<PAGE>
SEFTON FUNDS
SEMI-Annual Report
For The Period Ended September 30, 1997
[PHOTO OF SAILBOAT 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 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.
Small Company Value Fund
The Sefton Small Company Value Fund's objective is to provide investors with
long-term capital appreciation. The Fund pursues its investment objective by
investing primarily in a portfolio of equity securities of both foreign and
domestic small capitalization companies, defined as companies having stock
market capitalization of $1 billion or less at the time of initial purchase,
that the Adviser considers to be relatively undervalued. Current income is a
secondary consideration on selecting portfolio investments. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks, preferred stocks, and securities convertible into common stocks of small
capitalization companies.
<TABLE>
<CAPTION>
Contents
<S> <C>
Letter from the Chairman 1
Economic Review 3
Sefton U.S. Government Fund & California Tax-Free Fund 4
U.S. Government Fund Highlights & Portfolio Performance 5
California Tax-Free Fund Highlights & Portfolio Performance 7
Sefton Equity Value Fund & Small Company Value Fund 8
Equity Value Fund Highlights & Portfolio Performance 11
Small Company Value Fund Highlights & Portfolio Performance 13
Performance Review 14
Definitions of Common Terms 15
Financial Statements
U.S. Government Fund 18
California Tax-Free Fund 24
Equity Value Fund 31
Small Company Value Fund 37
Notes to Financial Statements 43
</TABLE>
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[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 your copy of the Sefton Fund's Semi-Annual Report for the period
ended September 30, 1997. As I reflect over the past six months, I feel grateful
for the wonderful support we have received from our shareholders and friends.
I would like to extend a warm welcome to our new shareholders who have joined us
during this reporting period. I appreciate your confidence and trust in choosing
the Sefton Funds to help accomplish your investment goals. For those
shareholders who continue to invest in the Sefton Funds, I thank you for your
loyalty and would like to assure you that we are working harder than ever to
maintain the superior quality of investment management and service to which you
have become accustomed.
The Sefton Funds have experienced strong growth in assets this year-to-date with
an increase of nearly $70,000,000 which brings our total assets to $187,000,000.
Over the past six months, the Funds have grown by $35,000,000.
Individually, the Sefton Funds continue to perform well. The newest addition to
our Fund Family is the Sefton Small Company Value Fund which commenced
operations on June 30, 1997. We are pleased to report that the Fund is now fully
invested with assets totaling $31,000,000, and we believe that this Fund will
promote more diversification within our investors' portfolios. It is also our
belief that the value oriented approach, which our Fund managers continue to
utilize in choosing small companies, should help reduce some of the downside
risk inherent in small
1
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company investing. Furthermore, it is our opinion that some of the best values
in the equity market now lie within the small company sector.
The Equity Value Fund has generated total returns of 24.58% and 42.70%
respectively, for the six-month and one-year period ended September 30, 1997. On
December 15th, the Equity Value Fund will distribute a significant capital gain
to shareholders. Consequently, for those investors who are considering making an
additional investment in the Equity Value Fund within a taxable (non-IRA)
account, we suggest postponing new contributions to the Fund until after these
distributions are made.
The Sefton U.S. Government Fund and the California Tax-Free Fund have both
performed very well, posting total returns of 6.64% and 6.14% respectively, for
the six-month period ended September 30, 1997.
As the Sefton Funds continue to grow, our Sefton team thanks you for your
support and trust which has enabled us to continue to provide exceptional
investment services to meet your individual investment objectives.
If there is anything we can do for you, please call us at 1-800-524-2276.
Sincerely,
/s/ Harley K. Sefton
Harley K. Sefton
Chairman
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
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ECONOMIC REVIEW
The healthy U.S. economy is surprising even the optimists as strong growth with
little inflation continues. While there were signs during the summer that
suggested a stronger economy could lead to inflationary ills, such as factory
bottlenecks, increased wages, and higher raw material prices, recent data
suggests this was not the case. For example, the National Association of
Purchasing Managers Orders Index dropped in September and employment growth has
slowed during August and September compared to the prior three months. Moreover,
the recent currency problems of Southeast Asia are small relative to our economy
and will not likely have any negative effect on economic activity in the United
States. While the Federal Reserve will be keeping a close eye on future economic
indicators, the Fed has little statistical support today to raise interest
rates. Absent an outside shock, it appears that the economy will experience
smooth sailing for the next several months.
3
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SEFTON U.S. GOVERNMENT FUND AND SEFTON
CALIFORNIA TAX-FREE FUND
[PHOTO OF TED PIORKOWSKI APPEARS HERE]
Ted J. Piorkowski
Vice President
and Fund Manager
of the Sefton U.S. Government Fund
and the Sefton California
Tax-Free Fund
Ted J. Piorkowski, C.F.A.
Vice President and Fund Manager
(U.S. Government Fund & 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
During the last six months, we experienced a moderation in the economic
indicators, continued favorable inflation news, and a shift in perception
concerning the Federal Reserve's monetary policy. Market perception about the
Fed shifted from a potential tightening in monetary policy towards a more
neutral policy requirement. It is now the consensus view that the Fed will not
raise rates for the remainder of 1997. For the six months, rates fell 20-75
basis points across the yield curve.
As of September 30, 1997, our sector allocation was overweighted in treasuries,
underweighted in mortgages, and underweighted in corporates.
(Overweighted/Underweighted measures are relative to broad domestic fixed income
indices.) The Fund had the average maturity and duration characteristics of a
5.4-year U.S. Treasury note. The Fund had a short-to-neutral maturity/duration
objective relative to its competitive universe during the period. This strategy
performed near the median of our competitive universe. We anticipate increasing
our maturity/duration objective towards a more neutral position going forward.
Also, we will selectively continue to increase our corporate sector allocation,
as we move towards a neutral sector weight.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
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SEFTON U.S. GOVERNMENT FUND
HIGHLIGHTS AS OF SEPTEMBER 30, 1997*
Net Assets: $34,378,161
Sector Diversification
----------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Treasury 52.3%
Cash 8.2%
Mortgage 24.5%
Agency 4.2%
Corporate 10.8%
</TABLE>
Significant Holdings
--------------------
<TABLE>
<S> <C>
U.S. Treasury Note
7.50%, Due 5/15/2002 9.3%
U.S. Treasury Note
6.25%, Due 2/15/2003 6.5%
FHLMC
6.10%, Due 11/15/2016 5.9%
Boise Cascade
7.70%, Due 1/30/2003 3.0%
</TABLE>
* The composition of the Fund's holdings is subject to change.
SEFTON U.S. GOVERNMENT FUND
PORTFOLIO PERFORMANCE**
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Annualized Since
Three Months One Year Inception (4/3/95)
------------ -------- ------------------
<S> <C> <C> <C>
Sefton U.S.
Government Fund 3.24% 8.67% 7.63%
Morningstar U.S. 2.73% 7.89% 7.26%
Gov't Funds Average
</TABLE>
** Performance data quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
5
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SEFTON CALIFORNIA TAX-FREE FUND
The California municipal bond market rallied during the period. Bond yields
decreased 45-65 basis points for most maturities. Once again, limited new issue
supply and strong demand continued to support the municipal market. Going
forward, we may soon experience increased issuance related to refundings if
rates fall much further.
