 42,831
2,250 Ziff-Davis Inc.** 42,750
1,600 Helmerich & Payne, Inc. 42,600
1,825 The Men's Wearhouse, Inc.** 42,374
9,400 Caremark Rx, Inc.** 42,300
1,325 Dionex Corporation** 41,820
2,450 Mills Corp. 41,497
2,025 Alexander & Baldwin, Inc. 41,449
1,525 Michaels Stores, Inc.** 41,366
2,050 The Macerich Company 41,256
3,750 AGCO Corporation 41,250
600 Diamond Technology
Partners Incorporated** 41,025
1,450 CMP Group Inc. 40,963
1,475 Mentor Corporation 40,931
2,450 ShopKo Stores, Inc.** 40,731
2,350 Orthodontic Centers
of America, Inc.** 40,684
2,200 Arvin Industries, Inc. 40,425
2,000 Hudson United Bancorp 40,375
1,700 Presstek, Inc.** 40,375
3,450 The First American
Financial Corporation 40,106
2,600 Southern Union Company** 39,975
950 Entercom Communications Corp.** 39,959
4,500 Pennzoil-Quaker State Company 39,375
1,550 ABM Industries Incorporated 39,041
1,700 Mid-America Apartment
Communities, Inc. 38,887
</TABLE>
See notes to the financial statements.
15
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 64.92%* (CONTINUED)
2,175 Concurrent Computer
Corporation** $ 38,878
2,150 Carter-Wallace, Inc. 38,834
1,750 Chesapeake Corporation 38,828
3,700 Wallace Computer Services, Inc. 38,619
225 Informatica Corporation** 38,587
1,650 Ethan Allen Interiors Inc. 38,466
2,150 Pittston Brink's Group 38,431
925 Xircom, Inc.** 38,416
950 Rayonier Inc. 37,762
2,350 Furniture Brands
International, Inc.** 37,747
1,600 WPS Resources Corporation 37,700
1,525 Dendrite International, Inc.** 37,553
1,450 Metris Companies Inc. 37,519
1,700 Black Hills Corporation 37,400
700 Verity, Inc.** 37,362
1,450 MedQuist Inc.** 37,338
1,995 Cost Plus, Inc.** 37,032
1,000 The Talbots, Inc. 36,187
650 Hadco Corporation** 35,994
2,500 Apria Healthcare Group Inc.** 35,625
2,850 Del Monte Foods Company** 35,625
1,850 Kaufman and Broad
Home Corporation 35,381
1,125 Insight Enterprises, Inc.** 35,297
3,100 D.R. Horton, Inc. 34,875
4,100 Prime Hospitality Corp.** 34,850
4,150 Rollins Truck Leasing Corp. 34,756
2,050 Ruby Tuesday, Inc. 34,722
750 Preview Travel, Inc.** 34,547
2,250 UCAR International Inc.** 34,313
2,500 The Standard Register Company 34,063
565 Rare Medium Group, Inc.** 33,900
575 MIPS Technologies, Inc.** 33,637
1,650 AnswerThink Consulting
Group, Inc.** 33,619
1,750 Summit Properties Inc. 33,250
2,050 Baldor Electric Company 33,184
1,750 Banknorth Group, Inc. 33,141
1,450 Georgia Gulf Corporation 32,988
1,450 ONEOK, Inc. 32,897
1,650 Artesyn Technologies, Inc.** 32,691
1,750 Philadelphia Suburban
Corporation 32,375
1,075 F.Y.I. Incorporated** 31,981
2,150 Pride International, Inc.** 31,847
950 USFreightways Corporation 31,588
525 Aerial Communications, Inc.** 31,467
925 Citadel Communications
Corporation** 31,334
700 Concord Communications, Inc.** 31,325
1,850 R. H. Donnelley Corporation** 31,219
1,775 Renal Care Group, Inc.** 31,173
1,250 Cleveland-Cliffs Inc. 31,172
675 SportsLine.com, Inc.** 31,134
2,000 Horace Mann Educators
Corporation 31,000
1,075 Wesley Jessen VisionCare, Inc.** 30,906
2,150 The Timken Company 30,772
3,400 JLG Industries, Inc. 30,600
2,050 Midway Games Inc.** 30,366
1,650 Banta Corporation 30,112
900 Lands' End, Inc.** 29,869
1,455 Metamor Worldwide, Inc.** 29,828
1,700 Pinnacle Entertainment, Inc.** 29,325
1,100 Chelsea GCA Realty, Inc. 29,150
1,800 Provident Bankshares Corporation 29,025
1,050 Commercial Metals Company 29,006
3,850 Summit Technology, Inc.** 28,875
725 Bottomline Technologies, Inc.** 28,320
2,050 Sierra Pacific Resources 27,931
600 Chicago Title Corporation 27,900
2,000 AmeriCredit Corp.** 27,750
1,850 Ralcorp Holdings, Inc.** 27,634
2,050 Worthington Industries, Inc. 27,163
1,075 Eclipsys Corporation** 25,800
1,700 Cambridge Technology
Partners, Inc.** 25,500
2,000 Wisconsin Central
Transportation Corporation** 24,750
2,750 Policy Management
Systems Corporation** 24,406
1,850 Dollar Thrifty
Automotive Group, Inc.** 24,281
2,550 Westinghouse Air Brake
Company 24,225
1,600 Del Webb Corporation** 24,000
3,700 PSS World Medical, Inc.** 23,819
1,400 G & K Services, Inc. - Class A 23,800
2,000 Terex Corporation** 23,750
</TABLE>
See notes to the financial statements.
16
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 64.92%* (CONTINUED)
950 Papa John's International, Inc.** $ 22,800
1,625 O'Reilly Automotive, Inc.** 22,750
275 Metricom, Inc.** 21,416
1,100 AnnTaylor Stores Corporation** 20,969
2,350 UICI** 20,563
1,025 Pegasus Systems, Inc.** 20,500
775 Pacific Sunwear of California,
Inc.** 19,714
5,500 USEC Inc. 19,594
6,350 Total Renal Care Holdings, Inc.** 19,050
1,325 Ames Department Stores, Inc.** 18,716
915 World Access, Inc.** 17,385
1,075 ESS Technology, Inc.** 16,730
1,700 InterTAN, Inc.** 15,194
600 The Profit Recovery
Group International, Inc.** 11,100
515 Sykes Enterprises, Incorporated** 8,401
50 Mercury Interactive Corporation** 4,819
50 Asyst Technologies, Inc.** 2,294
50 FactSet Research Systems Inc. 1,506
-------------
TOTAL COMMON STOCKS
(Cost $31,756,834) 36,892,823
-------------
</TABLE>
* Calculated as a percentage of net assets.
** Non-income producing security.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 0.76%*
$430,000 U.S. Treasury Bill 5.05%,
3/9/2000 $ 429,517
-------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $429,517) 429,517
-------------
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACTS
- --------------------------------------------------------------------------------
<S> <C>
CALL OPTIONS PURCHASED - 9.61%*
235 Russell 2000 Index Expiring
March 2000 at 400 4,268,188
88 Russell 2000 Index Expiring
April 2000 at 450 1,191,300
-------------
TOTAL CALL OPTIONS
(Cost $3,858,528) 5,459,488
-------------
TOTAL INVESTMENTS -
75.29%*
(Cost $36,044,879) $42,781,828
=============
</TABLE>
See notes to the financial statements.
17
<PAGE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF OPTIONS WRITTEN
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACTS VALUE
- --------------------------------------------------------------------------------
<S> <C>
WRITTEN OPTION CONTRACTS
235 Russell 2000 Index - Put
Expiring March 2000 at 400 $ 2,938
88 Russell 2000 Index - Put
Expiring April 2000 at 450 12,100
-------------
TOTAL OPTIONS WRITTEN
(Premiums received $48,046) $ 15,038
=============
</TABLE>
SMALL CAP PLUS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF FUTURES CONTRACTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
UNREALIZED
CONTRACTS GAIN
- --------------------------------------------------------------------------------
<S> <C>
FUTURES CONTRACTS PURCHASED
54 Russell 2000 Index
Futures Contract
Expiring March 2000
(Underlying Face
Amount at Market Value
$15,653,250) $ 13,907
=============
</TABLE>
See notes to the financial statements.
18
<PAGE>
SMALL CAP/SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 97.36%*
$1,300,000 U.S. Treasury Bill 5.05%,
3/9/2000 $1,298,541
-------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $1,298,541) 1,298,541
-------------
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACTS
- --------------------------------------------------------------------------------
<S> <C>
PUT OPTIONS PURCHASED - 0.08%*
3 Russell 2000 Index
Expiring March 2000 at 555 1,088
-------------
TOTAL PUT OPTIONS
(Cost $4,403) 1,088
-------------
TOTAL INVESTMENTS -
97.44%*
(Cost $1,302,944) $1,299,629
=============
</TABLE>
* Calculated as a percentage of net assets.
See notes to the financial statements.
19
<PAGE>
SMALL CAP/SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF OPTIONS WRITTEN
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACTS VALUE
- --------------------------------------------------------------------------------
<S> <C>
WRITTEN OPTION CONTRACTS
3 Russell 2000 Index - Call
Expiring March 2000 at 555 $ 9,000
-------------
TOTAL OPTIONS WRITTEN
(Premiums received $4,410) $ 9,000
=============
</TABLE>
SMALL CAP/SHORT FUND
- --------------------------------------------------------------------------------
SCHEDULE OF SHORT FUTURES CONTRACTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
UNREALIZED
CONTRACTS LOSS
- --------------------------------------------------------------------------------
<S> <C>
WRITTEN OPTION CONTRACTS
4 Russell 2000 Index
Futures Contracts
Expiring March 2000
(Underlying Face
Amount at Market
Value $1,159,500) $ (40,518)
=============
</TABLE>
See notes to the financial statements.
20
<PAGE>
INTERNET PLUS FUND
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 94.51%*
5,033 VeriSign, Inc.** $ 1,273,349
9,206 CMGI Inc.** 1,192,752
7,987 Exodus Communications, Inc.** 1,137,149
4,759 InfoSpace.com, Inc.** 1,032,703
3,619 BroadVision, Inc.** 914,024
8,243 Internet Capital Group, Inc.** 871,697
13,106 America Online, Inc.** 773,254
5,485 Inktomi Corporation** 752,131
3,686 Check Point Software
Technologies Ltd.** 751,714
2,754 Vignette Corporation** 634,797
17,936 At Home Corporation - Series A** 615,429
7,645 RealNetworks, Inc.** 537,539
1,612 Network Solutions, Inc.** 519,769
5,513 DoubleClick Inc.** 489,623
4,634 Covad Communications
Group, Inc.** 418,218
1,771 VerticalNet, Inc.** 389,620
6,623 Priceline.com Incorporated** 370,474
2,569 eBay Inc.** 368,330
2,184 Yahoo! Inc.** 348,758
2,100 The Internet HOLDRs Trust** 328,519
12,140 E*TRADE Group, Inc.** 298,947
6,340 PSINet Inc.** 294,018
3,755 Verio Inc.** 281,860
4,563 Lycos, Inc.** 272,069
3,847 Amazon.com, Inc.** 264,962
3,703 CNET, Inc.** 247,638
2,582 CheckFree Holdings Corporation** 227,055
4,098 Healtheon/WebMD Corporation** 226,671
4,395 Sterling Commerce, Inc.** 192,556
4,001 USWeb Corporation** 155,539
7,603 Ameritrade Holding Corporation** 142,081
5,709 EarthLink, Inc.** 142,011
3,923 Ticketmaster Online -
CitySearch, Inc.** 136,876
1,338 Go2Net, Inc.** 116,406
2,052 Open Market, Inc.** 102,857
6,311 eToys Inc.** 88,748
336 Akamai Technologies, Inc.** 87,780
1,672 IDT Corporation** 61,890
3,563 MP3.com, Inc.** 61,462
2,628 High Speed Access Corp.** 49,111
1,484 Net.B@nk, Inc.** 22,445
-------------
TOTAL COMMON STOCKS
(Cost $14,640,998) 17,192,831
-------------
<CAPTION>
- -------------------------------------------------------------------------------
FACE AMOUNT
- -------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 2.88%*
$525,000 U.S. Treasury Bill 5.05%,
3/9/2000 524,411
-------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $524,411) 524,411
-------------
<CAPTION>
- -------------------------------------------------------------------------------
CONTRACTS
- -------------------------------------------------------------------------------
<S> <C>
CALL OPTIONS PURCHASED - 1.68%*
28 Inter@ctive Week Internet Index
Expiring March 2000 at 610 119,000
23 CBOE Internet Index
Expiring March 2000 at 800 53,475
16 TheStreet.com Index
Expiring March 2000 at 1150 132,600
-------------
TOTAL CALL OPTIONS
(Cost $312,535) 305,075
-------------
TOTAL INVESTMENTS -
99.07%*
(Cost $15,477,944) $ 18,022,317
=============
</TABLE>
* Calculated as a percentage of net assets.
