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OMB APPROVAL
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OMB Number: 3235-0570
Expires: September 30, 2007
Estimated average burden
hours per response: 19.4
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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 811-21701
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The Destination Funds
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(Exact name of registrant as specified in charter)
2001 North Main Street, Suite 270 Walnut Creek, California 94596
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(Address of principal executive offices) (Zip code)
Wade R. Bridge, Esq.
Ultimus Fund Solutions, LLC 225 Pictoria Drive, Suite 450 Cincinnati, Ohio 45246
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(Name and address of agent for service)
Registrant's telephone number, including area code: (925) 935-2900
-----------------------
Date of fiscal year end: August 31, 2006
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Date of reporting period: February 28, 2006
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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.
DESTINATION FUNDS
Destination Select Equity Fund
SEMI-ANNUAL REPORT
FEBRUARY 28, 2006
(UNAUDITED)
INVESTMENT ADVISOR
Destination Capital Management, Inc.
Walnut Creek, CA
DESTINATION SELECT EQUITY FUND
SUPPLEMENTARY PORTFOLIO INFORMATION
FEBRUARY 28, 2006 (UNAUDITED)
================================================================================
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DESTINATION SELECT EQUITY FUND VS S&P 500 INDEX
SECTOR DIVERSIFICATION (% OF NET ASSETS)
AS OF FEBRUARY 28, 2006 (UNAUDITED)
Destination S&P 500
Select Equity Fund Index
------------------------------------
Energy 0.0% 9.5%
Materials 0.0% 3.0%
Industrials 4.6% 11.2%
Consumer Discretionary 24.2% 10.4%
Consumer Staples 20.3% 9.4%
Health Care 14.8% 13.3%
Financials 7.5% 21.2%
Information Technology 5.2% 15.3%
Telecommunication Services 0.0% 3.3%
Utilities 0.0% 3.4%
Cash 23.4% 0.0%
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TOP 10 HOLDINGS
- --------------------------------------------------------------------------------
SECURITY DESCRIPTION % OF NET ASSETS
------------------------------------------ -------------------------
Walt Disney Co. (The) 6.1%
Costco Wholesale Corp. 5.3%
Pfizer, Inc. 5.2%
ARAMARK Corp. 5.1%
Coca-Cola Co. (The) 5.1%
Wal-Mart Stores, Inc. 5.0%
U.S. Bancorp 4.9%
Stryker Corp. 4.9%
Procter & Gamble Co. (The) 4.9%
Gannett Co., Inc. 4.8%
1
DESTINATION SELECT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2006 (UNAUDITED)
===================================================================================================================
ASSETS
Investments in securities:
At acquisition cost $ 100,194
============
At value $ 102,011
Receivable for capital shares sold 20,000
Dividends receivable 203
Other assets 5,328
Receivable from Advisor (Note 4) 10,256
------------
Total Assets 137,798
------------
LIABILITIES
Accrued Liabilities:
Payable to affiliate (Note 4) 12,002
Other accrued expenses 3,793
------------
Total Liabilities 15,795
------------
NET ASSETS $ 122,003
============
NET ASSETS CONSIST OF:
Paid-in capital $ 120,000
Undistributed net investment income 186
Net unrealized appreciation on investments 1,817
------------
NET ASSETS $ 122,003
============
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) 11,961
============
Net asset value, offering price and redemption price per share (a) $ 10.20
============
(a) Redemption price may differ from the net asset value per share depending upon the length of time
the shares are held (Note 2).
See accompanying notes to financial statements.
