GRAND PRIX FUNDS, INC.
ANNUAL REPORT
OCTOBER 31, 1998
YEAR IN REVIEW
The Grand Prix Fund achieved a total return of 44.2% for the fiscal year ended
October 31, 1998 with net asset value rising from $10.00 to $14.42. The 44.2%
return achieved by the Fund outdistanced the returns by the S&P 500, S&P Mid Cap
and S&P Small Cap indices by wide margins.
It was a rocky road en route to the 44.2% total return as a severe bear market
for small stocks occurred starting in April with a less severe market for big
stocks starting in July. Big stocks were caught in the throes of a downturn for
a shorter period of time than small stocks as the S&P 500 bottomed on August
31st, but both the S&P Mid Cap and S&P Small Cap indices continued to hit new
lows until October 8th.
The Fund's net asset value was $14.82 on July 20th. Market timing is not a
strategy used by the Fund, but cash was raised in late July because the Fund's
net asset value was moving up much faster than the general market and it seemed
prudent to lock in some gains. The abrupt decline in the stock market brought
the Fund's net asset value down to $12.18 on October 8th. Cash was redeployed
in mid October as the net asset value was climbing rapidly due to a resurgence
in the stock market. The Fund recovered most of its July to October losses with
a dramatic 18% climb in net asset value in the last three weeks of its fiscal
year to finish with a 44.2% return.
The Grand Prix Fund was launched on December 31, 1997 as an all-cap growth stock
fund. The Fund employs a quantitative approach to stock selection using an
earnings and price momentum strategy. In the opinion of the Fund manager, it
has become increasingly difficult to forecast stock valuations using the
traditional P/E approach due to one of the widest dispersions of P/E's on record
and increased stock market volatility. For example, Dell Computer, which was in
the year-end portfolio, never traded above a 20 P/E before 1996. At year-end it
traded at about 60 times earnings. Using a fundamental approach based on
historic P/E's, to place a valuation on Dell could have resulted in the stock
never being bought or being sold too early once in the portfolio.
As a "non-diversified" fund, the Fund limited the number of issuers in the
portfolio to not more than 30 at any time in the past year. No big bets were
made in any particular issue as purchases were kept to similar dollar amounts.
The bottom-up quantitative stock selection process employed by the Fund did
produce sizeable sector weightings that is a frequent tendency of the Fund due
to this investment style. Nearly two-thirds of the stock holdings were
represented by technology (41%) and healthcare (42%) at the end of October.
Corresponding representation for these two sectors in the S&P 500 was 17% and
13%, respectively.
The economic landscape is starting to change. Worldwide economic problems will
likely crimp GDP growth over the next couple of years. More important, however,
is that corporate profits are flattening out after six years of meteoric growth
from a depressed base year in 1991. Corporate profits tend to run in cycles
with three to five years of steady gains followed by two to three years of flat
to declining profits. Taking all of the above into consideration, we feel that
profits could actually be lower two to three years hence.
Small-cap and mid-cap stocks have significantly lagged the broad market averages
since 1993. For example, the S&P 500 returned 162%, S&P Mid Cap 102% and S&P
Small Cap 66% through October 31, 1998. Heading into an economic environment
characterized by flat to down profits growth could be the catalyst that propels
small- and mid-cap stocks to market leadership after five straight years of
lagging performance relative to the big stock averages. When this occurs, the
Grand Prix Fund will shift its current emphasis away from large-cap growth
stocks to small-cap growth stocks.
The Grand Prix Fund is well positioned heading into a period of lackluster
profits growth. At year-end the average 1998 earnings growth rate for the 25
companies in the Fund was estimated at 40% compared to about 3% for corporate
profits. We feel comfortable with the portfolio entering the new fiscal year,
but stand ready to make changes in response to ever changing economic and stock
market developments in the year ahead.
Sincerely,
/s/ Robert Zuccaro
Robert Zuccaro, CFA
President
Graph
1/1/98 10/31/98
-------------------------
GRAND PRIX FUND $10,000 $14,420
S&P 500 Stock Index $10,000 $11,463
S&P 400 Midcap Index $10,000 $10,122
S&P 600 Smallcap Index $10,000 $8,782
TOTAL RETURN
For the ten months ended 10/31/98
GRAND PRIX FUND 44.20%
S&P 500 Stock Index 13.37%
S&P 400 Midcap Index 1.22%
S&P 600 Smallcap Index -12.18%
This chart assumes an initial investment of $10,000 made after the close of
business on 1/1/98 (Commencement). Returns shown here and in the table are
based on net change in NAV. Performance figures reflect fee waivers in effect
and represent past performance which is no guarantee of future results.
