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Sefton Funds
ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1998
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[GRAPHIC APPEARS HERE]
Contents
Chairman's Message ........................................................ 1
Sefton Funds Investment Objectives ........................................ 3
Fixed Income Methodology .................................................. 4
Sefton U.S. Government Fund & California Tax-Free Fund .................... 5
Fixed Income Market Summary ............................................ 5
Interview with Fund Manager -- U.S. Government Fund .................... 6
U.S. Government Fund Highlights & Portfolio Performance ................ 7
Interview with Fund Manager -- California Tax-Free Fund ................ 9
California Tax-Free Fund Highlights & Portfolio Performance ............ 11
Equity Value Methodology .................................................. 13
Sefton Equity Value Fund & Small Company Value Fund ....................... 14
Economy and Stock Market Summary ....................................... 14
Interview with Fund Managers -- Equity Value Fund ...................... 16
Equity Value Fund Highlights & Portfolio Performance ................... 18
Interview with Fund Managers -- Small Company Value Fund ............... 20
Small Company Value Fund Highlights & Portfolio Performance ............ 21
Definition of Common Terms ................................................ 23
Financial Statements ...................................................... 26
U.S. Government Fund ................................................... 26
California Tax-Free Fund ............................................... 33
Equity Value Fund ...................................................... 41
Small Company Value Fund ............................................... 48
Notes to Financial Statements ............................................. 55
Report of Independent Accountants ......................................... 59
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[PICTURE 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:
Attached is your copy of the Sefton Funds Annual Report for the period January
1, 1998 through December 31, 1998.
1998 was both a successful and, at the same time, humbling year for us. Our
fixed income performance was favorable, as both the Sefton California Tax-Free
Fund and the Sefton US Government Fund exceeded the performance of their
respective Morningstar Averages. For the 12-month period ended December 31,
1998, the Sefton California Tax-Free Fund returned 6.11%/1/, while the
Morningstar California Municipal Bond Fund Average returned 5.61%/2/. For the
same period, the Sefton U.S. Government Fund returned 7.42%/1/, right in line
with the Morningstar U.S. Government Bond Fund General Average of 7.36%/2/.
In contrast, it was a frustrating year for our equity managers. Our value style
of equity management significantly underperformed the major market indices last
year. Our stock selection philosophy and methodologies are grounded in
fundamental value. To us, that means investing in good companies at a fair
price. Identifying good companies is never difficult. The difficulty is finding
good companies at reasonable, or preferably, bargain prices. At the beginning of
1998, many of America's largest companies, such as General Electric, Microsoft,
Merck, Lucent, etc., were the most overpriced and have increasingly represented
the least value in the marketplace. However, these stocks were some of the best
performers last year. As value managers, we have been unwilling to pay the huge
premiums required to purchase these high-flying, large-capitalization stocks.
/1/ References to total return herein include reinvested dividends and capital
gains paid.
/2/ Morningstar U.S. Government Bond Fund General Average is an average of U.S.
Government bond mutual funds as tracked by Morningstar. Morningstar
Municipal Bond Fund Average is an average of California tax-free bond
mutual funds as tracked by Morningstar.
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Consequently, our portfolios have been overweighted in mid-sized and smaller
companies, which we feel represent the best value in the marketplace.
Unfortunately, stock investors were not focused on value last year and have
shunned mid- and small- capitalization stocks despite their attractive
fundamentals and relative valuation, preferring the perceived safety and
liquidity of large-capitalization, "blue-chip" companies. As a result, the
Sefton Equity Value Fund and the Sefton Small Company Value Fund have
significantly underperformed the broad market averages whose performance is
dominated by these large-capitalization companies.
Along with you, we the principals and staff members of Sefton Capital Management
are investors in our funds. As such, we have our own savings invested along with
you. We believe that our stock funds are very well positioned for what we
believe will be a "coming of the senses" among investors. Valuation does matter
and stock prices ultimately reflect a company's fundamentals and intrinsic
value. Historically, all great bull markets create excesses in the form of
unsustainable high price/earnings ratios and speculative buying. Investing,
however, is not a get rich quick scheme and we believe the market is likely to
unwind these excesses that have been the speculative bubble on the stream of
rational investment.
Sincerely,
/s/ Harley K. Sefton
Harley K. Sefton
Chairman, Sefton Funds
This report, including the financial statement herein, is transmitted to the
shareholders of the Sefton Funds for their information. This is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Funds or any securities mentioned in this report.
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[GRAPHIC APPEARS HERE]
SEFTON FUNDS INVESTMENT OBJECTIVES
U.S. Government Fund
The Sefton U.S. Government Fund's investment objective is to provide investors
with as high a level of current income as is consistent with preservation of
capital. The Fund pursues this objective in a consistently prudent and diverse
manner. The Fund is an intermediate-term bond fund and will have an average
weighted maturity between 5 and 10 years. At all times the Fund will have a
minimum of 65% of its assets in U.S. Government or U.S. Government agency
securities.
California Tax-Free Fund
The Sefton California Tax-Free Fund's investment objective is to provide
investors with as high a level of current income, exempt from both federal and
California state personal income taxes, as is consistent with preservation of
capital. The Fund will maintain an average weighted maturity of 10 or more
years. The Fund generally will not purchase bond issues subject to the
alternative minimum tax.
Equity Value Fund
The Sefton Equity Value Fund's investment objective is to provide investors with
long-term capital appreciation. The Fund pursues this objective by investing
primarily in the common stock of large and mid-sized companies traded on both
domestic and foreign exchanges which are deemed to be undervalued. The Fund may
also invest in smaller companies with market capitalizations exceeding $50
million. Income generation is a secondary consideration for the Fund. However,
the Fund may purchase dividend-paying stocks of particular issuers when the
issuer's dividend record may, in the adviser's opinion, have a favorable
influence on the market value of the securities.
Small Company Value Fund
The Sefton Small Company Value Fund's objective is to provide investors with
long-term capital appreciation. The Fund pursues its investment objective by
investing in equity securities of small capitalization companies which are
believed to be undervalued. Small capitalization companies are defined as
companies having stock market capitalizations of $1 billion or less at the time
of initial purchase. Current income is a secondary consideration on selecting
portfolio investments. Under normal market conditions, the Fund will invest at
least 65% of its total assets in common stocks, preferred stocks, and securities
convertible into common stocks of small capitalization companies.
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SEFTON CAPITAL MANAGEMENT FIXED INCOME METHODOLOGY
Investment Objective
The goal of Sefton Capital Management's fixed income fund managers is to provide
investors with a high level of current income as is consistent with the
preservation of capital.
Investment Philosophy
The general philosophy of our fixed income discipline is that stringent
fundamental security analysis is the surest means to achieving above-average
total returns consistent with prudent risk of capital. Identifying and managing
risk is a cornerstone of our investment strategy. Risk, in all of its forms --
credit, liquidity, market and volatility -- is carefully identified and
evaluated. Additional expected return is required for undertaking any of these
risks. Securities which involve risks that cannot be evaluated are avoided.
Investment Methodology
Our fundamental approach to fixed income portfolio management places heavy
emphasis on horizon analysis, which provides a framework for understanding how a
selected bond or mutual fund portfolio will react to varying economic and
interest rate situations. Sefton Capital Management's fixed income managers
integrate both historic and expected interest rate scenarios into their horizon
analysis. Probabilities are then assigned to differing interest rate scenarios
in order to develop weighted average expected horizon returns.
Value-Added
Sefton Capital Management's fixed income managers add value by actively managing
the maturity/duration structure of our funds. It is our policy to position a
fund relative to a defined neutral position, taking into account our directional
outlook for interest rates. A fund will be long, short or equal to the defined
neutral position. The fund managers establish their fund durations through
careful analysis and judgment, with clearly-defined limits established relative
to the long or short maturity/duration structures.
Sefton Capital Management's fund managers further add value by aggressively
managing risk within well-defined risk parameters. We overweight or underweight
fixed income sectors within our bond funds and add value through security
selection by relative value analysis.
Performance
For each fund which we manage, we attempt to achieve high current income and
consistent above-average total rates of return. While fund performance is
tracked on a daily basis, our focus is on time periods of one to three years.
Our methods and strategies are designed to contribute to the attainment of
consistently successful results over a full economic cycle.
Summary of Fixed Income Management
The Sefton Capital Management approach to fixed income fund management is
disciplined and well-defined. Our policies, guidelines and decisions regarding
fixed income fund management are consistent with our stated philosophy and
contribute to our objective of producing consistent returns for our valued
shareholders.
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[PICTURE OF TED J. PIORKOWSKI APPEARS HERE]
Ted J. Piorkowski, C.F.A.
Vice President and
Fixed Income Fund Manager
Mr. Piorkowski is involved in the areas of fixed income analysis, trading and
portfolio management. Ted is the manager for the Sefton U.S. Government Fund and
the Sefton California Tax-Free Fund. He serves as an officer of the Board for
the Sefton Mutual Funds and is a member of Sefton Capital Management's (SCM)
Management Committee and a member of SCM's Investment Policy Committee.
Prior to joining SCM, Mr. Piorkowski was a Vice President and Portfolio Manager
with San Diego Financial Capital Management, Inc., a wholly owned subsidiary of
San Diego Trust & Savings Bank for eight years. Mr. Piorkowski functioned as a
fixed-income Portfolio Manager for the Pacifica Mutual Funds, managing $350
million in fund assets. His responsibilities also included independent credit
analysis and review, short term liquidity management and separate account fixed
income management.
Mr. Piorkowski received his B.S. in Finance and an M.B.A. from San Diego State
University. He received his Chartered Financial Analyst designation in 1991 and
is a member of the Financial Analysts Society of San Diego.
SEFTON U.S. GOVERNMENT FUND AND
CALIFORNIA TAX-FREE FUND
FIXED INCOME MARKET SUMMARY
Looking back, the bond market was rather dull in 1998 through the end of July.
The treasury yield curve was basically flat and interest rates were in a range
centered around the federal funds rate of 5.50%. By the middle of August, Russia
had devalued the ruble and declared a repayment moratorium on its debt. The
world's perception of the Russian event was that the Asian Crisis of 1997 had
claimed another victim and the world's economic demise was at hand.
The bond market was rocked by a world-wide flight to the U.S. treasury market.
Interest rates fell across the yield curve anywhere from 100-150 basis points by
early October. The corporate and mortgage sectors of the bond market experienced
illiquidity and did not participate in this decline in rates, widening credit
spreads to near recessionary levels.
