ANNUAL REPORT
DECEMBER 31, 1999
[GRAPHIC]
The REvest
Value Fund
A No-Load Mutual Fund
Managed in Maine
A Value-Oriented
Investment In Small and
Medium-Sized Company Equities
A Series of The Winter Harbor Fund
<PAGE>
PROFILE OF THE FUND
- --------------------------------------------------------------------------------
The REvest Value Fund ("REvest" or the "Fund") is a no-load series of The Winter
Harbor Fund, an open-end, diversified management investment company. Jennifer E.
Goff, President of Ebright Investments, Inc. ("EII" or the "Adviser"), a
registered investment adviser, is responsible for the management of the Fund's
portfolio, subject to the authority of the Fund's Board of Trustees.
REvest primarily seeks long-term growth and secondarily current income by
investing in a broadly diversified portfolio of common stocks and convertible
securities. Prospective portfolio investments are selected on a value basis and
are primarily limited to small and medium-sized companies viewed by the Fund's
investment adviser as having attractive financial characteristics and/or
"vitality factors." Vitality factors are those factors (e.g., an active
acquisition program, stock buy-back program and/or cost reduction program) that
should, in the investment adviser's judgment, allow a company to build future,
incremental value for shareholders. By combining the prospect of vitality with a
value-oriented selection process, we believe we are able to buy Great Companies
at Great Prices. These tenets are elaborated upon in the following outline:
SMALL AND
MID-CAP STOCKS
We believe these securities have more potential for capital appreciation because
they have historically generated higher returns for investors, and because they
are generally less well-known, making them more likely to be improperly priced
by the marketplace. The Fund will normally invest at least 90% of its assets in
common stocks, convertible preferred stocks and convertible bonds. At least 80%
of these "allowable securities" will be income producing, and at least 80% will
be issued by companies with market capitalizations between $200 million and $2
billion at the time of investment.
VALUE-ORIENTATION,
PLUS VITALITY
We look for companies with "value discrepancies," or market prices below our
assessment of their "real" business worth. From that group, we select companies
with vitality or ongoing programs that should allow them to increase their
long-term value. We believe profits can come from both the continued success and
growth of each portfolio company, as well as the eventual elimination of any
value discrepancy we believe was present at the time of purchase.
CONSISTENT
PORTFOLIO
CHARACTER
We will automatically close the Fund to new investors beginning on March 1 after
the end of any calendar year during which its assets reach $350 million. Since
we specialize in small and medium-size companies, we believe a larger asset base
could limit our flexibility in buying and selling for the Fund, or force us to
invest in more companies than we can closely follow. By placing practical limits
on our size, we believe we can make it possible for the Fund's investment
adviser to actively manage the portfolio, and enable the Fund to maintain a
constant character over its lifetime.
Please keep in mind, however, that this is a "fixed" style of money management.
REvest does not change from year-to-year, or attempt in any way to anticipate
market trends. Because of this, the Fund is often out-of-sync with the general
equity markets, and short-term performance may be better or worse than either
the "market" or other less specialized funds. Management follows this very
disciplined and consistent path because it believes that in the long run, this
"fixed" characteristic can lead to premium long-term returns.
<PAGE>
MANAGER'S LETTER [LOGO]
- --------------------------------------------------------------------------------
Dear Friends and Fellow Shareholders:
I should be happy to report to you that finally, after five years, small-cap
stocks outperformed large-cap stocks in 1999. For the year, the Russell 2000
Index was up 21.3%, as compared to up 21.1% for the S&P 500 Index.
Unfortunately, the entire outperformance of the Russell 2000 was the result of
its growth components. Breaking the Russell 2000 down into its lesser indices,
the Russell Growth Index was up 43.1% for the year, while the Russell 2000 Value
Index was down 1.5%. In this environment, REvest, with its small-cap, value
orientation, was down 3.3%.
The year had many crosscurrents for the fundamental investor. On the one hand,
the domestic economy continued to expand, bringing us to within two months of
being the longest economic expansion in history. Low unemployment and inflation
prevailed, leading to increased consumer confidence and robust spending. A
favorable interest rate environment, combined with improving productivity,
enabled companies to extend the remarkable earnings growth that has marked the
decade. In addition, it appears likely that these same fundamentals, which aided
performance in 1999, will remain intact into the new year.
On the other hand, this "goldilocks" economy spawned a dangerous "new paradigm"
mentality where past performance guarantees future results. The rationale goes
something like this: during a period of declining interest rates, growth stocks
tend to outperform all other styles and asset classes because of the discount
rate impact on securities valuation. Therefore, if one wants the best
performance, buy those stocks with the highest current or potential sales
growth, disregarding all other considerations. In this day and age, that means
one would buy technology, telecommunications and Internet issues.
While almost all of the leading averages scored larger gains than they had in
the preceding twelve months as a result of the growth influence, the NASDAQ
Composite, home to the technology, telecommunications and Internet giants,
outshone them all. The NASDAQ was up 86.9% for the year, the largest gain for
any major market index in U.S. stock market history.
