CHOICE FUNDS
ANNUAL REPORT
OCTOBER 31, 2000
Table of Contents
Choice Focus Fund ..................................................2
Schedule of Investments .....................................4
Statement of Assets and Liabilities ..........................6
Statement of Operations.......................................7
Statement of Changes in Net Assets ...........................8
Financial Highlights .........................................9
Choice Balanced Fund ..............................................10
Schedule of Investments .....................................11
Statement of Assets and Liabilities .........................14
Statement of Operations .....................................15
Statement of Changes in Net Assets ..........................16
Financial Highlights ........................................17
Notes to Financial Statements .....................................18
<PAGE>
--------------------------------------------------------------------------------
CHOICE FOCUS FUND
------------------------------------OBJECTIVE-----------------------------------
The Choice Focus Fund seeks capital appreciation by investing primarily in 20-30
securities of companies that the portfolio manager believes have superior
potential for earnings growth.
--------------------------------------------------------------------------------
(PHOTO)
PERSPECTIVES FROM PAT ADAMS. . .
On October 31, 2000, Choice Funds completed its first year of operation. We had
a great year in spite of a very eventful and volatile market. The Choice Focus
Fund has performed exceptionally well since its inception date of November 1,
1999 - up 27.81% versus the S&P 500/R Index, which was up only 6.09%.
The Fund benefited from being nimble, opportunistically purchasing stocks in
technology but also in the financial and consumer sectors. Our favorite sector
was the optical sector of technology. Healthcare and energy stocks were very
strong during the year; however, we had minimal exposure to these sectors. Our
performance for the year came primarily in three different months, November
1999, June and August 2000, as our holdings in the technology sector performed
well.
In 1999, the market was extremely strong and almost everything went up - in
sharp contrast to this past year when we believe security selection was
critical. We are especially pleased with our performance in such a tough
environment.
Mutual funds were originally created to allow small investors the opportunity
to invest in a broad portfolio of stocks at a lower cost. Times have changed:
there are now over 7,000 mutual funds, many of which, in our opinion, look too
much like the overall market. In addition, investors can purchase individual
stocks at very low commission rates. We believe investors want funds that have
the potential to add significant value and we want to give investors our best.
At Choice, we look for great companies that we believe can become big
investments. We do not limit our potential universe of stocks; we can invest in
any size company. We look for companies we believe have strong long-term
earnings growth potential, strong or improving fundamentals and reasonable
valuations. In our opinion, it is difficult to find many stocks with these
strong characteristics, and we do not understand why a fund manager would put
money in his/her 50th, 60th, or 100th favorite stock! Accordingly, we will
generally own 20-30 core positions in the Choice Focus Fund<F1>. At Choice, it
is our goal to pick great stocks and focus on only our best ideas. With fewer
positions in our portfolio, we are better able to manage the portfolio on a day-
to-day basis and have the ability to quickly sell a position if the need arises.
With a limited number of positions to watch over, we also have additional time
to evaluate potentially great opportunities for the Fund.
As we look forward, we are very optimistic about the valuations and earnings
growth potential of individual securities. We believe that many of the negative
issues bothering the market have been discounted. We had massive corrections in
technology stocks during March, April and May due to slowing of overall earnings
momentum and high valuation. In May, the Federal Reserve increased rates again-
for the sixth time-while the economy was already starting to slow. Earnings, as
expected, then became a major concern for the market as the rest of the year
unfolded. Oil prices also spiked up during September, which affected European
economies that were already struggling. In the U.S., the election deadlock,
still not resolved as of this writing, has done nothing to bolster investors'
confidence in a somewhat uncertain economic environment. During much of its
fiscal year, the Fund held a significant portion of its assets in cash and
similar securities as a temporary defensive measure in response to the high
volatility among securities in which the Fund normally invests. In addition,
our turnover rate was high due to our active management style, the extreme
volatility of the equity markets, and our attempt to manage realized taxable
gains. The Nasdaq, at
<F1> The Choice Focus Fund is non-diversified, therefore it is more exposed to
individual stock volatility and market pressure than a fully diversified fund.
2 I Choice Focus Fund
<PAGE>
--------------------------------------------------------------------------------
CHOICE FOCUS FUND
------------------------------------STRATEGY------------------------------------
The portfolio manager looks for reasonably priced securities of companies that
occupy a dominant position in a market due to size, products or services, and
whose growth potential is not yet fully reflected in the company's stock price.
