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 811-6722
Emerald Mutual Fund
(Exact name of registrant as specified in charter)
1703 Oregon Pike, Suite 101, Lancaster, PA
(Address of principal executive offices) (Zip code)
Citco Mutual Fund Services, Inc.
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-232-0224
Date of fiscal year end: 06/30/2004
Date of reporting period: 12/31/2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO SHAREHOLDERS
The following is a copy of the Semi-Annual Report to Shareholders for the period
ended December 31, 2003 pursuant to Rule 30e-1 under the Investment Company Act
of 1940 (17 CFR 270.30e-1).
[EMERALD LOGO]
E M E R A L D
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MUTUAL FUNDS
DRIVEN BY RESEARCH
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| SEMI-ANNUAL REPORT DECEMBER 31, 2003 |
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GROWTH FUND
Class A: HSPGX
Class C: HSPCX
BANK & FINANCE FUND
Class A: HSSAX
Class C: HSSCX
TECHNOLOGY FUND
Class A: HSYTX
Class C: HSYCX
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EMERALD MUTUAL FUNDS
REPORT FROM MANAGEMENT
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February 12, 2004
Dear Shareholder:
MARKET & ECONOMIC REVIEW AND FUND PERFORMANCE ANALYSIS
"ECONOMIC EXPANSION CONTINUES"
What a wonderful year! The Russell 2000 had its best performance ever. Small
outperformed large as it always does in exiting a downturn. Economically
speaking, the 3rd Quarter GDP's advance of 8.2% was the best since 1983.
"Impressive" is not nearly a strong enough word.
In last year's year-end commentary, we went against the consensus forecast of a
5-6% stock market advance and predicted a 20% advance. The S&P 500 did return
28%, but our small cap growth sector was up 48.6%, and proudly Emerald did even
better for our clients. Indeed even with a break out of SARS and the IRAQ war,
the U.S. economy, stimulated by both monetary and fiscal policy, snapped back
after a 3-year tailspin.
The fact that the Russell 2000 Growth had the best performance this year pays
homage to the asset allocators who hung tough over the last 3 years and also
included many who actually added more assets to this sector. To the bold,
long-term thinkers go the spoils.
The economy ended the year so strongly that above-average growth is almost
assured for 2004. For example, jobless claims at 339,000 are now at their lowest
level in 3 years, inventory/sales ratios are at historic lows and must be
rebuilt, the 3rd quarter 8.2% GDP growth was so good that a sheer multiplier
effect will push growth into '04, and finally the manufacturing sector just hit
a 20-year high for the ISM manufacturing index. The new orders index also hit
new highs.
To the surprise of many, the U.S. consumer proved its resiliency once again.
This was the main risk coming into 2003, whether the consumer would roll over or
provide support until corporate profits and business spending kicked in. The
consumer of course was bolstered by strong refinancing activity and a
significant cut in tax rates in the second half of the year. These tax rate
reductions were actually effective as of January 1st and therefore our tax
refunds in '04 will be significantly greater than in '03.
For the time being we are in an almost blissful state of low interest rates,
strong productivity and strong corporate profits. Throughout early December the
Fed Governors were again on the speaking tour all delivering one message --
Rates will stay low for a considerable period of time. This phrase has been
removed by the Fed, but we don't see much of a change coming either. It is our
conjecture that rates won't increase until at least the May 4th meeting, and
quite possibly "considerably" longer. Strong corporate profits as discussed
earlier will have a very beneficial impact on a new economic growth cycle of IT
and productivity spending. Given this strong economic backdrop, we foresee a
market return again above average, and above consensus. For the overall market,
we see a 10-15% return and for small cap growth we foresee 15-18%.
1
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EMERALD GROWTH FUND
PERFORMANCE RESULTS FOR PERIODS ENDED DECEMBER 31, 2003
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AVERAGE ANNUAL RETURN TOTAL
TOTAL --------------------------------------------------- RETURNS
RETURN SINCE SINCE
FUND/INDEX SIX MONTHS ONE YEAR FIVE YEARS TEN YEARS INCEPTION** INCEPTION**
- ----------- ---------- -------- ---------- --------- ----------- -----------
Emerald Growth
Fund -- Class A*
At NAV +27.33% +50.81% +11.37% +12.99% +14.04% +338.86%
At MOP +21.27% +43.65% +10.30% +12.44% +13.55% +317.96%
Russell 2000G Index +24.48% +48.54% + 0.86% + 5.43% + 7.47% +125.10%
Russell 2000 Index +24.92% +47.25% + 7.13% + 9.47% +11.51% +240.73%
Morningstar -- Small
Company
Funds Index +23.45% +44.82% + 7.35% +11.15% +13.03% +296.71%
* Prior to 7/1/01 the Fund, called HomeState Pennsylvania Growth Fund,
pursued a different investment objective.
** Inception Date: 10/01/92
Past performance is no guarantee of future results. Emerald Growth Fund returns
at NAV do not include the effects of the Fund's Class A maximum 4.75% sales
charge; returns at MOP do. The Russell 2000 Growth Index measures the
performance returns of the Growth segment of the Russell universe. The
Morningstar Small-Company Funds Average represents 681, 663, 419, 144 and 56
small-company funds, respectively, for total return without regard to sales
charges for the Six Months, One Year, Five Year, Ten Year and Since Inception
(10/1/92) periods. All performance results assume reinvestment of dividends. As
you review the results above, please note that the Fund has invested in a
variety of initial public offerings (IPO's). The performance of IPO's may have a
greater impact on the performance results of a smaller fund, and may lessen as
the Fund's assets grow.
Top 5 Contributors to Performance Over the Last 6 Months:
XM Satellite Radio (XMSR)
IGEN International (IGEN)
Cognizant Technology Solutions (CTSH)
Amkor Technology (AMKR)
Martek Biosciences (MATK)
Top 5 Detractors to Performance Over the Last 6 Months:
BioSphere Medical (BSMD)
Bombay Co. (BBA)
Exact Sciences (EXAS)
Interdigital Communications (IDCC)
Columbia Laboratories (COB)
With such strong performance in 2003, our performance was clearly not just from
1 or 2 sectors or just from the few stocks listed above. Our performance was the
result of the fundamental research conducted by Emerald's team of analysts and
portfolio managers. Let's take a little time to examine where some of our
returns came from. First, our consumer licensing companies like Marvel
Enterprises did well in '03 and we expect this to continue in '04. Marvel is a
leading character-based entertainment and licensing company who realized a rise
in its share price, due to continued strong financial results from licensing
activities related to The Hulk fea-
2
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ture film and anticipation of the company's strong 2004 feature film pipeline.
That pipeline includes a potential box-office blockbuster in Spider-Man 2, as
well as Blade 3, The Punisher, and Man-Thing. Our sources indicate that the
worldwide Spider-Man 2 licensing program should surpass that of both The Hulk
and the initial Spider-Man movie. Despite Marvel's strong financial performance
and favorable outlook, the company remains one of the most attractively valued
companies in the entertainment industry.
Satellite Radio, a consumer item with a new technological delivery system, was
also a significant winner in '03. This industry is a duopoly with Sirius (SIRI)
& XM Satellite Radio (XMSR) owning the licenses to this new and exciting
consumer service. Emerald invested in XMSR because we believe the company is the
clear leader in both the OEM channel with its relationships with General Motors
and Honda as well as the retail channel with the strong sell-through of its
SkyFi and Roadie products.
Outside of the consumer sector, we continue to favor more cyclical sectors such
as technology, manufacturing and producer durables. Within technology and
producer durable sectors, we have and continue to maintain our bullish outlook
on capital equipment, for both the semiconductor and flat panel industries, as
well as for select component companies, as the industry continues to show signs
of recovery. Units have returned to peak levels, average selling prices are
stabilizing, capacity utilization is on this rise, and the number of the new
fabs being constructed or planned for construction are growing. All of these
factors are driving capital expenditures higher, which has been reflected in the
upward momentum experienced in both orders and bookings. As a result of these
increasingly positive datapoints, a number of our technology and producer
durable holdings outperformed their respective indices including: Amkor
Technology (AMKR) and ChipPAC (CHPC), two leading contract manufacturers for
semiconductor assembly and testing that are benefiting from increased
semiconductor unit volumes and the trend to outsourcing; Photon Dynamics (PHTN)
and Applied Films (AFCO), manufacturers of capital equipment used to manufacture
flat panel displays that are well positioned to take advantage of an
accelerating market growth as flat panels are integrated into TVs; LTX
Corporation (LTXX) and Credence Systems (CMOS), two manufacturers of
semiconductor test equipment that are servicing the need for high-volume testing
of new semiconductor packages. Our focus within this area is on companies in two
broad categories: leading-edge equipment suppliers positioned to gain market
share as the industry evolves to copper interconnections at the 130nm node and
below, and suppliers that have the capacity to win market share as production
volume improves.
In addition to semiconductors, we are increasingly optimistic about the
opportunity within information technology. Although there still hasn't been a
significant increase in corporate IT spending, there is increasing evidence
(i.e., increased bidding activity) suggesting corporations are showing interest
in new projects. In the Emerald portfolios DiamondCluster International (DTPI)
has been a beneficiary of this interest. DiamondCluster is a leading provider of
high-end, technology-focused, strategic consulting services. The company
recently returned to profitability as a rebound in demand for its services has
led to higher volumes and improved pricing. For the first time in nearly three
years, DiamondCluster is actively expanding its consultant workforce to meet the
demands of a rapidly expanding project pipeline in both the US and Europe. With
Diamond as a leading indicator we believe that much of the interest being
expressed will turn into increased IT spending during the course of 2004 with
increasing corporate profits being the key enabler. We have focused on niche
providers such as Cognizant Technology Solutions (CTSH) an IT services company
utilizing
3
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offshore resources positioned to beat the projected 25-30% market growth in
2004, and MICROS Systems (MCRS), a leading provider of Point of Sale technology
to the hospitality industry, who is well positioned to capitalize on
accelerating demand from the lodging sector, continued strength in the
restaurant sector, strong recurring revenue streams, the accretion of the
Datavantage acquisition, and a favorable competitive environment.
The manufacturing sector is also starting to show signs of life as evidenced by
our holding in Wesco International (WCC). Wesco International is a leading
distributor of electrical equipment to manufacturers, retailers, utilities and
commercial construction firms. Wesco began to see demand stabilize in Q3-03, and
our research indicates that demand improved through the 4th quarter. Wesco has
substantial operating and financial leverage, which positions the company for
rapid growth in earnings as its business environment improves. In addition,
during the 4th quarter, the company completed the repurchase of nearly 10% of
its outstanding shares, which should boost 2004 EPS by over $0.10 per share.
Emerald has also maintained its emphasis on the life sciences sector. Life
Science was a strong contributor to Emerald's performance as well as the
indices, the major indices [NASDAQ Biotech (NBI) and Amex Biotech (BTK)] rose
nearly 40% during the past 12 months.
Ever since Dr. Mark D. McClellan, MD., Ph.D. took office in November 2002, the
US Food and Drug Administration (FDA) has been bending backwards to expedite new
drug approvals in sectors where there is a clear clinical / patient benefit.
Areas such as AIDS, cardiology, infections, oncology and other life-threatening
diseases have seen fast track designations in order to get medicines quickly to
patients. This has been very good news for many life-sciences companies,
patients and investors as clinical developments time-spans were reduced by
years, resulting in tremendous cost savings to companies and investors. We do
not expect this to change in the foreseeable future as long as the Commissioner
is in place and there are no major embarrassing product recalls.
Our oncology exposure included ILEX Oncology (ILXO), Celgene (CELG) and Telik
(TELK). Specialty companies included Martek Biosciences (MATK), the infant
formula additive providers and Gen-Probe (GPRO), the diagnostic testing and
blood screening company (West Nile Virus, etc.), were among our standout
performers.
Looking forward, we anticipate the strength in life sciences to continue through
2004. The life sciences group as a whole is more financially healthy as many
public companies during 2003 took advantage of the extremely low interest rates
and a healthy investment climate to access the convertible preferred and private
financing markets, clean up their balance sheets, and prepare for the future
which we view as positive. More importantly we expect 2004 to bring a number of
key approvals such as DNA's Avastin and IMCL's Erbitux early in the year, as
well as high quality clinical information made available at major medical
meetings. This bodes well for performance in the sector.
