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 811-08529
Memorial Funds
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(Exact name of registrant as specified in charter)
6550 Directors Parkway
Abilene, TX 79606
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(Address of principal executive offices) (Zip code)
Carl Clayton Peterson, President
6550 Directors Parkway
Abilene, TX 79606
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(Name and address of agent for service)
Registrant's telephone number, including area code: 888-263-5593
Date of fiscal year end: 12/31/2005
Date of reporting period: 06/30/2005
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.
[LOGO MEMORIAL
FUNDS]
MEMORIAL FUNDS
-------------------
GOVERNMENT BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
SEMI-ANNUAL REPORT
JUNE 30, 2005
Table of Contents
Page
Investment Adviser's Report and Performance Data .......................... 2
Financial Statements of the Memorial Funds
Schedule of Investments:
Government Bond Fund ................................................... 14
Growth Equity Fund ..................................................... 15
Value Equity Fund ...................................................... 17
Statements of Assets and Liabilities ...................................... 19
Statements of Operations .................................................. 20
Statements of Changes in Net Assets ....................................... 21
Financial Highlights ...................................................... 23
Notes to Financial Statements ............................................. 26
Trustees and Officers ..................................................... 32
LETTER FROM THE PRESIDENT
Dear Shareholder:
The semi-annual report for Memorial Funds as of June 30, 2005 is presented here.
This report contains important information about Memorial Funds including the
investment adviser's report covering areas like the performance1 and what
influenced the Fund's performance. The investment approach and the current
investment strategy are discussed for each Fund. The un-audited financial
statements with footnotes and information about the Funds' Trustees and Officers
is included. I encourage you to take time and review this semi-annual report.
During the six months ended June 30, 2005, world and domestic concerns continue
to have an impact on the bond and equity markets. The concerns include higher
oil and commodity prices, higher interest rates, widening trade deficits, a
volatile U.S. dollar and the continued war on terrorism. The U.S. economy
continues its leadership in the world economy; however a slow down in the gross
domestic product has occurred yet while enjoying expanding employment with
subdued inflation.
What have we seen in the first six months of 2005? We have seen many
corporations announce double digit earnings percentage increases, generally
higher than the analysts' forecasts while lowering their guidance on earnings
for the rest of the year. Despite significantly higher commodity prices, with a
barrel of oil trading above $58, and short-term interest rates increasing,
causing a flattening yield curve, we continue to see jobs created yet without
signaling any inflationary pressure. The Federal Reserve continues to increase
the Federal Funds rate and is continuing its "measured pace" of interest rate
increases to battle future inflation. We have seen some interim period market
rallies only to see a sell off and rally once again. Even with all economic
volatility, we have seen the markets continue to move forward through the
volatility with an undaunted spirit of success.
For the remainder of the year, I continue to believe that our economy is strong
and will continue to be the world leader and will lead our equity markets
higher. However, I see a challenge for the bond markets as interest rates
continue to rise. Memorial Funds will continue its commitment to each fund's
investment style by maintaining a disciplined approach regardless of market
fluctuations. I expect myself, all our staff and vendors to work hard for you,
our shareholders.
On another note, if you read the Annual Report for the Memorial Funds dated
December 31, 2004, the labels on the graph for the Government Bond Fund
performance chart are backwards. The numbers in the table are correct. I
apologize for the oversight.
Our pledge is to provide you with a fund family that you can be proud to own as
we strive to help you achieve your investment goals. Thank you for choosing
Memorial Funds.
Sincerely,
/s/ Carl C. Peterson
- --------------------
Carl C. Peterson
President
1 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA
JUNE 30, 2005 (Unaudited)
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MEMORIAL GOVERNMENT BOND FUND
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A Discussion of Fund Performance
How did the Fund perform?
For the six months ended June 30, 2005, the Fund had a total return of 0.89
percent. The Fund's benchmark, the Lehman Brothers U.S. Government Intermediate
Bond Index ("Index"), had a total return of 1.62 percent for the same period.
The Fund's net asset value is $10.24 as of June 30, 2005 versus $10.30 as of
December 31, 2004.
The investment adviser to the Fund has agreed to pay expenses for the Fund in
excess of 1.00 percent of the average daily net assets of the Fund, excluding
taxes, interest, brokerage commissions, other portfolio expenses and
extraordinary expenses incurred by the Fund. An extraordinary legal expense was
incurred during the reporting period causing the expenses for the Fund to be
higher than the current expense cap. Also during this reporting period, adviser
reimbursements were zero; however, the adviser waived a portion of its adviser
fees. Had the adviser not waived a portion of its adviser fees, an adviser
reimbursement would have been made. If the waiver and/or reimbursement had not
been made, the Fund's expenses would have been higher and the Fund's total
return would have been lower.
The investments within the Fund have an average interest coupon rate greater
than that of the Index and an average maturity that is shorter than the Index.
An expectation of reduced market price volatility over time is anticipated with
the investments in the fund having these portfolio characteristics. If higher
interest rates occur, the higher cash flows generated within the Fund for
reinvestment should create an advantage for the Fund versus the Index. For
additional comparison, the Lehman Brothers U.S. Government 1-3 Year Index had a
total return during the same period of 0.94 percent.
What is the Fund's investment approach?
The Fund's goal is to seek a high level of income consistent with maximum credit
protection and moderate fluctuation in principal value. Under normal
circumstances, at least 80 percent of the Fund's portfolio holdings will be
fixed and variable rate U.S. Government securities, including zero coupon bonds
issued or guaranteed by the U.S. Treasury and mortgage-backed securities. The
Fund invests in securities with maturities (or average life in the case of
mortgage-backed and similar securities) ranging from overnight to thirty years.
The Fund seeks to moderate fluctuations in the price of its shares by
structuring maturities of its investment portfolio in order to maintain the
portfolio's duration, a measure of sensitivity to changes in interest rates,
between 75 percent and 125 percent of the duration of the Lehman Brothers U.S.
Government Intermediate Bond Index.
During periods of rising interest rates, we may reduce the duration of the
portfolio by purchasing securities that generate increased cash flow. The cash
flow will be reinvested at the prevailing higher interest rates. If interest
rates are falling or the demand for high quality government securities is
increasing, we may extend the duration of the Fund to take advantage of
available security opportunities. Security opportunities will give consideration
to maintaining the Fund's cash flow characteristics and to take advantage of
their capital appreciation potential.
As of June 30, 2005, the Fund has invested 94.1 percent of its assets in U.S.
Government and Agency securities. The fixed income investments within the Fund
have an average coupon of 4.91 percent, a modified duration of 2.75 years, and
an effective maturity of 3.19 years.
2 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
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What influenced the Fund's performance?
During the first six months of 2005, short to medium term interest rates
increased. The two year part of the U. S. Treasury yield curve ("the yield
curve") increased 54 basis points from 3.09 percent to 3.63 percent. The five
year part of the yield curve increased 8 basis points from 3.62 percent to 3.7
percent. This movement caused the yield curve to flatten, with short term
interest rates increasing faster than the middle and long term interest rates.
This movement explains the impact to both the Fund and the Index. The Fund's
duration is 2.75 years; this is approximately 83 percent of the 3.3 year
duration of the Index. The Fund's shorter duration is expected to reduce
volatility and preserve principle over time. This reduction of risk creates the
expectation of slightly lower returns in a falling interest rate market and
slightly higher returns in a rising interest rate market. During the period,
these expectations were not fully realized due to the flattening of the yield
curve. As the yield curve returns to a more normal position, i.e. lower short
term interest rates and higher long term interest rates, the high cash flow and
shorter duration of the Fund should improve returns when compared to the Index.
Until this happens, the performance of the Fund should be more in line with that
of the Lehman Brothers U.S. Government 1-3 Year Index or the Lehman Brothers
U.S. Government 1-5 Year Index while maintaining its duration constraints.
Also, a large redemption early in the second quarter affected the Fund's
performance during the period. This redemption required the Fund to liquidate
several security positions in order to supplement the cash on hand to fulfill
the redemption request. The redemption eliminated any opportunity for
reinvestment of interest income and bond maturities expected at or near the
redemption period.
What is the Fund's current strategy?
With the prospects for intermediate maturity U.S Treasury bond yields to
increase, the Fund will continue to position its investments to generate a
higher cash flow compared to the Index. Over the last few years, mortgage-backed
securities ("MBS") were positioned to provide high cash flows to allow for
reinvestment at higher interest rates as interest rates increased.
Mortgage-backed securities will continue to be used to provide cash flow;
however, they are not expected to increase in proportion to overall assets. As
of December 31, 2004, the Fund held 30 percent of its investments in
Collateralized Mortgage Obligations ("CMO"), 7 percent in fixed rate MBS paper,
and 4 percent in floating rate MBS paper. During the first part of 2005,
exposure to CMO's was reduced to 15 percent. Exposure to fixed rate MBS paper
and floating rate MBS paper remained consistent at 8 percent and 5 percent,
respectively. In managing the Fund, cash flow continues to be a key factor;
however, final stated maturities have replaced a portion of the expected
principle and interest cash flows. This structure creates a further defined
"laddered" portfolio that is expected to generate cash flows of 12 percent of
the portfolio for each of the next five years and means that 60 percent of the
portfolio is expected to turn over within the next 60 months. This is designed
to lower the volatility of the Fund and improve the overall measure of how the
prices of bonds in the portfolio change in various interest rate environments.
Assets have been invested to provide better diversification by maturity and
asset type in order to bring the Fund more in line with the asset allocation of
the Index. Higher cash flows should enable the Fund to increase its dividend at
a faster rate during a rising interest rate cycle. Floating rate U. S.
Government Agency bond issues have been added to the portfolio to provide
diversification and flexibility.
