<PAGE>
SEFTON FUNDS
ANNUAL REPORT
For the Fiscal Year Ended March 31, 1997
[PHOTO OF SHIP APPEARS HERE]
<PAGE>
Fund Philosophy
U.S. Government Fund
The Sefton U.S. Government Fund's investment objective is to provide investors
with as high a level of current income as is consistent with preservation of
capital. The fund pursues this objective in a consistently prudent and diverse
manner. The fund is an intermediate-term bond fund and will have an average
weighted maturity between 5 and 10 years. At all times the fund will have a
minimum of 65% of its assets in U.S. government or U.S. government agency
securities.
California Tax-Free Fund
The Sefton California Tax-Free Fund's investment objective is to provide
investors with as high a level of current income, exempt from both federal and
California state personal income taxes, as is consistent with the preservation
of capital. The fund will have an average weighted maturity of 10 or more years.
The fund generally will not purchase bond issues subject to the alternative
minimum tax.
Equity Value Fund
The Sefton Equity Value Fund's objective is to provide investors with long-term
capital appreciation. The fund pursues this objective by investing primarily in
common stocks of both domestic and foreign companies. The fund may invest in
large, well-established companies and smaller companies with market
capitalization exceeding $50 million. Income generation is a secondary
consideration for the fund. However, the fund may purchase dividend-paying
stocks of particular issuers when the issuer's dividend record may, in the
Adviser's opinion, have a favorable influence on the market value of the
securities.
Contents
Letter from the Chairman 1
General Economic & Investment Market Outlook 3
Sefton U.S. Government Fund & California Tax-Free Fund 5
Interview with Fund Manager - U.S. Government Fund 5
U.S. Government Fund Highlights & Portfolio Performance 7
Interview with Fund Manager - California Tax-Free Fund 9
California Tax-Free Fund Highlights & Portfolio Performance 10
Sefton Equity Value Fund 12
Interview with Fund Manager - Equity Value Fund 13
Equity Value Fund Highlights & Portfolio Performance 15
Definitions of Common Terms 17
Financial Statements
U.S. Government Fund 20
California Tax-Free Fund 26
Equity Value Fund 33
Notes to Financial Statements 39
Report of Independant Accountants 43
<PAGE>
[PHOTO OF HARLEY K. SEFTON APPEARS HERE]
Harley K. Sefton
Chairman, Sefton Funds Trust
President and Chief Executive Officer,
Sefton Capital Management
Prior to founding Sefton Capital Management, Mr. Sefton was President of First
Interstate Capital Management, Inc. (formerly San Diego Financial Capital
Management, Inc., a wholly owned subsidiary of San Diego Trust & Savings Bank).
There he was instrumental in creating the Pacifica Family of Mutual Funds, which
achieved $1.2 billion in assets under management. Mr. Sefton also was associated
with San Diego Trust & Savings Bank for almost 20 years, where he most recently
served as Vice Chairman of the Board and Executive Vice President/Division
Manager of Financial Services. Mr. Sefton received his B.A. in history from the
University of San Diego.
CHAIRMAN'S MESSAGE
Dear Shareholder:
Enclosed is the report of the Sefton Funds for the fiscal year ended March 31,
1997. With another solid year behind us, we have much in the way of good news to
report to you.
At a meeting held on October 15, 1996, the Board of Trustees of the Sefton Funds
approved the appointment of BISYS Fund Services, Inc. in Columbus, Ohio, as
successor Administrator and Distributor to ALPS Mutual Funds Services, Inc. We
are very pleased with this new relationship which will provide shareholders
superior service, expanded capabilities and lower fees. In addition to this
change, the minimum initial investment in any Sefton Fund was reduced to $2,000
with subsequent investments reduced to $50, making it easier for investors to
buy shares.
We are happy to report that the Sefton Funds continue to perform well. A
separate review of each fund can be found in the pages following, which detail
the performance results along with interviews with the fund managers. Fund
assets have increased nearly 50% this past year, to over $150,000,000. We
welcome all the new shareholders who have joined us. We will continue to work
hard to validate the trust you have placed in us.
Our Equity Value Fund has been successful in delivering return to shareholders
through a value orientation focusing primarily on large and mid-sized
companies. It is therefore with great pleasure that we announce our newest fund,
the Sefton Small Company Value Fund/1/, which will be available by the beginning
of July, 1997. This new fund/1/ will focus primarily on small companies that
1
<PAGE>
have been overlooked, neglected or misunderstood (and hence, undervalued) by the
vast majority of investors.
On behalf of the Sefton Funds team, we appreciate your support and trust and
look forward to helping you achieve your financial goals.
Sincerely,
/s/ Harley K. Sefton
Harley K. Sefton
Chairman
/1/ Information related to the Small Company Value Fund is subject to completion
or amendment. A registration statement related to the securities for the fund
has been filed with the SEC. The securities for the fund may not be sold, nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This communication shall not constitute an offer to sell or
the solicitation of an offer to buy, nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
state.
This report, including the financial statements herein, is transmitted to the
shareholders of the Sefton Funds for their information. This is not a
prospectus, circular or representation intended for use in the purchase of
shares of the funds or any securities mentioned in this report.
2
<PAGE>
GENERAL ECONOMIC & INVESTMENT
MARKET OUTLOOK
Economic data released over the last several months reveals a surprisingly
strong economy, fueled by rising employment and consumer spending. The economy
appears to be growing above its perceived sustainable rate of growth. This view
was confirmed by the Federal Reserve, which raised its benchmark federal funds
rate by 1/4 of a percent in March, 1997. While growth, per se, is viewed as a
positive, inflation is not. Increases in wages and the core Producer Price Index
are receiving greater emphasis than lower oil and gold prices. Investors are
concerned that the benign inflationary environment of the last several years
could be in jeopardy. We expect that investors will be focusing more attention
on economic data to detect the presence or absence of inflation.
The stock market responded negatively to the strong first-quarter economic news,
with the S&P 500 Stock Index declining nearly 7% during the last three weeks of
March, 1997. However, the conditions which have propelled the most recent leg of
this bull market, which began in 1990, remain in place. There is moderate growth
in the economy, low inflation, relatively low interest rates, low unemployment,
increasing productivity, strong corporate profits, and favorable demand for
equities. Beyond this, there is a continuous stream of money flowing into the
market from mutual funds and from companies buying back their own shares. The
flow into mutual funds has been fueled by a steady increase in contributions to
401(k) programs as "baby boomers" boost their savings for retirement.
Going forward, several forces which are already in place should continue to
propel the market forward. The first of these is globalization, which is
providing a lot more consumers for many U.S. companies' products. Presently,
more than one-quarter of the S&P 500 company earnings come from international
sources and this number is growing. With modest economic growth in the U.S.,
companies have aggressively developed their export businesses to capture growth
abroad. Technology enhancements are another significant force, creating many new
jobs in our economy and leading to sizable increases in productivity. Another
significant trend is the demographic change that is taking place in our economy.
The "baby boomers" have passed through their primary consumption phase, saving
more and spending less on big-ticket items. This trend is keeping economic
growth modest and inflation and interest rates low. It is also lifting demand
for equity securities.
Despite the recent tightening by the Federal Reserve, interest rates are still
at relatively low levels and should remain at or near current levels. While we
expect economic growth to slow as 1997 progresses, there is little to suggest
that a recession will arrive anytime soon, as much of the cyclicality has been
removed from the economy. For example, we don't have the inventory corrections
experienced in previous economic cycles as a result of new computerized
inventory management systems. In addition, services have become a larger portion
of our economy and they are not as cyclical as the goods-producing sector.
Moreover, inflation should remain in check. The fact that during this economic
upturn, now in its seventh year, we have had no accel-
3
<PAGE>
eration in inflation is an unprecedented event. In fact, inflation has actually
declined during this period (1990-1996). This is a byproduct of the
aforementioned trends toward globalization, technological enhancement and
demographic changes.
In summary, we expect the economy to remain strong through the second quarter,
consistent with a favorable employment outlook. However, the economy should
slow by mid-summer. Recent increases in interest rates, tighter bank credit,
and a reversal of the temporary benefits from the excess economic activity
generated by a mild winter should temper economic growth as the year progresses.
4
<PAGE>
SEFTON U.S. GOVERNMENT FUND AND SEFTON
CALIFORNIA TAX-FREE FUND
[PHOTO OF TED J. PIORKOWSKI APPEARS HERE]
Ted J. Piorkowski, C.F.A.
Vice President and Fund Manager
(U.S. Government & California Tax-Free Fund)
Joining Sefton Capital Management at its inception, Mr. Piorkowski was
previously with First Interstate Capital Management, Inc. (formerly San Diego
Financial Capital Management, Inc., a wholly owned subsidiary of San Diego Trust
& Savings Bank) as Vice President and Portfolio Manager for six years. Mr.
Piorkowski functioned as a fixed-income Portfolio Manager for the Pacifica
Mutual Funds, managing $350 million in assets. His responsibilities also
included independent credit analysis and review, short-term liquidity management
and individual issue management. He was also associated with San Diego Trust &
Savings Bank as an Accounting Officer in the Comptroller's office for two years.
Mr. Piorkowski received his B.S. in finance and an M.B.A. from San Diego State
University. He received his Chartered Financial Analyst designation in 1991 and
is a member of the Financial Analysts Society of San Diego.
SEFTON U.S. GOVERNMENT FUND
An Interview with Ted Piorkowski, Fund Manager
Q: How did the Sefton U.S. Government Fund perform?
A: For the fiscal year ended March 31, 1997, the Sefton U.S. Government Fund
posted a total return of 3.31%. This compares with a total return of 3.71% for
the average fund in the Morningstar U.S. Government Bond General universe.
