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ANNUAL REPORT
[GRAPHIC OMITTED]
THE LEGACY FUNDS, INC.
[GRAPHIC OMITTED]
Legacy Growth Fund
OCTOBER 31, 2000
Dear Fellow Shareholders:
This is the first annual report of your Fund, covering the period of
inception, February 15th, through the end of the Fund's fiscal year, October
31st, 2000.
By way of investment review, the U.S. equity markets in the year 2000
have been disjointed and quite volatile, reflecting earlier concern over a
rekindling of inflation and fear of interest rate increases by the Federal
Reserve and more recently apprehension over the slowing of the growth of the
U.S. economy and the reduction of many companies' earnings estimates. Over the
longer term we expect companies having strong financial underpinnings and
prospects for sustained, above-average growth in earnings to continue to treat
their shareholders well in terms of contributing to the growth of the value of
their investments.
Your Fund commenced operations on February 15th and at October 31st had
reached $4,816,948 in net assets. As time goes forward we, of course, are
looking for additional investors, so that the Fund may rise in value and its
fees may decrease as a percentage of net asset value.
We appreciate your confidence and wish you a joyous holiday season and
a profitable new century.
Robert E. Belknap
Portoflio Manager and President
2/15/00 4/30/00 7/31/00 10/31/00
Legacy Growth Fund 10,000 10,190 10,460 10,030
S&P 500 10,000 10,383 10,257 10,276
Cumulative rate of total return (%)
February 15, 2000 through October 31, 2000
Legacy Growth Fund 0.30%
S&P 2.76%
The S & P 500 stock index is an unmanaged but commonly used measure of common
stock total return performance. This chart assumes an initial gross investment
of $10,000 made on 2/15/00 ( commencement of operations). Returns shown include
the reinvestment of all dividends. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than the original cost.
Analysis of Investment Results
The U.S. equity markets in the first ten months of the year were
disjointed and quite volatile, reflecting earlier concern over a rekindling of
inflation and fear of interest rate increases by the Federal Reserve and more
recently apprehension over the slowing of the growth of the U.S. economy and the
reduction of many companies' earnings estimates.
After commencing activities in mid-February, 2000, your Fund's net
asset value ("NAV") ended the Fund's first fiscal year at $10.03, compared with
a beginning figure of $10.00, recording an increase of 0.3%; during the same
period the Standard & Poors 500 Index rose 2.76%. The generally strong market in
the Spring was beneficial to the Fund, and the overall market weakness in the
late Fall had a downward influence on the value of the Fund's investments.
Because the Fund's significant holdings in the financial services,
pharmaceuticals and technology areas outperformed other issues in the Spring and
Summer months this year, the Fund performed favorably to the S&P 500 in this
period. However, in the Fall months the Fund was impacted by its significant
weighting in technology stocks, which as a sector performed worse than the
market as a whole.
To review things strategically, the Federal Reserve appears to have
cooled the growth rate of the U.S. economy to a rate they feel is sustainable
and non-inflationary, through both increasing short term interest rates and
controlling the growth rate of the nation's money supply. We believe it would be
timely at this point for the Federal Reserve to bring interest rates downward
and to increase the rate of growth of the money supply, in order to foster a
continuance of healthy growth of the economy and to prevent the development of a
recession. Over the longer term, very importantly we continue to believe
investing in companies having strong underlying financial characteristics and
offering prospects for sustained above-average earnings growth represent the
preferred means of growing the Fund's capital over time.
================================================================================
THE LEGACY FUNDS, INC.
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
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----------------
LEGACY
GROWTH FUND
----------------
ASSETS:
Investments, at market value
(Cost of $4,865,808) $4,843,845
Cash 9,414
Receivable from Adviser 5,329
Interest receivable 431
Dividends receivable 638
Prepaid assets 7,637
----------------
Total Assets 4,867,294
----------------
LIABILITIES:
Distribution fees payable 1,990
Payable for securities purchased 15,519
Accrued expenses and other liabilities 32,837
----------------
Total Liabilities 50,346
----------------
NET ASSETS $4,816,948
================
NET ASSETS CONSIST OF:
Capital stock $4,957,808
Accumulated undistributed net realized loss
on investments (118,897)
Net unrealized depreciation on investments (21,963)
----------------
Total Net Assets $4,816,948
================
Shares Outstanding
(Unlimited shares authorized with a par
value of $0.001 each) 480,369
================
Net Asset Value, Redemption Price and Offering
Price Per Share $10.03
================
SEE NOTES TO THE FINANCIAL STATEMENTS.
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================================================================================
THE LEGACY FUNDS, INC.