3 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
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GOVERNMENT BOND FUND (Unaudited)
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FUND PROFILE:
Top Ten Portfolio Holdings
(% of Net Assets)
-----------------
FHLMC, Series 15 L, 7.00%, 07/25/2023 3.83%
FHLMC, 7.00%, 03/15/2010 3.18%
U.S. Treasury Note,5.75%,08/15/2010 3.08%
U.S. Treasury Note,6.00%,08/15/2009 3.06%
FNMA, Pool 386008, 4.52%, 04/01/2013 3.05%
U.S. Treasury Note,5.625%, 05/15/2008 2.96%
U.S. Treasury Note,6.125%, 08/15/2007 2.96%
U.S. Treasury Note,6.25%,02/15/2007 2.93%
U.S. Treasury Note,7.00%,07/15/2006 2.91%
GNMA, Series 2003-81, 6.00%, 03/20/2029 2.91%
------
30.87%
======
Portfolio Industries
(% of Net Assets)
-----------------
Government Agency Bonds 43.49%
Mortgage Backed Securities 29.70%
U.S. Treasury Obligations 20.94%
Corporate Bonds 2.73%
Money Market Funds 0.42%
Other Assets in Excess of Liabilities 2.72%
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100.00%
=======
Bond Payment Class Type with
Cash and Other Assets
(% of Net Assets)
-----------------
Non-Callable Bonds 46.60%
Callable Bonds 14.00%
Planned Amortization Class Bonds 12.36%
Mortgage Backed Bonds/Pooled 7.71%
Floating Rate Bonds 6.98%
Adjustable Rate Mortgage Bonds 4.62%
Structured Pass-Through Bonds 4.59%
Other Assets in Excess of Liabilities 2.72%
Money Market Funds 0.42%
-------
100.00%
=======
4 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
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GOVERNMENT BOND FUND (Unaudited)
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EXPENSE EXAMPLE:
As a shareholder of the Government Bond Fund, you incur two types of costs:
direct costs, such as wire fees and low balance fees; and indirect costs,
including management fees, and other Fund operating expenses. This example is
intended to help you understand your indirect costs, also referred to as
"ongoing costs," (in dollars) of investing in the Fund, and to compare these
costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of January 1, 2005, through
June 30, 2005.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading "Expenses
Paid During Period" to estimate the expenses you paid on your account during
this period.
Hypothetical example for comparison purposes
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare ongoing costs of investing in the Fund
and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees or low
balance fees. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these direct costs were included, your
costs would be higher.
Expenses Paid
During Period*
Beginning Ending January 1, 2005
Account Value Account Value Through
January 1, 2005 June 30, 2005 June 30, 2005
---------------------------------------------------
Actual $ 1,000.00 $ 1008.90 $ 5.10
Hypothetical
(5% return before expenses) 1,000.00 1,019.88 5.13
* Expenses are equal to the Fund's annualized expense ratio of 1.02%, which
is net of any expenses paid indirectly, multiplied by the average account
value over the period, multiplied by 181 days/365 days (to reflect the
one-half year period). The Fund's ending account value on the first line
in the table is based on its actual total return of 0.89% for the
six-month period of January 1, 2005, to June 30, 2005.
5 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
MEMORIAL GROWTH EQUITY FUND
- ---------------------------
A Discussion of Fund Performance
How did the Fund perform?
For the six months ended June 30, 2005, the Fund had a total return of negative
2.17 percent. The S&P 500 Index and the Russell 1000 Growth Index, the Fund's
two benchmarks, had total returns of negative 0.81 percent and negative 1.72
percent, respectively, for the same period. The Fund's net asset value as of
June 30, 2005 is $7.52 versus $7.69 at December 31, 2004.
The investment adviser to the Fund has agreed to pay expenses for the Fund in
excess of 1.25 percent of the average daily net assets of the Fund, excluding
taxes, interest, brokerage commissions, other portfolio expenses and
extraordinary expenses incurred by the Fund. During the period, an extraordinary
legal expense was incurred during the reporting period causing the expenses for
the Fund to be higher than the current expense cap. Also during this reporting
period, adviser reimbursements and adviser fee waivers were made. If the
reimbursements and waivers had not been made, the Fund's expenses would have
been higher and the Fund's total return would have been lower.
What is the Fund's investment approach?
The Fund's goal is to obtain long-term capital appreciation. The Fund uses a
"growth investing" style by investing under normal circumstances at least 80
percent of its assets in common stock of domestic companies believed to have
superior growth potential and fundamental characteristics that are significantly
better than the market average and which support internal earnings growth
capability. Growth stocks are broadly defined as equities which have a
price-to-earnings ratio and a price-to-book ratio greater than the relative
market average with dividends tending to be lower than the relative market
average. Also, growth stocks tend to have a beta (a measure of the stocks price
volatility relative to the overall market, i.e. the S&P 500) greater than 1.0.
The Fund only invests in companies that have a minimum market capitalization of
$250 million at the time of purchase, and seeks to maintain a minimum average
weighted market capitalization of $5 billion.
Other characteristics of the Fund's investment approach are to emphasize high
quality growth within the companies chosen for inclusion in the Fund's
portfolio. Also, diversification of the portfolio holdings is maintained to
control portfolio risk by taking a generalist approach rather than a focus on
industry specialization.
What influenced the Fund's performance?
During the six months ended June 30, 2005, the Fund continued to be affected by
world and domestic concerns including higher oil and commodity prices, higher
interest rates, widening trade deficits, a weak U.S. dollar and the continued
war on terrorism.
In the first quarter of 2005, the equity markets continued to digest inflation
fears, higher energy prices and lower corporate earnings guidance. The Energy
sector of the S&P 500 Index was the leading sector on higher expectations for
energy prices in 2005 due to the increase in the price of a barrel of oil to
$58. The Utility and Materials sectors were the next strongest sectors in the
S&P 500 Index. These two sectors were the best performing sectors of the Russell
1000 Growth Index. Lowered earnings expectations and fears of rising interest
rates caused the Telecommunication, Information
6 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Technology and Financial sectors of the S&P 500 to be the worst performers in
the quarter. The two worst performing sectors of the Russell 1000 Growth Index
were the Information Technology and Financial sectors with Ebay and American
International Group down 35 percent and 20 percent, respectively.
The Fund's portfolio underperformed the S&P 500 Index in the first quarter of
2005. The Fund's portfolio was negatively impacted by being underweight in
Energy and Utilities. Also, an overweight position in the Information Technology
sector negatively impacted performance. However, the portfolio benefited from an
underweight position in the Financials sector and also from strong performances
in the portfolio holdings in the Consumer Discretionary, Industrial and
Materials sectors.
The Fund's portfolio outperformed the Russell 1000 Growth Index in the first
quarter of 2005. The Fund's portfolio outperformance was driven largely by stock
selection across multiple economic sectors including Consumer Discretionary,
Financials, Industrials and Materials. The portfolio benefited from an
overweight position in Energy relative to the Russell 1000 Growth Index. Also,
the portfolio benefited from an underweight position in the poorly performing
Information Technology sector as compared to the Russell 1000 Growth Index.
During the first quarter, Adobe Systems, J.C. Penney and Manor Care were added
to the portfolio while Apollo Group, Doral Financial and Wal-Mart Stores were
removed.
In the second quarter of 2005, interest rate sensitive stocks rallied on the
outlook for interest rates with the Utility, Financial and Healthcare sectors
being the best performing sectors of the S&P 500 Index. For the Russell 1000
Growth Index, the Telecommunication and Energy sectors were the best performers
in the index with other sectors such as the Health Care and Financials being
strong performers during the period. Within the S&P 500 Index, Materials and
Industrial sectors were the worst performing sectors during the quarter. The
weakest sectors within the Russell 1000 Growth Index were the Materials,
Utilities and Industrials.
The Fund's portfolio underperformed slightly in the second quarter when compared
to the S&P 500 Index. Overall, stock selection was a positive factor as the
portfolio benefited from strong relative performance from stock holdings in the
Consumer Discretionary, Consumer Staples, Health Care and Telecommunications.
The portfolio was overweight in the Health Care stocks which benefited the
portfolio relative to the S&P 500 Index. The portfolio was negatively impacted
during the quarter by being underweight in the Financial and Utility sectors
relative to the S&P 500 Index.
The Fund's portfolio underperformed in the second quarter when compared to the
Russell 1000 Growth Index. Within the Health Care sector, performance was
negatively impacted by a strong rally in the biotechnology component of the
index. Following strong performance in recent periods, the portfolio holdings of
Adobe Systems and Rockwell Automation came under pressure during the quarter.
Adobe was affected by the announced acquisition of Macromedia and Rockwell due
to softness in the March quarterly results. On the last day of the quarter, the
portfolio's largest Financial holding, Bank of America, announced the
acquisition of MBNA. Arbitrage players caused the stock to sell off which
impacted the relative performance in the quarter.
What is the Fund's strategy?
The Fund will continue to concentrate on high quality, large name brand
corporations with broad diversification and which exhibit good "growth style"
fundamentals. The Fund's adviser will continue to be disciplined in its
methodologies for stock selection and will monitor the economy and the markets
to identify those equities which identify themselves as good growth prospects
for the portfolio.
7 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND (Unaudited)
- ------------------------------
FUND PROFILE:
Top Ten Portfolio Holdings
(% of Net Assets)
-----------------
General Electric Co. 4.09%
Johnson & Johnson 3.93%
Bank of America Corp. 3.88%
Procter & Gamble Co. 3.61%
Wyeth 3.11%
Microsoft Corp. 3.02%
Dell, Inc. 3.01%
CVS Corp. 2.97%
PepsiCo, Inc. 2.95%
Lockheed Martin Corp. 2.67%
------
33.24%
======
Top Ten Portfolio Industries
(% of Net Assets)
-----------------
Retail 12.91%
Healthcare - Products 9.12%
Telecommunications 5.94%
Semiconductors 5.43%
Computer Software & Services 5.38%
Miscellaneous Manufacturing 5.24%
Pharmaceuticals 5.23%
Electronics 3.90%
Banks 3.88%
Cosmetics & Toiletries 3.61%
------
60.64%
======
Economic Sectors with Cash and Other Liabilities
(% of Net Assets)
-----------------
Information Technology 22.25%
Health Care 20.35%
Industrials 13.44%
Consumer Staples 12.54%
Consumer Discretionary 11.84%
Financials 8.31%
Energy 5.00%
Cash 3.37%
Telecommunication Services 2.19%
Materials 1.62%
Utilities 0.00%
Other Liabilities (0.90)%
-------
100.00%
=======
8 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND (Unaudited)
EXPENSE EXAMPLE:
As a shareholder of the Growth Equity Fund, you incur two types of costs: direct
costs, such as wire fees and low balance fees; and indirect costs, including
management fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs,"
(in dollars) of investing in the Fund, and to compare these costs with the
ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of January 1, 2005, through
June 30, 2005.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading "Expenses
Paid During Period" to estimate the expenses you paid on your account during
this period.