As of September 30, 1997, the Fund had an average maturity of approximately 15.7
years and an average coupon of 5.89%. The Fund's largest sector allocations are
education, water, and transportation. In addition, approximately 60% of the
Fund's current holdings are insured bonds. The Fund's maturity/duration position
is currently neutral. During the period, the Fund had slightly underperformed
its competitive universe due to our relatively shorter maturity/duration. We
anticipate increasing the maturity/duration position to slightly longer than
neutral as market conditions afford us the opportunity.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
6
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SEFTON CALIFORNIA TAX-FREE FUND
HIGHLIGHTS AS OF SEPTEMBER 30, 1997*
Net Assets: $38,952,336
<TABLE>
<CAPTION>
Sector Diversification
- ----------------------
<S> <C>
Misc. Revenue Bonds 9.4%
Power 4.1%
Prisons 2.7%
Transportation 12.9%
Waste 9.6%
Water 14.2%
Certificates of Participation 4.2%
Education 14.6%
Floaters/Cash .5%
General Obligations 10.9%
Health 10.8%
Housing 6.1%
</TABLE>
<TABLE>
<CAPTION>
Significant Holdings
- --------------------
<S> <C>
Rancho California, Water District
Financing Authority 5.88%, Due
11/01/2010 5.6%
California Educational Facilities-
Pomona College 6.13%, Due 02/15/2008 4.7%
California Health Financing-Scripps
Hospital 6.25% Due 10/01/2013 4.1%
San Diego Regional Transportation
Commission 5.00%, Due 4/01/2007 4.0%
</TABLE>
*The composition of the Fund's holdings is subject to change.
SEFTON CALIFORNIA TAX-FREE FUND
PORTFOLIO PERFORMANCE**
<TABLE>
<CAPTION>
Three Months One Year Annualized Since Inception (4/3/95)
------------ -------- -----------------------------------
<S> <C> <C> <C>
Sefton California
Tax-Free Fund 2.74% 8.51% 7.43%
Morningstar California
Municipal Bond Funds
Average 2.97% 8.26% 7.45%
</TABLE>
** Performance data quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
7
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SEFTON EQUITY VALUE FUND & SMALL COMPANY VALUE FUND
[PHOTO OF THOMAS C. BOWDEN APPEARS HERE]
Thomas C. Bowden, C.F.A.
Vice President and Fund Manager
(Equity Value Fund & Small Company 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 LEIF O. SANCHEZ APPEARS HERE]
Leif O. Sanchez, C.F.A.
Vice President and Fund Manager
(Equity Value Fund & Small Company 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.
8
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SEFTON EQUITY VALUE FUND
As of September 30th, the year-to-date return of the US stock market, as
measured by the S&P 500 Stock Index* (S&P 500), was +29.7%. This follows returns
of +23.1% for 1996 and +37.4% for 1995. Over the past three years, large
capitalization, "blue chip" growth companies have been the markets' best
performers, reflecting an increasing desire among stock investors to own the
"best" companies in America, those companies which have the brightest prospects
and the fastest growing earnings. However, this focus on "owning the best" has,
in our opinion, overshadowed the other crucial element of security analysis:
valuation.
The majority of the stocks in the S&P 500, traditionally the "best" companies in
America, now carry rather steep prices in relation to their projected earnings
growth rates and intrinsic values. Built into the stock prices of these
companies is a big premium for future growth. If these companies report
quarterly earnings even a penny less than Wall Street analysts predict, their
stock price can tumble precipitously, evidence the recent price declines of
Kodak, Gillette, Coca Cola, Intel, Motorola and Boeing.
We believe that our value approach to investing has the potential to provide a
margin of safety against earnings disappointments. News that is expected has far
less of an impact on future stock prices than news that is unexpected. In the
case of the blue-chip growth stocks in the S&P 500, most of the good news is
already reflected in their stock price. If this good news materializes, the
stock may rise further, but the market has, for the most part, already
anticipated it. If, on the other hand, the news is not as good as expected, the
stock is prone to a significant decline in price.
When purchasing stocks for the Sefton Equity Value Fund and Small Company Value
Fund, Sefton Fund managers pay careful attention to what they are paying in
relation to what they are getting in the form of earnings, book value and
franchise value. This focus on fundamental value should help mitigate the risks
of earnings disappointments. Since the market does not expect much from the type
of stocks which we buy, bad news can't hurt them too much, but good news has the
potential to send them soaring because it is unexpected, and not already built
into their price.
Consequently, while we perceive significant risks to exist within the
large-capitalization growth segment of the market, we believe there are numerous
undervalued companies which have been overlooked or are misunderstood by the
majority of investors, particularly in the small and mid capitalization segments
of the market. We will continue to seek out these undervalued and misunderstood
companies as we strive to help our shareholders reach their financial goals in
the coming year.
Over the past six months, the S&P 500 produced a gain of +26.24% while the
Lipper Growth Funds Universe** produced an average gain of +28.12%.
Significantly, within the S&P 500,
9
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"growth" stocks (stocks that typically exhibit high P/E multiples) outperformed
"value" stocks (stocks that typically exhibit P/E multiples lower than that of
the general market) by 240 basis points (2.4%). During the last six months, the
Sefton Equity Value Fund generated a total return of 24.58%.
The Fund purchased eleven new stocks and sold nineteen during the past six
months. Securities showing signs of deteriorating fundamentals or positions that
had reached their price objective were eliminated. Currently, we are
overweighted in the sectors of Basic Industry, Finance, and Utilities/REITs, and
underweighted in Consumer Staples, Technology and Energy. The Fund ended
September with a little under 8% of assets in cash.
* The S&P 500 is an unmanaged stock index generally representative of the large
capitalization equity market as a whole and cannot be invested in directly.
** The Lipper Growth Funds Universe is an average of growth mutual funds as
tracked by Lipper Analytical Services.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
10
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SEFTON EQUITY VALUE FUND
HIGHLIGHTS AS OF SEPTEMBER 30, 1997
Net Assets: $83,864,184
<TABLE>
<CAPTION>
Sector Diversification*
- ----------------------
<S> <C>
Consumer Cyclical 7.3%
Utilities/REITS 15.9%
Services 9.9%
Cash 7.8%
Finance 15.0%
Technology 7.0%
Health Care 6.9%
Consumer Staples 5.0%
Basic Industry 10.5%
Energy 6.9%
Manufacturing 7.8%
</TABLE>
<TABLE>
<CAPTION>
Significant Holdings
- --------------------
<S> <C>
Chase Manhattan
Corporation 4.2%
Phillip Morris
Companies, Inc. 4.0%
Repsol S.A. Sponsored -
ADR 3.9%
Dana Corporation 3.8%
International Business
Machines 3.8%
CSX Corporation 3.5%
Ohio Edison Company 3.4%
AMR Corporation 3.3%
GPU, Inc. 3.3%
International Paper
Company 3.3%
</TABLE>
* The composition of the Fund's holdings is subject to change.
SEFTON EQUITY VALUE FUND PORTFOLIO PERFORMANCE**
<TABLE>
<CAPTION>
Annualized Since Inception
Three Months One Year (4/3/95)
------------ -------- --------------------------
<S> <C> <C> <C>
Sefton Equity
Value Fund 10.63% 42.70% 30.35%
Morningstar Growth
Funds Average 11.37% 33.06% 27.88%
</TABLE>
** Performance data quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
11
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
The small capitalization stock market indices staged an extremely powerful rally
during the third quarter. After lagging their larger brethren during the first
half of 1997, small capitalization stocks rose each month of the third quarter.
For the quarter ended September 30, 1997, the Russell 2000 Index* returned
+14.85%, while the Lipper Small Capitalization Fund Universe** returned +16.55%.