--------------------------------------------------------------------------------
October 31, 2000, off approximately 33% from its high at March 10, 2000, we
believe has created some very interesting opportunities. Our primary areas of
focus at Choice are: technology, consumer, financials and healthcare.
Healthcare, however, is not very inspiring to us at this time. We continue to
maintain a big position in technology, which was significantly increased during
the second quarter sell-off. We presently anticipate adding additional
investments over time in the consumer sector. We believe there are numerous
opportunities in the consumer sector as this group has corrected due to a fear
of a hard landing in the economy. It is our opinion that the long-term
fundamentals are still very strong, and we are evaluating the timing of these
purchases.
We thank you for your support and appreciate your confidence.
--------------------------------------------------------------------------------
INVESTMENT RETURNS TABLE
Year Ended October 31, 2000
Total Return
Since Inception
--------------------------------------------------------------------------------
CHOICE FOCUS FUND (inception date 11-1-99) 27.81%
--------------------------------------------------------------------------------
S&P 500/R Stock Index 6.09%
--------------------------------------------------------------------------------
Performance is historical and does not represent future results. A Fund's
performance, especially for very short periods of time, should not be the sole
factor in making your investment decisions. Investment returns and principal
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Fund prices change daily and performance may change
significantly during periods of market volatility. Visit our web site at
www.choicefunds.net for current fund performance information. The Fund achieved
its short term performance through investments in favorable markets, new
securities issuances and investments in technology, which may not be
sustainable. In addition, the Fund has invested a substantial portion of its
assets in technology-related companies, and thus is more susceptible to any
economic, business or other developments that generally affect those types of
companies.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 11-1-99 to 10-31-00
CHOICE FOCUS FUND S&P 500/R STOCK INDEX
----------------- ---------------------
11-1-99 10,000 10,000
11-30-99 11,530 10,203
12-31-99 11,780 10,804
1-31-00 11,680 10,261
2-29-00 12,661 10,067
3-31-00 13,382 11,052
4-30-00 12,201 10,720
5-31-00 11,970 10,500
6-30-00 13,952 10,758
7-31-00 14,012 10,590
8-31-00 15,564 11,248
9-30-00 13,952 10,654
10-31-00 12,781 10,609
This chart assumes an initial investment of $10,000 made on 11-1-99. Total
Return is based on net change in N.A.V. assuming reinvestment of distributions.
Returns shown on this page include the reinvestment of all dividends and other
distributions. Performance figures reflect fee waivers in effect, represent past
performance, which is no guarantee of future results, and will fluctuate. In the
absence of fee waivers, Total Return as reflected in the graph for the months of
November, 1999 to Sepetmber, 2000 would be reduced.
The S&P 500/R Stock 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 returns for this Index do not reflect any fees or expenses. It is
not possible to make a direct investment in an index.
Choice Focus Fund I 3
<PAGE>
Choice Focus Fund
SCHEDULE OF INVESTMENTS
October 31, 2000
Number of Shares Value
---------------------------------------------------------------------------
COMMON STOCKS 79.5%
Athletic Footwear 2.4%
35,300 Nike, Inc. Class B $ 1,409,794
-------------
Banking 6.9%
25,600 Bank of America Corp. 1,230,400
141,200 Firstar Corp. 2,779,875
-------------
4,010,275
-------------
Computers 2.8%
30,700 Gateway, Inc.<F1> 1,584,427
-------------
Computers-Integrated Systems 6.9%
2,300 Brocade Communications
Systems, Inc.<F1> 522,963
32,700 Redback Networks, Inc.<F1> 3,480,506
-------------
4,003,469
-------------
Computer-Networking 5.1%
9,400 Juniper Networks, Inc.<F1> 1,833,000
41,700 Stratos Lightwave, Inc.<F1> 1,102,444
-------------
2,935,444
-------------
Cosmetics 1.9%
22,800 Avon Products, Inc. 1,105,800
-------------
Financial Services 1.4%
8,000 Associated First Capital Corp. 297,000
10,400 Household International Inc. 523,250
-------------
820,250
-------------
Forestry 1.1%
13,300 Weyerhauser Co. 624,269
-------------
Internet 6.0%
47,000 Infospace.com, Inc.<F1> 945,875
27,000 Phone.com, Inc.<F1> 2,499,187
-------------
3,445,062
-------------
Manufacturing 1.6%
16,700 Tyco International, Ltd. 946,681
-------------
See notes to financial statements.
