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LA CROSSE LARGE CAP STOCK FUND
------------------------------
ANNUAL REPORT
OCTOBER 31, 1999
Shares of the La Crosse Funds are distributed by an independent third party,
Sunstone Distribution Services, LLC.
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<PAGE>
LA CROSSE LARGE CAP STOCK FUND October 31, 1999
Dear Fellow Shareholders:
The La Crosse Large Cap Stock Fund (the "Fund") commenced operations after the
close of business on December 31, 1998, providing a first fiscal period of only
ten months. However, those ten months were alive with activity. The valuation-
based stocks that comprised the portfolio of the Fund surged early in the year,
only to be displaced by larger growth companies in recent months. As had
happened in 1998, only a small number of companies produced the bulk of returns
for the passively managed indices.
Throughout the period (January 1, 1999 to October 31, 1999) the large-cap
markets were very volatile, with the Fund and the market producing exceptional
returns early in the year only to have both retrace their steps in the latter
period. Thus, since its inception on January 1, 1999, the La Crosse Large Cap
Stock Fund returned 5.16%, while the S&P 500/R Index, led by the technology
sector, significant portions of which we believe to be overvalued, returned
12.03%. To put our results in perspective, two indices that more closely match
the scope and objective of the Fund, the Russell 1000 Value Index<F1> and the
Lipper Large-Cap Value Index, returned respectively only 7.67% and 7.10% during
the same time period.
This volatile year can be better understood by viewing it as composed of two
investment environments, delineated by the actions of the Federal Reserve. At
the end of its semi-annual reporting period of April 30, the Fund had produced a
since-inception return of 13.21%, which comfortably outpaced the S&P 500/R
Index's 9.05%, the Russell 1000 Value Index's 10.91%, and the Lipper Large-Cap
Value Index's 8.38% during the same period of time.
However, in the period that followed, May 1, 1999 to October 31, 1999, the Fund
underperformed all three of these indices. This was mainly due to our exposure
to such interest-rate-sensitive sectors as financials and industry cyclicals.
In this later period, the Fund returned -7.11% while the S&P 500/R Index
returned 2.74%, the Russell 1000 Value Index -2.91%, and the Lipper Large-Cap
Value Index -1.19%.
What caused this abrupt change? On June 30, the Federal Reserve made the first
of its moves to protect the system against its fear of inflation with a 1/4%
interest-rate hike. This move ignited the market's concern with the impact of
interest rates on the economy and in turn with the high-equity valuations with
which they had previously been comfortable. When the Federal Reserve followed
up their action with an additional 1/4% interest-rate hike on August 24, it
caused further uncertainty about the future of the current economic cycle.
Investors are concerned that these Federal Reserve actions will slow the
economy. They expressed their concern by reducing their valuations of companies
in the financial sector, because traditionally this sector has been dependent on
the interest-rate differential between what is paid to depositors and what those
same funds then command in the loan
<PAGE>
market. A higher interest rate from the Fed would thus squeeze margins. We, on
the other hand, believe banks have become less dependent on loan margins because
they continue to migrate to fee-based businesses. As a consequence, we see the
financial sector as unduly discounted and continue to maintain substantial
exposure to this sector because of the value it represents at these levels. In
addition, as the Y2K phenomenon runs its course, we expect there to be fewer
perceived barriers to investing in the financial sector.
Additionally, the cyclical sector came under pressure during this period of time
due to economic concerns of higher interest rates. We continue to remain
exposed to the cyclical sector, albeit with larger companies, because we believe
that as foreign economies continue to strengthen, the larger multi-national
companies with exceptional products will continue to benefit.
In recent months we have increased our exposure to some larger pharmaceutical
companies because their valuations have fallen substantially from their previous
highs. We believe that they have returned to levels such that their longer term
growth rates now justify their valuations. This is true of other larger cap
companies and we have increased the weighted average market capitalization of
the portfolio to in excess of $37 billion. This higher capitalization was
accomplished while maintaining a price-to-earnings ratio of approximately 24,
which is below the S&P 500/R Index (based on current-year estimated earnings as
reported by the IBES service).
We believe that if we continue to invest in quality companies at prices that are
at or below a fair value, we will produce benefits for our shareholders over the
long term. We thank you, our fellow shareholders, for your confidence and your
commitment to long- term investing.
