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Sefton Funds
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[GRAPHIC APPEARS HERE]
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CONTENTS
[LOGO OF SEFTON FUNDS APPEARS HERE]
Chairman's Message....................................................1
Sefton Funds Investment Objectives....................................3
Fixed Income Methodology..............................................4
Sefton U.S. Government Fund & California Tax-Free Fund................5
Fixed Income Market Summary.........................................5
Interview with Fund Manager -- U.S. Government Fund.................5
U.S. Government Fund Highlights & Portfolio Performance.............7
Interview with Fund Manager -- California Tax-Free Fund.............9
California Tax-Free Fund Highlights & Portfolio Performance.........10
Equity Value Methodology..............................................12
Sefton Equity Value Fund & Small Company Value Fund...................13
Equity Market Summary..............................................13
Interview with Fund Managers -- Equity Value Fund..................14
Equity Value Fund Highlights & Portfolio Performance...............15
Interview with Fund Managers -- Small Company Value Fund...........17
Small Company Value Fund Highlights & Portfolio Performance........18
Definition of Common Terms............................................20
Financial Statements..................................................23
U.S. Government Fund...............................................23
California Tax-Free Fund...........................................29
Equity Value Fund..................................................37
Small Company Value Fund...........................................43
Notes to Financial Statements.........................................49
Report of Independent Accountants.....................................55
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[PHOTO OF HARLEY K. SEFTON APPEARS HERE]
Harley K. Sefton
Chairman of the Board
Sefton Funds
Mr. Sefton is the President and CEO of Sefton Capital Management (SCM). He is
responsible for the overall management and operations of the firm. Mr. Sefton is
actively involved in client service and marketing. Mr. Sefton also serves as
the Chairman for the Firm's Management Committee and is a member of SCM's
Investment Policy Committee.
Prior to founding SCM, Mr. Sefton was President and CEO of 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 was also
associated with San Diego Trust & Savings Bank for almost twenty years, serving
as Vice Chairman of the Board and Executive Vice President/Division Manager of
the Trust & Financial Services Division at the time of the Bank's merger with
First Interstate Bank.
Mr. Sefton received his Bachelor of Arts degree from the University of San
Diego. He presently serves on the Boards of Directors for The San Diego Natural
History Museum and Scripps Bank. Mr. Sefton is also a member of the San Diego
Rotary Club.
CHAIRMAN'S MESSAGE
Dear Shareholder:
Enclosed is your copy of the Sefton Funds Annual Report for the period April 1,
1997 through year ended December 31, 1997.
The Sefton Funds experienced significant asset growth during the twelve month
period ending December 31, 1997, with an increase of $74,000,000 which brings
our total assets to $190,500,000. I would like to extend a warm welcome to our
new shareholders who have joined us during 1997. I appreciate your confidence
and trust in choosing the Sefton Funds to help accomplish your investment goals.
For those shareholders who continue to invest with us, 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.
We are happy to report that the Sefton Funds continue to perform well. A
separate review of each fund can be found in the pages which follow. The Equity
Value, California Tax-Free and U.S. Government Funds all outperformed their
respective Morningstar Averages during the twelve month period ending December
31, 1997, and remain ahead of their mutual fund peers since their inception on
April 3, 1995./1/
The newest addition to our Sefton Fund family, the Sefton Small Company Value
Fund, commenced operations on June 30, 1997. This Fund is off to a great start,
attracting $30 million in assets within its first six months. The Small Company
Value Fund focuses on undervalued small companies that may have been overlooked,
neglected or misunderstood by the vast majority of investors. While small
company stock returns are typically more volatile than those
/1/ Morningstar distinguishes mutual funds, as measured by underlying
portfolio holdings and investment styles, and places each fund into a
respective category. Category ratings are a quantitative measure of risk
adjusted returns.
1
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of larger companies, the value oriented approach which our fund managers utilize
should help reduce some of this increased risk. This Fund will provide dedicated
access to one of the most dynamic sectors of the equity market and will also
promote greater diversification within our investors' portfolios.
Thank you again for placing your confidence in us. We look forward to helping
you meet, and hopefully exceed, your financial goals in the future.
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.
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[LOGO OF SEFTON FUNDS APPEARS HERE]
SEFTON FUNDS INVESTMENT OBJECTIVES
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 maintain 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 investment objective is to provide investors with
long-term capital appreciation. The Fund pursues this objective by investing
primarily in the common stock of large and mid-sized companies traded on both
domestic and foreign exchanges which are deemed to be undervalued. The Fund may
also invest in smaller companies with market capitalizations 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 in equity securities of small capitalization companies which are
believed to be undervalued. Small capitalization companies are defined as
companies having stock market capitalizations of $1 billion or less at the time
of initial purchase. 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.
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SEFTON CAPITAL MANAGEMENT FIXED INCOME METHODOLOGY
Investment Objective
The goal of Sefton Capital Management's fixed income fund managers is to provide
investors with a high level of current income as is consistent with the
preservation of capital.
Investment Philosophy
The general philosophy of our fixed income discipline is that stringent
fundamental security analysis is the surest means to achieving above-average
total returns consistent with prudent risk of capital. Identifying and managing
risk is a cornerstone of our investment strategy. Risk, in all of its forms --
credit, liquidity, market and volatility -- is carefully identified and
evaluated. Additional expected return is required for undertaking any of these
risks. Securities which involve risks that cannot be evaluated are avoided.
Investment Methodology
Our fundamental approach to fixed income portfolio management places heavy
emphasis on horizon analysis, which provides a framework for understanding how a
selected bond or mutual fund portfolio will react to varying economic and
interest rate situations. Sefton Capital Management's fixed income managers
integrate both historic and expected interest rate scenarios into their horizon
analysis. Probabilities are then assigned to differing interest rate scenarios
in order to develop weighted average expected horizon returns.
Value-Added
Sefton Capital Management's fixed income managers add value by actively managing
the maturity/duration structure of our funds. It is our policy to position a
fund relative to a defined neutral position, taking into account our directional
outlook for interest rates. A fund will be long, short or equal to the defined
neutral position. The fund managers establish their fund durations through
careful analysis and judgment, with clearly-defined limits established relative
to the long or short maturity/duration structures.
Sefton Capital Management's fund managers further add value by aggressively
managing risk within well-defined risk parameters. We overweight or underweight
fixed income sectors within our bond funds and add value through security
selection by relative value analysis.
Performance
For each fund which we manage, we attempt to achieve high current income and
consistent above-average total rates of return. While fund performance is
tracked on a daily basis, our focus is on time periods of one to three years.
Our methods and strategies are designed to contribute to the attainment of
consistently successful results over a full economic cycle.
Summary of Fixed Income Management
The Sefton Capital Management approach to fixed income fund management is
disciplined and well-defined. Our policies, guidelines and decisions regarding
fixed income fund management are consistent with our stated philosophy and
contribute to our objective of producing consistent returns for our valued
shareholders.
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[PHOTO OF TED J. PIORKOWSKI, C.F.A. APPEARS HERE]
Ted J. Piorkowski, C.F.A.
Vice President and
Fixed Income Fund Manager
Mr. Piorkowski is involved in the areas of fixed income analysis, trading and
portfolio management. Ted is the manager for the Sefton U.S. Government Fund and
the Sefton California Tax-Free Fund. He serves as an officer of the Board for
the Sefton Mutual Funds and is a member of Sefton Capital Management's (SCM)
Management Committee and a member of SCM's Investment Policy Committee.
Prior to joining SCM, Mr. Piorkowski was a Vice President and Portfolio Manager
with San Diego Financial Capital Management, Inc., a wholly owned subsidiary of
San Diego Trust & Savings Bank for eight years. Mr. Piorkowski functioned as a
fixed-income Portfolio Manager for the Pacifica Mutual Funds, managing $350
million in fund assets. His responsibilities also included independent credit
analysis and review, short term liquidity management and separate account fixed
income management.
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 AND
CALIFORNIA TAX-FREE FUND
FIXED INCOME MARKET SUMMARY
The bond markets got off to a rough start in 1997. During the first quarter,
there existed a very negative sentiment concerning the excessive strength of the
U.S. economy. This concern was also shared by the Federal Reserve, leading them
to raise the federal funds rate 25 basis points on March 25th. However, by
mid-April, interest rates peaked with the long-bond yielding 7.17% and from that
point forward, rates moved lower through year-end, with the long-bond ending the
year at a yield of 5.92%.
During the second quarter, the economy started to show signs of moderating
growth and subdued inflation. These economic themes continued throughout the
third and fourth quarters. During the fourth quarter, the emergence of the
economic crisis in Asia created a flight-to-quality into U.S. Treasury
securities.
As we ended 1997, an important economic issue that requires monitoring is the
robust employment situation in the economy. The risk for the bond markets is the
possibility of inflationary wage pressures due to the historically low
unemployment rates. Otherwise, the moderate growth, low inflation environment
that existed in 1997 appears to be well intact as we begin 1998.
INTERVIEW WITH TED PIORKOWSKI
Fund Manager - Sefton U.S. Government Fund
Q: How did the Sefton U.S. Government Fund perform?
A: For the fiscal and calendar year ended December 31, 1997, the Sefton U.S.
Government Fund posted a total return of +8.41%./1/ This compares favorably
with an average total return of +7.87%/2/ for the mutual funds in the
Morningstar U.S. Government Bond Fund General Universe.
Since the Fund's inception on April 3, 1995, it has provided an average
annual total return of 7.97%, compared to an average of 7.55% for the funds
in the Morningstar U.S. Government Bond Fund General Universe.
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Q: What do you think of the general level of interest rates?
A: Long-term interest rates are as low as they have been any time during the
1990s. This gives debt issuers a very attractive rate environment in which
to issue bonds. It also gives homeowners a great opportunity to refinance
their home mortgages. In particular, this refinance opportunity is one area
we are actively following due to the prepayment risks it poses for the
mortgage sector in the bond market.
Q: What is your current interest rate outlook?
A: We currently have a very cautious outlook concerning interest rates. We
believe caution is warranted given the shape of the current yield curve.
Treasury bonds with maturities of ten years and shorter now present yield
opportunities that are less than the federal funds target yield of 5.50%. We
believe the Federal Reserve will be on hold during the first half of 1998,
however any speculation of an imminent Fed monetary policy ease is
premature. As the Asian crisis implications become more clear, the domestic
bond market should return its focus upon the domestic economy and its
interest rate implications.
Q: How is the Fund currently structured?
A: The Fund currently has an average maturity of 5.7 years. We consider this a
neutral average maturity position. This positioning is due to our near-term
neutral bias concerning the interest rate environment. Relative to broad
fixed income indices, our current bond selection favors the treasury and
agency sectors relative to the mortgage and corporate sectors.
/(1)/ References to total return herein include reinvested dividends and
capital gains paid.
