LABRADOR MUTUAL FUND
ANNUAL REPORT
Fellow Shareholders,
I would like to thank the Shareholders of the Labrador Mutual Fund for their
participation in 1998. There is some very good news. Since fund-inception,
(September 24, 1998), we have made a substantial amount of money. The
records show that every Shareholder was able to make a positive gain on his
or her investment in 1998. I am pleased to report that the Fund has retained
every Shareholder. Having very satisfied customers that maintain their
participation in the Fund is something that pleases me as President of the
Fund. It tells me that you think we are doing an excellent job. Speaking
for everyone here at the Fund, we hope to provide you with above-average
returns for a fund in the growth-and-income category in fiscal year 1999.
Our total return since inception through December 31, 1998 was 17.10%. Our
annualized rate of return for 1998 was 63.69%.
Future Opportunities
I feel uneasy predicting anything, especially the future. The usual macro
threat or opportunity that dominates fund management is the possible change
in long-term interest rates. Most people who run businesses do try to look
out to the future because they have to plan for contingencies. Interest
rates do get a lot of attention because they affect a company's ability to
borrow to finance capital expansion, which in turn affects many other things
in the overall economy including consumer spending and employment rates.
Some would say that interest rate prediction is incredibly difficult, often
futile, and possibly unnecessary. This difficulty and futility is witnessed
by the large number of professional economists who are often wrong in their
own predictions. When they are wrong they often hide their mistake(s) by
quickly predicting again. This would be considered a "deviating-amplifying
loop" in which the predictor predicts again because he or she feels they have
to, because they were wrong, and not because a new prediction is actually
warranted by the presentation of some "new significant data". The
consistently incorrect prediction followed by more incorrect predictions is
termed "under-fitting by over-prediction". The old saying of, "If
predicting, predict often", applies to this ill-fated scenario.
We here at the Fund would rather not participate in such predictions. We
will take the view that if we select the correct companies to include in the
portfolio, that their internal experts will make whatever micro-adjustments
are necessary in an attempt to neutralize whatever threat the change in rates
means to them. There is only a limited amount of time. We can either put
our efforts into predicting interest rates, or into picking the high-quality
companies that might actually outperform the market averages. We will
concentrate Labrador Mutual Fund's energies towards picking the high-quality
companies that outperform the market averages!
We have a portfolio approach here at the Fund where equity investment
percentage levels inside of Labrador Mutual Fund should not be affected in
any large way by changes in the interest rates. We believe it is necessary
to stay nearly 100% invested in common stock of companies with their
headquarters in the United States.
It is my opinion that the finest socially responsible companies will produce
high-quality goods and render services that are necessary no matter what
changes occur in the economic, social, or political environment. I believe
that excellent companies exist and will continue to prosper because of their
internal strengths with every type of change that is a threat or opportunity
in the marketplace.
Constant desire to outperform the market.
The shares of Labrador Mutual Fund are owned by our friends, our family
members, and of course, the Fund Management. Therefore, we must outperform
our growth-and-income mutual fund peers. If we do, we will make more money
for you, our dear Shareholder. This is a journey we are taking together.
Shareholders, meaning the investing public, and Management all own a stake in
the success of Labrador Mutual Fund.
Probably, one of the more important questions is, "How was Fund performance
so excellent while keeping portfolio turnover at zero?"
There were no sales of stock holdings by the Fund in 1998. We stayed 99%
invested in common stock. Despite our limited amount of incoming capital
from investors, Management was able to purchase equity ownership in many
companies that outpaced market averages by year end.
When to sell?
Our philosophy, which was borne out by performance figures, shows that there
is no need to sell the stock of a company just because of its rising share
price. After all, the hope of stock price appreciation is the reason that
Management purchases ownership in the companies that it does. Labrador
Mutual Fund wants to own the equity of companies that have potentially
appreciating stock prices. To us, the emphasis should be on careful
selection of the security and then a long-term-hold strategy is implemented.
