N-CSR 1 frankncsr200609.htm

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: 811-21532


Frank Funds

(Exact Name of Registrant as Specified in Charter)


6 Stacy Court, Parsippany, NJ  07054

(Address of Principal Executive Offices)  (Zip Code)


Alfred C. Frank, Frank Capital Partners LLC

6 Stacy Court, Parsippany, NJ  07054

(Name and Address of Agent for Service)


With copy to:

JoAnn M. Strasser, Thompson Hine LLP

312 Walnut Street, 14th Floor, Cincinnati, Ohio  45202


Registrant’s Telephone Number, including Area Code:  973-887-7698


Date of fiscal year end: June 30


Date of reporting period: June 30, 2006


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. § 3507.


Item 1.  Reports to Stockholders.



 

 

 

 

 

 

 

 

Frank Value Fund

 

 

 

 

 

 

 

 

 

ANNUAL REPORT

June 30, 2006

 

 

 

 

 

 

 

 


 

 

To our fellow shareholders,

 

The Frank Value Fund completed its 2006 fiscal year, which is the period from July 1, 2005 to June 30, 2006. During this period, the Fund returned 8.30% compared to 8.67% for the S&P 500 index.

 

While the overall return of the Fund was average in this period, several of our investments had a significant effect on our results. Early in the fiscal year we sold out of our holdings in Quanta Services, a contractor in the power, gas, and cable television industries. We purchased the shares at extremely depressed prices ($6.24 per share) based on Quanta's free cash flow, and sold them for a 69% gain at $10.51 per share. After we sold our shares, the price surged to over $18. As value investors we are used to this situation because in our view, investor pessimism can drive prices below a company's intrinsic value, while extreme optimism can drive drives above this value. We cannot predict the extremes of investor behavior but we believe we can profit from it nonetheless.

 

Other notable gains include Telewest, a cable and broadband provider in the United Kingdom. We purchased these shares for $13.84 and sold them at $22.48 for a 62% gain. We were forced to sell our holdings in Omnova Solutions at $6.67 when they were hyped by CNBC's Jim Cramer on his television program. We purchased these shares for $3.92, leaving us with a 70% gain. While we felt that Omnova's improving results would ultimately justify a higher stock price than $6.67, current fundamentals did not support this price, so we were forced to sell. After the hype subsided, the shares drifted lower and now reside in the high $5 range, validating our decision.

 

On the losing side, Expedia declined sharply from our initial purchase price of $22.98, to $14.99 at the end of the quarter. This 35% loss was triggered by the company's slower booking, growth combined with increased investments in technology, infastructure, and advertising. We believe the market has taken a very short-term view of these developments and is ignoring Expedia's favorable competitive position in the online travel market. We have confidence that the increased expenditures will make Expedia a stronger company in the long-term. While profits may be sacrificed in the short-term, the firm still generates substantial free cash flow and seems very undervalued at these prices. Acting on our analysis, we added to our Expedia shares as the price declined, which lowers our average cost of Expedia to below $20 per share.


 

 

Superior Industries also saw losses in its stock price. This manufacturer of aluminum wheels for automobiles has been hit by the woes of the Detroit automakers. While this condition was what initially attracted us to the stock because the price had already declined substantially, the outlook has not yet improved after we bought our position. However, Superior has a strong balance sheet with no debt, and appears to have excellent management with a significant financial stake in the business. Early signs appear to suggest things are starting to turn around for the company, as weaker competitors are exiting the North American wheel market.

 

Towards the end of the fiscal year, the markets became more volatile. This created what we believe to be great opportunity, as some very good businesses became available at prices we were willing to pay. As a result, we have been doing a lot more buying than selling and believe the investments we are making now set us up for favorable results.

 

Thank you for your investment. We look forward to continue working with you.

 

Sincerely,

Alfred and Brian Frank

Frank Value Fund Portfolio Managers

 

 

 

 

 

 

 

 

 

 

 


 

 

AVERAGE ANNUAL RATE OF RETURN (%)

FOR YEAR ENDED JUNE 30, 2006

 

 

1 Year

Since Inception (7/21/2004)

Frank Value Fund

8.30%

  7.74%

S&P 500 Index

7.74%

 9.42%

 

 

 

This chart assumes an initial investment of $10,000 made on 7/21/2004 (commencement of operations).  Total return is based on the net change in NAV and assumes reinvestment of all dividends and other distributions. Performance figures represent past performance which is not predictive of future performance.   Investment return and principal value will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.