/(2)/ Morningstar U.S. Government Bond Fund General Universe is an average of
U.S. Government Bond mutual funds as tracked by Morningstar.
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 DECEMBER 31, 1997*
Net Assets $35,278,183
Net Asset Value Per Share $12.62
S.E.C. Yield-30 Day 5.21%
Significant Holdings
9.1% U.S. Treasury Note, Yields 7.50%, Due 5/15/2002
6.4% U.S. Treasury Note, Yields 6.25%, Due 2/15/2003
5.8% FHLMC, Yields 6.10%, Due 11/15/2016
3.0% Boise Cascade, Yields 7.70%, Due 1/30/03
[PIE GRAPH APPEARS HERE]
Agency 4%
Mortgage 24%
Cash 3%
Corporate 16%
Treasury 53%
Sector Diversification
* The composition of the Fund's holdings is subject to change.
SEFTON U.S. GOVERNMENT FUND PORTFOLIO PERFORMANCE**
[BAR GRAPH APPEARS HERE]
TWO ANNUALIZED SINCE
THREE ONE YEAR INCEPTION
MONTHS YEAR (ANNUALIZED) (4/3/95)
-------- ------ ------------ ----------------
SEFTON U.S. GOVERNMENT FUND 2.8% 8.4% 5.0% 8.0%
MORNINGSTAR U.S. GOVERNMENT BOND
FUND GENERAL AVERAGE 2.5% 7.9% 5.1% 7.6%
** 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 U.S. GOVERNMENT FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton U.S. Government Fund,
the Morningstar U.S. Government Bond Fund General Average*, and the Lehman
Brothers Intermediate Government Corporate Bond Index.** (Fund inception date:
April 3, 1995)
[LINE GRAPH APPEARS HERE]
MORNINGSTAR LEHMAN BROS.
SEFTON U.S GOV'T BOND INTERMEDIATE
U.S. GOV'T. FUND GENERAL GOV'T/CORPORATE
FUND AVERAGE BOND INDEX
---- ------- ----------
4/95 10,039 10,109 10,124
6/95 10,557 10,482 10,500
9/95 10,719 10,650 10,673
12/95 11,195 11,048 11,047
3/96 10,898 10,854 10,956
6/96 10,907 10,881 11,024
9/96 11,046 11,046 11,220
12/96 11,379 11,324 11,495
3/97 11,256 11,266 11,482
6/97 11,627 11,603 11,821
9/97 12,003 11,922 12,140
12/97 12,347 12,215 12,400
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
* The Morningstar U.S. Government Bond Fund General Average is composed of 376
funds with an investment objective that seeks income by investing in a blend of
mortgage-backed securities, and U.S. Treasury and agency securities.
** The Lehman Brothers Intermediate Government/Corporate Bond Index is
representative of the performance of intermediate corporate and U.S. Government
bonds. An investor may not invest in this unmanaged index.
The benchmark index for the Sefton U.S. Government Fund has been changed from
the Lehman Brothers Government Bond Index to the Lehman Brothers Intermediate
Government/Corporate Bond Index in order to more accurately mirror the Fund's
average maturity and portfolio composition.
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INTERVIEW WITH TED PIORKOWSKI
Fund Manager - Sefton California Tax-Free Fund
Q: Ted, how did the California municipal bond market perform during 1997?
A: The California municipal bond market had a favorable year during 1997. The
municipal market's rate moves continued to be heavily influenced by the rate
changes in the taxable bond markets. During 1997, we did not see the kind of
legislative influences we have seen in the recent past. The tax reform topic
from Washington D.C., and the initiative/proposition process from Sacramento,
played little or no role in the municipal market in 1997.
Q: How did the Sefton California Tax-Free Fund perform?
A: For the fiscal and calendar year ended December 31, 1997, the Sefton
California Tax-Free Fund delivered a total return of 8.45%./1/ This compares
favorably to the 8.38%/2/ average return for the mutual funds in the Morningstar
California Municipal Bond Fund Universe.
Since the Fund's inception on April 3, 1995, it has provided an average annual
total return of 7.73%, compared to an average of 7.73% for the funds in the
Morningstar California Municipal Bond Fund Universe.
Q: How is the Fund currently structured?
A: The Fund currently has an average maturity of 15.2 years. At this maturity
range, we are able to capture more than 95% of the yield of a 30 year issue
while taking significantly less interest rate risk.
The Fund's sector allocation reflects an "essential service" bias. Presently,
the Fund's major sector allocations include: education, water, transportation
and waste. Historically, these sectors have been immune to the economic cycles
of the state's economy. The Fund's municipal holdings continue to have a high
credit quality profile, with 58% of the Fund's holdings enhanced with municipal
bond insurance.
Q: What are the major issues affecting California municipal bonds during 1998?
A: The overall level of interest rates in the taxable bond market and the
California economy will be the major issues impacting the California municipal
bond market in 1998. The strength of the California economy continues to provide
a solid base and the potential for improving credit quality for many municipal
bonds. Also, the deregulation of the electric utility industry in California
during 1998 may present some interesting opportunities within the municipal
market as the dynamics of deregulation become more clear.
/(1)/ References to total return herein include reinvested dividends and capital
gains paid.
/(2)/ Morningstar California Tax-Free Fund Universe is an average of California
tax-free mutual funds as tracked by Morningstar.
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 CALIFORNIA TAX-FREE FUND HIGHLIGHTS AS OF DECEMBER 31, 1997*
Net Assets $40,302,629
Net Asset Value Per Share $12.84
S.E.C. Yield-30 Day 3.86%
Taxable Equivalent Yield 6.98%
(combined 44.7% rate)
Significant Holdings
5.6% Rancho California Water District
4.6% California Educational Financing -- Pomona College
4.1% California Health Financing -- Scripps Hospital
4.0% San Diego Regional Transportation Commission
[PIE CHART APPEARS HERE]
Certificate of Participation 4%
Education 14%
Floater 3%
Health 11%
Power 4%
General Obligations 11%
Waste 9%
Miscellaneous Revenues 9%
Prisons 3%
Housing 6%
Water 14%
Transportation 12%
Sector Diversification
* The composition of the Fund's holdings is subject to change.
SEFTON CALIFORNIA TAX-FREE FUND PORTFOLIO PERFORMANCE**
[BAR GRAPH APPEARS HERE]
ANNUALIZED
TWO SINCE
THREE ONE YEAR INCEPTION
MONTHS YEAR (ANNUALIZED) (4/3/95)
-------- ------ ------------ ------------
SEFTON CALIFORNIA
TAX-FREE FUND 2.6% 8.5% 6.5% 7.7%
MORNINGSTAR CALIFORNIA MUNICIPAL
BOND FUND AVERAGE 2.5% 8.4% 6.0% 7.7%
** 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.
10
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SEFTON CALIFORNIA TAX-FREE FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton California Tax-Free
Fund, the Morningstar California Municipal Bond Fund Average*, and the Lehman
Brothers 10-Year Municipal Bond Index.** (Fund inception date: April 3, 1995)
[LINE GRAPH APPEARS HERE]
SEFTON MORNINSTAR
CALIFORNIA CALIFORNIA MUNICIPAL LEHMAN BROS.
TAX-FREE BOND FUND 10 YEAR MUNICIPAL
FUND AVERAGE BOND INDEX
---- ------- ----------
4/95 9,932 10,007 10,012
6/95 10,039 10,179 10,265
9/95 10,328 10,427 10,625
12/95 10,821 10,923 10,958
3/96 10,661 10,721 10,887
6/96 10,756 10,800 10,921
9/96 11,022 11,057 11,139
12/96 11,318 11,323 11,456
3/97 11,268 11,256 11,453
6/97 11,640 11,627 11,830
9/97 11,959 11,974 12,198
12/97 12,274 12,272 12,514
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
* The Morningstar California Municipal Bond Funds Average is composed of 166
funds with an investment objective that seeks to invest assets in municipal debt
issues which are exempt from taxation in California.
** The Lehman Brothers 10 Year Municipal Bond Index is a total return
performance benchmark for the long-term, investment-grade tax-exempt bond
market. Returns and attributes for the index are calculated semi-monthly using
approximately 25,000 municipal bonds. An investor may not invest in this
unmanaged index.
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SEFTON CAPITAL MANAGEMENT EQUITY METHODOLOGY
Investment Objective
The goal of Sefton Capital Management's equity fund managers is to provide
shareholders with long-term capital appreciation. The Fund's managers seek
stocks with prospects for above average capital appreciation with below average
risk. Results are measured over a full market cycle as compared to other
diversified stock mutual funds and the S&P 500 stock index. We believe our
approach is well-suited to the needs of longer-term investors who are seeking
capital growth over time horizons of five years or more.
Stock Selection Process
Sefton Capital Management's equity fund managers research stock market
opportunities to identify and select stocks which exhibit significantly more
potential for upside reward than downside risk. We pay particular attention to
stocks possessing low relative valuation multiples combined with a catalyst that
will, in our judgement, attract greater investor attention within the next one
to two years.
Sefton Capital Management's managers search both domestic and foreign markets
for stocks which meet our demanding criteria. In general, stocks selected for
inclusion in our funds share one or more of the following characteristics:
. Below-average valuation multiples, such as price/earnings,
price/book value, price/sales and price/cash flow
. A near-term catalyst for higher future valuation, such as product
introductions, cost-cutting initiatives, a cyclical surge in
profits or a change in management
. Improving financial strength
. A management team committed to its shareholders' interests
Risk Management
One of the primary advantages of Sefton Capital Management's value investment
methodology is that purchasing undervalued securities should help limit the
overall downside risk of a stock portfolio since stocks that are relatively
underpriced have less distance to fall in a market decline than stocks that are
more fully priced.
Our equity fund managers seek a favorable balance between risk and reward by
diversifying the Funds across a broad range of industries and economic sectors.
For example, no more than five percent of any fund is comprised of an individual
company's stock (at cost) and no economic sector exceeds 20% of a total
portfolio. Foreign stocks are held but generally amount to less than 10% of
invested assets.
Sell Discipline
Our sell discipline has the overall objective of reducing volatility. Sefton
Capital Management's fund managers typically expect to make at least 20% per
year on each of the stocks selected for a fund. Regardless of whether a stock
has gone up or down, it is sold out of a fund when the stock no longer appears
to be undervalued relative to its peer group or the broad market. The portfolio
managers may also sell a stock if an original catalyst for higher prices no
longer seems plausible or imminent. As a final risk control measure, any stock
that declines by 15% or more from its cost or during a calendar year is sold.
Equity Management Summary
Our approach to equity fund management is disciplined, time-tested and
intuitive. The methodologies and processes utilized by Sefton Capital
Management's mutual fund managers are based upon sound principles and
experience.
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[PHOTO OF THOMAS C. BOWDEN, C.F.A. APPEARS HERE]
Thomas C. Bowden, C.F.A.
