BOND FUNDS
MULTI-ASSET FUND
STOCK FUNDS
MASON STREET
FUNDS
First
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ANNUAL REPORT
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MARCH 31, 1998
<PAGE>
This report is submitted for the general information of shareholders of Mason
Street Funds(SM). It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective Prospectus for the Funds, which
contains more information concerning the Funds' investment policies, as well
as fees and expenses and other pertinent information. Read the Prospectus
carefully.
March 31, 1998
LETTER TO SHAREHOLDERS
<PHOTO>
JAMES D. ERICSON
In this first annual report to investors in the Mason Street series of mutual
funds, we are pleased to report excellent investment performance. Both equity
and bond markets have risen since the Funds began offering shares a year ago,
with the stock market, as measured by the Standard & Poor's 500(R) Index,
delivering an extraordinary 47.9 percent total return for the 12 months ended
March 31, 1998. All of the Mason Street equity funds have benefited from this
market strength, and the Aggressive Growth Fund outperformed the two indices of
small-capitalization stocks with which it is compared. The bond market has been
strong, as well, and each of the three bond funds has outperformed the index
with which it is compared. Of course, past performance cannot be considered an
indication of future performance; this applies equally to the markets in general
and to these particular Funds.
The forces behind this continued market strength are the same as in recent years
- - a steadily expanding economy virtually devoid of inflation. For nearly 20
years, the Federal Reserve Bank and most of its counterparts around the world
have been practicing sound monetary policies: in order to conquer inflation,
they have been willing to risk slow growth and even recession. It now appears
that the goal of price stability has been achieved. The positive surprise has
been that there has been no major recession, in large part because technological
advances are producing major gains in productivity. In addition, the expansion
of capitalism throughout the world, accompanied by increasingly free trade, is
generating non-inflationary growth by expanding markets for consumer and
industrial products.
A recently published study has compared the rapid pace of technological advance
of the late 20th century to the discovery of electricity near the end of the
19th century. After electricity was discovered, many years passed before the
economy realized its benefits because manufacturers were slow to adapt new
systems that took full advantage of electric power. If the analogy holds true,
there is a possibility that advances in computer technology could drive economic
growth and improve living standards for many years to come.
The only major negative force affecting world markets today is the economic
crisis in Asia. With sharply devalued currencies and shaky economies, Asian
nations, which were formerly active importers, have less ability to purchase
U.S. consumer and industrial products. At the same time, countries with devalued
currencies can use their productive capacity to flood world markets with goods
that are cheap in dollars, creating difficult competitive situations for other
global manufacturers. However, initial statistics about the first quarter of
1998 indicate that the domestic economy is so strong that the impact of weakened
demand from Asia is overshadowed. Still, there are signs that the problems in
Asia are beginning to exert downward pressure on demand in some sectors,
especially computers.
In recent years, the stock market has moved rather steadily upward; there has
not been a major setback since 1990. The bond market has also been generally
strong, though not as consistently as the stock market. Although both stocks and
bonds may continue to perform well, there are limits. Stock prices today are
quite high by almost any traditional measure. Bond prices, too, have already
reflected most of the positive factors in the market and the economy.
Over the last ten years, many new investors have come into the market. This
trend can be attributed partially to demographics, as baby boomers move into an
age group when saving begins to supplant spending. Increased demand for
financial assets has been among the factors driving stock prices higher. The
news of soaring stock prices has attracted even more investors, some of whom
have unrealistic expectations. There is the possibility that some of these new
investors will panic and begin selling as the market returns to a normal pattern
of volatility; if that happens, the result will be even wider swings up and
down.
Markets do fluctuate; this is a reality of investing. While we see no reason to
expect a near-term slump, we cannot expect the economy and markets to continue
improving at the current pace. We continue to enjoy the current favorable
environment, while placing our major focus on investing for the long term. We
urge you to maintain a long-term view as well.
We thank you for selecting Northwestern Mutual's Mason Street FundsSM, and we
look forward to investing for you for many years.
Mason Street Funds(SM)
/s/ James D. Ericson
JAMES D. ERICSON
President
<PAGE>
MASON STREET FUNDS
TABLE OF CONTENTS
Performance Summary 3
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Overview and Outlook 4
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Aggressive Growth Stock Fund 6
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International Equity Fund 9
- ------------------------------------------
Growth Stock Fund 12
- ------------------------------------------
Growth and Income Stock Fund 15
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Index 500 Stock Fund 18
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Asset Allocation Fund 25
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High Yield Bond Fund 30
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Municipal Bond Fund 34
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Select Bond Fund 37
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Financial Statements 41
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Notes to Financial Statements 68
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Report of Independent Accountants 72
- ------------------------------------------
Directors and Officers 73
- ------------------------------------------
<PAGE>
MARCH 31, 1998
<TABLE>
PERFORMANCE SUMMARY
For the Twelve Months Ended March 31, 1998
CLASS A - WITHOUT INITIAL SALES CHARGE
<CAPTION>
Growth
Aggressive Inter- and High
Total Return<F1> Growth national Growth Income Index 500 Asset Yield Municipal Select
(as of 3/31/98) Stock Equity Stock Stock Stock Allocation Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
ONE YEAR<F2> 51.57% 8.19% 45.08% 41.90% 46.35% 28.51% 22.95% 11.73% 12.11%
- -----------------------------------------------------------------------------------------------------------------
CLASS A<F3> - WITH INITIAL SALES CHARGE
Growth
Aggressive Inter- and High
Total Return<F1> Growth national Growth Income Index 500 Asset Yield Municipal Select
(as of 3/31/98) Stock Equity Stock Stock Stock Allocation Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
ONE YEAR<F2> 44.36% 3.04% 38.17% 35.14% 39.38% 22.39% 17.09% 6.41% 6.77%
- -----------------------------------------------------------------------------------------------------------------
CLASS B WITHOUT CONTINGENT DEFERRED SALES CHARGE
Growth
Aggressive Inter- and High
Total Return<F1> Growth national Growth Income Index 500 Asset Yield Municipal Select
(as of 3/31/98) Stock Equity Stock Stock Stock Allocation Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
ONE YEAR<F2> 50.59% 7.49% 44.12% 40.96% 45.44% 27.69% 22.09% 10.93% 11.34%
- -----------------------------------------------------------------------------------------------------------------
CLASS B<F4> WITH CONTINGENT DEFERRED SALES CHARGE
Growth
Aggressive Inter- and High
Total Return<F1> Growth national Growth Income Index 500 Asset Yield Municipal Select
(as of 3/31/98) Stock Equity Stock Stock Stock Allocation Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
ONE YEAR<F2> 46.59% 3.49% 40.12% 36.96% 41.44% 23.69% 18.09% 6.93% 7.34%
- -----------------------------------------------------------------------------------------------------------------
<FN>
<F1> Returns shown include fee waivers in effect and deductions for all Fund expenses. In the absence of fee waivers,
total return would be reduced. Past performance 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.
<F2> Inception date is March 31, 1997.
<F3> Class A performance reflects the maximum sales charge of 4.75%.
<F4> Class B performance reflects a 4% maximum contingent deferred sales charge (CDSC) for Funds held at least one year.
</TABLE>
<PAGE>
MASON STREET FUNDS
OVERVIEW AND OUTLOOK
THE ECONOMY
During 1997, the domestic economy continued its seven-year trend of moderate
growth with minimal inflation, low interest rates and very low unemployment. A
favorable combination of technology improvements, plentiful supplies of basic
commodities such as oil, and stable monetary policies are keeping inflation low.
Low interest rates encourage capital investment, which stimulates the industrial
sector while improving productivity. For consumers, modest income gains can
translate to real improvements in living standards, as confident consumers spend
and invest, providing further strength for the economy. The strong economy has
bolstered tax revenues, enabling the Federal government to develop a balanced
budget for 1999, following 30 years of deficits.
In early 1998, continued low interest rates stimulated capital spending, while
strong job growth and low inflation inspired a high level of consumer
confidence, driving strong consumption trends. Since consumer spending accounts
for two-thirds of gross domestic product, many economists have recently raised
their forecasts of growth for 1998 to the 3 to 3.5 percent range.
ECONOMIC GROWTH AND INFLATION
% Change
--------
Year REAL GDP CPI-U
- ---- -------- -----
1988 3.8% 4.4%
1989 3.4% 4.6%
1990 1.3% 6.1%
1991 -1.0% 3.1%
1992 2.7% 2.9%
1993 2.3% 2.7%
1994 3.5% 2.7%
1995 2.0% 2.5%
1996 2.2% 3.3%
1997 3.8% 1.7%
Source: U.S. Department of Commerce. Year-to-year percentage change in Real
Gross Domestic Product is used for real economic growth. December-to-December
percentage change in the Consumer Price Index - Urban is used for the inflation
rate.
THE EQUITY MARKET
The equity market continued its unprecedented rise during 1997 and early 1998.
For the 12 months ended March 1998, the Standard & Poor's 500R Index provided
investors an extraordinary 47.9 percent total return.
At the end of March 1998, the Dow Jones Industrial Average was on the verge of
breaking through the 9000 level; the S&P 500R Index was within one percentage
point of its record level. Excellent performance of smaller-capitalization and
technology stocks during the first quarter of 1998 pushed the NASDAQ Composite
to an all-time high; this index has risen over 50% during the last 12 months and
nearly 17% in the first quarter alone. Markets in Europe have also been
extraordinarily strong over the last year, especially during the first quarter
of 1998. Only in Asia, where financial problems are rampant, have markets been
down over the last year; one sign of possible improvement in the region is a
modest increase in Japan's Nikkei Index during the first calendar quarter of
1998.
ANNUAL TOTAL RETURNS FROM S&P 500R INDEX
Calendar
Years
-----
1988 16.6%
1989 31.7%
1990 -3.1%
1991 30.5%
1992 7.6%
1993 10.1%
1994 1.2%
1995 37.4%
1996 22.8%
1997 33.4%
Source: Standard & Poor's
<PAGE>
MARCH 31, 1998
THE BOND MARKET
The last 12 months have been quite good for bond performance, as interest rates
dropped substantially. When the Federal Reserve left interest rates unchanged in
March, the bond market, which had considered tighter monetary policy a
possibility, strengthened further. However, tighter monetary policy, which could
drive bond prices down, seems a possibility for the next few months because
economic growth remains strong.
