LAKE SHORE
FAMILY OF FUNDS
Prospectus
May 1, 1999
Equity Fund
Balanced Fund
TABLE OF CONTENTS
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Risk/Return Summary .................................................
Expense Information .................................................
Investment Objectives, Investment Strategies and
Risk Considerations ........................................
How to Purchase Shares ..............................................
How to Redeem Shares ................................................
Shareholder Services ................................................
Exchange Privilege ..................................................
Dividends and Distributions .........................................
Taxes ...............................................................
Operation of the Funds ..............................................
Distribution Plan ...................................................
Calculation of Public Offering Price ................................
Financial Highlights ................................................
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PROSPECTUS
May 1, 1999
LAKE SHORE FAMILY OF FUNDS
8280 MONTGOMERY ROAD, SUITE 302
CINCINNATI, OHIO 45236
The Lake Shore Family of Funds currently offers two separate series of shares to
investors: the Equity Fund and the Balanced Fund (individually a "Fund" and
collectively the "Funds").
The EQUITY FUND seeks long-term growth of capital by investing primarily in
common stocks. Dividend and interest income is only an incidental consideration
to the Fund's investment objective.
The BALANCED FUND seeks long-term growth of capital and current income by
investing in a balanced portfolio of common stocks, U.S. Treasury obligations
and money market instruments.
Lake Shore Fund Group, LLC (the "Adviser"), 8280 Montgomery Road, Suite 302,
Cincinnati, Ohio 45236, manages the Funds' investments.
This Prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . 800-266-9532
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RISK/RETURN SUMMARY
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WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The Equity Fund seeks long-term growth of capital by investing primarily in
common stocks.
The Balanced Fund seeks long-term growth of capital and current income by
investing in a balanced portfolio consisting of common stocks, U.S.
Treasury obligations and money market instruments.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
Equity Fund
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The Equity Fund maintains a core portfolio of approximately 30 common
stocks, all of which are listed on the Standard & Poor's 500 Index at the
time of investment. Approximately 20 of the stocks will be selected on the
basis of price momentum (those stocks exhibiting the most rapid increases
in price according to the Adviser's quantitative models) and the remainder
will be selected on the basis of value (those stocks which appear to be the
best value, relative to the rest of the market, based upon the Adviser's
research and analysis of such factors as yield, price-to-earnings ratio and
dividend coverage). Under normal circumstances, the Fund will invest at
least 65% of its total assets in common stocks.
The Adviser believes the use of two independent, contrasting styles, and
defensive action when the market is in a high-risk period, will add
consistency to the Fund's performance.
Balanced Fund
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Normally, the Balanced Fund invests between 40-75 percent of its assets in
common stocks of issuers listed on the Standard & Poor's 500 Index, 25-60
percent in U.S. Treasury obligations and 0-35 percent in money market
instruments. Moderate shifts between asset classes are made in an attempt
to maximize returns or reduce risk.
The asset mix of the Fund will be dictated by the forecast resulting from
the Adviser's objective research and analysis of security prices and
economic data. When a favorable environment for common stocks is indicated,
the Fund intends to maintain a portfolio of approximately 30 stocks, 20
selected according to the momentum style and 10 selected according to the
value style. The momentum style component of the portfolio, which is
generally believed by the Adviser
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to be the more volatile component, will be liquidated during times of
increased market volatility and the proceeds will be invested in U.S.
Treasury obligations or money market instruments. The composition of the
Fund's holdings in U.S. Treasury obligations will be dependent upon whether
the Adviser believes interest rates may increase or decrease. The average
maturity of this portion of the Fund's portfolio will be lengthened when,
based on objective research and analysis of the market and the economy, the
Adviser believes price momentum and value are decreasing and adjusted
accordingly as momentum or value increase.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
Equity Fund
-----------
The return on and value of an investment in the Equity Fund will fluctuate
in response to stock market movements. Common stocks are subject to market
risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Adviser. As a result, there is a
risk that you could lose money by investing in the Fund. In addition, the
Fund may not achieve its investment objective.
Balanced Fund
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The portion of the Balanced Fund's portfolio invested in common stocks will
fluctuate in response to stock market movements, and the portion of the
Fund's portfolio invested in U.S. Treasury obligations will fluctuate with
changes in interest rates. Typically a rise in interest rates causes a
decline in the market value of U.S. Treasury obligations. The Fund may not
achieve the degree of capital appreciation that a portfolio investing
solely in common stocks might achieve. The investment results of the Fund
depend upon the ability of the Adviser to correctly anticipate the relative
performance of common stocks, U.S. Treasury obligations of varying
maturities, and money market instruments. There is a risk that you could
lose money by investing in the Fund. In addition, the Fund may not achieve
its investment objective.
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RISK/RETURN BAR CHART AND FEE TABLE
-----------------------------------
Pursuant to Securities and Exchange Commission rules, a bar chart showing the
Funds' total return is not required because the Funds' have not a full calendar
year of performance as of the date of this Prospectus.
EXPENSE INFORMATION
-------------------
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND HOLD
SHARES OF THE FUNDS.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)...............5.00%
Maximum Deferred Sales Charge (Load).......................None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends..............................None
Redemption Fee.............................................None*
Exchange Fee...............................................None
* A wire transfer fee is charged by the Funds' custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently
$9. See "How to Redeem Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Equity Fund Balanced Fund
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Management Fees 1.00% 1.00%
Distribution (12b-1) Fees .25% .25%
Estimated Other Expenses(1) .73% .73%
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Total Annual Fund Operating Expenses(2) 1.98% 1.98%
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(1) Other expenses are based on estimated amounts for the current fiscal year.
(2) The Adviser currently intends to voluntarily waive management fees and
reimburse other expenses to the extent necessary to limit the total annual
operating expenses of each Fund to 1.98% of its average daily net assets.
EXAMPLE
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This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a Fund for the time periods indicated, reinvest all dividends and
distributions, and then redeem all of your shares at the end of those periods.
The Example also assumes that your investment has a 5% return each
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year and that a Fund's operating expenses remain the same. Although your costs
may be higher or lower, based on these assumptions your costs would be:
Equity Fund Balanced Fund
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1 Year $ 701 $ 701
3 Years $1,121 $1,121
INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RELATED RISKS
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The Lake Shore Family of Funds (the "Trust") has two Funds. Each Fund has its
own portfolio and investment objective. Each Fund's investment objective may be
changed by the Board of Trustees without shareholder approval, as long as notice
has been given to shareholders. Unless otherwise indicated, all investment
practices and limitations of the Funds are non-fundamental policies which may be
changed by the Board of Trustees without shareholder approval.
Equity Fund
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INVESTMENT OBJECTIVE. The Equity Fund seeks long-term growth of capital by
investing primarily in common stocks.
PRINCIPAL INVESTMENT STRATEGIES. Under normal circumstances, at least 65% of the
Fund's total assets will be invested in common stocks. The Fund will only invest
in common stocks which are listed on the Standard & Poor's 500 Stock Index (the
"S&P 500") at the time of investment. The S&P 500 is comprised of 500 selected
common stocks which tend to be the leading companies in the leading industries
within the U.S. economy, most of which are listed on the New York Stock
Exchange.
The Adviser's equity management strategy is based on the belief that objective
research and analysis of market performance and economic data, and establishing
detailed buying and selling parameters, will add value to a portfolio. The use
of two independent, contrasting styles, and defensive action when the market is
determined to be in a high-risk period, will add consistency to the Fund's
performance, in the opinion of the Adviser.
The two complimentary styles employed by the Adviser are price momentum and
value investing. The price momentum style focuses on those stocks which are
performing the best relative to the rest of the market. The goal of this style
is to be invested in
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those stocks which are exhibiting rapid increases in price. At the other end of
the investment spectrum, the value style focuses on those stocks which appear to
offer the best value based on price and earnings potential relative to the rest
of the market, and which are expected to appreciate over time as investors
recognize their inherent value.
The Fund will maintain a core portfolio of approximately 30 stocks.
Approximately 10 of these stocks will be selected from the S&P 500 on the basis
of price momentum, with the Adviser attempting to identify those stocks
exhibiting the most rapid increases in price according to the Adviser's
objective research and analysis of the stock market and economic data. A second
group of approximately 10 stocks will also be selected on the basis of price
momentum; however, these stocks will be selected from the S&P 100. A final group
of approximately 10 stocks will be selected from the S&P 100 on the basis of
value, with the Adviser attempting to identify those stocks which appear to be
the most attractively priced relative to the rest of the market based upon the
Adviser's quantitative assessment of such factors as yield, price-to-earnings
ratio and dividend coverage.
When the Adviser believes substantial price risks exist for common stocks
because of uncertainties in the investment outlook or when in the judgment of
the Adviser it is otherwise warranted in selling to manage the Fund's portfolio,
the Fund may temporarily hold for defensive purposes all or a portion of its
assets in money market instruments such as bank debt instruments (certificates
of deposit, bankers' acceptances and time deposits), commercial paper, U.S.
Government obligations having a maturity of less than one year, shares of money
market investment companies or repurchase agreements collateralized by U.S.
Government obligations. The Fund may not achieve its investment objective during
periods when the Fund has taken such a temporary defensive position.
INVESTMENT RISKS. The Fund is designed for investors who are investing for the
long term and it is not intended for investors seeking assured income or
preservation of capital. Changes in market prices can occur at any time.
Accordingly, there is no assurance that the Fund will achieve its investment
objective. When you redeem your shares, they may be worth more or less than what
you paid for them.
Because the Fund normally invests most, or a substantial portion, of its assets
in common stocks, the value of the Fund's portfolio will be affected by changes
in the stock markets. Stock markets and stock prices can be volatile. Market
action will affect the Fund's net asset value per share, which fluctuates as the
values of the Fund's portfolio securities change. Not all stock prices change
uniformly or at the same time and not all stock markets
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move in the same direction at the same time. Various factors can affect a
stock's price (for example, poor earnings reports by an issuer, loss of major
customers, major litigation against an issuer, or changes in general economic
conditions or in government regulations affecting an industry). Not all of these
factors can be predicted.
Balanced Fund
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INVESTMENT OBJECTIVE
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The Balanced Fund seeks long-term growth of capital and current income by
investing in a balanced portfolio consisting of common stocks, U.S. Treasury
obligations and money market instruments.
PRINCIPAL INVESTMENT STRATEGIES
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Under normal circumstances, the asset mix of the Fund will range between 40-75
percent in common stocks, 25-60 percent in U.S. Treasury obligations and 0-35
percent in money market instruments. Moderate shifts between asset classes are
made in an attempt to maximize returns or reduce risk.
The Fund attempts to achieve growth of capital through its investments in common
stocks. The Fund will invest only in the common stocks of issuers listed on the
S&P 500. The Fund attempts to earn current income and achieve moderate growth of
capital. At the same time, the Fund attempts to reduce fluctuation in the net
asset value of its shares by investing in U.S. Treasury obligations. The Fund
may also attempt to achieve these goals by investing in money market instruments
such as bank debt instruments (certificates of deposit, bankers' acceptances and
time deposits), commercial paper, U.S. Government obligations having a maturity
of less than one year, shares of money market investment companies or repurchase
agreements collateralized by U.S. Government obligations.
The balanced management strategy employed by the Adviser is based on the belief
that objective research and analysis of the market and the economy, and both
buying and selling parameters, will add value to a portfolio. Credit quality and
conservatism are stressed with the purchase of only common stocks from the S&P
500, U.S. Treasury obligations and money market instruments.
The use of two independent, contrasting styles will add consistency to the
Fund's performance, in the opinion of the Adviser. The two complimentary styles
employed by the Adviser are price momentum and value investing. For common
stocks, the price momentum style focuses on those stocks which are performing
the best relative to the rest of the market. The goal of this style is to be
invested in those stocks which are exhibiting rapid increases in price. At the
other end of the investment
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spectrum, the value style focuses on those stocks which appear to be the most
attractively priced relative to the rest of the market, and which will
appreciate over time as investors recognize their inherent value.
For U.S. Treasury obligations, the price momentum style attempts to take
advantage of the Adviser's belief that once interest rate trends are in place,
they tend to persist for a relatively long period of time. Both short-term and
long-term interest rate momentum is taken into account. In regards to value, the
Adviser compares the yield between Treasury bills and the 30-year Treasury bond.
When the spread is wide, the investor is being compensated for taking risk and
longer maturity securities should be owned; when the spread is narrow, there is
not adequate compensation and shorter-term securities are preferable. The Fund
intends to invest only in U.S. Treasury obligations with remaining maturities of
10 years or less at the time of purchase.
When the Adviser believes substantial price risks exist for common stocks and/or
U.S. Treasury obligations because of uncertainties in the investment outlook or
when in the judgment of the Adviser it is otherwise warranted in selling to
manage the Fund's exposure to drastic price movements, the Fund may temporarily
hold for defensive purposes up to 100% of its assets in money market
instruments.
While the Fund may regularly invest in money market instruments, when the Fund
is in a temporary defensive position and invested primarily in money market
instruments, it will not achieve its investment objective.
INVESTMENT RISKS. The Fund is designed for investors who are investing for the
long term and it is not intended for investors seeking assured income or
preservation of capital. Changes in market prices can occur at any time.