2
DESTINATION SELECT EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED FEBRUARY 28, 2006(a) (UNAUDITED)
===================================================================================================================
INVESTMENT INCOME
Dividend income $ 397
------------
EXPENSES
Fund accounting fees (Note 4) 5,002
Administration fees (Note 4) 4,000
Insurance expense 3,874
Transfer agent fees (Note 4) 3,000
Professional fees 2,833
Custody fees 860
Registration fees 308
Investment advisory fees (Note 4) 127
Other expenses 100
------------
Total expenses 20,104
Less fees waived and expenses reimbursed by the Advisor (Note 4) (19,893)
------------
Net expenses 211
------------
NET INVESTMENT INCOME 186
------------
UNREALIZED GAINS ON INVESTMENTS
Net change in unrealized appreciation/depreciation on investments 1,817
------------
INCREASE IN NET ASSETS FROM OPERATIONS $ 2,003
============
(a) Represents the period from the commencement of operations (December 29, 2005) through February 28, 2006.
See accompanying notes to financial statements.
3
DESTINATION SELECT EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED FEBRUARY 28, 2006 (a) (UNAUDITED)
===================================================================================================================
FROM OPERATIONS
Net investment income $ 186
Net change in unrealized appreciation/depreciation of investments 1,817
------------
Net increase in net assets from operations 2,003
------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 20,000
------------
Total increase in net assets 22,003
NET ASSETS
Beginning of period 100,000
------------
End of period $ 122,003
============
UNDISTRIBUTED NET INVESTMENT INCOME $ 186
============
CAPITAL SHARE ACTIVITY
Shares sold 1,196
Shares outstanding at beginning of period 10,000
------------
Shares outstanding at end of period 10,000
============
(a) Represents the period from the commencement of operations (December 29, 2005) through February 28, 2006.
See accompanying notes to financial statements.
4
DESTINATION SELECT EQUITY FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
===================================================================================================================
PERIOD ENDED
FEBRUARY 28,
2006 (a)
(UNAUDITED)
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Net asset value at beginning of period $ 10.00
------------
Income from investment operations:
Net investment income 0.02
Net unrealized gains on investments 0.18
------------
Total from investment operations 0.20
------------
Net asset value at end of period $ 10.20
============
Total return (b) 2.00%(c)
============
Net assets at the end of period $ 122,003
============
RATIOS/SUPPLEMENTARY DATA:
Ratio of gross expenses to average net assets 116.99%(e)
Ratio of net expenses to average net assets (d) 1.23%(e)
Ratio of net investment income to average net assets (d) 1.08%(e)
Portfolio turnover rate 0%
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(a) Represents the period from the commencement of operations (December 29,
2005) through February 28, 2006.
(b) Total return is a measure of the change in value of an investment in the
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in shares of the Fund. The return shown does
not reflect the deduction of taxes a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(c) Not annualized.
(d) Ratio was determined after advisory fee waivers and expense reimbursements.
(e) Annualized.
See accompanying notes to financial statements.
5
DESTINATION SELECT EQUITY FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 2006 (UNAUDITED)
================================================================================
SHARES COMMON STOCKS - 76.6% VALUE
- -------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 24.2%
220 ARAMARK Corp. $ 6,261
110 Carnival Corp. 5,682
160 DreamWorks Animation SKG, Inc. (a) 4,320
95 Gannett Co., Inc. 5,905
264 Walt Disney Co. (The) 7,389
------------
29,557
------------
CONSUMER STAPLES - 20.3%
149 Coca-Cola Co. (The) 6,253
125 Costco Wholesale Corp. 6,410
100 Procter & Gamble Co. (The) 5,993
135 Wal-Mart Stores, Inc. 6,124
------------
24,780
------------
FINANCIALS - 7.5%
35 Capital One Financial Corp. 3,066
195 U.S. Bancorp 6,027
------------
9,093
------------
HEALTH CARE - 14.8%
100 Johnson & Johnson 5,765
240 Pfizer, Inc. 6,286
130 Stryker Corp. 6,009
------------
18,060
------------
INDUSTRIALS - 4.6%
170 General Electric Co. 5,588
------------
INFORMATION TECHNOLOGY - 5.2%
70 Automatic Data Processing, Inc. 3,233
70 First Data Corp. 3,159
------------
6,392
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TOTAL COMMON STOCKS (Cost $91,653) $ 93,470
------------
================================================================================
SHARES SHORT TERM INVESTMENTS - 7.0% VALUE
- --------------------------------------------------------------------------------
8,541 AIM STIT - Liquid Assets Portfolio (The) (Cost $8,541) $ 8,541
------------
TOTAL INVESTMENTS AT VALUE - 83.6% (Cost $100,194) $ 102,011
OTHER ASSETS IN EXCESS OF LIABILITIES - 16.4% 19,992
------------
TOTAL NET ASSETS - 100.0% $ 122,003
============
(a) Non-income producing security.
