<PAGE>
FOCUS TRUST, INC./SM/
1996 ANNUAL REPORT
<PAGE>
FOCUS TRUST, INC. ("Focus Trust" or the "Fund") is a no-load, non-diversified
open-end management investment company, commonly known as a mutual fund. The
Fund seeks to attain maximum long-term capital appreciation with minimum risk
to principal by investing primarily in common stocks. The selection of common
stocks will be made through an investment strategy known as focus investing.
Focus investing is an investment strategy whereby companies (businesses) are
identified and selected as eligible for investment by the examination of all
fundamental quantitative and qualitative aspects of a company. We are
interested in investing in businesses which have a consistent operating
history and possess favorable long-term prospects. We like to be associated
with management that is rational in their actions, candid with their
shareholders, and have the ability to think independently. In addition, we are
attracted to businesses that generate high returns on invested capital,
possess high profit margins, and have the ability to produce cash profits for
its owners. Lastly, we are only interested in purchasing companies which are
for sale at prices demonstrably less than their calculated value.
If a stock is chosen for investment, focus investors then become long-term
owners of that business knowing that over time a shareholder's return from
owning a stock is ultimately determined by the fundamental economics of the
underlying business. As such, focus investors concentrate their efforts on a
select few outstanding businesses and spend zero time and energy forecasting
the general direction of the stock market or the economy.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Focus Trust Investment Objective............................. Inside Front Cover
Investment Performance....................................... 2
Letter to Shareholders....................................... 3
Schedule of Investments...................................... 15
Statement of Assets and Liabilities.......................... 16
Statement of Operations...................................... 17
Statement of Changes in Net Assets........................... 18
Notes to Financial Statements................................ 19
Financial Highlights......................................... 21
Report of Independent Accountants............................ 22
Investment Adviser--Shareholder Principles................... 23
Directors and Officers....................................... 24
</TABLE>
<PAGE>
[LINE GRAPH APPEARS HERE]
FOCUS TRUST PERFORMANCE GRAPH
<TABLE>
<CAPTION>
Focus Trust S&P 500 Index Lipper Growth Fund
----------- ------------- ------------------
<S> <C> <C> <C>
4/17/95 10,000 10,000 10,000
06/95 10,140 10,955 11,070
09/95 10,810 11,826 12,077
12/95 11,229 12,538 12,283
03/96 12,385 13,211 12,875
06/96 11,983 13,603 13,266
09/96 12,485 14,230 13,736
12/96 13,154 15,416 14,533
</TABLE>
[BAR CHART APPEARS HERE]
1996 QUARTERLY PERFORMANCE
<TABLE>
<CAPTION>
For the Period
Ending (1996) Focus Trust S&P 500 Index Lipper Growth Index
- -------------- ----------- ------------- -------------------
<S> <C> <C> <C>
1st Quarter 10.30% 4.80% 4.51%
2nd Quarter -3.25% 3.89% 3.03%
3rd Quarter 4.19% 2.49% 3.56%
4th Quarter 5.35% 7.77% 5.80%
</TABLE>
[BAR CHART APPEARS HERE]
FOCUS TRUST 1996 PERFORMANCE GRAPH
Monthly Total Return vs. Lipper Growth Fund
<TABLE>
<CAPTION>
Focus Trust Lipper Growth Index
----------- -------------------
<S> <C> <C>
01/31 4.92% 2.89%
02/29 2.30% 1.57%
03/31 2.75% 0.46%
04/30 -4.55% 2.94%
05/31 1.79% 1.72%
06/30 -0.42% -1.60%
07/31 -4.87% -4.74%
08/31 1.76% 3.64%
09/30 7.63% 4.88%
10/31 2.17% 1.44%
11/30 3.15% 6.05%
12/31 -0.04% -1.65%
</TABLE>
2
<PAGE>
TO THE SHAREHOLDERS OF FOCUS TRUST, INC.:
In 1996, the net asset value per share of Focus Trust gained 17.1%. During
the year, we added $1.91 in per share value of which $.07 per share represented
a realized and paid capital gain dividend. On an after-tax basis, we earned 97%
of our gross return, a 16.8% net gain for taxable shareholders.
On a comparative basis, the Standard & Poor's 500 Index (S&P 500 Index),
with dividend income included, gained 22.9% in 1996 while the Lipper Growth
Index, an index of growth equity mutual funds, gained 19.2%. Since inception,
on April 17, 1995, Focus Trust has increased in value 31.5%, a 17.4% average
annual total return.
Throughout the year, Focus Trust experienced both periods of heightened
expectation and quiet suspicion. In the first quarter of the year, we
substantially outperformed our benchmarks only to find our advantage erased
during the second quarter. In the third quarter, Focus Trust regained lost
ground. Again in the fourth quarter, our net asset value continued to rise
although not at a rate as fast as the S&P 500 Index.
For all the changes in our relative performance, you must think we made
countless decisions. But if you compare our Annual Report with our June 30,
1996 Semi-Annual Report, you will see we only sold one stock, Federal National
Mortgage. Basically, we continued to own the same group of stocks throughout
the year.
At different points last year, our group of stocks showed outstanding price
performance, while during other periods this same group of stocks generated
below-average price performance. But as we pointed out, this had less to do
with us and more to do with the stock market's constant fluctuations.
We have said before that we have no ability to guess which group of stocks
will perform best over a short period of time. As such, we avoid playing games
when the probabilities of winning are low. However, we do have a strong sense
about which stocks will perform best over the long-term. Frequently, stocks
that post superior long-term price appreciation are stocks of companies that
generate high returns on capital, are able to grow cash earnings on a per share
basis, and are run by managers who are shareholder friendly.
Over the last two years, we have developed a decent ability to discover and
select companies with above-average, long-term economics. We have also come to
learn and appreciate the value of only playing games where the chance of
winning is high as opposed to playing games where the chance of winning is low.