Accordingly, there is no assurance that the Fund will achieve its investment
objective. When you redeem your shares, they may be worth more or less than what
you paid for them.
Because the Fund intends to allocate its assets among common stocks, U.S.
Treasury obligations and money market instruments, at times it may not be able
to achieve a total return as high as that of a portfolio with complete freedom
to invest its assets entirely in any one type of security. Likewise, the Fund
may not achieve the degree of capital appreciation that a portfolio investing
solely in common stocks might achieve.
The investment results of the Fund depend upon the ability of the Adviser to
correctly anticipate the relative performance and risk of commons stocks, U.S.
Treasury obligations of varying maturities, and money market instruments.
Historical evidence indicates that correctly timing portfolio allocations among
these
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asset classes has been an extremely difficult investment strategy to implement
successfully. There can be no assurance that the Adviser will correctly
anticipate relative asset class performance in the future on a consistent basis.
Investment results would suffer, for example, if only a small portion of the
Fund's assets were invested in common stocks during a significant stock market
advance or if a major portion were invested in common stocks during a major
decline.
Because the Fund normally invests most, or a substantial portion, of its assets
in common stocks, the value of the Fund's portfolio will be affected by changes
in the stock markets. Stock markets and stock prices can be volatile. Market
action will affect the Fund's net asset value per share, which fluctuates as the
values of the Fund's portfolio securities change. Not all stock prices change
uniformly or at the same time and not all stock markets move in the same
direction at the same time. Various factors can affect a stock's price (for
example, poor earnings reports by an issuer, loss of major customers, major
litigation against an issuer, or changes in general economic conditions or in
government regulations affecting an industry). Not all of these factors can be
predicted.
To the extent that the Fund is invested in U.S. Treasury obligations, it is
subject to the risks of bond investing, including the tendency of prices to fall
when interest rates rise. Such a fall would lower the value of the Fund's U.S.
Treasury obligations and the value of your investment. U.S. Treasury obligations
with longer maturities generally offer both higher yields and greater exposure
to market fluctuation from changes in interest rates.
HOW TO PURCHASE SHARES
----------------------
INITIAL INVESTMENTS. Your initial investment in either Fund ordinarily must
be at least $1,000 ($250 for tax-deferred retirement plans). The Funds may, in
the Adviser's sole discretion, accept certain accounts with less than the stated
minimum initial investment.
You may open an account and make an initial investment through securities
dealers having a sales agreement with the Trust's principal underwriter, CW Fund
Distributors, Inc. (the "Underwriter"). You may also make a direct initial
investment by sending a check and a completed account application form to
Countrywide Fund Services, Inc. (the "Transfer Agent"), P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to either the "Equity
Fund" or the "Balanced Fund". Third party checks will not be accepted. An
account application is included in this Prospectus.
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Shares of each Fund are sold on a continuous basis at the public offering price
next determined after receipt of a purchase order by the Trust. Purchase orders
received by dealers prior to 4:00 p.m., Eastern time, on any business day and
transmitted to the Underwriter by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Underwriter by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
the Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's
public offering price. Direct investments received by the Transfer Agent after
4:00 p.m. and orders received from dealers after 5:00 p.m. are confirmed at the
public offering price next determined on the following business day.
The public offering price of shares of the Funds is the next determined net
asset value per share plus a front-end sales load as shown in the following
table.
Sales Load as % of:
--------------------------------
Public Net
Offering Amount
Amount of Investment Price Invested
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Less than $25,000 5.00% 5.26%
$25,000 but less than $250,000 4.00% 4.16%
$250,000 or more 3.00% 3.09%
REDUCED SALES LOAD. You may be eligible to use the Right of Accumulation to
combine the cost or current net asset value (whichever is higher) of your
existing shares of any Fund in the Lake Shore Family of Funds with the amount of
your current purchases in order to take advantage of the reduced sales loads set
forth in the table above. Purchases made pursuant to a Letter of Intent may also
be eligible for the reduced sales loads. The minimum initial investment under a
Letter of Intent is $10,000. You should contact the Transfer Agent for
information about the Right of Accumulation and Letter of Intent.
PURCHASES AT NET ASSET VALUE. You may purchase shares of either Fund at net
asset value when your payment for the investment represents your proceeds from
the redemption of shares of any other mutual fund which has a front-end sales
load and is not distributed by the Underwriter. Your investment will qualify for
this provision if the purchase price of the shares of the other fund included a
front-end sales load and the redemption occurred within one year of the purchase
of such shares and no more than sixty days prior to purchase of shares of the
Funds. To make a purchase at net asset value pursuant to this provision, you
must submit photocopies of the confirmations (or similar evidence) showing the
purchase and redemption of shares of the
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other fund. Your payment may be made with the redemption check representing the
proceeds of the shares redeemed, endorsed to the order of the applicable Fund.
The redemption of shares of the other fund is, for federal income tax purposes,
a sale on which you may realize a gain or loss. These provisions may be modified
or terminated at any time. Shareholders should contact their securities dealer
or the Trust for further information.
Banks, bank trust departments and savings and loan associations, in their
fiduciary capacity or for their own accounts, may also purchase shares of the
Funds at net asset value. To the extent permitted by regulatory authorities, a
bank trust department may charge fees to clients for whose account it purchases
shares at net asset value. Federal and state credit unions may also purchase
shares at net asset value.
In addition, shares of the Funds may be purchased at net asset value by
broker-dealers who have a sales agreement with the Underwriter, and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees.
Clients of investment advisers and financial planners may also purchase shares
of the Funds at net asset value if their investment adviser or financial planner
has made arrangements to permit them to do so with the Trust and the
Underwriter. The investment adviser or financial planner must notify the
Transfer Agent that an investment qualifies as a purchase at net asset value.
Trustees, directors, officers and employees of the Trust, the Adviser, the
Underwriter or the Transfer Agent, including members of the immediate families
of such individuals and employee benefit plans established by such entities, may
also purchase shares of the Funds at net asset value.
SUBSEQUENT INVESTMENTS. You may purchase and add shares to your account at
any time either through a securities dealer or by sending a check to the Lake
Shore Family of Funds, P.O. Box 5354, Cincinnati, Ohio 45201-5354. The check
should be made payable to the applicable Fund.
You may also purchase and add shares to your account by bank wire. Please
telephone the Transfer Agent (Nationwide call toll-free 800-266-9532) for
instructions. Your bank may impose a charge for sending your wire. There is
presently no fee for receipt of wired funds, but the Trust reserves the right to
charge shareholders for this service upon thirty days' prior notice.
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Each additional purchase request must contain the account name and number to
permit proper crediting. While there is no minimum amount required for
subsequent investments, the Trust reserves the right to impose such a
requirement. All purchases are made at the public offering price plus any
applicable load next determined after receipt of a purchase order by the Trust.
If a broker-dealer received concessions for selling shares of the Funds to you,
such broker-dealer will receive the concessions described above with respect to
additional investments by you.
ADDITIONAL INFORMATION. The Trust mails you confirmations of all purchases or
redemptions of Fund shares. Certificates representing shares are not issued. The
Trust and the Underwriter reserve the right to limit the amount of investments
and to refuse to sell to any person.
The Funds' account application contains provisions in favor of the Trust, the
Transfer Agent and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services (for example,
telephone exchanges) made available to investors.
If an order to purchase shares is cancelled because your check does not clear,
you will be responsible for any resulting losses or fees incurred by the Trust
or the Transfer Agent in the transaction.
HOW TO REDEEM SHARES
--------------------
You may redeem shares of either Fund on each day that the Trust is open for
business by sending a written request to the Transfer Agent. The request must
state the number of shares or the dollar amount to be redeemed and your account
number. The request must be signed exactly as your name appears on the Trust's
account records. If the shares to be redeemed have a value of $25,000 or more,
your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. If the name(s) or the address on your account has been changed
within 30 days of your redemption request, you will be required to request a
redemption in writing with your signature guaranteed, regardless of the value of
the shares being redeemed.
You may also redeem shares of either Fund by placing a wire redemption request
through a securities broker or dealer. Unaffiliated broker-dealers may charge
you for this service. You will receive the net asset value per share next
determined after
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receipt by the Trust or its agent of your wire redemption request. It is the
responsibility of broker-dealers to properly transmit wire redemption orders.
If your instructions request a redemption by wire, the proceeds will be wired
directly to your existing account in any commercial bank or brokerage firm in
the United States as designated on your application and you will be charged a $9
processing fee by the Funds' custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly in your
account with a commercial bank or other depository institution by way of an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
Shares are redeemed at their net asset value per share next determined after
receipt by the Transfer Agent of your redemption request in the form described
above. Payment is normally made within three business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Funds by certified check or wire.
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
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At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account if at any time the value of your
shares is less than $1,000 (based on actual amounts invested including any sales
load paid, unaffected by market fluctuations), or $250 in the case of
tax-deferred retirement plans, or such other minimum amount as the Trust may
determine from time to time. After notification of the Trust's intention to
close an account, you will be given thirty days to increase the value of your
account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the
Funds may make payment for shares redeemed in portfolio securities of the Funds
taken at current value.
SHAREHOLDER SERVICES
--------------------
Contact the Transfer Agent (Nationwide call toll-free 800- 266-9532) for
additional information about the shareholder services described below.
TAX-DEFERRED RETIREMENT PLANS. Shares of either Fund are available for
purchase in connection with the following tax- deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
AUTOMATIC WITHDRAWAL PLAN. If the shares in your account have a value of at
least $5,000, you may elect to receive, or may designate another person to
receive, monthly or quarterly payments in a specified amount of not less than
$50 each. There
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is no charge for this service. Purchases of additional shares of the Funds while
the plan is in effect are generally undesirable because a sales load is incurred
whenever purchases are made.
DIRECT DEPOSIT PLANS. Shares of either Fund may be purchased through direct
deposit plans offered by certain employers and government agencies. These plans
enable you to have all or a portion of your payroll or social security check
transferred automatically to purchase shares of the Funds.
AUTOMATIC INVESTMENT PLAN. You may make automatic monthly investments in
either Fund from your bank, savings and loan or other depository institution
account. The minimum initial and subsequent investments must be $50 under the
Plan. The Transfer Agent pays the costs associated with these transfers, but
reserves the right, upon thirty days' written notice, to make reasonable charges
for this service. Your depository institution may impose its own charge for
debiting an account which would reduce your return from an investment in the
Funds.
REINVESTMENT PRIVILEGE. If you have redeemed shares of either Fund, you may
reinvest all or part of the proceeds without any additional sales load. This
reinvestment must occur within ninety days of the redemption and the privilege
may only be exercised once per year.
EXCHANGE PRIVILEGE
------------------
Shares of the Funds may be exchanged for each other at net asset value. You may
request an exchange by sending a written request to the Transfer Agent. The
request must be signed exactly as your name appears on the Trust's account
records. Exchanges may also be requested by telephone or by visiting the Trust's
offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. An exchange
will be effected at the next determined net asset value after receipt of a
request by the Transfer Agent.
Exchanges may only be made for shares of a Fund if the Fund is then offered for
sale in your state of residence and are subject to the applicable minimum
initial investment requirements. The exchange privilege may be modified or
terminated by the Board of Trustees upon 60 days' prior notice to shareholders.
Contact the Transfer Agent to obtain more information about exchanges among the
Funds.
OPERATION OF THE FUNDS
----------------------
The Funds are diversified series of the Lake Shore Family of Funds, an open-end
management investment company organized as an Ohio business trust. The Board of
Trustees supervises the
- 15 -
<PAGE>
business activities of the Trust. Like other mutual funds, the Trust retains
various organizations to perform specialized services for the Funds.
The Trust retains Lake Shore Fund Group, LLC (the "Adviser"), 8280 Montgomery
Road, Suite 302, Cincinnati, Ohio 45236, to manage the Funds' investments. Each
Fund pays the Adviser a fee equal to the annual rate of 1.00% of the average
value of its daily net assets.
Earl V. (Buck) Newsome, Jr., Gregory J. Bauer and Robert A. McLaughlin are
primarily responsible for managing the portfolio of the Equity Fund and the
Balanced Fund. Mr. Newsome is President of the Adviser and co-founded the
Adviser with Mr. Bauer in 1997. Prior to 1997, Mr. Newsome was Managing Director
and co-owner of Cambridge Financial Group. Inc. ("Cambridge"), a registered
investment adviser, founded in 1986. Mr. Bauer, Chairman of the Adviser,
co-founded Cambridge Financial Group, Inc. Mr. McLaughlin serves as Executive
Vice President and a director of both the Adviser and Cambridge. Prior to
joining Cambridge in 1996, Mr. McLaughlin served as retirement system investment
officer and assistant director of the Ohio Public Employees Retirement System.
CW Fund Distributors, Inc. (the "Underwriter"), 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, serves as the principal underwriter for the Funds and,
as such, is the exclusive agent for the distribution of shares of the Funds. The
Underwriter is an indirect wholly-owned subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending.
DIVIDENDS AND DISTRIBUTIONS
---------------------------
Each Fund expects to distribute substantially all of its net investment income,
if any, on a quarterly basis. Each Fund expects to distribute any net realized
long-term capital gains at least once each year. Management will determine the
timing and frequency of the distributions of any net realized short-term capital
gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains distributions
reinvested in additional shares.
Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
- 16 -
<PAGE>
Cash Option - income distributions and capital gains distributions paid
in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal Service
cannot deliver your checks or if your checks remain uncashed for six months,
your dividends may be reinvested in your account at the then-current net asset
value and your account will be converted to the Share Option. No interest will
accrue on amounts represented by uncashed distribution checks.
If you have received a dividend or capital gains distribution in cash from
either Fund, you may return the distribution within thirty days of the
distribution date to the Transfer Agent for reinvestment at the net asset value
next determined after its return. You or your dealer must notify the Transfer
Agent that a distribution is being reinvested pursuant to this provision.
CALCULATION OF PUBLIC OFFERING PRICE
------------------------------------
On each day that the Trust is open for business, the public offering price (net
asset value plus applicable sales load) of the shares of each Fund is determined
as of the close of the regular session of trading on the New York Stock
Exchange, (normally 4:00 p.m., Eastern time). The Trust is open for business on
each day the New York Stock Exchange is open for business. The net asset value
per share of each Fund is calculated by dividing the sum of the value of the
securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent. The price at which a purchase or
redemption of Fund shares is effected is based on the next calculation of net
asset value after the order is received.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities)
- 17 -
<PAGE>
as of the close of the regular session of trading on the New York Stock Exchange
on the day the securities are being valued, (3) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (4) securities (and other
assets) 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. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.
TAXES
-----
Each Fund has qualified and intends to continue to qualify for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. Each Fund intends to distribute
substantially all of its net investment income and any realized capital gains to
its shareholders. Distributions of net investment income as well as from net
realized short-term capital gains, if any, are taxable as ordinary income.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) by a Fund are taxable to you as capital
gains, without regard to the length of time you have held your Fund shares.
Capital gains distributions may be taxable at different rates depending on the
length of time a Fund holds its assets.
Redemptions of shares of the Funds are taxable events on which you may realize a
gain or loss. An exchange of a Fund's shares for shares of the other Fund will
be treated as a sale of such shares and any gain on the transaction may be
subject to federal income tax.
The Funds will mail a statement to you annually indicating the amount and
federal income tax status of all distributions made during the year. The Funds'
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.
DISTRIBUTION PLAN
-----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Funds have
adopted a plan of distribution (the "Plan") under which the Funds may directly
incur or reimburse the Underwriter or the Adviser for expenses related to the
sale and distribution of their shares, including payments to securities dealers
and others who are engaged in the sale of shares of the Funds and who
- 18 -
<PAGE>
may be advising investors regarding the purchase, sale or retention of Fund
shares; expenses of maintaining personnel who engage in or support distribution
of shares or who render shareholder support services not otherwise provided by
the Transfer Agent; expenses of formulating and implementing marketing and
promotional activities, including direct mail promotions and mass media
advertising; expenses of preparing, printing and distributing sales literature
and prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Funds; expenses of obtaining
such information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of the Funds' shares.
The annual limitation for payment of expenses pursuant to the Plan is .25% of
each Fund's average daily net assets. Because these fees are paid out of the
Funds' assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges. In the event the Plan is terminated by a Fund in accordance with its
terms, the Fund will not be required to make any payments for expenses incurred
after the date the Plan terminates.
FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the Funds'
financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned on an investment in the Funds (assuming reinvestment
of dividends and distributions). This information has been audited by Joseph
Decosimo & Company whose report, along with the Funds' financial statements, are
included in the Statement of Additional Information, which is available upon
request.
Lake Shore Equity Fund
----------------------
Selected Per Share Data and Ratios for a Share Outstanding
Throughout the Period Ended December 31, 1998 (a)
Net asset value at beginning of period $ 10.00
----------
Income from investment operations:
Net investment income 0.08
Net realized and unrealized gains on investments 1.05
----------
Total from investment operations 1.13
----------
Dividends from net investment income (0.08)
----------
Net asset value at end of period $ 11.05
==========
Total return (b) 11.34%
==========
Net assets at end of period $1,588,758
==========
Ratio of net expenses to average net assets (c) 1.91%(d)
Ratio of net investment income to average net assets 0.71%(d)
Portfolio turnover rate 4%(d)
(a) Represents the period from the initial public offering of shares (March 2,
1998) through December 31, 1998.
(b) Total return shown excludes the effect of applicable sales loads and is not
annualized.
(c) Ratio of expenses to average net assets assuming no waiver of fees and
reimbursement of expenses by the Adviser was 14.24%(d) (Note 4).
(d) Annualized.
- 19 -
<PAGE>
Lake Shore Balanced Fund
------------------------
Selected Per Share Data and Ratios for a Share Outstanding
Throughout the Period Ended December 31, 1998 (a)
Net asset value at beginning of period $ 10.00
---------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gains on investments 0.97
---------
Total from investment operations 1.00
---------
Dividends from net investment income (0.03)
---------
Net asset value at end of period $ 10.97
=========
Total return (b) 9.98%
=========
Net assets at end of period $ 191,490
=========
Ratio of net expenses to average net assets (c) 1.95%(d)
Ratio of net investment income to average net assets 1.05%(d)
Portfolio turnover rate 0%
(a) Represents the period from the initial public offering of shares (June 30,
1998) through December 31, 1998.
(b) Total return shown excludes the effect of applicable sales loads and is not
annualized.
(c) Ratio of expenses to average net assets assuming no waiver of fees and
reimbursement of expenses by the Adviser was 94.94%(d) (Note 4).
(d) Annualized.
- 20 -
<PAGE>
LAKE SHORE FAMILY OF FUNDS ACCOUNT NO. L____-________________
Account Application (For Fund Use Only)
(Check appropriate Fund)
o EQUITY FUND (L1) $______________ FOR BROKER/DEALER USE ONLY
o BALANCED FUND (L2) $______________ Firm Name:________________________
Please mail account application to: Home Office Address:______________
Countrywide Fund Services, Inc. Branch Address:___________________
P.O. Box 5354 Rep Name & No.:___________________
Cincinnati, Ohio 45201-5354 Rep Signature:____________________
- --------------------------------------------------------------------------------
o Check or draft enclosed payable to the Fund(s) designated above ($1,000
minimum).
o Bank Wire From: ____________________________________________________________
o Exchange From: ____________________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/Tax I.D.#
_______________________________________________ _____________________________
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minors S.S.#)
Citizenship: o U.S.
_______________________________________________ o Other
Name of Joint Tenant, Partner, Custodian _____________
ADDRESS PHONE
_______________________________________________ ( )_______________________
Street or P.O. Box Business Phone
_______________________________________________ ( )_______________________
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant
(Right of Survivorship Presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Non-Profit
o Other
Occupation and Employer Name/Address____________________________________________
Are you an associated person of an NASD member? o Yes o No
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER - Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. Check box if
appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
- --------------------------------------------------------------------------------
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option - Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option - Income distributions and short term capital gains
distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option - Income distributions and capital gains distributions paid in
cash.
o By Check o By ACH to my bank checking or savings account.
PLEASE ATTACH A VOIDED CHECK.
- --------------------------------------------------------------------------------
REDUCED SALES CHARGES
Right of Accumulation: I apply for Right of Accumulation subject to the Agents
confirmation of the following holdings of the Lake Shore
Family of Funds.
Account Number/Name Account Number/Name
______________________________________ ____________________________________
______________________________________ ____________________________________
LETTER OF INTENT: (Complete the Right of Accumulation section if related
accounts are being applied to your Letter of Intent.)
o I agree to the Letter of Intent in the current Prospectus of the Lake Shore
Family of Funds. Although I am not obligated to purchase, and the Trust is
not obligated to sell, I intend to invest over a 13 month period beginning
______________________ 19 _______ (purchase date of not more than 90 days
prior to this Letter) an aggregate amount in the Lake Shore Family of Funds
at least equal to (check appropriate box):
o $25,000 o $250,000
- --------------------------------------------------------------------------------
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Funds' current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions
for automatic reinvestment in additional shares of the Funds for credit to the
investor's account and to surrender forredemption shares held in the investor's
account in accordance with any of the procedures elected above or for payment of
service charges incurred by the investor. The investor further agrees that
Countrywide Fund Services, Inc. can cease to act as such agent upon ten days
notice in writing to the investor at the address contained in this Application.
The investor hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release Countrywide
Fund Services, Inc., Lake Shore Family of Funds, Lake Shore Fund Group, LLC,
Countrywide Investments, Inc., and their respective officers, employees, agents
and affiliates from any and all liability in the performance of the acts
instructed herein [provided that such entities have exercised due care to
determine that the instructions are genuine. Neither the Trust, Countrywide Fund
Services, Inc., nor their respective affiliates will be liable for complying
with telephone instructions they reasonably believe to be genuine or for any
loss, damage, cost or expense in acting on such telephone instructions. The
investor(s) will bear the risk of any such loss. The Trust or Countrywide Fund
Services, Inc., or both, will employ reasonable procedures to determine that
telephone instructions are genuine. If the Trust and/or Countrywide Fund
Services, Inc. do not employ such procedures, the may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.] The Internal Revenue Service does
not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
___________________________________ ______________________________________
Signature of Individual Owner, Signature of Joint Owner, if any
Corporate Officer, Trustee, etc
___________________________________ ______________________________________
Title of Corporate Officer, Date
Trustee, etc.
NOTE: Corporations, trusts and other organizations must complete the
resolution form on the reverse side. Unless otherwise specified, each joint
owner shall have full authority to act on behalf of the account.
<PAGE>
AUTOMATIC INVESTMENT PLAN (Complete for Investments Into the Fund(s))
The Automatic Investment Plan is available for all established accounts of the
Lake Shore Family of Funds. There is no charge for this service, and it offers
the convenience of automatic investing on a regular basis. The minimum
investment is $50.00 per month. For an account that is opened by using this
Plan, the minimum initial and subsequent investments must be $50.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be
discontinued by the shareholder at any time.
Please invest $ _________________ per ABA Routing Number_____________________
month in the (check the appropriate
Fund.) FI Account Number______________________
o Equity Fund o Balanced Fund
o Checking Account o Savings Account
__________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
o the 15th day of each month
__________________________________
City State o both the 15th and last business day
X_________________________________ X_______________________________________
(Signature of Depositor EXACTLY as (Signature of Joint Tenant - if any)
it appears on FI Records)
(Joint Signatures are required when bank account is in joint names.
Please sign exactly as signature appears on your FIs records.)
PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. (Countrywide) has put into effect, by which amounts, determined
by your depositor, payable to the applicable Fund designated above, for purchase
of shares of said Fund, are collected by Countrywide, Countrywide hereby agrees:
Countrywide will indemnify and hold you harmless from any liability to any
person or persons whatsoever arising out of the payment by you of any amount
drawn by the Funds to their own order on the account of your depositor or from
any liability to any person whatsoever arising out of the dishonor by you
whether with or without cause or intentionally or inadvertently, of any such
amount. Countrywide will defend, at its own cost and expense, any action which
might be brought against you by any person or persons whatsoever because of your
actions taken pursuant to the foregoing request or in any manner arising by
reason of your participation in this arrangement. Countrywide will refund to you
any amount erroneously paid by you to the Funds if the claim for the amount of
such erroneous payment is made by you within six (6) months from the date of
such erroneous payment; your participation in this arrangement and that of the
Funds may be terminated by thirty (30) days' written notice from either party to
the other.
- --------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $____________from my mutual fund
account beginning the last business day of the month of___________________.
Please Indicate Withdrawal Schedule (Check One):
o Monthly--Withdrawals will be made on the last business day of each month.
o Quarterly--Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o Annually--Please make withdrawals on the last business day of the month
of:_____________________.
Please Select Payment Method (Check One):
o Exchange: Please exchange the withdrawal proceeds into another account
number: ____ ____ - ____ ____ ____ ____ ____ ____ - ____
o Check: Please mail a check for my withdrawal proceeds to the mailing
address on this account.
o ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my
bank checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there is no
charge.
o Bank Wire: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one
business day and that there is an $8.00 fee.
Please attach a voided ___________________________________________________
check for ACH or bank wire Bank Name Bank Address
___________________________________________________
Bank ABA# Account # Account Name
o Send to special payee (other than applicant): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee________________________________________________________
Please send to:______________________________________________________
Street address City State Zip
- --------------------------------------------------------------------------------
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the Lake
Shore Family of Funds (the Trust) and that
________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Trust,
and it is
FURTHER RESOLVED: That any one of the above noted officers is
authorized to sign any documents necessary or appropriate to appoint Countrywide
Fund Services, Inc. as redemption agent of the corporation or organization for
shares of the applicable series of the Trust, to establish or acknowledge terms
and conditions governing the redemption of said shares and to otherwise
implement the privileges elected on the Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the
Charter and Bylaws or other empowering documents of the
________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on________________________ at
which a quorum was present and acting throughout, and that the same are now in
full force and effect. I further certify that the following is (are) duly
elected officer(s) of the corporation or organization, authorized to act in
accordance with the foregoing resolutions.
Name Title
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
Witness my hand and seal of the corporation or organization this
_____________________ day of __________________________, 19_______.
______________________________ _____________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
LAKE SHORE FAMILY OF FUNDS
8280 Montgomery Road, Suite 302
Cincinnati, Ohio 45236
BOARD OF TRUSTEES
Gregory J. Bauer
Frank G. Doyle III
Francis A. Kovacs, Jr.