Hypothetical example for comparison purposes
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare ongoing costs of investing in the Fund
and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees or low
balance fees. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these direct costs were included, your
costs would be higher.
Expenses Paid
During Period*
Beginning Ending January 1, 2005
Account Value Account Value Through
January 1, 2005 June 30, 2005 June 30, 2005
---------------------------------------------------
Actual $ 1,000.00 $ 978.30 $ 6.25
Hypothetical
(5% return before expenses) 1,000.00 1,018.62 6.38
* Expenses are equal to the Fund's annualized expense ratio of 1.28%, which
is net of any expenses paid indirectly, multiplied by the average account
value over the period, multiplied by 181 days/365 days (to reflect the
one-half year period). The Fund's ending account value on the first line
in the table is based on its actual total return of (2.17)% for the
six-month period of January 1, 2005, to June 30, 2005.
9 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
MEMORIAL VALUE EQUITY FUND
- --------------------------
A Discussion of Fund Performance
How did the Fund perform?
For the six months ended June 30, 2005, the Fund had a total return of negative
2.77 percent. The S&P 500/Barra Value Index, the S&P 500 Index and the Russell
1000 Value Index had total returns of 0.09 percent, negative 0.81 percent and
1.76 percent, respectively for the same period. The Fund's net asset value per
share as of June 30, 2005 is $13.09 versus $13.51 at December 31, 2004.
The investment adviser to the Fund has agreed to pay expenses for the Fund in
excess of 1.25 percent of the average daily net assets of the Fund, excluding
taxes, interest, brokerage commissions, other portfolio expenses and
extraordinary expenses incurred by the Fund. During the period, an extraordinary
legal expense was incurred during the reporting period causing the expenses for
the Fund to be higher than the current expense cap. Also during this reporting
period, adviser reimbursements and adviser fee waivers were made. If the
reimbursements and waivers had not been made, the Fund's expenses would have
been higher and the Fund's total return would have been lower.
What is the Fund's investment approach?
The Fund's investment goal is to obtain long-term capital appreciation. The Fund
uses a "value investing" style by investing under normal circumstances at least
80 percent of its assets in common stock of domestic companies believed to be
under-priced relative to comparable securities determined by price-to-earnings
ratios, cash flows or other measures. Value stocks are broadly defined as
equities which have a price-to-earnings ratio and a price-to-book ratio less
than the relative market average with dividends tending to be higher than the
relative market average. Also, value stocks tend to have a beta (a measure of
the stocks price volatility relative to the overall market, i.e. the S&P 500)
less than 1.0. The Fund's adviser relies on a reversion-to-the-mean strategy on
stock selection in order to achieve its results, rather than trying to time
market fluctuations. The adviser limits the pool of stocks to consider for
purchase to only those equities in the S&P 500 Index. In selecting stocks, the
Fund's adviser establishes valuation parameters by using relative ratios or
target prices to evaluate companies on several levels. Additionally, the adviser
will have the Fund hold between 40 and 60 equities and diversify its holdings
across numerous industries, generally limiting issues in any one industry to
five securities or less. The Fund seeks to maintain a minimum average weighted
market capitalization of $5 billion.
What influenced the Fund's performance?
In the first quarter of 2005, impacting the equity markets were the continuing
concerns over rising interest rates, rising oil and commodity prices, widening
trade deficits and lower earnings forecasts for the year by corporations. The
three most significant items affecting stock prices during the quarter were
first, in the months of February and March, the Federal Reserve continued its
attack against inflation by raising the Federal Funds rate 50 basis points
(0.50%); second, the price of oil rose to $58 a barrel; and third, a high single
digit earnings growth rate forecast compared to the double digit numbers
achieved by corporations last year.
10 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Fund outperformed the S&P 500 Index during the quarter. During the quarter,
the best performing sectors for S&P 500 Index were Energy, Utilities and
Materials while the worst performing sectors were Telecommunications,
Information Technology and Financials. The Fund was positively impacted versus
the Index by being underweight in the three worst performing sectors mentioned
above and being over- weight in the Materials sector; however, performance was
held back due to a zero exposure to the Energy sector and an underweight
position in the Utility sector.
Also, contributing to the portfolio's performance was the negative news and
concerns with the domestic auto industry and its suppliers such as Delphi, which
was sold during the period. Ford Motor Company and General Motors Corporation
stock values are down 11.8 percent and 21.2 percent, respectively. Other
holdings declining significantly during the period were Federal National
Mortgage Corporation, American International Group and Fifth Third Bancorp.
Positive contributors to the portfolio's performance during the period were HCA,
KB Home and Dominion Resources.
Under the reversion-to-the-mean investment strategy using "value investing"
measures, the Fund experienced several industry groups achieving sell targets
with new industry groups appearing as the next reversion candidates. During the
quarter the Fund sold holdings in the Retail industry, the Semi-conductor
industry and Banking industry. Also, the Fund added to its overall holdings by
averaging into multiple holdings and adding new equities in the Consumer
Discretionary sector, the Financial sector and the Telecom-Services sector.
In the second quarter of 2005, the Fund underperformed the S&P 500 Index. More
specifically, the underperformance has been a result of increasing values within
the Energy & Utility sectors. These sectors have been the best performing
sectors due to increasing oil and gas prices and stable intermediate and long
term interest rates. The Fund does not have any investment in the Energy or
Utility sectors, as our model classifies these stocks as growth in the current
environment. Also, the fund continued to reduce its exposure to the Automotive
industry eliminating General Motors Corp. from the portfolio and decreased its
holdings of Ford. Other equity positions were reduced as well due to economic
and market conditions affecting their respective areas. These reductions in
holdings included Fannie Mae, Merck and Pactiv Corp. Other reductions in the
portfolio were related to the reversion-to-the-mean process such as disposal of
KB Home, Amgen and Intel Corp.
New securities positions added during the quarter included companies such as
Avon Products, Anheuser-Busch Co, International Business Machines, Lexmark
International, Ebay, Harley-Davidson, 3M and United Parcel Service.
What is the Fund's strategy?
The Fund will continue to concentrate on equities contained in the S&P 500 Index
which generally consist of large name brand corporations with good fundamentals
and broad product diversification. The Fund's adviser will continue to be
disciplined in the use of its reversion-to-the-mean strategy by applying its
"value investing" approach valuation model; thereby, allowing the market's
volatility to identify those securities that become under-valued and are poised
to be the next performers in the market.
11 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
VALUE EQUITY FUND (Unaudited)
- -----------------------------
FUND PROFILE:
Top Ten Portfolio Holdings
(% of Net Assets)
-----------------
American International Group, Inc. 2.97%
Coca-Cola Enterprises, Inc. 2.97%
Wal-Mart Stores, Inc. 2.96%
Clear Channel Communications, Inc. 2.92%
Albertson's, Inc. 2.89%
Colgate-Palmolive Co. 2.86%
Applied Materials, Inc. 2.80%
HCA, Inc. 2.74%
Tribune Co. 2.74%
Alcoa, Inc. 2.72%
------
28.57%
======
Top Ten Portfolio Industries
(% of Net Assets)
-----------------
Media 8.32%
Pharmaceuticals 7.39%
Beverages 7.23%
Food 7.01%
Banks 5.93%
Insurance 5.55%
Cosmetics/Personal Care 5.49%
Diversified Financial Services 4.45%
Computers 4.15%
Miscellaneous Manufacturing 3.62%
------
59.14%
======
Economic Sectors with Cash and Other Assets
(% of Net Assets)
-----------------
Consumer Staples 22.70%
Consumer Discretionary 18.11%
Financials 15.29%
Health Care 14.74%
Industrials 10.59%
Information Technology 9.09%
Materials 5.76%
Telecommunication Services 2.51%
Cash 1.00%
Other Assets 0.21%
Energy 0.00%
Utilities 0.00%
-------
100.00%
=======
12 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
VALUE EQUITY FUND (Unaudited)
- -----------------------------
EXPENSE EXAMPLE:
As a shareholder of the Value Equity Fund, you incur two types of costs: direct
costs, such as wire fees and low balance fees; and indirect costs, including
management fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs,"
(in dollars) of investing in the Fund, and to compare these costs with the
ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of January 1, 2005, through
June 30, 2005.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading "Expenses
Paid During Period" to estimate the expenses you paid on your account during
this period.
Hypothetical example for comparison purposes
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare ongoing costs of investing in the Fund
and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees or low
balance fees. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these direct costs were included, your
costs would be higher.
Expenses Paid
During Period*
Beginning Ending January 1, 2005
Account Value Account Value Through
January 1, 2005 June 30, 2005 June 30, 2005
-------------------------------------------------------
Actual $ 1,000.00 $ 972.30 $ 6.24
Hypothetical
(5% return before expenses) 1,000.00 1,018.62 6.38
* Expenses are equal to the Fund's annualized expense ratio of 1.28%, which
is net of any expenses paid indirectly, multiplied by the average account
value over the period, multiplied by 181 days/365 days (to reflect the
one-half year period). The Fund's ending account value on the first line
in the table is based on its actual total return of (2.77)% for the
six-month period of January 1, 2005, to June 30, 2005.