Sincerely,
/s/Steven J. Hulme
Steven J. Hulme
President
<F1> The Russell 1000 Value Index is an unmanaged index of the 1,000 largest
companies in the Russell 3000 Index with lower forecasted growth values.
This Index is heavily weighted toward stocks with large market
capitalizations, with an average market capitalization of approximately
$12.1 billion.
<PAGE>
GROWTH OF A $10,000 INVESTMENT
La Crosse Large Lipper Large-Cap
Cap Stock Fund S&P 500 Index Value Index
---------------- ---------------- ----------------
1/1/99 10,368 10,000 10,000
4/30/99 11,321 10,905 10,838
7/31/99 11,023 10,887 10,807
10/31/99 10,516 11,203 10,710
The La Crosse Large Cap Stock Fund's total return since inception (1/1/99)
through September 30, 1999 was -0.41%.
This chart assumes an initial gross investment of $10,000 made on 1/1/99
(commencement of operations). Returns shown include the reinvestment of all
dividends. Past performance is not predictive of future results. Investment
return and principal value will fluctuate, so that your shares, when redeemed,
may be worth more or less than the original cost.
The S&P 500/R Index is an unmanaged index of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. The Index is heavily weighted
toward stocks with large market capitalizations and represents approximately
two-thirds of the total market value of all domestic common stocks.
The Lipper Large-Cap Value Index is an unmanaged index that focuses on stock
mutual funds investing primarily in companies with large market capitalizations
that are considered undervalued relative to major stock indices based on price-
to-current-earnings and price-to-book ratios.
LA CROSSE LARGE CAP STOCK FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
Number
of Shares Value
--------- ---------
COMMON STOCKS 92.7%
CONSUMER DURABLES 2.8%
20,000 Dana Corp. $591,250
20,500 Ford Motor Co. 1,124,937
32,500 Tommy Hilfiger Corp.<F1> 918,125
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2,634,312
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CONSUMER STAPLES 7.3%
45,000 Eastman Kodak Co. 3,102,188
25,000 Heinz (H.J.) Co. 1,193,750
40,125 Kimberly-Clark Corp. 2,532,891
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6,828,829
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ENERGY 1.3%
46,000 Transocean Offshore, Inc. 1,250,625
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FINANCIALS 21.3%
45,000 Allstate Corp. 1,293,750
22,000 Bank of America Corp. 1,416,250
39,000 Bank One Corp. 1,464,937
27,750 Chase Manhattan Corp. 2,424,656
72,600 Conseco, Inc. 1,765,087
29,000 First Union Corp. 1,237,937
56,851 Fleet Boston Corp. 2,480,133
24,000 Morgan Stanley Dean Witter & Co. 2,647,500
77,500 Travelers Property Casualty Corp. Cl. A 2,790,000
67,000 Washington Mutual, Inc. 2,407,813
-----------
19,928,063
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HEALTH 10.5%
20,000 American Home Products Corp. 1,045,000
35,000 Boston Scientific Corp.<F1> 704,375
26,000 Cardinal Health, Inc. 1,121,250
23,000 Merck & Co., Inc. 1,829,938
56,000 Tenet Healthcare Corp.<F1> 1,088,500
39,250 United HealthCare Corp. 2,028,734
25,000 Warner-Lambert Co. 1,995,313
-----------
9,813,110
-----------
INDUSTRY CYCLICALS 11.7%
52,000 AlliedSignal, Inc. 2,960,750
20,000 Caterpillar, Inc. 1,105,000
28,000 Deere & Co. 1,015,000
19,250 Johnson Controls, Inc. 1,169,438
22,750 Nucor Corp. 1,180,156
24,000 Parker-Hannifin Corp. 1,099,500
39,000 United Technologies Corp. 2,359,500
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10,889,344
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RETAIL 5.6%
26,000 Federated Department Stores, Inc.<F1> 1,109,875
34,000 Gap, Inc. 1,262,250
11,000 Home Depot, Inc. 830,500
71,000 Sears, Roebuck and Co. 2,001,313
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5,203,938
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<PAGE>
LA CROSSE LARGE CAP STOCK FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
Number
of Shares Value
--------- ---------
COMMON STOCKS (continued) 92.7%
SERVICES 8.9%
31,500 AT&T Corp. $1,472,625
42,000 Burlington Northern Santa Fe Corp. 1,338,750
62,000 Cendant Corp.<F1> 1,023,000
27,000 CSX Corp. 1,107,000
28,000 Delta Air Lines, Inc. 1,524,250