During the first quarter of 1997, the total return was -1.08%, compared
with -0.58% for the average fund in the Morningstar U.S. Government Bond General
Universe. The slight underperformance relative to the fund's peer group is
attributable to the fund having a longer than average maturity bias during most
of the past twelve months, during which time interest rates were rising.
Q. Ted, can you describe your approach to investing the Fund's assets?
A: Our fundamental approach to investing the fund's assets places heavy emphasis
on horizon analysis, which provides a framework for consideration of the
sensitivity of a selected bond to varying interest rate situations. Horizon
analysis enables us to better assess the performance of a bond, as
5
<PAGE>
well as the entire fund, in a variety of economic and interest rate
environments. Horizon analysis applications utilize both historic and expected
interest rate scenarios. We assign probabilities to differing interest rate
scenarios in order to develop weighted average expected horizon analysis
returns.
Q. How do you manage risk in the Fund?
A: We give careful consideration to the various types of risk that fixed-income
investors encounter. These risks include interest rate risk, reinvestment rate
risk, call risk, default risk, liquidity risk and volatility risk. Total return
scenarios are weighed against these inherent risks. We then utilize quantitative
and qualitative measures to determine whether adequate compensation is earned
for any given set of risk characteristics.
Q. How do you develop your opinions on future directions of interest rates?
A: Inherent in any bond purchase is an interest rate outlook. We develop our
interest rate outlook using fundamental economic, technical and market-based
sources of information. While forecasting interest rates is a dicey proposition
at best, we develop an informed, professional opinion about the direction of
relevant interest rates and structure the fund accordingly. It is our policy to
position the fund relative to a defined neutral position, taking into account
our directional outlook for interest rates. The fund will be either long, short
or equal to the defined neutral position.
Q: What is your current interest rate outlook?
A: We currently believe that the likelihood of rising rates exceeds the
likelihood of lower rates over the next few quarters. Consequently, the fund is
currently positioned in a defensive manner, as reflected in the fund's average
maturity positioning of 5.2 years. The Federal Reserve has recently raised
short-term interest rates and expressed a bias towards further tightening,
dependent upon continued economic strength and potential inflationary pressures.
Given the Fed's current monetary policy bias, we feel caution is warranted,
especially over the near term.
Q: How is the Fund currently structured?
A: The fund currently has an average maturity of 5.2 years. We consider this a
short average maturity position. This positioning is due to our near-term
negative bias concerning the interest rate environment. Relative to broad fixed-
income indices, our sector selection favors treasury/agency issues over
corporate bonds. We have a market weighting in the mortgage sector.
6
<PAGE>
SEFTON U.S. GOVERNMENT FUND
HIGHLIGHTS AS OF MARCH 31, 1997*
Net Assets: $30,062,076
<TABLE>
<CAPTION>
Sector Diversification
- ----------------------
[PIE CHART APPEARS HERE]
<S> <C>
Corporate 5%
Treasury 57%
Agency 16%
Mortgage 22%
</TABLE>
<TABLE>
<CAPTION>
Significant Holdings
- --------------------
<S> <C>
U.S. Treasury Note
7.50%, Due 5/15/2002 10.4%
U.S. Treasury Note
6.25%, Due 2/15/2003 9.2%
FNMA
6.50%, Due 6/01/2016 6.3%
FHLMC
8.53%, Due 2/02/2005 3.0%
</TABLE>
* The composition of the Fund's holdings is subject to change.
SEFTON U.S. GOVERNMENT FUND
PORTFOLIO PERFORMANCE**
<TABLE>
<CAPTION>
[BAR GRAPH APPEARS HERE]
Stefton U.S. Morningstar
Government U.S. Gov't
Fund Fund Average
<S> <C> <C>
Three Months -1.08% -0.58%
One Year 3.31% 3.71%
Annualized Since Inception (4/3/95) 6.16% 6.08%
</TABLE>
** Performance data quoted represents past performance and is not indicative of
future results.
7
<PAGE>
Results of a hypothetical $10,000 investment in the Sefton U.S. Government Fund,
the Morningstar U.S. Government Fund Average/7/ and the Lehman Brothers
Government Bond Index/8/
(Fund inception date: April 3, 1995)
[PLOT GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Morningstar Gov't Bond Fund Lehman Bros. Gov't
Sefton U.S. Gov't Fund Average Bond Index
Value on 3/31/97 Value on 3/31/97 Value on 3/31/97
$11,266 $11,256 $11,520
<S> <C> <C> <C>
4/95 10,039.50 10,000 10,000
6/95 10,556.90 10,482 10,620
9/95 10,718.90 10,650 10,807
12/95 11,107.60 11,045 11,301
3/96 10,905.50 10,852 11,045
6/96 10,916.80 10,878 11,097
9/96 11,056.10 11,044 11,421
12/96 11,389.00 11,321 11,614
3/97 11,266.30 11,256 11,520
</TABLE>
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that your shares, when redeemed, may be worth more or
less than their original cost.
/7/ The Morningstar U.S. Government Bond Fund Average is composed of 375 funds
with an investment objective that seeks income by investing in a blend of
mortgage-backed securities, and U.S. Treasury, and agency securities.
/8/ The Lehman Brothers Government Bond Index includes fixed-rate debt issues
(all public obligations of the U.S. Treasury, all publicly issued debt of U.S.
government agencies and quasi-federal corporations and corporate debt guaranteed
by the U.S. government) rated investment grade or higher by Moody's Investors
Service, Standard & Poor's Corporation or Fitch Investor's Service, in that
order. An investor may not invest in this unmanaged index.
8
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
AN INTERVIEW WITH TED PIORKOWSKI, FUND MANAGER
Q: How did the Sefton California Tax-Free Fund perform?
A: For the fiscal year ended March 31, 1997, the Sefton California Tax-Free Fund
had a total return of 5.69%. This compares favorably to the 4.96% total return
for the average California tax-free fund in the Morningstar universe. During the
first quarter of 1997, the total return for the fund was -0.44%, compared to
- -0.60% for the average California tax-free mutual fund.
Q: How is the fund currently structured?
A: The fund currently has an average maturity of 15.6 years. The fund reflects
an "essential service" bias in its sector allocation. Presently, the fund's
major sector allocations include education, water, transportation, and waste.
Currently, 59% of the Fund's net assets are enhanced with municipal bond
insurance.
Q: What are the major issues impacting California tax-free bonds for the
remainder of 1997?
A: The most important issues impacting the California municipal bond market are
the overall level of interest rates in the taxable bond market and the
sustainability of the recovery taking place in the California economy.
The California economy continues to improve and provide an improving credit
quality base for many bond issues. However, the market could be negatively
impacted as Proposition 218 is implemented, interpreted, and clarified.
Proposition 218, passed in November, 1996, places new restrictions on the
ability of local governments and agencies to raise or levy property assessments
or fees. Proposition 218 limits the financial flexibility of local governments
and agencies and could put increased pressure on their creditworthiness. As a
result, the fund will continue to emphasize essential service and insured
issues.
9
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
HIGHLIGHTS AS OF MARCH 31, 1997*
Net Assets: $35,504,379
<TABLE>
<CAPTION>
[PIECHART APPEARS HERE]
Sector Diversification
----------------------
<S> <C>
Waste 10%
Water 15%
Certificates of
Participation 4%
Education 16%
Floaters/Cash 5%
General Obligations 9%
Health 7%
Housing 7%
Misc. Revenue Bonds 7%
Power 4%
Prisons 3%
Transportation 13%
</TABLE>
<TABLE>
<CAPTION>
Significant Holdings
--------------------
<S> <C>
Rancho, California, Water District
Financing Authority
5.88%, Due 11/1/10 5.9%
California Educational
Facilities-Pomona College
6.125%, Due 02/15/08 5.1%
San Diego, California, Sales
Tax, Series A
5.00%, Due 04/01/07 4.3%
San Jose-Santa Clara Water
District Financing
5.375%, Due 11/15/15 4.1%
</TABLE>
* The composition of the Fund's holdings is subject to change.
SEFTON CALIFORNIA TAX-FREE FUND
PORTFOLIO PERFORMANCE
<TABLE>
<CAPTION>
[BAR GRAPH APPEARS HERE]
Morningstar
California
Sefton California Municipal Bond
Tax-Free Fund Fund Average
<S> <C> <C>
Three Months -0.44% -0.60%
One Year 5.69% 4.96%
Annualized Since
Inception (4/3/95) 6.17% 6.08%
</TABLE>
** Performance data quoted represents past performance and is not indicative of
future results.
10
<PAGE>
Results of a hypothetical $10,000 investment in the Sefton California Tax-Free
Fund, the Morningstar Municipal Bond Fund Average/9/ and the Lehman Brothers
Municipal Bond Index/10/
(Fund inception date: April 3, 1995)
[PLOT GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sefton California Morningstar California Municipal Lehman Bros. Municipal
Tax-Free Fund Bond Fund Average Bond Fund Index
Value on 3/31/97 Value on 3/31/97 Value on 3/31/97
$11,268 $11,252 $11,430
<S> <C> <C> <C>
INCEPTION
4/95 9,932.30 10,000 10,000
6/95 10,039.20 10,182 10,241
9/95 10,328.10 10,430 10,536
12/95 10,751.30 10,921 10,970
3/96 10,660.80 10,722 10,837
6/96 10,756.30 10,799 10,921
9/96 11,021.80 11,054 11,199
12/96 11,317.90 11,320 11,457
3/97 11,267.80 11,252 11,430
</TABLE>
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that your shares, when redeemed, may be worth more or
less than their original cost.
/9/ The Morningstar California Municipal Bond Fund Average is composed of 172
funds with an investment objective that seeks to invest their assets in
municipal debt issues which are exempt from taxation in California.
