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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10529
-----------------------------------------
The GKM Funds
-----------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11150 Santa Monica Boulevard, Suite 850 Los Angeles, California 90025
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Timothy J. Wahl
GKM Advisers, LLC 11150 Santa Monica Boulevard, Suite 700 Los Angeles, CA 90025
-----------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (310) 268-2605
----------------
Date of fiscal year end: July 31, 2003
---------------------------
Date of reporting period: July 31, 2003
---------------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
================================================================================
THE GKM FUNDS
GKM GROWTH FUND
ANNUAL REPORT
July 31, 2003
INVESTMENT ADVISER ADMINISTRATOR
------------------ -------------
GKM ADVISERS, LLC ULTIMUS FUND SOLUTIONS, LLC
11150 Santa Monica Boulevard P.O. Box 46707
Suite 850 Cincinnati, Ohio 45246-0707
Los Angeles, California 90025 1.888.GKM.9518
================================================================================
Dear Shareholders, September 17, 2003
The economy in this new millennium has confronted some very serious
problems...9/11 terrorist attacks, wars in Afghanistan and Iraq, accounting
scandals and other corporate malfeasance, and a severe decline in the stock
markets, just to name a few. During this period, a recession ensued. Uncertainty
and fear are the end products of such trauma. The federal government has two
heavy weapons to aid the economically wounded - fiscal and monetary policy. The
government has used these weapons with a vengeance, producing both the largest
fiscal deficits in history, and extraordinarily low interest rates. They are
doing "the job" of encouraging a recovery. We are now experiencing economic
"TWIN TOWERS" as a result - a high trade deficit to go along with an
unprecedented budget deficit.
On the corporate front, a recent Los Angeles Times article discussing
Caterpillar Inc. caught our attention. This company is very representative of
what we have been observing in the industrial world over the last decade.
Caterpillar continues to achieve significant growth with about 3% fewer workers
than it employed last year and their total revenue has increased 90% in the last
10 years while total employment at the company has risen a mere 29%. That is
Productivity!!
As Caterpillar and many other American companies produce more goods and earn
more profits by using fewer workers, national productivity increases.
Productivity is a cornerstone of capitalism and is of key importance for an
economy to achieve higher living standards while also being able to contain
inflation. Greater efficiency, on a short-term basis, carries a price in terms
of lost jobs.
World stock markets have seen difficult times since early in 2000. The GKM
Growth Fund was launched during this turbulent economic setting. Since inception
of the GKM Growth Fund, our Fund has cumulatively declined -2.20 % vs. a decline
in the overall stock market (as represented by the S&P 500) of -7.34 %. During
the 12 months ended July 31, 2003, the Fund has gained +14.25 % vs. a gain for
the S&P 500 of +10.64 %. Finally, during 2003, the GKM Growth Fund has advanced
+12.93 % vs. the S&P 500's gain of +13.73 %. Of course, past performance is not
predictive of future results.
Overall, the U.S. stock market has been a roller coaster ride during the past 12
months ending July 31. Recent investor sentiment has been improving, helping
both the market and the GKM Growth Fund portfolio achieve positive returns
during this period. A significant contributing factor to the GKM Growth Fund's
outperformance vs. the S & P 500 (+14.25 % vs. +10.64 %) can be attributed to
our portfolio's exposure to several excellent industrial companies. As discussed
above, both through a tremendous increase in productivity, and their ability to
participate in a recovering economy, the financial performance of many
industrial companies have bounced back strongly, along with their stock prices.
For the past fiscal year our investment approach maintained an exceptionally low
turnover ratio of 5%. This is in contrast to a turnover ratio in excess of 100%
for the average domestic stock mutual fund. Our goal is to identify and invest
in companies that we can own forever. If we choose correctly, we can continue to
hold these stocks and compound capital over the long term. This low turnover
strategy is a core tenant of the GKM Advisers approach.
