<PAGE> 1
Lake Forest Funds
One Westminster Place
Lake Forest, Illinois 60045-1821
Telephone 847.295.5700
Fax 847.295.4243
April 15, 1996
To Our Shareholders and Friends:
Audited financial statements for the fiscal year ended February 29, 1996 are
enclosed for your information. They include schedules of portfolio investments
and financial highlights for each fund prepared in accordance with industry
standards.
As can be seen, the past year was a favorable one for Lake Forest Funds and
each of our mutual fund entities. The funds performed well in receptive market
conditions, and month after month their investment record has attracted
national attention.
Equally important is the high level of service to our clients, which
distinguishes Lake Forest Funds from their national competitors. In order to
continue to provide expanding services, we recently completed registration of
the funds in six additional states, and have also introduced an interactive web
site to provide investors with daily values and economic commentary.
The LAKE FOREST MONEY MARKET FUND is consistently ranked among the highest
yielding US Government Securities money market funds in America. Because most
of its income is state and local tax exempt, its taxable equivalent return has
been higher than general purpose funds in a number of higher-tax states.
The LAKE FOREST CORE EQUITY FUND, which is a diversified portfolio of large
blue-chip companies, has benefited from the strong fundamental growth
characteristics in that sector of the equity market during the past year. This
fund pays dividends on a quarterly basis, and supplements dividend income with
an option writing program.
On behalf of the Board of Trustees, I would like to thank you for your support
and encouragement during the past year. We believe that your funds are very
well positioned to benefit from market developments during the coming year. Our
investor services will continue to set the standard for the financial industry.
Sincerely,
Irving V. Boberski
Trustee, CEO
Lake Forest Money Market Fund
Lake Forest Core Equity Fund
<PAGE> 2
LAKE FOREST FUNDS
SCHEDULE OF INVESTMENTS
FEBRUARY 29, 1996
MONEY MARKET SERIES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM DEBT 100.39%
U.S. GOVERNMENT OBLIGATIONS 100.34%
Federal Home Loan Mortgage Disc. Note,
5.30%, due 03/01/96 (cost $1,793,000) 1,793,000 $ 1,793,000
-----------
Star Treasury Fund .05%
(cost $862) 862 862
---
Total Investments 100.39%
(cost $1,793,862) $ 1,793,862
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
SCHEDULE OF INVESTMENTS
LAKE FOREST CORE EQUITY FUND
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Shares Market Value
- --------- ------------------
<S> <C>
COMMON STOCKS 99.28%
AEROSPACE/DEFENSE 3.10%
200 Boeing Company................................ $ 16,225
200 Lockheed Martin Corporation................... 15,250
----------
31,475
----------
AUTOS AND TRUCKS 13.23%
200 Chrysler Corporation.......................... 11,275
2,300 Ford Motor Company............................ 71,875
1,000 General Motors................................ 51,250
----------
134,400
----------
BEVERAGES 3.74%
600 Pepsico, Inc.................................. 37,950
----------
CHEMICALS 7.62%
200 Eastman Chemical Company...................... 14,400
1,400 Union Carbide Corp Hldg Co.................... 63,000
----------
77,400
----------
COMPUTER SOFTWARE/SVCS 1.94%
200 Microsoft Corporation*........................ 19,725
----------
ELECTRONICS - SEMICONDUCTORS 0.98%
200 Texas Instruments Inc......................... 9,975
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
SCHEDULE OF INVESTMENTS (continued)
LAKE FOREST CORE EQUITY FUND
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Shares Market Value
- ------ ------------
<S> <C>
FINANCIAL - BANKS, COMMERCIAL 11.56%
200 Bank of New York, Inc......................................... $ 10,375
600 Mellon Bank Corp.............................................. 33,525
2,400 PNC Bank Corporation.......................................... 73,500
--------
117,400
--------
FOOD - PROCESSING 6.79%
1,200 General Mills Inc............................................. 69,000
--------
MISCELLANEOUS 3.77%
500 DuPont (E.I.) De Ne Mours..................................... 38,250
--------
MONEY CENTER BANKS 3.18%
500 Bankers Trust Co.............................................. 32,313
--------
OIL/GAS - DOMESTIC 6.60%
1,200 Tenneco Inc................................................... 67,050
--------
OIL/GAS - INTERNATIONAL 8.41%
1,000 Amoco Corp.................................................... 69,500
200 Texaco Inc.................................................... 15,950
--------
85,450
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
SCHEDULE OF INVESTMENTS (continued)
LAKE FOREST CORE EQUITY FUND
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Shares Market Value
- -------- ------------
<S> <C>
PHARMACEUTICALS 6.37%
1,550 Abbott Laboratories............................ $ 64,712
----------
RETAIL-DEPARTMENT STORES 2.08%
400 Federated Department Stores*................... 12,100
200 Sears, Roebuck & Co............................ 9,075
----------
21,175
----------
UTILITIES- ELECTRIC 10.26%
600 General Electric Company....................... 45,300
2,600 Houston Industries Inc......................... 58,825
----------
104,125
----------
UTILITIES- TELECOMMUNICATIONS 9.65%
200 AT & T......................................... 12,725
1,200 Compaq Computer Corporation*................... 60,750
200 International Business Machines Corp........... 24,525
----------
98,000
----------
TOTAL COMMON STOCKS.............................