================================================================================
STATEMENT OF OPERATIONS
FEBRUARY 15, 2000* THROUGH OCTOBER 31, 2000
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------------------
LEGACY
GROWTH FUND
------------------
INVESTMENT INCOME:
Dividend income (net of withholding tax of $3) $ 8,157
Interest income 6,554
Other income 1,618
------------------
Total Investment Income 16,329
------------------
EXPENSES:
Investment advisory fees 20,369
Administration fees 21,207
Fund accounting fees 17,511
Transfer agent fees and expenses 11,430
Distribution fees 10,185
Insurance fees 9,065
Custody fees 8,947
Professional fees 6,128
Federal and state registration 6,158
Trustees' fees and expenses 4,030
Reports to shareholders 361
Other 777
------------------
Total expenses before Adviser reimbursement 116,168
Less: Fees and expenses reimbursed by
Adviser (81,540)
------------------
Net Expenses 34,628
------------------
NET INVESTMENT LOSS (18,299)
------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments (118,897)
Change in unrealized depreciation on investments (21,963)
------------------
Net Realized And Unrealized Loss On
Investments (140,860)
------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (159,159)
==================
* COMMENCEMENT OF OPERATIONS
SEE NOTES TO THE FINANCIAL STATEMENTS.
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===============================================================================
THE LEGACY FUNDS, INC.
===============================================================================
STATEMENT OF CHANGES IN NET ASSETS
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-----------------------
LEGACY GROWTH FUND
-----------------------
FEBRUARY 15, 2000*
THROUGH
OCTOBER 31, 2000
-----------------------
OPERATIONS:
Net investment loss $ (18,299)
Net realized loss on investments (118,897)
Change in unrealized depreciation on investments (21,963)
-------------------
Net decrease in net assets resulting from
operations (159,159)
-------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 4,929,541
Cost of shares redeemed (53,434)
-------------------
Net increase in net assets resulting from
capital share transactions 4,876,107
-------------------
TOTAL INCREASE IN NET ASSETS 4,716,948
-------------------
NET ASSETS:
Beginning of period 100,000
-------------------
End of period $ 4,816,948
===================
Undistributed Net Investment Income included in
Net Assets at End of Period $ 0
===================
* COMMENCEMENT OF OPERATIONS
See Nots to the Financial Statments.
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===============================================================================
THE LEGACY FUNDS, INC.
================================================================================
FINANCIAL HIGHLIGHTS
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-----------------------
LEGACY GROWTH FUND
-----------------------
FEBRUARY 15, 2000*
THROUGH
OCTOBER 31, 2000
-----------------------
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
--------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.04)(3)
Net realized and unrealized gain on
investments 0.07
--------------------
Total from investment operations 0.03
--------------------
NET ASSET VALUE, END OF PERIOD $10.03
====================
TOTAL RETURN 0.30%(1)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $4,816,948
Ratio of net expenses to average net
assets:
Before expense reimbursement 5.70%
After expense reimbursement 1.70%
Ratio of net investment loss to average net assets:
Before expense reimbursement (4.90%)
After expense reimbursement (0.90%)
Portfolio turnover rate 21%
* COMMENCEMENT OF OPERATIONS.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) NET INVESTMENT LOSS PER SHARE IS CALCULATED USING ENDING BALANCES
PRIOR TO CONSIDERATION OR ADJUSTMENT FOR PERMANENT BOOK AND TAX
DIFFERENCES.
SEE NOTES TO THE FINANCIAL STATEMENTS.
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THE LEGACY FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - OCTOBER 31, 2000
LEGACY GROWTH FUND
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SHARES VALUE
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COMMON STOCKS - 99.8%
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BANKING & FINANCIAL SERVICES - 18.1%
1,600 American Express Company $ 96,000
3,000 Charles Schwab Corporation 105,375
1,900 Citigroup, Inc. 99,988
950 Goldman Sachs Group, Inc. 94,822
2,700 MBNA Corporation 101,419
1,600 Merrill Lynch & Co., Inc. 112,000
1,000 Morgan Stanley Dean Witter & Company 80,313
1,800 T. Rowe Price Associates 84,262
800 State Street Corporation 99,792
----------------
873,971
-----------------
BUSINESS SERVICES - 3.9%
1,600 Automatic Data Processing, Inc. 104,500
1,700 First Data Corporation 85,213
-----------------
189,713
-----------------
CAPITAL GOODS - 4.6%
8,000 Bolder Technologies Corporation* 31,000
1,700 General Electric Company 93,181
1,700 Tyco International Ltd. 96,369
-----------------
220,550