Another key tenant of our approach is portfolio diversification. In order to
compound capital at an acceptable rate and reduce overall risk, we continue to
diversify the portfolio with the most attractive, high-quality growth companies
we can find. With a portfolio of more than 80 companies, spread among the
various S&P sectors, we have reduced sector and specific company risk for the
Fund without sacrificing the quality of our investment returns.
On balance we believe the strength of the capitalist system will continue to
flourish. We continue to see growth in specific areas of the economy, especially
in industrial/cyclical companies, and in companies with a proven ability to gain
market share in our overwhelmingly services-driven world economy. We will
continue to search for companies with a superior outlook within this context,
and we appreciate your confidence in our ability to produce successful
investment results.
Sincerely,
Timothy J. Wahl, CPA
President
GKM Advisers, LLC
GKM GROWTH FUND
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GKM GROWTH FUND
VERSUS THE STANDARD & POOR'S 500 INDEX
[GRAPHIC OMITTED]
- -------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
1 YEAR SINCE INCEPTION**
------- -----------------
GKM GROWTH FUND 14.25% (1.39%)
S&P 500 10.64% (7.34%)
- -------------------------------------------------------
GKM GROWTH FUND S&P 500 INDEX
--------------- -------------
12/28/2001 $10,000 12/28/2001 $10,000
1/31/2002 -2.00% 9,800 1/31/2002 -1.46% 9,854
4/30/2002 -3.77% 9,700 4/30/2002 -6.06% 9,420
7/31/2002 -5.62% 8,560 7/31/2002 -7.80% 8,007
10/31/2002 8.84% 8,620 10/31/2002 8.80% 7,816
1/31/2003 -1.73% 8,510 1/31/2003 -2.62% 7,586
4/30/2003 8.05% 9,130 4/30/2003 8.24% 8,166
7/31/2003 2.52% 9,780 7/31/2003 1.76% 8,859
Past performance is not predictive of future performance.
* The total returns shown do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund
shares.
** Initial public offering of shares was December 28, 2001.
GKM FUNDS
GKM GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2003
- --------------------------------------------------------------------------------
ASSETS
Investments in securities:
At acquisition cost $12,904,843
===========
At value (Note 1) $14,108,069
Dividends receivable 5,873
Receivable for capital shares sold 1,035
Other assets 198
-----------
Total Assets 14,115,175
-----------
LIABILITIES
Payable for securities purchased 117,202
Accrued investment advisory fees (Note 3) 41,030
Accrued trustees' fees 2,249
-----------
Total Liabilities 160,481
-----------
NET ASSETS $13,954,694
===========
Net assets consist of:
Paid-in capital $12,990,510
Accumulated net realized losses from
security transactions (239,042)
Net unrealized appreciation on investments 1,203,226
-----------
Net assets $13,954,694
===========
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 1,426,702
===========
Net asset value, redemption price and offering price
price per share (Note 1) $ 9.78
===========
See accompanying notes to financial statements.
GKM FUNDS
GKM GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 95,736
-----------
EXPENSES
Investment advisory fees (Note 3) 143,046
Trustees' fees 3,123
-----------
TOTAL EXPENSES 146,169
-----------
NET INVESTMENT LOSS (50,433)
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized losses from security transactions (236,446)
Net change in unrealized appreciation/depreciation
on investments 1,812,038
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 1,575,592
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,525,159
===========
See accompanying notes to financial statements.
GKM FUNDS
GKM GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
JULY 31, JULY 31,
2003 2002(a)
------------ ------------
FROM OPERATIONS
Net investment loss $ (50,433) $ (10,904)
Net realized losses from security transactions (236,446) (2,596)
Net change in unrealized appreciation/depreciation on investments 1,812,038 (608,812)
------------ ------------
Net increase (decrease) in net assets resulting from operations 1,525,159 (622,312)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 6,201,541 8,268,092
Payments for shares redeemed (1,012,630) (505,156)
------------ ------------
Net increase in net assets from capital share transactions 5,188,911 7,762,936
------------ ------------
TOTAL INCREASE IN NET ASSETS 6,714,070 7,140,624
NET ASSETS
Beginning of period 7,240,624 100,000
------------ ------------
End of period $ 13,954,694 $ 7,240,624
============ ============
CAPITAL SHARE ACTIVITY
Sold 699,441 898,575
Redeemed (118,489) (62,825)
------------ ------------
Net increase in shares outstanding 580,952 835,750
Shares outstanding, beginning of period 845,750 10,000
------------ ------------
Shares outstanding, end of period 1,426,702 845,750
============ ============
(a) Represents the period from the commencement of operations (December 28,
2001) through July 31, 2002
See accompanying notes to financial statements.