13 Memorial Funds
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS - 2.73%
Diversified Financial Services - 2.73%
BNP PARIBAS US MTN LLC
1,000,000 4.00%, 01/19/2017 $ 970,000
-----------
TOTAL CORPORATE BONDS (Cost $995,000) 970,000
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 94.14%
FFCB - 8.34%
1,000,000 3.65%, 12/17/2008 991,073
1,000,000 3.00%, 12/15/2006 988,306
1,000,000 3.50%, 04/15/2009 984,554
-----------
2,963,933
-----------
FHLB - 15.61%
500,000 4.00%, 08/30/2007 497,701
1,000,000 2.98%, 02/22/2007 996,918
750,000 3.375%, 12/28/2007 741,439
500,000 3.26%, 05/04/2007 499,594
1,000,000 4.00%, 11/13/2009 998,829
1,000,000 4.875%, 11/15/2006 1,013,126
700,000 6.00%, 02/12/2016 797,802
-----------
5,545,409
-----------
FHLMC - 17.82%
1,000,000 3.50%, 09/15/2007 993,859
1,000,000 4.75%, 12/08/2010 998,402
1,000,000 7.00%, 03/15/2010 1,127,866
500,000 7.00%, 07/15/2005 500,664
500,000 4.375%, 07/30/2009 499,541
856,181 Series H007, 2.491%, 02/25/2008 848,734
1,292,793 Series 15 L, 7.00%, 07/25/2023 1,359,581
-----------
6,328,647
-----------
FNMA - 21.02%
1,000,000 3.75%, 09/15/2008 991,247
901,051 Series 2005-3, 4.40%, 12/25/2012 906,401
250,000 4.85%, 05/21/2013 250,078
620,283 Series 1994-17, 6.00%, 02/25/2009 634,484
1,000,000 6.00%, 12/15/2005 1,010,762
877,423 Pool 545759, 6.50%, 07/01/2032 909,574
500,000 7.25%, 01/15/2010 566,971
727,691 Pool 725482, 4.487%, 04/01/2034 728,309
373,889 Pool 754289, 6.00%, 11/01/2033 383,463
1,100,000 Pool 386008, 4.52%, 04/01/2013 1,083,525
-----------
7,464,814
-----------
GNMA - 10.40%
354,451 Pool 476998, 6.50%, 07/25/2029 370,779
918,429 Pool 81113, 4.50%, 10/20/2034 915,509
681,460 Series 2003-98, 4.00%, 02/20/2029 672,319
693,494 Series 2003-76, 4.25%, 02/20/2032 688,338
1,000,000 Series 2003-81, 6.00%, 03/20/2029 1,046,397
-----------
3,693,342
-----------
U.S. Treasury Note/Bond - 20.95%
500,000 5.50%, 02/15/2008 523,144
1,000,000 5.625%, 05/15/2008 1,052,734
1,000,000 5.75%, 08/15/2010 1,092,930
1,000,000 6.00%, 08/15/2009 1,086,523
1,000,000 6.125%, 08/15/2007 1,050,234
1,000,000 6.25%, 02/15/2007 1,041,719
500,000 6.50%, 02/15/2010 557,989
1,000,000 7.00%, 07/15/2006 1,034,648
-----------
7,439,921
-----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $33,603,145) $33,436,066
===========
Shares Value
------ -----
SHORT TERM INVESTMENTS- 0.42%
Money Market Funds - 0.42%
149,486 Merrimac Treasury Plus Series Fund $ 149,486
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $149,486) $ 149,486
-----------
Total Investments (Cost $34,747,631) - 97.29% $34,555,552
Other Assets in Excess of Liabilities, Net 2.71% 966,379
-----------
TOTAL NET ASSETS - 100.00% $35,521,931
===========
The following information for the Funds is presented on an income tax basis as
of June 30, 2005:
Gross Unrealized Gross Unrealized Net Unrealized
Cost of Investments Appreciation Depreciation Depreciation
---------------------------------------------------------------------------------------
Memorial Government Bond Fund $34,758,604 $62,734 ($265,786) ($203,052)
The difference between cost amounts for financial statement and federal income
tax purposes is due primarily to timing differences in recognizing certain gains
and losses on security transactions.
Percentages are stated as a percent of net assets.
The accompanying notes are an integral part of the financial statements
14 Memorial Funds
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 97.53%
Advertising - 1.57%
3,350 Getty Images, Inc. (a) $ 248,771
-----------
Aerospace/Defense - 2.67%
6,550 Lockheed Martin Corp. 424,898
-----------
Banks - 3.88%
13,525 Bank of America Corp. 616,875
-----------
Biotechnology - 2.12%
5,600 Genzyme Corp. (a) 336,504
-----------
Chemicals - 1.62%
6,000 E.I. Du Pont De Nemours & Co. 258,060
-----------
Coal - 1.23%
5,200 Massey Energy Co. 196,144
-----------
Computer Software & Services - 5.38%
4,090 Cognos, Inc. (a) 139,633
19,325 Microsoft Corp. 480,033
6,700 NCR Corp. (a) 235,304
-----------
854,970
-----------
Computers - 3.01%
12,100 Dell, Inc. (a) 478,071
-----------
Cosmetics & Toiletries - 3.61%
10,875 Procter & Gamble Co. 573,656
-----------
Diversified Financial Services - 3.44%
4,100 Countrywide Financial Corp. 158,301
5,050 Franklin Resources, Inc. 388,749
-----------
547,050
-----------
Electrical Components & Equipment - 1.17%
2,975 Emerson Electric Co. 186,324
-----------
Electronics - 3.90%
5,250 Fisher Scientific International, Inc. (a) 340,725
9,100 Jabil Circuit, Inc. (a) 279,643
-----------
620,368
-----------
Financial Data Processing Services - 0.98%
4,800 Paychex, Inc. 156,192
-----------
Food - 1.21%
1,625 Whole Foods Market, Inc. 192,238
-----------
Food & Beverages - 2.95%
8,700 PepsiCo, Inc. 469,191
-----------
Healthcare - Products - 9.12%
4,800 C R Bard, Inc. 319,248
9,610 Johnson & Johnson 624,650
5,950 St. Jude Medical, Inc. (a) 259,479
6,600 Varian Medical Systems, Inc. (a) 246,378
-----------
1,449,755
-----------
Healthcare - Services - 1.74%
6,975 Manor Care, Inc. 277,117
-----------
Insurance - 0.99%
2,100 The Hartford Financial Services Group, Inc. 157,038
-----------
Lodging - 1.81%
4,225 Marriott International, Inc. 288,230
-----------
Machinery - Diversified - 1.56%
5,100 Rockwell Automation 248,421
-----------
Media - 1.88%
6,750 Mcgraw-Hill Companies, Inc. 298,688
-----------
Miscellaneous Manufacturing - 5.24%
3,475 Danaher Corp. 181,881
18,770 General Electric Co. 650,381
-----------
832,262
-----------
The accompanying notes are an integral part of the financial statements
15 Memorial Funds
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Oil & Gas - 2.95%
5,250 Exxon Mobil Corp. $ 301,718
6,000 Patterson-Uti Energy, Inc. 166,980
-----------
468,698
-----------
Oil & Gas Services - 2.05%
4,300 Schlumberger Ltd. 326,542
-----------
Pharmaceuticals - 5.23%
6,875 Abbott Laboratories 336,944
11,100 Wyeth 493,950
-----------
830,894
-----------
Retail - 12.91%
5,262 Cheesecake Factory, Inc. (a) 182,749
6,375 Costco Wholesale Corp. 285,727
16,250 CVS Corp. 472,388
3,000 JC Penney Company, Inc. 157,740
3,100 Petsmart, Inc. 94,085
11,250 Staples, Inc. 239,850
3,225 Starbucks Corp. (a) 166,604
4,700 Target Corp. 255,727
3,500 Urban Outfitters, Inc. (a) 198,415
-----------
2,053,285
-----------
Semiconductors - 5.43%
15,725 Intel Corp. 409,793
6,425 Microchip Technology, Inc. 190,308
9,350 Texas Instruments, Inc. 262,455
-----------
862,556
-----------
Software - 1.94%
10,800 Adobe Systems, Inc. 309,096
-----------
Telecommunications - 5.94%
12,975 Cisco Systems, Inc. (a) 247,952
8,800 Motorola, Inc. 160,688
5,725 Qualcomm, Inc. 188,982
13,850 Sprint Corp. 347,497
-----------
945,119
-----------
TOTAL COMMON STOCKS (Cost $14,290,482) $15,507,013
-----------
SHORT TERM INVESTMENTS - 3.37%
Money Market Funds - 3.37%
535,630 Merrimac US Government Series Fund $ 535,630
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $535,630) $ 535,630
-----------
Total Investments (Cost $14,826,112) - 100.90% $16,042,643
-----------
Liabilities in Excess of Other Assets, Net (0.90)% (142,623)
-----------
TOTAL NET ASSETS - 100.00% $15,900,020
===========
The following information for the Funds is presented on an income tax basis as
of June 30, 2005:
Gross Unrealized Gross Unrealized Net Unrealized
Cost of Investments Appreciation Depreciation Appreciation
------------------------------------------------------------------------------
Memorial Growth Equity Fund $14,959,154 $1,450,468 ($366,979) $1,083,489
The difference between cost amounts for financial statement and federal income
tax purposes is due primarily to timing differences in recognizing certain gains
and losses on security transactions.