21,400 MCI WorldCom, Inc.<F1> 1,836,388
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8,302,013
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TECHNOLOGY 21.9%
21,750 Cisco Systems, Inc.<F1> 1,609,500
153,000 Compaq Computer Corp. 2,907,000
33,000 Computer Associates International, Inc. 1,864,500
62,000 Compuware Corp.<F1> 1,724,375
35,000 Dell Computer, Corp.<F1> 1,404,375
48,000 First Data Corp. 2,193,000
38,000 Gateway 2000, Inc.<F1> 2,510,375
29,000 Intel Corp. 2,245,687
29,000 Sun Microsystems, Inc.<F1> 3,068,563
35,000 Xerox Corp. 980,000
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20,507,375
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UTILITIES 1.4%
45,000 Edison International 1,333,125
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TOTAL COMMON STOCKS (COST $77,305,776) 86,690,734
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Principal
Amount
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SHORT-TERM INVESTMENTS 7.6%
(VARIABLE RATE)
$3,536,803 Federated United States
Treasury Cash Reserve Fund, 4.67% 3,536,803
3,513,057 Federated Government Obligations Fund, 5.22% 3,513,057
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7,049,860
TOTAL SHORT-TERM INVESTMENTS
(COST $7,049,860) 7,049,860
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TOTAL INVESTMENTS (COST $84,355,636) 100.3% 93,740,594
LIABILITIES LESS OTHER ASSETS (0.3%) (261,394)
-----------
NET ASSETS 100.0% $93,479,200
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<F1> Non-income producing
See notes to financial statements.
<PAGE>
LA CROSSE LARGE CAP STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
ASSETS:
Investments, at value (cost $84,355,636) $93,740,594
Interest and dividends receivable 116,994
Receivable for capital stock sold 581
Prepaid expenses and other assets 14,213
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Total Assets 93,872,382
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LIABILITIES:
Payable for capital stock redeemed 249,245
Accrued investment advisory fee 68,341
Accrued expenses and other liabilities 75,596
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Total Liabilities 393,182
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NET ASSETS $93,479,200
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NET ASSETS CONSIST OF:
Paid-in-capital $82,219,316
Undistributed net investment income 71,700
Accumulated undistributed net realized gain on investments 1,803,226
Net unrealized appreciation on investments 9,384,958
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NET ASSETS $93,479,200
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SHARES OUTSTANDING, $0.00001 par value,
(Unlimited shares authorized) 4,053,399
NET ASSET VALUE, REDEMPTION,
AND OFFERING PRICE PER SHARE (NET
ASSETS/SHARES OUTSTANDING) $23.06
===========
See notes to financial statements.
<PAGE>
LA CROSSE LARGE CAP STOCK FUND
STATEMENT OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1999<F1>
INVESTMENT INCOME:
Interest $129,138
Dividends 1,384,481
-----------
Total Investment Income 1,513,619
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EXPENSES:
Investment advisory fees 750,259
Fund administration and accounting fees 221,727
Federal and state registration fees 43,933
Transfer agent fees and expenses 24,890
Printing and postage expenses 20,102
Professional fees 15,202
Custody fees 10,084
Directors' fees and expenses 5,626
Miscellaneous 9,987
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Total Expenses 1,101,810
Less waiver of fees by adviser (101,464)
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Net Expenses 1,000,346
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NET INVESTMENT INCOME 513,273
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REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 1,803,226
Change in unrealized appreciation 3,859,404
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Net Gain on Investments 5,662,630
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NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,175,903
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<F1> Commenced operations after the close of business on December 31, 1998
See notes to financial statements.
