THE WESTPORT FUNDS
The ______________
Westport Fund Westport
Westport Small Cap Fund _____________Funds
website: www.westportfunds.com
SHAREHOLDER SERVICES
888-593-7878
INVESTMENT ADVISER [LOGO]
Westport Advisers, LLC
253 Riverside Avenue
Westport, Connecticut 06880
203-227-3601
Annual Report
BOARD OF TRUSTEES December 31, 1999
Raymond J. Armstrong
Stephen E. Milman 888-593-7878
Edmund H. Nicklin, Jr.
Ronald H. Oliver website:
D. Bruce Smith, II www.westportfunds.com
TRANSFER AGENT ---------------
Countrywide Fund Services, Inc. WESTPORT [LOGO]
P.O. Box 5354 INVESTMENTS
Cincinnati, Ohio 45201-5354 ---------------
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
This report is authorized for distribution only when it is accompanied or
preceded by a current prospectus of The Westport Funds.
<PAGE>
LETTER TO SHAREHOLDERS JANUARY 20, 2000
================================================================================
Dear Fellow Shareholder:
The Westport Funds completed their second year in 1999 recording superior
performance against their respective benchmark indices. The Westport Fund's
total return for 1999 surpassed the S&P MidCap 400 Index by more than 31
percentage points. The Westport Small Cap Fund's total return for 1999 exceeded
that of the Russell 2000 Index by more than 21 percentage points and ranked in
the top four among 245 small cap value funds for the year according to Lipper
Analytical Services, Inc.
Table of Results
THE WESTPORT FUNDS
Total Returns-- December 31, 1999
- --------------------------------------------------------------------------------
Since Inception*
One Year to 12/31/99
Fund or Index Ended 12/31/99 (Average Annual)
- --------------------------------------------------------------------------------
Westport Fund - Class R 46.1% 28.1%
S&P MidCap 400 Index 14.7% 16.9%
- --------------------------------------------------------------------------------
Westport Small Cap Fund - Class R** 42.7% 28.4%
Russell 2000 Index 21.3% 8.7%
- --------------------------------------------------------------------------------
The year began with large cap stocks again outperforming the overall market.
However, for the first time in a number of quarters, small and mid cap stocks
outperformed large capitalization stocks in the second quarter. During the
second half of 1999, the complexion of the domestic equity market changed again
with investors shifting their focus to technology companies, irrespective of
market capitalization. Second half 1999 appreciation for these companies was
exceptional, dominating stock market indices and creating a narrow 1999 stock
market advance. The technology sector contributed more than 100% of the 14.7%
return from the S&P MidCap 400 Index in 1999 and 68% of the 21.3% return from
the Russell 2000 Index.
In particular, it was the rapid expansion of the Internet and the wider use of
digital communications technology that contributed significantly to the
excellent performance by technology stocks in the second half of 1999. The
economic importance of these technological innovations became much more broadly
understood by investors. It has been postulated that the value of a network
increases at twice the rate that nodes are added to the network. This
multiplicative character is evident with the Internet. As more customers or
potential customers use the Internet, the economic opportunity for an
Internet-enabled business increases significantly. Similarly, as more businesses
begin to sell on-line, the value derived by customers becomes much greater.
Prior to 1999, new Internet-related companies offered goods or services
principally to the consumer. But in 1999, the successful new Internet-related
companies were those that facilitated commerce between businesses. In fact, we
believe that the value of business-to-business transactions, while slower to
start, will ultimately dwarf those with the consumer.
1
<PAGE>
In the past two years, expansion of the Internet and e-commerce added more than
one percentage point of annual economic growth to the domestic economy. While
the impact of growth of this magnitude on affected company valuations is
dramatic, the investment challenge is to identify the opportunity before it is
reflected in the valuation. This is the essence of the value-based investment
strategy used by both Funds. A number of companies purchased at attractive
prices for both Westport Funds benefited from these dramatic technological and
associated economic changes. For example, Rational Software Corp. Inc. has been
a portfolio holding since early 1998. A leading supplier of software development
tools, Rational has been a significant direct beneficiary of the rapid build-out
of the Internet. It was purchased at approximately one-fourth its year-end 1999
price. Another example is Project Software & Development, Inc., a leading
supplier of enterprise asset management software. The company leveraged its
existing position in this market to create an Internet platform for the
electronic procurement of supplies for maintenance and repairs by businesses. By
year-end, the e-commerce opportunity for Project Software gained broader
recognition and its stock price appreciated, providing an unrealized gain of
nearly 200%.
