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Sefton Funds
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED JUNE 30, 1998
[PHOTO APPEARS HERE]
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CONTENTS
[LOGO OF SEFTON FUNDS APPEARS HERE]
Chairman's Message .................................................. 1
Economic Overview ................................................... 3
Sefton Funds Investment Objectives .................................. 4
Fixed Income Methodology ............................................ 5
Sefton U.S. Government Fund & California Tax-Free Fund .............. 6
U.S. Government Fund Summary ...................................... 6
U.S. Government Fund Highlights & Portfolio Performance ........... 7
California Tax-Free Fund Summary .................................. 9
California Tax-Free Fund Highlights & Portfolio Performance ....... 10
Equity Methodology .................................................. 12
Sefton Equity Value Fund & Small Company Value Fund ................. 13
Equity Value Fund Summary ......................................... 13
Equity Value Fund Highlights & Portfolio Performance .............. 15
Small Company Value Fund Summary .................................. 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 .......................................... 44
Notes to Financial Statements ....................................... 51
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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 Semi-Annual Report for the period
January 1, 1998, through June 30, 1998.
During the period, Sefton Fund assets increased $14 million and now total $204
million. I would like to extend a warm welcome to our new shareholders that have
joined us this year. I appreciate your confidence and trust in choosing the
Sefton Funds to help accomplish your investment objectives. For those
shareholders who continue to invest with us, I thank you for your loyalty and we
look forward to helping you meet, and hopefully exceed, your future financial
goals.
The first half of 1998 has proven to be a difficult period for our value style
of equity management. Both the Sefton Equity Value Fund and the Sefton Small
Company Value Fund have underperformed the S&P 500 by significant margins
year-to-date as investors have focused on and rewarded a small subset of the
very largest multinational companies. These "mega-cap" companies are currently
trading at valuation multiples which we believe to be excessive and
unsustainable. Consequently, we have avoided these high priced issues and
focused our investments on middle and small-capitalization companies, which in
our opinion have far more attractive long-term return potential and far less
downside risk. We believe that our shareholders expect us to prudently manage
their money. That responsibility becomes ever more important during times when,
in our view, fundamental value has been set aside by the general investing
public in favor for following what we believe to be a short-term market trend.
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While market preferences may shift from one type of investment to another,
history has shown that a value approach to stock selection outperforms momentum
and growth styles of investing over time. * We believe the adherence to a value
investment approach helps to avoid getting caught up in market psychology and
making investments based upon emotional criteria rather than fundamental
analysis.
I am pleased to report that our two fixed income funds, the Sefton California
Tax-Free Fund and the Sefton U.S. Government Fund, continue to significantly
outperform their respective Morningstar Universes.
Thank you again for placing your confidence in us. I 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.
Sincerely,
/s/ Harley K. Sefton
Harley K. Sefton
Chairman
* Ibbotson Associates. This statement is based upon historical performance for
the S&P/BARRA 500 Growth Index versus the S&P/BARRA 500 Value Index. Total
return since inception, 12/75 through 12/97, for the indices is 15.30% and
17.63%, respectively. Past performance does not guarantee future results.
This report, including the financial statements herein, is transmitted to the
shareholders of the Sefton Funds for their information. This is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Funds or any securities mentioned in this report.
2
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ECONOMIC REVIEW
It appears that the U.S. economy has slowed substantially from the first quarter
growth rate of 5.5% (Real GDP). The initial government estimate of second
quarter growth was 1.4%. Compared to the first quarter, the primary restraining
factors included a lower level of inventory accumulation, a smaller increase in
consumer spending and deterioration in net exports (Asian crisis). In addition,
the General Motors strike clearly had a negative impact on the quarter.
Importantly, though, unemployment continues at record low levels of
approximately 4.5%. Consumer confidence is still extremely high and consumer
spending (including housing construction) was perhaps the one bright spot during
the quarter. Inflation is still under control at an annual rate of 1.4% (CPI),
as deflation in the goods (manufacturing) sector is serving as an offset to a
slight acceleration in service sector prices.
During the balance of the year, we anticipate that economic growth will average
2%, while unemployment levels may increase slightly and inflation figures should
continue to be reported in the 1-2% range. However, in our view, the key
question going forward for investors: can the reduced demand for U.S. goods in
Asia, caused by weak economies and the strong dollar, slow the manufacturing
side of the U.S. economy enough to prevent the unemployment rate from declining
any further? The goal, of course, will be to prevent a dramatic acceleration in
wage gains and inflation that many predict will occur if strong growth is
allowed to continue in the context of record low unemployment levels. If the
answer to the question is "no", then the Federal Reserve has indicated that they
will raise interest rates in an attempt to slow the economy and engineer a "soft
landing" slowdown. If the answer is "yes", then we may have achieved what could
be characterized as a natural soft landing. Hence, we believe it would appear
that a slowdown, not necessarily a recession, in the economy is imminent. Now,
the only issue, will it be caused by the Federal Reserve or by Asia? Stay tuned.
. . .
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 FUNDS INVESTMENT OBJECTIVES
[LOGO OF SEFTON FUNDS APPEARS HERE]
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 corner stone 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
SEFTON U.S. GOVERNMENT FUND SUMMARY
For the six months ended June 30, 1998, the Sefton U.S. Government Fund
generated a total return of 3.5%(1). This compares favorably to the 3.2%(2)
average return for all funds within the Morningstar U.S. Government Bond Fund
Universe. The Fund has returned 9.8% over the past year and has generated an
average annual total return of 7.8% since its inception in April 1995. This
again compares favorably to the Morningstar U.S. Government Bond Fund Universe,
which posted gains of 8.6% for the past year and 7.4% since April 1995.
U.S. economic activity has moderated from its torrid first quarter pace. The
economy and the Treasury yield curve have been significantly impacted by the
continuation of economic turmoil coming from Asia. For the first six months of
1998, Treasury bond yields fell 10-30 basis points across the yield curve. The
Federal Reserve continues to hold steady its monetary policy, along with their
stated "bias towards tightening".
At mid-year, our sector allocation for the U.S. Government Fund was overweighted
in Treasuries, underweighted in Mortgages, and neutrally weighted in Corporates.
(Overweighted/Underweighted measures the Fund's holdings relative to broad
domestic fixed income indexes.) The Fund had the approximate average maturity
and duration characteristics of a 5-year Treasury note. The Fund maintained a
short-to-neutral maturity/duration objective relative to its competitive
universe during the period, helping us outperform our competitive universe.
Going forward, we anticipate selectively increasing our Mortgage sector
allocation, as we move toward a neutral sector weight.
(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.
6
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SEFTON U.S. GOVERNMENT FUND HIGHLIGHTS AS OF JUNE 30, 1998
Net Assets: $38,785,359
NAV Per Share: $12.71
SEC Yield-30 Day: 5.11%
Significant Holdings /(1)/
8.3% U.S. Treasury Note, Yields 7.50%, Due 5/15/2002
5.8% U.S. Treasury Note, Yields 6.25%, Due 2/15/2003
4.3% Freddie Mac, Yields 6.10%, Due 11/15/2016
2.7% Boise Cascade, Yields 7.70%, Due 1/30/2003
Treasury 48%
Cash 13%
Mortgage 18%
Agency 2%
Corporate 19%
Sector Diversification /(1)/
(1)Percentages are based upon total net assets. The composition of the Fund's
holdings is subject to change.
SEFTON U.S. GOVERNMENT FUND PORTFOLIO PERFORMANCE*
Sefton U.S. Morningstar U.S. Government
Government Fund Bond Funds Average
Year To Date 3.5% 3.2%
One Year 9.8% 8.6%
Three Year Annualized 6.6% 6.4%
Annualized Since Inception (4/3/95) 7.8% 7.4%
* 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.