GKM FUNDS
GKM GROWTH FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
JULY 31, JULY 31,
2003 2002(a)
------------ ------------
Net asset value at beginning of period $ 8.56 $ 10.00
------------ ------------
Income (loss) from investment operations:
Net investment loss (0.04) (0.01)
Net realized and unrealized gains (losses) on investments 1.26 (1.43)
------------ ------------
Total from investment operations 1.22 (1.44)
------------ ------------
Net asset value at end of period $ 9.78 $ 8.56
============ ============
Total return 14.25% (14.40)%(b)
============ ============
Net assets at end of period $ 13,954,694 $ 7,240,624
============ ============
Ratio of expenses to average net assets 1.43% 1.46%(c)
Ratio of net investment loss to average net assets (0.49)% (0.72)%(c)
Portfolio turnover rate 5% 1%(c)
(a) Represents the period from the commencement of operations (December 28,
2001) through July 31, 2002.
(b) Not annualized.
(c) Annualized.
See accompanying notes to financial statements.
GKM FUNDS
GKM GROWTH FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2003
- --------------------------------------------------------------------------------
SHARES VALUE
----------- --------
COMMON STOCKS - 99.9%
AIR FREIGHT AND COURIERS - 2.7%
2,485 FedEx Corporation $160,009
3,500 United Parcel Service, Inc. - Class B 220,780
--------
380,789
--------
BANKS - 1.0%
2,800 Wells Fargo & Company 141,484
--------
BEVERAGES - 0.9%
2,475 Anheuser-Busch Companies, Inc. 128,255
--------
BIOTECHNOLOGY - 5.3%
4,000 Amgen, Inc.* 278,320
5,000 Biogen, Inc.* 192,100
2,000 Genzyme Corporation* 100,880
4,000 ICOS Corporation* 174,480
--------
745,780
--------
CHEMICALS - 6.3%
5,000 Engelhard Corporation 131,400
9,000 International Flavors and Fragrances, Inc. 271,350
6,250 Scotts Company (The) - Class A* 331,250
2,550 Sigma-Aldrich Corporation 145,274
--------
879,274
--------
COMMERCIAL SERVICES AND SUPPLIES - 9.2%
3,100 Automatic Data Processing, Inc. 114,948
4,100 Avery Dennison Corporation 221,236
5,000 Deluxe Corporation 222,000
5,000 Ecolab, Inc. 123,550
3,500 Graco, Inc. 127,575
6,000 Pitney Bowes, Inc. 228,600
10,100 Waste Management, Inc. 241,289
--------
1,279,198
---------
COMMUNICATIONS EQUIPMENT - 2.6%
6,500 QUALCOMM, Inc. 243,490
18,410 Tellabs, Inc.* 123,899
--------
367,389
--------
GKM FUNDS
GKM GROWTH FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2003
- --------------------------------------------------------------------------------
SHARES VALUE
----------- --------
COMMON STOCKS - 99.9% (CONTINUED)
COMPUTERS AND PERIPHERALS - 3.3%
3,510 International Business Machines Corporation $285,187
2,870 Lexmark International, Inc.* 184,168
--------
469,355
--------
DIVERSIFIED TELECOMMUNICATIONS SERVICES - 1.3%
2,000 AT&T Corporation 42,520
4,000 Verizon Communications, Inc. 139,440
--------
181,960
--------
ELECTRICAL EQUIPMENT - 2.4%
12,000 Trimble Navigation Ltd.* 328,200
--------
ELECTRONIC EQUIPMENT AND INSTRUMENTS - 7.9%
6,000 Diebold, Inc. 265,260
7,000 Garmin Ltd.* 267,820
4,000 Harman International Industries, Inc. 334,400
3,485 Optimal Robotics Corporation - Class A* 24,221
16,580 Symbol Technologies, Inc. 212,390
--------
1,104,091
---------
FOOD AND DRUG RETAILING - 2.0%
4,300 Sysco Corporation 129,559
3,000 Whole Foods Market, Inc.* 152,928
--------
282,487
--------
FOOD PRODUCTS - 1.0%
2,000 Hershey Foods Corporation 145,620
--------
HEALTH CARE EQUIPMENT AND SUPPLIES - 5.6%
4,600 Medtronic, Inc. 236,900
4,000 Patterson Dental Company* 214,000