Vice President and
Equity Fund Manager
Mr. Bowden is involved in the areas of equity analysis, trading and portfolio
management. He is the co-manager of the Sefton Equity Value Fund and the
Sefton Small Company Value Fund. Mr. Bowden serves as an officer of the Board
for the Sefton Mutual Funds and is a member of Sefton Capital Management's (SCM)
Management Committee and SCM's Investment Policy Committee.
Mr. Bowden joined SCM in February 1995 after serving as Vice President and
Equity Portfolio Manager with San Diego Financial Capital Management, Inc., a
wholly owned subsidiary of San Diego Trust & Savings Bank, for nine years.
During that time, he was co-manager of the Pacifica Equity Value and Pacifica
Balanced Mutual Funds and managed customized equity portfolios for individuals
and institutions. Previously, Mr. Bowden was a Commercial Loan Officer with Bank
of America for two years.
Mr. Bowden 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.
SEFTON EQUITY VALUE FUND AND
SMALL COMPANY VALUE FUND
EQUITY MARKET SUMMARY
The U. S. stock market was full of surprises in 1997 -- some pleasant and some
not so pleasant. The biggest surprise, and the most pleasant of course, was that
equity investors enjoyed an unprecedented third year in a row of stock market
gains in excess of 20%. The most unpleasant surprise was delivered during the
final quarter of the year when investors realized that negative developments
overseas (Asia) can create a turbulent market environment here at home.
Despite the volatile fourth quarter, however, most broad measures of the U.S.
equity market posted solid performances for the year as a whole (see table
below). In general, during 1997, large capitalization stocks outperformed their
smaller brethren while "growth" style stocks performed better than their "value"
counterparts.
Standard & Poor's 500 Index (market cap. weighted)............+33.4%
Standard & Poor's 500 Index (equal weighted)..................+28.9%
Dow Jones Industrial Average Index............................+24.9%
Morningstar Growth Fund Universe Average......................+24.6%
NASDAQ Composite Index........................................+22.2%
Russell 2000 Small Cap Index..................................+22.2%
The above indices are mentioned as a general representation of their peer
groups and cannot be invested in directly as a whole.
While the stock market clearly had its ups and downs over the past year, the
U.S. economy was a steady performer during 1997. The year has often been
characterized as "perfect" from an economic standpoint. It is hard to argue with
that assessment in light of the following 1997 figures: real economic growth
(GDP) of approximately 3.5%, year-end unemployment level of 4.7% and low
inflation (CPI) of 1.7% that allowed for a meaningful decline in interest rates.
In 1998, we expect the U.S. economy to fall just short of its stellar
performance of 1997. We anticipate growth on the order of 2.5 to 3.0%, year-end
unemployment of 5.0% and inflation of 2.0 to 2.5%. In light of this, we believe
that the stock market environment of 1998 will be somewhat more challenging than
it has been during the past three years. As such, we anticipate that stock
market results will return to a more normal level of between +8% to +10% gains
for the year.
13
<PAGE>
[PHOTO OF LEIF O. SANCHEZ, C.F.A. APPEARS HERE]
Leif O. Sanchez, C.F.A.
Vice President and
Equity Fund Manager
Mr. Sanchez is involved in the areas of equity analysis, trading and portfolio
management. He is the co-manager of the Sefton Equity Value Fund and the
Sefton Small Company Value Fund. Mr. Sanchez serves as an officer of the Board
for the Sefton Mutual Funds and is a member of Sefton Capital Management's (SCM)
Management Committee and SCM's Investment Policy Committee.
Mr. Sanchez joined SCM in February 1995 after ten years as Vice President and
Equity Portfolio Manager with San Diego Financial Capital Management, Inc., a
wholly owned subsidiary of San Diego Trust & Savings Bank. During that time, he
was co-manager of the Pacifica Equity Value and Pacifica Balanced Mutual Funds
and managed customized equity portfolios for individuals and institutions.
Mr. Sanchez received a B.A. in Engineering from Harvard College in Cambridge,
Massachusetts and obtained his Chartered Financial Analyst designation in
1989. Mr. Sanchez is also a member of the Financial Analysts Society of San
Diego.
INTERVIEW WITH LEIF SANCHEZ & THOMAS BOWDEN
Fund Managers of the Sefton Equity Value Fund
Q: Tom and Leif, how did the Sefton Equity Value Fund perform in 1997?
A: For the second year in a row, the Sefton Equity Value Fund outperformed the
average return of the mutual funds in the Morningstar Growth Fund Universe.
For the fiscal and calendar year that ended on December 31, 1997, the Sefton
Equity Value Fund generated a total return of 25.3%,/1/ compared to 24.6%/2/
for the average of the funds in the Morningstar Growth Fund Universe. During
the 12 month period ended December 31, 1996, the Equity Value Fund returned
30.7% compared to an average return of 19.7% for the funds in the
Morningstar Growth Fund Universe. We are particularly pleased with our 1997
performance in light of the fact that 1997 was a difficult year for "value"
investors as the highest returns were generally provided by large
capitalization "growth" stocks.
Q: What were the stocks that made a positive impact on results during 1997?
A: Top performers during 1997 were Royal Caribbean Cruises (+103%, sold),
Maxxim Medical (+74%), World Fuel Services (+74%), Synthetic Industries
(+52%), AMR Corp. (+45%), Dana Corp. (+45%), Sun Healthcare Group (+43%),
ReliaStar Financial (+42%), Selective Insurance Group (+42%) and Quaker
Fabric Corp.(+41%)./3/
Q: How have you positioned the Fund for 1998?
A: We are generally more exposed to the less cyclical areas of the economy,
such as the REIT/Utility sector, than the more cyclical areas like
Technology, Manufacturing and Basic Industry. Although we are underweighted
in the Energy sector, we anticipate increasing our exposure over the near
term as oil prices and oil stock prices are now below their historic levels.
/(1)/ References to total return herein include reinvested dividends and
capital gains paid.
/(2)/ Morningstar Growth Fund Universe is an average of equity growth mutual
funds as tracked by Morningstar.
/(3)/ The composition of the Fund's holdings are 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.
14
<PAGE>
SEFTON EQUITY VALUE FUND HIGHLIGHTS AS OF DECEMBER 31, 1997*
Net Assets $85,278,303
Net Asset Value Per Share $17.45
Top Ten Holdings % of Assets
AMR Corporation 4.8%
Phillip Morris Companies, Inc. 4.3%
ReliaStar Financial 4.3%
FirstEnergy Corporation 4.2%
Chase Manhattan Corporation 3.9%
GPU Incorporated 3.8%
Repsol S A Sponsored ADR 3.7%
International Business Machines 3.7%
Dana Corporation 3.6%
CSX Corporation 3.2%
[PIE CHART APPEARS HERE]
Utilities/REITS 17%
Consumer Staples 4%
Technology 7%
Services 10%
Energy 6%
Cash 12%
Finance 14%
Manufacturing 9%
Health Care 6%
Basic Industry 9%
Consumer Cyclical 6%
Sector Diversification
* The composition of the Fund's holdings is subject to change.
SEFTON EQUITY VALUE FUND PORTFOLIO PERFORMANCE**
[BAR GRAPH APPEARS HERE]
SEFTON EQUITY MORNINGSTAR GROWTH
VALUE FUND FUND AVERAGE
---------- ------------
THREE MONTHS -2 % -1.5%
ONE YEAR 25.3% 24.6%
TWO YEAR
(ANNUALIZED) 28.0% 22.2%
ANNUALIZED SINCE
INCEPTION (4/3/95) 26.3% 24.4%
** 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.
15
<PAGE>
SEFTON EQUITY VALUE FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton Equity Value Fund,
the Morningstar Growth Fund Average*, and the S&P 500 Index.** (Fund
inception date: April 3, 1995)
[LINE GRAPH APPEARS HERE]
SEFTON MORNINGSTAR S&P
EQUITY GROWTH FUND 500
DATE VALUE AVERAGE INDEX
- ------ ------ ------- -----
4/95 9,983 10,197 10,291
6/95 10,350 10,939 10,949
9/95 11,280 11,904 11,819
12/95 11,604 12,196 12,524
3/96 12,831 12,885 13,204
6/96 12,973 13,480 13,801
9/96 13,579 13,894 14,223
12/96 15,167 14,620 15,413
3/97 15,555 14,366 15,817
6/97 17,516 16,810 18,583
9/97 19,378 18,495 19,981
12/97 18,997 18,217 20,556
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
* The Morningstar Growth Fund Average is composed of 1212 funds with an
investment objective to invest in companies whose long-term earnings are
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged indices.
**The Standard & Poor's 500 Index is a broad-based measurement of changes in
stock market conditions based on the average performance of 500 widely held
common stocks. An investor may not invest in this unmanaged index.
16
<PAGE>
INTERVIEW WITH LEIF SANCHEZ & THOMAS BOWDEN
Fund Managers of the Sefton Small Company Value Fund
Q: Tom and Leif, how did the Sefton Small Company Value Fund perform in 1997?
A: Since the Fund had an inception date of June 30, 1997, returns are only for
the last six months of 1997. During that time the Fund had a total return of
6.76%./1/ Over that same time frame the Russell 2000 Index gained 10.95%/2/
and the Morningstar Small Company Fund Universe average was 10.90%./3/
The Fund's poor relative performance is primarily attributable to the
difficulty of getting this new fund fully invested during a period of
rapidly rising stock prices. During the third quarter, stock prices shot up,
with small company stocks leading the way. Over the course of three months,
our exposure to cash went from 100% to just under 13% by the end of the
third quarter. During the fourth quarter, the Fund was fully invested and
outperformed the average of the Morningstar Small Company Fund Universe by
1.8%. The Fund's year-end cash position was 5%.
Q: Which stocks were the largest contributors to performance?
A: The best performers were World Fuel Services(+44%), Midcoast Energy
Resources (+33%), Cameron Ashley Building (+25%), Maxxim Medical (+22%),
Quaker Fabric Corp. (+22%), Harveys Casino Resorts (+19%), Garden Fresh
Restaurant (+17%), Trinet Corporate Realty (+16%), Synthetic Industries
(+15%) and Domain Energy Corp. (+15%)./4/
Q: How is the Fund currently structured?
A: We have our largest exposure in the Utility/REIT (20% of the Fund) and
Service (17%) sectors of the market. In addition, our smallest exposure is
to the Consumer Staples (3%) and Technology (0%) sectors. Currently, we have
no foreign issues in the Fund.
Q: What is your outlook for small capitalization stocks for 1998?
A: Since small capitalization stocks typically have more exposure to the United
States economy than large capitalization stocks, we expect the earnings
performance of small stocks to be modestly superior in light of the Asian
economic problems. Small stock performance will not likely be aided by
valuation issues as small and large capitalization P/E multiples do not
appear to be meaningfully different at the present time.