The impact of the economic crisis in Asia on the U.S. economy has been minimal
to date. For the U.S. bond market, Asian problems have been a plus, as investors
seeking safety purchase U.S. securities. If economic conditions in Asia improve
and investment funds begin to flow back into the region, this could be negative
for the U.S. markets.
The prospect for faster economic growth without inflation may create a new
paradigm for bond managers. In the past, stronger economic growth was considered
a signal to sell bonds, since rising interest rates drive bond prices down. In
an economy without inflation, more stable performance of bonds is a possibility.
ANNUAL TOTAL RETURNS FROM
MERRILL LYNCH DOMESTIC MASTER INDEX
Calendar
Years
-----
1988 8.0%
1989 14.2%
1990 9.1%
1991 15.9%
1992 7.6%
1993 10.0%
1994 -2.8%
1995 18.5%
1996 3.6%
1997 9.7%
Source: Merrill Lynch. The Merrill Lynch Domestic Master Index is an unmanaged
market value weighted index comprised of U.S. government, mortgage and
investment-grade corporate bonds.
<PAGE>
MASON STREET FUNDS
AGGRESSIVE GROWTH STOCK FUND
OBJECTIVE: To seek long-term growth of capital primarily by investing in the
common stocks of companies that can be expected to increase their sales and
earnings at a pace that will exceed the growth rate of the U.S. economy over an
extended period.
PORTFOLIO: Primarily common stocks of small and medium-sized companies.
STRATEGY: To locate and invest in companies with above-average potential for
growth.
NET ASSETS: $43,510,325
The Aggressive Growth Stock Fund owns the stocks of emerging growth companies,
generally with market capitalizations of less than $3 billion. Since growth
stock portfolios tend to react strongly to changes in financial and economic
markets, as well as to changes in the prospects for individual companies,
returns of this Fund can vary considerably from time to time. A higher level of
risk (with risk defined as variability of returns over time) is accepted for the
potential of greater long-term returns.
The Fund performed well during its first year, with total returns that surpassed
the two Wilshire indexes with which it is compared, as well as the S&P 500(R)
Index. Small-capitalization stocks in general performed well during this 12-
month period, following a period of underperformance relative to larger issues.
The Fund's focus in stock selection is on the individual companies' ability to
generate revenue, expanding profit margins and solid balance sheets; industry
sector selection is of secondary importance. However, opportunities tend to
cluster in certain industry groups or sectors. The Fund is concentrated in four
sectors in which there are numerous companies with particularly promising
prospects for growth: technology, business services, consumer cyclicals and
healthcare.
Performance of the Fund's technology sector has been enhanced by a concentration
in software companies, rather than in equipment. The position in healthcare has
been increased, with more emphasis on medical devices and supplies, which are
less dependent on third-party reimbursement than health services. The energy
position has been reduced, with most of the remaining stocks concentrated in
deep water drilling for natural gas, a segment where capacity is tight. The
broad category of business and personal services remains a major area of
interest, with positions in consulting firms and companies that benefit from the
trend to outsourcing by businesses.
SECTOR ALLOCATION
3/31/98
Technology 28%
Consumer 19%
Business Services 15%
Healthcare 12%
Energy 6%
Finance 6%
Capital Goods 5%
Transportation 5%
Cash Equivalents 2%
Other Assets 2%
TOP 10 HOLDINGS
3/31/98
Company % Net Assets
- -------------------------------------------------------
Metzler Group, Inc. 2.3%
PeopleSoft, Inc. 2.2%
Kaydon Corporation 2.1%
Cintas Corp. 2.1%
HBO & Company 2.1%
Paychex, Inc. 2.0%
Lincare Holdings, Inc. 2.0%
Saville Systems PLC-ADR 2.0%
Cambridge Technology Partners, Inc. 2.0%
Cendant Corp. 1.9%
<PAGE>
MARCH 31, 1998
PERFORMANCE RELATIVE TO RELEVANT INDICES
3/31/97 9/30/97 3/31/98
- --------------------------------------------------------------------------------
Aggressive Growth Stock Fund Class A 9,524 13,152 14,436
Aggressive Growth Stock Fund Class B 10,000 13,770 15,059
Aggressive Growth Stock Fund Class B Redemption Value 14,659
Wilshire Small Cap Index 10,000 13,410 14,644
Wilshire Next 1750 Index 10,000 13,454 14,580
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
Aggressive Growth Stock Fund
(Class A - without initial sales charge) 51.57%
- -------------------------------------------------------
Wilshire Small Cap Index 46.44%
- -------------------------------------------------------
Wilshire Next 1750 Index 45.80%
- -------------------------------------------------------
Since the Fund invests primarily in small and medium-capitalization issues, the
indices that best reflect the Fund's performance are the Wilshire Next 1750
Index and Wilshire Small Cap Index. The indices cannot be invested in directly
and do not include sales charges.
The Wilshire Next 1750 is an unmanaged, equally weighted index. Included in this
index are those stocks which are ranked 750 to 2500 by market capitalization in
the Wilshire 5000. The largest sectors represented in this index are financial
services, consumer services and basic industry. Its average market
capitalization is approximately $888.7 million as of March 31, 1998.
The Wilshire Small Cap Index is a subset of the Wilshire Next 1750 and includes
250 stocks chosen based upon their size, sector and liquidity characteristics.
Each stock is equally weighted in this unmanaged index. The average market
capitalization is approximately $981.6 million as of March 31, 1998. The largest
sector weightings include financial services, consumer services and technology.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
Stocks of smaller or newer companies, such as those held in this Fund, are more
likely to realize more substantial growth as well as suffer more significant
losses than larger or more established issuers. Investments in such companies
can be both more volatile and more speculative.
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (95.92%)
BUSINESS SERVICES (11.64%)
<F1> ABR Information Services, Inc. 15,800 $444,375
<F1> Billing Information Concepts 20,000 518,750
<F1> Carriage Services, Inc. 2,800 67,200
Cintas Corp. 18,000 931,500
<F1> Interim Services, Inc. 24,600 830,250
<F1> Metzler Group, Inc. 20,000 995,000
<F1> Robert Half International, Inc. 16,650 799,200
<F1> Steven Myers & Associates, Inc. 16,000 284,000
Stewart Enterprises, Inc. 3,500 194,688
---------------------------------------------------------------------
TOTAL 5,064,963
=====================================================================
CAPITAL GOODS (4.90%)
<F1> Brooks Automation, Inc. 1,500 23,625
Kaydon Corporation 22,800 931,950
<F1> Kaynar Technologies, Inc. 15,700 437,638
Omniquip International, Inc. 13,000 321,750
<F1> Triumph Group, Inc. 9,400 417,125
---------------------------------------------------------------------
TOTAL 2,132,088
=====================================================================
COMMUNICATION SERVICES (2.70%)
<F1> Pacific Gateway Exchange, Inc. 12,800 732,800
<F1> Premiere Technologies, Inc. 12,800 443,200
---------------------------------------------------------------------
TOTAL 1,176,000
=====================================================================
CONSUMER CYCLICAL (14.29%)
<F1> Blyth Industries, Inc. 13,800 470,925
<F1> Cendant Corp. 21,300 844,012
<F1> Dollar Tree Stores, Inc. 10,000 531,250
Galileo International, Inc. 11,400 442,462
<F1> Getty Images, Inc. 18,800 472,350
<F1> Jones Apparel Group, Inc. 8,700 479,043
<F1> K&G Men's Center, Inc. 26,850 553,781
<F1> Kohl's Corporation 6,000 490,500
<F1> Michaels Stores, Inc. 2,300 85,963
<F1> O'Reilly Automotive Inc. 26,000 716,625
<F1> Tower Automotive, Inc. 12,300 553,500
<F1> VWR Scientific Products Corporation 16,400 579,125
---------------------------------------------------------------------
TOTAL 6,219,536
=====================================================================
CONSUMER STAPLES (4.69%)
Cardinal Health, Inc. 8,100 714,318
<F1> Chancellor Media Corp. 10,000 458,750
<F1> Clear Channel Communications, Inc. 4,300 421,400
<F1> Heftel Broadcasting Corporation 6,800 304,300
<F1> Ivex Packaging Corporation 5,800 142,100
---------------------------------------------------------------------
TOTAL 2,040,868
=====================================================================
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (5.71%)
<F1> Barrett Resources Corporation 10,900 $380,818
<F1> BJ Services Company 14,800 539,275
<F1> EVI, Inc. 5,700 263,981
<F1> Global Industries, Ltd. 8,100 165,038
<F1> Marine Drilling Companies, Inc. 5,800 125,425
<F1> Nabors Industries, Inc. 6,200 146,863
Tosco Corporation 8,400 296,100
Transocean Offshore Inc. 11,000 565,813
---------------------------------------------------------------------
TOTAL 2,483,313
=====================================================================
FINANCE (6.23%)
<F1> Affiliated Managers Group 18,600 648,675
<F1> ESG Re Limited 10,100 262,600
Investors Financial Services Corp. 13,000 715,000
Life Re Corporation 3,400 250,750
<F1> Trammell Crow Company 29,300 835,050
---------------------------------------------------------------------
TOTAL 2,712,075
=====================================================================
HEALTHCARE (12.42%)
<F1> Concentra Managed Care, Inc. 18,960 583,020
<F1> Lincare Holdings, Inc. 12,500 882,812
<F1> Patterson Dental Company 21,150 655,650
<F1> PhyCor, Inc. 17,600 397,100
<F1> Province Healthcare Company 1,100 28,875
<F1> PSS World Medical, Inc. 24,000 564,000
<F1> Quintiles Transnational Corp. 4,200 202,388
<F1> Quorum Health Group, Inc. 23,250 781,781
<F1> Sybron International Corporation 27,000 705,375
<F1> Wesley Jessen VisionCare, Inc. 18,400 604,900
---------------------------------------------------------------------
TOTAL 5,405,901
=====================================================================
TECHNOLOGY (28.38%)
<F1> Cambridge Technology Partners, Inc. 17,600 872,300
<F1> CBT Group Public Limited Company 15,600 807,300
<F1> Ciena Corp. 9,500 404,938
<F1> Concord EFS, Inc. 21,900 756,919
<F1> Cotelligent Group, Inc. 13,800 408,825
<F1> DSET Corporation 20,000 373,750
<F1> Gemstar International Group Limited 9,400 282,000
General Cable Corporation 12,600 571,725
HBO & Company 15,100 911,663
<F1> IDT Corporation 12,700 476,250
National Data Corporation 10,100 419,781
<F1> Novellus Systems, Inc. 7,200 311,400
<F1> Pairgain Technologies, Inc. 8,300 199,200
Paychex, Inc. 15,400 888,388
PeopleSoft, Inc. 18,400 969,450
<F1> PMC-Sierra, Inc. 11,700 444,600
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (continued)
<F1> Qlogic Corporation 16,300 $578,650
<F1> <F2> Saville Systems PLC-ADR 17,100 876,375
<F1> Semtech Corporation 12,400 316,200
<F1> Tellabs, Inc. 10,700 718,237
<F1> Transaction Systems Architects, Inc. 8,700 338,213
<F1> Uniphase Corporation 10,000 420,625
---------------------------------------------------------------------
TOTAL 12,346,789
=====================================================================
TRANSPORTATION (4.96%)
<F1> Heartland Express, Inc. 18,400 510,600
<F1> Jevic Transportation, Inc. 32,900 493,500
<F1> Knight Transportation, Inc. 18,700 598,400
<F1> Swift Transportation Co., Inc. 22,950 550,800
---------------------------------------------------------------------
TOTAL 2,153,300
=====================================================================
TOTAL COMMON STOCK 41,734,833
=====================================================================
MONEY MARKET INVESTMENTS (1.84%)
FINANCE SERVICES (1.84%)
General Electric Capital Corporation,
6.02%, 4/1/98 $300,000 $300,000
PHH Corp.,
5.54%, 4/15/98 500,000 498,923
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 798,923
=====================================================================
TOTAL INVESTMENTS (97.76%)
(COST $30,413,146)<F3> 42,533,756
=====================================================================
OTHER ASSETS, LESS LIABILITIES (2.24%) 976,569
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $43,510,325
=====================================================================
<F1> Non-Income Producing
<F2> ADR - American Depositary Receipt
<F3> At March 31, 1998, the aggregate cost of securities for federal income
tax purposes was $30,413,146 and the net unrealized appreciation of
investments based on that cost was $12,120,610 which is comprised of
$12,425,733 aggregate gross unrealized appreciation and $305,123
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
MARCH 31, 1998
INTERNATIONAL EQUITY FUND
OBJECTIVE: To seek long-term appreciation of capital by investing primarily in
the common stocks of companies outside the U.S.