Outside of what one would consider the core growth areas, Emerald seeks to find
growth opportunities within all sectors of the marketplace. In that regard we
have experienced a great amount of success in financial services. The bank
sector received a boost from an acceleration in merger and acquisition activity
that started with the purchase of two community banks in the Mid-Atlantic area.
Emerald's insurance exposure for a growth manager is overweighted due to the
strong premium cycle that continues for our smaller companies. Earnings
4
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growth continues to be above average and equal to almost any sector except for
the highest growth names in the technology sector.
EMERALD SELECT BANKING AND FINANCE FUND
The Select Banking and Finance Fund provided substantial upside for our
shareholders over both the last six months (+25.2%) and the calendar year
(+44.6%). After 4 years of very good relative and nominal years averaging over
15%, the Fund still participated in the outstanding rebound that the stock
market as a whole registered in 2003.
PERFORMANCE RESULTS FOR PERIODS ENDED DECEMBER 31, 2003
---------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN TOTAL
TOTAL --------------------------------------------------- RETURNS
RETURN SINCE SINCE
FUND/INDEX SIX MONTHS ONE YEAR THREE YEARS FIVE YEARS INCEPTION** INCEPTION**
- ---------- ---------- -------- ----------- ---------- ---------- -----------
Emerald Select Banking & Finance
Fund -- Class A*
At NAV +25.24% +44.58% +24.17% +20.80% +15.77% +173.46%
At MOP +19.30% +37.70% +22.17% +19.62% +14.95% +160.44%
Russell 2000 Index +24.92% +47.25% + 6.27% + 7.13% + 7.52% + 64.59%
Morningstar Financial Funds Average +18.27% +33.31% + 5.03% + 7.71% n/a n/a
* Prior to 10/20/98 the Fund, called the Select Opportunities Fund, pursued a
different objective.
** Inception Date: 2/18/97
Past performance is no guarantee of future results. The Select Banking and
Finance Fund returns at NAV do not include the effects of the Fund's Class A
maximum 4.75% sales charge; returns at MOP do. The Russell 2000 Index measures
the performance returns of 2000 similar cap companies. Investments cannot be
made in an index. The Morningstar Financial Funds Average represents 116, 115,
96 and 62 financial services funds for total return without regard to sales
charges for the Six Months, One Year and Three Year, Five Year, and Since
Inception (2/18/97) periods, respectively. All performance results assume
reinvestment of dividends.
This performance was partially a result of moving to a greater weight in
insurance companies, diversified financial service companies and investment
management companies early in 2003. While these were well timed additions to the
portfolio, our greatest exposure (year end 70+%) remained community banks. This
segment continues to take market share from its larger competitors, which
includes major regionals, national franchises, and money center banks. We
believe this trend will continue well into the future providing a continuing
attractive sector for the Emerald Fund to invest.
The community banking sector in which the Emerald Fund specializes has
substantial advantages to its much bigger peers. These include:
1.) Personalized customer services for the retail client as well as the
small business segment.
2.) Better asset quality, a focus of Emerald.
3.) Many have lower funding costs through consumer deposits.
4.) Greater opportunities to increase fee income.
5
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Top 5 Contributors to Performance Over the Last 6 Months
Commercial Capital Bancorp, Inc. (CCBI)
Wilshire State Bank (WSBK)
Allegiant Bancorp (ALLE)
Capital Crossing Bank (CAPX)
Harleysville National Corp. (HNBC)
Top 5 Detractors to Performance Over the Last 6 Months
Waddell and Reed Financial (WDR)
Coast Financial Holdings (CFHI)
MBT Financial (MBTF)
Sun Bancorp (Pennsylvania) (SUBI)
Middleburg Financial (MBRG)
The bank sector received a boost from an acceleration in merger and acquisition
activity that started with the purchase of 2 community banks in the Mid-Atlantic
area. First, PNC Financial took over United National Bank (UNBJ) in Bridgewater,
New Jersey and Fleet Financial took over Progress Financial (PGRS) in Blue Bell,
Pennsylvania. Both United National and Progress were holdings in the Bank Fund,
enhancing our returns in the 3rd Quarter.
The M&A activity continued throughout the year and we believe will be the major
theme in 2004 and 2005. Even the largest of the large got into the act with J.
P. Morgan acquiring Bank One. All of this activity forces everyone to make a
move. For example, our second largest holding, Commercial Capital (CCBI),
acquired Hawthorne Financial because of its base of deposits.
Emerald believes that this trend has led to slight takeover premiums in bank
valuations. While valuations are at their highest level since 1998, though
substantially below 1997 levels, we expect continued multiple expansion as
consolidation continues into 2004. The community bank sector's major theme is
one of market share gains versus their larger competitors. With the
demographically generated need for financial services in the retail segment and
the expected economic rebound helping small business and small commercial real
estate ventures, we see a strong trend in the financial services sector for the
next several years. Emerald's insurance exposure for a growth manager is
overweighted due to the strong premium cycle that continues for our smaller
companies. Earnings growth continues to be above average and equal to almost any
sector except for the highest growth names in the technology sector.
EMERALD SELECT TECHNOLOGY FUND
After 3 years of very different returns in the small cap tech sector, the Fund
ramped off the bottom starting on March 12, 2003 and continued to lead the
market throughout the year.
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PERFORMANCE RESULTS FOR PERIODS ENDED DECEMBER 31, 2003
---------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN TOTAL
TOTAL --------------------------------------------------- RETURNS
RETURN SINCE SINCE
FUND/INDEX SIX MONTHS ONE YEAR THREE YEARS FIVE YEARS INCEPTION** INCEPTION**
- ---------- ---------- -------- ----------- ---------- ----------- -----------
Emerald Select Technology
Fund -- Class A*
At NAV +39.18% +74.83% -20.41% -1.95% -0.24% - 1.47%
At MOP +32.60% +66.67% -21.69% -2.89% -1.03% - 6.17%
Russell 2000G Index +24.48% +48.54% - 2.03% +0.86% +0.51% + 3.20%
Russell 2000 Index +24.92% +47.25% + 6.26% +7.13% +5.49% +39.02%
Morningstar-Technology
Funds Index +24.71% +55.44% -17.12% -1.14% n/a n/a
* Prior to 2/29/00 the Fund, called the Year 2000 Fund, focused on a specific
industry within the technology sector.
** Inception Date: 10/31/97
As you review the results above, please note that the Fund has invested in a
variety of initial public offerings (IPO's). The performance of IPO's may have a
greater impact on the performance results of a smaller fund, and may lessen as
the Fund's assets grow. Past performance is no guarantee of future results.
Emerald Select Technology Fund returns at NAV do not include the effects of the
Fund's Class A maximum 4.75% sales charge; returns at MOP do. The Russell 2000
Growth Index measures the performance of the Growth companies in Russell's small
cap universe. The Morningstar Technology Funds Average represents 326, 323, 285,
and 110 technology funds, respectively, for total return without regard to sales
charges for the Six Months, One Year, Three Year, Five Year and Since Inception
(10/31/97) periods. All performance results assume reinvestment of dividends.
Top 5 Contributors to Performance Over the Last 6 Months
XM Satellite Radio (XMSR)
Semitool (SMTL)
Cognizant Technology (CTSH)
Amkor Technology (AMKR)
Lexar Media (LEXR)
Top 5 Detractors to Performance Over the Last 6 Months
WMS Industries (WMS)
Interdigital Communications (IDCC)
Sanchez Computer (SCAI)
Protein Design Labs (PDLI)
White Electronics Designs (WEDC)
Our emphasis remains on the emergence and proliferation of Flat Panel Displays.
Flat Panel replacement for the desktop is continuing at a steady pace, but the
real growth is in Liquid Crystal Display (LCD) TV's. Display Search estimates we
will have 50 million units by 2008. We expect capital expenditures to rise 43%
in 2004 benefitting our holdings, Applied Film Technology (AFCO) and Photon
Dynamics (PHTN).
We are also focusing on absolute unit growth plays in the Semiconductor
Industry. In September 2003, integrated circuits unit volumes exceeded 2000 peak
levels. This is quite astounding, considering the 3 year down-
7
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turn the tech sector endured at the beginning of the decade. The problem has
been the average selling prices (ASP's) fell rapidly because of too much
capacity, a result of the massive overbuilding in 1999 & 2000. But with ASP's
now firming and expectations of at least a 5 - 10% increase in 2004, combined
with capacity utilization levels moving over 90%, we now expect a significant
upcycle in capital spending for new equipment and technologies.
With new money being spent on both the front end and back end, we have
identified many beneficiaries for the months ahead. On the front end, ion
implanter Varian Semiconductor (VSEA) and a deposition and cleaning beneficiary
in Semitool (SMTL). On the back end, we believe a strong upcycle for test is
occurring, yielding our picks of LTX Corp. (LTXX) and Credence Systems (CMOS).
Finally, our big push has been to catch the outsourcing cycle of assembly and
test functions. Today only 25 - 30% of this market is outsourced with trends
clearly pointing towards a significantly greater amount due to cost efficiencies
and the increased complexity involved with new packaging techniques. Our picks
in this area are Amkor Technologies (AMKR) and ChipPac (CHPC).
IT outsourcing is also a major theme in today's market with the possibility of
doubling and doubling again over the next 4 years. Cognizant Technology Solution
(CTSH) based in Teaneck, NJ is the clear leader in outsourcing CRM and other
solutions for the financial and health care industries.
In 2004, we expect IT spending to be finally freed up at the executive level,
resulting in a new growth era for software companies. We expect this area to
expand throughout 2004 if it develops as we expect.
Telecom spending is also finally set for improvement, especially focused on VOIP
technology. Beneficiaries in this area include Ixia (XXIA), OpNet (OPNT) and
Extreme Networks (EXTR). Life Sciences is important in this fund as we mix and
match biotech with small cap technology to diversify the Fund. With a positive
outlook for the economy, we look for this fund to continue to build on its
success in 2003.
MUTUAL FUND CONCERNS
On behalf of all of our Trustees, we want to ensure our shareholders that we
take our responsibilities at the Emerald Funds with the greatest amount of
respect, diligence and commitment to you, our shareholders. We have always
believed that adherence to the highest levels of fiduciary responsibility and
care is demanded to win and retain your trust and your investment dollar. The
shape of the mutual fund industry will change greatly over the next few months
and we intend to continue to meet our commitment to you in terms of service,
reporting and investment returns.
Sincerely,
Kenneth G. Mertz II, CFA Stacey L. Sears
Chief Investment Officer Co-Portfolio Manager -- Emerald Growth Fund
Co-Portfolio Manager -- Emerald Growth Fund
Portfolio Manager -- Emerald Bank Fund
Portfolio Manager -- Emerald Tech Fund
8
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The views expressed are the opinions of the portfolio managers as of the
reporting date and are subject to change.
ABOUT THE PERFORMANCE INFORMATION APPEARING IN THE LETTERS TO SHAREHOLDERS:
All performance information is presented on a total return basis unless
otherwise noted and reflects the reinvestment of distributions. Past performance
is no guarantee of future results. Investment return and principal value of an
investment will fluctuate with market conditions so that shares may be worth
more or less when redeemed than their original cost. Funds that invest in a
particular industry or geographic region may involve a greater degree of risk
than funds with a more diversified portfolio. All three Emerald Mutual Funds
invest in the stocks of smaller-sized companies, which may involve higher risk
and increased volatility than the stocks of larger companies. Write or call for
a free copy of the Funds' current prospectus, which contains more complete
information including management fees, sales charges and other charges and
expenses, and which you should read carefully before investing.