What we understand, and hope that you are learning as well, is that the most
profitable investment game to play is the one where the probability of success
is decidedly in your favor regardless of what short-term performance may
indicate.
AFTER-TAX PERFORMANCE
Many Focus Trust shareholders choose to reinvest their dividend income into
additional shares. At year end, these shareholders received a fund statement
showing the
3
<PAGE>
amount of dividend paid on their account and the subsequent purchase of
additional shares of Focus Trust.
Other Focus Trust shareholders prefer to receive their income in cash rather
than purchase additional shares. For those shareholders, they received a check
at year end and a fund statement showing no change in the number of shares
outstanding.
After year end, FPS Services, Inc., our fund administrator, forwards a Form
1099-Dividend to each taxable shareholder. This statement, for receipts of
dividends and distributions, informs each shareholder of the dollar amount of
ordinary dividends and capital gain distributions paid to their account.
Whether a shareholder's option is to reinvest their income into additional
shares or to receive their income as cash, either action generates a Form 1099-
Dividend. To put it simply, the tax consequence for both actions is the same.
Because a majority of our shareholders own Focus Trust in a taxable account,
this issue is important. However, if your shares of Focus Trust are held in a
tax-free account or a tax-deferred account, please don't lose interest. There
is a lesson in this.
If our gross return, our before tax-return, was 17.1%, then what was our
after-tax return? If we assume a 42% tax bracket, (so as to not leave out our
wealthiest shareholders who reside in heavily taxed states), our net after-tax
percentage gain was 16.8%. To put it another way, 98% of our investment return
made it to your bottom line.
We believe this is a notable accomplishment. By comparison, Morningstar
points out that, in 1996, if you invested in the average diversified stock
fund, taxable investors would have to pay about $16 in taxes for every $100
earned. This means only 84% of the gross return was earned for taxable
shareholders. Hence the 19.2% rise in the Lipper Growth Index, produced a 16.1%
net after-tax return. In 1996, the net after-tax return of Focus Trust
outperformed the net after-tax return of the Lipper Index.
Why do most mutual funds have a lower percentage after-tax return than Focus
Trust? The most obvious answer is that other mutual funds have proportionally
higher realized capital gains. In other words, portfolio managers who sell a
sizable portion of their fund, if the sale is profitable, incur capital gains
taxes.
Because the average turnover ratio of equity mutual funds is 90%, (that is
90% of the value of the fund is sold and replaced within a one-year period), it
stands to reason that most funds will have higher tax consequences. By
comparison, Focus Trust, in 1996, had a 8% turnover ratio hence a
proportionally smaller amount of realized capital gain.
So why do most mutual funds experience high turnover ratios rather than
lower? Part of the reason is due to the fact that mutual fund managers operate
on a before-tax basis. The reward system in the mutual fund industry is based
on gross performance. Whenever you
4
<PAGE>
look at a newspaper or magazine and see mutual fund rankings, the list is
composed of before-tax returns. Little attention is paid to after-tax
performance.
But at Focus Trust, after-tax performance is very important to us. We value
the unrealized capital gain as a way to compound wealth more forcibly over the
long-term. For example, a $1 investment that doubles each year for twenty years
and then pays a 34% tax at the end, earns $692,000. On the other hand, a $1
investment that doubles each year, but stops to pay the 34% tax annually, ends
up with only $25,200.
PERFORMANCE ANALYSIS
For the second year in a row, a majority of U.S. equity mutual funds
underperformed the S&P 500 Index and for the second year in a row, Focus
Trust's was among the lagging group. In 1995, you may recall, Focus Trust's
performance suffered due to our unusually heavy weighting in cash equivalents
(45% on average throughout the year). In 1996, cash equivalents were not the
culprit. Rather, Focus Trust simply did not own those stocks which were most
responsible for the gain in the S&P 500 Index.
The S&P 500 Index is a capitalization-weighted index of five hundred
companies. The higher the market value of the company, the more weight its
individual price performance contributes to the Index's return. For example,
General Electric is the largest company in the S&P 500 Index. It's individual
share price change is responsible for 2.89% of the Index's return. Eaton
Corporation is the 250th largest company in the Index. It's individual share
price change only contributes .10% of the Index's return. Shoney's
Incorporated, a restaurant company, is the smallest company in the Index and it
contributes a scant .01% to the Index's return.
The top ten stocks in the S&P 500 Index contribute 18.7% of the S&P 500
Index's return. The performance of the largest one hundred stocks in the Index
contributes well over half of the Index's return (65%), while the performance
of the smallest four hundred stocks contributes only 35% of the Index's return.
So what does this mean? In simplistic terms, when the S&P 500 Index produces
big gains or big losses it is most often attributed to the behavior of
approximately twenty percent of the stocks in the Index. Such was the case in
1996.
Last year, the best performing stocks in the S&P 500 Index were the largest
companies and the worst performing stocks were the smallest companies.
According to Morgan Stanley, the largest one hundred stocks in the Index gained
30% on average, while the smallest one hundred stocks gained only 9%.
The strong growth in the S&P 500 Index over the last two years can be
attributed to the performance of a select few high capitalization stocks. In
1996, Coca-Cola, General Electric, Intel, IBM, and Microsoft accounted for
almost a quarter of the S&P 500 Index's 23% return. In contrast, the Value Line
Index, which is an equally-weighted index of seventeen hundred companies,
gained 12% in 1996.
5
<PAGE>
Generally speaking, to have done as well as the S&P 500 Index in 1996, would
have required a portfolio manager to have owned a greater number of larger
stocks and a lesser number of smaller stocks. What size stocks does Focus Trust
own? The answer is both large and small.
Our largest capitalization stock in Focus Trust is Johnson & Johnson. It is
the twelfth largest company in the S&P 500 Index and represents 4.8% of our
portfolio. The Walt Disney Company is the 21st largest company in the Index and
represents 9.0% of Focus Trust. Next, American Express which represents 10.3%
of our portfolio is the 51st largest company in the Index followed by Gannett
Company (136th largest in the Index/7.8% of portfolio), William Wrigley, Jr.