The Federal Reserve came to the rescue of the world financial markets with a
series of three monetary eases, each one a 25 basis point reduction in the
federal funds target rate, lowering the target rate to 4.75%. It can be argued
that the first 50 basis points of easing were to calm the world financial
markets turmoil and the last 25 basis points of easing were insurance for
continued domestic economic expansion. The treasury yield curve actually
bottomed in early October, and by year-end, interest rates had actually
increased 20-50 basis points across the yield curve.
5
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INTERVIEW WITH TED PIORKOWSKI
Fund Manager - Sefton U.S. Government Fund
Q: How did the Sefton U.S. Government Fund perform?
A: For the fiscal and calendar year ended December 31, 1998, the Sefton U.S.
Government Fund posted a total return of 7.42%/1/. This compares favorably
with an average total return of 7.36%/2/ for the mutual funds in the
Morningstar U.S. Government Bond Fund General Average.
Since the Fund's inception on April 3, 1995, it has provided an average
annual total return of 7.82%/1/, compared to an average of 7.53%/2/ for the
funds in the Morningstar U.S. Government Bond Fund General Average.
Q: What do you think of the general level of interest rates?
A: The general level of intermediate and longer term interest rates appear high
when compared to other rates around the developed world, and also appear
high when analyzed on an inflation-adjusted basis. However, given where
domestic interest rates have been over the last 25 years, rates currently
appear to be at historically low levels. The favorably low inflation
environment we have recently experienced is a major reason for the current
level of interest rates.
Q: What is your current interest rate outlook?
A: We continue to have a cautious outlook concerning interest rates. We believe
caution is warranted given the current yield curve, where 10 years and
shorter now present yield opportunities that are less than the federal funds
target yield of 4.75%. We believe the Federal Reserve will be on hold during
the first half of 1999, as the domestic economy remains rather robust.
Baring continued world financial market turmoil, the domestic bond market
should return its focus upon the strength of the domestic economy and its
interest rate implications.
Q: How is the Fund currently structured?
A: The Fund currently has an average maturity of 5.6 years. We consider this a
shorter-than-neutral average maturity position. We expect to lengthen our
maturity positioning towards a more neutral position, adding to our average
maturity, as market conditions permit. Relative to broad fixed income
indices, our current bond selection favors the treasury and corporate
sectors relative to the mortgage sector. Going forward we expect to increase
our mortgage sector allocation and reduce our treasury sector allocation.
/1/ References to total return herein include reinvested dividends and capital
gains paid.
/2/ Morningstar U.S. Government Bond Fund General Average is an average of U.S.
Government bond mutual funds as tracked by Morningstar.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
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SEFTON U.S. GOVERNMENT FUND HIGHLIGHTS AS OF DECEMBER 31, 1998*
[PIE CHART APPEARS HERE]
Net Assets: $36,626,056 Treasury 49%
NAV Per Share: $12.83 Corporate 23%
SEC Yield-30 Day: 4.91%/1/ Agency 3%
Distribution Yield-30 Day: 5.41%/2/ Mortgage 23%
Cash 2%
* The composition of the Fund's holdings is subject to change.
/1/ This figure indicates the annual interest on a bond fund divided by the
market price. It is the actual income rate of return.
/2/ This figure indicates the amount of dividends and/or interest that the Fund
actually pays.
/3/ Percentages are based upon net assets.
SEFTON U.S. GOVERNMENT FUND PORTFOLIO PERFORMANCE**
[BAR CHART APPEARS HERE]
One Three Year Annualized
Year Annualized Since Inception
(4/3/95)
Sefton U.S. Government Fund 7.4% 6.0% 7.8%
Morningstar U.S. Government
Bond Fund General Average 7.4% 5.9% 7.5%
** Performance data quoted represents past performance and is not indicative of
future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
7
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SEFTON U.S. GOVERNMENT FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton U.S. Government Fund,
the Morningstar U.S. Government Bond Fund General Average*, and the Lehman
Brothers Intermediate Government Corporate Bond Index.** (Fund inception date:
April 3, 1995)
[LINE GRAPH APPEARS HERE]
Lehman Bros.
Intermediate
Morningstar U.S. Gov't Gov't/Corporate
Sefton U.S. Gov't Fund Bond Fund General Average Bond Index
04/95 $10,039 $10,109 $10,124
06/95 $10,557 $10,482 $10,500
09/95 $10,719 $10,650 $10,673
12/95 $11,195 $11,048 $11,047
03/96 $10,898 $10,854 $10,956
06/96 $10,907 $10,881 $11,024
09/96 $11,046 $11,046 $11,220
12/96 $11,379 $11,324 $11,495
03/97 $11,256 $11,266 $11,482
06/97 $11,627 $11,603 $11,821
09/97 $12,003 $11,922 $12,140
12/97 $12,347 $12,215 $12,400
06/98 $12,771 $12,618 $12,829
12/98 $13,260 $13,127 $13,443
This hypthetical is for illustrative purposes only and is not representative of
any particular investment. Performance figures reflect all fees, 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 396
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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INTERVIEW WITH TED PIORKOWSKI
Fund Manager - Sefton California Tax-Free Fund
Q: How did the California municipal bond market perform in 1998?
A: The California municipal bond market had a favorable performance year. One
major theme influencing the municipal market was the low interest rate
volatility experienced throughout the year. Interest rates remained within a
very tight 50 basis point range for the whole year. The municipal market did
not experience the dramatic volatility that other bond markets experienced
as a result of worldwide financial market events. Another positive theme for
the California municipal bond market was the continued improvement in credit
quality. The state's strong economy provided solid support for state and
local municipal finances.
Q: How did the Sefton California Tax-Free Fund perform?
A: For the fiscal and calendar year ended December 31, 1998, the Sefton
California Tax-Free Fund delivered a total return of 6.11%/1/. This compares
favorably during 1998, to the 5.61%/2/ average return for the mutual funds
in the Morningstar California Municipal Bond Fund Average.
Since the Fund's inception on April 3, 1995, it has provided an average
annual total return of 7.30%, compared to an average of 7.20% for the funds
in the Morningstar California Municipal Bond Fund Average.
Q: How is the Fund currently structured?
A: The Fund currently has an average maturity of 15.0 years. At this maturity
range, we are able to capture approximately 95% of the yield of a 30-year
issue while taking significantly less interest rate risk.
The Fund's sector allocation reflects an "essential service" bias.
Presently, the Fund's major sector allocations include: Education, Water,
Transportation, and General Obligations. Historically, these sectors have
been immune to the economic cycles of the state's economy. The Fund's
municipal holdings continue to have a high credit quality profile, with 55%
of the Fund's holdings enhanced with municipal bond insurance.
/1/ References to total return herein include reinvested dividends and capital
gains paid.
/2/ Morningstar California Municipal Bond Fund Average is an average of
California tax-free bond mutual funds as tracked by Morningstar.
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Q. What are the major issues affecting California municipal bonds during 1999?
A. The strength of the California economy and the direction of the state's
legislative agenda will be the major issues impacting the California
municipal bond market in 1999. Effects of the national and international
economies will certainly impact the strength of the California economy.
Also, the November 1998, state election of the first Democratic
administration in sixteen years will carry the potential for a changing
legislative agenda. Both the state's economy and the legislative agenda will
be closely monitored for municipal bond market implications.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
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SEFTON CALIFORNIA TAX-FREE FUND HIGHLIGHTS AS OF DECEMBER 31, 1998*
Net Assets: $40,563,921
NAV Per Share: $12.99
SEC Yield-30 Day: 3.49%/1/
Distribution Yield-30 Day: 4.33%/2/
Taxable Equivalent Yield: 7.83%/3/
[PIE CHART APPEARS HERE]
Power 7%
Prisons 3%
Transportation 13%
Waste 10%
Water 11%
Certificate of Participation 4%
Education 14%
Floater 1%
General Obligations 11%
Health 11%
Housing 6%
Misc. Revenue Bonds 9%
* The composition of the Fund's holdings is subject to change.
/1/ This figure indicates the annual interest on a bond fund divided by the
market price. It is the actual income rate of return.
/2/ This figure indicates the amount of dividends and/or interest that the Fund
actually pays.
/3/ Taxable equivalent yield assumes the maximum combined Federal and California
state marginal income tax rate of 44.7%. This rate is for illustrative
purposes only. The tax equivalent yield of 7.83% is based on the Fund's
12/31/98 average 30-day distribution yield of 4.33%. Tax equivalent yields
are hypothetical and do not reflect the performance of the fund. The tax
bracket does not reflect the possible effects of the Federal Alternative
Minimum Tax.
/4/ Percentages are based upon net assets.
SEFTON CALIFORNIA TAX-FREE FUND PORTFOLIO PERFORMANCE**
[BAR CHART APPEARS HERE]
One Year Three Year Annualized Since
(Annualized) Inception (4/3/95)
Sefton California
Tax-Free Fund 6.1% 6.5% 7.3%
MorningStar California
Municipal Fund Average 5.6% 5.9% 7.2%
** Performance data quoted represents past performance and is not indicative
of future results.
Investment return and principal value will fluctuate so than an investors
shares, when redeemed, may be worth more or less than the original cost.
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SEFTON CALIFORNIA TAX-FREE FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton California Tax-Free
Fund, the Morningstar California Municipal Bond Fund Average(*), and the Lehman
Brothers 10-Year Municipal Bond Index.(**) (Fund inception date: April 3, 1995)
[LINE GRAPH APPEARS HERE]
Morningstar California Lehman Bros.
Sefton California Municipal Bond 10-Year Municipal
Tax-Free Fund Fund Average Bond Index
04/95 $9,932 $10,007 $10,012
06/95 $10,039 $10,179 $10,265
09/95 $10,328 $10,427 $10,625
12/95 $10,821 $10,923 $10,958
03/96 $10,661 $10,721 $10,887
06/96 $10,756 $10,800 $10,921
09/96 $11,022 $11,057 $11,139
12/96 $11,318 $11,323 $11,456
03/97 $11,268 $11,256 $11,453
06/97 $11,640 $11,627 $11,830
09/97 $11,959 $11,974 $12,198
12/97 $12,274 $12,272 $12,514
06/98 $12,578 $12,548 $12,834
12/98 $13,020 $12,979 $13,359
This hypothetical is for illustrative purposes only and is not representative of
any particular investment. Performance figures reflect all fees, 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 171
funds with an investment objective that seeks to invest assets in municipal debt
issues which are exempt from taxation in California.
(**)The Lehman Brothers 10 Year Municipal Bond Index is a total return
performance benchmark for the long-term, investment-grade tax-exempt bond
market. Returns and attributes for the index are calculated semi-monthly using
approximately 25,000 municipal bonds. An investor may not invest in this
unmanaged index.