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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)
<TABLE>
<CAPTION>
Morningstar U.S. Gov't Lehman Bros. Intermediate Gov't/
Sefton U.S. Gov't Fund Bond Fund General Average Corporate Bond Index
<S> <C> <C> <C>
Apr-95 10,039 10,109 10,124
May-95
Jun-95 10,557 10,482 10,500
Jul-95
Aug-95
Sep-95 10,719 10,650 10,673
Oct-95
Nov-95
Dec-95 11,195 11,048 11,047
Jan-96
Feb-96
Mar-96 10,898 10,854 10,956
Apr-96
May-96
Jun-96 10,907 10,881 11,024
Jul-96
Aug-96
Sep-96 11,046 11,046 11,220
Oct-96
Nov-96
Dec-96 11,379 11,324 11,495
Jan-97
Feb-97
Mar-97 11,256 11,266 11,482
Apr-97
May-97
Jun-97 11,627 11,603 11,821
Jul-97
Aug-97
Sep-97 12,003 11,922 12,140
Oct-97
Nov-97
Dec-97 12,347 12,215 12,400
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98 12,771 12,618 12,829
</TABLE>
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that 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 395
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.
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SEFTON CALIFORNIA TAX-FREE FUND SUMMARY
The Sefton California Tax-Free Fund returned 2.5%(1) for the six months ended
June 30, 1998. This compares favorably to the 2.2%(2) return for the Morningstar
California Municipal Bond Fund Universe. Over the past twelve months, the Fund
generated a total return of 8.1%, outperforming its Morningstar Universe which
returned 7.9%. Over the past three years, the fund has significantly
outperformed its peer group, with an average annual return of 7.8% versus an
average return of 7.2% for the Morningstar California Municipal Bond Fund
Universe.
Yields of California municipal bonds were essentially unchanged for the first
six months of 1998. Surprisingly, bond issuance has been very strong.
Nationally, municipal issuance was up more than 50% than the corresponding first
six months of 1997.
At mid-year, the Sefton California Tax-Free Fund had an average maturity of
approximately 14.8 years and an average coupon of 5.6%. The Fund's largest
sector allocations are: education, water, health and transportation. In
addition, approximately 55% of the Fund's current holdings are insured bonds.
The Fund's maturity/duration position is currently neutral. We anticipate
increasing the maturity/duration position to slightly longer than neutral as
market conditions afford us the opportunity.
/(1)/ References to total return herein include reinvested dividends and capital
gains paid.
/(2)/ Morningstar California Municipal Bond Fund Universe is an average of
California municipal bond mutual funds as tracked by Morningstar.
The Fund's income may be subject to certain state and local taxes, and depending
upon your tax status, income may be subject to the federal alternative minimum
tax.
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.
9
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SEFTON CALIFORNIA TAX-FREE FUND HIGHLIGHTS AS OF JUNE 30, 1998
Net Assets: $44,053,115
NAV Per Share: $12.88
SEC Yield-30 Day: 3.74%
Taxable Equivalent Yield: 7.73%
(combined 44.7% rate)
Significant Holdings /(1)/
5.0% Rancho California -- Water District Financing
Authority, Yields 5.88%, Due 11/01/2010
4.1% California Educational Facilities -- Pamona College,
Yields 6.13%, Due 2/15/2008
3.7% California Health Financing -- Scripps Hospital,
Yields 6.25%, Due 10/01/2013
3.6% San Diego Regional Transportation Commission,
Yields 5.00%, Due 4/01/2007
Sector Diversification /(1)/
<TABLE>
<S> <C>
Misc. Revenue Bonds 8%
Power 4%
Prisons 2%
Transportation 11%
Waste 8%
Water 13%
Certificate of Participation 4%
Education 18%
Floater 8%
General Obligations 10%
Health 12%
Housing 8%
</TABLE>
(1) Percentages are based upon total net assets. The composition of the Fund's
holdings is subject to change.
SEFTON CALIFORNIA TAX-FREE FUND PORTFOLIO PERFORMANCE *
Sefton California Morningstar California Municipal
Tax-Free Fund Bond Funds Average
Year To Date 2.5 2.2
One Year 8.1 7.9
Three Year (Annualized) 7.8 7.2
Annualized Since Inception 7.3 7.2
(4/3/95)
* 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)
Morningstar
Sefton California California Municipal Lehman Bros. 10-Year
Tax-Free Fund Bond Fund Average Municipal Bond Index
Apr-95 9,932 10,007 10,012
May-95
Jun-95 10,039 10,179 10,265
Jul-95
Aug-95
Sep-95 10,328 10,427 10,625
Oct-95
Nov-95
Dec-95 10,821 10,923 10,958
Jan-96
Feb-96
Mar-96 10,661 10,721 10,887
Apr-96
May-96
Jun-96 10,756 10,800 10,921
Jul-96
Aug-96
Sep-96 11,022 11,057 11,139
Oct-96
Nov-96
Dec-96 11,318 11,323 11,456
Jan-97
Feb-97
Mar-97 11,268 11,256 11,453
Apr-97
May-97
Jun-97 11,640 11,627 11,830
Jul-97
Aug-97
Sep-97 11,959 11,974 12,198
Oct-97
Nov-97
Dec-97 12,274 12,272 12,514
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98 12,578 12,548 12,834
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 172
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 with in 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 under valued 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. 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 under valued relative to its peer group or the
broadmarket. 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, under normal stock conditions 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.
12
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[PICTURE OF THOMAS C. BOWDEN 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
SEFTON EQUITY VALUE FUND SUMMARY
In the first half of 1998, investors witnessed significant divergences in
performance between large and small-capitalization stocks and growth and value
stocks. The S&P 500 Index provided a total return of 17.7%(1). Within the S&P
500 Index, growth outperformed value by 10.9%. The Russell 2000 Index,
representative of small capitalization stocks, rose a mere 4.9%(2) year-to-date.
The Sefton Equity Value Fund has underperformed the Morningstar Growth Fund
Universe during the first half of this year, posting a total return of 1.3%(3)
versus 13.5%(4), respectively. The catalyst for this recent period of
underperformance can be tied to the events in Asia. On October 27th, the Asian
currency crisis boiled over into the U.S. stock market, significantly changing
investor psychology. That difference has shown up in the narrowing of the
market's breadth. As investors weighed their concerns over Asia against their
desire to stay invested in stocks, they began moving out of all but the largest
and most liquid U.S. stocks. The Equity Value Fund was not invested in many of
these stocks because so few were reasonably priced, even after the October
decline. In the short-term, investors have ignored the high valuations and have
instead focused on the trading liquidity and on brand-name quality in selecting
their stock holdings.
Over time, we believe that many of the trends witnessed in the first half of
1998 are likely to reverse. According to data from Ibbotson Associates, small
and mid-cap stocks have historically provided total returns, which exceed those
provided by large-cap stocks. *In addition, value stocks have also outperformed
growth stocks historically.
(1) 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.
(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) References to total return herein include reinvested dividends and capital
gains paid.
(4) Morningstar Growth Fund Universe is an average of domestic growth stock
funds as tracked by Morningstar.
* Ibbotson Associates. SBBI 1998 Yearbook. Wealth Indices of Investments in
the U.S. Capital Markets. Past Performance does not guarantee future results.
13
<PAGE>
[PHOTO OF LEIF O. SANCHEZ 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.
Presently, the Fund is overweighted in the Energy, Finance, Basic Industry and
Utility/REIT sectors and underweighted in the Health Care, Technology, and
Consumer Staples areas. The Fund's current cash position is 10%. While the
near-term outlook for the basic industry and energy sectors is poor, these
stocks are a large component of any value universe and we feel they should
perform very well as the outlook for the world economy improves. Consequently,
in order to capture these anticipated returns, our exposure to small and mid-cap
stocks as well as the various sectors will not likely change significantly in
the near future.
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 JUNE 30, 1998
Net Assets: $83,251,235
NAV Per Share: $17.56
Top Ten Holdings /(1)/ % of Assets
Chase Manhattan Corporation 5.4%
First Energy Corporation 4.5%
Dana Corporation 4.2%
IBM 4.1%
Reliastar Financial 4.0%
Mascotech, Inc. 3.7%
Cigna 3.7%
PPG Industries, Inc. 3.6%
Mark IV 3.4%
Atlantic Richfield Company 3.3%
Consumer Staples 2%
Utilities/REITS 13%
Services 6%
Manufacturing 11%
Finance 21%
Technology 8%
Health Care 3%
Consumer Cyclical 7%
Basic Industry 10%
Energy 10%
Cash 10%
Sector Diversification /(1)/
(1) Percentages are based upon total net assets. The composition of the Fund's
holdings is subject to change.