The contribution of rampant speculation to such a move was readily apparent.
More than eight hundred stocks in the NASDAQ, or one in six, doubled in value in
1999. An incredible thirty-seven gained 1,000%. Companies in the S&P 500 with no
earnings were up an average of 52%, while companies with earnings were down an
average of 2%! Similar statistics exist for the Russell 2000, although companies
losing money were up only 45%. Given the mandate of our Fund, which limits us to
buying equities with measurable earnings and at least a three-year operating
history, it was difficult to compete.
The speculative binge can not continue forever. As the stock market has come to
represent a larger percentage of Gross Domestic Product (the sum of all U.S.
goods and services) than ever before, the Federal Reserve has begun watching it
more closely. The Fed raised rates three times last year, restoring the 1998
cuts that were put in place at the time of the Asian financial crisis, and the
likelihood is that there will be more rate hikes this year. The combination of
rising rates and accelerating earnings growth historically has been the
fundamental catalyst for a rotation from growth to value.
As mentioned, REvest was down 3.3% last year. While we benefited from some
exposure to the technology sector, our commitments to financial and industrial
cyclical concerns more than offset those gains. In a departure from years past,
we have saved more detailed discussion of the Fund's performance for the
Portfolio Summary and Performance Discussion sections of this Annual Report (pp.
2-5). The new format allows us to elaborate more on the specific holdings and
market forces that impacted our performance. We hope you will read these
sections.
In closing, I also want to mention that the Adviser has agreed to limit the
Fund's expense ratio to 1.50% until June 30, 2000. This new limit is effective
as of January 1, 2000 and replaces the cap that expired December 31, 1999.
As always, we want to thank you for your confidence. Your continued support of
our work through the ownership of your shares is much appreciated.
Sincerely,
Jennifer Ebright Goff
Portfolio Manager
President, Ebright Investments, Inc.
January 27, 2000
Note: The S&P 500 and the Russell 2000 are unmanaged indices and include the
reinvestment of dividends.
1
<PAGE>
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
The following (unaudited) information provides a "bird's eye" view of the REvest
portfolio as of December 31, 1999. For a more complete picture, the Performance
Discussion, Portfolio of Investments and accompanying financial statements
should be read in their entirety.
VALUE % OF NET ASSETS
----- ---------------
PORTFOLIO
COMPOSITION
Common Stocks:
Micro-Caps (under $200M) ................. $ 1,615,313 9.3%
Small-Caps ($200M - $1B) ................. 10,617,453 61.3%
Mid-Caps ($1B - $2B) ..................... 4,122,343 23.8%
Convertible Bonds ........................... 781,875 4.5%
Assets in Excess of Liabilities ............. 181,611 1.1%
----------- ------
Net Assets .................................. $17,318,595 100.0%
=========== ======
% of net assets
---------------
INDUSTRY
CONCENTRATION
Industrial Cyclicals .................................. 17.4%
Energy ................................................ 12.9%
Financial ............................................. 12.4%
Health ................................................ 11.2%
Technology ............................................ 11.1%
Consumer Products ..................................... 9.4%
Services .............................................. 9.1%
Retail ................................................ 8.6%
Real Estate ........................................... 6.8%
Assets in Excess of Liabilities ....................... 1.1%
AVERAGE FINANCIAL
CHARACTERISTICS
OF PORTFOLIO
COMPANIES
Market Capitalization ................................. $588.4M
P/E Ratio ............................................. 17.6x
P/B Ratio ............................................. 2.2x
Return on Assets ...................................... 6.4%
Return on Equity ...................................... 12.0%
Compound 5-Year EPS Growth Rate ....................... 15.2%
Gross Portfolio Yield ................................. 2.7%
value % of net assets
----- ---------------
TOP TEN EQUITY
POSITIONS
1. The Toro Corporation ..................... $ 559,687 3.2%
2. Berry Petroleum Company .................. 529,375 3.1%
3. Russ Berrie and Company, Inc. ............ 525,000 3.0%
4. Cousins Properties, Inc. ................. 509,062 2.9%
5. Arrow International, Inc. ................ 507,500 2.9%
6. St. Mary Land & Exploration Company ...... 495,000 2.9%
7. Teleflex, Inc. ........................... 469,688 2.7%
8. Peoples Heritage Financial Group, Inc. ... 451,875 2.6%
9. CLARCOR, Inc. ............................ 450,000 2.6%
10. Helix Technology Corporation ............. 448,125 2.6%
2
<PAGE>
PORTFOLIO SUMMARY (Continued) [LOGO]
- --------------------------------------------------------------------------------
As part of our portfolio management philosophy, REvest tries to remain broadly
diversified across nine industry sectors. We believe we are able to identify
undervalued companies and sectors, but we concede we are unable to accurately
determine when that value will be realized. This fundamental approach leads to
better long-term returns, with lower risk.