(cost $945,319) 1,008,400
----------
SHORT TERM INVESTMENTS 1.35%
13,715 Star Treasury Fund
(cost $13,715) 13,715
----------
TOTAL INVESTMENTS....................
(cost $959,034) 100.63% $1,022,115
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
* Non-income producing
<PAGE> 6
LAKE FOREST FUNDS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
CORE MONEY
ASSETS EQUITY MARKET
---------- ------------
<S> <C> <C>
Investments in securities, at value (cost $945,319 and $1,793,000
respectively)...................................................... $1,008,400 $1,793,000
Short term investment.................................................. 13,715 864
Receivable for dividends and interest.................................. 4,543 0
---------- -----------
Total assets 1,026,658 1,793,864
---------- -----------
LIABILITIES
Payable for invesment securities purchased............................. 10,475 0
Accrued advisory fee................................................... 432 167
Dividends payable...................................................... 0 6,788
---------- -----------
Total Liabilities 10,907 6,955
---------- -----------
NET ASSETS
Net assets (equivalent to $17.34 and $1.00 per share based on 58,575
and 1,786,909 shares, respectivlely, of capital stock outstanding). $ 1,015,751 $1,786,909
=========== ==========
Composition of Net Assets:
Paid in capital...................................................... $ 914,652 $1,786,909
Accumulated net investment income................................... 5,685 0
Accumulated net realized gain on investments........................ 32,333 0
Net unrealized appreciation on investments........................... 63,081 0
----------- --------
NET ASSETS, FEBRUARY 29, 1996 $ 1,015,751 $1,786,909
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
LAKE FOREST FUNDS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
CORE EQUITY MONEY MARKET
------------ ------------
<S> <C> <C>
INVESTMENT INCOME
Interest $ 6,227 $ 64,225
Dividends 19,252 0
-------- --------
Total Investment Income 25,479 64,225
-------- --------
EXPENSES (Note 3)
Advisory Fee 4,357 4,898
Interest Expense 156 50
------- --------
Total Expenses 4,513 4,948
Waived Advisory Fees (1,587) (3,977)
------- --------
Net Expenses 2,926 971
------- --------
Net investment income 22,553 63,254
------- --------
Net realized gain on security transactions 45,595 0
Net change in unrealized appreciation on
investments 63,081 0
-------- --------
Net gain on investments 108,676 0
-------- --------
Net increase in net assets resulting
from operations $131,229 $ 63,254
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 8
LAKE FOREST FUNDS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
CORE MONEY
EQUITY MARKET
------ ------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income................................................. $ 22,553 $ 63,254
Net realized gain on securities transactions.......................... 45,595 0
Net change in unrealized appreciation of investments.................. 63,081 0
---------- ----------
Net increase in net assets resulting from operations................. 131,229 63,254
---------- ----------
DISTRIBUTION TO SHAREHOLDERS:
From net investment income........................................... (16,868) (63,254)
From net realized gain on investments................................ (13,262) 0
FUND SHARE TRANSACTIONS:
Net increase in net assets from fund share transactions................ 864,652 1,736,909
---------- ----------
NET ASSETS:
Beginning of period................................................... 50,000 50,000
---------- ----------
End of period (including undistributed investment income of
$5,685 and $0, respectively)....................................... $1,015,751 $1,786,909
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 9
LAKE FOREST FUNDS
NOTES TO FINANCIAL STATEMENTS-FEBRUARY 29, 1996
NOTE 1. ORGANIZATION
The Lake Forest Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust was established under the laws of Ohio by an
Agreement and Declaration of Trust dated November 23, 1994 (the "Trust
Agreement"). The Trust Agreement permits the Trustees to issue an unlimited
number of shares of beneficial interest of separate series without par value.
Shares of two series have been authorized, which shares constitute the
interests in Lake Forest Core Equity Fund ("the Equity Fund") and Lake Forest
Money Market Fund (the "Money Market Fund").
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of its financial statements.
