THE WESTPORT FUNDS
Westport Fund THE
Westport Small Cap Fund ------------------
WESTPORT
website: www.westportfunds.com -----------------
FUNDS
SHAREHOLDER SERVICES
888-593-7878
INVESTMENT ADVISER [LOGO]
Westport Advisers, LLC
253 Riverside Avenue
Westport, Connecticut 06880
203-227-3601
BOARD OF TRUSTEES
Raymond J. Armstrong
Stephen E. Milman
Edmund H. Nicklin, Jr.
Ronald H. Oliver
D. Bruce Smith, II
TRANSFER AGENT Semi-Annual Report
Integrated Fund Services, Inc. June 30, 2000
P.O. Box 5354 (Unaudited)
Cincinnati, Ohio 45201-5354
888-593-7878
DISTRIBUTOR
IFS Fund Distributors, Inc. website:
312 Walnut Street, 21st Floor www.westportfunds.com
Cincinnati, Ohio 45202
----------------------
WESTPORT [LOGO]
INVESTMENTS
----------------------
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 JULY 11, 2000
================================================================================
Dear Fellow Shareholder:
The Westport Funds turned in a satisfactory performance in the first half of
2000. The Westport Small Cap Fund's total return in the first half exceeded that
of the Russell 2000 Index by more than four percentage points. Money Magazine,
in its June 2000 issue, selected the Westport Small Cap Fund as one of its 100
best mutual funds, unusual recognition for a mutual fund with less than a three
year record. The Westport Fund's return for the first six months lagged the S&P
MidCap 400 Index, but was comparable to the value component of that Index. (The
Westport Fund is classified as mid cap value by Lipper Analytical Services,
Inc.)
Table of Results
THE WESTPORT FUNDS
Total Returns -- June 30, 2000
--------------------------------------------------------------------------------
SINCE INCEPTION*
SIX MONTHS ONE YEAR TO 6/30/00
FUND OR INDEX ENDED 6/30/00 ENDED 6/30/00 (AVERAGE ANNUAL)
--------------------------------------------------------------------------------
Westport Small Cap Fund -- Class R** 7.0% 22.8% 25.5%
Russell 2000 Index 3.0% 14.3% 8.2%
--------------------------------------------------------------------------------
Westport Fund -- Class R 3.6% 26.1% 23.7%
S&P 400 MidCap Index 9.0% 17.0% 17.3%
--------------------------------------------------------------------------------
The equity markets this year have manifested abnormal behavior characterized by
extremes in valuation and volatility. One of the more striking examples is the
divergence between the small cap growth and small cap value components of the
Russell 2000 Index that developed in late 1999 and continued through first
quarter 2000. For twelve months ended June 30, 2000 the return for the growth
component of the Russell 2000 exceeded that of the value component by 29
percentage points. This unprecedented performance gap was reduced in second
quarter 2000 so that for the six months ended June 30, 2000 the value
component's return exceeded the growth component by approximately 4.6 percentage
points. The S&P 400 MidCap Index exhibited the same directional behavior but the
growth component remained ahead of the value component in the six month period.
This transition in market leadership reflects a broadening of investor interest
and a reassessment of valuations for growth companies, especially those in
technology and internet-related businesses.
In addition to a shift in leadership from growth to value segments, volatility
increased dramatically in the first half. The Russell 2000 Index had a swing of
2% or more intraday on 60% of trading days. The NASDAQ Composite lost 37% of its
value from March through May but gained in June. Numerous small companies saw
their share prices sink 30%-50% with even mildly disappointing earnings relative
to expectations, or experienced sharp yet smaller gains if expectations were
exceeded. This behavior results from unrealistically high expectations by
investors for companies participating in many high growth industries. Examples
are the expansion of the internet to become a worldwide network with higher
speed access more available, the international extension of wireless
communications and biotechnology advances. These expectations are in conflict
with the historical evidence that many participants in new industries are
unsuccessful.
2
<PAGE>
The exceptional success of early public offerings in these and other new
industries caused public investors to aggressively supply capital to the next
"winner," and mobilized venture capitalists, investment bankers and corporate
executives to accelerate the development of new businesses in the desired
industries. Some venture capitalists funded competitors without considering the
size of the end market, virtually insuring poor returns. Even a few companies
with questionable business models received funding. Investment bankers lowered
their standards for initial public offerings eliminating profitability as a
criterion. Executives with the requisite industry expertise received attractive
stock option grants for joining the start-ups. The key to a continuation of
exceptional returns from bringing these start-ups public is the willingness of
public investors to supply capital at virtually zero cost. However, the cost of
capital has risen as the Federal Reserve (Fed) raised interest rates six times
in the last twelve months. Much of the volatility observed in the marketplace
results from adjustment to the Fed's tightening of monetary policy.