(a) Non-income producing security
The accompanying notes are an integral part of the financial statements
16 Memorial Funds
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 98.79%
Airlines - 1.69%
9,725 Southwest Airlines Co. $ 135,469
----------
Apparel - 2.06%
3,950 Reebok International Ltd. 165,229
----------
Auto Manufacturers - 1.71%
13,339 Ford Motor Co. 136,591
----------
Banks - 5.93%
3,356 Bank of America Corp. 153,067
5,186 Bank of New York Company, Inc. 149,253
4,179 Fifth Third Bancorp 172,217
----------
474,537
----------
Beverages - 7.23%
4,257 Anheuser-Busch Companies, Inc. 194,758
10,801 Coca-Cola Enterprises, Inc. 237,730
3,498 Coca-Cola Co. 146,041
----------
578,529
----------
Chemicals - 1.27%
1,613 PPG Industries, Inc. 101,232
----------
Computers - 4.15%
2,261 International Business Machines
Corp. (IBM) 167,766
2,531 Lexmark International, Inc. (a) 164,085
----------
331,851
----------
Cosmetics/Personal Care - 5.49%
5,569 Avon Products, Inc. 210,787
4,588 Colgate-Palmolive Co. 228,987
----------
439,774
----------
Diversified Financial Services - 4.45%
3,045 Fannie Mae 177,828
5,044 JPMorgan Chase & Co. 178,154
----------
355,982
----------
Food - 7.01%
11,205 Albertson's, Inc. 231,719
3,178 General Mills, Inc. 148,699
9,137 Sara Lee Corp. 181,004
----------
561,422
----------
Healthcare - Products - 2.04%
3,149 Medtronic, Inc. 163,087
----------
Healthcare - Services - 2.74%
3,870 HCA, Inc. 219,313
----------
Household Products/Wares - 2.24%
3,378 Avery Dennison Corp. 178,899
----------
Housewares - 2.56%
8,597 Newell Rubbermaid, Inc. 204,952
----------
Insurance - 5.55%
4,094 American International Group, Inc. 237,861
1,927 Cigna Corp. 206,247
----------
444,108
----------
Internet - 1.65%
4,005 EBay, Inc. (a) 132,205
----------
Leisure Time - 1.81%
2,918 Harley Davidson, Inc. 144,733
----------
Media - 8.32%
7,553 Clear Channel Communications, Inc. 233,614
6,230 Tribune Co. 219,172
6,661 Viacom, Inc. 213,285
----------
666,071
----------
Mining - 2.72%
8,340 Alcoa, Inc. 217,924
----------
The accompanying notes are an integral part of the financial statements
17 Memorial Funds
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Miscellaneous Manufacturing - 3.62%
2,024 3M Co. $ 146,335
4,149 General Electric Co. 143,763
----------
290,098
----------
Packaging & Containers - 1.77%
5,352 Bemis Company, Inc. 142,042
----------
Pharmaceuticals - 7.39%
7,536 Bristol Myers Squibb Co. 188,249
6,688 Merck & Company, Inc. 205,991
6,672 Watson Pharmaceuticals, Inc. (a) 197,224
----------
591,464
----------
Retail - 2.96%
4,919 Wal-Mart Stores, Inc. 237,096
----------
Savings & Loans - 1.94%
3,815 Washington Mutual, Inc. 155,232
----------
Semiconductors - 2.80%
13,873 Applied Materials, Inc. 224,465
----------
Software - 2.14%
3,800 Intuit, Inc. (a) 171,418
----------
Telecommunications - 2.51%
7,555 Bellsouth Corp. 200,736
----------
Transportation - 3.04%
3,700 CSX Corp. 157,842
1,235 United Parcel Service, Inc. 85,413
----------
243,255
----------
TOTAL COMMON STOCKS (Cost $7,809,491) $7,907,714
----------
SHORT TERM INVESTMENTS - 1.00%
Money Market Funds - 1.00%
80,318 Merrimac US Government Series Fund $ 80,318
----------
TOTAL SHORT TERM INVESTMENTS
(Cost $80,318) $ 80,318
----------
Total Investments (Cost $7,889,809) - 99.79% $7,988,032
----------
Other Assets in Excess of Liabilities, Net 0.21% 16,935
----------
TOTAL NET ASSETS - 100.00% $8,004,967
==========
The following information for the Funds is presented on an income tax basis as
of June 30, 2005:
Gross Unrealized Gross Unrealized Net Unrealized
Cost of Investments Appreciation Depreciation Appreciation
---------------------------------------------------------------------------------
Memorial Value Equity Fund $7,924,984 $381,065 ($318,017) $63,048
The difference between cost amounts for financial statement and federal income
tax purposes is due primarily to timing differences in recognizing certain gains
and losses on security transactions.
(a) Non-income producing security
The accompanying notes are an integral part of the financial statements
18 Memorial Funds
- -----------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2005 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
Government Growth Value
Bond Fund Equity Fund Equity Fund
------------ ------------ ------------
ASSETS
Investments in securities at market value (cost
$34,747,631, $14,826,112 and $7,889,809, respectively) $ 34,555,552 $ 16,042,643 $ 7,988,032
Cash 639,557 -- --
Collateral for securities loaned (Note 6) 2,222,500 2,775,595 246,510
Receivables:
Dividends and interest 344,826 7,781 12,741
Due from Adviser -- 1,998 201
Fund shares sold -- 15,764 --
Prepaid expenses 19,299 18,780 19,096
------------ ------------ ------------
Total assets 37,781,734 18,862,561 8,266,580
------------ ------------ ------------
LIABILITIES
Payables for:
Administration fees (accounting, distribution & transfer agent) 8,643 3,901 1,860
Collateral for securities loaned (Note 6) 2,222,500 2,775,595 246,510
Distribution payable 4,054 -- 2,064
Due to Adviser 1,064 3,958 --
Fund shares purchased 28 69 67
Investment securities purchased -- 158,240 --
Accrued expenses and other liabilities 23,514 20,778 11,112
------------ ------------ ------------
Total liabilities 2,259,803 2,962,541 261,613
------------ ------------ ------------
NET ASSETS $ 35,521,931 $ 15,900,020 $ 8,004,967
============ ============ ============
NET ASSETS CONSIST OF:
Additional paid-in capital $ 36,403,462 $ 19,920,406 $ 8,348,978
Accumulated undistributed net investment income/(loss) 2,511 (2,431) --
Accumulated net realized gain/(loss) on investments (691,963) (5,234,486) (442,234)
Net unrealized appreciation/(depreciation) on investments (192,079) 1,216,531 98,223
------------ ------------ ------------
Total Net Assets $ 35,521,931 $ 15,900,020 $ 8,004,967
============ ============ ============
Shares of Beneficial Interest Issued and Outstanding
(Unlimited number of shares authorized with no par value) 3,468,934 2,115,659 611,569
------------ ------------ ------------
Net Asset Value, offering and redemption price per share
($35,521,931 / 3,468,934 shares, $15,900,020 / 2,115,659 shares,
and $8,004,967 / 611,569 shares, respectively) $ 10.24 $ 7.52 $ 13.09
============ ============ ============
Market value of securities on loan (Note 6) $ 2,178,190 $ 2,692,483 $ 231,383
------------ ------------ ------------
The accompanying notes are an integral part of the financial statements
19 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Government Growth Value
Bond Fund Equity Fund Equity Fund
------------ ------------ ------------
INVESTMENT INCOME
Interest $ 782,946 $ 3,642 $ 1,739
Securities lending income 2,045 873 2
Dividends -- 98,108 74,530
------------ ------------ ------------
Total investment income 784,991 102,623 76,271
------------ ------------ ------------
EXPENSES
Investment Advisory fees (Note 3) 68,907 38,626 19,185
12b-1 distribution fees 49,219 19,313 9,593
Administration fees (accounting & transfer agent) (Note 3) 53,441 21,087 10,472
Legal fees 29,777 11,788 5,853
Audit fees 9,978 3,943 1,958
Custody fees 3,979 5,933 3,472
Trustee fees 6,758 2,683 1,332
Registration & filing fees 8,039 10,185 9,088
Report printing & mailing fees 2,183 863 428
Insurance fees 4,550 2,203 874
Officers' compensation 3,163 1,250 621
Distribution fees (Note 3) 1,529 635 315
Miscellaneous 10,502 6,953 5,602
------------ ------------ ------------
Total expenses before fee waivers & reimbursements 252,025 125,462 68,793
Waivers & reimbursements by Adviser (Note 4) (51,098) (26,958) (19,850)
------------ ------------ ------------
Total expenses 200,927 98,504 48,943
------------ ------------ ------------
Net Investment Income 584,064 4,119 27,328
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investments (201,033) 29,003 508,100
Change in unrealized appreciation/(depreciation) on investments (125,572) (390,098) (758,568)
------------ ------------ ------------
Net realized and unrealized gain/(loss) on investments (326,605) (361,095) (250,468)
------------ ------------ ------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 257,459 $ (356,976) $ (223,140)
============ ============ ============
The accompanying notes are an integral part of the financial statements
20 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Government Growth Value
Bond Fund Equity Fund Equity Fund
------------ ------------ ------------
OPERATIONS
Net investment income $ 584,064 $ 4,119 $ 27,328
Net realized gain/(loss) on investments (201,033) 29,003 508,100
Change in unrealized appreciation/(depreciation) on investments (125,572) (390,098) (758,568)
------------ ------------ ------------
Net increase/(decrease) in net assets resulting from operations 257,459 (356,976) (223,140)
------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (583,413) (6,550) (27,328)
Net realized capital gain -- -- --
------------ ------------ ------------
Total dividends and distributions to shareholders (583,413) (6,550) (27,328)
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of capital shares - Institutional shares 663,551 1,825,980 822,851
Reinvestment of distributions - Institutional shares 504,690 6,006 23,680
Redemption of capital shares - Institutional shares (9,009,298) (1,409,270) (354,233)
------------ ------------ ------------
Net increase/(decrease) from capital share transactions (7,841,057) 422,716 492,298
------------ ------------ ------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS (8,167,011) 59,190 241,830
------------ ------------ ------------
NET ASSETS
Beginning of period 43,688,942 15,840,830 7,763,137
------------ ------------ ------------
End of period (including accumulated undistributed net investment income of
$651, $0, and $0, respectively) $ 35,521,931 $ 15,900,020 $ 8,004,967
============ ============ ============
SHARE TRANSACTIONS Shares Shares Shares
------------ ------------ ------------
Sale of shares - Institutional shares 64,844 243,205 62,102
Reinvestment of distributions - Institutional shares 49,354 806 1,799
Redemption of shares - Institutional shares (885,124) (187,637) (26,771)
------------ ------------ ------------
Net increase (decrease) in shares (770,926) 56,374 37,130
============ ============ ============
The accompanying notes are an integral part of the financial statements
21 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FISCAL YEARD ENDED DECEMBER 31, 2004
- ----------------------------------------------------------------------------------------------------------------------------------
Government Growth Value
Bond Fund Equity Fund Equity Fund
------------ ------------ ------------
OPERATIONS
Net investment income $ 977,378 $ 28,665 $ 55,492
Net realized gain/(loss) on investments (84,203) (372,884) 670,727
Change in unrealized appreciation/(depreciation) on investments (132,648) 949,737 194,109
------------ ------------ ------------
Net increase in net assets resulting from operations 760,527 605,518 920,328
------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (975,518) (28,665) (55,492)
Net realized capital gain -- -- --
------------ ------------ ------------
Total dividends and distributions to shareholders (975,518) (28,665) (55,492)
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of capital shares - Institutional shares 24,800,253 5,119,980 3,007,507
Reinvestment of distributions - Institutional shares 697,386 26,383 48,099
Redemption of capital shares - Institutional shares (1,764,094) (3,022,732) (142,317)
------------ ------------ ------------
Net increase from capital share transactions 23,733,545 2,123,631 2,913,289
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 23,518,554 2,700,484 3,778,125
------------ ------------ ------------
NET ASSETS
Beginning of period 20,170,388 13,140,346 3,985,012
------------ ------------ ------------
End of period (including accumulated undistributed net investment income of
$1,860, $0, and $0, respectively) $ 43,688,942 $ 15,840,830 $ 7,763,137
============ ============ ============
SHARE TRANSACTIONS Shares Shares Shares
------------ ------------ ------------
Sale of shares - Institutional shares 2,403,648 707,362 245,375
Reinvestment of distributions - Institutional shares 67,432 3,431 3,830
Redemption of shares - Institutional shares (171,532) (428,085) (11,470)
------------ ------------ ------------
Net increase (decrease) in shares 2,299,548 282,708 237,735
============ ============ ============
The accompanying notes are an integral part of the financial statements
22 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period:
Government Bond Fund
Institutional Shares
-------------------------------------------------------------------------------------------------
For the Six-Month For the Year For the Year For the Year For the Year For the Year
Period Ended Ended Ended Ended Ended Ended
June 30, 2005 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value,
Beginning of Period $ 10.30 $ 10.40 $ 10.64 $ 10.27 $ 10.09 $ 9.50
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM
INVESTMENT OPERATIONS
Net investment income 0.15 0.28 0.33 0.43 0.50 0.53
Net realized and unrealized
gain/(loss) on investments (0.08) (0.09) (0.24) 0.37 0.17 0.59
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations 0.07 0.19 0.09 0.80 0.67 1.12
------------ ------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND
DISTRIBUTIONS
Dividends from net investment
income (0.13) (0.29) (0.33) (0.43) (0.49) (0.53)
Distributions from net realized
capital gain -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions (0.13) (0.29) (0.33) (0.43) (0.49) (0.53)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 10.24 $ 10.30 $ 10.40 $ 10.64 $ 10.27 $ 10.09
============ ============ ============ ============ ============ ============
Total Return (a) 0.89% 1.82% 0.90% 7.96% 6.81% 12.12%
Ratios/Supplemental Data
Net assets, end of period
(in 000s) 35,519 $ 43,689 $ 20,170 $ 18,710 $ 17,058 $ 40,501
Ratio of operating expenses to
average net assets including
reimbursement/waiver of fees 1.02%(b) 1.02% 1.00% 0.95% 0.86% 0.75%
Ratio of operating expenses to
average net assets excluding
reimbursement/waiver of fees 1.28%(b) 1.31% 1.69% 1.71% 1.08% 0.87%
Ratio of net investment income/
(loss) to average net assets
including reimbursement/
waiver of fees 2.97%(b) 2.73% 3.11% 4.13% 4.93% 5.51%
Portfolio turnover rate 56% 40% 82% 43% 118% 50%
- ----------------------
(a) Total return in the above table represents the rate that the investor
would have earned or lost on an investment in the Fund assuming
reinvestment of dividends. Total return would have been lower if certain
expenses had not been reimbursed or waived.