The Sefton Small Company Value Fund, which commenced operations on June 30,
1997, performed well on an absolute basis with a total return of +10.32% for the
third quarter. Although the Fund trailed the impressive performance of the peer
group benchmarks indicated above, we were not overly concerned as this result
was primarily due to circumstances (starting a new fund) which are clearly one
time in nature. The primary obstacle the Fund faced was the difficulty of
getting fully invested during a period of rapidly rising stock prices. Over the
course of three months, our exposure to cash went from 100% to just under 13% by
the end of the quarter. Secondarily, the Fund was also hurt by its lack of
exposure to the technology sector, which was one of the best performing groups
over the three months. Although the Fund lagged its benchmark, we were pleased
to see our expectations proved correct as small capitalization stocks
outperformed large and mid capitalization stocks. In addition, the good news is
that, despite the handicap of high cash levels for much of the quarter, the Fund
easily outperformed the S&P 500 and almost matched the results of our own Equity
Value Fund. Part of the reason the Fund performed as well as it did, was the
strong performance of some of the individual portfolio holdings. Each of the
following were up in excess of 25% over the quarter: Maxxim Medical (3.9%),
Synthetic Industries (1.9%), Quaker Fabric (3.8%), Domain Energy (2.3%), Cameron
Ashley (2.5%), American Oilfield Divers (2.8%), Midcoast Energy Resources
(2.9%), and Great Atlantic & Pacific Tea Co. (3.4%).***
The Fund ended the quarter owning 31 stocks. Over the three months, a few stocks
were sold where fundamentals took a turn for the worse or where we were unable
to establish a position of significance at a reasonable price. Currently, the
Fund is overweighted in the Energy, Services and Utilities/REITs sectors and has
relatively little exposure to the Consumer Cyclical and Technology areas.
Note: Small company funds typically carry additional risks since smaller
companies generally have a higher company specific risk, and historically, their
stocks have experienced a greater degree of market volatility than larger
company stocks on average.
* The Russell 2000 is an unmanaged stock index generally representative of
the small capitalization equity market as a whole and cannot be invested in
directly.
** The Lipper Small Capitalization Funds Universe is an average of small
capitalization mutual funds as tracked by Lipper Analytical Services.
*** Percentage of the Small Company Value Fund as of September 30, 1997. The
composition of the Fund's holdings is subject to change.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
12
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
HIGHLIGHTS AS OF SEPTEMBER 30, 1997*
Net Assets: $30,031,300
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Sector Diversification Significant Holdings
---------------------- --------------------
<S> <C> <C> <C>
Consumer Cyclical 7.3% Equity Inns 3.9%
Basic Industry 8.2% Eastgroup Properties 3.9%
Manufacturing 8.5% World Fuel Services 3.9%
Energy 9.4% Maxxim Medical 3.9%
Services 11.6% Quaker Fabric 3.8%
Health Care 7.3% Price REIT 3.7%
Consumer Staples 3.4% Dravo Corporation 3.7%
Utilities/REITS 19.8% Gryphon Holdings, Inc. 3.6%
Finance 11.7% Tarrant Apparel Group 3.6%
Cash 12.8% Selective Insurance 3.5%
</TABLE>
* The composition of the Fund's holdings is subject to change
SEFTON SMALL COMPANY VALUE FUND PORTFOLIO PERFORMANCE**
[BAR CHART APPEARS HERE]
Since Inception (6/30/97)
<TABLE>
<CAPTION>
Sefton Small Company Morningstar Small
Value Fund Company Funds Average
-------------------- ---------------------
<S> <C>
10.32% 16.86%
</TABLE>
** Performance data quoted represents past performance and is not indicative of
future results. Investment return & principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
13
<PAGE>
PERFORMANCE REVIEW
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. Share price, investment return, and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
The Morningstar U.S. Government Bond Funds Average is composed of 372 funds with
an investment objective that seeks income by investing in a blend of
mortgage-backed securities, U.S. Treasury, and agency securities.
The Morningstar California Municipal Bond Funds Average is composed of 168 funds
with an investment objective that seeks to invest assets in municipal debt
issues which are exempt from taxation in California.
The Morningstar Growth Funds Average is composed of 1140 funds with an
investment objective that seeks 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.
The Morningstar Small Company Funds Average is composed of 514 funds with an
investment objective that seeks to invest in companies with market
capitalizations of less than $1 billion and have virtually no dividend income.
14
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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 and the Sefton Small Company
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
15
<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 economic 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
16
<PAGE>
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.
17
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$30,581,893) $31,556,415
Repurchase Agreements (cost-$2,087,000) 2,087,000
Interest receivable 501,911
Receivable for capital shares issued 409,989
Organizational costs, net of accumulated amortization 20,221
Prepaid expenses 1,146
- -------------------------------------------------------------------------------
Total Assets 34,576,682
- -------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment advisory fees 13,578
Administration fees 559
Shareholder servicing fees 1,008
Dividends 150,275
Legal and audit fees 15,962
Custodian and accounting fees 9,726
Printing costs 5,117
Other 2,296
- -------------------------------------------------------------------------------
Total Liabilities 198,521
- -------------------------------------------------------------------------------
NET ASSETS: 34,378,161
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital 33,458,419
Undistributed (distributions in excess of) net investment income 34,961
Accumulated net realized gain (loss) from investment transactions (89,741)
Net unrealized appreciation (depreciation) of investments 974,522
- -------------------------------------------------------------------------------
NET ASSETS: $34,378,161
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,761,415
- -------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.45
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
SEFTON U.S. GOVERNMENT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal
Amount Security Description Market Value
- --------- -------------------- ------------
<S> <C> <C>
CORPORATE BONDS 10.8%
- -----------------------------------------------------------------------------------------
FINANCE 4.6%
- -----------------------------------------------------------------------------------------
$500,000 Integra Bank, MTN, 6.55%, 6/15/00 $ 502,932
500,000 Lehman Brothers Holdings, 8.75%, 5/15/02 541,393
500,000 Salomon Brothers, Inc, 9.25%, 5/1/01 543,255
-----------
1,587,580
-----------
INDUSTRIAL 6.2%
- -----------------------------------------------------------------------------------------
1,000,000 Boise Cascade Co., 7.70%, 1/30/03, Series A 1,046,311
1,000,000 Royal Caribbean, 8.25%, 4/1/05 1,085,503
-----------
2,131,814
-----------
TOTAL CORPORATE BONDS 3,719,394
-----------
U.S. GOVERNMENT AGENCIES 28.7%
- -----------------------------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp.,
8.63%, 11/29/04 520,183
875,000 Federal Home Loan Mortgage Corp.,
8.53%, 2/2/05 915,041
653,842 Federal Home Loan Mortgage Corp.,
7.50%, 7/1/09, Pool #E00326 671,476
1,435,785 Federal Home Loan Mortgage Corp.,
7.50%, 4/1/14, Pool #C90060 1,476,934
901,399 Federal Home Loan Mortgage Corp.,
7.00%, 4/1/16, Pool #C90133 911,603
2,041,000 Federal Home Loan Mortgage Corp.,
6.10%, 11/15/16, Series 1501, Class F, CMO 2,041,387
778,686 Federal National Mortgage Association,
7.00%, 5/1/14, Pool #190783 787,486
646,209 Federal National Mortgage Association,
8.00%, 1/1/15, Pool #250232 670,933
1,869,356 Federal National Mortgage Association,
6.50%, 6/1/16, Pool #368930 1,856,757
-----------
TOTAL U.S. GOVERNMENT AGENCIES 9,851,800
-----------
U.S. TREASURY BONDS 3.2%
- -----------------------------------------------------------------------------------------
1,000,000 7.25%, 5/15/16 1,086,251
-----------
TOTAL U.S. TREASURY BONDS 1,086,251
-----------
</TABLE>
19
<PAGE>
SEFTON U.S. GOVERNMENT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal
Amount Security Description Market Value
- --------- -------------------- ------------
<S> <C> <C>
U.S. TREASURY NOTES 46.5%
- ----------------------------------------------------------------------------
1,000,000 7.75%, 2/15/01 $ 1,055,313
1,500,000 6.25%, 10/31/01 1,515,001
3,000,000 7.50%, 5/15/02 3,180,939
2,200,000 6.25%, 2/15/03 2,222,002
2,000,000 7.25%, 8/15/04 2,128,126
2,000,000 7.88%, 11/15/04 2,200,626
2,000,000 7.50%, 2/15/05 2,160,626
1,500,000 6.50%, 10/15/06 1,532,344
-----------
TOTAL U.S. TREASURY NOTES 15,994,977
-----------
U.S. TREASURY STRIPS 2.6%
- ----------------------------------------------------------------------------
4,000,000 8/15/20 903,840
-----------
TOTAL U.S. TREASURY STRIPS 903,840
-----------
REPURCHASE AGREEMENTS 6.1%
- ----------------------------------------------------------------------------
2,087,000 Union Bank Of California Repurchase
Agreement, 5.75%, dated 9/30/97 and
maturing 10/1/97, collateralized by
U.S. Treasury Notes, 5.38--5.63%, due
10/31/97--11/30/97 with a value of
$2,177,586. 2,087,000
-----------
TOTAL REPURCHASE AGREEMENTS 2,087,000
-----------
CASH SWEEP ACCOUNT 0.0%
- ----------------------------------------------------------------------------
153 Union Bank Of California 153
-----------
TOTAL CASH SWEEP ACCOUNT 153
-----------
TOTAL INVESTMENTS
(Cost $32,668,893) 97.9% $33,643,415
OTHER ASSETS IN EXCESS OF LIABILITIES 2.1% 734,746
-------------------
TOTAL NET ASSETS 100.00% $34,378,161
-------------------
</TABLE>
Percentages indicated are based on net assets of $34,378,161.