The investment return and principal value of an investment in the Grand Prix
Fund will fluctuate so that an investor's shares in the Fund, when redeemed,
may be worth more or less than their original cost.
The S&P 500 Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
The S&P 400 Midcap Index is an unmanaged capitalization weighted total return
index that measures the performance of the mid-range sector of the U.S. stock
market where the median market capitalization is approximately $1.6 billion.
The S&P 600 Smallcap Index is an unmanaged capitalization weighted total return
index that measures the performance of the small-cap sector of the U.S. stock
market where the median market capitalization is approximately $400 million.
GRAND PRIX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
NUMBER OF
SHARES VALUE
COMMON STOCKS 100.1%
AEROSPACE 3.6%
1,300 Gulfstream Aerospace Corp.<F1> $ 57,525
BUILDING PRODUCT CEMENT/AGGREGATE 4.0%
1,900 Granite Construction, Inc. 63,294
COMMERCIAL SERVICES 4.0%
1,300 Paychex, Inc. 64,675
COMMUNICATIONS SYSTEMS 3.7%
1,300 Symbol Technologies, Inc. 58,175
COMPUTER INTEGRATED SYSTEMS 8.3%
1,400 Jack Henry & Associates, Inc. 63,875
2,300 Oracle Corp.<F1> 67,994
131,869
COMPUTER LOCAL NETWORKS 3.5%
900 Cisco Systems, Inc.<F1> 56,700
COMPUTER MEMORY DEVICES 3.6%
900 EMC Corp.<F1> 57,937
COMPUTER MINI/MICRO 19.9%
1,600 Apple Computer, Inc.<F1> 59,400
1,000 Dell Computer Corp.<F1> 65,625
700 Intel Corp. 62,431
400 International Business
Machines, Inc. 59,375
1,200 Sun Microsystems, Inc.<F1> 69,900
316,731
COMPUTER SOFTWARE 8.9%
600 America Online, Inc.<F1> 76,237
1,200 Compuware Corp.<F1> 65,025
141,262
ELECTRICAL PRODUCTS 4.0%
1,500 American Power Conversion Corp.<F1> 63,656
ELECTRONICS 3.9%
2,500 Bel Fuse Inc. Class A<F1> 62,188
FINANCE INVESTMENT BROKERS 4.2%
1,400 The Charles Schwab Corp. 67,113
GRAND PRIX FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
NUMBER OF
SHARES VALUE
FINANCIAL SERVICES 4.1%
800 SEI Investments Co. $ 66,300
FOOD-RETAIL 2.1%
600 The Kroger Co.<F1> 33,300
MEDICAL/BIOMEDICAL 3.4%
700 Amgen, Inc.<F1> 54,994
MEDICAL PRODUCTS 3.9%
1,000 Allergan, Inc. 62,437
MEDICAL WHOLESALE DRUGS 3.4%
700 McKesson Corp. 53,900
OFFICE SUPPLIES 3.9%
1,900 Staples, Inc.<F1> 61,988
TELECOMMUNICATIONS CELLULAR 7.7%
1,200 MCI WorldCom, Inc.<F1> 66,300
1,000 Plantronics Inc.<F1> 56,937
123,237
Total Common Stocks (cost $1,422,506) 1,597,281
SHORT-TERM INVESTMENTS 1.2%
18,641 Fifth Third Treasury Fund 18,641
Total Short-term Investments
(cost $18,641) 18,641
Total Investments
(cost $1,441,147) 101.3% 1,615,922
Liabilities less Other Assets(1.3)% (20,514)
NET ASSETS 100.0% $1,595,408
<F1> Non-income producing security
See notes to the financial statements.