SEFTON EQUITY VALUE FUND PORTFOLIO PERFORMANCE*
<TABLE>
<CAPTION>
Sefton Equity Morningstar
Value Fund Growth Funds Average
<S> <C> <C>
Year To Date 1.3% 13.5%
One Year 9.8% 24.7%
Three Year Annualized 23 % 23.8%
Annualized Since Inception (4/3/95) 22.4% 25.2%
</TABLE>
SEFTON EQUITY VALUE FUND
MORNINGSTAR GROWTH FUNDS AVERAGE
* 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)
<TABLE>
<CAPTION>
Morningstar
Sefton Equity Value Fund Growth Fund Average S&P 500 Index
<S> <C> <C> <C>
Apr-95 9,983 10,197 10,291
May-95
Jun-95 10,350 10,939 10,949
Jul-95
Aug-95
Sep-95 11,280 11,904 11,819
Oct-95
Nov-95
Dec-95 11,604 12,196 12,524
Jan-96
Feb-96
Mar-96 12,831 12,885 13,204
Apr-96
May-96
Jun-96 12,973 13,480 13,801
Jul-96
Aug-96
Sep-96 13,579 13,894 14,223
Oct-96
Nov-96
Dec-96 15,167 14,620 15,413
Jan-97
Feb-97
Mar-97 15,555 14,366 15,817
Apr-97
May-97
Jun-97 17,516 16,810 18,583
Jul-97
Aug-97
Sep-97 19,378 18,495 19,981
Oct-97
Nov-97
Dec-97 18,997 18,217 20,556
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98 19,235 20,778 24,187
</TABLE>
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that 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>
SEFTON SMALL COMPANY VALUE FUND SUMMARY
During the second quarter of 1998, the Russell 2000 Index, representing
small-capitalization stocks, declined 4.6%, bringing its year-to-date
performance to 4.9%/1/. The average fund in the Morningstar Small Company Fund
Universe experienced a decline of 4.0%/2/ during the second quarter and is up
6.6% year-to-date. Relative to these benchmarks, the Sefton Small Company Value
Fund underperformed, as the Fund was down 6.0%/3/ during the second quarter and
is up 1.9% year-to-date. The underperformance can be attributed to our
overweighting in the manufacturing sector and negative earnings surprises in a
few of our technology and basic industry stocks, where even small exposure hurt
overall performance.
Stocks which made significant, positive contributions to the performance of the
Fund during the quarter (each up 15% or more) include Ceanic (1.9% of the
portfolio as of 6/30/98). Tarrant Apparel (3.5%), and Tropical Sportswear
(2.5%), as based upon a percentage of total net assets. *
The Fund experienced positive cash flows during the quarter, and as a
consequence fourteen stocks were purchased while six were sold. Presently, we
are overweighted in the REIT/Utility and the Manufacturing sector and
underweighted in the Technology, Finance, and Basic Industry sectors. The Fund's
current cash position is 9%.
* The holdings of the portfolio are subject to change.
(1) The Russell 2000 is an unmanaged stock index generally representative of
small capitalization equity market as a whole and cannot be invested in
directly.
(2) Morningstar Small Company Fund Universe is an average of domestic small-
company stock mutual funds as tracked by Morningstar.
(3) References to total return herein include reinvested dividends and
capitalgains paid.
Smaller companies' stocks typically carry additional risks, experience a greater
degree of market volatility, and have a higher risk of failure, and by
definition are not as well established as "blue chip" companies. 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 AS OF JUNE 30, 1998
<TABLE>
<S> <C>
Net Assets: $37,518,666
NAV Per Share: $12.93
</TABLE>
<TABLE>
<CAPTION>
Top Ten Holdings (1) % of Assets
<S> <C>
Mascotech Inc. 4.5%
East Group Property Investors 4.3%
Bedford Property Investors 4.0%
Trinet Corporate Realty Trust 3.6%
Tarrant Apparel Group 3.5%
Sun Healthcare Group, Inc. 3.1%
Midcoast Energy Resources 3.1%
Cameron Ashly Bldg. Products 3.0%
Quaker Fabric 2.9%
Standard Products 2.8%
</TABLE>
Health Care 7%
Consumer Staples 2%
Technology 6%
Utilities/REITS 18%
Finance 6%
Cash 10%
Services 11%
Energy 6%
Manufacturing 14%
Basic Industry 3%
Consumer Cylical 17%
Sector Diversification /1/
(1) Percentages are based upon total net assets. The composition of the Fund's
holdings is subject to change.
SEFTON SMALL COMPANY VALUE FUND PORTFOLIO PERFORMANCE *
<TABLE>
<CAPTION>
Sefton Small Morningstar Small
Company Value Fund Company Funds Average
<S> <C> <C>
Year To Date 1.9 6.6
Annualized Since Inception (6/30/97) 8.8 18.5
</TABLE>
* Performance data quoted represents past performance and is not indicative of
future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
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)
<TABLE>
<CAPTION>
Sefton Small Morningstar Small Russell 2000
Company Value Fund Company Fund Average Small Company Index
<S> <C> <C> <C>
Jun-97 10,000 10,000 10,000
Jul-97 10,341 10,634 10,465
Aug-97 10,432 10,852 10,705
Sep-97 11,004 11,682 11,488
Oct-97 10,754 11,171 10,984
Nov-97 10,495 11,020 10,912
Dec-97 10,676 11,093 11,103
Jan-98 10,626 10,937 10,928
Feb-98 11,053 11,778 11,735
Mar-98 11,593 12,341 12,218
Apr-98 11,711 12,444 12,285
May-98 11,350 11,746 11,623
Jun-98 10,883 11,849 11,648
</TABLE>
Performance figures reflect the reinvestment of dividends, capital gains
distributions, all fee waivers and expense reimbursements. Without the
absorption of fee waivers and expense reimbursements, total return figures would
have been lower. Performance data quoted represents past performance and is not
indicative of future results. Share price, investment return, and principal
value will fluctuate so that your shares, when redeemed, may be worth more or
less than their original cost.
* The Morningstar Small Company Fund Average is composed of 630 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, income from the normal activities of the fund, if the net
gain is short-term, or no distribution if there is a capital loss carryover. The
carry over offers a tax benefit that allows the Fund to apply losses to reduce
tax liability.
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 ratedAAA.