/10/ The Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment-grade tax-exempt bond market. Returns
and attributes for the index are calculated semi-monthly using approximately
25,000 municipal bonds. An investor may not invest in this unmanaged index.
11
<PAGE>
Sefton Equity Value Fund
Thomas C. Bowden, C.F.A.
Vice President and Fund Manager
(Equity Value Fund)
Mr. Bowden joined Sefton Capital Management in February, 1995 after serving as
Vice President and Portfolio Manager (Equity) with First Interstate Capital
Management, Inc. (formerly San Diego Financial Capital Management, Inc., a
wholly owned subsidiary of San Diego Trust & Savings Bank) for nine years.
During that time, he worked in the areas of equity analysis, trading and
portfolio management. In addition, Mr. Bowden was Co-Manager of the Pacifica
Equity Value and Pacifica Balanced Mutual Funds, managing over $250 million in
assets. During his tenure, he was involved in account management for
individuals, corporations and foundations. Previously, Mr. Bowden was a
Commercial Loan Officer with Bank of America for two years. He received his B.S.
in finance and business economics from the University of Southern California and
an M.B.A. from the University of Chicago. He received his Chartered Financial
Analyst designation in 1989. Mr. Bowden is also a member of the Financial
Analysts Society of San Diego.
[PHOTO OF THOMAS C. BOWDEN APPEARS HERE]
Vice President and Fund Manager
of the Sefton Equity Value Fund
Leif O. Sanchez, C.F.A.
Vice President and Fund Manager
(Equity Value Fund)
Mr. Sanchez established the equity department at Sefton Capital Management, Inc.
in February, 1995 after ten years as Vice President and Portfolio Manager with
First Interstate Capital Management, Inc. (formerly San Diego Financial Capital
Management, Inc., a wholly owned subsidiary of San Diego Trust & Savings Bank).
During that time, he worked in the areas of equity analysis, trading and
portfolio management. Most recently, he was Co-Manager of the Pacifica Equity
Value and Pacifica Balanced Mutual Funds, managing over $250 million in assets.
He was also involved in the management of accounts for individuals, corporations
and foundations. Mr. Sanchez received a B.A. in engineering from Harvard
University and obtained his Chartered Financial Analyst designation in 1989. Mr.
Sanchez is also a member of the Financial Analysts Society of San Diego.
[PHOTO OF LEIF O. SANCHEZ APPEARS HERE]
Vice President and Fund Manager
of the Sefton Equity Value Fund
12
<PAGE>
Sefton Equity Value Fund
An Interview with Thomas Bowden and Leif Sanchez, Fund Managers
Q. Tom and Leif, how has the Sefton Equity Value Fund performed?
A: For the fiscal year ended March 31, 1997, the Sefton Equity Value Fund posted
a total return/2/ of 23.15%, compared to 11.15% for the average stock fund in
the Morningstar Growth Fund universe. For the calendar year 1996, the Sefton
Equity Value Fund posted a total return of 30.70%, compared to 19.68% for the
average stock fund in the Morningstar Growth Fund universe.
Q. What were some of the stocks that contributed to the results over the past 12
months?
A: Top performers in the fund during the recent fiscal year included Suiza Foods
(93%/3/, sold), Swift Energy Company (89%/3/, sold), SGS-Thomson
Microelectronics (71%/3/, sold), St. Mary Land & Exploration (66%/3/, sold),
Seagate Technology Inc. (64%, 2.7%) and Living Centers of America (55%,
1.5%)/4/.
Q. Leif and Tom, how would you describe your approach to stock investing?
A: We are value investors, which means we look for situations where we believe
the stock price of a company does not adequately reflect the positive
fundamentals which the company possesses. If you've ever shopped for quality
merchandise at a discount, you know that with some effort, you can often find a
real bargain-good quality at a low price. In essence, that is the concept behind
our value approach-seeking out those companies whose stock prices appear to be
low in relation to the companies intrinsic worth or future earnings prospects.
Q. Can you describe for us your stock selection process?
A: We research the market to identify and select companies whose stocks may have
been overlooked, neglected or misunderstood by most investors. Many of our
selections include companies that are typically passed over by the majority of
investors because they are involved in unglamorous, out-of-favor or mature
industries. Oftentimes, stocks held in the fund have suffered a major price
correction prior to our involvement with them.
We make use of several quantitative databases to screen for companies which
possess favorable valuations, as measured by price/earnings (P/E), price/sales,
price/cash flow and price/book value. However, this is only a starting point.
Included among these "low-priced stocks" are stocks that are deservedly
depressed in price and that have little chance of recovering in the near term.
The trick is to avoid buying a stock at a P/E ratio of 10 when it's only worth
ten times earnings. For this reason, we look for companies with improving
financials that are both undervalued and possess some cata-
/2/ References to total return herein include reinvested dividends and capital
gains paid.
/3/ Indicates increase in share price over period held by the fund.
/4/ The composition of the Fund's holdings is subject to change.
13
<PAGE>
lyst which will unlock their potential within the next twelve months. Examples
of typical catalysts include new management, the introduction of new products,
cost-cutting initiatives or a cyclical surge in profitability. Other qualitative
factors we look at are the quality and experience of a company's management team
and whether they are committed to the interests of their shareholders.
Q. How do you manage risk in the fund?
A: One of the primary advantages of stock investing with a value approach is
that it should help limit the overall downside risk of a stock portfolio. In
other words, stocks that are relatively underpriced have less distance to fall
in a market decline than stocks which are fully priced.
We seek a favorable balance between risk and reward by purchasing stocks which
have good trading liquidity and maintaining diversification among industries and
economic sectors. We do not purchase any companies with market capitalizations
less than $50 million. Prudent diversification is maintained by limiting the
percentage of any individual company's stock to no more than 5% of the fund's
market value. In addition, no economic sector can exceed 20% of the total fund.
Foreign stocks are held but will generally amount to less than 10% of invested
assets.
Q. How do you determine when to sell a stock?
A: Regardless of whether a stock has gone up or down, it is sold out of the fund
when the stock no longer appears to be undervalued relative to its peer group or
the broad market. We may also sell a stock if an original catalyst for higher
prices no longer seems plausible or imminent. As a final risk control measure,
any stock that declines 15% from our original cost or 15% during a calendar year
is sold.
Q. How did the Fund perform during the turbulent first quarter of 1997?
A: The Equity Value Fund generated a solid total return of 2.56% during the
first quarter of 1997. This compares favorably to the -1.82% return of the
average stock fund in the Morningstar Growth Fund universe. We are particularly
gratified that the fund performed as well as it did during a very difficult
quarter for most stocks. Given that small- and medium- capitalization indices,
as well as "value" stock indices, had negative returns for the quarter, our
performance was especially satisfying.
Top-performing stocks (each up over 20%) over the past three months included
Suiza Foods (sold), Royal Caribbean Cruises, Ltd. (2.5%), Living Centers of
America (1.5%) and Wellpoint Health Networks (1.4%). New stock purchases were
somewhat restrained by the elevated level of the market for most of the quarter,
so only eight new names were added to the portfolio. In addition, we eliminated
11 stocks from the fund, mostly due to either actual or expected deterioration
in the fundamentals of the company. In the coming months, we anticipate
increasing our relatively low exposure to the technology and energy areas now
that these sectors have suffered major price corrections.
14
<PAGE>
SEFTON EQUITY VALUE FUND
HIGHLIGHTS AS OF MARCH 31, 1997*
Net Assets: $86,315,669
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE]
Sector Diversification
----------------------
<S> <C>
Cash 9.3%
Finance 15.0%
Utilities/REITS 14.4%
Services 11.3%
Basic Industry 11.0%
Technology 9.2%
Health Care 8.9%
Consumer Staples 6.9%
Manufacturing 5.3%
Energy 4.4%
Consumer Cyclical 4.3%
</TABLE>
<TABLE>
<CAPTION>
Significant Holdings
--------------------
<S> <C>
Chase Manhattan
Corporation 3.6%
International Business
Machines 3.5%
CSX Corporation 3.1%
AMR Corporation 3.0%
J.C. Penney Company, Inc. 3.0%
Repsol, S.A. - ADR 2.9%
Dana Corporation 2.9%
Seagate Technology, Inc. 2.7%
International Paper
Company 2.6%
Royal Caribbean Cruises 2.5%
</TABLE>
* The composition of the Fund's holdings is subject to change.
SEFTON EQUITY VALUE FUND PORTFOLIO PERFORMANCE**
<TABLE>
<CAPTION>
[BAR GRAPH APPEARS HERE]
Sefton Equity Morningstar Growth
Value Fund Fund Average
<S> <C> <C>
Three Months 2.56 % -1.82 %
One Year 23.15 % 11.15 %
Annualized Since
Inception (4/3/95) 24.80 % 19.61 %
</TABLE>
** Performance data quoted represents past performance and is not indicative of
future results.
15
<PAGE>
Results of a hypothetical $10,000 investment in the Sefton Equity Value Fund,
the Morningstar Growth Fund Average/5/ and the S & P 500 Index/6/ (Fund
inception date: April 3, 1995)
[PLOT GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sefton Equity Morningstar Growth
Value Fund Fund Average S&P 500
Value on 3/31/97 Value on 3/31/97 Value on 3/31/97
$15,555 $14,306 $15,825
<S> <C> <C> <C>
4/95 9,983.30 10,000 10,000
6/95 10,350.00 10,933 10,953
9/95 11,280.30 11,893 11,823
12/95 11,604.20 12,193 12,534
3/96 12,631.10 12,871 13,207
6/96 12,973.10 13,459 13,799
9/96 13,579.40 13,867 14,226
12/96 15,166.90 14,571 15,411
3/97 15,555.30 14,306 15,825
</TABLE>
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that your shares, when redeemed, may be worth more or
less than their original cost.