(215th largest in the Index/5.4% of the portfolio), and Hasbro (344th in the
Index/4.2% of the portfolio).
Overall, 41.5% of our portfolio is represented in the S&P 500 Index while
58.5% of our portfolio lies outside this popular index.
RELATIVE PERFORMANCE--THE PITFALLS
The money management business is a relative performance game. As such, the
reward system in a relative performance game is based on how well you
outperform a given index. What is interesting to learn is the risk to a
portfolio manager who participates in a relative performance game is not the
securities he or she owns. Rather, as Peter Bernstein points out in "Immortal
Work and Impossible Fantasies" (1995), "the greater risk is in the far larger
number of securities the portfolio manager does not own".
Being a contestant in a relative performance game presents several
challenges. As a portfolio manager, you have to keep one eye on a group of
companies held in your portfolio purchased with the analytical belief that the
economics of these businesses will justify, over the long-term, a higher stock
price. At the same time, you have to keep an eye on the balance of stocks which
are not included in your portfolio. After all, as Bernstein reminds us, in a
relative performance game you are also "short" all of the stocks you don't own.
Because of this, money management in a relative performance game is a
quandary. How long will a portfolio manager be willing to own a group of stocks
once this group begins to underperform in relative price terms? But, at the
same time, how can a portfolio manager rationalize selling any stock if that
stock continues to exhibit the same qualities that justified the initial
purchase?
In the money management business, short-term price performance continues to
be the widely accepted barometer of talent and ability. Because the reward
system in this relative performance game enriches the conqueror, portfolio
managers quickly learn the advantages of beating the index in short periods.
They also come to appreciate the financial discomfort of holding
underperforming stocks; a pain that rises exponentially over time.
The problem we see with the relative performance game is that the system is
racked with inefficiencies. Because of the need to generate performance that is
close to a
6
<PAGE>
benchmark, portfolio managers constantly buy and sell stocks. For shareholders,
this activity increases transaction costs and realized capital gains taxes,
both of which we view as negatives.
A relative performance game also tends to increase the number of stocks held
in a portfolio. In 1952, Harry Markowitz published a paper entitled "Portfolio
Selection". In the paper, Markowitz suggested that by combining stocks in
certain ways, you could reduce price volatility and still achieve reasonable
investment returns. It was a significant intellectual achievement which earned
Markowitz a Nobel Prize in Economic Science.
Then, in 1971, Wagner and Lau published a paper entitled "The Effect of
Diversification". Here, the two authors revealed that a portfolio consisting of
as few as 15 securities can effectively eliminate diversifiable risk. In other
words, increasing the number of stocks in a portfolio beyond a core portfolio
of 15 securities provides minimal diversification since securities outside the
core portfolio tend to be highly correlated to at least one security within the
core.
So how did the money management business, forty-five years ago, evolve from
a mismatched confederation of picking stocks to institutional portfolios that
today hold on average more than one hundred different stocks. According to
Bernstein, the evolution of portfolio diversification "owes as much to
instincts for limiting decision regret by covering all the bases as it is
impelled by Harry Markowitz's most persuasive theoretical perorations". What
Bernstein is saying is that perhaps portfolio diversification is based more on
a manager's fear of being out-of-step with a benchmark than with a devoted
sense of growing capital in optimal ways. After all, one way to ensure you own
the "right" stocks is to own enough of them. But if your portfolio contains too
many stocks, it is likely you own some winners and some losers and in the
aggregate you earn the average.
I thought long and hard about this as we constructed the portfolio for Focus
Trust. Even with $7 million in assets, I could have easily purchased one
hundred companies as opposed to the sixteen we currently own. So why did we
choose to own less stocks than more? The answer is that a portfolio with fewer
stocks stands a better chance of outperforming, over time, than does a
portfolio containing a larger number.
But how do we know this? The rationale for a concentrated investment
portfolio has been promoted by numerous successful investors including Warren
Buffett, Philip Fisher, Robert Kirby, Charlie Munger, Lou Simpson, and Bill
Ruane. Customarily, the word of these outstanding individuals is enough for me
and indeed their success influenced my thinking in organizing Focus Trust as a
non-diversified mutual fund.
Still, I felt compelled to further examine this theory of portfolio
management. With the help of Joan Lamm-Tennant, a Professor of Finance at
Villanova University and a member of our Board of Directors, we examined the
behavior of different portfolios of various sizes. Using monthly security
pricing and dividend data from January 1984 to December 1993, we established
equal-weighted portfolios including a 15 stock portfolio, 50 stock portfolio,
100 stock portfolio, and a 250 stock portfolio. For each portfolio size
7
<PAGE>
category, 3,000 portfolios were formed by randomly selecting securities from
the data base. Then the portfolio returns were generated for various holding
periods ranging from one to ten years.
What do you think we learned? Interestingly, the average annual return for
each group of portfolios over a ten-year holding period was approximately the
same, 13.2%. Now what do you think was the return of the S&P 500 Index? The
average annual return of the S&P 500 Index during this same period was 14.9%.
At first we were puzzled until we remembered that the S&P 500 Index is a
capitalization-weighted index. When we tested again, controlling for
capitalization, the returns were markedly closer to the S&P 500 Index return.
The important insights to our research came when we analyzed the variability
of returns of the different portfolio groups. For example, the variability for
the 250 stock portfolio group was .53% indicating that the returns of all 3,000
portfolios clustered tightly around the mean. Over the ten-year period, the
average annual return of the 250 stock portfolios fell primarily between 12%
and 15%. Very much a market type of return.
In contrast, the variability for the 15 stock portfolios was 2.53%,
indicating a much wider dispersion of returns. Over the same ten year period,
the average annual return of the 15 stock portfolios fell between 6% and 27%.
Something noticeably different than a market type of return.