2,500 STERIS Corporation* 57,450
3,600 Stryker Corporation 275,472
--------
783,822
--------
GKM FUNDS
GKM GROWTH FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2003
- --------------------------------------------------------------------------------
SHARES VALUE
----------- --------
COMMON STOCKS - 99.9% (CONTINUED)
HEALTH CARE PROVIDERS AND SERVICES - 2.7%
2,900 Cardinal Health, Inc. $158,775
4,200 UnitedHealth Group, Inc. 218,778
--------
377,553
--------
HOTELS, RESTAURANTS & LEISURE - 1.8%
3,000 Harrah's Entertainment, Inc.* 130,950
8,000 Hilton Hotels Corporation 116,800
--------
247,750
--------
INDUSTRIAL CONGLOMERATES - 1.3%
1,330 3M Company 186,466
--------
INFORMATION TECHNOLOGY CONSULTING
AND SERVICES - 2.1%
5,900 Affiliated Computer Services, Inc. - Class A* 292,345
--------
INTERNET SOFTWARE AND SERVICES - 1.2%
7,300 Cisco Systems, Inc.* 142,496
30,000 Interland, Inc.* 25,500
--------
167,996
--------
MACHINERY - 3.4%
1,300 Caterpillar, Inc. 87,711
2,000 Ingersoll-Rand Company - Class A 108,480
12,000 Pall Corporation 270,840
--------
467,031
--------
MARINE - 0.2%
9,200 Grupo TMM S.A. de C.V. - Class A (ADR)* 21,436
--------
MEDIA - 3.4%
3,235 Comcast Corporation - Class A* 98,085
2,000 Gannett Company, Inc. 153,660
5,080 New York Times Company (The) - Class A 226,568
--------
478,313
--------
GKM FUNDS
GKM GROWTH FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2003
- --------------------------------------------------------------------------------
SHARES VALUE
----------- --------
COMMON STOCKS - 99.9% (CONTINUED)
METALS AND MINING - 0.9%
2,500 Nucor Corporation $123,300
--------
MULTILINE RETAIL - 1.4%
5,050 Family Dollar Stores, Inc. 189,426
--------
OIL & GAS - 0.9%
3,000 Pogo Producing Company 126,900
--------
PERSONAL PRODUCTS - 1.4%
3,500 Alberto-Culver Company - Class A 190,330
--------
PHARMACEUTICALS - 8.4%
4,000 Abbott Laboratories 157,000
2,990 Johnson & Johnson 154,852
3,540 Merck & Company, Inc. 195,691
3,000 Novartis AG 115,770
6,325 Pfizer, Inc. 211,002
5,990 Teva Pharmaceutical Industries Ltd. - ADR 343,467
--------
1,177,782
---------
REAL ESTATE INVESTMENT TRUST - 0.1%
500 Urstadt Biddle Properties 6,625
--------
ROAD AND RAIL - 2.7%
3,000 Canadian National Railway Company 156,150
3,500 Union Pacific Corporation 213,290
--------
369,440
--------
SEMICONDUCTOR EQUIPMENT AND PRODUCTS - 3.9%
8,000 Intel Corporation 199,600
7,000 Intersil Corporation - Class A* 172,620
2,810 National Semiconductor Corporation* 62,804
5,500 Texas Instruments, Inc. 103,785
--------
538,809
--------
GKM FUNDS
GKM GROWTH FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2003
- --------------------------------------------------------------------------------
SHARES VALUE
----------- --------
COMMON STOCKS - 99.9% (CONTINUED)
SOFTWARE - 6.1%
8,540 Adobe Systems, Inc. $279,087
20,050 Citrix Systems, Inc.* 363,907
8,120 Microsoft Corporation 214,368
--------
857,362
--------
SPECIALTY RETAIL - 3.1%
3,500 Barnes & Noble, Inc.* 83,755
3,000 Costco Wholesale Corporation* 111,150
7,000 Men's Wearhouse, Inc. (The)* 177,170
3,000 PETsMART, Inc. 59,490
--------
431,565
--------
TEXTILES AND APPAREL - 2.0%
3,500 Nike, Inc. - Class B 181,090
9,000 Oakley, Inc.* 101,610
--------
282,700
--------
TRADING COMPANIES AND DISTRIBUTORS - 1.4%
4,000 Grainger (W.W.), Inc. 196,800
--------
TOTAL COMMON STOCKS (Cost $12,744,407) $13,947,633
----------
MONEY MARKETS - 1.2%
First American Treasury Obligation Fund - Class S
160,436 (Cost $160,436) $ 160,436