The best performing holdings in both Westport Funds in the six month period were
two companies resolving problems that had depressed their earnings. C&D
Technologies, Inc. (C&D) is a market leading supplier of back-up power supplies
used in wireless telephony and broadband networks, both rapidly growing markets.
Results at two small divisions depressed C&D's earnings. Improvement at these
units and growth in its main business improved C&D's earnings and its stock
price. Universal Health Services, Inc. (UHS), the third largest domestic
for-profit hospital chain, has a long history of growing its earnings by
successfully acquiring and operating hospitals. Late in 1999, some managed care
customers unilaterally discounted payments for services performed in UHS
hospitals in violation of contract terms. Many managed care companies received
price increases in January 2000 and contemporaneously UHS reminded its customers
of the strategic position that UHS hospitals hold in their communities.
Commercial relations between UHS and its managed care customers returned to
normal in first half 2000 with elimination of the unilateral discounts,
restoring UHS's earnings.
Acquisitions again were a significant factor in the performance of The Westport
Funds. Both Funds were investors in Shared Medical Systems Corp., the market
leader in information systems for hospitals which was acquired by Siemens AG
with a gain exceeding 50%. Policy Management Systems Corp. (PMSC), also a
holding of both Funds, agreed to be acquired by Computer Sciences Corp. (CSC)
late in the first half at a price that creates a loss for the Funds. PMSC had
received, but rejected, a substantially higher offer from CSC in early Fall
1999. Subsequently, underperforming acquisitions combined with a lull in new
business due to year 2000 transition issues caused a sharp decline in financial
performance at PMSC.
WESTPORT SMALL CAP FUND
In addition to the acquisitions noted previously, two other portfolio companies
agreed to be acquired in the first half. Sterling Commerce, a suppler of
communications software was acquired by SBC Communications, Inc. for a gain of
more than 85%. Also, Santa Fe Snyder Corp., a successful oil and gas exploration
and a production company, agreed to be acquired by Devon Energy Corp. in a share
exchange. The Fund currently has a significant position in Devon from its prior
acquisition of portfolio holding PennzEnergy Company.
A significant component of the investment strategy for the Funds is the
exploitation of market overreactions to company disappointments. Two such
incidents recently provided opportunities for the Westport Small Cap Fund. In
late 1999 Dupont Photomasks, Inc. (DPI), a leading merchant supplier of masks
for the production of semiconductors, pre-announced an earnings shortfall. Some
customers shifted orders to an alternate supplier when DPI failed to deliver
finished masks according to schedule. The company's stock declined 38.5%,
creating a buying opportunity. DPI's problem resulted from mishandled domestic
expansion and was quickly resolved with DPI shares recovering 42% in the first
half. The second example is IMS Health, Inc. (IMS), a health database company.
3
<PAGE>
In the first quarter, it proposed a convoluted transaction with an Internet
company that would have materially diluted the holdings of existing IMS
shareholders, causing its stock price to drop dramatically. Reasoning that the
drop would likely cause IMS shareholders to reject the proposed transaction, the
Fund established a position. Subsequently, the transaction was aborted with only
a small IMS subsidiary sold to the Internet company at a reasonable price. With
the value of IMS intact, its stock should recover as the questions about
management competence dissipate over time.
WESTPORT FUND
In addition to the results for portfolio holdings highlighted above, there were
other notable performances, including Rational Software Corp., a leading
supplier of software development tools for e-business which saw its revenue
growth accelerate to nearly 40%. This led to an unrealized gain of approximately
90% in first half 2000. Harcourt General, Inc. announced the hiring of an
investment banking firm to explore options to maximize shareholder value, most
likely through a sale of the company. With sharply higher prices for oil and
natural gas, the Fund's exploration and production and oil service company
holdings performed well.
