THE FAIRMONT FUND
Financial Statements
Year Ended December 31, 1999
with
Report of Independent Auditors
Comments from Morton H. Sachs, Chairman
1999 was another difficult year for value investing as investors flocked to high
tech and Internet weighted funds. In fact, the last three years have been very
difficult for value style investors. This does not mean that a value-based
strategy is dead. In the past, periods of investor exuberance and overconfidence
have been followed by a "rediscovery" of the importance of earnings and assets.
We believe that now is the time for such a reality check and that many of the
sound but unglamorous companies that have been neglected of late will be more
appreciated.
In the meantime, we have cautiously mixed some high tech and Internet
stocks in the fund. We have applied our value approach to these sectors and have
found bargains in several stocks such as Barnes and Noble, a retailer with a
rapidly developing Internet presence, and Compaq computer, a company whose stock
price has experienced a sharp decline. The lure of phenomenal returns has
sparked the current obsession with tech stocks, but these high-flyers are
incredibly vulnerable. Many are trading at multiples that far exceed any
rational benchmark of value and all are subject to sudden and severe price
corrections as technical innovation impacts their prospects. In a down market,
their slide could be steep indeed.
In the past, we had excellent results with financial stocks, but they are
currently out-of-favor. Rising interest rates are a threat to much of the
market, but especially to interest sensitive stocks. We have taken steps to
rebalance the portfolio, reducing our weighting in the financial area.
If you look at market performance behind the averages, it becomes obvious that
it is a two-tiered world - technology and everything else. As value proponents,
we find it difficult to be participants in this tech bonanza. We continue to be
weighted in value, and expect that as the market comes to its senses our stance
will be justified. At the same time, underperforming the averages is taxing our
patience. That is why we have introduced some technology issues into the
portfolio. We will continue to look for value in this sector, while keeping a
close eye on the door. We will do our best to boost performance without
abandoning our basic investment principles.
* * * * *
As you will note in the chart below, we have included a comparison with the
Russell 2000. This index of small stock performance is constructed from a list
of the 3,000 largest U.S. stocks, minus the top 1,000. Given the size of the
stocks typically found in our portfolio, we believe this is an appropriate
index.
[GRAPH]
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors:
Fairmont Fund
We have audited the accompanying statement of assets and liabilities of Fairmont
Fund, including the schedule of investments, as of December 31 1999, and the
related statements of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31 1999, 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
Fairmont Fund as of December 31 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 15, 2000
<PAGE>
The Fairmont Fund
Schedule of Investments
December 31, 1999
Investments in Securities
Common Stocks (Shares) Value Percent
Advertising
1,700 Grey Advertising (a) $ 680,000 4.52%
Airline
5,000 UAL Corporation (a) 387,812 2.58
Banking
10,000 Compass Bancshares Inc. 223,125
5,000 Capital One Financial Corporation 240,937
25,000 Texas Regional Bancshares, Inc. 725,000
--------
1,189,062 7.91
Beverages
5,000 Robert Mondavi Corporation (a) 173,750 1.16
Bookseller
30,000 Barnes and Noble, Inc. (a) 618,750 4.12
Business Services
100,000 Butler International, Inc. (a) 1,100,000 7.32
Computer and Computer Peripheral Manufacturer
25,000 Compaq Computers Corporation 676,563
5,000 International Business Machines 540,000
20,000 Read Rite Corporation (a) 95,000
--------
1,311,563 8.72
Computer Software
15,000 PeopleSoft Inc. (a) 319,688 2.13
Computer Networking and Internet Services
20,000 NewBridge Networks Corporation (a) 451,250
40,000 OnLine Resource and
Communications Corporation (a) 665,000
--------
1,116,250 7.42
Credit Services
8,000 American Express Company 1,330,000 8.85
Long Term Care Facilities
45,000 Sunrise Assisted Living Inc. (a) 618,750 4.12
Personal Services
60,000 Regis Corporation 1,132,500 7.53
See accompanying notes.
