SEARAY FINANCIAL FUNDS
THE STURGEON FUND
SEMI-ANNUAL REPORT
August 31, 2000
The Searay Financial Funds
321 South Bromfield Road
Dayton, Ohio 45429
1-800-445-8327
Internet: www.thesturgeonfund.com
<PAGE>
THE STURGEON FUND
October 19, 2000
Dear Fellow Sturgeon Fund Shareholder:
This market has proven to be the most challenging one I have ever witnessed. It
has shown no mercy for any negative news. The new rules on financial disclosure
have made it seem that a lot of companies are making preannouncements of
earnings shortfalls when in reality there are no more than normal. The only
difference now is in who is making those announcements! However, I feel the
market will turn-up this Fall as actual earnings reports are released.
The internet is still expanding and I feel there are plenty of opportunities out
there to take advantage of. Also, the use of fiber optics is in its infancy.
It's like a baseball game and we are currently only in the 2nd inning.
It is my opinion that the stock market hit a bottom around October 13th.
Therefore, I feel the downside is limited while the upside potential is much
greater. I like those odds. Thank you for the confidence you have placed in us.
Cordially,
/s/ Richard Bradford
Richard Bradford, Sturgeon Fund Investment Adviser
<PAGE>
THE STURGEON FUND
SCHEDULE OF INVESTMENTS
August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
SHARES OR
INDUSTRIES/CLASSIFICATIONS FACE AMOUNT VALUE
COMMON STOCKS -
AGRICULTURE & FOOD - 0.7%
Embrex, Inc. # 900 $11,419
COMMERCIAL BANKS - 0.1%
Columbia Banking System, Inc. # 100 1,400
COMPUTER PERIPHERALS - 2.2%
S3, Inc. # 3,000 35,437
COMPUTER SOFTWARE & SERVICES - 13.4%
3Dfx Interactive, Inc. # 10,000 45,625
Exodus Communications, Inc. # 1,000 68,437
NeoMagic Corp. # 6,000 21,563
Pinnacle Systems, Inc. # 5,000 63,125
Quintus Corp. # 1,200 15,675
--------
214,425
COMPUTER SYSTEMS - 10.7%
ANADIGICS, Inc. # 1,000 36,000
Read-Rite Corp. # 10,000 90,312
Redback Networks, Inc. # 300 44,813
--------
171,125
CONSULTING SERVICES - 2.5%
Numerical Technologies, Inc. # 1,000 39,125
ELECTRONIC COMPONENT: SEMICONDUCTORS - 14.2%
Atmel Corp. # 2,000 40,000
ESS Technology, Inc. # 2,000 34,625
GlobeSpan, Inc. # 500 60,219
LSI Logic Corp. # 1,000 35,938
TriQuint Semiconductor, Inc. # 1,000 55,312
--------
226,094
ELECTRONICS - 4.1%
Altera Corp. # 1,000 64,813
FIBER OPTICS - 5.0%
Finisar Corp. # 1,000 46,375
Harmonic, Inc. # 1,000 33,500
--------
79,875
INTERNET CONTENT - 0.2%
Panja, Inc. # 300 3,525
INTERNET: SOFTWARE - 1.9%
Digital Island, Inc. # 1,000 29,687
MACHINERY - 1.1%
Kulicke and Soffa Industries, Inc. # 1,000 18,188
NETWORKING PRODUCTION - 12.5%
3COM Corp. # 1,500 24,937
Concord Communications, Inc. # 1,000 24,000
Eltrax Systems, Inc. # 4,000 20,000
Extreme Networks, Inc. # 1,000 93,062
Foundry Networks, Inc. # 400 37,225
--------
199,224
OIL & NATURAL GAS - 2.4%
Chesapeake Energy Corp. # 5,000 38,125
TELECOMMUNICATION EQUIPMENT - 3.8%
Avanex Corp. # 400 60,588
TELECOMMUNICATION SERVICES - 2.7%
Verizon Communications 1,000 43,625
See accompanying notes to financial statements.
2
<PAGE>
THE STURGEON FUND
SCHEDULE OF INVESTMENTS (Continued)
August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
TELECOMMUNICATIONS - 3.7%
NEXTLINK Communications, Inc. # 1,000 35,062
XETA Technologies, Inc. # 1,400 23,538
--------
58,600
TOTAL COMMON STOCKS 1,295,275
REPURCHASE AGREEMENT - 10.6%
Firstar Trust Co., 4.25%, 09/01/00,
(Collaterlized by $554,000 GNMA Midget, 6.50%, 06/15/08,
market value - $172,533) 169,000 169,000
MONEY MARKET REGISTERED INVESTMENT COMPANIES - 8.2%
Flex-funds Money Market Fund 65,387 65,387
Firstar Bank Treasury Fund 65,000 65,000
--------
130,387
TOTAL INVESTMENTS - 100.0% $1,594,662
# Represents non-income producing securities.
See accompanying notes to financial statements.