---------
TOTAL INVESTMENTS AT VALUE - 101.1 %
(Cost $12,904,843) $14,108,069
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.1%) (153,375)
---------
NET ASSETS - 100.0% $13,954,694
==========
* Non-income producing security
ADR - American Depository Receipt
See accompanying notes to financial statements.
GKM FUNDS
GKM GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The GKM Growth Fund (the "Fund") was organized as a diversified series of
The GKM Funds (the "Trust") on October 2, 2001. The Trust is an open-end
investment company established under the laws of Ohio by an Agreement and
Declaration of Trust dated October 2, 2001. On December 14, 2001, 10,000
shares of the Fund were issued for cash, at $10.00 per share, to three
individuals affiliated with GKM Advisers, Inc. (the adviser to the Fund at
that time). GKM Advisers, LLC (the "Adviser") is the current adviser to the
Fund. The public offering of shares of the Fund commenced on December 28,
2001. The Fund had no operations prior to the public offering of shares
except for the initial issuance of shares.
The investment objective of the Fund is long-term capital appreciation.
SECURITIES VALUATION - Securities which are traded on stock exchanges or
are quoted by NASDAQ are valued at the closing sales price as of the close
of the regular session of trading on the New York Stock Exchange on the day
the securities are being valued, or, if not traded on a particular day, at
the closing bid price. Lacking a last sales price, a security is valued at
its last bid price except when, in the Adviser's opinion, the last bid
price does not accurately reflect the current value of the security. All
other securities for which over-the-counter market quotations are readily
available are valued at their last bid price. When market quotations are
not readily available, when the Adviser determines the last bid price does
not accurately reflect the current value or when restricted securities are
being valued, such securities are valued as determined in good faith by the
Adviser, in conformity with guidelines adopted by and subject to review of
the Board of Trustees of the Trust.
SHARE VALUATION - The net asset value of the Fund's shares is calculated at
the close of trading on the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) on each day that the Exchange is open for business. The net
asset value is calculated by dividing the value of the Fund's total assets,
minus liabilities, by the total number of shares outstanding. The offering
price and redemption price per share is equal to the net asset value per
share.
SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on trade date. Cost of securities sold is determined on a
specific identification basis. Dividend income is recorded on the
ex-dividend date. Interest income is accrued as earned.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends arising from net investment
income and net capital gains, if any, are declared and paid annually in
December. The amount of distributions from net investment income and net
realized gains are determined in accordance with income tax regulations
which may differ from accounting principles generally accepted in the
United States of America. There were no distributions for the periods ended
July 31, 2003 and 2002.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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 income and expenses during the
reporting period. Actual results could differ from those estimates.