See accompanying notes to financial statements.
6
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2006 (UNAUDITED)
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1. ORGANIZATION
The Destination Select Equity Fund (the "Fund") is a diversified series of The
Destination Funds (the "Trust"), an open-end investment company established as
an Ohio business trust under a Declaration of Trust dated December 14, 2004. On
April 11, 2005, 10,000 shares of the Fund were issued for cash, at $10.00 per
share, to YCMNET Advisors, Inc., an affiliate of the investment advisor to the
Fund. The Fund commenced operations on December 29, 2005.
The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION - The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern time). Common stocks and other equity-type
securities that are traded on a securities exchange are valued at the last
quoted sales price at the close of regular trading on the day the valuation is
made, or, if not traded on a particular day, at the closing bid price.
Securities which are quoted by NASDAQ are valued at the NASDAQ Official Closing
Price. Price information on listed stocks is taken from the exchange where the
security is primarily traded. Securities and other assets that do not have
market quotations readily available are valued at their fair value as determined
in good faith using procedures established by the Board of Trustees.
SHARE VALUATION - The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share, except that shares of the
Fund are subject to a redemption fee of 2% if redeemed within 90 days of the
date of purchase. For the period ended February 28, 2006, no redemption fees
were collected.
INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned. Other non-cash dividends are recognized as
investment income at the fair value of the property received.
SECURITY TRANSACTIONS - Security transactions are accounted for on the trade
date. Gains and losses on securities sold are determined on a specific
identification basis.
DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders arising from net
investment income and net realized capital gains, if any, are distributed at
least once each year. The amount of distributions from net investment income and
net realized gains are determined in accordance with federal income tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. During the period ended February 28, 2006, the
Fund made no distributions.
7
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
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.
FEDERAL INCOME TAX - It is the Fund's policy to comply with the special
provisions of Subchapter M of the Internal Revenue Code applicable to regulated
investment companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distribute 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 provision for income taxes is required.
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
February 28, 2006:
----------------------------------------------------------------
Cost of portfolio investments $ 100,194
==============
Gross unrealized appreciation $ 2,802
Gross unrealized depreciation (985)
--------------
Net unrealized appreciation $ 1,817
Undistributed ordinary income 186
--------------
Accumulated earnings $ 2,003
==============
----------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
During the period ended February 28, 2006, cost of purchases of investment
securities, other than short-term investments, was $91,653. There were no sales
of investment securities, other than short-term investments, during the period.
4. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT
Destination Capital Management, Inc. (the "Advisor") serves as the investment
advisor to the Fund. For its services, the Fund pays the Advisor, on a monthly
basis, an investment advisory fee at the annual rate of 0.75% of its average
daily net assets.
The Advisor has contractually agreed to reduce a portion of its advisory fees or
to reimburse the Fund's operating expenses to the extent necessary so that the
Fund's ordinary operating expenses do not exceed an amount equal to 1.25%
annually of its average net assets. This expense limitation agreement remains in
effect for a period of three years from the beginning of the Fund's operations.
During the period ended February 28, 2006, the Advisor waived its entire
investment advisory fees of $127 and reimbursed other Fund expenses totaling
$19,766.