THE STURGEON FUND
STATEMENT OF ASSETS & LIABILITIES
August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
Assets
Investments, at value (cost $1,560,010) $1,594,662
Receivable for securities sold 175,224
Receivable from investment adviser 67,702
Receivable for dividends and interest 319
Prepaid expenses and other assets 5,513
----------
Total assets 1,843,420
Liabilities
Payable for securities purchased 376,766
Payable for dealer/underwriter commissions 152
Accrued 12b-1 distribution fees 483
Accrued shareholder service fees 483
Other accrued liabilities 21,225
----------
Total liabilities 399,109
Total net assets $1,444,311
Net Assets
Paid-in capital 1,328,841
Accumulated net investment income (loss) (7,686)
Accumulated net realized gain (loss) 88,504
Net unrealized appreciation (depreciation) 34,652
----------
Total net assets $1,444,311
Capital Stock Outstanding 143,785
(indefinite number of shares authorized, $0.10 par value)
Net Asset Value, Offering and Redemption Price Per Share $10.04
Maximum Sales Charge 4.00%
Maximum Offering Price $10.46
(Net Asset Value/(100% - Maximum Sales Charge))
See accompanying notes to financial statements.
3
<PAGE>
THE STURGEON FUND
STATEMENT OF OPERATIONS
For the period March 3, 2000* through
August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
Investment Income (Loss)
Income
Interest $2,827
Total income 2,827
Expenses
Investment management 4,665
Bookkeeping 22,083
Legal and audit 16,222
Administration 14,864
Trustee 7,757
Printing 4,431
Custody 3,565
Insurance 2,452
Registration and blue sky 1,627
Shareholder servicing 1,166
12b-1 distribution 1,166
Other 2,882
-------
Total expenses 82,880
-------
Expenses reimbursed by investment adviser (72,367)
-------
Net expenses 10,513
Net investment income (loss) (7,686)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from securities transactions 88,504
Change in net unrealized gain or loss on securities 34,652
-------
Net realized and unrealized gain (loss) 123,156
Net Increase (Decrease) in Net Assets Resulting
from Operations $115,470
* Commencement of operations.
THE STURGEON FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period March 3, 2000* through
August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) ($7,686)
Net realized gain (loss) from securities transactions 88,504
Change in net unrealized gain or loss on securities 34,652
----------
Net increase (decrease) in net assets resulting from operations 115,470
Capital transactions**
Issued 1,328,841
Reinvested 0
Redeemed 0
Net increase (decrease) in net assets ----------
resulting from capital transactions 1,328,841
Total increase (decrease) in net assets 1,444,311
Net assets - beginning of period 0
Net assets - end of period $1,444,311
*Share information
Issued 143,785
Reinvested 0
Redeemed 0
----------
Change in shares 143,785
* Commencement of operations.
See accompanying notes to financial statements.
4
<PAGE>
THE STURGEON FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Period from March 3, 2000* to August 31, 2000
--------------------------------------------------------------------------------
Net Asset Value, beginning of period $10.00
Income from investment operations
Net investment income (loss) (0.05)
Net realized and unrealized gain (loss) 0.09
Total from investment operations 0.04
Net Asset Value, end of period $10.04
Total return (excludes sales charge) 0.40% (2)
Ratios/Supplemental Data
Net assets, end of period ($000) $1,444
Ratio of expenses to average net assets 2.25% (1)
Ratio of net investment income (loss) (1.64%)(1)
to average net assets
Ratio of expenses to average net assets 17.72% (1)
before reimbursement of fees
Ratio of net investment income (loss) (17.11%)(1)
to average net assets before reimbursement
of fees
Portfolio turnover rate 731.58% (2)
(1) Annualized.
(2) Not annualized.
* Commencement of operations.
See accompanying notes to financial statements.
5
<PAGE>
SEARAY FINANCIAL FUNDS
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
ORGANIZATION
The Searay Financial Funds (the "Trust") were organized as a Massachusetts
business trust on December 20, 1999. The Sturgeon Fund (the "Fund") is a series
of the Trust. The Fund is registered under the Investment Company Act of 1940
(the "1940 Act") as an open-end management investment company.
The Trust is authorized to issue an unlimited number of shares of capital
stock in separate series, with each series representing interests in a separate
portfolio of securities and other assets, each with its own investment
objectives and policies. The Trust has an agreement with Sturgeon Financial
Group Ltd. (the "Adviser"), with whom certain officers and trustees of the Trust
are affiliated, to serve as investment adviser to the Fund.
