VALENZUELA CAPITAL TRUST
ANNUAL REPORT
FOR THE PERIOD ENDING
SEPTEMBER 30, 2000
VAL CAP MID CAP FUND
VAL CAP SMALL CAP FUND
<PAGE>
VALENZUELA CAPITAL TRUST
VAL CAP FUNDS FOR INVESTORS
ANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2000
CHAIRMAN'S LETTER
The Val Cap Funds have had a particularly good experience during the past year.
Both the Val Cap Mid Cap Fund and the Val Cap Small Cap Fund performed very
strongly against their relevant indices. I thank all of the stakeholders in our
new family of funds who contributed to our successful launch.
While we hope that this new fiscal year will be as successful as last year, we
are sanguine that the environment in which we will be investing will be more
difficult. As the year 2000 comes to an end, the economy has shifted into a
slower growth mode than we experienced during the first half of the year in
which the economy exhibited unusual robust growth. Not surprisingly, the Federal
Reserve continued raising interest rates in an effort to decelerate economic
growth, and by the third quarter, the medicine began to be effective. As a
result, investor concern has shifted to the risks associated with economic
deceleration. Added to that were genuine concerns about the impact that higher
energy prices would have on the running bull market. On one hand, rising energy
prices act as a "tax" on consumers and businesses, with oil producers the
beneficiary. On the other hand, energy is a primary commodity, and sharp
increases in price of energy inputs result in higher overall prices in time. The
combination of a "tax increase" and new inflationary pressures does not bode
well for equities. Adding to uncertainty in the economy, the declining Euro has
been a depressant on U.S. capital markets from sensitivity to corporate earnings
that come from overseas.
Through the third quarter of 2000, corporate profits continued to be strong, and
productivity gains continued to drive the economy higher despite labor shortages
and higher real wages. However, as the fourth quarter is unfolding, we are
seeing demonstrable evidence of slowing growth. The unanswered question is
whether growth will simply decelerate into a soft landing or whether the economy
will experience a hard and unpleasant downturn. While we expect the former, we
are also prepared for the latter. Based on our value style, Valenzuela Capital
is well positioned to weather market squalls and perform well into the future.
Thomas M. Valenzuela
Chairman
<PAGE>
PORTFOLIO COMMENTARY
Val Cap Mid Cap Fund
The Fund has had exceptionally strong performance in its first year, returning
54.6% as compared to 13.0% for the Russell Midcap Value Index, its style
benchmark. The Standard & Poor's 500 Index, representing the overall U.S. equity
markets, returned 13.3% for the same period. The Fund's performance was
increased by its investments in IPOs (initial public offerings), which have a
magnified investment performance effect during the periods when the Fund has a
small asset base. Even without including the returns attributable to IPOs, the
Fund's return was approximately 38%, still outperforming the Fund's benchmark.
We are pleased that the Fund was able to participate in these offerings, but as
the Fund grows, the impact of investments in IPOs on the Fund's performance will
most likely lessen.
Stock selection in the Fund was very good, especially in Health Care and
Financials. During the second half, we increased exposure to the Health Care
sector as we have concluded that many of last year's fundamental and legislative
problems have receded. Federal legislation in 2000 is increasing Medicare
reimbursements to hospitals, reversing last year's trend. The investments in
LifePoint Hospitals and Universal Health Services were the top two contributors
to the Fund's performance. Increased focus was also placed on the Financial
Services sector. We largely avoided conventional banks because of slowing loan
growth and eroding credit quality. Our stock selection has concentrated on
insurance companies, savings and loans and asset management companies, none of
which have credit quality issues as worrying as banks. Winners in this group
include ACE Limited, Everest Re Group, Hartford Financial Services, and Waddell
& Reed Financial. The top investment pick in the Financial Services sector was
U.S. Trust Corporation, which was acquired by Charles Schwab earlier in the
year.
Technology was the top performing sector in the Russell Midcap Value Index. The
Fund also had strong returns in Technology, despite the fact that some of the
investment positions were affected by the uncertainty in the industry. Some
companies announced profit warnings or cautioned about slowing sales, while
others reported that business is still rosy. Tech is different, and the sector
remains very volatile. However, the recent market corrections are creating
opportunities for investments in this area, and we continue to look at those
tech stocks that are selling at reasonable valuations with sound business
prospects longer term. Without compromising our value-oriented investment
philosophy, we are ensuring that the Fund's portfolio has appropriate exposure
to this increasingly vital component of the U.S. economic infrastructure.