How does Fund Management discover companies to buy for the portfolio?
First we apply the screens described in our Prospectus. Then hard work,
determination and desire to make our Shareholders a lot of money focuses our
attention. That is the only encouragement we need to locate the best
investment possibilities. We look at prior financial performance such as
previous revenues, future earnings prospects, and the financial stability of
the company as rated by their lenders. Anything else? Sure, but we will not
bore you with the details. For the benefit of the Shareholders the Fund
Management would rather keep the rest of the boredom in-house!
How can Shareholders help Management increase the likelihood of the
Shareholder making more money through future investment in the Labrador
Mutual Fund?
Labrador Mutual Fund operates most efficiently when a steady stream of money
comes into the Fund and stays put. This constant (monthly) Shareholder
investment allows the Portfolio Manager to take advantage of perceived "price
inefficiencies" in security valuations in little steps every day. Because we
hold our portfolio turnover essentially at zero, we are dependent upon new
money everyday to shop for bargains in the marketplace. Management believes
the money-management technique commonly termed "dollar-cost-averaging" to be
very effective.
In an effort to help the Shareholders stay informed about the companies in
which Labrador Mutual Fund invests the Shareholder's money, the Portfolio
Manager has listed each company along with a brief description of its
relevant business practices on the WebSite in the "Portfolio" section. We
invite you to read about these companies so you can see what Management
believes makes the composition and diversification of the Fund so special.
Also on our WebSite, we have listed "Frequently Asked Questions" as well as a
"Glossary" section. These sections along with others can assist in keeping
you informed about your investment in the Labrador Mutual Fund. As our
seasoned investor knows, The Labrador Mutual Fund WebSite can be found at
www.labradorfund.com. We invite your feedback regarding the Fund.
Live long and prosper.
Peter Schuh
President and Co-Portfolio Manager,
February 28, 1999
FINANCIAL STATEMENTS
LABRADOR MUTUAL FUND
STATEMENT OF NET ASSETS
As of December 31, 1998
Number Market
of Shares Value
----------- --------
Common Stocks - 99.41%
- ----------------------
Banks - 6.42%
Firstar 500 $46,625
Wells Fargo & Company 1,000 39,938
Computers/Technology - 24.03%
Cisco Systems Inc.* 600 55,687
Hewlett-Packard Company 1,000 68,312
Intel Corporation 400 47,425
International Business Machine 200 36,950
Microsoft Corporation * 400 55,475
Sun Microsystems * 700 59,938
Drugs & Healthcare - 18.67%
Abbott Laboratories 800 39,200
Johnson & Johnson 400 33,550
McKesson HBOC Inc. 600 47,438
Merck & Company Inc. 250 36,922
Pfizer Inc. 400 50,175
Schering-Plough Corporation 800 44,200
Financial Services - 2.98%
Automatic Data Processing Inc. 500 40,094
Food & Beverage - 10.95%
BestFoods 700 37,275
Coca Cola 800 53,500
Conagra Inc. 1,800 56,700
Insurance - 2.87%
American International Group Inc. 400 38,650
Machinery & Metal Processing - 2.58%
Illinois Tool Works 600 34,800
Marketing Service - 3.44%
Omnicom Group Inc. 800 46,400
Medical Equipment - 3.86%
Medtronic Inc. 700 51,975
Other Consumer Goods - 13.55%
General Electric Company 400 40,825
Gillette Company 1,200 57,975
Proctor & Gamble Company 400 36,525
Xerox Corporation 400 47,200
Retail - 4.35%
Walgreens Company 1,000 58,562
Telecommunications - 5.71%
Lucent Technology 700 77,000
------
Total Common Stocks
(Cost $1,147,059) 1,339,316
---------
Money Market - 0.74%
- --------------------
Star Treasury Money Market
(Cost $9,930) 9,930
Total Investments
(Cost $1,156,989) 1,349,246
Other Assets and Liabilities, Net - (0.15%) (2,025)