Only three sectors in the Russell 2000 Value Index were up in 1999: Technology
(+66.3%), Energy (+21.4%) and Healthcare (+6.9%). Finance, the largest sector,
was down 16.9%. All in all, finance stocks contributed negative 5.5 percentage
points to the Index, more than offsetting the positive contribution of the other
three sectors.
REvest's performance paralleled that of the Value Index. The following chart
highlights the year's top ten contributors to the Fund's net realized and
unrealized gain on investment (shown on a per share basis):
TOP TEN EQUITY CONTRIBUTOR'S TO THE FUND'S NET REALIZED AND UNREALIZED GAIN ON
INVESTMENT (PER SHARE)
[GRAPHIC OMITTED]
Not surprisingly, the three largest contributors to the Fund's returns were
technology issues. Helix Technology and Kulicke & Soffa are both semiconductor
capital equipment manufacturers. Each company was bought when the industry was
depressed, they rebounded sharply as chip demand improved. For the year, they
were up 245% and 140%, respectively.
In Focus is the worldwide leader in developing, manufacturing and marketing
multimedia projection products that project information from a personal computer
onto a larger screen. It was added to the portfolio for a second time after
distribution problems in early 1998 caused the stock to slide from $20.00 to
$3.50. Once we were comfortable that the problems were temporary, we established
a position. The stock was up 161% last year.
Rounding out the top five are our two biggest losers last year, Cavalier Homes
and Donegal. Cavalier designs and produces manufactured homes. After reporting
top-line progress of 30% and bottom-line growth of 48% in the first quarter of
1999, the industry rapidly deteriorated in the second quarter. Oversupply led to
price competition, which negatively impacted both revenues and margins for the
remainder of the year. For 1999, Cavalier was down 65%.
We expect that it will take at least a couple more quarters for the industry to
rationalize excess supply and begin to turn around. In the meantime, the
downside risk seems low as the stock is trading at 7 times earnings and 50% of
book value. Cavalier, in our opinion, is a good company. It has a strong balance
sheet, with minimal debt and $22 million in cash, a four million share buyback
program authorized (only 1.5 million shares remain), and a 4% dividend yield. We
plan to continue holding it, for now.
Donegal, a holding company offering property and casualty insurance in the
Mid-Atlantic and Southeast, is similarly plagued by industry overcapacity.
Overcapitalization has led to a difficult pricing environment. Despite moderate
but steady premium growth and a statutory underwriting profit for the previous
ten years, the stock declined 59%.
Not content to wait for a change in the environment, Donegal undertook a
restructuring that is expected to reduce expenses and improve efficiency and
profitability significantly. Estimates for 2000 anticipate earnings of $1.00 per
share, up from $0.45 in 1999. Applying the current multiple of 11 produces a
target price of $11.00, up from the current $6.50, essentially recouping last
year's losses. Once again, downside risk seems low, and there is the benefit of
a 6.4% yield* while we wait.
*Based on December 31, 1999 closing share price and dividend level.
3
<PAGE>
PERFORMANCE DISCUSSION
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The Market
Inflation, interest rates, the Federal Reserve and an understanding of
speculative psychology were crucial in understanding the market's performance in
1999.
The year started off quietly, with large-company issues once again outperforming
small-company equities. Concerns over the health of certain overseas markets
were still prominent, and thus, the "flight to quality" mentality prevailed. By
the end of March, the S&P 500 was up 5.0%, while the Russell 2000 was down 5.4%.
Early in the second quarter, scattered reports began to suggest that the
situation overseas had bottomed, bringing about one of the most dramatic shifts
in sentiment in the current bull market. Investors started to rediscover the
merits of investing in cyclical and small-cap stocks, and a general broadening
of the market followed.
The party did not last long, unfortunately, as the April Consumer Price Index
came in above expectations. This chilling information led to increased
volatility in late May and June, as investors began to speculate about the June
29th Fed meeting and the potential for one or more rate hikes. In the end, the
Fed voted to increase the discount rate 0.25%.
Nevertheless, small-cap stocks were able to make considerable advances in the
second quarter, with the Russell 2000 ending up 15.6%, as compared to 7.0% for
the S&P 500. Unfortunately, this surge was not enough to fully offset the damage
of the first quarter, leaving small companies lagging their larger brethren,
9.3% versus 12.4%, at the half.
The "Fed Watch" mindset continued through much of the Summer and into the Fall.
Each new piece of economic news was scrutinized to see whether it was now more
or less likely that the Fed would raise rates. The answer was a major
determinant in how the market subsequently behaved. While the Fed elected to
raise rates another quarter point on August 24th, it passed on the opportunity
in October. By that time, disappointing corporate earnings and Y2K fears had
already taken much of the air out of the stock market "bubble", much to the
Fed's satisfaction. For the quarter, the S&P 500 was down 6.2%. The Russell 2000
was down 6.3%.
