N-30D 1 fairmontn30d.txt -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINANCIAL STATEMENTS ================================================================================ The Fairmont Fund ================================================================================ December 31, 2001 -------------------------------------------------------------------------------- Comments from Morton H. Sachs, Chairman Thus far, the new millenium has not been kind to the stock market. For the second year in a row the market suffered a significant decline, as evidenced by drops of 7.1% for the Dow Industrials and 11.87% for the S&P 500. The decline would have been even worse had there not been a substantial recovery during the 4th quarter. According to Lipper, the average equity fund closed the year down 13.3%. The Fairmont Fund held up better than that, containing the loss to 4.20%. Financial, healthcare, and real estate issues dominated the portfolio, in part because of a favorable interest rate environment. Results were uneven in every sector. For example, the Fund's bank stocks (First Tennessee, Compass Bancshares, Union Planters) generally did well, but its other financial sector investments (American Express, Providian), including the brokerages (Merrill Lynch, Raymond James) did not. These non-bank financials were selling at depressed prices and appeared to be timely purchases. As it turned out, however, they continued to slide. Healthcare results were similarly mixed, reflecting the rather lackluster performance of the sector as a whole. Gains in Sunrise Assisted Living and Health Net were trimmed by losses in Omega Healthcare. Our real estate investments, in the form of Real Estate Investment Trusts, were the most consistent performers in 2001. Additionally, their high yields contributed substantially to the Fund's dividend income. Elsewhere, we had successes in retailing, personal care products, hotels and transportation stocks. Most of our attempts to find value in the telecommunications sector, however, ended up being thwarted. As we contemplate the new year, we continue to believe that a portfolio of value stocks makes sense. Many investors have experienced, for the second year in a row, just how quickly growth stocks can decline when expectations fade. Value stocks offer more downside protection since they are usually acquired after they have lost favor and their price has declined. Since value stocks have historically lead the way out of a recession, improving business conditions in 2002 should help restore the luster to the value stocks in our portfolio. * * * * * As you will note in the chart below, we have included a comparison with the Russell 2000. This index of small stock performance is constructed from a list of the 3,000 largest U.S. stocks, minus the top 1,000. Given the size of the stocks typically found in our portfolio, we believe this is an appropriate index. Neither the performance table nor the graph reflects the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. (GRAPH OMITTED) ================================================================================ The Fairmont Fund ================================================================================ Schedule of Investments December 31, 2001 -------------------------------------------------------------------------------- Shares/Principal Amount Market Value % of Assets -------------------------------------------------------------------------------- COMMON STOCKS Beauty Shops 10,000 Regis Corp. $ 257,800 3.96% --------- Book Stores 10,000 Barnes & Noble, Inc.* 296,000 4.55% --------- Communications Equipment 30,000 Nortel Networks Corp.* 225,000 3.46% --------- Computer Hardware Equipment & Software 25,000 Sun Microsystems, Inc. * 307,500 4.72% --------- Computer Storage Devices 10,000 EMC Corp. * 134,400 2.07% --------- Consumer Lending 75,000 Providian Financial Corp. 266,250 4.09% --------- Fire, Marine, and Casualty Insurance 30,000 Ohio Casualty Corp.* 481,500 7.40% --------- Food Processing 25,000 TBC Corp.* 334,750 5.14% --------- Grocery Stores 10,000 Kroger Co.* 208,700 3.21% --------- Health Maintenance Oganization 25,000 Pacificare Health Systems, Inc.