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EMERALD MUTUAL FUNDS -- GROWTH FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
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MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 97.24%
AUTO & TRANSPORTATION -- 0.71%
RAILROADS -- 0.71%
Genesee & Wyoming, Inc.* .............................. 25,600 $ 806,400
--------------
CONSUMER DISCRETIONARY -- 19.33%
CASINO & GAMBLING -- 0.21%
Multimedia Games, Inc.* ............................... 5,900 242,490
--------------
EDUCATION SERVICES -- 0.99%
Education Management Corp.* ........................... 36,502 1,133,022
--------------
ENTERTAINMENT -- 1.18%
Alliance Gaming Corp.* ................................ 54,500 1,343,425
--------------
HOUSEHOLD FURNISHINGS -- 0.73%
The Bombay Company, Inc.* ............................. 102,300 832,722
--------------
RADIO & TV BROADCASTERS -- 2.74%
Entercom Communications Corp.* ........................ 11,970 633,931
XM Satellite Radio Holdings Inc.* ..................... 94,300 2,485,748
--------------
3,119,679
--------------
RENTAL & LEASING SERVICES -- 1.68%
Aaron Rents, Inc. ..................................... 41,400 833,382
Wesco International, Inc. ............................. 121,700 1,077,045
--------------
1,910,427
--------------
RESTAURANTS -- 0.63%
RARE Hospitatlity International, Inc.* ................ 29,400 718,536
--------------
RETAIL -- 8.48%
Aeropostale, Inc.* .................................... 25,800 707,436
American Eagle Outfitters* ............................ 53,300 874,120
Coldwater Creek Inc.* ................................. 64,507 709,576
Cost Plus, Inc.* ...................................... 17,200 705,200
Global Imaging Systems, Inc.* ......................... 38,900 1,235,075
Guitar Center, Inc.* .................................. 14,700 478,926
Hibbett Sporting Goods, Inc.* ......................... 39,300 1,171,140
HOT Topic, Inc.* ...................................... 38,100 1,122,426
Linens 'N Things, Inc.* ............................... 27,600 830,208
The Wet Seal, Inc.* ................................... 68,150 674,004
1-800-FLOWERS.COM, Inc.* .............................. 103,835 1,148,415
--------------
9,656,526
--------------
10 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
SERVICES: COMMERCIAL -- 0.65%
Genio Group, Inc.* .................................... 47,450 $ 97,273
4Kids Entertainment, Inc.* ............................ 25,015 650,890
--------------
748,163
--------------
TOYS -- 2.04%
Marvel Enterprises, Inc.* ............................. 79,900 2,325,889
--------------
TOTAL CONSUMER DISCRETIONARY ...................................... 22,030,879
--------------
ENERGY -- 1.68%
COAL -- 0.21%
Callon Pete Co.* ...................................... 23,000 238,510
--------------
MACHINERY: OIL WELL EQUIPMENT & Services -- 1.14%
Cal Dive Intl.* ....................................... 30,600 737,766
Pride International, Inc.* ............................ 30,100 561,064
--------------
1,298,830
--------------
OIL: CRUDE PRODUCERS -- 0.33%
Quicksilver Resources, Inc.* .......................... 11,700 377,910
--------------
TOTAL ENERGY ...................................................... 1,915,250
--------------
FINANCIAL SERVICES -- 9.31%
BANKS: REGIONAL -- 4.11%
Banc Corp.* ........................................... 23,100 196,350
Bank of the Ozarks, Inc. .............................. 6,900 155,319
Community Banks, Inc. ................................. 22,130 869,930
Harleysville National Corp. ........................... 39,101 1,176,940
S&T Bancorp, Inc. ..................................... 16,250 485,875
Sun Bancorp, Inc. ..................................... 35,990 950,136
Yardville National Bancorp ............................ 33,100 851,993
--------------
4,686,543
--------------
INSURANCE: MULTI-LINE- 2.05%
HCC Insurance Holdings, Inc. .......................... 32,600 1,036,680
Penn-America Group, Inc. .............................. 97,680 1,296,213
--------------
2,332,893
--------------
INSURANCE: PROPERTY-CASUALTY- 2.32%
Markel Corp.* ......................................... 2,100 532,371
Philadelphia Consolidated Holding Co.* ................ 31,700 1,547,911
Selective Insurance Group ............................. 17,500 566,300
--------------
2,646,582
--------------
See accompanying Notes to Financial Statements 11
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
REAL ESTATE INVESTMENT TRUSTS -- 0.28%
La Quinta Corp.* ...................................... 49,100 $ 314,731
--------------
SAVINGS & LOAN -- 0.55%
Commercial Capital Bancorp, Inc.* ..................... 29,501 631,616
--------------
TOTAL FINANCIAL SERVICES .......................................... 10,612,365
--------------
HEALTH CARE -- 21.39%
BIOTECHNOLOGY RESEARCH & PRODUCTION -- 6.21%
Cubist ................................................ 71,539 869,914
Martek Biosciences Corp.* ............................. 32,650 2,121,271
Maxim Pharmaceuticals, Inc. ........................... 27,001 240,308
Telik, Inc.* .......................................... 76,200 1,753,362
Vaxgen, Inc.* ......................................... 221,700 1,755,864
Vicuron Pharmaceuticals, Inc.* ........................ 18,000 335,700
--------------
7,076,419
--------------
DRUGS & PHARMACEUTICALS -- 6.15%
Alkermes, Inc.* ....................................... 44,900 606,150
Columbia Laboratories, Inc.* .......................... 49,300 310,590
Dendreon Corp. ........................................ 54,800 441,688
Depomed, Inc. ......................................... 104,600 741,614
ILEX Oncology, Inc.* .................................. 48,002 1,020,043
KV Pharmaceutical Co.* ................................ 61,686 1,572,993
Sciclone Pharmaceuticals, Inc. ........................ 27,700 187,806
Medicines Co., The* ................................... 72,300 2,129,958
--------------
7,010,842
--------------
ELECTRONICS: MEDICAL SYSTEMS -- 2.08%
Cardiodynamics Intl. Corp. ............................ 74,700 445,959
EPIX Medical, Inc.* ................................... 26,100 424,908
VISX, Incorporated* ................................... 64,600 1,495,490
--------------
2,366,357
--------------
HEALTH CARE SERVICES -- 0.79%
LabOne, Inc.* ......................................... 27,700 899,419
--------------
HEALTH CARE FACILITIES -- 1.45%
Psychiatic Solutions .................................. 18,600 388,740
Renal Care Group, Inc.* ............................... 30,800 1,268,960
--------------
1,657,700
--------------
12 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES -- 4.17%
Gen-Probe Incorporated* ............................... 60,500 $ 2,206,435
IGEN International, Inc.* ............................. 18,631 1,097,552
ResMed Inc.* .......................................... 14,100 585,714
Respironics, Inc.* .................................... 19,000 856,710
--------------
4,746,411
--------------
MISCELLANEOUS HEALTH CARE -- 0.54%
ThermoGenesis Corp.* .................................. 118,000 611,240
--------------
TOTAL HEALTH CARE ................................................. 24,368,388
--------------
MATERIALS & PROCESSING -- 3.44%
CHEMICALS -- 3.44%
Airgas, Inc.* ......................................... 92,200 1,980,456
Cabot Microelectronics Corp.* ......................... 23,000 1,127,000
MacDermid, Inc. ....................................... 23,700 811,488
--------------
3,918,944
--------------
PRODUCER DURABLES -- 18.51%
AEROSPACE -- 1.27%
Environmental Tectonics, Inc.* ........................ 190,500 1,451,610
--------------
ELECTRICAL EQUIPMENT & COMPONENTS -- 0.79%
Cohu, Inc. ............................................ 47,200 903,880
--------------
ELECTRICAL: INSTRUMENT GAUGES -- 0.94%
Keithley Instruments, Inc. ............................ 47,000 860,100
RAE Systems ........................................... 62,900 213,860
--------------
1,073,960
--------------
IDENTIFICATION CONTROL & FILTER -- 0.99%
ESCO Technologies, Inc.* .............................. 25,800 1,126,170
--------------
MACHINERY: INDUSTRIAL/SPECIALTY -- 1.72%
Paragon Technologies, Inc.* ........................... 201,715 1,956,635
MACHINERY: SPECIALTY -- 3.05%
Applied Films Corp.* .................................. 65,454 2,161,291
Semitool, Inc.* ....................................... 122,384 1,312,079
--------------
3,473,370
--------------
See accompanying Notes to Financial Statements 13
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
MANUFACTURING -- 1.51%
Met-Pro Corp. ......................................... 106,666 $ 1,722,656
--------------
PRODUCTION TECHNOLOGY EQUIPMENT -- 7.45%
August Technology Corp. ............................... 8,200 152,111
Brooks Automation, Inc. ............................... 18,500 447,145
Credence Systems Corporation* ......................... 19,500 256,620
Kulicke and Soffa Industries, Inc. .................... 47,703 685,969
LTX Corp. ............................................. 88,200 1,325,646
Mykrolis Corp. ........................................ 58,700 943,896
Photon Dynamics, Inc.* ................................ 53,400 2,148,816
Rudolph Technologies, Inc.* ........................... 39,950 980,373
Varian Semiconductor Equipment Associates, Inc.* ...... 35,300 1,542,257
--------------
8,482,833
--------------
TELECOMMUNICATION EQUIPMENT -- 0.79%
Interdigital Communications Corp.* .................... 43,600 899,904
--------------
TOTAL PRODUCER DURABLES ........................................... 21,091,018
--------------
TECHNOLOGY -- 22.61%
COMPUTER SERVICES SOFTWARE -- 6.54%
Cognizant Technology Solutions Corporation* ........... 44,600 2,035,544
Diamond Cluster, Intl.* ............................... 173,500 1,769,700
Micros Systems, Inc.* ................................. 45,372 1,967,331
Opnet Technologies, Inc.* ............................. 25,490 419,566
Opsware, Inc.* ........................................ 130,200 963,480
Zoran Corp.* .......................................... 16,700 290,413
--------------
7,446,034
--------------
COMMUNICATIONS TECHNOLOGY -- 1.87%
Extreme Networks, Inc.* ............................... 34,600 249,466
Ixia* ................................................. 69,904 817,877
Seachange International, Inc.* ........................ 43,400 668,360
ViaSat, Inc.* ......................................... 20,835 398,782
--------------
2,134,485
--------------
COMPUTER TECHNOLOGY -- 1.93%
Drexler Technology Corp.* ............................. 29,100 397,797
Lexar Media, Inc.* .................................... 63,600 1,108,548
Neoware Systems, Inc.* ................................ 50,955 698,084
--------------
2,204,429
--------------
14 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
ELECTRICAL & ELECTRONICS -- 2.13%
Benchmark Electronics, Inc.* .......................... 33,150 $ 1,153,951
TTM Technologies* ..................................... 47,700 805,176
Universal Display Corp.* .............................. 33,800 462,046
--------------
2,421,173
--------------
ELECTRONICS -- 4.16%
Avid Technology, Inc.* ................................ 39,400 1,891,200
Flir Systems, Inc.* ................................... 22,400 817,600
II-VI, Inc.* .......................................... 55,800 1,439,640
Richardson Electronics Ltd. ........................... 24,310 298,770
Semtech Corp.* ........................................ 13,000 295,490
--------------
4,742,700
--------------
ELECTRONICS: TECHNOLOGY -- 0.19%
Cubic Corp. ........................................... 9,300 213,900
--------------
ELECTRONICS: SEMI-CONDUCTORS -- 5.79%
Amkor Technology, Inc.* ............................... 133,705 2,434,768
ChipPAC, Inc.* ........................................ 96,664 733,680
eMagin Corporation* ................................... 20,700 28,566
Integrated Circuit Systems, Inc.* ..................... 22,400 638,175
ON Semiconductor Corp. ................................ 184,300 1,188,735
Virage Logic Corp.* ................................... 59,014 600,173
White Electronic Designs Corp.* ....................... 86,702 762,978
Zilog, Inc.* .......................................... 41,200 214,241
--------------
6,601,316
--------------
TOTAL TECHNOLOGY .................................................. 25,764,037
--------------
UTILITIES -- 0.26%
UTILITIES: TELECOMMUNICATIONS -- 0.26%
Dobson Communications Corp. ........................... 44,300 291,051
--------------
TOTAL COMMON STOCKS (COST $78,035,100) ............................ 110,798,332
--------------
See accompanying Notes to Financial Statements 15
- --------------------------------------------------------------------------------------------------------
========================================================================================================
EMERALD MUTUAL FUNDS -- GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
SHORT-TERM INVESTMENTS -- 2.34%
U.S TREASURY OBLIGATIONS -- 2.28%
U.S. Treasury Bills due 01/02/04, 0.42% ................... 1,300,000 $ 1,299,970
U.S. Treasury Bills due 01/15/04, 0.72% ................... 1,300,000 1,299,616
-------------
2,599,586
-------------
VARIABLE RATE DEMAND NOTES # -- 0.06%
First American Prime Obligations Fund, 07/06/2004, 0.76% .. 69,756 69,756
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,669,342) ......................... 2,669,342
-------------
TOTAL INVESTMENTS (COST $80,704,442) -- 99.58% ................................... 113,467,674
OTHER ASSETS AND LIABILITIES, NET -- 0.42% ....................................... 473,005
-------------
NET ASSETS -- 100.00% ............................................................ $ 113,940,679
=============
* Non-income producing security
# Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rate listed is as of December 31, 2003.