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
21
<PAGE>
DEFINITIONS OF COMMON TERMS (CONTINUED)
as upper medium-grade, having a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories; BBB -- regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a 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 INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Face Market
Value Value
----- ------
<C> <S> <C>
CORPORATE BONDS 19.0%
- ------------------------------------------------------------------------------
FINANCE 5.5%
- ------------------------------------------------------------------------------
$1,000,000 Countrywide Home Loan, 7.45%, 9/16/03 $ 1,052,723
500,000 Lehman Brothers Holdings Inc., 8.75%, 5/15/02 543,283
500,000 Salomon Inc., 9.25%, 5/1/01 541,648
-----------
2,137,654
-----------
INDUSTRIAL 13.5%
- ------------------------------------------------------------------------------
1,000,000 Boise Cascade Co., 7.70%, 1/30/03, Series A,
Medium Term Note 1,048,762
500,000 Boise Cascade Co., 7.90%, 12/15/03 531,325
500,000 Bowater Inc., 8.25%, 10/15/99 512,423
1,500,000 Coca Cola Bottling Co. Consolidated,
6.85%, 11/1/07 1,555,724
500,000 Royal Caribbean, 8.25%, 4/1/05 552,092
1,000,000 Royal Caribbean, 7.00%, 10/15/07 1,036,397
-----------
5,236,723
-----------
TOTAL CORPORATE BONDS
(Cost $7,156,989) 7,374,377
-----------
U.S. GOVERNMENT AGENCY 2.4%
- ------------------------------------------------------------------------------
875,000 FREDDIE MAC, 8.53%, 2/2/05 912,793
-----------
TOTAL U.S. GOVERNMENT AGENCY
(Cost $898,613) 912,793
-----------
U.S. GOVERNMENT AGENCIES--MORTGAGE BACKED 18.4%
- ------------------------------------------------------------------------------
526,322 FREDDIE MAC, 7.50%, 7/1/09, Pool #E00326 541,970
1,152,469 FREDDIE MAC, 7.50%, 4/1/14, Pool #C90060 1,186,731
801,810 FREDDIE MAC, 7.00%, 4/1/16, Pool #C90133 817,502
1,657,179 FREDDIE MAC, 6.10%, 11/15/16, Series 1501,
Class F, Collateralized Mortgage Obligation 1,660,319
688,129 FANNIE MAE, 7.00%, 5/1/14, Pool #190783 701,892
456,759 FANNIE MAE, 8.00%, 1/1/15, Pool #250232 472,476
1,760,132 FANNIE MAE, 6.50%, 6/1/16, Pool #368930 1,772,663
-----------
TOTAL U.S. GOVERNMENT AGENCIES--MORTGAGE BACKED (Cost
$6,962,227) 7,153,553
-----------
U.S. TREASURY BOND 3.0%
- ------------------------------------------------------------------------------
1,000,000 7.25%, 5/15/16 1,172,188
-----------
TOTAL U.S. TREASURY BOND
(Cost $980,119) 1,172,188
-----------
</TABLE>
23
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Face Market
Value Value
----- ------
<C> <S> <C> <C>
U.S. TREASURY NOTES 42.0%
- ------------------------------------------------------------
$1,000,000 7.75%, 2/15/01 $ 1,053,751
1,500,000 6.25%, 10/31/01 1,531,407
3,000,000 7.50%, 5/15/02 3,202,503
2,200,000 6.25%, 2/15/03 2,264,627
2,000,000 7.25%, 8/15/04 2,177,502
2,000,000 7.88%, 11/15/04 2,246,876
2,000,000 7.50%, 2/15/05 2,215,002
1,500,000 6.50%, 10/15/06 1,593,752
-----------
TOTAL U.S. TREASURY NOTES
(Cost $15,470,548) 16,285,420
-----------
U.S. TREASURY STRIP 2.9%
- ------------------------------------------------------------
4,000,000 8/15/20 1,133,876
-----------
TOTAL U.S. TREASURY STRIP
(Cost $888,910) 1,133,876
-----------
REPURCHASE AGREEMENT 12.4%
- ------------------------------------------------------------
4,797,000 Union Bank of California
Repurchase Agreement,
5.63%, dated 6/30/98 and
maturing 7/1/98 with a maturity
value of $4,797,750,
collateralized by $4,988,868,
Federal Home Loan Mortgage
Corp., 6.00%, due 10/15/17 with
a value of $4,989,234 4,797,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $4,797,000) 4,797,000
-----------
CASH SWEEP ACCOUNT 0.0%
- ------------------------------------------------------------
550 Union Bank of California 550
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $550) 550
-----------
TOTAL INVESTMENTS
(Cost $37,154,955) (a) 100.1% 38,829,757
OTHER ASSETS IN EXCESS OF LIABILITIES (0.1)% (44,398)
- ------------------------------------------------------------
TOTAL NET ASSETS 100.0% $38,785,359
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
(a) Cost for federal income tax and financial reporting is substantially the
same.
See Notes to Financial Statements.
24
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$32,357,955) $34,032,757
Repurchase Agreements (cost-$4,797,000) 4,797,000
Interest receivable 491,810
Organizational costs, net of accumulated amortization 14,557
Prepaid expenses 8,006
- ------------------------------------------------------------------------------
Total Assets 39,344,130
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 328,383
Dividend payable 173,051
Payables:
Investment advisory fees 15,939
Administration fees 803
Professional fees 28,688
Printing costs 6,376
Other 5,531
- ------------------------------------------------------------------------------
Total Liabilities 558,771
- ------------------------------------------------------------------------------
NET ASSETS: $38,785,359
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $37,135,465
Undistributed (distributions in excess of) net investment income 38,754
Accumulated net realized gain (loss) on investment transactions (63,662)
Net unrealized appreciation (depreciation) of investments 1,674,802
- ------------------------------------------------------------------------------
NET ASSETS: $38,785,359
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,052,393
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.71
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,192,333
Dividend income 11
- ----------------------------------------------------------------------------
Total Investment Income 1,192,344
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 111,807
Administration fees 27,951
Shareholder servicing fees 2,404
Fund accounting fees 16,886
Professional fees 18,067
Custodian fees 98
Amortization of organization costs 3,641
Transfer agency fees 5,115
Printing costs 7,619
Insurance costs 670
Registration and filing fees 556
Trustees' fees and expenses 1,491
Other 259
- ----------------------------------------------------------------------------
Total expenses 196,564
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (18,634)
- ----------------------------------------------------------------------------
Net Expenses 177,930
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 1,014,414
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 17,213
Net change in unrealized appreciation (depreciation) 222,719
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 239,932
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,254,346
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
SEFTON U.S. GOVERNMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
For the Six Period Ended
Months Ended December 31,
June 30, 1998 1997(1)
------------- ------------
(Unaudited)
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income (loss) $ 1,014,414 $ 1,387,887
Net realized gain (loss) on investment transactions 17,213 (803)
Net change in unrealized appreciation
(depreciation) 222,719 1,613,047
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 1,254,346 3,000,131
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,014,414) (1,387,887)
- -------------------------------------------------------------------------------
Change in net assets from investment activities 239,932 1,612,244
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 6,853,136 4,888,839
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 671,112 851,626
Cost of shares redeemed (4,257,004) (2,136,602)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 3,267,244 3,603,863
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,507,176 5,216,107
NET ASSETS:
Beginning of period 35,278,183 30,062,076
- -------------------------------------------------------------------------------
End of period $38,785,359 $35,278,183
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 541,724 394,674
Reinvested 53,012 69,048
Redeemed (336,732) (171,902)
- -------------------------------------------------------------------------------
Change in shares 258,004 291,820
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</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
For the Six Period Ended Year Ended Period Ended
Months Ended December 31, March 31, March 31,
June 30, 1998 1997(4) 1997 1996(1)
------------- ------------ ---------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value--
beginning of period $ 12.62 $ 12.01 $ 12.35 $ 12.00
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.34 0.52 0.69 0.71
Net realized and
unrealized gain on
investment
transactions 0.09 0.61 (0.29) 0.37
- --------------------------------------------------------------------------------
Total income from
investment operations 0.43 1.13 0.40 1.08
- --------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (0.34) (0.52) (0.69) (0.71)
Distributions from net
realized gain from
investment
transactions - - (0.05) (0.02)
- --------------------------------------------------------------------------------
Total dividends and
distributions (0.34) (0.52) (0.74) (0.73)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value--end of
period $ 12.71 $ 12.62 $ 12.01 $ 12.35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total return 3.46%(2) 9.59%(2) 3.31% 9.06%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratios/Supplemental
Data:
Net assets, end of
period (000's) $38,785 $35,278 $30,062 $19,096
- --------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 0.95%(3) 1.02%(3) 1.09% 1.02%(3)
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 5.44%(3) 5.60%(3) 5.64% 5.68%(3)
- --------------------------------------------------------------------------------
Ratio of expenses to
average net assets
without fee waivers 1.05%(3) 1.17%(3) 1.39% 1.39%(3)
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets without fee
waivers 5.34%(3) 5.45%(3) 5.34% 5.31%(3)
- --------------------------------------------------------------------------------
Portfolio turnover
rate(5) 6.15% 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.
