ADVISOR'S FUND
ANNUAL REPORT
JULY 31, 1999
INVESTEMENT ADVISOR TO
THE ADVISOR'S FUND
THE PRIVATE
CONSULTING GROUP
[LOGO]
o PCG GROWTH SERIES
o SIM CONSERVATIVE
GROWTH SERIES
[THE SECURITY BENEFIT GROUP OF COMPANIES LOGO]
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PCG GROWTH SERIES
SEPTEMBER 15, 1999
[Picture of Todd Billings]
TODD BILLINGS
PORTFOLIO MANAGER
During the last half of the fiscal year for the PCG Growth Series performance
was like the overall market, choppy. The portfolio was down 1.3% over the period
of April 15, 1999 to July 31, 1999.1 As a proxy, the S&P 500 index rose 0.80%
and the return for the broader Wilshire 5000 was 1.1%, over the same time
period. We believe we will be able to achieve success over the long-term by
adhering to our discipline of owning businesses that we feel are trading below
their respective intrinsic value, and not worrying about day to day fluctuations
in market quotations.
Several of our companies have enjoyed a very successful 1999 thus far for a
variety of reasons. For example, a purchase that we made in April, Honeywell,
Inc., has risen over 25% since our purchase. Honeywell is a maker of high-tech
control systems for airplanes and homes, and agreed to merge with AlliedSignal,
thus propelling the stock price to new highs. This is a move we applaud and will
likely keep them in our portfolios for some time to come. One of our new
positions that we also added in April, American Power Conversion Corporation
gained 38% for the 3 1/2 months. The stock price had been driven down to levels
that we thought were very attractive and which did not represent full value for
the company.
Another stock that has worked very well is Tellabs, Inc. The company's equipment
is used around the world to transmit data, video, and voice signals. Its TITAN
digital cross-connect system helps connect incoming and outgoing lines. Tellabs
products will be very vital to the further expansion of the internet.
With such a strong run in stock prices over the last couple of years, it has
become increasingly difficult to find companies that meet our criteria of buying
excellent companies at fair prices. Thus we have allowed our cash position to
build in recent months. Recently we established a position with some of our cash
reserves in 10-year Zero Coupon Treasury Bonds. The second quarter saw a
continued spike in interest rates as investors fretted that the Federal Reserve
Board would raise short-term rates due to inflation concerns. We feel that at
these yield levels (The 30-year Treasury has seen its yield rise from 4.7% to
over 6.0% since the beginning of the year) bonds offer an excellent value. This
is based on the probability that we will see a slowing in the rate of GDP growth
and continued low inflation.
1
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A few of our holdings have not enjoyed as positive of results. Two of our core
holdings, Berkshire Hathaway, Inc., and Costco Companies, Inc., have pulled back
between 5-10% from where we purchased them, but we believe their economic
prospects remain the same, if not better, than when we established our position.
We do not focus on the market as a whole. Instead we look at each individual
business on its own merit. We view ourselves and our clients as owners of pieces
of these businesses, and we should benefit from their long-term performance. We
are true believers that the price of a business will move in lock step with
earnings performance over a long period of time. In shorter periods the stock
market acts as a voting machine, which will move the price of stock prices above
or below its business value, dependent more on emotion than economics. Patience
and discipline are the most important attributes in our opinion to successful
investing.
We move into the second half of 1999 with great confidence in our strategy, and
excitement for what the future will bring. We will continue to work hard to
deliver superior investment results. We thank you for your support.
Todd Billings
Portfolio Manager
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of Advisor's Fund are available only
through the purchase of such products.
