THE WATER FUND
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE - $10,000
For the period from October 26, 1999 (commencement of operations)
to December 31, 1999
12/31/99
--------
The Water Fund $ 9,906
S&P 500 Total Return Index $11,490
The Water Fund Total Return S&P Total Return
--------------------------- --------------------
Commencement of Operations 12/26//99 - 12/31/99
through 12/31/99
--------------------------- --------------------
(0.94)% 14.90%
--------------------------- --------------------
o The graph assumes an initial $10,000 investment at October 26, 1999. All
dividends and distributions are reinvested.
o At December 31, 1999, the Fund's value would have decreased to $9,906 -
total investment return of (0.94)% since October 26, 1999.
o At December 31, 1999, a similar investment in the S&P Total Return Index
would have grown to $11,490 - total investment return of 14.90% since
October 26, 1999.
<PAGE>
THE WATER FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
------ --------
COMMON STOCK - 83.71%
APPLIANCES - 3.15%
Maytag Corp. 2,000 $ 96,000
------------
BUILDING PRODUCTS - 6.02%
American Standard Cos., Inc.* 4,000 183,500
------------
ELECTRONIC EQUIPMENT - 3.95%
Badger Meter, Inc. 4,000 120,500
------------
ENGINEERING - 3.03%
Tetra Tech, Inc.* 6,000 92,250
------------
FOOD & BEVERAGE - 6.97%
Groupe Danone ADR 2,000 93,125
Heinz (H.J.) Co. 3,000 119,438
------------
212,563
------------
INDUSTRIAL - 6.06%
Lindsay Manufacturing Co. 2,000 36,500
Tecumseh Products Co. Cl A 2,000 94,375
Vivendi ADR 3,000 53,914
------------
184,789
------------
INTERNET SERVICES - 2.69%
VerticalNet, Inc. 500 82,000
------------
MISCELLANEOUS MANUFACTURING - 7.34%
Millipore Corp. 3,000 115,875
Pall Corp. 5,000 107,812
------------
223,687
------------
<PAGE>
THE WATER FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
------ --------
OIL & GAS - 5.83%
Eastern Enterprises, Inc. 2,000 114,875
Sclumberger, Ltd. 1,000 56,250
Transocean Sedco Forex, Inc. 194 6,535
------------
177,660
------------
STEEL - 0.46%
Northwest Pipe Co.* 1,000 14,000
------------
WATER - 38.21%
American States Water Co. 1,000 36,000
American Water Works 12,500 265,625
California Water Service Group 2,000 60,625
Connecticut Water Services Group 1,000 32,000
E'Town Corp. 2,800 174,300
Ionics, Inc.* 4,000 112,500
Middlesex Water Co. 2,500 80,000
Osmonics, Inc.* 3,500 32,156
Pennichuck Corp. 2,500 82,188
Philadelphia Suburban Corp. 6,000 124,125
SJW Corp. 1,000 120,250
Southwest Water Co. 3,000 45,000
------------
1,164,769
------------
TOTAL COMMON STOCK (Cost $2,478,640) 2,551,718
------------
<PAGE>
THE WATER FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
------ --------
FOREIGN STOCK - 0.72%
CHEMICALS - 0.72%
Israel Chemicals Ltd.
(Cost $22,119) 20,000 21,972
------------
MISCELLANEOUS ASSETS - 16.28%
Evergreen Money Market Trust Cl Y (Cost $496,306) 496,306 496,306
------------
TOTAL INVESTMENTS (Cost $2,997,065) - 100.71% 3,069,996
------------
Liabilities in Excess of Other Assets - (0.71)% (21,713)
------------
TOTAL NET ASSETS -- 100.00% $ 3,048,283
============
* Non-income producing investment.
ADR - American Depository Receipt
See Notes to Financial Statements.