8
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
The Advisor has concurrently entered into an agreement with the Fund which
permits the Advisor to recover expenses waived and/or reimbursed on behalf of
the Fund, but only for a period of three years after the expense is waived
and/or reimbursed, and only if such recovery will not cause the Fund's expense
ratio to exceed 1.25%. As of February 28, 2006, the amount available for
recovery that has been paid and/or waived by the Advisor on behalf of the Fund
is $19,893, which expires during the year ended February 28, 2009.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement with the Trust, Ultimus Fund
Solutions, LLC ("Ultimus") provides non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services for the Fund. Ultimus supervises the preparation of tax
returns, reports to shareholders of the Fund, reports to and filings with the
Securities and Exchange Commission and state securities commissions and
materials for meetings of the Board of Trustees. For these services, the Fund
pays to Ultimus, on a monthly basis, a fee equal to 0.15% per annum of the
Fund's average daily net assets up to $50 million, 0.125% of such assets from
$50 million to $100 million, 0.10% of such assets from $100 million to $250
million, 0.075% of such assets from $250 million to $500 million and 0.05% of
such assets in excess of $500 million, provided, however, that the minimum fee
is $2,000 per month. For the period ended February 28, 2006, Ultimus was paid
$4,000 for administration fees.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, Ultimus calculates the
daily net asset value per share and maintains the financial books and records of
the Fund. For these services, Ultimus receives a base fee of $2,500 per month,
plus an asset-based fee at the annual rate of .01% of the average value of its
daily net assets. During the period ended February 28, 2006, the Fund paid
Ultimus $5,002 in fund accounting fees. In addition, the Fund pays all costs of
external pricing services.
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer Agent and Shareholder Services Agreement, Ultimus
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchase and redemption of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. For these services, Ultimus receives from
the Fund for its services as transfer agent a fee payable monthly at an annual
rate of $24 per account, provided, however, that the minimum fee is $1,500 per
month. In addition, the Fund pays out-of-pocket expenses, including but not
limited to, postage and supplies. During the period ended February 28, 2006,
Ultimus was paid $3,000 in transfer agent and shareholder services fees.
DISTRIBUTION AGREEMENT
Under the terms of a Distribution Agreement, Ultimus Fund Distributors, LLC (the
"Distributor") serves as principal underwriter to the Fund. The Distributor
receives no compensation from the Fund for acting as principal underwriter.
However, the Distributor receives annual compensation of $6,000 from the Advisor
for such services.
Certain trustees and officers of the Fund are directors and officers of the
Advisor, or of Ultimus, or of the Distributor.
9
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
5. CONTINGENCIES AND COMMITMENTS
The Fund indemnifies the Trust's officers and trustees for certain liabilities
that might arise from their performance of their duties to the Fund.
Additionally, in the normal course of business the Fund enters into contracts
that contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the
Fund that have not yet occurred. However, based on experience, the Fund expects
the risk of loss to be remote.
10
DESTINATION SELECT EQUITY FUND
ABOUT YOUR FUND'S EXPENSES (Unaudited)
- --------------------------------------------------------------------------------
We believe it is important for you to understand the impact of costs on your
investment. As a shareholder of the Fund, you incur two types of costs: (1)
transactions costs, including redemption fees; and (2) ongoing costs, including
management fees and other Fund expenses. The following examples are intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
A Fund's expenses are expressed as a percentage of its average net assets. This
figure is known as the expense ratio. The expenses in the table below are based
on an investment of $1,000 made at the beginning of the period shown and held
for the entire period.
The table below illustrates the Fund's costs in two ways:
ACTUAL FUND RETURN - This section helps you to estimate the actual expenses that
you paid over the period. The "Ending Account Value" shown is derived from the
Fund's actual return, and the third column shows the dollar amount of operating
expenses that would have been paid by an investor who started with $1,000 in the
Fund. You may use the information here, together with the amount you invested,
to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for the Fund under the heading "Expenses Paid During Period."
HYPOTHETICAL 5% RETURN - This section is intended to help you compare the Fund's
costs with those of other mutual funds. It assumes that the Fund had an annual
return of 5% before expenses during the period shown, but that the expense ratio
is unchanged. In this case, because the return used is not the Fund's actual
return, the results do not apply to your investment. The example is useful in
making comparisons because the Securities and Exchange Commission requires all
mutual funds to calculate expenses based on a 5% return. You can assess the
Fund's costs by comparing this hypothetical example with the hypothetical
examples that appear in shareholder reports of other funds.
