- --------------------------------------------------------------------------------
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 financig hlights 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 fincial 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 financig hlights 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 fincial 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
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001046396
<NAME> Lake Shore Family of Funds
<SERIES>
<NUMBER> 1
<NAME> Lake Shore Family of Funds - Equity Fund
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,373,647
<INVESTMENTS-AT-VALUE> 1,544,689
<RECEIVABLES> 28,717
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<OTHER-ITEMS-ASSETS> 21,186
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<OVERDISTRIBUTION-GAINS> 0
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<GROSS-EXPENSE> 68,926
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<PER-SHARE-NII> 0.08
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<TABLE> <S> <C>
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<NAME> Lake Shore Family of Funds
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<NUMBER> 2
<NAME> Lake Shore Family of Funds - Balanced Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 156,153
<INVESTMENTS-AT-VALUE> 170,330
<RECEIVABLES> 4,828
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,485
<TOTAL-ASSETS> 197,643
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</TABLE>
