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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
---------------------------------------------
The Destination Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
2001 North Main Street, Suite 270 Walnut Creek, California 94596
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Wade R. Bridge, Esq.
Ultimus Fund Solutions, LLC 225 Pictoria Drive, Suite 450 Cincinnati, Ohio 45246
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (925) 935-2900
----------------------------
Date of fiscal year end: August 31, 2009
-----------------------------
Date of reporting period: February 28, 2009
-----------------------------
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, 2009
(Unaudited)
INVESTMENT ADVISOR
Destination Capital Management, Inc.
Walnut Creek, CA
================================================================================
DESTINATION SELECT EQUITY FUND
SUPPLEMENTARY PORTFOLIO INFORMATION
FEBRUARY 28, 2009 (UNAUDITED)
================================================================================
DESTINATION SELECT EQUITY FUND VS S&P 500 INDEX
SECTOR DIVERSIFICATION (% OF NET ASSETS)
[BAR CHART OMITTED]
Destination Select
Equity Fund S&P 500 Index
----------- -------------
Consumer Discretionary 10.31% 8.40%
Consumer Staples 17.56% 13.39%
Energy 4.80% 13.84%
Financials 12.59% 9.82%
Health Care 13.81% 15.61%
Industrials 5.47% 9.79%
Information Technology 19.15% 17.44%
Materials 0.00% 3.13%
Telecommunication Services 4.86% 4.06%
Utilities 0.00% 4.51%
Cash Equivalents 11.45% 0.00%
TOP 10 EQUITY HOLDINGS
- --------------------------------------------------------------------------------
SECURITY DESCRIPTION % OF NET ASSETS
- --------------------------------------- ---------------
MasterCard, Inc. - Class A 5.1%
Wal-Mart Stores, Inc. 4.9%
Vodafone Group plc - ADR 4.9%
McDonald's Corp. 4.8%
Johnson & Johnson 4.8%
Microsoft Corp. 4.8%
Exxon Mobil Corp. 4.8%
Procter & Gamble Co. (The) 4.0%
Berkshire Hathaway, Inc. - Class B 3.9%
Automatic Data Processing, Inc. 3.8%
1
DESTINATION SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2009 (UNAUDITED)
================================================================================
SHARES COMMON STOCKS - 88.5% VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE - 1.1%
200 United Technologies Corp. $ 8,166
------------
BEVERAGES - 1.8%
320 Coca-Cola Co. (The) 13,072
------------
CAPITAL MARKETS - 2.7%
1,500 Legg Mason, Inc. 19,245
------------
COMMERCIAL BANKS - 2.4%
1,210 U.S. Bancorp 17,315
------------
COMMUNICATIONS EQUIPMENT - 2.4%
1,850 Nokia Corp. - ADR 17,316
------------
DIVERSIFIED FINANCIAL SERVICES - 0.2%
100 Moody's Corp. 1,795
------------
FOOD & STAPLES RETAILING - 8.4%
585 Costco Wholesale Corp. 24,769
725 Wal-Mart Stores, Inc. 35,699
------------
60,468
------------
FOOD PRODUCTS - 3.4%
915 Campbell Soup Co. 24,495
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 6.6%
530 Baxter International, Inc. 26,982
625 Stryker Corp. 21,044
------------
48,026
------------
HOTELS, RESTAURANTS & LEISURE - 4.8%
670 McDonald's Corp. 35,008
------------
HOUSEHOLD PRODUCTS - 4.0%
595 Procter & Gamble Co. (The) 28,661
------------
INDUSTRIAL CONGLOMERATES - 2.3%
1,935 General Electric Co. 16,467
------------
INSURANCE - 7.3%
11 Berkshire Hathaway, Inc. - Class B (a) 28,204
1,355 Marsh & McLennan Cos., Inc. 24,295
------------
52,499
------------
IT SERVICES - 11.9%
810 Automatic Data Processing, Inc. 27,661
235 MasterCard, Inc. - Class A 37,137
1,900 Western Union Co. 21,204
------------
86,002
------------
MACHINERY - 2.1%
875 Graco, Inc. 14,858
------------
2
DESTINATION SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
================================================================================
SHARES COMMON STOCKS - 88.5% (CONTINUED) VALUE
- --------------------------------------------------------------------------------
MEDIA - 5.5%
550 Comcast Corp. - Class A $ 7,183
830 DreamWorks Animation SKG, Inc. - Class A (a) 16,011