4 I Choice Focus Fund
<PAGE>
Choice Focus Fund
SCHEDULE OF INVESTMENTS (continued)
October 31, 2000
Number of Shares Value
---------------------------------------------------------------------------
Retail 9.3%
65,500 Abercrombie & Fitch Co.<F1> $1,543,344
30,500 American Eagle Outfitters, Inc.<F1> 1,050,344
92,800 Consolidated Stores Corp.<F1> 1,102,000
51,200 Federated Department Stores, Inc.<F1> 1,667,200
-------------
5,362,888
-------------
Semiconductors 23.0%
43,300 Applied Micro Circuits Corp.<F1> 3,307,037
44,900 Bookman Technology plc ADR<F1> 1,512,569
7,000 Broadcom Corp.<F1> 1,556,625
25,000 Integrated Device Technology, Inc.<F1> 1,407,812
11,900 SDL, Inc.<F1> 3,085,075
34,900 Vitesse Semiconductor Corp.<F1> 2,440,819
-------------
13,309,937
-------------
Software 1.1%
25,000 Cadence Design Systems, Inc.<F1> 642,188
-------------
Telecom/Fiber Optics 6.6%
32,200 Corning Inc. 2,463,300
47,000 Finisar Corp.<F1> 1,354,187
-------------
3,817,487
-------------
Telephone 3.4%
81,400 WorldCom, Inc.<F1> 1,933,250
-------------
TOTAL COMMON STOCKS
(cost $43,268,641) 45,951,221
-------------
Principal
Amount
---------
SHORT-TERM INVESTMENT 40.2%
$23,235,533 UMB Bank Money Market Fiduciary 23,235,533
-------------
TOTAL SHORT-TERM INVESTMENT
(cost $23,235,533) 23,235,533
-------------
TOTAL INVESTMENTS 119.7%
(cost $66,504,174) 69,186,754
Liabilities less Other Assets (19.7%) (11,384,348)
-------------
NET ASSETS 100.0% $57,802,406
=============
<F1> Non-income producing
See notes to financial statements.
Choice Focus Fund I 5
<PAGE>
Choice Focus Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
---------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $66,504,174) $69,186,754
Receivable for investments sold 7,222,911
Receivable for fund shares sold 622,084
Interest and dividends receivable 83,691
Other assets 22,080
-------------
Total assets 77,137,520
-------------
LIABILITIES:
Payable for investments purchased 19,178,585
Payable for fund shares redeemed 5,664
Accrued investment advisory fee 50,550
Accrued distribution fee 17,248
Accrued expenses 83,067
Total liabilities 19,335,114
-------------
NET ASSETS $57,802,406
=============
NET ASSETS CONSIST OF:
Paid in capital $55,357,277
Accumulated net realized loss on investments (237,451)
Net unrealized appreciation on investments 2,682,580
-------------
NET ASSETS $57,802,406
=============
CAPITAL STOCK (NO PAR VALUE)
Issued and outstanding (unlimited shares authorized) 4,525,494
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING
PRICE PER SHARE $12.77
============
See notes to financial statements.
6 I Choice Focus Fund
<PAGE>
Choice Focus Fund
STATEMENT OF OPERATIONS
For the Year Ended October 31, 2000
---------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 90,258
Interest 672,051
-------------
762,309
-------------
EXPENSES:
Investment advisory fees 424,757
Distribution fees 106,189
Shareholder servicing fees 99,594
Fund administration and accounting fees 59,501
Professional fees 58,075
Federal and state registration fees 41,971
Reports to shareholders 32,147
Custody fees 23,355
Trustees' fees and related expenses 10,146
Other 16,051
-------------
Total expenses 871,786
-------------
NET INVESTMENT LOSS (109,477)
-------------
REALIZED AND UNREALIZED GAINS(LOSSES)
ON INVESTMENTS:
Net realized losses on investments (120,946)
Change in unrealized appreciation/depreciation
on investments 2,682,580
-------------
NET GAIN ON INVESTMENTS 2,561,634
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,452,157
=============
See notes to financial statements.