What we observed was that a 250 stock portfolio, over time, has return
potential and price deviation that is very similar to the market. This should
be no surprise. By the time you own 250 stocks, you have almost simulated the
market and if the tendency is to overweight the larger more established
companies and underweight the smaller companies, your portfolio returns may
very well be comparable to the market's.
A 15 stock portfolio, on the other hand, has interesting possibilities. We
do know that a concentrated portfolio of 15 stocks, although capable of
adequate diversification, does stand a better chance of producing below-average
returns than a 250 stock portfolio. However, it is important to note that a 15
stock portfolio also stands a better chance of achieving above-average returns
than a 250 stock portfolio. This is what intrigues us.
And now you see the dilemma. Larger portfolios tend to produce returns
similar to the market's return. This is a safe bet for those who are manic
about the relative performance game. In all fairness, large portfolios
periodically produce above-average returns and the excitement which follows is
noticeable. But over the long-term, statistics reveal that large portfolios are
mostly underachievers. At the same time, large portfolios are rarely great
disappointments. It is the perfect formula for participating in a relative
performance game.
Considering these facts, has the practice of active money management lost
its utility? Many would say "yes", including Charlie Munger who believes that
"plumbers are more useful than money managers". After all, the returns from
active money management are, in
8
<PAGE>
general, no better than that which can be obtained by investing in Jack Bogle's
index funds at the Vanguard Group. By the time you deduct the cost of
transactions, higher expense ratios, to think nothing of the tax-consequence of
realized capital gains, you begin to understand why large actively-managed
portfolios have such a difficult time beating index funds.
I believe Mr. Munger's criticism is a "wake-up call" for the money
management industry. We feel so strongly about this issue that both Professor
Lamm-Tennant and I co-authored a research paper entitled "Focus Investing: A
Tax-Advantaged Alternative to Active versus Passive Management". Based on our
preliminary findings, the Institute for Charter Financial Analysts has asked us
to explore focus investing in a Research Monograph to be published in 1998. We
promise to keep you informed.
What Professor Lamm-Tennant and I suspect is the limitations to modern money
management are partly caused by the reward system in a relative performance
game. If this is true, portfolio managers will be forced to make a decision. To
either continue to play a "fair game of chance" because the rules of relative
performance require so, or, seek a game with better odds and then construct the
appropriate benchmark.
A NEW BENCHMARK
In Peter Bernstein's Against the Gods--The Remarkable Story of Risk,
Bernstein introduces Daniel Bernoulli, a young Swiss mathematician. In 1738,
Bernoulli contributed one of several papers to the Imperial Academy of Sciences
in St. Petersburg. Bernoulli's paper, entitled "New Theory", discussed choices
and probabilities. It was Bernoulli's contention that fair games of chance
offer no utility, and that "anyone who bets any part of his fortune, however
small, on a mathematically fair game of chance acts irrationally".
It is for this reason, I would argue, why investors like Warren Buffett,
Charlie Munger, and Bill Ruane neither own, nor constantly buy and sell,
hundreds of stocks in their portfolios. That strategy is nothing more than a
"fair game of chance". What Buffett, Munger, and Ruane have done is opt to play
a game that has a higher probability of success. A game we would like to play
as well.
As a portfolio manager in a relative performance game, the problem we face
is that the investment approach outlined in THE WARREN BUFFETT WAY is not
always compatible with the reward system attached to the game. But given this
challenge, we should not revert backwards to a "fair game of chance". Rather,
we should hold true to our discipline and ask our shareholders to persevere.
However, I believe it is unfair to ask shareholders to ignore an
institutionally-accepted benchmark (short-term price performance), unless we
can offer a practical and fundamentally sound alternative.
For focus investing, the most relevant benchmark and the most important
benchmark is . . . our own benchmark.
9
<PAGE>
PORTFOLIO OF BUSINESSES
If you looked at the securities held in Focus Trust and imagined that you
owned not common stocks but the businesses represented by these common stocks,
your mind begins to think differently. What I see is not a mutual fund
described by many as an anomaly, but a broadly-diversified portfolio of
outstanding businesses.
At year end 1996, Focus Trust owned sixteen businesses in the following four
distinct industry groups:
AMUSEMENT, ENTERTAINMENT & RECREATION
Gaylord Entertainment Company
International Speedway Corporation
The Walt Disney Company
CONSUMER PRODUCTS & SERVICES
Brown-Forman Corporation
Harley Davidson, Incorporated
Hasbro, Incorporated
Johnson & Johnson
Sotheby's Holdings, Incorporated
William Wrigley, Jr. Company
FINANCIAL SERVICES
American Express Company
Berkshire Hathaway, Incorporated
Federal Home Loan Mortgage Corporation
NEWSPAPERS
Central Newspapers, Incorporated
Gannett Company
Lee Enterprises, Incorporated
The Washington Post Company
There are several industry groups not represented in Focus Trust's
portfolio, including basic industry, capital goods, oil and gas, and utilities.
Generally speaking, these industry groups generate average to below-average
sustainable economics. Hence, to profit from these groups requires a portfolio
manager to buy and sell at different points in the business and interest cycle.
We avoid this activity not only because of the inherent costs of doing so, but
because the success of this approach requires timing skills your manager lacks.
We also do not own technology businesses. This omission has hurt our short-
term performance as this industry group has been a star performer in the market
over the last several years. No one can deny the impact that technology has had
on our economy or the profits that certain technology companies have afforded.
10
<PAGE>
Even so, investing in technology companies presents many difficulties for
Focus Trust. Our first hurdle to overcome is simply estimating the value of a
technology company. Without some sense of value, how do we know whether the
cost of investing is over or below the price a rational investor would pay.
The only way we know how to estimate value is by the discounted present
value of future cash flows. In that technology companies are still evolving, it
is too difficult to estimate with any sense of predictability what is a
company's future cash flow. My friend Bill Miller, at Legg Mason, reminds me
that "if your assumptions do not express statistical probabilities, it is
likely your conclusions are carrying a lot of emotional baggage".