PORTFOLIO: Primarily common stocks of companies in foreign countries.
STRATEGY: To locate and invest in the undervalued stocks of foreign companies
offering the greatest discounts to their long-term values.
NET ASSETS: $30,896,757
The International Equity Fund offers investors the opportunity to participate in
the growth of companies in countries throughout the world. The Fund is managed
with a disciplined approach to long-term value, with special attention to
balance sheet quality. Investments are selected based mainly on the
attractiveness of individual securities and geographic regions; industry focus
is a secondary consideration.
International markets have delivered widely varied performance over the last
year. The Fund is concentrated in Europe, where all markets are up and 12-month
increases in some markets, particularly in southern Europe, are as high as 40%.
European financial services stocks have performed particularly well. Crisis
conditions in Asian financial markets have driven stocks down sharply, with
drops in major indexes ranging from 7.5% in Japan (the largest market by far) to
more than 70% in Indonesia. However, most Asian markets rallied in the first
calendar quarter of 1998, and markets in the region remain quite volatile. The
Fund's Asian holdings are concentrated in Hong Kong, where the market is 15%
below the year-ago level.
At the end of March, the Fund held an 11% cash position as a result of recent
cash inflows and the sale of some securities. It is anticipated that this cash
position will be reduced as buying opportunities present themselves in the next
quarter.
The International Equity Fund is managed for Northwestern Mutual Investment
Services, Inc. by Templeton Investment Counsel, Inc.
ASSET ALLOCATION
3/31/98
Europe 56%
Asia 12%
Non-equity Holdings 11%
Latin America 10%
Australia/New Zealand 7%
North America 4%
TOP 10 HOLDINGS
3/31/98
Company % Net Assets
- -------------------------------------------------------
Banque Nationale de Paris 2.9%
British Telecom 2.9%
AXA S.A. 2.9%
News Corporation Limited, Pfd. 2.7%
Scor 2.4%
Renault S.A. 2.2%
The Oshawa Group Ltd., Class A 2.1%
Royal PTT Nederland N.V. 2.0%
YPF S.A., ADR 1.9%
Nycomed Amersham PLC 1.9%
PERFORMANCE RELATIVE TO THE EAFE INDEX
3/31/97 9/30/97 3/31/98
- -----------------------------------------------------------------------------
International Equity Fund Class A 9,524 10,476 10,304
International Equity Fund Class B 10,000 10,970 10,749
International Equity Fund Class B Redemption Value 10,349
EAFE Index 10,000 11,136 11,890
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
International Equity Fund
(Class A - without initial sales charge) 8.19%
- -------------------------------------------------------
EAFE Index 18.90%
- -------------------------------------------------------
As depicted in the graph, the International Equity Fund is compared against the
Morgan Stanley Capital International EAFE ("Europe-Australasia-Far East") Index.
The index is composed of approximately 1,100 companies in 20 countries in Europe
and the Pacific Basin. The objective of the index is to reflect the movements of
stock markets in these countries by representing an unmanaged (indexed)
portfolio within each country. The indices are constructed so that companies
chosen represent about 60% of market capitalization in each market; industry
composition of the market is reflected; and a cross section of large-, medium-,
and small-capitalization stocks is included, taking into account liquidity
concerns. The index is calculated in U.S. dollars. The index cannot be invested
in directly and does not include sales charges.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
Investors should be aware of the risks of investments in foreign securities,
particularly investments in securities of companies in developing nations. These
include the risks of currency fluctuation, of political and economic instability
and of less well-developed government supervision and regulation of business and
industry practices, as well as differences in accounting standards.
<PAGE>
MASON STREET FUNDS
SCHEDULE OF INVESTMENTS
Country Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (87.75%)
CAPITAL EQUIPMENT (11.92%)
BICC PLC U.K. 57,000 $141,265
BTR, PLC A U.K. 167,400 551,529
Dragados &
Construcciones, S.A. Sp. 15,600 513,658
<F1> Granges AB Swe. 7,700 133,879
Hong Kong Aircraft
& Engineering H.K. 135,000 261,348
<F3> Madeco S.A., ADR Chile 17,500 302,969
Nanjing Panda
Electronics Co., Ltd. China 868,000 114,265
New Holland N.V. Neth. 15,000 408,750
Philips Electronic, Inc. Neth. 5,600 410,994
Sirti SPA Italy 39,300 269,700
The Weir Group PLC U.K. 126,200 573,756
---------------------------------------------------------------------
TOTAL 3,682,113
=====================================================================
CONSUMER GOODS (14.68%)
Autoliv, Inc. Swe. 14,400 447,300
CP Feedmill Public
Company Limited Thai. 83,000 143,796
Express Diaries PLC U.K. 37,000 116,482
Fiat SPA Ord. Italy 84,920 354,275
<F3> Fila Holding SPA, ADR Italy 3,800 89,063
Fisher & Paykel
Industries Ltd. N.Z. 102,100 307,631
Medeva PLC U.K. 176,000 492,184
Northern Foods PLC U.K. 74,000 283,769
<F1> Nycomed Amersham PLC U.K. 15,809 593,025
The Oshawa Group Ltd.,
Class A Can. 36,500 660,883
Renault S.A. Fr. 15,100 672,644
Tate & Lyle, PLC U.K. 34,500 300,992
<F3> Teva Pharmaceutical
Industries Ltd., ADR Israel 1,700 72,675
---------------------------------------------------------------------
TOTAL 4,534,719
=====================================================================
ENERGY (7.61%)
<F3> Gazprom, ADR (144a) Rus. 18,200 385,840
Hong Kong Electric H.K. 106,000 364,583
<F3> Korea Electric Power
Corp., ADR Kor. 15,775 156,764
National Grid Group PLC U.K. 26,860 158,661
Petroleo Brasileiro
S.A. - Petrobras Braz. 1,339,000 319,132
Thames Water U.K. 23,000 365,697
<F3> YPF S.A., ADR Arg. 17,700 601,800
---------------------------------------------------------------------
TOTAL 2,352,477
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (17.49%)
AXA S.A. Fr. 8,600 $885,561
Banco Bradesco S.A. Braz. 27,950,000 288,829
Banco Itau S.A. Braz. 94,000 60,349
Banque Nationale de Paris Fr. 11,700 909,246
Credit Commercial de France Fr. 5,800 476,480
Hang Lung Development H.K. 133,000 193,107
<F2> Industrial Credit & Inv. Corp.