Choice Focus Fund I 7
<PAGE>
Choice Focus Fund
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended October 31, 2000
---------------------------------------------------------------------------
OPERATIONS:
Net investment loss $ (109,477)
Net realized losses on investments (120,946)
Change in unrealized appreciation/depreciation
on investments 2,682,580
-------------
Net increase in net assets resulting from operations 2,452,157
-------------
DISTRIBUTIONS PAID:
From net realized gains on investments (30,407)
-------------
Net decrease in net assets resulting from
distributions paid (30,407)
-------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 67,332,299
Shares issued to holders in reinvestment of distributions 29,438
Shares redeemed (12,081,081)
-------------
Net increase in net assets resulting from capital
share transactions 55,280,656
-------------
TOTAL INCREASE IN NET ASSETS 57,702,406
-------------
NET ASSETS:
Beginning of period 100,000
-------------
End of period $57,802,406
=============
See notes to financial statements.
8 I Choice Focus Fund
<PAGE>
Choice Focus Fund
FINANCIAL HIGHLIGHTS
For the Year Ended October 31, 2000
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE<F1>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.02)
Net realized and unrealized gains on investments 2.80
-------------
Total Income (Loss) from Investment Operations 2.78
-------------
LESS DISTRIBUTIONS PAID:
From net realized gains on investments (0.01)
-------------
Total Distributions Paid (0.01)
-------------
NET ASSET VALUE, END OF PERIOD $12.77
=============
TOTAL RETURN 27.81%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $57,802
Ratio of expenses to average net assets 2.05%
Ratio of net investment loss to average net assets (0.26)%
Portfolio turnover rate 1,603%
<F1> Selected data for a share of capital stock outstanding throughout the
period.
See notes to financial statements.
Choice Focus Fund I 9
<PAGE>
--------------------------------------------------------------------------------
CHOICE BALANCED FUND
------------------------------------OBJECTIVE-----------------------------------
The Choice Balanced Fund seeks capital appreciation and current income by
investing primarily in a diverse group of domestic equity and fixed income
securities.
--------------------------------------------------------------------------------
The Choice Balanced Fund<F1> has performed extremely well through this volatile
market, up 10.8% since its April 1, 2000 inception, versus the S&P 500/R Index,
which was down (4.01%).
Our performance in the past period was primarily attributable to our
positions in the technology, consumer and financial sectors. Although healthcare
and energy did well during this year, we had minimal exposure to those groups.
We believe that our disciplined stock picking process and our dedication to
focus on only our best ideas has served us well in these uncertain market
conditions. We have the ability to shift assets between the equity and income
components of our fund depending upon our analysis of current market, financial
and economic conditions. This flexibility allows us to take advantage of market
volatility by waiting until the securities we want to buy are attractively
priced. During much of our fiscal year, the Fund held a significant portion of
its assets in cash and similar securities as a temporary defensive measure in
response to the high volatility among securities in which the Fund normally
invests. In addition, our turnover rate was high due to our active management
style, the extreme volatility of the equity markets, and our attempt to manage
realized taxable gains.
We believe that appreciation in the Choice Balanced Fund should come
primarily from the equities we own and the fixed income securities are there to
provide income and to attempt to reduce volatility. This is exactly what
happened this year. Our appreciation was largely driven by our equities, but our
fixed income did return a steady stream of income.
At Choice, we determine what stocks we like and build our portfolio one stock
at a time, rather than looking at the economy and deciding how much we want in
equities or fixed income. We massage the asset allocation as we go along,
acquiring more fixed income securities when good stocks are hard to find. The
Choice Balanced Fund is required to have at least 25% of its portfolio invested
in fixed income securities.
We thank you for your support and confidence.
<F1> The equity portion of the Choice Balanced Fund's portfolio will generally
consist of 30-40 securities, therefore, the Fund is more exposed to individual
stock volatility and market pressure than a fund investing in a large number of
securities.