<PAGE>
The Fairmont Fund
Schedule of Investments
December 31, 1999
Investments in Securities (continued)
Common Stocks (Shares) Value Percent
Pharmaceuticals
10,000 Genzyme Corporation (a) $ 450,000 2.99%
Property and Casualty Insurance
15,000 Chubb Corporation 844,687 5.62
Real Estate Investment Trusts
45,000 RFS Hotel Investors Inc. 469,688 3.12
Retail Department Store
30,000 Saks Inc. (a) 466,875 3.11
Savings Institutions
40,000 Dime Bancorp Inc. 605,000
45,000 MECH Financial, Inc. 1,555,313
---------
2,160,313 14.37
Vehicle Rental
50,000 Budget Group, Inc. (a) 453,125 3.01
Waste Management
20,000 Safety Kleen Corporation (a) 226,250 1.51
Total Common Stocks (Cost $14,197,102) 15,049,063 100.11
Bank Repurchase Agreement With
Firstar NA of Cincinnati, issued
12/31/99 due 1/3/00, fully
collateralized by Government National
Mortgage Association, 6.5% due 12/15/08
(Cost $450,000) 450,000 2.99
----------- --------
Total Investments (Cost $14,637,102) 15,499,063 103.10
Other Assets Less Liabilities (465,955) ( 3.10)
----------- --------
Net Assets $ 15,033,108 100.00%
(a) Common stocks which did not declare a dividend in 1999.
See accompanying notes.
<PAGE>
The Fairmont Fund
Statement of Assets and Liabilities
December 31, 1999
ASSETS
INVESTMENTS IN SECURITIES, At Value (Note 2)
Common stocks (Cost $14,197,102) $15,049,063
Bank repurchase agreement 450,000
Total investments in securities $15,499,063
CASH 866
RECEIVABLES
Investment securities sold 470,104
Dividends 15,915
Interest 12
-----------
Total receivables 486,031
-------
Total assets 15,985,960
LIABILITIES
PAYABLES
Investment securities purchased $886,546
Shares redeemed 36,383
Management fee (Note 3) 23,132
Distribution to shareholders 6,219
-----------
Other 572
Total liabilities 952,852
----------
NET ASSETS $ 15,033,108
NET ASSETS CONSIST OF
Capital stock (632,046
shares outstanding) (Note 8) $ 14,260,961
Accumulated net realized
losses on investments (Note 6) ( 79,814)
Net unrealized appreciation
on investments (Note 5) 851,961
----------
NET ASSETS $ 15,033,108
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE
($15,033,108 divided by 632,046 shares) $ 23.78
See accompanying notes.
<PAGE>
The Fairmont Fund
Statement of Operations
Year Ended December 31, 1999
INVESTMENT INCOME (Note 2)
Dividends $ 258,082
Interest 36,313
Other 4,634
--------
Total investment income 299,029
EXPENSES
Management fee (Note 3) 316,708
Net investment loss (17,679)
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (Note 2)
Net realized gains from
investment transactions 1,206,359
Net change in unrealized
appreciation on investments (3,339,684)
Net realized and unrealized
losses on investments (2,133,325)
Net decrease in net assets
resulting from operations $ (2,151,004)
See accompanying notes.