Robert A. McLaughlin
Joseph P. Rouse
Ralph P. Schwartz
William N. Stratman
INVESTMENT ADVISER LAKE SHORE FUND GROUP, LLC
8280 Montgomery Road, Suite 302
Cincinnati, Ohio 45236
UNDERWRITER
CW Fund Distributors, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
TRANSFER AGENT
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 800-266-9532
Additional information about the Funds is included in the Statement of
Additional Information ("SAI"), which is incorporated by reference in its
entirety. Additional information about the Funds' investments is available in
the Funds' annual and semiannual reports to shareholders. In the Funds' annual
report you will find a discussion of the market conditions and strategies that
significantly affected the Funds' performance during their last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual report or other
information about the Funds, or to make inquiries about the Funds, please call
1-800-266-9532 (Nationwide).
Information about the Funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's public reference room in Washington,
D.C. Information about the operation of the public reference room can be
obtained by calling the Commission at 1-800-SEC-0330. Reports and other
information about the Funds are available on the Commission's Internet site at
http://www.sec.gov. Copies of information of the Commission's Internet site may
be obtained, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, D.C. 20549-6009.
File Number 811-8431
- 22 -
<PAGE>
LAKE SHORE FAMILY OF FUNDS
--------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
May 1, 1999
Equity Fund
Balanced Fund
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of the Lake Shore Family of Funds dated
May 1, 1999. A copy of the Funds' Prospectus can be obtained by writing the
Trust at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202, or by calling
the Trust nationwide toll-free 1-800-266-9532.
TABLE OF CONTENTS
-----------------
THE TRUST ...........................................................
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS .......................
INVESTMENT LIMITATIONS ..............................................
PORTFOLIO TURNOVER ..................................................
TRUSTEES AND OFFICERS ...............................................
PRINCIPAL SECURITY HOLDERS ..........................................
THE INVESTMENT ADVISER ..............................................
DISTRIBUTION PLAN ...................................................
CUSTODIAN ...........................................................
AUDITORS ............................................................
COUNTRYWIDE FUND SERVICES, INC. .....................................
SECURITIES TRANSACTIONS .............................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE ................
OTHER PURCHASE INFORMATION ..........................................
THE UNDERWRITER .....................................................
TAXES ...............................................................
REDEMPTION IN RIND ..................................................
HISTORICAL PERFORMANCE INFORMATION ..................................
FINANCIAL STATEMENTS ................................................
<PAGE>
THE TRUST
---------
The Lake Shore Family of Funds (the "Trust"), an open-end management investment
company, was organized as an Ohio business trust on September 3, 1997. The Trust
currently offers two series of shares to investors: the Equity Fund and the
Balanced Fund (referred to individually as a "Fund" and collectively as the
"Funds"). Each Fund has its own investment objective and policies.
Each share of a Fund represents an equal proportionate interest in the assets
and liabilities belonging to that Fund with each other share of that Fund and is
entitled to such dividends and distributions out of the income belonging to the
Fund as are declared by the Trustees. The shares do not have cumulative voting
rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Shares of each Fund have equal voting rights and liquidation rights. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Trust does not normally hold annual meetings of shareholders. The
Trustees shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon the removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Trust's outstanding shares.
The Trust will comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 in order to facilitate communications among shareholders.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
---------------------------------------------
BORROWING AND PLEDGING. Each Fund may borrow money from banks, provided that,
immediately after any such borrowings, there is asset coverage of 300% for all
borrowings of the Fund. A Fund
- 2 -
<PAGE>
will not make any borrowing which would cause its outstanding borrowings to
exceed one-third of the value of its total assets. Each Fund may pledge assets
in connection with borrowings but will not pledge more than one-third of its
total assets. Borrowing magnifies the potential for gain or loss on the
portfolio securities of the Funds and, therefore, if employed, increases the
possibility of fluctuation in a Fund's net asset value. This is the speculative
factor known as leverage. Each Fund's policies on borrowing and pledging are
fundamental policies which may not be changed without the affirmative vote of a
majority of its outstanding shares. It is the Funds' present intention, which
may be changed by the Board of Trustees without shareholder approval, to limit
each Fund's borrowing to no more than 5% of its net assets, and only for
emergency or extraordinary purposes and not for leverage.
LENDING PORTFOLIO SECURITIES. Each Fund may, from time to time, lend
securities on a short-term basis (i.e., for up to seven days) to banks, brokers
and dealers and receive as collateral cash, U.S. Government obligations or
irrevocable bank letters of credit (or any combination thereof), which
collateral will be required to be maintained at all times in an amount equal to
at least 100% of the current value of the loaned securities plus accrued
interest. Although each of the Funds does have the ability to make loans of all
of its portfolio securities, it is the present intention of the Trust, which may
be changed without shareholder approval, that such loans will not be made with
respect to a Fund if as a result the aggregate of all outstanding loans exceeds
one-third of the value of the Fund's total assets. Securities lending will
afford a Fund the opportunity to earn additional income because the Fund will
continue to be entitled to the interest payable on the loaned securities and
also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in recovering the securities lent or even loss of rights in the
collateral in the event of the insolvency of the borrower of the securities. A
Fund will have the right to regain record ownership of loaned securities in
order to exercise beneficial rights. A Fund may pay reasonable fees in
connection with arranging such loans.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Repurchase agreements are transactions by which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
time and price, thereby determining the yield during the term of the agreement.
In the event of a bankruptcy or other default of the seller of a repurchase
agreement, a Fund could experience both delays in
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<PAGE>
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
banks having assets in excess of $10 billion and the largest and, in the
judgment of the Adviser, most credit worthy primary U.S. Government securities
dealers. Each Fund will enter into repurchase agreements which are
collateralized by U.S. Government obligations. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Funds'
Custodian at the Federal Reserve Bank. At the time a Fund enters into a
repurchase agreement, the value of the collateral, including accrued interest,
will equal or exceed the value of the repurchase agreement and, in the case of a
repurchase agreement exceeding one day, the seller agrees to maintain sufficient
collateral so the value of the underlying collateral, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of the net
assets of the Fund would be invested in such securities and other illiquid
securities.
INVESTMENT LIMITATIONS
----------------------
The Trust has adopted certain fundamental investment limitations designed to
reduce the risk of an investment in each Fund. These limitations may not be
changed with respect to either Fund without the affirmative vote of a majority
of the outstanding shares of that Fund.
1. Borrowing Money. The Fund will not borrow money, except from a bank, provided
that immediately after such borrowing there is asset coverage of 300% for all
borrowings of the Fund. The Fund will not make any borrowing which would cause
its outstanding borrowings to exceed one-third of the value of its total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any manner
transfer, as security for indebtedness, any security owned or held by the Fund
except as may be necessary in connection with borrowings described in limitation
(1) above. The Fund will not mortgage, pledge or hypothecate more than one-third
of its assets in connection with borrowings.
3. Margin Purchases. The Fund will not purchase any securities or evidences of
interest thereon on "margin" (except such short-term credits as are necessary
for the clearance of transactions).
4. Options. The Fund will not purchase or sell puts, calls, options, futures,
straddles, commodities or commodities futures contracts.
5. Real Estate. The Fund will not purchase, hold or deal in real estate or real
estate mortgage loans, except that a Fund may
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<PAGE>
purchase (a) securities of companies (other than limited partnerships) which
deal in real estate or (b) securities which are secured by interests in real
estate.
6. Short Sales. The Fund will not make short sales of securities, or maintain a
short position, other than short sales "against the box."
7. Mineral Leases. The Fund will not purchase oil, gas or other mineral leases
or exploration or development programs.
8. Underwriting. The Fund will not act as underwriter of securities issued by
other persons, either directly or through a majority owned subsidiary. This
limitation is not applicable to the extent that, in connection with the
disposition of its portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal securities laws.
9. Illiquid Investments. The Fund will not purchase securities which cannot be
readily resold to the public because of legal or contractual restrictions on
resale or for which no readily available market exists or engage in a repurchase
agreement maturing in more than seven days if, as a result thereof, more than
15% of the value of the Fund's net assets would be invested in such securities.
10. Concentration. The Fund will not invest 25% or more of its total assets in
the securities of issuers in any particular industry; provided, however, that
there is no limitation with respect to investments in obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
11. Investing for Control. The Fund will not invest in companies for the purpose
of exercising control.
12. Senior Securities. The Fund will not issue or sell any senior security. This
limitation is not applicable to short-term credit obtained by the Fund for the
clearance of purchases and sales or redemptions of securities.
13. Loans. The Fund will not make loans to other persons, except (a) by loaning
portfolio securities, or (b) by engaging in repurchase agreements. For purposes
of this limitation, the term "loans" shall not include the purchase of bonds,
debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness.
With respect to the percentages adopted by the Trust as maximum limitations on
each Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage
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limitations relative to the borrowing of money and the holding of illiquid
securities) will not be a violation of the policy or restriction unless the
excess results immediately and directly from the acquisition of any security or
the action taken.
The Trust does not intend to pledge, mortgage or hypothecate the assets of any
Fund. The Fund does not intend to make short sales of securities "against the
box" as described in investment limitation 6. The statements of intention in
this paragraph reflect nonfundamental policies which may be changed by the Board
of Trustees without shareholder approval.
PORTFOLIO TURNOVER
------------------
The Funds do not intend to use short-term trading as a primary means of
achieving their investment objectives. However, each Fund's rate of portfolio
turnover will depend upon market and other conditions, and it will not be a
limiting factor when portfolio changes are deemed necessary or appropriate by
the Adviser. Although the annual portfolio turnover rate of the Funds cannot be
accurately predicted, it is not expected to exceed 100% with respect to either
of the Funds, but may be either higher or lower. A 100% turnover rate would
occur, for example, if all the securities of a Fund were replaced once in a
one-year period.
High turnover involves correspondingly greater commission expenses and
transaction costs and may result in a Fund recognizing greater amounts of income
and capital gains, which would increase the amount of income and capital gains
which the Fund must distribute to shareholders in order to maintain its status
as a regulated investment company and to avoid the imposition of federal income
or excise taxes.
For the fiscal period ended December 31, 1998, the portfolio turnover rate for
the Equity Fund and the Balanced Fund were 4% and 0%, respectively.
TRUSTEES AND OFFICERS
---------------------
The following is a list of the Trustees and executive officers of the Trust,
their age and their aggregate compensation from the Trust for the fiscal period
ended December 31, 1998. Each Trustee who is an "interested person" of the
Trust, as defined by the Investment Company Act of 1940, is indicated by an
asterisk.
Compensation
Name Age Position Held from the Trust
- ---- --- ------------- --------------
*Gregory J. Bauer 45 Chairman/Trustee $ 0
+Frank G. Doyle III 54 Trustee 1,000
+Francis A. Kovacs, Jr. 45 Trustee 1,000
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<PAGE>
*Robert A. McLaughlin 59 Trustee 0
*Joseph P. Rouse 54 Trustee 0
+Ralph P. Schwartz 54 Trustee 1,000
+William N. Stratman 56 Trustee 1,000
Earl V. Newsome, Jr. 42 President 0
Robert L. Bennett 57 Treasurer 0
Tina D. Hosking 30 Secretary 0
* Messrs. Bauer, McLaughlin, and Rouse are "interested persons" of the Trust
within the meaning of Section 2(a)(19) of the Investment Company Act of
1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the Trust
during the past five years are set forth below:
GREGORY J.BAUER, 1650 Lake Shore Drive, Suite 280, Columbus, Ohio 43204, is
Chairman of Lake Shore Fund Group, LLC (the investment adviser to the Trust). He
is also Chairman and Managing Director of Cambridge Financial Group, Inc., a
registered investment adviser.
FRANK G. DOYLE III, 8041 Hosbrook Road, Suite 200, Cincinnati, Ohio 45236, owns
Preferred Business Services, which leases office space and provides secretarial
support for its clients and AD Mail, a direct mail service company.
FRANCIS A. KOVACS, JR., 155 East Broad Street, 16th Floor, Columbus, Ohio 43215,
is a partner of Coolidge, Wall, Womsley & Lombard Co., L.P.A. Previously, he was
a partner of Schottenstein, Zox & Dunn.
ROBERT A. MCLAUGHLIN, 1650 Lake Shore Drive, Suite 280, Columbus, Ohio 43204, is
Executive Vice President of Lake Shore Fund Group, LLC. He is also Executive
Vice President and a director of Cambridge Financial Group, Inc. Mr. McLaughlin
previously served as retirement system investment officer and assistant director
of the Ohio Public Employees Retirement System.
JOSEPH P. ROUSE, 1800 Provident Tower, One East Fourth Street, Cincinnati, Ohio
45202, is a partner of Keating, Muething & Klekamp, a law firm.
RALPH P. SCHWARTZ, 2289 West Centerville Road, Dayton, Ohio 45459, is a
self-employed certified public accountant.
WILLIAM N. STRATMAN, 7949 Graves Road, Cincinnati, Ohio 45243, is a co-owner of
the Mariners Inn banquet halls. Previously, he owned The Bohlenger Engraving
Company.
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<PAGE>
EARL V. (BUCK) NEWSOME, JR., 7824 Laurel Avenue, Cincinnati, Ohio 45243 is
President of Lake Shore Fund Group, LLC. He is also the President of Cambridge
Financial Group, Inc.