--------------------------------------------------------------------------------
INVESTMENT RETURNS TABLE
Year Ended October 31, 2000 Total Return
Since Inception<F1>
--------------------------------------------------------------------------------
CHOICE BALANCED FUND (inception date 4-1-00) 10.80 %
--------------------------------------------------------------------------------
S&P 500/R Stock Index (4.01)%
--------------------------------------------------------------------------------
<F1> Not annualized
--------------------------------------------------------------------------------
Performance is historical and does not represent future results. A Fund's
performance, especially for very short periods of time, should not be the sole
factor in making your investment decisions. Investment returns and principal
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Fund prices change daily and performance may change
significantly during periods of market volatility. Visit our web site at
www.choicefunds.net for current performance information. The Fund achieved its
short term performance through investments in favorable markets, new securities
issuances and investments in technology which may not be sustainable. In
addition, the Fund has invested a substantial portion of its assets in
technology-related companies and thus is more susceptible to any economic,
business or other developments that generally affect those types of companies.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 4-1-00 to 10-31-00
CHOICE BALANCED FUND S&P 500/R STOCK INDEX
-------------------- ---------------------
4-1-00 10,000 10,000
4-30-00 10,410 9,699
5-31-00 10,360 9,500
6-30-00 11,640 9,734
7-31-00 11,650 9,582
8-31-00 12,540 10,177
9-30-00 11,650 9,640
10-31-00 11,080 9,599
This chart assumes an initial investment of $10,000 made on 4-1-00. Total return
is based on net change in N.A.V. assuming reinvestment of distributions. Returns
shown on this page include the reinvestment of all dividends and other
distributions. Performance figures reflect fee waivers in effect, represent past
performance, which is no guarantee of future results, and will fluctuate. In the
absence of fee waivers, Total Return would be reduced.
The S&P 500/R Stock 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 returns for this Index do not reflect any fees or expenses. It is
not possible to make a direct investment in an index.
10 I Choice Balanced Fund
<PAGE>
Choice Balanced Fund
SCHEDULE OF INVESTMENTS
October 31, 2000
Number of Shares Value
---------------------------------------------------------------------------
COMMON STOCKS 53.2%
Apparel 0.7%
7,500 Coach, Inc.<F1> $175,312
-------------
Athletic Footwear 1.3%
8,400 Nike, Inc. Class B 335,475
-------------
Banking 4.8%
11,700 Bank of America Corp. 562,331
36,000 Firstar Corp. 708,750
-------------
1,271,081
-------------
Business-to-Business 0.8%
3,400 Commerce One, Inc.<F1> 218,238
-------------
Computers 0.9%
4,800 Gateway, Inc.<F1> 247,728
-------------
Computers-Integrated Systems 3.8%
600 Brocade Communications Systems, Inc.<F1> 136,425
8,000 Redback Networks, Inc.<F1> 851,500
-------------
987,925
-------------
Computer-Memory Devises 0.2%
1,000 StorageNetworks, Inc.<F1> 63,437
-------------
Computer-Networking 1.4%
700 Juniper Networks, Inc.<F1> 136,500
8,600 Stratos Lightwave, Inc.<F1> 227,363
-------------
363,863
-------------
Cosmetics 1.2%
6,400 Avon Products, Inc. 310,400
-------------
Energy-Alternative Sources 0.2%
5,000 Hydrogenics Corp.<F1> 60,312
-------------
Financial Services 0.9%
6,100 Associates First Capital Corp. 226,463
-------------
Forestry 1.0%
5,300 Weyerhauser Co. 248,769
-------------
See notes to financial statements.
Choice Balanced Fund I 11
<PAGE>
Choice Balanced Fund
SCHEDULE OF INVESTMENTS (continued)
October 31, 2000
Number of Shares Value
---------------------------------------------------------------------------
Internet 3.9%
21,500 Infospace.com, Inc.<F1> $ 432,688
6,400 Phone.com, Inc.<F1> 592,400
-------------
1,025,088
-------------
Manufacturing 1.0%
4,500 Tyco International, Ltd.<F1> 255,094
-------------
Retail 9.3%
30,900 Abercrombie & Fitch Co.<F1> 728,081
13,200 American Eagle Outfitters, Inc.<F1> 454,575
42,600 Consolidated Stores Corp.<F1> 505,875
23,300 Federated Department Stores, Inc.<F1> 758,706
-------------
2,447,237
-------------
Semiconductors 14.1%
18,000 Applied Micro Circuits Corp.<F1> 1,374,750
17,900 Bookman Technology, Inc. plc ADR<F1> 603,006
400 Broadcom Corp.<F1> 88,950
2,200 Integrated Device Technology, Inc.<F1> 123,887
5,800 SDL, Inc.<F1> 1,503,650
-------------
3,694,243
-------------
Software 1.1%
11,000 Cadence Design Systems, Inc.<F1> 282,563
-------------
Telephone 3.4%
37,400 WorldCom, Inc.<F1> 888,250
-------------
Telecom/Fiber Optics 3.2%
6,600 Corning, Inc. 504,900
12,600 Finisar Corp.<F1> 363,038
-------------
867,938
-------------
TOTAL COMMON STOCKS
(cost $13,104,263) 13,969,416
-------------
Principal
Amount
--------- BONDS 28.9%
$ 600,000 Amgen, Inc.