The market swooned the week of October 15th, but upbeat earnings and the revival
of financial-reform legislation enabled the averages to regain most of their
losses the next week. The change in sentiment put the Fed on guard again, and it
raised rates for a third time on November 16th. It had little impact on the
market. The Fed had already indicated that its number one priority on the eve of
the new millennium was maintaining liquidity, so a rate hike at the December
meeting was deemed unlikely. With that in mind, the S&P 500 gained 14.9% and the
Russell 2000 returned 18.4% in the quarter.
For the year, the S&P 500 and the Russell 2000 ended up 21.1% and 21.3%,
respectively. It was the fifth year in a row that the S&P 500 returned greater
than 20%, and the first time in six years that it was outperformed by the
Russell 2000.
The combination of rising rates and accelerating earnings growth is typically
the fundamental catalyst for a rotation from growth to value. We saw a hint of
that in April. In 1999, however, a speculative bubble formed around the
technology and Internet issues, squelching the shift in investor focus. The
effect can be seen most clearly in the style divergence within the Russell 2000.
Breaking the Index down into its two components, the Russell Growth Index was up
43.1% for the year, while the Russell 2000 Value Index was actually down 1.5%.
The 44.6% spread between the two is the widest in history. Similar divergences
were obvious in the other major indices.
Not surprisingly, market breadth, the ratio of advancing versus declining
issues, continued to deteriorate last year. Progressively fewer companies were
responsible for the market's ongoing gains. As illustration, only 45% of the
stocks in the Russell 2000 and 48% of the stocks in the S&P 500 ended the year
in positive territory. The median stock in the Russell 2000 was down 4.9%, and
in the S&P 500, down 1.7%. In both indices, only 7% of stocks ended the year
with new highs. Clearly, the majority of companies were not participating.
It will be interesting to see whether these trends are sustainable into the new
year. There have been many such periods of investor infatuation in the past:
radio in the 1920s, technology in the early and late 1960s, the original "Nifty
Fifty" in the early 1970s, oil and gold in the late 1970s, PCs in the 1980s and
biotech in the early 1990s. In each case, inflated expectations were
disappointed, market prices corrected and more realistic valuations prevailed.
The same is likely to be true of the dazzling stocks in today's market as some
of the hot Internet stocks of a year ago have already experienced significant
declines.
The REvest Value Fund
We at REvest continued to do our best in a market climate that was inhospitable
to our style. While our return in 1999 was on par with both the Russell 2000
Value Index and our peers, we significantly underperformed our primary
benchmark, the Russell 2000. Style divergence was the primary cause. The
exceptional returns of the Growth Index made the Russell 2000 an almost
impossible target to beat without abandoning our methodology.
4
<PAGE>
PERFORMANCE DISCUSSION [LOGO]
- --------------------------------------------------------------------------------
Early in the year, the Adviser's emphasis on yield was a notable benefit to Fund
performance. In the difficult first quarter, yield support held the Fund's loss
to 4.6%, versus the Russell 2000's decline of 5.4%. Unfortunately, it also
served to moderate performance on the upside. For the three months ended June
30, 1999, REvest gained 11.7%, as compared to 15.6% for the Russell 2000. At the
half, the Russell 2000 was up 9.3% and REvest was up 6.5%.
In the second half, however, carefully laid strategies did not work. Technology
was the only place to be. While exposure to energy helped the Fund early on,
above-normal temperatures late in the year, did not. Given increased global
demand for petroleum products and slim inventories, we expect eventually to be
rewarded for our patience.
Similar comments apply to financial and industrial cyclical stocks. Both have
traditionally led the market when it rallies. With concerns surrounding interest
rates ever present and the global economy recovering slower than forecast, both
groups underperformed last year. We expect both concerns to moderate in the new
year. For the third and fourth quarters, REvest was down 9.1% and 0.1%,
respectively.
While we are disappointed with our 1999 performance, we remain committed to our
discipline. Our thoughts on this topic are summed up well by Seth Klarman of the
Baupost Fund: "We underperformed in 1999 not because we abandoned our strict
investment criteria, but because we adhered to them; not because we ignored
fundamental analysis, but because we practiced it; not because we shunned value,
but because we sought it; and not because we speculated, but because we refused
to speculate."
COMPARISON OF CHANGE IN VALUE OF A $10,000 INITIAL INVESTMENT ON AUGUST 1, 1994*
IN THE REVEST VALUE FUND, S&P 500 AND RUSSELL 2000
---------------------------
[GRAPHIC OMITTED]
12/31/99
--------
REvest $15,469
S&P 500 $35,543
Russell 2000 $22,025
---------------------------
FOR PERIODS ENDED DECEMBER 31, 1999
SINCE
1-YEAR 5-YEAR INCEPTION*
------ ------ ----------
REvest Value Fund average annual total return .... -3.32% 9.76% 8.38%
S&P 500 Index average annual total return ........ 21.04% 28.56% 26.45%
Russell 2000 Index average annual total return ... 21.26% 16.51% 23.97%
The above table and preceding narrative depict the historical returns of REvest,
the S&P 500, an unmanaged index representative of large-company stocks, and the
Russell 2000, an unmanaged index representative of small-company stocks. The
Fund's present investment philosophy was followed in each of the periods
identified. All results presented in this Report are on a "total return" basis,
which assumes that all dividends and distributions were reinvested.
