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LAKE SHORE FAMILY OF FUNDS
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LAKE SHORE EQUITY FUND
SEMI-ANNUAL REPORT
JUNE 30, 2000
(UNAUDITED)
INVESTMENT ADVISER ADMINISTRATOR
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LAKE SHORE FUND GROUP, LLC INTEGRATED 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 divergent action between market indices continued during the second quarter,
as the stock market wrestled with further interest rate increases by the Federal
Reserve and higher inflation numbers as a result of the continuing rise in the
price of oil. The following table illustrates the percentage changes of three
relevant indices over several time periods:
% Change % Change
3/31/00 - 5/24/00 5/24/00 - 6/30/00
----------------- -----------------
DJIA -3.5% -0.8%
S&P 500 -6.6% 4.0%
OTC Composite -28.5% 21.3%
May 24th marked a bottom in the market and the number of stocks advancing in
price since that day has been on the rise. That doesn't necessarily mean,
however, that further backing-and-filling action will not be required.
On the economic front, the 1 3/4 percent increase in the Federal Funds rate over
the last year has resulted in the economy showing signs of moderating from its
torrid pace. Slowing activity can also be attributed to a decline in the rate of
growth in money supply. The market's dilemma is whether the economy will slow
down just enough to relieve the supply/demand imbalances that are of concern to
the Fed, or whether the decline will be more severe, resulting in a recession
and lower corporate earnings.
Looking at the post-World War II period, the majority of the time the Fed's
tightening moves have not resulted in a recession. In addition, in the six-month
period following the final Federal Reserve interest rate increase, the market
has produced very favorable results. Of course, it may be possible that further
interest rate increases are in the offing, in which case, the beginning of this
historically favorable period may be delayed.
<PAGE>
Over the next several months, the market will have to contend with the
conflicting trends of slowing monetary growth, which reduces the liquidity that
can flow into financial assets and the end of monetary tightening by the Fed,
which is beneficial for stocks. In addition, the valuation disparity continues
between the larger capitalization stocks and the broader market. The S&P 500
Index and Over-the-Counter Indices are selling at historically high
price/earnings multiples, but the Value Line 1700-Stock Index is trading near
the lower end of its historic band. This factor may lead to a continuation of
conflicting trends between the market indices.
Overall, our stock market indicators continue to suggest that a fully invested
position is warranted, although upside progress may be difficult to achieve over
the short run. Nonetheless, with a protracted market decline not indicated by
our work, it is necessary to utilize the stock selection process to be properly
positioned for more positive conditions.
If you have any questions, please feel free to call us at (513) 794-1440.
Sincerely,
Greg Bauer
Chairman
Lake Shore Family of Funds
<PAGE>
LAKE SHORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
(Unaudited)
ASSETS
Investment securities, at market value (Cost $2,993,966) $ 3,421,647
Dividends and interest receivable 4,878
Organization expenses, net (Note 2) 11,083
Other assets 7,106
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TOTAL ASSETS 3,444,714
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LIABILITIES
Payable to affiliates (Note 4) 6,941
Accrued expenses 6,853
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TOTAL LIABILITIES 13,794
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NET ASSETS $ 3,430,920
============
NET ASSETS CONSIST OF:
Paid-in capital $ 2,321,564
Accumulated net investment loss (30,750)
Accumulated net realized gains from security transactions 712,425
Net unrealized appreciation on investments 427,681
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NET ASSETS $ 3,430,920
============
Shares of beneficial interest outstanding (Unlimited
number of shares authorized, no par value) 223,193
============
Net asset value and redemption price per share (Note 2) $ 15.37
============
Maximum offering price per share (Note 2) $ 16.18
============
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000
(Unaudited)
INVESTMENT INCOME
Dividend $ 25,096
Interest 10,492
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TOTAL INVESTMENT INCOME 35,588
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EXPENSES
Investment advisory fees (Note 4) 22,261
Accounting services fees (Note 4) 12,000
Transfer agent fees (Note 4) 7,200
Administrative services fees (Note 4) 6,000
Insurance expense 5,438
Custodian fees 3,710
Amortization of organization expenses (Note 2) 2,217
Trustees' fees and expenses 2,142
Postage and supplies 2,070
Registration fees 1,755
Distribution expense (Note 4) 1,648
Shareholder report costs 850
Pricing costs 313
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TOTAL EXPENSES 67,604
Fees waived by the Adviser (Note 4) (666)
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NET EXPENSES 66,938
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NET INVESTMENT LOSS (30,750)
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REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 761,535
Net change in unrealized appreciation/depreciation on investments (677,988)
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NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 83,547
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NET INCREASE IN NET ASSETS FROM OPERATIONS $ 52,797
==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAKE SHORE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months
Ended Year
June 30, Ended
2000 December 31,
(Unaudited) 1999
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FROM OPERATIONS
<S> <C> <C>
Net investment loss $ (30,750) $ (25,247)
Net realized gains from security transactions 761,535 11,761
Net change in unrealized appreciation/depreciation on investments (677,988) 934,627
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Net increase in net assets from operations 52,797 921,141
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FROM DISTRIBUTIONS TO SHAREHOLDERS
From net investment income -- --
From net realized gains -- (57,345)
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Total distributions to shareholders -- (57,345)
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,813,833 1,036,655
Net asset value of shares issued in
reinvestment of distributions to shareholders -- 50,241
Payment for shares redeemed (1,889,457) (85,703)
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Net increase (decrease) in net assets from capital share transactions (75,624) 1,001,193
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TOTAL INCREASE (DECREASE) IN NET ASSETS (22,827) 1,864,989
NET ASSETS
Beginning of period (Note 1) 3,453,747 1,588,758
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End of period $3,430,920 $3,453,747
========== ==========
ACCUMULATED NET INVESTMENT LOSS $ (30,750) $ --
========== ==========
CAPITAL SHARE ACTIVITY
Shares sold 116,637 82,679
Shares reinvested -- 3,528
Shares redeemed (117,328) (6,068)
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Net increase (decrease) in shares outstanding (691) 80,139
Shares outstanding, beginning of period (Note 1) 223,884 143,745
---------- ----------
Shares outstanding, end of period 223,193 223,884
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAKE SHORE EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share
Outstanding Throughout Each Period
Six Months
Ended Year Period
June 30, Ended Ended
2000 December 31, December 31,
(Unaudited) 1999 1998(a)
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 15.43 $ 11.05 $ 10.00
------------ ------------ ------------
Income (loss) from investment operations:
Net investment income (loss) (0.14) (0.11) 0.08
Net realized and unrealized gains on investments 0.08 4.76 1.05
------------ ------------ ------------
Total from investment operations (0.06) 4.65 1.13
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Less distributions:
From net investment income -- -- (0.08)
From net capital gains -- (0.27) --
------------ ------------ ------------
Total distributions -- (0.27) (0.08)
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Net asset value at end of period $ 15.37 $ 15.43 $ 11.05
============ ============ ============
Total return (b) (0.39%)(e) 42.26% 11.34%(e)
============ ============ ============
Net assets at end of period $ 3,430,920 $ 3,453,747 $ 1,588,758
============ ============ ============
Ratio of net expenses to average net assets (c) 2.91%(d) 2.32% 1.91%(d)
Ratio of net investment income (loss) to
average net assets (1.35%)(d) (1.06%) 0.71%(d)
Portfolio turnover rate 154%(d) 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.