16 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- SELECT BANKING AND FINANCE FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 97.83%
FINANCIAL SERVICES -- 95.86%
BANKS: REGIONAL -- 73.77%
Abigail Adams National Bancorp ..................... 50,438 $ 958,313
ACNB Corp. ......................................... 12,000 323,700
Alabama National Bancorp ........................... 63,509 3,337,398
Allegiant Bancorp, Inc. ............................ 140,387 3,937,856
Associated Banc-Corp. .............................. 57,900 2,469,435
Banc Corp. ......................................... 83,191 707,124
Bank of Hawaii Corp. ............................... 20,800 877,760
Bank of the Ozarks, Inc. ........................... 111,740 2,515,267
Boston Private Financial Holdings., Inc. ........... 67,500 1,676,700
Camden National Corp. .............................. 75,100 2,280,036
Capital Bank Corp. ................................. 40,500 625,725
Capital Bancorp Limited ............................ 19,800 562,320
Capital Corp of the West* .......................... 37,300 1,478,572
Capital Crossing Bank* ............................. 52,900 2,504,339
Cardinal Financial Corporation ..................... 125,000 1,035,000
Cascade Financial Corporation ...................... 96,250 1,865,229
CB Bancshares, Inc. ................................ 14,040 878,904
Central Pacific Financial Corp. .................... 56,200 1,688,248
Chester Valley Bancorp ............................. 86,204 1,996,485
Chittenden Coporation .............................. 50,500 1,698,820
Classic Bancshares, Inc. ........................... 14,830 493,097
CNB Florida Bancshares, Inc. ....................... 60,200 1,384,600
Coast Financial Holdings ........................... 61,500 824,100
Codorus Valley Bancorp, Inc. ....................... 64,985 1,358,186
Columbia Bancorp ................................... 61,475 1,964,126
Community Bank System, Inc. ........................ 36,800 1,803,200
Community Banks, Inc. .............................. 55,356 2,176,044
Community First Bankshares, Inc. ................... 49,500 1,432,530
ECB Bancorp, Inc. .................................. 13,000 370,500
First Community Bancshares, Inc. ................... 23,690 785,560
First Midwest Cancorp, Inc. ........................ 20,000 648,200
First Oak Brook Bancshares, Inc. ................... 80,700 2,421,807
Florida Banks, Inc.* ............................... 36,200 506,800
F.N.B. Corp. ....................................... 52,874 1,874,383
FNB Corp. .......................................... 37,700 1,119,690
FNB Financial Services Corporation ................. 50,000 997,500
Fulton Financial Corp. ............................. 59,805 1,310,328
Great Southern Bancorp, Inc. ....................... 46,300 2,146,931
See accompanying Notes to Financial Statements 17
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- SELECT BANKING AND FINANCE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
BANKS: REGIONAL -- 73.77% (CONTINUED)
Harleysville National Corp. ........................ 122,078 $3,674,548
Heritage Commerce Corp.* ........................... 30,300 371,175
IBERIABANK Corporation ............................. 60,900 3,593,100
International Bancshares Corp. ..................... 40,856 1,926,360
Lakeland Financial Corp. ........................... 45,000 1,589,400
Leesport Financial Corp. ........................... 41,445 974,786
Legacy Bank of Harrisburg*^ ........................ 56,027 714,344
Local Financial Corp.* ............................. 50,900 1,060,756
Macatawa Bank Corporation .......................... 10,815 306,173
Main Street Banks, Inc. ............................ 162,970 4,318,705
MB Financial Corp. ................................. 87,250 3,175,900
MBT Financial Corp. ................................ 3,837 63,349
Mercantile Bank Corporation ........................ 99,800 3,642,700
Mercantile Bankshares Corp. ........................ 35,000 1,595,300
Middleburg Financial Corp. ......................... 42,700 1,708,000
National Penn Bancshares, Inc. ..................... 24,790 796,255
Northrim BanCorp, Inc. ............................. 160,000 3,672,000
Oak Hill Financial, Inc. ........................... 64,389 1,983,825
Pacific Crest Capital, Inc. ........................ 82,800 2,140,380
Patriot Bank Corp. ................................. 91,381 2,614,410
Pennrock Financial Services Corp. .................. 24,965 775,912
Pinnacle Financial Partners, Inc. .................. 25,000 587,500
Princeton National Bancorp, Inc. ................... 63,900 1,824,345
PrivateBancorp, Inc. ............................... 28,150 1,281,388
Prosperity Bancshares, Inc. ........................ 41,500 934,580
S&T Bancorp, Inc. .................................. 39,091 1,168,821
Shore Bancshares, Inc. ............................. 2,717 103,491
Sky Financial Group, Inc. .......................... 120,391 3,122,943
Southern Financial Bancorp, Inc. ................... 1 30
Southside Bancshares, Inc. ......................... 66,455 1,229,425
Southwest Bancorp, Inc. ............................ 64,738 1,157,515
Sterling Financial Corp. ........................... 82,600 2,292,150
Summit Bancshares, Inc. ............................ 25,000 696,500
Sun Bancorp, Inc. .................................. 114,437 3,021,143
Sun Bancorp, Inc.* ................................. 29,477 558,884
Texas Capital Bancshares, Inc. ..................... 146,920 2,124,757
Union Bankshares Corp. ............................. 88,777 2,707,699
United Community Banks, Inc. ....................... 30,200 993,580
United National Bancorp ............................ 23,100 825,363
Virginia Financial Group, Inc. ..................... 40,700 1,445,664
Webster Financial Corp. ............................ 79,400 3,641,284
Wilshire State Bank* ............................... 178,280 3,462,019
18 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- SELECT BANKING AND FINANCE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
BANKS: REGIONAL -- 73.77% (CONTINUED)
Wintrust Financial Corporation ..................... 21,000 $ 947,100
Yardville National Bancorp ......................... 94,800 2,440,152
------------
134,298,524
------------
DIVERSIFIED FINANCIAL SERVICES -- 2.92%
Bear Stearns Companies Inc., The ................... 20,200 1,614,990
E*TRADE Group, Inc.* ............................... 200,600 2,537,590
Legg Mason, Inc. ................................... 10,000 771,800
Stifel Financial Corp. ............................. 20,000 390,000
------------
5,314,380
------------
INSURANCE CARRIERS: MULTI-LINE -- 2.26%
Penn America Group, Inc. ........................... 73,500 975,345
HCC Insurance Holdings, Inc. ....................... 98,600 3,135,480
------------
4,110,825
------------
INSURANCE CARRIERS: PROPERTY & Casualty -- 10.05%
Donegal Group, Inc ................................. 103,600 2,281,272
Erie Indemnity Co. ................................. 27,400 1,161,212
Markel Corp.* ...................................... 9,000 2,281,590
Navigators Group, Inc., The* ....................... 78,700 2,429,469
NCRID Group, Inc. .................................. 63,000 670,950
PartnerRe Ltd. ..................................... 29,000 1,683,450
Philadelphia Consolidated Holding Co.* ............. 74,600 3,642,718
Selective Insurance Group .......................... 44,000 1,423,840
United Fire & Casualty Co. ......................... 67,600 2,728,336
------------
18,302,837
------------
INVESTMENT MANAGEMENT COMPANIES -- 0.87%
Affiliated Managers Group, Inc.* ................... 16,000 1,113,440
Waddell & Reed Financial, Inc. ..................... 20,100 471,546
------------
1,584,986
------------
SAVINGS & LOAN -- 5.99%
Commercial Capital Bancorp, Inc.* .................. 200,650 4,295,917
Dime Community Bancshares, Inc. .................... 70,200 2,159,352
First Niagara Financial Group, Inc. ................ 111,200 1,657,992
FloridaFirst Bancorp, Inc. ......................... 29,500 976,450
Guaranty Federal Bancshares, Inc. .................. 47,000 904,750
Pacific Premier Bancorp, Inc. ...................... 81,200 900,508
------------
10,894,969
------------
TOTAL FINANCIAL SERVICES ....................................... 174,506,521
------------
See accompanying Notes to Financial Statements 19
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- SELECT BANKING AND FINANCE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
REAL ESTATE INVESTMENT TRUSTS -- 1.97%
Entertainment Properties Trust ..................... 70,900 $ 2,460,939
Gladstone Commercial Corp .......................... 25,000 421,250
Urstadt Biddle Properties, Inc. .................... 50,000 707,500
------------
TOTAL REAL ESTATE INVESMENT TRUSTS ............................. 3,589,689
------------
TOTAL COMMON STOCKS (COST $140,602,522) ........................ 178,096,210
------------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 3.80%
U.S. TREASURY OBLIGATIONS -- 2.84%
U.S. Treasury Bills due 01/02/2004, 0.43% .......... 1,100,000 1,099,974
U.S. Treasury Bills due 01/08/2004, 0.67% .......... 3,000,000 2,999,563
U.S. Treasury Bills due 01/15/2004, 0.72% .......... 1,070,000 1,069,683
------------
TOTAL U.S. TREASURY OBLIGATIONS INVESTMENTS ..................... 5,169,220
------------
VARIABLE RATE DEMAND NOTES # -- 0.96%
First American Prime Obligations Fund,
07/06/2004, 0.76% .............................. 1,744,358 1,744,358
------------
TOTAL INVESTMENTS (COST $6,913,578) ............................. 6,913,578
------------
TOTAL INVESTMENTS (COST $147,516,100) -- 101.63% ............................ 185,009,788
LIABILITIES IN EXCESS OF OTHER ASSETS, NET -- (1.63%) ....................... (2,959,348)
NET ASSETS -- 100.00% ....................................................... $182,050,440
============
* Non-income producing security
# Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rate listed is as of December 31, 2003.
^ Illiquid security.