On the negative side, after excellent price appreciation in 1999, radio
broadcasters retreated on concern that a slowdown in economic growth would
reduce spending on advertising. Cable TV companies came under selling pressure
as direct broadcast satellite (DBS) companies experienced excellent subscriber
additions, while the technological improvements to enable the cable companies to
effectively counter the DBS offerings wouldn't be fully installed for many
operators until year-end 2000.
OUTLOOK
The longevity of the current economic expansion, recent rapid economic growth
and the lowest unemployment level in decades have caused the Fed to become
increasingly concerned that these economic conditions, if continued, would lead
to a rekindling of inflation. This concern caused the Fed to raise the Fed funds
rate six times in the last twelve months -- a total of 1.75% to slow the
economy. The Fed's action in combination with more than 90 tightenings by other
Central Banks worldwide in the same period, dramatically higher oil prices and
more rigorous lending standards by the nation's banks should slow economic
growth to a rate that is unlikely to foster an acceleration of inflation. Recent
economic statistics suggest the slowing is already underway. If that is correct,
the Fed would be unlikely to tighten further. This situation would be a positive
for the equity markets but a slowing economy will produce earnings
disappointments, keeping the securities markets volatile.
We look forward to navigating through what will undoubtedly be a challenging
investment environment in the last half of 2000.
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 9.
4
<PAGE>
THE WESTPORT FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
================================================================================
WESTPORT
WESTPORT SMALL CAP
FUND FUND
--------------------------------------------------------------------------------
ASSETS
Investment securities:
At acquisition cost ...................... $ 10,624,933 $404,192,055
============ ============
At market value (Note 2) ................. $ 12,860,869 $482,176,386
Dividends receivable .......................... 10,872 526,825
Receivable for securities sold ................ 332,564 121,796
Receivable for capital shares sold ............ 5,850 3,455,180
Organization expenses, net (Note 2) ........... 10,876 10,876
Other assets .................................. 25,187 178,851
------------ ------------
TOTAL ASSETS ............................. 13,246,218 486,469,914
------------ ------------
LIABILITIES
Payable for capital shares redeemed ........... -- 20,716
Payable for securities purchased .............. 78,113 7,760,359
Payable to affiliates (Note 4) ................ 15,157 424,231
Other accrued expenses and liabilities ........ 2,830 76,410
------------ ------------
TOTAL LIABILITIES ........................ 96,100 8,281,716
------------ ------------
NET ASSETS .................................... $ 13,150,118 $478,188,198
============ ============
Net assets consist of:
Paid-in capital ............................... $ 10,258,211 $388,844,705
Undistributed net investment income (loss) .... (34,447) 251,403
Accumulated net realized gains from
security transactions .................... 690,418 11,107,759
Net unrealized appreciation on investments .... 2,235,936 77,984,331
------------ ------------
Net assets .................................... $ 13,150,118 $478,188,198
============ ============
PRICING OF CLASS R SHARES
Net assets attributable to Class R shares ..... $ 13,150,118 $105,654,933
============ ============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) ................... 860,379 5,993,095
============ ============
Net asset value, offering price and
redemption price per share (Note 2) ...... $ 15.28 $ 17.63
============ ============
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares ..... $ -- $372,533,265
============ ============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) ................... -- 21,080,250
============ ============
Net asset value, offering price and
redemption price per share (Note 2) ...... $ -- $ 17.67
============ ============
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2000 (Unaudited)
=======================================================================================
WESTPORT
WESTPORT SMALL CAP
FUND FUND
---------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends ....................................... $ 52,728 $ 2,568,953
------------ ------------
EXPENSES
Investment advisory fees (Note 4) ............... 52,305 1,935,033
Administration fees (Note 4) .................... 7,312 135,140
Registration fees, Common ....................... 3,291 37,337
Registration fees, Class R ...................... 4,767 6,658
Registration fees, Class I ...................... 4,654 8,422
Transfer agent fees, Class R (Note 4) ........... 7,200 42,038
Transfer agent fees, Class I (Note 4) ........... -- 6,270
Shareholder servicing fees, Class R (Note 4) .... -- 52,734
Accounting services fees (Note 4) ............... 12,000 32,461
Professional fees ............................... 21,267 21,267
Custodian fees .................................. 2,459 19,700
Shareholder reporting costs ..................... 2,307 6,671