- ------------------------------------------- -------
Net Assets - 100% $1,347,221
==========
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
LABRADOR MUTUAL FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
ASSETS:
Investments, at value (cost $1,156,989) $ 1,349,246
Receivables:
Dividends 1,223
Interest 36
Expense Reimbursement by Manager 10,366
------
Total assets 1,360,871
LIABILITIES:
Accrued 12B-1 Fees 559
Accrued Administration Fees 1,400
Accrued Auditing Fees 750
Accrued Custodian Fees 659
Accrued Fund Accounting Fees 3,500
Accrued Insurance 2,271
Accrued Legal Fees 250
Accrued Postage 143
Accrued Pricing Fees 492
Accrued Report Printing 531
Accrued Miscellaneous Fees 345
Accrued Transfer Agent Fees 2,750
-----
Total liabilities 13,650
------
NET ASSETS $ 1,347,221
============
Net assets consist of:
Paid-in capital 1,157,403
Accumulated undistributed net realized loss on investments (2,439)
Net unrealized appreciation on
investments 192,257
-------
Net assets $ 1,347,221
============
Shares of capital stock
outstanding (no par value,
unlimited shares authorized) 115,024
Net asset value, offering
and redemption, price per share $ 11.71
The accompanying notes are an integral part of these financial statements.
LABRADOR MUTUAL FUND
STATEMENT OF OPERATIONS
For the period September 24, 1998 (inception date of fund)
to December 31, 1998
INVESTMENT INCOME:
Interest $ 545
Dividends 2,386
-----
Total investment income 2,931
-----
EXPENSES:
12B-1 Expense 559
Administration Expense 1,400
Auditing Expense 750
Custodian Expense 874
Fund Accounting Expense 3,500
Insurance Expense 2,271
Legal Expense 250
Management Expense 3,357
Postage Expense 143
Pricing Expense 492
Report Printing Expense 531
Miscellaneous Expense 445
Transfer Agent Expense 2,750
-----
Total expenses 17,322
------
Less: Expense reimbursement from Manager 11,952
Total net expenses 5,370
NET INVESTMENT LOSS (2,439)
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net change in unrealized appreciation on investments 192,257
-------
Net gain on investments 192,257
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 189,818
=======
The accompanying notes are an integral part of these financial statements.
LABRADOR MUTUAL FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period September 24, 1998 (inception date of fund)
to December 31, 1998
INCREASE IN NET ASSETS
Operations:
Net investment loss $(2,439)
Net change in unrealized appreciation on investments 192,257
-------
Increase in net assets from operations 189,818
-------
Capital share transactions:
Proceeds from shares sold 1,157,565
Cost of shares repurchased (162)
---------
Net increase in net assets from capital share transactions 1,157,403
---------
TOTAL INCREASE IN NET ASSETS 1,347,221
---------
NET ASSETS:
Beginning of period ---
End of period $ 1,347,221
===========
OTHER INFORMATION:
Share transactions:
Sold 115,039
Repurchased (15)
-------
NET INCREASE IN SHARES OUTSTANDING 115,024
=======
The accompanying notes are an integral part of these financial statements.
LABRADOR MUTUAL FUND
FINANCIAL HIGHLIGHTS
1998(a)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
Loss from investment operations:
Net investment income loss (0.02)
Net realized and unrealized gain on investments 1.73
----
Total from investment operations 1.71
Net asset value, end of period $ 11.71
=====
TOTAL RETURN 63.69%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,347,221
Ratio of expenses to average net assets:
Before reimbursement of expenses by Manager (b) 5.78%
After reimbursement of expenses by Manager (b) 2.40%
Ratio of net investment income to average net assets:
Before reimbursement of expenses by Manager (b) (4.80)%
After reimbursement of expenses by Manager (b) (0.81)%
Portfolio turnover 0.0%
(a) For the period September 24, 1998 (inception date of fund) to
December 31, 1998.