100 McGraw-Hill Cos., Inc. (The) 1,973
850 Walt Disney Co. (The) 14,254
------------
39,421
------------
OIL, GAS & CONSUMABLE FUELS - 4.8%
510 Exxon Mobil Corp. 34,629
------------
PHARMACEUTICALS - 7.1%
700 Johnson & Johnson 35,000
1,350 Pfizer, Inc. 16,619
------------
51,619
------------
SOFTWARE - 4.8%
2,160 Microsoft Corp. 34,884
------------
WIRELESS TELECOMMUNICATION SERVICES - 4.9%
1,975 Vodafone Group plc - ADR 35,056
------------
TOTAL COMMON STOCKS (Cost $861,026) $ 639,002
------------
================================================================================
SHARES SHORT TERM INVESTMENTS - 23.6% VALUE
- --------------------------------------------------------------------------------
31,447 AIM Liquid Assets Portfolio (The), 0.955% (b) $ 31,447
31,456 AIM Short Term Investments Company Prime
Portfolio (The), 0.352% (b) 31,456
31,500 Fidelity Institutional Money Market Government
Portfolio - Class I, 0.601% (b) 31,500
30,818 Fidelity Institutional Money Market Portfolio -
Select Class, 1.12% (b) 30,818
31,500 First American Prime Obligations Fund -
Class Y, 0.56% (b) 31,500
13,417 First American Treasury Obligations Fund -
Class Y, 0.26% (b) 13,417
------------
TOTAL SHORT TERM INVESTMENTS (Cost $170,138) $ 170,138
------------
TOTAL INVESTMENTS AT VALUE - 112.1% (Cost $1,031,164) $ 809,140
LIABILITIES IN EXCESS OF OTHER ASSETS - (12.1%) (87,508)
------------
TOTAL NET ASSETS - 100.0% $ 721,632
============
(a) Non-income producing security.
(b) Variable rate security. The rate shown is the effective 7-day effective
yield as of February 28, 2009.
ADR - American Depositary Receipt
See accompanying notes to financial statements.
3
DESTINATION SELECT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2009 (UNAUDITED)
================================================================================
ASSETS
Investments in securities:
At acquisition cost $ 1,031,164
============
At value $ 809,140
Dividends receivable 1,957
Receivable from Advisor (Note 4) 12,114
Other assets 8,924
------------
Total assets 832,135
------------
LIABILITIES
Accrued liabilities:
Payable for investment securities purchased 101,248
Payable to Administrator (Note 4) 4,605
Other accrued expenses 4,650
------------
Total liabilities 110,503
------------
NET ASSETS $ 721,632
============
NET ASSETS CONSIST OF:
Paid-in capital $ 995,309
Accumulated undistributed net investment income 1,416
Accumulated net realized losses from security transactions (53,069)
Net unrealized depreciation on investments (222,024)
------------
NET ASSETS $ 721,632
============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 97,409
============
Net asset value, offering price and redemption price per share (a) $ 7.41
============
(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.
4
DESTINATION SELECT EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2009 (UNAUDITED)
================================================================================
INVESTMENT INCOME
Dividend income $ 10,246
------------
EXPENSES
Professional fees 16,344
Fund accounting fees (Note 4) 14,034
Administration fees (Note 4) 11,200
Trustees' fees and expenses (Note 4) 8,585
Compliance fees (Note 4) 6,000
Transfer agent fees (Note 4) 6,000
Insurance expense 3,789
Investment advisory fees (Note 4) 2,864
Custody and bank service fees 2,831
Postage and supplies 1,549
Registration fees 563
Other expenses 3,327
------------
Total expenses 77,086
Less fees waived and expenses reimbursed by the
Advisor (Note 4) (72,313)
------------
Net expenses 4,773
------------
NET INVESTMENT INCOME 5,473
------------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS
Net realized losses from security transactions (6,240)
Net change in unrealized appreciation/depreciation
on investments (304,824)
------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (311,064)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (305,591)
============
See accompanying notes to financial statements.