Companies that are not direct beneficiaries of the Internet expansion also
contributed to the positive results of both Funds in 1999. For example, Unitrode
Corp., the analog semiconductor company, was selling at a substantial discount
to its inherent value when purchased in 1998. Due to the loss of its largest
customer and excess inventory at a number of its other customers, the share
price had been severely depressed. The situation changed dramatically in 1999 as
improved worldwide economic conditions increased demand for computers and
peripherals. As a result, Unitrode's excess inventories were erased, while new
communication and computing products added significant incremental demand. The
turnaround culminated when Unitrode was acquired via a stock-swap with Texas
Instruments, Inc. in the second half of 1999. The unrealized gain at year-end
exceeded 270%.
Technology holdings in both Westport Funds were primary contributors to 1999
results. However, it is important to note that their inclusion in the portfolios
was the result of the value-based investment strategy employed by the Funds.
Strong consumer expenditures supported by a fifth year of gains in stock market
averages benefited other portfolio companies. Whitehall Jewellers, Inc., a
jewelry retailer held in both Funds' portfolios, illustrated excellent sales and
earnings growth in 1999 with its stock market appreciation exceeding 100%. Radio
broadcasters benefited both from the excellent retail environment and the desire
of consumer-focused newly public Internet companies to build a customer base and
gain broad market recognition. Cox Radio, held in the Westport Fund, and Emmis
Broadcasting, Inc., held in the Westport Small Cap Fund, both appreciated more
than 100% in 1999.
WESTPORT FUND
In addition to the results highlighted above, acquisitions played an important
role in the Westport Fund's 1999 performance. The completed or announced
acquisition of five portfolio companies, and most especially the acquisition of
Platinum Technology International by Computer Associates International, and
Unitrode Corporation by Texas Instruments Corp., contributed significantly to
1999 results. Acquisition of portfolio companies is confirmation that the
investment strategy of identifying undervalued companies is working.
Currently, Special Outsourcing Services has a significant industry
representation in the Fund's portfolio. A number of companies in this industry
should benefit from new projects now that their customers are no longer
distracted with Y2K remediation efforts. In particular, continued rapid
development of the Internet should benefit companies supplying network hardware
and software and related services.
2
<PAGE>
There are disappointments in every year regardless of the level of success. In
1999 these were health care companies and financial services providers. The new
year should prove far better for the for-profit hospital companies contained in
the health care segment of the Fund's portfolio.
WESTPORT SMALL CAP FUND
Like the Westport Fund, acquisitions contributed to 1999 performance of the
Westport Small Cap Fund. The acquisition of seven portfolio companies was
announced or completed in 1999. However, the largest gain for the Westport Small
Cap Fund was from its investment in Conexant Systems, Inc., a spin-off from
Rockwell International Corp. Conexant is a leading manufacturer of specialized
semiconductors used in communications, networking and consumer products. As its
earnings improved dramatically during 1999, its stock price produced an
unrealized gain of 740%. Other portfolio holdings that manufacture
semiconductors for wireless handsets - Alpha Industries, Inc., and Anadigics,
Inc. - also posted excellent results in 1999, gaining more than 430% and 225%,
respectively. In addition, a number of other companies such as Aspen Technology,
Inc., had appreciation in 1999 exceeding 100%.
OUTLOOK
The Federal Reserve continues to express concern about the low level of domestic
unemployment and its potential for raising inflation from current low levels. In
the second half of 1999, the Federal Reserve took back the cumulative 75 basis
point monetary policy easing during the second half of 1998. This action was in
response to the stronger than expected domestic growth, continuing declines in
unemployment during 1999, and a strengthening world economy that is likely to
reduce the level of available imports. Continued tightening is very likely with
a 25 basis point increase at the next Federal Reserve Board meeting in February
nearly a certainty. However, while the Federal Reserve is being preemptive in
its implementation of monetary policy, it is not likely to be so aggressive in
its tightening that it would precipitate a major correction in the stock market
or derail the economy.
Value stocks, especially financials, even with the backdrop of a more
restrictive monetary policy, remain statistically inexpensive. This situation
seems unlikely to change absent a change in monetary policy. Our strategy in
this environment is to find companies that are available in the stock market at
a discount due to disagreement about asset valuation or earnings potential.
These opportunities sometimes arise when growth investors retreat from
attractive industries because expectations were either initially unrealistic or
not achieved.
We would like to take this opportunity to thank our fellow shareholders for
their continued confidence in The Westport Funds.
Sincerely,
/s/ Edmund H. Nicklin, Jr. /s/ Andrew J. Knuth
Edmund H. Nicklin, Jr. Andrew J. Knuth
* Initial public offering of Class R shares was January 2, 1998.
** For total return and other information relating to Class I shares of the
Westport Small Cap fund, see The Financial Highlights on page 8.