ROBERT L. BENNETT, 312 Walnut Street, Cincinnati, Ohio, is First Vice President
and Chief Operations Officer of Countrywide Fund Services, Inc., (a registered
transfer agent). He is also Treasurer of Albemarle Investment Trust,
Atalanta/Sosnoff Investment Trust, Dean Family of Funds, The New York State
Opportunity Funds, Profit Funds Investment Trust, Wells Family of Real Estate
Funds, Williamsburg Investment Trust and The Winter Harbor Fund and Assistant
Treasurer of Boyar Value Fund, Inc., Brundage, Story and Rose Investment Trust
and Schwartz Investment Trust (all of which are registered investment
companies).
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio, is Assistant Vice
President and Associate General Counsel of Countrywide Fund Services, Inc. She
is also Secretary of Albemarle Investment Trust, Atalanta/Sosnoff Investment
Trust, The Bjurman Funds, Brundage, Story and Rose Investment Trust, Boyar Value
Fund, Inc., Dean Family of Funds, The New York State Opportunity Funds, Profit
Funds Investment Trust, The Thermo Opportunity Fund, Inc., UC Investment Trust,
Wells Family of Real Estate Funds, Williamsburg Investment Trust and The Winter
Harbor Fund and Assistant Secretary of The Gannett Welsh & Kotler Funds, The
James Advantage Funds, Lake Shore Family of Funds, Schwartz Investment Trust and
The Westport Funds.
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<PAGE>
Each Trustee who is not an employee or officer of the Adviser will receive a
$250 fee for each Board meeting attended and will be reimbursed for travel and
other expenses incurred in the performance of their duties.
PRINCIPAL SECURITY HOLDERS
--------------------------
As of January 31, 1999, Suzanne K. Meyers, as trustee of the Suzanne K. Meyers
Trust, 5080 Squirrel Bend, Columbus, Ohio, owned of record 6.7% of the
outstanding shares of the Equity Fund; Everen Clearing Corporation, for the
benefit of Mary Lou and Ronald Dury, 111 East Kilbourne Avenue, Cincinnati,
Ohio, owned of record 5.6% of the outstanding shares of the Equity Fund; and
Advest, Inc. for the benefit of its customers, 90 State House Square, Hartford,
Connecticut, owned of record 72.2% of the outstanding shares of the Equity Fund
and 99.3% of the outstanding shares of the Balanced Fund. For purposes of voting
on matters submitted to shareholders, any person who owns more than 50% of the
outstanding shares of a Fund generally would be able to cast the deciding vote.
As of January 31, 1999, the Trustees and officers of the Trust as a group owned
of record or beneficially 5.6% of the outstanding shares of the Equity Fund and
less than 1% of the outstanding shares of the Balanced Fund.
INVESTMENT ADVISER
------------------
Lake Shore Fund Group, LLC (the "Adviser") is the Funds' investment manager.
Earl V. (Buck) Newsome, Jr. and Gregory J. Bauer are the controlling
shareholders of the Adviser. Mr. Newsome and Mr. Bauer, by reason of such
affiliation, may directly or indirectly receive benefits from the advisory fees
paid to the Adviser.
Under the terms of the advisory agreement between the Trust and the Adviser, the
Adviser manages the Funds' investments. Each Fund pays the Adviser a fee
computed and accrued daily and paid monthly at an annual rate of 1.00% of its
average daily net assets.
For the fiscal period ended December 31, 1998, the Equity Fund and the Balanced
Fund accrued advisory fees of $4,838 and $456, respectively. However, in order
to reduce the operating expenses of the Funds the Adviser voluntarily waived its
entire advisory fee and reimbursed the Funds for a portion of their operating
expenses.
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<PAGE>
The Funds are responsible for the payment of all expenses incurred in connection
with the organization, registration of shares and operations of the Funds,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Funds' shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent for
the Funds, fees and expenses of members of the Board of Trustees who are not
employees or officers of the Adviser, the cost of preparing and distributing
prospectuses, statements, reports and other documents to share holders, expense
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, such as litigation to which the Trust may
be a party. The Funds may have an obligation to indemnify the Trust's officers
and Trustees with respect to such litigation, except in instances of willful
misfeasance, bad faith, gross negligence or reckless disregard by such officers
and Trustees in the performance of their duties. The compensation and expenses
of any officer, Trustee or employee of the Trust who is an officer, member,
director, employee or stockholder of the Adviser are paid by the Adviser.
By its terms, the Trust's advisory agreement will remain in force until January
8, 2000 and from year to year thereafter, subject to annual approval by (a) the
Board of Trustees or (b) a vote of the majority of a Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting such approval. The
Trust's investment advisory agreement may be terminated at any time, on sixty
days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of a Fund's outstanding voting securities,
or by the Adviser. The investment advisory agreement automatically terminates in
the event of its assignment, as defined by the Investment Company Act of 1940
and the rules thereunder.
DISTRIBUTION PLAN
-----------------
As stated in the Prospectus, the Funds have adopted a plan of distribution (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 which
permits each Fund to pay for expenses incurred in the distribution and promotion
of its shares, including but not limited to, the printing of prospectuses,
statements of additional information and reports used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
promotion, marketing and sales
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<PAGE>
expenses, and other distribution-related expenses, including any distribution
fees paid to securities dealers or other firms who have executed a distribution
or service agreement with the Underwriter.
The Plan expressly limits payment of the distribution expenses listed above in
any fiscal year to a maximum of .25% of the average daily net assets of each
Fund. For the fiscal period ended December 31, 1998, the Equity Fund accrued
distribution expenses of $250.
The continuance of the Plan must be specifically approved at least annually by a
vote of the Trust's Board of Trustees and by a vote of the Trustees who are not
interested persons of the Trust and have no direct or indirect financial
interest in the Plan (the "Independent Trustees") at a meeting called for the
purpose of voting on such continuance. The Plan may be terminated by either Fund
at any time by a vote of a majority of the Independent Trustees or by a vote of
the holders of a majority of the outstanding shares of such Fund. In the event
the Plan is terminated in accordance with its terms, the affected Fund will not
be required to make any payments for expenses incurred by the Adviser after the
termination date. The Plan may not be amended to increase materially the amount
to be spent for distribution without shareholder approval. All material
amendments to the Plan must be approved by a vote of the Trust's Board of
Trustees and by a vote of the Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plan will benefit each Fund and its
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plan should assist in the growth of
the Funds which will benefit each Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Funds pursuant
to the Plan and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. In addition, the
selection and nomination of those Trustees who are not interested persons of the
Trust are committed to the discretion of the Independent Trustees during such
period.
By reason of their ownership of shares of the Adviser, Earl V. (Buck) Newsome,
Jr. and Gregory J. Bauer may each be deemed to have a financial interest in the
operation of the Plan.
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<PAGE>
CUSTODIAN
---------
Firstar, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained to act as
Custodian for the Funds' investments. Firstar acts as each Fund's depository,
safekeeps its portfolio securities, collects all income and other payments with
respect thereto, disburses funds as instructed and maintains records in
connection with its duties.
AUDITORS
--------
The firm of Joseph Decosimo and Company, PLL, 221 E.4th Street, Suite 2727,
Cincinnati, Ohio 45202, has been selected as independent auditors for the Trust
for the fiscal year ending December 31, 1999. Joseph Decosimo and Company
performs an annual audit of the Trust's financial statements and advises the
Trust as to certain accounting matters.
COUNTRYWIDE FUND SERVICES, INC.
-------------------------------
The Trust has retained Countrywide Fund Services, Inc. ("Countrywide") to act as
its transfer agent. Countrywide is an indirect wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending. Countrywide
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. Countrywide receives for its services as
transfer agent a fee at an annual rate of $20 per account from each of the
Funds, provided, however, that the minimum fee is $1,200 per month for each
Fund. In addition, the Funds pay out-of-pocket expenses, including but not
limited to, postage, envelopes, checks, drafts, forms, reports, record storage
and communication lines.
Countrywide also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable Countrywide to perform its duties, each Fund
pays Countrywide a fee in accordance with the following schedule:
Average Monthly Net Assets Monthly Fee
--------------------------- --------------------
$ 0 - $ 50,000,000 $2,000
50,000,000 - 100,000,000 $2,500
100,000,000 - 200,000,000 $3,000
200,000,000 - 300,000,000 $4,000
Over 300,000,000 $5,000 + .001% of
average monthly
net assets
In addition, each Fund pays all costs of external pricing services.
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<PAGE>
Countrywide also provides administrative services to the Funds. In this
capacity, Countrywide supplies non-investment related statistical and research
data, internal regulatory compliance services and executive and administrative
services. Countrywide supervises the preparation of tax returns, reports to
shareholders of the Funds, reports to and filings with the Securities and
Exchange Commission and state securities commissions, and materials for meetings
of the Board of Trustees. For the performance of these administrative services,
each Fund pays Countrywide a fee at the annual rate of .15% of the average value
of its daily net assets up to $50 million, .125% of such assets from $50 million
to $100 million and .10% of such assets in excess of $100 million, provided,
however, that the minimum fee is $1,000 per month for each Fund. For the fiscal
period ended December 31, 1998, Countrywide received transfer agency fees,
accounting services fees and administrative service fees of $10,800, $18,000 and
$9,000, respectively from the Equity Fund and $7,200, $12,000 and $6,000
respectively from the Balanced Fund.
SECURITIES TRANSACTIONS
-----------------------
Decisions to buy and sell securities for the Funds and the placing of the Funds'
securities transactions and negotiation of commission rates where applicable are
made by the Adviser and are subject to review by the Board of Trustees of the
Trust. In the purchase and sale of portfolio securities, the Adviser seeks best
execution for the Funds, taking into account such factors as price (including
the applicable brokerage commission or dealer spread), the execution capability,
financial responsibility and responsiveness of the broker or dealer and the
brokerage and research services provided by the broker or dealer. The Adviser
generally seeks favorable prices and commission rates that are reasonable in
relation to the benefits received. The Equity Fund and the Balanced Fund paid
brokerage commissions of $2077 and $81, respectively, during the fiscal period
ended December 31, 1998.
The Funds may attempt to deal directly with the dealers who make a market in the
securities involved unless better prices and execution are available elsewhere.
Such dealers usually act as principals for their own account. On occasion,
portfolio securities for the Funds may be purchased directly from the issuer.
The Adviser is specifically authorized to select brokers who also provide
brokerage and research services to the Funds and/or other accounts over which
the Adviser exercises investment discretion and to pay such brokers a commission
in excess of the commission another broker would charge if the Adviser
determines in good
- 13 -
<PAGE>
faith that the commission is reasonable in relation to the value of the
brokerage and research services provided. The determination may be viewed in
terms of a particular transaction or the Adviser's overall responsibilities with
respect to the Funds and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses, reports on issuers'
financial conditions and future business prospects, newsletters and opinions
relating to interest trends, general advice on the relative merits of possible
investment securities for the Funds and statistical services and information
with respect to the availability of securities or purchasers or sellers of
securities. Although this information is useful to the Funds and the Adviser, it
is not possible to place a dollar value on it. Research services furnished by
brokers through whom the Funds effect securities transactions may be used by the
Adviser in servicing all of its accounts and not all such services may be used
by the Adviser in connection with the Funds.
The Funds have no obligation to deal with any broker or dealer in the execution
of securities transactions. However, the Underwriter and other affiliates of the
Trust or the Adviser may effect securities transactions which are executed on a
national securities exchange or transactions in the over-the-counter market
conducted on an agency basis. No Fund will effect any brokerage transactions in
its portfolio securities with the Adviser if such transactions would be unfair
or unreasonable to its shareholders. Over-the-counter transactions will be
placed either directly with principal market makers or with broker-dealers.
Although the Funds do not anticipate any ongoing arrangements with other
brokerage firms, brokerage business may be transacted from time to time with
other firms. Neither the Underwriter nor affiliates of the Trust or the Adviser
will receive reciprocal brokerage business as a result of the brokerage business
transacted by the Funds with other brokers.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
----------------------------------------------------
The share price (net asset value) and the public offering price (net asset value
plus applicable sales load) of the shares of each Fund are determined as of the
close of the regular session of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time), on each day the Trust is open for business. The Trust
is open for business on every day except Saturdays, Sundays and the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The Trust may also be open for business on other days in which
there is sufficient trading in a Fund's portfolio securities that its net asset
value might be materially affected. For a description of
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<PAGE>
the methods used to determine the share price and the public offering price, see
"Calculation of Public Offering Price" in the Prospectus.
OTHER PURCHASE INFORMATION
--------------------------
The Prospectus describes generally how to purchase shares of the Funds.
Additional information with respect to certain types of purchases of shares of
the Funds is set forth below.
Right of Accumulation. A "purchaser" (as defined in the Prospectus) of shares of
a Fund has the right to combine the cost or current net asset value (whichever
is higher) of his existing shares of any Fund in the Lake Shore Family of Funds
with the amount of his current purchases in order to take advantage of the
reduced sales loads set forth in the tables in the Prospectus. The purchaser or
his dealer must notify Countrywide Fund Services, Inc. (the "Transfer Agent")
that an investment qualifies for a reduced sales load. The reduced sales load
will be granted upon confirmation of the purchaser's holdings by the Transfer
Agent.