The Fund's investment objective is to provide shareholders with long-term
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in equity securities that the Adviser considers to be undervalued. The
Fund's shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the Fund's prospectus.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements. These policies are
in conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results could differ from these estimates.
Security Valuation - Securities that are traded on any exchange or on the
NASDAQ over-the-counter market are valued at the last quoted sale price. Lacking
a last sale price, a security is valued at its highest bid price on such
exchanges, or at the highest bid price in the over-the-counter market except
when, in the Adviser's opinion, the highest bid price does not accurately
reflect the current value of the security. Securities for which market
quotations are not readily available, or when the Adviser determines the highest
bid price does not accurately reflect the current value, or when restricted
securities are being valued, are valued as determined in good faith by the
Adviser, subject to review by the Board of Trustees of the Trust.
Fixed-income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by an independent pricing
service which uses prices based upon yields or prices of comparable securities,
indications as to values from dealers, and general market conditions, when the
Adviser believes such prices accurately reflect the fair market value of the
security.
Short-term investments in fixed-income securities with maturities of less
than sixty days when acquired, or which subsequently are within sixty days of
maturity, are valued by using the amortized cost method of valuation, which the
Board has determined will represent fair value.
Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all net investment income and any realized capital
gain. Therefore, no federal income tax provision is required.
Dividends and Distributions - The Fund intends to distribute substantially
all net investment income as dividends to shareholders on an annual basis. The
Fund intends to distribute net long-term capital gains and net short-term
6
<PAGE>
SEARAY FINANCIAL FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
capital gains at least once a year. Income and capital gain distributions to
shareholders are determined in accordance with income tax regulations, which may
differ from generally accepted accounting principles. Those differences are
primarily due to differing treatments for net operating losses and deferral of
wash sale losses.
Security Transactions and Related Income - The Fund records security
transactions on trade date. The specific identification method is used for
determining gains or losses for financial statements and income tax purposes.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis. Discount and premium on securities purchased are
amortized over the life of the respective securities.
SECURITIES TRANSACTIONS
For the six months ended August 31, 2000, the cost of purchases and
proceeds from sales or maturities of long-term investments for the Fund were
$7,736,510 and $6,630,761, respectively. The cost of investments for Federal
income tax purposes and for financial reporting purposes is substantially the
same.
INVESTMENT ADVISORY AGREEMENT AND OTHER RELATED PARTY TRANSACTIONS
Under the Trust's agreement with the Adviser to serve as investment adviser
to the Funds, a monthly fee is paid to the Adviser at an annual rate of 1.00% of
the average daily net assets of the Fund. The Adviser has contractually agreed
to waive its fees and/or reimburse expenses to limit the Fund's total annual
operating expenses to 2.25%. The Adviser may terminate this agreement after June
30, 2001. For the six months ended August 31, 2000, the Adviser earned advisory
fees of $4,665.
The Trust has agreements with Mutual Funds Service Co. (the
"Administrator") to provide transfer agent, fund accounting and administrative
services to the Fund. The services to be provided under the agreements include
day-to-day administration of matters related to the corporate existence of the
Fund (other than rendering investment advice), maintenance of records,
preparation of reports, supervision of the Fund's arrangement with the custodian
and assistance in the preparation of the Fund's registration statement under
federal and state laws.
The Trust has an agreement with Creative Capital Management Corp. (the
"Distributor"), with whom certain officers and trustees of the Trust are
affiliated, to act as the principal underwriter of the Fund's shares. The
Distributor also receives brokerage commissions from the Fund for executing
portfolio purchase and sale transactions. For the six months ended August 31,
2000, the Distributor earned underwriter fees and brokerage commissions in the
amount of $5,877 and $1,496, respectively. In addition, Creative Capital
Management Corp. received brokerage commissions for the execution of portfolio
purchase and sale transactions in the amount of $29,775.
Pursuant to Rule 12b-1 of the 1940 Act, the Fund has adopted a Distribution
Plan (the "Plan") with the Distributor. Under the provisions of the Plan, the
Fund pays the Distributor an annual fee, at a maximum rate of 0.25% of average
daily net assets, to aid in the distribution of Fund shares. Additionally, the
Fund has adopted a Service Plan with the Distributor. Under the provisions of
the Service Plan, the Fund pays the Distributor an annual fee, at a maximum rate
of 0.25% of average daily net assets, to reimburse securities dealers for
personal services or maintenance of shareholder accounts.
7
<PAGE>
The Searay Financial Funds
321 South Bromfield Road
Dayton, Ohio 45429
1-800-445-8327
Internet: www.thesturgeonfund.com