We trust that our disciplined investment process will continue to reward the
Fund's shareholders.
Thomas M. Valenzuela
Portfolio Manager
<PAGE>
VAL CAP MID CAP FUND
Comparison of the Change in Value of a $10,000 Investment in the
Val Cap Mid Cap Fund and the Russell Midcap Value Index
[GRAPHIC OMITTED]
Valenzuela Mid Russell Midcap
Cap Fund Value Index
-------- -----------
10/31/99 $10,000 $10,295
11/30/99 $10,230 $10,107
12/31/99 $10,730 $10,377
1/31/00 $12,010 $9,757
2/29/00 $12,790 $9,349
3/31/00 $13,610 $10,482
4/30/00 $13,850 $10,524
5/31/00 $14,280 $10,705
6/30/00 $14,180 $10,306
7/31/00 $14,210 $10,547
8/31/00 $15,190 $11,193
9/30/00 $15,460 $11,301
---------------------------
Val Cap Mid Cap Fund
Average Annual Total Return
1 Year
54.60%
---------------------------
Past performance is not predictive of future performance.
<PAGE>
PORTFOLIO COMMENTARY
Val Cap Small Cap Fund
The Fund has had exceptionally strong performance in its first year, returning
59.8% as compared to 15.4% for the Russell 2000 Value Index, its style
benchmark. The Russell 2000 Index, representing overall small capitalization
stocks in the U.S. equity markets, returned 23.4% for the same period. The
Fund's performance was increased by its investments in IPOs (initial public
offerings), which have a magnified investment performance effect during the
periods when the Fund has a small asset base. Even without including the returns
attributable to IPOs, the Fund's return was approximately 44%, still
outperforming the Fund's benchmark. We are pleased that the Fund was able to
participate in these offerings, but as the Fund grows, the impact of investments
in IPOs on the Fund's performance will most likely lessen.
The Fund had exceptional performance in Health Care, Financials and Technology.
The significant contribution of Health Care came from investments in Triad
Hospitals, LifePoint Hospitals and Universal Health Services. The positive
impact of Financials was largely attributable to our investments in the asset
management and service companies such as Neuberger Berman and Investors
Financial Services. The top performing stocks in the Fund were Technology,
contributing nicely to performance. Caminus Corp., a software solutions
provider, experienced increased sales of its risk management software to energy
companies which will boost both the company's earnings and growth rates.
Teltrend Inc., telecommunications and data communications products, was acquired
by Westell Technologies. It is interesting to note that even eliminating the
total technology return from the portfolio, the Fund still returned 38.4% in its
first year.
Energy also produced solid returns for the Fund, led by Rowan Companies and
Global Industries Ltd., oil services companies benefiting from the recovery in
energy fundamentals. In addition, Santa Fe Snyder Corporation, an oil and
natural gas producer, was acquired by Devon Energy Corporation.
As far as stocks that hurt performance, Airborne Freight Corporation was the
poorest performing stock. Although our value investing approach led us to
investing in Airborne, which was trading at less than book value, a competitive
operating environment took hold. The company competes directly with FedEx and
United Parcel Services. Also, sharply higher fuel costs during the year impacted
earnings. The company is in the process of implementing strategic changes to
enhance their services and reduce costs to remain competitive.
We continue to seek attractively valued smaller companies which will reward the
Fund's shareholders.
Lisa L. Parisi, CFA
Portfolio Manager
<PAGE>
VAL CAP SMALL CAP FUND
Comparison of the Change in Value of a $10,000 Investment in the
Val Cap Small Cap Fund and the Russell 2000 Value Index
[GRAPHIC OMITTED]
Valenzuela Small Russell 2000
Cap Fund Value Index
-------- -----------
10/31/99 $10,000 $9,800
11/30/99 $9,990 $9,851
12/31/99 $10,870 $10,153
1/31/00 $12,030 $9,887
2/29/00 $12,840 $10,491
3/31/00 $13,390 $10,541
4/30/00 $13,230 $10,603
5/31/00 $13,160 $10,441
6/30/00 $14,320 $10,746
7/31/00 $13,970 $11,103
8/31/00 $15,860 $11,600
9/30/00 $15,980 $11,535
----------------------------
Val Cap Small Cap Fund
Average Annual Total Return
1 Year
59.80%
----------------------------
Past performance is not predictive of future performance.