/1/ References to total return herein include reinvested dividends and capital
gains paid.
/2/ 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.
/3/ Morningstar Small Company Fund Universe is an average of small company
mutual funds as tracked by Morningstar.
/4/ The composition of the Fund's holdings are subject to change.
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 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.
17
<PAGE>
SEFTON SMALL COMPANY VALUE FUND HIGHLIGHTS & PORTFOLIO PERFORMANCE*
Net Assets $29,680,336
Net Asset Value Per Share $12.74
Top Ten Holdings % of Assets
Mascotech Inc. 4.4%
World Fuel Services 4.3%
EastGroup Property Investors 4.0%
Trinet Corporate Realty Trust 4.0%
Price REIT 3.9%
Tarrant Apparel Group 3.8%
Gryphon Holdings Inc. 3.7%
Equity Inns 3.7%
IMC Mortgage Co. 3.5%
Dravo Corp. 3.5%
[PIE CHART APPEARS HERE]
Consumer Cyclical 9%
Utilities/REITS 20%
Finance 11%
Consumer Staples 3%
Services 17%
Cash 5%
Manufacturing 13%
Basic Industry 7%
Energy 8%
Health Care 7%
Sector Diversification
* The composition of the Fund's holdings is subject to change.
SEFTON SMALL COMPANY VALUE FUND PORTFOLIO PERFORMANCE**
[BAR GRAPH APPEARS HERE]
SEFTON SMALL MORNINGSTAR SMALL
COMPANY VALUE COMPANY FUND
FUND AVERAGE
------------- -----------------
THREE MONTHS -3.2% -5.0%
SINCE INCEPTION 6.8% 10.9%
(6/30/97)
** 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.
18
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton Small Company Value
Fund, the Morningstar Small Company Fund Average*, and the Russell 2000 Small
Company Index.** (Fund inception date: June 30, 1997)
[LINE GRAPH APPEARS HERE]
SEFTON MORNINGSTAR RUSSELL 2000
SMALL COMPANY SMALL COMPANY SMALL COMPANY
VALUE FUND FUND AVERAGE INDEX
---------- ------------ -----
6/30/97 10,000 10,000 10,000
7/30/97 10,341 10,634 10,465
8/30/97 10,432 10,852 10,705
9/30/97 11,004 11,682 11,488
10/30/97 10,754 11,171 10,984
11/30/97 10,495 11,020 10,912
12/30/97 10,676 11,093 11,103
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that your shares, when redeemed, may be worth more or
less than their original cost.
* The Morningstar Small Company Fund Average is composed of 579 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.
** 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.
19
<PAGE>
DEFINITIONS OF COMMON TERMS
Gain (or Loss)
If a stock or bond appreciates in price, there is an unrealized gain; if it
depreciates, there is an unrealized loss. A gain or loss is "realized" upon the
sale of a security; if a fund's net gains exceed net losses, there may be a
capital gain distribution to shareholders. There also could be an ordinary
income distribution if the net gain is short-term, or no distribution if there
is a capital loss carryover.
Dividend
Net income generated by securities in a fund and distributed to shareholders.
The Sefton U.S. Government Fund and the Sefton California Tax-Free Fund pay
dividends monthly. The Sefton Equity Value Fund and the Sefton Small Company
Value Fund pay 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), FGIC (Federal
Guaranty Insurance Company) or FSA (Financial Security Assurance, Inc.). Bonds
insured by MBIA, AMBAC, FGIC and FSA 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.
20
<PAGE>
DEFINITIONS OF COMMON TERMS (CONTINUED)
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 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 carry 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 to a small degree; A -- regarded as upper
medium-grade, having a strong capacity to pay interest and repay principal,
although
21
<PAGE>
DEFINITIONS OF COMMON TERMS (CONTINUED)
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 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.
22
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$32,389,864) $33,841,947
Repurchase Agreements (cost-$1,173,000) 1,173,000
Interest receivable 464,231
Organizational costs, net of accumulated amortization 18,198
Prepaid expenses 1,235
- -----------------------------------------------------------------------------
Total Assets 35,498,611
- -----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment advisory fees 15,081
Administration fees 723
Shareholder servicing fees 525
Dividends 163,880
Legal and audit fees 22,979
Custodian fees 4,658
Printing costs 8,539
Other 4,043
- -----------------------------------------------------------------------------
Total Liabilities 220,428
- -----------------------------------------------------------------------------
NET ASSETS: $35,278,183
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $33,868,220
Undistributed net investment income 38,754
Accumulated net realized gain (loss) on investment transactions (80,874)
Net unrealized appreciation (depreciation) of investments 1,452,083
- -----------------------------------------------------------------------------
NET ASSETS: $35,278,183
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,794,390
- -----------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.62
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Face Market
Value Value
----- -----------
<C> <S> <C>
CORPORATE BONDS 16.3%
- -------------------------------------------------------------------------------
FINANCE 4.5%
- -------------------------------------------------------------------------------
$ 500,000 Integra Bank, Medium Term Note,
6.55%, 6/15/00 $ 504,438
500,000 Lehman Brothers Holdings Inc., 8.75%, 5/15/02 542,261
500,000 Salomon Inc., 9.25%, 5/1/01 543,653
-----------
1,590,352
-----------
INDUSTRIAL 11.8%
- -------------------------------------------------------------------------------
1,000,000 Boise Cascade Co.,
7.70%, 1/30/03, Series A, Medium Term Note 1,056,657
1,500,000 Coca Cola Bottling Co. Consolidated,
6.85%, 11/1/07 1,532,387
500,000 Royal Caribbean, 8.25%, 4/1/05 546,016
1,000,000 Royal Caribbean, 7.00%, 10/15/07 1,021,122
-----------
4,156,182
-----------
TOTAL CORPORATE BONDS
(Cost $5,573,922) 5,746,534
-----------
U.S. GOVERNMENT AGENCIES 4.1%
- -------------------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp.,
8.63%, 11/29/04 518,458
875,000 Federal Home Loan Mortgage Corp.,
8.53%, 2/2/05 912,458
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $1,418,175) 1,430,916
-----------
U.S. GOVERNMENT AGENCIES--MORTGAGE BACKED 23.5%
- -------------------------------------------------------------------------------
623,237 Federal Home Loan Mortgage Corp.,
7.50%, 7/1/09, Pool #E00326 640,980
1,394,941 Federal Home Loan Mortgage Corp.,
7.50%, 4/1/14, Pool #C90060 1,442,424
867,083 Federal Home Loan Mortgage Corp.,
7.00%, 4/1/16, Pool #C90133 886,471
2,041,000 Federal Home Loan Mortgage Corp.,
6.10%, 11/15/16, Series 1501, Class F,
Collateralized Mortgage Obligation 2,043,776
747,158 Federal National Mortgage Association,
7.00%, 5/1/14, Pool #190783 762,886
628,363 Federal National Mortgage Association,
8.00%, 1/1/15, Pool #250232 653,768
1,852,906 Federal National Mortgage Association,
6.50%, 6/1/16, Pool #368930 1,861,115
-----------
TOTAL U.S. GOVERNMENT AGENCIES--MORTGAGE BACKED
(Cost $8,066,092) 8,291,420
-----------
</TABLE>
24
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Face Market
Value Value
----- -----------
<C> <S> <C> <C>
U.S. TREASURY BOND 3.2%
- -----------------------------------------------------------------
$1,000,000 7.25%, 5/15/16 $ 1,138,751
-----------
TOTAL U.S. TREASURY BOND
(Cost $979,834) 1,138,751
-----------
U.S. TREASURY NOTES 46.0%
- -----------------------------------------------------------------
1,000,000 7.75%, 2/15/01 1,058,438
1,500,000 6.25%, 10/31/01 1,526,720
3,000,000 7.50%, 5/15/02 3,204,377
2,200,000 6.25%, 2/15/03 2,250,877
2,000,000 7.25%, 8/15/04 2,162,502
2,000,000 7.88%, 11/15/04 2,236,252
2,000,000 7.50%, 2/15/05 2,198,126
1,500,000 6.50%, 10/15/06 1,571,252
-----------
TOTAL U.S. TREASURY NOTES
(Cost $15,491,986) 16,208,544
-----------
U.S. TREASURY STRIP 2.9%
- -----------------------------------------------------------------
4,000,000 8/15/20 1,025,248
-----------
TOTAL U.S. TREASURY STRIP
(Cost $859,321) 1,025,248
-----------
REPURCHASE AGREEMENT 3.3%
- -----------------------------------------------------------------
1,173,000 Union Bank of California Repurchase
Agreement,
5.25%, dated 12/31/97 and maturing
1/2/98 with a maturity value of
$1,173,342, collateralized by
$1,219,905, Federal Home Loan Mortgage
Corp., 6.91%, due 4/13/98 with a value
of $1,241,584 1,173,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $1,173,000) 1,173,000
-----------
CASH SWEEP ACCOUNT 0.0%
- -----------------------------------------------------------------
534 Union Bank of California 534
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $534) 534
-----------
TOTAL INVESTMENTS
(Cost $33,562,864) (a) 99.3% 35,014,947
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7% 263,236
- -----------------------------------------------------------------
TOTAL NET ASSETS 100.00% $35,278,183
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
(a) Cost for federal income tax and financial reporting is substantially the
same.
See Notes to Financial Statements.
25
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF OPERATIONS
For the period ended December 31, 1997(1)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,638,534
Dividend income 1,077
- ----------------------------------------------------------------------------
Total Investment Income 1,639,611
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 148,520
Administration fees 40,987
Shareholder servicing fees 3,194
Fund accounting fees 23,590
Legal fees 9,156
Audit fees 23,374
Custodian fees 7,917
Amortization of organization costs 6,047
Transfer agency fees 5,384
Printing costs 6,825
Insurance costs 3,196
Registration and filing fees 5,266
Trustees' fees and expenses 3,864
Other 728
- ----------------------------------------------------------------------------
Total expenses 288,048
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (32,467)
Administrator (3,857)
- ----------------------------------------------------------------------------
Net Expenses 251,724
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 1,387,887
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions (803)
Net change in unrealized appreciation (depreciation) 1,613,047
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,612,244
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $3,000,131
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(1) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
See Notes to Financial Statements.
26
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Period Ended Year Ended
December 31, March 31,
1997(1) 1997
------------ -----------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 1,387,887 $ 1,246,503
Net realized gain (loss) on investment transactions (803) (75,863)
Net change in unrealized appreciation
(depreciation) 1,613,047 (542,430)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 3,000,131 628,210
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,387,887) (1,246,412)
Distributions to shareholders from net realized
gain from investment transactions - (106,341)
- -------------------------------------------------------------------------------
Change in net assets from investment activities 1,612,244 (724,543)
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 4,888,839 16,373,936
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 851,626 325,070
- -------------------------------------------------------------------------------
5,740,465 16,699,006
Cost of shares redeemed (2,136,602) (5,008,735)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 3,603,863 11,690,271
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 5,216,107 10,965,728
NET ASSETS:
Beginning of period 30,062,076 19,096,348
- -------------------------------------------------------------------------------
End of period $35,278,183 $30,062,076
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
See Notes to Financial Statements.