20 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- SELECT TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 92.23%
CONSUMER DISCRETIONARY -- 3.83%
RADIO & T.V. BROADCASTERS -- 3.83%
XM Satellite Radio Holdings Inc.* ................... 6,100 $ 160,796
-----------
TOTAL CONSUMER DISCRETIONARY .................................... 160,796
-----------
HEALTHCARE -- 13.84%
BIOTECHNOLOGY RESEARCH & PRODUCTION -- 5.61%
Celgene Corp.* ...................................... 1,300 58,526
Maxim Pharmaceuticals, Inc. ......................... 5,400 48,060
Telik, Inc.* ........................................ 5,600 128,856
-----------
235,442
-----------
DRUGS & PHARMACEUTICALS -- 4.92%
Alkermes, Inc.* ..................................... 2,700 36,450
ILEX Oncology, Inc.* ................................ 4,400 93,500
Medicines Co. ....................................... 2,600 76,596
-----------
206,546
-----------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES -- 3.31%
Gen-Probe, Inc. ..................................... 3,800 138,586
-----------
TOTAL HEALTHCARE ................................................ 580,574
-----------
MATERIALS & PROCESSING -- 0.82%
CHEMICALS -- 0.82%
Cabot Microelectronics Corp.* ....................... 700 34,300
-----------
TOTAL MATERIALS & PROCESSING .................................... 34,300
-----------
PRODUCER DURABLES -- 27.98%
ELECTRICAL EQUIPMENT AND COMPONENTS -- 1.78%
COHU, Inc. .......................................... 3,900 74,685
-----------
ELECTRONICS: INSTRUMENTS GAUGES -- 1.83%
Keithley Instruments, Inc. .......................... 4,200 76,860
-----------
MACHINERY: SPECIALTY -- 6.81%
Applied Films Corp.* ................................ 4,500 148,590
Semitool, Inc.* ..................................... 12,800 137,229
-----------
285,819
-----------
See accompanying Notes to Financial Statements 21
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- SELECT TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
MISCELLANEOUS -- 4.43%
Fairchild Semiconductor Corp. ....................... 3,800 $ 94,886
Ultratech, Inc.* .................................... 3,100 91,047
-----------
185,933
-----------
PRODUCTION TECHNOLOGY EQUIPMENT -- 11.55%
August Technology ................................... 500 9,275
Kulicke and Soffa Industries, Inc.* ................. 5,800 83,404
LTX Corp. ........................................... 3,300 49,599
MYKROLIS Corp. ...................................... 2,700 43,416
Photon Dynamics, Inc.* .............................. 2,400 96,576
Rudolph Technologies, Inc.* ......................... 1,500 36,810
Tessera Technologies ................................ 3,000 56,430
Varian Semiconductor Equipment Associates, Inc.* .... 2,500 109,225
-----------
484,735
-----------
TELECOMMUNICATIONS EQUIPMENT -- 1.58%
Interdigital Communications Corp.* .................. 3,200 66,048
-----------
TOTAL PRODUCER DURABLES ......................................... 1,174,080
-----------
TECHNOLOGY -- 45.76%
COMPUTER SERVICES & SOFTWARE -- 10.55%
Ansoft Corp. ........................................ 3,300 42,339
Cognizant Technology Solutions Corporation* ......... 3,200 146,048
MICROS Systems, Inc.* ............................... 3,100 134,416
OPSWARE, Inc. ....................................... 8,700 64,380
Zoran Corporation* .................................. 3,200 55,648
-----------
442,831
-----------
COMMUNICATIONS TECHNOLOGY -- 4.80%
Ixia* ............................................... 6,000 70,200
KVH Industries, Inc. ................................ 1,800 49,446
Seachange International, Inc.* ...................... 5,300 81,620
-----------
201,266
-----------
COMPUTER TECHNOLOGY -- 3.29%
Lexar Media, Inc.* .................................. 5,100 88,893
Neoware Systems, Inc.* .............................. 3,600 49,320
-----------
138,213
-----------
22 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------
====================================================================================================
EMERALD MUTUAL FUNDS -- SELECT TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS -- CONTINUED DECEMBER 31, 2003 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
ELECTRICAL & ELECTRONICS -- 2.91%
Benchmark Electronics, Inc.* ........................ 2,700 $ 93,987
Jabil Circuit, Inc.* ................................ 1,000 28,300
-----------
122,287
-----------
ELECTRONICS -- 5.01%
Flir Systems, Inc.* ................................. 2,300 83,950
II-VI, Inc.* ........................................ 2,400 61,920
Vishay Intertechnology, Inc.* ....................... 2,800 64,120
-----------
209,990
-----------
ELECTRONICS: SEMICONDUCTORS -- 19.20%
Amkor Technology, Inc.* ............................. 9,200 167,532
ChipPAC, Inc.* ...................................... 14,700 111,573
eMagin Corporation* ................................. 18,500 25,530
Integrated Circuit Systems, Inc.* ................... 3,500 99,715
Intersil Corporation ................................ 2,100 52,185
MEMC Electronics Materials, Inc. .................... 6,000 57,720
ON Semiconductor Corp. .............................. 19,500 125,775
Transmeta Corp. ..................................... 20,000 68,000
Virage Logic Corporation* ........................... 5,000 50,850
Zebra Technologies Corp. ............................ 700 46,459
-----------
805,339
-----------
TOTAL TECHNOLOGY ................................................ 1,919,926
-----------
TOTAL COMMON STOCKS (COST $2,610,868) ........................... 3,869,676
-----------
OPTIONS -- 4.41%
CALL OPTIONS -- 3.10%
XM Satellite Radio Holdings Inc.,
Jan. 2004, Strike 7.50* .......................... 10,000 185,000
-----------
TOTAL OPTIONS (COST $12,650) .................................... 185,000
-----------
PRINCIPAL
SHORT-TERM INVESTMENTS -- 2.50% AMOUNT
---------
VARIABLE RATE DEMAND NOTES # -- 2.50%
First American Prime Obligations Fund,
07/06/2004, 0.76% ................................ 105,032 105,032
-----------
TOTAL SHORT-TERM SECURITIES (COST $105,032) ..................... 105,032
-----------
TOTAL INVESTMENTS (COST $2,728,550) -- 99.14% .............................. 4,159,708
OTHER ASSETS AND LIABILITIES, NET -- 0.86% ................................. 36,163
NET ASSETS -- 100.00% ...................................................... $ 4,195,871
===========
* Non-income producing security
# Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rate listed is as of December 31, 2003.
See accompanying Notes to Financial Statements 23
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
EMERALD MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT
BANKING AND TECHNOLOGY
GROWTH FUND FINANCE FUND FUND
------------- ------------- -------------
ASSETS
Investments in securities at market value (cost $80,704,442,
$147,516,100 and $2,728,550, respectively) ............................. $ 113,467,674 $ 185,009,788 $ 4,159,708
Deposits with brokers for securities sold short ........................... -- -- 21,164
Receivables:
Dividends and interest ................................................. 15,104 263,181 254
Investment securities sold ............................................. 1,223,103 -- 300,156
Capital shares sold .................................................... 309,026 1,330,735 8,574
Other assets .............................................................. 43,385 46,050 12,772
------------- ------------- -------------
Total assets .................................................... 115,058,292 186,649,754 4,502,628
------------- ------------- -------------
LIABILITIES
Payables for: .............................................................
Investment securities purchased ........................................ 882,855 4,296,653 282,972
Capital shares redeemed ................................................ 107,243 174,341 7,826
Advisory fee payable ................................................... 64,118 85,775 3,434
Accrued expenses and other liabilities .................................... 63,397 42,545 12,525
------------- ------------- -------------
Total liabilities ............................................... 1,117,613 4,599,314 306,757
------------- ------------- -------------
Net Assets ................................................................ $ 113,940,679 $ 182,050,440 $ 4,195,871
============= ============= =============
NET ASSETS CONSIST OF:
Shares of beneficial interest ............................................. $ 85,829,272 $ 141,605,558 $ 11,547,111
Accumulated net investment income/(loss) .................................. (689,623) (174,476) (50,097)
Accumulated net realized gain/(loss) on investments ....................... (3,962,202) 3,125,670 (8,732,301)
Net unrealized appreciation on investments ................................ 32,763,232 37,493,688 1,431,158
------------- ------------- -------------
Total Net Assets ................................................ $ 113,940,679 $ 182,050,440 $ 4,195,871
============= ============= =============
CLASS A SHARES:
Net assets ................................................................ $ 103,931,594 $ 116,462,543 $ 3,782,900
------------- ------------- -------------
Shares of beneficial interest issued and outstanding, no par value ........ 7,994,561 4,715,251 481,851
------------- ------------- -------------
Net asset value and redemption price per share ............................ $13.00 $24.70 $7.85
====== ====== =====
Maximum offering price per share(net asset value plus sales
charge of 4.75% of the offering price) .............................. $13.65 $25.93 $8.24
====== ====== =====
CLASS C SHARES:
Net assets ................................................................ $ 10,009,085 $ 65,587,897 $ 412,971
------------- ------------- -------------
Shares of beneficial interest issued and outstanding, no par value ........ 787,004 2,700,769 53,465
------------- ------------- -------------
Net asset value and redemption price per share ............................ $12.72 $24.28 $7.72
====== ====== =====
Maximum offering price per share(net asset value plus sales
charge of 1.00% of the offering price) .............................. $12.85 $24.53 $7.80
====== ====== =====
24 See accompanying Notes to Financial Statements
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
EMERALD MUTUAL FUNDS
STATEMENTS OF OPERATIONS (UNAUDITED) DECEMBER 31, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 2003
-----------------------------------------------
SELECT SELECT
BANKING AND TECHNOLOGY
GROWTH FUND FINANCE FUND FUND
------------- ------------ -------------
INVESTMENT INCOME
Dividends .............................................................. $ 123,511 $ 1,114,519 $ 579
Interest 13,010 20,079 500
------------- ------------- -------------
136,521 1,134,598 1,079
------------- ------------- -------------
EXPENSES
Investment Advisory fees ............................................... 379,819 638,977 18,027
12b-1 fees - Class A ................................................... 164,259 150,820 8,120
12b-1 fees - Class C ................................................... 37,113 223,386 1,787
Shareholder servicing and accounting ................................... 144,569 185,979 5,138
Professional fees ...................................................... 26,362 27,619 3,010
Trustees' fees and expenses ............................................ 4,951 2,837 1,717
Reports to shareholders ................................................ 12,162 15,250 478
Federal and state registration fees .................................... 9,020 12,153 8,405
Custody fees ........................................................... 13,125 11,259 4,125
Other .................................................................. 34,764 40,794 822
------------- ------------- -------------
Total expenses before fee waivers ................................... 826,144 1,309,074 51,629
Advisory fee waived .................................................... -- -- --
Reimbursement by Advisor ............................................... -- -- 453
------------- ------------- -------------
Total expenses ...................................................... 826,144 1,309,074 51,176
------------- ------------- -------------
NET INVESTMENT INCOME/(LOSS) .............................................. (689,623) (174,476) (50,097)
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) on:
Investments ......................................................... 7,603,480 3,711,942 294,673
Short positions ..................................................... -- -- --
Change in unrealized appreciation/(depreciation) on investments
Investments ......................................................... 16,448,258 25,000,652 892,709
Short positions ..................................................... -- -- 4,851
------------- ------------- -------------
Net realized and unrealized gain/(loss) ................................ 24,051,738 28,712,594 1,192,233
------------- ------------- -------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................................... $ 23,362,115 $ 28,538,118 $ 1,142,136
============= ============= =============
See accompanying Notes to Financial Statements 25
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
EMERALD MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS DECEMBER 31, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 2003 (UNAUDITED)
SELECT SELECT
BANKING AND TECHNOLOGY
GROWTH FUND FINANCE FUND FUND
------------- ------------- -------------
OPERATIONS
Net investment income/(loss) ......................................... $ (689,623) $ (174,476) $ (50,097)
Net realized gain/(loss)
Investments ........................................................ 7,603,480 3,711,942 294,673
Change in unrealized appreciation/(depreciation) on:
Investments ........................................................ 16,448,258 25,000,652 897,560
------------- ------------- -------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................................. 23,362,115 28,538,118 1,142,136
------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - Class A ...................................... -- (20,232) --
Net investment income - Class C ...................................... -- -- --
Net realized capital gain - Class A .................................. -- (692,942) --
Net realized capital gain - Class C .................................. -- (364,072) --
------------- ------------- -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS ............. -- (1,077,246) --
------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Net increase/(decrease) in net assets resulting from
capital share transactions ......................................... 7,613,878 67,542,621 281,091
------------- ------------- -------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS ................................... 30,975,993 95,003,493 1,423,227
NET ASSETS
Beginning of period .................................................. 82,964,686 87,046,947 2,772,644
------------- ------------- -------------
End of period ........................................................ $ 113,940,679 $ 182,050,440 $ 4,195,871
============= ============= =============
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
SELECT SELECT
BANKING AND TECHNOLOGY
GROWTH FUND FINANCE FUND FUND
------------- ------------- -------------
OPERATIONS
Net investment income/(loss) ......................................... $ (863,918) $ 20,232 $ (65,373)
Net realized gain/(loss)
Investments ................................................. (10,131,838) 851,591 (870,592)
Change in unrealized appreciation/(depreciation) on:
Investments ................................................. 10,036,527 6,298,246 991,235
NET INCREASE/(DECREASE) IN NET ASSETS ------------- ------------- -------------
RESULTING FROM OPERATIONS ................................. (959,229) 7,170,069 55,270
------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income - Class A ...................................... -- -- --
Net investment income - Class C ...................................... -- -- --
Net realized capital gain - Class A .................................. -- (631,774) --
Net realized capital gain - Class C .................................. -- (155,228) --
------------- ------------- -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS ............. -- (787,002) --
------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Net increase/(decrease) in net assets resulting from
capital share transactions .................................. (2,386,351) 39,520,392 (503,522)
------------- ------------- -------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS ................................... (3,345,580) 45,903,459 (448,252)
NET ASSETS
Beginning of period .................................................. 86,310,266 41,143,488 3,220,896
------------- ------------- -------------
End of period ........................................................ $ 82,964,686 $ 87,046,947 $ 2,772,644
============= ============= =============
26 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH FUND
FOR THE
SIX MONTHS ENDED FOR THE FOR THE
DECEMBER 31, 2003 YEAR ENDED YEAR ENDED
(UNAUDITED) JUNE 30, 2003 JUNE 30, 2002
CLASS A CLASS A CLASS A
------------------ -------------- --------------
Net Asset Value, Beginning of Period ................................... $ 10.21 $ 10.26 $ 12.50
----------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss .................................................... (0.08) (0.10)(1) (0.10)(1)
Net realized and unrealized gain/(loss) on
investments .......................................................... 2.87 0.05 (2.14)
----------- --------- --------
Total from investment operations ................................... 2.79 (0.05) (2.24)
----------- --------- --------
LESS DISTRIBUTIONS
- ------------------
Distributions fom net realized capital gain ........................ -- -- --
----------- --------- --------
Net asset Value, End of Period ..................................... $ 13.00 $ 10.21 $ 10.26
=========== ========= ========
TOTAL RETURN* .......................................................... 27.33 (0.49)% (17.92)%
RATIOS/SUPPLEMENTAL DATA $ 103,932 $ 78,060 $ 82,805
Net assets, end of period (in 000s) .................................... 1.58%(2) 1.73% 1.62%
Ratio of expenses to average net assets ................................ (1.31)(2) (1.14)% (0.88)%
Ratio of net investment (loss) to average net assets ................... 32% 79% 61%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment loss per share represents net investment loss divided by the average shares outstanding throughout the period.