<PAGE>
VALENZUELA CAPITAL TRUST
Statements of Assets and Liabilities
September 30, 2000
<TABLE>
<CAPTION>
VAL CAP VAL CAP
MID CAP SMALL CAP
FUND FUND
------------ ------------
<S> <C> <C>
ASSETS
Investments in securities at market value (identified
cost $112,226 and $71,724, respectively) (Note 1) $ 137,580 $ 83,320
Dividends and interest receivable 120 31
Receivable for securities sold 11,038 12,447
Other assets 142 127
------------ ------------
Total Assets 148,880 95,925
------------ ------------
LIABILITIES
Payable for securities purchased 1,711 16,049
------------ ------------
Total Liabilities 1,711 16,049
------------ ------------
$ 147,169 $ 79,876
============ ============
NET ASSETS
Net assets consist of:
Paid-in capital $ 100,000 $ 50,000
Undistributed net investment income 1,463 738
Accumulated net realized gains from
security transactions 20,352 17,542
Net unrealized appreciation on investments 25,354 11,596
------------ ------------
$ 147,169 $ 79,876
============ ============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 9,521 5,000
============ ============
Net asset value, offering price and redemption
price per share (Note 1) $ 15.46 $ 15.98
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST
Statements of Operations
Period Ended September 30, 2000*
<TABLE>
<CAPTION>
VAL CAP VAL CAP
MID CAP SMALL CAP
FUND FUND
------------ ------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 662 $ 299
Interest 801 439
------------ ------------
Total Investment Income 1,463 738
------------ ------------
EXPENSES
Investment advisory fees (Note 3) 812 477
Administration fees (Note 3) 17,875 17,875
Fund accounting fees (Note 3) 17,000 17,000
Shareholder services and transfer agent fees (Note 3) 6,448 6,448
Registration and filing fees 28,547 28,547
Custodian fees 10,110 10,002
Professional fees 6,500 6,500
Insurance expense 4,825 4,825
Trustee fees 1,250 1,250
Pricing fees 851 922
Postage and supplies 244 244
Other expenses 1,020 1,021
------------ ------------
Total Expenses 95,482 95,111
Less fees waived and expenses reimbursed
by the Adviser (Note 3) (95,482) (95,111)
------------ ------------
Net Expenses -- --
------------ ------------
NET INVESTMENT INCOME 1,463 738
------------ ------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 20,352 17,542
Net change in unrealized appreciation/
depreciation on investments 25,354 11,596
------------ ------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 45,706 29,138
------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 47,169 $ 29,876
============ ============
</TABLE>
* From commencement of operations (October 2, 1999).
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST
Statements of Changes in Net Assets
Period Ended September 30, 2000*
VAL CAP VAL CAP
MID CAP SMALL CAP
FUND FUND
------------ ------------
FROM OPERATIONS
Net investment income $ 1,463 $ 738
Net realized gains from securities transactions 20,352 17,542
Net change in unrealized appreciation/
depreciation on investments 25,354 11,596
------------ ------------
Net increase in net assets from operations 47,169 29,876
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 50,000 --
Payments for shares redeemed -- --
------------ ------------
Net increase in net assets from capital
share transactions 50,000 --
------------ ------------
TOTAL INCREASE IN NET ASSETS 97,169 29,876
NET ASSETS
Beginning of period 50,000 50,000
------------ ------------
End of period $ 147,169 $ 79,876
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 1,463 $ 733
============ ============
CAPITAL SHARE ACTIVITY
Shares sold 4,521 --
Shares redeemed -- --
------------ ------------
Net increase in shares outstanding 4,521 --
Shares outstanding, beginning of period 5,000 5,000
------------ ------------
Shares outstanding, end of period 9,521 5,000
============ ============
* From commencement of operations (October 2, 1999).
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST
Financial Highlights for the Period Ended September 30, 2000*
Selected Per Share Data and Ratios for a
Share Outstanding Throughout Each Period
VAL CAP VAL CAP
MID CAP SMALL CAP
FUND FUND
---------- ------------
PER SHARE DATA
Net asset value at beginning of period $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.15 0.15
Net realized and unrealized gains on investments 5.31 5.83
---------- ----------
Total from investment operations 5.46 5.98
---------- ----------
Net asset value at end of period $ 15.46 $ 15.98
========== ==========
TOTAL RETURN 54.60% 59.80%
========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period $ 147,169 $ 79,876
========== ==========
Ratio of expenses to average net assets:
Before expense reimbursement and waived fees 89.12% 151.02%
After expense reimbursement and waived fees 0.00% 0.00%
Ratio of net investment income to average net assets
Before expense reimbursement and waived fees (87.75)% (149.85)%
After expense reimbursement and waived fees 1.37% 1.17%
Portfolio turnover rate 272% 210%
* From commencement of operations (October 2, 1999).