If we are going to make a large bet on a company, and that is how we prefer
to invest, the probabilities of success must clearly be on our side. No more
"fair games" of chance. The portfolio of businesses owned by Focus Trust
reflects our attempt to invest in companies with (1) favorable and predictable
long-term prospects; (2) management that acts rationally and allocates capital
to the benefit of shareholders; (3) above-average economics; and (4) purchase
prices demonstrably below a reasonable calculation of their value. If we get
any of the first three steps wrong, the margin of safety, in step four, should
help diminish the effect of any miscalculation.
THE FOCUS TRUST BENCHMARK
If we are going to produce above-average, long-term gains for our
shareholders, it is clear we must own a portfolio of businesses that possess
economics that will warrant this price affirmation. As owners of these
businesses, we hold no regard for short-term market prices. Our focus is on the
underlying economic progress of both our individual businesses and the
weighted-average economic return of all our businesses.
According to the 49th Annual Report on American Industry, the 1996 average
return on equity for 1,280 companies was 13%. During this same period, the
weighted average return on equity for the businesses in Focus Trust's portfolio
was 18%. This is the first indication that the economics of our businesses are
superior compared to a broader collection of companies.
Return on equity is an important economic measure. The ratio of net income
to shareholder's equity is an important test for managerial performance.
Because companies retain a portion of their earnings each year, earnings per
share growth as an absolute measure of performance can be misleading. By
focusing on return on equity, we have a good understanding of how well
management was able to achieve a high earnings rate on the equity employed in
the company.
Return on equity is greatly affected by a company's debt level. Some
companies are able to achieve high returns on equity only because the equity in
the company is lower compared to debt levels. To the degree a company is able
to use someone else's money (loans) to grow their business, management will be
able to earn higher returns on the capital employed by the owners.
11
<PAGE>
However, higher returns on equity should not be exchanged for the imprudent
deployment of debt. Because highly leveraged companies are vulnerable during
economic slowdowns, we would rather give-up a few points of return on equity
than be hobbled by debt-laden companies. The weighted average debt to capital
for the companies in Focus Trust's portfolio is 24%, including our financial
service companies. Several of our companies, including International Speedway,
Central Newspapers, Washington Post, Harley Davidson, and William Wrigley, Jr.,
operate with little or no debt.
We pay little attention to our companies' earnings per share. However, we
pay a great deal of attention to our companies' owner-earnings per share.
Because owner-earnings per share adjusts for capital expenditures and
depreciation and amortization charges, this ratio gives a clearer picture of
the cash-generating ability of the company. Furthermore, we are interested in
owning companies that are able to use their excess cash to reduce the number of
shares outstanding. The value of a company on a per share basis increases when
owner-earnings increase, but the value can rise even faster when the absolute
number of shares begins to decline.
Almost every business Focus Trust owns is in the process of buying back
shares. This has become a popular strategy for companies seeking the attention
of value conscious investors. Of course the trick is to separate those
companies who only profess to buy back shares from those companies that
actually achieve share reduction.
Regardless of the rhetoric, we keep a close track of the net number of
shares outstanding in each of our companies. Thus far, the value of our share
ownership in companies has increased both by the net reduction of shares
outstanding as well as the above-average growth of our owner-earnings. On a
weighted-average basis, our companies are increasing their owner-earnings at a
14.7% annual rate.
We have identified three important economic benchmarks: 18% return on
equity; 24% debt to capital; and 14.7% growth in owner-earnings. Our challenge
going forward is two-fold. First, our companies need to maintain their superior
economic returns. Second, any company added to our portfolio must raise the
economic bar of our weighted-average holdings. It was Tom Murphy, former
Chairman of Capital Cities/ABC, who pointed out that we must find combinations
in our portfolio "that make the train run faster and better (and not) just be a
longer train".
If the companies we own are able to maintain this level of economic return
(to say nothing of our ability to raise this economic bar), it is likely our
portfolio will, over time, achieve an above-average price return.
However, the game of investing is not solely about picking companies with
superior economics. Once you have selected an outstanding business, it is
critical that you only purchase shares in that business when share prices are
at a discount to calculated value.
12
<PAGE>
MARGIN OF SAFETY
The world of security analysis and portfolio management has changed over the
years. But there is one standing principle that has endured all attempts to
redefine investing. The "margin of safety", as described by Benjamin Graham, is
that principle and it is the mainstay of Focus Trust.
The margin of safety principle has two major strengths. First, an investor
that is only willing to purchase shares in a company when share prices are
demonstrably below the value of a company, helps to protect themselves during
difficult periods. All things being equal, an investment made with a margin of
safety often has less downside price risk than an investment purchased without
a margin of safety.
On the upside, if a company operates as generally planned, a margin of
safety can help boost an investment return far past what underlying economics
might justify. In this case, the margin of safety provides a turbo charge for
our portfolio.
As portfolio manager, my challenge is to continue to locate and define
companies that will raise our economic bar without sacrificing our margin of
safety.
CONCLUSION
I was encouraged by a recent study conducted by Dalbar Incorporated, a
Boston mutual fund research company. In the study, Dalbar surveyed 4,299
"capable and likely" investors and found that "information" was central to
their needs.
According to the study:
.83% of those surveyed wanted their investment adviser to educate them
about investing before selling returns.
.80% expected their investment adviser to help reduce or minimize their
tax bill.
.Only 70% were interested in achieving the highest possible returns.
Based on these findings, its likely that Focus Trust is a perfect fit for
three out of ten mutual fund investors. First, we work very hard to educate our
shareholders about investing. If you were able to endure a twelve page
shareholder letter, you already know this. Second, we are conscientious about
the net after-tax return for our shareholders. Third, we expect to generate not
the highest, but a reasonable above-average investment return without taking
unnecessary economic risks.
I would like to see Focus Trust continue to grow both in the number of
shareholders and the assets we manage. Additional assets help to reduce our
operating expense ratio and thus provide higher investment returns.