6.21%, 08/27/03 590,455
600,000 Colgate-Palmolive Co.
6.02%, 08/15/03 586,962
See notes to financial statements.
12 I Choice Balanced Fund
<PAGE>
Choice Balanced Fund
SCHEDULE OF INVESTMENTS (continued)
October 31, 2000
Principal
Amount Value
---------------------------------------------------------------------------
$1,800,000 Conoco, Inc.
5.9%, 04/15/04 $1,735,611
800,000 DaimlerChrysler NA Holding Co.
7.125%, 04/10/03 799,838
800,000 Home Savings of America
6.50%, 08/15/04 773,114
800,000 Household Finance
6.00%, 05/01/04 769,252
500,000 Lockheed Martin Corp.
6.85%, 05/15/01 498,396
550,000 Merrill Lynch
7.48%, 06/13/02 554,597
800,000 TCI Communications, Inc.
6.375%, 05/01/03 783,854
500,000 Westinghouse Electric Corp.
6.875%, 09/01/03 496,843
-------------
TOTAL BONDS
(cost $7,569,177) 7,588,922
-------------
SHORT-TERM INVESTMENT 28.6%
7,500,608 UMB Bank Money Market Fiduciary 7,500,608
-------------
TOTAL SHORT-TERM INVESTMENT
(cost $7,500,608) 7,500,608
-------------
TOTAL INVESTMENTS 110.7%
(cost $28,174,048) 29,058,946
Liabilities less Other Assets (10.7%) (2,811,926)
-------------
NET ASSETS 100.0% $26,247,020
=============
<F1> Non-income producing
See notes to financial statements.
Choice Balanced Fund I 13
<PAGE>
Choice Balanced Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
---------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $28,174,048) $29,058,946
Receivable for investments sold 1,885,382
Receivable for fund shares sold 409,500
Interest and dividends receivable 168,116
Other assets 7,157
-------------
Total assets 31,529,101
-------------
LIABILITIES:
Payable for investments purchased 4,998,390
Payable for fund shares redeemed 98
Accrued investment advisory fee 45,263
Accrued distribution fee 1,429
Accrued expenses 236,901
-------------
Total liabilities 5,282,081
-------------
NET ASSETS $26,247,020
=============
NET ASSETS CONSIST OF:
Paid in capital $26,215,847
Undistributed net investment income 177,976
Accumulated net realized loss on investments (1,031,701)
Net unrealized appreciation on investments 884,898
-------------
NET ASSETS $26,247,020
=============
CAPITAL STOCK (NO PAR VALUE)
Issued and outstanding (unlimited shares authorized) 2,368,263
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING
PRICE PER SHARE $11.08
============
See notes to financial statements.
14 I Choice Balanced Fund
<PAGE>
Choice Balanced Fund
STATEMENT OF OPERATIONS
For the Period Ended October 31, 2000<F1>
---------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 16,973
Interest 367,284
-------------
384,257
-------------
EXPENSES:
Investment advisory fees 83,186
Fund administration and accounting fees 34,885
Distribution fees 27,729
Shareholder servicing fees 27,060
Professional fees 23,531
Reports to shareholders 13,241
Custody fees 9,369
Federal and state registration fees 7,675
Trustees' fees and related expenses 3,087
Other 2,745
-------------
Total expenses before waiver and reimbursements 232,508
Waiver and reimbursements of expenses by Adviser (11,242)
-------------
Net expenses 221,266
-------------
NET INVESTMENT INCOME 162,991
-------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized losses on investments (1,031,701)
Change in unrealized appreciation/depreciation
on investments 884,898
-------------
NET LOSS ON INVESTMENTS (146,803)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,188
=============
<F1> Commenced operations on April 1, 2000.