3
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1999
===========================================================================================
Westport
Westport Small Cap
Fund Fund
- -------------------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost .................................. $ 7,672,146 $223,514,286
============ ============
At market value (Note 2) ............................. $ 10,094,928 $289,279,996
Dividends receivable ...................................... 6,715 228,043
Receivable for capital shares sold ........................ 135,450 694,200
Organization expenses, net (Note 2) ....................... 13,051 13,051
Other assets .............................................. 25,513 32,592
------------ ------------
TOTAL ASSETS ......................................... 10,275,657 290,247,882
------------ ------------
LIABILITIES
Payable for capital shares redeemed ....................... 26,424 5,208
Payable for securities purchased .......................... -- 4,517,372
Payable to affiliates (Note 4) ............................ 13,402 255,819
Other accrued expenses and liabilities .................... 16,735 111,677
------------ ------------
TOTAL LIABILITIES .................................... 56,561 4,890,076
------------ ------------
NET ASSETS ................................................ $ 10,219,096 $285,357,806
============ ============
Net assets consist of:
Paid-in capital ........................................... $ 7,796,314 $219,963,989
Accumulated net realized losses from security transactions -- (371,891)
Net unrealized appreciation on investments ................ 2,422,782 65,765,708
------------ ------------
Net assets ................................................ $ 10,219,096 $285,357,806
============ ============
PRICING OF CLASS R SHARES
Net assets attributable to Class R shares ................. $ 10,219,096 $ 79,851,194
============ ============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5) ......... 692,882 4,848,897
============ ============
Net asset value, offering price and
redemption price per share (Note 2) .................. $ 14.75 $ 16.47
============ ============
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares ................. $ -- $205,506,612
============ ============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5) ......... -- 12,456,104
============ ============
Net asset value, offering price and redemption
price per share (Note 2) ............................. $ -- $ 16.50
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999
=======================================================================================================
Westport
Westport Small Cap
Fund Fund
- -------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends ....................................................... $ 50,052 $ 1,685,995
------------ ------------
EXPENSES
Investment advisory fees (Note 4) ............................... 65,665 1,516,620
Administration fees (Note 4) .................................... 12,000 142,144
Registration fees, Common ....................................... 5,139 49,402
Registration fees, Class R ...................................... 7,268 12,898
Registration fees, Class I ...................................... 7,676 7,849
Transfer agent fees, Class R (Note 4) ........................... 14,400 44,795
Transfer agent fees, Class I (Note 4) ........................... -- 12,000
Accounting services fees (Note 4) ............................... 24,000 42,500
Professional fees ............................................... 31,892 31,894
Shareholder servicing fees, Class R (Note 4) .................... -- 49,188
Custodian fees .................................................. 5,615 27,616
Trustees' fees and expenses ..................................... 9,529 9,529
Postage and supplies ............................................ 4,337 11,667
Insurance expense ............................................... 7,033 8,286
Shareholder reporting costs ..................................... 3,334 6,938
Amortization of organization expenses (Note 2) .................. 4,350 4,350
Other expenses .................................................. 672 1,797
------------ ------------
TOTAL EXPENSES ............................................. 202,910 1,979,473
Fees waived and/or expenses reimbursed by the Adviser (Note 4) .. (93,501) --
------------ ------------
NET EXPENSES ............................................... 109,409 1,979,473
------------ ------------
NET INVESTMENT LOSS .................................................. (59,357) (293,478)
------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions .......... 1,061,005 (306,069)
Net change in unrealized appreciation/depreciation on investments 2,015,351 61,996,908
------------ ------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ..................... 3,076,356 61,690,839
------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ........................... $ 3,016,999 $ 61,397,361
============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
==================================================================================================================================
Westport Fund Westport Small Cap Fund
------------------------------- -------------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment loss .................................. $ (59,357) $ (27,293) $ (293,478) $ (91,013)
Net realized gains (losses) from security transactions 1,061,005 (29,217) (306,069) (65,822)
Net change in unrealized appreciation/depreciation
on investments .................................. 2,015,351 407,431 61,996,908 3,768,800
------------- ------------- ------------- -------------
Net increase in net assets from operations ................ 3,016,999 350,921 61,397,361 3,611,965
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains, Class R ..................... (979,933) -- -- --
------------- ------------- ------------- -------------
Decrease in net assets from distributions
to shareholders ...................................... (979,933) -- -- --
------------- ------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (Note 5):