The results presented in this Report represent past performance and should not
be considered representative of the "total return" from an investment in the
Fund today. They are provided only to give an historical perspective of the
Fund. The investment return and principal value of the Fund's shares will
fluctuate so that the shares may be worth more or less than their original cost
when redeemed.
*Commencement of Operations - August 1, 1994
5
<PAGE>
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 1999
COMMON STOCKS - 94.4%
SHARES COST VALUE
------ ---- -----
CONSUMER PRODUCTS - 9.4%
30,000 *Helen of Troy Ltd. ............... $ 372,125 $ 217,500
20,000 Russ Berrie and Company, Inc. .... 322,025 525,000
15,000 The Toro Company ................. 390,900 559,687
30,000 Wolverine World Wide, Inc. ....... 388,362 328,125
------------ ------------
1,473,412 1,630,312
------------ ------------
ENERGY - 12.9%
15,000 *Barrett Resources Corporation .... 394,879 441,563
35,000 Berry Petroleum Company, Class A . 355,155 529,375
20,000 Helmerich & Payne, Inc. .......... 396,284 436,250
20,000 Penn Virginia Corporation ........ 334,052 335,000
20,000 St. Mary Land & Exploration Company 374,532 495,000
------------ ------------
1,854,902 2,237,188
------------ ------------
FINANCIAL - 12.4%
15,000 Chittenden Corporation ........... 405,900 444,375
30,000 Donegal Group, Inc. .............. 308,986 191,250
30,000 Peoples Heritage Financial Group, Inc. 209,263 451,875
10,000 Protective Life Corporation ...... 319,600 318,125
25,000 Susquehanna Bancshares, Inc. ..... 287,536 396,875
15,000 Webster Financial Corporation .... 384,375 353,438
------------ ------------
1,915,660 2,155,938
------------ ------------
HEALTH - 11.2%
10,000 Analogic Corporation ............. 290,000 330,000
17,500 Arrow International, Inc. ........ 337,148 507,500
12,500 Diagnostic Products Corporation .. 347,488 306,250
25,000 *IDEXX Laboratories, Inc. ......... 340,222 403,125
20,000 Invacare Corporation ............. 387,383 401,250
------------ ------------
1,702,241 1,948,125
------------ ------------
INDUSTRIAL CYCLICALS - 17.4%
25,000 CLARCOR, Inc. .................... 333,583 450,000
10,000 Greif Bros. Corporation, Class A . 216,950 297,500
12,500 Kaydon Corporation ............... 362,681 335,156
15,000 LSI Industries, Inc. ............. 340,000 324,375
12,500 M.A. Hanna Company ............... 188,250 136,719
11,200 Matthews International Corporation 257,178 308,000
12,500 Oil-Dri Corporation of America ... 192,688 179,688
17,500 Regal-Beloit Corporation ......... 361,444 360,938
15,000 Teleflex, Inc. ................... 298,188 469,688
12,500 Wausau-Mosinee Paper Corporation . 213,531 146,094
------------ ------------
2,764,493 3,008,158
------------ ------------
REAL ESTATE - 5.2%
30,000 Cavalier Homes, Inc. ............. 172,051 118,125
15,000 Cousins Properties, Inc. ......... 311,717 509,062
17,500 New Plan Excel Realty Trust ...... 347,400 276,718
------------ ------------
831,168 903,905
------------ ------------
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
PORTFOLIO OF INVESTMENTS (Continued) [LOGO]
- --------------------------------------------------------------------------------
December 31, 1999
COMMON STOCKS - 94.4% (Continued)
SHARES COST VALUE
RETAIL - 8.6%
15,000 Applebee's International, Inc. ... $ 341,436 $ 442,500
15,000 CBRL Group, Inc. ................. 212,813 145,546
20,000 Claire's Stores, Inc. ............ 374,794 447,500
35,000 *Stein Mart, Inc. ................. 327,500 199,062
30,000 *West Marine, Inc. ................ 309,062 247,500
------------ ------------
1,565,605 1,482,108
------------ ------------
SERVICES - 9.1%
10,000 Chemed Corporation ............... 323,247 286,250
25,000 *Computer Horizons Corporation .... 369,062 404,688
10,000 National Data Corporation ........ 326,900 339,375
30,000 *Right Management Consultants, Inc. 391,375 345,000
10,000 The Standard Register Company .... 167,862 193,750
------------ ------------
1,578,446 1,569,063
------------ ------------
TECHNOLOGY - 8.2%
10,000 Helix Technology Corporation ..... 164,375 448,125
15,000 *In Focus Systems, Inc. ........... 138,750 347,812
10,000 *Kulicke & Soffa Industries, Inc. . 192,542 425,625
30,000 *Planar Systems, Inc. ............. 206,750 198,750
------------ ------------
702,417 1,420,312
------------ ------------
TOTAL COMMON STOCKS ........................ $ 14,388,344 $ 16,355,109
------------ ------------
CORPORATE BONDS - 4.5%
PAR COST VALUE
$ 300,000 MSC.Software Corporation 7.875%
Conv. Sub. Deb. due 8/18/04 ..... $ 289,611 $ 267,375
300,000 Richardson Electronics, Ltd. 8.25%
Conv. Sub. Deb. due 6/15/06 ...... 259,500 243,750
300,000 Sizeler Property Investors, Inc.