27
<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 For the For the
Period Ended Year Ended Period Ended
December 31, March 31, March 31,
1997(4) 1997 1996(1)
------------ ---------- ------------
<S> <C> <C> <C>
Net asset value--beginning of period $ 12.01 $ 12.35 $ 12.00
- -----------------------------------------------------------------------------
Income from investment operations
Net investment income 0.52 0.69 0.71
Net realized and unrealized gain on
investment transactions 0.61 (0.29) 0.37
- -----------------------------------------------------------------------------
Total income from investment
operations 1.13 0.40 1.08
- -----------------------------------------------------------------------------
Dividends and distributions to
shareholders
Dividends from net investment income (0.52) (0.69) (0.71)
Distributions from net realized gain
from investment transactions - (0.05) (0.02)
- -----------------------------------------------------------------------------
Total dividends and distributions (0.52) (0.74) (0.73)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net asset value--end of period $ 12.62 $ 12.01 $ 12.35
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total return 9.59%(2) 3.31% 9.06%(2)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $35,278 $30,062 $19,096
- -----------------------------------------------------------------------------
Ratio of net expenses to average net
assets 1.02%(3) 1.09% 1.02%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to
average net assets 5.60%(3) 5.64% 5.68%(3)
- -----------------------------------------------------------------------------
Ratio of expenses to average net
assets without fee waivers 1.17%(3) 1.39% 1.39%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to
average net assets without fee
waivers 5.45%(3) 5.34% 5.31%(3)
- -----------------------------------------------------------------------------
Portfolio turnover rate(5) 5.49% 11.94% 45.41%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995
(2) Total return is not annualized.
(3) Annualized.
(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
(5) A portfolio turnover rate is 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.
See Notes to Financial Statements.
28
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$37,208,372) $39,724,762
Cash 96,993
Interest receivable 615,480
Receivable for capital shares sold 46,062
Organizational costs, net of accumulated amortization 18,198
Prepaid expenses 8,331
- ----------------------------------------------------------------------
Total Assets 40,509,826
- ----------------------------------------------------------------------
LIABILITIES:
Payables:
Investment advisory fees 15,203
Administration fees 827
Dividends 151,512
Legal and audit fees 24,192
Custodian and accounting fees 4,138
Printing costs 10,156
Other 1,169
- ----------------------------------------------------------------------
Total Liabilities 207,197
- ----------------------------------------------------------------------
NET ASSETS: $40,302,629
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $37,782,630
Undistributed net investment income 3,609
Net unrealized appreciation (depreciation) of investments 2,516,390
- ----------------------------------------------------------------------
NET ASSETS: $40,302,629
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Shares of beneficial interest outstanding 3,139,181
- ----------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.84
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
CERTIFICATE OF PARTICIPATION 4.1%
- ------------------------------------------------------------------------------
$1,500,000 West Covina, California Hospital,
Certificate of Participation, 6.50%,
8/15/14, Callable 8/15/04 @ 102 A2/A
TOTAL CERTIFICATE OF PARTICIPATION
(Cost $1,503,399) $ 1,656,000
-----------
EDUCATION 13.9%
- ------------------------------------------------------------------------------
1,690,000 California Educational Facilities
Authority, Pomona College, 6.13%,
2/15/08, Callable 2/15/02 @ 102 Aa1/AA+ 1,833,632
1,500,000 California Educational Facilities
Authority, Santa Clara University,
6.25%, 2/1/16, Callable 2/1/02 @ 102 A1/NR 1,645,950
500,000 California State Public Works Board
University, 6.63%, 10/1/10, AMBAC AAA/A 561,040
1,500,000 University California Revenue Series B,
6.30%, 9/1/15 NR/A 1,611,585
-----------
TOTAL EDUCATION
(Cost $5,207,206) 5,652,207
-----------
FLOATING RATE NOTES 2.5%
- ------------------------------------------------------------------------------
800,000 California Pollution Control Finance
Authority, Series A, 4.20%, 2/28/08 (b) A1/A+ 800,000
200,000 California Pollution Control Finance
Authority, Southern California Edison,
Series B, 4.20%, 2/28/08, (b) A1/A+ 200,000
-----------
TOTAL FLOATING RATE NOTES
(Cost $1,000,000) 1,000,000
-----------
GENERAL OBLIGATION BONDS 10.5%
- ------------------------------------------------------------------------------
1,325,000 California State, 6.25%, 4/1/08 A1/A+ 1,525,380
1,000,000 Oakland California, Series B, 5.88%,
6/15/19, Callable 6/15/05 @ 102, FSA Aaa/AAA 1,068,370
1,500,000 San Francisco City & County Public
Safety, Series F, 6.50%, 6/15/08,
Callable 6/15/01 @ 100, FGIC Aaa/AAA 1,620,885
-----------
TOTAL GENERAL OBLIGATION BONDS
(Cost $3,942,167) 4,214,635
-----------
</TABLE>
30
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
HEALTH 10.5%
- -------------------------------------------------------------------------------
$1,500,000 California Health Facilities Finance
Authorities--Scripps, 6.25%, 10/1/13,
Callable 10/1/01 @ 102, MBIA Aaa/AAA $ 1,619,790
1,000,000 California Health Facilities Finance
Authorities--Sutter, 7.00%, 1/1/09,
Callable 1/1/99 @102, MBIA Aaa/AAA 1,046,930
1,000,000 Stockton, California, Health Facilities,
Dameron Hospital Assoc., Series A,
5.35%, 12/1/09, Callable 12/1/07 @ 102 NR/BBB+ 1,036,370
500,000 Stockton, California, Health Facilities,
Dameron Hospital Assoc., Series A,
5.45%, 12/1/10, Callable 12/1/07 @ 102 NR/BBB+ 518,450
-----------
TOTAL HEALTH
(Cost $4,037,561) 4,221,540
-----------
HOUSING 5.9%
- -------------------------------------------------------------------------------
1,460,000 California Housing Finance Agency,
Series F, 5.95%, 8/1/14, Callable 8/1/05
@ 102, MBIA Aaa/AAA 1,542,870
800,000 California Housing Finance Agency,
Series L, 5.90%, 8/1/17, Callable 2/1/06
@ 102, MBIA Aaa/AAA 840,912
-----------
TOTAL HOUSING
(Cost $2,260,000) 2,383,782
-----------
POWER 4.0%
- -------------------------------------------------------------------------------
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 1,615,275
-----------
TOTAL POWER
(Cost $1,505,280) 1,615,275
-----------
PRISONS 2.7%
- -------------------------------------------------------------------------------
1,000,000 California State Public Works Board
University, 5.25%, 12/1/08 Aaa/AAA 1,071,850
-----------
TOTAL PRISONS
(Cost $968,026) 1,071,850
-----------
</TABLE>
31
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
REVENUE 9.1%
- -------------------------------------------------------------------------------
$1,000,000 Mountain View California, Shoreline
Regional Park, Series A, 5.50%, 8/1/21,
Callable 8/1/06 @ 102, MBIA Aaa/AAA $ 1,031,530
1,000,000 Port of Oakland, 5.60%, 11/1/19, Callable
11/01/07 @ 102, MBIA Aaa/AAA 1,049,380
1,500,000 San Francisco Port Commission, 5.90%,
7/1/09, Callable 7/1/04 @ 102 A/BBB+ 1,581,930
-----------
TOTAL REVENUE
(Cost $3,420,195) 3,662,840
-----------
TRANSPORTATION 12.4%
- -------------------------------------------------------------------------------
1,500,000 San Diego Regional Transportation
Commission, California Sales Tax,
Series A, 5.00%, 4/1/07, FGIC Aaa/AAA 1,578,165
1,800,000 San Francisco Airport, California,
City/County, 5.38%, 5/1/17, Callable
5/1/06 @ 102, MBIA Aaa/AAA 1,843,596
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 1,562,490
-----------
TOTAL TRANSPORTATION
(Cost $4,617,885) 4,984,251
-----------
WASTE 9.2%
- -------------------------------------------------------------------------------
1,000,000 Los Angeles, California, Waste Water
Systems, Series B, 6.25%, 6/1/12,
Callable 6/1/02 @ 102, AMBAC Aaa/AAA 1,089,560
1,500,000 San Jose-Santa Clara Water District
Financing, 5.38%, 11/15/15, Callable
11/15/05 @ 101, FGIC Aaa/AAA 1,545,795
1,000,000 Tulare California Sewer Revenue, 5.70%,
11/15/15, Callable 11/15/06 @ 102, MBIA Aaa/AAA 1,073,990
-----------
TOTAL WASTE
(Cost $3,432,798) 3,709,345
-----------
WATER 13.8%
- -------------------------------------------------------------------------------
1,700,000 Marin California Municipal Water
District, 5.55%, 7/1/13, Callable 7/1/03
@ 102 A1/AA 1,747,192
</TABLE>
32
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
WATER (CONTINUED)
- -----------------------------------------------------------------------------
$2,000,000 Rancho California, Water District
Financing Authority, Series A, 5.88%,
11/1/10, Callable 11/1/05 @ 102, FGIC Aaa/AAA $ 2,214,540
1,500,000 San Francisco, California, City/County,
Public Utility Commission Water,
Series A, 6.00%, 11/1/15, Callable
11/1/02 @ 100 Aa/AA- 1,591,305
-----------
TOTAL WATER
(Cost $5,313,855) 5,553,037
-----------
TOTAL INVESTMENTS
(Cost $37,208,372) (a) 98.6% 39,724,762
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4% 577,867
- -----------------------------------------------------------------------------
TOTAL NET ASSETS 100.00% $40,302,629
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(a) Cost for federal income tax and financial reporting is substantially the
same.
(b) Floating rate security--rate disclosed as of December 31, 1997.
AMBAC--American Municipal Bond Assurance Corporation.
FGIC--Financial Guaranty Insurance Company.
FSA--Financial Security Assurance Corporation.
MBIA--Municipal Bond Insurance Association.
See Notes to Financial Statements.
33
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF OPERATIONS
For the period ended December 31, 1997(1)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,574,675
- ----------------------------------------------------------------------------
Total Investment Income 1,574,675
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 172,233
Administration fees 47,617
Shareholder servicing fees 834
Fund accounting fees 28,313
Legal fees 9,141
Audit fees 23,463
Custodian fees 5,893
Amortization of organization costs 6,047
Transfer agency fees 12,674
Printing costs 4,545
Insurance costs 3,021
Registration and filing fees 1,411
Trustees' fees and expenses 5,664
Other 1,093
- ----------------------------------------------------------------------------
Total expenses 321,949
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (47,617)
Administrator (4,559)
- ----------------------------------------------------------------------------
Net Expenses 269,773
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 1,304,902
- ----------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized appreciation (depreciation) 1,943,972
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $3,248,874
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(1) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
See Notes to Financial Statements.