Security Valuation-Securities which 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 last bid
price except when, in the Adviser's opinion, the last bid price does not
accurately reflect the current value of the security. All other securities for
which over-the-counter market quotations are readily available are valued at
their last bid price. When market quotations are not readily available, when
the Adviser determines the last bid price does not accurately reflect the
current value or when restricted securities are being valued, such securities
are valued as determined in good faith by the Adviser, in conformity with
guidelines adopted by and subject to review of 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 a pricing service when
the Adviser believes such prices accurately reflect the fair market value of
such securities. A pricing service utilizes electronic data processing
techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. When prices are not
readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities are valued at fair value as determined
in good faith by the Adviser, subject to review of the Board of Trustees.
Short term investments in fixed income securities with maturities of less than
60 days when acquired, or which subsequently are within 60 days of maturity,
are valued (except for the Money Market Fund) by using the amortized cost
method of valuation, which the Board has determined will represent fair value.
Option Transactions-The Equity Fund may write covered put and call
options on individual securities, write covered put and call options on stock
indices and engage in related closing transactions. A put (call) option on a
security is an agreement to buy (sell) a particular portfolio security if the
option is exercised at a specified price, or before a set date. An option on a
stock index gives the holder the right to receive, upon exercising the option,
a cash settlement amount based on the difference between the exercise price and
the value of the underlying stock index. To cover the potential obligations
involved in these option transactions, the Fund will own the underlying equity
security (for a call option); will segregate with the Custodian high grade
liquid debt obligations equal to the option exercise price (for a put option):
or (for an option on a stock index) will either hold a portfolio of stocks
substantially replicating the movement of the index or, to the extent the Fund
does not hold such a portfolio, will segregate with the Custodian high grade
liquid debt obligations equal to the market value of the stock index option,
marked to market daily. Risks associated
<PAGE> 10
with writing options include the possible inability to effect closing
transactions at favorable prices and an appreciation limit on the securities
set aside for settlement, as well as (in the case of an option on a stock
index) exposure to an indeterminate liability. There is no assurance of
liquidity in the secondary market for purposes of closing out option positions.
Also, the Equity Fund may purchase put and call options on individual
securities and on stock indices for the purpose of hedging against the risk of
unfavorable price movements adversely affecting the value of the Fund's
securities or securities the Fund intends to buy. The Fund may also sell put
and call options in closing transactions.
Premiums received from put or call options written are recorded as an
asset with an equal liability which is marked-to-market daily with any
difference between the option's current market value and premiums received
recorded as an unrealized gain or loss. If the option is not exercised,
premiums received are realized as a gain at the expiration date. If the
position is closed prior to expiration, a gain or loss is realized based on
premiums received less the cost of the closing transaction. When an option is
exercised, premiums received are added to the proceeds from the sale of the
underlying securities and a gain or loss is realized accordingly.
Put and call options purchased are accounted for in the same manner as
portfolio securities. The cost of securities acquired through the exercise of
call options is increased by premiums paid. The proceeds from securities sold
through the exercise of put options are decreased by the premiums paid.
Federal Income Taxes-Each Fund intends to qualify each year as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. By so qualifying, a Fund will not be subject to federal income taxes
to the extent that it distributes substantially all of its net invesment income
and any realized capital gains.
Dividends and Distributions-Each Fund intends to distribute substanitally
all of its net invesment income as dividends to its shareholders. The Equity
Fund intends to declare and pay dividends on a quarterly basis, and the Money
Market Fund intends to declare dividends daily and pay them monthly. Each Fund
intends to distribute its net long term capital gains at least once a year and
its net short term capital gains at least once a year.
Other-Each Fund follows industry practice and records security
transactions on the 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 accrued basis.
NOTE 3. INVESTMENT ADVISORY AGREEMENT
The Trust has an investment advisory agreement with Boberski & Company.
Under the terms of the management agreement, the Adviser manages the Fund's
investments subject to approval of the Board of Trustees and pays all of the
operating expenses of the Fund except brokerage, taxes, interest and
extraordinary expenses. The Funds are responsible for payment of expenses
incurred in connection with the organization and initial registration of their
shares. As compensation for its management services and agreement to pay the
Funds' expenses, the Funds are obligated to pay the Adviser a fee computed and
accrued daily and paid monthly at an annual rate of 2.00% of the average daily
net assets of the Equity Fund and 1.00% of the average daily net assets of the
Money Market Fund. The rate of the advisory fees paid by most investment
companies to their investment advisers is lower than the rate of the advisory
fees paid by the Funds. In this regard, it should be noted that most
investment companies pay their own operating expenses directly, while each
Fund's expenses except those specified above are paid by the Adviser.
The Adviser may waive all or part of its fee, at any time, and at its
sole discretion, but such action shall not obligate the Adviser to waive any
fees in the future. From commencement of operations thorugh September 14,
1995, the Adviser waived 100% of its fee for each Fund. For the year ended
February 29,
<PAGE> 11
1996, the Adviser has received a fee of $2,770 from the Core Equity Fund and
$921 from the Money Market Fund.