(2) Annualized.
See accompanying Notes to Financial Statements 27
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH FUND
FOR THE
YEAR ENDED FOR THE FOR THE
JUNE 30, 2001 YEAR ENDED YEAR ENDED
CLASS A** JUNE 30, 2000 JUNE 30, 1999
------------- ------------- -------------
Net Asset Value, Beginning of Period ................................... $ 18.31 $ 11.70 $ 13.03
----------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss .................................................... (0.05)(1) (0.12) (0.01)
Net realized and unrealized gain/(loss) on
investments .......................................................... (1.58) 7.79 (1.18)
----------- --------- --------
Total from investment operations ................................... (1.63) 7.67 (1.19)
----------- --------- --------
LESS DISTRIBUTIONS
- ------------------
Distributions fom net realized capital gain ............................ (4.18) (1.06) (0.14)
----------- --------- --------
Net asset Value, End of Period ......................................... $ 12.50 $ 18.31 $ 11.70
=========== ========= ========
TOTAL RETURN* .......................................................... (9.62)% 66.58% (9.24)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) .................................... $ 107,325 136,649 $ 98,977
Ratio of expenses to average net assets ................................ 1.56% 1.45% 1.56%
Ratio of net investment (loss) to average net assets ................... (0.40)% (0.66)% (0.11)%
Portfolio turnover rate ................................................ 60% 102% 88%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment loss per share represents net investment loss divided by the average shares outstanding throughout the period.
(2) Annualized
28 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH FUND
FOR THE SIX
MONTHS ENDED FOR THE FOR THE FOR THE
DECEMBER 31, 2003 YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2001
CLASS C CLASS C CLASS C CLASS C**
----------------- ------------- ------------- -------------
Net Asset Value, Beginning of Period ....................... $ 10.02 $ 10.14 $ 12.43 $ 18.31
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss ........................................ (0.18) (0.16)(1) (0.17)(1) (0.13)(1)
Net realized and unrealized (loss) on investments .......... 2.88 0.04 (2.12) (1.57)
---------- ---------- ---------- ----------
Total from investment operations ...................... 2.70 (0.12) (2.29) (1.70)
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
- ------------------
Distributions fom net realized capital gain ................ -- -- -- (4.18)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $ 12.72 $ 10.02 $ 10.14 $ 12.43
========== ========== ========== ==========
Total Return* .............................................. 26.95% (1.18)% (18.42)% (10.08)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) ........................ $ 10,009 $ 4,905 $ 3,505 $ 1,434
Ratio of operating expenses to average net assets .......... 2.23%(2) 2.38% 2.27% 2.21%
Ratio of net investment (loss) to average net assets ....... (1.96)(2) (1.79)% (1.53)% (1.05)%
Portfolio turnover rate .................................... 32% 79% 61% 60%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment loss per share represents net investment loss divided by the average shares outstanding throughout the
period.
(2) Annualized
See accompanying Notes to Financial Statements 29
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SELECT BANKING AND FINANCE FUND
FOR THE
SIX MONTHS ENDED FOR THE FOR THE
DECEMBER 31, 2003 YEAR ENDED YEAR ENDED
(UNAUDITED) JUNE 30, 2003 JUNE 30, 2002
CLASS A CLASS A CLASS A
----------------- ------------- -------------
Net Asset Value, Beginning of Period ................................... $ 19.89 $ 18.36 $ 15.55
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income .................................................. (0.01)(1) 0.03(1) 0.05(1)
Net realized and unrealized gain/(loss) on invetsments ................. 5.01 1.84 3.01
---------- ---------- ----------
Total from investment operations .............................. 5.00 1.87 3.06
---------- ---------- ----------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income ................................... (0.01) -- (0.08)
Dividends in excess of net investment income ........................... -- -- --
Distributions fom net realized capital gain ............................ (0.18) (0.34) (0.17)
---------- ---------- ----------
Total distributions ........................................... (0.19) (0.34) (0.25)
---------- ---------- ----------
Net Asset Value, End of Period ......................................... $ 24.70 $ 19.89 18.36
========== ========== ==========
Total Return* .......................................................... 25.24% 10.46% 19.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) .................................... $ 116,462 $ 59,565 $ 34,933
Ratio of operating expenses to average net assets
before reimbursement by Adviser and waivers .......................... 1.77%(3) 1.98% 2.26%
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers ........................... n/a(2) n/a(2) n/a(2)
Ratio of net investment income/(loss) to average net assets
before reimbursement by Adviser and waivers .......................... (0.05)(3) 0.21% 0.28%
Ratio of net investment income/(loss) to average net assets
after reimbursement by Adviser and waivers ........................... n/a(2) n/a(2) n/a(2)
Portfolio turnover rate ................................................ 13% 47% 27%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment income per share represents net investment income divided by the average shares outstanding throughout the
period.
(2) Not applicable: no reimbursements were made by the Adviser.
(3) Annualized.
30 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SELECT BANKING AND FINANCE FUND
FOR THE
YEAR ENDED FOR THE FOR THE
JUNE 30, 2001 YEAR ENDED YEAR ENDED
CLASS A** JUNE 30, 2000 JUNE 30, 1999
------------- ------------- -------------
Net Asset Value, Beginning of Period ................................... $ 11.20 $ 13.36 $ 13.42
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income .................................................. 0.18(1) 0.08 (0.01)
Net realized and unrealized gain/(loss) on invetsments ................. 4.34 (2.20) (0.05)
---------- ---------- ----------
Total from investment operations .............................. 4.52 (2.12) (0.06)
---------- ---------- ----------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income ............................... (0.17) (0.03) --
Dividends in excess of net investment income ....................... -- (0.01) --
Distributions fom net realized capital gain ........................ -- -- --
---------- ---------- ----------
Total distributions ........................................... (0.17) (0.04) --
---------- ---------- ----------
Net Asset Value, End of Period ......................................... $ 15.55 $ 11.20 $ 13.36
========== ========== ==========
Total Return* .......................................................... 40.72% (15.91)% (0.45)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) .................................... $ 14,822 $ 10,947 $ 13,131
Ratio of operating expenses to average net assets
before reimbursement by Adviser and waivers .......................... 2.94%(3) 2.60% 2.60%
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers ........................... 2.35% 2.35% 2.35%
Ratio of net investment income/(loss) to average net assets
before reimbursement by Adviser and waivers .......................... 0.79% 0.51% (0.31)%
Ratio of net investment income/(loss) to average net assets
after reimbursement by Adviser and waivers ........................... 1.38% 0.76% (0.05)%
Portfolio turnover rate ................................................ 55% 46% 158%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment income per share represents net investment income divided by the average shares outstanding throughout the
period.
(2) Not applicable: no reimbursements were made by the Adviser.
(3) Annualized.
See accompanying Notes to Financial Statements 31
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SELECT BANKING AND FINANCE FUND
FOR THE
SIX MONTHS ENDED FOR THE FOR THE FOR THE
DECEMBER 31, 2003 YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2001
CLASS C CLASS C CLASS C CLASS C**
----------------- ------------- ------------- -------------
Net Asset Value, Beginning of Period ........................... $ 19.62 $ 18.24 $ 15.47 $ 11.20
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income/(loss) ................................... (0.08)(1) (0.08)(1) (0.06)(1) 0.10(1)
Net realized and unrealized gain/(loss)
on invetsments .............................................. 4.92 1.80 3.00 4.34
---------- ---------- ---------- ----------
Total from investment operations .......................... 4.84 1.72 2.94 4.44
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income ........................... -- -- -- (0.17)
Distributions fom net realized capital gain .................... (0.18) (0.34) (0.17) --
========== ========== ========== ==========
Total distributions ................................... (0.18) (0.34) (0.17) (0.17)
========== ========== ========== ==========
Net Asset Value, End of Period ................................. $ 24.28 $ 19.62 $ 18.24 $ 15.47
========== ========== ========== ==========
Total Return* .................................................. 24.79% 9.69% 19.22% 40.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) ............................ $ 65,588 $ 27,482 $ 6,210 $ 513
Ratio of operating expenses to average
net assets before reimbursement by Adviser
and waivers ................................................... 2.42%(3) 2.63% 2.91% 3.59%
Ratio of operating expenses to average
net assets after reimbursement
by Adviser and waivers ........................................ n/a(2) n/a(2) n/a(2) 3.00%
Ratio of net investment income/(loss)
to average net assets before reimbursement
by Adviser and waivers ...................................... (0.70)(3) (0.44)% (0.37)% 0.14%
Ratio of net investment income/(loss)
to average net assets after reimbursement
by Adviser and waivers ....................................... n/a(2) n/a(2) n/a(2) 0.73%
Portfolio turnover rate ........................................ 13% 47% 27% 55%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment income (loss) per share represents net investment income (loss) divided by the average shares outstanding
throughout the period.
(2) Not applicable: no reimbursements were made by the Adviser.
(3) Annualized.
32 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SELECT TECHNOLOGY FUND
FOR THE
SIX MONTHS ENDED FOR THE FOR THE
DECEMBER 31, 2003 YEAR ENDED YEAR ENDED
(UNAUDITED) JUNE 30, 2003 JUNE 30, 2002
CLASS A CLASS A CLASS A
----------------- ------------- --------------
Net Asset Value, Beginning of Period ................................... $ 5.64 $ 5.38 $ 12.15
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss .................................................... (0.09) (0.12) (0.20)(1)
Net realized and unrealized gain/(loss) on investments ................. 2.30 0.38 (6.15)
---------- ---------- ----------
Total from investment operations .................................... 2.21 0.26 (6.35)
---------- ---------- ----------
LESS DISTRIBUTIONS
- ------------------
Dividends from net realized capital gain ............................... -- -- (0.42)
---------- ---------- ----------
Net Asset Value, End of Period ......................................... $ 7.85 $ 5.64 $ 5.38
========== ========== ==========
Total Return* .......................................................... 39.18% 4.83% (53.76)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) .................................... $ 3,783 $ 2,572 $ 3,132
Ratio of operating expenses to average net assets
before reimbursement by Adviser and waivers .......................... 2.81%(3) 4.99% 4.66%
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers excluding
dividends on short positions ......................................... 2.78%(3) 2.90% 2.90%
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers ........................... 2.78%(3) 2.90% 2.90%
Ratio of net investment (loss) to average net assets
before reimbursement by Adviser and waivers .......................... (2.72)(3) (4.78)% (4.26)%
Ratio of net investment (loss) to average net assets
after reimbursement by Adviser and waivers ........................... (2.69) (2.69)% (2.50)%
Portfolio turnover rate ................................................ 26% 151% 249%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment income per share represents net investment income divided by the average shares outstanding throughout the
period.
(2) Not applicable: no reimbursements were made by the Adviser.
(3) Annualized.
See accompanying Notes to Financial Statements 33
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SELECT TECHNOLOGY FUND
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 1999
CLASS A** CLASS A CLASS A
------------- ------------- -------------
Net Asset Value, Beginning of Period ................................... $ 29.59 $ 12.17 $ 12.09
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------- (0.43)(2) (0.55)(1) (0.22)(1)
Net investment loss ....................................................