34
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Period Ended Year Ended
December 31, March 31,
1997(1) 1997
------------ ----------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 1,304,902 $ 2,058,949
Net realized gain (loss) on investment
transactions - 277,205
Net change in unrealized appreciation
(depreciation) 1,943,972 66,683
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 3,248,874 2,402,837
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,304,902) (2,058,315)
Distributions to shareholders from net realized
gain from investment transactions (208,193) (69,012)
- ------------------------------------------------------------------------------
Change in net assets from investment activities 1,735,779 275,510
- ------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 3,381,101 7,705,704
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 1,313,097 271,084
- ------------------------------------------------------------------------------
4,694,198 7,976,788
Cost of shares redeemed (1,631,727) (15,340,540)
- ------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 3,062,471 (7,363,752)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 4,798,250 (7,088,242)
NET ASSETS:
Beginning of period 35,504,379 42,592,621
- ------------------------------------------------------------------------------
End of period $40,302,629 $ 35,504,379
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
See Notes to Financial Statements.
35
<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 For the For the
Period Ended Year Ended Period Ended
December 31, March 31, March 31,
1997(4) 1997 1996(1)
------------ ---------- ------------
<S> <C> <C> <C>
Net asset value--beginning of period $ 12.26 $ 12.19 $ 12.00
- -----------------------------------------------------------------------------
Income from investment operations
Net investment income 0.43 0.59 0.58
Net realized and unrealized gain on
investment transactions 0.65 0.09 0.20
- -----------------------------------------------------------------------------
Total income from investment
operations 1.08 0.68 0.78
- -----------------------------------------------------------------------------
Dividends and distributions to
shareholders
Dividends from net investment income (0.43) (0.59) (0.58)
Distributions from net realized gain
from investment transactions (0.07) (0.02) (0.01)
- -----------------------------------------------------------------------------
Total dividends and distributions (0.50) (0.61) (0.59)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net asset value--end of period $ 12.84 $ 12.26 $ 12.19
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total return 8.93%(2) 5.69% 6.60%(2)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $40,303 $35,504 $42,593
- -----------------------------------------------------------------------------
Ratio of net expenses to average net
assets 0.94%(3) 0.88% 0.83%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.54%(3) 4.83% 4.83%(3)
- -----------------------------------------------------------------------------
Ratio of expenses to average net
assets without fee waivers 1.12%(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(5) 12.97% 14.52% 93.90%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
(2) Total return is not annualized.
(3) Annualized.
(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
(5) A portfolio turnover rate is 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 pe-
riod and dividing it by the monthly average of the market value of such se-
curities during the period.
See Notes to Financial Statements.
36
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$60,901,100) $74,785,334
Repurchase Agreements (cost-$10,144,000) 10,144,000
Interest receivable 128,287
Receivable for investments sold 377,184
Organizational costs, net of accumulated amortization 18,198
Prepaid expenses 5,827
- ------------------------------------------------------------------------------
Total Assets 85,458,830
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 40,243
Payables:
Investment advisory fees 70,267
Administration fees 1,712
Shareholder servicing fees 4,755
Legal and audit fees 36,814
Custodian and accounting fees 3,348
Printing costs 21,218
Other 2,170
- ------------------------------------------------------------------------------
Total Liabilities 180,527
- ------------------------------------------------------------------------------
NET ASSETS: $85,278,303
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $70,145,988
Undistributed (distributions in excess of) net investment income (1,568)
Accumulated net realized gain (loss) on investment transactions 1,249,649
Net unrealized appreciation (depreciation) of investments 13,884,234
- ------------------------------------------------------------------------------
NET ASSETS $85,278,303
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares of beneficial interest outstanding 4,887,537
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $17.45
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
COMMON STOCKS 87.7%
- -------------------------------------------------------------------------
BASIC INDUSTRY 8.8%
- -------------------------------------------------------------------------
20,000 Aluminum Company of America $ 1,407,500
50,000 International Paper 2,156,250
38,000 PPG Industries, Inc. 2,170,750
70,000 Synthetic Industries, Inc.* 1,732,500
-----------
7,467,000
-----------
CONSUMER CYCLICALS 6.1%
- -------------------------------------------------------------------------
60,500 BJ's Wholesale Club, Inc.* 1,898,188
30,000 J.C. Penney Co., Inc. 1,809,375
78,000 Quaker Fabric Corp.* 1,530,750
-----------
5,238,313
-----------
CONSUMER STAPLES 4.3%
- -------------------------------------------------------------------------
80,000 Phillip Morris Companies, Inc. 3,625,000
-----------
ENERGY 6.1%
- -------------------------------------------------------------------------
50,000 American Oilfield Divers Inc.* 637,500
88,000 Domain Energy Corp.* 1,386,000
75,000 Repsol S.A.--Sponsored American Depository Receipt 3,192,188
-----------
5,215,688
-----------
FINANCE 14.0%
- -------------------------------------------------------------------------
30,000 Chase Manhattan Corp. 3,285,000
15,000 Cigna Corp. 2,595,938
108,000 IMC Mortgage Co.* 1,282,500
88,000 ReliaStar Financial 3,624,499
42,500 Selective Insurance Group 1,147,500
-----------
11,935,437
-----------
HEALTH CARE 6.0%
- -------------------------------------------------------------------------
100,000 Maxxim Medical, Inc.* 2,175,000
100,000 Sun Healthcare Group Inc.* 1,937,500
23,800 Wellpoint Health Networks* 1,005,550
-----------
5,118,050
-----------
MANUFACTURING 9.2%
- -------------------------------------------------------------------------
65,000 Dana Corp. 3,087,500
109,750 Mark IV Industries, Inc. 2,400,781
130,000 Mascotech, Inc. 2,388,750
-----------
7,877,031
-----------
</TABLE>
38
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C> <C>
SERVICES 9.6%
- -------------------------------------------------------------------------
32,000 AMR Corp.* $ 4,112,000
50,000 CSX Corp. 2,700,000
65,350 World Fuel Services Corp. 1,376,261
-----------
8,188,261
-----------
TECHNOLOGY 6.6%
- -------------------------------------------------------------------------
30,000 International Business Machines Corp. 3,136,875
62,100 Tektronix, Inc. 2,464,594
-----------
5,601,469
-----------
UTILITIES/REITS 17.0%
- -------------------------------------------------------------------------
54,200 Bedford Property Investors 1,185,625
50,000 EastGroup Property Investors 1,081,250
100,200 Equity Inns 1,477,950
122,000 FirstEnergy* 3,537,999
77,000 General Public Utility Inc. 3,243,624
55,000 Price REIT 2,251,563
45,000 TriNet Corporate Realty Trust, Inc. 1,740,938
-----------
14,518,949
-----------
TOTAL COMMON STOCKS
(Cost $60,900,964) 74,785,198
-----------
REPURCHASE AGREEMENT 11.9%
- -------------------------------------------------------------------------
$10,144,000 Union Bank of California Repurchase Agreement,
5.25%, dated 12/31/97 and maturing 1/2/98 with
a maturity value of $10,146,959, collateralized
by $10,549,634, Federal Home Loan Mortgage
Corp., 6.91%, due 4/13/98 with a value of
$10,737,110 10,144,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $10,144,000) 10,144,000
-----------
CASH SWEEP ACCOUNT 0.0%
- -------------------------------------------------------------------------
136 Union Bank of California 136
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $136) 136
-----------
TOTAL INVESTMENTS
(Cost $71,045,100) (a) 99.6% $84,929,334
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4% 348,969
- -------------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $85,278,303
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
(a)Cost for federal income tax and financial reporting is substantially the
same.
*Denotes non-income producing security.
See Notes to Financial Statements.
39
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the period ended December 31, 1997(1)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 1,518,857
- -----------------------------------------------------------------------------
Total Investment Income 1,518,857
- -----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 624,902
Administration fees 104,421
Shareholder servicing fees 11,311
Fund accounting fees 23,081
Legal fees 22,225
Audit fees 23,405
Custodian fees 9,464
Amortization of organization costs 6,047
Transfer agency fees 19,911
Printing costs 18,462
Insurance costs 9,511
Registration and filing fees 11,187
Trustees' fees and expenses 8,185
Other 1,183
- -----------------------------------------------------------------------------
Total expenses 893,295
- -----------------------------------------------------------------------------
Expenses waived by:
Administrator (10,686)
- -----------------------------------------------------------------------------
Net Expenses 882,609
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME 636,248
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions 8,517,641
Net change in unrealized appreciation (depreciation) 7,434,532
- -----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 15,952,173
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $16,588,421
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(1) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
See notes to financial statements.
40
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Period Ended Year Ended
December 31, March 31,
1997(1) 1997
------------ -----------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 636,248 $ 549,337
Net realized gain (loss) on investment transactions 8,517,641 6,634,179
Net change in unrealized appreciation
(depreciation) 7,434,532 1,277,884
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 16,588,421 8,461,400
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (637,096) (544,866)
Distributions to shareholders in excess of net
investment income - (13,818)
Distributions to shareholders from net realized
gain from investment transactions (10,154,021) (4,451,927)
- -------------------------------------------------------------------------------
Change in net assets from investment activities 5,797,304 3,450,789
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 9,338,186 45,875,135
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 10,678,131 2,995,495
- -------------------------------------------------------------------------------
20,016,317 48,870,630
Cost of shares redeemed (26,850,987) (2,331,718)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions (6,834,670) 46,538,912
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (1,037,366) 49,989,701
NET ASSETS:
Beginning of period 86,315,669 36,325,968
- -------------------------------------------------------------------------------
End of period $ 85,278,303 $86,315,669
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
See Notes to Financial Statements.