GRAND PRIX FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS:
Investments at value (cost $1,441,147) $ 1,615,922
Deferred organization costs, net 66,306
Prepaid expenses 7,922
Dividends and interest receivable 795
----------
Total Assets 1,690,945
----------
LIABILITIES:
Payable to Advisor 43,707
Accrued investment advisory fees 10,435
Payable for investments purchased 7,485
Accrued distribution fees 2,609
Other accrued expenses 31,301
----------
Total Liabilities 95,537
----------
Net Assets $ 1,595,408
==========
NET ASSETS CONSIST OF:
Capital stock $ 1,126,270
Undistributed net realized gain on investments 294,363
Net unrealized appreciation of investments 174,775
-----------
Net Assets $ 1,595,408
===========
CAPITAL STOCK, $0.01 PAR VALUE, 500,000,000 SHARES AUTHORIZED
Issued and outstanding 110,670
NET ASSET VALUE PER SHARE $ 14.42
===========
See notes to the financial statements.
GRAND PRIX FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1998<F1> TO OCTOBER 31, 1998
INVESTMENT INCOME:
Interest $ 4,185
Dividends 2,327
-----------
6,512
-----------
EXPENSES:
Fund administration and accounting fees 54,139
Shareholder servicing fees 21,633
Federal and state registration fees 19,652
Legal fees 17,804
Amortization of organization costs 13,252
Investment advisory fees 10,435
Reports to shareholders 9,003
Audit fees 6,998
Custody fees 5,538
Distribution fees 2,609
Other 5,264
----------
Total expenses before reimbursement 166,327
Reimbursement of expenses by Advisor (149,110)
----------
Net expenses 17,217
----------
NET INVESTMENT LOSS (10,705)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 296,012
Net unrealized appreciation of investments 174,775
----------
Net gain on investments 470,787
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 460,082
==========
<F1> Commencement of operations
See notes to the financial statements.
GRAND PRIX FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 1, 1998<F1> TO OCTOBER 31, 1998
OPERATIONS:
Net investment loss $ (10,705)
Net realized gain on investments 296,012
Net unrealized appreciation of investments 174,775
----------
Net increase in net assets resulting from operations 460,082
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 1,045,326
Redemption of shares (10,000)
----------
Net increase from share transactions 1,035,326
----------
TOTAL INCREASE IN NET ASSETS 1,495,408
NET ASSETS:
Beginning of period 100,000
----------
End of period $ 1,595,408
==========
TRANSACTIONS IN SHARES:
Shares sold 101,364
Shares redeemed (694)
----------
Net increase 100,670
==========
<F1> Commencement of operations
See notes to the financial statements.
GRAND PRIX FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JANUARY 1, 1998<F1> TO OCTOBER 31, 1998
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment loss (0.10)
Net realized gains on investments 4.52
----------
Total from investment operations 4.42
----------
Net asset value, end of period $ 14.42
==========
Total return <F2> 44.20%
Supplemental data and ratios:
Net assets, end of period $1,595,408
Ratio of net expenses to average net assets <F3><F4> 1.65%
Ratio of net investment loss to average
net assets <F3><F4> (1.03)%
Portfolio turnover rate 521.6%
<F1> Commencement of operations
<F2> Not annualized
<F3> Annualized
<F4> Net of reimbursements and waivers. Without reimbursements and waivers, the
ratio of expenses to average net assets would have been 15.93%, and the ratio of
net investment income to average net assets would have been (15.31)%.
See notes to the financial statements.
Grand Prix Fund
Notes to the Financial Statements
October 31, 1998
(1) Organization
The Grand Prix Funds, Inc. (the "Corporation") was incorporated on
October 30, 1997 as a Maryland Corporation and is registered as an
open-end management investment company under the Investment Company Act of
1940 (the "1940 Act"). The Corporation is authorized to issue its shares
in series, each series representing a distinct portfolio with its own
investment objectives and policies. The only series presently authorized
is the Grand Prix Fund (the "Fund") which commenced operations on January
1, 1998. Effective December 1, 1998, the Fund changed from a no-load
mutual fund to a load fund.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP"). The presentation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
(a) Investment Valuation
Securities are stated at value. Securities which are traded on a
recognized stock exchange are valued at the last sale price on the
securities exchange on which such securities are primarily traded.