CLASS R
Proceeds from shares sold ............................ 2,979,679 7,691,385 59,869,590 20,616,984
Net asset value of shares issued in
reinvestment of distributions to shareholders ... 973,023 -- -- --
Payments for shares redeemed ......................... (1,869,572) (1,993,406) (19,081,591) (1,845,989)
------------- ------------- ------------- -------------
Net increase in net assets from Class R share transactions 2,083,130 5,697,979 40,787,999 18,770,995
------------- ------------- ------------- -------------
CLASS I
Proceeds from shares sold ............................ -- -- 140,781,420 32,884,086
Payments for shares redeemed ......................... -- -- (11,475,889) (1,450,131)
------------- ------------- ------------- -------------
Net increase in net assets from Class I share transactions -- -- 129,305,531 31,433,955
------------- ------------- ------------- -------------
Net increase in net assets from capital share transactions 2,083,130 5,697,979 170,093,530 50,204,950
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS .............................. 4,120,196 6,048,900 231,490,891 53,816,915
NET ASSETS:
Beginning of year (Note 1) ........................... 6,098,900 50,000 53,866,915 50,000
------------- ------------- ------------- -------------
End of year .......................................... $ 10,219,096 $ 6,098,900 $ 285,357,806 $ 53,866,915
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
WESTPORT FUND
FINANCIAL HIGHLIGHTS
====================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
- ------------------------------------------------------------------------------------
Class R
----------------------------
For the Year For the Year
Ended Ended
December 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of year ................ $ 11.22 $ 10.00
---------- ----------
Income from investment operations:
Net investment loss ............................ (0.08) (0.05)
Net realized and unrealized gains on investments 5.21 1.27
---------- ----------
Total from investment operations .................... 5.13 1.22
---------- ----------
Less distributions:
From net realized gains ........................ (1.60) --
---------- ----------
Total distributions ................................. (1.60) --
---------- ----------
Net asset value at end of year ...................... $ 14.75 $ 11.22
========== ==========
Total return ........................................ 46.13% 12.20%
========== ==========
Net assets at end of year (000's) ................... $ 10,219 $ 6,099
========== ==========
Ratio of net expenses to average net assets ......... 1.50% 1.50%
Ratio of gross expenses to average net assets(A) .... 2.67% 3.60%
Ratio of net investment loss to average net assets .. (0.81%) (0.71%)
Portfolio turnover rate ............................. 68% 63%
</TABLE>
(A) Represents the ratio of expenses to average net assets absent fee waivers
and/or expense reimbursements by the Adviser (Note 4).
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
WESTPORT SMALL CAP FUND
FINANCIAL HIGHLIGHTS
========================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
Class R Class I
----------------------------- -----------------------------
For the Year For the Year For the Year For the Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998(A)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period .............. $ 11.54 $ 10.00 $ 11.55 $ 10.92
----------- ----------- ----------- -----------
Income from investment operations:
Net investment loss ............................ (0.03) (0.02) (0.01) (0.02)
Net realized and unrealized gains on investments 4.96 1.56 4.96 0.65
----------- ----------- ----------- -----------
Total from investment operations .................... 4.93 1.54 4.95 0.63
----------- ----------- ----------- -----------
Net asset value at end of period .................... $ 16.47 $ 11.54 $ 16.50 $ 11.55
=========== =========== =========== ===========
Total return ........................................ 42.72% 15.40% 42.86% 5.77%
=========== =========== =========== ===========
Net assets at end of period (000's) ................. $ 79,851 $ 20,637 $ 205,507 $ 33,230
=========== =========== =========== ===========
Ratio of net expenses to average net assets ......... 1.43% 1.50% 1.24% 1.50%
Ratio of gross expenses to average net assets(B) .... 1.43% 1.79% 1.24% 1.64%(C)
Ratio of net investment loss to average net assets .. (0.33%) (0.39%) (0.13%) (0.36%)(C)
Portfolio turnover rate ............................. 10% 19% 10% 19%
</TABLE>
(A) Represents the period from the initial public offering of shares (February
16, 1998) through December 31, 1998.
(B) Represents the ratio of expenses to average net assets absent fee waivers
and/or expense reimbursements by the Adviser.
(C) Annualized.
See accompanying notes to financial statements.
8
<PAGE>
THE WESTPORT FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
================================================================================
1. ORGANIZATION
The Westport Funds (the Trust) is registered under the Investment Company Act of
1940 (the 1940 Act), as a diversified, no-load, open-end management investment
company. The Trust was organized as a Delaware business trust under a
Declaration of Trust dated September 17, 1997. The Trust has established two
separate series: the Westport Fund and the Westport Small Cap Fund (the Funds).
The Trust was capitalized on December 16, 1997, when the initial shares of each
Fund were purchased at $10 per share. Except for the initial purchase of shares,
the Trust had no operations prior to the commencement of operations on January
2, 1998.
The Westport Fund seeks to achieve its investment objective by investing in
undervalued securities primarily of attractive mid capitalization companies. A
mid capitalization company has a market capitalization between $1.75 billion and
$7.5 billion. The Fund will also invest on an opportunistic basis in the
securities of attractive companies with both larger and smaller market
capitalizations, but it is expected that the median market capitalization of the
companies in the Fund will normally be in the mid capitalization range.
