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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 811-21868
---------
Surgeons Diversified Investment Fund
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
633 N. Clair Street Chicago, Illinois 60611
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(Address of principal executive offices) (Zip code)
Savitri P. Pai
Surgeons Asset Management, LLC 633 N. Clair Street Chicago, Illinois 60611
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 202-5056
--------------
Date of fiscal year end: August 31, 2007
-----------------
Date of reporting period: February 28, 2007
-----------------
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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SURGEONS
DIVERSIFIED
INVESTMENT
FUND
[AMERICAN COLLEGE OF SURGEONS LOGO] Serving the membership of the
American College of Surgeons
SEMI-ANNUAL REPORT
FEBRUARY 28, 2007
(UNAUDITED)
| DIVERSIFIED
| INVESTMENT
SURGEONS | FUND
SURGEONS DIVERSIFIED INVESTMENT FUND
================================================================================
April 26, 2007
Dear Fellow Shareholder,
Thank you for your investment in the Surgeons Diversified Investment Fund
("SDIF"). This Semi-Annual Report reflects the investments, performance and
operations of SDIF for its first six months in existence. As of February 28,
2007, net assets in SDIF were approximately $33 million, and total return
performance (including dividends) since the inception date of September 22, 2006
was 8.09%. SDIF's return can be compared against the return of 5.18% for the S&P
500/Lehman Brothers U.S. Aggregate Index*, and the return of 7.53% for the SDIF
Blended Benchmark** for the same period.
As a shareholder of SDIF, you will be receiving semi-annual and annual reports
at the end of the months of April and October, respectively. Our annual report
will contain a full analysis of our performance and asset allocation strategies.
We look forward to our continued growth with you.
John L. Cameron, MD, FACS
Chairman, Board of Trustees
Surgeons Diversified Investment Fund
Savitri P. Pai, Esq.
President
Surgeons Diversified Investment Fund
* The S&P 500 Index/Lehman Brothers U.S. Aggregate Index is comprised of 70%
S&P 500 Index and 30% Lehman Brothers U.S. Aggregate Index.
** The SDIF Blended Benchmark is comprised of approximately 9% large cap
value stock (Russell 1000 Value Index), 9% large cap growth stock (Russell
1000 Growth Index), 8% large cap index stock (S&P 500 Index), 3.5% small
cap value stock (Russell 2000 Value Index), 3.5% small cap growth stocks
(Russell 2000 Growth Index), 6% REIT stock (Dow Jones U.S. Real Estate
Index), 6% energy stock (S&P Global Energy Sector Index), 25%
international equity (MSCI EAFE Index), and 30% U.S. fixed income (Lehman
Brothers U.S. Aggregate Index).
1
SURGEONS DIVERSIFIED INVESTMENT FUND
PORTFOLIO INFORMATION
FEBRUARY 28, 2007 (UNAUDITED)
================================================================================
ASSET ALLOCATION (% OF NET ASSETS)
- --------------------------------------------------------------------------------
[PIE CHART OMITTED] Energy - 5.8%
International - 24.0%
Large Cap Growth - 8.7%
Large Cap Index - 7.7%
Large Cap Value - 8.7%
REITs - 5.8%
Small Cap Growth - 4.7%
Small Cap Value - 4.7%
U.S. Fixed Income - 29.9%
2
SURGEONS DIVERSIFIED INVESTMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2007 (UNAUDITED)
================================================================================
ASSETS
Investments in securities:
At acquisition cost ......................................... $34,072,201
===========
At market value (Note 1) .................................... $34,349,795
Dividends receivable .......................................... 1,442
Receivable for capital shares sold ............................ 63,665
Other assets .................................................. 28,329
-----------
TOTAL ASSETS ................................................ 34,443,231
-----------
LIABILITIES
Payable for investment securities purchased ................... 1,086,105
Payable to the Manager (Note 4) ............................... 37,663
Payable to affiliate (Note 4) ................................. 7,895
Accrued custody fees .......................................... 1,250
Other accrued expenses ........................................ 17,660
-----------
TOTAL LIABILITIES ........................................... 1,150,573
-----------
NET ASSETS ...................................................... $33,292,658
===========
NET ASSETS CONSIST OF:
Paid-in capital ................................................. $33,043,796
Distributions in excess of net investment income ................ (28,732)
Net unrealized appreciation on investments ...................... 277,594
-----------
Net assets ...................................................... $33,292,658
===========
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) .................... 3,108,755
===========
Net asset value, offering price and redemption price
per share (Note 1) ............................................ $ 10.71
===========
See accompanying notes to financial statements.