* 400,000 6.15% --------- Insurance Agents, Brokers, and Service 10,000 Humana, Inc. * 117,900 1.81% --------- National Commercial Banks 10,000 Compass Bancshares Inc. 283,000 8,000 Union Planters Corp. 361,040 --------- 644,040 9.90% Nursing and Personal Care Facilities 10,000 Sunrise Assisted Living Inc. * 291,100 4.47% --------- *Non-Income producing securities. The accompanying notes are an integral part of the financial statement. ================================================================================ The Fairmont Fund ================================================================================ Schedule of Investments December 31, 2001 -------------------------------------------------------------------------------- Shares/Principal Amount Market Value % of Assets -------------------------------------------------------------------------------- Retail Stores 8,000 Target Corp. 328,400 5.05% --------- Semiconductors and Related Devices 10,000 Texas Instruments, Inc. 280,000 4.30% --------- State Commercial Banks 5,000 Trico Bancshares 94,950 1.46% --------- Tobacco 10,500 Vector Group LTD 344,925 5.30% --------- ----- Total Common Stocks 5,013,215 77.04% REAL ESTATE INVESTMENT TRUSTS Real Estate Operations 10,000 Federal Realty Investment Trust 230,000 15,000 Felcor Lodging Trust Inc. 250,650 15,000 iStar Financial, Inc. 374,250 15,000 Nationwide Health Properties, Inc. 280,350 15,000 Senior Housing Properties 208,650 --------- Total Real Estate Investment Trusts 1,343,900 20.65% --------- ------ Total Investments (Cost $5,897,614) 6,357,115 97.69% Cash and Equivalents First American Treasury Obligation Fund Class S Rate 1.35% 290,383 4.46% --------- ----- Total Investments (Cost $6,187,997) $ 6,647,498 102.15% Other Liabilities Less Assets (139,791) (2.15)% --------- ------ Net Assets $ 6,507,707 100.00% ============ ======= *Non-Income producing securities. The accompanying notes are an integral part of the financial statement. ================================================================================ The Fairmont Fund ================================================================================ Statement of Assets and Liabilities December 31, 2001 Assets: Investment Securities at Market Value (Note 2) $ 6,647,498 (Cost $6,187,997) Receivables: Dividends and Interest 8,390 Securities Sold 177,685 Shares Purchased 67 ------- Total Assets 6,833,640 --------- Liabilities Accrued Expenses (Note 3) 11,491 Payables: Custodian Bank 11,208 Dividends Payable 3,522 Securities Purchased 299,712 ------- Total Liabilities 325,933 ------- Net Assets $ 6,507,707 =========== Net Assets Consist of: Capital Paid In (Note 8) $ 8,198,088 Accumulated Realized Loss on Investments - Net (2,149,882) Unrealized Appreciation on Investments (Note 5) 459,501 ----------- Net Assets, for 343,912 Shares Outstanding $ 6,507,707 =========== Net Asset Value, Offering Price and Redemption Price Per Share ($6,507,707/343,912 shares) $ 18.92 ======= The accompanying notes are an integral part of the financial statements. ================================================================================ The Fairmont Fund ================================================================================ Statement of Operations For the year ending December 31, 2001 Investment Income: (Note 2) Dividends $ 154,256 Interest 30,242 Other 240 --------- Total Investment Income 184,738 --------- Expenses Management Fees (Note 3) 152,610 ------- Total Expenses 152,610 ------- Net Investment Income 32,128 ------ Realized and Unrealized Gain (Loss) on Investments: (Note 2) Realized Gain (Loss) on Investments (427,254) Change in Unrealized Appreciation on Investments 120,357 --------- Net Realized and Unrealized Gain (Loss) on Investments (306,897) --------- Net Increase (Decrease) in Net Assets from Operations $ (274,769) =========== The accompanying notes are an integral part of the financial statements. ================================================================================ The Fairmont Fund ================================================================================ Statement of Changes in Net Assets 1/1/2001 1/1/2000 to to 12/31/2001 12/31/2000 ---------- ---------- From Operations: Net Investment Income (Loss) $ 32,128 $ (14,961) Net Realized Loss on Investments (427,254) (1,642,814) Net Unrealized Appreciation (Depreciation) on Investments 120,357 (512,817) -------- --------- Increase (Decrease) in Net Assets from Operations (274,769) (2,170,592) --------- ----------- From Distributions to Shareholders: (Note 4) Net Investment Income (32,128) 0 Return of Capital (42,703) 0 -------- - Net Distributions (74,831) 0 -------- - From Capital Share Transactions: (Note 2) Proceeds From Sale of Shares 728,058 82,932 Shares Issued on Reinvestment of Dividends 71,309 0 Cost of Shares Redeemed (2,254,065) (4,633,443) ----------- ----------- Net Decrease from Capital Share Transactions (1,454,698) (4,550,511) ----------- ----------- Net Decrease in Net Assets (1,804,298) (6,721,103) Net Assets at Beginning of Period 8,312,005 15,033,108 ---------- ---------- Net Assets at End of Period $ 6,507,707 $ 8,312,005 ============ =========== Share Transactions: Issued 35,379 4,087 Reinvested 3,769 - Redeemed (111,186) (220,183) --------- --------- Net increase (decrease) in shares (72,038) (216,096) Shares outstanding beginning of period 415,950 632,046 -------- ------- Shares outstanding end of period 343,912 415,950 ======= ======= The accompanying notes are an integral part of the financial statements. ================================================================================ The Fairmont Fund ================================================================================ Financial Highlights Selected data for a share outstanding throughout the period: 1/1/2001 1/1/2000 1/1/1999 1/1/1998 1/1/1997 to to to to to 12/31/2001 12/31/2000 12/31/1999 12/31/1998 12/31/1997 ---------- ---------- ---------- ---------- ---------- Net Asset Value - Beginning of Period $19.98 $23.78 $26.33 $27.68 $26.45 Net Investment Income 0.09 (0.03) (0.49) (0.27) (0.16) Net Gains or Losses on Investments (realized and unrealized) (0.93) (3.77) (1.83) (1.08) 4.20 ------ ------ ------ ------ ---- Total from Investment Operations (0.84) (3.80) (2.32) (1.35) 4.04 Distributions (from net investment income) (0.09) 0.00 0.00 0.00 0.00 Distributions (from capital gains) 0.00 0.00 (0.23) 0.00 (2.81) Return of Capital (0.13) 0.00 0.00 0.00 0.00 ---- ---- ---- ---- ---- Total Distributions (0.22) 0.00 (0.23) 0.00 (2.81) Net Asset Value - End of Period $18.92 $19.98 $23.78 $26.33 $27.68 ======= ======= ======= ======= ====== Total Return (4.20)% (15.98)% (8.83)% (4.88)% 15.27% Ratios/Supplemental Data Net Assets - End of Period (Thousands) $6,508 $8,312 $15,033 $23,839 $31,856 Ratio of Expenses to Average Net Assets 2.00% 1.96% 1.77% 1.68% 1.63% Ratio of Net Investment Income to Average Net Assets 0.42% (0.15)% (0.10)% (0.18)% (0.57)% Portfolio Turnover Rate 3.28 3.94 2.61 3.42 1.83 The accompanying notes are an integral part of the financial statements. The Fairmont Fund Notes to Financial Statements December 31, 2001 (1) Organization The Fairmont Fund (The Fund) is a no-load, diversified series of The Camelot Funds, formerly The Fairmont Fund Trust (The Trust), which is a Kentucky business trust and an open-end investment company registered under the Investment Company Act of 1940. The Fund was established under a Declaration of Trust dated December 29, 1980 and began offering its shares publicly on September 2, 1981. The Fund's objective is capital appreciation which it seeks to achieve by investing in equity securities that its Adviser believes are undervalued. (2) Summary of Significant Accounting Policies (a) Valuation of Investment Securities - Purchases and sales of securities are recorded on a trade date basis. Portfolio securities which are traded on stock exchanges or in the over-the-counter markets are valued at the last sale price as of 4:00 P.M. Eastern time on the day the securities are being valued or, lacking any sales, at the mean between the closing bid and asked prices. Fixed income securities are valued by using market quotations, or independent pricing services which use prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Securities and other assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. (b) Gains and Losses on Investment Securities - Gains and losses from sales of investments are calculated on the "identified cost" method. Upon disposition of a portion of the investment in a particular security, it is The Fund's general practice to first select for sale those securities which qualify for long-term capital gain or loss treatment for tax purposes. (c) Repurchase Agreements - The Fund may acquire repurchase agreements from banks or security dealers (the Seller) which the Board of Trustees and the Adviser have determined creditworthy. The Seller of the repurchase agreement is required to maintain the value of collateral at not less than the repurchase price, including accrued interest. Securities pledged as collateral for repurchase agreements are held by The Fund's custodian in the Federal Reserve/Treasury book-entry system. (d) Capital Shares - The Fund records purchases of its capital shares at the daily net asset value next determined after receipt of a shareholder's check or wire and application in proper form. Redemptions are recorded at the net asset value next determined following receipt of a shareholder's written request in proper form. (e) Estimates and Assumptions - The preparation of financial statements in conformity with generally accepted accounting principles requires The Fund to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (f) The Fund may periodically make reclassifications among certain of its capital accounts as a result of the recognition and characterization of certain income and capital gain distributions determined annually in accordance with Federal Tax Regulations which may differ from Generally Accepted Accounting Principles. The Fairmont Fund Notes to Financial Statements December 31, 2001 (3) Investment Advisory Agreement, Commissions and Related Party