GKM FUNDS
GKM GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2003
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX - It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which the Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the
income distributed. Accordingly, no provisions for income taxes have been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as
dividends in each calendar year at least 98% of its net investment income
(earned during the calendar year) and 98% of its net realized capital gains
(earned during the twelve months ended October 31) plus undistributed
amounts from prior years.
The following information is computed on a tax basis for each item as of
July 31, 2003:
Cost of portfolio investments $ 12,904,843
============
Gross unrealized appreciation $ 1,878,394
Gross unrealized depreciation (675,168)
------------
Net unrealized appreciation $ 1,203,226
------------
Capital loss carryforwards
(2,590)
Post-October losses (236,452)
------------
Total distributable earnings $ 964,184
============
As of July 31, 2003, the Fund had a capital loss carryforward of $2,590
which expires July 31, 2011. In addition, the Fund had net realized capital
losses of $236,452 during the period November 1, 2002 through July 31,
2003, which are treated for federal income tax purposes as arising during
the Fund's tax year ending July 31, 2004. The capital loss carryforward and
"post-October" losses may be utilized in future years to offset net
realized capital gains, if any, prior to distributing such gains to
shareholders.
RECLASSIFICATION OF CAPITAL ACCOUNTS - For the year ended July 31, 2003,
the Fund reclassified its net investment loss of $50,433 against
paid-in-capital on the Statement of Assets and Liabilities. This
reclassification, the result of permanent differences between the financial
statement and income tax reporting requirements, has no effect on the
Fund's net assets or net asset value per share.
2. INVESTMENT TRANSACTIONS
During the year ended July 31, 2003, cost of purchases and proceeds from
sales of investment securities, other than short-term investments, amounted
to $5,812,828 and $464,282, respectively.
GKM FUNDS
GKM GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2003
- --------------------------------------------------------------------------------
3. TRANSACTIONS WITH AFFILIATES
Certain Trustees and officers of the Trust are affiliated with the Adviser
or Ultimus Fund Solutions, LLC ("Ultimus"), the Fund's administrator,
transfer agent and fund accounting agent.
Under the terms of the Management Agreement between the Trust and the
Adviser, the Adviser serves as the investment adviser to the Fund. For its
services, the Fund pays the Adviser an investment management fee at the
annual rate of 1.40% of the Fund's average daily net assets. The Adviser
pays all of the operating expenses of the Fund except brokerage, taxes,
borrowing costs, fees and expenses of non-interested trustees,
extraordinary expenses and distribution and/or service related expenses
incurred pursuant to Rule 12b-1 under the Investment Company Act of 1940
(if any).
Prior to the effective date of the Management Agreement discussed above,
the Trust's assets were managed GKM Advisers, Inc. ("GKMAI"). GKMAI managed
the Fund's assets under substantially the same terms as those of the
current Management Agreement. GKMAI was paid by the Fund at the annual rate
of 1.40% of the Fund's average daily net assets and was responsible for all
operating costs of the Fund except brokerage, taxes, borrowing costs, fees
and expenses of non-interested trustees and extraordinary expenses.
The Trust has entered into mutual fund services agreements with Ultimus,
pursuant to which Ultimus provides day-to-day operational services to the
Fund including, but not limited to, accounting, administrative, transfer
agent, dividend disbursing, and recordkeeping services. The fees payable to
Ultimus are paid by the Adviser (not the Fund).
The Trust has entered into a Distribution Agreement with Ultimus Fund
Distributors, LLC (the "Distributor"), pursuant to which the Distributor
provides distribution services to the Fund and serves as principal
underwriter to the Fund. The Distributor is a wholly-owned subsidiary of
Ultimus. The fees payable to the Distributor are paid by the Adviser (not
the Fund).