3
SURGEONS DIVERSIFIED INVESTMENT FUND
STATEMENT OF OPERATIONS
PERIOD ENDED FEBRUARY 28, 2007(a) (UNAUDITED)
================================================================================
INVESTMENT INCOME
Dividends ........................................................ $311,649
--------
EXPENSES
Investment management fees (Note 4) .............................. 73,834
Registration fees ................................................ 20,742
Administration fees (Note 4) ..................................... 14,240
Legal fees ....................................................... 14,238
Fund accounting fees (Note 4) .................................... 13,247
Printing, postage and supplies ................................... 9,133
Compliance service fees .......................................... 9,000
Transfer agent and shareholder services fees (Note 4) ............ 7,500
Custodian fees ................................................... 7,032
Trustees' fees and expenses ...................................... 6,763
Insurance expense ................................................ 4,540
Other expenses ................................................... 6,247
--------
TOTAL EXPENSES ................................................. 186,516
Less fees waived and expenses reimbursed by the
Manager (Note 4) ............................................... (86,840)
--------
NET EXPENSES ................................................... 99,676
--------
NET INVESTMENT INCOME .............................................. 211,973
--------
UNREALIZED GAIN ON INVESTMENTS
Net change in unrealized appreciation/depreciation
on investments ................................................. 277,594
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS ......................... $489,567
========
(a) Represents the period from the commencement of operations on September 22,
2006 through February 28, 2007.
See accompanying notes to financial statements.
4
SURGEONS DIVERSIFIED INVESTMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED FEBRUARY 28, 2007(a) (UNAUDITED)
================================================================================
FROM OPERATIONS
Net investment income ......................................... $ 211,973
Net change in unrealized appreciation/depreciation on
investments ................................................. 277,594
-----------
Net increase in net assets from operations ...................... 489,567
-----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .................................... (240,705)
-----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ..................................... 32,703,091
Net asset value of shares issued in
reinvestment of distributions to shareholders ............... 240,705
-----------
Net increase in net assets from capital share transactions ...... 32,943,796
-----------
TOTAL INCREASE IN NET ASSETS .................................... 33,192,658
NET ASSETS
Beginning of period ........................................... 100,000
-----------
End of period ................................................. $33,292,658
===========
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME ................ $ (28,732)
===========
CAPITAL SHARE ACTIVITY
Sold .......................................................... 3,076,132
Reinvested .................................................... 22,623
-----------
Net increase in shares outstanding ............................ 3,098,755
Shares outstanding at beginning of period ..................... 10,000
-----------
Shares outstanding at end of period ........................... 3,108,755
===========
(a) Represents the period from the commencement of operations on September 22,
2006 through February 28, 2007.
See accompanying notes to financial statements.
5
SURGEONS DIVERSIFIED INVESTMENT FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
================================================================================
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD ENDED FEBRUARY 28, 2007(a)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ........................... $ 10.00
-------
Income from investment operations:
Net investment income .......................................... 0.09
Net unrealized gain on investments ............................. 0.72
-------
Total from investment operations ................................. 0.81
-------
Less distributions:
Dividends from net investment income ........................... (0.10)
-------
Net asset value at end of period ................................. $ 10.71
=======
Total return (b) ................................................. 8.09%(c)
=======
Net assets at end of period (000's) .............................. $33,293
=======
Ratio of net expenses to average net assets (d) .................. 1.35%(e)
Ratio of net investment income to average net assets ............. 2.84%(e)
Portfolio turnover rate .......................................... 0%
(a) Represents the period from the commencement of operations on September 22,
2006 through February 28, 2007.
(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) Absent investment management fee waivers and expense reimbursements by the
Manager, the ratio of expenses to average net assets would have been
2.50%(e) for the period ended February 28, 2007 (Note 4).
(e) Annualized.
See accompanying notes to financial statements.
