Hughes Value Fund
Schedule of Investments
June 30, 1999
Shares/Principal Amount Market Value % of Assets
Aircraft
62 Allied Signal 3,906 2.35%
Chemicals
54 Dupont E.I. Denemours & Co. 3,689 2.22%
Cigarettes
106 Philip Morris Companies Inc. 4,260 2.57%
Construction Machinery and Equipment
66 Caterpillar Inc. 3,960 2.38%
Department Stores
130 Wal-Mart Stores Inc. 6,273 3.78%
Eating and Drinking Places
100 Mcdonalds Corp 4,113 2.48%
Electric Housewares and Fans
54 General Electric Co. 6,102 3.67%
Electronic Computers
50 Hewlett-Packard Co. 5,025
36 Intl Business Machines Inc. 4,653
9,678 5.83%
Elevators and Moving Stairways
56 United Technologies 4,032 2.43%
Federal and Federally Sponsored Credit Agencies
56 Fedl National Mortgage Assoc. 3,822 2.30%
Fire, Marine, and Casualty Insurance
147 Citicorp 6,982 4.20%
Medical, Dental, and Hospital Equipment and Supplies
42 Johnson & Johnson 4,116 2.48%
Motion Picture and Video Tape Production
132 Disney (Walt) Co. 4,067 2.45%
Motor Vehicles and Passenger Car Bodies
62 Ford Motor Co. 3,499 2.11%
Nondeposit Trust Facilities
30 Morgan (J.P) & Co. Inc. 4,215 2.54%
Office Machines, Nec
42 Minnesota Mining & Manuf. Co. 3,651 2.20%
*Non-income producing securities.
The accompanying notes are an integral part of the financial statements.
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Hughes Value Fund
Schedule of Investments
June 30, 1999
Shares/Principal Amount Market Value % of Assets
Perfumes, Cosmetics, and Other Toilet Preparations
44 Procter & Gamble Co. 3,877 2.33%
Personal Credit Institutions
30 American Express Co. 3,904 2.35%
Petroleum Refining
42 Chevron Corp. 3,993
48 Exxon Corp. 3,702
7,695 4.63%
Pharmaceutical Preparations
56 Merck & Co. Inc. 4,122 2.48%
Photographic Equipment and Supplies
50 Eastman Kodak Co. 3,387 2.04%
Telephone Communications, Except Radiotelephone
68 American Telephone & Telegraph 3,783 2.28%
Tires and Inner Tubes
60 Goodyear Tire & Rubber 3,529 2.12%
Cash Equivalents
30,000 Treasury Bill O% 08-26-99 29,695
20,000 Treasury Bill O% 09-30-99 19,795
49,490 29.80%
Total Investments (Cost - $149,674 ) 156,152 94.03%
Other Assets Less Liabilities 9,920 5.97%
Net Assets - Equivalent 166,072 100.00%
*Non-income producing securities.
The accompanying notes are an integral part of the financial statements.
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Hughes Market Neutral Fund
Schedule of Investments
June 30, 1999
Shares/Principal Amount Market Value % of Assets
Cash Equivalents
80,000 Treasury Bill O% 07-08-99 79,924 80.20%
Total Investments (Cost - $79,924) 79,924 80.20%
Other Assets Less Liabilities 19,728 19.80%
Net Assets - Equivalent 99,652 100.00%
*Non-income producing securities.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Assets & Liabilities
Hughes Value & Hughes Market Neutral Funds June 30, 1999
Hughes Hughes Market
Value Neutral
Fund Fund
Assets:
Investment Securities at Market Value 156,152 79,924
(Identified Costs - $149,674 and $79,924)
Cash 9,776 19,555
Receivables:
Receivable for investment securities sold - -
Dividends and interest receivable 144 173
Total Assets 166,072 99,652
Liabilities:
Payable for investment purchased - -
Accrued Expenses - -
Total Liabilities - -
Net Assets 166,072 99,652
Net Assets Consist Of:
Capital Paid In 145,552 121,315
Undistributed Net Investment Income 864 1,098
Accumulated Realized Gain (Loss) on
Investments - Net 13,178 (22,761)
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net 6,478 -
Net Assets 166,072 99,652
Shares of capital stock 13,777 10,502
Net asset value per share $12.05 $9.49
Ordering price per share $12.05 $9.49
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Operations
Hughes Value & Hughes Market Neutral Funds June 30, 1999
Hughes Hughes Market
Value Neutral
Fund Fund
Investment Income:
Dividend income $1,126 816
Interest income 290 282
Total Income 1,416 1,098
Expenses:
Management Fees (Note 3) 647 452
Administrations Fee (Note 3) 647 452
Total Expenses 1,294 904
Reimbursed Fees (1,294) (904)
Total Expenses after Reimbursements - -
Net Investment Income (Loss) 1,416 1,098
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investments 13,178 (22,761)
Unrealized Gain (Loss) from Appreciation (Depreciation)
on Investments 6,478 -
Net Realized and Unrealized Gain (Loss) on Investments 19,656 (22,761)
Net Increase (Decrease) in Net Assets from Operations $21,072 (21,663)
