<PAGE>
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HUDSON CAPITAL
APPRECIATION FUND
(A Series of The Fahnestock Funds) 125 Broad Street
New York, New York 10004
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Dear Shareholders:
Nineteen-ninety eight was a disappointing year for the Hudson Capital
Appreciation Fund. The Fund's Class A Shares net asset value decreased by 10.3%
(after an adjustment for capital gains distributions.) This compared to a loss
of 2.5% for the Russell 2000 Index, our most comparable index, and a gain of
28.7% for the Standard & Poor's 500 Index./1/ This year's decline followed two
years in which our net asset value increased in excess of 40% each year./2/
Since our fundamental strategy and investment approach didn't change over this
period, we believe our results are attributable to some unique events that
occurred in 1998.
Our strategy is to attempt to identify promising companies which we believe
have been overlooked or are temporarily in disfavor. Because investor attention
and research analysis tends to focus on larger companies, we find most of our
opportunities in smaller companies. This approach also leads companies that
have strong financial characteristics such as lower P/E ratios and healthy
balance sheets; this is known as "value" investing.
Small cap and "value" stocks were out of favor in 1998. In fact, some
analysts have noted that in 1998 small cap stocks achieved 30 year historic
lows compared to larger companies in terms of key ratios such as price to
earnings and price to book value. The reasons are not completely mysterious--
there have been large flows of capital into the larger mutual funds and
particularly index funds, both of which tend to focus on larger companies. The
supply of large-cap securities is actually shrinking through stock buy-backs
and mergers. With more demand and less supply, prices have risen.
Fortunately, we believe this process is not completely mechanical. As in
previous cycles, unusual disparities will eventually tend to correct
themselves. For example, the high prices of large company stocks may result in
increased buy outs of small companies, freeing up capital in that sector. Or,
new funds flows from previously uninvolved participants may flow into small
companies. We believe small companies' values are currently too compelling to
ignore for much longer.
Not all of the under-performance in 1998 was due to small company investing.
We also underestimated some of the effects of the Asian financial crisis. Our
investments in oil services, semiconductor equipment and agricultural related
stocks did not perform well.
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<PAGE>
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Looking forward, we intend to continue to strive to find promising companies
that can be purchased at reasonable prices. We are decreasing our dependence
on cyclical companies, assuming that the long U.S. consumer driven economic
expansion may be vulnerable. We are optimistic that our strategy of seeking
promising companies at reasonable prices will once again continue to be
rewarding for our investors.
Sincerely,
/s/ James D. Gerson
James D. Gerson
Senior Vice President and
Portfolio Manager
/1/The Russell 2000 measures the performance of the 2,000 smallest companies
in the Russell 3,000 index. The S&P 500 is a capitalization-weighted index of
500 stocks designed to measure the performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing all
major industries. These indices are unmanaged and actual investment cannot be
made in an index. These indices are not adjusted to reflect sales loads,
expenses or other fees the SEC requires to be reflected in the Fund's
performance.
/2/The Fund's total return for the 1-year, 5-year, and start of performance
(3/5/91) periods was: -14.37%, 12.68%, and 13.72%, respectively.
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<PAGE>
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The Value of a $10,000 Investment in the Hudson Capital Appreciation Fund--
Class A
The graph below illustrates the hypothetical investment of $10,000* in the
Hudson Capital Appreciation Fund--Class A (the "Fund") from March 5, 1991
(start of performance) to December 31, 1998, compared to the Standard and
Poor's 500 Index (S&P 500).+
Hudson Capital Appreciation Fund
Class A Shares
HCAF S&P 500
3/5/91 9,550 10,000
12/31/91 11,221 11,664
12/31/92 12,180 12,550
12/31/93 14,344 13,813
12/31/94 12,734 13,995
12/31/95 15,130 19,255
12/31/96 21,266 23,676
12/31/97 30,386 31,574
12/31/98 27,241 40,462
- ---------- The Fund - - - - - S&P 500
Average Annual Total Returns** for the
Periods Ended December 31, 1998
1 Year............................................(14.37%)
5 Year............................................ 12.68%
Start of Performance (03/05/91)................... 13.72%
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund, after
deducting the maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550). The Fund's performance assumes the reinvestment of all
dividends and distributions.