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SEFTON CAPITAL MANAGEMENT EQUITY METHODOLOGY
Investment Objective
The goal of Sefton Capital Management's equity fund managers is to provide
shareholders with long-term capital appreciation. The Fund's managers seek
stocks with prospects for above average capital appreciation with below average
risk. Results are measured over a full market cycle as compared to other
diversified stock mutual funds and the S&P 500 stock index. We believe our
approach is well-suited to the needs of longer-term investors who are seeking
capital growth over time horizons of five years or more.
Stock Selection Process
Sefton Capital Management's equity fund managers research stock market
opportunities to identify and select stocks which exhibit significantly more
potential for upside reward than downside risk. We pay particular attention to
stocks possessing low relative valuation multiples combined with a catalyst that
will, in our judgement, attract greater investor attention within the next one
to two years.
Sefton Capital Management's managers search both domestic and foreign markets
for stocks which meet our demanding criteria. In general, stocks selected for
inclusion in our funds share one or more of the following characteristics:
. Below-average valuation multiples, such as price/earnings, price/book
value, price/sales and price/cash flow
. A near-term catalyst for higher future valuation, such as product
introductions, cost-cutting initiatives, a cyclical surge in profits or
a change in management
. Improving financial strength
. A management team committed to its shareholders' interests
Risk Management
One of the primary advantages of Sefton Capital Management's value investment
methodology is that purchasing undervalued securities should help limit the
overall downside risk of a stock portfolio since stocks that are relatively
underpriced have less distance to fall in a market decline than stocks that are
more fully priced.
Our equity fund managers seek a favorable balance between risk and reward by
diversifying the Funds across a broad range of industries and economic sectors.
For example, no more than five percent of any fund is comprised of an individual
company's stock (at cost) and no economic sector exceeds 20% of a total
portfolio. Foreign stocks are held but generally amount to less than 10% of
invested assets.
Sell Discipline
Our sell discipline has the overall objective of reducing volatility. Regardless
of whether a stock has gone up or down, it is sold out of a fund when the stock
no longer appears to be undervalued relative to its peer group or the broad
market. The portfolio managers may also sell a stock if an original catalyst for
higher prices no longer seems plausible or imminent. As a final risk control
measure, under normal stock conditions any stock that declines by 15% or more,
relative to its sector, from its cost or during a calendar year is sold.
Equity Management Summary
Our approach to equity fund management is disciplined, time-tested and
intuitive. The methodologies and processes utilized by Sefton Capital
Management's mutual fund managers are based upon sound principles and
experience.
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[PHOTO OF THOMAS C. BOWDEN 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
ECONOMY & STOCK MARKET SUMMARY
Currently, there are no signs of a slowdown in aggregate economic activity. The
U.S. economy grew (real Gross Domestic Product, "GDP") at a 5.6 percent annual
rate in last year's fourth quarter. This pushed the result for 1998 GDP up to a
gain of 3.9 percent, for the second year in a row. Inflation statistics continue
to remain subdued with the Consumer Price Index registering a year over year
gain of only 1.6 percent in December. The annual inflation rate has been below 2
percent since October 1997. As if that was not enough good news for one economy,
the unemployment rate for December was 4.3 percent. The last time the
unemployment rate was lower than the current reading was back in February, 1970.
Historically the connection between overall economic growth and corporate
profitability has been fairly straightforward. However, two notable and probably
interrelated developments since the Fall of 1997 have caused the normal
relationship to break down. Over the past fifteen months there has been a
pronounced decline in the capacity utilization rate among domestic manufacturers
as well as a drop in consumer and producer price inflation to practically zero.
Weak overseas economies (demand) combined with excess productive capacity
(supply) in those markets has resulted in profit margin pressure for many U.S.
companies, especially those directly or indirectly selling to or competing with
foreign economies. Thus, many companies are facing either flat/falling prices or
fewer unit sales or a combination of both. In fact, despite the robust aggregate
economic environment described above, it is quite possible that, when final
results are tallied in the coming months, total corporate profits (operating as
well as reported) will be down in 1998 versus 1997. As a consequence, we have
seen many companies straining mightily to show any earnings growth at all. It is
interesting to note that at least half of all companies we have tracked that are
traded on U.S. stock exchanges are likely to show a modestly negative result
when measured in terms of stock price performance and earnings per share change
in 1998.
14
<PAGE>
The stock market, like the economy, had two different faces in 1998. The popular
market indexes, with substantial weightings in the largest 100 companies in the
U.S., raced to a series of new highs. The broader market (our universe has
approximately 5,000 companies) languished in 1998. If the year could be summed
up in one word, it would be "narrow". Nearly 58% of the companies saw a decline
in their stock price last year and 40% were down over 15% during the course of
1998. Using the S&P 500 Index as an example the chart below shows three
important items. First, large-capitalization stocks were clearly the best
performing stocks last year. Second, weighting returns by market capitalization
almost completely eliminates the impact of smaller companies. Finally, value
investors looking for low Price/Earnings stocks would have found themselves
predominantly in the smaller capitalization names in the universe. Since,
historically, returns across the market capitalization spectrum have been fairly
equal, with perhaps a slight performance edge to the smaller companies, the
extremely divergent returns witnessed in 1998 certainly came as a disappointing
surprise. During 1999, we hope and believe that returns in the stock market will
once again return to the historical norms.
1998 PERFORMANCE OF THE S&P 500 STOCK
INDEX BY MARKET CAPITALIZATION DECILE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
S&P 500 Stock Index 1998 Market-Cap 1998 Median P/E Multiple
Market Value Decile Weighted Return Median Return on 1999 Earnings/1/
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 (Largest 50 stocks) 40.2% 33.3% 26.4x
- -----------------------------------------------------------------------------------------
2 (Next 50 largest stocks) 25.9% 25.4% 22.7x
- -----------------------------------------------------------------------------------------
3 (Next 50) 21.4% 22.0% 20.9x
- -----------------------------------------------------------------------------------------
4 (Next 50) 15.8% 13.3% 19.9x
- -----------------------------------------------------------------------------------------
5 (Next 50) 8.8% 9.9% 17.0x
- -----------------------------------------------------------------------------------------
6 (Next 50) 9.0% 1.6% 15.4x
- -----------------------------------------------------------------------------------------
7 (Next 50) 9.6% -2.0% 15.4x
- -----------------------------------------------------------------------------------------
8 (Next 50) 6.6% -10.4% 15.3x
- -----------------------------------------------------------------------------------------
9 (Next 50) 0.9% -15.8% 13.9x
- -----------------------------------------------------------------------------------------
10 (Smallest 50 stocks) -4.9% -23.9% 13.1x
- -----------------------------------------------------------------------------------------
</TABLE>
Note: The median return represents the performance of the middle stock within
the category (half the stocks performed better than the median, half
performed worse).
The S&P 500 Stock 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.
/1/ The P/E (price/earnings) ratio is calculated by dividing the current price
of the stock by its trailing 12 months earnings per share.
15
<PAGE>
[PICTURE 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.
INTERVIEW WITH THOMAS BOWDEN & LEIF SANCHEZ
Fund Managers of the Sefton Equity Value Fund
Q: Tom and Leif, how did the Sefton Equity Value Fund perform in 1998?
A: In contrast to 1996 and 1997, the two year period when the Sefton Equity
Value Fund outperformed the Morningstar Growth Fund Average 63.7% to 50.2%,
the Fund produced a total return of -9.4%/1/ compared to 18.7%/2/ for the
Morningstar Growth Fund Average for the 12 month period ended December 31,
1998. While we are disappointed with the recent performance, we are also
aware that the odds were stacked against us in 1998. Growth stocks
dramatically outperformed value stocks. Large-capitalization stocks
severely outperformed small-capitalization stocks. For example, while the
Morningstar Growth Fund Average experienced an average return of 18.7%/2/,
the median performance of the Equity Value Fund's universe (stocks that
range between $50 million and $400 billion market capitalization) was -7.0
percent. Adding insult to injury was the fact that growth stocks
outperformed value stocks (as measured by the S&P 500 index/3/) for the
fourth year in a row. The Equity Value Fund is managed as a "Mid-Cap Value"
Fund, although the fund is permitted to invest in small-, mid-, and
large-capitalization value stocks. This focus served us extremely well over
the last several years, even while this group of stocks underperformed. We
stuck to our investment style during 1998, electing not to migrate to large,
high Price/Earnings multiple stocks, which we have never held before. While
the Fund suffered from the lack of exposure to these stocks, we strongly
feel that the dramatic difference between valuation levels of growth stocks
to value stocks will be unwound sometime during 1999.
/1/ References to total return herein include reinvested dividends and capital
gains paid.
/2/ Morningstar Growth Fund Average is an average of growth mutual funds as
tracked by Morningstar.
/3/ The S&P 500 Stock Index is a broad-based measurement of changes in stock
market conditions based on the market capitalization weighted performance of
500 widely held common stocks.
16
<PAGE>
Q: What is the outlook for the Fund in 1999?
A: It is very difficult, if not impossible, to call for the turn away from
growth stocks and large stocks to smaller stocks and value stocks. If
history is any guide (which we believe it is) it is our view that smaller
and value stocks are poised in the near term to begin outperforming. We
believe the primary catalyst would be an acceleration in world economic
activity which would stimulate U.S. export markets and commodity prices.
However, there are many other variables which are difficult to predict, such
as a final speculative blow-off in the internet stocks, or simply the gross
valuation differences between growth and value stocks, which could also
propel value stocks. As such, we believe now more than ever is a great time
to focus on value stocks, particularly those in the small- and mid-cap area.
Presently, the Fund is overweighted (relative to the S&P 500) in the
Financial, Utility/REIT, and Basic Industry sectors and underweighted in
Health Care, Consumer Staples, Technology, and Manufacturing sectors.
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 EQUITY VALUE FUND HIGHLIGHTS AS OF DECEMBER 31, 1998*
[PIE CHART APPEARS HERE]
Utilities/REITS 17%
Services 5%
Manufacturing 9%
Finance 21%
Technology 3%
Health Care 7%
Consumer Cyclical 7%
Basic Industry 10%
Energy 6%
Cash 8%
Consumer Staples 7%
Net Assets: $75,153,220
NAV Per Share: $15.33
Top Ten Holdings/1/ % of Assets
First Energy Corporation 5.3%
Chase Manhattan Corporation 3.6%
Dana Corporation 3.5%
Ryder Systems, Inc. 3.5%
Phillip Morris Companies, Inc. 3.3%
PPG Industries, Inc. 3.3%
Atlantic Richfield Company 3.0%
Mascotech, Inc. 3.0%
Cigna Corporation 2.8%
USX- Marathon Group 2.8%
* The composition of the Fund's holdings is subject to change.
/1/ Percentages are based upon total net assets.