of India (144a), GDR India 17,000 259,250
National Mutual Asia Ltd. H.K. 295,000 241,763
<F3> Nortel Inversora S.A., ADR Arg. 15,100 436,013
PartnerRe Ltd. Bermuda 11,500 564,938
Peregrine Investments
Holdings, Ltd. H.K. 66,000 -
<F1> Unibanco Uniao de Bancos Braz. 1,579,000 113,594
Unidanmark A/S, A,
Registered Den. 7,000 556,044
Wing Hang Bank Ltd. H.K. 67,200 199,476
Zurich Versicherungs-
Gesellschaft Swtz. 380 220,597
---------------------------------------------------------------------
TOTAL 5,405,247
=====================================================================
MATERIALS (11.27%)
Boehler-Uddeholm AG Aus. 4,000 271,153
British Steel PLC U.K. 217,100 515,325
Courtaulds PLC U.K. 42,200 254,398
Enso Oy, A shares Fin. 61,000 559,718
Fletcher Challenge Forests N.Z. 4,840 3,371
Fletcher Challenge Paper N.Z. 121,000 170,582
Grupo Mexico, B shares Mex. 73,700 240,533
Hepworth PLC U.K. 58,200 251,444
<F1> <F3> Minorco S.A., ADR Lux. 13,350 220,066
Pechiney S.A. A shares Fr. 9,300 427,786
Pioneer International Ltd. Austrl. 109,700 316,452
Siam City Cement
Public Co., Ltd. Thai. 52,036 139,204
Thai Glass Industries
Public Co., Ltd. Thai. 80,100 112,242
---------------------------------------------------------------------
TOTAL 3,482,274
=====================================================================
MULTI-INDUSTRY (8.17%)
Amer Group Ltd., A Fin. 13,000 250,381
Elementis PLC U.K. 68,280 158,357
Hicom Holdings Berhad Mly. 247,300 141,315
Jardine Matheson Holdings Sing. 62,500 283,750
Metro Pacific Corporation Phil. 2,660,000 164,232
Pilkington PLC U.K. 242,800 496,029
Scor Fr. 13,000 744,853
Swire-Pacific Limited B H.K. 296,000 284,604
---------------------------------------------------------------------
TOTAL 2,523,521
=====================================================================
<PAGE>
MARCH 31, 1998
Country Shares/Par Market Value
---------------------------------------------------------------------
SERVICES (16.61%)
British Telecom U.K. 82,000 $890,476
David Jones Ltd. Austrl. 77,500 89,940
Inchcape Motors Ltd. Sing. 69,000 120,483
<F1> Inchcape Marketing
Services Limited Sing. 69,000 21,576
Marieberg Tidings A Free Swe. 9,200 279,642
Mayne Nickless Ltd. Austrl. 55,700 288,112
News Corporation
Limited, Pfd. Austrl. 147,500 835,337
Osprey Maritime Ltd. Sing. 235,000 127,322
<F3> PT Indosat, ADR Indo. 11,200 172,900
Royal PTT Nederland N.V. Neth. 11,700 606,130
Somerfield PLC U.K. 82,500 494,578
South China Morning
Post Ltd. H.K. 133,000 89,258
Telecomunicacoes Brasileiras
S.A. Telebras ADR Braz. 4,578,500 473,131
<F3> Telefonica del Peru S.A.
B, ADR Peru 17,500 377,344
Thorn PLC U.K. 88,699 225,025
<F1> Waste Management
International PLC U.K. 10,400 39,620
---------------------------------------------------------------------
TOTAL 5,130,874
=====================================================================
TOTAL COMMON STOCK 27,111,225
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
MONEY MARKET INVESTMENTS (11.30%)
FINANCE SERVICES (11.30%)
Associates Corporation of N.A.,
5.56%, 4/30/98 U.S. $1,200,000 $1,194,625
Ford Motor Credit Company,
5.53%, 4/15/98 U.S. 1,000,000 997,850
General Electric Capital
Corporation, 6.02%, 4/1/98 U.S. 1,300,000 1,300,000
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 3,492,475
=====================================================================
TOTAL INVESTMENTS (99.05%)
(COST $29,181,851)<F4> 30,603,700
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.95%) 293,057
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $30,896,757
=====================================================================
<F1> Non-Income Producing
<F2> GDR - Global Depositary Receipt
<F3> ADR - American Depositary Receipt
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F4> At March 31, 1998, the aggregate cost of securities for federal
income tax purposes was $29,417,785 and the net unrealized
appreciation of investments based on that cost was $1,185,915
which is comprised of $4,629,185 aggregate gross unrealized
appreciation and $3,443,270 aggregate gross unrealized depreciation.
INVESTMENT PERCENTAGES BY COUNTRY:
Australia 4.95%
Brazil 4.06%
France 13.32%
Hong Kong 5.29%
Netherlands 4.61%
United Kingdom 20.34%
Other 47.43%
--------------------------------------------------------------------
TOTAL 100.00%
====================================================================
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
MASON STREET FUNDS
GROWTH STOCK FUND
OBJECTIVE: To seek long-term growth of capital by investing in companies
believed to have above-average earnings growth potential; current income is
secondary.
PORTFOLIO: Diversified mix of high-quality growth stocks in medium and large
companies.
STRATEGY: To analyze economic trends to determine their impact on various
sectors and industries and to select high-quality stocks from industries with
the best earnings potential.
NET ASSETS: $39,035,559
The Growth Stock Fund is invested in high-quality companies of large- to medium-
capitalization with strong financial characteristics and the ability to generate
internal growth. A key factor in stock selection is the choice of industries
with good earnings potential, based on analysis of economic trends to determine
their impact on various sectors of the economy. Stock selection is made through
"top down" analysis: first industry and market sector choices are made based on
the economic environment, and then the most promising companies within each
sector are selected as holdings. The Fund remains close to fully invested with
S&P futures used at times to maintain the desired degree of market exposure.
The Growth Stock Fund performed well during its first year, in line with the
market as a whole. Relative to the S&P 500R Index, the Fund is overweighted in
consumer staple and consumer cyclical stocks, which have benefited from
continued strength in consumer spending. The healthcare sector is now
underweighted relative to the market, following the reduction of positions in
several stocks that had generated large gains. Energy and Technology weightings
are approximately equal to the market; increases in the prices of many
technology stocks are making it difficult to find good values in this sector.
Investments in several initial public offerings, including Steelcase, Benckiser
N.V. and Keebler Foods have proven quite successful.
SECTOR ALLOCATION
3/31/98
Consumer Staples 21%
Consumer Cyclicals 14%
Technology 12%
Basic Materials/Capital Goods 11%
Finance 11%
Index Futures 10%
Energy 7%
Healthcare 6%
Other 6%
Cash Equivalents 2%
TOP 10 HOLDINGS
3/31/98
Company % Net Assets
- -------------------------------------------------------
General Electric Company 3.1%
Morgan Stanley Dean Witter & Co. 2.6%
Fiserv, Inc. 2.6%
Kohl's Corporation 2.4%
Travelers Group, Inc. 2.4%
Microsoft Corporation 2.3%
Unilever NV 2.2%
Walgreen Co. 2.2%
Hershey Foods Corporation 2.2%
Franklin Resources, Inc. 2.1%
<PAGE>
MARCH 31, 1998
PERFORMANCE RELATIVE TO S&P 500R INDEX
3/31/97 9/30/97 3/31/98
- ----------------------------------------------------------------------------
Growth Stock Fund Class A 9,524 11,829 13,817
Growth Stock Fund Class B 10,000 12,380 14,412
Growth Stock Fund Class B Redemption Value 14,012
S&P 500 Index 10,000 12,626 14,790
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
Growth Stock Fund
(Class A - without initial sales charge) 45.08%
- -------------------------------------------------------
S&P 500(R) Index 47.90%
- -------------------------------------------------------
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks. The index cannot be invested in directly
and does not include sales charges.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (87.72%)
BASIC MATERIALS (2.36%)
Ecolab, Inc. 19,000 $551,000
Monsanto Company 7,100 369,200
---------------------------------------------------------------------
TOTAL 920,200
=====================================================================
CAPITAL GOODS (8.89%)
AlliedSignal, Inc. 16,400 688,800
Avery Dennison Corporation 13,800 736,575
Boeing Company 6,500 338,812
General Electric Company 14,000 1,206,625
Tyco International Ltd. 9,100 497,088
---------------------------------------------------------------------
TOTAL 3,467,900
=====================================================================
COMMUNICATION SERVICES (3.23%)
AT&T Corp. 2,500 164,062
MCI Communications Corporation 7,000 346,500
<F1> Teleport Communications Group, Inc. 6,100 358,375
<F1> WorldCom, Inc. 9,100 391,869
---------------------------------------------------------------------
TOTAL 1,260,806
=====================================================================
CONSUMER CYCLICAL (13.76%)
Borg-Warner Automotive, Inc. 12,000 769,500
<F1> Federated Department Stores, Inc. 7,300 378,231
Harley-Davidson, Inc. 23,100 762,300
<F1> Kohl's Corporation 11,600 948,300
Steelcase, Inc. 16,700 609,550
The New York Times Company Cl A 9,700 679,000
Tribune Company 9,400 662,700
Wal-Mart Stores, Inc. 11,000 558,938
---------------------------------------------------------------------
TOTAL 5,368,519
=====================================================================
CONSUMER STAPLES (20.43%)
<F1> Benckiser N.V. 9,600 528,000
Campbell Soup Company 11,600 658,300
Hershey Foods Corporation 11,700 838,013
<F1> Keebler Foods Company 22,700 681,000
McDonald's Corporation 4,800 288,000
Newell Co. 12,400 600,625
PepsiCo, Inc. 18,000 768,375
Philip Morris Companies, Inc. 12,300 512,756
Procter & Gamble Company 8,000 675,000
The Quaker Oats Company 4,200 240,450
The ServiceMaster Company 17,000 485,562
Unilever NV 12,400 850,950
Walgreen Co. 24,100 848,019
---------------------------------------------------------------------
TOTAL 7,975,050
=====================================================================
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (7.25%)
British Petroleum Company PLC 3,700 $318,431
Diamond Offshore Drilling, Inc. 9,000 408,375
Exxon Corporation 5,800 392,225
Mobil Corporation 5,200 398,450
<F1> R&B Falcon Corporation 5,700 168,862
Schlumberger Limited 5,900 446,925
Tosco Corporation 12,500 440,625
Transocean Offshore Inc. 5,000 257,188
---------------------------------------------------------------------
TOTAL 2,831,081
=====================================================================
FINANCE (11.40%)
Banc One Corporation 7,260 459,195
BankAmerica Corporation 3,800 313,975
Chase Manhattan Corporation 2,600 350,675
Citicorp 2,400 340,800
Franklin Resources, Inc. 15,600 826,800
Morgan Stanley Dean Witter & Co. 14,100 1,027,537
The Bank of New York Company, Inc. 2,950 185,297
Travelers Group, Inc. 15,750 945,000
---------------------------------------------------------------------
TOTAL 4,449,279
=====================================================================
HEALTHCARE (5.92%)
Bristol-Myers Squibb Company 4,900 511,131
Eli Lilly and Company 7,000 417,375
Guidant Corporation 2,200 161,425
<F1> HEALTHSOUTH Corporation 11,894 333,776
Johnson & Johnson 4,500 329,906
Merck & Co., Inc. 2,800 359,450
Pfizer, Inc. 2,000 199,375
---------------------------------------------------------------------
TOTAL 2,312,438
=====================================================================
TECHNOLOGY (12.15%)
<F1> Cisco Systems, Inc. 6,900 471,788
Compaq Computer Corporation 8,700 225,113
<F1> Fiserv, Inc. 15,700 994,987
Hewlett-Packard Company 8,200 519,675
Intel Corporation 3,500 273,219
International Business Machines
Corporation 6,800 706,350
Lucent Technologies, Inc. 3,300 421,987
<F1> Microsoft Corporation 10,200 912,900
Motorola, Inc. 3,600 218,250
---------------------------------------------------------------------
TOTAL 4,744,269
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
TRANSPORTATION (2.33%)
<F1> AMR Corporation 1,900 $272,056
<F1> FDX Corporation 3,500 248,938
Southwest Airlines Co. 13,200 390,225
---------------------------------------------------------------------
TOTAL 911,219
=====================================================================
TOTAL COMMON STOCK 34,240,761
=====================================================================
MONEY MARKET INVESTMENTS (12.02%)
FINANCE SERVICES (5.11%)
<F2> Associates Corp. of N.A.,
5.56%, 4/30/98 $1,000,000 $995,521
<F2> General Electric Capital Corporation,
5.54%, 4/8/98 1,000,000 998,923
---------------------------------------------------------------------
TOTAL 1,994,444
=====================================================================
FEDERAL GOVERNMENT AND AGENCIES (6.91%)
<F2> Federal Home Loan Bank Discount
Corp., 5.70%, 4/1/98 2,500,000 2,500,000
<F2> Federal National Mortgage
Association, 5.39%, 5/26/98 200,000 198,353
---------------------------------------------------------------------
TOTAL 2,698,353
=====================================================================
TOTAL MONEY MARKET INVESTMENTS 4,692,797
=====================================================================
TOTAL INVESTMENTS (99.74%)
(COST $29,341,934)<F3> 38,933,558
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.26%) 102,001
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $39,035,559
=====================================================================
<F1> Non-Income Producing
<F2> Partially held by the custodian in a segregated account as collateral
for open futures positions. Information regarding open futures
contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuer Contracts Date Appreciation
---------------------------------------------------------------------
S&P 500R Stock Index
(Total market value at
3/31/98, $3,886,750) 14 6/98 $48,969
<F3> At March 31, 1998, the aggregate cost of securities for federal tax
purposes was $29,341,934 and the net unrealized appreciation of
investments based on that cost was $9,591,624 which is comprised of
$9,766,464 aggregate gross unrealized appreciation and $174,840
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
MARCH 31, 1998
GROWTH AND INCOME STOCK FUND
OBJECTIVE: To seek long-term growth of capital and income by investing primarily
in dividend-paying common stocks.