You can purchase shares of Focus Trust directly by calling 1-800-665-2550.
You can also purchase Focus Trust through several discount brokerages,
including Charles Schwab,
13
<PAGE>
Fidelity, Jack White, and Accutrade as well as the full service firm of
Donaldson Lufkin & Jenrette. In any case, make sure you read all of the
information carefully before investing, including the Investment Adviser--
Shareholder Principles.
I wish to thank our Board of Directors for their outstanding service. Thanks
also to FPS Services, Inc. and all of its employees for their support in
helping make Focus Trust a high quality mutual fund.
If you have any questions about Focus Trust, never hesitate to contact me.
As always we appreciate your support.
Sincerely,
/s/ Robert G. Hagstrom
Robert G. Hagstrom, Jr.
Portfolio Manager
14
<PAGE>
FOCUS TRUST, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
COMMON STOCKS (94.78%)
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 1)
------ ---------- ----------
<C> <S> <C> <C>
AMUSEMENT & RECREATION (17.82%)
31,800 International Speedway Corp., Class B......... $ 520,040 $ 643,950
9,500 The Walt Disney Company....................... 564,068 661,437
---------- ----------
1,084,108 1,305,387
---------- ----------
BEVERAGES (5.18%)
8,300 Brown-Forman Corp., Class B .................. 327,019 379,725
---------- ----------
BUSINESS SERVICES (5.13%)
20,200 Sotheby's Holdings Inc., Class A ............. 296,495 376,225
---------- ----------
ENTERTAINMENT (5.32%)
17,032 Gaylord Entertainment Company, Class A........ 411,075 389,607
---------- ----------
GAMES/TOYS (4.25%)
8,000 Hasbro, Inc. ................................. 251,338 311,000
---------- ----------
INSURANCE (7.91%)
17 Berkshire Hathaway, Inc., Class A* ........... 479,130 579,700
---------- ----------
MOTORCYCLES, BICYCLES (4.91%)
7,650 Harley-Davidson, Inc. ........................ 305,359 359,550
---------- ----------
NEWSPAPER (19.52%)
6,500 Central Newspapers Inc., Class A ............. 235,275 286,000
7,650 Gannett Company .............................. 415,111 572,794
14,500 Lee Enterprises, Inc. ........................ 310,325 337,125
700 Washington Post Company, Class B ............. 186,560 234,588
---------- ----------
1,147,271 1,430,507
---------- ----------
PHARMACEUTICALS (4.35%)
6,400 Johnson & Johnson ............................ 232,327 318,400
---------- ----------
SECURITY BROKER (10.29%)
13,350 American Express Company ..................... 528,361 754,275
---------- ----------
SERVICES (4.73%)
3,150 Federal Home Loan Mortgage Corp. ............. 216,330 346,894
---------- ----------
SUGAR PRODUCTS (5.37%)
7,000 Wrigley (WM) Jr. Company ..................... 324,505 393,750
---------- ----------
TOTAL COMMON STOCKS........................... 5,603,318# 6,945,020
---------- ----------
OTHER ASSETS IN EXCESS OF LIABILITIES
(5.22%)...................................... 382,412
----------
NET ASSETS (100.00%) ......................... $7,327,432
==========
</TABLE>
# Also represents cost for Federal income tax purposes
* Non-income producing security
See Notes to Financial Statements.
15
<PAGE>
FOCUS TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $5,603,318) (Note 1)..... $6,945,020
Cash............................................................... 361,831
Dividends and interest receivable.................................. 10,207
Deferred organization costs (Note 1)............................... 42,773
Reimbursement due from Adviser..................................... 52,331
Other assets....................................................... 4,663
----------
Total assets..................................................... 7,416,825
----------
LIABILITIES:
Accrued expenses................................................... 46,620
Payable to Adviser................................................. 42,773
----------
Total liabilities................................................ 89,393
----------
NET ASSETS:
Applicable to 563,056 shares of capital stock outstanding (Note
1)................................................................ $7,327,432
==========
NET ASSETS CONSIST OF:
Paid-in capital.................................................... $5,985,730
Net unrealized appreciation of investments......................... 1,341,702
----------
Net assets....................................................... $7,327,432
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE:
($7,327,432/563,056 shares)........................................ $ 13.01
==========
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
FOCUS TRUST, INC.
STATEMENT OF OPERATIONS
DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 77,106
Interest.......................................................... 22,180
----------
Total income..................................................... 99,286
----------
EXPENSES:
Investment advisory fees (Note 2)................................. 43,364
Administration fees............................................... 65,515
Registration fees................................................. 34,339
Transfer agent fees............................................... 45,249
Accounting fees................................................... 24,000
Amortization of organization costs (Note 1)....................... 13,037
Audit fees........................................................ 18,625
Legal fees........................................................ 7,892
Directors fees.................................................... 14,800
Custodian fees.................................................... 5,715
Printing expense.................................................. 23,632
Insurance expense................................................. 10,637
Other expenses.................................................... 329
----------
Total expenses................................................... 307,134
Less expenses reimbursed by Adviser and waived by Administrator
(Note 2)......................................................... (183,238)
----------
Net expenses..................................................... 123,896
----------
NET INVESTMENT LOSS................................................ (24,610)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions...................... 44,537
Net change in unrealized appreciation on investments.............. 952,975
----------
Net realized and unrealized gain on investments................... 997,512
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $ 972,902
==========
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
FOCUS TRUST, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/96 12/31/95*
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................ $ (24,610) $ 26,202
Net realized gain on investments.................... 44,537 0
Net change in unrealized appreciation on invest-
ments.............................................. 952,975 388,727
----------- -----------
Net increase in net assets from operations......... 972,902 414,929
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income............................... 0 (26,252)
Net realized gains on investments................... (40,853) 0
----------- -----------
Total distributions................................ (40,853) (26,252)
----------- -----------
CAPITAL STOCK TRANSACTIONS (NET)--NOTE 1............. 1,334,394 4,572,312
----------- -----------
Total increase in net assets........................ 2,266,443 4,960,989
----------- -----------
NET ASSETS:
Beginning of period................................. 5,060,989 100,000
----------- -----------
End of period....................................... $ 7,327,432 $ 5,060,989
=========== ===========
</TABLE>
* The Fund commenced investment operations on April 17, 1995.