(c) Absent fee waivers and expense reimbursements, the ratios of expenses to
average net assets would have been 2.94% (d), 4.86% and 14.24%(d) for the
periods ended June 30, 2000, December 31, 1999 and 1998, respectively (Note
4).
(d) Annualized.
(e) Not annualized
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
PORTFOLIO OF INVESTMENTS
June 30, 2000
(Unaudited)
Market
Shares Value
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COMMON STOCKS - 99.6%
TECHNOLOGY - 55.3%
2,160 Apple Computer, Inc.* $ 113,130
1,830 Cisco Systems, Inc. 116,319
3,415 Comcast Corp. 138,307
1,760 EMC Corp.* 135,410
1,005 Intel Corp. 134,356
930 IBM Corp. 101,893
2,050 Lucent Technologies, Inc. 121,462
3,980 National Semiconductor* 225,865
2,410 Nextel Communications, Inc.* 147,462
1,770 Nortel Networks 120,803
3,224 Oracle Corp.* 271,018
1,200 Qualcomm, Inc.* 72,000
1,540 Texas Instruments, Inc. 105,779
4,485 Xerox Corp. 93,064
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1,896,868
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CONSUMER, CYCLICAL - 13.5%
2,140 Circuit City Stores Inc. 71,021
1,685 Ford Motor Co. 72,455
1,415 General Motors Corp. 82,158
3,230 Sears Roebuck & Co. 105,379
2,320 Wal-Mart Stores, Inc. 133,690
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464,703
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INDUSTRIAL - 12.0%
5,160 Burlington Santa Fe Corp. 118,358
3,740 LSI Logic Corp.* 202,427
6,210 Norfolk Southern Corp. 92,374
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413,159
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BASIC MATERIAL - 5.3%
4,790 Allegheny Technologies 86,220
3,670 Boise Cascade Corportation 94,961
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181,181
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CONGLOMERATES - 3.6%
2,130 General Electric Co. 122,430
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FINANCIAL SERVICES - 3.4%
1,094 Associates First Capital Corp. - Class A $ 24,410
3,445 Bank One Corp. 91,508
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115,918
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<PAGE>
Market
Shares Value
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COMMON STOCKS - 99.6%
ENERGY - 3.3%
3,535 Baker Hughes, Inc. 113,120
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CONSUMER, NON-CYCLICAL - 3.2%
2,340 Radio Shack Corp. 110,858
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TOTAL COMMON STOCKS (COST $2,990,556) $ 3,418,237
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MONEY MARKETS - 0.1%
3,410 Firstar Stellar Treasury Fund (Cost $3,410) $ 3,410
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TOTAL INVESTMENT SECURITIES(COST $2,993,966)- 99.7% $ 3,421,647
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.3% 9,273
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NET ASSETS - 100.0% $ 3,430,920
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* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
LAKE SHORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
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>
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 June 30, 2000, net unrealized appreciation on investments was $418,055 for
federal income tax purposes, of which $638,284 related to appreciated securities
and $220,229 related to depreciated securities based on a federal income tax
cost basis of $3,003,592.
3. INVESTMENT TRANSACTIONS
For the year ended June 30, 2000, cost of purchases and proceeds from sales and
maturities of investment securities, other than short-term investments, amounted
to $3,279,371 and $3,052,933, respectively.
4. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Lake Shore Fund
Group, LLC (the Adviser), of Integrated Fund Services, Inc. (IFS), the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust, or of IFS 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 six-months ended June
30, 2000, the Adviser waived investment advisory fees of $666.
<PAGE>
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, IFS supplies non-investment
related administrative and compliance services for the Fund. IFS supervises the
preparation of tax returns, reports to shareholders, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For these services, IFS
receives a monthly fee from 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, IFS 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, IFS 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 IFS
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, IFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, IFS receives a monthly fee, based on current asset
levels, of $2,000 from the Fund In addition, the Fund pays certain IFS
out-of-pocket expenses incurred by IFS 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 $91 from underwriting commissions on the sale of shares
during the year ended June 30, 2000.
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 six months ended June 30, 2000, the Fund incurred $1,648 of
expenses under the Plan.