** Non-income producing security.
See notes to the financial statements.
21
<PAGE>
INTERNET PLUS FUND
- -------------------------------------------------------------------------------
SCHEDULE OF OPTIONS WRITTEN
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CONTRACTS VALUE
- -------------------------------------------------------------------------------
<S> <C>
WRITTEN OPTION CONTRACTS
28 Inter@ctive Week Internet
Index - Put Expiring
March 2000 at 610 $ 61,600
23 CBOE Internet Index - Put
Expiring March 2000 at 800 148,638
16 TheStreet.com Index - Put
Expiring March 2000 at 1150 68,000
-------------
TOTAL OPTIONS WRITTEN
(Premiums received $347,353) $ 278,238
=============
</TABLE>
See notes to the financial statements.
22
<PAGE>
INTERNET/SHORT FUND
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FACE AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 281.36%*
$1,050,000 U.S. Treasury Bill 5.05%,
3/9/2000 $ 1,048,822
-------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $1,048,822) 1,048,822
-------------
TOTAL INVESTMENTS -
281.36%*
(Cost $1,048,822) $ 1,048,822
=============
</TABLE>
* Calculated as a percentage of net assets.
See notes to the financial statements.
23
<PAGE>
DOW 30 PLUS FUND
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 95.35%*
3,100 DIAMONDS Trust, Series I $ 314,844
1,611 Hewlett-Packard Company 216,680
1,611 American Express Company 216,176
1,611 General Electric Company 212,954
1,611 Intel Corporation 182,043
1,611 J.P. Morgan & Co. 178,821
1,611 International Business
Machines Corporation (IBM) 164,322
1,611 Microsoft Corporation** 143,983
1,611 Minnesota Mining and
Manufacturing Company (3M) 141,969
1,611 The Proctor & Gamble Company 141,768
1,611 General Motors Corporation 122,537
1,611 Exxon Mobil Corporation 121,328
1,611 Johnson & Johnson 115,589
1,611 Alcoa Inc. 110,354
1,611 Merck & Co., Inc. 99,177
1,612 The Home Depot, Inc. 93,165
1,611 Eastman Kodak Company 92,330
1,611 Citigroup Inc. 83,269
1,611 United Technologies Corporation 82,060
1,611 E.I. du Pont de Nemours
and Company 81,355
1,611 AT&T Corp. 79,644
1,611 Wal-Mart Stores, Inc. 78,436
1,611 The Coca-Cola Company 78,033
1,611 Honeywell International Inc. 77,529
1,611 SBC Communications Inc. 61,218
1,611 The Boeing Company 59,406
1,611 International Paper Company 59,305
1,611 Caterpillar Inc. 56,486
1,611 The Walt Disney Company 53,968
1,611 McDonald's Corporation 50,847
1,611 Philip Morris Companies Inc. 32,321
-------------
TOTAL COMMON STOCKS
(Cost $3,697,869) 3,601,917
-------------
<CAPTION>
- -------------------------------------------------------------------------------
FACE AMOUNT
- -------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 25.12%*
<S> <C> <C>
$950,000 U.S. Treasury Bill 5.05%,
3/9/2000 $ 948,934
-------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $948,934) 948,934
-------------
TOTAL INVESTMENTS -
120.47%*
(Cost $4,646,803) $4,550,851
=============
</TABLE>
* Calculated as a percentage of net assets.
** Non-income producing security.
See notes to the financial statements.
24
<PAGE>
DOW 30 PLUS FUND
- -------------------------------------------------------------------------------
SCHEDULE OF FUTURES CONTRACTS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
UNREALIZED
CONTRACTS LOSS
- -------------------------------------------------------------------------------
<S> <C>
FUTURES CONTRACTS PURCHASED
11 Dow Jones Industrial Average
Index Futures Contracts
Expiring March 2000
(Underlying Face Amount
at Market Value $1,120,350) $ (2,500)
=============
</TABLE>
See notes to the financial statements.
25
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FACE AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 214.21%*
$30,420,000 U.S. Treasury Bill 5.05%,
3/9/2000 $ 30,385,862
-------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $30,385,862) 30,385,862
-------------
TOTAL INVESTMENTS -
214.21%*
(Cost $30,385,862) $ 30,385,862
=============
</TABLE>
* Calculated as a percentage of net assets.
See notes to the financial statements.
26
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS U.S. PLUS U.S./SHORT OTC PLUS
FUND FUND FUND
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS:
Investments, at market value (Note 2) ............................... $25,138,470 $1,223,738 $307,146,863
Cash ................................................................ 47,730 -- --
Receivable for Fund shares sold ..................................... 2,413,528 -- 8,460,996
Receivable from broker .............................................. 328,032 -- 463,385
Deposit at broker ................................................... 1,012,500 1,757,633 812,435
Dividends receivable ................................................ -- -- 13,227
Organization costs, net of accumulated amortization (Note 1) ........ 8,229 8,383 8,229
Other assets ........................................................ 44,907 36,150 83,639
----------- ----------- ------------
Total assets .................................................. 28,993,396 3,025,904 316,988,774
----------- ----------- ------------
LIABILITIES:
Securities sold short, at value (Proceeds of $0, $1,159,246, $0) .... -- 1,181,963 --
Written options, at value (Premiums received of $0, $0,
$409,571) ........................................................ -- -- 84,150
Payable for investments purchased ................................... 1,505,845 -- 1,417,065
Payable for Fund shares redeemed .................................... 365,567 157,242 5,489,094
Payable to Investment Advisor ....................................... 49,596 20,058 63,148
Payable to Custodian ................................................ -- 62,281 2,137,036
Payable to broker ................................................... -- 12,155 --
Accrued expenses and other liabilities .............................. 33,643 5,738 291,174
----------- ----------- ------------
Total liabilities ............................................. 1,954,651 1,439,437 9,481,667
----------- ----------- ------------
NET ASSETS .......................................................... $27,038,745 $1,586,467 $307,507,107
=========== ========== ============
NET ASSETS CONSIST OF:
Capital stock ....................................................... $26,762,013 $5,890,606 $177,791,818
Accumulated undistributed net investment income (loss) 69,740 45,753 (1,108,134)
Accumulated undistributed net realized gain (loss) on investments
sold, securities sold short, written option
contracts expired or closed, and futures ......................... 210,178 (4,322,671) 4,505,010
Net unrealized appreciation (depreciation) on:
Investments ...................................................... (87,925) -- 125,093,336
Short positions .................................................. -- (22,717) --
Written options .................................................. -- -- 325,421
Futures .......................................................... 84,739 (4,504) 899,656
----------- ----------- ------------
Total Net Assets .............................................. $27,038,745 $1,586,467 $307,507,107
=========== ========== ============
CALCULATION OF NET ASSET VALUE PER SHARE - INVESTOR CLASS:
Net assets .......................................................... $27,038,745 $1,585,777 $307,308,728
Shares outstanding
(unlimited shares of beneficial interest authorized, no par
value) ........................................................... 1,801,029 48,300 6,303,919
Net Asset Value, Redemption Price and Offering Price Per
Share ............................................................ $ 15.01 $ 32.83 $ 48.75
=========== ========== ============
CALCULATION OF NET ASSET VALUE PER SHARE - ADVISOR CLASS:
Net assets .......................................................... $ 690 $ 198,379
Shares outstanding
(unlimited shares of beneficial interest authorized, no par
value) ........................................................... 21 4,071
Net Asset Value, Redemption Price and Offering Price Per
Share ............................................................ $ 32.83 $ 48.73
========== ============
Cost of Investments ................................................. $25,226,395 $1,223,738 $182,053,527
=========== ========== ============
</TABLE>
See notes to the financial statements.
27
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS OTC/SHORT SMALL CAP PLUS SMALL CAP/SHORT
FUND FUND FUND
------------ ------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments, at market value (Note 2) ............................... $ 6,942,201 $42,781,828 $1,299,629
Cash ................................................................ 43,266 2,397,300 45,898
Receivable for Fund shares sold ..................................... 54,000 11,902,763 --
Receivable from broker .............................................. -- 12,333 --
Deposit at broker ................................................... 8,565,443 23,000 46,000
Dividends receivable ................................................ -- 32,074 --
Organization costs, net of accumulated amortization (Note 1) ........ 8,195 -- --
Other assets ........................................................ 72,359 42,248 465
------------ ------------- --------------
Total assets .................................................. 15,685,464 57,191,546 1,391,992
------------ ------------- --------------
LIABILITIES:
Securities sold short, at value (Proceeds of $6,386,531, $0, $0) .... 6,327,032 -- --
Written options, at value (Premiums received of $0, $48,046,
$4,410) .......................................................... -- 15,038 9,000
Payable for investments purchased ................................... -- 135,758 --
Payable for Fund shares redeemed .................................... 3,978,173 104,069 --
Payable to Investment Advisor ....................................... 16,929 51,766 411
Payable to broker ................................................... 115,250 -- 40,500
Accrued expenses and other liabilities .............................. 9,048 60,607 8,284
------------ ------------- --------------
Total liabilities ............................................. 10,446,432 367,238 58,195
------------ ------------- --------------
NET ASSETS $ 5,239,032 $56,824,308 $1,333,797
=========== ========== ============
NET ASSETS CONSIST OF:
Capital stock ....................................................... $19,941,479 $49,947,205 $1,898,543
Accumulated undistributed net investment income (loss) .............. 38,494 (5,545) 19,818
Accumulated undistributed net realized gain (loss) on investments
sold, securities sold short, written option
contracts expired or closed, and futures ......................... (14,799,926) 98,784 (536,141)
Net unrealized appreciation (depreciation) on:
Investments ...................................................... -- 6,736,949 (3,315)
Short positions .................................................. 59,499 -- --
Written options .................................................. -- 33,008 (4,590)
Futures .......................................................... (514) 13,907 (40,518)
------------ ------------- --------------
Total Net Assets .............................................. $ 5,239,032 $56,824,308 $1,333,797
=========== ========== ============
CALCULATION OF NET ASSET VALUE PER SHARE - INVESTOR CLASS:
Net assets .......................................................... $ 5,239,032 $52,625,823 $1,333,797
Shares outstanding
(unlimited shares of beneficial interest authorized, no par
value) ........................................................... 565,461 3,424,948 28,697
Net Asset Value, Redemption Price and Offering Price Per
Share ............................................................ $ 9.27 $ 15.37 $ 46.48
=========== ========== ============
CALCULATION OF NET ASSET VALUE PER SHARE - ADVISOR CLASS:
Net assets .......................................................... $ 4,198,485
Shares outstanding
(unlimited shares of beneficial interest authorized, no par
value) ........................................................... 273,339
Net Asset Value, Redemption Price and Offering Price Per
Share ............................................................ $ 15.36
=============
Cost of Investments ................................................. $ 6,942,201 $ 36,044,879 $1,302,944
============= ============= ===========
</TABLE>
See notes to the financial statements.