See Notes to Financial Statements.
18
<PAGE>
FOCUS TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
Focus Trust, Inc. (the "Fund") is a no-load, non-diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund was incorporated under the laws of Maryland on
January 27, 1995 and commenced operations on April 17, 1995. The following is
a summary of significant accounting policies consistently followed by the Fund
in the preparation of its financial statements. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the period could differ
from these estimates.
A. SECURITY VALUATION: The Fund calculates the net asset value and
completes orders to purchase, exchange or repurchase Fund shares on each
business day as of 4:00 p.m. Eastern time, with the exception of those days
on which the New York Stock Exchange is closed.
The Fund's securities are valued based on market quotations or, when no
market quotations are available, at fair value as determined in good faith
by or under direction of the Board of Directors. Securities listed on any
national securities exchange are valued at their last sale price on the
exchange where the securities are principally traded or, if there has been
no sale on that date, at the mean between the last reported bid and asked
prices. Securities traded over-the-counter are priced at the mean of the
last bid and asked price. Short-term investments having a maturity of 60
days or less are valued at amortized cost, which the Board of Directors
believes represents fair value.
B. FEDERAL INCOME TAXES: It is the policy of the Fund to comply with all
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. The Fund has met the requirements of
the Code applicable to regulated investment companies for the year ended
December 31, 1996. Therefore, no Federal income or excise tax provision is
required.
C. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses
on the sale of securities are determined on the identified cost basis.
D. ORGANIZATION COSTS: Costs incurred by the Fund in connection with their
organization and initial registration and public offering of shares have
been deferred by the Fund. Organization costs are being amortized on a
straight-line basis for a five-year period beginning at the commencement of
operations of the Fund. The principals of Lloyd, Leith & Sawin, Inc. (the
"Adviser"), has agreed that in the event it redeems any of its shares
during such period, it will reimburse the Fund for any unamortized
organization costs in the same proportion as the number of shares to be
redeemed bears to the number of shares that were initially purchased by the
Adviser and remain outstanding at the time of redemption.
E. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the Fund to
distribute net investment income in December and capital gains, if any,
annually. Distributions to shareholders are recorded on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles.
F. OTHER: Securities transactions are accounted for on the trade date.
Interest income is recorded on the accrual basis and dividend income on the
ex-dividend date.
19
<PAGE>
G. CAPITAL SHARE TRANSACTIONS: The Fund is authorized to issue one hundred
million shares of capital stock with a par value of $0.001 per share.
Transactions in shares of capital stock from the commencement of investment
operations were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 17, 1995 TO
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold.................... 181,792 $2,164,827 454,998 $4,696,237
Shares issued through
reinvestment of dividends..... 3,120 39,553 2,249 25,148
Shares redeemed *.............. (75,076) (869,986) (14,027) (149,073)
------- ---------- ------- ----------
Net Increase................... 109,836 $1,334,394 443,220 $4,572,312
======= ========== ======= ==========
</TABLE>
* Redemptions are subject to a 1.00% fee if redeemed within two years of
purchase. Thus, the redemption price may differ from the net asset value per
share.
NOTE 2 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
The Fund retains Lloyd, Leith & Sawin, Inc. as its investment Adviser. The
Adviser provides the Fund with investment advice, administrative services and
facilities. As compensation for these services, the Fund pays the Adviser a
monthly fee based on the Fund's average daily net assets. For the period April
17, 1995 (commencement of operations) through August 31, 1995, the Adviser had
voluntarily agreed to reduce its fees and reimburse the Fund to the extent
total annualized expenses exceed 1.75% of the Fund's average daily net assets.
Effective September 1, 1995, the Adviser has agreed to reduce its fees and
reimburse the Fund to the extent total annualized expenses exceed 2.00% of the
Fund's average daily net assets. Certain officers of the Fund are also
officers and directors of the Investment Adviser. All officers serve without
direct compensation from the Fund during the period. There were no directors'
fees paid to affiliated directors of the Fund. Robert G. Hagstrom, Jr.,
Chairman, is considered an affiliated director of the Fund, but receives no
compensation. Investment advisory fees, for the year ended December 31, 1996,
are as follows:
<TABLE>
<CAPTION>
EXPENSES WAIVED
ADVISORY ADVISORY OR REIMBURSED
FEE FEE BY ADVISER
-------- -------- ---------------
<S> <C> <C>
0.70% $43,364 $173,238
</TABLE>
FPS Services, Inc. (the "Administrator") provides the Fund with
administrative, pricing and shareholder services. As compensation for these
services, the Fund pays the Administrator a monthly fee based on a minimal
contractual basis. The Administrator voluntarily agreed to waive a portion of
its fees for the various services, for the year ended December 31, 1996, as
follows:
<TABLE>
<CAPTION>
EXPENSES
WAIVED
FEE BY ADMINISTRATOR
------- ----------------
<S> <C> <C>
Administration..................................... $65,515 $6,000
Transfer agent..................................... 45,249 2,000
Accounting......................................... 24,000 2,000
</TABLE>
The agreement with the Administrator, providing the above waivers, expired
April 30, 1996.
NOTE 3 -- INVESTMENT TRANSACTIONS:
Investment transactions for the Fund for the year ended December 31, 1996,
excluding temporary short-term investments, are as follows:
<TABLE>
<CAPTION>
PROCEEDS
PURCHASES FROM SALES
--------- ----------
<S> <C>
$2,410,589 $481,271
</TABLE>
NOTE 4 -- UNREALIZED APPRECIATION AND DEPRECIATION:
At December 31, 1996, the net unrealized appreciation of securities for
Federal income tax purposes consisted of:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Gross unrealized appreciation............................... $1,363,170
Gross unrealized depreciation............................... (21,468)
----------
Net unrealized appreciation................................. $1,341,702
==========
</TABLE>
20
<PAGE>
FOCUS TRUST, INC.