A portion of the Fund's portfolio transactions were executed through Gerard
Klauer Mattison & Co., Inc. ("GKM"), which, prior to July 3, 2003, was the
parent company of GKMAI, the previous adviser to the Fund. During the year
ended July 31, 2003, brokerage commissions of $550 were paid by the Fund to
GKM.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
THE GKM FUNDS
LOS ANGELES, CALIFORNIA
We have audited the accompanying statement of assets and liabilities of GKM
Growth Fund, a series of shares of The GKM Funds, including the portfolio of
investments, as of July 31, 2003, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for the year ended July 31, 2003 and the period December
28, 2001 (commencement of operations) to July 31, 2002. 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 auditing standards generally accepted
in the United States of America. 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
securities owned as of July 31, 2003, by correspondence with the custodian and
broker. 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 GKM
Growth Fund as of July 31, 2003, the results of its operations for the year then
ended, and the statements of changes in its net assets and its financial
highlights for the year ended July 31, 2003 and the period December 28, 2001 to
July 31, 2002, in conformity with accounting principles generally accepted in
the United States of America.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
AUGUST 22, 2003
INFORMATION REGARDING TRUSTEES AND OFFICERS (UNAUDITED)
Overall responsibility for management of the Fund rests with the Board of
Trustees. The Trustees serve during the lifetime of the Trust and until its
termination, or until death, resignation, retirement or removal. The Trustees,
in turn, elect the officers of the Trust to actively supervise its day-to-day
operations. The officers have been elected for an annual term.
The following table provides information regarding each Trustee who is not
an "interested person" of the Trust, as defined in the Investment Company Act of
1940.
- --------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS POSITION(S) HELD WITH TRUST LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------
Darrin F. DelConte Trustee Trustee since December
11150 Santa Monica Blvd., Suite 850 2001
Los Angeles, CA 90025
Year of Birth: 1966
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------
Darrin F. DelConte is Executive Vice President of Pacific Marine Maintenance Co. (a marine None
maintenance company). From October 1998 to November 1999, he was West Coast Regional
Manager of Knight Transportation. Prior to October 1998, he was Director of Operations of
Golden Eagle Express.
- --------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS POSITION(S) HELD WITH TRUST LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------
Nicholas G. Tonsich Trustee Trustee since December
11150 Santa Monica Blvd., Suite 850 2001
Los Angeles, CA 90025
Year of Birth: 1961
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------
Nicholas G. Tonsich is a partner in Glaser, Tonsich and Brajevich LLP (a law firm). None
- --------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS POSITION(S) HELD WITH TRUST LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------
Christopher M. Leggio Trustee Trustee since June 2002
11150 Santa Monica Blvd., Suite 850
Los Angeles, CA 90025
Year of Birth: 1965
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------
Christopher M. Leggio is Vice President of Mark Christopher Auto Center (an automobile Director of Golden
dealership). State Business Bank
- --------------------------------------------------------------------------------------------------------------------
The following table provides information regarding each Trustee who is an "interested person" of the Trust,
as defined in the Investment Company Act of 1940, and each executive officer of the Trust.
- --------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS POSITION(S) HELD WITH TRUST LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------
Timothy J. Wahl1 President and Trustee President and Trustee
11150 Santa Monica Blvd., Suite 850 since December 2001
Los Angeles, CA 90025
Year of Birth: 1965
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------
Timothy J. Wahl is President, Director and Investment Committee Member of the Adviser. None
From January 2000 to July 2003, Mr. Wahl was President and Investment Committee Member of
GKM Advisors, Inc. Prior to January 2000, Mr. Wahl was sole proprietor of Wahl Financial
(an investment advisory firm).
- --------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS POSITION(S) HELD WITH TRUST LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------
David L. Kahn Secretary Secretary since
11150 Santa Monica Blvd., Suite 850 December 2001
Los Angeles, CA 90025
Year of Birth: 1957
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------
David L. Kahn is Operations Manager of the Adviser. From January 2000 to July 2003, Mr. N/A
Kahn was a Branch Manager with Gerard Klauer Mattison & Co., Inc. (a broker-dealer). From
July 1999 to January 2000, he was an Assistant with Wahl Financial. Prior to July 1999,
he was a trader for Crowell Weedon (a broker-dealer).
