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LAKE SHORE FAMILY OF FUNDS
--------------------------
LAKE SHORE EQUITY FUND
ANNUAL REPORT
December 31, 1999
INVESTMENT ADVISER ADMINISTRATOR
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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
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<PAGE>
Dear Fellow Shareholders,
The stock market averages turned in a strong performance during the year's final
three months, with the S&P 500 Index rising 14.9%, the best performance since
last year's fourth quarter when the market soared off of its October low. The
21.0% total return for the S&P 500 for 1999 was its fifth consecutive year with
an annual gain in excess of 20%, and prior to this string, the market had never
posted more than two years in a row of annual gains of 20%. The Dow's return for
the year was 27.6%, while the Over-the-Counter market led the parade with an
increase of 85.6%.
The gains by the major averages masked significant underperformance by a
majority of issues. In the case of the S&P 500, more stocks in this index
declined than rose, and on the New York Stock Exchange, over 60% of the issues
declined for the year.
Those factors that have been favorable for stocks, namely healthy economic
growth, low inflation and rising corporate profits, remain in place. Remarkably,
the resilient economy which has driven unemployment to a 30-year low has not
caused inflation to ratchet higher. The streamlining of corporate America
several years ago, the globalization of economies, productivity enhancements
derived from technological innovation and competition fostered by the internet
have limited price increases. However, with the doubling of oil prices during
the year, potential labor shortages, and recoveries in foreign economies, upward
pressure may be exerted unless the pace of the domestic economy doesn't slow
down.
An additional factor that benefited the equity market for years was declining
interest rates. This prop was certainly not present in 1999, as the Federal
Reserve Board raised short-term interest rates three times during the year. As a
result, the total return for the 30-year Treasury bond was -14.4%, the worst
annual return ever posted, and the Lehman Government/Corporate Index suffered a
negative return for only the second time since the index was created in 1973.
With the rise in the S&P Index, its P/E ratio also moved to record heights. Part
of this is attributable to the change in the type of names that are now included
in the S&P 500 (more service and technology companies), but many of the large
leading names have
<PAGE>
ballooned to extremely high levels. In contrast, the P/E ratio for the Value
Line Index, which is comprised of 1700 stocks, is more favorably valued. At year
end, its P/E multiple was at 14.5x , versus a peak of 19.7x in the second
quarter of 1998. This would suggest that the broad market is not as richly
priced as some of the large cap stocks.
Economic and market forces were distorted at year end by concerns over potential
Y2K problems. Increased production to create additional inventories, buying to
stockpile goods, and extra liquidity added to the financial system by the Fed
increasing money supply make it difficult to discern underlying trends. From a
stock market perspective, typical year-end strategies employed by many investors
of buying winning stocks and selling losing stocks seemed to be exaggerated.
Carry-over volatility into the new year can be expected.
As we begin the new year, our market indicators continue to suggest that a fully
invested position be maintained. There is certainly a question over valuation,
as well as significant strength in a limited number of issues, and rising
interest rates are not conducive for long-term gains. However, we have not seen
enough of a shift to the negative side of the ledger to indicate a change in
strategy. We will be closely monitoring our indicators to detect further
deterioration.
If you have any questions, please feel free to call us at (513) 794-1440.