Note that expenses shown in the table are meant to highlight and help you
compare ongoing costs only. The Fund does not charge any sales loads. However, a
redemption fee of 2% is imposed on the sale of shares within 90 days of the date
of purchase.
The calculations assume no shares were bought or sold during the period. Your
actual costs may have been higher or lower, depending on the amount of your
investment and the timing of any purchases or redemptions.
More information about the Fund's expenses, including annualized expense ratios,
can be found in this report. For additional information on operating expenses
and other shareholder costs, please refer to the Fund's prospectus.
11
DESTINATION SELECT EQUITY FUND
ABOUT YOUR FUND'S EXPENSES (Unaudited) (Continued)
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During
December 29, 2005 February 28, 2006 Period*
- ---------------------------------------------------------------------------------------------
Based on Actual Fund Return $1,000.00 $1,020.00 $2.11
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,006.40 $2.10
- ---------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.23% for the
period, multiplied by the average account value over the period, multiplied
by 62/365 (to reflect the period covered by this report).
OTHER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Fund uses to vote proxies
relating to portfolio securities is available without charge upon request by
calling 1-866-738-1128, or on the Securities and Exchange Commission's ("SEC")
website at http://www.sec.gov.
The Trust will file a complete listing of portfolio holdings for the Fund with
the SEC as of the first and third quarters of each fiscal year on Form N-Q. The
filings will be available upon request, by calling 1-866-738-1128. Furthermore,
you will be able to obtain a copy of the filings on the SEC's website at
http://www.sec.gov. The Trust's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC, and information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
12
DESTINATION SELECT EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED)
- --------------------------------------------------------------------------------
The Board of Trustees, including all of the Independent Trustees voting
separately, has reviewed and approved the Fund's Investment Advisory Agreement
with the Adviser. Approval took place at an in-person meeting, held on April 18,
2005, at which a majority of Trustees were present, including all of the
Independent Trustees.
In the course of their consideration of the Investment Advisory Agreement, the
Independent Trustees were advised by independent legal counsel. The Independent
Trustees received and reviewed a substantial amount of information provided by
the Adviser in response to requests of independent legal counsel.
In considering the Investment Advisory Agreement and reaching their conclusions,
the Trustees reviewed and analyzed various factors that they determined were
relevant, including the factors described below.
NATURE, EXTENT AND QUALITY OF SERVICES
- --------------------------------------
The Trustees received and considered various data and information regarding the
nature, extent and quality of services to be provided to the Fund by the Adviser
and the available resources of its affiliate, YCMNET Advisors, Inc. ("YCMNET").
The Trustees reviewed the most recent investment adviser registration form (Form
ADV) for the Adviser, which included, among other things, information about the
background and experience of the senior management. The Trustees were also
provided additional background information on Messrs. Yoshikami and Chin and the
Advisor's investment process and brokerage policies. In this regard, the
Trustees specifically reviewed the qualifications, backgrounds and
responsibilities of the key personnel at the Adviser that will oversee the
day-to-day investment management and operations of the Fund.
The Board concluded that it was satisfied with the nature, extent and quality of
the investment advisory services to be provided to the Fund by the Adviser.
PERFORMANCE AND EXPENSES
- ------------------------
The Trustees next considered performance information provided by the Adviser,
which included an overview of the composite performance record of YCMNET's
separate accounts managed according to an equity/fixed income strategy. The
Adviser reported that accounts included within the equity/fixed income composite
generally invest 85% of their assets in equity securities, while the remaining
15% is invested in fixed income securities. During the Adviser's presentation of
these performance statistics, the Adviser pointed out the differences in fee
structures and account minimums between the Fund and the separate accounts. The
Adviser explained that it will be difficult for the Fund to replicate the
performance numbers of the composite due in large part to the different (higher)
fee structure for the Fund and, to a lesser extent, the impact of more frequent
cash inflows and outflows within the Fund. The Adviser also explained that the
Fund will not typically hold as significant a percentage of its assets in fixed
income securities, which means the Fund is more susceptible to equity risk, as
compared to the separate accounts included within the composite. The Trustees
discussed the performance information, factoring in the limitations described by
the Adviser with respect to the comparative performance, and concluded that the
Adviser has available the requisite expertise to manage the Fund.