<PAGE>
LA CROSSE LARGE CAP STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED OCTOBER 31, 1999<F1>
OPERATIONS:
Net investment income $513,273
Net realized gain on investments 1,803,226
Change in unrealized appreciation 3,859,404
------------
Net increase in net assets resulting from operations 6,175,903
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CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 26,541,549
Proceeds from shares sold during common and
collective trust fund conversions 109,864,251
Shares issued to shareholders in reinvestment of dividends 693
------------
136,406,493
Redemption of shares (48,756,928)
------------
Net increase from capital share transactions 87,649,565
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DIVIDENDS PAID FROM:
Net investment income (446,268)
------------
(446,268)
------------
TOTAL INCREASE IN NET ASSETS 93,379,200
NET ASSETS:
Beginning of period 100,000
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End of period (includes undistributed net
investment income of $71,700) $93,479,200
============
TRANSACTIONS IN SHARES:
Shares sold 1,128,782
Shares sold during common and collective
trust fund conversions 4,991,561
Issued in reinvestment of dividends 29
Shares redeemed (2,071,516)
------------
Net increase 4,048,856
============
<F1> Commenced operations after the close of business on December 31, 1998
See notes to financial statements.
<PAGE>
LA CROSSE LARGE CAP STOCK FUND
FINANCIAL HIGHLIGHTS
PERIOD ENDED OCTOBER 31, 1999<F3>
For a Fund Share Outstanding Throughout the Period.
NET ASSET VALUE, BEGINNING OF PERIOD $22.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.10
Net realized and unrealized gain on investments 1.04
------------
Total from Investment Operations 1.14
------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.09)
------------
Total Distributions (0.09)
------------
NET ASSET VALUE, END OF PERIOD $23.06
------------
TOTAL RETURN<F1> 5.16%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $93,479
Ratio of expenses to average net assets, net of
waivers <F2> 1.00%
Ratio of expenses to average net assets, before
waivers <F2> 1.10%
Ratio of net investment income to average net assets,
net of waivers <F2> 0.51%
Ratio of net investment income to average net assets,
before waivers <F2> 0.41%
Portfolio turnover rate <F1> 67%
<F1> Not annualized
<F2> Annualized
<F3>Commenced operations after the close of business on December 31, 1998
See notes to financial statements.
<PAGE>
LA CROSSE LARGE CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
1. Organization
------------
La Crosse Funds, Inc. (the "Corporation") was incorporated on September 4,
1998 as a Wisconsin corporation and is registered under the Investment
Company Act of 1940 (the "1940 Act") as an open-end management investment
company. The La Crosse Large Cap Stock Fund (the "Fund") commenced
operations after the close of business on December 31, 1998.
After the close of business on December 31, 1998, assets of the common and
collective trust funds of the North Central Trust Company Common Fund C
Equity and North Central Trust Company Growth Common Fund were transferred
to the La Crosse Large Cap Stock Fund under Section 584(h) of the Internal
Revenue Code. These transfers were treated as a tax-free event. To
qualify as a tax-exempt transaction, the securities were transferred at
market value with the original cost basis and purchase dates being retained
for book and tax purposes. Proceeds from common and collective trust fund
conversions, as shown on the Statement of Changes in Net Assets, represent
the market value of the common and collective trust funds at the date of
conversion. The net change in unrealized appreciation on investments on
the Statement of Operations does not reflect the $5,525,554 unrealized
appreciation for the Fund that existed at the date of common and collective
trust funds transfer.
2. Significant Accounting Policies
-------------------------------
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP"). The presentation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
LA CROSSE LARGE CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
(a) Investment Valuation - Common stocks and other equity-type securities
are valued at the last sales price on a national securities exchange
or Nasdaq on which such securities are primarily traded, however,
securities traded on a national securities exchange or Nasdaq for
which there were no transactions on a given day, and securities not
listed on a national securities exchange or Nasdaq, are valued at the
average of the most recent bid and asked prices. Any securities or
other assets for which market quotations are not readily available are
valued at fair value as determined in good faith by the Board of
Directors of the Fund or its delegate. The Board of Directors may
approve the use of pricing services to assist the Fund in the
determinations of net asset value. All money market instruments held
by the Fund are valued on an amortized cost basis.
(b) Federal Income Taxes - The Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a
regulated investment company and to make the requisite distributions
of income to its shareholders which will be sufficient to relieve it
from all or substantially all federal income taxes.
(c) Distributions to Shareholders - Dividends from net investment income,
if any, will be declared and paid quarterly. Distributions of net
realized gains, if any, will be declared at least annually.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund may periodically make reclassifications among certain of its
capital accounts as a result of the timing and characterization of
certain income and capital gains distributions determined in
accordance with federal tax regulations, which may differ from GAAP.