Sincerely,
Greg 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
[GRAPHIC OMITTED]
12/31/99
--------
Lake Shore Equity Fund $15,047
S&P 500 Index $12,519
--------------------------
Lake Shore Equity Fund
Total Return
1 Year Since Inception*
22.48% 21.64%
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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, 1999
ASSETS
Investment securities, at market value (Cost $2,338,196) $ 3,443,864
Dividends and interest receivable 2,150
Organization expenses, net (Note 2) 13,300
Other Assets 2,323
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TOTAL ASSETS 3,461,637
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LIABILITIES
Payable to Affiliates (Note 4) 4,503
Accrued expenses $ 3,387
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TOTAL LIABILITIES 7,890
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NET ASSETS $ 3,453,747
============
NET ASSETS CONSIST OF:
Paid-in capital $ 2,397,188
Accumulated net realized losses from security transactions (49,110)
Net unrealized appreciation on investments 1,105,669
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NET ASSETS $ 3,453,747
------------
Shares of beneficial interest outstanding (Unlimited
number of shares authorized, no par value) 223,884
============
Net asset value and redemption price per share (Note 2) $ 15.43
============
Maximum offering price per share (Note 2) $ 16.24
============
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
INVESTMENT INCOME
Dividend $ 22,945
Interest 6,947
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TOTAL INVESTMENT INCOME 29,892
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EXPENSES
Investment advisory fees (Note 4) 23,668
Accounting services fees (Note 4) 21,000
Transfer agent fees (Note 4) 14,400
Insurance expense 12,625
Administrative services fees (Note 4) 12,000
Audit Fees 9,012
Custodian fees 8,136
Registration fees 4,439
Postage and supplies 2,595
Trustees' fees and expenses 2,573
Amortization of organization expenses (Note 2) 4,433
Shareholder report costs 840
Pricing costs 702
Distribution expense (Note 4) 692
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TOTAL EXPENSES 117,115
Fees waived and expenses reimbursed by the Adviser (Note 4) (61,976)
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NET EXPENSES 55,139
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NET INVESTMENT LOSS (25,247)
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REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 11,761
Net increase in unrealized appreciation on investments 934,627
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NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 946,388
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NET INCREASE IN NET ASSETS FROM OPERATIONS $ 921,141
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See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Year Period
Ended Ended
December 31, December 31,
1999 1998(a)
------------ ------------
FROM OPERATIONS
<S> <C> <C>
Net investment income/(loss) $ (25,247) $ 3,426
Net realized gains/(losses) from security transactions 11,761 (3,526)
Net increase in unrealized appreciation on investments 934,627 171,042
------------ ------------
Net increase in net assets from operations 921,141 170,942
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
From net investment income -- (3,413)
From net realized gains (57,345) --
------------ ------------
Total distributions to shareholders (57,345) (3,413)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,036,655 1,324,065
Net asset value of shares issued in
reinvestment of distributions to shareholders 50,241 3,302
Payment for shares redeemed (85,703) (5,138)
------------ ------------
Net increase in net assets from capital share transactions 1,001,193 1,322,229
------------ ------------
TOTAL INCREASE IN NET ASSETS 1,864,989 1,489,758
NET ASSETS
Beginning of period (Note 1) 1,588,758 99,000
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End of period $ 3,453,747 $ 1,588,758
============ ============
UNDISTRIBUTED (ACCUMULATED) NET INVESTMENT
INCOME (LOSS) $ (25,234) $ 13
============ ============
CAPITAL SHARE ACTIVITY
Shares sold 82,679 134,015
Shares issued in reinvestment of distributions to shareholders 3,528 325
Shares redeemed (6,068) (495)
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Net increase in shares outstanding 80,139 133,845
Shares outstanding, beginning of period (Note 1) 143,745 9,900
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Shares outstanding, end of period 223,884 143,745
============ ============
</TABLE>
(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 Each Period
<TABLE>
<CAPTION>
For the For the
Year Period
Ended Ended
December 31, December 31,
1999 1998 (a)
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<S> <C> <C>
Net asset value at beginning of period $ 11.05 $ 10.00
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Income (loss) from investment operations:
Net investment income (loss) (0.11) 0.08
Net realized and unrealized gains on investments 4.76 1.05
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Total from investment operations 4.65 1.13
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Less distributions:
From net investment income/(loss) -- (0.08)
From net capital gains/(losses) (0.27) --
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Total distributions (0.27) (0.08)
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Net asset value at end of period $ 15.43 $ 11.05
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Total return (b) 42.26% 11.34%
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Net assets at end of period $ 3,453,747 $ 1,588,758
============= =============
Ratio of net expenses to average net assets (c) 2.32% 1.91%(d)
Ratio of net investment income (loss) to average net assets (1.06)% 0.71%(d)
Portfolio turnover rate 64% 4%(d)
</TABLE>
(a) Represents the period from the initial public offering of shares (March 2,
1998) through December 31, 1998.
(b) Total returns shown exclude the effect of applicable sales loads and are
not annualized.
(c) Absent fee waivers and expense reimbursements, the ratios of expenses to
average net assets would have been 4.86%(d) and 14.24%(d) for the periods
ended December 31, 1999 and December 31, 1998, respectively (Note 4).