2
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PCG GROWTH SERIES
SEPTEMBER 15, 1999
AVERAGE ANNUAL TOTAL RETURN
AS OF JULY 31, 1999
SINCE INCEPTION
---------------
PCG Growth Series -1.30% (4-15-99)
Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of Advisor's Fund are available only
through the purchase of such products. Fee waivers reduced expenses of the
Series and in the absence of such waivers, the performance quoted would be
reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
3
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SIM CONSERVATIVE GROWTH SERIES
SEPTEMBER 15, 1999
[Picture of Gary Miller]
GARY MILLER
CHIEF INVESTMENT OFFICER
The SIM Conservative Growth Series performed well during the April 15 (the
Fund's inception date) through July 31, 1999 period, which was a difficult one
for the world's financial markets. The modest 1.2% gain for the portfolio
exceeded the total return of both the S&P 500 index of large company U.S. stocks
and the Lehman Aggregate Bond Index, which saddled bond investors with a
negative return.(1)
THE ECONOMY
The U.S. economy slowed somewhat in the second quarter, growing at a 1.8% annual
rate, as measured by the GDP, after showing growth of 4.3% in the first quarter.
Most economists expect the economy to grow at an annual rate of 3% or more
through at least the end of the year 2000. Much of the continued strength comes
from the consumer sector where increases in real income and capital gains in
both the stock and real estate markets have led to increased household spending.
In addition, there has been some evidence of increased capital spending as
companies bring forward expenditures due to Year 2000 compliance issues. With
this strength in the domestic economy as a backdrop, the Federal Reserve Board
voted to increase the federal funds rate to 5% on the last day of June in an
effort to preempt any increase in inflation. After the recent increase, the
Federal Open Market Committee (FOMC) indicated that it was taking a "neutral"
bias toward further increases (although it raised short-term interest rates
again in August).
On the inflation front, the rate of increase in the Consumer Price Index (CPI)
remains very tame. For all of 1999, the consensus estimates call for a 2.1%
rate, up from 1.6% for all of 1998. The preliminary estimates for 2000 are for
inflation to remain flat at 2.1%.
Internationally, there are signs that foreign economies are showing signs of
recovery, especially in the Far East. European growth remains steady, but the
economies of South America remain very weak.
EQUITY MARKETS
International markets outperformed U.S. stocks during the period, although
European stocks actually fell slightly. Japanese stocks were the big winners of
all of the world's developed markets, rising 8% in yen terms, but more
importantly to U.S. investors, rising 11% in dollar terms. Emerging markets
stocks also returned in the low double-digits. Small U.S. stocks returned over
5%, as measured by the Russell 2000, and outperformed large U.S. stocks for the
first time in years.
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The SIM Conservative Growth portfolio's initial allocation was very
conservative, as we believed that many of the world's equity markets were fully
or over-valued. We held a minimum equity allocation of 30%, broken down into 15%
large company U.S. stock funds, 5% small company U.S. stock funds, and 10% in
diversified international stock funds. In early June we took advantage of lower
stock prices, particularly in Japan, and increased our equity allocation to 45%,
including 10% in the T. Rowe Price Japan fund. From our purchase date through
July 31, the fund returned 24%. In early July, we reduced our equity exposure to
35% by selling nearly half of the Japanese stock fund and 5% of a U.S. equity
fund. The reduction in our Japanese stock allocation modestly hurt performance
during the quarter as Japanese stocks continued to rally, but we believe the
risk of a market decline in Japan is increasing and our extreme overweight
position in Japan is no longer warranted.
FIXED INCOME
On the fixed income side, interest rates rose throughout the period as investors
worried that the Federal Reserve Board would raise short-term rates due to
inflation concerns, which it did on the last day of June. Long-term Government
bond yields rose from 5.7% to 6.2%, causing losses in intermediate and
longer-term bonds. We began the period concerned that interest rates might rise
and so only 25% of the portfolio was initially allocated to a fixed income fund
that invests in intermediate and long-term bonds. Forty-five percent was
invested in short-term bond funds and cash equivalents. However, once long-bond
yields rose noticeably above 6% in early July, we increased our exposure to
intermediate and long-term bond funds to 35%.