Net realized and unrealized gain/(loss) on invetsments ................. (13.01) 18.62 0.30
---------- ---------- ----------
Total from investment operations ................................... (13.44) 18.07 0.08
---------- ---------- ----------
LESS DISTRIBUTIONS
- ------------------
Dividends from net realized capital gain ............................... (4.00) (0.65) --
---------- ---------- ----------
Net Asset Value, End of Period ......................................... $ 12.15 $ 29.59 $ 12.17
========== ========== ==========
Total Return* .......................................................... (51.80)% 148.95% 0.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) .................................... $ 8,054 19,390 $ 9,056
Ratio of operating expenses to average net assets
before reimbursement by Adviser and waivers .......................... 3.41% 2.67% 3.01%
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers excluding
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers ........................... 2.90% n/a(2) 2.90%
dividends on short positions ......................................... 2.90% n/a(2) 2.94%
Ratio of net investment (loss) to average net assets
before reimbursement by Adviser and waivers .......................... (2.76)% (2.17)% (2.27)%
Ratio of net investment (loss) to average net assets
after reimbursement by Adviser and waivers ........................... (2.25)% n/a(2) (2.16)%
Portfolio turnover rate ................................................ 193% 199% 200%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment loss per share represents net investment loss divided by the average shares outstanding throughout the period.
(2) Not applicable: no reimbursements were made by the Adviser.
(3) Annualized.
34 See accompanying Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
EMERALD MUTUAL FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
FOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SELECT TECHNOLOGY FUND
FOR THE
SIX MONTHS ENDED FOR THE FOR THE FOR THE
DECEMBER 31, 2003 YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2001
CLASS C CLASS C CLASS C CLASS C**
----------------- ------------- ------------- -------------
Net Asset Value, Beginning of Period ........................... $ 5.56 $ 5.33 $ 12.10 $ 29.59
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss ............................................ (0.11)(1) (0.15)(1) (0.24)(1) (0.37)
Net realized and unrealized gain/(loss)
on invetsments ............................................... 2.27 0.38 (6.11) (13.12)
---------- ---------- ---------- ----------
Total from investment operations ...................... 2.16 0.23 (6.35) (13.49)
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
- ------------------
Dividends from net realized capital gain ....................... -- -- (0.42) (4.00)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ................................. $ 7.72 $ 5.56 $ 5.33 $ 12.10
========== ========== ========== ==========
Total Return* .................................................. 38.85% 4.32% (53.99)% (52.00)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) ............................ $ 413 $ 201 $ 89 $ 301
Ratio of operating expenses to average
net assets before reimbursement by Adviser
and waivers ................................................. 3.31%(2) 5.49% 5.16% 3.91%
Ratio of operating expenses to average
net assets after reimbursement
by Adviser and waivers ...................................... 3.28%(2) 3.40% 3.40% 3.40%
Ratio of net investment (loss)
to average net assets before reimbursement
by Adviser and waivers .................................... (3.22)(2) (5.28)% (4.76)% (3.26)%
Ratio of net investment (loss)
to average net assets after reimbursement
by Adviser and waivers .................................... (3.19)(2) (3.19)% (3.00)% (2.75)%
Portfolio turnover rate ........................................ 26% 151% 249% 193%
* Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
** On July 1, 2000, the Class C Shares went effective and the existing class of shares was designated Class A Shares.
(1) Net investment loss per share represents net investment loss divided by the average shares outstanding throughout the period.
(2) Annualized.
See accompanying Notes to Financial Statements 35
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 1 -- DESCRIPTION OF FUNDS
The HomeState Group (the "Trust"), an open-end management investment
company, was established as a Pennsylvania common law trust on August 26,
1992, and is registered under the Investment Company Act of 1940, as
amended. The Trust has established three series: the Emerald Growth Fund,
the Emerald Select Banking and Finance Fund and the Emerald Select
Technology Fund (each a "Fund" and collectively, the "Funds"). Effective
July 1, 2000, the Board voted to name the Fund family the Emerald Mutual
Funds.
The Emerald Growth Fund commenced operations on October 1, 1992. The
investment objective of the Fund is long-term growth of capital through
capital appreciation. To pursue its objective, the Fund will invest at
least 80% of its total assets in common stocks, preferred stocks and
securities convertible into common and preferred stocks. Prior to July 1,
2001, the Fund was named the HomeState Pennsylvania Growth Fund and had a
narrower investment objective.
The Emerald Select Banking and Finance Fund commenced operations on
February 18, 1997. The investment objective of the Fund is long-term growth
through capital appreciation. Income is a secondary objective. To pursue
its objective, the Fund will invest at least 80% of its total assets in a
diversified portfolio of banking and financial services companies. Prior to
October 20, 1998, the Fund was named the HomeState Select Opportunities
Fund and had a different investment objective.
The Emerald Select Technology Fund commenced operations on October 31,
1997. The investment objective of the Fund is to seek capital appreciation
by investing in a non-diversified portfolio of equity securities of public
companies in the technology sector. To pursue its objective, the Fund will
invest at least 80% of its total assets in such companies. Prior to
February 29, 2000, the Fund was named HomeState Year 2000 Fund and had a
narrower investment objective.
The Funds issued a second class of shares, Class C Shares, and renamed the
initial class as Class A Shares on July 1, 2000. The two classes differ
principally in their respective distribution expenses and arrangements as
well as their respective sale and contingent deferred sales charge
arrangements. Both classes of shares have identical rights to earnings,
assets and voting privileges, except for class specific expenses and
exclusive rights to vote on matters affecting only individual classes.
Class A Shares are subject to an initial sales charge of 4.75% imposed at
the time of purchase. Class C Shares are subject to an initial sales charge
of 1.00% imposed at the time of purchase, as well as a contingent deferred
sales charge ("CDSC") for redemptions made within one year of purchase, in
accordance with the Fund's prospectus. The CDSC is 1.00% of the lesser of
the current market value or the cost of shares being redeemed.
Certain funds invest a high percentage of their assets in specific sectors
of the market, especially technology, banking and financial. As a result,
the economic and regulatory developments in a particular sector of the
market, positive or negative, have a greater impact on the fund's net asset
value and will cause its shares to fluctuate more than if the fund did not
concentrate in investments in a particular sector.
36
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the trust:
SECURITY VALUATION -- Investment securities and securities sold short
traded on a national securities exchange are valued at the last reported
sales price on the security's principal exchange, which is usually at 4:00
p.m. Eastern time, unless there are no transactions on the valuation date,
in which case they are valued at the mean between the closing asked and bid
prices. Securities traded over-the-counter are valued at the last reported
sales price unless there is no reported sales price, in which case the mean
between the closing asked and bid price is used. An option contract is
valued at the last sales price as quoted on the principal exchange on which
such option is traded, or in the absence of a sale, the mean between the
last bid and ask prices. Debt securities with maturities of sixty days or
less are valued at amortized cost, which approximates market value. Where
market quotations are not readily available, securities are valued using
methods, which the Board of Trustees believe, in good faith, accurately
reflects their fair value.
INCOME REGOGNITION -- Interest income is accrued as earned. Dividend income
and expense for securities sold short is recorded on the ex-dividend date.
Income, expense (other than expenses attributable to a specific class) and
realized and unrealized gains or losses on investments are allocated to
each class of shares based on the fair value of settled shares. Expenses
that are directly related to one of the Funds are charged directly to that
Fund. Other operating expenses are prorated to the Funds on the basis of
relative net assets. All discounts and premiums are amortized on the
effective interest method for tax and financial reporting purposes.
SECURITIES TRANSACTIONS -- Security transactions are accounted for on the
date the securities are purchased or sold. Realized gains and losses on
securities sold are determined using the first-in, first-out (FIFO) cost
method.
DISTRIBUTIONS TO SHAREHOLDERS -- The Funds record distributions to
shareholders on the ex-dividend date. Net gains realized from securities
transactions, if any, would normally be distributed to shareholders in
August and December. The amounts of distributions from net investment
income and net realized capital gains are determined in accordance with
federal income tax regulations, which may differ from those amounts
determined under generally accepted accounting principles. These book/tax
differences are either temporary or permanent in nature. To the extent
these differences are permanent, reclassifications are made in the capital
accounts in the period that the difference arises. The Funds may utilize
earnings and profits distributed to shareholders on redemptions of shares
as part of the dividends paid deduction.
FEDERAL INCOME TAXES -- The Funds intend to comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies,
including the distribution of all of their taxable income and realized
capital gains. Accordingly, no provision for federal income taxes is
considered necessary in the financial statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- 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
amount of assets and
37
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
OPTION WRITING/PURCHASING -- The Emerald Select Banking and Finance Fund
and the Emerald Select Technology Fund may write or purchase financial
options contracts solely for the purpose of hedging their existing
portfolio securities, or securities that the funds intend to purchase,
against fluctuations in fair value caused by changes in prevailing market
interest rates. When the funds write or purchase an option, an amount equal
to the premium received or paid by the funds is recorded as a liability or
an asset and is subsequently adjusted to the current market value of the
option written or purchased. Premiums received or paid from writing or
purchasing options, which expire unexercised, are treated by the funds on
the expiration date as realized gains or losses. The difference between the
premium and the amount paid or received on effecting a closing purchase or
sale transaction, including brokerage commissions, is also treated as a
realized gain or loss. If an option is exercised, the premium paid or
received is added to the cost of the purchase or proceeds from the sale in
determining whether the funds have realized a gain or loss on investment
transactions. The funds as writer of an option, may have no control over
whether the underlying securities may be sold (call) or purchased (put) and
as a result bear the market risk of an unfavorable change in the price of
the security underlying the written option.
SHORT SALES -- The Emerald Select Banking and Finance Fund and the Emerald
Select Technology Fund may sell securities short. Short sales are
transactions in which the funds sell a security they do not own, in
anticipation of a decline in the market value of that security. To complete
such a transaction, the funds must borrow the security to deliver to the
buyer. The funds then are obligated to replace the security borrowed by
purchasing it in the open market at some later date. The funds will incur a
loss if the market price of the security increases between the date of the
short sale and the date on which the funds replace the borrowed security.
The funds will realize a gain if the security declines in value between
those dates. There can be no assurance that securities necessary to cover a
short position will be available for purchase. All short sales must be
fully collateralized. The funds maintain collateral consisting of cash,
U.S. Government securities or other liquid assets in an amount at least
equal to the market value of their respective short positions. The funds
are liable for any dividends payable on securities while those securities
are in a short position.
OTHER -- Certain prior year amounts have been reclassified to conform to
current year presentation.
NOTE 3 -- CAPITAL STOCK
At December 31, 2003, each Fund had an authorized unlimited number of
shares of beneficial interest with no par value.