SEFTON EQUITY VALUE FUND PORTFOLIO PERFORMANCE**
[BAR GRAPH APPEARS HERE]
One Year Three Year Anualized
(Annualized) Since Inception
Sefton Equity
Value Fund -9.4% 14.1% 15.6%
Morningstar Growth
Fund Average 18.7% 21.3% 23.1%
** 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 EQUITY VALUE FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton Equity Value Fund,
the Morningstar Growth Fund Average* , and the S&P 500 Index.** (Fund inception
date: April 3, 1995)
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sefton Equity Value Fund Morningstar Growth Fund Average S&P 500 Index
<S> <C> <C> <C>
04/95 $ 9,983 $10,197 $10,291
06/95 $10,350 $10,939 $10,949
09/95 $11,280 $11,904 $11,819
12/95 $11,604 $12,196 $12,524
03/96 $12,831 $12,885 $13,204
06/96 $12,973 $13,480 $13,801
09/96 $13,579 $13,894 $14,223
12/96 $15,167 $14,620 $15,413
03/97 $15,555 $14,366 $15,817
06/97 $17,516 $16,810 $18,583
09/97 $19,378 $18,495 $19,981
12/97 $18,997 $18,217 $20,556
06/98 $19,235 $20,778 $24,187
12/98 $17,209 $21,780 $26,431
</TABLE>
This hypothetical is for illustrative purposes only and is not representative of
any particular investment. Performance figures reflect all fees, 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 1620 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 market capitalization weighted performance
of 500 widely held common stocks. An investor may not invest in this unmanaged
index.
19
<PAGE>
INTERVIEW WITH THOMAS BOWDEN & LEIF SANCHEZ
Fund Managers of the Sefton Small Company Value Fund
Q: Tom and Leif, how did the Sefton Small Company Value Fund perform in 1998?
A: The Fund had a difficult time during 1998 as investors focused on more
large, liquid stocks. During the 12 month period ended December 31, 1998,
the Fund experienced a 15.7%/1/ decline compared to a gain of 0.1%/2/ for
the Morningstar Small Company Fund Average. It was a very difficult stock
picking environment for the Fund, as the median return for stocks with
market capitalizations of under $1 billion was -20%. While most small stocks
could be categorized as being involved in a bear market during 1998, large
stocks experienced only a mild intra-year correction.
Q: What is the outlook for the Fund in 1999?
A: Just as value stocks in the S&P 500 Index/3/ have underperformed growth
stocks every calendar year since 1994, the Russell 2000/4/ has
underperformed the S&P 500 every year since 1994. There are many reasons for
this phenomenon, but we believe there are even more reasons why this trend
is not likely to continue. We continue to emphasize a diversified holding of
value stocks in the portfolio in preparation for the eventual turn.
Presently, the Fund is overweighted (relative to the Russell 2000) in the
Consumer Cyclical, Manufacturing, and Utility/REIT sectors and underweighted
in the Technology, Basic Industry, and Financial sectors.
/1/ References to total return herein include reinvested dividends and capital
gains paid.
/2/ Morningstar Small Company Fund Average is an average of small company mutual
funds as tracked by Morningstar.
/3/ The S&P 500 Stock Index is a broad-based measurement of changes in stock
market conditions based on the market capitalization weighted performance of
500 widely held common stocks. An investor may not invest in this unmanaged
index.
/4/ The Russell 2000 Index is a unmanaged stock index generally representative
of the small capitalization equity market as a whole. An investor may not
invest in this unmanaged index.
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.
Smaller companies generally have a higher company specific risk, and
historically, their stocks have experienced a greater degree of market
volatility than larger company stocks on average.
<PAGE>
SEFTON SMALL COMPANY VALUE FUND HIGHLIGHTS AS OF DECEMBER 31, 1998*
[PIE CHART APPEARS HERE]
Health Care 7%
Consumer Staples 4%
Technology 3%
Utilities/REITS 16%
Finance 12%
Cash 8%
Services 11%
Energy 5%
Manufacturing 14%
Basic Industry 3%
Consumer Cyclical 17%
Net Assets: $35,336,493
NAV Per Share: $10.66
Top Ten Holdings/1/ % of Assets
Tropical Sportswear Int'l Corporation 5.1%
EastGroup Property Investors, Inc. 4.2%
Bedford Property Investors, Inc. 3.9%
Mascotech, Inc. 3.4%
Trinet Corporate Realty Trust 3.0%
Midcoast Energy Resources, Inc. 3.0%
Sierra Health Services 3.0%
ARM Financial Group, Inc. 2.8%
Rock Financial Corporation 2.8%
Tarrant Apparel Group 2.5%
* The composition of the Fund's holdings is subject to change.
/1/ Percentages are based upon total net assets.
SEFTON SMALL COMPANY VALUE FUND PORTFOLIO PERFORMANCE*
[BAR GRAPH APPEARS HERE]
Annualized Since
One Year Inception
Sefton Small Company Value Fund -15.7% -6.8%
Morningstar Small Company Fund Average 0.1% 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.
21
<PAGE>
SEFTON SMALL COMPANY VALUE FUND
RESULTS OF $10,000 INVESTMENT COMPARISON
Results of a hypothetical $10,000 investment in the Sefton Small Company Value
Fund, the Morningstar Small Company Fund Average*, and the Russell 2000 Small
Company Index.** (Fund inception date: June 30, 1997)
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sefton Small Company Value Fund Morningstar Small Company Fund Average Russell 2000 Small Company Index
<S> <C> <C> <C>
06/97 $10,000 $10,000 $10,000
07/97 $10,341 $10,634 $10,465
08/97 $10,432 $10,852 $10,705
09/97 $11,004 $11,682 $11,488
10/97 $10,754 $11,171 $10,984
11/97 $10,495 $11,020 $10,912
12/97 $10,676 $11,093 $11,103
01/98 $10,626 $10,937 $10,928
02/98 $11,053 $11,778 $11,735
03/98 $11,593 $12,341 $12,218
04/98 $11,711 $12,444 $12,285
05/98 $11,350 $11,746 $11,623
06/98 $10,883 $11,849 $11,648
12/98 $ 9,002 $11,125 $10,821
</TABLE>
This hypothetical is for illustrative purposes only and is not representative of
any particular investment. Performance figures reflect all fees, 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 688 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.
22
<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 rated AAA.
General Obligation Bonds
General obligation bonds (GOs) are debts backed by the general taxing power of
the issuer. Payment of the obligation may be backed by a specific tax or the
issuer's general tax fund. Examples of GOs include sidewalk bonds, sewer bonds,
street bonds and so on. These bonds are also known as full faith and credit
bonds because the debt is a general obligation of the issuer.
23
<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
24
<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.
25
<PAGE>
Sefton U.S. Government Fund
STATEMENT OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Face Market
Value Value
----- ------
<C> <S> <C>
CORPORATE BONDS 22.5%
- ------------------------------------------------------------------------------
Finance 8.6%
- ------------------------------------------------------------------------------
$1,000,000 Countrywide Home Loan, 7.45%, 9/16/03 $ 1,049,078
500,000 Lehman Brothers Holdings, Inc., 8.75%, 5/15/02 534,033
1,000,000 Lehman Brothers Holdings, Inc., 7.25%, 10/15/03 1,031,635
500,000 Salomon, Inc., 9.25%, 5/1/01 538,748
-----------
3,153,494
-----------
Industrial 13.9%
- ------------------------------------------------------------------------------
1,000,000 Boise Cascade Co., 7.70%, 1/30/03 990,689
500,000 Boise Cascade Co., 7.90%, 12/15/03 497,734
500,000 Bowater, Inc., 8.25%, 10/15/99 509,202
1,500,000 Coca Cola Bottling Co. Consolidated, 6.85%, 11/1/07 1,544,857
500,000 Royal Caribbean Cruises Ltd., 8.25%, 4/1/05 537,501
1,000,000 Royal Caribbean Cruises Ltd., 7.00%, 10/15/07 1,002,803
-----------
5,082,786
-----------
TOTAL CORPORATE BONDS
(Cost $8,160,225) 8,236,280
-----------
U.S. GOVERNMENT AGENCY 2.5%
- ------------------------------------------------------------------------------
875,000 Freddie Mac, 8.53%, 2/2/05 907,236
-----------
TOTAL U.S. GOVERNMENT AGENCY
(Cost $897,213) 907,236
-----------
U.S. GOVERNMENT AGENCIES--MORTGAGE BACKED 22.8%
- ------------------------------------------------------------------------------
1,400,000 Fannie Mae, 6.00%, 8/25/08, Series 1994-34, Class C,
Collateralized Mortgage Obligation 1,412,207
598,640 Fannie Mae, 7.00%, 5/1/14, Pool #190783 612,634
384,187 Fannie Mae, 8.00%, 1/1/15, Pool #250232 397,663
1,536,875 Fannie Mae, 6.50%, 6/1/16, Pool #368930 1,554,936
450,501 Freddie Mac, 7.50%, 7/1/09, Pool #E00326 464,180
965,540 Freddie Mac, 7.50%, 4/1/14, Pool #C90060 993,212
657,518 Freddie Mac, 7.00%, 4/1/16, Pool #C90133 672,648
1,251,096 Freddie Mac, 6.10%, 11/15/16, Series 1501, Class F,
Collateralized Mortgage Obligation 1,255,757
952,474 Ginnie Mae, 7.00%, 7/20/13, Pool #2626 975,594
-----------
TOTAL U.S. GOVERNMENT AGENCIES--MORTGAGE BACKED
(Cost $8,163,310) 8,338,831
-----------
</TABLE>
26
<PAGE>
Sefton U.S. Government Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Market
Value Value
----- ------
<C> <S> <C>
U.S. TREASURY BOND 3.3%
- -------------------------------------------------------------------------------
$1,000,000 7.25%, 5/15/16 $ 1,213,438
-----------
TOTAL U.S. TREASURY BOND
(Cost $980,394) 1,213,438
-----------
U.S. TREASURY NOTES 42.7%
- -------------------------------------------------------------------------------
1,000,000 7.75%, 2/15/01 1,061,875
1,500,000 6.25%, 10/31/01 1,562,813
2,000,000 7.50%, 5/15/02 2,171,876
2,200,000 6.25%, 2/15/03 2,325,813
2,000,000 7.25%, 8/15/04 2,250,000
2,000,000 7.88%, 11/15/04 2,317,499
2,000,000 7.50%, 2/15/05 2,290,000
1,500,000 6.50%, 10/15/06 1,665,470
-----------
TOTAL U.S. TREASURY NOTES
(Cost $14,432,688) 15,645,346
-----------
U.S. TREASURY STRIP 3.3%
- -------------------------------------------------------------------------------
4,000,000 8/15/20 1,209,780
-----------
TOTAL U.S. TREASURY STRIP
(Cost $919,771) 1,209,780
-----------
REPURCHASE AGREEMENT 2.0%
- -------------------------------------------------------------------------------
738,000 Union Bank of California Repurchase Agreement, 4.25%,
dated 12/30/98 and maturing 1/4/99 with a maturity
value of $738,335, collateralized by $736,800,
Freddie Mac, 6.10%, due 12/15/09 with a value of
$823,648 738,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $738,000) 738,000
-----------
</TABLE>
27
<PAGE>
Sefton U.S. Government Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Market
Value Value
----- ------
<C> <S> <C>
CASH SWEEP ACCOUNT 0.0%
- --------------------------------------------------
$ 449 Union Bank of California $ 449
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $449) 449
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS
(Cost $34,292,050) (a) 99.1% 36,289,360
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9% 336,696
- ---------------------------------------------------------------------------
TOTAL NET ASSET $ 100.0% $36,626,056
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.... $2,049,356
Unrealized depreciation.... (52,046)
----------
Net unrealized
appreciation.............. $1,997,310
==========
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
Sefton U.S. Government Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$33,554,050) $35,551,360
Repurchase Agreements (cost-$738,000) 738,000
Interest receivable 507,071
Receivable for investments sold 20,134
Organizational costs, net of accumulated amortization 10,398
Prepaid expenses 700
- -----------------------------------------------------------------------------
Total Assets 36,827,663
- -----------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 2,249
Dividend payable 168,965
Payables:
Investment advisory fees 15,628
Administration fees 600
Other 14,165
- -----------------------------------------------------------------------------
Total Liabilities 201,607