FUTURE PROSPECTS
We continue to believe that stock markets around the world are too expensive. We
are also concerned that investor nervousness about Y2k problems may cause
markets to decline between now and year-end even if every computer works
perfectly on January 1. We therefore plan to remain cautiously invested
throughout the remainder of 1999 unless markets decline to levels we believe are
better values. We also believe that bond yields above 6% are attractive even
with Federal Reserve Board tightening. We therefore plan to keep an above
average allocation to bonds, unless yields fall to less attractive levels or
stock markets decline to where we believe stocks would have better return to
risk characteristics going forward than bonds.
Gary Miller
Chief Investment Officer
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of AdvisorOs Fund are available only
through the purchase of such products.
5
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SIM CONSERVATIVE GROWTH SERIES
SEPTEMBER 15, 1999
AVERAGE ANNUAL TOTAL RETURN
AS OF JULY 31, 1999
SINCE INCEPTION
---------------
SIM Conservative Growth Series 1.20% (4-15-99)
Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of Advisor's Fund are available only
through the purchase of such products. Fee waivers reduced expenses of the
Series and in the absence of such waivers, the performance quoted would be
reduced.
The performance data quoted above represents past performance. Past performance
is not predictive of future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
6
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SCHEDULE OF INVESTMENTS
JULY 31, 1999
PCG GROWTH SERIES
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
BANKS - MAJOR REGIONAL - 6.9%
KeyCorp ........................................ 1,200 $ 37,800
U.S. Bancorp ................................... 2,500 77,812
--------
115,612
COMMUNICATION EQUIPMENT - 2.6%
Tellabs, Inc.* ................................. 700 43,094
COMPUTER SOFTWARE/SERVICES - 1.6%
PeopleSoft, Inc.* .............................. 2,000 27,250
ELECTRICAL EQUIPMENT - 7.2%
Black Box Corporation* ......................... 500 25,375
Honeywell, Inc. ................................ 800 95,850
--------
121,225
FINANCIAL - DIVERSE - 19.3%
American Express Company ....................... 700 92,225
Berkshire Hathaway, Inc.* ...................... 1 67,805
Fannie Mae ..................................... 1,200 82,800
Freddie Mac .................................... 1,400 80,325
--------
323,155
HEALTH CARE - DIVERSE - 8.4%
Abbott Laboratories ............................ 1,800 77,287
Johnson & Johnson .............................. 700 64,488
--------
141,775
MACHINERY - DIVERSE - 1.7%
AGCO Corporation ............................... 3,000 28,125
PHARMACEUTICALS - 7.3%
Merck & Company, Inc. .......................... 1,200 81,225
Pfizer, Inc. ................................... 1,200 40,725
--------
121,950
PHOTOGRAPHY/IMAGING - 4.0%
Analytical Surveys, Inc.* ...................... 2,700 67,500
SEE ACCOMPANYING NOTES.
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SCHEDULE OF INVESTMENTS (continued)
JULY 31, 1999
PRINCIPAL AMOUNT MARKET
COMMON STOCKS (continued) OR NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------
RETAIL - GENERAL MERCHANDISE - 4.9%
Costco Companies, Inc.* ..................... 1,100 $ 82,225
SERVICES - ADVERTISING/MARKETING - 4.6%
Omnicom Group, Inc. ......................... 1,100 77,963
SERVICES - COMMERCIAL & CONSUMER - 6.7%
Labor Ready, Inc.* .......................... 3,450 59,297
Robert Half International, Inc.* ............ 2,000 52,874
-----------
112,171
SERVICES - COMPUTER SYSTEMS - 2.5%
American Power Conversion Corporation* ...... 2,000 41,500
TELECOMMUNICATION- LONG DISTANCE - 4.5%
ECI Telecom, Ltd. ........................... 2,200 74,662
-----------
Total common stocks - 82.2% ................. 1,378,207
GOVERNMENT SECURITIES
U.S. GOVERNMENT SECURITIES- 18.4%
U.S. Treasury Bill,
4.34% - 8-19-99 .......................... $ 30,000 29,937
U.S. Treasury Strip,
0.0% - 11-15-99 .......................... $ 153,000 150,838
0.0% - 2-15-09 ........................... $ 230,000 127,422
-----------
278,260
-----------
Total government securities - 18.4% ......... 308,197
-----------
Total investments - 100.6% .................. 1,686,404
Liabilities, less cash and
other assets - (0.6%) .................... (9,922)
-----------
Total net assets - 100.0% ................... $ 1,676,482
===========
SEE ACCOMPANYING NOTES.