CMO--Collateralized Mortgage Obligations
MTN--Medium Term Note
See Notes to Financial Statements.
20
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF OPERATIONS
For the six month period ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,065,980
- ----------------------------------------------------------------------------
Total Investment Income 1,065,980
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 95,468
Administration fees 27,724
Shareholder servicing fees 2,053
Fund Accounting fees 16,361
Legal fees 6,763
Audit fees 13,125
Custodian fees 7,917
Amortization of organization costs 4,024
Transfer Agency fees 2,480
Printing costs 3,101
Insurance costs 2,475
Registration and filing fees 3,860
Trustees' fees and expenses 2,664
Other 727
- ----------------------------------------------------------------------------
Total expenses 188,742
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (23,625)
Administrator (3,857)
- ----------------------------------------------------------------------------
Net Expenses 161,260
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 904,720
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions (13,463)
Net change in unrealized appreciation (depreciation) 1,135,486
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,122,023
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,026,743
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the six month period ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the Six Month
Period Ended For the Year Ended
September 30, 1997 March 31, 1997
------------------ ------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 904,720 $ 1,246,503
Net realized gain (loss) from investment
transactions (13,463) (75,863)
Net change in unrealized appreciation
(depreciation) 1,135,486 (542,430)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,026,743 628,210
- -------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (904,720) (1,246,412)
Distributions to shareholders from net
realized gain from investment
transactions - (106,341)
- -------------------------------------------------------------------------------
Change in net assets from investment
activities 1,122,023 (724,543)
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 3,468,860 16,373,936
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 551,283 325,070
- -------------------------------------------------------------------------------
4,020,143 16,699,006
Cost of shares redeemed (826,081) (5,008,735)
- -------------------------------------------------------------------------------
Change in net assets from beneficial
interest transactions 3,194,062 11,690,271
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 4,316,085 10,965,728
NET ASSETS:
Beginning of period 30,062,076 19,096,348
- -------------------------------------------------------------------------------
End of period $34,378,161 $30,062,076
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
22
<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
Six Month For the For the
Period Ended Year Ended Period Ended
September 30, March 31, March 31,
1997 1997 1996(1)
------------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Net asset value -- beginning of period $ 12.01 $ 12.35 $ 12.00
- -------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.35 0.69 0.71
Net realized and unrealized gain from
investment transactions 0.44 (0.29) 0.37
- -------------------------------------------------------------------------------
Total income from investment
operations 0.79 0.40 1.08
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders
Dividends from net investment income (0.35) (0.69) (0.71)
Distributions from net realized gain
from investment transactions - (0.05) (0.02)
- -------------------------------------------------------------------------------
Total Dividends and distributions (0.35) (0.74) (0.73)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net asset value -- end of period $ 12.45 $ 12.01 $ 12.35
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total return 6.64%(2) 3.31% 9.06%(2)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000) $34,378 $30,062 $19,096
- -------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.01%(3) 1.09% 1.02%(3)
- -------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 5.68%(3) 5.64% 5.68%(3)
- -------------------------------------------------------------------------------
Ratio of expenses to average net
assets without fee waivers 1.19%(3) 1.39% 1.39%(3)
- -------------------------------------------------------------------------------
Ratio of net investment income to
average net assets without fee
waivers 5.50%(3) 5.34% 5.31%(3)
- -------------------------------------------------------------------------------
Portfolio turnover rate(4) 3.29% 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 six month
period ended September 30, 1997 were $4,920,315 and $966,189,
respectively.
See Notes to Financial Statements.
23
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost -- $36,409,505) $38,348,104
Cash 88,572
Interest receivable 622,739
Receivable for capital shares sold 56,886
Organizational costs, net of accumulated amortization 20,221
Prepaid expenses 12,233
- ------------------------------------------------------------------------------
Total Assets 39,148,755
- ------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment advisory fees 14,315
Administration fees 640
Dividends 142,973
Legal and audit fees 18,355
Custodian and accounting fees 9,646
Printing costs 9,238
Other 1,252
- ------------------------------------------------------------------------------
Total Liabilities 196,419
- ------------------------------------------------------------------------------
NET ASSETS: $38,952,336
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital 36,801,935
Undistributed (distributions in excess of) net investment income 3,609
Accumulated net realized gain (loss) from investment transactions 208,193
Net unrealized appreciation (depreciation) of investments 1,938,599
- ------------------------------------------------------------------------------
NET ASSETS: $38,952,336
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,062,667
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.72
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Moody's/S&P Market
Amount Security Description Ratings Value
- --------- -------------------- ----------- ------
(Unaudited)
<S> <C> <C> <C>
CERTIFICATE OF PARTICIPATION 4.2%
- ---------------------------------------------------------------------
$1,500,000 West Covina, California Hospital,
Certification of Participation,
6.50%, 8/15/14, Callable 8/15/04
@ 102 A2/A $1,639,770
----------
TOTAL CERTIFICATE OF PARTICIPATION 1,639,770
----------
GENERAL OBLIGATION BONDS 8.0%
- ---------------------------------------------------------------------
1,325,000 California State, 6.25%, 4/1/08 A1/A+ 1,501,941
1,500,000 San Francisco City & County
Public Safety, 6.50%, 6/15/08,
Callable 6/15/01 @ 100, FGIC Aaa/AAA 1,607,100
----------
TOTAL GENERAL OBLIGATION BONDS 3,109,041
----------
LEASE REVENUE BONDS 4.2%
- ---------------------------------------------------------------------
1,000,000 California State Public Works
Board University, 5.25%, 12/1/08 Aaa/AAA 1,053,530
500,000 California State Public Works
Board University, 6.63%,
10/1/10, AMBAC Aaa/A 564,380
----------
TOTAL LEASE REVENUE BONDS 1,617,910
----------
REVENUE BONDS 82.0%
- ---------------------------------------------------------------------
1,690,000 California Educational Facilities
Authority, Pomona College,
6.13%, 2/15/08, Callable 2/15/02
@ 102 Aa1/AA+ 1,823,578
1,500,000 California Educational Facilities
Authority, Santa Clara
University, 6.25%, 2/1/16,
Callable 2/1/02 @ 102 A1/NR 1,651,035
1,500,000 California Health Facilities
Finance Authorities--Scripps,
6.25%, 10/1/13, Callable 10/1/01
@ 102, MBIA Aaa/AAA 1,603,740
1,000,000 California Health Facilities
Finance Authorities--Sutter,
7.00%, 1/1/09, Callable 1/1/09
@102, MBIA Aaa/AAA 1,052,970
1,460,000 California Housing Finance
Agency, Series F, 5.95%, 8/1/14,
Callable 8/1/05 @ 102, MBIA Aaa/AAA 1,517,144
800,000 California Housing Finance
Agency, Series L, 5.90%, 8/1/17,