- -----------------------------------------------------------------------------
NET ASSETS: $36,626,056
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $34,614,405
Undistributed (distributions in excess of) net investment income 12,165
Accumulated net realized gain (loss) on investment transactions 2,176
Net unrealized appreciation (depreciation) of investments 1,997,310
- -----------------------------------------------------------------------------
NET ASSETS: $36,626,056
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,855,696
- -----------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.83
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
Sefton U.S. Government Fund
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,383,315
Dividend income 37
- ----------------------------------------------------------------------------
Total Investment Income 2,383,352
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 225,370
Administration fees 56,342
Shareholder servicing fees 4,847
Fund accounting fees 34,971
Professional fees 33,299
Transfer agency fees 9,643
Custody fees 98
Other 27,842
- ----------------------------------------------------------------------------
Total expenses 392,412
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (37,561)
- ----------------------------------------------------------------------------
Net Expenses 354,851
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 2,028,501
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 104,888
Net change in unrealized appreciation (depreciation) 545,227
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 650,115
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,678,616
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
Sefton U.S. Government Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended
December 31, December 31,
1998 1997(1)
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $ 2,028,501 $ 1,387,887
Net realized gain (loss) on investment transactions 104,888 (803)
Net change in unrealized appreciation
(depreciation) 545,227 1,613,047
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 2,678,616 3,000,131
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (2,028,496) (1,387,887)
Distributions to shareholders from net realized
gains from investment transactions (48,432) -
- -------------------------------------------------------------------------------
Change in net assets from investment activities 601,688 1,612,244
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 8,013,526 4,888,839
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 1,393,380 851,626
Cost of shares redeemed (8,660,721) (2,136,602)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 746,185 3,603,863
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 1,347,873 5,216,107
NET ASSETS:
Beginning of period 35,278,183 30,062,076
- -------------------------------------------------------------------------------
End of period $36,626,056 $35,278,183
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 631,624 394,674
Reinvested 109,242 69,048
Redeemed (679,559) (171,902)
- -------------------------------------------------------------------------------
Change in shares 61,307 291,820
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</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.
31
<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
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, March 31, March 31,
1998 1997(4) 1997 1996(1)
------------ ------------ ---------- ------------
<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 0.69 0.52 0.69 0.71
Net realized and
unrealized gain (loss) on
investment transactions 0.23 0.61 (0.29) 0.37
- ---------------------------------------------------------------------------------
Total income from
investment operations 0.92 1.13 0.40 1.08
- ---------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (0.69) (0.52) (0.69) (0.71)
Distributions from net
realized gains from
investment transactions (0.02) - (0.05) (0.02)
- ---------------------------------------------------------------------------------
Total dividends and
distributions (0.71) (0.52) (0.74) (0.73)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net asset value--end of
period $ 12.83 $ 12.62 $ 12.01 $ 12.35
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total return 7.42% 9.59%(2) 3.31% 9.06%(2)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(000's) $36,626 $35,278 $30,062 $19,096
- ---------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 0.94% 1.02%(3) 1.09% 1.02%(3)
- ---------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 5.40% 5.60%(3) 5.64% 5.68%(3)
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets without
fee waivers 1.04% 1.17%(3) 1.39% 1.39%(3)
- ---------------------------------------------------------------------------------
Portfolio turnover rate(5) 12.94% 5.49% 11.94% 45.41%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
(2) Total return is not annualized.
(3) Annualized.
(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
(5) A portfolio turnover rate is the percentage computed by taking the lesser
of purchases or sales of portfolio securities (excluding securities with
maturity dates of one year or less at the time of acquisition) for the
period and dividing it by the monthly average of the market value of such
securities during the period.
See Notes to Financial Statements.
32
<PAGE>
Sefton California Tax-Free Fund
STATEMENT OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
CERTIFICATE OF PARTICIPATION 4.3%
- -----------------------------------------------------------------------
$1,500,000 West Covina, California
Hospital, Certificate of
Participation, 6.50%, 8/15/14,
Prerefunded 8/15/04 @ 102 A2/NR $ 1,727,730
-----------
TOTAL CERTIFICATE OF PARTICIPATION
(Cost $1,502,748) 1,727,730
-----------
EDUCATION 14.0%
- -----------------------------------------------------------------------
1,690,000 California Educational
Facilities Authority, Pomona
College, 6.13%, 2/15/08,
Callable 2/15/02 @ 102 AAA/AA+ 1,838,805
1,500,000 California Educational
Facilities Authority, Santa
Clara University, 6.25%,
2/1/16, Prerefunded 2/1/02 @
102 A1/NR 1,642,680
500,000 California State Public Works
Board University, 6.63%,
10/1/10, Prerefunded 10/1/02 @
102 AAA/A 561,985
1,500,000 University of California
Revenue Series B, 6.30%,
9/1/15, Prerefunded 9/1/03 @
102 AAA/A+ 1,694,055
-----------
TOTAL EDUCATION
(Cost $5,198,738) 5,737,525
-----------
FLOATING RATE NOTES 1.0%
- -----------------------------------------------------------------------
100,000 California Pollution Control
Finance Authority, Series C,
5.20%, 2/28/08, (b) A1/A+ 100,000
300,000 California Pollution Control
Finance Authority, Series D,
5.20%, 2/28/08, (b) A1/A+ 300,000
-----------
TOTAL FLOATING RATE NOTES
(Cost $400,000) 400,000
-----------
GENERAL OBLIGATION BONDS 11.2%
- -----------------------------------------------------------------------
1,325,000 California State, 6.25%, 4/1/08 AA3/A+ 1,536,841
1,895,000 California State Veterans
General Obligation, 5.15%,
12/1/14, Callable 12/1/08 @
101 Aa3/A+ 1,932,995
1,000,000 Oakland California, Series B,
5.88%, 6/15/19, Callable
6/15/05 @ 102, FSA Aaa/AAA 1,089,220
-----------
TOTAL GENERAL OBLIGATION BONDS
(Cost $4,274,410) 4,559,056
-----------
</TABLE>
33
<PAGE>
Sefton California Tax-Free Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
HEALTH 10.4%
- ---------------------------------------------------------------------
$1,000,000 California Health Facilities
Authorities Revenue, 5.00%,
11/15/13 Aaa/AAA $ 1,023,890
1,500,000 California Health Facilities
Finance Authorities, 6.25%,
10/1/13, Callable 10/1/01 @
102, MBIA Aaa/AAA 1,617,825
1,000,000 Stockton, California, Health
Facilities, Dameron Hospital
Assoc., Series A, 5.35%,
12/1/09, Callable 12/1/07 @
102 NR/BBB+ 1,051,650
500,000 Stockton, California, Health
Facilities, Dameron Hospital
Assoc., Series A, 5.45%,
12/1/10, Callable 12/1/07 @
102 NR/BBB+ 525,520
-----------
TOTAL HEALTH
(Cost $3,986,327) 4,218,885
-----------
HOUSING 6.0%
- ---------------------------------------------------------------------
1,460,000 California Housing Finance
Agency, Series F, 5.95%,
8/1/14, Callable 8/1/05 @ 102,
MBIA Aaa/AAA 1,561,017
800,000 California Housing Finance
Agency, Series L, 5.90%,
8/1/17, Callable 2/1/06 @ 102,
MBIA Aaa/AAA 852,616
-----------
TOTAL HOUSING
(Cost $2,260,000) 2,413,633
-----------
POWER 6.6%
- ---------------------------------------------------------------------
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 1,643,955
1,000,000 Northern California Power
Agency Revenue, 5.00%, 7/1/15,
Callable 7/1/08 @ 101, MBIA Aaa/AAA 1,016,630
-----------
TOTAL POWER
(Cost $2,498,259) 2,660,585
-----------
PRISONS 2.7%
- ---------------------------------------------------------------------
1,000,000 California State Public Works
Board University, 5.25%,
12/1/08 Aaa/AAA 1,090,090
-----------
TOTAL PRISONS
(Cost $969,975) 1,090,090
-----------
</TABLE>
34
<PAGE>
Sefton California Tax-Free Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
REVENUE 9.3%
- ---------------------------------------------------------------------
$1,000,000 Mountain View California,
Shoreline Regional Park,
Series A, 5.50%, 8/1/21,
Callable 8/1/06 @ 102, MBIA Aaa/AAA $ 1,052,050
1,000,000 Port of Oakland, 5.60%,
11/1/19, Callable 11/01/07 @
102, MBIA Aaa/AAA 1,065,590
1,500,000 San Francisco Port Commission,
5.90%, 7/1/09, Callable 7/1/04
@ 102 A1/A- 1,648,725
-----------
TOTAL REVENUE
(Cost $3,417,931) 3,766,365
-----------
TRANSPORTATION 12.5%
- ---------------------------------------------------------------------
1,500,000 San Diego Regional
Transportation Commission,
California Sales Tax, Series
A, 5.00%, 4/1/07, FGIC Aaa/AAA 1,597,920
1,800,000 San Francisco Airport,
California, City/County,
5.38%, 5/1/17, Callable 5/1/06
@ 102, MBIA Aaa/AAA 1,885,554
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 1,581,900
-----------
TOTAL TRANSPORTATION
(Cost $4,625,165) 5,065,374
-----------
WASTE 9.6%
- ---------------------------------------------------------------------
1,200,000 Los Angeles California Waste
Water Revenue Bond, 5.00%,
6/1/14, Callable 6/1/08 @ 101,
FGIC Aaa/AAA 1,232,652
1,500,000 San Jose-Santa Clara Water
District Financing, 5.38%,
11/15/15, Callable 11/15/05 @
101, FGIC Aaa/AAA 1,572,930
1,000,000 Tulare California Sewer
Revenue, 5.70%, 11/15/15,
Callable 11/15/06 @ 102, MBIA Aaa/AAA 1,092,000
-----------
TOTAL WASTE
(Cost $3,619,644) 3,897,582
-----------
</TABLE>
35
<PAGE>
Sefton California Tax-Free Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Moody's/S&P Market
Value Ratings Value
----- ----------- ------
(Unaudited)
<C> <S> <C> <C>
WATER 11.1%
- ---------------------------------------------------------------------
$1,700,000 Marin California Municipal
Water District, 5.55%, 7/1/13,
Callable 7/1/03 @ 102 A1/AA $ 1,789,369
1,000,000 Rancho California, Water
District Financing Authority,
Series A, 5.88%, 11/1/10,
Callable 11/1/05 @ 102, FGIC Aaa/AAA 1,113,400
1,500,000 San Francisco, California,
City/County, Public Utility
Commission Water, Series A,
6.00%, 11/1/15, Callable
11/1/02 @ 100 A1/AA- 1,597,035
-----------
TOTAL WATER
(Cost $4,245,952) 4,499,804
-----------
TOTAL INVESTMENTS
(Cost $36,999,149) (a) 98.7% 40,036,629
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3% 527,292
- ---------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $40,563,921
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.... $3,037,480
Unrealized depreciation.... (0)
----------
Net unrealized
appreciation.............. $3,037,480
==========
</TABLE>
(b) Floating rate security--rate disclosed as of December 31, 1998.