Postage and supplies ............................ 2,912 5,717
Insurance expense ............................... 3,516 4,143
Amortization of organization expenses (Note 2) .. 2,175 2,175
Trustees' fees and expenses ..................... 1,153 1,153
Other expenses .................................. 362 631
------------ ------------
TOTAL EXPENSES ................................ 127,680 2,317,550
Fees waived and/or expenses reimbursed
by the Adviser (Note 4) ....................... (40,505) --
------------ ------------
NET EXPENSES .................................. 87,175 2,317,550
------------ ------------
NET INVESTMENT INCOME (LOSS) ......................... (34,447) 251,403
------------ ------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security
transactions .................................. 690,418 11,479,650
Net change in unrealized appreciation/
depreciation on investments ................... (186,846) 12,218,623
------------ ------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ..... 503,572 23,698,273
------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ........... $ 469,125 $ 23,949,676
============ ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
=================================================================================================================================
Westport Fund Westport Small Cap Fund
----------------------------- -----------------------------
Six Months Six Months
Ended For the Year Ended For the Year
June 30, Ended June 30, Ended
2000 December 31, 2000 December 31,
(Unaudited) 1999 (Unaudited) 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) ............................ $ (34,447) $ (59,357) $ 251,403 $ (293,478)
Net realized gains (losses) from security transactions .. 690,418 1,061,005 11,479,650 (306,069)
Net change in unrealized appreciation/depreciation
on investments ....................................... (186,846) 2,015,351 12,218,623 61,996,908
------------ ------------ ------------ ------------
Net increase in net assets from operations ................... 469,125 3,016,999 23,949,676 61,397,361
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains, Class R ........................ -- (979,933) -- --
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (Note 5):
CLASS R
Proceeds from shares sold ............................... 3,346,021 2,979,679 33,857,264 59,869,590
Net asset value of shares issued in
reinvestment of distributions to shareholders ......... -- 973,023 -- --
Payments for shares redeemed ............................ (884,124) (1,869,572) (13,785,100) (19,081,591)
------------ ------------ ------------ ------------
Net increase in net assets from Class R share transactions ... 2,461,897 2,083,130 20,072,164 40,787,999
------------ ------------ ------------ ------------
CLASS I
Proceeds from shares sold ............................... -- -- 202,499,891 140,781,420
Payments for shares redeemed ............................ -- -- (53,691,339) (11,475,889)
------------ ------------ ------------ ------------
Net increase in net assets from Class I share transactions ... -- -- 148,808,552 129,305,531
------------ ------------ ------------ ------------
Net increase in net assets from capital share transactions ... 2,461,897 2,083,130 168,880,716 170,093,530
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS ................................. 2,931,022 4,120,196 192,830,392 231,490,891
NET ASSETS:
Beginning of period (Note 1) ............................ 10,219,096 6,098,900 285,357,806 53,866,915
------------ ------------ ------------ ------------
End of period ........................................... $ 13,150,118 $ 10,219,096 $478,188,198 $285,357,806
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
WESTPORT FUND
FINANCIAL HIGHLIGHTS
===================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================
Class R
---------------------------------------------
Six Months
Ended For the Year For the Year
June 30, Ended Ended
2000 December 31, December 31,
(Unaudited) 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period ........... $ 14.75 $ 11.22 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment loss ......................... (0.04) (0.08) (0.05)
Net realized and unrealized gains on
investments ............................... 0.57 5.21 1.27
---------- ---------- ----------
Total from investment operations ................. 0.53 5.13 1.22
---------- ---------- ----------
Less distributions:
From net realized gains ..................... -- (1.60) --
---------- ---------- ----------
Net asset value at end of period ................. $ 15.28 $ 14.75 $ 11.22
========== ========== ==========
Total return ..................................... 3.59%(C) 46.13% 12.20%
---------- ---------- ----------
Net assets at end of period (000's) .............. $ 13,150 $ 10,219 $ 6,099
---------- ---------- ----------
Ratio of net expenses to average net assets ...... 1.50%(B) 1.50% 1.50%
Ratio of gross expenses to average net assets(A) . 2.11%(B) 2.67% 3.60%
Ratio of net investment loss to average net assets (0.59%)(B) (0.81%) (0.71%)
Portfolio turnover rate .......................... 59%(B) 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).
(B) Annualized.
(C) Not annualized.