6
SURGEONS DIVERSIFIED INVESTMENT FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 2007 (UNAUDITED)
================================================================================
SHARES EXCHANGE-TRADED FUNDS -- 100.0% VALUE
- --------------------------------------------------------------------------------
ENERGY -- 5.8%
18,299 iShares S&P Global Energy Sector Index Fund.......... $ 1,927,983
-----------
INTERNATIONAL -- 24.0%
107,696 iShares MSCI EAFE Index Fund......................... 7,985,658
-----------
LARGE CAP GROWTH -- 8.7%
52,055 iShares Russell 1000 Growth Index Fund............... 2,888,532
-----------
LARGE CAP INDEX -- 7.7%
18,201 S&P Depositary Receipts Trust Series 1............... 2,565,431
-----------
LARGE CAP VALUE -- 8.7%
35,105 iShares Russell 1000 Value Index Fund................ 2,890,897
-----------
REITS -- 5.8%
21,940 iShares Dow Jones U.S. Real Estate Index Fund........ 1,934,450
-----------
SMALL CAP GROWTH -- 4.7%
19,737 iShares Russell 2000 Growth Index Fund............... 1,576,987
-----------
SMALL CAP VALUE -- 4.7%
19,470 iShares Russell 2000 Value Index Fund................ 1,564,220
-----------
U.S. FIXED INCOME -- 29.9%
98,636 iShares Lehman Aggregate Bond Fund................... 9,947,440
-----------
TOTAL EXCHANGE-TRADED FUNDS (Cost $33,004,004)....... $33,281,598
-----------
SHARES SHORT-TERM INVESTMENTS -- 3.2% VALUE
- --------------------------------------------------------------------------------
1,068,197 Northern Institutional Government Fund - Select Class
(Cost $1,068,197).................................. $ 1,068,197
-----------
TOTAL INVESTMENTS AT VALUE -- 103.2%
(Cost $34,072,201)................................. $34,349,795
LIABILITIES IN EXCESS OF OTHER ASSETS -- (3.2%)...... (1,057,137)
-----------
TOTAL NET ASSETS -- 100.0%........................... $33,292,658
===========
See accompanying notes to financial statements.
7
SURGEONS DIVERSIFIED INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2007 (UNAUDITED)
================================================================================
1. ORGANIZATION
Surgeons Diversified Investment Fund (the "Fund") is an open-end diversified
management investment company established as an Ohio business trust under a
Declaration of Trust dated March 2, 2006. On July 27, 2006, 10,000 shares of the
Fund were issued for cash, at $10.00 per share, to Surgeons Asset Management,
LLC (the "Manager"), the investment manager to the Fund. The public offering of
shares of the Fund commenced on September 22, 2006. The Fund had no operations
prior to the public offering of shares except for the intitial issuance of
shares.
The investment objective of the Fund is to provide long-term capital
appreciation and income.
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 the regular session of trading on the New York Stock Exchange ("NYSE")
(normally 4:00 p.m., Eastern time). Securities listed on the NYSE or other
exchanges are valued on the basis of their last sale prices on the exchanges on
which they are primarily traded. If there are no sales on that day, the
securities are valued at the closing bid price on the NYSE or other primary
exchange for that day. Securities which are quoted by NASDAQ are valued at the
NASDAQ Official Closing Price. If there are no sales on that day, the securities
are valued at the last bid price as reported by NASDAQ. In the event that market
quotations are not readily available, securities and other assets are valued at
fair value as determined in accordance with procedures adopted in good faith 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.
INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
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. The tax character of distributions paid during the
period ended February 28, 2007 was ordinary income.
8
SURGEONS DIVERSIFIED INVESTMENT 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 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 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, 2007:
- --------------------------------------------------------------------------------
Cost of portfolio investments ................................... $34,072,201
===========
Gross unrealized appreciation.................................... $ 420,867
Gross unrealized depreciation.................................... (143,273)
-----------
Net unrealized appreciation...................................... $ 277,594
Distributions in excess of net investment income................. (28,732)
-----------
Accumulated earnings ............................................ $ 248,862
===========
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
During the period ended February 28, 2007, cost of purchases of investment
securities, other than short-term investments and U.S. government securities,
was $33,013,320. There were no sales of investment securities, other than
short-term investments, during the period.
4. TRANSACTIONS WITH AFFILIATES
INVESTMENT MANAGEMENT CONTRACT
Under the terms of an Investment Management Contract between the Fund and the
Manager, the Manager serves as the investment manager to the Fund. For its
services, the Fund pays the Manager an investment management fee computed at the
annual rate of 1.00% of the Fund's average daily net assets.