The Westport Small Cap Fund seeks to achieve its investment objective by
investing at least 65% of its total assets in the equity securities of small
capitalization companies. A small capitalization company has market
capitalization of $1.75 billion or less at the time of the Fund's investment.
Companies whose capitalization exceeds $1.75 billion after purchase will
continue to be considered small cap for purposes of this 65% limitation. The
Fund may also invest to a limited degree in companies that have larger market
capitalizations.
Each of the Funds is authorized to offer two classes of shares: Class R shares
and Class I shares. Each Class R and Class I share of a Fund represents
identical interests in the Fund's assets and has the same rights, except that
(i) Class I shares are expected to have lower operating expenses over time due
to a shareholder services plan adopted with respect to Class R shares of each
Fund (Note 4), and (ii) certain other class specific expenses are borne solely
by the class to which such expenses are attributable. As of December 31, 1999,
the public offering of Class I shares of the Westport Fund had not commenced.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Trust's significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of business of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time). Securities traded on a national stock
exchange or quoted by NASDAQ are valued at the last reported sale price on the
principal exchange where the security is traded or, if not traded on a
particular day, at the closing bid price. Securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price, if available, otherwise, at the last quoted bid price.
Securities for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees.
Share valuation -- The net asset value per share of each class of shares of each
Fund is calculated daily by dividing the total value of a Fund's assets
attributable to that class, less liabilities attributable to that class, by the
number of shares of that class outstanding. The offering price and redemption
price per share of both classes of shares of each Fund is equal to the net asset
value per share.
9
<PAGE>
Investment income and distributions to shareholders -- Dividend income is
recorded on the ex-dividend date. Interest income is accrued as earned.
Dividends arising from net investment income, if any, are declared and paid
annually. Net capital gains (net long-term capital gains in excess of net
short-term capital losses), if any, are distributed at least annually.
Organization expenses -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over five years. In the event any of
the initial shares of a Fund are redeemed during the amortization period, the
redemption proceeds will be reduced by a pro rata portion of any unamortized
organization expenses in the same proportion as the number of initial shares
being redeemed bears to the number of initial shares of the Fund outstanding at
the time of the redemption.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
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 at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments as of December 31, 1999:
Westport Westport
Fund Small Cap Fund
- --------------------------------------------------------------------------------
Gross unrealized appreciation ............ $ 3,039,607 $ 77,320,717
Gross unrealized depreciation ............ (624,270) (11,617,147)
------------- -------------
Net unrealized appreciation .............. $ 2,415,337 $ 65,703,570
============= =============
Federal income tax cost .................. $ 7,679,591 $ 223,576,425
============= =============
- --------------------------------------------------------------------------------
The difference between the federal income tax cost of portfolio investments and
the acquisition cost is due to certain timing differences in the recognition of
capital losses under income tax regulations and generally accepted accounting
principles.
As of December 31, 1999, the Westport Small Cap Fund had a capital loss
carryforward for federal income tax purposes of $309,752, which will expire on
December 31, 2007. This capital loss carryforward may be utilized in future
years to offset net realized capital gains prior to distributing such gains to
shareholders.
Reclassification of capital accounts -- For the year ended December 31, 1999,
the Westport Fund and the Westport Small Cap Fund reclassified net investment
losses of $7,502 and $293,478, respectively, against paid-in capital on the
Statements of Assets and Liabilities. Such reclassifications, the result of
permanent differences between financial statement and income tax reporting
requirements, have no effect on each Fund's net assets or net asset value per
share.
10
<PAGE>
3. INVESTMENT TRANSACTIONS
For the year ended December 31, 1999, cost of purchases and proceeds from sales
of portfolio securities, other than short-term investments, amounted to
$5,349,271 and $4,645,175, respectively, for the Westport Fund, and $151,302,400
and $12,587,556, respectively, for the Westport Small Cap Fund.
4. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Westport
Advisers, LLC (the Adviser), or of Countrywide Fund Services, Inc. (CFS), the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust.
INVESTMENT ADVISORY AGREEMENT
The Funds' investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. Each Fund pays the Adviser an investment management fee,
computed and accrued daily and paid monthly, at an annual rate of 0.90% of
average daily net assets for the Westport Fund, and at an annual rate of 1.00%
of average daily net assets for the Westport Small Cap Fund. In order to
voluntarily reduce operating expenses of the Westport Fund during the year ended
December 31, 1999, the Adviser waived investment advisory fees of $64,157 and
reimbursed the Fund for $21,668 of Class R expenses and $7,676 of Class I
expenses.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, CFS supplies non-investment
related administrative and compliance services for the Funds. CFS supervises the
preparation of tax returns, reports to shareholders, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For these services, CFS
receives a monthly fee from each Fund at an annual rate of 0.125% on its average
daily net assets up to $50 million; 0.10% on the next $50 million of such net
assets; 0.075% on the next $50 million of such net assets; and 0.05% on such
assets in excess of $150 million, subject to a minimum monthly fee.