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
WESTPORT SMALL CAP FUND
FINANCIAL HIGHLIGHTS
===================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================
Class R
---------------------------------------------
Six Months
Ended For the Year For the Year
June 30, Ended Ended
2000 December 31, December 31,
(Unaudited) 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period ............ $ 16.47 $ 11.54 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment loss .......................... -- (0.03) (0.02)
Net realized and unrealized gains on
investments ................................ 1.16 4.96 1.56
---------- ---------- ----------
Total from investment operations .................. 1.16 4.93 1.54
---------- ---------- ----------
Net asset value at end of period .................. $ 17.63 $ 16.47 $ 11.54
========== ========== ==========
Total return ...................................... 7.04%(C) 42.72% 15.40%
========== ========== ==========
Net assets at end of period (000's) ............... $ 105,655 $ 79,851 $ 20,637
========== ========== ==========
Ratio of net expenses to average net assets ....... 1.30%(B) 1.43% 1.50%
Ratio of gross expenses to average net assets(A) .. 1.30%(B) 1.43% 1.79%
Ratio of net investment income (loss) to
average net assets .............................. 0.02%(B) (0.33%) (0.39%)
Portfolio turnover rate ........................... 19%(B) 10% 19%
</TABLE>
(A) Represents the ratio of expenses to average net assets absent fee waivers
and/or expense reimbursements by the Adviser.
(B) Annualized.
(C) Not annualized.
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
THE WESTPORT FUNDS
WESTPORT SMALL CAP FUND
FINANCIAL HIGHLIGHTS
===================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================
Class I
---------------------------------------------
Six Months
Ended For the Year For the Year
June 30, Ended Ended
2000 December 31, December 31,
(Unaudited) 1999 1998 (A)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period ............ $ 16.50 $ 11.55 $ 10.92
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) ................. 0.01 (0.01) (0.02)
Net realized and unrealized gains
on investments ............................. 1.16 4.96 0.65
---------- ---------- ----------
Total from investment operations .................. 1.17 4.95 0.63
---------- ---------- ----------
Net asset value at end of period .................. $ 17.67 $ 16.50 $ 11.55
========== ========== ==========
Total return ...................................... 7.09%(D) 42.86% 5.77%(D)
========== ========== ==========
Net assets at end of period (000's) ............... $ 372,533 $ 205,507 $ 33,230
========== ========== ==========
Ratio of net expenses to average net assets ....... 1.16%(C) 1.24% 1.50%(C)
Ratio of gross expenses to average net assets(B) .. 1.16%(C) 1.24% 1.64%(C)
Ratio of net investment income (loss) to
average net assets .............................. 0.16%(C) (0.13%) (0.36%)(C)
Portfolio turnover rate ........................... 19%(C) 10% 19%(C)
</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.
(D) Not annualized.
See accompanying notes to financial statements.
10
<PAGE>
THE WESTPORT FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
================================================================================
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 the
majority of its assets in undervalued equity securities 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 June 30, 2000, 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.
11
<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 June 30, 2000:
--------------------------------------------------------------------------------
WESTPORT WESTPORT
FUND SMALL CAP FUND
--------------------------------------------------------------------------------
Gross unrealized appreciation .......... $ 3,491,092 $108,004,973
Gross unrealized depreciation .......... (1,262,601) (30,082,781)
============ ============
Net unrealized appreciation ............ $ 2,228,491 $ 77,922,192
============ ============
Federal income tax cost ................ $ 10,632,378 $404,254,194
============ ============
--------------------------------------------------------------------------------
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 the current
and future years to offset net realized capital gains prior to distributing such
gains to shareholders.
3. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2000, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$3,747,441 and $3,035,786, respectively, for the Westport Fund, and $148,489,594
and $30,319,852, respectively, for the Westport Small Cap Fund.
12
<PAGE>
4. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Westport
Advisers, LLC (the Adviser), or of Integrated Fund Services, Inc. (IFS), 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 six months ended June 30, 2000, the Adviser waived investment advisory fees
of $23,884 and reimbursed the Fund for $11,967 of Class R expenses and $4,654 of
Class I expenses.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, IFS supplies non-investment
related administrative and compliance services for the Funds. IFS 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, IFS
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, IFS 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, IFS 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 IFS out-of-pocket expenses
including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, IFS calculates the daily
net asset value per share and maintains the financial books and records of the
Funds. For these services, IFS receives a monthly fee from each Fund. In
addition, each Fund pays IFS certain out-of-pocket expenses incurred by IFS 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 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 six months ended
June 30, 2000, shareholder servicing fees of $52,734 were paid by Class R shares
of the Westport Small Cap Fund.