Letter of Intent. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of a Fund who submits a Letter of Intent to the Transfer
Agent. The Letter must state an intention to invest in any Fund in the Lake
Shore Family of Funds within a thirteen month period a specified amount which,
if made at one time, would qualify for a reduced sales load. A Letter of Intent
may be submitted with a purchase at the beginning of the thirteen month period
or within ninety days of the first purchase under the Letter of Intent. Upon
acceptance of this Letter, the purchaser becomes eligible for the reduced sales
load applicable to the level of investment covered by such Letter of Intent as
if the entire amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to purchase,
or the Trust to sell, the full amount indicated. During the term of a Letter of
Intent, shares representing 5% of the intended purchase will be held in escrow.
These shares will be released upon the completion of the intended investment. If
the Letter of Intent is not completed during the thirteen month period, the
applicable sales load will be adjusted by the redemption of sufficient shares
held in escrow, depending upon the amount actually purchased during the period.
The minimum initial investment under a Letter of Intent is $10,000.
A ninety-day backdating period can be used to include earlier purchases at the
purchaser's cost (without a retroactive downward adjustment of the sales load).
The thirteen month period would then begin on the date of the first purchase
during the ninety-day period. No retroactive adjustment will be made if
purchases
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<PAGE>
exceed the amount indicated in the Letter of Intent. The purchaser or his dealer
must notify the Transfer Agent that an investment is being made pursuant to an
executed Letter of Intent.
Other Information. The Trust does not impose a sales load or imposes a reduced
sales load in connection with purchases of shares of the Funds made under the
reinvestment privilege or the purchases described in the "Reduced Sales Load" or
"Purchases at Net Asset Value" sections in the Prospectus because such purchases
require minimal sales effort by the Underwriter. Purchases described in the
"Purchases at Net Asset Value" section may be made for investment only, and the
shares may not be resold except through redemption by or on behalf of the Trust.
THE UNDERWRITER
---------------
CW Fund Distributors, Inc. (the "Underwriter"), 312 Walnut Street, Cincinnati,
Ohio 45202, is the principal underwriter of the Funds and, as such, is the
exclusive agent for distribution of shares of the Funds. The Underwriter is
obligated to sell the shares on a best efforts basis only against purchase
orders for the shares. Shares of each Fund are offered to the public on a
continuous basis.
The Underwriter currently allows concessions to dealers who sell shares of the
Funds, as follows:
Dealer Reallowance as
Amount of Investment % of Public Offering Price
-------------------- --------------------------
Less than $25,000 4.5%
$25,000 but less than $250,000 3.5%
$250,000 or more 2.5%
Under certain circumstances, the Underwriter may increase or decrease the
reallowance to dealers. The Underwriter receives that portion of the sales load
which is not reallowed to the dealers who sell shares of the Funds. The
Underwriter retains the entire sales load on all direct initial investments in
the Funds and on all investments in accounts with no designated dealer of
record.
For the fiscal period ended December 31, 1998, the aggregate commissions
collected on sales of the Funds' shares were $6,802, all of which the
Underwriter paid to unaffiliated broker-dealers.
The Funds may compensate dealers, including the Underwriter and its affiliates,
based on the average balance of all accounts in the Funds for which the dealer
is designated as the party responsible for the account. See "Distribution Plan"
above.
- 16 -
<PAGE>
TAXES
-----
The Prospectus describes generally the tax treatment of distributions by the
Funds. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
Each Fund has qualified and intends to qualify annually for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. To so qualify a Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; and (ii) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment companies
and other securities (for this purpose such other securities will qualify only
if the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
A Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if any, of
a Fund's "required distribution" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a Fund's ordinary income for
the calendar year plus 98% of its net capital gains recognized during the one
year period ending on November 30 of the calendar year plus undistributed
amounts from prior years. The Funds intend to make distributions sufficient to
avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion (31%)
of dividend income on any account unless the shareholder provides a taxpayer
identification number and
- 17 -
<PAGE>
certifies that such number is correct and that the shareholder is not subject to
backup withholding.
REDEMPTION IN KIND
------------------
Under unusual circumstances, when the Board of Trustees deems it in the best
interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
----------------------------------
From time to time, each Fund may advertise average annual total return. Average
annual total return quotations will be computed by finding the average annual
compounded rates of return over 1, 5 and 10 year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and the deduction of the current maximum sales load
from the initial $1,000 payment. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. Each Fund may also
advertise total return (a "non-standardized quotation") which is calculated
differently from average annual total return. A nonstandardized quotation of
total return may be a cumulative return which measures the percentage change in
the value of an account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. This computation does not include the effect of the applicable
sales load which, if
- 18 -
<PAGE>
included, would reduce total return. For the period from the initial public
offering of shares (March 2, 1998) through December 31, 1998, the total return
of the Equity Fund as calculated in this manner was 11.34%. For the period from
the initial public offering of shares (June 30, 1998) through December 31, 1998,
the total return of the Balanced Fund as calculated in this manner was 9.98%. A
nonstandardized quotation may also indicate average annual compounded rates of
return without including the effect of the applicable sales load or over periods
other than those specified for average annual total return. A nonstandardized
quotation of total return will always be accompanied by the Fund's average
annual total return as described above.
From time to time, each of the Funds may advertise its yield. A yield quotation
is based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
Yield = 2[(a-b/cd +1) -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
From time to time the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc.("Lipper"), or by publications of general
interest such as
- 19 -
<PAGE>
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. The Funds may also compare their performance to
that of other selected mutual funds, averages of the other mutual funds within
their categories as determined by Lipper, or recognized indicators such as the
Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index. In
connection with a ranking, the Funds may provide additional information, such as
the particular category of funds to which the ranking relates, the number of
funds in the category, the criteria upon which the ranking is based, and the
effect of fee waivers and/or expense reimbursements, if any. The Funds may also
present their performance and other investment characteristics, such as
volatility or a temporary defensive posture, in light of the Adviser's view of
current or past market conditions or historical trends.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Funds' portfolios, that the averages are generally
unmanaged and that the items included in the calculations of such averages may
not be identical to the formula used by the Funds to calculate their
performance. In addition, there can be no assurance that the Funds will continue
this performance as compared to such other averages.
FINANCIAL STATEMENTS
--------------------
The Funds' Annual Financial Statements as of December 31, 1998, which have been
audited by Joseph Decosimo and Company, PLL, are attached to this Statement of
Additional Information.
- 20 -
<PAGE>
- --------------------------------------------------------------------------------
LAKE SHORE FAMILY OF FUNDS
--------------------------
LAKE SHORE BALANCED FUND
ANNUAL REPORT
December 31, 1998
INVESTMENT ADVISER ADMINISTRATOR
------------------ -------------
LAKE SHORE FUND GROUP, LLC COUNTRYWIDE FUND SERVICES, INC.
8280 Montgomery Road 312 Walnut Street
Suite 302 P.O. Box 5354
Cincinnati, Ohio 45236 Cincinnati, Ohio 45201-5354
1.513.794.1440 1.800.266.9532
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
LAKE SHORE
---------------
FAMILY OF FUNDS
INVESTMENT ADVISER SHAREHOLDER SERVICES
------------------ --------------------
LAKE SHORE FUND GROUP, LLC Lake Shore Family of Funds
8280 Montgomery Road P.O. Box 5354
Suite 302 Cincinnati, Ohio 45201-5354
Cincinnati, Ohio 45236 (800) 266.9532
(513) 794.1440
Dear Fellow Shareholders,
The Lake Shore Balanced Fund began operations in June of 1998 during what we
considered to be an investment environment which had greater than average risk.
Consequently, the Fund was held in riskless cash and cash equivalents until our
equity market work suggested that risk was reduced.
Major market averages rallied into July, but there was a significant degree of
deterioration in the broad market. Measures of stocks advancing in price versus
those declining in price, and stocks moving to new 52-week highs, failed to
confirm the advances in stock indices, and highlighted the narrowness of the
rise. When Russia defaulted on its treasury debt in August, a crisis ensued. A
large U.S. hedge fund, which had employed greater than usual leverage,
threatened the liquidity of the worldwide financial system as its positions had
to be unwound, and led to fears of a worldwide recession. At this point, the
market sell-off began in earnest.
In response to these events, investors quickly shifted funds into short-term
securities, driving interest rates on Treasury bills down. This was followed by
the Federal Reserve's move to lower the discount rate and inject funds into the
system, as they orchestrated a bailout of the above-mentioned hedge fund. This
improving monetary environment, in conjunction with the lower equity prices,
resulted in a more favorable outlook for stocks, and our Fund entered the market
in late October.
Major market sell-offs have shown a tendency to occur every four years, and the
decline into October fell within this time frame, suggesting that a sustained
rally may follow. In addition, two consecutive discount rate cuts by the Federal
Reserve have historically had positive ramifications for stocks. Since 1914,
there have been 19 of these instances, and the S&P 500 Index rose 18 times for
an average gain of 30.3% over the next twelve months.
<PAGE>
Clearly, the advance from the October lows has been rather narrow, with
investors concentrating on large-cap growth stocks, and there remain fundamental
and technical concerns. Valuations were already at the higher end of their
historic range when the rally began, and sentiment quickly shifted to the
positive side and remains extremely high (it is more beneficial for there to be
a higher degree of skepticism). On the other hand, the Federal Reserve is
maintaining its accommodating stance, providing plenty of liquidity for the
market, and stock buying by corporate "insiders" has been high, traditionally a
good sign for the market.
After a significant decline in interest rates resulting from an international
flight-to-quality, yields have moved higher and, at the present time, are
indicating that further declines are not on the horizon. As a result, we have
maintained the fixed-income portion of the Fund in short-term instruments until
we see a better opportunity to invest in longer maturities.
The accompanying graph compares the performance of a hypothetical $10,000
investment in the Fund relative to the S&P 500 Index, an unmanaged,
capitalization-weighted index of 500 large common stocks. The initial investment
figure for the Fund is adjusted for the 5% maximum sales load applicable to
share purchases. Through December 31, 1998, the Fund's total return since
inception (excluding the impact of applicable sales loads) was 9.98% versus
18.61% for the S&P 500 Index.
If you have any questions, please feel free to call us at (513)-794-1440.
Sincerely,
/s/ Gregory J. Bauer
Gregory J. Bauer, CFA
Chairman
Lake Shore Family of Funds
<PAGE>
Comparison of the Change in Value of a $10,000 Investment in the Lake Shore
Balanced Fund, the S&P 500 Index and the Lipper Balanced Fund Index
LAKE SHORE BALANCED FUND:
-------------------------
MONTHLY
DATE RETURN BALANCE
---- ------ -------
06/30/98 9,500
07/31/98 0.40% 9,538
08/31/98 0.40% 9,576
09/30/98 0.10% 9,586
10/31/98 2.08% 9,785
11/30/98 2.14% 9,994
12/31/98 4.54% 10,448
S&P 500 INDEX:
--------------
MONTHLY
DATE RETURN BALANCE
---- ------ -------
06/30/98 10,000
07/31/98 -1.07% 9,894
08/31/98 -14.46% 8,463
09/30/98 6.41% 9,005
10/31/98 8.13% 9,738
11/30/98 6.06% 10,328
12/31/98 5.76% 10,923
LIPPER BALANCED FUND INDEX:
---------------------------
MONTHLY
DATE RETURN BALANCE
---- ------ -------
06/30/98 10,000
07/31/98 -1.17% 9,883
08/31/98 -8.62% 9,031
09/30/98 4.32% 9,421
10/31/98 3.74% 9,774
11/30/98 3.66% 10,131
12/31/98 3.69% 10,505
--------------------------
Lake Shore Balanced Fund
Total Return
Since Inception* 4.48%
--------------------------
Past performance is not predictive of future performance.
*Initial public offering of shares was June 30, 1998.