Callable 2/1/06 @ 102, MBIA Aaa/AAA 828,736
</TABLE>
25
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Moody's/S&P Market
Amount Security Description Ratings Value
- --------- -------------------- ----------- ------
(Unaudited)
<S> <C> <C> <C>
REVENUE BONDS (CONTINUED)
- -------------------------------------------------------------------
$ 200,000 California Pollution Control
Finance Authority Southern
California Edison Series B,
3.85% 2/28/08(1) P-1/A-1 $ 200,000
1,000,000 Los Angeles, California, Waste
Water Systems, Series-B,
6.25%, 6/1/12, Callable 6/1/02
@ 102, AMBAC Aaa/AAA 1,078,140
1,500,000 M-S-R Pubic Power Agency,
California San Juan Project,
Series-F, 6.00%, 7/1/20,
Callable 7/1/03 @ 102, AMBAC Aaa/AAA 1,576,605
1,700,000 Marin California Municipal
Water District, 5.55%, 7/1/13,
Callable 7/1/03 @ 102 A1/AA 1,725,500
1,000,000 Mountain View California,
Shoreline Regional Park,
5.50%, 8/1/21, Callable 8/1/06
@ 102, MBIA Aaa/AAA 1,005,600
1,000,000 Oakland California, 5.88%,
6/15/19, Callable 6/15/05 @
102, FSA Aaa/AAA 1,040,030
1,000,000 Port Of Oakland, 5.60%,
11/1/19, Callable 11/01/07 @
102, MBIA Aaa/AAA 1,019,310
2,000,000 Rancho California, Water
District Financing Authority,
5.88%, 11/1/10, Callable
11/1/05 @ 102, FGIC Aaa/AAA 2,176,180
1,500,000 San Diego Regional
Transportation Commission,
California Sales Tax, Series
A, 5.00%, 4/1/07, FGIC Aaa/AAA 1,561,005
1,800,000 San Francisco Airport,
California, City/County,
5.38%, 5/1/17, Callable 5/1/02
@ 102, MBIA Aaa/AAA 1,804,950
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 1,529,070
1,500,000 San Francisco Port Commission,
5.90%, 7/1/09, Callable 7/1/04
@ 102 A/BBB+ 1,560,105
1,500,000 San Francisco, California,
City/County, Public Utility
Commission Water, 6.00%,
11/1/15, Callable 11/1/02 @
100 Aa/AA- 1,563,135
1,500,000 San Jose-Santa Clara Water
District Financing, 5.38%,
11/15/15, Callable 11/15/05 @
101, FGIC Aaa/AAA 1,513,305
1,000,000 Stockton, California, Health
Facilities, Dameron Hospital
Assoc., Series A, 5.35%,
12/1/09, Callable 12/1/07 @
102 NR/BBB+ 1,009,730
</TABLE>
26
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Moody's/S&P Market
Amount Security Description Ratings Value
- --------- -------------------- ----------- ------
(Unaudited)
<S> <C> <C> <C>
REVENUE BONDS (CONTINUED)
- --------------------------------------------------------------------
$ 500,000 Stockton, California, Health
Facilities, Dameron Hospital
Assoc., Series A, 5.45%,
12/1/10, Callable 12/1/07 @
102 NR/BBB+ $ 503,945
1,000,000 Tulare California Sewer
Revenue, 5.70%, 11/15/15,
Callable 11/15/06 @ 102, MBIA Aaa/AAA 1,047,630
1,500,000 University California Revenue
Series-B, 6.30%, 9/1/15 NR/A 1,589,940
-----------
TOTAL REVENUE BONDS 31,981,383
-----------
TOTAL INVESTMENTS
(Cost $36,409,505) 98.4% $38,348,104
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6% 604,232
-----------------------
TOTAL NET ASSETS 100.0% $38,952,336
-----------------------
</TABLE>
Percentages indicated are based on net assets of $38,952,336.
(1) Floating rate security--rate disclosed as of September 30, 1997.
AMBAC--American Municipal Bond Assurance Corporation.
FGIC--Financial Guaranty Insurance Company.
FSA--Financial Security Assurance Corporation.
MBIA--Municipal Bond Insurance Company.
See Notes to Financial Statements.
27
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF OPERATIONS
For the six month period ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,033,087
- ----------------------------------------------------------------------------
Total Investment Income 1,033,087
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 112,610
Administration fees 32,711
Shareholder servicing fees 40
Fund Accounting fees 19,572
Legal fees 6,125
Audit fees 15,017
Custodian fees 6,643
Amortization of organization costs 4,024
Transfer Agency fees 6,165
Printing costs 3,279
Insurance costs 2,009
Registration and filing fees 1,006
Trustees' fees and expenses 3,673
Other 1,093
- ----------------------------------------------------------------------------
Total expenses 213,967
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (32,711)
Administrator (4,559)
- ----------------------------------------------------------------------------
Net Expenses 176,697
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 856,390
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions -
Net change in unrealized appreciation (depreciation) 1,366,181
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,366,181
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,222,571
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the six month period ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the Six Month
Period Ended For the Year Ended
September 30, 1997 March 31, 1997
------------------ ------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 856,390 $ 2,058,949
Net realized gain (loss) from investment
transactions - 277,205
Net change in unrealized appreciation
(depreciation) 1,366,181 66,683
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,222,571 2,402,837
- -------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (856,390) (2,058,315)
Distributions to shareholders from net
realized gain from investment
transactions - (69,012)
- -------------------------------------------------------------------------------
Change in net assets from investment
activities 1,366,181 275,510
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 2,393,169 7,705,704
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 734,599 271,084
- -------------------------------------------------------------------------------
3,127,768 7,976,788
Cost of shares redeemed (1,045,992) (15,340,540)
- -------------------------------------------------------------------------------
Change in net assets from beneficial
interest transactions 2,081,776 (7,363,752)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,447,957 (7,088,242)
NET ASSETS:
Beginning of period 35,504,379 42,592,621
- -------------------------------------------------------------------------------
End of period 38,952,336 35,504,379
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
29
<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
Six Month For the For the
Period Ended Year Ended Period Ended
September 30, March 31, March 31,
1997 1997 1996 (1)
------------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Net asset value--beginning of period $ 12.26 $ 12.19 $ 12.00
- ------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.29 0.59 0.58
Net realized and unrealized gain from
investment transactions 0.46 0.09 0.20
- ------------------------------------------------------------------------------
Total income from investment
operations 0.75 0.68 0.78
- ------------------------------------------------------------------------------
Dividends and distributions to
shareholders
Dividends from net investment income (0.29) (0.59) (0.58)
Distributions from net realized gain
from investment transactions - (0.02) (0.01)
- ------------------------------------------------------------------------------
Total Dividends and distributions (0.29) (0.61) (0.59)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net asset value--end of period $ 12.72 $ 12.26 $ 12.19
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total return 6.14%(2) 5.69% 6.60%(2)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000) $38,952 $35,504 $42,593
- ------------------------------------------------------------------------------
Ratio of expenses to average net
assets 0.94%(3) 0.88% 0.83%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.56%(3) 4.83% 4.83%(3)
- ------------------------------------------------------------------------------
Ratio of expenses to average net
assets without fee waivers 1.14%(3) 1.17% 1.16%(3)
- ------------------------------------------------------------------------------
Ratio of net investment income to
average net assets without fee
waivers 4.36%(3) 4.54% 4.51%(3)
- ------------------------------------------------------------------------------
Portfolio turnover rate (4) 0.00% 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 six month
period ended September 30, 1997 were $3,501,145 and $0, respectively.
See Notes to Financial Statements.