28
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
<C> <S> <C> <C>
CERTIFICATE OF PARTICIPATION 3.9%
- -----------------------------------------------------------------------
$1,500,000 West Covina, California
Hospital, Certificate of
Participation, 6.50%, 8/15/14,
Callable 8/15/04 @ 102 A2/NR $ 1,704,735
-----------
TOTAL CERTIFICATE OF PARTICIPATION
(Cost $1,502,886) 1,704,735
-----------
EDUCATION 15.1%
- -----------------------------------------------------------------------
1,690,000 California Educational
Facilities Authority, Pomona
College, 6.13%, 2/15/08,
Callable 2/15/02 @ 102 Aa1/AA+ 1,825,825
1,500,000 California Educational
Facilities Authority, Santa
Clara University, 6.25%,
2/1/16, Callable 2/1/02 @ 102 A1/NR 1,634,940
500,000 California State Public Works
Board University, 6.63%,
10/1/10, AMBAC AAA/A 559,375
1,000,000 Poway California Unified School
District Cfo No. 1, 4.63%,
10/1/12 Aaa/AAA 976,470
1,500,000 University California Revenue
Series B, 6.30%, 9/1/15 NR/A+ 1,674,675
-----------
TOTAL EDUCATION
(Cost $6,187,748) 6,671,285
-----------
FLOATING RATE NOTES 4.5%
- -----------------------------------------------------------------------
300,000 California Pollution Control
Finance Authority, Series A,
4.20%, 2/28/08, (b) A1/A+ 300,000
200,000 California Pollution Control
Finance Authority, Series C,
2/28/08, (b) A1/A+ 200,000
800,000 California Pollution Control
Finance Authority, Series D,
2/28/08, (b) A1/A+ 800,000
700,000 California Pollution Control
Finance Authority, Southern
California Edison, Series B,
4.20%, 2/28/08, (b) A1/A+ 700,000
-----------
TOTAL FLOATING RATE NOTES
(Cost $2,000,000) 2,000,000
-----------
</TABLE>
29
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
<C> <S> <C> <C>
GENERAL OBLIGATION BONDS 10.2%
- ---------------------------------------------------------------------
$1,325,000 California State, 6.25%, 4/1/08 A1/A+ $ 1,510,248
1,895,000 California State Veterans
General Obligation, 5.15%,
12/1/14, Callable 12/1/08 @
101 A1/A+ 1,898,165
1,000,000 Oakland California, Series B,
5.88%, 6/15/19, Callable
6/15/05 @ 102, FSA Aaa/AAA 1,070,360
-----------
TOTAL GENERAL OBLIGATION BONDS
(Cost $4,276,592) 4,478,773
-----------
HEALTH 11.8%
- ---------------------------------------------------------------------
2,000,000 California Health Facilities
Authorities Revenue, 5.00%,
11/15/13 Aaa/AAA 2,008,140
1,500,000 California Health Facilities
Finance Authorities--Scripps,
6.25%, 10/1/13, Callable
10/1/01 @ 102, MBIA Aaa/AAA 1,612,965
1,000,000 Stockton, California, Health
Facilities, Dameron Hospital
Assoc., Series A, 5.35%,
12/1/09, Callable 12/1/07 @
102 NR/BBB+ 1,045,190
500,000 Stockton, California, Health
Facilities, Dameron Hospital
Assoc., Series A, 5.45%,
12/1/10, Callable 12/1/07 @
102 NR/BBB+ 523,635
-----------
TOTAL HEALTH
(Cost $4,978,490) 5,189,930
-----------
HOUSING 5.4%
- ---------------------------------------------------------------------
1,460,000 California Housing Finance
Agency, Series F, 5.95%,
8/1/14, Callable 8/1/05
@ 102, MBIA Aaa/AAA 1,548,184
800,000 California Housing Finance
Agency, Series L, 5.90%,
8/1/17, Callable 2/1/06
@ 102, MBIA Aaa/AAA 844,904
-----------
TOTAL HOUSING
(Cost $2,260,000) 2,393,088
-----------
POWER 3.7%
- ---------------------------------------------------------------------
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 1,625,565
-----------
TOTAL POWER
(Cost $1,504,082) 1,625,565
-----------
</TABLE>
30
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
<C> <S> <C> <C>
PRISONS 2.4%
- ---------------------------------------------------------------------
$1,000,000 California State Public Works
Board University, 5.25%,
12/1/08 Aaa/AAA $ 1,064,800
-----------
TOTAL PRISONS
(Cost $968,987) 1,064,800
-----------
REVENUE 8.4%
- ---------------------------------------------------------------------
1,000,000 Mountain View California,
Shoreline Regional Park,
Series A, 5.50%, 8/1/21,
Callable 8/1/06 @ 102, MBIA Aaa/AAA 1,035,580
1,000,000 Port of Oakland, 5.60%,
11/1/19, Callable 11/01/07 @
102, MBIA Aaa/AAA 1,050,930
1,500,000 San Francisco Port Commission,
5.90%, 7/1/09, Callable 7/1/04
@ 102 A/BBB+ 1,594,755
-----------
TOTAL REVENUE
(Cost $3,417,273) 3,681,265
-----------
TRANSPORTATION 11.3%
- ---------------------------------------------------------------------
1,500,000 San Diego Regional
Transportation Commission,
California Sales Tax,
Series A, 5.00%, 4/1/07, FGIC Aaa/AAA 1,570,800
1,800,000 San Francisco Airport,
California, City/County,
5.38%, 5/1/17, Callable 5/1/06
@ 102, MBIA Aaa/AAA 1,844,082
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 1,558,485
-----------
TOTAL TRANSPORTATION
(Cost $4,621,245) 4,973,367
-----------
WASTE 8.7%
- ---------------------------------------------------------------------
1,200,000 Los Angeles California Waste
Water Revenue Bond, 5.00%,
6/1/14, Callable 6/1/08 @ 101,
FGIC Aaa/AAA 1,204,764
1,500,000 San Jose-Santa Clara Water
District Financing, 5.38%,
11/15/15, Callable 11/15/05 @
101, FGIC Aaa/AAA 1,545,570
1,000,000 Tulare California Sewer
Revenue, 5.70%, 11/15/15,
Callable 11/15/06 @ 102, MBIA Aaa/AAA 1,069,520
-----------
TOTAL WASTE
(Cost $3,618,793) 3,819,854
-----------
</TABLE>
31
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
<S> <C> <C> <C>
WATER 12.6%
- --------------------------------------------------------------------
$1,700,000 Marin California Municipal
Water District, 5.55%, 7/1/13,
Callable 7/1/03 @ 102 A1/AA $ 1,769,428
2,000,000 Rancho California, Water
District Financing Authority,
Series A, 5.88%, 11/1/10,
Callable 11/1/05 @ 102, FGIC Aaa/AAA 2,194,320
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- 1,591,575
-----------
TOTAL WATER
(Cost $5,302,586) 5,555,323
-----------
TOTAL INVESTMENTS
(Cost $40,638,684) (a) 98.0% 43,157,985
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0% 895,130
- --------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $44,053,115
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
(a) Cost for federal income tax and financial reporting is substantially the
same.
(b) Floating rate security--rate disclosed as of June 30, 1998.
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.