/5/ The Morningstar Growth Fund Average is composed of 1042 funds with an
investment objective to invest in companies whose long-term earnings are
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged indices.
/6/ The Standard & Poor's 500 Index is a broad-based measurement of changes in
stock-market conditions based on the average performance of 500 widely held
common stocks. An investor may not invest in this unmanaged index.
16
<PAGE>
DEFINITIONS OF COMMON TERMS
Gain (or Loss)
If a stock or bond appreciates in price, there is an unrealized gain; if it
depreciates, there is an unrealized loss. A gain or loss is "realized" upon the
sale of a security; if a fund's net gains exceed net losses, there may be a
capital gain distribution to shareholders. There also could be an ordinary
income distribution if the net gain is short-term, or no distribution if there
is a capital loss carryover.
Dividend
Net income generated by securities in a fund and distributed to shareholders.
The Sefton U.S. Government Fund and the Sefton California Tax-Free Fund pay
dividends monthly. The Sefton Equity Value Fund pays dividends quarterly.
Net Asset Value (NAV) Per Share
Total market value of all securities and other assets held by a portfolio, minus
liabilities, divided by the number of shares outstanding. It is the value of a
single share of a mutual fund on a given day. The total market value of your
investment would be the NAV multiplied by the number of shares you own. NAV
generally fluctuates daily for all the Sefton Funds.
Certificates of Participation
Certificates of participation (COPs), or lease-secured bonds, represent a
bondholder's proportionate interest in rental payments made under a municipal
lease contract. The payments are normally made pursuant to a lease and trust
agreement. This type of tax-exempt municipal leasing has become an attractive
alternative to traditional bond financing.
Insured Bonds
Insured bonds are municipal obligations covered by insurance policies issued by
independent insurance companies. The policies insure the payment of principal
and interest. Examples of such companies would be MBIA (Municipal Bond Investors
Assurance Corporation), AMBAC (AMBAC Indemnity Corporation) or FGIC (Federal
Guaranty Insurance Company). Bonds insured by MBIA, AMBAC and FGIC are rated
AAA.
General Obligation Bonds
General obligation bonds (GOs) are debts backed by the general taxing power of
the issuer. Payment of the obligation may be backed by a specific tax or the
issuer's general tax fund. Examples of GOs include sidewalk bonds, sewer bonds,
street bonds and so on. These bonds are also known as full faith and credit
bonds because the debt is a general obligation of the issuer.
Revenue Bonds
Revenue bonds are issued to provide capital for the construction of a revenue-
producing facility. The interest and principal payments are backed to the extent
that the facility
17
<PAGE>
DEFINITIONS OF COMMON TERMS (continued)
Revenue Bonds (continued)
produces revenue to pay. Examples of revenue bonds include toll bridges, roads,
parking lots and ports. The municipality is not obligated to cover debt payments
on revenue bonds in default.
Bond Ratings
The quality of bonds can, to some degree, be determined from the ratings of the
two most prominent rating services: Moody's and Standard & Poor's. The ratings
are used by the government and industry regulatory agencies, the investing
public, and portfolio managers as a guide to the relative security and value of
each bond. The ratings are not used as an absolute factor in determining the
strength of the pledge securing a particular issue. However, since Moody's and
Standard & Poor's rate bonds on a fee basis, some issuers choose not to be
rated. Many non-rated issues are sound investments.
Description of Moody's Bond Ratings:
Excerpts from Moody's description of its four highest bond ratings are listed as
follows: Aaa - judged to be the best quality and they carrying the smallest
degree of investment risk; Aa - judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally know as high-grade
bonds.
A - possess many favorable investment attributes and are to be considered as
"upper medium-grade obligations"; Baa - considered to be medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.
Other Moody's bond descriptions include: Ba - judged to have speculative
elements, their future cannot be considered as well assured; B - generally lack
characteristics of the desirable investment; Caa - are of poor standing, may be
in default or there may be present elements of danger with respect to principal
or interest; Ca - speculative in a high degree, often in default; C - lowest-
rated class of bonds, regarded as having extremely poor prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
Description of S&P's Bond Ratings:
Excerpts from S&P's description of its four highest bond ratings are listed as
follows: AAA - highest-grade obligations, in which capacity to pay interest and
repay principal is extremely strong; AA - also qualify as high-grade
obligations, having a very strong capacity to pay interest and repay principal,
and differs from AAA issues only in a small degree; A - regarded as upper
medium-grade, having a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and econom-
18
<PAGE>
ic conditions than debt in higher-rated categories; BBB - regarded as having an
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher-rated categories. This
group is the lowest which qualifies for commercial bank investment.
BB, B, CCC, CC - predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with terms of the obligations; BB
indicates the highest grade and CC the lowest within the speculative rating
categories.
S&P applies indicators "+," no character, and "-" to its rating categories. The
indicators show relative standing within the major rating categories.
Description of Moody's Ratings of Notes and Variable Rate Demand Instruments:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
Total Return
Total return measures a portfolio's performance over a stated period of time,
taking into account the combination of dividends paid and the gain or loss in
the value of the securities held in the portfolio. It may be expressed on an
average annual basis or a cumulative basis (total change over a given period).
Whenever a portfolio, other than a money market portfolio, reports any type of
performance, it must also report the average annual total return according to
the standardized calculation developed by the SEC. This standardized calculation
was introduced to help investors compare different mutual funds on an equal
performance basis. The SEC average annual total return calculation includes the
effects of all of the fund's fees and expenses and assumes the reinvestment of
all dividends and capital gains.
19
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$29,851,947) $29,690,983
Cash 74,727
Interest receivable 436,000
Organizational costs, net of accumulated amortization 24,245
Prepaid expenses 4,902
- ------------------------------------------------------------------------
Total Assets 30,230,857
- ------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment advisory fees 9,302
Administration fees 743
Dividends 130,080
Transfer agent fees 2,604
Legal and audit fees 13,476
Custodian and accounting fees 7,217
Printing costs 3,522
Other 1,837
- ------------------------------------------------------------------------
Total Liabilities 168,781
- ------------------------------------------------------------------------
NET ASSETS: $30,062,076
========================================================================
COMPOSITION OF NET ASSETS
Paid-in capital 30,264,357
Undistributed net investment income 34,961
Accumulated net realized loss from investment transactions (76,278)
Net unrealized depreciation of investments (160,964)
- ------------------------------------------------------------------------
NET ASSETS: $30,062,076
========================================================================
Shares of beneficial interest outstanding 2,502,570
- ------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.01
========================================================================
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
March 31, 1997
<TABLE>
<CAPTION>
Face Value Market Value
- ---------- ------------
<S> <C> <C> <C>
CORPORATE BONDS 5.2%
- -----------------------------------------------------------------
FINANCE 5.2%
- -----------------------------------------------------------------
$500,000 Integra Bank, MTN,
6.55%, 6/15/00 $ 492,393
500,000 Lehman Brothers Holdings,
8.75%, 5/15/02 528,434
500,000 Salomon Brothers, Inc,
9.25%, 5/1/01 533,272
-----------
TOTAL CORPORATE BONDS
(Cost $1,526,265) 1,554,099
-----------
U.S. GOVERNMENT AGENCIES 37.1%
- -----------------------------------------------------------------
3,200,000 Federal Home Loan Bank,
Discount Note,
4/3/97 3,198,544
500,000 Federal Home Loan Mortgage
Corp.,
8.63%, 11/29/04 516,072
875,000 Federal Home Loan Mortgage
Corp.,
8.53%, 2/2/05 902,826
703,040 Federal Home Loan Mortgage
Corp.,
7.50%, 7/1/09 707,371
1,536,827 Federal Home Loan Mortgage
Corp.,
7.50%, 4/1/14 1,531,925
944,150 Federal Home Loan Mortgage
Corp.,
7.00%, 4/1/16 917,818
808,686 Federal National Mortgage
Assoc.,
7.00%, 5/1/14 787,668
683,244 Federal National Mortgage
Assoc.,
8.00%, 1/1/15 690,931
1,980,676 Federal National Mortgage
Assoc.,
6.50%, 6/1/16 1,884,375
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $11,209,789) 11,137,530
-----------
U.S. TREASURY BONDS 3.3%
- -----------------------------------------------------------------
1,000,000 7.25%, 5/15/16 1,003,751
-----------
TOTAL U.S. TREASURY BONDS
(Cost $979,460) 1,003,751
-----------
U.S. TREASURY NOTES 53.2%
- -----------------------------------------------------------------
1,000,000 7.75%, 2/15/01 1,035,313
1,500,000 6.25%, 10/31/01 1,470,001
3,000,000 7.50%, 5/15/02 3,093,753
</TABLE>
21
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS (CONTINUED)
March 31, 1997
<TABLE>
<CAPTION>
Face Value Market Value
- ---------- ------------
<S> <C> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
- -----------------------------------------------------------------------------
$2,800,000 6.25%, 2/15/03 $ 2,723,876
2,000,000 7.25%, 8/15/04 2,039,376
2,000,000 7.88%, 11/15/04 2,111,876
2,000,000 7.50%, 2/15/05 2,068,752
1,500,000 6.50%, 10/15/06 1,452,656
-----------
TOTAL U.S. TREASURY NOTES
(Cost $16,136,433) 15,995,603
-----------
TOTAL INVESTMENTS
(Cost $29,851,947)(1) 98.8% $29,690,983
Other Assets in Excess of Liabilities 1.2% 371,093
-------------------
NET ASSETS 100.00% $30,062,076
-------------------
</TABLE>
(1) Cost for federal income tax and financial reporting purposes is the same.
MTN--Medium Term Note
See Notes to Financial Statements.