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST - VAL CAP MID CAP FUND
Schedule of Portfolio Investments
September 30, 2000
MARKET
SHARES VALUE
---------- ------------
COMMON STOCKS - 86.1%
CAPITAL GOODS - 13.5%
40 Alliant Techsystems, Inc. (a) $ 3,285
85 Avery Dennison Corp. 3,942
105 B.F. Goodrich Company 4,115
100 Precision Castparts Corp. 3,838
570 Titanium Metals Corp. (a) 4,667
------------
19,847
------------
CONSUMER CYCLICALS - 6.0%
370 Consolidated Stores Corp. (a) 4,995
200 Reebok International, Ltd. (a) 3,762
------------
8,757
------------
CONSUMER STAPLES - 9.1%
60 Cardinal Health, Inc. 5,292
135 McKesson HBOC, Inc. 4,126
50 The Quaker Oats Company 3,956
------------
13,374
------------
ENERGY - 3.3%
315 Ocean Energy, Inc. (a) 4,863
------------
FINANCIAL SERVICES - 29.3%
130 ACE Ltd. 5,103
195 Dime Bancorp, Inc. 4,205
90 Everest Re Group Ltd. 4,455
75 Golden West Financial Corp. 4,022
60 Hartford Financial Services Group, Inc. 4,376
140 John Hancock Financial Services, Inc. (a) 3,762
75 PNC Financial Services Group, Inc. 4,875
75 T. Rowe Price Associates, Inc. 3,520
130 Waddell & Reed Financial, Inc. - Class A 4,030
120 Washington Mutual, Inc. 4,778
------------
43,126
------------
HEALTH CARE - 15.8%
300 Apria Healthcare Group, Inc. (a) 4,181
210 LifePoint Hospitals, Inc. (a) 7,455
315 Omnicare, Inc. 5,079
76 Universal Health Services, Inc. - Class B (a) 6,507
------------
23,222
------------
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST - VAL CAP MID CAP FUND
Schedule of Portfolio Investments (Continued)
September 30, 2000
MARKET
SHARES VALUE
---------- ------------
TECHNOLOGY - 3.6%
125 Adaptec, Inc. (a) $ 2,500
95 Cabletron Systems, Inc. (a) 2,791
------------
5,291
------------
TRANSPORTATION - 5.5%
315 Fritz Companies, Inc. (a) 3,780
185 Southwest Airlines Company 4,486
------------
8,266
------------
TOTAL COMMON STOCKS - 86.1% (COST $101,392) $ 126,746
------------
FACE AMOUNT
------------
SHORT TERM MONEY MARKET SECURITIES - 7.4%
$ 10,834 The Bank of New York Cash Reserve
(Cost $10,834) $ 10,834
------------
TOTAL INVESTMENTS AT VALUE - 93.5% (COST $112,226) $ 137,580
OTHER ASSETS IN EXCESS OF LIABILITIES - 6.5% 9,589
------------
NET ASSETS - 100.0% $ 147,169
============
(a) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST - VAL CAP SMALL CAP FUND
Schedule of Portfolio Investments
September 30, 2000
MARKET
SHARES VALUE
---------- ------------
COMMON STOCKS - 97.7%
BASIC INDUSTRY - 2.0%
50 Cytec Industries, Inc. (a) $ 1,672
------------
CAPITAL GOODS - 12.1%
70 Herley Industries, Inc. (a) 1,588
160 Hexcel Corp. (a) 2,140
36 KEMET Corp. (a) 995
80 Precision Castparts Corp. 3,070
225 Titanium Metals Corp. (a) 1,842
------------
9,635
------------
CONSUMER CYCLICALS - 14.9%
190 Consolidated Stores Corp. (a) 2,565
48 Houghton Mifflin Company 1,884
65 Lancaster Colony Corp. 1,597
113 Reebok International, Ltd. (a) 2,126
25 Scholastic Corp. (a) 1,989
50 Toll Brothers, Inc. (a) 1,719
------------
11,880
------------
CONSUMER STAPLES - 2.1%
111 Owens & Minor, Inc. 1,748
------------
ENERGY - 11.4%
90 Cabot Oil & Gas Corp. - Class A 1,834
160 Global Industries, Ltd. (a) 2,000
43 Noble Affiliates, Inc. 1,596
142 Ocean Energy, Inc. (a) 2,192
85 Offshore Logistics (a) 1,519
------------
9,141
------------
FINANCIAL SERVICES - 18.7%
40 Downey Financial Corp. 1,580
52 Everest Re Group Ltd. 2,574
90 First American Corp. 1,879
90 FirstFed Financial Corp. (a) 2,070
45 Hilb, Rogal & Hamilton Co. 1,876