32
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$40,638,684) $43,157,985
Cash 253,954
Interest receivable 646,722
Receivable for capital shares sold 175,539
Organizational costs, net of accumulated amortization 14,557
Prepaid expenses 14,413
- -----------------------------------------------------------------------------
Total Assets 44,263,170
- -----------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 167
Dividend payable 152,228
Payables:
Investment advisory fees 16,093
Administration fees 900
Professional fees 30,588
Printing costs 4,511
Other 5,568
- -----------------------------------------------------------------------------
Total Liabilities 210,055
- -----------------------------------------------------------------------------
NET ASSETS: $44,053,115
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $41,409,732
Undistributed (distributions in excess of) net investment income 3,609
Accumulated net realized gain (loss) on investment transactions 120,473
Net unrealized appreciation (depreciation) of investments 2,519,301
- -----------------------------------------------------------------------------
NET ASSETS: $44,053,115
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,421,190
- -----------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.88
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,095,112
- ----------------------------------------------------------------------------
Total Investment Income 1,095,112
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 124,943
Administration fees 31,235
Shareholder servicing fees 2,083
Fund accounting fees 18,166
Professional fees 18,754
Custodian fees 275
Amortization of organization costs 3,641
Transfer agency fees 6,519
Printing costs 5,826
Insurance costs 3,219
Registration and filing fees 1,118
Trustees' fees and expenses 2,210
Other 259
- ----------------------------------------------------------------------------
Total expenses 218,248
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (31,236)
- ----------------------------------------------------------------------------
Net Expenses 187,012
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 908,100
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 120,473
Net change in unrealized appreciation (depreciation) 2,911
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 123,384
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,031,484
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
SEFTON CALIFORNIA TAX-FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
For the Six Period Ended
Months Ended December 31,
June 30, 1998 1997(1)
------------- ------------
(Unaudited)
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income (loss) $ 908,100 $ 1,304,902
Net realized gain (loss) on investment transactions 120,473 -
Net change in unrealized appreciation
(depreciation) 2,911 1,943,972
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 1,031,484 3,248,874
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (908,100) (1,304,902)
Distributions to shareholders from net realized
gain from investment transactions - (208,193)
- -------------------------------------------------------------------------------
Change in net assets from investment activities 123,384 1,735,779
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 3,697,168 3,381,101
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 775,005 1,313,097
Cost of shares redeemed (845,071) (1,631,727)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 3,627,102 3,062,471
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,750,486 4,798,250
NET ASSETS:
Beginning of period 40,302,629 35,504,379
- -------------------------------------------------------------------------------
End of period $44,053,115 $40,302,629
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 287,444 269,302
Reinvested 60,329 104,074
Redeemed (65,765) (130,527)
- -------------------------------------------------------------------------------
Change in shares 282,008 242,849
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</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
For the Six Period Ended Year Ended Period Ended
Months Ended December 31, March 31, March 31,
June 30, 1998 1997(4) 1997 1996(1)
------------- ------------ ---------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value--
beginning of period $ 12.84 $12.26 $ 12.19 $ 12.00
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.43 0.59 0.58
Net realized and
unrealized gain on
investment
transactions 0.04 0.65 0.09 0.20
- ------------------------------------------------------------------------------------------
Total income from
investment operations 0.32 1.08 0.68 0.78
- ------------------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (0.28) (0.43) (0.59) (0.58)
Distributions from net
realized gain from
investment
transactions - (0.07) (0.02) (0.01)
- ------------------------------------------------------------------------------------------
Total dividends and
distributions (0.28) (0.50) (0.61) (0.59)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Net asset value--end of
period $ 12.88 $ 12.84 $ 12.26 $ 12.19
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Total return 2.50%(2) 8.93%(2) 5.69% 6.60%(2)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Ratios/Supplemental
Data:
Net assets, end of
period (000's) $44,053 $40,303 $35,504 $42,593
- ------------------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 0.90%(3) 0.94%(3) 0.88% 0.83%(3)
- ------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 4.36%(3) 4.54%(3) 4.83% 4.83%(3)
- ------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets
without fee waivers 1.05%(3) 1.12%(3) 1.17% 1.16%(3)
- ------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets without fee
waiver 4.21%(3) 4.36%(3) 4.54% 4.51%(3)
- ------------------------------------------------------------------------------------------
Portfolio turnover
rate(5) 9.31% 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.
36
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
COMMON STOCKS 92.4%
- -----------------------------------------------------------
BASIC INDUSTRY 10.1%
- -----------------------------------------------------------
38,000 Aluminum Company of America $ 2,505,625
50,000 International Paper 2,150,000
43,000 PPG Industries, Inc. 2,991,188
50,000 Synthetic Industries, Inc.* 728,125
-----------
8,374,938
-----------
CONSUMER CYCLICALS 7.6%
- -----------------------------------------------------------
60,500 BJ's Wholesale Club, Inc.* 2,457,812
80,000 Cooper Tire 1,650,000
22,000 Liz Claiborne 1,149,500
75,000 Quaker Fabric Corp.* 1,082,813
-----------
6,340,125
-----------
CONSUMER STAPLES 2.2%
- -----------------------------------------------------------
47,000 Phillip Morris Companies, Inc. 1,850,625
-----------
ENERGY 10.2%
- -----------------------------------------------------------
35,000 Atlantic Richfield Co. 2,734,375
100,000 Comstock Resources, Inc. 743,750
88,000 Domain Energy Corp.* 1,056,000
50,000 Pride International, Inc.* 846,875
34,100 Rowan Companies, Inc.* 662,819
22,400 Tidewater, Inc. 739,200
50,000 USX-Marathon Group 1,715,625
-----------
8,498,644
-----------
FINANCE 21.4%
- -----------------------------------------------------------
60,000 Chase Manhattan Corp. 4,529,999
45,000 Cigna Corp. 3,105,000
36,000 First Union Corp. 2,097,000
75,000 Liberty Financial Companies, Inc. 2,587,500
70,000 ReliaStar Financial 3,360,000
21,500 Selective Insurance Group 481,734
39,800 Travelers Property Casualty Corp. 1,706,425
-----------
17,867,658
-----------
HEALTH CARE 2.8%
- -----------------------------------------------------------
160,000 Sun Healthcare Group Inc.* 2,340,000
-----------
</TABLE>
37
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
------- ------
<C> <S> <C>
MANUFACTURING 11.3%
- ------------------------------------------------------------------------------
65,000 Dana Corp. $ 3,477,500
130,000 Mark IV Industries, Inc. 2,811,250
130,000 Mascotech, Inc. 3,120,000
-----------
9,408,750
-----------
SERVICES 5.2%
- ------------------------------------------------------------------------------
60,000 CSX Corp. 2,730,000
50,000 Ryder Systems, Inc. 1,578,125
-----------
4,308,125
-----------
TECHNOLOGY 8.1%
- ------------------------------------------------------------------------------
60,000 CHS Electronics, Inc.* 1,072,500
30,000 International Business Machines Corp. 3,444,375
62,100 Tektronix, Inc. 2,196,788
-----------
6,713,663
-----------
UTILITIES/REITS 13.5%
- ------------------------------------------------------------------------------
75,000 Bedford Property Investors 1,368,750
70,000 EastGroup Property Investors 1,404,375
100,200 Equity Inns 1,321,388
122,000 FirstEnergy 3,751,500
39,300 General Public Utility Inc. 1,486,031
55,000 TriNet Corporate Realty Trust, Inc. 1,870,000
-----------
11,202,044
-----------
TOTAL COMMON STOCKS
(Cost $67,999,286) 76,904,572
-----------
REPURCHASE AGREEMENT 10.0%
- ------------------------------------------------------------------------------
$8,327,000 Union Bank of California Repurchase Agreement,
5.63%, dated 6/30/98 and maturing 7/1/98 with a
maturity value of $8,328,301, collateralized by
$8,660,060, Federal Home Loan Mortgage Corp.,
6.00%, due 10/15/17 with a value of $8,660,695 8,327,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $8,327,000) 8,327,000
-----------
</TABLE>
38
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C> <C>
CASH SWEEP ACCOUNT 0.0%
- ----------------------------------------------------------------------------
$ 744 Union Bank of California $ 744
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $744) 744
-----------
TOTAL INVESTMENTS
(Cost $76,327,028) (a) 102.4 % 85,232,315
OTHER ASSETS IN EXCESS OF LIABILITIES (2.4)% (1,981,080)
- ----------------------------------------------------------------------------
TOTAL NET ASSETS 100.0 % $83,251,235
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</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 ASSETS AND LIABILITIES
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$68,000,028) $76,905,315
Repurchase Agreements (cost-$8,327,000) 8,327,000
Interest receivable 130,517
Receivable for investments sold 1,558,748
Organizational costs, net of accumulated amortization 14,557
Prepaid expenses 10,859
- ------------------------------------------------------------------------------
Total Assets 86,946,996
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 2,112,660
Payable for capital shares redeemed 1,435,066
Payables:
Investment advisory fees 69,595
Administration fees 1,722
Professional fees 50,963
Printing costs 17,299
Other 8,456
- ------------------------------------------------------------------------------
Total Liabilities 3,695,761
- ------------------------------------------------------------------------------
NET ASSETS: $83,251,235
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $67,290,381
Undistributed (distributions in excess of) net investment income (3,496)
Accumulated net realized gain (loss) on investment transactions 7,059,063
Net unrealized appreciation (depreciation) of investments 8,905,287
- ------------------------------------------------------------------------------
NET ASSETS: $83,251,235
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares of beneficial interest outstanding 4,740,381
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $17.56
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 1,174,130
- -----------------------------------------------------------------------------
Total Investment Income 1,174,130
- -----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 439,901
Administration fees 65,985
Shareholder servicing fees 7,962
Fund accounting fees 14,902
Professional fees 26,507
Custodian fees 2,396
Amortization of organization costs 3,641
Transfer agency fees 18,581
Printing costs 19,360
Insurance costs 2,233
Registration and filing fees 5,186
Trustees' fees and expenses 3,399
Other 1,388
- -----------------------------------------------------------------------------
Total expenses 611,441
- -----------------------------------------------------------------------------
Net Expenses 611,441
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME 562,689
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 5,908,473
Net change in unrealized appreciation (depreciation) (5,078,005)
- -----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 830,468
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,393,157
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
SEFTON EQUITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Period Ended
June December 31,
30, 1998 1997(1)
------------ ------------
(Unaudited)
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income (loss) $ 562,689 $ 636,248
Net realized gain (loss) on investment
transactions 5,908,473 8,517,641
Net change in unrealized appreciation
(depreciation) (5,078,005) 7,434,532
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 1,393,157 16,588,421
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (564,617) (637,096)
Distributions to shareholders from net realized
gain from investment transactions - (10,154,021)
- ------------------------------------------------------------------------------
Change in net assets from investment activities 828,540 5,797,304
- ------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 5,494,439 9,338,186
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 544,508 10,678,131
Cost of shares redeemed (8,894,555) (26,850,987)
- ------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions (2,855,608) (6,834,670)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (2,027,068) (1,037,366)
NET ASSETS:
Beginning of period 85,278,303 86,315,669
- ------------------------------------------------------------------------------
End of period $83,251,235 $ 85,278,303
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 301,827 507,143
Reinvested 30,017 617,097
Redeemed (478,999) (1,493,947)
- ------------------------------------------------------------------------------
Change in shares (147,155) (369,707)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</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.