30
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$59,906,711) $77,343,701
Repurchase Agreements (cost-$7,966,000) 7,966,000
Interest receivable 111,060
Receivable for capital shares issued 3,150
Organizational costs, net of accumulated amortization 20,221
Prepaid expenses 15,780
- -------------------------------------------------------------------------------
Total Assets 85,459,912
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 947,237
Payable for capital shares redeemed 521,145
Payables:
Investment advisory fees 67,666
Administration fees 1,384
Shareholder servicing fees 4,351
Legal and audit fees 31,916
Custodian and accounting fees 10,929
Printing costs 10,707
Other 393
- -------------------------------------------------------------------------------
Total Liabilities 1,595,728
- -------------------------------------------------------------------------------
NET ASSETS: 83,864,184
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital 56,729,885
Undistributed (distributions in excess of) net investment income (837)
Accumulated net realized gain (loss) from investment transactions 9,698,146
Net unrealized appreciation (depreciation) of investments 17,436,990
- -------------------------------------------------------------------------------
NET ASSETS $83,864,184
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares of beneficial interest outstanding 4,119,562
- -------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $20.36
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
SEFTON EQUITY VALUE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal
Amount Security Description Market Value
--------- -------------------- ------------
<C> <S> <C>
COMMON STOCKS 92.2%
- ------------------------------------------------------------------
BASIC INDUSTRY 10.5%
- ------------------------------------------------------------------
20,000 Aluminum Company of America $1,640,000
50,000 International Paper 2,753,125
38,000 PPG Industries, Inc. 2,382,125
70,000 Synthetic Industries, Inc.* 2,030,000
----------
8,805,250
----------
CONSUMER CYCLICALS 7.3%
- ------------------------------------------------------------------
60,500 BJ's Wholesale Club, Inc.* 1,765,844
45,000 J.C. Penney Co., Inc. 2,621,250
78,000 Quaker Fabric Corp.* 1,764,750
----------
6,151,844
----------
CONSUMER STAPLES 5.0%
- ------------------------------------------------------------------
26,900 Great Atlantic & Pacific Tea Company 854,075
80,000 Phillip Morris Companies, Inc. 3,325,000
----------
4,179,075
----------
ENERGY 6.9%
- ------------------------------------------------------------------
60,000 American Oilfield Diver * 926,250
88,000 Domain Energy Corp.* 1,628,000
75,000 Repsol S.A. Sponsored--ADR 3,253,125
----------
5,807,375
----------
FINANCE 15.0%
- ------------------------------------------------------------------
58,000 American Financial Group, Inc. 2,581,000
10,000 CCB Financial Corp. 806,250
30,000 Chase Manhattan Corp. 3,540,000
92,000 IMC Mortgage Co.* 1,414,500
68,000 Reliastar Financial Corp. 2,707,250
30,000 Selective Insurance Group 1,545,000
----------
12,594,000
----------
HEALTH CARE 6.9%
- ------------------------------------------------------------------
100,000 Maxxim Medical, Inc.* 2,600,000
100,000 Sun Healthcare Group* 2,056,250
20,000 Wellpoint Health Networks* 1,158,750
----------
5,815,000
----------
</TABLE>
32
<PAGE>
SEFTON EQUITY VALUE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal
Amount Security Description Market Value
--------- -------------------- ------------
<C> <S> <C>
MANUFACTURING 7.8%
- ---------------------------------------------------------------------
65,000 Dana Corp. $ 3,209,375
89,250 Mark IV Industries, Inc. 2,398,594
46,000 Mascotech, Inc. 943,000
-----------
6,550,969
-----------
SERVICES 9.9%
- ---------------------------------------------------------------------
25,000 AMR Corp.* 2,767,188
50,000 CSX Corp. 2,924,999
30,000 Royal Caribbean Cruises Ltd. 1,312,500
51,300 World Fuel Services Corp. 1,276,088
-----------
8,280,775
-----------
TECHNOLOGY 7.0%
- ---------------------------------------------------------------------
30,000 International Business Machine 3,178,125
40,000 Tektronix, Inc. 2,697,500
-----------
5,875,625
-----------
UTILITIES/REITS 15.9%
- ---------------------------------------------------------------------
54,200 Bedford Property Investors 1,192,400
50,000 Eastgroup Properties 1,093,750
100,200 Equity Inns, Inc. 1,584,413
77,000 General Public Utility Corp. 2,762,374
122,000 Ohio Edison Co. 2,859,374
55,000 Price REIT 2,210,313
45,000 TriNet Corporate Realty Trust, Inc. 1,580,625
-----------
13,283,249
-----------
TOTAL COMMON STOCKS 77,343,162
-----------
REPURCHASE AGREEMENT 9.5%
- ---------------------------------------------------------------------
7,966,000 Union Bank Of California Repurchase
Agreement, 5.75%, dated 9/30/97 and
maturing 10/1/97, collateralized by U.S.
Treasury Notes, 5.63%, due 10/31/97 with a
value of $8,311,763. 7,966,000
-----------
TOTAL REPURCHASE AGREEMENT 7,966,000
-----------
CASH SWEEP ACCOUNT 0.0%
- ---------------------------------------------------------------------
539 Union Bank Of California 539
-----------
TOTAL CASH SWEEP ACCOUNT 539
-----------
TOTAL INVESTMENTS
(Cost $67,872,711) 101.7% $85,309,701
LIABILITIES IN EXCESS OF OTHER ASSETS (1.7)% (1,445,517)
-------------------
TOTAL NET ASSETS 100.0% $83,864,184
===================
</TABLE>
Percentages indicated are based on net assets of $83,864,184.
*Denotes non-income producing security.
See Notes to Financial Statements.
33
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the six month period ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 157,578
Dividend income 837,266
- -----------------------------------------------------------------------------
Total Investment Income $ 994,844
- -----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 415,489
Administration fees 73,009
Shareholder servicing fees 7,520
Fund Accounting fees 17,174
Legal fees 20,902
Audit fees 14,205
Custodian fees 9,464
Amortization of organization costs 4,024
Transfer Agency fees 6,780
Printing costs 7,215
Insurance costs 7,069
Registration and filing fees 6,513
Trustees' fees and expenses 5,876
Other 1,183
- -----------------------------------------------------------------------------
Total expenses 596,423
- -----------------------------------------------------------------------------
Expenses waived by:
Administrator (10,686)
- -----------------------------------------------------------------------------
Net Expenses 585,737
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME 409,107
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions 6,811,816
Net change in unrealized appreciation (depreciation) 10,987,288
- -----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 17,799,104
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $18,208,211
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the six month period ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the Six Month
Period Ended
September For the Year Ended
30, 1997 March 31, 1997
----------------- ------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 409,107 $ 549,337
Net realized gain (loss) from investment
transactions 6,811,816 6,634,179
Net change in unrealized appreciation
(depreciation) 10,987,288 1,277,884
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 18,208,211 8,461,400
- ------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (408,923) (544,866)
Distributions to shareholders in excess
of net investment income - (13,818)
Distributions to shareholders from net
realized gain from investment
transactions - (4,451,927)
- ------------------------------------------------------------------------------
Change in net assets from investment
activities 17,799,288 3,450,789
- ------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 3,734,005 45,875,135
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 399,838 2,995,495
- ------------------------------------------------------------------------------
4,133,843 48,870,630
Cost of shares redeemed (24,384,616) (2,331,718)
- ------------------------------------------------------------------------------
Change in net assets from beneficial
interest transactions (20,250,773) 46,538,912
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (2,451,485) 49,989,701
NET ASSETS:
Beginning of period 86,315,669 36,325,968
- ------------------------------------------------------------------------------
End of period $83,864,184 $86,315,669
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
SEFTON EQUITY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated:
<TABLE>
<CAPTION>
For the
Six Month For the For the
Period Ended Year Ended Period Ended
September 30, March 31, March 31,
1997 1997 1996 (1)
------------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Net asset value -- beginning of period $ 16.42 $ 14.92 $ 12.00
- -------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.09 0.17 0.21
Net realized and unrealized gain from
investment transactions 3.94 3.14 2.92
- -------------------------------------------------------------------------------
Total income from investment
operations 4.03 3.31 3.13
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders
Dividends from net investment income (0.09) (0.17) (0.21)
Distributions from net realized gain
from investment transactions - (1.64) -
- -------------------------------------------------------------------------------
Total Dividends and distributions (0.09) (1.81) (0.21)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net asset value -- end of period $ 20.36 $ 16.42 $ 14.92
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total return 24.58%(2) 23.15% 26.31%(2)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000) $83,864 $86,316 $36,326
- -------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.41%(3) 1.52% 1.55%(3)
- -------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 0.98%(3) 1.13% 1.68%(3)
- -------------------------------------------------------------------------------
Ratio of expenses to average net
assets without fee waivers 1.44%(3) 1.56% 1.66%(3)
- -------------------------------------------------------------------------------
Ratio of net investment income to
average net assets without fee
waivers 0.95%(3) 1.09% 1.57%(3)
- -------------------------------------------------------------------------------
Average Commission Rate $0.0600 $0.0520 -
- -------------------------------------------------------------------------------
Portfolio turnover rate (4) 32.87% 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 six month period ended
September 30, 1997 were $25,009,394 and $39,834,963, respectively.