53 Jeffries Group, Inc. 1,424
40 StanCorp Financial Group 1,710
205 Wit Soundview Group, Inc. (a) 1,845
------------
14,958
------------
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST - VAL CAP SMALL CAP FUND
Schedule of Portfolio Investments (Continued)
September 30, 2000
MARKET
SHARES VALUE
---------- ------------
HEALTH CARE - 17.6%
138 Apria Healthcare Group, Inc. (a) $ 1,923
101 LifePoint Hospitals, Inc. (a) 3,586
210 Omnicare, Inc. 3,386
87 Triad Hospitals, Inc. (a) 2,556
30 Universal Health Services, Inc. - Class B (a) 2,569
------------
14,020
------------
TECHNOLOGY - 12.7%
28 Advanced Energy Industries, Inc. (a) 924
50 Caminus Corp. (a) 1,988
65 New Era of Networks, Inc. (a) 1,581
153 Objective Systems Integrators, Inc. (a) 1,329
180 Pinnacle Systems, Inc. (a) 2,025
180 Take Two Interactive Software (a) 2,261
------------
10,108
------------
TRANSPORTATION - 6.2%
125 Airborne Freight Corp. 1,273
49 Forward Air Corp. (a) 1,724
160 Fritz Companies, Inc. (a) 1,920
------------
4,917
------------
TOTAL COMMON STOCKS - 97.7% (COST $66,483) $ 78,079
------------
FACE AMOUNT
-----------
SHORT TERM MONEY MARKET SECURITIES - 6.6%
$ 5,241 The Bank of New York Cash Reserve
(Cost $5,241) $ 5,241
------------
TOTAL INVESTMENTS AT VALUE - 104.3% (COST $71,724) $ 83,320
LIABILITIES IN EXCESS OF OTHER ASSETS - (4.3%) (3,444)
------------
NET ASSETS - 100.0% $ 79,876
============
(a) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
VALENZUELA CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Valenzuela Capital Trust (the "Trust") was organized as a Delaware
business trust on June 22, 1999. The Trust is an open-end diversified
management investment company registered under the Investment Company Act
of 1940 (the "1940 Act"). The Trust consists of two series, the Val Cap Mid
Cap Fund ("Mid Cap") and the Val Cap Small Cap Fund ("Small Cap")
(collectively, the "Funds" and each individually, a "Fund"). The Trust is
authorized to issue an unlimited number of shares.
As part of the Trust's organization, each Fund issued in a private
placement 5,000 shares of beneficial interest to Valenzuela Capital
Partners LLC, (the "Adviser") at $10.00 a share on October 1, 1999.
Additionally, the Mid Cap Fund, in a secondary private placement, issued
4,521 shares of beneficial interest to a principal of the Adviser at $11.06
a share on January 17, 2000. The Trust has not yet commenced a public
offering of its shares.
The Mid Cap Fund's investment objective is capital appreciation primarily
through investments in common stocks of mid-capitalization companies. The
Fund will seek to achieve this objective by investing primarily in the
common stock of mid-cap U.S. companies with market capitalization from $1.5
billion to $10 billion.
The Small Cap Fund's investment objective is capital appreciation primarily
through investments in common stocks of small-capitalization companies. The
Fund will seek to achieve this objective by investing primarily in the
common stock of small-cap U.S. companies with market capitalization less
than $1.5 billion.
SECURITIES VALUATION - The Funds' portfolio securities are valued as of the
close of regular trading of the New York Stock exchange, normally 4:00
p.m., Eastern time, on days the Exchange is open. The Funds' securities are
generally valued at current market prices. If market quotations are not
readily available, prices are based on a fair value estimate, determined in
accordance with methods approved by the Funds' Board of Trustees.