(b) Annualized
The accompanying notes are an integral part of the financial statements
23 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period:
Growth Equity Fund
Institutional Shares
------------------------------------------------------------------------------------------------
For the Six-Month For the Year For the Year For the Year For the Year For the Year
Period Ended Ended Ended Ended Ended Ended
June 30, 2005 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value,
Beginning of Period $ 7.69 $ 7.40 $ 6.16 $ 7.77 $ 9.26 $ 12.50
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM
INVESTMENT OPERATIONS
Net investment income -- 0.01 (0.01) (0.01) -- (0.01)
Net realized and unrealized
gain/(loss) on investments (0.17) 0.29 1.25 (1.60) (1.47) (0.69)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations (0.17) 0.30 1.24 (1.61) (1.47) (0.70)
------------ ------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND
DISTRIBUTIONS
Dividends from net investment
income (0.00)(b) -- (0.00)(c) -- -- --
Distributions from net realized
capital gain -- (0.01) -- -- (0.02) (2.54)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions -- (0.01) (0.00) -- (0.02) (2.54)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 7.52 7.69 $ 7.40 $ 6.16 $ 7.77 $ 9.26
============ ============ ============ ============ ============ ============
Total Return (a) (2.17)% 4.11% 20.20% (20.72)% (15.82)% (5.66)%
Ratios/Supplemental Data
Net assets, end of period
(in 000s) 15,900 $ 15,841 $ 13,140 $ 7,775 $ 9,289 $ 29,889
Ratio of operating expenses to
average net assets including
reimbursement/waiver of fees 1.28%(d) 1.25% 1.25% 1.20% 1.11% 1.00%
Ratio of operating expenses to
average net assets excluding
reimbursement/waiver of fees 1.62%(d) 1.69% 2.44% 2.64% 1.47% 1.18%
Ratio of net investment income/
(loss) to average net assets
including reimbursement/
waiver of fees 0.05%(d) 0.19% (0.11)% (0.18)% (0.06)% (0.11)%
Portfolio turnover rate 40% 94% 88% 58% 52% 78%
- -------------------------------
(a) Total return in the above table represents the rate that the investor
would have earned or lost on an investment in the Fund assuming
reinvestment of dividends. Total return would have been lower if certain
expenses had not been reimbursed or waived.
(b) Distributions per share were $0.0031
(c) Distributions per share were $0.0038
(d) Annualized
The accompanying notes are an integral part of the financial statements
24 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (concluded)
- ----------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period:
Value Equity Fund
Institutional Shares
-------------------------------------------------------------------------------------------------
For the Six-Month For the Year For the Year For the Year For the Year For the Year
Period Ended Ended Ended Ended Ended Ended
June 30, 2005 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value,
Beginning of Period $ 13.51 $ 11.84 $ 8.95 $ 10.26 $ 9.12 $ 8.75
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM
INVESTMENT OPERATIONS
Net investment income 0.05 0.12 0.14 0.12 0.13 0.16
Net realized and unrealized
gain/(loss) on investments (0.42) 1.67 2.90 (1.31) 1.15 0.37
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations (0.37) 1.79 3.04 (1.19) 1.28 0.53
------------ ------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND
DISTRIBUTIONS
Dividends from net investment
income (0.05) (0.12) (0.15) (0.12) (0.14) (0.16)
Distributions from net realized
capital gain -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions (0.05) (0.12) (0.15) (0.12) (0.14) (0.16)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 13.09 $ 13.51 $ 11.84 $ 8.95 $ 10.26 $ 9.12
============ ============ ============ ============ ============ ============
Total Return (a) (2.77)% 15.18% 34.24% (11.66)% 14.08% 6.20%
Ratios/Supplemental Data
Net assets, end of period
(in 000s) 8,005 $ 7,763 $ 3,985 $ 2,634 $ 3,210 $ 17,617
Ratio of operating expenses to
average net assets including
reimbursement/waiver of fees 1.28%(b) 1.17% 1.25% 1.20% 1.09% 1.00%
Ratio of operating expenses to
average net assets excluding
reimbursement/waiver of fees 1.79%(b) 1.78% 3.87% 5.06% 1.82% 1.18%
Ratio of net investment income/
(loss) to average net assets
including reimbursement/
waiver of fees 0.71%(b) 0.98% 1.44% 1.13% 1.26% 1.59%
Portfolio turnover rate 53% 69% 26% 90% 45% 168%
- -------------------------------------
(a) Total return in the above table represents the rate that the investor
would have earned or lost on an investment in the Fund assuming
reinvestment of dividends. Total return would have been lower if certain
expenses had not been reimbursed or waived.
(b) Annualized
The accompanying notes are an integral part of the financial statements
25 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Memorial Funds (the "Trust") is an open-end management investment company
organized as a Delaware business trust. The Trust currently has three
diversified investment portfolios (each a "Fund" and, collectively, the
"Funds"). The principal investment objective of the Memorial Government Bond
Fund ("Government Bond Fund") is to provide a high level of income consistent
with maximum credit protection and moderate fluctuation in principal value. The
principal investment objective of the Memorial Growth Equity Fund ("Growth
Equity Fund") is long-term capital appreciation. The principal investment
objective of the Memorial Value Equity Fund ("Value Equity Fund") is long-term
capital appreciation. The Trust's Declaration of Trust authorizes each Fund to
issue an unlimited number of shares of beneficial interest. The dates of
commencement of operations for each Fund are as follows:
Government Bond Fund March 30, 1998
Growth Equity Fund March 30, 1998
Value Equity Fund March 30, 1998
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following represents significant accounting policies of the Funds:
Estimates - These financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
increase and decrease in net assets from operations during the fiscal period.
Actual results could differ from those estimates.
Security Valuation - Securities, other than short-term securities, held by the
Funds for which market quotations are readily available are valued using the
last reported sales price or the official closing price provided by independent
pricing services as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on each Fund's business day. If no sales are
reported, the average of the last bid and ask price is used. If no average price
is available the last bid price is used. Debt securities are generally traded in
the over-the-counter market and are valued at a price deemed best to reflect
their values as quoted by dealers who make markets in those securities or by an
independent pricing source. U.S. Government obligations are valued at the last
reported bid price. In the absence of readily available market quotations,
securities are valued at fair value as determined by the Board of Trustees. At
June 30, 2005, no securities were valued at fair value as determined by the
Board of Trustees. Securities with maturities of 60 days or less are valued at
amortized cost. The ability of issuers of debt securities held by the Funds to
meet their obligations may be affected by economic and political developments in
a specific country or region.
Realized Gain and Loss - Security transactions are accounted for on a trade date
basis and realized gains and losses on investments sold are determined on the
basis of specific identification.
Interest and Dividend Income - Interest income is accrued as earned. Dividends
on securities held by the Funds are recorded on the ex-dividend date. Discounts
and premiums on securities purchased are amortized over the lives of the
respective securities.
26 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Dividends and Distributions to Shareholders - Distributions of net investment
income to shareholders are declared daily and paid monthly by the Government
Bond Fund. Net investment income distributions, if any for the Growth Equity
Fund and the Value Equity Fund are declared and paid quarterly. Net capital
gains for the Funds, if any, are distributed to shareholders at least annually.
Distributions to shareholders, which are determined in accordance with income
tax regulations, are recorded on the ex-dividend date.
Federal Taxes - Each Fund intends to qualify each year as a regulated investment
company in accordance with Sub-Chapter M of the Internal Revenue Code and
distribute all of its taxable income. In addition, by distributing in each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund will not be subject to a federal excise
tax. As the Funds intend to meet these minimum distribution requirements, no
federal income tax provision is required.
Security Loans - The Funds may receive fees or retain a portion of interest on
the securities or cash received as collateral for lending securities. A Fund
also continues to receive interest or dividends on the securities loaned.
Securities loaned are secured by collateral whose market value must always
exceed the market value of the securities loaned plus accrued interest. Gain or
loss in the market price of the securities loaned that may occur during the term
of the loan is reflected in the value of the Fund. The Funds have the right
under the security lending agreement to recover the securities from the borrower
on demand.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of each Fund is Parkway Advisors, L.P. (the "Adviser").