LAKE FOREST FUNDS
NOTES TO FINANCIAL STATEMENTS (cont.)
FEBRUARY 29, 1996
NOTE 4. CAPITAL SHARE TRANSACTIONS
As of February 29, 1996 there was an unlimited number of no par value
shares of capital stock authorized for each fund.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Core Equity Money Market
-------------- ------------------
For the year For the year
ended ended
February 29, 1996 February 29, 1996
Shares Amount Shares Amount
------- ------- ------- ------
<S> <C> <C> <C> <C>
Shares sold 120,301 $1,913,095 2,337,398 $2,337,398
Shares issued in reinvestment
of dividends 1,851 30,129 56,434 56,434
Shares redeemed (66,910) (1,078,572) (656,923) (656,923)
------ ----------- --------- ----------
Net increase 55,242 $ 864,652 1,736,909 $1,736,909
====== =========== ========= ==========
Total paid in capital $ 914,652 $1,786,909
=========== ==========
</TABLE>
NOTE 5. INVESTMENTS
For the year ended February 29, 1996, purchases and sales of investment
securities, other than short-term investments, for the Core Equity Fund,
aggregated $1,683,102 and $778,298 respectively. The gross unrealized
appreciation for all securities totaled $72,170 and the gross unrealized
depreciation for all securities totaled $9,089 or a net unrealized appreciation
of $63,081. The aggregate cost of securities for federal income tax purposes
at February 29, 1996 was $959,034.
<PAGE> 12
Transactions for all options written during the year ended February 29, 1996
were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
<S> <C> <C>
Options written 3,200 $ 5,013
Options expired (3,200) (5,013)
------ -------
Options outstanding at February 29, 1996 0 $ 0
====== =======
</TABLE>
LAKE FOREST FUNDS
NOTES TO FINANCIAL STATEMENTS (cont.)
FEBRUARY 29, 1996
NOTE 6. MAJOR SHAREHOLDERS
As of February 29, 1996, S.F., Inc. (a company controlled by George M.
Schellgell, a trustee of the Trust) may be deemed to control the Lake Forest
Core Equity Fund and the Boberski family may be deemed to control the Lake
Forest Money Market Fund, as a result of their respective beneficial ownership
of the shares of the Funds.
NOTE 7. REVOLVING CREDIT AGREEMENT
In order to meet shareholder redemption requests pending liquidation of
the portfolio assets, the Lake Forest Core Equity Fund has established a
revolving credit agreement with Star Bank, N.A. payable by February 6, 1997,
with maximum borrowings outstanding at one time not to exceed $250,000. Any
borrowings would bear interest at the Bank's prime rate, payable quarterly, and
would be secured by the Fund's securities. At February 29, 1996, there were no
outstanding liabilities under this agreement.
<PAGE> 13
LAKE FOREST FUNDS
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
CORE MONEY
EQUITY MARKET
------ ------
<S> <C> <C>
Net asset value - beginning of period.......................... $15.00 $1.00
Income from investment operations
Net investment income........................................... .56 .06
Net realized gain on investments............................... 2.13 .00
------ -----
Total from investment operations................................ 2.69 .06
Less distributions
Dividends from net investment income............................. (.15) (.06)
Dividends from capital gains..................................... (.20) .00
------ -----
Net asset value - end of period.................................. $17.34 $1.00
====== =====
Total Return..................................................... 18.59% 5.50%
Ratios/supplemental data
Net assets, end of period (in 000's)............................. 1,016 1,787
Ratio of expenses to average net assets (1)...................... .45% .08%
Ratio of net investment income to average net assets............. 3.89% 5.50%
Portfolio turnover rate.......................................... 129.77% .00%
</TABLE>
(1) If the expense reimbursement from the investment adviser had not been in
effect the ratio of expenses to average net assets would have been 2.00%** and
1.00%**, respectively.
<PAGE> 14
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Trustees
The Lake Forest Funds:
We have audited the accompanying statement of assets and liabilities of The
Lake Forest Funds (comprising, respectively, the Core Equity Fund and the Money
Market Fund), including the schedule of portfolio investments, as of February
29, 1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for the year in the period then ended, and
financial highlights for the year 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 investments
and cash held by the custodian as of February 29, 1996, by correspondence with
the custodian and brokers. An audit also included 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 each
of the respective portfolios constituting the Lake Forest Funds as of February
29, 1996, the results of its operations for the year then ended, the changes in
its net assets for the year in the period then ended, and the financial
highlights for the year in the period then ended, in conformity with generally
accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
March 20, 1996