Transactions The Investment Advisory Agreement (the Agreement) provides that The Sachs Company (the Adviser) will pay all of The Trust's operating expenses, excluding brokerage fees and commissions, taxes, interest and extraordinary expenses. Under the terms of the Agreement, The Fund pays the Adviser a fee at the rate of 2% of the first $10,000,000 of average daily net assets, 1-1/2% of the next $20,000,000, and 1% of the average daily net assets over $30,000,000. The management fee is accrued daily and paid monthly. The Adviser received management fees of $152,610 for the year ending December 31, 2001. Morton H. Sachs, a trustee of The Fund, is the president and sole shareholder of the Adviser. The Adviser, as a registered broker-dealer of securities, effected substantially all of the investment portfolio transactions for The Fund. For this service the Adviser received commissions of $111,184 for the year ending December 31, 2001. Certain officers and/or Trustees of The Fund are officers of the Adviser. (4) Distributions to Shareholders The following is a summary of distributions to shareholders for the year ended December 31, 2001. No distributions were made in the year ended December 31, 2000. Type Date Declared Paid in Cash Reinvested Total Per Share Amount ---- ------------- ------------ ---------- ----- ---------------- Income 12/31/2001 1,512 30,614 32,128 .09445 Return of Capital 12/31/2001 2,010 40,695 42,703 .12555 ----- ------ ------ ------ Total 3,522 71,309 74,831 .22000 (5) Investments For the year ending December 31, 2001, the cost of purchases and proceeds from sales of investments, other than temporary cash investments, were $22,142,696 and $22,807,991 respectively. Following is information regarding unrealized appreciation (depreciation) and aggregate cost of securities based upon federal income tax cost at December 31, 2001. The difference between book cost and tax cost consists of wash sales in the amount of $82,378. Tax Cost Aggregate gross unrealized appreciation for all securities with value in excess of cost...................................$ 813,586 Aggregate gross unrealized depreciation for all securities with cost in excess of value.......... ( 436,463) ---------- Net unrealized appreciation............................$ 377,123 =========== Aggregate cost of securities...........................$ 5,979,992 =========== The Fund has $1,683,049 of Capital loss carryforwards which will expire in 2008 and $384,455 expiring in 2009. The Fairmont Fund Notes to Financial Statements December 31, 2001 (6) Income Taxes It is The Fund's policy to comply with the special provisions of the Internal Revenue Code available to investment companies and, in the manner provided therein, to distribute substantially all of its income to shareholders. Therefore no tax provision is required. (7) There are no reportable financial instruments which have any off-balance sheet risk as of December 31, 2001. (8) At December 31, 2001 an indefinite number of capital shares (no par value) were authorized, and paid-in capital amounted to $8,198,088. Transactions in capital shares were as follows: Shares sold..................... 35,379 Shares reinvested............... 3,769 Shares redeemed................. ( 111,186) -------- Net decrease.................... ( 72,038) ========== Shares outstanding: Beginning of period........ 415,950 =========== Ending of period........... 343,912 =========== INDEPENDENT AUDITOR'S REPORT To The Shareholders and Board of Directors: Fairmont Fund We have audited the accompanying statement of assets and liabilities of Fairmont Fund (a series of the Camelot Funds), including the schedule of investments, as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31 2001, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Fairmont Fund as of December 31 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ McCurdy & Associates CPA's, Inc. Westlake, Ohio January 18, 2002 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Board of Trustees Morton H. Sachs Jennifer S. Dobbins Maurice J. Buchart Jane W. Hardy Boyce F. Martin, III Investment Adviser The Sachs Company 1346 South Third St. Louisville, KY 40208 Dividend Paying Agent, Shareholders' Servicing Agent, Transfer Agent Mutual Shareholder Services 8869 Brecksville Rd., Suite C Brecksville, Ohio 44141 Custodian Firstar Bank, N.A. 425 Walnut Street Cincinnati, OH 45202 Counsel Thompson Hine LLP 312 Walnut Street 14th Floor Cincinnati, OH 45202-4089 Independent Auditors McCurdy & Associates CPA's, Inc. 27955 Clemens Rd Westlake, Ohio 44145 This report is provided for the general information of the shareholders of The Fairmont Fund. This report is not intended for distribution to prospective investors in the Fund, unless preceded or accompanied by an effective prospectus.