<PAGE>
LAKE SHORE BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investment securities, at market value (Cost $156,153) $ 170,330
Dividends receivable 358
Receivable from Adviser (Note 4) 4,470
Organization expenses, net (Note 2) 19,949
Other assets 2,536
---------
TOTAL ASSETS 197,643
---------
LIABILITIES
Payable to affiliates (Note 4) 4,200
Other accrued expenses and liabilities 1,953
---------
TOTAL LIABILITIES 6,153
---------
NET ASSETS $ 191,490
=========
NET ASSETS CONSIST OF:
Paid-in capital $ 177,306
Undistributed net investment income 2
Accumulated net realized gains from security transactions 5
Net unrealized appreciation on investments 14,177
---------
NET ASSETS $ 191,490
---------
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 17,456
=========
Net asset value and redemption price per share (Note 2) $ 10.97
=========
Maximum offering price per share (Note 2) $ 11.55
=========
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE BALANCED FUND
STATEMENT OF OPERATIONS
For the Period Ended December 31, 1998 (a)
INVESTMENT INCOME
Dividends $ 1,391
---------
EXPENSES
Accounting services fees (Note 4) 12,000
Transfer agent fees (Note 4) 7,200
Insurance expense 6,188
Administrative services fees (Note 4) 6,000
Registration fees 4,294
Amortization of organization expenses (Note 2) 2,217
Postage and supplies 2,098
Trustees' fees and expenses 1,762
Custodian fees 1,400
Investment advisory fees (Note 4) 456
Shareholder report costs 408
Pricing costs 100
---------
TOTAL EXPENSES 44,123
Fees waived and expenses reimbursed by the Adviser (Note 4) (43,219)
---------
NET EXPENSES 904
---------
NET INVESTMENT INCOME 487
---------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 5
Net increase in unrealized appreciation on investments 14,177
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 14,182
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 14,669
=========
(a) Represents the period from the initial public offering of shares (June 30,
1998) through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended December 31, 1998 (a)
FROM OPERATIONS:
Net investment income $ 487
Net realized gains from security transactions 5
Net increase in unrealized appreciation on investments 14,177
---------
Net increase in net assets from operations 14,669
---------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (485)
---------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 175,821
Net asset value of shares issued in
reinvestment of distributions to shareholders 485
---------
Net increase in net assets from capital share transactions 176,306
---------
TOTAL INCREASE IN NET ASSETS 190,490
NET ASSETS:
Beginning of period (Note 1) 1,000
---------
End of period $ 191,490
=========
UNDISTRIBUTED NET INVESTMENT INCOME $ 2
=========
CAPITAL SHARE ACTIVITY:
Shares sold 17,312
Shares issued in reinvestment of
distributions to shareholders 44
---------
Net increase in shares outstanding 17,356
Shares outstanding, beginning of period (Note 1) 100
---------
Shares outstanding, end of period 17,456
=========
(a) Represents the period from the initial public offering of shares (June 30,
1998) through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE BALANCED FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding
Throughout the Period Ended December 31, 1998 (a)
Net asset value at beginning of period $ 10.00
---------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gains on investments 0.97
---------
Total from investment operations 1.00
---------
Dividends from net investment income (0.03)
---------
Net asset value at end of period $ 10.97
=========
Total return (b) 9.98%
=========
Net assets at end of period $ 191,490
=========
Ratio of net expenses to average net assets (c) 1.95%(d)
Ratio of net investment income to average net assets 1.05%(d)
Portfolio turnover rate 0%
(a) Represents the period from the initial public offering of shares (June 30,
1998) through December 31, 1998.
(b) Total return shown excludes the effect of applicable sales loads and is not
annualized.
(c) Ratio of expenses to average net assets assuming no waiver of fees and
reimbursement of expenses by the Adviser was 94.94%(d) (Note 4).
(d) Annualized.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE BALANCED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
Market
Shares Value
- -------- ----------
COMMON STOCKS - 52.5%
TECHNOLOGY - 16.8%
45 AT&T Corp. $ 3,386
85 Apple Computer, Inc.* 3,480
60 Comcast Corp. 3,521
45 Dell Computer Corp.* 3,293
45 EMC Corp.* 3,825
20 IBM Corp. 3,695
35 Lucent Technologies, Inc. 3,850
110 Unisys Corp.* 3,788
30 United Technologies Corp. 3,263
----------
32,101
----------
CONSUMER, NON-CYCLICAL - 8.8%
25 Bristol-Myers Squibb Co. 3,345
45 Guidant Corp. 4,961
50 Heinz (H.J.) Co. 2,831
20 Merck & Co., Inc. 2,954
100 Sara Lee Corp. 2,819
----------
16,910
----------
CONSUMER, CYCLICAL - 6.2%
37 DaimlerChrysler AG* 3,554
80 Ford Motor Co. 4,695
45 Wal-Mart Stores, Inc. 3,665
----------
11,914
----------
ENERGY - 5.7%
35 Chevron Corp. 2,903
40 Exxon Corp. 2,925
145 Occidental Petroleum Corp. 2,447
50 Texaco, Inc. 2,643
----------
10,918
----------
BASIC MATERIALS - 5.1%
45 Georgia-Pacific Group 2,635
40 Georgia-Pacific Timber Group 953
65 International Paper Co. 2,913
65 Weyerhaeuser Co. 3,303
----------
9,804
----------
<PAGE>
LAKE SHORE BALANCED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
Market
Shares Value
- -------- ----------
COMMON STOCKS - 52.5%
FINANCIAL SERVICES - 4.8%
40 Associates First Capital Corp. - Class A $ 1,695
60 Paychex, Inc. 3,086
60 Providian Financial Corp. 4,500
----------
9,281
----------
INDUSTRIAL - 3.2%
130 Waste Management, Inc. 6,062
----------
CONGLOMERATES - 1.9%
35 General Electric Co. 3,572
----------
TOTAL COMMON STOCKS (COST $86,385) 100,562
----------
MONEY MARKETS - 36.4%
69,768 Star Treasury Fund (Cost $69,768) 69,768
----------
TOTAL INVESTMENT SECURITIES (COST $156,153) - 88.9% 170,330
OTHER ASSETS IN EXCESS OF LIABILITIES - 11.1% 21,160
----------
NET ASSETS - 100.0% $ 191,490
==========
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. ORGANIZATION
The Lake Shore Family of Funds (the Trust) is registered under the Investment
Company Act of 1940 (the 1940 Act) as an open-end management investment company.
The Trust was organized as an Ohio business trust under a Declaration of Trust
dated September 3, 1997. The Trust currently offers two separate series of
shares to investors: the Equity Fund and the Balanced Fund (individually, a Fund
and, collectively, the Funds). The Trust was capitalized on December 23, 1997,
when the initial shares of each Fund were purchased at $10.00 per share. The
initial public offering of shares of the Balanced Fund commenced on June 30,
1998. The Balanced Fund had no operations prior to the public offering of shares
except for the initial issuance of shares.
The Balanced Fund seeks long-term growth of capital and current income by
investing in a balanced portfolio of common stocks, U.S. Treasury obligations
and money market instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Balanced Fund's significant accounting
policies:
Security valuation -- The Fund's portfolio securities are valued as of the close
of business of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time). Securities traded on a national stock
exchange or quoted by NASDAQ are valued based upon the closing price on the
principal exchange where the security is traded, or, if not traded on a
particular day, at the closing bid price. U.S. Government obligations are valued
at their most recent bid prices as obtained from one or more of the major market
makers for such securities.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The maximum offering price per share is equal to
the net asset value per share plus a sales load equal to 5.26% of the net asset
value (or 5.00% of the offering price). The redemption price per share is equal
to the net asset value per share.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned. Discounts and premiums on securities
purchased are amortized in accordance with income tax regulations which
approximate generally accepted accounting principles.
Distributions to shareholders -- The Fund expects to distribute substantially
all of its net investment income, if any, on a quarterly basis. The Fund expects
to distribute any net realized long-term capital gains at least once each year.
Management will determine the timing and frequency of the distributions of any
net realized short-term capital gains.
Organization expenses -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over five years as of December 31,
1998. Effective January 1, 1999, the Fund intends to adopt the provisions of
AICPA Statement of Position 98-5, "Reporting for the Costs of Start-Up
Activities." 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.
<PAGE>
LAKE SHORE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued 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 the 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 the 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.
As of December 31, 1998, net unrealized appreciation on investments was $14,177
for federal income tax purposes, of which $15,209 related to appreciated
securities and $1,032 related to depreciated securities based on a federal
income tax cost basis of $156,153.
3. INVESTMENT TRANSACTIONS
During the period ended December 31, 1998, cost of purchases and proceeds from
sales and maturities of investment securities, other than short-term
investments, amounted to $86,385 and $0, respectively.
4. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Lake Shore Fund
Group, LLC (the Adviser), of Countrywide Fund Services, Inc. (CFS), the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust, or of CW Fund Distributors, Inc. (the
Underwriter), the exclusive agent for the distribution of the Fund's shares.
ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. The Fund pays the Adviser an investment advisory fee,
computed and accrued daily and paid monthly, at an annual rate of 1.00% of its
average daily net assets.
In order to voluntarily reduce operating expenses during the period ended
December 31, 1998, the Adviser waived its entire advisory fee of $456 and
reimbursed the Fund for $42,763 of other operating expenses.
<PAGE>
LAKE SHORE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, CFS supplies non-investment
related administrative and compliance services for the Fund. 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 the Fund at an annual rate of 0.15% of its average
daily net assets up to $50 million; 0.125% of such net assets from $50 million
to $100 million; and 0.10% of such net assets in excess of $100 million, subject
to a $1,000 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 at an annual rate of $20 per shareholder
account, subject to a $1,200 minimum monthly fee. In addition, the Fund pays
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
Fund. For these services, CFS receives a monthly fee, based on current asset
levels, of $2,000 from the Fund. In addition, the Fund pays certain
out-of-pocket expenses incurred by CFS in obtaining valuations of the Fund's
portfolio securities.
UNDERWRITING AGREEMENT
Under the terms of an Underwriting Agreement, the Underwriter serves as the
exclusive agent for the distribution of the Fund's shares. For these services,
the Underwriter earned $917 from underwriting commissions on the sale of shares
during the period ended December 31, 1998.
PLAN OF DISTRIBUTION
The Trust has adopted a Plan of Distribution (the Plan) pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that the Fund may directly incur or
reimburse the Underwriter or the Adviser for certain costs related to the
distribution of the Fund shares, not to exceed 0.25% of average daily net
assets. For the period ended December 31, 1998, the Fund incurred no such
expenses under the Plan.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Lake Shore Balanced Fund and
The Trustees of Lake Shore Family of Funds
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of the Lake Shore Balanced Fund (one of the funds
of the Lake Shore Family of Funds ) as of December 31, 1998, and the related
statements of operations and changes in net assets and the financial highlights
for the period from June 30, 1998 (date of initial public offering of shares)
through December 31, 1998. These financial statements and financial highlights
are the responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit 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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1998, by correspondence with the custodian. 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 audit provides 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
Lake Shore Balanced Fund of the Lake Shore Family of Funds as of December 31,
1998, and the results of its operations and financial highlights for the period
from June 30, 1998 through December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Joseph Decosimo and Company, PLL
Joseph Decosimo and Company, PLL
Cincinnati, Ohio
January 15, 1999
<PAGE>
- --------------------------------------------------------------------------------
LAKE SHORE FAMILY OF FUNDS
--------------------------
LAKE SHORE EQUITY FUND
ANNUAL REPORT
December 31, 1998
INVESTMENT ADVISER ADMINISTRATOR
------------------ -------------
LAKE SHORE FUND GROUP, LLC COUNTRYWIDE FUND SERVICES, INC.
8280 Montgomery Road 312 Walnut Street
Suite 302 P.O. Box 5354
Cincinnati, Ohio 45236 Cincinnati, Ohio 45201-5354
1.513.794.1440 1.800.266.9532
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
LAKE SHORE
---------------
FAMILY OF FUNDS
INVESTMENT ADVISER SHAREHOLDER SERVICES
------------------ --------------------
LAKE SHORE FUND GROUP, LLC Lake Shore Family of Funds
8280 Montgomery Road P.O. Box 5354
Suite 302 Cincinnati, Ohio 45201-5354
Cincinnati, Ohio 45236 (800) 266.9532
(513) 794.1440
Dear Fellow Shareholders,
The Lake Shore Equity Fund began operations in March of 1998 during what we
considered to be an investment environment which had greater than average risk.
Consequently, one-third of the Fund was held in riskless cash and cash
equivalents until our equity market analysis suggested that risk was reduced.
Major market averages rallied into July, but there was a significant degree of
deterioration in the broad market. Measures of stocks advancing in price versus
those declining in price, and stocks moving to new 52-week highs, failed to
confirm the advances in stock indices, and highlighted the narrowness of the
rise. When Russia defaulted on its treasury debt in August, a crisis ensued. A
large U.S. hedge fund, which had employed greater than usual leverage,
threatened the liquidity of the worldwide financial system as its positions had
to be unwound, and led to fears of a worldwide recession. At this point, the
market sell-off began in earnest.
In response to these events, investors quickly shifted funds into short-term
securities, driving interest rates on Treasury bills down. This was followed by
the Federal Reserve's move to lower the discount rate and inject funds into the
system, as they orchestrated a bailout of the above-mentioned hedge fund. This
improving monetary environment, in conjunction with lower equity prices,
resulted in a more favorable outlook for stocks, and our Fund moved to an
essentially fully invested position in early December.
Major market sell-offs have shown a tendency to occur every four years, and the
decline into October fell within this time frame, suggesting that a sustained
rally may follow. In addition, two consecutive discount rate cuts by the Federal
Reserve have historically had positive ramifications for stocks. Since 1914,
there have been 19 of these instances, and the S&P 500 Index rose 18 times for
an average gain of 30.3% over the next twelve months.
<PAGE>
Clearly, the advance from the October lows has been rather narrow, with
investors concentrating on large-cap growth stocks, and there remain fundamental
and technical concerns. Valuations were already at the higher end of their
historic range when the rally began, and sentiment quickly shifted to the
positive side and remains extremely high (it is more beneficial for there to be
a higher degree of skepticism). On the other hand, the Federal Reserve is
maintaining its accommodating stance, providing plenty of liquidity for the
market, and stock buying by corporate "insiders" has been high, traditionally a
good sign for the market.
Corrections in the market are to be expected, particularly given the strong
surge that occurred during the fourth quarter, but we are maintaining our fully
invested posture.