28
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
POTOMAC FUNDS INTERNET PLUS INTERNET/SHORT DOW 30 PLUS MONEY MARKET
FUND FUND FUND FUND
------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at market value (Note 2) ............................... $18,022,317 $1,048,822 $4,550,851 $30,385,862
Cash ................................................................ 44,700 -- 32,436 43,424
Receivable for Fund shares sold ..................................... 7,297,666 -- 46,234 421,987
Receivable for investments sold ..................................... 116,381 -- -- --
Receivable from Investment Advisor .................................. -- 1,210 -- --
Receivable from broker .............................................. -- -- 29,559 --
Deposit at broker ................................................... -- -- 100,000 --
Dividends receivable ................................................ -- -- 4,237 --
Organization costs, net of accumulated amortization (Note 1) ........ -- -- -- 8,229
Other assets ........................................................ 30,264 15,454 20,207 32,933
------------- -------------- ----------- -----------
Total assets .................................................. 25,511,328 1,065,486 4,783,524 30,892,435
------------- -------------- ----------- -----------
LIABILITIES:
Written options, at value (Premiums received of
$347,353, $0, $0, $0) ............................................ 278,238 -- -- --
Payable for investments purchased ................................... 6,968,345 -- 975,478 --
Payable for Fund shares redeemed .................................... 21,517 125,610 19,493 16,617,892
Payable to Investment Advisor ....................................... 28,547 -- 7,169 20,779
Payable to Custodian ................................................ -- 565,234 -- --
Dividends payable ................................................... -- -- -- 14,497
Accrued expenses and other liabilities .............................. 22,677 1,867 3,729 54,698
------------- -------------- ----------- -----------
Total liabilities ............................................. 7,319,324 692,711 1,005,869 16,707,866
------------- -------------- ----------- -----------
NET ASSETS $18,192,004 $ 372,775 $3,777,655 $14,184,569
============== ============ ========== ============
NET ASSETS CONSIST OF:
Capital stock ....................................................... $15,978,660 $3,095,308 $4,135,354 $14,184,569
Accumulated undistributed net investment income (loss) .............. (64,794) 9,495 2,360 --
Accumulated undistributed net realized gain (loss) on investments
sold, securities sold short, written option
contracts expired or closed, and futures ......................... (335,350) (2,732,028) (261,607) --
Net unrealized appreciation (depreciation) on:
Investments ...................................................... 2,544,373 -- (95,952) --
Short positions .................................................. -- -- -- --
Written options .................................................. 69,115 -- -- --
Futures .......................................................... -- -- (2,500) --
------------- -------------- ----------- -----------
Total Net Assets .............................................. $18,192,004 $ 372,775 $3,777,655 $14,184,569
============== ============ ========== ============
CALCULATION OF NET ASSET VALUE PER SHARE - INVESTOR CLASS:
Net assets .......................................................... $18,038,682 $ 372,775 $3,777,655 $13,831,321
Shares outstanding
(unlimited shares of beneficial interest authorized, no par
value) ........................................................... 1,243,158 9,465 430,354 13,831,321
Net Asset Value, Redemption Price and Offering Price Per
Share ............................................................ $ 14.51 39.39 8.78 $ 1.00
============== ============ ========== ============
CALCULATION OF NET ASSET VALUE PER SHARE - ADVISOR CLASS:
Net assets .......................................................... $ 153,322 $ 353,248
Shares outstanding
(unlimited shares of beneficial interest authorized, no par
value) ........................................................... 10,565 353,248
Net Asset Value, Redemption Price and Offering Price Per
Share ............................................................ $ 14.51 $ 1.00
============== ============
Cost of Investments ................................................. $15,477,944 $1,048,822 $4,646,803 $30,385,862
============== ============ ========== ============
</TABLE>
See notes to the financial statements.
29
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS U.S. PLUS U.S./SHORT OTC PLUS
FUND FUND FUND
----------- ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................................... $ 74,829 $ -- $ 43,056
Interest income ..................................................... 169,232 98,791 101,708
----------- ------------ ------------
Total investment income ....................................... 244,061 98,791 144,764
----------- ------------ ------------
EXPENSES:
Investment advisory fees ............................................ 87,161 22,793 626,152
Distribution expenses - Investor Class .............................. -- -- 42,082
Distribution expenses - Advisor Class ............................... -- 114 595
Administration fees ................................................. 10,391 2,333 78,159
Shareholder servicing and accounting costs .......................... 20,953 4,868 147,876
Custody fees ........................................................ 5,620 1,514 38,158
Federal and state registration ...................................... 28,402 12,804 33,610
Licensing fees ...................................................... -- -- --
Professional fees ................................................... 11,578 2,493 83,210
Amortization of organizational expenses ............................. 1,556 1,556 1,556
Reports to shareholders ............................................. 4,545 979 32,667
Directors' fees and expenses ........................................ 727 157 5,226
Other ............................................................... 1,216 262 8,738
Advisor expense waiver recovery (Note 5) ............................ 2,172 -- 154,869
----------- ------------ ------------
Total expenses before waiver and reimbursement
of expenses and dividends on short positions ............... 174,321 49,873 1,252,898
Less: Waiver of expenses and reimbursement from
Advisor .................................................... -- (9,188) --
----------- ------------ ------------
Net expenses before dividends on short positions .............. 174,321 40,685 1,252,898
Dividends on short positions .................................. -- 12,353 --
----------- ------------ ------------
Total expenses ................................................ 174,321 53,038 1,252,898
----------- ------------ ------------
NET INVESTMENT INCOME (LOSS) ........................................ 69,740 45,753 (1,108,134)
----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments ...................................................... (537,359) (59) 10,744,442
Short positions .................................................. -- (108,394) --
Written option contracts expired or closed ....................... -- -- 6,380,533
Futures .......................................................... 640,161 (1,424,255) (672,774)
----------- ------------ ------------
102,802 (1,532,708) 16,452,201
----------- ------------ ------------
Change in unrealized appreciation (depreciation) on:
Investments ...................................................... 230,957 (117) 100,140,822
Short positions .................................................. -- (63,563) --
Written options .................................................. -- -- (191,366)
Futures .......................................................... 192,115 (10,732) 899,656
----------- ------------ ------------
423,072 (74,412) 100,849,112
----------- ------------ ------------
Net realized and unrealized gain (loss) on investments ........ 525,874 (1,607,120) 117,301,313
----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ....................................................... $ 595,614 $ (1,561,367) $116,193,179
=========== ============ ============
</TABLE>
See notes to the financial statements.
30
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS SMALL CAP/SHORT
FUND
OTC/SHORT SMALL CAP PLUS DECEMBER 21, 1999(1)
FUND FUND TO FEBRUARY 29, 2000
----------- ------------ --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................................... $ -- $ 82,427 $ --
Interest income ..................................................... 133,840 473,400 22,439
----------- ---------- ---------
Total investment income ....................................... 133,840 555,827 22,439
----------- ---------- ---------
EXPENSES:
Investment advisory fees ............................................ 33,488 122,831 3,509
Distribution expenses - Investor Class .............................. -- 16,225 --
Distribution expenses - Advisor Class ............................... -- 1,503 --
Administration fees ................................................. 3,517 14,857 437
Shareholder servicing and accounting costs .......................... 7,090 28,883 708
Custody fees ........................................................ 2,176 7,282 144
Federal and state registration ...................................... 8,301 29,233 487
Licensing fees ...................................................... -- -- --
Professional fees ................................................... 3,683 16,335 1,416
Amortization of organizational expenses ............................. 1,556 -- --
Reports to shareholders ............................................. 1,446 6,413 163
Directors' fees and expenses ........................................ 231 1,026 26
Other ............................................................... 387 1,715 44
Advisor expense waiver recovery (Note 5) ............................ -- 861 --
----------- ---------- ---------
Total expenses before waiver and reimbursement of
expenses and dividends on short positions .................. 61,875 247,164 6,934
Less: Waiver of expenses and reimbursement from
Advisor .................................................... (480) -- (4,313)
----------- ---------- ---------
Net expenses before dividends on short positions .............. 61,395 247,164 2,621
Dividends on short positions .................................. 873 -- --
----------- ---------- ---------
Total expenses ................................................ 62,268 247,164 2,621
----------- ---------- ---------
NET INVESTMENT INCOME (LOSS) ........................................ 71,572 308,663 19,818
----------- ---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments ...................................................... (69) (918,832) (23,749)
Short positions .................................................. (3,801,261) 3,701 --
Written option contracts expired or closed ....................... -- 558,006 (236,519)
Futures .......................................................... (1,043,877) 2,314,065 (275,873)
----------- ---------- ---------
(4,845,207) 1,956,940 (536,141)
----------- ---------- ---------
Change in unrealized appreciation (depreciation) on:
Investments ...................................................... (137) 6,778,472 (3,315)
Short positions .................................................. (245,778) -- --
Written options .................................................. -- 58,819 (4,590)
Futures .......................................................... 21,623 100,718 (40,518)
----------- ---------- ---------
(224,292) 6,938,009 (48,423)
----------- ---------- ---------
Net realized and unrealized gain (loss) on investments ........ (5,069,499) 8,894,949 (584,564)
----------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ....................................................... $(4,997,927) $9,203,612 $(564,746)
=========== ========== =========
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
See notes to the financial statements.
31
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS INTERNET PLUS INTERNET/SHORT
FUND FUND
DECEMBER 2, 1999(1) DECEMBER 21, 1999(1)
TO FEBRUARY 29, 2000 TO FEBRUARY 29, 2000
--------------------- --------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................................... $ -- $ --
Interest income ..................................................... 5,775 11,783
-------------- ----------------
Total investment income ....................................... 5,775 11,783
-------------- ----------------
EXPENSES:
Investment advisory fees ............................................ 35,274 2,449
Distribution expenses - Investor Class .............................. -- --
Distribution expenses - Advisor Class ............................... 21 --
Administration fees ................................................. 4,511 284
Shareholder servicing and accounting costs .......................... 7,868 491
Custody fees ........................................................ 1,752 106
Federal and state registration ...................................... 4,946 740
Licensing fees ...................................................... 13,025 --
Professional fees ................................................... 4,714 301
Amortization of organizational expenses ............................. -- --
Reports to shareholders ............................................. 1,851 118
Directors' fees and expenses ........................................ 296 19
Other ............................................................... 496 32
Advisor expense waiver recovery (Note 5) ............................ -- --
-------------- ----------------
Total expenses before waiver and reimbursement of
expenses and dividends on short positions .................. 74,754 4,540
Less: Waiver of expenses and reimbursement from
Advisor .................................................... (4,185) (2,252)
-------------- ----------------
Net expenses .................................................. 70,569 2,288
Dividends on short positions .................................. -- --
-------------- ----------------
Total expenses ................................................ 70,569 2,288
-------------- ----------------
NET INVESTMENT INCOME (LOSS) ........................................ (64,794) 9,495
-------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments ...................................................... (740,057) --
Short positions .................................................. -- (2,729,322)
Written option contracts expired or closed ....................... 404,707 --
Futures .......................................................... -- (2,706)
-------------- ----------------
(335,350) (2,732,028)
-------------- ----------------
Change in unrealized appreciation (depreciation) on:
Investments ...................................................... 2,544,374 --
Short positions .................................................. -- --
Written options .................................................. 69,115 --
Futures .......................................................... -- --
-------------- ----------------
2,613,489 --
-------------- ----------------
Net realized and unrealized gain (loss) on investments ........ 2,278,139 (2,732,028)
-------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ....................................................... $ 2,213,345 $ (2,722,533)
============== ================
<CAPTION>
POTOMAC FUNDS DOW 30 PLUS
FUND
DECEMBER 2, 1999(1) U.S. GOVERNMENT
TO FEBRUARY 29, 2000 MONEY MARKET FUND
--------------------- --------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................................... $ 9,035 $ --
Interest income ..................................................... 3,847 1,084,114
------------ ------------
Total investment income ....................................... 12,882 1,084,114
------------ ------------
EXPENSES:
Investment advisory fees ............................................ 5,261 99,959
Distribution expenses - Investor Class .............................. -- --
Distribution expenses - Advisor Class ............................... -- 796
Administration fees ................................................. 664 18,798
Shareholder servicing and accounting costs .......................... 1,165 37,002
Custody fees ........................................................ 256 10,845
Federal and state registration ...................................... 960 10,489
Licensing fees ...................................................... 1,934 --
Professional fees ................................................... 702 19,860
Amortization of organizational expenses ............................. -- 1,556
Reports to shareholders ............................................. 276 7,797
Directors' fees and expenses ........................................ 44 1,247
Other ............................................................... 74 2,086
Advisor expense waiver recovery (Note 5) -- --
------------ ------------
Total expenses before waiver and reimbursement of
expenses and dividends on short positions .................. 11,336 210,435
Less: Waiver of expenses and reimbursement from
Advisor .................................................... (814) (9,720)
------------ ------------
Net expenses .................................................. 10,522 200,715
Dividends on short positions .................................. -- --
------------ ------------
Total expenses ................................................ 10,522 200,715
------------ ------------
NET INVESTMENT INCOME (LOSS) 2,360 883,399
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments ...................................................... (164,903) --
Short positions .................................................. (4,823) --
Written option contracts expired or closed ....................... -- --
Futures .......................................................... (91,881) --
------------ ------------
(261,607) --
------------ ------------
Change in unrealized appreciation (depreciation) on:
Investments ...................................................... (95,952) --
Short positions .................................................. -- --
Written options .................................................. -- --
Futures .......................................................... (2,500) --
------------ ------------
(98,452) --
------------ ------------
Net realized and unrealized gain (loss) on investments ........ (360,059) --
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ....................................................... $ (357,699) $ 883,399
============ ============
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
See notes to the financial statements.