Accordingly, at October 31, 1999, reclassifications were recorded to
increase undistributed net investment income by $4,695 and decrease
paid-in-capital by $4,695.
(d) Other - Investment transactions are accounted for on a trade date
basis. The Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the security
lot sold with the net sale proceeds. Dividend income is recognized on
the ex-dividend date. Certain dividends from foreign securities will
be recorded as soon as the Fund is informed of the dividend if such
information is obtained subsequent to the ex-dividend date. Interest
income is recognized on an accrual basis.
<PAGE>
LA CROSSE LARGE CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
3. Investment Advisory Agreement
-----------------------------
The Fund has an agreement with La Crosse Advisers, L.L.C. (the "Adviser"),
with whom certain Officers and Directors of the Fund are affiliated, to
furnish investment advisory services to the Fund. Under the terms of this
agreement, the Adviser is compensated at the rate of 0.75% of the average
daily net assets of the Fund. The Adviser has agreed until December 31,
1999 that it will waive its fees and/or reimburse the Fund's operating
expenses to the extent necessary to ensure that the Fund's total operating
expenses (on an annual basis) do not exceed 1.00% of the Fund's average
daily net assets. The Adviser may recoup amounts waived or reimbursed for
up to three years from the date of such waiver or reimbursement. For the
period ended October 31, 1999, the Adviser waived $101,464 in fees.
4. Investment Transactions
-----------------------
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the period ended October 31, 1999 were
$145,764,616 and $70,262,067, respectively. There were no purchases or
sales of long-term U.S. government securities.
The cost of securities for federal income tax purposes for the Fund is
$84,355,636. At October 31, 1999, gross unrealized appreciation and
depreciation on investments for federal income tax purposes were as
follows:
Unrealized appreciation $16,185,745
(Unrealized depreciation) (6,800,787)
-------------
Net unrealized appreciation on investments $9,384,958
=============
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of LaCrosse Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of LaCrosse
Funds, Inc. (the "Company", a Wisconsin corporation, which includes LaCrosse
Large Cap Stock Fund), including the schedule of investments, as of October 31,
1999, and the related statements of operations, changes in net assets, and the
financial highlights for the period from inception, which commenced after the
close of business on December 31, 1998 to October 31, 1999. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based upon 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 securities owned as of October 31, 1999, by
correspondence with the custodians 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
LaCrosse Funds, Inc. as of October 31, 1999, and the results of its operations,
changes in net assets, and the financial highlights for the period from
inception to October 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
November 19, 1999
<PAGE>
DIRECTORS Steven J. Hulme
Darwin F. Isaacson
Ralph A. La Point
Joseph T. Kastantin
OFFICERS Steven J. Hulme
Darwin F. Isaacson
INVESTMENT ADVISER LA CROSSE ADVISERS, L.L.C.
311 Main Street
La Crosse, WI 54601
ADMINISTRATOR AND SUNSTONE FINANCIAL GROUP, INC.
FUND ACCOUNTANT 207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
CUSTODIAN NORTH CENTRAL TRUST COMPANY
311 Main Street
La Crosse, WI 54601
INDEPENDENT ACCOUNTANTS ARTHUR ANDERSEN LLP
100 East Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL GODFREY & KAHN, S.C.
780 North Water Street
Milwaukee, WI 53202
DISTRIBUTOR SUNSTONE DISTRIBUTION SERVICES, LLC
207 East Buffalo Street, Suite 315
Milwaukee, WI 53202
DIVIDEND-DISBURSING SUNSTONE FINANCIAL GROUP, INC.
AND TRANSFER AGENT c/o La Crosse Funds, Inc.
207 East Buffalo Street, Suite 315
Milwaukee, WI 53202
PLEASE MAIL CORRESPONDENCE TO:
La Crosse Funds
P.O. Box 717
Milwaukee, WI 53201-0717
1-888-661-7600
This report is submitted for the general information of shareholders of the La
Crosse Large Cap Stock Fund. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective Prospectus
for the Fund. The Prospectus provides more complete information, including fees
and expenses, the investment objective, risks and operating policies of the
Fund. Read the Prospectus carefully.