 

The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares.

 

Current performance may be lower or higher than the performance data quoted.  To obtain performance data current to the most recent month end, please call  (888)-217-5426.


 

 

The following chart gives a visual breakdown of the Fund by the industry sectors the underlying securities represent as a percentage of the portfolio of investments.

 

 

 

 

 

 

 

 

 

 

 


 

 

Shares

 

Value

 

 

 

 COMMON STOCKS  -  94.65%

 

 Cable and Other Pay Television Services -  2.97%

 

                        540

Liberty Global, Inc.*

 $                11,610

                        157

Liberty Global Series C*

                     3,229

 

 

                   14,839

 Electronic Components & Accessories -  1.59%

 

                        862

Kemet Corp.*

                     7,947

 

 

 

 Electronic Computers -  5.19%

 

                     1,059

Dell, Inc.*

                   25,903

 

 

 

 Electronic Connectors -  3.58%

 

                        649

Tyco International Ltd.

                   17,847

 

 

 

 Electronic Services -  2.73%

 

                        508

Mirant Corp.*

                   13,614

 

 

 

 Fire, Marine & Casualty Insurance -  12.37%

 

                        219

Arch Capital Group Ltd.*

                   13,022

                          16

Berkshire Hathaway Class B *

                   48,688

 

 

                   61,710

 Household Furniture -  2.47%

 

                        913

Tempur-Pedic International, Inc.*

                   12,335

 

 

 

 Machine Tools, Metal Cutting Types -  1.69%

 

                        618

Thermadyne Holdings Corp.*

                     8,405

 

 

 

* Non-Income Producing Securities during the period.

   The accompanying notes are an integral part of these financial statements.


 

 

Shares

 

Value

 

 

 

 COMMON STOCKS  - 94.65%

 

 Miscellaneous Business Credit -  1.59%

 

                        288

PHH Corp.*

                     7,932

 

 

 

 Motor Vehicle Parts & Accessories -  2.04%

 

                        557

Superior Industries International, Inc.

                   10,188

 

 

 

 Motorcycles, Bicycles & Parts -  3.38%

 

                        307

Harley Davidson, Inc.

                   16,851

 

 

 

 Optical Instruments & Lenses -  6.71%

 

                   13,672

Meade Instruments Corp.*

                   33,496

 

 

 

 Pharmaceutical Preparations -  1.41%

 

                        995

QLT, Inc.*

                     7,045

 

 

 

 Real Estate -  1.51%

 

                        222

MI Developments, Inc.

Class A

                     7,528

 

 

 

 Real Estate Investment Trusts -  5.07%

 

                        376

American Home Mortgage Investment Corp.

 $                13,859

                        814

Highland Hospitality Corp.

                   11,461

 

 

                   25,320

 Retail - Catalog & Mail Order Houses -  2.96%

 

                        270

CDW Corp.

                   14,756

 

* Non-Income Producing Securities during the period.

   The accompanying notes are an integral part of these financial statements.

 

Shares

 

Value

 

 

 

 COMMON STOCKS  - 94.65%

 

 Retail - Variety Stores -  2.28%

 

                     1,085

99 Cents Only Stores*

                   11,349

 

 

 

 Security Brokers, Dealers & Flotation Companies  1.91%

                        464

Waddell & Reed Financial, Inc.

                     9,540

 

 

 

 Semiconductors & Related Devices -  6.90%

 

                        504

Freescale Semiconductor, Inc.*

                   14,616

                     1,043

Intel Corp.

                   19,817

 

 

                   34,433

 Services - Business Services, NEC -  3.50%

 

                        886

E Speed, Inc.*

                     7,380

                        322

Viad Corp.

                   10,079

 

 

                   17,459

 Services - Computer Processing & Data Preparation  3.09%

                        680

Infospace, Inc.*

                   15,416

 

 

 

 Services - Educational Services  2.43%

 

                        406

Career Education Corp.*

                   12,135

 

 

 

 Services - Engineering Services  -  3.26%

 

                        305

Washington Group International, Inc.*

                   16,269

 

 

 

 Services - Prepackaged Software -  4.25%

 

                        909

Microsoft Corp.

                   21,180

 

* Non-Income Producing Securities during the period.