SHARE VALUATION - The net asset value per share of each Fund is calculated
daily by dividing the total value of each Fund's assets, less liabilities,
by the number of shares outstanding. The offering price and redemption
price per share of each Fund is equal to the net asset value per share.
INVESTMENT INCOME - Interest income is accrued as earned. Dividend income
is recorded on the ex-dividend date.
<PAGE>
VALENZUELA CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS - Dividends arising from net investment
income, if any, are declared and paid annually to shareholders of the
Funds. Net realized short-term capital gains, if any, may be distributed
throughout the year and net realized long-term capital gains, if any, are
distributed at least once each year. Income distributions and capital gain
distributions are determined in accordance with income tax regulations.
ORGANIZATION EXPENSES - All costs incurred by the Trust in connection with
the organization of the Funds and the initial public offering of shares of
the Funds, principally professional fees and printing, have been reimbursed
by the Adviser and are subject to recovery by the Adviser pursuant to the
Expense Limitation Agreement (See Note 3).
SECURITY TRANSACTIONS - Security transactions are accounted for on trade
date. The cost of securities sold is determined on a specific
identification basis.
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 these estimates.
FEDERAL INCOME TAX - It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which the Funds so
qualify and distribute at least 90% of their taxable net income, the Funds
(but not the shareholders) will be relieved of federal income tax on the
income distributed. Accordingly, no provisions for income taxes have been
made. In order to avoid imposition of the excise tax applicable to
regulated investment companies, it is also each 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.
<PAGE>
VALENZUELA CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
2. INVESTMENTS
During the period ended September 30, 2000, the cost of purchases and
proceeds from sales and maturities of investment securities, other than
short-term investments, amounted to $332,391 and $252,651, respectively,
for the Mid Cap Fund and $164,559 and $116,287, respectively, for the Small
Cap Fund.
For federal income tax purposes, the cost of portfolio investments amounted
to $112,226 in the Mid Cap Fund and $71,724 in the Small Cap Fund at
September 30, 2000. The composition of unrealized appreciation (the excess
of market value over tax cost) and unrealized depreciation (the excess of
tax cost over market value) was as follows:
Mid Cap Fund Small Cap Fund
------------ --------------
Gross unrealized appreciation $ 28,472 $ 16,311
Gross unrealized depreciation (3,118) (4,715)
------------ ------------
Net unrealized appreciation $ 25,354 $ 11,596
============ ============
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain Trustees and officers of the Trust are affiliated with the Adviser
or Ultimus Fund Solutions, LLC (the "Administrator"). Such persons are not
paid directly by the Trust for serving in those capacities.
INVESTMENT ADVISORY AGREEMENT
Under the terms of an investment advisory agreement between the Trust and
the Adviser, the Adviser is entitled to receive fees based on a percentage
of the daily average net assets of each Fund. Each Fund pays the Adviser an
annual rate of 0.75% of its average daily net assets.
<PAGE>
VALENZUELA CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
Pursuant to the Expense Limitation Agreement, the Adviser has contractually
agreed to waive a portion of its advisory fees and if necessary reimburse
each Fund's organizational and operational expenses so that each of the
Fund's net expenses do not exceed 1.45% of average daily net assets (the
"Expense Cap") until October 1, 2002. For the period ended September 30,
2000, the Adviser agreed to waive its entire advisory fee and pay all of
the operating expenses of each of the Funds. If at any point during the
period prior to October 1, 2002, the operational expenses of the Funds fall
below the Expense Cap, the Adviser may recoup fees previously waived or
reimbursed so long as the amount of the recouped fees does not 1) cause the
Funds' aggregate expenses on an annualized basis to exceed the Expense Cap,
and 2) exceed the fees previously waived or reimbursed by the Adviser prior
to October 1, 2002. The agreement provides that no such payments shall be
made to the Adviser after October 1, 2004. As of September 30, 2000, the
amount of waived fees and reimbursed expenses (which includes $100,000 of
organization cost for each Fund) that may be recouped by the Adviser in the
future, pursuant to this agreement, was $195,482 for the Mid Cap Fund and
$195,111 for the Small Cap Fund.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement in effect since January 14,
2000, the Administrator supplies executive, administrative and regulatory
services to the Funds, supervises the preparation of tax returns, and
coordinates the preparation of reports to shareholders and reports to and
filings with the Securities and Exchange Commission and state securities
authorities.