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement, CFS maintains the records of each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of the Funds' shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, CFS receives a monthly fee from each Fund based on the number of
shareholder accounts in each class, subject to a minimum monthly fee for each
class of shares. In addition, each Fund pays CFS out-of-pocket expenses
including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Funds. For these services, CFS receives a monthly fee from each Fund. In
addition, each Fund pays CFS certain out-of-pocket expenses incurred by CFS in
obtaining valuations of such Fund's portfolio securities.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a shareholder services plan with respect to Class R shares
of each Fund. Under this plan, the Trust may enter into agreements pursuant to
which a shareholder servicing agent performs certain shareholder services not
otherwise provided by the transfer agent. For these services, each Fund pays the
shareholder servicing agent a fee of up
11
<PAGE>
to 0.25% of the average daily net assets attributable to the Class R shares
owned by investors for which the shareholder servicing agent maintains a
servicing relationship. For the year ended December 31, 1999, shareholder
servicing fees of $49,188 were paid by Class R shares of the Westport Small Cap
Fund.
DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement on behalf of the Funds with
CW Fund Distributors, Inc. (the Distributor). Pursuant to the Distribution
Agreement, the Distributor acts as distributor of each Fund's shares. The
Distributor receives no compensation for its services and is an affiliate of
CFS.
5. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Westport Westport
Fund Small Cap Fund
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
CLASS R
<S> <C> <C> <C> <C>
Shares sold .............................. 238,552 722,348 4,471,126 1,956,945
Shares issued in reinvestment of
distributions to shareholders ....... 67,996 -- -- --
Shares redeemed .......................... (157,465) (183,549) (1,409,785) (174,389)
------------ ------------ ------------ ------------
Net increase in shares outstanding ....... 149,083 538,799 3,061,341 1,782,556
Shares outstanding, beginning of period .. 543,799 5,000 1,787,556 5,000
------------ ------------ ------------ ------------
Shares outstanding, end of period ........ 692,882 543,799 4,848,897 1,787,556
============ ============ ============ ============
CLASS I
Shares sold .............................. -- -- 10,374,335 3,016,287
Shares redeemed .......................... -- -- (795,544) (138,974)
------------ ------------ ------------ ------------
Net increase in shares outstanding ....... -- -- 9,578,791 2,877,313
Shares outstanding, beginning of period .. -- -- 2,877,313 --
------------ ------------ ------------ ------------
Shares outstanding, end of period ........ -- -- 12,456,104 2,877,313
============ ============ ============ ============
- -------------------------------------------------------------------------------------------------------------
</TABLE>
6. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
On December 28, 1999, the Westport Fund declared and paid a short-term capital
gain distribution of $806,208 or $1.3140 per share and a long-term capital gain
distribution of $173,725 or $0.2832 per share. In January of 2000, shareholders
were provided with Form 1099-DIV which reported the amount and tax status of the
capital gain distributions paid during calendar year 1999.
12
<PAGE>
WESTPORT FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
================================================================================
MARKET
COMMON STOCKS -- 93.2% SHARES VALUE
- --------------------------------------------------------------------------------
BROADCASTING/CABLE TV -- 15.0%
Cox Radio, Inc. - Class A(a) ..................... 6,700 $ 668,325
Insight Communications Company, Inc.(a) .......... 15,500 459,187
MediaOne Group, Inc.(a) .......................... 5,000 384,063
------------
1,511,575
------------
BUSINESS PRODUCTS & SERVICES -- 24.8%
American Management Systems, Inc.(a) ............. 11,700 367,087
Computer Associates International, Inc. .......... 3,000 209,813
Parametric Technology Corporation(a) ............. 15,000 405,938
Project Software and Development, Inc.(a) ........ 10,000 555,000
Rational Software Corporation(a) ................. 10,000 491,250
Synopsys Inc.(a) ................................. 7,500 500,625
------------
2,529,713
------------
CONSUMER PRODUCTS & SERVICES -- 7.6%
Consolidated Stores Corporation(a) ............... 7,500 121,875
Duane Reade, Inc.(a) ............................. 7,000 192,937
Harcourt General, Inc. ........................... 4,000 161,000