See notes to financial statements.
Choice Balanced Fund I 15
<PAGE>
Choice Balanced Fund
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended October 31, 2000<F1>
---------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 162,991
Net realized losses on investments (1,031,701)
Change in unrealized appreciation/depreciation
on investments 884,898
-------------
Net increase in net assets resulting from operations 16,188
-------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 31,571,387
Shares redeemed (5,340,555)
-------------
Net increase in net assets resulting from capital
share transactions 26,230,832
-------------
TOTAL INCREASE IN NET ASSETS 26,247,020
-------------
NET ASSETS:
Beginning of period _
-------------
End of period (includes undistributed net investment
income of $177,976) $26,247,020
=============
<F1> Commenced operations on April 1, 2000.
See notes to financial statements.
16 I Choice Balanced Fund
<PAGE>
Choice Balanced Fund
FINANCIAL HIGHLIGHTS
For the Period Ended October 31, 2000<F1>
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE<F1>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.07
Net realized and unrealized gains on investments 1.01<F2>
-------------
Total Income from Investment Operations 1.08
-------------
NET ASSET VALUE, END OF PERIOD $11.08
=============
TOTAL RETURN <F3> 10.80%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $26,247
Ratio of expenses to average net assets <F4><F5> 2.00%
Ratio of net investment income to average net assets <F4><F5> 1.47%
Portfolio turnover rate <F3> 651%
<F1> Commenced operations on April 1, 2000.
<F2> The amount shown may not correlate with aggregate gains and losses of
portfolio securites due to timing of sales and redemption of Fund shares.
<F3> Not annualized for periods less than a full year.
<F4> Net of waiver and reimbursements by Adviser. Without waivers
and reimbursements of expenses, the ratio of expenses to average
net assets would have been 2.09%, and the ratio of net investment
income to average net assets would have been 1.38% for the
period ended October 31, 2000.
<F5> Annualized
<F1> Selected data for a share of capital stock outstanding throughout the
period.
See notes to financial statements.
Choice Balanced Fund I 17
<PAGE>
Choice Funds
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(1) ORGANIZATION
Choice Funds (the "Trust") was established on July 16, 1999 as a Delaware
Business Trust 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 Focus Fund and the
Balanced Fund (collectively, the "Funds") are separate investment
portfolios of the Trust. The Focus Fund is a non-diversified fund that
seeks capital appreciation by normally investing in a core position of 20-
30 common stocks. The Balanced Fund is a diversified fund that seeks
capital appreciation and current income by normally investing in a diverse
group of domestic equity and fixed income securities.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements.
These policies are in conformity with accounting principles generally
accepted in the United States ("GAAP"), which require management to make
certain estimates and assumptions at the date of the financial statements.
Actual results could differ from those estimates.
(A) ORGANIZATION AND PREPAID INITIAL REGISTRATION EXPENSES
Expenses incurred by the Trust in connection with the organization and
the initial public offering of shares are expensed as incurred. These
expenses were advanced by the Adviser, and the Adviser has agreed to
voluntarily reimburse the Fund for these expenses, subject to
potential recovery (see Note 3). Prepaid initial registration expenses
are deferred and amortized over the period of benefit (not to exceed
12 months).
(B) INVESTMENT VALUATION
Securities (other than short-term instruments) for which market
quotations are readily available are valued at the last trade price on
the national securities exchange on which such securities are
primarily traded. Securities for which there were no transactions on
a given day or securities not listed on a national securities exchange
are valued at the most recent bid prices. Securities maturing within
60 days when purchased are valued by the amortized cost method which
approximates market value. Any securities for which market quotations
are not readily available are valued at their fair value as determined
in good faith by Choice Investment Management, LLC (the "Adviser")
pursuant to guidelines established by the Board of Trustees.
(C) EXPENSES
The Funds are charged for those expenses that are directly
attributable to each Fund, such as advisory and custodian fees.
Expenses that are not directly attributable to a portfolio are
typically allocated among the portfolios in proportion to their
average net assets.