13
DESTINATION SELECT EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
The Trustees considered statistical information regarding the Fund's total
expense ratio and its various components, including contractual advisory fees
and fee waivers and/or expense reimbursements. It also considered comparisons of
these fees to the comparative expense information for the Fund's peer group as
determined by the Adviser. The Fund's overall expense ratio, after contractual
fee waivers, was compared to funds within the Morningstar category of "Large Cap
Funds" having $50 million or less in net assets. The Trustees noted that the
overall expense ratio of the Fund, after fee waivers, will be lower than the
average for Large Cap Funds. The Trustees also noted that, under an Expense
Limitation Agreement entered into by the Adviser, shareholders of the Fund are
guaranteed a competitive expense ratio during the initial stages (first three
years) of the Fund.
INVESTMENT ADVISORY FEE RATES
- -----------------------------
The Trustees reviewed and considered the proposed contractual fee rate payable
by the Fund to the Adviser for investment advisory services. Additionally, the
Trustees received and considered information comparing the advisory fee rates
with those of the other funds in its relevant peer group, as described above.
The Trustees concluded that the advisory fee rate for the Fund was slightly
lower than the average rate for the peer group presented. The Trustees further
concluded that the overall expense ratio of the Fund, after fee waivers, is
lower than the average expense ratio within the defined peer group.
The Trustees also discussed the financial commitment of YCMNET to ensure that
the Adviser has adequate resources (financial and personnel) to adequately serve
the Fund and satisfy its financial commitment under the Expense Limitation
Agreement. The Trustees reviewed a recent balance sheet of YCMNET and considered
the contractual undertaking and oral representations of Mr. Yoshikami regarding
financial support of the Adviser. The Trustees concluded that, with the
financial support of the Adviser's parent company, the Adviser is financially
capable of satisfying its commitments to the Fund.
PROFITABILITY
- -------------
The Trustees discussed the projected profits of the Adviser and the other
ancillary benefits that the Adviser may receive with regard to providing
advisory services to the Fund and concluded that, in light of the fact that the
Fund is new, with limited assets, these factors are only secondary factors at
this time. The Trustees did note that, as the Fund grows, the Adviser may need
to add breakpoints to the investment advisory fee structure.
ECONOMIES OF SCALE
- ------------------
The Trustees discussed economies of scale, noting that at this stage, the Fund
has not had an opportunity to recognize any economies of scale. The Trustees
again observed that as the Fund grows in assets, this factor will become more
relevant to their consideration process.
CONCLUSION
- ----------
After consideration of these and other factors, the Trustees, including all of
the Independent Trustees, concluded that approval of the Investment Advisory
Agreement was in the best interest of the Fund and its shareholders.
14
ITEM 2. CODE OF ETHICS.
Not required
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable [schedule filed with Item 1]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not adopted procedures by which shareholders may recommend
nominees to the registrant's board of trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, 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 changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) 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: Not required
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): Attached hereto
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): Attached hereto
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
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 Destination Funds
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By (Signature and Title)* /s/ Michael A. Yoshikami
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Michael A. Yoshikami, President
Date April 18, 2006
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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/ Michael A. Yoshikami
-------------------------------------
Michael A. Yoshikami, President
Date April 18, 2006
-----------------------------------
By (Signature and Title)* /s/ Mark J. Seger
--------------------------------------
Mark J. Seger, Treasurer
Date April 18, 2006
-----------------------------------
* Print the name and title of each signing officer under his or her signature.