22
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,488,377
- -----------------------------------------------------------------
Total Investment Income 1,488,377
- -----------------------------------------------------------------
EXPENSES:
Investment advisory fees 133,578
Administration fees 44,158
Fund Accounting fees 31,617
Legal fees 20,842
Audit fees 14,564
Custodian fees 24,235
Amortization of organization costs 7,949
Transfer Agency fees 15,786
Printing costs 4,508
Insurance costs 3,183
Registration and filing fees 1,233
Trustees' fees and expenses 1,822
Other 2,958
- -----------------------------------------------------------------
Total expenses 306,433
- -----------------------------------------------------------------
Expenses waived by:
Investment Adviser (54,584)
Administrator (9,975)
- -----------------------------------------------------------------
Net Expenses 241,874
- -----------------------------------------------------------------
NET INVESTMENT INCOME 1,246,503
- -----------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (75,863)
Net change in unrealized depreciation (542,430)
- -----------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (618,293)
- -----------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 628,210
=================================================================
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended March 31, 1997
<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------ --------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income $1,246,503 $1,061,238
Net realized gain (loss) from
investment transactions (75,863) 175,584
Net change in unrealized appreciation
(depreciation) (542,430) 381,466
- -------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 628,210 1,618,288
- -------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (1,246,412) (1,061,238)
Distributions to shareholders from net
realized gain from investment
transactions (106,341) (34,788)
- -------------------------------------------------------------------------------
Change in net assets from investment
activities (724,543) 522,262
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 16,373,936 25,698,168
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 325,070 17,651
- -------------------------------------------------------------------------------
16,699,006 25,715,819
Cost of shares redeemed (5,008,735) (7,175,070)
- -------------------------------------------------------------------------------
Change in net assets from beneficial
interest
transactions 11,690,271 18,540,749
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 10,965,728 19,063,011
NET ASSETS:
Beginning of period 19,096,348 33,337(2)
- -------------------------------------------------------------------------------
End of period $30,062,076 $19,096,348
===============================================================================
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
(2) Initial capitalization.
See Notes to Financial Statements.
24
<PAGE>
SEFTON U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods indicated:
<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------ --------------------
<S> <C> <C>
Net asset value - beginning of period $ 12.35 $ 12.00
- ------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.69 0.71
Net realized and unrealized gain from
investment transactions (0.29) 0.37
- ------------------------------------------------------------------------------
Total income from investment opera-
tions 0.40 1.08
- ------------------------------------------------------------------------------
Dividends and distributions to share-
holders
Dividends from net investment income (0.69) (0.71)
Distributions from net realized gain
from investment transactions (0.05) (0.02)
- ------------------------------------------------------------------------------
Total Dividends and distributions (0.74) (0.73)
==============================================================================
Net asset value - end of period $ 12.01 $ 12.35
==============================================================================
Total return 3.31% 9.06%(2)
==============================================================================
Ratios/Supplemental Data:
Net assets, end of period (000) $30,062 $19,096
- ------------------------------------------------------------------------------
Ratio of expenses to average net as-
sets 1.09% 1.02%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to av-
erage net assets 5.64% 5.68%(3)
- ------------------------------------------------------------------------------
Ratio of expenses to average net as-
sets without fee waivers 1.39% 1.39%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to av-
erage net assets without fee waivers 5.34% 5.31%(3)
- ------------------------------------------------------------------------------
Portfolio turnover rate (4) 11.94% 45.41%
- ------------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities (excluding
securities with maturity dates of one year or less at the time of
acquisition) for the period and dividing it by the monthly average of the
market value of such securities during the period. Purchases and sales of
investment securities (excluding short-term securities) for the year ended
March 31, 1997 were $11,224,220 and $2,451,287, respectively.
See Notes to Financial Statements.
25
<PAGE>
SEFTON CALIFORNIA TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$34,410,352) $34,982,770
Cash 75,529
Interest receivable 587,091
Receivable for capital shares sold 9,000
Organizational costs, net of accumulated amortization 24,245
Prepaid expenses 15,794
- -----------------------------------------------------------------------
Total Assets 35,694,429
- -----------------------------------------------------------------------
LIABILITIES:
Payables:
Investment advisory fees 13,508
Administration fees 872
Dividends 142,080
Legal and audit fees 17,452
Custodian and accounting fees 7,952
Printing costs 7,635
Other 551
- -----------------------------------------------------------------------
Total Liabilities 190,050
- -----------------------------------------------------------------------
NET ASSETS: $35,504,379
=======================================================================
COMPOSITION OF NET ASSETS
Paid-in capital 34,720,159
Undistributed net investment income 3,609
Accumulated net realized gain from investment transactions 208,193
Net unrealized appreciation of investments 572,418
- -----------------------------------------------------------------------
NET ASSETS: $35,504,379
=======================================================================
Shares of beneficial interest outstanding 2,896,332
- -----------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.26
=======================================================================
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
SEFTON CALIFORNIA TAX FREE FUND
STATEMENT OF INVESTMENTS
March 31, 1997
<TABLE>
<CAPTION>
Bond Ratings Market
Face Value Moody's/S&P Value
- ---------- ------------ ------
(Unaudited)
<S> <C> <C> <C>
CERTIFICATE OF PARTICIPATION 4.4%
- ----------------------------------------------------------------------
$1,500,000 West Covina, California Hospital,
Certification of Participation,
6.50%, 8/15/14, Callable 8/15/04
@ 102 A2/A $1,553,580
----------
TOTAL CERTIFICATE OF PARTICIPATION
(Cost $1,503,483) 1,553,580
----------
GENERAL OBLIGATION BONDS 8.5%
- ----------------------------------------------------------------------
1,325,000 California State, 6.25%, 4/1/08 A1/A+ 1,446,821
1,500,000 San Francisco City & County
Public Safety, 6.50%, 6/15/08,
Callable 6/15/01 @ 100, FGIC Aaa/AAA 1,578,735
----------
TOTAL GENERAL OBLIGATION BONDS
(Cost $2,948,952) 3,025,556
----------
LEASE REVENUE BONDS 4.4%
- ----------------------------------------------------------------------
1,000,000 California State Public Works--
Department of Corrections,
5.25%, 12/1/08, AMBAC Aaa/AAA 1,006,430
500,000 California State Public Works
Board Univ, 6.63%, 10/1/10,
Callable 10/2/02 @ 102 A/A 553,150
----------
TOTAL LEASE REVENUE BONDS
(Cost $1,483,867) 1,559,580
----------
REVENUE BONDS 81.2%
- ----------------------------------------------------------------------
1,500,000 California Educational Facilities
Authorities, Santa Clara Univ.,
6.25%, 2/1/16, Callable 2/1/02 @
102 A1/NR 1,621,635
1,690,000 California Educational Facilities
Authorities, Pomona College
6.13%, 2/15/08, Callable 2/15/02
@ 102 Aa1/AA 1,777,745
1,000,000 California Health Facilities
Finance Authorities--Sutter,
7.00%, 1/1/09, Callable 1/1/99 @
102, MBIA Aaa/AAA 1,054,730
1,500,000 California Health Facilities
Finance Authorities--Scripps,
6.25%, 10/1/13, Callable 10/1/01
@ 102, MBIA Aaa/AAA 1,556,235
1,460,000 California Housing Finance
Agency, Series F, 5.95%, 8/1/14,
Callable 8/1/05 @ 102, MBIA Aaa/AAA 1,471,067
800,000 California Housing Finance
Agency, Series L, 5.90%, 8/1/17,
Callable 2/1/06, @ 102, MBIA Aaa/AAA 803,104
</TABLE>
27
<PAGE>
SEFTON CALIFORNIA TAX FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
March 31, 1997
<TABLE>
<CAPTION>
Bond Ratings Market
Face Value Moody's/S&P Value
---------- ------------ ------
(Unaudited)
<S> <C> <C> <C>
REVENUE BONDS (CONTINUED)
- ---------------------------------------------------------------------
$ 200,000 California Pollution Control
Finance Authority Southern
California Edison Series-B,
3.55%, 2/28/08(1) VMIG-1/A-1 $ 200,000
500,000 California Pollution Control
Finance Authority Southern
California Edison Series-C,
3.55%, 2/28/08(1) VMIG-1/A-1 500,000
400,000 California Pollution Control
Finance Authority Southern
California Edison Series-D,
3.55%, 2/28/08(1) VMIG-1/A-1 400,000
1,000,000 Los Angeles, California Waste
Water Systems, Series-B 6.25%,
6/1/12, Callable 6/1/02 @ 102,
AMBAC Aaa/AAA 1,039,340
1,700,000 Marin California Municipal
Water District, 5.55%, 7/1/13,
Callable 7/1/03 @ 102 A1/AA 1,644,206
1,500,000 M-S-R Public Power Agency,
California San Juan Project,
Revenue Series-F, 6.00%,
7/1/20, Callable 7/1/03 @ 102,
AMBAC Aaa/AAA 1,507,095
1,000,000 Mountain View California,
Shoreline Regional Park,
5.50%, 8/1/21, Callable 8/1/06
@ 102, MBIA Aaa/AAA 951,680
2,000,000 Rancho California, Water
District Financing Authority,
5.88%, 11/1/10, Callable
11/1/05 @ 102, FGIC Aaa/AAA 2,077,360
1,500,000 San Diego, California Sales
Tax, Series-A, 5.00%, 4/1/07,
FGIC Aaa/AAA 1,491,255
1,800,000 San Francisco Airport,
California, City/County,
5.38%, 5/1/17, Callable 5/1/02
@ 102, MBIA Aaa/AAA 1,706,778
1,500,000 San Francisco Bay Area Rapid
Transit, Sales Tax Revenue,
5.50%, 7/1/15, Callable 7/1/05
@ 101, FGIC Aaa/AAA 1,460,295
1,500,000 San Francisco Port Commission
5.90%, 7/1/09, Callable 7/1/04
@ 102 A/BBB+ 1,504,605
1,500,000 San Francisco, California,
City/County, Public Utility
Commission Water, 6.00%,
11/1/15, Callable 11/1/02 @
100 Aa/AA- 1,520,820
1,500,000 San Jose-Santa Clara Water
District Financing 5.38%,
11/15/15, Callable 11/15/05 @
101, FGIC Aaa/AAA 1,441,905
600,000 State of California Tax Exempt
C/P 3.45%, 4/1/97 A1/A+ 600,000
</TABLE>
28
<PAGE>
SEFTON CALIFORNIA TAX FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
March 31, 1997
<TABLE>
<CAPTION>
Bond Ratings Market
Face Value Moody's/S&P Value
---------- ------------ ------
(Unaudited)
<S> <C> <C> <C>
REVENUE BONDS (CONTINUED)
- -----------------------------------------------------------------------
$1,000,000 Tulare California Sewer
Revenue, 5.70%, 11/15/15,
Callable 11/15/06 @ 102, MBIA Aaa/AAA $ 995,270
1,500,000 University California Revenue,
Series-B, 6.30%, 9/1/15 NR/A 1,518,929
-----------
TOTAL REVENUE BONDS
(Cost $28,474,050) 28,844,054
-----------
TOTAL INVESTMENTS
(Cost $34,410,352)(2) 98.5% $34,982,770
Other Assets in Excess of Liabilities 1.5% 521,609
------------------------
NET ASSETS 100.0% $35,504,379
------------------------
</TABLE>
(1) Floating rate security--rate disclosed as of March 31, 1997.