**Total returns quoted reflect all applicable sales charges.
+Source: The S&P 500 is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The S&P 500 has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
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<PAGE>
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The Value of a $10,000 Investment in the Hudson Capital Appreciation Fund--
Class B
The graph below illustrates the hypothetical investment of $10,000* in the
Hudson Capital Appreciation Fund--Class B (the "Fund") from April 17, 1997
(start of performance) to December 31, 1998, compared to the Standard and
Poor's 500 Index (S&P 500).+
Hudson Capital Appreciation Fund
Class B Shares
HCAF S&P 500
4/17/97 10,000 10,000
12/31/97 13,078 12,890
12/31/98 11,687 16,519
- ---------- The Fund - - - - - S&P 500
Average Annual Total Returns** for the
Periods Ended December 31, 1998
1 Year............................................(15.10%)
Start of Performance (04/17/97)................... 9.92%
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 5.00% maximum contingent deferred sales charge on
any redemption less than one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions.
**Total returns quoted reflect all applicable contingent deferred sales
charges.
+Source: The S&P 500 is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The S&P 500 has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
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<PAGE>
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The Value of a $10,000 Investment in the Hudson Capital Appreciation Fund--
Class N
The graph below illustrates the hypothetical investment of $10,000* in the
Hudson Capital Appreciation Fund--Class N (the "Fund") from April 17, 1997
(start of performance) to December 31, 1998, compared to the Standard and
Poor's 500 Index (S&P 500).+
Hudson Capital Appreciation Fund
Class N Shares
HCAF S&P 500
4/17/97 10,000 10,000
12/31/97 13,709 12,890
12/31/98 12,290 16,519
- ---------- The Fund - - - - - S&P 500
Average Annual Total Returns** for the
Periods Ended December 31, 1998
1 Year............................................(10.35%)
Start of Performance (04/17/97)................... 12.82%
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
*The Fund's performance assumes the reinvestment of all dividends and
distributions.
+Source: The S&P 500 is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The S&P 500 has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
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<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <S> <C>
COMMON STOCKS--97.2%
Agriculture--5.4%
40,000 Agrium, Inc. $ 347,500
30,000 ConAgra, Inc. 945,000
30,000 Valmont Industries 416,250
-----------
Total 1,708,750
-----------
Building & Construction--9.7%
22,500(a) Genlyte Group, Inc. 421,875
20,000 Lone Star Industries 736,250
20,000(a) NCI Building Systems, Inc. 562,500
35,400 Republic Group, Inc. 710,213
25,000(a) Southern Energy Homes, Inc. 153,125
20,000(a) Toll Brothers, Inc. 451,250
-----------
Total 3,035,213
-----------
Chemicals--3.6%
30,000 Cambrex Corporation 720,000
20,000(a) Cytec Industries Incorporated 425,000
-----------
Total 1,145,000
-----------
Communications--0.5%
32,500(a)(b) IFR Systems, Inc. 150,312
-----------
Computer Products--7.8%
10,000 International Business Machines 1,847,500
42,000(a)(b) Phoenix Technologies Ltd. 362,250
20,000(a) Programmers Paradise, Inc. 252,500
-----------
Total 2,462,250
-----------
</TABLE>
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The accompanying notes are an integral part of the financial statements.
<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (Continued)
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <S> <C>
COMMON STOCKS (Continued)
Consumer Products--10.2%
24,800 Bush Industries--Class A $ 308,450
54,000(a) Helen of Troy Ltd. 793,125
25,000(a) ITI Technologies, Inc. 775,000
2,000(a) Meade Instruments Corporation 24,375
15,000 Regis Corp. Minnesota 600,000
50,000(a) Rexall Sundown Incorporated 700,000
-----------
Total 3,200,950
-----------
Distributors--7.2%
25,000(a) Black Box Corporation 946,875
48,000(a) Fresh America Corp. 804,000
30,000(a) VWR Scientific Products 521,250
-----------
Total 2,272,125
-----------
Electronics--14.2%
25,000(a) Altera Corp. 1,521,875
20,000 Innovex Corp. 274,375
30,000(a) Micrion Corporation 352,500
15,000(a) PCD Inc. 195,000
40,000(a) Speedfam International, Inc. 685,000
40,000(a) Storage Technology Corp. 1,422,500
-----------
Total 4,451,250
-----------
Financial--3.9%
12,000 Citigroup Incorporated 594,000
20,000 Travelers Property Casualty Corp.--Class A 620,000
-----------
Total 1,214,000
-----------
</TABLE>
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The accompanying notes are an integral part of the financial statements.