-----------------
COMMUNICATIONS & MEDIA - 1.0%
1,000 Sirius Satellite Radio, Inc.* 50,250
-----------------
COMPUTER HARDWARE - 1.7%
1,800 Hewlett-Packard Company 83,588
-----------------
DRUGS - 6.0%
1,400 Merck & Co., Inc. 125,913
6,000 NeoTherapeutics, Inc.* 60,000
2,400 Pfizer, Inc. 103,650
-----------------
289,563
-----------------
ELECTRONICS - 10.2%
1,400 Applied Materials Inc.* 74,375
900 Bookham Technology ADR* 30,319
2,500 C-Cube Microsystems Inc.* 48,750
2,000 Cypress Semiconductor Corporation* 74,875
2,300 Flextronics International Ltd. 87,400
2,000 Philips Electronics N.V. 79,875
2,200 Solectron Corporation* 96,800
-----------------
492,394
-----------------
HOTELS - 1.9%
2,200 Marriott International, Inc. Class A 89,100
-----------------
INSURANCE - 6.2%
2,600 Ace Limited 102,050
750 Marsh & McLennan Companies, Inc. 98,062
1,300 XL Capital Ltd. - Class A 99,937
-----------------
300,049
-----------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
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INTERNET TECHNOLOGY - 8.0%
1,600 America Online Inc.* $ 80,688
1,200 Commerce One, Inc.* 77,025
3,000 DoubleClick Inc.* 48,750
1,700 Exodus Communications, Inc.* 57,056
450 Inktomi Corporation* 28,547
4,100 Looksmart Ltd.* 28,956
300 VeriSign, Inc.* 39,600
400 Yahoo! Inc.* 23,450
-----------------
384,072
-----------------
MEDICAL - 6.7%
1,400 American Home Products
Corporation 88,900
1,500 Amgen* 86,906
1,900 Charles River Laboratories
International, Inc.* 49,875
1,050 Johnson & Johnson 96,731
-----------------
322,412
-----------------
MEDICAL INSTRUMENTS - 3.1%
500 PE Corp - PE Biosystems Group 58,500
800 Techne Corporation* 90,200
-----------------
148,700
-----------------
RETAIL - GENERAL - 3.1%
1,800 Home Depot, Inc. 77,400
1,550 Wal-Mart Stores, Inc. 70,331
-----------------
147,731
-----------------
SOFTWARE - 3.8%
1,400 Microsoft Corporation* 96,425
800 Siebel Systems, Inc.* 83,950
-----------------
180,375
-----------------
TECHNOLOGY - 13.7%
1,800 Cisco Systems, Inc.* 96,975
1,100 EMC Corporation Massachusetts* 97,969
2,500 Intel Corporation 112,500
400 Network Appliance, Inc.* 47,600
2,800 Oracle Corporation* 92,400
900 Sun Microsystems, Inc.* 99,788
2,500 Symbol Technologies, Inc. 113,594
-----------------
660,826
-----------------
TELECOMMUNICATIONS - 5.1%
1,600 Nortel Networks Corporation 72,800
1,000 Qualcomm, Inc.* 65,109
1,000 Qwest Communications International Inc.* 48,625
1,760 XO Communications, Inc. - Class A* 59,372
-----------------
245,906
-----------------
WIRELESS - 2.7%
1,000 Nextel Communications, Inc. - Class A* 38,437
1,850 Nextel Partners, Inc. Class A* 45,325
350 VoiceStream Wireless Corporation* 46,025
-----------------
129,787
-----------------
TOTAL COMMON STOCKS (COST OF $4,830,950) 4,808,987
-----------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
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SHORT-TERM INVESTMENTS - 0.7%
----------------------------------------------------------
34,858 Firstar Stellar Treasury Fund $ 34,858
-----------------
TOTAL SHORT-TERM INVESTMENTS (COST OF $34,858) 34,858
-----------------
TOTAL INVESTMENTS - 100.5% (COST OF $4,865,808) 4,843,845
-----------------
Liabilities Net Of Other Assets - (0.5)% (26,897)
-----------------
TOTAL NET ASSETS - 100.0% $ 4,816,948
=================
* NON-INCOME PRODUCING SECURITY.
See Notes to the Fanancial Statements.
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================================================================================
THE LEGACY FUNDS, INC.
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NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2000
LEGACY GROWTH FUND
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1. ORGANIZATION
The Legacy Funds, Inc. (the "Trust") was organized as a Delaware Business
Trust on July 15, 1999, and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company issuing its shares in series, each series representing a distinct
portfolio with its own investment objectives and policies. The Legacy Growth
Fund (the "Fund") is the first series. The Fund is a diversified series of
the Trust. The principal objective of the Fund is long-term growth of
capital. The Fund commenced operations on February 15, 2000.
The costs incurred in connection with the organization have been paid on
behalf of the Trust by Ingalls & Snyder, LLC (the "Adviser") and will not be
reimbursed by the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) INVESTMENT VALUATION
The Fund's securities are valued at their market value, which usually
means the last quoted sale price on the security's principal exchange
on that day. Portfolio securities listed on a securities exchange for
which market quotations are readily available are valued at the last
quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and asked prices. Other
assets and securities for which market quotations are not readily
available will be priced at their fair value as determined in good
faith by, or under procedures adopted by, the Board of Trustees.