(b) Annualized.
NOTES TO FINANCIAL STATEMENTS
Note 1 - General
The Labrador Mutual Fund, (the "Trust") which has a similarly named portfolio
called the Labrador Mutual Fund ("the Fund") is a mutual fund that invests
principally in securities of companies which, in the opinion of the Fund's
management, conduct their business in a socially responsible manner. Capital
growth and current income are the primary and secondary investment
objectives. Investment advisory and management services are provided to the
Fund by Labrador Investment Advisers, Inc., (the "Manager").
Note 2 - Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are
in conformity with generally accepted accounting principles.
A) Security Valuations
Shares of the Fund are sold on a continuous basis. Net asset value per share
is determined as of the close of regular trading on the floor of the New York
Stock Exchange (currently 4:00 p.m., New York time) on each business day. The
Fund's investments are valued based on market value or, where market
quotations are not readily available, based on fair value as determined in
good faith by, or in accordance with procedures established by, the Fund's
Board of trustees. The Fund's net asset value per share is determined by
dividing the sum of the market value of all securities and all other assets
of the Fund, less liabilities of the Fund, by the total number of the Fund's
shares outstanding.
B) Securities Transactions and Investment Income
Securities transactions are recorded on a trade basis. The cost of
securities sold is determined using the first-in-first-out method. Interest
income is recorded on the accrual basis and dividend income is recorded on
the ex-dividend date.
C) Dividends and Distributions to Shareholders
The Fund ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act. Dividends are automatically reinvested in
additional Fund shares at net asset value, unless the shareholder has elected
to receive payment in cash. All expenses are accrued daily and deducted
before declaration of dividends to investors. However, to the extent that net
realized gains of the Fund could be reduced by any capital loss carry-overs,
such gains will not be distributed.
D) Federal Income Taxes
The Fund has elected to be treated as a "regulated investment company" under
Sub-chapter M of the Internal Revenue Code so long as such qualification is
in the best interest of its shareholders. Such qualifications relieves the
Fund of any liability for Federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the Code. The Fund
intends to make sufficient distributions prior to the end of each calendar
year to avoid liability for a 4% Federal excise tax on undistributed income.
Accordingly, no provisions for federal income taxes have been made in the
accompanying financial statements. The Fund intends to utilize provisions of
the federal income tax laws which allows it to carry a realized capital loss
forward for eight years following the year of the loss and offset such losses
against any future realized capital gains.
D) Federal Income Taxes
Net realized gains or losses may differ for financial and tax reporting
purposes for the Fund primarily as a result of losses from wash sales which
are not recognized for tax purposes until the corresponding shares are sold.
E) 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3 - Agreements and Other Transactions with Affiliates
Under a plan adopted by the Fund's Board of trustees pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), the Fund pays Unified Management Corporation
a shareholder servicing and distribution fee at the annual rate of 0.25% of
the average daily net assets of the Fund. Such fee will be used in its
entirety by Unified Management Corporation to make payments for
administration, shareholder services and distribution assistance, including,
but not limited to: (i) compensation to securities dealers and other
organizations (each, a "Service Organization" and collectively, the "Service
Organizations"), for providing distribution assistance with respect to assets
invested in the Fund, (ii) compensation to Service Organization for
providing administration, accounting and other shareholder services with
respect to Fund shareholders, and (iii) otherwise promoting the sale of
shares of the Fund, including paying for the preparation of advertising and
sales literature and the printing and distribution of such promotional
materials to prospective investors. The fees paid to Unified Management
Corporation under the Plan are payable without regard to actual expenses
incurred. The Fund understands that third parties also may charge fees to
their clients who are beneficial owners of Fund shares in connection with
their client accounts. These fees would be in addition to any amounts which
may be received by them from Unified Management Corporation under the Plan.