(2) Cost for federal income tax and financial reporting purposes is the same.
MBIA--Municipal Bond Insurance Association.
FGIC--Financial Guaranty Insurance Company.
AMBAC--American Municipal Bond Assurance Corporation.
See Notes to Financial Statements.
29
<PAGE>
SEFTON CALIFORNIA TAX FREE FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,434,026
- -----------------------------------------------------------------
Total Investment Income 2,434,026
- -----------------------------------------------------------------
EXPENSES:
Investment advisory fees 257,339
Administration fees 85,431
Fund Accounting fees 32,823
Legal fees 37,060
Audit fees 17,964
Custodian fees 21,275
Amortization of organization costs 7,949
Transfer Agency fees 16,083
Printing costs 7,596
Insurance costs 4,110
Registration and filing fees 2,776
Trustees' fees and expenses 3,856
Other 6,312
- -----------------------------------------------------------------
Total expenses 500,574
- -----------------------------------------------------------------
Expenses waived by:
Investment Adviser (98,461)
Administrator (27,036)
- -----------------------------------------------------------------
Net Expenses 375,077
- -----------------------------------------------------------------
NET INVESTMENT INCOME 2,058,949
- -----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 277,205
Net change in unrealized appreciation 66,683
- -----------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 343,888
- -----------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,402,837
=================================================================
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
SEFTON CALIFORNIA TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended March 31, 1997
<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------ --------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income $ 2,058,949 $ 1,843,435
Net realized gain from investment
transactions 277,205 22,588
Net change in unrealized appreciation 66,683 505,735
- -------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,402,837 2,371,758
- -------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (2,058,315) (1,843,435)
Distributions to shareholders from net
realized gain from investment trans-
actions (69,012) (22,588)
Distribution to shareholders in excess
of net realized gains - (139)
- -------------------------------------------------------------------------------
Change in net assets from investment
activities 275,510 505,596
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 7,705,704 43,276,260
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 271,084 8,890
- -------------------------------------------------------------------------------
7,976,788 43,285,150
Cost of shares redeemed (15,340,540) (1,231,462)
- -------------------------------------------------------------------------------
Change in net assets from beneficial
interest transactions (7,363,752) 42,053,688
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (7,088,242) 42,559,284
NET ASSETS:
Beginning of period 42,592,621 33,337(2)
- -------------------------------------------------------------------------------
End of period 35,504,379 42,592,621
===============================================================================
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
(2) Initial capitalization.
See Notes to Financial Statements.
31
<PAGE>
SEFTON CALIFORNIA TAX FREE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated:
<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------ --------------------
<S> <C> <C>
Net asset value - beginning of period $ 12.19 $ 12.00
- ------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.59 0.58
Net realized and unrealized gain from
investment transactions 0.09 0.20
- ------------------------------------------------------------------------------
Total income from investment opera-
tions 0.68 0.78
- ------------------------------------------------------------------------------
Dividends and distributions to share-
holders
Dividends from net investment income (0.59) (0.58)
Distributions from net realized gain
from investment transactions (0.02) (0.01)
- ------------------------------------------------------------------------------
Total dividends and distributions (0.61) (0.59)
==============================================================================
Net asset value - end of period $ 12.26 $ 12.19
==============================================================================
Total return 5.69% 6.60%(2)
==============================================================================
Ratios/Supplemental Data:
Net assets, end of period (000) $35,504 $42,593
- ------------------------------------------------------------------------------
Ratio of expenses to average net as-
sets 0.88% 0.83%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to av-
erage net assets 4.83% 4.83%(3)
- ------------------------------------------------------------------------------
Ratio of expenses to average net as-
sets without fee waivers 1.17% 1.16%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to av-
erage net assets without fee waivers 4.54% 4.51%(3)
- ------------------------------------------------------------------------------
Portfolio turnover rate (4) 14.52% 93.90%
- ------------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities (excluding
securities with maturity dates of one year or less at the time of
acquisition) for the period and dividing it by the monthly average of the
market value of such securities during the period. Purchases and sales of
investment securities (excluding short-term securities) for the year ended
March 31, 1997 were $5,962,524 and $14,463,159, respectively.
See Notes to Financial Statements.
32
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$71,858,511) $78,308,213
Repurchase Agreements (cost-$11,785,000) 11,785,000
Cash 993
Interest receivable 93,650
Receivable for capital shares issued 18,375
Receivable for investments sold 629,379
Organizational costs, net of accumulated amortization 24,245
Prepaid expenses 15,602
- ------------------------------------------------------------------------------
Total Assets 90,875,457
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 4,447,404
Payables:
Investment advisory fees 73,089
Administration fees 2,112
Legal and audit fees 18,186
Custodian and accounting fees 7,681
Printing costs 6,185
Other 5,131
- ------------------------------------------------------------------------------
Total Liabilities 4,559,788
- ------------------------------------------------------------------------------
NET ASSETS: $86,315,669
==============================================================================
COMPOSITION OF NET ASSETS
Paid-in capital 76,980,658
Undistributed (distributions in excess of) net investment income (1,021)
Accumulated net realized gain from investment transactions 2,886,330
Net unrealized appreciation of investments 6,449,702
- ------------------------------------------------------------------------------
NET ASSETS $86,315,669
==============================================================================
Shares of beneficial interest outstanding 5,257,244
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $16.42
==============================================================================
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF INVESTMENTS
March 31, 1997
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<C> <S> <C> <C>
COMMON STOCKS 90.7%
- ------------------------------------------------------------
BASIC INDUSTRY 11.0%
- ------------------------------------------------------------
20,000 Aluminum Company of America $ 1,360,000
42,000 Inco, Ltd. 1,370,250
60,000 International Paper 2,332,500
18,700 Phelps Dodge Corp. 1,367,438
38,000 PPG Industries, Inc. 2,052,000
55,000 Synthetic Industries, Inc.* 976,250
-----------
9,458,438
-----------
CONSUMER CYCLICALS 4.3%
- ------------------------------------------------------------
56,000 J.C. Penney Co., Inc. 2,667,000
38,000 Waban, Inc.* 1,059,250
-----------
3,726,250
-----------
CONSUMER STAPLES 6.9%
- ------------------------------------------------------------
82,400 Great Atlantic & Pacific Tea Co. 2,090,900
31,500 Kroger Co. 1,598,625
20,000 Phillip Morris Companies, Inc. 2,282,500
-----------
5,972,025
-----------
ENERGY 4.4%
- ------------------------------------------------------------
73,000 American Oilfield Divers* 821,250
54,000 Dailey Petroleum Services* 364,500
65,000 Repsol S.A.--ADR 2,648,750
-----------
3,834,500
-----------
FINANCE 15.0%
- ------------------------------------------------------------
48,000 American Financial Group, Inc. 1,752,000
15,000 BankAmerica Corp. 1,511,250
20,000 CCB Financial Corp. 1,285,000
35,000 Chase Manhattan Corp. 3,276,875
66,200 Gryphon Holdings, Inc.* 943,350
36,000 Reliastar Financial Corp. 2,128,500
49,000 Selective Insurance Group 2,033,500
-----------
12,930,475
-----------
HEALTH CARE 8.9%
- ------------------------------------------------------------
40,000 Living Centers of America* 1,380,000
141,000 Maxxim Medical, Inc.* 2,026,875
46,200 Medeva PLC-Sponsored ADR 912,450
150,000 Sun Healthcare Group* 2,156,250
30,000 Wellpoint Health Networks* 1,245,000
-----------
7,720,575
-----------
</TABLE>
34
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
March 31, 1997
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<C> <S> <C> <C>
MANUFACTURING 5.3%
- -------------------------------------------------------------------
79,000 Dana Corp. $ 2,597,125
85,000 Mark IV Industries, Inc. 1,997,500
-----------
4,594,625
-----------
SERVICES 11.3%
- -------------------------------------------------------------------
33,000 AMR Corp.* 2,722,500
60,000 CSX Corp. 2,790,000
75,000 Royal Caribbean Cruises Ltd. 2,287,500
39,100 Ryder Systems, Inc. 1,143,675
47,200 World Fuel Services Corp. 837,800
-----------
9,781,475
-----------
TECHNOLOGY 9.2%
- -------------------------------------------------------------------
23,000 International Business Machine 3,159,625
55,000 Seagate Technology, Inc. * 2,468,125
45,000 Tektronix, Inc. 2,272,500
-----------
7,900,250
-----------
UTILITIES/REITS 14.4%
- -------------------------------------------------------------------
54,200 Bedford Property Investors 1,070,450
43,000 Eastgroup Properties 1,193,250
67,000 Entergy Corp. 1,641,500
60,200 Equity Inns, Inc. 797,650
53,000 General Public Utility Corp. 1,702,625
87,000 Ohio Edison Co. 1,837,875
35,000 Price Reit, Inc. 1,295,000
40,000 TriNet Corporate Realty Trust 1,265,000
90,000 Westcoast Energy, Inc. 1,586,250
-----------
12,389,600
-----------
TOTAL COMMON STOCKS
(Cost $71,858,511) 78,308,213
-----------
REPURCHASE AGREEMENT 13.7%
- -------------------------------------------------------------------
11,785,000 Repurchase agreement with State Street
Bank & Trust Co., 5.00%, dated 3/31/97
and maturing 4/1/97, collateralized by
U.S. Treasury Notes, 8.00%, due 5/15/01
with a value of $12,021,000 (Cost
$11,785,000) $11,785,000
-----------
TOTAL INVESTMENTS
(Cost $83,643,511)(1) 104.4% $90,093,213
Other Liabilities in Excess of Assets ** (4.4)% (3,777,544)
--------------------
NET ASSETS 100.0% $86,315,669
====================
</TABLE>
(1) Cost for federal income tax purposes is $83,643,597.