Short-term instruments (those with a remaining maturity of 60 days or
less) are valued at amortized cost, which approximates market value.
(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 and capital gains to its
shareholders 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
annually. Distributions of net realized capital gains, if any, will
also be declared and paid annually. The character of distributions made
during the period from net investment income or net realized gains may
differ from the characterization for federal income tax purposes due to
differences in the recognition of income, expense and gain items for
financial statement and tax purposes. Where appropriate,
reclassifications between net asset accounts are made for such
differences that are permanent in nature. Accordingly, at
October 31, 2000, reclassifications were recorded to increase
accumulated net investment income by $18,299 and decrease paid in
capital by $18,299. The Fund has a capital loss carry forward of
$118,897 which will expire in the tax year ending October 31, 2008.
(d) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 revenues and expenses during the period. Actual results
could differ from those estimates.
(e) OTHER
Investment and shareholder transactions are recorded on the trade date.
The Fund determines the gain or loss realized from the investment
transactions by comparing the original costs of the security lot sold
with the net sales proceeds. Dividend income is recognized on the
ex-dividend date or as soon as information is available to the Fund,
and interest income is recognized on an accrual basis.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period that began February 15,
2000 and that ended October 31, 2000, were as follows:
Shares outstanding, beginning of period 10,000
Shares sold 475,455
Shares redeemed (5,086)
----------
Net increase 470,369
----------
Shares outstanding, end of year 480,369
==========
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Fund for the period ended October 31, 2000, were
$5,497,643 and $546,315, respectively.
At October 31, 2000, gross unrealized appreciation and depreciation of
investments for tax purposes was as follows:
Appreciation $ 525,818
(Depreciation) (547,781)
----------
Net unrealized depreciation on investments $ (21,963)
==========
At October 31, 2000, the cost of investments for federal income tax purposes
was $4,865,808.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Trust has an Investment Advisory Agreement (the "Agreement") with the
Adviser with whom certain officers and trustees of the Trust are affiliated,
to furnish investment advisory services to the Fund. Under the terms of the
Agreement, the Trust, on behalf of the Fund, compensates the Adviser for its
management services at the annual rate of 1.00% of the Fund's average daily
assets.
The Adviser has agreed contractually to waive its management fee and/or
reimburse the Fund's other expenses, to the extent necessary, to ensure that
the Fund's operating expenses do not exceed 1.70% of its average daily net
assets for the first twelve months of operations which ends February 14,
2001. This contractual fee waiver may not be discontinued or modified by
Ingalls & Snyder during the stated period.
Firstar Bank, N.A., a subsidiary of Firstar Corporation, a publicly-held
bank holding company, serves as custodian for the Fund. Firstar Mutual
Fund Services, LLC, a wholly-owned subsidiary of Firstar Bank, N.A.,
serves as transfer agent, administrator and accounting services agent for
the Trust.
The Trust, on behalf of the Fund, has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), which provides that the
Fund will pay distribution fees to Ingalls & Snyder LLC (the "Distributor")
at an annual rate of 0.50% of the average daily net assets attributable to
its shares. Payments under the distribution plan shall be used to compensate
or reimburse the Fund's distributor for services provided and expenses
incurred in connection with the sales of shares.
For the period ended October 31, 2000, the Fund paid Ingalls & Snyder LLC
$51,844 of brokerage commissions.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees of The Legacy Funds, Inc.
and the Shareholders of Legacy Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Legacy Funds, Inc. (a Delaware Business
Trust) Legacy Growth Fund as of October 31, 2000, and the related statement of
operations for the period from the Fund's inception on February 15, 2000 to
October 31, 2000, the statement of changes in net assets for the period then
ended, and the financial highlights for the period presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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, and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 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
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 the
Legacy Growth Fund as of October 31, 2000, the results of its operations for the
period from the Fund's inception on February 15, 2000 to October 31, 2000,
changes in its net assets for the period then ended, and its financial
highlights for the period presented, in conformity with accounting principles
generally accepted in the United States.
/s/Arthur Andersen LLP
---------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
December 1, 2000
Investment Adviser
Ingalls & Snyder LLC
61 Broadway
New York, NY 10006
Distributor
Ingalls & Snyder LLC
61 Broadway
New York, NY 10006
Administrator, Fund Accountant
and Transfer Agent
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
Custodian
Firstar Bank, N.A.
615 East Michigan Street
Milwaukee, WI 53202
Legal Counsel
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, NY 10004
Independent Public Accountants
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, WI 53202
Trustees
Theodore F. Ells
Robert E. Belknap
Steven M. Foote
Barnabas B. B. Breed
Steven L. Wood
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY THE FUND'S CURRENT PROSPECTUS.