AMBAC--American Municipal Bond Assurance Corporation.
FGIC--Financial Guaranty Insurance Company.
FSA--Financial Security Assurance Corporation.
MBIA--Municipal Bond Insurance Company.
See Notes to Financial Statements.
36
<PAGE>
Sefton California Tax-Free Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$36,999,149) $40,036,629
Cash 56,291
Interest receivable 603,763
Receivable for investments sold 36,410
Organizational costs, net of accumulated amortization 10,398
Prepaid expenses 1,573
- ------------------------------------------------------------------------------
Total Assets 40,745,064
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 4,586
Dividend payable 148,761
Payables:
Investment advisory fees 15,552
Administration fees 665
Other 11,579
- ------------------------------------------------------------------------------
Total Liabilities 181,143
- ------------------------------------------------------------------------------
NET ASSETS: $40,563,921
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $37,526,158
Undistributed (distributions in excess of) net investment income 3,609
Accumulated net realized gain (loss) on investment transactions (3,326)
Net unrealized appreciation (depreciation) of investments 3,037,480
- ------------------------------------------------------------------------------
NET ASSETS: $40,563,921
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,122,739
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.99
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
Sefton California Tax-Free Fund
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,186,750
- ----------------------------------------------------------------------------
Total Investment Income 2,186,750
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 253,518
Administration fees 63,379
Shareholder servicing fees 4,226
Fund accounting fees 36,740
Professional fees 35,635
Transfer agency fees 9,450
Custody fees 1,380
Other 35,736
- ----------------------------------------------------------------------------
Total expenses 440,064
- ----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (63,379)
- ----------------------------------------------------------------------------
Net Expenses 376,685
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 1,810,065
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 195,883
Net change in unrealized appreciation (depreciation) 521,090
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 716,973
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,527,038
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
Sefton California Tax-Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended
December 31, December 31,
1998 1997(1)
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $ 1,810,065 $ 1,304,902
Net realized gain (loss) on investment transactions 195,883 -
Net change in unrealized appreciation
(depreciation) 521,090 1,943,972
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 2,527,038 3,248,874
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,810,065) (1,304,902)
Distributions to shareholders from net realized
gains from investment transactions (199,209) (208,193)
- -------------------------------------------------------------------------------
Change in net assets from investment activities 517,764 1,735,779
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 5,281,259 3,381,101
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 1,742,462 1,313,097
Cost of shares redeemed (7,280,193) (1,631,727)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions (256,472) 3,062,471
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 261,292 4,798,250
NET ASSETS:
Beginning of period 40,302,629 35,504,379
- -------------------------------------------------------------------------------
End of period $40,563,921 $40,302,629
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 408,512 269,302
Reinvested 134,555 104,074
Redeemed (559,510) (130,527)
- -------------------------------------------------------------------------------
Change in shares (16,443) 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.
39
<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
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, March 31, March 31,
1998 1997(4) 1997 1996(1)
------------ ------------ ---------- ------------
<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 0.55 0.43 0.59 0.58
Net realized and
unrealized gain on
investment transactions 0.21 0.65 0.09 0.20
- --------------------------------------------------------------------------------
Total income from
investment operations 0.76 1.08 0.68 0.78
- --------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (0.55) (0.43) (0.59) (0.58)
Distributions from net
realized gains from
investment transactions (0.06) (0.07) (0.02) (0.01)
- --------------------------------------------------------------------------------
Total dividends and
distributions (0.61) (0.50) (0.61) (0.59)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value--end of
period $ 12.99 $ 12.84 $ 12.26 $ 12.19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total return 6.11% 8.93%(2) 5.69% 6.60%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(000's) $40,564 $40,303 $35,504 $42,593
- --------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 0.89% 0.94%(3) 0.88% 0.83%(3)
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 4.28% 4.54%(3) 4.83% 4.83%(3)
- --------------------------------------------------------------------------------
Ratio of expenses to
average net assets
without fee waivers 1.04% 1.12%(3) 1.17% 1.16%(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate(5) 36.44% 12.97% 14.52% 93.90%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Fund commenced investment operations April 3, 1995.
(2) Total return is not annualized.
(3) Annualized.
(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.
(5) A portfolio turnover rate is the percentage computed by taking the lesser
of purchases or sales of portfolio securities (excluding securities with
maturity dates of one year or less at the time of acquisition) for the pe-
riod and dividing it by the monthly average of the market value of such se-
curities during the period.
See Notes to Financial Statements.
40
<PAGE>
Sefton Equity Value Fund
STATEMENT OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
COMMON STOCKS 89.4%
- -----------------------------------------------------------------
Basic Industry 10.1%
- -----------------------------------------------------------------
20,000 Aluminum Company of America $ 1,487,875
39,400 Fort James Corp. 1,576,000
38,900 Owens-Illinois, Inc.* 1,191,313
43,000 PPG Industries, Inc. 2,504,750
50,000 Synthetic Industries, Inc.* 837,500
-----------
7,597,438
-----------
Consumer Cyclicals 6.6%
- -----------------------------------------------------------------
32,000 BJ's Wholesale Club, Inc.* 1,503,281
50,500 Burlington Coat Factory Warehouse Corp. 823,781
45,000 Dillards, Inc. Class A 1,276,875
54,200 Warnaco Group, Inc. 1,368,550
-----------
4,972,487
-----------
Consumer Staples 6.5%
- -----------------------------------------------------------------
25,000 Dole Foods Co. 750,000
47,000 Phillip Morris Cos., Inc. 2,514,500
32,200 Suiza Foods Corp.* 1,640,188
-----------
4,904,688
-----------
Energy 5.8%
- -----------------------------------------------------------------
35,000 Atlantic Richfield Co. 2,283,750
68,800 USX-Marathon Group 2,072,600
-----------
4,356,350
-----------
Finance 20.8%
- -----------------------------------------------------------------
26,500 Allstate Corp. 1,023,562
25,000 Astoria Financial Corp. 1,143,750
22,000 Bank One Corp. 1,123,375
40,000 Chase Manhattan Corp. 2,722,499
27,600 Cigna Corp. 2,133,825
53,000 FirstFed Financial Corp.* 947,375
54,800 Liberty Financial Companies, Inc. 1,479,600
20,000 PNC Financial Corp. 1,082,500
88,900 Rock Financial Corp. 1,155,700
91,000 Sovereign Bancorp, Inc. 1,296,750
40,000 Washington Mutual, Inc. 1,527,500
-----------
15,636,436
-----------
</TABLE>
41
<PAGE>
Sefton Equity Value Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
Health Care 7.0%
- -------------------------------------------------------------
70,000 Foundation Health Systems, Inc.* $ 835,625
63,000 Genesis Health Ventures, Inc.* 551,250
60,000 Healthsouth Corp.* 926,250
45,000 Humana, Inc.* 801,563
76,000 Integrated Health Services* 1,073,500
50,000 Sierra Health Services* 1,053,125
-----------
5,241,313
-----------
Manufacturing 8.5%
- -------------------------------------------------------------
65,000 Dana Corp. 2,656,875
130,000 Mascotech, Inc. 2,226,250
40,000 Standard Products Co. 815,000
40,000 Watts Industries, Inc. 665,000
-----------
6,363,125
-----------
Services 5.0%
- -------------------------------------------------------------
75,000 Harrah's Entertainment, Inc.* 1,176,563
100,000 Ryder Systems, Inc. 2,600,000
-----------
3,776,563
-----------
Technology 2.2%
- -------------------------------------------------------------
25,000 Harris Corp. 915,625
22,000 Storage Tech. Corp.* 782,375
-----------
1,698,000
-----------
Utilities/REITS 16.9%
- -------------------------------------------------------------
75,000 Bedford Property Investors, Inc. 1,265,625
64,800 Carramerica Realty Corp. 1,555,200
70,000 EastGroup Property Investors, Inc. 1,290,625
100,200 Equity Inns, Inc. 964,425
122,000 FirstEnergy Corp. 3,972,624
18,600 General Public Utility, Inc. 821,888
52,000 Highwoods Properties, Inc. 1,339,000
55,000 TriNet Corporate Realty Trust, Inc. 1,471,250
-----------
12,680,637
-----------
TOTAL COMMON STOCKS
(Cost $64,082,433) 67,227,037
-----------
</TABLE>
42
<PAGE>
Sefton Equity Value Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
REPURCHASE AGREEMENT 7.4%
- -------------------------------------------------------------------------------
$5,556,000 Union Bank of California Repurchase Agreement, 4.25%,
dated 12/30/98 and maturing 1/4/99 with a maturity
value of $5,558,635, collateralized by $5,802,300,
Freddie Mac, 6.10%, due 12/15/09 with a value of
$5,674,016 $ 5,556,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $5,556,000) 5,556,000
-----------
CASH SWEEP ACCOUNT 0.0%
- -------------------------------------------------------------------------------
510 Union Bank of California 510
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TOTAL CASH SWEEP
ACCOUNT
(Cost $510) 510
-----------
TOTAL INVESTMENTS
(Cost $69,638,943) (a) 96.8% 72,783,547
OTHER ASSETS IN EXCESS OF LIABILITIES 3.2% 2,369,673
- ------------------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $75,153,220
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(a) Represents cost for financial reporting purposes and differs from cost ba-
sis for federal income tax purposes. Cost for federal income tax purposes
of $35,372 differs from value by net unrealized appreciation of securities
as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 8,143,617
Unrealized depreciation.. (4,963,641)
-----------
Net unrealized
appreciation............ $ 3,179,976
===========
</TABLE>
* Denotes non-income producing security.