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SCHEDULE OF INVESTMENTS
JULY 31, 1999
SIM CONSERVATIVE GROWTH SERIES
NUMBER MARKET
MUTUAL FUNDS OF SHARES VALUE
- -----------------------------------------------------------------------------
Alleghany/Montag & Caldwell Growth Fund ......... 562 $ 17,933
Dodge & Cox Income Fund ......................... 11,653 135,985
Nations International Value Fund ................ 1,621 26,672
Oppenheimer Main Street
Growth and Income Fund .................. 840 36,290
PIMCO Low Duration Fund ......................... 10,002 99,219
T. Rowe Price Equity-Income Fund ................ 654 18,604
T. Rowe Price Japan Fund* ....................... 2,185 25,569
T. Rowe Price Small Capitalization
Stock Fund .............................. 650 14,132
--------
Total investments - 98.6% ....................... 374,404
Cash and other assets, less liabilities - 1.4% .. 5,276
--------
Total net assets - 100.0% ....................... $379,680
========
The identified cost of investments owned at July 31, 1999, was the same for
federal income tax and financial statement purposes.
* Non-income producing security.
SEE ACCOMPANYING NOTES.
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STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1999
PCG SIM
GROWTH CONSERVATIVE
SERIES GROWTH SERIES
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (identified cost:
$1,723,612 and $372,640, respectively) ..... $ 1,686,404 $ 374,404
Cash .......................................... 47,057 5,767
Receivables:
Interest ................................... 87 18
Dividends .................................. 788 400
Private Consulting Group, Inc. ............. 696 2,025
Prepaid expenses .............................. 249 250
----------- -----------
Total assets ............................ 1,735,281 382,864
----------- -----------
LIABILITIES
Payable for:
Securities purchased ....................... $ 52,995 $ --
Fund shares redeemed ....................... 30 7
Other liabilities:
Management fees ............................ 1,077 233
Custodian fees ............................. 965 244
Transfer and administration fees ........... 1,316 1,266
Professional fees .......................... 1,129 1,129
Miscellaneous .............................. 1,287 305
----------- -----------
Total liabilities ....................... 58,799 3,184
----------- -----------
NET ASSETS .................................... $ 1,676,482 $ 379,680
=========== ===========
NET ASSETS CONSIST OF:
Paid in capital ............................... $ 1,717,189 $ 373,099
Undistributed net investment income ........... -- 1,294
Accumulated undistributed net realized
gain (loss) on sale of investments ......... (3,499) 3,523
Net unrealized appreciation (depreciation)
in value of investments .................... (37,208) 1,764
----------- -----------
Total net assets ........................ $ 1,676,482 $ 379,680
=========== ===========
Capital shares outstanding .................... 169,927 37,534
Net asset value per share ..................... $ 9.87 $ 10.12
=========== ===========
SEE ACCOMPANYING NOTES.
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STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED JULY 31, 1999
PCG SIM
GROWTH CONSERVATIVE
SERIES* GROWTH SERIES*
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ................................. $ 2,419 $ 3,205
Interest .................................. 6,266 368
-------- --------
Total investment income ...... 8,685 3,573
EXPENSES:
Management fees ........................... 3,015 684
Custodian fees ............................ 1,465 344
Transfer/maintenance fees ................. 5 3
Administration fees ....................... 4,474 4,334
Directors' fees ........................... 45 45
Professional fees ......................... 1,129 1,129
Reports to shareholders ................... 70 70
Registration fees ......................... 41 41
Service plan fees ......................... 2,010 456
Other expenses ............................ 36 35
-------- --------
Total expenses ......................... 12,290 7,141
Less reimbursement of expenses ............ (2,238) (4,862)
-------- --------
Net expenses .............................. 10,052 2,279
-------- --------
Net investment income (loss) ........... (1,367) 1,294
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from investment
transactions .............................. (3,499) 3,302
Capital gain distributions from other
investment companies ...................... -- 221
-------- --------
Net realized gain (loss) ............... (3,499) 3,523
Net change in unrealized appreciation
(depreciation) during the period on
investments ............................... (37,208) 1,764
-------- --------
Net realized and unrealized
gain (loss) ......................... (40,707) 5,287
-------- --------
Net increase (decrease) in net assets
resulting from operations ........ ($42,074) $ 6,581
======== ========
* Period April 15, 1999 (inception) through July 31, 1999.