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Changes in Net Assets
Hughes Value & Hughes Market Neutral Funds June 30, 1999
Hughes Hughes Market
Value Neutral
Fund Fund
07/29/98 03/29/99
to to
06/30/99 06/30/99
From Operations:
Net Investment Income 1,416 1,098
Net Realized Gain (Loss) on Investments 13,178 (22,761)
Net Unrealized Appreciation (Depreciation) 6,478 -
Increase (Decrease) in Net Assets from Operations 21,072 (21,663)
Distributions to shareholders:
Net Investment Income (552) -
Net Realized Gain (Loss) from Security Transactions - -
Change in net assets from distributions (552) -
From Capital Share Transactions:
Proceeds from sale of shares 45,000 400,000
Dividend reinvestment 552 -
Cost of shares redeemed - (278,685)
Change in net assets from capital transactions 45,552 121,315
Change in net assets 66,072 99,652
Net Assets:
Beginning of period 100,000 -
End of period 166,072 99,652
Share Transactions:
Issued 3,730 40,000
Reinvested 47 -
Redeemed - (29,498)
Net increase (decrease) in shares 3,777 10,502
Shares outstanding beginning of period 10,000 -
Shares outstanding end of period 13,777 10,502
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Highlights
Hughes Value & Hughes Market Neutral Funds
Selected data for a share of capital stock outstanding throughout the period
indicated
Hughes Hughes Market
Value Neutral
Fund Fund
07/29/98 03/29/99
to to
06/30/99 06/30/99
Net Asset Value -
Beginning of Period 10.00 10.00
Net Investment Income 0.14 (0.03)
Net Gains or Losses on Securities
(realized and unrealized) 1.97 (0.48)
Total from Investment Operations 2.11 (0.51)
Distributions
Net investment income - -
Capital gains (0.06) -
Return of capital - -
Total Distributions (0.06) -
Net Asset Value -
End of Period $12.05 $9.49
Total Return 21.07% -5.10%
Ratios/Supplemental Data:
Net Assets at end of period (thousands) 166 100
Before reimbursements
Ratio of Expenses to Average Net Assets * 1.00% 1.00%
Ratio of Net Income to Average Net Assets * 0.09% 0.21%
After reimbursements
Ratio of Expenses to Average Net Assets * 0.00% 0.00%
Ratio of Net Income to Average Net Assets * 1.09% 1.22%
Portfolio Turnover Rate 314.25% 182.06%
* Annualized
The accompanying notes are an integral part of the financial statemnts.
<PAGE>
HUGHES FUNDS, INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1999
1. DESCRIPTION. Hughes Funds, Inc. (the "Fund") was organized under the laws
of the State of Maryland on December 15, 1997 under the Investment Act of
1940, as amended, as an open end, management investment company and
currently consists of two separate investment portfolios (collectively the
"Portfolios"): the Hughes Funds Value Fund (the "Value Fund") and the
Hughes Market Neutral Fund (the "Market Neutral Fund"). The Value Fund is
a diversified mutual fund whose primary investment objective is growth of
capital by investing primarily in the securities of companies whose stock
is traded on the New York Stock Exchange ("NYSE"), the American Stock
Exchange ("ASE") and the NASDAQ over-the- counter market. The Market
Neutral Fund is a non-diversified mutual fund whose primary investment
objective is growth of capital.
On June 15, 1999, the Board approved the registration of four additional
series of the Fund, such series to be called Hughes Growth Fund, Hughes
Technology Fund, Hughes Health Care Fund, and Hughes Financial Services
Fund.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies followed by the Fund:
a.Portfolio valuation. The net asset value per share of the Portfolios is
calculated as of the closing bid price. Securities listed on an exchange
are valued at the last price prior to the time valuation is made. If
there has been no sale since the immediate previous security is primarily
traded. Over-the counter securities are valued on the basis of the quoted
bid price. Assets for which market quotations are not readily available
are valued in accordance with procedures established by the Fund's Board
of Directors, including use of an independent pricing service.
b.Securities Transactions and Investment Income. Securities transactions
are recorded on a trade basis. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income
is recognized on the ex-dividend date and interest income, including
amortization of premium and accretion of discount, is accrued daily.