13
<PAGE>
DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement on behalf of the Funds with
IFS 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
IFS.
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 Fund Westport Small Cap Fund
----------------------------------------------------------
Six Months Six Months
Ended For the Year Ended For the Year
June 30, Ended June 30, Ended
2000 December 31, 2000 December 31,
(Unaudited) 1999 (Unaudited) 1999
-------------------------------------------------------------------------------------------------------------
CLASS R
<S> <C> <C> <C> <C>
Shares sold .................................... 229,177 238,552 1,946,935 4,471,126
Shares issued in reinvestment of
distributions to shareholders ................ -- 67,996 -- --
Shares redeemed ................................ (61,680) (157,465) (802,737) (1,409,785)
------------ ------------ ------------ ------------
Net increase in shares outstanding ............. 167,497 149,083 1,144,198 3,061,341
Shares outstanding, beginning of period ........ 692,882 543,799 4,848,897 1,787,556
------------ ------------ ------------ ------------
Shares outstanding, end of period .............. 860,379 692,882 5,993,095 4,848,897
============ ============ ============ ============
CLASS I
Shares sold .................................... -- -- 11,683,497 10,374,335
Shares redeemed ................................ -- -- (3,059,351) (795,544)
------------ ------------ ------------ ------------
Net increase in shares outstanding ............. -- -- 8,624,146 9,578,791
Shares outstanding, beginning of period ........ -- -- 12,456,104 2,877,313
------------ ------------ ------------ ------------
Shares outstanding, end of period .............. -- -- 21,080,250 12,456,104
============ ============ ============ ============
-------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
WESTPORT FUND
PORTFOLIO OF INVESTMENTS
June 30, 2000 (Unaudited)
================================================================================
Market
COMMON STOCKS -- 81.7% Shares Value
--------------------------------------------------------------------------------
BROADCASTING/CABLE TV -- 6.1%
Cox Radio, Inc. - Class A(a) .................... 20,100 $ 562,800
Insight Communications Company, Inc.(a) ......... 15,500 242,187
------------
804,987
------------
BUSINESS PRODUCTS & SERVICES -- 18.0%
American Management Systems, Inc.(a) ............ 11,700 384,089
Computer Associates International, Inc. ......... 7,000 358,313
Parametric Technology Corporation(a) ............ 20,000 220,000
Project Software and Development, Inc.(a) ....... 8,000 144,000
Rational Software Corporation(a) ................ 10,000 929,375
Synopsys Inc.(a) ................................ 9,500 328,344
------------
2,364,121
------------
CHEMICALS -- 2.8%
Praxair, Inc. ................................... 10,000 374,375
------------
COMMUNICATIONS EQUIPMENT & SERVICES -- 1.1%
AT&T Corporation ................................ 4,750 150,219
------------
CONSUMER PRODUCTS & SERVICES -- 5.5%
Consolidated Stores Corporation(a) .............. 7,500 90,000
Duane Reade, Inc.(a) ............................ 7,000 180,250
Harcourt General, Inc. .......................... 4,000 217,500
Nieman Marcus Group, Inc. - Class B(a) .......... 1,250 33,438
Whitehall Jewellers, Inc.(a) .................... 10,700 199,288
------------
720,476
------------
FINANCE -- 0.5%
Tucker Anthony Sutro Corporation ................ 4,000 72,000
------------
HEALTH CARE -- 6.8%
Lincare Holdings, Inc.(a) ....................... 12,000 295,500
Quorum Health Group, Inc.(a) .................... 30,000 309,375
Universal Health Services, Inc. - Class B ....... 4,500 297,000
------------
901,875
------------
INDUSTRIAL SPECIALTY PRODUCTS -- 13.7%
C&D Technologies, Inc. .......................... 13,000 734,500
JLG Industries, Inc. ............................ 8,000 95,000
Texas Instruments, Inc. ......................... 14,064 966,021
------------
1,795,521
------------
MEDICAL PRODUCTS -- 2.7%
Bristol-Myers Squibb Company .................... 6,000 349,500
------------
OIL & GAS PRODUCERS -- 5.8%
Anadarko Petroleum Corporation .................. 6,000 295,875
Pogo Producing Company .......................... 14,500 320,811