SEE ACCOMPANYING NOTES.
11
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STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED JULY 31, 1999
PCG SIM
GROWTH CONSERVATIVE
SERIES* GROWTH SERIES*
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) .............. $ (1,367) $ 1,294
Net realized gain (loss) from
investment transactions ................ (3,499) 3,302
Capital gain distributions from other
investment companies ................... -- 221
Net change in unrealized appreciation
(depreciation) during the period
on investments ......................... (37,208) 1,764
----------- -----------
Net increase (decrease) in net assets
resulting from operations ........... (42,074) 6,581
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ..................... -- --
Net realized gains ........................ -- --
----------- -----------
Total distributions to shareholders .... -- --
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS ........................ 1,718,556 373,099
----------- -----------
Total increase in net assets ........... 1,676,482 379,680
NET ASSETS:
Beginning of period ....................... -- --
----------- -----------
End of period ............................. $ 1,676,482 $ 379,680
=========== ===========
Undistributed net investment income
at end of period ....................... $ -- $ 1,294
=========== ===========
* Period April 15, 1999 (inception) through July 31, 1999.
SEE ACCOMPANYING NOTES.
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FINANCIAL HIGHLIGHTS
JULY 31, 1999
FISCAL PERIOD
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK ENDED JULY 31
OUTSTANDING THROUGHOUT EACH PERIOD. 1999(B)(C)(D)
-------------
PCG GROWTH SERIES
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .................... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................................. (0.01)
Net Gain (Loss) on Investments
(Realized and Unrealized) ........................... (0.12)
---------
Total from Investment Operations ....................... (0.13)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ................. --
Distributions (from Capital Gains) ..................... --
---------
Total Distributions ................................. --
---------
NET ASSET VALUE END OF PERIOD .......................... $ 9.87
=========
TOTAL RETURN (A) ....................................... (1.30%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................... $ 1,676
Ratio of Expenses to Average Net Assets ................ 2.50%
Ratio of Net Income (Loss) to Average
Net Assets .......................................... (0.34%)
Portfolio Turnover Rate ................................ 26%
13
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FINANCIAL HIGHLIGHTS
JULY 31, 1999
FISCAL PERIOD
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK ENDED JULY 31
OUTSTANDING THROUGHOUT EACH PERIOD. 1999(B)(C)(D)
-------------
SIM CONSERVATIVE GROWTH SERIES
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .......................... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................................ 0.04
Net Gain (Loss) on Investments (Realized and Unrealized) ..... 0.08
-------
Total from Investment Operations ............................. 0.12
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ....................... --
Distributions (from Capital Gains) ........................... --
-------
Total Distributions ...................................... --
-------
NET ASSET VALUE END OF PERIOD ................................ $ 10.12
=======
TOTAL RETURN (A) ............................................. 1.20%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ......................... $ 380
Ratio of Expenses to Average Net Assets ...................... 2.50%
Ratio of Net Income (Loss) to Average Net Assets ............. 1.42%
Portfolio Turnover Rate ...................................... 44%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security Benefit
Life Insurance Company. Shares of a series of Advisor's Fund are available only
through the purchase of such products.
(b) PCG Growth Series and SIM Conservative Growth Series were initially
offered on April 15, 1999, with net asset values of $10.00 per share. Percentage
amounts for the period have been annualized, except for total return.