*Denotes non-income producing security.
** Amount is comprised of a payable for investment securities purchased at
3/31/97 of $(4,447,404) and other assets in excess of liabilities of
$669,860.
35
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 219,653
Dividend income 1,069,915
Tax Withholding (5,424)
- -----------------------------------------------------------------
Total Investment Income $1,284,144
- -----------------------------------------------------------------
EXPENSES:
Investment advisory fees 482,659
Administration fees 95,828
Fund Accounting fees 33,170
Legal fees 50,263
Audit fees 16,521
Custodian fees 27,316
Amortization of organization costs 7,949
Transfer Agency fees 18,020
Printing costs 8,669
Insurance costs 4,066
Registration and filing fees 4,203
Trustees' fees and expenses 3,834
Other 4,140
- -----------------------------------------------------------------
Total expenses 756,638
- -----------------------------------------------------------------
Expenses waived by:
Administrator (21,831)
- -----------------------------------------------------------------
Net Expenses 734,807
- -----------------------------------------------------------------
NET INVESTMENT INCOME 549,337
- -----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 6,634,179
Net change in unrealized appreciation 1,277,884
- -----------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 7,912,063
- -----------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,461,400
=================================================================
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended March 31, 1997
<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------ --------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income $ 549,337 $ 430,601
Net realized gain from investment
transactions 6,634,179 716,875
Net change in unrealized appreciation 1,277,884 5,171,818
- -------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 8,461,400 6,319,294
- -------------------------------------------------------------------------------
Dividends to shareholders from net in-
vestment income (544,866) (430,601)
Distributions to shareholders in ex-
cess of net investment income (13,818) (4,471)
Distributions to shareholders from net
realized gain from investment trans-
actions (4,451,927) -
- -------------------------------------------------------------------------------
Change in net assets from investment
activities 3,450,789 5,884,222
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 45,875,135 31,921,516
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 2,995,495 38,478
- -------------------------------------------------------------------------------
48,870,630 31,959,994
Cost of shares redeemed (2,331,718) (1,551,574)
- -------------------------------------------------------------------------------
Change in net assets from beneficial
interest transactions 46,538,912 30,408,420
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 49,989,701 36,292,642
NET ASSETS:
Beginning of period 36,325,968 33,326(2)
- -------------------------------------------------------------------------------
End of period $86,315,669 $36,325,968
===============================================================================
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
(2) Initial capitalization.
See Notes to Financial Statements.
37
<PAGE>
SEFTON EQUITY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated:
<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------ --------------------
<S> <C> <C>
Net asset value - beginning of period $ 14.92 $ 12.00
- ------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.17 0.21
Net realized and unrealized gain from
investment transactions 3.14 2.92
- ------------------------------------------------------------------------------
Total income from investment opera-
tions 3.31 3.13
- ------------------------------------------------------------------------------
Dividends and distributions to share-
holders
Dividends from net investment income (0.17) (0.21)
Distributions from net realized gain
from investment transactions (1.64) -
- ------------------------------------------------------------------------------
Total Dividends and distributions (1.81) (0.21)
==============================================================================
Net asset value - end of period $ 16.42 $ 14.92
==============================================================================
Total return 23.15% 26.31%(2)
==============================================================================
Ratios/Supplemental Data:
Net assets, end of period (000) $86,316 $36,326
- ------------------------------------------------------------------------------
Ratio of expenses to average net as-
sets 1.52% 1.55%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 1.13% 1.68%(3)
- ------------------------------------------------------------------------------
Ratio of expenses to average net as-
sets without fee waivers 1.56% 1.66%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to av-
erage net assets without fee waivers 1.09% 1.57%(3)
- ------------------------------------------------------------------------------
Average Commission Rate .0520 -
- ------------------------------------------------------------------------------
Portfolio turnover rate (4) 77.65% 62.76%
- ------------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities (excluding securi-
ties with maturity dates of one year or less at the time of acquisition)
for the period and dividing it by the monthly average of the market value
of such securities during the period. Purchases and sales of investment se-
curities (excluding short-term securities) for the year ended March 31,
1997 were $67,785,869 and $34,941,037, respectively.
See Notes to Financial Statements.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Sefton Funds Trust (the "Trust", formerly known as Kennebec Funds Trust), a
Delaware business trust was organized on January 6, 1995. The Trust is regis-
tered under the Investment Company Act of 1940, as amended (the "1940 Act") as
an open-end management investment company. The Trust offers three series of
shares--Sefton U.S. Government Fund, Sefton California Tax Free Fund, and Eq-
uity Value Fund (the "Funds"). The Funds commenced investment operations on
April 3, 1995. The assets for each series are segregated and accounted for sep-
arately.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by each Fund in preparation of its financial statements. These poli-
cies are in conformity with generally accepted accounting principles. The prep-
aration of financial statements in accordance with generally accepted account-
ing principles requires management to make estimates and assumptions that ef-
fect the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. The actual results
could differ from those estimates.
A. INVESTMENT VALUATION: Marketable securities are valued at the last sales
price on the principal exchange or market on which they are traded; or, if
there were no sales that day, the closing bid prices are used. Securities for
which market quotations are not readily available are valued at their fair mar-
ket value as determined in good faith by or under the direction of the Board of
Trustees. Short-term securities having a remaining maturity of 60 days or less
are valued at amortized cost which approximates market value.
B. REPURCHASE AGREEMENTS: Repurchase agreements are fully collateralized by
U.S. Government securities. All collateral is held by the Trust's custodian and
is monitored daily to ensure that the collateral's market value equals at least
100% of the repurchase price under the agreement. However, in the event of de-
fault or bankruptcy by the counter party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings. Each Funds's
policy is to limit repurchase agreement transactions to those parties deemed by
the Fund's Investment Adviser to have satisfactory creditworthiness.
C. FEDERAL INCOME TAXES: The Funds have made no provision for federal income
tax for the year ended March 31, 1997. The Funds intend to distribute to share-
holders all taxable investment income and realized gains and otherwise comply
with the Internal Revenue Code applicable to regulated investment companies.
D. SECURITIES TRANSACTIONS: Securities transactions are accounted for on the
date the securities are purchased or sold (trade date).
E. ORGANIZATIONAL COSTS: Each of the Funds deferred certain organizational
costs of $38,529 at inception. Such costs are being amortized over a 60 month
period from the commencement of investment operations.
F. INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date.
Interest income, which includes amortization of premium and accretion of dis-
count, is accrued and recorded daily.
G. DIVIDENDS, DISTRIBUTIONS AND EXPENSES: The Sefton Equity Value Fund will
distribute net investment income quarterly. The Sefton U.S. Government Fund and
Sefton California Tax Free Fund will declare and pay dividends from net invest-
ment income daily and monthly, respectively. Distributions of net realized
gains, if any, are declared at least once a year. Each Fund bears expenses in-
curred specifically on its behalf as well as a portion of general expenses.
H. CAPITAL ACCOUNTS: The Funds follow the provisions of the AICPA's Statement
of Position 93-2 "Determination, Disclosure and Financial Statement Presenta-
tion of Income, Capital Gain and
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Return of Capital Distributions by Investment Companies" ("SOP"). The purpose
of this SOP is to report undistributed net investment income and accumulated
net realized gain or loss in such a manner as to approximate amounts available
for future distributions to shareholders, if any.
I. CONCENTRATION OF CREDIT RISK: The Sefton California Tax Free Fund invests
primarily in securities issued by the State of California (the "State") and its
various political subdivisions. The performance of Sefton California Tax Free
Fund is closely tied to economic conditions within the State and the financial
condition of the State and its agencies and municipalities.