See Notes to Financial Statements.
43
<PAGE>
Sefton Equity Value Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$64,082,943) $67,227,547
Repurchase Agreements (cost-$5,556,000) 5,556,000
Interest receivable 138,101
Receivable for investments sold 2,661,000
Organizational costs, net of accumulated amortization 10,398
Prepaid expenses 2,757
- -----------------------------------------------------------------------------
Total Assets 75,595,803
- -----------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 349,608
Payables:
Investment advisory fees 61,897
Administration fees 1,212
Other 29,866
- -----------------------------------------------------------------------------
Total Liabilities 442,583
- -----------------------------------------------------------------------------
NET ASSETS: $75,153,220
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $69,538,440
Undistributed (distributions in excess of) net investment income 49,472
Accumulated net realized gain (loss) on investment transactions 2,420,704
Net unrealized appreciation (depreciation) of investments 3,144,604
- -----------------------------------------------------------------------------
NET ASSETS $75,153,220
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares of beneficial interest outstanding 4,902,540
- -----------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $15.33
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
Sefton Equity Value Fund
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 2,229,632
- ------------------------------------------------------------------------------
Total Investment Income 2,229,632
- ------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 813,278
Administration fees 121,991
Shareholder servicing fees 14,721
Fund accounting fees 32,672
Professional fees 52,643
Transfer agency fees 28,811
Custody fees 7,060
Other 57,338
- ------------------------------------------------------------------------------
Total expenses 1,128,514
- ------------------------------------------------------------------------------
Net Expenses 1,128,514
- ------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,101,118
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 2,418,491
Net change in unrealized appreciation (depreciation) (10,739,630)
- ------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (8,321,139)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (7,220,021)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
Sefton Equity Value Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended
December 31, December 31,
1998 1997(1)
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $ 1,101,118 $ 636,248
Net realized gain (loss) on investment
transactions 2,418,491 8,517,641
Net change in unrealized appreciation
(depreciation) (10,739,630) 7,434,532
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (7,220,021) 16,588,421
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,047,780) (637,096)
Distributions to shareholders from net realized
gains from investment transactions (1,249,734) (10,154,021)
- ------------------------------------------------------------------------------
Change in net assets from investment activities (9,517,535) 5,797,304
- ------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 12,365,808 9,338,186
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 2,245,513 10,678,131
Cost of shares redeemed (15,218,869) (26,850,987)
- ------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions (607,548) (6,834,670)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (10,125,083) (1,037,366)
NET ASSETS:
Beginning of period 85,278,303 86,315,669
- ------------------------------------------------------------------------------
End of period $ 75,153,220 $ 85,278,303
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 772,622 507,143
Reinvested 147,315 617,097
Redeemed (904,934) (1,493,947)
- ------------------------------------------------------------------------------
Change in shares 15,003 (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.
46
<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
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, March 31, March 31,
1998 1997(4) 1997 1996(1)
------------ ------------ ---------- ------------
<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 0.22 0.14 0.17 0.21
Net realized and
unrealized gain (loss)
on investment
transactions (1.87) 3.45 3.14 2.92
- -------------------------------------------------------------------------------
Total income from
investment operations (1.65) 3.59 3.31 3.13
- -------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (0.21) (0.14) (0.17) (0.21)
Distributions from net
realized gains from
investment transactions (0.26) (2.42) (1.64) -
- -------------------------------------------------------------------------------
Total dividends and
distributions (0.47) (2.56) (1.81) (0.21)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net asset value--end of
period $ 15.33 $ 17.45 $ 16.42 $ 14.92
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total return (9.40)% 22.13%(2) 23.15% 26.31%(2)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(000's) $75,153 $85,278 $86,316 $36,326
- -------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.39% 1.41%(3) 1.52% 1.55%(3)
- -------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 1.35% 1.02%(3) 1.13% 1.68%(3)
- -------------------------------------------------------------------------------
Ratio of expenses to
average net assets
without fee waivers 1.39% 1.43%(3) 1.56% 1.66%(3)
- -------------------------------------------------------------------------------
Portfolio turnover
rate(5) 82.44% 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 pe-
riod and dividing it by the monthly average of the market value of such se-
curities during the period.
See Notes to Financial Statements.
47
<PAGE>
Sefton Small Company Value Fund
STATEMENT OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
COMMON STOCKS 90.5%
- ------------------------------------------------------------------
Basic Industry 2.8%
- ------------------------------------------------------------------
62,500 JLM Industries, Inc.* $ 320,313
40,000 Synthetic Industries, Inc.* 670,000
-----------
990,313
-----------
Consumer Cyclicals 17.2%
- ------------------------------------------------------------------
44,000 Burlington Coat Factory Warehouse Corp. 717,750
95,700 Dyersburg Corp. 269,156
20,000 Libbey, Inc. 578,750
50,000 Pier One Imports, Inc. 484,375
50,000 Quaker Fabric Corp.* 312,500
20,000 Racing Champions Corp.* 267,500
32,400 Rocky Shoes & Boots, Inc.* 190,350
64,100 SYMS Corp.* 576,900
22,200 Tarrant Apparel Group* 882,450
50,000 Tropical Sportswear International Corp.* 1,793,749
-----------
6,073,480
-----------
Consumer Staples 4.0%
- ------------------------------------------------------------------
20,000 Great Atlantic & Pacific Tea Co. 592,500
40,000 Richfood Holdings, Inc. 830,000
-----------
1,422,500
-----------
Energy 4.6%
- ------------------------------------------------------------------
30,000 Comstock Resources, Inc.* 91,875
50,000 Midcoast Energy Resources, Inc. 1,062,500
55,000 Pride International, Inc.* 388,438
22,707 Range Resources Corp. 78,055
-----------
1,620,868
-----------
Finance 12.2%
- ------------------------------------------------------------------
45,000 ARM Financial Group, Inc. 998,437
27,100 First Essex Bancorp, Inc. 487,800
40,000 FirstFed Financial Corp.* 715,000
76,600 Rock Financial Corp. 995,800
27,000 Selective Insurance Group 543,375
24,200 UST Corp. 570,213
-----------
4,310,625
-----------
Health Care 7.2%
- ------------------------------------------------------------------
60,000 Genesis Health, Inc.* 525,000
41,000 Integrated Health Services* 579,125
</TABLE>
48
<PAGE>
Sefton Small Company Value Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
Health Care (continued)
- -------------------------------------------------------------
50,000 Sierra Health Services* $ 1,053,125
60,000 Sun Healthcare Group, Inc.* 393,750
-----------
2,551,000
-----------
Manufacturing 13.9%
- -------------------------------------------------------------
50,000 Citation Corp.* 631,250
32,000 Denison International PLC-ADR* 400,000
26,900 DT Industries, Inc. 423,675
55,000 Mark IV Industries, Inc. 715,000
70,000 Mascotech, Inc. 1,198,750
37,400 Standard Products Co. 762,025
26,250 Supreme Industries, Inc.* 252,656
32,600 Watts Industries, Inc. 541,975
-----------
4,925,331
-----------
Services 10.5%
- -------------------------------------------------------------
67,800 Benihana, Inc.* 703,488
66,200 Cameron Ashley Building Products* 864,738
8,600 Motor Cargo Industries, Inc.* 68,800
70,000 Railtex, Inc.* 791,875
50,000 Rollins Truck Leasing Corp. 737,500
50,500 World Fuel Services Corp. 542,875
-----------
3,709,276
-----------
Technology 2.5%
- -------------------------------------------------------------
22,000 Align-Rite International, Inc.* 255,750
15,000 Axsys Technologies, Inc.* 210,000
22,000 Optek Technology, Inc.* 415,250
-----------
881,000
-----------
Utilities/REITS 15.6%
- -------------------------------------------------------------
82,100 Bedford Property Investors, Inc. 1,385,438
80,000 EastGroup Property Investors, Inc. 1,475,000
75,000 Equity Inns, Inc. 721,875
70,000 RFS Hotel Investors, Inc. 857,500
40,000 TriNet Corporate Realty Trust, Inc. 1,070,000
-----------
5,509,813
-----------
TOTAL COMMON STOCKS
(Cost $36,300,943) 31,994,206
-----------
</TABLE>
49
<PAGE>
Sefton Small Company Value Fund
STATEMENT OF INVESTMENTS (continued)
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
REPURCHASE AGREEMENT 7.3%
- -------------------------------------------------------------------------------
$2,562,000 Union Bank of California Repurchase Agreement, 4.25%,
dated 12/30/98 and maturing 1/4/99 with a maturity
value of $2,563,213, collateralized by $2,670,900,
Freddie Mac, 6.10%, due 12/15/09 with a value of
$2,653,795 $ 2,562,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $2,562,000) 2,562,000
-----------
CASH SWEEP ACCOUNT 0.0%
- -------------------------------------------------------------------------------
688 Union Bank of California 688
-----------
TOTAL CASH SWEEP ACCOUNT
(Cost $688) 688
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL
INVESTMENTS
(Cost
$38,863,631)
(a) 97.8% 34,556,894
OTHER ASSETS IN
EXCESS OF
LIABILITIES 2.2% 779,599
- ----------------------------------
TOTAL NET
ASSETS 100.0% $35,336,493
- ----------------------------------
- ----------------------------------
</TABLE>
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes. Cost for federal income tax purposes
of $141,330 differs from value by net unrealized depreciation of securities
as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 3,386,827
Unrealized depreciation.. (7,834,894)
-----------
Net unrealized
depreciation............ $(4,448,067)
-----------
</TABLE>
*Denotes non-income producing security.
PLC--Public Limited Company.
ADR--American Depository Receipt.