Securities traded on only over-the-counter markets are valued on the
basis of closing over-the-counter trade prices. Securities for which
there were no transactions are valued at the average of the latest bid
and asked prices. Debt securities (other than short-term instruments)
are valued at prices furnished by a pricing service. Debt instruments
maturing within 60 days are valued by the amortized cost method. Any
securities for which market quotations are not readily available are
valued at their fair value as determined in good faith by Target
Investors (the "Advisor") pursuant to guidelines established by the
Board of Directors.
(b) Organization Costs
Costs incurred by the Fund in connection with its organization,
registration and the initial public offering of shares have been
deferred and will be amortized over the period of benefit, but not to
exceed five years from the date upon which the Fund commenced its
investment activities. If any of the original shares of the Fund
purchased by the initial shareholder are redeemed prior to the end of
the amortization period, the redemption proceeds will be reduced by
the pro rata share of the unamortized costs as of the date of
redemption. The pro rata share by which the proceeds are reduced
will be derived by dividing the number of original shares of the
Fund being redeemed by the total number of original shares
outstanding at the time of redemption.
(c) Federal Income and Excise Taxes
The Fund intends to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all net investment company taxable income and net
capital gains to shareholders in a manner which results in no tax
cost to the Fund. Therefore, no federal income or excise tax
provision is required.
(d) Distribution to Shareholders
Dividends from net investment income will be declared and paid
annually. Distributions of net realized gains, if any, will be
declared at least annually. Distributions to shareholders are
recorded on the ex-dividend date. The Fund may periodically make
reclassifications among certain of its capital accounts as a result
of the recognition and characterization of certain income and capital
gain distributions determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting
principles. Accordingly, at October 31, 1998, reclassifications
were recorded to decrease undistributed net investment loss by
$10,705, decrease undistributed net realized gain on investments by
$1,649, and decrease capital stock by $9,056.
(e) Securities Transactions and Investment Income
Investment transactions are recorded on the trade date for financial
statement purposes. The Fund determines the gain or loss realized
from investment transactions by comparing the original cost of the
security lot sold with the net sale proceeds. Dividend income is
recognized on the ex-dividend date and interest income is recognized
on an accrual basis. Acquisition and market discounts are amortized
over the life of the security.
(3) Investment Transactions
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government obligations, for the Fund for the period
January 1, 1998 to October 31, 1998 are summarized below. There were no
purchases or sales of long-term U.S. government securities.
Purchases $7,545,196
Sales $6,418,702
At October 31, 1998, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $1,458,964,
were as follows:
Unrealized appreciation $171,195
Unrealized depreciation (14,237)
--------
Net unrealized appreciation
on investments $156,958
========
For the period ended October 31, 1998, 0.6% of the dividends paid from
taxable income (including short-term capital gains) qualify for the
dividends received deduction available to corporate shareholders.
(4) Investment Advisor
The Fund has an agreement with the Advisor, with whom certain officers and
directors of the Fund are affiliated, to furnish investment advisory
services to the Fund. Under the terms of this agreement, the Advisor is
compensated at an annual rate of 1.00% of average daily net assets of the
Fund. For the fiscal period ending October 31, 1998, the Advisor has
agreed to waive its investment advisory fee and/or reimburse the Fund's
operating expenses (exclusive of brokerage, interest, taxes and
extraordinary expenses) to the extent necessary to ensure that the Fund's
total operating expenses do not exceed 1.65% of the Fund's average daily
net assets. During the period ended October 31, 1998, the Advisor waived
and reimbursed the Fund for expenses totaling $149,110 including $10,435 of
investment advisory fees.
(5) Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-
1 under the 1940 Act. Under the Plan, the Fund is authorized to pay
expenses incurred for the purpose of financing activities, including the
employment of other dealers, intended to result in the sale of shares of
the Fund at an annual rate of up to 0.25% of the Fund's average daily net
assets. As of October 31, 1998, there have not been any payments made
under the Plan.
Report of Independent Auditors
To the Board of Directors and Shareholders
of the Grand Prix Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Grand Prix Fund (the Fund), as of October
31, 1998, the related statement of operations, the statement of changes in net
assets and the financial highlights for the period from January 1, 1998
(commencement of operations) to October 31, 1998. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on the financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Grand Prix Fund at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the period from
January 1, 1998 (commencement of operations) to October 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
November 30, 1998