Pursuant to an Expense Limitation Agreement, the Manager has contractually
agreed to waive its fees and/or reimburse the Fund for its ordinary operating
expenses to the extent necessary to maintain the total operating expenses of the
Fund at a ratio of 1.35% of the Fund's average daily net assets until at least
August 31, 2009. Any such fee waivers by
9
SURGEONS DIVERSIFIED INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
the Manager through August 31, 2009, or thereafter, or payments by the Manager
of expenses which are the Fund's obligation, are subject to repayment by the
Fund, provided that the repayment does not cause the Fund's ordinary operating
expenses to exceed the 1.35% limit, and provided further that the fees and
expenses which are the subject of the repayment were incurred within three years
of the repayment. During the period ended February 28, 2007, the Manager waived
all of its investment management fees and reimbursed fund operating expenses of
$13,006. As of February 28, 2007, the amount available for recovery of fees and
expenses that have been waived or reimbursed by the Manager on behalf of the
Fund is $86,840, which expires during the year ended August 31, 2010.
SUBADVISORY AGREEMENT
Northern Trust Investments, N.A. (the "ETF Subadviser"), has been retained by
the Manager to manage the Fund's investments in Exchange Traded Funds (the
"Underlying ETFs") pursuant to the terms of a Subadvisory Agreement between the
ETF Subadviser, the Manager and the Fund. The Manager (not the Fund) will pay
the ETF Subadviser a fee based on the Fund's average daily net assets, subject
to a minimum annual fee. The ETF Subadviser is a wholly-owned subsidiary of The
Northern Trust Company, which is the principal subsidiary of Northern Trust
Corporation and serves as the Custodian to the Fund.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement with the Fund, Ultimus Fund
Solutions, LLC ("Ultimus") supplies executive, administrative and regulatory
services to the Fund, supervises the preparation of tax returns, and coordinates
the preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission ("SEC") and state securities authorities. 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, 2007, the
Fund paid Ultimus $14,240 for administration services.
ACCOUNTING SERVICES AGREEMENT
Under the terms of a Fund Accounting Agreement with the Fund, 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 0.01% of the first $500
million of the Fund's average daily net assets and 0.005% of such assets in
excess of $500 million. During the period ended February 28, 2007, the Fund paid
Ultimus $13,247 for fund accounting services. In addition, the Fund pays all
costs of external pricing services.
10
SURGEONS DIVERSIFIED INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer Agent and Shareholder Services Agreement with the
Fund, 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 a fee payable monthly at an annual rate of $20 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, 2007, the Fund paid Ultimus
$7,500 for transfer agent and shareholder services.
DISTRIBUTION AGREEMENT
Pursuant to the terms of a Distribution Agreement with the Fund, Ultimus Fund
Distributors, LLC (the "Distributor") serves as the Fund's principal
underwriter. The Distributor receives annual compensation of $6,000 for such
services. The fees payable to the Distributor are currently paid by the Manager
(not the Fund).
Certain trustees and officers of the Fund are directors and officers of the
Manager, or of Ultimus, or of the Distributor.
DISTRIBUTION PLAN
The Fund has adopted a plan of distribution pursuant to and in accordance with
Rule 12b-1 of the Investment Company Act of 1940 (the "Plan") under which the
Fund may reimburse expenses related to the distribution and promotion of Fund
shares. The annual limitation for payment of such expenses pursuant to the Plan
is 0.25% of the Fund's average daily net assets. During the period ended
February 28, 2007, the Fund did not pay any distribution related expenses.
5. CONTINGENCIES AND COMMITMENTS
The Fund indemnifies its 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.
11
SURGEONS DIVERSIFIED INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
6. ACCOUNTING PRONOUNCEMENT
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in Income
Taxes." FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken in the course of preparing the
Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
benefits of positions not deemed to meet the more-likely-than-not threshold
would be booked as a tax expense in the current year and recognized as: a
liability for unrecognized tax benefits; a reduction of an income tax refund
receivable; a reduction of deferred tax asset; an increase in deferred tax
liability; or a combination thereof. Adoption of FIN 48 is required for fiscal
years beginning after December 15, 2006 and is to be applied to all open tax
years as of the effective date. Recent SEC guidance allows implementing FIN 48
in fund NAV calculations as late as the Fund's last NAV calculation in the first
required financial statement reporting period. As a result, the Fund will
incorporate FIN 48 in its Semi-Annual Report on February 29, 2008.