The accompanying graph compares the performance of a hypothetical $10,000
investment in the Fund relative to the S&P 500 Index, an unmanaged,
capitalization-weighted index of 500 large common stocks. The initial investment
figure for the Fund is adjusted for the 5% maximum sales load applicable to
share purchases. Through December 31, 1998, the Fund's total return since its
March 2 inception (excluding the impact of applicable sales loads) was 11.34%
versus 18.61% for the S&P 500 Index.
If you have any questions, please feel free to call us at (513)-794-1440.
Sincerely,
/s/ Gregory J. Bauer
Gregory J. Bauer, CFA
Chairman
Lake Shore Family of Funds
<PAGE>
Comparison of the Change in Value of a $10,000 Investment in the
Lake Shore Equity Fund and the S&P 500 Index
LAKE SHORE EQUITY FUND
----------------------
MONTHLY
DATE RETURN BALANCE
03/02/98 9,500
03/31/98 1.40% 9,633
04/30/98 0.79% 9,709
05/31/98 -0.98% 9,614
06/30/98 0.77% 9,688
07/31/98 -1.58% 9,535
08/31/98 -6.11% 8,952
09/30/98 3.02% 9,223
10/31/98 3.53% 9,548
11/30/98 2.91% 9,825
12/31/98 7.65% 10,578
S&P 500 INDEX
-------------
MONTHLY
DATE RETURN BALANCE
03/02/98 10,000
03/31/98 5.12% 10,512
04/30/98 1.01% 10,618
05/31/98 -1.72% 10,435
06/30/98 4.06% 10,859
07/31/98 -1.07% 10,744
08/31/98 -14.46% 9,190
09/30/98 6.41% 9,779
10/31/98 8.13% 10,574
11/30/98 6.06% 11,215
12/31/98 5.76% 11,861
------------------------
Lake Shore Equity Fund
Total Return
Since Inception* 5.78%
------------------------
Past performance is not predictive of future performance.
*Initial public offering of shares was March 2, 1998.
<PAGE>
LAKE SHORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investment securities, at market value (Cost $1,373,647) $ 1,544,689
Cash 35
Dividends receivable 1,999
Receivable from Adviser (Note 4) 26,718
Organization expenses, net (Note 2) 17,733
Other assets 3,453
-----------
TOTAL ASSETS 1,594,627
-----------
LIABILITIES
Dividends payable 77
Payable to affiliates (Note 4) 4,200
Other accrued expenses and liabilities 1,592
-----------
TOTAL LIABILITIES 5,869
-----------
NET ASSETS $ 1,588,758
===========
NET ASSETS CONSIST OF:
Paid-in capital $ 1,421,229
Undistributed net investment income 13
Accumulated net realized losses from security transactions (3,526)
Net unrealized appreciation on investments 171,042
-----------
NET ASSETS $ 1,588,758
-----------
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 143,745
===========
Net asset value and redemption price per share (Note 2) $ 11.05
===========
Maximum offering price per share (Note 2) $ 11.63
===========
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
STATEMENT OF OPERATIONS
For the Period Ended December 31, 1998 (a)
INVESTMENT INCOME
Dividends $ 12,656
---------
EXPENSES
Accounting services fees (Note 4) 18,000
Transfer agent fees (Note 4) 10,800
Administrative services fees (Note 4) 9,000
Insurance expense 6,188
Custodian fees 6,173
Investment advisory fees (Note 4) 4,838
Amortization of organization expenses (Note 2) 4,433
Registration fees 4,403
Postage and supplies 2,236
Trustees' fees and expenses 1,762
Pricing costs 435
Shareholder report costs 408
Distribution expense (Note 4) 250
---------
TOTAL EXPENSES 68,926
Fees waived and expenses reimbursed by the Adviser (Note 4) (59,696)
---------
NET EXPENSES 9,230
---------
NET INVESTMENT INCOME 3,426
---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized losses from security transactions (3,526)
Net increase in unrealized appreciation on investments 171,042
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 167,516
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 170,942
=========
(a) Represents the period from the initial public offering of shares (March 2,
1998) through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended December 31, 1998 (a)
FROM OPERATIONS:
Net investment income $ 3,426
Net realized losses from security transactions (3,526)
Net increase in unrealized appreciation on investments 171,042
-----------
Net increase in net assets from operations 170,942
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (3,413)
-----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 1,324,065
Net asset value of shares issued in
reinvestment of distributions to shareholders 3,302
Payment for shares redeemed (5,138)
-----------
Net increase in net assets from capital share transactions 1,322,229
-----------
TOTAL INCREASE IN NET ASSETS 1,489,758
NET ASSETS:
Beginning of period (Note 1) 99,000
-----------
End of Period $ 1,588,758
===========
UNDISTRIBUTED NET INVESTMENT INCOME $ 13
===========
CAPITAL SHARE ACTIVITY:
Shares sold 134,015
Shares issued in reinvestment of
distributions to shareholders 325
Shares redeemed (495)
-----------
Net increase in shares outstanding 133,845
Shares outstanding, beginning of period (Note 1) 9,900
-----------
Shares outstanding, end of period 143,745
===========
(a) Represents the period from the initial public offering of shares (March 2,
1998) through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding
Throughout the Period Ended December 31, 1998 (a)
Net asset value at beginning of period $ 10.00
----------
Income from investment operations:
Net investment income 0.08
Net realized and unrealized gains on investments 1.05
----------
Total from investment operations 1.13
----------
Dividends from net investment income (0.08)
----------
Net asset value at end of period $ 11.05
==========
Total return (b) 11.34%
==========
Net assets at end of period $1,588,758
==========
Ratio of net expenses to average net assets (c) 1.91%(d)
Ratio of net investment income to average net assets 0.71%(d)
Portfolio turnover rate 4%(d)
(a) Represents the period from the initial public offering of shares (March 2,
1998) through December 31, 1998.
(b) Total return shown excludes the effect of applicable sales loads and is not
annualized.
(c) Ratio of expenses to average net assets assuming no waiver of fees and
reimbursement of expenses by the Adviser was 14.24%(d) (Note 4).
(d) Annualized.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
Market
Shares Value
- -------- ----------
COMMON STOCKS - 93.2%
TECHNOLOGY - 30.6%
735 AT&T Corp. $ 55,309
1,360 Apple Computer, Inc. * 55,675
945 Comcast Corp. 55,460
750 Dell Computer Corp.* 54,890
610 EMC Corp.* 51,850
280 IBM Corp. 51,730
535 Lucent Technologies, Inc. 58,850
1,600 Unisys Corp.* 55,100
430 United Technologies Corp. 46,763
----------
485,627
----------
CONSUMER, NON-CYCLICAL - 15.1%
375 Bristol-Myers Squibb Co. 50,179
530 Guidant Corp. 58,433
785 Heinz (H.J.) Co. 44,451
295 Merck & Co., Inc. 43,568
1,560 Sara Lee Corp. 43,972
----------
240,603
----------
ENERGY - 10.9%
555 Chevron Corp. 46,030
635 Exxon Corp. 46,434
2,305 Occidental Petroleum Corp. 38,897
795 Texaco, Inc. 42,036
----------
173,397
----------
CONSUMER, CYCLICAL - 9.8%
355 DaimlerChrysler AG * 34,102
1,220 Ford Motor Co. 71,599
620 Wal-Mart Stores, Inc. 50,491
----------
156,192
----------
<PAGE>
LAKE SHORE EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
Market
Shares Value
- -------- ----------
COMMON STOCKS - 93.2%
BASIC MATERIALS - 8.9%
575 Georgia-Pacific Group $ 33,673
590 Georgia-Pacific Timber Group 14,049
1,050 International Paper Co. 47,053
920 Weyerhaeuser Co. 46,748
----------
141,523
----------
FINANCIAL SERVICES - 8.4%
622 Associates First Capital Corp. - Class A 26,357
935 Paychex, Inc. 48,094
772 Providian Financial Corp. 57,900
----------
132,351
----------
INDUSTRIAL - 6.2%
2,120 Waste Management, Inc. 98,845
----------
CONGLOMERATES - 3.3%
510 General Electric Co. 52,052
----------
TOTAL COMMON STOCKS (COST $1,309,548) 1,480,590
----------
MONEY MARKETS - 4.0%
64,099 Star Treasury Fund (Cost $64,099) 64,099
----------
TOTAL INVESTMENT SECURITIES (COST $1,373,647) - 97.2% 1,544,689
OTHER ASSETS IN EXCESS OF LIABILITIES - 2.8% 44,069
----------
NET ASSETS - 100.0% $1,588,758
==========
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. ORGANIZATION
The Lake Shore Family of Funds (the Trust) is registered under the Investment
Company Act of 1940 (the 1940 Act) as an open-end management investment company.
The Trust was organized as an Ohio business trust under a Declaration of Trust
dated September 3, 1997. The Trust currently offers two separate series of
shares to investors: the Equity Fund and the Balanced Fund (individually, a Fund
and, collectively, the Funds). The Trust was capitalized on December 23, 1997,
when the initial shares of each Fund were purchased at $10.00 per share. The
initial public offering of shares of the Equity Fund commenced on March 2, 1998.
The Equity Fund had no operations prior to the public offering of shares except
for the initial issuance of shares.
The Equity Fund seeks long-term growth of capital by investing primarily in
common stocks. Dividend and interest income is only an incidental consideration
to the Fund's investment objective.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Equity Fund's significant accounting policies:
Security valuation -- The Fund's portfolio securities are valued as of the close
of business of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time). Securities traded on a national stock
exchange or quoted by NASDAQ are valued based upon the closing price on the
principal exchange where the security is traded, or, if not traded on a
particular day, at the closing bid price. U.S. Government obligations are valued
at their most recent bid prices as obtained from one or more of the major market
makers for such securities.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The maximum offering price per share is equal to
the net asset value per share plus a sales load equal to 5.26% of the net asset
value (or 5.00% of the offering price). The redemption price per share is equal
to the net asset value per share.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned. Discounts and premiums on securities
purchased are amortized in accordance with income tax regulations which
approximate generally accepted accounting principles.
Distributions to shareholders -- The Fund expects to distribute substantially
all of its net investment income, if any, on a quarterly basis. The Fund expects
to distribute any net realized long-term capital gains at least once each year.
Management will determine the timing and frequency of the distributions of any
net realized short-term capital gains.
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.
<PAGE>
LAKE SHORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued 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 the 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 the 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.
As of December 31, 1998, net unrealized appreciation on investments was $171,042
for federal income tax purposes, of which $191,311 related to appreciated
securities and $20,269 related to depreciated securities based on a federal
income tax cost basis of $1,373,647.
3. INVESTMENT TRANSACTIONS
During the period ended December 31, 1998, cost of purchases and proceeds from
sales and maturities of investment securities, other than short-term
investments, amounted to $1,324,411 and $11,337, respectively.
4. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Lake Shore Fund
Group, LLC (the Adviser), of Countrywide Fund Services, Inc. (CFS), the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust, or of CW Fund Distributors, Inc. (the
Underwriter), the exclusive agent for the distribution of the Fund's shares.
ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. The Fund pays the Adviser an investment advisory fee,
computed and accrued daily and paid monthly, at an annual rate of 1.00% of its
average daily net assets.
In order to voluntarily reduce operating expenses during the period ended
December 31, 1998, the Adviser waived its entire advisory fee of $4,838 and
reimbursed the Fund for $54,858 of other operating expenses.
<PAGE>
LAKE SHORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, CFS supplies non-investment
related administrative and compliance services for the Fund. 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 the Fund at an annual rate of 0.15% of its average
daily net assets up to $50 million; 0.125% of such net assets from $50 million
to $100 million; and 0.10% of such net assets in excess of $100 million, subject
to a $1,000 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 Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, CFS receives a monthly fee at an annual rate of $20 per shareholder
account, subject to a $1,200 minimum monthly fee. In addition, the Fund pays
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
Fund. For these services, CFS receives a monthly fee, based on current asset
levels, of $2,000 from the Fund. In addition, the Fund pays certain
out-of-pocket expenses incurred by CFS in obtaining valuations of the Fund's
portfolio securities.
UNDERWRITING AGREEMENT
Under the terms of an Underwriting Agreement, the Underwriter serves as the
exclusive agent for the distribution of the Fund's shares. For these services,
the Underwriter earned $5,885 from underwriting commissions on the sale of
shares during the period ended December 31, 1998.
PLAN OF DISTRIBUTION
The Trust has adopted a Plan of Distribution (the Plan) pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that the Fund may directly incur or
reimburse the Underwriter or the Adviser for certain costs related to the
distribution of the Fund shares, not to exceed 0.25% of average daily net
assets. For the period ended December 31, 1998, the Fund incurred $250 of
expenses under the Plan.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Lake Shore Equity Fund and
The Trustees of Lake Shore Family of Funds
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of the Lake Shore Equity Fund (one of the funds
of the Lake Shore Family of Funds) as of December 31, 1998, and the related
statements of operations and changes in net assets and the financial highlights
for the period from March 2, 1998 (date of initial public offering of shares)
through December 31, 1998. These financial statements and financial highlights
are the responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit 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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1998, by correspondence with the custodian. 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 audit provides 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
Lake Shore Equity Fund of the Lake Shore Family of Funds as of December 31,
1998, and the results of its operations and financial highlights for the period
from March 2, 1998 through December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Joseph Decosimo and Company, PLL
Joseph Decosimo and Company, PLL
Cincinnati, Ohio
January 15, 1999