8.00% Conv. Sub. Deb. due 7/15/03 278,250 270,750
------------ ------------
TOTAL CORPORATE BONDS ....................... $ 827,361 $ 781,875
------------ ------------
TOTAL INVESTMENTS AT VALUE - 98.9% .......... $ 15,215,705 $ 17,136,984
------------ ============
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.1% 181,611
------------
NET ASSETS - 100.0% ......................... $ 17,318,595
============
* Non-income producing.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1999
ASSETS:
Investments, at value (acquisition cost: $15,215,705) (Note 2) .. $ 17,136,984
Cash ............................................................ 166,010
Receivable for capital shares sold .............................. 50
Interest receivable ............................................. 19,123
Dividends receivable ............................................ 16,375
Receivable from Adviser ......................................... 6,954
Other assets .................................................... 15,680
------------
Total assets ................................................. 17,361,176
------------
LIABILITIES:
Payable to affiliates (Note 5) .................................. 5,250
Payable for capital shares redeemed ............................. 26,931
Other accrued expenses and liabilities .......................... 10,400
------------
Total liabilities ............................................ 42,581
------------
Net assets ................................................... $ 17,318,595
============
NET ASSETS:
Paid-in capital ................................................. $ 15,384,616
Undistributed net investment income ............................. 8,414
Accumulated net realized gains from security transactions ....... 4,286
Net unrealized appreciation on investments ...................... 1,921,279
------------
Net assets ................................................... $ 17,318,595
============
PRICE PER
SHARE:
Net asset value, offering and redemption price per share (Note 2)
($17,318,595/1,755,056 shares outstanding) ...................... $ 9.87
============
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1999 1998
------------ ------------
INVESTMENT
OPERATIONS:
<S> <C> <C>
Net investment income .......................................... $ 257,303 $ 378,008
Net realized gains from security transactions .................. 1,202,089 3,193,187
Net change in unrealized appreciation/depreciation
on investments .............................................. (2,126,314) (5,641,998)
------------ ------------
Net decrease in net assets from operations .................. (666,922) (2,070,803)
------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income ..................................... (261,710) (371,064)
From net realized gains on investments ......................... (841,632) (2,560,610)
------------ ------------
Net decrease in net assets from distributions to shareholders (1,103,342) (2,931,674)
------------ ------------
CAPITAL SHARE
TRANSACTIONS
(NOTE 4):
Proceeds from shares sold ...................................... 748,290 2,095,317
Reinvestment of distributions in shares ........................ 978,647 2,687,414
Payments for shares redeemed ................................... (7,368,201) (13,935,671)
------------ ------------
Net decrease in net assets from capital share transactions .. (5,641,264) (9,152,940)
------------ ------------
Total decrease in net assets ................................ (7,411,528) (14,155,417)
------------ ------------
NET ASSETS:
Beginning of year .............................................. 24,730,123 38,885,540
------------ ------------
End of year .................................................... $ 17,318,595 $ 24,730,123
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME ............................ $ 8,414 $ 12,821
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS [LOGO]
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1999
INVESTMENT
INCOME:
Interest ........................................................ $ 170,756
Dividends ....................................................... 360,250
-----------
Total investment income ...................................... 531,006
-----------
EXPENSES:
Investment advisory fees (Note 5) ............................... 210,541
Accounting services fees (Note 5) ............................... 24,000
Administrative services fees (Note 5) ........................... 24,000
Professional fees ............................................... 17,416
Transfer agent fees (Note 5) .................................... 15,000
Custodian fees .................................................. 13,273
Trustees' fees and expenses ..................................... 8,768
Postage and supplies ............................................ 7,571
Printing of shareholder reports ................................. 5,240
Insurance expense ............................................... 4,900
Registration fees ............................................... 3,980
Pricing costs ................................................... 1,539
-----------
Total expenses ............................................... 336,228
Fees waived by the Adviser (Note 5) ............................. (62,525)
-----------
Net expenses ................................................. 273,703
-----------
NET INVESTMENT INCOME ........................................... 257,303
-----------
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net realized gains from security transactions ................... 1,202,089
Net change in unrealized appreciation/depreciation on investments (2,126,314)
-----------
Net realized and unrealized loss on investments ................. $ (924,225)
-----------
NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS ........... $ (666,922)