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/96 12/31/95*
-------- ---------
<S> <C> <C>
Net Asset Value, beginning of period.................. $ 11.17 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)......................... (0.05) 0.06
Net realized and unrealized gain on investments...... 1.96 1.17
-------- --------
Total from investment operations................... 1.91 1.23
-------- --------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income................. 0.00 (0.06)
Dividends from net realized gains on investments..... (0.07) 0.00
-------- --------
Total from dividends to shareholders............... (0.07) (0.06)
-------- --------
Net Asset Value, end of period........................ $ 13.01 $ 11.17
======== ========
TOTAL RETURN.......................................... 17.14% 12.29% /(2)/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)................. $ 7,327 $ 5,061
Ratio of expenses to average net assets
after reimbursement of expenses by Adviser.......... 2.00% 1.92% /(1)/
Ratio of expenses to average net assets
before reimbursement of expenses by Adviser......... 4.96% 7.89% /(1)/
Ratio of net investment income to average net assets
after reimbursement of expenses by Adviser.......... (0.40%) 1.19% /(1)/
Ratio of net investment income to average net assets
before reimbursement of expenses by Adviser......... (3.36%) (4.78%)/(1)/
Portfolio turnover................................... 8.47% 0.00%
Average commission rate paid/(3)/.................... $ 0.0979 N/A
</TABLE>
/(1)/Annualized
/(2)/Not Annualized
(/3/)Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission charged. This disclosure is required by the U.S. Securities
and Exchange Commission beginning 1996.
* The Fund commenced investment operations on April 17, 1995.
See Notes to Financial Statements.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Boards of Directors of
Focus Trust, Inc.
We have audited the accompanying statement of assets and liabilities of Focus
Trust, Inc., (the "Fund"), including the schedule of investments as of December
31, 1996 and the related statements of operations for the year then ended, the
statements of changes in net assets and the financial highlights for the year
ended December 31, 1996 and the period from April 17, 1995 (commencement of
operations) to December 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Focus
Trust, Inc. as of December 31, 1996 and the results of its operations for the
year then ended, the changes in its net assets and its financial highlights for
the year then ended December 31, 1996 and the period from April 17, 1995
(commencement of operations) to December 31, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
January 20, 1997
22
<PAGE>
INVESTMENT ADVISER--SHAREHOLDER PRINCIPLES
You should read carefully the following Investment Adviser--Shareholder
Principles before making an investment in the Fund.
. Although the Fund is organized as a mutual fund, the principals of Lloyd,
Leith & Sawin, Inc. (the "Adviser") take the view that it is a managing
partner with you, the shareholders of this Fund. This commitment is
reinforced by having the principals of the Adviser also invest a portion of
its assets in the Fund and thus become co-owners of the Fund.
. As managing partners, the Adviser will attempt to locate and invest in a
few outstanding businesses which it believes possess favorable long-term
prospects with superb underlying economics run by trustworthy and able
management and finally, are available at sensible prices.
. Once invested in a particular security, the Adviser looks forward to
becoming a long-term holder of these outstanding businesses. The Adviser is
not, nor will it ever be, interested in constantly buying and selling
mediocre businesses where economic gain depends more on profiting from
short-term price changes rather than the economic gain afforded by
companies that are able to grow their long-term intrinsic value.
. Because long-term maximum growth of intrinsic value, not profits from
short-term price changes, is the Adviser's prime objective, the Adviser
expects that the Fund may, from time to time, underperform various stock
market indices. This fact does not cause the Adviser any alarm. However,
the Adviser would be disappointed if the gain in the intrinsic value of the
companies selected for investment by the Fund, and hence the long-term rise
in their respective stock prices, did not advance at a rate greater than
the average large American company.
. It would be unfair to ask you, the shareholder, to ignore short-term price
movements as a way to measure investment results unless the Adviser offers
an alternative means by which to judge the Fund's progress. As a managing
partner, the Adviser is continually focused on, and will communicate to
you, the economic progress of the companies selected for investment by the
Fund. The Adviser believes that if a company is advancing economically at a
satisfactory rate, over time, the price of the company will correlate to
this change in value.
. The Adviser promises to be honest and forthcoming with you, the Fund's
shareholders. The Adviser promises to check periodic successes with an
equally hard look at any investment failures. The Adviser believes that
this public self-examination will be a benefit to shareholders and to the
Adviser over the long term. The Adviser's goal in reporting is to be as
forthright with you as it would like if the roles were reversed.
. STOP!!! If, after reading these principles, you have any reservation about
investing in the Fund, please don't. We would much prefer that you not
invest with us if the slightest short-term disruption in the markets or
individual stock prices will cause you to sell your shares. The Adviser
believes that long-term investment results should approximate the value of
the underlying businesses and not be affected by the excessive trading of
any of the Fund's shareholders.
23
<PAGE>
FOCUS TRUST, INC.
(800) 665-2550
DIRECTORS
Robert J. Coleman, Jr.
Robert G. Hagstrom, Jr.
Joan Lamm-Tennant
Allan S. Mostoff
OFFICERS
Robert G. Hagstrom, Jr., President
Virginia B. Leith, Vice President & Treasurer
John S. Lloyd, Vice President & Secretary
INVESTMENT ADVISER
Lloyd, Leith & Sawin, Inc.
230 Sugartown Road, Suite 150
Wayne, PA 19087
UNDERWRITER
FPS Broker Services, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
SHAREHOLDER SERVICES
FPS Services, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
CUSTODIAN
The Bank of New York
48 Wall Street
New York, NY 10286
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, DC 20005
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
This report is submitted for general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus which includes
details regarding the Fund's objectives, policies, expenses and other
information.
24