41
<PAGE>
SEFTON EQUITY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
For the For the For the
Period Ended Year Ended Period Ended
December 31, March 31, March 31,
1997(4) 1997 1996(1)
------------ ---------- ------------
<S> <C> <C> <C>
Net asset value--beginning of period $ 16.42 $ 14.92 $ 12.00
- -----------------------------------------------------------------------------
Income from investment operations
Net investment income 0.14 0.17 0.21
Net realized and unrealized gain on
investment transactions 3.45 3.14 2.92
- -----------------------------------------------------------------------------
Total income from investment
operations 3.59 3.31 3.13
- -----------------------------------------------------------------------------
Dividends and distributions to
shareholders
Dividends from net investment income (0.14) (0.17) (0.21)
Distributions from net realized gain
from investment transactions (2.42) (1.64) -
- -----------------------------------------------------------------------------
Total dividends and distributions (2.56) (1.81) (0.21)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net asset value--end of period $ 17.45 $ 16.42 $ 14.92
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total return 22.13%(2) 23.15% 26.31%(2)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $85,278 $86,316 $36,326
- -----------------------------------------------------------------------------
Ratio of net expenses to average net
assets 1.41%(3) 1.52% 1.55%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to
average net assets 1.02%(3) 1.13% 1.68%(3)
- -----------------------------------------------------------------------------
Ratio of expenses to average net
assets without fee waivers 1.43%(3) 1.56% 1.66%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to
average net assets without fee
waivers 1.00%(3) 1.09% 1.57%(3)
- -----------------------------------------------------------------------------
Average Commission Rate $0.0600 $0.0520 -
- -----------------------------------------------------------------------------
Portfolio turnover rate(5) 42.10% 77.65% 62.76%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995
(2) Total return is not annualized.
(3) Annualized.
(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
(5) A portfolio turnover rate is 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.
See Notes to Financial Statements.
42
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$25,857,756) $27,742,740
Repurchase Agreements (cost-$1,562,000) 1,562,000
Interest receivable 54,335
Receivable for investments sold 364,786
Organizational costs, net of accumulated amortization 20,853
Prepaid expenses 1,211
- -----------------------------------------------------------------------------
Total Assets 29,745,925
- -----------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 9,785
Payables:
Investment advisory fees 26,107
Administration fees 598
Transfer agent fees 216
Legal and audit fees 19,875
Custodian and accounting fees 650
Printing costs 7,620
Other 738
- -----------------------------------------------------------------------------
Total Liabilities 65,589
- -----------------------------------------------------------------------------
NET ASSETS: $29,680,336
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $28,177,388
Undistributed net investment income 1,249
Accumulated net realized gain (loss) on investment transactions (383,285)
Net unrealized appreciation (depreciation) of investments 1,884,984
- -----------------------------------------------------------------------------
NET ASSETS $29,680,336
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,330,309
- -----------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.74
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<C> <S> <C>
COMMON STOCKS 93.4%
- -------------------------------------------------------------
BASIC INDUSTRY 7.3%
- -------------------------------------------------------------
93,400 Dravo Corp.* $ 1,027,400
62,500 JLM Industries, Inc.* 640,625
20,000 Synthetic Industries, Inc.* 495,000
-----------
2,163,025
-----------
CONSUMER CYCLICALS 9.1%
- -------------------------------------------------------------
50,000 Quaker Fabric Corp.* 981,250
50,000 SYMS Corp.* 593,750
72,000 Tarrant Apparel Group* 1,125,000
-----------
2,700,000
-----------
CONSUMER STAPLES 3.2%
- -------------------------------------------------------------
32,000 Great Atlantic & Pacific Tea Company 950,000
-----------
ENERGY 7.6%
- -------------------------------------------------------------
37,000 American Oilfield Divers Inc.* 471,750
37,000 Domain Energy Corp.* 582,750
41,700 Midcoast Energy Resources 899,156
18,100 Plains Resources, Inc.* 311,094
-----------
2,264,750
-----------
FINANCE 10.5%
- -------------------------------------------------------------
66,200 Gryphon Holdings, Inc.* 1,108,850
88,000 IMC Mortgage Co.* 1,045,000
36,000 Selective Insurance Group 972,000
-----------
3,125,850
-----------
HEALTH CARE 6.5%
- -------------------------------------------------------------
44,500 Maxxim Medical, Inc.* 967,875
50,000 Sun Healthcare Group Inc.* 968,750
-----------
1,936,625
-----------
MANUFACTURING 12.4%
- -------------------------------------------------------------
19,000 DT Industries, Inc. 646,000
70,000 Mascotech, Inc. 1,286,250
37,400 Standard Products Co. 958,375
27,600 Watts Industries, Inc. Class A 781,425
-----------
3,672,050
-----------
</TABLE>
44
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<C> <S> <C>
SERVICES 16.7%
- -------------------------------------------------------------------------------
41,500 Cameron Ashley Building Products* $ 695,125
29,300 Carmike Cinemas, Inc., Class A* 840,544
45,000 Garden Fresh Restaurant Corp.* 646,875
44,000 Harveys Casinos Resorts 913,000
50,000 Motor Cargo Industries, Inc.* 600,000
59,500 World Fuel Services Corp. 1,253,209
-----------
4,948,753
-----------
UTILITIES/REITS 20.1%
- -------------------------------------------------------------------------------
32,100 Bedford Property Investors 702,188
54,000 EastGroup Property Investors 1,167,749
75,000 Equity Inns 1,106,250
28,000 Price REIT 1,146,250
35,000 RFS Hotel Investors, Inc. 697,813
30,000 TriNet Corporate Realty Trust 1,160,625
-----------
5,980,875
-----------
TOTAL COMMON STOCKS
(Cost $25,856,944) 27,741,928
-----------
REPURCHASE AGREEMENT 5.3%
- -------------------------------------------------------------------------------
$1,562,000 Union Bank of California Repurchase Agreement, 5.25%,
dated 12/31/97 and maturing 1/2/98 with a maturity
value of $1,562,456, collateralized by $1,624,461,
Federal Home Loan Mortgage Corp., 6.91%, due 4/13/98
with a value of $1,653,329 1,562,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $1,562,000) 1,562,000
-----------
CASH SWEEP ACCOUNT 0.0%
- -------------------------------------------------------------------------------
812 Union Bank of California 812
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $812) 812
-----------
TOTAL INVESTMENTS
(Cost $27,419,756)(a) 98.7% 29,304,740
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3% 375,596
- -------------------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $29,680,336
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(a) Cost for federal income tax and financial reporting is substantially the
same.
* Denotes non-income producing security.
See Notes to Financial Statements.
45
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF OPERATIONS
For the period ended December 31, 1997(1)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 392,345
- ----------------------------------------------------------------------------
Total Investment Income 392,345
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 177,923
Administration fees 21,351
Shareholder servicing fee 159
Fund accounting fees 16,027
Legal fees 6,235
Audit fees 19,265
Custodian fees 1,489
Amortization of organization costs 929
Transfer agency fees 2,580
Printing costs 8,818
Registration and filing fees 2,407
Trustees' fees and expenses 1,677
Other 129
- ----------------------------------------------------------------------------
Total expenses 258,989
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (31,826)
- ----------------------------------------------------------------------------
Net Expenses 227,163
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 165,182
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions (383,285)
Net change in unrealized appreciation (depreciation) 1,884,984
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,501,699
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,666,881
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(1) For the period from June 30, 1997 (commencement of operations) through
December 31, 1997.
See Notes to Financial Statements.
46
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
Period Ended
December 31,
1997(1)
-------------
<S> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) $ 165,182
Net realized gain (loss) on investment transactions (383,285)
Net change in unrealized appreciation (depreciation) 1,884,984
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 1,666,881
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (168,067)
- ------------------------------------------------------------------------------
Change in net assets derived from investment activities 1,498,814
- ------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 29,849,507
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 166,722
- ------------------------------------------------------------------------------
30,016,229
Cost of shares redeemed (1,834,707)
- ------------------------------------------------------------------------------
Change in net assets from beneficial interest transactions 28,181,522
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 29,680,336
NET ASSETS:
Beginning of period -
- ------------------------------------------------------------------------------
End of period $29,680,336
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) For the period from June 30, 1997 (commencement of operations) through
December 31, 1997.
See Notes to Financial Statements.
47
<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
December 31,
1997(1)
------------
<S> <C>
Net asset value--beginning of period $ 12.00
- -------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.07
Net realized and unrealized gain on investment transactions 0.74
- -------------------------------------------------------------------------------
Total income from investment operations 0.81
- -------------------------------------------------------------------------------
Dividends and distributions to shareholders
Dividends from net investment income (0.07)
- -------------------------------------------------------------------------------
Total dividends and distributions (0.07)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net asset value--end of period $ 12.74
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total return 6.76%(2)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $29,680
- -------------------------------------------------------------------------------
Ratio of net expenses to average net assets 1.59%(3)
- -------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.15%(3)
- -------------------------------------------------------------------------------
Ratio of expenses to average net assets without fee waivers 1.81%(3)
- -------------------------------------------------------------------------------
Ratio of net investment income to average net assets without fee
waivers 0.93%(3)
- -------------------------------------------------------------------------------
Average Commission Rate $0.0596
- -------------------------------------------------------------------------------
Portfolio turnover rate(4) 14.81%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) For the period from June 30, 1997 (commencement of operations) through
December 31, 1997.
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is 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.
See Notes to Financial Statements.
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Sefton Funds Trust, a Delaware business trust was organized on January 6,
1995. The Trust is registered 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 Fund, Sefton Cali-
fornia Tax-Free Fund, Sefton Equity Value Fund, and Sefton Small Company Value
Fund (the "Funds"). The Funds commenced investment operations on April 3, 1995
except the Sefton Small Company Value Fund, which commenced investment opera-
tions on June 30, 1997. The assets for each series are segregated and ac-
counted for separately.
The 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 capi-
tal. The Fund pursues its objective by investing, under normal conditions, at
least 65% of its total assets in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The 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 personal income taxes, as is
consistent with preservation of capital. The Fund pursues this objective by
investing primarily in California municipal obligations such that the portfo-
lio's weighted average stated maturity will be 10 or more years. The Equity
Value Fund's investment objective is to provide investors with long-term capi-
tal appreciation. The Fund pursues its investment objective by investing pri-
marily in common stock of both domestic and foreign companies and it also may
invest in large, well-established companies and smaller companies with market
capitalizations exceeding $50 million at the time of purchase. The Small Com-
pany Value Fund's investment 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 capi-
talization of $1 billion or less at the time of initial purchase.
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
preparation of financial statements in accordance with generally accepted ac-
counting principles requires management to make estimates and assumptions that
effect the reported amount of assets and liabilities and disclosure of contin-
gent 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. Bonds and other
fixed-income securities are valued by using market quotations and may be val-
ued on the basis of prices provided by a pricing service approved by the Board
of Trustees. Securities for which market quotations are not readily available
are valued at their fair market value as determined in good faith by or under
the direction of the Board of Trustees. Short-term securities having a remain-
ing maturity of 60 days or less are valued at amortized cost, which approxi-
mates 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 col-
lateral'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 sub-
ject to legal proceedings. Each Fund's policy is to limit repurchase agreement
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 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.
As of December 31, 1997, for federal income tax purposes, the following Funds
have capital loss carryforwards available to offset future capital gains, if
any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
-------- --------
<S> <C> <C>
U.S. Government Fund $ 35,086 12/31/04
U.S. Government Fund 45,789 12/31/05
Small Company Value Fund 277,096 12/31/05
</TABLE>
The carry forward will reduce the Fund's taxable income arising from future
net realized gain on investments, if any, to the extent permitted by the Code,
and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for federal
tax.