PORTFOLIO: Primarily common stocks of medium and large companies identified as
strong candidates for significant long-term returns.
STRATEGY: To actively manage a portfolio of selected equity securities with a
goal of out-performing the total return of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500R Index").
NET ASSETS: $39,329,618
The Growth and Income Fund invests mainly in large-capitalization stocks, with a
focus on seeking the best values in the market based on long-term earnings
forecasts. A sector balance very close to that of the S&P 500R Index is normally
maintained, with the emphasis on undervalued stocks within each sector; a
valuation discipline mandates the sale of stocks regarded as overvalued. The
last 12 months have been a challenging time for the value-oriented management
style that characterizes this Fund, as a few favorite names have been a major
force in driving the equity market to record heights.
At the end of March, the Fund's three largest holdings were quality companies in
the healthcare field; Warner-Lambert has contributed importantly to the Fund's
performance. In energy, the focus is on domestic refiners, such as Tosco, and on
oil service providers, rather than the major multi-national oil companies. A
newer large holding is StarWood Lodging Trust, a real estate investment trust
with sound management, good growth prospects, and a very favorable, though
complex, tax structure. In finance, regional banks are more prominent than the
money-center banks, which have more international exposure; the largest holding
is First Union Corporation, which is beginning to benefit from an acquisition
made last year. Many other holdings are strong companies with unrealized or
unrecognized potential; these include DuPont, a genuine blue chip company that
is ripe for restructuring; Union Pacific, a strong transportation company with
short-term operational problems; and Kmart, a retailer that appears to have
undergone a successful turnaround.
The Growth and Income Stock Fund is managed for Northwestern Mutual Investment
Services, Inc. by J.P. Morgan Investment Management, Inc.
SECTOR ALLOCATION
3/31/98
Finance 15%
Other Industries 15%
Basic Materials/Capital Goods 14%
Consumer Staples 13%
Healthcare 13%
Consumer Cyclicals 10%
Technology 10%
Energy 8%
Other Assets 2%
TOP 10 HOLDINGS
3/31/98
Company % Net Assets
- -------------------------------------------------------
Warner-Lambert Company 3.2%
Bristol-Myers Squibb Company 2.8%
American Home Products Corporation 2.8%
StarWood Lodging Trust 2.7%
Tosco Corporation 2.6%
MCI Communications Corporation 2.4%
Union Pacific Corporation 2.3%
First Union Corporation 2.3%
Oracle Corporation 2.2%
Marsh & McLennan Companies, Inc. 2.1%
<PAGE>
MASON STREET FUNDS
PERFORMANCE RELATIVE TO S&P 500R INDEX
3/31/97 9/30/97 3/31/98
- --------------------------------------------------------------------------------
Growth and Income Stock Fund Class A 9,524 12,152 13,514
Growth and Income Stock Fund Class B 10,000 12,720 14,096
Growth and Income Stock Fund Class B Redemption Value 13,696
S&P 500 Index 10,000 12,626 14,790
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
Growth and Income Stock Fund
(Class A - without initial sales charge) 41.90%
- -------------------------------------------------------
S&P 500(R) Index 47.90%
- -------------------------------------------------------
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks. The index cannot be invested in directly
and does not include sales charges.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (97.73%)
BASIC MATERIALS (5.61%)
Albemarle Corporation 5,300 $133,825
Allegheny Teledyne, Inc. 6,300 175,219
Dow Chemical Company 3,400 330,650
E.I. du Pont de Nemours & Company 8,900 605,200
Rohm and Haas Company 6,500 671,531
Temple-Inland, Inc. 4,600 285,775
---------------------------------------------------------------------
TOTAL 2,202,200
=====================================================================
CAPITAL GOODS (8.39%)
AlliedSignal, Inc. 17,000 714,000
<F1> Coltec Industries, Inc. 16,300 407,500
Cooper Industries, Inc. 11,300 671,644
Johnson Controls Inc. 7,500 455,156
Tyco International Ltd. 5,848 319,447
Waste Management, Inc. 23,800 733,338
---------------------------------------------------------------------
TOTAL 3,301,085
=====================================================================
COMMUNICATION SERVICES (5.65%)
BellSouth Corporation 2,400 162,150
GTE Corporation 10,900 652,637
MCI Communications Corporation 18,700 925,650
SBC Communications, Inc. 11,000 479,875
---------------------------------------------------------------------
TOTAL 2,220,312
=====================================================================
CONSUMER CYCLICAL (10.35%)
Chrysler Corporation 14,600 606,812
Circuit City Stores, Inc. 7,800 333,450
<F1> Federated Department Stores, Inc. 13,900 720,194
<F1> Fruit of the Loom, Inc. 14,000 428,750
Goodyear Tire & Rubber Company 10,300 780,225
International Game Technology 13,800 345,000
<F1> Kmart Corporation 33,700 562,369
Sears, Roebuck and Co. 5,100 292,931
---------------------------------------------------------------------
TOTAL 4,069,731
=====================================================================
CONSUMER STAPLES (13.04%)
Anheuser-Busch Companies, Inc. 15,800 731,737
PepsiCo, Inc. 11,200 478,100
Philip Morris Companies, Inc. 17,600 733,700
Procter & Gamble Company 8,700 734,063
Ralston Purina Group 3,800 402,800
<F1> Tele Communications, Inc. 37,816 664,144
The Gillette Company 5,100 605,306
<F1> The Kroger Company 4,700 217,081
The Seagram Company Ltd. 14,700 561,356
---------------------------------------------------------------------
TOTAL 5,128,287
=====================================================================
<PAGE>
MARCH 31, 1998
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (8.23%)
Atlantic Richfield Company 4,100 $322,362
British Petroleum Company PLC 7,638 657,345
Exxon Corporation 8,200 554,525
<F1> Input/Output, Inc. 20,400 476,850
Occidental Petroleum Corporation 500 14,656
Schlumberger Limited 2,300 174,225
Tosco Corporation 29,400 1,036,350
---------------------------------------------------------------------
TOTAL 3,236,313
=====================================================================
FINANCE (15.18%)
American Express Company 4,000 367,250
American International Group, Inc. 1,600 201,500
Capital One Financial Corporation 3,800 299,725
First Union Corporation 15,720 892,110
Green Tree Financial Corporation 10,500 298,594
Marsh & McLennan Companies, Inc. 9,600 838,200
MBIA, Inc. 6,400 496,000
Morgan Stanley Dean Witter & Co. 5,900 429,963
NationsBank Corp. 8,400 612,675
Simon Debartolo Group, Inc. 5,800 198,650
Travelers Group, Inc. 13,200 792,000
Washington Mutual, Inc. 7,600 545,063
---------------------------------------------------------------------
TOTAL 5,971,730
=====================================================================
HEALTHCARE (12.62%)
<F1> Alza Corporation 8,700 389,869
American Home Products Corporation 11,400 1,087,275
Bristol-Myers Squibb Company 10,700 1,116,144
Eli Lilly and Company 5,100 304,088
United Healthcare Corp. 12,700 822,325
Warner-Lambert Company 7,300 1,243,281
---------------------------------------------------------------------
TOTAL 4,962,982
=====================================================================
REAL ESTATE INVESTMENT TRUSTS (2.66%)
StarWood Lodging Trust 19,579 1,046,253
---------------------------------------------------------------------
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (10.03%)
AutoDesk, Inc. 3,200 $138,000
<F1> Cisco Systems, Inc. 7,250 495,719
<F1> EMC Corporation 17,100 646,594
First Data Corporation 17,400 565,500
International Business
Machines Corporation 3,800 394,725
<F1> Oracle Corporation 26,900 849,031
Perkin Elmer Corporation 2,800 202,475
Quantum Corporation 9,700 206,731
<F1> Sun Microsystems, Inc. 10,700 446,390
---------------------------------------------------------------------
TOTAL 3,945,165
=====================================================================
TRANSPORTATION (3.09%)
Union Pacific Corporation 16,200 910,237
Wisconsin Central Transportation 10,900 306,903
---------------------------------------------------------------------
TOTAL 1,217,140
=====================================================================
UTILITIES (2.88%)
Enron Corp. 5,700 264,338
New England Electric Systems 10,000 456,875
Northern States Power Company 7,000 413,000
---------------------------------------------------------------------
TOTAL 1,134,213
=====================================================================
TOTAL COMMON STOCK 38,435,411
=====================================================================
TOTAL INVESTMENTS (97.73%)
(COST $33,869,062)<F2> 38,435,411
=====================================================================
OTHER ASSETS, LESS LIABILITIES (2.27%) 894,207
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $39,329,618
=====================================================================
<F1> Non-Income Producing
<F2> At March 31, 1998, the aggregate cost of securities for federal income
tax purposes was $33,911,331 and the net unrealized appreciation of
investments based on that cost was $4,524,080 which is comprised of
$5,225,572 aggregate gross unrealized appreciation and $701,492
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Finanacial Statements.