32
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS U.S. PLUS U.S. PLUS U.S./SHORT U.S./SHORT
FUND FUND FUND FUND
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999 (UNAUDITED) AUGUST 31, 1999
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................... $ 69,740 $ 567,359 $ 45,753 $ 155,658
Net realized gain (loss) on investments
sold, securities sold short, written
option contracts expired or closed
and futures ......................................... 102,802 4,301,103 (1,532,708) (1,853,391)
Change in unrealized appreciation
(depreciation) on investments, short
positions, written options and futures .............. 423,072 (323,394) (74,412) (889,693)
---------------- --------------- ----------------- ---------------
Net increase (decrease) in net
assets resulting from operations .............. 595,614 4,545,068 (1,561,367) (2,587,426)
---------------- --------------- ----------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS - INVESTOR CLASS:
Net investment income .................................. -- -- -- --
Net realized gains ..................................... -- (189,978) -- (26,273)
---------------- --------------- ----------------- ---------------
Total distributions .............................. -- (189,978) -- (26,273)
---------------- --------------- ----------------- ---------------
CAPITAL SHARE TRANSACTIONS - INVESTOR CLASS:
Proceeds from shares sold .............................. 449,611,236 432,183,904 106,961,695 288,090,128
Proceeds from shares issued to holders
in reinvestment of dividends ........................ -- 187,759 -- 25,407
Cost of shares redeemed ................................ (439,640,974) (420,720,881) (108,244,676) (288,877,637)
---------------- --------------- ----------------- ---------------
Net increase (decrease) in net assets resulting
from capital share transactions ............... 9,970,262 11,650,782 (1,282,981) (762,102)
---------------- --------------- ----------------- ---------------
CAPITAL SHARE TRANSACTIONS - ADVISOR CLASS:
Proceeds from shares sold .............................. 4,176,324
Proceeds from shares issued to holders
in reinvestment of dividends ........................ --
Cost of shares redeemed ................................ (4,138,360)
-----------------
Net increase (decrease) in net assets resulting
from capital share transactions ............... 37,964
-----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................ 10,565,876 16,005,872 (2,806,384) (3,375,801)
---------------- --------------- ----------------- ---------------
NET ASSETS:
Beginning of period .................................... 16,472,869 466,997 4,392,851 7,768,652
---------------- --------------- ----------------- ---------------
End of period (including undistributed
net investment income of $69,740,
$0, $45,753 and $5,552, respectively) ............... $ 27,038,745 $ 16,472,869 $ 1,586,467 $ 4,392,851
=============== =============== ================= ===============
CHANGES IN SHARES OUTSTANDING - INVESTOR CLASS:
Shares sold ............................................ 28,832,760 32,907,642 3,217,724 7,727,880(1)
Shares issued to holders in reinvestment of dividends... -- 15,022 -- 668(1)
Shares redeemed ........................................ (28,163,165) (31,839,083) (3,297,174) (7,765,009)(1)
---------------- --------------- ----------------- ---------------
Net increase (decrease) .......................... 669,595 1,083,581 (79,450) (36,461)(1)
=============== =============== ================= ===============
CHANGES IN SHARES OUTSTANDING - ADVISOR CLASS:
Shares sold ............................................ 125,152
Shares issued to holders in reinvestment of dividends .. --
Shares redeemed ........................................ (125,131)
-----------------
Net increase (decrease) .......................... 21
=================
</TABLE>
(1) CAPITAL SHARE TRANSACTIONS RESTATED TO REFLECT A 1 FOR 5 REVERSE STOCK SPLIT
WHICH OCCURRED ON JUNE 7, 1999.
See notes to the financial statements.
33
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS OTC PLUS OTC PLUS OTC/SHORT OTC/SHORT
FUND FUND FUND FUND
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999 (UNAUDITED) AUGUST 31, 1999
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................... $ (1,108,134) $ (672,073) $ 71,572 $ 112,043
Net realized gain (loss) on investments sold,
securities sold short, written option contracts
expired or closed and futures ....................... 16,452,201 900,691 (4,845,207) (4,304,088)
Change in unrealized appreciation (depreciation)
on investments, short positions, written options
and futures ......................................... 100,849,112 25,297,230 (224,292) (3,267,110)
---------------- --------------- ----------------- ---------------
Net increase (decrease) in net
assets resulting from operations .............. 116,193,179 25,525,848 (4,997,927) (7,459,155)
---------------- --------------- ----------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS - INVESTOR CLASS:
Net investment income .................................. -- -- (33,079) --
Net realized gains ..................................... (155,985) (171,078) -- (7,355)
---------------- --------------- ----------------- ---------------
Total distributions .............................. (155,985) (171,078) (33,079) (7,355)
---------------- --------------- ----------------- ---------------
CAPITAL SHARE TRANSACTIONS - INVESTOR CLASS:
Proceeds from shares sold .............................. 533,215,583 754,327,170 103,088,153 269,273,210
Proceeds from shares issued to holders
in reinvestment of dividends ........................ 152,495 161,537 30,912 6,530
Cost of shares redeemed ................................ (418,678,532) (710,841,636) (103,712,478) (270,118,317)
---------------- --------------- ----------------- ---------------
Net increase (decrease) in net assets resulting
from capital share transactions ............... 114,689,546 43,647,071 (593,413) (838,577)
---------------- --------------- ----------------- ---------------
CAPITAL SHARE TRANSACTIONS - ADVISOR CLASS:
Proceeds from shares sold .............................. 4,297,068
Proceeds from shares issued to holders
in reinvestment of dividends ........................ --
Cost of shares redeemed ................................ (4,199,088)
----------------
Net increase (decrease) in net
assets resulting from capital
share transactions ................................ 97,980
----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................ 230,824,720 69,001,841 (5,624,419) (8,305,087)
---------------- --------------- ----------------- ---------------
NET ASSETS:
Beginning of period .................................... 76,682,387 7,680,546 10,863,451 19,168,538
---------------- --------------- ----------------- ---------------
End of period (including undistributed net
investment income (loss) of ($1,108,134),
$0, $38,494 and $0, respectively) ................... $ 307,507,107 $ 76,682,387 $ 5,239,032 $ 10,863,451
================ =============== ================= ===============
CHANGES IN SHARES OUTSTANDING - INVESTOR CLASS:
Shares sold ............................................ 15,514,548 42,031,207 8,115,755 10,933,064(1)
Shares issued to holders in reinvestment of dividends 4,178 9,821 2,587 238(1)
Shares redeemed ........................................ (12,331,693) (39,661,678) (8,189,517) (10,754,038)(1)
---------------- --------------- ----------------- ---------------
Net increase (decrease) .......................... 3,187,033 2,379,350 (71,175) 179,264(1)
================ =============== ================= ===============
CHANGES IN SHARES OUTSTANDING - ADVISOR CLASS:
Shares sold ............................................ 90,189
Shares issued to holders in reinvestment of dividends .. --
Shares redeemed ........................................ (86,118)
----------------
Net increase (decrease) 4,071
================
</TABLE>
(1) CAPITAL SHARE TRANSACTIONS RESTATED TO REFLECT A 1 FOR 5 REVERSE STOCK SPLIT
WHICH OCCURRED ON JUNE 7, 1999.
See notes to the financial statements.
34
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS SMALL CAP PLUS SMALL CAP PLUS
FUND FUND
SIX MONTHS ENDED
FEBRUARY 29, 2000 FEBRUARY 22, 1999(1)
(UNAUDITED) TO AUGUST 31, 1999
----------------- --------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................... $ 308,663 $ 860,756
Net realized gain (loss) on investments
sold, securities sold short, written
option contracts expired or closed
and futures ........................................ 1,956,940 (1,858,156)
Change in unrealized appreciation
(depreciation) on investments, short
positions, written options and futures ............. 6,938,009 (154,145)
----------------- --------------------
Net increase (decrease) in net assets
resulting from operations ..................... 9,203,612 (1,151,545)
----------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS - INVESTOR CLASS:
Net investment income ................................. (314,208) --
Net realized gains .................................... -- --
----------------- --------------------
Total distributions ............................. (314,208) --
----------------- --------------------
CAPITAL SHARE TRANSACTIONS - INVESTOR CLASS:
Proceeds from shares sold ............................. 541,871,510 561,864,955
Proceeds from shares issued to holders
in reinvestment of dividends ....................... 310,224 --
Cost of shares redeemed ............................... (505,453,067) (553,679,788)
----------------- --------------------
Net increase (decrease) in net assets resulting
from capital share transactions ............... 36,728,667 8,185,167
----------------- --------------------
CAPITAL SHARE TRANSACTIONS - ADVISOR CLASS:
Proceeds from shares sold ............................. 8,354,731
Proceeds from shares issued to holders
in reinvestment of dividends ....................... --
Cost of shares redeemed ............................... (4,182,116)
-----------------
Net increase (decrease) in net assets resulting
from capital share transactions ............... 4,172,615
-----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............... 49,790,686 7,033,622
----------------- --------------------
NET ASSETS:
Beginning of period ................................... 7,033,622 --
----------------- --------------------
End of period (including undistributed
net investment income (loss) of ($5,545),
$27,597, $19,818 and ($64,794), respectively) ...... $ 56,824,308 $ 7,033,622
================= ====================
CHANGES IN SHARES OUTSTANDING - INVESTOR CLASS:
Shares sold ........................................... 43,241,703 49,645,812
Shares issued to holders in reinvestment of dividends . 25,449 --
Shares redeemed ....................................... (40,476,055) (49,011,961)
----------------- --------------------
Net increase (decrease) ......................... 2,791,097 633,851
================= ====================
CHANGES IN SHARES OUTSTANDING - ADVISOR CLASS:
Shares sold ........................................... 564,762
Shares issued to holders in reinvestment of dividends --
Shares redeemed ....................................... (291,423)
-----------------
Net increase (decrease) ......................... 273,339
=================
<CAPTION>
POTOMAC FUNDS SMALL CAP/SHORT INTERNET PLUS
FUND FUND
DECEMBER 21, 1999(1) DECEMBER 2, 1999(1)
TO FEBRUARY 29, 2000 TO FEBRUARY 29, 2000
(UNAUDITED) (UNAUDITED)
-------------------- --------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................... $ 19,818 $ (64,794)
Net realized gain (loss) on investments
sold, securities sold short, written
option contracts expired or closed
and futures ........................................ (536,141) (335,350)
Change in unrealized appreciation
(depreciation) on investments, short
positions, written options and futures ............. (48,423) 2,613,489
-------------------- --------------------
Net increase (decrease) in net assets
resulting from operations ..................... (564,746) 2,213,345
-------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS - INVESTOR CLASS:
Net investment income ................................. -- --
Net realized gains .................................... -- --
-------------------- --------------------
Total distributions ............................. -- --
-------------------- --------------------
CAPITAL SHARE TRANSACTIONS - INVESTOR CLASS:
Proceeds from shares sold ............................. 56,225,151 171,586,495
Proceeds from shares issued to holders
in reinvestment of dividends ....................... -- --
Cost of shares redeemed ............................... (54,326,608) (155,757,857)
-------------------- --------------------
Net increase (decrease) in net assets resulting
from capital share transactions ............... 1,898,543 15,828,638
-------------------- --------------------
CAPITAL SHARE TRANSACTIONS - ADVISOR CLASS:
Proceeds from shares sold ............................. 150,021
Proceeds from shares issued to holders
in reinvestment of dividends ....................... --
Cost of shares redeemed ............................... --
--------------------
Net increase (decrease) in net assets resulting
from capital share transactions ............... 150,021
--------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............... 1,333,797 18,192,004
-------------------- --------------------
NET ASSETS:
Beginning of period ................................... -- --
-------------------- --------------------
End of period (including undistributed
net investment income (loss) of ($5,545),
$27,597, $19,818 and ($64,794), respectively) ...... $ 1,333,797 $ 18,192,004
==================== ====================
CHANGES IN SHARES OUTSTANDING - INVESTOR CLASS:
Shares sold ........................................... 1,096,197 13,261,150
Shares issued to holders in reinvestment of dividends . -- --
Shares redeemed ....................................... (1,067,500) (12,017,992)
-------------------- --------------------
Net increase (decrease) ......................... 28,697 1,243,158
==================== ====================
CHANGES IN SHARES OUTSTANDING - ADVISOR CLASS:
Shares sold ........................................... 10,565
Shares issued to holders in reinvestment of dividends . --
Shares redeemed ....................................... --
--------------------
Net increase (decrease) .......................... 10,565
====================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
See notes to the financial statements.