Southwestern Energy Company ..................... 23,600 147,500
------------
764,186
------------
15
<PAGE>
WESTPORT FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 2000 (Unaudited)
================================================================================
Market
COMMON STOCKS -- 81.7% (Continued) Shares Value
--------------------------------------------------------------------------------
OIL & GAS SERVICES -- 1.2%
Transocean Sedco Forex, Inc. .................... 3,000 $ 160,312
------------
PAPER AND RELATED PRODUCTS -- 1.5%
Westvaco Corporation ............................ 8,000 198,500
------------
REGIONAL BANKS & THRIFTS -- 0.9%
Sterling Financial Corporation(a) ............... 10,000 115,000
------------
SPECIALIZED OUTSOURCING SERVICES -- 8.5%
Policy Management Systems Corporation(a) ........ 22,500 345,938
Reynolds & Reynolds Company (The) - Class A ..... 14,000 255,500
Shared Medical Systems Corporation .............. 7,000 510,563
------------
1,112,001
------------
TRANSPORTATION -- 3.3%
Airborne Freight Corporation .................... 7,000 132,562
FedEx Corporation ............................... 7,500 285,000
------------
417,562
------------
UTILITIES -- 2.1%
El Paso Electric Company(a) ..................... 25,000 279,688
------------
OTHER -- 1.2% ................................... 154,825
------------
TOTAL COMMON STOCKS (Cost $8,499,212) ........... $ 10,735,148
------------
MONEY MARKETS -- 16.2%
Firstar Stellar Treasury Fund
(Cost $2,125,721) .......................... 2,125,721 $ 2,125,721
------------
TOTAL INVESTMENT SECURITIES -- 97.9%
(Cost $10,624,933) ......................... $ 12,860,869
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.1% ... 289,249
------------
NET ASSETS -- 100.0% ............................ $ 13,150,118
============
(a) Non-income producing security.
See accompanying notes to financial statements.
16
<PAGE>
WESTPORT SMALL CAP FUND
PORTFOLIO OF INVESTMENTS
June 30, 2000 (Unaudited)
================================================================================
Market
COMMON STOCKS -- 82.4% Shares Value
--------------------------------------------------------------------------------
AIRCRAFT MAINTENANCE & SERVICES -- 0.7%
AAR Corporation ................................. 271,250 $ 3,255,000
------------
BROADCASTING/CABLE TV -- 6.8%
Cox Radio, Inc. - Class A(a) .................... 335,100 9,382,800
Emmis Communications Corporation(a) ............. 361,400 14,952,925
Insight Communications Company, Inc.(a) ......... 506,075 7,907,422
------------
32,243,147
------------
BUSINESS PRODUCTS & SERVICES -- 13.4%
American Management Systems, Inc. ............... 338,200 11,102,472
Aspen Technology, Inc.(a) ....................... 225,000 8,662,500
IMS Health, Inc. ................................ 1,075,000 19,350,000
Project Software & Development, Inc.(a) ......... 164,600 2,962,800
Rational Software Corporation(a) ................ 100,000 9,293,750
Unigraphics Solutions, Inc.(a) .................. 389,500 7,595,250
Volt Information Sciences, Inc.(a) .............. 160,412 5,283,570
------------
64,250,342
------------
COMMUNICATIONS EQUIPMENT & SERVICES -- 0.7%
General Communication, Inc.(a) .................. 661,500 3,390,187
------------
CONSUMER PRODUCTS & SERVICES -- 8.2%
Applebee's International, Inc. .................. 60,000 1,818,750
Consolidated Stores Corporation(a) .............. 480,806 5,769,672
Duane Reade, Inc.(a) ............................ 262,800 6,767,100
Gaylord Entertainment Company ................... 75,000 1,612,500
Houghton Mifflin Company ........................ 112,000 5,229,000
Outback Steakhouse, Inc.(a) ..................... 70,000 2,047,500
Ruby Tuesday, Inc. .............................. 890,200 11,183,138
Saks, Inc.(a) ................................... 370,700 3,892,350
Whitehall Jewellers, Inc.(a) .................... 43,950 818,569
------------
39,138,579
------------
HEALTH CARE -- 4.2%
Quorum Health Group, Inc.(a) .................... 256,000 2,640,000
Universal Health Services, Inc. - Class B(a) .... 268,400 17,714,400
------------
20,354,400
------------
INDUSTRIAL SERVICES -- 1.7%
ITT Educational Services, Inc.(a) ............... 373,600 6,561,350