42
<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
For the Six Period Ended Year Ended Period Ended
Months Ended December 31, March 31, March 31,
June 30, 1998 1997(4) 1997 1996(1)
------------- ------------ ---------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value--
beginning of period $ 17.45 $ 16.42 $ 14.92 $ 12.00
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.11 0.14 0.17 0.21
Net realized and
unrealized gain on
investment
transactions 0.11 3.45 3.14 2.92
- --------------------------------------------------------------------------------
Total income from
investment operations 0.22 3.59 3.31 3.13
- --------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (0.11) (0.14) (0.17) (0.21)
Distributions from net
realized gain from
investment
transactions - (2.42) (1.64) -
- --------------------------------------------------------------------------------
Total dividends and
distributions (0.11) (2.56) (1.81) (0.21)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value--end of
period $ 17.56 $ 17.45 $ 16.42 $ 14.92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total return 1.27%(2) 22.13%(2) 23.15% 26.31%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratios/Supplemental
Data:
Net assets, end of
period (000's) $83,251 $85,278 $86,316 $36,326
- --------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.39%(3) 1.41%(3) 1.52% 1.55%(3)
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 1.28%(3) 1.02%(3) 1.13% 1.68%(3)
- --------------------------------------------------------------------------------
Ratio of expenses to
average net assets
without fee waivers 1.39%(3) 1.43%(3) 1.56% 1.66%(3)
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets without fee
waiver 1.28%(3) 1.00%(3) 1.09% 1.57%(3)
- --------------------------------------------------------------------------------
Portfolio turnover
rate(5) 35.88% 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.
43
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
COMMON STOCKS 84.8%
- ------------------------------------------------------------------
BASIC INDUSTRY 3.2%
- ------------------------------------------------------------------
62,500 JLM Industries, Inc.* $ 609,375
40,000 Synthetic Industries, Inc.* 582,500
-----------
1,191,875
-----------
CONSUMER CYCLICALS 15.6%
- ------------------------------------------------------------------
100,000 Dyersburg Corp. 581,250
75,000 Quaker Fabric Corp.* 1,082,813
65,000 Rocky Shoes & Boots, Inc.* 926,250
72,600 SYMS Corp.* 1,034,550
70,000 Tarrant Apparel Group* 1,321,250
44,500 Tropical Sportswear International Corp.* 945,625
-----------
5,891,738
-----------
CONSUMER STAPLES 1.8%
- ------------------------------------------------------------------
20,000 Great Atlantic & Pacific Tea Company 661,250
-----------
ENERGY 7.6%
- ------------------------------------------------------------------
37,000 Ceanic Corporation* 716,875
70,000 Comstock Resources, Inc. 520,625
37,000 Domain Energy Corp.* 444,000
50,000 Midcoast Energy Resources 1,162,500
-----------
2,844,000
-----------
FINANCE 5.0%
- ------------------------------------------------------------------
45,000 Arm Financial Group, Inc. 995,625
16,300 Gryphon Holdings, Inc.* 268,950
27,000 Selective Insurance Group 604,969
-----------
1,869,544
-----------
HEALTH CARE 6.4%
- ------------------------------------------------------------------
40,000 Genesis Health* 1,000,000
8,800 Sierra Health Services* 221,650
80,000 Sun Healthcare Group Inc.* 1,170,000
-----------
2,391,650
-----------
MANUFACTURING 13.0%
- ------------------------------------------------------------------
32,000 Denison International PLC-ADR* 632,000
30,000 DT Industries, Inc. 727,500
70,000 Mascotech, Inc. 1,680,000
</TABLE>
44
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
MANUFACTURING (CONTINUED)
- -----------------------------------------------------------------------------
37,400 Standard Products Co. $ 1,051,875
37,600 Watts Industries, Inc. Class A 784,900
-----------
4,876,275
-----------
SERVICES 10.5%
- -----------------------------------------------------------------------------
80,000 Benihana, Inc.* 960,000
66,200 Cameron Ashley Building Products* 1,117,125
30,000 Motor Cargo Industries, Inc.* 318,750
50,000 Railtex, Inc.* 662,500
50,500 World Fuel Services Corp. 874,281
-----------
3,932,656
-----------
TECHNOLOGY 5.0%
- -----------------------------------------------------------------------------
12,000 Align-Rite International, Inc.* 178,500
22,500 Axsys Technologies, Inc.* 433,125
16,000 Banctec Inc.* 370,000
31,000 CHS Electronics, Inc.* 554,125
6,000 General Semiconductor, Inc.* 59,250
14,000 Optek Technology, Inc.* 267,750
-----------
1,862,750
-----------
UTILITIES/REITS 16.7%
- -----------------------------------------------------------------------------
82,100 Bedford Property Investors 1,498,325
80,000 EastGroup Property Investors 1,604,999
75,000 Equity Inns 989,063
45,000 RFS Hotel Investors, Inc. 855,000
40,000 TriNet Corporate Realty Trust 1,360,000
-----------
6,307,387
-----------
TOTAL COMMON STOCKS
(Cost $31,091,094) 31,829,125
-----------
REPURCHASE AGREEMENT 9.2%
- -----------------------------------------------------------------------------
$3,452,000 Union Bank of California Repurchase Agreement,
5.63%, dated 6/30/98 and maturing 7/1/98 with a
maturity value of $3,452,539, collateralized by
$3,590,072, Federal Home Loan Mortgage Corp.,
6.00%, due 10/15/17 with a value of $3,590,335 3,452,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $3,452,000) 3,452,000
-----------
</TABLE>
45
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
CASH SWEEP ACCOUNT 0.0%
- ----------------------------------------------------------------------------
$ 745 Union Bank of California $ 745
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $745) 745
-----------
TOTAL INVESTMENTS
(Cost $34,543,834) (a) 94.0% 35,281,870
OTHER ASSETS IN EXCESS OF LIABILITIES 6.0% 2,236,796
- ----------------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $37,518,666
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(a) Cost for federal income tax and financial reporting is substantially the
same.
* Denotes non-income producing security.
PLC--Public Limited Company.
ADR--American Depository Receipt.
See Notes to Financial Statements.