Subject to the general control of the Board of Trustees, the Adviser is
responsible for among other things, developing a continuing investment program
for the Funds in accordance with their investment objectives, reviewing the
investment strategies and policies of the Funds, and advising the Board on the
selection of sub-advisers. The advisory fees paid to the Adviser are 0.35% of
the average daily net assets of the Government Bond Fund and 0.50% of the
average daily net assets of the Growth Equity Fund and the Value Equity Fund.
For the year ending December 31, 2005 the Adviser has agreed to cap expenses at
1.00% of the average daily net assets of the Government Bond Fund and 1.25% of
the average daily net assets of the Growth Equity Fund and the Value Equity
Fund. The agreement was designed to place a maximum limit on expenses including
all fees to be paid to the Adviser but excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses and extraordinary expenses.
Total fees earned by the Adviser during the six-month period ended June 30, 2005
for the Government Bond Fund, Growth Equity Fund and Value Equity Fund were
$68,907, $38,626 and $19,185, respectively. The Adviser has retained Davis
Hamilton Jackson & Associates to act as the investment sub-adviser for the
Growth Equity Fund pursuant to an investment sub-advisory agreement with the
Adviser. For the six-month period ended June 30, 2005, Davis Hamilton was paid
an annual percentage rate of 0.30% of the average net assets by the Adviser.
On behalf of each Fund, the Trust entered into a Mutual Fund Services Agreement
with Citco Mutual Fund Services, Inc., ("Citco") effective August 19, 2003, to
provide day-to-day accounting and administrative services to the Funds
including, but not limited to, accounting, transfer agent, dividend
disbursement, registrar and record keeping services. For its services, Citco
receives an annual fee that is the greater of $175,000 or an asset-based fee
that declines as the aggregate assets of the Funds increase: 0.10% of the Funds'
first $400 million in assets; 0.04% of the Funds' assets in excess of $400
million up to $600 million; and 0.03% of the Funds' assets in excess of $600
million. Citco is currently earning the minimum fee.
27 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
On behalf of each Fund, the Trust entered into a Distribution Agreement with
Citco Mutual Fund Distributors, Inc. (the "Distributor") effective August 19,
2003 to serve as the Funds' principal underwriter. By serving as the principal
underwriter for the Funds, the Distributor facilitates the distribution of the
Funds' shares. For its services in conjunction with registration of Fund shares
with the states, Citco Mutual Fund Distributors, Inc. receives $5,000 annually
from the Trust. This amount is credited back against the fees paid under the
Mutual Fund Services Agreement to Citco.
Total fees earned by Citco and the Distributor during the six-month period ended
June 30, 2005 for the Government Bond Fund, Growth Equity Fund and the Value
Equity Fund were $53,441, $21,087, and $10,472, respectively. At June 30, 2005,
the Government Bond Fund, Growth Equity Fund and Value Equity Fund owed Citco
$8,643, $3,901 and $1,860, respectively.
Investors Bank & Trust Company serves as the custodian for each Fund, for which
it receives a fee from each Fund at an annual rate as follows: 0.01% of the
average daily net assets of the Fund for the first $100 million in Fund assets
and 0.005% of the average daily net assets of the Fund for the remaining Fund
assets. The custodian is also paid certain transaction fees. These fees are
accrued daily by the Funds and are paid monthly based on average net assets and
transactions for the previous month.
On behalf of each Fund, the Trust has adopted a Shareholder Service and
Distribution Plan (the "Plan") pursuant to Rule 12b-1 of the Investment Company
Act of 1940, as amended. Under this Plan, each Fund may pay a servicing or Rule
12b-1 fee at an annual rate of 0.25% of each Fund's average net assets on a
monthly basis to persons or institutions for performing certain servicing
functions for each Fund's shareholders. The Plan also allows the Funds to pay or
reimburse expenditures in connection with sales and promotional services related
to distribution of each Fund's shares, including personal services provided to
prospective and existing shareholders. Total fees incurred under the Plan during
the six-month period ended June 30, 2005, for the Government Bond Fund, Growth
Equity Fund and Value Equity Fund were $49,219, $19,313, and $9,593,
respectively.
A trustee and two officers of the Trust are also officers of the Adviser.
Each Trustee who is not an "affiliated person" as defined in the Act receives
from the Trust an annual fee of $5,000 plus out of pocket expenses. In addition,
each Trustee receives $500 per meeting attended.
NOTE 4. WAIVER OF FEES AND ADVISER REIMBURSEMENTS
The Adviser, under certain circumstances, may waive advisory fees and reimburse
certain expenses of the Funds. For the year ending December 31, 2005 the Adviser
agreed to cap expenses at 1.00% of the average daily net assets of the
Government Bond Fund and 1.25% of the average daily net assets of the Growth
Equity Fund and the Value Equity Fund, including all fees paid to the Adviser
but excluding taxes, interest, brokerage commissions and other portfolio
transaction expenses and extraordinary expenses. Effective March 1, 2004, the
Trust has agreed to repay the Adviser for the amounts which the Adviser has
waived and/or reimbursed the Trust through the period ending February 28, 2007,
but only if the operating expenses of that fund, without regard to such
repayment, are at an annual rate less than the expense limits. For the six-month
period ended June 30, 2005, Parkway Advisors, L.P. has waived fees and
reimbursed the Funds for expenses as follows:
28 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Adviser
Waiver of Fees Reimbursements
-------------- --------------
Government Bond Fund $ 51,098 $ 0
Growth Equity Fund 15,450 11,508
Value Equity Fund 16,452 3,398
At June 30, 2005, the Growth Equity Fund and Value Equity Fund had amounts due
from Adviser of $1,998 and $201, respectively.
NOTE 5. SECURITIES TRANSACTIONS
The aggregate cost of securities purchased and the proceeds from sales of
securities, other than short-term securities, for the six-month period ended
June 30, 2005, were as follows:
Purchases Sales
-------------------------------- --------------------------------
U.S. Government U.S. Government
Obligations Other Obligations Other
------------ ------------ ------------ ------------
Government Bond Fund $ 20,034,750 $ 995,000 $ 24,666,870 $ 1,258,747
Growth Equity Fund -- 6,446,861 -- 6,123,035
Value Equity Fund -- 4,536,667 -- 4,045,075
NOTE 6. SECURITIES LENDING
As of June 30, 2005, the Government Bond Fund, Growth Equity Fund and Value
Equity Fund have loaned securities in return for securities and cash collateral,
which was invested in various short-term fixed income securities such as
repurchase agreements, commercial paper and government and corporate notes and
bonds. The risks to the Funds from securities lending are that the borrower may
not provide additional collateral when required or return the securities when
due or when called by the Fund. The value of the securities on loan and the
value of the related collateral were as follows:
Securities Collateral
---------- ----------
Government Bond Fund $2,178,190 $2,222,500
Growth Equity Fund 2,692,483 2,775,595
Value Equity Fund 231,383 246,510
29 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 7. TAX MATTERS
For U.S federal income tax purposes, the tax cost basis of investment securities
owned, the aggregate gross unrealized appreciation, the aggregate gross
unrealized depreciation and net unrealized appreciation (depreciation) as of
June 30, 2005 were as follows:
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation Depreciation (Depreciation)
------------ ------------ ------------ ------------
Government Bond Fund $ 34,758,604 $ 62,734 $ (265,786) $ (203,052)
Growth Equity Fund 14,959,154 1,450,468 (366,979) 1,083,489
Value Equity Fund 7,924,984 381,065 (318,017) 63,048
Differences between book basis and tax basis unrealized appreciation
(depreciation) is attributable primarily to the deferral of post-October losses
and the tax deferral of losses on wash sales.
The Fund's tax basis capital gains and losses are determined only at the end of
each fiscal year.
As of December 31, 2004, the tax basis components of distributable earnings were
as follows:
Undistributed Net Net Unrealized Net
Ordinary Accumulated Appreciation Accumulated
Income Capital Loss (Depreciation) Losses
------------ ------------ ------------ ------------
Government Bond Fund $ 1,860 $ (479,957) $ (77,480) $ (555,577)
Growth Equity Fund -- (5,130,447) 1,473,587 (3,656,860)
Value Equity Fund -- (915,159) 821,616 (93,543)
Net investment income and realized gains and losses for federal income tax
purposes differ from that reported in the financial statements because of
permanent and temporary book and tax differences.
For tax purposes at December 31, 2004, the Funds have capital loss carryovers in
the following amounts:
Amount Expiration Date
----------- ---------------
Government Bond Fund $ 379,598 12/31/2008
100,359 12/31/2012
Growth Equity Fund 2,704,374 12/31/2009
1,658,405 12/31/2010
471,452 12/31/2011
296,216 12/31/2012
Value Equity Fund 915,159 12/31/2008
The Government Bond Fund and the Growth Equity Fund elected to defer
post-October losses in the amounts of $10,973 and $11,414, respectively.
30 Memorial Funds
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the six-months ended June 30,
2005 was as follows:
Ordinary Income
---------------
Government Bond Fund $ 583,413
Growth Equity Fund 6,550
Value Equity Fund 27,328
The tax character of distributions paid during the fiscal year ended December
31, 2004 was as follows:
Ordinary Income
---------------
Government Bond Fund $ 975,518
Growth Equity Fund 28,665
Value Equity Fund 55,492
The tax character of distributions paid during the fiscal year ended December
31, 2003 was as follows:
Ordinary Income
---------------
Government Bond Fund $ 616,808
Growth Equity Fund 5,841
Value Equity Fund 47,156
NOTE 9. CONTROL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the
voting securities of a Fund creates presumption of control of the Fund under
Section 2(a)9 of the Investment Company Act of 1940. As of June 30, 2005, ISTCO
held for the benefit of others in aggregate, approximately 67% of the Government
Bond Fund; Charles Schwab & Co. held for the benefit of others in aggregate,
approximately 39% of the Growth Equity Fund and Wells Fargo Bank, N.A. held for
the benefit of others in aggregate, approximately 43% of the Value Equity Fund.
OTHER INFORMATION
Proxy Policies (Unaudited)
A description of the policies and procedures that the Memorial Funds use to
determine how to vote proxies relating to portfolio securities is available (i)
without charge, upon request by calling 1-888-263-5593 and (ii) on the
Securities and Exchange Commission website at http://www.sec.gov.