See Notes to Financial Statements.
36
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$23,336,559) $26,175,285
Repurchase Agreements (cost-$4,877,000) 4,877,000
Interest receivable 54,586
Receivable for capital shares issued 1,800
Organizational costs, net of accumulated amortization 21,782
Prepaid expenses 1,846
- -------------------------------------------------------------------------------
Total Assets 31,132,299
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 912,079
Payable for capital shares redeemed 145,081
Payables:
Investment advisory fees 23,747
Administration fees 494
Transfer agent fees 1,437
Legal and audit fees 12,420
Custodian and accounting fees 3,460
Printing costs 1,546
Other 735
- -------------------------------------------------------------------------------
Total Liabilities 1,100,999
- -------------------------------------------------------------------------------
NET ASSETS: 30,031,300
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital 27,496,149
Undistributed (distributions in excess of) net investment income 450
Accumulated net realized gain (loss) from investment transactions (304,025)
Net unrealized appreciation (depreciation) of investments 2,838,726
- -------------------------------------------------------------------------------
NET ASSETS $30,031,300
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,278,784
- -------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $13.18
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal
Amount Security Description Market Value
--------- -------------------- ------------
<C> <S> <C>
COMMON STOCKS 87.2%
- ------------------------------------------------------------------
BASIC INDUSTRY 8.2%
- ------------------------------------------------------------------
93,400 Dravo Corp.* $1,109,125
62,500 JLM Industries, Inc.* 773,438
20,000 Synthetic Industries, Inc.* 580,000
----------
2,462,563
----------
CONSUMER CYCLICALS 7.3%
- ------------------------------------------------------------------
50,000 Quaker Fabric Corp.* 1,131,250
72,000 Tarrant Apparel Group* 1,071,000
----------
2,202,250
----------
CONSUMER STAPLES 3.4%
- ------------------------------------------------------------------
32,000 Great Atlantic & Pacific Tea Company 1,016,000
----------
ENERGY 9.4%
- ------------------------------------------------------------------
55,000 American Oilfield Divers* 849,063
37,000 Domain Energy Corp.* 684,500
41,700 Midcoast Energy Resources 857,456
24,000 Plains Resources, Inc.* 432,000
----------
2,823,019
----------
FINANCE 11.7%
- ------------------------------------------------------------------
21,400 Delta Financial Corp.* 432,013
66,200 Gryphon Holdings, Inc.* 1,092,299
60,000 IMC Mortgage Co.* 922,500
20,500 Selective Insurance Group 1,055,750
----------
3,502,562
----------
HEALTH CARE 7.3%
- ------------------------------------------------------------------
44,500 Maxxim Medical, Inc.* 1,157,000
50,000 Sun Healthcare Group* 1,028,125
----------
2,185,125
----------
MANUFACTURING 8.5%
- ------------------------------------------------------------------
15,000 DT Industries, Inc. 495,000
28,000 Mascotech, Inc. 574,000
37,400 Standard Products Co. 984,088
18,000 Watts Industries, Inc. 499,500
----------
2,552,588
----------
</TABLE>
38
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal
Amount Security Description Market Value
--------- -------------------- ------------
<C> <S> <C>
SERVICES 11.6%
- ------------------------------------------------------------------------------
41,500 Cameron Ashley Building Products* $ 757,375
29,300 Carmike Cinemas, Inc., Class A* 879,000
45,000 Garden Fresh Restaurant Corp.* 663,750
1,500 Harveys Casinos Resorts 26,438
47,000 World Fuel Services Corp. 1,169,124
-----------
3,495,687
-----------
UTILITIES/REITS 19.8%
- ------------------------------------------------------------------------------
32,100 Bedford Property Investors 706,200
54,000 Eastgroup Properties 1,181,250
75,000 Equity Inns, Inc. 1,185,937
28,000 Price REIT 1,125,250
35,000 RFS Hotel Investors, Inc. 682,500
30,000 TriNet Corporate Realty Trust, Inc. 1,053,750
-----------
5,934,887
-----------
TOTAL COMMON STOCKS 26,174,681
-----------
REPURCHASE AGREEMENT 16.2%
- ------------------------------------------------------------------------------
4,877,000 Union Bank Of California Repurchase
Agreement, 5.75%, dated 9/30/97 and maturing
10/1/97, collateralized by U.S. Treasury
Notes, 5.63%, due 10/31/97 with a value of
$5,088,686 4,877,000
-----------
TOTAL REPURCHASE AGREEMENT 4,877,000
-----------
CASH SWEEP ACCOUNT 0.0%
- ------------------------------------------------------------------------------
604 Union Bank Of California 604
-----------
TOTAL CASH SWEEP ACCOUNT 604
-----------
TOTAL INVESTMENTS
(Cost $28,213,559) 103.4% $31,052,285
LIABILITIES IN EXCESS OF OTHER ASSETS (3.4)% (1,020,985)
-------------------
TOTAL NET ASSETS 100.0% $30,031,300
===================
</TABLE>
Percentages indicated are based on net assets of $30,031,300.
*Denotes non-income producing security.
See Notes to Financial Statements.
39
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF OPERATIONS
For the period ended September 30, 1997(1)
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 134,250
Dividend income 102,426
- ---------------------------------------------------------------------------
Total Investment Income 236,676
- ---------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 83,943
Administration fees 10,073
Fund Accounting fees 8,096
Legal fees 2,760
Audit fees 9,660
Custodian fees 552
Transfer Agency fees 1,840
Printing costs 2,484
Registration and filing fees 736
Trustees' fees and expenses 1,196
Other 96
- ---------------------------------------------------------------------------
Total expenses 121,436
- ---------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (16,789)
- ---------------------------------------------------------------------------
Net Expenses 104,647
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME 132,029
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions (304,025)
Net change in unrealized appreciation (depreciation) 2,838,726
- ---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 2,534,701
- ---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,666,730
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
(1)Fund commenced investment operations June 30, 1997.
See Notes to Financial Statements.
40
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the period ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the Period Ended
September 30, 1997(1)
---------------------
<S> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 132,029
Net realized gain (loss) from investment transactions (304,025)
Net change in unrealized appreciation (depreciation) 2,838,726
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 2,666,730
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (131,579)
- ------------------------------------------------------------------------------
Change in net assets derived from investment activities 2,535,151
- ------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 28,631,176
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 130,538
- ------------------------------------------------------------------------------
28,761,714
Cost of shares redeemed (1,265,565)
- ------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 27,496,149
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 30,031,300
NET ASSETS:
Beginning of period 0
- ------------------------------------------------------------------------------
End of period $30,031,300
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1)Fund commenced investment operations June 30, 1997.