<PAGE>
The Fairmont Fund
Statement of Changes in Net Assets
Years Ended December 31, 1999 and December 31, 1998
1999 1998
FROM OPERATIONS ------------ ------------
Net investment loss $ (17,679) $ (49,359)
Net realized gains or
losses on investments 1,206,359 ( 632,722)
Net change in unrealized
appreciation on investments (3,339,684) ( 844,173)
Net increase or decrease in
net assets resulting from
operations (2,151,004) ( 1,526,254)
DISTRIBUTIONS TO SHAREHOLDERS (Note 4)
Distributions from net
realized gains on investments (141,259) 0
------------ -----------
FROM CAPITAL SHARE
TRANSACTIONS (Note 8) Shares Shares
Proceeds from sale
of shares 19,494 479,685 42,180 1,166,930
Shares issued in
reinvestment of distribution 5,679 135,040 0 0
Payments for shares
redeemed (298,576) (7,128,568) (287,415) (7,657,202)
Net increase or decrease
in net assets from capital
share transactions (245,235) (6,513,843) (245,235) (6,490,272)
Net increase or decrease
in net assets ( 8,806,106) ( 8,016,526)
NET ASSETS
Beginning of year 23,839,214 31,855,740
End of period $ 15,033,108 $ 23,839,214
See accompanying notes.
<PAGE>
The Fairmont Fund
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Years Ended
December December December December December
31 31 31 31 31
1999 1998 1997 1996 1995
Net Asset Value, Beginning
of Period $ 26.33 27.68 26.45 27.02 24.06
Income From Investment Operations
Net Investment Loss ( 0.49) ( 0.27) ( .16) ( .10) ( .08)
Net Gains or Losses on Securities
(both realized and
unrealized) ( 1.83) ( 1.08) 4.20 2.67 6.80
Total From Investment
Operations ( 2.32) ( 1.35) 4.04 2.57 6.72
Less Distributions
Dividends (from net investment
income) .00 .00 .00 .00 .00
Distributions
(from capital gains) .23 .00 2.81 3.14 3.76
Returns of Capital .00 .00 .00 .00 .00
Total Distributions .23 .00 2.81 3.14 3.76
Net Asset Value, End of Period$ 23.78 26.33 27.68 26.45 27.02
Total Return ( 8.830)% ( 4.88)% 15.27% 9.52% 27.92%
Ratios/Supplemental Data
Net Assets, End of
Period (in 000s) $ 15,033 $ 23,839 $31,856$ 30,731 $28,191
Ratio of Expenses
to Average Net Assets 1.77% 1.68% 1.63% 1.66% 1.70%
Ratio of Net Income
to Average Net Assets ( 0.10)% ( 0.18)% ( .57)% ( .59)% ( .55)%
Portfolio Turnover Rate 2.61 3.42 1.83 2.37 2.47
See accompanying notes.
<PAGE>
The Fairmont Fund
Notes to Financial Statements
December 31, 1999
(1) Organization
The Fairmont Fund (The Fund) is a no-load, diversified series of The Camelot
Funds, formerly The Fairmont Fund Trust (The Trust), which is a Kentucky
business trust and an open-end investment company registered under the
Investment Company Act of 1940. The Fund was established under a Declaration of
Trust dated December 29, 1980 and began offering its shares publicly on
September 2, 1981. The Fund's objective is capital appreciation which it seeks
to achieve by investing in equity securities that its Adviser believes are
undervalued.
(2) Summary of Significant Accounting Policies
(a) Valuation of Investment Securities - Purchases and sales of securities
are recorded on a trade date basis. Portfolio securities which are traded on
stock exchanges or in the over-the-counter markets are valued at the last sale
price as of 4:00 P.M. Eastern time on the day the securities are being valued
or, lacking any sales, at the mean between the closing bid and asked prices.
Fixed income securities are valued by using market quotations, or independent
pricing services which use prices provided by market makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Securities and other assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Trustees. Dividend income
is recorded on the ex-dividend date and interest income is recorded on the
accrual basis.
(b) Gains and Losses on Investment Securities - Gains and losses from sales
of investments are calculated on the "identified cost" method. Upon disposition
of a portion of the investment in a particular security, it is The Fund's
general practice to first select for sale those securities which qualify for
long-term capital gain or loss treatment for tax purposes.