In September 2006, the FASB issued Statement on Financial Accounting Standards
("SFAS") No. 157, "Fair Value Measurements." This standard establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The changes to current generally accepted accounting
principles from the application of SFAS No. 157 relate to the definition of fair
value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. As of February 28, 2007, the Fund does not
believe the adoption of SFAS No. 157 will impact the amounts reported in the
financial statements, however, additional disclosures may be required about the
inputs used to develop the measurements and the effect of certain of the
measurements reported on the statement of changes in net assets for a fiscal
period.
12
SURGEONS DIVERSIFIED INVESTMENT 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 ongoing costs, including
management fees, distribution fees (12b-1) 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 mutual fund's ongoing costs 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 from September 22, 2006 through February
28, 2007.
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.
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.
13
SURGEONS DIVERSIFIED INVESTMENT FUND
ABOUT YOUR FUND'S EXPENSES (UNAUDITED) (CONTINUED)
================================================================================
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.
- --------------------------------------------------------------------------------
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID
SEPTEMBER 22, 2006 FEBRUARY 28, 2007 DURING PERIOD*
- --------------------------------------------------------------------------------
Based on Actual Fund Return $1,000.00 $1,080.90 $6.16
Based on Hypothetical
5% Return (before expenses) $1,000.00 $1,016.00 $5.97
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.35% for the
period, multiplied by the average account value over the period,
multiplied by 160/365 (to reflect the period covered by this report).
OTHER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund files a complete listing of portfolio holdings of the Fund with the SEC
as of the end of the first and third quarters of each fiscal year on Form N-Q.
The filings are available upon request, by calling 1-800-282-1581. Furthermore,
you may obtain a copy of these filings on the SEC's website at
http://www.sec.gov. The Fund'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.
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 toll-free 1-800-208-6070, or on the Securities and Exchange Commission's
website at http://www.sec.gov.
14
SURGEONS DIVERSIFIED INVESTMENT FUND
APPROVAL OF INVESTMENT MANAGEMENT
CONTRACT AND SUBADVISORY AGREEMENT (UNAUDITED)
================================================================================
At a meeting on July 21, 2006, the Board, including all of the Independent
Trustees, considered information relating to the Fund's Investment Management
Contract with the Manager and the Subadvisory Agreement with the ETF Subadviser
(collectively, the "Agreements"). In advance of the meeting, the Board received,
and had the opportunity to review, information relating to the Agreements and
other material, ask questions and request further information in connection with
its consideration. At the conclusion of the Board's discussion, the Board
approved the Agreements.
In reviewing the Agreements and considering the information provided, the
Independent Trustees were advised by independent legal counsel. The Board
considered the factors it deemed relevant, including principally: (1) the
nature, quality and extent of the services proposed to be provided, (2) the
costs of the services proposed to be provided, (3) whether economies of scale
may be realized as the Fund grows, and (4) other benefits that could accrue to
the Manager and the ETF Subadviser through its relationship with the Fund. The
Board did not consider the investment performance of the Fund or the Manager's
or the Subadviser's profitability because the Fund had not commenced investment
operations. In its deliberations, the Board, in exercising its business
judgment, did not identify any single factor that alone was responsible for the
Board's decision to approve the Agreements.
Based on its evaluation of the materials, the Board, including the interested
and Independent Trustees, concluded that the Agreements are fair and reasonable
and in the best interests of the Fund's shareholders. In reaching its
conclusions, the Board considered the following:
Nature, Quality and Extent of Services
The Board examined the nature, quality and extent of the services proposed to be
provided by the Manager and the ETF Subadviser, including investment research,
selection of ETFs, and monitoring compliance with the Fund's investment
restrictions, policies and procedures.
The Board reviewed the qualifications, background and responsibilities of the
key personnel of the Manager and the ETF Subadviser who would be responsible for
the day-to-day management of the Fund. The Board also reviewed information
pertaining to the Manager's and the ETF Subadviser's organizational structure,
senior management, financial stability, investment operations, and other
relevant information. The Board considered the compliance programs of the
Manager and the ETF Subadviser, and the Manager's role in coordinating the
investment, administrative and other services to be provided to the Fund.