35
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTOMAC FUNDS INTERNET/SHORT DOW 30 PLUS
FUND FUND
DECEMBER 21, 1999(1) DECEMBER 2, 1999(1)
TO FEBRUARY 29, 2000 TO FEBRUARY 29, 2000
(UNAUDITED) (UNAUDITED)
-------------------- --------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 9,495 $ 2,360
Net realized gain (loss) on investments sold, securities sold
short, written option contracts expired or closed
and futures ........................................................ (2,732,028) (261,607)
Change in unrealized appreciation (depreciation) on
investments, short positions, written options and futures .......... -- (98,452)
-------------------- --------------------
Net increase (decrease) in net assets
resulting from operations ..................................... (2,732,028) (357,699)
-------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS - INVESTOR CLASS:
Net investment income ................................................. -- --
Net realized gains .................................................... -- --
-------------------- --------------------
Total distributions ............................................. -- --
-------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS - ADVISOR CLASS:
Net investment income .................................................
Net realized gains ....................................................
Total distributions .............................................
CAPITAL SHARE TRANSACTIONS - INVESTOR CLASS:
Proceeds from shares sold ............................................. 34,644,598 21,834,988
Proceeds from shares issued to holders
in reinvestment of dividends ....................................... -- --
Cost of shares redeemed ............................................... (31,549,290) (17,699,644)
-------------------- --------------------
Net increase (decrease) in net assets
resulting from capital share transactions ..................... 3,095,308 4,135,344
-------------------- --------------------
CAPITAL SHARE TRANSACTIONS - ADVISOR CLASS:
Proceeds from shares sold ............................................. 10
Proceeds from shares issued to holders
in reinvestment of dividends ....................................... --
Cost of shares redeemed ............................................... --
--------------------
Net increase (decrease) in net assets
resulting from capital share transactions ..................... 10
--------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................... 372,775 3,777,655
-------------------- --------------------
NET ASSETS:
Beginning of period ................................................... -- --
-------------------- --------------------
End of period (including undistributed net
investment income (loss) of $9,495,
$2,360, $0 and $4,192), respectively) .............................. $ 372,775 $ 3,777,655
==================== ====================
CHANGES IN SHARES OUTSTANDING - INVESTOR CLASS:
Shares sold ........................................................... 743,356 2,223,313
Shares issued to holders in reinvestment of dividends ................. -- --
Shares redeemed ....................................................... (733,891) (1,792,959)
-------------------- --------------------
Net increase (decrease) ........................................... 9,465 430,354
==================== ====================
CHANGES IN SHARES OUTSTANDING - ADVISOR CLASS:
Shares sold ...........................................................
Shares issued to holders in reinvestment of dividends .................
Shares redeemed .......................................................
Net increase (decrease) .........................................
<CAPTION>
U.S. GOVERNMENT U.S. GOVERNMENT
POTOMAC FUNDS MONEY MARKET MONEY MARKET
FUND FUND
SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999
-------------------- --------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 883,399 $ 945,821
Net realized gain (loss) on investments sold, securities sold
short, written option contracts expired or closed
and futures ........................................................ -- --
Change in unrealized appreciation (depreciation) on
investments, short positions, written options and futures .......... -- --
-------------------- --------------------
Net increase (decrease) in net assets
resulting from operations ..................................... 883,399 945,821
-------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS - INVESTOR CLASS:
Net investment income ................................................. (880,184) (945,821)
Net realized gains .................................................... -- --
-------------------- --------------------
Total distributions ............................................. (880,184) (945,821)
-------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS - ADVISOR CLASS:
Net investment income ................................................. (3,215)
Net realized gains .................................................... --
--------------------
Total distributions ............................................. (3,215)
--------------------
CAPITAL SHARE TRANSACTIONS - INVESTOR CLASS:
Proceeds from shares sold ............................................. 1,048,035,042 849,108,149
Proceeds from shares issued to holders
in reinvestment of dividends ....................................... 509,799 729,062
Cost of shares redeemed ............................................... (1,084,936,254) (808,984,862)
-------------------- --------------------
Net increase (decrease) in net assets
resulting from capital share transactions ..................... (36,391,413) 40,852,349
-------------------- --------------------
CAPITAL SHARE TRANSACTIONS - ADVISOR CLASS:
Proceeds from shares sold ............................................. 4,788,996
Proceeds from shares issued to holders
in reinvestment of dividends ....................................... 3,215
Cost of shares redeemed ............................................... (4,438,962)
--------------------
Net increase (decrease) in net assets
resulting from capital share transactions ..................... 353,249
--------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................... (36,038,164) 40,852,349
-------------------- --------------------
NET ASSETS:
Beginning of period ................................................... 50,222,733 9,370,384
-------------------- --------------------
End of period (including undistributed net
investment income (loss) of $9,495,
$2,360, $0 and $4,192), respectively) .............................. $ 14,184,569 $ 50,222,733
==================== ====================
CHANGES IN SHARES OUTSTANDING - INVESTOR CLASS:
Shares sold ........................................................... 1,048,035,043 849,108,149
Shares issued to holders in reinvestment of dividends ................. 509,799 729,062
Shares redeemed ....................................................... (1,084,936,254) (808,984,862)
-------------------- --------------------
Net increase (decrease) ......................................... (36,391,412) 40,852,349
==================== ====================
CHANGES IN SHARES OUTSTANDING - ADVISOR CLASS:
Shares sold ........................................................... 4,788,995
Shares issued to holders in reinvestment of dividends ................. 3,215
Shares redeemed ....................................................... (4,438,962)
--------------------
Net increase (decrease) ......................................... 353,248
====================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
See notes to the financial statements.
36
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
POTOMAC FUNDS
U.S. PLUS
FUND U.S. PLUS U.S. PLUS
INVESTOR CLASS FUND FUND
SIX MONTHS ENDED INVESTOR CLASS INVESTOR CLASS
FEBRUARY 29, 2000 YEAR ENDED OCTOBER 20, 1997(1)
(UNAUDITED) AUGUST 31, 1999 TO AUGUST 31, 1998
----------------- ----------------- ------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD ...................................... $ 14.56 $ 9.76 $ 10.00
------------- ------------- -------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4) ............................. 0.04 0.31 0.36
Net realized and unrealized gain (loss) on investments(6) ... 0.41 4.59 (0.58)
------------- ------------- -------------
Total from investment operations ....................... 0.45 4.90 (0.22)
------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ -- -- (0.02)
Distributions from realized gains ........................... -- (0.10) --
------------- ------------- -------------
Total distributions .................................... -- (0.10) (0.02)
------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD .............................. $ 15.01 $ 14.56 $ 9.76
============= ============= =============
TOTAL RETURN ................................................ 3.09%(2) 50.38% (2.23%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period ................................... $ 27,038,745 $ 16,472,869 $ 466,997
Ratio of net expenses to average net assets:
Before expense reimbursement ............................. 1.50%(3,7) 1.52% 2.52%(3)
After expense reimbursement .............................. 1.50%(3,7) 1.50% 1.50%(3)
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement ............................. 0.60%(3,7) 2.32% 2.68%(3)
After expense reimbursement .............................. 0.60%(3,7) 2.34% 3.70%(3)
Portfolio turnover rate(5) .................................. 829.68% 0.00% 0.00%
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
(4) NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5) PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6) THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7) RATIO INCLUDES ADVISOR EXPENSE WAIVER RECOVERY OF 0.02%.
See notes to the financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
POTOMAC FUNDS
U.S./SHORT U.S./SHORT
FUND FUND U.S./SHORT(7) U.S./SHORT(7)
INVESTOR CLASS ADVISOR CLASS FUND FUND
SIX MONTHS ENDED FEBRUARY 22, 2000(1) INVESTOR CLASS INVESTOR CLASS
FEBRUARY 29, 2000 TO FEBRUARY 29, 2000 YEAR ENDED NOVEMBER 7, 1997(1)
(UNAUDITED) (UNAUDITED) AUGUST 31, 1999 TO AUGUST 31, 1998
----------------- -------------------- --------------- -------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD ................... $ 34.39 $ 33.37 $ 47.30 $ 50.00
------------- ------------- ------------- -------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)(4) .......... 0.31(10) (0.01)(10) 1.05 1.15
Net realized and unrealized gain (loss)
on investments(6) ..................... (1.87) (0.53) (13.91) (3.85)
------------- ------------- ------------- -------------
Total from investment operations .... (1.56) (0.54) (12.86) (2.70)
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... -- -- -- --
Distributions from realized gains ........ -- -- (0.05) --
------------- ------------- ------------- -------------
Total distributions ................. -- -- (0.05) --
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD ........... $ 32.83 $ 32.83 $ 34.39 $ 47.30
============= ============= ============= =============
TOTAL RETURN ............................. (4.54%)(2) (1.62%)(2) (26.77%) (5.40%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period ................ $ 1,585,777 $ 690 $ 4,392,851 $ 7,768,652
Ratio of net expenses to average net
assets:
Before expense reimbursement .......... 1.96%(3) 2.91%(3) 1.90% 5.29%(3)
After expense reimbursement ........... 1.60%(3,8) 2.65%(3,8) 1.64% 1.57%(3)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement .......... 1.47%(3) (1.21%)(3) 2.23% (0.46%)(3)
After expense reimbursement ........... 1.83%(3,9) (0.95%)(3,9) 2.49% 3.26%(3)
Portfolio turnover rate(5) ............... 16.55% 16.55% 0.00% 0.00%
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
(4) NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5) PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6) THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7) THE PER SHARE DATA REFLECTS A 1 FOR 5 REVERSE STOCK SPLIT WHICH OCCURRED ON
JUNE 7, 1999.