5
DESTINATION SELECT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================================
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED
2009 AUGUST 31,
(UNAUDITED) 2008
- ------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,473 $ 7,965
Net realized losses from security transactions (6,240) (46,396)
Net change in unrealized appreciation/depreciation
on investments (304,824) 32,498
------------ ------------
Net decrease in net assets from operations (305,591) (5,933)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (8,998) (6,828)
From net realized gains from security transactions -- (24,947)
------------ ------------
Decrease in net assets from distributions to shareholders (8,998) (31,775)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 114,588 82,619
Net asset value of shares issued in reinvestment of
distributions to shareholders 8,998 31,775
Payments for shares redeemed (10,108) (15,172)
------------ ------------
Net increase in net assets from capital share transactions 113,478 99,222
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (201,111) 61,514
NET ASSETS
Beginning of period 922,743 861,229
------------ ------------
End of period $ 721,632 $ 922,743
============ ============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME $ 1,416 $ 4,941
============ ============
CAPITAL SHARE ACTIVITY
Shares sold 14,698 7,380
Shares reinvested 1,004 2,725
Shares redeemed (1,337) (1,299)
------------ ------------
Net increase in shares outstanding 14,365 8,806
Shares outstanding at beginning of period 83,044 74,238
------------ ------------
Shares outstanding at end of period 97,409 83,044
============ ============
See accompanying notes to financial statements.
6
DESTINATION SELECT EQUITY FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
============================================================================================================================
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED YEAR ENDED PERIOD ENDED
2009 AUGUST 31, AUGUST 31, AUGUST 31,
(UNAUDITED) 2008 2007 2006 (a)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.11 $ 11.60 $ 10.20 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.06 0.10 0.09 0.03
Net realized and unrealized gains (losses) on investments (3.65) (0.16) 1.44 0.17
---------- ---------- ---------- ----------
Total from investment operations (3.59) (0.06) 1.53 0.20
---------- ---------- ---------- ----------
Less distributions:
From net investment income (0.11) (0.09) (0.07) --
From net realized gains from security transactions -- (0.34) (0.06) --
---------- ---------- ---------- ----------
Total distributions (0.11) (0.43) (0.13) --
---------- ---------- ---------- ----------
Net asset value at end of period $ 7.41 $ 11.11 $ 11.60 $ 10.20
========== ========== ========== ==========
Total return (b) (32.51%)(c) (0.72%) 14.97% 2.00%(c)
========== ========== ========== ==========
Net assets at end of period $ 721,632 $ 922,743 $ 861,229 $ 512,139
========== ========== ========== ==========
RATIOS/SUPPLEMENTARY DATA:
Ratio of gross expenses to average net assets 20.18%(e) 17.87% 22.23% 42.55%(e)
Ratio of net expenses to average net assets (d) 1.25%(e) 1.25% 1.25% 1.24%(e)
Ratio of net investment income to average net assets (d) 1.43%(e) 0.90% 0.81% 0.80%(e)
Portfolio turnover rate 11%(c) 17% 34% 22%(e)
(a) Represents the period from the commencement of operations (December 29,
2005) through August 31, 2006.
(b) Total return is a measure of the change in value of an investment in the
Fund over the periods covered, which assumes any dividends or capital
gains distributions are reinvested in shares of the Fund. The returns
shown do 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 reductions and expense
reimbursements.
(e) Annualized.
See accompanying notes to financial statements.
7
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2009 (UNAUDITED)
- --------------------------------------------------------------------------------
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 or are considered to be unreliable due to
market or other events will be valued at their fair values as determined under
procedures adopted by the Fund's Board of Trustees. When fair value pricing is
employed, the prices of securities used by the Fund to calculate its NAV may
differ from quoted or published prices for the same securities.
The Financial Accounting Standards Board's ("FASB") Statement on Financial
Accounting Standards No. 157 "Fair Value Measurements" establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs
o Level 3 - significant unobservable inputs
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
As of February 28, 2009, all of the inputs used to value the investments of the
Fund were level 1.
8
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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. During the periods ended February 28, 2009 and August 31,
2008, 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. The tax character of distributions paid during the
six months ended February 28, 2009 was $8,998 of ordinary income. The tax
character of distributions paid during the year ended August 31, 2008 was
$24,969 of ordinary income and $6,806 of long-term capital gains. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
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 and disclosure of contingent 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 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.
9
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The following information is computed on a tax basis for each item as of
February 28, 2009:
Tax cost of portfolio investments $ 1,031,164
============
Gross unrealized appreciation $ 33,735
Gross unrealized depreciation (255,759)
------------
Net unrealized depreciation $ (222,024)
Accumulated ordinary income 1,416
Capital loss carryforward (65)
Post-October losses (46,764)
Other losses (6,240)
------------
Accumulated deficit $ (273,677)
============
As of August 31, 2008, the Fund had a capital loss carryforward of $65 which
expires August 31, 2016. In addition, the Fund had net realized losses of
$46,764 during the period November 1, 2007 through August 31, 2008, which are
treated for federal income tax purposes as arising during the Fund's tax year
ending August 31, 2009. These capital loss carryforwards and "post-October"
losses may be utilized in the current and future years to offset net realized
capital gains, if any, prior to distributing such gains to shareholders.