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HUGHES FUNDS, INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
c.Federal Income Tax. It is the policy of each of the Portfolios to
continue to qualify as a "regulated investment company' under Subchapter
M of the Internal Revenue Code of 1986, as amended. By so qualifying, the
Portfolios will not be subject to Federal income taxes to the extent they
distribute the majority of their taxable income for the fiscal year. The
Portfolios also intend to meet the distribution requirements to avoid the
payment of an excise tax.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles.
d.Determination of Net Assets Value and Calculation of Expenses. Expenses
directly attributed to a Portfolio are charged to that Portfolio. Other
expenses are allocated proportionately among each Portfolio within the
Fund in relation to the net assets of each Portfolio.
e.Use of 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 changes in net assets resulting from operations when
financial statements are prepared. Actual results could differ from these
amounts.
3. INVESTMENT ADVISORY, ADMINISTRATIVE AND OTHER TRANSACTIONS WITH AFFILIATES.
The Fund has entered into an investment advisory agreement (the "Investment
Advisory Agreement") with Hughes Investment Advisors L.L.C. (the
"Advisor"), with whom an officer and director of Hughes Funds, Inc. is
affiliated. The Investment Advisory Agreement provides for the Advisor to
provide investment advice and portfolio management services to the Fund.
The agreement
Under the terms of the agreement, the fund will pay the Advisor on the last
day of each month a fee at an annual rate equal to 0.50% of average net
asset of the Portfolios.
Under the investment advisory agreement, if the Fund's total annual
expenses, excluding taxes interest and extraordinary litigation expenses,
during any fiscal year, exceeds 1.25% of its average daily net asset value,
the Advisor will reimburse the Fund for the amount of such excess.
<PAGE>
HUGHES FUNDS, INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
The Fund has entered into an operating services agreement (the "Operating
Services Agreement") with Hughes Investment Advisors LLC (the "Manager"),
with whom an officer and director of Hughes Funds, Inc. is affiliated. The
Operating Services Agreement provides for the Manager to supervise all
aspects of the Fund's operations. The agreement has an initial term which
expire March 31, 2001, and from year to year thereafter upon approval.
Under the terms of the agreement, the fund will pay the Advisor on the last
day of each month a fee at an annual rate equal to 0.50% of average net
asset of the Portfolios.
For the period ending June 30, 1999, the Advisor and Manager have reimbursed
the Fund for their services. In addition, Hughes Investment Advisors L.L.C.
has incurred expense of $ 8,433 in the managing of the Fund.
4. SECURITIES TRANSACTIONS. For Federal Income tax purposes, the cost of
investments owned at June 30, 1999 was the same as identified cost. At June
30, 1999, the composition of unrealized appreciation (the excess of value
over tax cost) and depreciation (the excess of tax cost over value) was as
follows:
Hughes Value Fund Hughes Market
Neutral Fund
Appreciation 10,120 -
(Depreciation) (3,642) -
------- ---
Net Appreciation (Depreciation) 6,478 -
======= ===
Purchase and Sale Transactions. The table below displays information
describing purchases and sales of investment securities, both U.S.
Government obligations and non U.S. Government obligations made during the
six months ending June 30, 1999.
HughesMarket
Type of obligation Hughes Value Fund Neutral Fund
Purchase on non U.S. Government 530,034 578,734
Sale of non U.S. Government 444,541 546,363
Purchase of U.S. Government 49,481 79,168
Sale of U.S. Government - -
5. CAPITAL SHARES TRANSACTIONS. The Fund is authorized to issue Five Hundred
Million (500,000,000) shares with a par value of One Hundredth of a Cent
($0.0001).
<PAGE>
HUGHES FUNDS, INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
5. CAPITAL SHARES TRANSACTIONS (continued)
As of June 30, 1999, two shareholders held 100% of the outstanding shares
of the Value Fund and Market Neutral Fund.
On February 23, 1999, the Board authorized and established two additional
classes of shares. Class A shares to be sold at public offering price,
calculated at net asset value plus an applicable front-end sales charge and
Class C shares, sold at net asset value with a conforming Rule 12b-1
servicing fee.
As of June 30, 1999 there were class A or class C shares outstanding.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANT
To the Shareholders and Board of
Directors of Hughes Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of the Hughes Value Fund and Hughes Market Neutral
Fund of the Hughes Funds, Inc. as of June 30, 1999, the related statements of
operations and changes in net assets and financial highlights for the period
from July 29, 1998 and March 29, 1999 (commencement of operations) to June 30,
1999 in the period then ended. 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 audits.
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 cash and securities owned as of June 30,
1999, by corresponding 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 provide 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 each
of the respective portfolios comprising the Hughes Funds, Inc. as of June 30,
1999, the results of their operations, the changes in net assets, and financial
highlights for the period from July 29, 1998 and March 29, 1999 (commencement of
operations) to June 30, 1999 in the period then ended, in conformity with
generally accepted accounting principles.
DeAngelis & Higgins, L.L.C.
39 North Main Street
Cranbury, New Jersey
August 27, 1999
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