<PAGE>
MASON STREET FUNDS
INDEX 500 STOCK FUND
OBJECTIVE: To seek investment results that approximate the performance of the
S&P 500R Index, by investing in stocks included in the S&P 500R Index. Because
the S&P 500R Index is an unmanaged index, its return does not reflect the
deduction of expenses that would exist with a mutual fund.
FOCUS: To capture broad market performance, at low cost, by investing in a
portfolio modeled after a broadly based stock index.
NET ASSETS: $47,814,136
The Index 500 Stock Fund is designed to achieve results that approximate the
performance of the Standard & Poor's 500 Composite Stock Price Index. This
composite of 500 stocks of large companies, compiled by Standard & Poor's
Corporation, is generally regarded as a good proxy for the overall U.S. equity
market. The Fund therefore enables investors to participate in overall
performance of the U.S. equity market. In its first year of operation, the Fund
achieved its objective.
SECTOR ALLOCATION
3/31/98
Finance 16%
Consumer Staples 14%
Technology 13%
Basic Materials/Capital Goods 12%
Other 11%
Healthcare 10%
Consumer Cyclicals 9%
Index Futures 8%
Energy 7%
TOP 10 HOLDINGS
3/31/98
Company % Net Assets
- -------------------------------------------------------
General Electric Company 3.0%
Microsoft Corporation 2.3%
The Coca-Cola Company 2.0%
Exxon Corporation 1.8%
Merck & Co., Inc. 1.6%
Pfizer, Inc. 1.4%
Intel Corporation 1.3%
Royal Dutch Petroleum Co., ADR 1.3%
Wal-Mart Stores, Inc. 1.2%
Procter & Gamble Company 1.2%
PERFORMANCE RELATIVE TO S&P 500R INDEX
3/31/97 9/30/97 3/31/98
- ----------------------------------------------------------------------------
Index 500 Stock Fund Class A 9,524 11,952 13,938
Index 500 Stock Fund Class B 10,000 12,510 14,544
Index 500 Stock Fund Class B Redemption Value 14,144
S&P 500 Index 10,000 12,626 14,790
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
Index 500 Stock Fund
(Class A - without initial sales charge) 46.35%
- -------------------------------------------------------
S&P 500(R) Index 47.90%
- -------------------------------------------------------
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks. The index cannot be invested in directly
and does not include sales charges.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
<PAGE>
MARCH 31, 1998
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (90.58%)
BASIC MATERIALS (3.96%)
Air Products & Chemicals, Inc. 600 $49,725
Alcan Aluminum Limited 1,100 34,375
Allegheny Teledyne, Inc. 900 25,031
Aluminum Co. of America 900 61,931
Archer Daniels Midland Company 2,920 64,057
<F1> Armco, Inc. 500 2,937
ASARCO, Inc. 200 5,338
B.F. Goodrich Company 400 20,425
Barrick Gold Corporation 1,800 38,925
Battle Mountain Gold Company 1,100 7,012
Bemis Company, Inc. 300 13,538
<F1> Bethlehem Steel Corporation 500 6,781
Boise Cascade Corporation 300 10,819
Champion International 500 27,156
Cyprus Amax Minerals Co. 400 6,650
Dow Chemical Company 1,100 106,975
E.I. du Pont de Nemours & Company 5,700 387,600
Eastman Chemical Company 400 26,975
Ecolab, Inc. 600 17,400
Engelhard Corp. 700 13,300
<F1> FMC Corporation 200 15,700
Freeport-McMoRan Copper & Gold, Inc. 900 17,944
Georgia Pacific Corporation 500 32,375
Great Lakes Chemical 300 16,200
Hercules, Inc. 500 24,688
Homestake Mining Company 700 7,612
Inco Limited 800 14,950
Inland Steel Industries, Inc. 200 5,525
International Flavors & Fragrances, Inc. 500 23,562
International Paper Company 1,500 70,219
Louisiana Pacific Corporation 500 11,625
Mead Corp. 500 17,906
Monsanto Company 3,000 156,000
Morton International, Inc. 600 19,688
Nalco Chemical Company 300 12,169
Newmont Mining Corporation 758 23,166
Nucor Corp. 400 21,775
Phelps Dodge Corporation 300 19,369
Pioneer Hi-Bred International 300 29,269
Placer Dome, Inc. 1,100 14,506
Potlatch Corporation 100 4,306
PPG Industries, Inc. 900 61,144
Praxair 800 41,150
Reynolds Metals Company 400 24,575
Rohm and Haas Company 300 30,994
Sigma-Aldrich Corp. 500 18,625
Shares/Par Market Value
---------------------------------------------------------------------
BASIC MATERIALS (CONTINUED)
<F1> Stone Container Corporation 500 $6,250
Temple-Inland, Inc. 300 18,638
Union Camp Corporation 400 23,900
Union Carbide Corporation 600 30,075
USX - U.S. Steel Group, Inc. 400 15,100
W.R. Grace & Co. 400 33,475
Westvaco Corporation 500 15,375
Weyerhaeuser Company 1,000 56,500
Willamette Industries Inc. 600 22,538
Worthington Industries 500 9,063
---------------------------------------------------------------------
TOTAL 1,892,906
=====================================================================
CAPITAL GOODS (8.16%)
Aeroquip-Vickers, Inc. 100 5,781
AlliedSignal, Inc. 2,800 117,600
AMP, Inc. 1,100 48,194
Avery Dennison Corporation 500 26,688
Ball Corporation 100 3,275
Boeing Company 5,070 264,274
Briggs & Stratton Corporation 100 4,581
Browning-Ferris Industries, Inc. 1,000 32,625
Case Corporation 400 27,250
Caterpillar, Inc. 1,900 104,619
Cincinnati Milacron, Inc. 200 6,375
Cooper Industries, Inc. 600 35,663
Corning, Inc. 1,200 53,100
Crane Co. 200 10,600
Crown Cork & Seal Company, Inc. 600 32,100
Cummins Engine Company, Inc. 200 11,025
Deere & Company 1,300 80,519
Dover Corporation 1,100 41,800
Eaton Corporation 400 38,075
Emerson Electric Co. 2,200 143,413
Fluor Corporation 400 19,900
Foster Wheeler Corporation 200 6,112
General Dynamics Corporation 300 25,838
General Electric Company 16,400 1,413,475
General Signal Corporation 200 9,350
Harnischfeger Industries, Inc. 200 6,838
Honeywell, Inc. 600 49,613
Illinois Tool Works, Inc. 1,300 84,175
Ingersoll-Rand Company 850 40,747
Johnson Controls, Inc. 400 24,275
Lockheed Martin Corporation 1,000 112,500
McDermott International, Inc. 300 12,394
Millipore Corp. 200 6,950
Minnesota Mining & Manufacturing Co. 2,100 191,494
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
CAPITAL GOODS (CONTINUED)
Moore Corporation Ltd. 403 $6,700
National Service Industries, Inc. 200 11,762
<F1> Navistar International Corp. 400 14,000
Northrop Grumman Corporation 300 32,231
<F1> Owens-Illinois, Inc. 700 30,275
PACCAR, Inc. 400 23,825
Pall Corporation 600 12,900
Parker-Hannifin Corporation 550 28,187
Pitney Bowes, Inc. 1,500 75,281
Raychem Corp. 400 16,625
Rockwell International Corporation 1,000 57,375
Tenneco, Inc. 900 38,419
Textron, Inc. 800 61,600
<F1> Thermo Electron Corporation 800 32,300
Thomas & Betts Corporation 300 19,200
Timken Company 300 10,144
Tyco International Ltd. 2,900 158,412
United Technologies Corp. 1,200 110,775
Waste Management, Inc. 2,300 70,869
---------------------------------------------------------------------
TOTAL 3,902,098
=====================================================================
COMMUNICATION SERVICES (6.47%)
<F1> Airtouch Communications, Inc. 2,500 122,343
ALLTEL Corporation 900 39,319
Ameritech Corporation 5,500 271,906
AT&T Corp. 8,200 538,125
Bell Atlantic Corporation 3,935 403,337
BellSouth Corporation 5,000 337,812
Frontier Corporation 800 26,050
GTE Corporation 4,800 287,400
MCI Communications Corporation 3,500 173,250
SBC Communications, Inc. 9,032 394,021
Sprint Corporation 2,200 148,913
U S WEST Communications Group 2,400 131,400
<F1> WorldCom, Inc. 5,100 219,619
---------------------------------------------------------------------
TOTAL 3,093,495
=====================================================================
CONSUMER CYCLICAL (8.70%)
American Greetings Corp. 400 18,400
Armstrong World Industries, Inc. 200 17,312
<F1> AutoZone, Inc. 800 27,100
Black & Decker Corporation 500 26,531
Brunswick Corporation 500 17,438
<F1> Cendant Corporation 4,022 159,372
Centex Corporation 300 11,438
<F1> Charming Shoppes, Inc. 500 2,375
Chrysler Corporation 3,300 137,156
Circuit City Stores, Inc. 500 21,375
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
Cognizant Corp. 800 $45,900
<F1> Consolidated Stores Corporation 500 21,469
Cooper Tire & Rubber Company 400 9,500
<F1> Costco Companies, Inc. 1,100 58,712
Dana Corporation 500 29,094
Dayton Hudson Corporation 1,100 96,800