See Notes to Financial Statements.
41
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated:
<TABLE>
<CAPTION>
For the
Period Ended
September 30,
1997(1)
-------------
(Unaudited)
<S> <C>
Net asset value--beginning of period $ 12.00
- -----------------------------------------------------------------------------
Income from investment operations
Net investment income 0.06
Net realized and unrealized gain from investment transactions 1.18
- -----------------------------------------------------------------------------
Total income from investment operations 1.24
- -----------------------------------------------------------------------------
Dividends and distributions to shareholders
Dividends from net investment income (0.06)
Distributions from net realized gain from investment
transactions 0.00
- -----------------------------------------------------------------------------
Total Dividends and distributions (0.06)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net asset value--end of period 13.18
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total return 10.32%(2)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000) $30,031
- -----------------------------------------------------------------------------
Ratio of expenses to average net assets 1.54%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.94%(3)
- -----------------------------------------------------------------------------
Ratio of expenses to average net assets without fee waivers 1.78%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to average net assets without
fee waivers 1.70%(3)
- -----------------------------------------------------------------------------
Average Commission Rate $0.0595
- -----------------------------------------------------------------------------
Portfolio turnover rate (4) 8.10%
- -----------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations June 30, 1997.
(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 three month period ended
September 30, 1997 were $24,888,048 and $1,248,067, respectively.
See Notes to Financial Statements.
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 four series of
shares--Sefton U.S. Government, Sefton California Tax-Free, Sefton Equity Val-
ue, and Sefton Small Company Value (the "Funds"). The Funds commenced invest-
ment operations on April 3, 1995 except the Sefton Small Company Value which
commenced investment operations on June 30, 1997. The assets for each series
are segregated and accounted for separately.
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
securities issued by the U.S. government or its agencies. All collateral is
held by the Trust's custodian and is monitored daily to ensure that the collat-
eral's market value equals at least 100% of the repurchase price under the
agreement. However, in the event of default 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 in accordance with guidelines adopted by the
Board of Trustees.
C. FEDERAL INCOME TAXES: The Funds have made no provision for federal income
tax for the period ended September 30, 1997. The Funds intend to distribute to
shareholders all taxable investment income and realized gains and otherwise
comply with the Internal Revenue Code applicable to regulated investment compa-
nies.
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, except Sefton Small Company Val-
ue, deferred certain organizational costs of $38,529 at inception. Sefton Small
Company Value deferred certain organizational costs of $21,782. Such costs are
being amortized over a 60 month period from the commencement of investment op-
erations.
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 and
Sefton Small Company Value 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 investment income daily and monthly, respectively.
Distributions of net realized gains, if any, are declared at least once a year.
Each Fund bears expenses incurred specifically on its behalf as well as a por-
tion of general expenses.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Return of Capital Distributions by Investment
Companies" ("SOP"). The purpose of this SOP is to report undistributed net in-
vestment 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
is closely tied to economic conditions within the state and the financial con-
dition of the State and its agencies and municipalities.
NOTE 2 - SHARES OF BENEFICIAL INTEREST
On September 30, 1997 there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in shares of beneficial interest
for the period April 1, 1997 to September 30, 1997 were as follows:
<TABLE>
<CAPTION>
SEFTON U.S. GOVERNMENT FUND
---------------------------------------
FOR THE PERIOD ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
-------------------- ------------------
<S> <C> <C>
SHARES SOLD 281,568 1,343,180
SHARES REINVESTED 45,068 26,400
------- ---------
TOTAL 326,636 1,369,580
SHARES REDEEMED (67,791) (412,823)
------- ---------
NET INCREASE (DECREASE) 258,845 956,757
======= =========
</TABLE>
<TABLE>
<CAPTION>
SEFTON CALIFORNIA TAX-FREE FUND
---------------------------------------
FOR THE PERIOD ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
-------------------- ------------------
<S> <C> <C>
SHARES SOLD 192,181 624,399
SHARES REINVESTED 58,778 21,827
------- ----------
TOTAL 250,959 646,226
SHARES REDEEMED (84,624) (1,242,645)
------- ----------
NET INCREASE (DECREASE) 166,335 (596,419)
======= ==========
</TABLE>
<TABLE>
<CAPTION>
SEFTON EQUITY VALUE FUND
---------------------------------------
FOR THE PERIOD ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
-------------------- ------------------
<S> <C> <C>
SHARES SOLD 197,938 2,774,203
SHARES REINVESTED 20,670 195,029
---------- ---------
TOTAL 218,608 2,969,232
SHARES REDEEMED (1,356,290) (146,071)
---------- ---------
NET INCREASE (DECREASE) (1,137,682) 2,823,161
========== =========
</TABLE>
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SEFTON SMALL COMPANY VALUE FUND
-------------------------------
FOR THE PERIOD ENDED
SEPTEMBER 30, 1997 (1)
-------------------------------
<S> <C>
SHARES SOLD 2,370,247
SHARES REINVESTED 9,927
---------
TOTAL 2,380,174
SHARES REDEEMED (101,390)
---------
NET INCREASE (DECREASE) 2,278,784
=========
</TABLE>
(1) Fund commenced investment operations June 30, 1997.
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%, 1.00%, and 1.25% of
the daily average net assets for the Sefton U.S. Government Fund, Sefton Cali-
fornia Tax-Free Fund, Sefton Equity Value Fund and Sefton Small Company Value,
respectively. Sefton Capital Management, Inc. voluntarily waived a portion of
its advisory fee for the year ended September 30, 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 September 30, 1997, affiliates of the Funds own
96%, 94%, 93%, and 96% of the Sefton U.S. Government, Sefton California Tax-
Free, Sefton Equity Value, and Sefton Small Company Value Funds' shares out-
standing, respectively.
On January 1, 1997, each of the Funds entered into an Administrative Services
Contract with BISYS Fund Services ("BISYS" or "Administrator"). The Administra-
tor is entitled to receive a fee from the Funds for its services computed daily
and payable monthly, at an annual rate of .15% of each Fund's average daily net
assets. BISYS voluntarily waived a portion of the administration fees for the
period ended September 30, 1997. BISYS assisted in each of the Fund's adminis-
tration and operations, including providing office space and various legal and
accounting services in connection with the regulatory requirements applicable
to each Fund.
Certain Trustees and officers of the Funds are also officers of Sefton Capi-
tal Management or BISYS. All access persons, as defined in the 1940 Act, follow
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 $2,664, $3,673, $5,876 and $1,196 from the Sefton U.S. Gov-
ernment, Sefton California-Tax Free Fund, Sefton Equity Value Fund and Sefton
Small Company Value Fund, respectively, for the period ended September 30,
1997.
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - UNREALIZED GAINS AND LOSSES ON INVESTMENTS
As of September 30, 1997:
<TABLE>
<CAPTION>
SEFTON SEFTON SEFTON SEFTON
U.S. GOVERNMENT CALIFORNIA EQUITY SMALL COMPANY
FUND TAX-FREE FUND VALUE FUND VALUE FUND
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gross Appreciation
(excess of value over cost) $974,522 $1,938,599 $17,441,227 $2,953,701
Gross Depreciation
(excess of cost over value) - - (4,237) (114,975)
-------- ---------- ----------- ----------
Net Unrealized
Appreciation/(Depreciation) $974,522 $1,938,599 $17,436,990 $2,838,726
======== ========== =========== ==========
</TABLE>
46
<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.
* 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
Matthew Constancio Assistant Secretary
Ellen Stoudamire Assistant Secretary
Thresa Dewar Vice President & 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
Union Bank of California
475 Sansome Street
San Francisco, California 94111
Legal Counsel
Baker & McKenzie
805 Third Avenue, 30th Floor
New York, New York 10022
Independant Accountants
Price Waterhouse LLP
200 E. Randolph Drive
Chicago, IL 60601
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.