15
SURGEONS DIVERSIFIED INVESTMENT FUND
APPROVAL OF INVESTMENT MANAGEMENT
CONTRACT AND SUBADVISORY AGREEMENT
(UNAUDITED)(CONTINUED)
================================================================================
The Board noted that the Manager has represented that it was established as a
subsidiary of The American College of Surgeons (the "College") to provide
investment advisory services solely to the Fund, primarily as a benefit for
College members. The Board also noted that the Manager does not intend to
provide services to other clients and that the Manager does not expect to
generate a profit.
Based on the foregoing, the Board concluded that the Fund is likely to benefit
from the nature, quality and extent of the services to be provided by the
Manager and the ETF Subadviser under the Agreements.
Costs of Services
The Board reviewed the fees to be paid to the Manager and the ETF Subadviser
under the Agreements. The Board compared the Fund's proposed fees and estimated
total operating expenses to those of comparable funds managed by other advisers.
The Board considered that the Manager had agreed to reimburse the operating
expenses of the Fund to the extent they exceed 1.35% of the Fund's average daily
net assets annually. The Board noted that the estimated total operating expense
ratio, after fee waivers, is lower than the peer group average. In light of the
foregoing, the Board concluded that the costs of services proposed to be
provided were fair and reasonable and in the best interests of shareholders.
Economies of Scale
The Board discussed whether the proposed fee schedule reflects the potential for
economies of scale for the benefit of Fund shareholders. The Board noted that
because the Fund had not commenced operations, economies of scale was not a
dispositive factor, but as the Fund's assets grow, this factor will become more
relevant to its consideration of the Agreements.
Other Benefits
The Board considered that the Manager and the ETF Subadviser may receive, in
addition to the advisory fees, various ancillary benefits as a result of
providing services to the Fund. The Board concluded that it would be fair and
reasonable and in the best interests of each Fund and its shareholders to
approve the Agreements.
After full consideration of these and other factors, the Board concluded that
approval of the Agreements was fair and reasonable and in the best interests of
the Fund and its shareholders. Accordingly, the Board, including the Independent
Trustees, unanimously approved the Agreements for an initial two-year term.
16
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INVESTMENT MANAGER CUSTODIAN
Surgeons Asset Management, LLC The Northern Trust Company
633 North Saint Clair Street 50 South LaSalle Street
Chicago, Illinois 60611-3211 Chicago, Illinois 60675
312.202.5056
INDEPENDENT REGISTERED
SUBADVISER PUBLIC ACCOUNTING FIRM
Northern Trust Investments, N.A. Ernst & Young LLP
50 South LaSalle Street 1900 Scripps Center
Chicago, Illinois 60675 312 Walnut Street
Cincinnati, Ohio 45202
ADMINISTRATOR/TRANSFER AGENT LEGAL COUNSEL
Ultimus Fund Solutions, LLC Bell, Boyd & Lloyd LLP
225 Pictoria Drive, Suite 450 Three First National Plaza
Cincinnati, Ohio 45246 70 West Madison Street, Suite 3100
Chicago, Illinois 60602-4207
1-800.208.6070
[AMERICAN COLLEGE OF SURGEONS LOGO] Serving the membership of the
American College of Surgeons
| DIVERSIFIED
| INVESTMENT
SURGEONS | FUND
633 N. Saint Clair St.
Chicago, IL 60611
Voice 800.208.6070 Fax 312.202.5026
www.surgeonsfund.com
ITEM 2. CODE OF ETHICS.
No 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's Committee of Independent Trustees shall review shareholder
recommendations to fill vacancies on the registrant's board of trustees if such
recommendations are submitted in writing, addressed to the Committee at the
registrant's offices, and meet any minimum qualifications adopted by the
Committee from time to time. The Committee may adopt, by resolution, a policy
regarding its procedures for considering candidates for the board of trustees,
including any recommended by shareholders.
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) Surgeons Diversified Investment Fund
------------------------------------
By (Signature and Title)* /s/ Savitri P. Pai
--------------------------
Savitri P. Pai, President
Date May 2, 2007
--------------
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/ Savitri P. Pai
--------------------------
Savitri P. Pai, President
Date May 2, 2007
--------------
By (Signature and Title)* /s/ Mark J. Seger
--------------------------
Mark J. Seger, Treasurer
Date May 2, 2007
--------------
* Print the name and title of each signing officer under his or her signature.