Nieman Marcus Group, Inc. - Class B(a) ........... 1,205 32,459
Whitehall Jewellers, Inc.(a) ..................... 7,400 272,875
------------
781,146
------------
FINANCE -- 0.4%
Freedom Securities Corporation ................... 4,000 45,000
------------
HEALTH CARE -- 7.0%
Lincare Holdings, Inc.(a) ........................ 8,000 277,500
Quorum Health Group, Inc.(a) ..................... 30,000 279,375
Universal Health Services, Inc. - Class B ........ 4,500 162,000
------------
718,875
------------
INDUSTRIAL SPECIALTY PRODUCTS -- 14.5%
C&D Technologies, Inc. ........................... 11,000 467,500
JLG Industries, Inc. ............................. 8,000 127,000
Strattec Security Corporation(a) ................. 6,500 210,437
Texas Instruments Inc. ........................... 7,032 681,225
------------
1,486,162
------------
OIL & GAS PRODUCERS -- 3.6%
Pogo Producing Company ........................... 14,500 297,250
Southwestern Energy Company ...................... 11,000 72,188
------------
369,438
------------
OIL & GAS SERVICES -- 1.0%
Transocean Sedo Forex, Inc. ...................... 3,000 101,062
------------
REGIONAL BANKS & THRIFTS -- 1.1%
Sterling Financial Corporation(a) ................ 10,000 115,000
------------
13
<PAGE>
WESTPORT FUND
PORTFOLIO OF INVESTMENTS (Continued)
DECEMBER 31, 1999
================================================================================
MARKET
COMMON STOCKS -- 93.2% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
SECURITY PRODUCTS & SERVICES -- 1.6%
Pittston Brink's Group ........................... 7,500 $ 165,000
------------
SPECIALIZED OUTSOURCING SERVICES -- 11.5%
Acxiom Corporation(a) ............................ 6,000 144,000
Policy Management Systems Corporation(a) ......... 14,000 357,875
Reynolds & Reynolds Company (The) - Class A ...... 14,000 315,000
Shared Medical Systems Corporation ............... 7,000 356,563
------------
1,173,438
------------
TRANSPORTATION -- 1.5%
Airborne Freight Corporation ..................... 7,000 154,000
------------
UTILITIES -- 2.4%
El Paso Electric Company(a) ...................... 25,000 245,313
------------
OTHER -- 1.2% .................................... 124,200
------------
TOTAL COMMON STOCKS (Cost $7,097,140) ............ $ 9,519,922
------------
MONEY MARKETS -- 5.6%
Firstar Stellar Treasury Fund (Cost $575,006) .... 575,006 $ 575,006
------------
TOTAL INVESTMENT SECURITIES -- 98.8% (Cost $7,672,146) $ 10,094,928
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.2% .... 124,168
------------
NET ASSETS -- 100.0% ............................. $ 10,219,096
============
(a) Non-income producing security.
See accompanying notes to financial statements.
14
<PAGE>
WESTPORT SMALL CAP FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
================================================================================
MARKET
COMMON STOCKS -- 88.3% SHARES VALUE
- --------------------------------------------------------------------------------
AIRCRAFT MAINTENANCE & SERVICES -- 1.7%
AAR Corporation .................................. 271,250 $ 4,865,547
------------
BROADCASTING/CABLE TV -- 11.1%
Cox Radio, Inc. - Class A(a) ..................... 19,700 1,965,075
Emmis Communications Corporation(a) .............. 148,200 18,471,740
Insight Communications Company, Inc.(a) .......... 380,150 11,261,943
------------
31,698,758
------------
BUSINESS PRODUCTS & SERVICES -- 13.7%
Aspen Technology, Inc.(a) ........................ 225,000 5,948,438
Project Software & Development, Inc.(a) .......... 107,600 5,971,800
Rational Software Corporation(a) ................. 100,000 4,912,500
Sterling Commerce, Inc.(a) ....................... 300,000 10,218,750
Unigraphics Solutions, Inc.(a) ................... 347,100 9,371,700
Volt Information Sciences, Inc.(a) ............... 113,712 2,714,874
------------
39,138,062
------------
COMMUNICATIONS EQUIPMENT & SERVICES -- 1.0%
General Communication, Inc.(a) ................... 581,500 2,544,063
------------
CONSUMER PRODUCTS & SERVICES -- 10.4%
Applebee's International, Inc. ................... 50,000 1,475,000
Consolidated Stores Corporation(a) ............... 280,506 4,558,222
Duane Reade, Inc.(a) ............................. 222,800 6,140,925
Gaylord Entertainment Company .................... 75,000 2,245,312
Houghton Mifflin Company ......................... 100,000 4,218,750
Outback Steakhouse, Inc.(a) ...................... 70,000 1,815,625
Ruby Tuesday, Inc. ............................... 181,300 3,297,393
Saks, Inc.(a) .................................... 270,000 4,212,769
Whitehall Jewellers, Inc.(a) ..................... 45,500 1,677,813
------------
29,641,809
------------
HEALTH CARE -- 2.6%
Quorum Health Group, Inc.(a) ..................... 256,000 2,384,000