<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (Continued)
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <S> <C>
COMMON STOCKS (Continued)
Industrial Products--18.6%
12,000 Blount International, Inc.--Class A $ 299,250
50,000(a) Checkpoint Systems, Inc. 618,750
30,000 DT Industries, Inc. 472,500
49,500(a) ESCO Electronics Corp. 448,594
16,000(a) Esterline Technologies Corp. 348,000
17,100(a) Jacobs Engineering Group, Inc. 696,825
40,000 Mark IV Industries, Inc. 520,000
31,823(a)(b) New Brunswick Scientific, Inc. 190,938
5,000(a) Park-Ohio Holdings Corp. 75,625
26,000(a) Right Management Consultants Incorporated 383,500
77,501(a) Supreme Industries, Inc.--Class A 745,947
15,000 Titan International, Inc. 142,500
40,000(a) U. S. Filter Corporation 915,000
-----------
Total 5,857,429
-----------
Information Services--4.0%
25,000 Electronic Data Systems Corporation 1,256,250
-----------
Oil, Energy & Gas Exploration--2.3%
31,700(a) Louis Dreyfus Natural Gas Corp. 451,725
12,000 Tidewater, Inc. 278,250
-----------
Total 729,975
-----------
Restaurants--2.2%
26,000(a) Garden Fresh Restaurants Corp. 373,750
22,500(a) O'Charleys, Inc. 317,812
-----------
Total 691,562
-----------
</TABLE>
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The accompanying notes are an integral part of the financial statements.
<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (Continued)
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <S> <C>
COMMON STOCKS (Continued)
Retail--1.8%
50,000(a) Corporate Express, Inc. $ 259,375
15,000(a) Travis Boats & Motors, Inc. 307,500
-----------
Total 566,875
-----------
Transportation--5.8%
20,000(a) AMR Corp. 1,187,500
20,000(a) Celadon Group, Inc. 285,000
62,000(a) Simon Transportation Service 360,375
-----------
Total 1,832,875
-----------
Total Common Stocks (cost $28,775,988) 30,574,816
-----------
<CAPTION>
Principal
Amount
---------
<C> <S> <C>
TIME DEPOSIT--0.9%
$278,000 State Street Bank and Trust Co., 4.00% dated
12/31/1998 due 1/4/1999 (cost $278,000) 278,000
-----------
Total Investments (cost $29,053,988)(c) $30,852,816
===========
</TABLE>
- --------
(a) Non-income producing security.
(b) Security issues rights.
(c) The cost of investments for federal tax purposes amounts to $29,053,988.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,798,828 which is comprised of $6,289,290 appreciation and
$4,490,462 depreciation at December 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($31,449,338) at December 31, 1998.
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The accompanying notes are an integral part of the financial statements.
<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
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<TABLE>
<S> <C>
ASSETS:
Total investments in securities, at value (cost $29,053,988)
(Note 1) $30,852,816
Cash............................................................ 702
Income receivable............................................... 6,931
Receivable for investments sold................................. 33,754
Receivable for Fund shares sold................................. 1,160,508
-----------
Total assets.................................................. 32,054,711
-----------
LIABILITIES:
Payable for investments purchased............................... 232,500
Payable for Fund shares redeemed................................ 70,581
Accrued expenses................................................ 302,292
-----------
Total liabilities............................................. 605,373
-----------
Net Assets...................................................... $31,449,338
===========
NET ASSETS CONSIST OF:
Paid in capital................................................. $30,353,454
Net unrealized appreciation of investments...................... 1,798,828
Accumulated net investment loss................................. (899,748)
Accumulated net realized gain on investments.................... 196,804
-----------
Net Assets.................................................... $31,449,338
===========
Class A Shares:
Net Asset Value Per Share ($25,336,026 / 1,792,907 shares
outstanding)................................................... $ 14.13
-----------
Offering Price Per Share (100/95.50 of $14.13)*................. $ 14.80
-----------
Redemption Proceeds Per Share................................... $ 14.13
-----------
Class B Shares:
Net Asset Value Per Share ($2,681,670 / 191,337 shares
outstanding)................................................... $ 14.02
-----------
Offering Price Per Share........................................ $ 14.02
-----------
Redemption Proceeds Per Share+.................................. $ 14.02
-----------
Class N Shares:
Net Asset Value Per Share ($3,431,642 / 242,829 shares
outstanding)................................................... $ 14.13
-----------
Offering Price Per Share........................................ $ 14.13
-----------
Redemption Proceeds Per Share................................... $ 14.13
-----------
</TABLE>
- --------
*See "How to Buy Shares" in the Prospectus.