Dillard's, Inc. 600 22,162
Dow Jones & Company, Inc. 500 26,469
Dun & Bradstreet Corporation 800 27,350
Echlin, Inc. 300 15,731
<F1> Federated Department Stores, Inc. 1,100 56,994
Fleetwood Enterprises, Inc. 200 9,312
Ford Motor Company 6,000 388,875
<F1> Fruit of the Loom, Inc. 400 12,250
Gannet Company, Inc. 1,400 100,625
General Motors Corp. 3,600 242,775
Genuine Parts Company 850 32,406
Goodyear Tire & Rubber Company 800 60,600
H & R Block, Inc. 500 23,781
Harcourt General 400 22,150
<F1> Harrahs Entertainment 500 12,281
Hasbro, Inc. 600 21,188
Hilton Hotels Corporation 1,200 38,250
Home Depot, Inc. 3,650 246,147
Interpublic Group of Cos., Inc. 600 37,275
ITT Industries, Inc. 600 22,838
J.C. Penney Company, Inc. 1,300 98,394
Jostens, Inc. 200 4,800
<F1> Kmart Corporation 2,500 41,719
Kaufman & Broad Home Corp. 200 6,512
Knight-Ridder, Inc. 400 22,350
Laidlaw Transportation Limited 1,600 25,400
Liz Claiborne, Inc. 300 14,963
Lowe's Companies, Inc. 900 63,169
Marriott International 600 22,313
Marriott International Class A 600 21,487
Masco Corporation 800 47,600
Mattel, Inc. 1,500 59,437
May Department Stores Company 1,200 76,200
Maytag Corporation 500 23,906
McGraw-Hill Companies Inc. 500 38,031
Mercantile Stores Company 200 13,437
Meredith Corporation 300 12,637
<F1> Mirage Resorts, Inc. 900 21,881
Nike, Inc. 1,500 66,375
Nordstrom, Inc. 400 25,525
Omnicom Group 800 37,650
Owens Corning 300 10,781
<PAGE>
MARCH 31, 1998
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
Pep Boys - Manny, Moe & Jack 300 $6,956
Pulte Corporation 100 4,650
<F1> Reebok International Ltd. 300 9,150
Russell Corp. 200 5,363
Sears, Roebuck and Co. 2,000 114,875
Service Corporation International 1,300 55,169
Sherwin-Williams Company 900 31,950
Snap-On, Inc. 300 13,687
Springs Industries, Inc. 100 5,494
Tandy Corporation 500 23,500
The Gap, Inc. 1,950 87,750
The Limited, Inc. 1,400 40,163
The New York Times Company Cl A 500 35,000
The Stanley Works 400 22,300
Times Mirror Company 400 25,350
TJX Companies, Inc. 800 36,200
<F1> Toys "R" Us 1,400 42,088
Tribune Company 600 42,300
TRW, Inc. 600 33,075
VF Corporation 600 31,538
Wal-Mart Stores, Inc. 11,300 574,181
Whirlpool Corporation 400 27,425
<F1> Woolworth Corp. 700 17,500
---------------------------------------------------------------------
TOTAL 4,159,662
=====================================================================
CONSUMER STAPLES (13.58%)
Adolph Coors Co. 200 7,000
Alberto-Culver Company 300 9,131
Albertson's, Inc. 1,200 63,150
American Stores Co. 1,300 33,800
Anheuser-Busch Companies, Inc. 2,500 115,781
Avon Products, Inc. 700 54,600
BESTFOODS 700 81,813
Brown-Forman Corp. 300 16,500
Campbell Soup Company 2,300 130,525
Cardinal Health, Inc. 600 52,913
CBS Corporation 3,600 122,175
<F1> Clear Channel Communications, Inc. 500 49,000
Clorox Company 500 42,844
Colgate-Palmolive Co. 1,500 129,938
Comcast Corp. 1,700 60,031
Conagra, Inc. 2,400 77,100
CVS Corporation 900 67,950
Darden Restaurant, Inc. 700 10,894
Deluxe Corp. 400 13,175
Fort James Corporation 1,000 45,812
Fortune Brands, Inc. 900 35,888
General Mills, Inc. 800 60,800
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER STAPLES (CONTINUED)
Giant Food, Inc. 300 $11,587
Great Atlantic & Pacific Tea Co., Inc. 200 6,050
H.J. Heinz Company 1,800 105,075
Hershey Foods Corporation 700 50,137
John H. Harland Company 100 1,556
Kellogg Company 2,100 90,563
Kimberly-Clark Corporation 2,800 140,350
<F1> King World Productions, Inc. 400 11,700
Longs Drug Stores Corp. 200 6,087
McDonald's Corporation 3,500 210,000
Newell Co. 800 38,750
PepsiCo, Inc. 7,600 324,425
Philip Morris Companies, Inc. 12,200 508,587
Procter & Gamble Company 6,700 565,313
R.R. Donnelley & Sons Company 700 28,743
Ralston Purina Group 500 53,000
Rite Aid Corporation 1,300 44,525
Rubbermaid, Inc. 700 19,950
Safety-Kleen Corp. 300 8,513
Sara Lee Corporation 2,400 147,900
Supervalue, Inc. 300 13,987
Sysco Corporation 1,800 46,125
<F1> Tele Communications, Inc. 2,509 78,014
The Coca-Cola Company 12,400 960,225
The Gillette Company 2,800 332,325
<F1> The Kroger Company 1,300 60,044
The Quaker Oats Company 700 40,075
The Seagram Company Ltd. 1,800 68,738
Time Warner, Inc. 2,900 208,800
<F1> Tricon Global Restaurants, Inc. 730 21,946
Tupperware 300 7,988
Unilever NV 3,200 219,600
U S WEST, Inc. 3,000 104,250
UST, Inc. 900 29,025
Viacom, Inc. 1,800 96,750
Vlasic Foods International 230 5,879
Walgreen Co. 2,500 87,969
Walt Disney Company 3,400 362,950
Wendy's International, Inc. 600 13,387
Winn-Dixie Stores, Inc. 700 32,463
Wm. Wrigley Jr. Company 600 49,050
---------------------------------------------------------------------
TOTAL 6,493,221
=====================================================================
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (6.95%)
Amerada Hess Corporation 500 $29,156
Amoco Company 2,400 207,300
Anadarko Petroleum Corporation 300 20,700
Apache Corporation 500 18,375
Ashland, Inc. 400 22,650
Atlantic Richfield Company 1,600 125,800
Baker Hughes, Inc. 900 36,225
Burlington Resource, Inc. 905 43,383
Chevron Corp. 3,300 265,031
Dresser Industries, Inc. 900 43,256
Exxon Corporation 12,400 838,550
Halliburton Company 1,300 65,243
Helmerich & Payne, Inc. 200 6,250
Kerr-McGee Corporation 200 13,912
Mobil Corporation 3,900 298,837
Occidental Petroleum Corporation 1,700 49,831
<F1> ORYX Energy Company 500 13,000
Pennzoil Company 200 12,925
Phillips Petroleum Company 1,300 64,919
<F1> Rowan Companies, Inc. 400 11,600
Royal Dutch Petroleum Co., ADR 10,800 613,575
Schlumberger Limited 2,500 189,375
Sun Company, Inc. 400 16,350
Texaco, Inc. 2,800 168,700
Union Pacific Resource Group 1,200 28,650
Unocal Corp. 1,200 46,425
USX-Marathon Group 1,400 52,675
<F1> Western Atlas International, Inc. 300 23,213
---------------------------------------------------------------------
TOTAL 3,325,906
=====================================================================
FINANCE (15.74%)
Aetna, Inc. 700 58,406
Allstate Corporation 2,200 202,262
American Express Company 2,300 211,169
American General Corporation 1,310 84,741
American International Group, Inc. 3,550 447,078
Aon Corporation 850 55,037
Banc One Corporation 3,280 207,460
BankAmerica Corporation 3,500 289,187
BankBoston Corporation 700 77,175
Bankers Trust New York Corporation 500 60,156
BB&T Corporation 700 47,381
Beneficial Corporation 300 37,294
Charles Schwab Corporation 1,300 49,400
Chase Manhattan Corporation 2,100 283,238
CIGNA Corporation 400 82,000
Cincinnati Financial Corporation 300 37,575
Citicorp 2,300 326,600
Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (CONTINUED)
Comerica, Inc. 500 $52,906
Conseco, Inc. 900 50,963
Corestates Financial Corp. 1,000 89,750
Countrywide Credit Industries, Inc. 500 26,594
Fannie Mae 5,300 335,225
Federal Home Loan Mortgage Corp. 3,500 166,031
Fifth Third Bancorp 750 64,125
First Chicago NBD Corporation 1,500 132,188
First Union Corporation 3,200 181,600
Fleet Financial Group, Inc. 1,400 119,087
General Re Corporation 400 88,250
Golden West Financial Corporation 300 28,744
Green Tree Financial Corporation 700 19,906
H.F. Ahmanson & Company 500 38,750
Hartford Financial Services Group, Inc. 600 65,100
Household International, Inc. 500 68,875
Huntington Bancshares, Inc. 1,000 36,438
J.P. Morgan & Company, Inc. 900 120,881
Jefferson-Pilot Corp. 400 35,575
KeyCorp 2,200 83,187
Lehman Bros Holdings, Inc. 500 37,437
Lincoln National Corporation 500 42,437
Loews Corp. 600 62,550
Marsh & McLennan Companies, Inc. 900 78,581
MBIA, Inc. 500 38,750
MBNA Corp. 2,500 89,531
Mellon Bank Corporation 1,300 82,550
Mercantile Bancorp 700 38,369
Merrill Lynch & Co. 1,700 141,100
MGIC Investment Corp. 600 39,413
Morgan Stanley Dean Witter & Co. 2,955 215,346
National City Corp. 1,100 80,644
NationsBank Corp. 4,687 341,858
Norwest Corporation 3,800 157,937
Northern Trust Corp. 600 44,850
PNC Bank Corp. 1,500 89,906
Progressive Corporation 400 53,875
Providian Financial Corporation 500 28,719
Republic New York Corporation 300 40,012
SAFECO, Inc. 700 38,259