Universal Health Services, Inc. - Class B(a) ..... 140,900 5,072,400
------------
7,456,400
------------
INDUSTRIAL SERVICES -- 2.3%
ITT Educational Services, Inc.(a) ................ 305,500 4,716,156
XTRA Corporation(a) .............................. 43,100 1,837,137
------------
6,553,293
------------
INDUSTRIAL SPECIALTY PRODUCTS -- 18.8%
Alpha Industries, Inc.(a) ........................ 83,775 4,801,355
Anadigics, Inc.(a) ............................... 66,200 3,123,813
C&D Technologies, Inc. ........................... 134,400 5,712,000
Conexant Systems, Inc.(a) ........................ 270,000 17,921,250
DuPont Photomasks, Inc.(a) ....................... 167,900 8,101,175
JLG Industries, Inc. ............................. 134,600 2,136,775
15
<PAGE>
WESTPORT SMALL CAP FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
================================================================================
MARKET
COMMON STOCKS -- 88.3% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
INDUSTRIAL SPECIALTY PRODUCTS -- 18.8% (Continued)
Rogers Corporation(a) ............................ 48,500 $ 1,855,125
Texas Instruments Inc. ........................... 103,724 10,048,263
------------
53,699,756
------------
MEDICAL PRODUCT -- 1.2%
Bindley Western Industries, Inc. ................. 107,644 1,621,388
Owens & Minor, Inc. .............................. 210,250 1,879,109
------------
3,500,497
------------
OIL & GAS PRODUCERS -- 2.6%
Devon Energy Corporation ......................... 147,942 4,863,593
Santa Fe Snyder Corporation(a) ................... 312,900 2,503,200
------------
7,366,793
------------
REGIONAL BANKS & THRIFTS -- 5.5%
Downey Financial Corporation ..................... 100,000 2,018,750
First Essex Bancorp, Inc. ........................ 161,200 2,317,250
Harbor Florida Bancshares, Inc. .................. 161,000 2,082,938
PBOC Holdings, Inc.(a) ........................... 102,500 967,344
People's Bank .................................... 119,000 2,513,875
Seacoast Financial Services Corporation .......... 239,425 2,439,142
Staten Island Bancorp, Inc. ...................... 80,000 1,440,000
Sterling Financial Corporation(a) ................ 102,000 1,173,000
Timberland Bancorp ............................... 70,400 792,000
------------
15,744,299
------------
SECURITY PRODUCTS & SERVICES -- 2.0%
Checkpoint Systems, Inc.(a) ...................... 115,800 1,179,713
Sensormatic Electronics Corporation(a) ........... 241,800 4,216,388
------------
5,396,101
------------
SPECIALIZED OUTSOURCING SERVICES -- 5.6%
Policy Management Systems Corporation(a) ......... 358,650 9,167,991
Reynolds and Reynolds Company (The) - Class A .... 305,000 6,862,500
------------
16,030,491
------------
TRANSPORTATION -- 4.8%
Airborne Freight Corporation ..................... 22,100 486,200
Air Express International Corporation ............ 168,100 5,431,731
Circle International Group, Inc. ................. 107,250 2,386,312
Fritz Companies, Inc.(a) ......................... 164,200 1,724,100
Pittston BAX Group ............................... 350,675 3,725,921
------------
13,754,264
------------
UTILITIES -- 0.6%
El Paso Electric Company(a) ...................... 182,850 1,794,216
------------
OTHER -- 4.4% .................................... 12,675,475
------------
TOTAL COMMON STOCKS (Cost $186,094,114) .......... $251,859,824
------------
16
<PAGE>
WESTPORT SMALL CAP FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
================================================================================
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
MONEY MARKETS -- 13.1%
Firstar Stellar Treasury Fund (Cost $37,420,172) . 37,420,172 $ 37,420,172
------------
TOTAL INVESTMENT SECURITIES -- 101.4% (Cost $223,514,286) $289,279,996
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.4%) .. (3,922,190)
------------
NET ASSETS -- 100.0% ............................. $285,357,806
============
(a) Non-income producing security.
See accompanying notes to financial statements.
17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
================================================================================
To the Shareholders and Board of Trustees
The Westport Funds
Westport, Connecticut
We have audited the accompanying statements of assets and liabilities of
The Westport Funds, comprising, respectively, the Westport Fund and Westport
Small Cap Fund, including the portfolios of investments, as of December 31,
1999, and the related statements of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated thereon. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Westport Funds as of December 31, 1999, the results of their operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated
thereon, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 21, 2000