FASB's Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in Income
Taxes" 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 positions not deemed to
meet the "more-likely-than-not" threshold would be recorded as a tax benefit or
expense in the current year. Based on management's analysis, the application of
FIN 48 does not have a material impact on these financial statements. The
statute of limitations on the Fund's tax returns remains open for the tax years
ended August 31, 2006 through August 31, 2008.
3. INVESTMENT TRANSACTIONS
During the six months ended February 28, 2009, cost of purchases and proceeds
from sales of investment securities, other than short-term investments, was
$191,498 and $76,167, respectively.
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 its advisory fees and 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 until at least December 31, 2018. During the six months ended February
28, 2009, the Advisor waived its entire investment advisory fee of $2,864 and
reimbursed other Fund expenses totaling $69,449.
10
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 fee reductions and expense reimbursements on
behalf of the Fund, but only for a period of three years after such reduction or
reimbursement, and only if such recovery will not cause the Fund's expense ratio
to exceed the annual rate of 1.25%. As of February 28, 2009, the Advisor may in
the future recoup fee reductions and expense reimbursements totaling $439,115.
The Advisor may recoup a portion of this amount no later than the dates as
stated below:
August 31, 2009 August 31, 2010 August 31, 2011 February 28, 2012
--------------- --------------- --------------- -----------------
$66,364 $152,777 $147,661 $72,313
The Chief Compliance Officer to the Trust is an officer of the Advisor. The Fund
reimburses the Advisor $12,000 annually for compliance services provided to the
Trust.
TRUSTEE FEES
The Fund pays each Trustee who is not affiliated with the Advisor a per meeting
fee of $1,000. Trustees who are affiliated with the Advisor do not receive
compensation.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement with the Trust, Ultimus Fund
Solutions, LLC ("Ultimus") provides 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. Effective January 1, 2009, Ultimus agreed to
discount the foregoing fee by 20% through December 31, 2009.
FUND ACCOUNTING AGREEMENT
Under the terms of a Fund Accounting Agreement, Ultimus calculates the daily net
asset value per share and maintains the financial books and records of the Fund.
For these services, the Fund pays to Ultimus a base fee of $2,500 per month,
plus an asset-based fee at the annual rate of 0.01% of the Fund's average daily
net assets up to $500 million and 0.005% of such assets in excess of $500
million. In addition, the Fund pays all costs of external pricing services.
Effective January 1, 2009, Ultimus agreed to discount the foregoing base fee by
20% through December 31, 2009.
TRANSFER AGENT AND SHAREHOLDER SERVICES 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 purchases and redemptions 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 per account fees (currently at the rate of $20 per year) subject to a
monthly minimum fee. The minimum fee is $1,500 per month if the Fund has over
100 shareholder accounts; $1,250 if the Fund has between 25 and 100 shareholder
accounts; and $1,000 if the Fund has less than 25 shareholder accounts. In
addition, the Fund pays out-of-pocket expenses, including, but not limited to,
postage and supplies.
11
DESTINATION SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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.
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 .
12
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 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 most
recent semi-annual period (September 1, 2008) and held until the end of the
period (February 28, 2009).
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.
13
DESTINATION SELECT EQUITY FUND
ABOUT YOUR FUND'S EXPENSES (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During
September 1, 2008 February 28, 2009 Period*
- -----------------------------------------------------------------------------------------
Based on Actual Fund Return $1,000.00 $ 674.90 $5.19
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,018.60 $6.26
- -----------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.25% for the
period, multiplied by the average account value over the period,
multiplied by 181/365 (to reflect the one-half year period).
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 toll-free 1-866-738-1128, or on the Securities and Exchange Commission's
("SEC") website at http://www.sec.gov. Information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-month period
ended June 30 is also available without charge upon request by calling toll-free
1-866-738-1128, or on the SEC's website at http://www.sec.gov.
The Trust files a complete listing of portfolio holdings for the Fund with the
SEC as of the end of the first and third quarters of each fiscal year on Form
N-Q. These filings are available upon request by calling 1-866-738-1128.
Furthermore, you may 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.
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
-------------------------------------------------------------------
By (Signature and Title)* /s/ Michael A. Yoshikami
--------------------------------------------------
Michael A. Yoshikami, President
Date May 1, 2009
-------------------------
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 May 1, 2009
-------------------------
By (Signature and Title)* /s/ Mark J. Seger
--------------------------------------------------
Mark J. Seger, Treasurer
Date May 1, 2009
-------------------------
* Print the name and title of each signing officer under his or her signature.