18 I Choice Funds
<PAGE>
(D) FEDERAL INCOME AND EXCISE TAXES
No federal income tax provision has been made since the Funds intend
to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all
investment company taxable income and net capital gains to
shareholders in a manner which results in no tax cost to the
Funds. For the year ended October 31, 2000, the Balanced Fund incurred
a net capital loss of $717,283, which is available to offset future
capital gains through 2008.
(E) DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and distributions of net realized
gains, if any, will be declared and paid at least annually.
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 gain 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
decrease paid in capital by $23,379 and $14,985 and increase
accumulated net investment income by $109,477 and $14,985 and
increase accumulated net realized loss by $86,098 and $0 for the Focus
and Balanced Funds, respectively.
For the year ended October 31, 2000, 20.94% and 2.45% of the dividends
paid from net investment income, including short-term capital gains,
qualifies for the dividends received deduction available to corporate
shareholders of the Focus and Balanced Funds, respectively
(unaudited).
(F) OTHER
Investment transactions are accounted for on the trade date. The
Funds determine the gain or loss realized from 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
and interest income is recognized on an accrual basis.
Choice Funds I 19
<PAGE>
(3) INVESTMENT ADVISER
The Funds have an agreement with the Adviser, with whom certain officers
and directors of the Funds are affiliated, to furnish investment advisory
services to the Funds. Under the terms of this agreement, the Funds will
pay the Adviser a monthly fee at the annual rate of 1.00% and 0.75% of the
Fund's average daily net assets for the Focus Fund and the Balanced Fund,
respectively. The Adviser agreed to voluntarily waive its management fee
and/or reimburse the Fund's operating expenses (exclusive of brokerage,
interest, taxes and extraordinary expenses) to ensure that the Fund's
operating expenses did not exceed 2.25% and 2.00% of the Fund's average
daily net assets for the Focus Fund and the Balanced Fund, respectively,
through October 31, 2000. After such date, the expense limitation was
terminated. The Adviser is entitled to recoup from the Funds amounts waived
or reimbursed for a period of up to three years from the date such amounts
were waived or reimbursed, provided the Funds' expenses, including such
recouped amounts, do not exceed the stated expense limitations. At October
31, 2000, amounts that are subject to potential recoupment, including
amounts the Adviser reimbursed for start-up costs prior to the offering of
Fund shares, are as follows:
Recoverable Through Focus Fund Balanced Fund
------------------- ---------- -------------
October 31, 2002 $43,475 $43,475
October 31, 2003 _ 11,242
(4) DISTRIBUTION PLAN
The Funds have adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. The Plan authorizes payments by the Funds in
connection with the distribution of their shares at an annual rate, as
determined from time to time by the Board of Trustees, of up to 0.25% of
each Fund's average daily net assets.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the period ended October 31, 2000
were as follows:
Focus Fund Balanced Fund
----------- -------------
Shares 5,474,597 2,858,156
Shares issued to holders in
reinvestment of
distributions 2,497 _
Shares redeemed (961,600) (489,893)
---------- ---------- ----------
Net Increase 4,515,494 2,368,263
========== ==========
20 I Choice Funds
<PAGE>
(6) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the period ended October 31, 2000 were as
follows:
Focus Fund Balanced Fund
----------- -------------
Purchases
U.S.Government $ 6,009,824 $ 1,485,667
Other 522,450,854 115,079,116
Sales
U.S.Government 7,361,070 1,485,667
Other 477,710,021 93,389,202
At October 31, 2000, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $66,896,699
and $28,488,466 for the Focus and Balanced Funds, respectively, were as
follows:
Focus Fund Balanced Fund
----------- -------------
Appreciation $3,816,492 $1,126,777
Depreciation (1,526,437) (556,297)
----------- ----------
Net appreciation on investments $2,290,055 $570,480
=========== ==========
Choice Funds I 21
<PAGE>
Report of Independent Accountants
To the Board of Trustees and Shareholders of
Choice Funds
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Choice Focus Fund and the
Choice Balanced Fund (constituting Choice Funds, and hereafter referred to as
the "Trust") at October 31, 2000, and the results of each of their operations,
the changes in each of their net assets and the financial highlights for each of
the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material mistatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
December 14, 2000
22 I Choice Funds
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24 I Choice Funds
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