XTRA Corporation(a) ............................. 43,100 1,699,756
------------
8,261,106
------------
17
<PAGE>
WESTPORT SMALL CAP FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 2000 (Unaudited)
================================================================================
Market
COMMON STOCKS -- 82.4% (Continued) Shares Value
--------------------------------------------------------------------------------
INDUSTRIAL SPECIALTY PRODUCTS -- 18.1%
Alpha Industries, Inc.(a) ....................... 167,550 $ 7,382,672
Anadigics, Inc.(a) .............................. 99,300 3,382,406
C&D Technologies, Inc. .......................... 248,800 14,057,200
Conexant Systems, Inc.(a) ....................... 230,000 11,183,750
DuPont Photomasks, Inc.(a) ...................... 250,300 17,145,550
JLG Industries, Inc. ............................ 371,400 4,410,375
Precision Castparts Corporation ................. 248,500 11,244,625
Rogers Corporation(a) ........................... 102,400 3,584,000
Texas Instruments, Inc. ......................... 207,448 14,249,084
------------
86,639,662
------------
MEDICAL PRODUCTS -- 1.4%
Bindley Western Industries, Inc. ................ 114,144 3,017,682
Owens & Minor, Inc. ............................. 210,250 3,613,672
------------
6,631,354
------------
OIL & GAS PRODUCERS -- 4.6%
Devon Energy Corporation ........................ 147,942 8,312,491
Houston Exploration Company ..................... 285,000 7,160,625
Pogo Producing Company .......................... 129,500 2,865,188
Santa Fe Snyder Corporation(a) .................. 312,900 3,559,238
------------
21,897,542
------------
REGIONAL BANKS & THRIFTS -- 4.6%
Bank United Financial Corporation - Class A ..... 307,000 2,225,750
Downey Financial Corporation .................... 100,000 2,900,000
First Essex Bancorp, Inc. ....................... 390,950 6,230,766
Harbor Florida Bancshares, Inc. ................. 161,000 1,680,437
PBOC Holdings, Inc.(a) .......................... 162,500 1,381,250
People's Bank ................................... 147,700 2,713,987
Seacoast Financial Services Corporation ......... 239,425 2,274,537
Staten Island Bancorp, Inc. ..................... 80,000 1,410,000
Sterling Financial Corporation(a) ............... 102,000 1,173,000
------------
21,989,727
------------
SECURITY PRODUCTS & SERVICES -- 1.5%
Checkpoint Systems, Inc.(a) ..................... 115,800 868,500
Pittston Brink's Group .......................... 170,007 2,326,971
Sensormatic Electronics Corporation(a) .......... 241,800 3,823,463
------------
7,018,934
------------
SPECIALIZED OUTSOURCING SERVICES -- 5.6%
Policy Management Systems Corporation(a) ........ 769,250 11,827,219
Reynolds and Reynolds Company (The) - Class A ... 303,600 5,540,700
Shared Medical Systems Corporation .............. 127,900 9,328,706
------------
26,696,625
------------
18
<PAGE>
WESTPORT SMALL CAP FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 2000 (Unaudited)
================================================================================
Market
COMMON STOCKS -- 82.4% (Continued) Shares Value
--------------------------------------------------------------------------------
TRANSPORTATION -- 2.0%
Circle International Group, Inc. ................ 295,550 $ 7,425,694
Fritz Companies, Inc.(a) ........................ 211,500 2,181,094
------------
9,606,788
------------
UTILITIES -- 4.5%
CH Energy Group, Inc. ........................... 354,300 12,024,056
El Paso Electric Company(a) ..................... 832,850 9,317,509
------------
21,341,565
------------
OTHER -- 4.4% ................................... 21,012,881
------------
TOTAL COMMON STOCKS (Cost $315,743,508) ......... 17,230,759 $393,727,839
------------
MONEY MARKETS -- 18.5%
Firstar Stellar Treasury Fund
(Cost $88,448,547) ......................... 88,448,547 $ 88,448,547
------------
TOTAL INVESTMENT SECURITIES -- 100.9%
(Cost $404,192,055) ........................ $482,176,386
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.9%) . (3,988,188)
------------
NET ASSETS -- 100.0% ............................ $478,188,198
============
(a) Non-income producing security.
See accompanying notes to financial statements.
19
<PAGE>
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20