(8) THE OPERATING EXPENSE RATIO EXCLUDED DIVIDENDS ON SHORT POSITIONS. THE RATIO
INCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE SIX MONTHS ENDED FEBRUARY 29,
2000 AND THE PERIOD ENDED FEBRUARY 29, 2000 WAS 2.09%, AND 3.05%, RESPECTIVELY.
(9) THE NET INVESTMENT INCOME (LOSS) RATIO INCLUDED DIVIDENDS ON SHORT
POSITIONS. THE RATIO EXCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE SIX MONTHS
ENDED FEBRUARY 29, 2000 AND THE PERIOD ENDED FEBRUARY 29, 2000 WAS 2.32% AND
(0.55%), RESPECTIVELY.
(10) NET INVESTMENT INCOME BEFORE DIVIDENDS ON SHORT POSITIONS FOR THE SIX
MONTHS ENDED FEBRUARY 29, 2000 AND THE PERIOD ENDED FEBRUARY 29, 2000 WAS $0.39
AND $0.00, RESPECTIVELY.
See notes to the financial statements.
38
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
POTOMAC FUNDS
OTC PLUS OTC PLUS
FUND FUND OTC PLUS OTC PLUS
INVESTOR CLASS ADVISOR CLASS FUND FUND
SIX MONTHS ENDED FEBRUARY 24, 2000(1) INVESTOR CLASS INVESTOR CLASS
FEBRUARY 29, 2000 TO FEBRUARY 29, 2000 YEAR ENDED OCTOBER 20, 1997(1)
(UNAUDITED) (UNAUDITED) AUGUST 31, 1999 TO AUGUST 31, 1998
----------------- -------------------- --------------- -------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD ................... $ 24.60 $ 47.64 $ 10.41 $ 10.00
------------- ------------- ------------- -------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4) .......... (0.23) (0.02) (0.23) (0.11)
Net realized and unrealized gain (loss)
on investments(6) ..................... 24.41 1.11 14.48 0.52
------------- ------------- ------------- -------------
Total from investment operations .... 24.18 1.09 14.25 0.41
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... -- -- -- --
Distributions from realized gains ........ (0.03) -- (0.06) --
------------- ------------- ------------- -------------
Total distributions ................. (0.03) -- (0.06) --
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD ........... $ 48.75 $ 48.73 $ 24.60 $ 10.41
============= ============= ============= =============
TOTAL RETURN ............................. 98.33%(2) 2.29%(2) 137.18% 4.10%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period ................ $ 307,308,728 $ 198,379 $ 76,682,387 $ 7,680,546
Ratio of net expenses to average net assets:
Before expense reimbursement .......... 1.50%(3,7) 2.50%(3,7) 1.50% 3.21%(3)
After expense reimbursement ........... 1.50%(3,7) 2.50%(3,7) 1.50% 1.50%(3)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement .......... (1.33%)(3,7) (2.43%)(3,7) (1.16%) (2.84%)(3)
After expense reimbursement ........... (1.33%)(3,7) (2.43%)(3,7) (1.16%) (1.13%)(3)
Portfolio turnover rate(5) ............... 146.96% 146.96% 1,000.39% 2,324.63%
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
(4) NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5) PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENT S ARE DEEMED SHORT-TERM SECURITIES.
(6) THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7) RATIO INCLUDES ADVISOR EXPENSE WAIVER RECOVERY OF 0.19%.
See notes to the financial statements.
39
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
POTOMAC FUNDS
OTC/SHORT
FUND OTC/SHORT(10) OTC/SHORT(10)
INVESTOR CLASS FUND FUND
SIX MONTHS ENDED INVESTOR CLASS INVESTOR CLASS
FEBRUARY 29, 2000 YEAR ENDED OCTOBER 16, 1997(1)
(UNAUDITED) AUGUST 31, 1999 TO AUGUST 31, 1998
----------------- ----------------- -------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD ...................................... $ 17.06 $ 41.90 $ 50.00
------------- ------------- -------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4) ............................. 0.13 0.39(9) 0.45(9)
Net realized and unrealized gain (loss) on investments(6) ... (7.84) (25.22) (8.55)
------------- ------------- -------------
Total from investment operations ....................... (7.71) (24.83) (8.10)
------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ (0.08) -- --
Distributions from realized gains ........................... -- (0.01) --
------------- ------------- -------------
Total distributions .................................... (0.08) (0.01) --
------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD .............................. $ 9.27 $ 17.06 $ 41.90
============= ============= =============
TOTAL RETURN ................................................ (45.30%)(2) (59.25%) (16.20%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period ................................... $ 5,239,032 $ 10,863,451 $ 19,168,538
Ratio of net expenses to average net assets:
Before expense reimbursement ............................. 1.66%(3) 1.87% 3.70%(3)
After expense reimbursement .............................. 1.65%(3,7) 1.65%(7) 1.64%(3,7)
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement ............................. 1.91%(3) 1.47% (0.74%)(3)
After expense reimbursement .............................. 1.92%(3,8) 1.69%(8) 1.32%(3,8)
Portfolio turnover rate(5) .................................. 629.09% 3,048.52% 3,346.25%
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
(4) NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5) PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6) THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7) THE OPERATING EXPENSE RATIO EXCLUDED DIVIDENDS ON SHORT POSITIONS. THE RATIO
INCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE SIX MONTHS ENDED FEBRUARY 29,
2000, THE YEAR ENDED AUGUST 31, 1999 AND THE PERIOD ENDED AUGUST 31, 1998 WAS
1.67%, 1.74% AND 1.78%, RESPECTIVELY.
(8) THE NET INVESTMENT INCOME RATIO INCLUDED DIVIDENDS ON SHORT POSITIONS. THE
RATIO EXCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE SIX MONTHS ENDED FEBRUARY
29, 2000, THE YEAR ENDED AUGUST 31, 1999 AND THE PERIOD ENDED AUGUST 31, 1998
WAS 1.94%, 1.78% AND 1.46%, RESPECTIVELY.
(9) NET INVESTMENT INCOME BEFORE DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED
AUGUST 31, 1999 AND THE PERIOD ENDED AUGUST 31, 1998 WAS $0.41 AND $0.50,
RESPECTIVELY.
(10) THE PER SHARE DATA REFLECTS A 1 FOR 5 REVERSE STOCK SPLIT WHICH OCCURRED
ON JUNE 7, 1999.
See notes to the financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
POTOMAC FUNDS
SMALL CAP PLUS SMALL CAP PLUS SMALL CAP/SHORT
FUND FUND SMALL CAP PLUS FUND
INVESTOR CLASS ADVISOR CLASS FUND INVESTOR CLASS
SIX MONTHS ENDED FEBRUARY 9, 2000(1) INVESTOR CLASS DECEMBER 21, 1999(1)
FEBRUARY 29, 2000 TO FEBRUARY 29, 2000 FEBRUARY 22, 1999(1) TO FEBRUARY 29, 2000
(UNAUDITED) (UNAUDITED) TO AUGUST 31, 1999 (UNAUDITED)
----------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD ................... $ 11.10 $ 14.26 $ 10.00 $ 50.00
------------- ------------- ------------ -------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4) .......... 0.12 -- 0.18 0.53
Net realized and unrealized gain (loss)
on investments(6) ..................... 4.28 1.10 0.92 (4.05)
------------- ------------- ------------ -------------
Total from investment operations 4.40 1.10 1.10 (3.52)
------------- ------------- ------------ -------------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... (0.13) -- -- --
Distributions from realized gains ........ -- -- -- --
------------- ------------- ------------ -------------
Total distributions ................. (0.13) -- -- --
------------- ------------- ------------ -------------
NET ASSET VALUE, END OF PERIOD ........... $ 15.37 $ 15.36 $ 11.10 $ 46.48
============= ============= ============ =============
TOTAL RETURN ............................. 40.03%(2) 7.71%(2) 11.00%(2) (7.04%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period ................ $ 52,625,823 $4,198,485 $ 7,033,622 $ 1,333,797
Ratio of net expenses to average net
assets:
Before expense reimbursement .......... 1.50%(3,7) 2.50%(3,7) 1.50%(3) 1.78%(3)
After expense reimbursement ........... 1.50%(3,7) 2.50%(3,7) 1.50%(3) 0.67%(3)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement .......... 1.90%(3,7) 0.05%(3,7) 3.03%(3) 3.97%(3)
After expense reimbursement ........... 1.90%(3,7) 0.05%(3,7) 3.03%(3) 5.08%(3)
Portfolio turnover rate(5) ............... 890.60% 890.60% 0.00% 0.00%
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
(4) NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5) PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6) THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7) RATIO INCLUDES ADVISOR EXPENSE WAIVER RECOVERY OF 0.01%.
See notes to the financial statements.
41
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
POTOMAC FUNDS
INTERNET PLUS INTERNET PLUS INTERNET/SHORT DOW 30 PLUS
FUND FUND FUND FUND
INVESTOR CLASS ADVISOR CLASS INVESTOR CLASS INVESTOR CLASS
DECEMBER 2, 1999(1) FEBRUARY 24, 1999(1) DECEMBER 21, 1999(1) DECEMBER 2, 1999(1)
TO FEBRUARY 29, 2000 TO FEBRUARY 29, 2000 TO FEBRUARY 29, 2000 TO FEBRUARY 29, 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD ................... $ 10.00 $ 14.20 $ 50.00 $ 10.00
------------- ------------- ------------ ------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4) .......... (0.04) (0.01) 0.23 0.01
Net realized and unrealized gain (loss)
on investments(6) ..................... 4.55 0.32 (10.84) (1.23)
------------- ------------- ------------ ------------
Total from investment operations .... 4.51 0.31 (10.61) (1.22)
------------- ------------- ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... -- -- -- --
Distributions from realized gains ........ -- -- -- --
------------- ------------- ------------ ------------
Total distributions ................... -- -- -- --
------------- ------------- ------------ ------------
NET ASSET VALUE, END OF PERIOD ........... $ 14.51 $ 14.51 $ 39.39 $ 8.78
============= ============= ============ ============
TOTAL RETURN ............................. 45.10%(2) 2.18%(2) (21.22%)(2) (12.20%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period ................ $ 18,038,682 $ 153,322 $ 372,775 $ 3,777,655
Ratio of net expenses to average net
assets:
Before expense reimbursement .......... 1.59%(3) 2.59%(3) 1.67%(3) 1.62%(3)
After expense reimbursement ........... 1.50%(3) 2.50%(3) 0.84%(3) 1.50%(3)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement .......... (1.47%)(3) (2.57%)(3) 2.66%(3) 0.22%(3)
After expense reimbursement ........... (1.38%)(3) (2.48%)(3) 3.49%(3) 0.34%(3)
Portfolio turnover rate(5) ............... 1,034.94% 1,034.94% 3,020.37% 708.96%
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
(4) NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5) PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6) THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
See notes to the financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
POTOMAC FUNDS
U.S. GOVERNMENT U.S. GOVERNMENT
MONEY MARKET MONEY MARKET U.S. GOVERNMENT U.S. GOVERNMENT
FUND FUND MONEY MARKET MONEY MARKET
INVESTOR CLASS ADVISOR CLASS FUND FUND
SIX MONTHS ENDED FEBRUARY 2, 2000(1) INVESTOR CLASS INVESTOR CLASS
FEBRUARY 29, 2000 TO FEBRUARY 29, 2000 YEAR ENDED OCTOBER 20, 1997(1)
(UNAUDITED) (UNAUDITED) AUGUST 31, 1999 TO AUGUST 31, 1998
----------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ------------ ------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4) .......... 0.02 -- 0.04 0.04
Net realized and unrealized gain (loss)
on investments(6) ..................... -- -- -- --
------------- ------------- ------------ ------------
Total from investment operations ...... 0.02 -- 0.04 0.04
------------- ------------- ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... (0.02) -- (0.04) (0.04)
Distributions from realized gains ........ -- -- -- --
------------- ------------- ------------ ------------
Total distributions ................. (0.02) -- (0.04) (0.04)
------------- ------------- ------------ ------------
NET ASSET VALUE, END OF PERIOD ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============ ============
TOTAL RETURN ............................. 2.24%(2) 0.32%(2) 3.89% 3.89%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period ................ $ 13,831,321 $ 353,248 $ 50,222,733 $ 9,370,384
Ratio of net expenses to average net
assets:
Before expense reimbursement .......... 1.05%(3) 2.05%(3) 1.20% 3.70%(3)
After expense reimbursement ........... 1.00%(3) 2.00%(3) 0.99% 1.00%(3)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement .......... 4.37%(3) 3.88%(3) 3.68% 1.66%(3)
After expense reimbursement ........... 4.42%(3) 3.93%(3) 3.89% 4.36%(3)
Portfolio turnover rate(5) ............... N/A N/A N/A N/A
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
(4) NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5) PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6) THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
See notes to the financial statements.