   The accompanying notes are an integral part of these financial statements.


 

 

Shares

 

Value

 

 

 

 COMMON STOCKS  - 94.65%

 

 Telephone Communications (No Radiotelephones) -  2.20%

               796

IDT Corp.*

           10,977

 

 

 

 Transportation Services -  3.18%

 

            1,059

Expedia, Inc.*

           15,874

 

 

 

 Water Transportation -  1.98%

 

            1,727

Rand Logistics, Inc.*

             9,861

 

 

 

 Wholesale - Motor Vehicles & Motor Vehicle Parts & Supplies -  2.41%

               541

Adesa, Inc.

           12,032

 

 

 

 

TOTAL FOR COMMON STOCKS (Cost $458,079) - 94.65%

 $      472,241

 

 

 

 SHORT TERM INVESTMENTS -  5.36%

 

          26,759

First American Treasury Obligations Fund  

    Class A 4.66%** (Cost $26,759)

 $        26,759

 

 

 

TOTAL INVESTMENTS - 100.01%

         499,000

          (Identified Cost  $484,838)

 

 

 

 

OTHER ASSETS LESS LIABILITIES, NET - (0.01)%

               (40)

 

 

 

NET ASSETS  - 100.00%

 $      498,960

 

* Non-Income Producing Securities during the period.

** Variable rate security; the coupon rate shown represents the rate at June 30, 2006. 

   The accompanying notes are an integral part of these financial statements

.


 

 

Assets:

 

     Investments, at Value

 $ 499,000

          (Identified Cost  $484,838)

 

     Cash

           100

     Receivables:

 

          Dividends and Interest

           454

               Total Assets

    499,554

Liabilities:

 

     Accrued Management Fees

           594

               Total Liabilities

           594

Net Assets

 $ 498,960

 

 

Net Assets Consist of:

 

     Net Capital Paid on Shares of Capital Stock

    466,004

     Accumulated Net Investment Loss

     (1,240)

     Accumulated Realized Gain on Investments

      20,034

     Net Unrealized Appreciation in Value of Investments

      14,162

Net Assets

 $ 498,960

 

 

Shares Outstanding

      43,926

 

 

Net Asset Value Per Share

 $     11.36

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


 

 

Investment Income:

 

     Dividends (net of foreign taxes $13 withheld)

 $     3,021

     Interest

        1,075

          Total Investment Income

        4,096

 

 

Expenses:

 

     Advisory fees (Note 3)

        5,336

          Total Expenses

        5,336

 

 

 

 

Net Investment Loss

     (1,240)

 

 

Realized and Unrealized Gain (Loss) from Investments:

 

     Realized Gain from Investments

      25,472

     Net Decrease in Unrealized Appreciation on Investments

     (1,489)

 

 

Net Realized and Unrealized Gain from Investments

      23,983

 

 

Net Increase in Net Assets Resulting from Operations

 $   22,743

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


 

 

 

Year

Period *

 

ended

ended

 

6/30/2006

6/30/2005

Increase (Decrease) in Net Assets from Operations:

 

 

     Net Investment Loss

 $(1,240)

 $   (977)

     Net Realized Gain from Investments

    25,472

      4,057

     Unrealized Appreciation (Depreciation) on

         Investments

   (1,489)

    15,651

     Net Increase in Net Assets Resulting from

         Operations

    22,743

    18,731

 

 

 

Distributions to Shareholders

   (8,518)

 -

 

 

 

Capital Share Transactions (Note 6)

  214,013

  151,991

 

 

 

Total increase

  228,238

  170,722

 

 

 

Net Assets:

 

 

Beginning of period

  270,722

  100,000

 

 

 

End of period

$498,960

$270,722

 

 

 

 

 

 

 

* For the Period July 21, 2004 (commencement of investment operations) through June 30, 2005

 

The accompanying notes are an integral part of these financial statements.


 

 

Selected data for a share outstanding throughout the period.

 

 

Year

Period *

 

 

ended

ended

 

 

6/30/2006

6/30/2005

 

 

 

 

 

Net Asset Value, Beginning of Period

$10.76

$10.00

 

Income From Investment Operations:

 

 

 

  Net Investment Loss (a)

           (0.04)

             (0.05)

 

  Net Gains on Investments

 

 

 

       (Realized and Unrealized)

        0.92

          0.81

 

     Total from Investment Operations