+ Class B Shares are sold without an initial sales charge, but are subject to a
5.00% contingent deferred sales charge if shares are redeemed within eleven
months, reduced on shares held over twelve months.
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The accompanying notes are an integral part of the financial statements.
<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
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<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................... $ 22,497
Dividends........................................................ 176,914
-----------
Total investment income........................................ 199,411
-----------
Expenses: (Notes 2 and 3)
Investment management fee........................................ 339,258
Distribution expenses Class A Shares............................. 62,676
Distribution expenses Class B Shares............................. 27,614
Distribution expenses Class N Shares............................. 12,175
Legal, compliance and filing fees................................ 119,005
Custodian fee.................................................... 6,704
Shareholder servicing and related shareholder expenses........... 133,459
Audit and accounting............................................. 59,243
Trustees' fees and expenses...................................... 18,000
Other............................................................ 51,316
-----------
Total expenses................................................. 829,450
Investment management fee waived................................. (78,060)
-----------
Net expenses..................................................... 751,390
-----------
Net investment loss.............................................. (551,979)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................... 714,676
Net change in unrealized appreciation of investments............... (4,694,671)
-----------
Net realized and unrealized loss on investments.................. (3,979,995)
-----------
Net decrease in net assets from operations......................... $(4,531,974)
===========
</TABLE>
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The accompanying notes are an integral part of the financial statements.
<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Net investment loss........................ $ (551,979) $ (347,769)
Net realized gain on investments........... 714,676 4,615,862
Net change in unrealized appreciation of
investments............................... (4,694,671) 3,300,887
----------- -----------
Net increase (decrease) in net assets
from operations......................... (4,531,974) 7,568,980
----------- -----------
Distributions to shareholders from net
realized gains:
Class A Shares........................... (626,454) (3,480,078)
Class B Shares........................... (70,383) (233,027)
Class N Shares........................... (90,793) (649,346)
----------- -----------
Total distributions to shareholders from
net realized gains........................ (787,630) (4,362,451)
----------- -----------
Share transactions--net (Note 4)........... (527,440) 18,419,133
----------- -----------
Net increase (decrease) in net assets.... (5,847,044) 21,625,662
Net Assets:
Beginning of year........................ 37,296,382 15,670,720
----------- -----------
End of year.............................. $31,449,338 $37,296,382
=========== ===========
</TABLE>
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The accompanying notes are an integral part of the financial statements.
<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
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1.Summary of Accounting Policies.
Hudson Capital Appreciation Fund (the "Fund") is a series of The Fahnestock
Funds, a Massachusetts business trust (the "Trust"). The Trust is an open-end
diversified management investment company registered under the Investment
Company Act of 1940. Effective April 15, 1997, the Fund renamed its original
shares Class A shares and added Class B Shares and Class N Shares. Its
financial statements are prepared in accordance with generally accepted
accounting principles as follows:
a)Valuation of Securities
Securities traded on a national securities exchange are valued at the
price of the last sale on such exchange. If no sale has occurred, or if
the security is traded only in the over-the-counter market, it will
normally be valued at its current bid price. Short-term securities having
a remaining maturity of 60 days or less are valued at amortized cost,
which approximates market value. Portfolio securities for which current
quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees.
b)Federal Income Taxes
It is the Trust's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c)Securities Transactions and Interest Income
Securities transactions are recorded on a trade date basis. Interest
income, including amortization of premium and discount, is accrued as
earned and dividend income is recorded on the ex-dividend date. Realized
gains and losses from securities transactions are recorded on the
identified cost basis.
d)Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-
dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses.
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<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
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e)Other
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 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.
2.Investment Management Fees and Other Transactions with Affiliates.
Under the Investment Management Agreement, the Fund pays an investment
management fee to Hudson Capital Advisors, Inc. (the "Advisor") equal to 1% of
the Fund's average daily net assets up to $25 million and 0.75% of annual
average net assets in excess of $25 million.
Under the Fund's Administration Agreement with Fahnestock & Co. Inc. (the
"Administrator"), the Administrator has agreed to provide administrative
services to the Fund at no charge.
The Advisor has voluntarily agreed to limit expenses to 2.0%, 2.5% and 2.0% of
the average daily net assets for Class A Shares, Class B Shares and Class N
Shares, respectively. During the year ended December 31, 1998, the Fund
incurred investment management fees of $339,258. However, the Advisor has
waived $78,060 of expenses in order to comply with the agreement as stated
above.