43
<PAGE>
POTOMAC FUNDS
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000 (UNAUDITED)
1. ORGANIZATION
Potomac Funds (the "Trust") was organized as a Massachusetts Business Trust on
June 6, 1997 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 objective and policies. The series presently operating are the U.S.
Plus Fund, U.S./Short Fund, OTC Plus Fund, OTC/Short Fund, Small Cap Plus Fund,
Small Cap/Short Fund, Internet Plus Fund, Internet/Short Fund, Dow 30 Plus Fund
and the U.S. Government Money Market Fund (each a "Fund" and collectively, the
"Funds"). Each Fund (other than the U.S. Government Money Market Fund) is a
"non-diversified" series of the Trust pursuant to the 1940 Act. The U.S. Plus
Fund, OTC Plus Fund and U.S. Government Money Market Fund commenced operations
on October 20, 1997; the U.S./Short Fund commenced operations on
November 7, 1997; the OTC/Short Fund commenced operations on October 16, 1997;
the Small Cap Plus Fund commenced operations on February 22, 1999; the Dow 30
Plus Fund and the Internet Plus Fund commenced operations on December 2, 1999,
and the Internet/Short Fund and Small Cap/Short Fund commenced operations on
December 21, 1999.
The objective of the U.S. Plus Fund is to provide investment returns that
correspond to 150% of the performance of the Standard & Poor's 500 Index ("S&P
500 Index"). The objective of the U.S./Short Fund is to provide investment
returns that inversely correlate to the performance of the S&P 500 Index. The
objective of the OTC Plus Fund is to provide investment returns that correspond
to 125% of the performance of the Nasdaq 100 Index ("Nasdaq Index"). The
objective of the OTC/Short Fund is to provide investment returns that inversely
correlate to the performance of the Nasdaq Index. The objective of the Small Cap
Plus Fund is to provide investment returns that correspond to 125% of the
performance of the Russell 2000 Index ("Russell 2000 Index"). The objective of
the Small Cap/Short Fund is to provide investment returns that inversely
correlate to the performance of the Russell 2000 Index. The objective of the
Internet Plus Fund is to provide investment returns that correspond to 125% of
the performance of the Dow Jones Composite Internet Index ("Internet Index").
The objective of the Internet/Short Fund is to provide investment returns that
inversely correlate to the performance of the Internet Index. The objective of
the Dow 30 Plus Fund is to provide investment returns that correspond to 125% of
the performance of the Dow Jones Industrial Average ("Dow"). The objective of
the U.S. Government Money Market Fund is to provide security of principal,
current income and liquidity by investing primarily in obligations issued or
guaranteed, as to principal and interest, by the U.S. government, its agencies
or instrumentalities and repurchase agreements that are fully collateralized by
such obligations.
Costs incurred by the Trust in connection with the organization, registration
and the initial public offering of shares, aggregating $15,607 for each Fund
(other than the Small Cap Plus Fund, Small Cap/Short Fund, Internet Plus Fund,
Internet/Short Fund and the Dow 30 Plus Fund), are being deferred and amortized
over the period of benefit, but not to exceed sixty months from the Fund's
commencement of operations. These costs were advanced by the Advisor and will be
reimbursed by the Trust. The proceeds of any redemption of the initial shares by
the original shareholder will be reduced by a pro rata portion of any then
unamortized organizational expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares outstanding
at the time of redemption. Costs incurred by the Trust in connection with the
organization, registration and the initial public offering of shares of the
Small Cap Plus Fund, Small Cap/Short Fund, Internet Plus Fund, Internet/Short
Fund and the Dow 30 Plus Fund were expensed as incurred.
Effective February 2, 2000, the Trust has issued two classes of shares: Investor
Class and Advisor Class. Investor Class shares are subject to an annual Rule
12b-1 fee of up to 1.00% of average net assets of the Investor Class shares.
Advisor Class shares are subject to an annual Rule 12b-1 fee of 1.00% of average
net assets of the Advisor Class shares.
44
<PAGE>
Each class of shares for each Fund has identical rights and privileges except
with respect to Rule 12b-1 fees, voting rights on any other matters pertaining
to a single class of shares and the exchange privileges of each class of shares.
As of February 29, 2000, the U.S. Plus Fund and the Dow 30 Plus Fund had no
Advisor Class activity except for the purchase of one share by Rafferty Asset
Management, LLC, (the "Advisor") representing net assets of $15 and $9,
respectively. As of February 29, 2000, the OTC/Short Fund, Small Cap/Short Fund
and the Internet/Short Fund had no Advisor Class activity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
a) INVESTMENT VALUATION - Securities 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 stocks is taken from the exchange where the
security is primarily traded. If no sale is reported at that time, the mean of
the last bid and asked price is used. When market quotations for options and
futures positions held by a Fund are readily available, those positions will be
valued based upon such quotations. Other securities for which no quotations are
readily available or for which the Advisor has reason to question the validity
of quotations received are valued at fair value as determined in good faith
under the supervision of the Board of Trustees. Instruments with a remaining
maturity of 60 days or less are valued at amortized cost, which approximates
market value.
b) REPURCHASE AGREEMENTS - Each Fund may enter into repurchase
agreements with banks that are members of the Federal Reserve System or
securities dealers who are members of a national securities exchange or are
primary dealers in U.S. Government Securities. In connection with transactions
in repurchase agreements, it is the Trust's policy that the Fund receive, as
collateral, securities whose market value, including accrued interest, at all
times will be at least equal to 100% of the amount invested by the Fund in each
repurchase agreement. If the seller defaults, and the value of the collateral
declines, realization of the collateral by the Fund may be delayed or limited.
c) WRITTEN OPTION ACCOUNTING - Each Fund, other than the U.S.
Government Money Market Fund, may write (sell) options. When a Fund writes an
option, an amount equal to the premium received is entered in the Fund's
accounting records as an asset and equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current value of the
option written. When an option expires, or if the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was sold). As
collateral for uncovered written options, the Fund is required under the 1940
Act to maintain assets consisting of cash, cash equivalents or liquid
securities. This collateral is required to be adjusted daily to reflect the
market value of the purchase obligation for put options or the market value of
the instrument underlying the contract, but not less than the strike price, for
call options.
d) STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -
Each Fund, other than the U.S. Government Money Market Fund, may purchase and
sell stock index futures contracts and options on such futures contracts. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains and losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. As collateral
for futures contracts, the Fund is required under the 1940 Act to maintain
assets consisting of cash, cash equivalents or liquid securities. This
collateral is required to be adjusted daily to reflect the market value of the
purchase obligation for long futures contracts or the market value of the
instrument underlying the contract, but not less than the market price at which
the futures contract was established, for short futures contracts.
45
<PAGE>
e) SHORT POSITIONS - The U.S./Short Fund, OTC/Short Fund, Small
Cap/Short Fund and the Internet/Short Fund may engage in short sale
transactions. For financial statement purposes, an amount equal to the
settlement amount is included in the Statement of Assets and Liabilities as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the short position. Subsequent
fluctuations in the market prices of securities sold, but not yet purchased, may
require purchasing the securities at prices which may differ from the market
value reflected on the Statement of Assets and Liabilities. The Fund is liable
for any dividends payable on securities while those securities are in a short
position. As collateral for its short positions, the Fund is required under the
1940 Act to maintain assets consisting of cash, cash equivalents or liquid
securities equal to the market value of the securities sold short, but not less
than the market value of such securities at the time they were sold short. This
collateral is required to be adjusted daily.
f) RISKS OF OPTIONS, FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS
AND SHORT POSITIONS - The risks inherent in the use of options, futures
contracts, options on futures contracts and short positions include 1) adverse
changes in the value of such instruments; 2) imperfect correlation between the
price of options and futures contracts and options thereon and movements in the
price of the underlying securities, index or futures contracts; 3) the possible
absence of a liquid secondary market for any particular instrument at any time;
4) the possible need to defer closing out certain positions to avoid adverse tax
consequences; and 5) the possible nonperformance by the counterparty under the
terms of the contract. The Fund has designated all its cash, cash equivalents
and liquid securities as collateral for written options, futures contracts and
short positions.
g) FEDERAL INCOME TAXES - Each Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of income and capital
gains to its shareholders sufficient to relieve it from all or substantially all
federal income taxes.
h) INCOME AND EXPENSES - Dividend income is recognized on the
ex-dividend date, and interest income is recognized on an accrual basis. The
Funds are charged for those expenses that are directly attributable to each
portfolio, such as advisory fees and registration costs. Expenses that are not
directly attributable to a portfolio are allocated among the Trust's portfolios
in proportion to their respective net assets.
i) DISTRIBUTIONS TO SHAREHOLDERS - Each Fund, other than the U.S.
Government Money Market Fund, intends to distribute to its shareholders at least
annually any net investment income and net realized capital gains. The U.S.
Government Money Market Fund ordinarily will declare dividends from net
investment income on a daily basis and distribute those dividends monthly.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
j) 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.
k) OTHER - Investment and shareholder transactions are recorded on
trade date. The Funds determine the gain or loss realized from the investment
transactions by comparing the original cost of the security lot sold with the
net sales proceeds. Generally accepted accounting principles require that
permanent financial reporting and tax differences be reclassified in the capital
accounts.