<PAGE>
THE WATER FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at market (identified cost $2,997,065) $ 3,069,996
Receivables:
Dividends and interest 4,853
------------
Total assets 3,074,849
------------
LIABILITIES:
Payables:
Investment securities purchased 22,119
Due to advisor 3,812
Accrued expenses 635
------------
Total liabilities 26,566
------------
NET ASSETS $ 3,048,283
============
NET ASSETS CONSIST OF:
Common stock (unlimited shares of no par value authorized,
308,254 shares outstanding) $ 3,054,443
Undistributed net investment income 189
Accumulated realized loss on investments (79,280)
Net unrealized gain on investments 72,931
------------
Total Net Assets $ 3,048,283
============
Net Asset Value, offering and redemption price per share $ 9.89
============
See notes to financial statements.
<PAGE>
THE WATER FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 26, 1999
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 7,357
Interest 6,484
----------
Total investment income 13,841
----------
EXPENSES:
Investment advisory fees 4,977
Distribution fees 1,244
Service fees 2,488
----------
Total expenses 8,709
----------
Net investment income 5,132
----------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (79,280)
Net change in unrealized appreciation on investments 72,931
----------
(6,349)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,217)
==========
See notes to financial statements.
<PAGE>
THE WATER FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD OCTOBER 26, 1999
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Operations:
Net investment income $ 5,132
Net realized loss on investments (79,280)
Net change in unrealized appreciation on investments 72,931
------------
Net decrease in net assets resulting from operations (1,217)
------------
Distributions to shareholders from:
Net investment income (4,943)
------------
Capital Share Transactions:
Proceeds from shares sold 3,049,500
Proceeds from shares issued to holders
in reinvestment of dividends 4,943
------------
Net increase in net assets from Fund share transactions 3,054,443
------------
Increase in net assets 3,048,283
NET ASSETS:
Beginning of period --
------------
End of period $ 3,048,283
============
See notes to financial statements.
<PAGE>
THE WATER FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per Share Data (For a Share Outstanding from October 26, 1999
(commencement of operations) through December 31, 1999
For the Period
October 26, 1999
(commencement of
operations) to
December 31, 1999
-----------------
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
----------
Investment Operations:
Net investment income 0.02
Net realized and unrealized gain (loss) on investments (0.11)
----------
Total from investment operations (0.09)
----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.02)
----------
Total distributions (0.02)
----------
NET ASSET VALUE - END OF PERIOD $ 9.89
==========
TOTAL RETURN (0.94)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 3,048
Ratio of expenses to average net assets 1.75%(1)
Ratio of net investment income to average net assets 1.03%(1)
Portfolio turnover rate 9.67%
(1) Annualized
See notes to financial statements.
<PAGE>
THE WATER FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Water Fund, (the "Fund") is series of the Declaration Fund (the
"Trust"). The Trust is registered under the Investment Company Act of 1940 as an
open-end diversified management investment company originally incorporated in
Pennsylvania on April 9, 1981 and registered with the Commonwealth of
Pennsylvania as a Pennsylvania Business Trust on May 16, 1990. The Fund's
investment strategy is to emphasize growth of capital. The Fund became effective
with the Securities and Exchange Commission October 21, 1999 and commenced
operations on October 26, 1999.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation--Common stocks and other equity-type securities listed
on a securities exchange are valued at the last quoted sales price on the day of
the valuation. Price information on listed stocks is taken from the exchange
where the security is primarily traded. Securities that are listed on an
exchange but which are not rated on the valuation date are valued at the most
recent bid prices. Other assets and securities for which no quotations are
readily available are valued at fair value as determined in good faith by the
Investment Advisor under the supervision of the Board of Directors. Short-term
instruments (those with remaining maturities of 60 days or less) are valued at
amortized cost, which approximates market.
b) Federal Income Taxes--No provision for federal income taxes has been made
since the Fund has complied to date with the provision of the Internal Revenue
Code applicable to regulated investment companies and intends to so comply in
the future and to distribute substantially all of its net investment income and
realized capital gains in order to relieve the Fund from all federal income
taxes. As of December 31, 1999, the Fund had available for federal income tax
purposes an unused capital loss carryover of approximately $79,280, which
expires in 2007.
c) Distributions to Shareholders--Dividends from net investment income and
distributions of net realized capital gains, if any, will be declared and paid
at least annually. Income and capital gain distributions are determined in
accordance with income tax regulations that may differ from generally accepted
accounting principles.
d) Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and
<PAGE>
THE WATER FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
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.
e) Other--Investment and shareholder transactions are recorded on trade date.