The follow table summarizes the capital share transactions of each Fund:
38
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
GROWTH FUND
FOR THE PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 JUNE 30, 2003
------------------------ --------------------------
CLASS A CLASS A
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sales ......................... 1,298,990 $ 15,460,392 3,369,304 $ 29,767,827
Reinvested distributions....... -- -- -- --
Redemptions.................... (951,609) (11,349,848) (3,789,010) (33,445,226)
--------- ------------ ---------- ------------
Net increase (decrease)........ 347,381 $ 4,110,544 (419,706) $ (3,677,399)
--------- ============ ---------- ============
SHARES OUTSTANDING:
Beginning of period......... 7,647,180 8,066,886
--------- ----------
End of period............... 7,994,561 7,647,180
========= ==========
FOR THE PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 JUNE 30, 2003
------------------------ --------------------------
CLASS C CLASS C
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
Sales.......................... 342,223 $ 4,037,238 223,373 $ 1,979,685
Reinvested distributions....... -- -- -- --
Redemptions.................... (44,748) (533,904) (79,534) (688,637)
---------- ----------- ---------- ------------
Net increase (decrease)........ 297,475 $ 3,503,334 143,839 $ 1,291,048
---------- =========== ---------- ============
SHARES OUTSTANDING:
Beginning of period......... 489,529 345,690
---------- ----------
End of period............... 787,004 489,529
========== ==========
Total Net Increase (Decrease).. $ 7,613,878 $ (2,386,351)
=========== ============
39
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
SELECT BANKING AND FINANCE FUND
FOR THE PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 JUNE 30, 2003
------------------------ --------------------------
CLASS A CLASS A
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sales.......................... 2,015,675 $ 45,265,894 2,369,609 $ 42,220,507
Reinvested distributions....... 26,278 592,917 32,653 561,072
Redemptions.................... (321,730) (7,123,940) (1,309,520) (22,280,216)
--------- ------------ ---------- ------------
Net increase (decrease)........ 1,720,223 $ 38,734,871 1,092,742 $ 20,501,363
--------- ============ ---------- ============
SHARES OUTSTANDING:
Beginning of period...... 2,995,028 1,902,286
--------- ----------
End of period............ 4,715,251 2,995,028
========= ==========
FOR THE PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 JUNE 30, 2003
----------------------- --------------------------
CLASS C CLASS C
----------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
Sales.......................... 1,340,148 $ 29,712,410 1,095,725 $ 19,616,804
Reinvested distributions....... 11,968 267,327 8,541 145,578
Redemptions.................... (52,309) (1,171,987) (43,826) (743,353)
--------- ------------ ---------- ------------
Net increase (decrease)........ 1,299,807 $ 28,807,750 1,060,440 $ 19,019,029
--------- ============ ---------- ============
SHARES OUTSTANDING:
Beginning of period...... 1,400,962 340,522
--------- ----------
End of period............ 2,700,769 1,400,962
========= ==========
Total Net Increase (Decrease).. $ 67,542,621 $ 39,520,392
============ ============
40
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
SELECT TECHNOLOGY FUND
FOR THE PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 JUNE 30, 2003
------------------------ --------------------------
CLASS A CLASS A
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sales.......................... 65,273 $ 453,765 63,360 $ 306,900
Reinvested distributions....... -- -- -- --
Redemptions.................... (39,682) (278,401) (189,450) (890,405)
---------- ------------ ---------- ------------
Net increase (decrease)........ 25,591 $ 175,364 (126,090) $ (583,505)
---------- ============ ---------- ============
SHARES OUTSTANDING:
Beginning of period...... 456,260 582,350
---------- ----------
End of period............ 481,851 456,260
========== ==========
FOR THE PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 JUNE 30, 2003
------------------------ --------------------------
CLASS C CLASS C
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sales.......................... 22,317 $ 138,971 20,250 $ 83,480
Reinvested distributions....... -- -- -- --
Redemptions.................... (4,920) (33,244) (806) (3,497)
---------- ------------ ---------- ------------
Net increase (decrease)........ 17,397 $ 105,727 19,444 $ 79,983
---------- ============ ---------- ============
SHARES OUTSTANDING:
Beginning of period...... 36,068 16,624
---------- ----------
End of period............ 53,465 36,068
========== ==========
Total Net Increase (Decrease).. $ 281,091 $ (503,522)
============ ============
NOTE 4 -- INVESTMENT TRANSACTIONS
During the six months ended December 31, 2003, purchases and sales of
investment securities (excluding securities sold short, options, and
short-term investments) were as follows:
SELECT BANKING SELECT TECHNOLOGY
GROWTH FUND AND FINANCE FUND FUND
------------- ---------------- -----------------
Purchases..................... $36,024,799 $80,744,135 $1,312,204
Sales......................... 31,604,528 15,896,431 886,349
41
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
At December 31, 2003, the total cost of securities and the net realized
gains and losses on securities sold for Federal income tax purposes are
different from amounts reported for financial reporting purposes generally
due to wash sales which cannot be used for Federal income tax purposes in
the current year and have been deferred for use in future years. The
aggregate gross unrealized appreciation and depreciation for securities
(including short sales) held by the Funds at December 31, 2003, were as
follows:
TAX BASIS NET
COST FOR UNREALIZED TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME APPRECIATION UNREALIZED UNREALIZED
FUND TAX PURPOSES (DEPRECIATION) APPRECIATION DEPRECIATION
- ---- -------------- -------------- ---------------- ---------------
Growth Fund...................... $ 80,894,973 $32,572,701 $34,757,388 $(2,184,687)
Select Banking and Finance Fund.. 147,633,523 37,376,265 37,846,796 (470,531)
Select Technology Fund........... 2,730,657 1,429,051 1,513,606 (84,555)
At June 30, 2003, undistributed ordinary income and long-term capital gains
for tax purposes are as follows:
UNDISTRIBUTED LONG-TERM CAPITAL LOSS POST-OCTOBER
ORDINARY INCOME CAPITAL GAINS CARRYFORWARDS LOSSES
--------------- ------------- ------------- --------------
Growth Fund...................... $ -- -- $10,087,274 $1,287,878
Select Banking and Finance Fund.. 20,232 $588,165 -- --
Select Technology Fund........... -- -- 9,024,907 --
The Growth Fund realized, on a tax basis, post-October losses through June
30, 2003 of $1,287,878, which are not recognized for tax purposes until the
first day of the following fiscal year.
At June 30, 2003, the Growth Fund had accumulated capital loss
carryforwards for Federal income tax purposes of $10,087,274 of which
$617,464 expires in 2010 and $9,469,810 expires in 2011 and the Select
Technology Fund had accumulated capital loss carryforwards for Federal
income tax purposes of $9,024,907 of which $7,175,920 expires in 2010 and
$1,848,987 expires in 2011. To the extent the Funds realize future net
capital gains, those gains will be offset by any unused capital loss
carryforwards. During the year ended June 30, 2003, the Funds utilized no
capital loss carryovers.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal tax
regulations, which may differ from those amounts determined under
accounting principles generally accepted in the United States of America.
These book/tax differences are either temporary or permanent in nature. To
the extent these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate, in the
period that the differences arise. Accordingly, the following permanent
differences as of June 30, 2003, primarily attributable to certain net
operating losses, which for tax purposes are not available to offset future
income, were reclassified to the following accounts:
42
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
UNDISTRIBUTED
NET INVESTMENT
INCOME PAID IN CAPITAL
-------------- ---------------
Growth Fund...................... $863,918 $(863,918)
Select Technology Fund........... 65,373 (65,373)
The tax components of dividends paid during the six months were as follows:
LONG-TERM
ORDINARY INCOME CAPITAL GAINS
--------------- -------------
Growth Fund...................... -- --
Select Banking and Finance Fund.. $20,232 $1,057,014
Select Technology Fund........... -- --
NOTE 5 -- EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser (the "Adviser") to
the Funds for which it receives investment advisory fees from each Fund.
The fee for the Emerald Growth Fund is based on average daily net assets at
the annual rate of 0.75% on assets up to and including $250 million, 0.65%
for assets in excess of $250 million up to and including $500 million,
0.55% for assets in excess of $500 million up to and including $750
million, and 0.45% for assets in excess of $750 million. The fee for the
Emerald Select Banking and Finance Fund and the Emerald Select Technology
Fund is based on average daily net assets at the annual rate of 1.00% on
assets up to and including $100 million and 0.90% for assets in excess of
$100 million. Under the terms of the investment advisory agreement, Emerald
Advisers, Inc., may also waive or reimburse the Funds for certain expenses.
Through October 31, 2004, the Adviser has contractually agreed to waive its
advisory fee and/or reimburse other expenses to the extent that the Fund's
total operating expenses exceeds the following:
CLASS A CLASS C
--------- ---------
Growth Fund.................... 2.25% 2.90%
Select Banking and Finance Fund 2.35% 3.00%
Select Technology Fund......... 2.90% 3.40%
The following table summarizes the advisory fees and expense
waivers/reimbursements for the fiscal year ended December 31, 2003.
ADVISORY FEE/
GROSS OTHER EXPENSES
ADVISORY WAIVED/REIMBURSED
-------- -----------------
Growth Fund........................................ $ 379,819 $ --
Select Banking and Finance Fund.................... 638,977 --
Select Technology Fund............................. 18,027 453
43
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 6 -- OTHER AGREEMENTS
The Emerald Growth, Emerald Select Banking and Finance, and Emerald Select
Technology Funds have adopted distribution plans (the "Plans") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended. Citco
Mutual Fund Distributors, Inc. ("CMFD") is the sole distributor of the
trust shares pursuant to a distribution agreement with each fund. The Plans
provide that the Funds will pay CMFD for services provided and expenses
incurred promoting the sale of shares of the Funds or maintaining or
improving services provided to shareholders by CMFD or dealers. Under the
Class A Plan, the Growth and Select Banking and Finance Funds will
reimburse CMFD at an annual rate up to 0.35% and the Select Technology Fund
will reimburse CMFD at an annual rate up to 0.50%, payable monthly, of the
average net assets attributable to such class of shares. Under the Class C
Plans, the Funds will reimburse CMFD at an annual rate up to 1.00%, payable
monthly, of which, 0.25% is a shareholder service fee and 0.75% is for
distribution-related expenses, of the average daily net assets attributable
to such class of shares. For the six months ended December 31, 2003, the
Funds paid CMFD under the terms of the Plan as follows:
INCURRED EXPENSES FOR INCURRED EXPENSES FOR
SIX MONTHS ENDED SIX MONTHS ENDED
CLASS A DECEMBER 31, 2003 CLASS C DECEMBER 31, 2003
-------- --------------------- ------- ----------------------
Growth Fund...................... 0.35% $ 164,259 1.00% $ 37,113
Select Banking and Finance Fund.. 0.35% 150,820 1.00% 223,386
Select Technology Fund........... 0.50% 8,120 1.00% 1,787
Citco Mutual Fund Services, Inc. serves as transfer agent, administrator
and accounting services agent for the Funds. U.S. Bank,N.A. serves as
custodian for the Funds.
The Funds' Declaration of Trust provides that each Trustee affiliated with
the Funds' Adviser shall serve without compensation and each Trustee who is
not so affiliated shall receive fees from each Fund and expense
reimbursements for each Trustees' meeting attended. A member of the Funds'
Board of Trustees who is not affiliated with the Adviser is employed as a
practicing attorney and is a partner in the law firm of Duane Morris LLP
the Funds' legal counsel. Legal fees aggregating $10,958.31, $13,708.86 and
$418.41 were incurred by the Emerald Growth Fund, the Emerald Select
Banking and Finance Fund and the Emerald Select Technology Fund,
Respectively, to Duane, Morris & Hecksher, LLP during the six months ended
December 31, 2003.
44
- --------------------------------------------------------------------------------
================================================================================
EMERALD MUTUAL FUNDS
--------------------
INVESTMENT ADVISER BOARD OF TRUSTEES
- ------------------------------- --------------------------------------------
EMERALD ADVISERS, INC. J. BARTON HARRISON
LANCASTER, PA RICH MASTERSON
KENNETH G. MERTZ II, CFA
SCOTT C. PENWELL, ESQ.
DISTRIBUTOR H.J. ZOFFER, PHD
- ------------------------------
CITCO MUTUAL FUND DISTRIBUTORS
VALLEY FORGE, PA FUND MANAGEMENT
--------------------------------------------
EMERALD ADVISERS, INC.
ADMINISTRATOR AND 1703 OREGON PIKE, SUITE 101
TRANSFER AGENT P.O. BOX 10666
- ------------------------------- LANCASTER, PA 17605
CITCO MUTUAL FUND SERVICES, INC.
VALLEY FORGE, PA
SHAREHOLDER SERVICES
--------------------------------------------
CITCO MUTUAL FUND SERVICES, INC.
CUSTODIAN P.O. BOX C1100
- ------------------------------- SOUTHEASTERN, PA 19398-1100
U.S. BANK, N.A.
CINCINNATI, OH
TELEPHONE NUMBERS
INDEPENDENT ACCOUNTANTS --------------------------------------------
- ------------------------------- THE FUND (800) 232-0224
PRICEWATERHOUSECOOPERS LLP MARKETING/BROKER SERVICES (800) 232-6572
MILWAUKEE, WI
SHAREHOLDER SERVICES
(800) 232-0224
LEGAL COUNSEL 24 HOUR PRICING INFORMATION
- ------------------------------- --------------------------------------------
DUANE MORRIS LLP 1-800-232-0224
HARRISBURG, PA www.emeraldmutualfunds.com
This report is for the general information of Fund shareholders. For more
detailed information about the Fund, please consult a copy of the Fund's
current prospectus. This report is not authorized for distribution
to prospective investors in the Fund unless preceded
or accompanied by a copy of the current prospectus.
================================================================================
02/04
ITEM 2. CODE OF ETHICS.
Not applicable for Semi-Annual Reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for Semi-Annual Reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for Semi-Annual Reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable at this time.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers or
persons performing similar functions have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are effective
as of a date within 90 days of the filing of this report that includes the
disclosure required by this paragraph, based on the evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act and
15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred
during the registrant's most recent fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 11. EXHIBITS
(a) Exhibit 99.CERT Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 is filed herewith.
(b) Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 is filed herewith.
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)
Emerald Mutual Funds
By (Signature and Title) /s/ Daniel W. Moyer IV
-----------------------------
Daniel W. Moyer IV
President
Date March 9, 2004
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/ Daniel W. Moyer IV
-----------------------------
Daniel W. Moyer IV
President
Date March 9, 2004
By (Signature and Title) /s/ Kenneth G. Mertz
-----------------------------
Kenneth G. Mertz
Treasurer
Date March 9, 2004