(c) Fund expenses for PCG Growth Series and SIM Conservative Growth Series
were reduced by The Private Consulting Group, Inc., the Investment Manager,
during the period. Expense ratios absent such reimbursement would have been as
follows:
1999
----
PCG Growth Series ............................. 3.06%
SIM Conservative Growth Series ................ 7.83%
(d) Net investment income per share has been calculated using the weighted
monthly average number of capital shares outstanding.
14
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NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company of the series
type. The Fund offers four Series: PCG Growth Series, PCG Aggressive Growth
Series, SIM Growth Series and the SIM Conservative Growth Series. Each series,
in effect, represents a separate fund. The Fund is required to account for the
assets of each series separately and to allocate general liabilities of the Fund
to each series based on the net asset value of each series. As of July 31, 1999,
PCG Growth and SIM Conservative Growth Series are the only Series which have
commenced operations. Shares of the Fund will be sold only to separate accounts
of Security Benefit Life Insurance. 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. SECURITIES VALUATION - Valuations of the Fund's securities are supplied
by pricing services approved by the Board of Directors. Securities listed or
traded on a recognized securities exchange are valued on the basis of the last
sales price. If there are no sales on a particular day, then the securities are
valued at the last bid price. If a security is traded on multiple exchanges, its
value will be based on the price from the principal exchange where it is traded.
All other securities for which market quotations are available are valued on the
basis of the current bid price. If there is no bid price or if the bid price is
deemed to be unsatisfactory by the Board of Directors or by the Fund's
investment manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair value. The Fund
generally will value short-term debt securities at prices based on market
quotations for such securities or securities of similar type, yield, quality and
duration, except those securities purchased with 60 days or less to maturity are
valued on the basis of amortized cost which approximates market value. Shares of
open-end, management investment companies (mutual funds) in which the Series
invest are valued at their respective net asset values. Such mutual funds value
securities in their portfolios for which market quotations are readily available
at their current market value (generally the last reported sale price) and all
other securities and assets at a fair value pursuant to methods established in
good faith by the Board of Trustees or Board of Directors of the underlying
mutual fund. Money market funds in which the Series also invest generally value
securities in their portfolios on an amortized cost basis, which approximates
market.
15
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NOTES TO FINANCIAL STATEMENTS (continued)
JULY 31, 1999
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the trade date. Realized gains and losses are reported on the
identified cost basis. Distributions of short-term and long-term capital gains
made by mutual funds in which a Series invests are recorded as realized gains.
For tax purposes, the short-term portion of such distributions is treated as
dividend income. Dividend income is recorded on the ex-dividend date. Interest
income is recognized on the accrual basis. Premium and discounts on debt
securities are not amortized.
C. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
D. TAXES - The Fund complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and intends to distribute all
of its taxable net income and realized gains sufficient to relieve it from all,
or substantially all, federal income, excise and state income taxes. Therefore,
no provision for federal or state income tax is required.
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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to The Private Consulting Group, Inc. (PCG),
the Investment Manager, under an investment advisory contract at an annual rate
of .75% of the average daily net assets of each Series, computed on a daily
basis.
In addition, PCG may receive payments (up to a maximum of 1 percent of the
public offering price) on purchases by the Series of shares issued by mutual
funds which have a distribution and/or service plan.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
JULY 31, 1999
The Fund has adopted a Services Plan and related agreement for each Series
of the Fund. The plan provides for each Series to pay an amount not to exceed,
on an annual basis, .50% of the average daily net asset value of the shares of
each Series of the Fund attributable to variable insurance contracts, or with
respect to shares held by certain qualified retirement plans for which an
authorized firm provides services.
For the period ended July 31, 1999, PCG agreed to limit the total expenses
of PCG Growth Series and SIM Conservative Growth Series to an annual rate of
2.5% of the average daily net asset value of each respective Series.
For the period ended July 31, 1999, PCG also received $3,074 of brokerage
commissions for the execution of purchases and sales of portfolio securities on
behalf of the Series.