===========
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding through
each period, and to assist shareholders in evaluating the Fund's performance.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
INVESTMENT
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ......... $ 10.88 $ 13.00 $ 12.21 $ 10.73 $ 9.66
---------- ---------- ---------- ---------- ----------
Net investment income ...................... 0.14 0.15 0.21 0.21 0.18
Net realized and unrealized gain (loss)
on investments .......................... (0.51) (1.02) 2.64 2.16 1.38
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (0.37) (0.87) 2.85 2.37 1.56
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income ................. (0.14) (0.15) (0.19) (0.21) (0.17)
From net realized gain on investments ...... (0.50) (1.10) (1.87) (0.68) (0.32)
---------- ---------- ---------- ---------- ----------
Total from distributions to shareholders (0.64) (1.25) (2.06) (0.89) (0.49)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............... $ 9.87 $ 10.88 $ 13.00 $ 12.21 $ 10.73
========== ========== ========== ========== ==========
RATIOS AND
SUPPLEMENTAL
DATA:
Total return ............................... (3.32)% (6.12)% 23.50% 22.27% 16.23%
Net assets, end of period (000's) .......... $ 17,319 $ 24,730 $ 38,886 $ 42,099 $ 35,804
Ratio of net expenses to average net assets1 1.29% 1.30% 1.26% 1.29% 1.30%
Ratio of net investment income to
average net assets ...................... 1.22% 1.20% 1.60% 1.78% 1.73%
Portfolio turnover rate .................... 41% 35% 54% 64% 53%
</TABLE>
1 Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.59% and 1.37% for the years ended December 31,
1999 and 1998, respectively (Note 5).
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION.
The REvest Value Fund (the "Fund") is a no-load series of The Winter Harbor Fund
(the "Trust"), a diversified open-end investment management company organized as
a Delaware business trust.
The Fund primarily seeks long-term growth and secondarily current income by
investing in a broadly diversified portfolio of common stocks and convertible
securities of small and medium-sized companies.
2. SIGNIFICANT ACCOUNTING POLICIES.
The following is a summary of the Trust'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. Securities for which market quotations are not
readily available are valued at their fair value under procedures established
and supervised by the Board of Trustees.
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 offering price and redemption price per share
of the Fund is equal to the net asset value per share.
Investment Income and Distributions to Shareholders. Dividends arising from net
investment income are declared and paid quarterly and distributions from net
realized gains, if any, are paid annually in December. These dividends and
distributions are recorded on the ex-date and are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Securities Transactions. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Realized gains and losses from security
transactions and unrealized appreciation and depreciation on investments are
determined on the basis of identified cost for book and tax purposes.
Repurchase Agreements. The Fund enters into repurchase agreements with respect
to its portfolio securities solely with Firstar, N.A. ("Firstar"), the custodian
of its assets. The Fund restricts repurchase agreements to maturities of no more
than seven days. Securities pledged as collateral for repurchase agreements are
held by Firstar until maturity of the repurchase agreements. Repurchase
agreements could involve certain risks in the event of default or insolvency of
Firstar, including possible delays or restrictions upon the ability of the Fund
to dispose of the underlying securities.
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 the 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.
Based upon the federal income tax cost of portfolio investments of $15,208,036
as of December 31, 1999, the Fund had net unrealized appreciation of $1,874,947,
consisting of gross unrealized appreciation of $3,039,326 and $1,164,379 of
gross unrealized depreciation.
3. INVESTMENT TRANSACTIONS.
For the year ended December 31, 1999, cost of purchases and proceeds from sales
of portfolio securities, other than short-term investments, amounted to
$8,192,281 and $14,621,190, respectively.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued) [LOGO]
- --------------------------------------------------------------------------------
4. CAPITAL SHARES.
The Board of Trustees has authority to issue an unlimited number of shares of
beneficial interest of the Fund, with a par value of $.001. Share transactions
were as follows:
YEAR ENDED
DECEMBER 31,
1999 1998
---------- ----------
Sold ................................... 69,802 175,492
Reinvested ............................. 99,773 256,185
Redeemed ............................... (687,422) (1,150,578)
---------- ----------
Net decrease in shares outstanding ..... (517,847) (718,901)
Shares outstanding, beginning of year .. 2,272,903 2,991,804
---------- ----------
Shares outstanding, end of year ........ 1,755,056 2,272,903
========== ==========
Shares redeemed within one year of opening a shareholder account are subject to
a 1.0% redemption fee.
5. TRANSACTIONS WITH AFFILIATES.
Certain trustees and officers of the Trust are also officers of Ebright
Investments, Inc. (the "Adviser"), or of Countrywide Fund Services, Inc.
("CFS"), the administrative services agent, shareholder servicing and transfer
agent, and accounting services agent for the Trust.
Investment 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 of the Fund during the year
ended December 31, 1999, the Adviser waived $62,525 of its investment advisory
fees.