46
<PAGE>
3. INVESTMENT TRANSACTIONS
During the period ended February 29, 2000, the aggregate purchases and sales of
investments (excluding short-term investments, options and futures contracts)
were:
<TABLE>
<CAPTION>
U.S. PLUS FUND U.S./SHORT FUND OTC PLUS FUND OTC/SHORT FUND
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Purchases $155,613,645 $ 312,002 $354,270,290 $49,114,005
Sales $147,715,199 $2,081,912 $233,280,241 $55,268,171
<CAPTION>
SMALL CAP SMALL CAP/ INTERNET
PLUS FUND SHORT FUND PLUS FUND
------------ ------------ ------------
<S> <C> <C> <C>
Purchases $138,384,893 $ -- $155,739,579
Sales $104,320,898 $ -- $141,019,848
<CAPTION>
U.S. GOVERNMENT
INTERNET/ DOW 30 MONEY MARKET
SHORT FUND PLUS FUND FUND
----------- ----------- ---------------
<S> <C> <C> <C>
Purchases $34,746,009 $19,242,800 $ --
Sales $37,475,331 $15,384,850 $ --
During the period ended February 29, 2000, the following Funds wrote the following options:
<CAPTION>
OTC PLUS FUND SMALL CAP PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF PREMIUM NUMBER OF PREMIUM
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 97 $ 827,187 94 $ 109,314
Options written 1,177 7,085,385 3,177 1,450,866
Options terminated (1,076) (7,503,001) (2,948) (1,512,134)
--------- ----------- --------- -----------
Outstanding at end of period 198 $ 409,571 323 $ 48,046
========= =========== ========= ===========
<CAPTION>
SMALL CAP/SHORT FUND INTERNET PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF PREMIUM NUMBER OF PREMIUM
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period -- $ -- -- $ --
Options written 259 1,470,401 1,035 2,783,344
Options terminated (256) (1,465,991) (968) (2,435,991)
--------- ----------- --------- -----------
Outstanding at end of period 3 $ 4,410 67 $ 347,353
========= =========== ========= ===========
</TABLE>
47
<PAGE>
Transactions in futures contracts for the period ended February 29, 2000, for
the following Funds were as follows:
<TABLE>
<CAPTION>
U.S. PLUS FUND OTC PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF AGGREGATE FACE NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS CONTRACTS VALUE OF CONTRACTS
--------- ------------------ --------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 39 $ 12,975,426 -- $ --
Contracts opened 1,515 532,240,392 290 109,402,655
Contracts closed (1,496) (525,406,557) (258) (96,539,111)
--------- ------------------ --------- ------------------
Outstanding at end of period 58 $ 19,809,261 32 $ 12,863,544
========= ================== ========= ==================
<CAPTION>
OTC/SHORT FUND SMALL CAP PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF AGGREGATE FACE NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS CONTRACTS VALUE OF CONTRACTS
--------- ------------------ --------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period -- $ -- 19 $ 4,156,611
Contracts opened 27 8,315,822 1,478 345,070,026
Contracts closed (24) (7,025,008) (1,443) (333,587,294)
--------- ------------------ --------- ------------------
Outstanding at end of period 3 $ 1,290,814 54 $ 15,639,343
========= ================== ========= ==================
<CAPTION>
INTERNET/SHORT FUND DOW 30 PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF AGGREGATE FACE NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS CONTRACTS VALUE OF CONTRACTS
--------- ------------------ --------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period -- $ -- -- $ --
Contracts opened 9 3,199,091 76 8,397,102
Contracts closed (9) (3,199,091) (65) (7,274,252)
--------- ------------------ --------- ------------------
Outstanding at end of period -- $ -- 11 $ 1,122,850
========= ================== ========= ==================
Transactions in short futures contracts for the period ended February 29, 2000, for the following Funds were as follows:
<CAPTION>
U.S./SHORT FUND OTC PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF AGGREGATE FACE NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS CONTRACTS VALUE OF CONTRACTS
--------- ------------------ --------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 4 $ 1,326,028 -- $ --
Contracts opened 301 102,943,802 28 9,879,874
Contracts closed (304) (103,931,334) (28) (9,879,874)
--------- ------------------ --------- ------------------
Outstanding at end of period 1 $ 338,496 -- $ --
========= ================== ========= ==================
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
OTC/SHORT FUND SMALL CAP PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF AGGREGATE FACE NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS CONTRACTS VALUE OF CONTRACTS
--------- ------------------ --------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 8 $ 1,892,264 -- $ --
Contracts opened 110 35,997,305 22 5,517,651
Contracts closed (118) (37,889,569) (22) (5,517,651)
--------- ------------------ --------- ------------------
Outstanding at end of period -- $ -- -- $ --
========= ================== ========= ==================
<CAPTION>
SMALL CAP/SHORT FUND DOW 30 PLUS FUND
--------------------------------- ---------------------------------
NUMBER OF AGGREGATE FACE NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS CONTRACTS VALUE OF CONTRACTS
--------- ------------------ --------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period -- $ -- -- $ --
Contracts opened 226 57,361,583 4 443,182
Contracts closed (222) (56,242,601) (4) (443,182)
--------- ------------------ --------- ------------------
Outstanding at end of period 4 $ 1,118,982 -- $ --
========= ================== ========= ==================
At February 29, 2000, gross unrealized appreciation and depreciation of investments for tax purposes were as follows:
<CAPTION>
U.S. PLUS FUND U.S./SHORT FUND OTC PLUS FUND OTC/SHORT FUND
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Appreciation $ 137,892 $ -- $ 127,643,838 $ --
(Depreciation) (225,817) -- (2,550,502) --
-------------- --------------- ------------- --------------
Net unrealized appreciation
(depreciation) on investments $ (87,925) $ -- $ 125,093,336 $ --
============== =============== ============= ==============
<CAPTION>
SMALL CAP SMALL CAP/ INTERNET
PLUS FUND SHORT FUND PLUS FUND
--------------- ------------- --------------
<S> <C> <C> <C>
Appreciation $7,549,272 $ -- $2,657,531
(Depreciation) (812,323) (3,315) (113,158)
--------------- ------------- --------------
Net unrealized appreciation
(depreciation) on investments $6,736,949 $ (3,315) $2,544,373
=============== ============= ==============
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT
INTERNET/ DOW 30 MONEY MARKET
SHORT FUND PLUS FUND FUND
--------------- ------------- --------------
<S> <C> <C> <C>
Appreciation $ -- $ 54,288 $ --
(Depreciation) -- (150,240) --
--------------- ------------- --------------
Net unrealized appreciation
(depreciation) on investments $ -- $ (95,952) $ --
=============== ============= ==============
</TABLE>
At February 29, 2000, the cost of investments for federal income tax purposes
was $25,226,395, $1,223,738, $182,053,527, $6,942,201, $36,044,879, $1,302,944,
$15,477,944, $1,048,822, $4,646,803 and $30,385,862 for the U.S. Plus Fund,
U.S./Short Fund, OTC Plus Fund, OTC/Short Fund, Small Cap Plus Fund, Small
Cap/Short Fund, Internet Plus Fund, Internet/Short Fund, Dow 30 Plus Fund and
the U.S. Government Money Market Fund, respectively.
At February 29, 2000, the U.S./Short Fund deferred post-October losses of
$1,587,682 and the OTC/Short Fund deferred post-October losses of $720,093.
These amounts may be used to offset future capital gains.
At February 29, 2000, the U.S./Short Fund had accumulated net realized capital
loss carryovers of $1,196,053 expiring in 2007. The Small Cap Plus Fund had
accumulated net realized capital loss carryovers of $2,012,411 expiring in 2007.
To the extent that the Funds realize future net capital gains, those gains will
be offset by any unused capital loss carryover.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have entered into an investment advisory agreement with Rafferty Asset
Management, LLC ("Advisor"). The Advisor receives a fee, computed daily and
payable monthly, at the annual rates presented below as applied to each Fund's
daily net assets. The Advisor has contractually agreed to pay all operating
expenses, through August 31, 2002, in excess of the annual cap on expenses
presented below as applied to each Fund's daily net assets. The Advisor may
recover from the Funds the expenses paid in excess of the annual cap on expenses
for the three previous years, as long as the recovery does not cause any Fund to
exceed such annual cap on expenses. For the period ended February 29, 2000, the
Advisor paid the following expenses by Fund:
<TABLE>
<CAPTION>
U.S. PLUS FUND U.S./SHORT FUND
-------------- --------------------------------
INVESTOR CLASS INVESTOR CLASS ADVISOR CLASS
-------------- -------------- -------------
<S> <C> <C> <C>
Annual Advisory rate 0.75% 0.90% 0.90%
Annual cap on expenses 1.50% 1.65% 2.65%
Expenses paid in excess of annual cap on expenses--2000 $ -- $ 9,129 $ 59
Advisor expense waiver recovery--2000 $ 2,172 $ -- $ --
Remaining expenses subject to potential recovery expiring in:
2001 $94,751 $60,726 $ --
2002 $ 5,548 $16,045 $ --
2003 $ -- $ 9,129 $ 59
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
OTC PLUS FUND OTC/SHORT FUND
------------------------------- --------------
INVESTOR CLASS ADVISOR CLASS INVESTOR CLASS
-------------- ------------- --------------
<S> <C> <C> <C>
Annual Advisory rate 0.75% 0.75% 0.90%
Annual cap on expenses 1.50% 2.50% 1.65%
Expenses paid in excess of annual cap on expenses--2000 $ -- $ -- $ 480
Advisor expense waiver recovery--2000 $154,759 $ 110 $ --
Remaining expenses subject to potential recovery expiring in:
2001 $ -- $ -- $123,475
2002 $ -- $ -- $ 14,372
2003 $ -- $ -- $ 480
<CAPTION>
SMALL CAP/
SMALL CAP PLUS FUND SHORT FUND
------------------------------- --------------
INVESTOR CLASS ADVISOR CLASS INVESTOR CLASS
-------------- ------------- --------------
<S> <C> <C> <C>
Annual Advisory rate 0.75% 0.75% 0.90%
Annual cap on expenses 1.50% 2.50% 1.65%
Expenses paid in excess of annual cap on expenses--2000 $ -- $ -- $4,313
Advisor expense waiver recovery--2000 $ 854 $ 7 $ --
Remaining expenses subject to potential recovery expiring in:
2001 $ -- $ -- $ --
2002 $ -- $ -- $ --
2003 $ -- $ -- $4,313
<CAPTION>
INTERNET/
INTERNET PLUS FUND SHORT FUND
------------------------------- --------------
INVESTOR CLASS ADVISOR CLASS INVESTOR CLASS
-------------- ------------- --------------
<S> <C> <C> <C>
Annual Advisory rate 0.75% 0.75% 0.90%
Annual cap on expenses 1.50% 2.50% 1.65%
Expenses paid in excess of annual cap on expenses--2000 $4,183 $ 2 $2,252
Advisor expense waiver recovery--2000 $ -- $ -- $ --
Remaining expenses subject to potential recovery expiring in:
2001 $ -- $ -- $ --
2002 $ -- $ -- $ --
2003 $4,183 $ 2 $2,252
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
DOW 30 U.S. GOVERNMENT
PLUS FUND MONEY MARKET FUND
-------------- --------------------------------
INVESTOR CLASS INVESTOR CLASS ADVISOR CLASS
-------------- -------------- -------------
<S> <C> <C> <C>
Annual Advisory rate 0.75% 0.50% 0.50%
Annual cap on expenses 1.50% 1.00% 2.00%
Expenses paid in excess of annual cap on expenses--2000 $ 814 $ 9,682 $ 38
Advisor expense waiver recovery--2000 $ -- $ -- $ --
Remaining expenses subject to potential recovery expiring in:
2001 $ -- $92,798 $ --
2002 $ -- $50,746 $ --
2003 $ 814 $ 9,682 $ 38
</TABLE>
The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"12b-1 Plan") for each Fund of the Trust, which authorizes it to pay Rafferty
Capital Markets, Inc. (the "Distributor"), an affiliate of the Advisor, a
distribution and shareholder servicing fee of up to 1.00% of each Fund's average
daily net assets for the Investor Class and a distribution and shareholder
servicing fee of 1.00% of each Fund's average daily net assets for the Advisor
Class for services to existing Fund shareholders and distribution of Fund
shares. During the period ended February 29, 2000, the Investor Class of the OTC
Plus Fund and Small Cap Plus Fund incurred expenses of $42,082 and $16,225,
respectively, pursuant to the 12b-1 Plan. During the period ended
February 29, 2000, the Advisor Class of the U.S./Short Fund, OTC Plus Fund,
Small Cap Plus Fund, Internet Plus Fund and the U.S. Government Money Market
Fund incurred expenses of $114, $595, $1,503, $21 and $796, respectively
pursuant to the 12b-1 Plan.
52
<PAGE>
INVESTMENT ADVISOR
Rafferty Asset Management, LLC
1311 Mamaroneck Avenue
White Plains, NY 10605
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND
PAYING AGENT & SHAREHOLDER SERVICING
AGENT
Firstar Mutual Fund Services, LLC
P.O. Box 1993
Milwaukee, WI 53201-1993
CUSTODIAN
Firstar Bank, N.A.
615 East Michigan Street
Milwaukee, WI 53202
COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, WI 53202
This report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus.