The Fund determines the gain or loss realized from the investment transactions
by comparing the original cost 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.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended December 31, 1999
were as follows:
SHARES AMOUNT
Sold .................................... 307,749 $3,049,500
Reinvested .............................. 505 4,943
------- ----------
Net Increase ............................ 308,254 $3,054,443
======= ==========
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Fund for the period ended December 31, 1999, were as
follows:
Purchases ............................... $2,719,234
Sales ................................... $ 139,195
At December 31, 1999, unrealized appreciation of investments for tax
purposes was as follows:
Appreciation ............................ $ 171,839
Depreciation ............................ (98,908)
----------
Net appreciation on investments $ 72,931
==========
<PAGE>
THE WATER FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. INVESTMENT TRANSACTIONS- (CONTINUED)
At December 31, 1999, the cost of investments for federal income tax
purposes was $2,997,065.
4. ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
The Fund has entered into an Advisory Agreement with Avalon Trust Company
(the "Advisor") to provide investment management services to the Fund. Pursuant
to the Advisory Agreement, the Advisor is entitled to receive a fee, calculated
daily and payable monthly at the annual rate of 1.00% as applied to the Fund's
daily net assets. For the period October 26, 1999 (commencement of operations)
to December 31, 1999, the Advisor received fees of $4,977.
The Fund has entered into an Operating Services Agreement (the "Servicing
Agreement") with the Advisor to provide or arrange for day-to-day operational
services to the Fund. Pursuant to the Servicing Agreement, the Advisor is
entitled to receive a fee, calculated daily and payable monthly at the annual
rate of 0.50% as applied to the Fund's daily net assets. For the period October
26, 1999 (commencement of operations) to December 31, 1999 the Advisor received
fees of $2,488.
The Fund and the Advisor have entered into an Investment Company Services
Agreement (the "ICSA") with Declaration Service Company to provide day-to-day
operational services to the Fund including, but not limited to, accounting,
administrative, transfer agent, dividend disbursing, registrar and recordkeeping
services.
The Fund and the Advisor have entered into a Distribution Agreement with
Declaration Distributors, Inc. to provide distribution services to the Fund.
Declaration Distributors, Inc. serves as underwriter/distributor of the Fund.
The effect of the Advisory Agreement and the Servicing Agreement is to
place a "cap" on the Funds' normal operating expenses at 1.50%. The only other
expenses incurred by the Fund are distribution fees, brokerage fees, taxes, if
any, legal fees relating to Fund litigation, and other extraordinary expenses.
The Fund has adopted a Plan of Distribution under which it may finance
activities primarily intended to sell shares. Under the Plan, the Advisor,
Avalon Trust Company is paid a distribution fee at an annual rate of 0.25% of
average daily net assets of the Fund for distributing shares of the Fund and for
providing certain shareholder services. For the period October 26, 1999
(commencement of operations) to December 31, 1999, the Advisor received fees of
$1,244.
Certain directors and officers of the Fund are directors and officers of
the Advisor.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying statement of assets and liabilities of The
Water Fund (the "Fund"), a series of The Declaration Fund, including the
schedule of investments, as of December 31, 1999, and the related statements of
operations, the statement of changes in net assets, and the financial highlights
for the period October 26, 1999 (commencement of operations) to December 31,
1999. 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 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 amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999, by
correspondence with the custodian. 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
Water Fund as of December 31, 1999, and the results of its operations, the
changes in its net assets, and the financial highlights for the period October
26, 1999 (commencement of operations) to December 31, 1999, in conformity with
generally accepted accounting principles.
Abington, Pennsylvania Sanville & Company
February 2, 2000 Certified Public Accountants