(d) Annualized.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
Market
Shares Value
------ ------------
COMMON STOCKS - 90.0%
TECHNOLOGY - 55.0%
1,580 Apple Computer, Inc.* $ 162,444
2,315 Comcast Corp. 116,329
1,380 EMC Corp.* 150,765
715 IBM Corp. 77,220
1,250 Lucent Technologies, Inc. 93,516
6,250 National Semiconductor* 267,578
1,205 Nextel Communications, Inc.* 124,266
1,690 Nortel Networks 170,690
2,207 Oracle Corp.* 247,322
1,820 Qualcomm, Inc.* 320,547
1,160 Texas Instruments, Inc. 112,375
1,910 Unisys Corp.* 61,000
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1,904,052
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CONSUMER, CYCLICAL - 12.9%
2,010 Circuit City Stores Inc. 90,576
700 Delphi Automotive Systems Corp. 11,025
1,260 Ford Motor Co. 67,331
1,125 General Motors Corp. 81,773
3,060 Harrah's Entertainment* 80,899
1,665 Wal-Mart Stores, Inc. 115,093
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446,697
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CONSUMER, NON-CYCLICAL - 6.7%
1,280 Bristol-Myers Squibb Co. 82,160
1,835 Heinz (H.J.) Co. 73,056
1,515 Tandy Corporation 74,519
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229,735
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INDUSTRIAL - 5.9%
1,690 LSI Logic Corp.* 114,075
900 Minnesota Mining & Manufacturing Co. 88,088
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202,163
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<PAGE>
LAKE SHORE EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
Market
Shares Value
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CONGLOMERATES - 3.1%
690 General Electric Co. 106,777
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TELECOMMUNICATIONS - 2.3%
1,270 Bell Atlantic Corp. 78,184
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ENERGY - 2.1%
830 Chevron Corp. 71,899
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FINANCIAL SERVICES - 2.0%
594 Associates First Capital Corp. - Class A 16,298
1,045 Bank of America Corp. 52,446
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68,744
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TOTAL COMMON STOCKS (Cost $2,002,583) 3,108,251
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MONEY MARKETS - 9.7%
335,613 Firstar Stellar Treasury Fund (Cost $335,613) 335,613
TOTAL INVESTMENT SECURITIES (Cost $2,338,196) - 99.7% 3,443,864
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.3% 9,883
------------
NET ASSETS - 100.0% $ 3,453,747
============
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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 one series of shares to
investors: the Lake Shore Equity Fund. The Trust was capitalized on December 23,
1997, when the initial shares of the 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
(normally 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, if any, 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, 1999
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is 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, 1999, net unrealized appreciation on investments was
$1,105,669 for federal income tax purposes, of which $1,188,092 related to
appreciated securities and $82,423 related to depreciated securities based on a
federal income tax cost basis of $2,338,196.
3. INVESTMENT TRANSACTIONS
For the year ended December 31, 1999, cost of purchases and proceeds from sales
and maturities of investment securities, other than short-term investments,
amounted to $2,066,996 and $1,385,724 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 for the year ended December
31, 1999, the Adviser waived its entire advisory fee of $23,668 and reimbursed
the Fund for $38,308 of other operating expenses.
<PAGE>
LAKE SHORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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 CFS
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, CFS receives a monthly fee, based on current asset
levels, of $2,000 from the Fund. From July through December of 1999 these fees
were reduced to $1,500 per month. In addition, the Fund pays certain CFS
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 $3,444 from underwriting commissions on the sale of
shares during the year ended December 31, 1999.
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 year ended December 31, 1999, the Fund incurred $692 of expenses
under the Plan.
5. FEDERAL TAX INFORMATION FOR SHAREHOLDERS
On December 15, 1999, the Fund declared and paid a short-term capital gain
distribution of $51,143.69 or $0.2382 per share and a long-term capital gain
distribution of $6,201.55 or $0.0289 per share. In January of 2000, shareholders
were provided with the Form 1099-DIV which reported the amount and tax status of
the capital gain distributions paid during calendar year 1999.
<PAGE>
JOSEPH DECOSIMO
AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
An Ohio Registered Partnership Having Limited Liability
- --------------------------------------------------------------------------------
Private Companies Practice Section
Member AICPA Division for CPA Firms
SEC Practice Section
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, 1999, and the related
statements of operations for the year then ended and changes in net assets and
the financial highlights for the year ended December 31, 1999 and the period
ended 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, 1999, 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,
1999, and the results of its operations for the year then ended and changes in
its net assets and financial highlights for the year ended December 31, 1999 and
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 21, 2000