The Board of Trustees provides broad supervision over the affairs of the
Fund. Pursuant to a Management Agreement between the Fund and the Manager
and subject to the authority of the Board of Trustees, the Manager manages
the Fund's investments and is responsible for the overall management of the
business affairs of the Fund. The Manager continually conducts investment
research and supervision for the Fund and is responsible for the purchase or
sale of portfolio instruments, for which it receives an annual fee from the
Fund. The Fund is authorized to pay the Manager a monthly fee equal to an
annual average rate of 1.50% of its average daily net assets, minus the
amount by which the Fund's total expenses (excluding brokerage, taxes,
interest and extraordinary expenses) exceeds 2.40%. The Manager has
undertaken, until such time as it gives investors 60 days notice to the
contrary, to waive it's investment advisory fee to the extent Total Fund
Operating Expenses (excluding brokerage, taxes, interest and extraordinary
expenses) exceed 2.40%. At December 31, 1998 the Manager owed the Fund
$10,366 in net reimbursement.
Note 4- Investment Transactions
For the period ended December 31, 1998, the cost of purchases, excluding
short-term investments, were $1,147,059, there were no proceeds from the sale
of investments.
Note 5- Unrealized Appreciation (Depreciation)
At December 31, 1998, the composition of gross unrealized appreciation
(depreciation) of investment securities is as follows:
Appreciation Depreciation Net Appreciation
------------ ------------ ----------------
The Labrador Mutual Fund $ 196,100 ($3,843) $ 192,257
Note 6- Shares of Beneficial Interest
The Fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value. At December 31, 1998, Labrador Investment
Adviser and its affiliates owned 10,000 shares of the Fund.
Note 7- Year 2000
The Fund's operations depend on the seamless functioning of computer systems
in the financial service industry in general and specifically on the systems
used by the Manager and Unified Fund Services. The Year 2000 Issue relates
to computer programs that use two digits rather than four to define calendar
years. Computer programs may recognize a two-digit reference to the year
2000 (00), as 1900 rather than 2000. This could result in system failures or
miscalculations, disrupting the processing of date-related information. If
the Fund, the Manger, Unified Fund Services or their respective computer
services suppliers do not adequately address the Year 2000 Issue, this issue
could create problems in the handling of security trades, pricing and account
servicing for the Fund.
The Manager has made compliance with the Year 2000 Issue a high priority and
is taking steps that it believes are reasonably designed to address the year
2000 Issue with respect to its computer systems. The Manager has also been
informed that appropriate steps are being taken by Unified Fund Services and
the Fund's other major service providers. The manager believes that the Year
2000 Issue will not have a material impact on its ability to continue to
fulfill its duties as Manager to the Fund. As a result, no formal
contingency plans have been developed.
The cost to-date to determine the impact of the Year 2000 Issue is immaterial
and no significant future costs are anticipated.
ACCOUNTANTS REPORT ON INTERNAL CONTROLS
To the Shareholders and Board of Trustees of
Labrador Mutual Fund:
In planning and performing the audit of the financial statements of Labrador
Mutual Fund for the period ended December 31, 1998, I considered its internal
control structure, including procedures for safeguarding securities, in order
to determine our auditing procedures for the purpose of expressing an opinion
on the financial statements and to comply with the requirements of Form N-
SAR, not to provide assurance on the internal control structure.
The management of Labrador Mutual Fund is responsible for establishing and
maintaining an internal control structure. In fulfilling this responsibility,
estimates and judgements by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets
are safeguarded against loss from unauthorized use or disposition and
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and may not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
My consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. However, I noted no
matters involving the internal control structure, including procedures for
safeguarding securities, that I consider to be material weaknesses as defined
above as of December 31, 1998.
This report is intended solely for the information and use of management and
the Securities and Exchange Commission.
Marie Jones CPA
Saratoga, California
March 1, 1999