- --------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS POSITION(S) HELD WITH TRUST LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------
Robert G. Dorsey Vice President Vice President since
135 Merchant Street, Suite 230 December 2001
Cincinnati, OH 45246
Year of Birth: 1957
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------
Robert G. Dorsey is a Managing Director of Ultimus Fund Solutions, LLC and Ultimus Fund N/A
Distributors, LLC. Prior to March 1999, he was President of Countrywide Fund Services,
Inc. (a mutual fund services company).
- --------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS POSITION(S) HELD WITH TRUST LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------
Mark J. Seger Treasurer Treasurer since
135 Merchant Street, Suite 230 December 2001
Cincinnati, OH 45246
Year of Birth: 1962
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------
Mark J. Seger is a Managing Director of Ultimus Fund Solutions, LLC and Ultimus Fund N/A
Distributors, LLC. Prior to March 1999, he was First Vice President of Countrywide Fund
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------
1 Mr. Wahl is an "interested person" of the Trust because he is an officer of
the Trust and of the Adviser.
Additional information about members of the Board of Trustees and the executive
officers is available in the Statement of Additional Information (SAI). To
obtain a free copy of the SAI, please call 1-888-GKM-9518.
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS HELD ON AUGUST 20, 2003 (UNAUDITED)
On August 20, 2003, a Special Meeting of Shareholders of the GKM Growth
Fund was held to approve or disapprove a new Investment Management
Agreement with GKM Advisers, LLC. The total number of shares of the Fund
present in person or by proxy represented 91.6% of the shares entitled to
vote at the meeting. Shareholders of the Fund approved the new Investment
Management Agreement with GKM Advisers, LLC.
The results of the voting with respect to the proposal were as follows:
-------------------------------------------------------------------------
NUMBER OF SHARES
-------------------------------------------------------------------------
For Against Abstain
-------------------------------------------------------------------------
1,281,202.055 0 9,720.873
-------------------------------------------------------------------------
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is available
without charge upon request by calling toll-free 1-888-GKM-9518
(1-888-456-9518).
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. Pursuant to Item 10(a), a copy of its code
of ethics is filed as an exhibit to this Form N-CSR. During the period covered
by this report, the code of ethics has not been amended, and the registrant has
not granted an express or implied waiver from the provisions of the code of
ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of trustees has determined that the registrant does not
have an audit committee financial expert serving on its audit committee. The
audit committee determined that, although none of its members meet the technical
definition of an audit committee financial expert, the members have sufficient
financial expertise to address any issues that are likely to come before the
committee. It was the consensus of the audit committee members that it is not
necessary at the present time for the committee to have an audit committee
financial expert and that, if novel issues ever arise, the committee will
consider hiring an expert to assist it as needed.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required
ITEM 5. AUDIT COMMITTEE OF LISTED COMPANIES
Not required
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not required
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 301-2(c) under the Investment Company Act of
1940), the registrant's principal executive officer and principal financial
officer have concluded that such disclosure controls and procedures are
reasonably designed and are operating effectively to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to them by others within those entities, particularly during the
period in which this report is being prepared, and that the information required
in filings on Form N-CSR is recorded, processed, summarized, and reported on a
timely basis.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
half-year (the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Attached hereto
(b) A separate certification for each principal executive officer and principal
financial officer of the Registrant as required by Rule 30A-2 under the Act (17
Cfr 270.30A-2): Attached hereto
Exhibit 99.CERT Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.CODE ETH Code of Ethics
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The GKM Funds
-------------------------------------------------------
By (Signature and Title)* /s/ Timothy J. Wahl
-------------------------------------------
Timothy J. Wahl, President
Date September 29, 2003
-----------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Timothy J. Wahl
-------------------------------------------
Timothy J. Wahl, President
Date September 29, 2003
-----------------------------------------
By (Signature and Title)* /s/ Mark J. Seger
-------------------------------------------
Mark J. Seger, Treasurer
Date September 29, 2003
-----------------------------------------
* Print the name and title of each signing officer under his or her signature.