For these services, the Administrator receives a monthly fee from the Funds
at an annual rate of .15% on its average daily net assets up to $50
million; .125% on the next $50 million of such assets; .10% on the next
$150 million of such assets; .075% on the next $250 million of such assets;
and .05% of such net assets in excess of $500 million, subject to a minimum
monthly fee of $3,000 for each Fund. During the period prior to which the
Funds are publicly offered for sale, the Administrator has agreed to be
compensated at a rate of $750 per month per Fund. Accordingly, during the
period ended September 30, 2000, the Administrator was paid $6,375 with
respect to each Fund.
<PAGE>
VALENZUELA CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
FUND ACCOUNTING AGREEMENT
Under the terms of a Fund Accounting Agreement between the Trust and the
Administrator in effect since January 14, 2000, the Administrator
calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, the Administrator
receives from each Fund a monthly fee of $2,500, plus an asset based fee
equal to 0.01% of average daily net assets up to $500 million and 0.005% of
such assets in excess of $500 million. During the period prior to which the
Funds are publicly offered for sale, the Administrator has agreed to be
compensated at a rate of $2,000 per month per Fund, with no additional
asset-based fee. Accordingly, during the period ended September 30, 2000,
the Administrator was paid $17,000 with respect to each Fund. In addition,
each Fund pays certain out-of-pocket expenses incurred by the Administrator
in obtaining valuations of such Fund's portfolio securities.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGREEMENT
Pursuant to the terms of a Transfer Agent and Shareholder Servicing
Agreement between the Trust and Unified Fund Services, Inc. ("Unified"),
Unified maintains shareholder records for each of the Fund's shareholders
of record, processes shareholder purchase and redemption orders, processes
transfers and exchanges of shares of the Funds on the shareholder files and
records, processes dividend payments and reinvestments and assists in the
mailing of shareholder reports and proxy solicitation materials. For these
services, Unified receives from each Fund a base fee of $18,000 per year,
plus $18 per active account per year, except that during any period in
which there are 20 or less active accounts in a Fund, the base fee shall be
a fixed monthly fee of $1,250 per Fund. Additionally, until such time as a
Fund is publicly offered for sale, but no later than April 30, 2000, the
base fee shall be a fixed monthly of $600 per Fund. Accordingly, during the
period ended September 30, 2000, Unified was paid $6,448 with respect to
each Fund.
PRIOR SERVICE AGREEMENT
Prior to January 14, 2000, administrative services, fund accounting
services and transfer agent services were provided to the Funds by BISYS
Fund Services Ohio, Inc. ("BISYS"). Pursuant to the terms of a Service
Agreement with the Funds, BISYS received a fee from the Funds of $11,500
with respect to each Fund.
<PAGE>
VALENZUELA CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
4. SHAREHOLDER SERVICING PLAN
The Funds have adopted a Shareholder Servicing Plan (the "Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940. The Plan provides
that each Fund may incur certain costs related to the servicing of
shareholder accounts, generally not to exceed 0.25% of the average daily
net assets of each respective Fund. During the period ended September 30,
2000, the Funds incurred no such expenses under the Plan.
--------------------------------------------------------------------------------
CHANGE IN INDEPENDENT AUDITOR
On September 13, 2000, Ernst & Young LLP (Ernst & Young) resigned as independent
auditor of the Trust. Arthur Andersen LLP (Arthur Andersen) was selected as the
Trust's independent auditor. The Trust's selection of Arthur Andersen as its
independent auditor was recommended by the Trust's audit committee and was
approved by the Trust's Board of Trustees.
The report on the financial statements audited by Ernst & Young as of October 1,
1999 for the Trust did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements between the Trust and Ernst &
Young on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of Ernst & Young, would have caused it to make
reference to the subject matter of the disagreements in connection with its
report on such financial statements.
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Trustees of
the Valenzuela Capital Trust:
We have audited the statements of assets and liabilities, including the
schedules of portfolio investments, of the Val Cap Small Cap Fund and the Val
Cap Mid Cap Fund (the Funds) of the Valenzuela Capital Trust as of September 30,
2000, and the related statements of operations, changes in net assets and
financial highlights for the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 September 30, 2000, 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 material respects, the financial position of the
Funds as of September 30, 2000, the results of their operations, the changes in
their net assets and their financial highlights for the period then ended, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN, LLP
Cincinnati, Ohio
October 13, 2000