N-Q Filing (Unaudited)
The SEC has adopted the requirement that all Funds file a complete schedule of
investments with the SEC for their first and third fiscal quarters on Form N-Q
for fiscal quarters ending after July 9, 2004. For the Memorial Funds, this
would be for the fiscal quarters ending March 31 and September 30. The Form N-Q
filing must be made within 60 days of the end of the quarter. The Memorial
Funds' Form N-Q will be available on the SEC's website at http://www.sec.gov, or
they may be revised and copied at the SEC's Public Room in Washington, DC (call
1-800-732-0330 for information on the operation of the Public Reference Room).
31 Memorial Funds
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MEMORIAL FUNDS
JUNE 30, 2005
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TRUSTEES AND OFFICERS (Unaudited)
==================================================================================================================================
Number of
Term of Portfolios in Other
Office and Complex Directorships
Position(s) Length of Principal Occupation(s) Overseen by Held by
Name, Address and Age with Fund Time Served for the Last Five Years Director Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
- ----------------------------------------------------------------------------------------------------------------------------------
Carl Clayton Peterson* President Indefinite Parkway Advisors, L.P., CEO from 3 None
6550 Directors Parkway and Trustee until 04/01 to present; Directors
Abilene, Texas 79606 successor Investment Group, Inc., Director
45 elected and from 04/03 to present; Parkway
qualified; Advisors Group, Inc. and Parkway
11/29/2002 Advisors Holdings, Inc., President
to present from 04/01 to present; Citizens
Bank, N.A., Advisory Board
Member from 06/99 to 04/01;
Directors Air Corporation, Vice
President/CFO from 12/96 to 04/01;
Directors Capital Ventures, Inc.,
Directors Financial Management,
L.P., Directors Real Estate
Management, L.P., Directors Real
Estate Management, L.P., and
Directors Travel, L.P., Vice
President/CFO from 12/95 to 04/01;
Directors Holding Corporation and
Directors Investment Group, Inc.,
Vice President/CFO from 11/91
to 04/01; Funeral Agency, Inc.,
Accountant from 09/89 to 04/01;
Funeral Directors Life Insurance Co.,
Vice President/CFO from 08/88 to
04/01; Abilene Fireman's Relief and
Retirement Fund, Trustee from 05/97
to 06/00; Affiliated Funeral Supply
Co., Accountant from 02/89 to 11/96.
- ----------------------------------------------------------------------------------------------------------------------------------
32 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------------------
MEMORIAL FUNDS
JUNE 30, 2005
- ----------------------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS (Unaudited) (continued)
==================================================================================================================================
Number of
Term of Portfolios in Other
Office and Complex Directorships
Position(s) Length of Principal Occupation(s) Overseen by Held by
Name, Address and Age with Fund Time Served for the Last Five Years Director Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
OFFICERS: (Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Paul B. Ordonio Vice Indefinite Parkway Advisors, L.P., Vice 3 None
6550 Directors Parkway President/ until President & Counsel from 08/02 to
Abilene, Texas 79606 Secretary/ successor present; Parkway Advisors Group,
37 Chief elected and Inc., Vice President and Counsel
Compliance qualified: from 08/02 to present; Aftermath
Officer 11/29/2002 Consulting, Inc., Director from
to present 05/02 to present; P.O. Properties,
Inc., Vice President from 06/99 to
present; WordWise Document
Services, LLC, President from
08/97 to present; Ordonio & Assoc.,
President from 11/97 to present;
MGL Consulting Corporation, Vice
President, Counsel and Senior
Associate from 01/99 to 08/02;
Wetzel, Henri & Drucker, LLP,
Associate Attorney from 06/95 to
11/97.
- ----------------------------------------------------------------------------------------------------------------------------------
Thomas W. Alesi Vice Indefinite American Healthcare Providers 3 None
6550 Directors Parkway President until Insurance Services Co., LLC, Chief
Abilene, Texas 79606 andChief successor Financial Officer from 06/04 to
46 Financial elected and present. Parkway Advisors, L.P.,
Officer qualified; Vice President of Corporate
8/19/2003 Development from 07/02 to 05/04;
to present Parkway Advisors Group, Inc., Vice
President from 07/02 to 05/04;
InCap Securities, Inc., Registered
Representative from 01/03 to 10/03;
American Data Source, Inc., Vice
President & Chief Operating Officer
from 05/95 to 06/02. Mr. Alesi is a
Certified Public Accountant and
received a Bachelor of Science
degree in Accounting in 1981 from
LaSalle University.
- ----------------------------------------------------------------------------------------------------------------------------------
33 Memorial Funds
- ----------------------------------------------------------------------------------------------------------------------------------
MEMORIAL FUNDS
JUNE 30, 2005
- ----------------------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS (Unaudited) (continued)
==================================================================================================================================
Number of
Term of Portfolios in Other
Office and Complex Directorships
Position(s) Length of Principal Occupation(s) Overseen by Held by
Name, Address and Age with Fund Time Served for the Last Five Years Director Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ----------------------------------------------------------------------------------------------------------------------------------
Larry Joe Anderson**+ Trustee Indefinite Certified Public Accountant, 3 None
4208 College Avenue until Anderson & West, P. C.,
Snyder, Texas 79549 successor January 1985 to present.
57 elected and
qualified;
11/29/2002
to present
- ----------------------------------------------------------------------------------------------------------------------------------
Brian Joseph Green**+ Trustee Indefinite Restaurateur, Cypress Street Station, 3 None
158 Cypress until February 1993 to present.
Abilene, Texas 79601 successor
47 elected and
qualified;
11/29/2002
to present
- ----------------------------------------------------------------------------------------------------------------------------------
Charles Michael Kinard Trustee Indefinite Retired since 1998; Senior Vice- 3 None
*/**+ until President and Trust Officer, First
1725 Richland Drive successor National Bank of Abilene to
Abilene, Texas 79603 elected and December 1998.
62 qualified;
11/29/2002
to present
- ----------------------------------------------------------------------------------------------------------------------------------
* Member of the Valuation Committee, which is responsible for determining
and monitoring the value of the Funds' assets. The valuation Committee was
not required to meet during the Trust's most recent fiscal year.
** Member of the Nominating Committee, which is responsible for overseeing
the composition of both the Board as well as the various com- mittees of
the Trust to ensure that these positions are filled by competent and
capable candidates. The Nominating Committee did not meet during the
Trust's most recent fiscal year. The Nominating Committee does not
currently consider for nomination candidates proposed by shareholders for
election as Trustees.
+ Member of the Audit Committee, which is responsible for meeting with the
Trust's independent certified public accountants to: (a) review the
arrangements and scope of any audit; (b) discuss matters of concern
relating to the Trust's financial statements, including any adjustments to
such statements recommended by the accountants, or other results of any
audit; (c) consider the accountants' comments with respect to the Trust's
financial policies, procedures and internal accounting controls; and (d)
review any form of opinion the accountants propose to render to the Trust.
The Audit Committee met twice during the Trust's most recent fiscal year.
34 Memorial Funds
THE MEMORIAL FUNDS
Privacy Statement
At the Memorial Funds, we are committed to protecting your financial privacy.
The personal information that we have about you comes directly from you. You
disclosed much of this information on your mutual fund account application or we
may have contacted you by telephone or mail for additional information.
We keep information about the investments you purchase, transaction and payment
history. We may in extreme cases collect personal information from outside
sources, including consumer reporting agencies.
We do not sell shareholder information to anyone. We do not disclose your
personal information to companies or organizations not affiliated with us. We
may use your personal information to communicate with you about your
investments. In addition, we may, as permitted by law and without your prior
permission, provide personal information about you contained in our records or
files to persons or organizations such as:
o Persons who perform business functions for us, such as third
partiers that provide assistance in processing and servicing your
account;
o The Fund's investment adviser; and
o Regulatory or law-enforcement authorities
We recognize the need to provide protection against unauthorized access to the
information we collect, including that held in an electronic format on our
computer systems. We maintain physical, electronic, and organizational
safeguards to protect your personal information. We continually review our
policies and practices, monitor our computer networks and test the strength of
our security in order to help us ensure the safety of shareholder information.
The Funds consider privacy a fundamental right of shareholders and take
seriously the obligation to safeguard client information. We will adhere to the
policies and practices above for both current and former customers. If you
believe that any information about you is not accurate, please let us know.
35 Memorial Funds
THE MEMORIAL FUNDS
Investment Adviser
Parkway Advisors, L.P.
6550 Directors Parkway
Abilene, Texas 79606
Shareholder Servicing Agent
Parkway Advisors Group, Inc.
6550 Directors Parkway
Abilene, Texas 79606
Distributor
Citco Mutual Fund Distributors
83 General Warren Blvd., Suite 200
Malvern, Pennsylvania 19355
Transfer Agent & Administrator
Citco Mutual Fund Services, Inc.
83 General Warren Blvd., Suite 200
Malvern, Pennsylvania 19355
This report is submitted for the general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors in the
Funds unless preceded or accompanied by an effective prospectus, which includes
information regarding the Fund's objectives and policies, experience of its
management, marketability of shares, and other information.
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Included in Semi-Annual Report to Shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASE 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.
ITEM 10. CONTROLS AND PROCEDURES.
Based on their evaluation of registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the 1940 Act (17 CFR 270.30a-3(c)) as of August
17, 2004 registrant's principal executive officer and principal financial
officer found registrant's disclosure controls and procedures to be
appropriately designed to ensure that information required to be disclosed by
registrant in the reports that it files under the Securities Exchange Act of
1934 (i) is accumulated and communicated to registrant's management, including
its principal executive officer and principal financial officer, to allow timely
decisions regarding required disclosure, and (ii) is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms adopted by the U.S. Securities and Exchange Commission.
-2-
There has been no change in registrant's internal control that occurred during
the reporting period that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002
are attached hereto.
(b) Certifications pursuant to section 906 of the Sarbanes-Oxley Act of 2002
are attached hereto.
SIGNATURES
[See General Instruction F]
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) Memorial Funds.
By (Signature and Title)* /s/ Carl C. Peterson PRESIDENT
----------------------- ----------
Date 08/29/2005 Carl C. Peterson
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/ Carl C. Peterson PRESIDENT
-----------------------
Date 08/29/2005 Carl C. Peterson
By (Signature and Title)* /s/ Thomas W. Alesi Chief Financial Officer
-----------------------
Date 08/29/2005 Thomas W. Alesi
* Print the name and title of each signing officer under his or her signature.
-3-