(c) Repurchase Agreements - The Fund may acquire repurchase agreements from
banks or security dealers (the Seller) which the Board of Trustees and the
Adviser have determined creditworthy. The Seller of the repurchase agreement is
required to maintain the value of collateral at not less than the repurchase
price, including accrued interest. Securities pledged as collateral for
repurchase agreements are held by The Fund's custodian in the Federal
Reserve/Treasury book-entry system.
(d) Capital Shares - The Fund records purchases of its capital shares at
the daily net asset value next determined after receipt of a shareholder's check
or wire and application in proper form. Redemptions are recorded at the net
asset value next determined following receipt of a shareholder's written request
in proper form.
(e) Estimates and Assumptions - The preparation of financial statements in
conformity with generally accepted accounting principles requires The Fund 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 reporting period. Actual results could differ from those estimates.
(3) Investment Advisory Agreement, Commissions and Related Party
Transactions
The Investment Advisory Agreement (the Agreement) provides that The Sachs
Company (the Adviser) will pay all of The Trust's operating expenses, excluding
brokerage fees and commissions, taxes, interest and extraordinary expenses.
Under the terms of the Agreement, The Fund pays the Adviser a fee at the rate of
2% of the first $10,000,000 of average daily net assets, 1-1/2% of the next
$20,000,000, and 1% of the average daily net assets over $30,000,000. The
management fee is accrued daily and paid monthly. The Adviser received
management fees of $316,708 for the year ended December 31, 1999.
Morton H. Sachs, a trustee of The Fund, is the president and sole
shareholder of the Adviser. The Adviser, as a registered broker-dealer of
securities, effected substantially all of the investment portfolio transactions
for The Fund. For this service the Adviser received commissions of $205,486 for
the year ended December 31, 1999.
<PAGE>
The Fairmont Fund
Notes to Financial Statements
December 31, 1999
Certain officers and/or Trustees of The Fund are officers of the Adviser.
(4) Distributions to Shareholders
The following is a summary of distributions to shareholders for the year ended
December 31, 1999. No distributions were made in the year ended December 31,
1998.
Date Declared Paid In Cash Reinvested Total Per Share Amount
December 31, 1999 $6,219 $135,040 $141,259 $0.23
(5) Investments
For the year ended December 31, 1999, the cost of purchases and proceeds from
sales of investments, other than temporary cash investments, were $49,475,564
and $49,470,570, respectively.
Following is information regarding unrealized appreciation (depreciation) and
aggregate cost of securities based upon federal income tax cost at December 31,
1999. The difference between book cost and tax cost consists of wash sales in
the amount of $79,814.
Tax Cost
Aggregate gross unrealized appreciation for
all securities with value in excess of cost $1,907,855
Aggregate gross unrealized depreciation for
all securities with cost in excess of value (1,135,708)
Net unrealized appreciation $ 772,147
Aggregate cost of securities $ 14,276,916
(6) Income Taxes
It is The Fund's policy to comply with the special provisions of the Internal
Revenue Code available to investment companies and, in the manner provided
therein, to distribute substantially all of its income to shareholders.
Therefore no tax provision is required. The accumulated net realized loss is
due only to temporary timing differences caused by wash sales and does not
represent a capital loss carryforward for income tax purposes.
(7) There are no reportable financial instruments which have any off-balance
sheet risk as of December 31, 1999.
(8) At December 31, 1999 an indefinite number of capital shares (no par value)
were authorized, and paid-in capital amounted to $14,260,961. Transactions in
capital shares were as follows:
Shares sold 25,173
Shares redeemed (298,576)
---------
Net decrease (273,403)
Shares outstanding:
Beginning of period 905,449
Ending of period 632,046
(9) In accordance with SOP 93-2, The Fund has recorded a reclassification in
the capital accounts. As of December 31, 1999, The Fund recorded permanent
book/tax differences of $(17,679) from undistributed net investment income to
paid in capital. This reclassification has no impact on the net asset value of
The Fund and is designed generally to present undistributed income and realized
gains on a tax basis which is considered to be more informative to the
shareholder.