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 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 0.09% on
the Fund's average daily net assets up to $100 million; 0.075% on the next $100
million; and 0.05% on such net assets in excess of $200 million, subject to a
$2,000 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 based on the
number of shareholder accounts, subject to a $1,250 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 net assets, of $2,000 from the Fund. In addition,
the Fund pays CFS certain 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, CW Fund
Distributors, Inc. (the "Underwriter") serves as the exclusive agent for the
distribution of the Fund's shares. The Underwriter is an affiliate of CFS by
reason of common ownership.
Shareholder Service Plan. The Trust has adopted a Shareholder Service Plan (the
"Plan"). Under the Plan, the Trust may enter into shareholder service agreements
pursuant to which a shareholder service provider performs certain shareholder
services not otherwise provided by the transfer agent. For these services, the
Adviser pays the shareholder service provider a fee at an annual rate of up to
0.25% of the average daily net assets attributable to shares owned by investors
for which the shareholder service provider maintains a servicing relationship.
The Fund may reimburse the Adviser such payments in an amount not to exceed
0.25% per annum of the average daily net assets of the Fund. For the year ended
December 31, 1999, no shareholder servicing fees were paid by the Adviser or
reimbursed or accrued by the Fund.
6. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (Unaudited).
On December 17, 1999, the Fund declared and paid a long-term capital gain of
$1,204,508 or $0.69 per share. In January 2000, shareholders were provided with
Form 1099-DIV which reported the amount and tax status of the capital gain
distributions paid during the calendar year 1999.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees of The Winter Harbor Fund and Shareholders of The
REvest Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of changes in net assets
and of operations and the financial highlights present fairly, in all material
respects, the financial position of The REvest Value Fund (the "Fund") at
December 31, 1999, the changes in its net assets for each of the two years in
the period then ended, the results of its operations for the year then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
February 18, 2000
12
<PAGE>
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
INVESTMENTS
Questions concerning the Fund's investments can be directed to Jennifer Goff,
the Fund's portfolio manager, by calling (800) 277-5573. We are one of a small
number of funds where the manager is available to talk directly to investors. If
Ms. Goff is traveling she will return your call when she returns to the office.
We consider our shareholders as true partners with us in the Fund.
GENERAL
Cornelia Morin, EII's Customer Service Officer, is available to answer questions
about the Fund or provide you with the Fund's current literature. Ms. Morin can
also be reached at (800) 277-5573. Ms. Morin maintains a mailing list of
shareholders and other interested parties for Fund mailings such as our
financial reports and special interim shareholder letters. If you are not on the
mailing list and would like to be included, please contact Ms. Morin.
E-MAIL
Electronic correspondence for the Adviser can now be sent to:
[email protected]
DISTRIBUTION SUMMARY
- --------------------------------------------------------------------------------
QUARTER PAYDATE INCOME ST GAINS LT GAINS REINVEST PRICE
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
3RD Quarter --
4TH Quarter 12/30/94 $ 0.050 -- -- $ 9.66
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1ST Quarter 03/24/95 0.045 -- -- 9.91
2ND Quarter 06/30/95 0.045 -- -- 10.55
3RD Quarter 09/25/95 0.040 -- -- 11.20
4TH Quarter 12/29/95 0.040 $ 0.160 $ 0.160 10.73
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1ST Quarter 03/15/96 0.050 -- -- 11.06
2ND Quarter 06/14/96 0.050 -- -- 11.90
3RD Quarter 09/13/96 0.060 -- -- 11.77
4TH Quarter 12/31/96 0.050 0.160 0.520 12.21
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
1ST Quarter 03/14/97 0.055 -- -- 12.64
2ND Quarter 06/13/97 0.055 -- -- 13.09
3RD Quarter 09/12/97 0.060 -- -- 14.68
4TH Quarter 12/31/97 0.020 0.760 1.110 13.00
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
1ST Quarter 03/14/98 0.050 -- -- 13.43
2ND Quarter 06/13/98 0.030 -- -- 12.93
3RD Quarter 09/21/98 0.040 -- 0.930 10.22
4TH Quarter 12/31/98 0.025 -- 0.175 10.88
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
1ST Quarter 03/31/99 0.045 -- -- 10.33
2ND Quarter 06/30/99 0.030 -- -- 11.51
3RD Quarter 09/30/99 0.030 -- -- 10.43
4TH Quarter 12/17/99 0.033 -- 0.500 9.63
- --------------------------------------------------------------------------------
13
<PAGE>
This report must be accompanied or preceded by a current Prospectus of the Fund.
Ebright Investments, Inc.
Investment Adviser
511 Congress Street, 9th Floor
Portland, ME 04101
(207) 774-7455 o (800) 277-5573
Fax (207) 772-7370
REvest
Value Fund
P.O. Box 5354
Cincinnati, OH 45201-5354
(877) 473-8378
A Series of The Winter Harbor Fund