In acting as Distributor during the year, Fahnestock & Co. Inc. earned $18,700
of commissions on sales of the Class A and $22,800 of contingent deferred sales
charges on redemptions of Class B Shares.
Fees are paid to Trustees who are unaffiliated with the Advisor on the basis of
$3,000 per annum plus $750 per meeting attended.
At December 31, 1998, affiliated Trustees owned 20,284 shares (0.91%) of the
Fund.
3.Distribution Plan.
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Trust has
adopted Distribution Plans (the "Plans") under which it may reimburse
Fahnestock & Co. Inc. (the "Distributor") for expenses relating to the
distribution of Class A Shares, Class B Shares, and Class N Shares at annual
rates not to exceed a percentage of average daily net assets according to the
schedule listed below. Distribution expenses incurred in a year in excess of
the amounts listed below may be carried forward and sought to be reimbursed in
future years. Interest at the prevailing broker
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<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
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- --------------------------------------------------------------------------------
loan rate may be charged to the Fund on any expenses carried forward and those
expenses and interest will be reflected as current expenses on the Fund's
statement of operations for the year in which they become accounting
liabilities.
<TABLE>
<CAPTION>
Percentage of Average Daily
Share Class Name Net Assets of the Class
- ---------------- ---------------------------
<S> <C>
Class A Shares.. 0.50%
Class B Shares.. 1.00%
Class N Shares.. 0.25%
</TABLE>
4.Transactions in Shares of Beneficial Interest.
At December 31, 1998, the Fund had authorized an unlimited number of shares of
beneficial interest ($.01 par value). Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
--------------------- ---------------------
Shares Amount Shares Amount
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Class A Shares
Sold............................. 390,048 $ 6,133,114 643,522 $10,576,390
Issued on reinvestment of
dividends and distributions..... 42,491 605,885 215,020 3,317,928
Redeemed......................... (452,478) (6,483,983) (251,609) (4,108,076)
-------- ----------- -------- -----------
Net increase (decrease) in Class
A Shares........................ (19,939) $ 255,016 607,933 $ 9,786,242
======== =========== ======== ===========
</TABLE>
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<PAGE>
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HUDSON CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1998 December 31, 1997(a)
--------------------- ----------------------
Shares Amount Shares Amount
-------- ----------- ----------------------
<S> <C> <C> <C> <C>
Class B Shares
Sold............................ 93,322 $ 1,528,022 118,105 $ 2,060,818
Issued on reinvestment of
dividends and distributions.... 4,962 70,213 14,954 229,987
Redeemed........................ (38,876) (581,950) (1,130) (19,117)
-------- ----------- -------- ------------
Net increase in Class B Shares.. 59,408 $ 1,016,285 131,929 $ 2,271,688
======== =========== ======== ============
Year Ended Period Ended
December 31, 1998 December 31, 1997(a)
--------------------- ----------------------
<CAPTION>
Shares Amount Shares Amount
-------- ----------- ----------------------
<S> <C> <C> <C> <C>
Class N Shares
Sold............................ 76,054 $ 1,236,310 386,089 $ 6,937,229
Issued on reinvestment of
dividends and distributions.... 6,295 89,773 41,696 642,949
Redeemed........................ (200,903) (3,124,824) (66,402) (1,218,975)
-------- ----------- -------- ------------
Net increase (decrease) in Class
N Shares....................... (118,554) $(1,798,741) 361,383 $ 6,361,203
======== =========== ======== ============
Net increase (decrease) in Fund
Share transactions............. $ (527,440) $18,419,133
=========== ============
</TABLE>
- --------
(a) Reflects operations from April 17, 1997 (date of initial public offering)
to December 31, 1997.
5.Investment Transactions.
Purchases and sales of investment securities, other than short-term
investments, totaled $14,690,762 and $17,208,281, respectively. Fahnestock &
Co. Inc. did not earn any commissions for executing securities transactions of
the Fund during the year ended December 31, 1998.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HUDSON CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6.Financial Highlights.
Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 16.18 $ 12.99 $ 11.39 $ 10.95 $ 13.72
Income from investment
operations:
Net investment loss........ (0.24)* (0.21)* (0.10) (0.03) (0.06)
Net realized and unrealized
gain (loss) on
investments............... (1.43) 5.67 4.72 2.09 (1.48)
------- ------- ------- ------- -------
Total income (loss) from
investment operations..... (1.67) 5.46 4.62 2.06 (1.54)
------- ------- ------- ------- -------
Less dividends paid to
shareholders:
Dividends paid from net
realized gain
on investments............ (0.38) (2.27) (3.02) (1.62) (1.23)
------- ------- ------- ------- -------
Net asset value, end of
period.................... $ 14.13 $ 16.18 $ 12.99 $ 11.39 $ 10.95
======= ======= ======= ======= =======
Total return................ (10.35%) 42.88% 40.68% 18.94% (11.22%)
Ratios/Supplemental Data
Net assets, end of period
(000 omitted)............. $25,336 $29,325 $15,671 $12,097 $15,874
Ratio of gross expenses to
average net assets........ 2.18% 3.07% 3.50% 3.42% 2.76%
Ratio of net expenses to
average net assets........ 2.00% 2.03%** 2.50% 2.50% 2.49%
Ratio of net investment
loss to average net
assets.................... (1.46%) (1.38%) (1.13%) (0.16%) (0.46%)
Portfolio turnover rate.... 40.98% 50.46% 85.37% 197.71% 194.55%
</TABLE>
- --------
*Per share information presented is based on the average number of shares
outstanding.
**Effective February 1, 1997, Class A Shares changed its expense limit from
2.50% to 2.00%.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HUDSON CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Financial Highlights.
Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1997*
------ ------
<S> <C> <C>
Net asset value, beginning of period................... $16.11 $13.54
Income from investment operations:
Net investment loss.................................... (0.34)** (0.09)**
Net realized and unrealized gain (loss) on investments. (1.37) 4.93
------ ------
Total income from investment operations............. (1.71) 4.84
------ ------
Less dividends paid to shareholders:
Dividends paid from net realized gain on investments... (0.38) (2.27)
------ ------
Net asset value, end of period......................... $14.02 $16.11
====== ======
Total return............................................. (10.64%) 36.54%
Ratios/Supplemental Data
Net assets, end of period (000 omitted)................ $2,682 $2,125
Ratio of gross expenses to average net assets.......... 2.97% 3.54%
Ratio of net expenses to average net assets............ 2.50% 2.50%***
Ratio of net investment loss to average net assets..... (1.95%) (0.77%)***
Portfolio turnover rate................................ 40.98% 50.46%
</TABLE>
- --------
*Reflects operations from April 17, 1997 (date of initial public offering) to
December 31, 1997.
**Per share information presented is based on the average number of shares
outstanding.
*** Annualized.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HUDSON CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Financial Highlights.
Class N Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1997*
------ ------
<S> <C> <C>
Net asset value, beginning of period................... $16.18 $13.54
Income from investment operations:
Net investment loss.................................... (0.24)** (0.18)**
Net realized and unrealized gain (loss) on investments. (1.43) 5.09
------ ------
Total income from investment operations............. (1.67) 4.91
------ ------
Less dividends paid to shareholders:
Dividends paid from net realized gain on investments... (0.38) (2.27)
------ ------
Net asset value, end of period......................... $14.13 $16.18
====== ======
Total return............................................. (10.35%) 37.09%
Ratios/Supplemental Data
Net assets, end of period (000 omitted)................ $3,432 $5,846
Ratio of gross expenses to average net assets.......... 2.22% 3.04%
Ratio of net expenses to average net assets............ 2.00% 2.00%***
Ratio of net investment loss to average net assets..... (1.47%) (1.48%)***
Portfolio turnover rate................................ 40.98% 50.46%
</TABLE>
- --------
* Reflects operations from April 17, 1997 (date of initial public offering) to
December 31, 1997.
** Per share information presented is based on the average number of shares
outstanding.
*** Annualized.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HUDSON CAPITAL APPRECIATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the Hudson Capital Appreciation
Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statement of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of the Hudson Capital
Appreciation Fund (the "Fund") at December 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund'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 generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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 December 31, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 19, 1999
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hudson Capital
Appreciation Fund
(A Series of The Fahnestock Funds)
125 Broad Street
New York, New York 10004
Telephone (800) 221-5588
Investment Advisor
Hudson Capital Advisors, Inc.
780 Third Avenue
New York, New York 10022
Principal Distributor
Fahnestock & Co. Inc.
125 Broad Street
New York, New York 10004
Custodian and Transfer Agent
Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus, which includes
information regarding the Fund's objectives and policies, experience of its
management, marketability of shares, and other information.
HUDSON CAPITAL
- --------------------------------
APPRECIATION
- -----------------------------
FUND
Class A Shares
Class B Shares
Class N Shares
Annual Report
December 31, 1998
FAHNESTOCK
ESTABLISHED 1881
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
G02329-01 (2/99) HUD 802109