See Notes to Financial Statements.
50
<PAGE>
Sefton Small Company Value Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost-$36,301,631) $31,994,894
Repurchase Agreements (cost-$2,562,000) 2,562,000
Interest receivable 92,351
Receivable for investments sold 860,279
Organizational costs, net of accumulated amortization 16,839
Prepaid expenses 695
- ------------------------------------------------------------------------------
Total Assets 35,527,058
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 144,000
Payables:
Investment advisory fees 29,671
Administration fees 546
Other 16,348
- ------------------------------------------------------------------------------
Total Liabilities 190,565
- ------------------------------------------------------------------------------
NET ASSETS: $35,336,493
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $39,899,573
Undistributed (distributions in excess of) net investment income 66,185
Accumulated net realized gain (loss) on investment transactions (322,528)
Net unrealized appreciation (depreciation) of investments (4,306,737)
- ------------------------------------------------------------------------------
NET ASSETS $35,336,493
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,315,396
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $10.66
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
Sefton Small Company Value Fund
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 834,496
- -----------------------------------------------------------------------------
Total Investment Income 834,496
- -----------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 417,794
Administration fees 50,135
Shareholder servicing fee 32
Fund accounting fees 32,584
Professional fees 35,839
Transfer agency fees 10,398
Custody fees 3,607
Other 34,814
- -----------------------------------------------------------------------------
Total expenses 585,203
- -----------------------------------------------------------------------------
Expenses waived by:
Investment Adviser (66,847)
- -----------------------------------------------------------------------------
Net Expenses 518,356
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME 316,140
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions 60,757
Net change in unrealized appreciation (depreciation) (6,191,721)
- -----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (6,130,964)
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(5,814,824)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
52
<PAGE>
Sefton Small Company Value Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended
December 31, December 31,
1998 1997(1)
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $ 316,140 $ 165,182
Net realized gain (loss) on investment transactions 60,757 (383,285)
Net change in unrealized appreciation
(depreciation) (6,191,721) 1,884,984
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (5,814,824) 1,666,881
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (251,204) (168,067)
- -------------------------------------------------------------------------------
Change in net assets derived from investment
activities (6,066,028) 1,498,814
- -------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares 15,450,301 29,849,507
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 240,002 166,722
Cost of shares redeemed (3,968,118) (1,834,707)
- -------------------------------------------------------------------------------
Change in net assets from beneficial interest
transactions 11,722,185 28,181,522
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 5,656,157 29,680,336
NET ASSETS:
Beginning of period 29,680,336 -
- -------------------------------------------------------------------------------
End of period $35,336,493 $29,680,336
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Issued 1,331,521 2,464,003
Reinvested 20,261 12,780
Redeemed (366,695) (146,474)
- -------------------------------------------------------------------------------
Change in shares 985,087 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.
53
<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
Year Ended Period Ended
December 31, December 31,
1998 1997 (1)
------------ ------------
<S> <C> <C>
Net asset value-beginning of period $ 12.74 $ 12.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.07
Net realized and unrealized gain (loss) on
investment transactions (2.10) 0.74
- --------------------------------------------------------------------------------
Total income from investment operations (1.99) 0.81
- --------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (0.09) (0.07)
- --------------------------------------------------------------------------------
Total dividends and distributions (0.09) (0.07)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value--end of period $ 10.66 $ 12.74
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total return (15.69)% 6.76%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $35,336 $29,680
- --------------------------------------------------------------------------------
Ratio of net expenses to average net assets 1.55% 1.59%(3)
- --------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.95% 1.15%(3)
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets without fee
waivers 1.75% 1.81%(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate(4) 59.24% 14.81%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period from June 30, 1997 (commencement of operations) through De-
cember 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 pe-
riod and dividing it by the monthly average of the market value of such se-
curities during the period.
See Notes to Financial Statements.
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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, individually a "Fund", collectively the "Funds". The Funds
commenced investment operations on April 3, 1995 except the Sefton Small Com-
pany Value Fund, which commenced investment operations on June 30, 1997. The
assets for each series are segregated and accounted for separately.
The Funds' investment objectives are as follows:
Sefton U.S. Government Fund - To provide investors with as high a level of
current income as is consistent with preservation of capital. 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.
Sefton California Tax-Free Fund - 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 portfolio's weighted average stated maturity will be 10 or more years.
Sefton Equity Value Fund - To provide investors with long-term capital ap-
preciation. The Fund pursues its investment objective by investing primarily
in common stock of both domestic and foreign companies and it also may invest
in large, well-established companies and smaller companies with market capi-
talizations exceeding $50 million at the time of purchase.
Sefton Small Company Value Fund - To provide investors with long-term capi-
tal appreciation. The Fund pursues its investment objective by investing pri-
marily in a portfolio of equity securities of both foreign and domestic small
capitalization companies, defined as companies having stock market capitaliza-
tion 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.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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
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 year ended December 31, 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 com-
panies.
As of December 31, 1998, for federal income tax purposes, the following Fund
had a capital loss carry forward available to offset future capital gains, if
any:
<TABLE>
<CAPTION>
Amount Expires
------- --------
<S> <C> <C>
Sefton Small Company Value Fund $58,935 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, capital losses incurred within the Funds' fiscal year, but af-
ter October 31, are deemed to arise on the first business day of the following
fiscal year for tax purposes. The following Funds have incurred and will elect
to defer capital losses as follows:
<TABLE>
<S> <C>
Sefton California Tax-Free Fund $ 3,338
Sefton Small Company Value Fund $61,221
</TABLE>
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 com-
mencement of investment 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
quarterly. 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 de-
clared 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.
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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 gen-
erally accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sale losses, net operating
losses and capital loss carry forwards. Permanent items identified for the
year ended December 31, 1998, have been reclassified among the components of
net assets as follows:
<TABLE>
<CAPTION>
Undistributed Undistributed
Net Investment Net Realized
Income Gains and Losses
-------------- ----------------
<S> <C> <C>
Sefton U.S. Government Fund $(26,594) $26,594
Sefton Equity Value Fund (2,298) 2,298
</TABLE>
i. Concentration of Credit Risk: The Sefton California Tax-Free Fund invests
primarily in securities issued by the State of California (the "State") and
its various political subdivisions. The performance of Sefton California Tax-
Free Fund is closely tied to economic conditions within the State and the fi-
nancial condition of the State and its agencies and municipalities.
Note 2 - 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 $37,561, $63,379 and $66,847 of its advisory fee for the year ended De-
cember 31, 1998 for the Sefton U.S. Government Fund, Sefton California Tax-
Free Fund, and Sefton Small Company Value Fund, respectively.
On January 1, 1997, each of the Funds entered into an Administrative Serv-
ices Contract with BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS"). BISYS is entitled to receive a fee from the Funds for its
services computed daily and payable monthly, at an annual rate of 0.15% of
each Fund's average daily net assets. BISYS assisted in each of the Fund's ad-
ministration and operations, including providing office space and various le-
gal and accounting services in connection with the regulatory requirements ap-
plicable to each Fund.
BISYS Fund Services, Inc., an affiliate of BISYS, serves as fund accountant
and transfer agent to the Funds. For the year ended December 31, 1998 BISYS
Fund Services Inc., re-
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
ceived $34,971, $36,740, $32,672 and $32,584 for its services as fund accoun-
tant 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 $9,643, $9,450, $28,811 and $10,398 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 com-
pensation from the Funds. Trustees who are not interested persons of the Trust,
as defined in the 1940 Act, collectively received compensation and reimburse-
ment of expenses of $2,255, $2,598, $5,133 and $2,014 from the Sefton U.S. Gov-
ernment Fund, Sefton California Tax Free Fund, Sefton Equity Value Fund and
Sefton Small Company Value Fund, respectively, for the year ended December 31,
1998.
Note 3 - Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
Sefton U.S. Government Fund $ 5,545,197 $ 4,473,036
Sefton California Tax-Free Fund $ 8,021,290 $ 7,801,037
Sefton Equity Value Fund $62,839,446 $59,627,323
Sefton Small Company Value Fund $27,338,130 $17,155,206
</TABLE>
Note 4 - Federal Income Tax Information (Unaudited)
The following table presents capital gain dividend distributions from long-
term capital gains for the following Funds for the year ended December 31,
1998:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Sefton U.S. Government Fund $ 13,390
Sefton California Tax-Free Fund 172,997
Sefton Equity Value Fund 377,555
</TABLE>
For the taxable year ended December 31, 1998, the following percentages of
the income dividends paid by the following Funds qualify for the dividends re-
ceived deduction available to corporations:
<TABLE>
<S> <C>
Sefton Equity Value Fund 64.77%
Sefton Small Company Value Fund 51.89%
</TABLE>
The Sefton California Tax-Free Fund designates $1,807,092 as an exempt-inter-
est dividend for the year ended December 31, 1998.
58
<PAGE>
Report of Independent Accountants
To the Trustees and Shareholders
of Sefton Funds Trust
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the schedules of portfolio investments, and the related statements of oper-
ations and of changes in net assets and the financial highlights present fair-
ly, in all material respects, the financial position of Sefton U.S. Government
Fund, Sefton California Tax-Free Fund, Sefton Equity Value Fund, and Sefton
Small Company Value Fund (constituting Sefton Funds Trust, hereafter referred
to as the "Trust") at December 31, 1998, the results of each of their opera-
tions for the year then ended, the changes in its net assets and financial
highlights for each of the periods indicated, in conformity with generally ac-
cepted accounting principles. These financial statements and financial high-
lights (hereafter referred to as "financial statements") are the responsibility
of the Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these fi-
nancial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the cus-
todian and brokers and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 1999
59
<PAGE>
SEFTON FUNDS
TRUSTEES AND OFFICERS
[LOGO OF SEFTON FUNDS APPEARS HERE]
Board of Trustees
Harley K. Sefton++ Chairman of the Board;
President and
Chief Executive Officer,
Sefton Capital Management, Inc.
Grace Evans Cherashore*+ Chief Executive Officer,
Bahia and Catamaran Hotels
Gordon T. Frost, Jr.*+ President / General Manager,
Frost Hardwood Lumber Company
John J. Pileggi*+ President and Chief Executive Officer
ING Mutual Funds Management Co., 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
Manderley Rush 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 FUNDS APPEARS HERE]
Investment Adviser
Sefton Capital Management
2550 Fifth Avenue, Suite 808
San Diego, California 92103
Administrator, Distributor and Transfer Agent
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
Custodian
Union Bank of California
475 Sansome Street
San Francisco, California 94111
Legal Counsel
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Independent Accountants
PricewaterhouseCoopers LLP
203 N. La Salle Street
Chicago, Illinois 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 2/99