46
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$31,091,834) $31,829,870
Repurchase Agreements (cost-$3,452,000) 3,452,000
Interest receivable 79,009
Receivable for investments sold 2,194,025
Organizational costs, net of accumulated amortization 18,726
Prepaid expenses 13,226
- -----------------------------------------------------------------------------
Total Assets 37,586,856
- -----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment advisory fees 30,523
Administration fees 719
Professional fees 28,145
Printing costs 7,936
Other 867
- -----------------------------------------------------------------------------
Total Liabilities 68,190
- -----------------------------------------------------------------------------
NET ASSETS: $37,518,666
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $35,758,615
Undistributed (distributions in excess of) net investment income 312
Accumulated net realized gain (loss) on investment transactions 1,021,703
Net unrealized appreciation (depreciation) of investments 738,036
- -----------------------------------------------------------------------------
NET ASSETS: $37,518,666
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,901,185
- -----------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.93
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 406,944
- -----------------------------------------------------------------------------
Total Investment Income 406,944
- -----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 207,795
Administration fees 24,935
Shareholder servicing fee 16
Fund accounting fees 16,044
Professional fees 17,628
Custodian fees 1,744
Amortization of organization costs 2,127
Transfer agency fees 2,578
Printing costs 8,811
Insurance costs 936
Registration and filing fees 4,209
Trustees' fees and expenses 943
Other 259
- -----------------------------------------------------------------------------
Total expenses 288,025
- -----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (33,247)
- -----------------------------------------------------------------------------
Net Expenses 254,778
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME 152,166
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 1,472,340
Net change in unrealized appreciation (depreciation) (1,214,300)
- -----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 258,040
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 410,206
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
For the Six Period Ended
Months Ended December 31,
June 30, 1998 1997(1)
------------- ------------
(Unaudited)
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income (loss) $ 152,166 $ 165,182
Net realized gain (loss) on investment transactions 1,472,340 (383,285)
Net change in unrealized appreciation
(depreciation) (1,214,300) 1,884,984
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 410,206 1,666,881
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (153,103) (168,067)
- -------------------------------------------------------------------------------
Change in net assets derived from investment
activities 257,103 1,498,814
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 7,902,881 29,849,507
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 147,126 166,722
Cost of shares redeemed (468,780) (1,834,707)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 7,581,227 28,181,522
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 7,838,330 29,680,336
NET ASSETS:
Beginning of period 29,680,336 -
- -------------------------------------------------------------------------------
End of period $37,518,666 $29,680,336
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 594,844 2,464,003
Reinvested 11,157 12,780
Redeemed (35,125) (146,474)
- -------------------------------------------------------------------------------
Change in shares 570,876 2,330,309
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1)For the period from June 30, 1997 (commencement of operations) through De-
cember 31, 1997.
See Notes to Financial Statements.
49
<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
For the Six Period Ended
Months Ended December 31,
June 30, 1998 1997(1)
------------- ------------
(Unaudited)
<S> <C> <C>
Net asset value-beginning of period $ 12.74 $ 12.00
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.07
Net realized and unrealized gain on investment
transactions 0.19 0.74
- -----------------------------------------------------------------------------
Total income from investment operations 0.25 0.81
- -----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (0.06) (0.07)
- -----------------------------------------------------------------------------
Total dividends and distributions (0.06) (0.07)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net asset value--end of period $ 12.93 $ 12.74
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total return 1.94%(2) 6.76%(2)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $37,519 $29,680
- -----------------------------------------------------------------------------
Ratio of net expenses to average net assets 1.53%(3) 1.59%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to average net
assets 0.91%(3) 1.15%(3)
- -----------------------------------------------------------------------------
Ratio of expenses to average net assets without
fee waivers 1.73%(3) 1.81%(3)
- -----------------------------------------------------------------------------
Ratio of net investment income to average net
assets without fee waiver 0.71%(3) 0.93%(3)
- -----------------------------------------------------------------------------
Portfolio turnover rate(4) 42.66% 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.
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Sefton Funds Trust (the "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 compa-
ny. The Trust offers four series of shares--Sefton U.S. Government Fund, Sef-
ton California Tax-Free Fund, Sefton Equity Value Fund, and Sefton Small Com-
pany Value Fund (the "Funds"). The Funds commenced investment operations on
April 3, 1995 except the Sefton Small Company Value Fund, which commenced in-
vestment operations on June 30, 1997. The assets for each series are segre-
gated and accounted 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
51
<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 six months ended June 30, 1998. 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 carry forwards 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-
52
<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.
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 - 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. (the "Investment Adviser"). Pursuant to its advisory
agreement with the Funds, the Investment Adviser is entitled to an advisory
fee, computed daily and payable monthly at an annual rate of 0.60%, 0.60%,
1.00%, and 1.25% of the daily average net assets for the Sefton U.S. Govern-
ment Fund, Sefton California Tax-Free Fund, Sefton Equity Value Fund and Sef-
ton Small Company Value Fund, respectively. The Investment Adviser voluntarily
waived a portion of its advisory fee for the six months ended June 30, 1998
for the Sefton U.S. Government Fund, Sefton California Tax-Free Fund, and Sef-
ton Small Company Value Fund.
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 six months ended June 30, 1998 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 operations, in-
cluding providing office space and various legal and accounting services 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 six months ended June 30, 1998 BISYS
Fund Services Inc., received $16,886, $18,166, $14,902 and $16,044 for its
services as fund accountant from the U.S. Government Fund, California Tax-Free
Fund, Equity Value Fund and Small Company Value Fund, respectively. For its
services as transfer agent BISYS Fund Services, Inc., received $5,115, $6,519,
$18,581 and $2,578 from the U.S. Government Fund, California Tax-Free Fund,
Equity Value Fund and Small Company Value Fund, respectively.
Certain Trustees and officers of the Funds are also members and/or officers
of the Investment Adviser or BISYS. All affiliated and access persons, as de-
fined 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
compensation from the Funds. Trustees who are not interested persons of the
Trust, as defined in the 1940 Act, collectively received compensation and re-
imbursement of expenses of $1,491, $2,210, $3,399 and $943 from the Sefton
U.S. Government Fund, Sefton California Tax Free Fund, Sefton Equity Value
Fund and Sefton Small Company Value Fund, respectively, for the six months
ended June 30, 1998.
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - UNREALIZED GAINS AND LOSSES ON INVESTMENTS
For the six months ended June 30, 1998: (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) $1,674,802 $2,536,039 $11,597,889 $ 3,069,412
Gross Depreciation
(excess of cost over value) (0) (16,738) (2,692,602) (2,331,376)
---------- ---------- ----------- -----------
Net Unrealized
Appreciation/(Depreciation) $1,674,802 $2,519,301 $ 8,905,287 $ 738,036
========== ========== =========== ===========
</TABLE>
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
six months ended June 30, 1998 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
U.S. Government Fund $ 2,094,555 $ 2,139,787
California Tax-Free Fund $ 6,075,495 $ 3,741,250
Equity Value Fund $28,721,365 $27,672,149
Small Company Value Fund $15,812,341 $12,210,474
</TABLE>
54
<PAGE>
SEFTON FUNDS
TRUSTEES AND OFFICERS
[LOGO OF
SEFTON
BOARD OF TRUSTEES FUNDS
APPEARS
Harley K. Sefton(++) Chairman of the Board, HERE]
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.
<PAGE>
SEFTON FUNDS
CORPORATE INFORMATION
[LOGO OF
SEFTON
INVESTMENT ADVISER FUNDS
APPEARS
Sefton Capital Management HERE]
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
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
200 E. Randolph Drive
Chicago, IL 60601
This report and the financial statements contained herein are provided for the
general information of the shareholders of the Sefton Funds. This material must
be preceded or accompanied by a prospectus. For a free prospectus containing
more complete information including charges and expenses, obtain a prospectus
from BISYS Fund Services Member NASD, 3435 Stelzer Road, Columbus, Ohio 43219-
3035, or call Sefton Funds at 1-800-524-2276. Please read the prospectus
carefully before investing or sending money.
These funds are not insured by Sefton Capital Management, the FDIC or any other
insurer.
SFT-0030 9/98