NOTE 2 - SHARES OF BENEFICIAL INTEREST
On March 31, 1997 there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
SEFTON U.S. GOVERNMENT FUND
FOR THE YEAR ENDED FOR THE PERIOD ENDED
MARCH 31, 1997 MARCH 31, 1996 (1)
<S> <C> <C>
SHARES SOLD 1,343,180 2,107,816
- ------------------------------------------------------------
SHARES REINVESTED 26,400 1,396
- ------------------------------------------------------------
TOTAL 1,369,580 2,109,212
- ------------------------------------------------------------
SHARES REDEEMED (412,823) (563,399)
============================================================
NET INCREASE 956,757 1,545,813
- ------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
SEFTON CALIFORNIA TAX FREE FUND
FOR THE YEAR ENDED FOR THE PERIOD ENDED
MARCH 31, 1997 MARCH 31, 1996 (1)
<S> <C> <C>
SHARES SOLD 624,399 3,592,659
- ------------------------------------------------------------------
SHARES REINVESTED 21,827 723
- ------------------------------------------------------------------
TOTAL 646,226 3,593,382
- ------------------------------------------------------------------
SHARES REDEEMED (1,242,645) (100,630)
==================================================================
NET INCREASE (DECREASE) (596,419) 3,492,752
- ------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------
SEFTON EQUITY VALUE FUND
FOR THE YEAR ENDED FOR THE PERIOD ENDED
MARCH 31, 1997 MARCH 31, 1996 (1)
<S> <C> <C>
SHARES SOLD 2,774,203 2,535,361
- ------------------------------------------------------------
SHARES REINVESTED 195,029 2,800
- ------------------------------------------------------------
TOTAL 2,969,232 2,538,161
- ------------------------------------------------------------
SHARES REDEEMED (146,071) (104,078)
============================================================
NET INCREASE 2,823,161 2,434,083
- ------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER RELATED PARTY
TRANSACTIONS
Each Fund has entered into an Investment Advisory Agreement with Sefton Capi-
tal Management, Inc. ("Investment Adviser"). Pursuant to its advisory agreement
with the Funds, the Investment Adviser is entitled to an advisory fee, computed
daily and payable monthly at an annual rate of .60%, .60%, and 1.00% of the
daily average net assets for the Sefton U.S. Government Fund, Sefton California
Tax Free Fund, and Sefton Equity Value Fund, respectively. Sefton Capital Man-
agement, Inc. voluntarily waived a portion of its advisory fee for the year
ended March 31, 1997. Mr. Harley K. Sefton, President and CEO of the Investment
Adviser, is responsible for the day to day management of the Funds. As of March
31, 1997, affiliates of the Funds own 97%, 98%, and 95% of the Sefton U.S. Gov-
ernment Fund, Sefton California Tax Free Fund, and Sefton Equity Value Funds'
shares outstanding, respectively.
On January 1, 1997, ALPS Mutual Funds Services, Inc. ("ALPS") resigned as Ad-
ministrator and each of the Funds entered into an Administrative Services Con-
tract with BISYS Fund Services ("BISYS" or "Administrator"). The Administrator
is entitled to receive a fee from the Funds for its services computed daily and
payable monthly, at an annual rate of .20% of each Funds average daily net as-
sets. Both ALPS and BISYS voluntarily waived a portion of the administration
fees for the year ended March 31, 1997. ALPS and BISYS assisted in each of the
Fund's administration and operations, including providing office space and var-
ious legal and accounting services in connection with the regulatory require-
ments applicable to each Fund.
Certain Trustees and officers of the Funds are also members and/or officers
of Sefton Capital Management and BISYS. All affiliated and access persons, as
defined in the 1940 Act, follow strict guidelines and policies on personal
trading as outlined in the Trust's Code of Ethics.
Trustees and officers of the Funds who are affiliated persons receive no com-
pensation from the Funds. Trustees who are not interested persons of the Trust,
as defined in the 1940 Act, collectively received compensation and reimburse-
ment of expenses of $1,822, $3,856, and $3,834 from the Sefton U.S. Government
Fund, Sefton California Tax Free Fund, and Sefton Equity Value Fund, respec-
tively, for the year ended March 31, 1997.
NOTE 4 - UNREALIZED GAINS AND LOSSES ON INVESTMENTS
As of March 31, 1997:
<TABLE>
<CAPTION>
SEFTON SEFTON SEFTON
U.S. GOVERNMENT CALIFORNIA EQUITY
FUND TAX FREE FUND VALUE FUND
--------------- ------------- -----------
<S> <C> <C> <C>
Gross Appreciation (excess of value
over cost) $ 141,836 $668,058 $ 8,008,981
Gross Depreciation (excess of cost
over value) (302,800) (95,640) (1,559,365)
- -------------------------------------------------------------------------------
Net Unrealized
Appreciation/(Depreciation) $(160,964) $572,418 $ 6,449,616
===============================================================================
</TABLE>
NOTE 5 - FEDERAL INCOME TAX
Net investment income distributions and capital gains distributions are de-
termined in accordance with income tax regulations which may differ from gener-
ally accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sale losses,
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
foreign currency transactions, net operating losses and capital loss carry for-
wards. In accordance with SOP 93-2, permanent items identified in the year
ended March 31, 1997, have been reclassified among the components of net assets
as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED PAID-IN
INCOME GAINS AND LOSSES CAPITAL
-------------- ---------------- -------
<S> <C> <C> <C>
Sefton U.S. Government Fund $34,870 $(34,870) $ -
- -------------------------------------------------------------------------
Sefton California Tax Free Fund 2,975 139 (3,114)
- -------------------------------------------------------------------------
Sefton Equity Value Fund 12,797 (12,797) -
=========================================================================
</TABLE>
At March 31, 1997, Sefton U.S. Government Fund had a capital loss carry for-
ward of $35,085 which expires 3/31/05. The carry forward will reduce the Fund's
taxable income arising from future net realized gain on investments, if any, to
the extent permitted by the Code, and thus will reduce the amount of the dis-
tributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal tax.
Additionally, net capital losses of $41,193 attributable to security transac-
tions of the Sefton U.S. Government Fund occurring after October 31, 1996, were
treated as arising on April 1, 1997, the first day of the Fund's next taxable
year.
NOTE 6 - SHAREHOLDER TAX INFORMATION (UNAUDITED)
Certain tax information regarding the Sefton Funds Trust is required to be
provided to shareholders based upon each Fund's income and distribution for the
taxable year ended March 31, 1997. The information and distributions reported
herein may differ from the information and distributions taxable to the share-
holders for the calender year ended December 31, 1996.
During the fiscal year ended March 31, 1997, 97% of the dividends paid by the
Sefton California Tax Free Fund from net investment income should be treated as
tax-exempt dividends and 16% of the dividends paid by the Sefton Equity Value
Fund from net investment income qualify for the corporate dividends received
deduction.
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders
of Sefton Funds Trust
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the statements of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Sefton U.S. Government Fund, Sef-
ton California Tax Free Fund, and Sefton Equity Value Fund (constituting Sefton
Funds Trust, hereafter referred to as the "Trust") at March 31, 1997, the re-
sults of each of their operations for the year then ended, and the changes in
each of their net assets and financial highlights for each of the periods indi-
cated, in conformity with generally accepted accounting principles. These fi-
nancial statements and financial highlights (hereafter referred to as "finan-
cial statements") are the responsibility of the Trust's management; our respon-
sibility 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 per-
form 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 presenta-
tion. We believe that our audits, which included confirmation of securities at
March 31, 1997 by correspondence with the custodian and the application of al-
ternative auditing procedures for unsettled security transactions, provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Denver, Colorado
May 22, 1997
43
<PAGE>
Trustees And Officers
Sefton Funds
Board of Trustees
- -----------------
Harley K. Sefton++ Chairman of the Board;
Chairman, President and Chief Executive Officer,
Sefton Capital Management, Inc.
Grace Evans Cherashore*+ Chief Executive Officer,
Bahai and Catamaran Hotels
Gordon T. Frost, Jr.*+ President/General Manager,
Frost Hardwood Lumber Company.
John J. Pileggi*+ Senior Managing Director
Furman Selz, Inc.
* Member of Audit Committee
+ Member of Nominating Committee
++ Trustee who is an "interested person" of
the Trust as that term is defined in the
Investment Company Act of 1940
Officers
- --------
Harley K. Sefton Chairman of the Board and President
Thomas C. Bowden Vice President
Alan A. Lordi Vice President
Ted J. Piorkowski Vice President
Leif O. Sanchez Vice President
Lani Capossere Vice President and Secretary
Irimga McKay Assistant Secretary
Alaina Metz Assistant Secretary
Tom Line Vice President and Treasurer
Greg Maddox Assistant Treasurer
Frank Deutchki Assistant Treasurer
The views expressed in this report are those of the funds' portfolio managers as
of the date specified, and may not reflect the views of the portfolio managers
on the date they are first published or at any time thereafter. The views
expressed in this report are intended to assist shareholders of the Sefton Funds
in understanding their investment in the funds and do not constitute investment
advice: investors should consult their own investment professionals as to their
individual investment programs.
Sefton Capital Management, the investment adviser to the Sefton Funds, is a
privately owned registered investment adviser.
This material must be accompanied or preceded by a prospectus. For more complete
information about the Sefton Funds, including charges and expenses, obtain a
prospectus from BISYS Fund Services, Inc., Member NASD, 3435 Stelzer Road,
Columbus, Ohio 43219-3035, or call toll free 1-800-524-2276. Read the prospectus
carefully before investing or sending money.
<PAGE>
Investment Adviser
Sefton Capital Management
2550 Fifth Avenue, Suite 808
San Diego, California 92103
Administrator, Distributor and Transfer Agent
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
Custodian
State Street Bank and Trust Company
P. O. Box 8521
Boston, Massachusetts 02266-8521
Legal Counsel
Baker & McKenzie
805 Third Avenue, 30th Floor
New York, New York 10022
Independant Accountants
Price Waterhouse LLP
950 Seventeenth Street, Suite 2500
Denver, Colorado 80202
For More Information Call
Sefton Funds 1-800-524-2276
These funds are not insured by Sefton Capital
Management, the FDIC or any other insurer.
SFT-0004 5/97