Additionally, net capital losses of $106,190 attributable to security trans-
actions of the Sefton Small Company Value Fund occurring after October 31,
1997, were treated as arising on January 1, 1998, the first day of the Fund's
next taxable year.
D. SECURITIES TRANSACTIONS: Securities transactions are accounted for on the
date the securities are purchased or sold (trade date). Realized gains or
losses from security transactions are recorded on the identified cost basis.
E. ORGANIZATIONAL COSTS: Each of the Funds, except Sefton Small Company Value
Fund, deferred certain organizational costs of $38,529 at inception. Sefton
Small Company Value Fund deferred certain organizational costs of $21,782. Such
costs are being amortized over a 60 month period from the commencement of in-
vestment operations of each respective fund.
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
the Sefton Small Company Value Fund will distribute net investment income quar-
terly. The Sefton U.S. Government Fund and the 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 portion of general expenses, which are allocated based on average
net assets.
H. CAPITAL ACCOUNTS: The Funds follow the provisions of the American Insti-
tute of Certified Public Accountant's Statement of Position 93-2 "Determina-
tion, Disclosure and Financial Statement Presentation of Income, Capital Gain
and Return of Capital Distributions by Investment Companies" ("SOP"). The pur-
pose of this SOP is to report undistributed net investment income and accumu-
lated net realized gain or loss in such a manner as to approximate amounts
available for future distributions to shareholders, if any.
Net investment income distributions and capital gains distributions are de-
termined in accordance with income tax regulations which may differ from gener-
ally accepted account-
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ing principles. These differences are due to differing treatments for items
such as deferral of wash sale losses, net operating losses and capital loss
carry forwards. Permanent items identified in the period from April 1 through
December 31, 1997, have been reclassified among the components of net assets
as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED PAID-IN
INCOME GAINS AND LOSSES CAPITAL
-------------- ---------------- -------
<S> <C> <C> <C>
U.S. Government Fund $3,793 $(3,793) $ -
California Tax Free Fund - - -
Equity Value Fund 301 (301) -
Small Company Value Fund 4,134 - (4,134)
</TABLE>
I. CONCENTRATION OF CREDIT RISK: The Sefton California Tax-Free Fund invests
primarily in securities issued by the State of California (the "State") and
its various political subdivisions. The performance of Sefton California Tax-
Free Fund is closely tied to economic conditions within the State and the fi-
nancial condition of the State and its agencies and municipalities.
NOTE 2 - SHARES OF BENEFICIAL INTEREST
On December 31, 1997 there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
SEFTON U.S. GOVERNMENT FUND
----------------------------------------------------
FOR THE PERIOD FROM APRIL 1, 1997 FOR THE YEAR ENDED
THROUGH DECEMBER 31, 1997 MARCH 31, 1997
--------------------------------- ------------------
<S> <C> <C>
SHARES SOLD 394,674 1,343,180
SHARES REINVESTED 69,048 26,400
-------- ----------
TOTAL 463,722 1,369,580
SHARES REDEEMED (171,902) (412,823)
-------- ----------
NET INCREASE (DECREASE) 291,820 956,757
======== ==========
<CAPTION>
SEFTON CALIFORNIA TAX-FREE FUND
----------------------------------------------------
FOR THE PERIOD FROM APRIL 1, 1997 FOR THE YEAR ENDED
THROUGH DECEMBER 31, 1997 MARCH 31, 1997
--------------------------------- ------------------
<S> <C> <C>
SHARES SOLD 269,302 624,399
SHARES REINVESTED 104,074 21,827
-------- ----------
TOTAL 373,376 646,226
SHARES REDEEMED (130,527) (1,242,645)
-------- ----------
NET INCREASE (DECREASE) 242,849 (596,419)
======== ==========
</TABLE>
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SEFTON EQUITY VALUE FUND
----------------------------------------------------
FOR THE PERIOD FROM APRIL 1, 1997 FOR THE YEAR ENDED
THROUGH DECEMBER 31, 1997 MARCH 31, 1997
--------------------------------- ------------------
<S> <C> <C>
SHARES SOLD 507,143 2,774,203
SHARES REINVESTED 617,097 195,029
---------- ---------
TOTAL 1,124,240 2,969,232
SHARES REDEEMED (1,493,947) (146,071)
---------- ---------
NET INCREASE (DECREASE) (369,707) 2,823,161
========== =========
</TABLE>
<TABLE>
<CAPTION>
SEFTON SMALL COMPANY VALUE FUND
-------------------------------
FOR THE PERIOD ENDED
DECEMBER 31, 1997(1)
-------------------------------
<S> <C>
SHARES SOLD 2,464,003
SHARES REINVESTED 12,780
---------
TOTAL 2,476,783
SHARES REDEEMED (146,474)
---------
NET INCREASE (DECREASE) 2,330,309
=========
</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 Cap-
ital Management, Inc. ("Investment Adviser"). Pursuant to its advisory agree-
ment with the Funds, the Investment Adviser is entitled to an advisory fee,
computed daily and payable monthly at an annual rate of 0.60%, 0.60%, 1.00%,
and 1.25% of the daily average net assets for the Sefton U.S. Government Fund,
Sefton California 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 period from April 1, 1997 through
December 31, 1997 for the Sefton U.S. Government Fund, Sefton California Tax-
Free Fund, and Sefton Small Company Value Fund.
Mr. Harley K. Sefton, President and CEO of the Investment Adviser, is re-
sponsible for the day to day management of the Funds. As of December 31, 1997,
affiliates of the Funds own 95%, 94%, 92%, and 93% of the Sefton U.S. Govern-
ment, Sefton California Tax-Free, Sefton Equity Value, and Sefton Small Com-
pany Value Funds' shares outstanding, respectively.
On January 1, 1997, each of the Funds entered into an Administrative Serv-
ices Contract with BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS"). BISYS is entitled to receive a fee from the Funds for its
services computed daily and payable monthly, at an annual rate of 0.15% of
each Fund's average daily net assets. BISYS voluntarily waived a portion of
the administration fees for the period from April 1, 1997 through December 31,
1997 for the Sefton U.S. Government Fund, Sefton California Tax-Free Fund and
Sefton Equity Value Fund. BISYS assisted in each of the Fund's administration
and opera-
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
tions, including providing office space and various legal and accounting serv-
ices in connection with the regulatory requirements applicable to each Fund.
BISYS Fund Services, Inc., an affiliate of BISYS serves as fund accountant
and transfer agent to the Funds. For the period from April 1, 1997 through De-
cember 31, 1997 BISYS Fund Services Inc., received $23,590, $28,313, $23,081
and $16,027 for it's services as fund accountant from the U.S. Government Fund,
California Tax-Free Fund, Equity Value Fund and Small Company Value Fund, re-
spectively. For it's services as transfer agent BISYS Fund Services, Inc., re-
ceived $5,384, $12,674, $19,911 and $2,580 from the U.S. Government Fund, Cali-
fornia Tax-Free Fund, Equity Value Fund and Small Company Value Fund, respec-
tively.
Certain Trustees and officers of the Funds are also members and/or officers
of Sefton Capital Management or BISYS. All affiliated and 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 $3,864, $5,664, $8,185 and $1,677 from the Sefton U.S. Gov-
ernment Fund, Sefton California Tax Free Fund, Sefton Equity Value Fund and
Sefton Small Company Value Fund, respectively, for the period from April 1,
1997 through December 31, 1997.
NOTE 4 - UNREALIZED GAINS AND LOSSES ON INVESTMENTS
As of December 31, 1997: (on a tax basis)
<TABLE>
<CAPTION>
SEFTON SEFTON SEFTON SEFTON
U.S. CALIFORNIA EQUITY SMALL COMPANY
GOVERNMENT TAX-FREE VALUE VALUE
FUND FUND FUND FUND
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Gross Appreciation
(excess of value over cost) $1,452,083 $2,516,390 $14,299,117 $2,598,037
Gross Depreciation
(excess of cost over value) (0) (0) (414,883) (713,053)
---------- ---------- ----------- ----------
Net Unrealized
Appreciation/(Depreciation) $1,452,083 $2,516,390 $13,884,234 $1,884,984
========== ========== =========== ==========
</TABLE>
NOTE 5 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
period from April 1, 1997 through December 31, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
U.S. Government Fund $ 7,426,800 $ 1,677,254
California Tax-Free Fund $ 8,101,163 $ 4,700,000
Equity Value Fund $31,940,330 $47,237,243
Small Company Value Fund $29,742,026 $ 3,274,505
</TABLE>
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - FEDERAL INCOME TAX INFORMATION (UNAUDITED)
The following table presents capital gain dividend distributions from long-
term capital gains for the following Funds for the period from April 1, through
December 31, 1997:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
California Tax-Free Fund $ 208,193
Equity Value Fund 6,072,964
</TABLE>
For the taxable year ended December 31, 1997, the following percentages of
the income dividends paid by the following Funds qualify for the dividends re-
ceived deduction available to corporations:
<TABLE>
<S> <C>
Equity Value Fund 20.12%
Small Company Value Fund 96.12%
</TABLE>
The California Tax-Free Fund designates $1,293,057 as an exempt-interest div-
idend for the period ended December 31, 1997.
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders
of Sefton Funds Trust
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the schedules of portfolio investments, and the related statements of oper-
ations and of changes in net assets and the financial highlights present fair-
ly, in all material respects, the financial position of Sefton U.S. Government
Fund, Sefton California Tax-Free Fund, Sefton Equity Value Fund, and Sefton
Small Company Value Fund (constituting Sefton Funds Trust, hereafter referred
to as the "Trust") at December 31, 1997, the results of each of their opera-
tions for the period then ended, the changes in each of their net assets and
financial highlights for each of the periods indicated, in conformity with gen-
erally accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the responsi-
bility of the Trust's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing stan-
dards which require that we plan and perform the audit to obtain reasonable as-
surance about whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1997 by correspondence with
the custodian and brokers provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
February 13, 1998
55
<PAGE>
SEFTON FUNDS
TRUSTEES AND OFFICERS
[LOGO OF SEFTON FUNDS APPEARS HERE]
Board of Trustees
Harley K. Sefton++ Chairman of the Board;
President and
Chief Executive Officer,
Sefton Capital Management, Inc.
Grace Evans Cherashore*+ Chief Executive Officer,
Bahia and Catamaran Hotels
Gordon T. Frost, Jr.*+ President/General Manager,
Frost Hardwood Lumber Company
John J. Pileggi*+ Senior Managing Director,
Furman Selz, LLC
* 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 Stoutamire Assistant Secretary
Paul T. Kane 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>
SEFTON FUNDS
CORPORATE INFORMATION
[LOGO OF SEFTON FUNDS APPEARS HERE]
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
Independent 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.