The Fund has entered into contracts with Security Management Company, LLC
(SMC) for transfer agent services and certain other administrative services
which SMC provides to the Fund. As the transfer agent SMC is paid an annual
fixed charge per account and shareholder and dividend transaction fees.
As the administrative agent for the Fund, SMC performs administrative
functions, such as regulatory filings, bookkeeping, accounting and pricing
functions for the Fund. For this service SMC receives, an annual accounting fee
of the greater of $15,000 or 0.03% of the average daily net asset value of the
Series and an annual administration fee of 0.045% of the daily net asset value
of the Series calculated daily and payable monthly.
Certain officers and directors of the Fund are also officers and/or
directors of SMC.
3. UNREALIZED APPRECIATION/(DEPRECIATION)
The gross amounts of unrealized appreciation (depreciation), for federal
income tax purposes, as of July 31, 1999, were as follows:
PCG SIM
GROWTH CONSERVATIVE
SERIES GROWTH SERIES
------------------------------------------------------------------------
Gross unrealized appreciation ............ $ 46,402 $ 7,894
Gross unrealized depreciation ............ (83,610) (6,130)
-------- --------
Net unrealized appreciation/(depreciation) ($37,208) $ 1,764
======== ========
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
JULY 31, 1999
4. INVESTMENT TRANSACTIONS
Investment transactions for the period ended July 31, 1999, (excluding
overnight investments and short-term debt securities) were as follows:
PCG SIM
GROWTH CONSERVATIVE
SERIES GROWTH SERIES
------------------------------------------------------------------------
Purchases ............................ $1,627,049 $ 407,526
Proceeds from sales .................. 682,901 38,188
5. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue unlimited number of shares in an unlimited
number of classes. Transactions in the capital shares of the Fund were as
follows:
PCG GROWTH SERIES
APRIL 15, 1999* TO
JULY 31, 1999
-----------------------
Shares Dollars
-----------------------
Shares sold ..... 214,470 $ 2,182,407
Shares reinvested -- --
Shares redeemed . (44,543) (463,851)
-----------------------
Net increase .... 169,927 $ 1,718,556
=======================
SIM CONSERVATIVE GROWTH SERIES
APRIL 15, 1999* TO
JULY 31, 1999
-----------------------
Shares Dollars
-----------------------
Shares sold ..... 52,045 $ 520,974
Shares reinvested -- --
Shares redeemed . (14,511) (147,875)
-----------------------
Net increase .... 37,534 $ 373,099
=======================
*Date of inception
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
JULY 31, 1999
6. FEDERAL TAX STATUS OF DIVIDENDS
The income dividends paid by each Series are taxable as ordinary income on
the shareholders' tax return. The portion of ordinary income of dividends
(including net short-term capital gains) attributed to the period ended July 31,
1999, that qualified for the dividends received deduction for corporate
shareholders in accordance with the provisions of the Internal Revenue Code for
each Series was: PCG Growth Series, 0%; and SIM Conservative Growth Series, 67%.
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE CONTRACT OWNERS AND
BOARD OF DIRECTORS OF ADVISOR'S FUND
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Advisor's Fund (comprised of PCG Growth Series
and SIM Conservative Growth Series) (the Fund) as of July 31, 1999, and the
related statements of operations, changes in net assets and the financial
highlights for the period from April 15, 1999 (inception) through July 31, 1999.
These financial statements and the 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 audits 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 the 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 and financial highlights. Our procedures included confirmation of
investments owned as July 31, 1999, by correspondence with the custodian and
brokers. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all materials respects, the financial position of each
of the respective series constituting the Advisor's Fund at July 31, 1999, and
the results of their operations, changes in their net assets and the financial
highlights for the period from April 15, 1999 through July 31, 1999, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
August 27, 1999
20
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21
<PAGE>
ADVISOR'S FUND OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
James R. Schmank
OFFICERS
John D. Cleland, President
James R. Schmank, Vice President
Richard K Ryan, Vice President
Amy J. Lee, Secretary
Brenda M. Harwood, Treasurer
Christopher D. Swickard, Assistant Secretary
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
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