St. Paul Companies, Inc. 400 35,650
State Street Corporation 800 54,450
Summit Bancorp 900 45,056
SunAmerica, Inc. 1,000 47,875
Suntrust Banks, Inc. 1,100 82,913
Synovus Financial Corp. 900 33,412
The Bank of New York Company, Inc. 1,900 119,344
The Chubb Corporation 900 70,538
<PAGE>
MARCH 31, 1998
Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (CONTINUED)
Torchmark Corporation 700 $32,069
Transamerica Corporation 300 34,950
Travelers Group, Inc. 5,797 347,820
UNUM Corporation 700 38,631
U.S. Bancorp 1,253 156,312
USF&G Corp. 500 12,469
Wachovia Corporation 1,000 84,813
Washington Mutual, Inc. 1,340 96,103
Wells Fargo & Company 400 132,500
---------------------------------------------------------------------
TOTAL 7,527,363
=====================================================================
HEALTHCARE (10.23%)
Abbott Laboratories, Inc. 3,800 286,187
Allergan, Inc. 300 11,400
Allergan Specialty 15 182
<F1> Alza Corporation 400 17,925
American Home Products Corporation 3,300 314,737
<F1> Amgen, Inc. 1,300 79,137
Bausch & Lomb, Inc. 300 13,706
Baxter International, Inc. 1,400 77,175
Becton, Dickinson & Company 600 40,838
Biomet, Inc. 600 18,000
<F1> Boston Scientific Corp. 1,000 67,500
Bristol-Myers Squibb Company 5,000 521,562
C.R. Bard, Inc. 300 11,025
Columbia/HCA
Healthcare Corporation 3,300 106,425
Eli Lilly and Company 5,600 333,900
Guidant Corporation 800 58,700
<F1> HEALTHSOUTH Corporation 2,000 56,125
<F1> Humana, Inc. 800 19,850
Johnson & Johnson 6,800 498,525
Mallinckrodt, Inc. 400 15,800
Manor Care, Inc. 300 11,100
Medtronic, Inc. 2,400 124,500
Merck & Co., Inc. 6,000 770,250
Pfizer, Inc. 6,500 647,969
Pharmacia & Upjohn, Inc. 2,500 109,375
Schering-Plough Corporation 3,700 302,244
<F1> St. Jude Medical, Inc. 400 13,375
<F1> Tenet Healthcare Corp. 1,500 54,469
U.S. Surgical Corporation 400 13,200
United Healthcare Corp. 900 58,275
Warner-Lambert Company 1,400 238,437
---------------------------------------------------------------------
TOTAL 4,891,893
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (12.77%)
<F1> 3COM Corporation 1,800 $64,688
Adobe Systems, Inc. 300 13,556
<F1> Advanced Micro Devices, Inc. 700 20,344
<F1> Andrew Corporation 400 7,925
<F1> Apple Computer, Inc. 600 16,500
<F1> Applied Materials, Inc. 1,800 63,562
Autodesk, Inc. 200 8,625
Automatic Data Processing, Inc. 1,500 102,094
<F1> Bay Networks 1,100 29,837
<F1> Cabletron Systems, Inc. 700 10,194
<F1> Ceridian Corp. 400 21,575
<F1> Cisco Systems, Inc. 5,100 348,713
Compaq Computer Corporation 7,624 197,271
Computer Associates International, Inc. 2,700 155,925
<F1> Computer Sciences Corp. 800 44,000
<F1> Data General Corporation 200 3,538
<F1> Dell Computer Corp. 3,300 223,575
<F1> Digital Equipment Corporation 700 36,619
<F1> DSC Communications Corp. 600 10,913
Eastman Kodak Company 1,600 103,800
EG&G, Inc. 200 5,812
<F1> EMC Corporation 2,500 94,531
Equifax, Inc. 800 29,200
First Data Corporation 2,100 68,250
General Instrument Corporation 700 14,656
Harris Corporation 400 20,850
HBO & Company 1,100 66,413
Hewlett-Packard Company 5,200 329,550
Ikon Office Solutions 700 24,194
Intel Corporation 8,200 640,112
International Business
Machines Corporation 4,900 508,988
<F1> KLA-Tencor Corporation 400 15,300
<F1> LSI Logic Corp. 700 17,675
Lucent Technologies, Inc. 3,300 421,988
<F1> Micron Technology 1,100 31,969
<F1> Microsoft Corporation 12,200 1,091,900
Motorola, Inc. 3,000 181,875
<F1> National Semiconductor Corporation 800 16,750
Northern Telecom Limited 2,600 168,025
<F1> Novell, Inc. 1,700 18,222
<F1> Oracle Corporation 4,950 156,234
<F1> Parametric Technology Company 1,300 43,306
Perkin-Elmer Corporation 200 14,463
Polaroid Corporation 200 8,800
Raytheon Company Class B 1,700 99,238
Scientific-Atlanta, Inc. 400 7,825
<F1> Seagate Technology Inc. 1,200 30,300
Shared Medical Systems Corp. 100 7,838
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
<F1> Silicon Graphics 900 $12,544
<F1> Sun Microsystems, Inc. 1,900 79,266
Tektronix, Inc. 300 13,387
<F1> Tellabs, Inc. 900 60,413
Texas Instruments, Inc. 2,000 108,250
<F1> Unisys Corporation 1,300 24,700
W.W. Grainger, Inc. 200 20,562
Xerox Corporation 1,600 170,300
---------------------------------------------------------------------
TOTAL 6,106,940
=====================================================================
TRANSPORTATION (1.14%)
<F1> AMR Corporation 500 71,594
Burlington Northern Santa Fe 800 83,200
CSX Corporation 1,100 65,450
Delta Air Lines, Inc. 400 47,300
<F1> Federal Express Corporation 760 54,055
Norfolk Southern Corporation 1,900 71,012
Ryder System, Inc. 400 15,200
Southwest Airlines Co. 1,050 31,041
Union Pacific Corporation 1,200 67,425
<F1> US Airways Group, Inc. 500 37,063
---------------------------------------------------------------------
TOTAL 543,340
=====================================================================
UTILITIES (2.88%)
Ameren Corporation 700 29,486
American Electric Power Co., Inc. 1,000 50,250
Baltimore Gas & Electric Co. 700 22,881
Carolina Power & Light Company 800 36,200
Central & South West Corporation 1,000 26,750
Cinergy Corporation 800 29,600
Coastal Corp. 500 32,563
Columbia Gas System, Inc. 300 23,325
Consolidated Edison Co. of New York 1,200 56,100
Consolidated Natural Gas Company 500 28,844
Dominion Resources, Inc. 1,000 42,000
DTE Energy Company 700 27,519
Duke Energy Corp. 1,831 109,059
Eastern Enterprises 100 4,300
Edison International 1,900 55,812
Enron Corp. 1,600 74,200
Entergy Corporation 1,200 35,700
<F1> FirstEnergy Corp. 1,100 33,894
FPL Group, Inc. 900 57,825
GPU, Inc. 600 26,550
Houston Industries, Inc. 1,373 39,473
<F1> Niagara Mohawk Power Corporation 700 9,100
Nicor, Inc. 200 8,450
Northern States Power Company 400 23,600
Shares/Par Market Value
---------------------------------------------------------------------
UTILITIES (CONTINUED)
ONEOK, Inc. 200 $8,150
P P & L Resources, Inc. 800 18,900
Pacific Enterprises 400 16,325
PacifiCorp 1,500 36,937
PECO Energy Company 1,100 24,338
Peoples Energy Corporation 200 7,275
PG&E Corp. 2,200 72,600
Public Service Enterprise Group, Inc. 1,200 45,450
Sonat Inc. 600 26,100
Southern Company 3,500 96,906
Texas Utilities Company 1,267 49,809
UNICOM Corp. 1,100 38,500
Williams Companies, Inc. 1,600 51,200
---------------------------------------------------------------------
TOTAL 1,375,971
=====================================================================
TOTAL COMMON STOCK 43,312,795
=====================================================================
MONEY MARKET INVESTMENTS (8.98%)
FINANCE SERVICES (4.17%)
<F2> Associates Corp of N.A.,
5.559%, 4/30/98 $1,000,000 $995,521
<F2> General Electric Capital
Corporation, 5.539%, 4/8/98 1,000,000 998,923
---------------------------------------------------------------------
TOTAL 1,994,444
=====================================================================
FEDERAL GOVERNMENT AND AGENCIES (4.81%)
<F2> Federal National Mortgage
Association, 5.39%, 5/26/98 200,000 198,353
<F2> Federal Home Loan Bank Discount
Corp., 5.70%, 4/1/98 2,100,000 2,100,000
---------------------------------------------------------------------
TOTAL 2,298,353
=====================================================================
TOTAL MONEY MARKET INVESTMENTS 4,292,797
=====================================================================
TOTAL INVESTMENTS (99.56%)
(COST $35,646,615)<F3> 47,605,592
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.44%) 208,544
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $47,814,136
=====================================================================
ADR - American Depositary Receipt
<F1> Non-Income Producing
<F2> Partially held by the custodian in a segregated account as
collateral for open futures positions. Information regarding open
futures contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuer Contracts Date Appreciation
---------------------------------------------------------------------
S&P 500R Stock Index
(Total market value at
3/31/98, $3,886,750) 14 6/98 $248,775
<F3> At March 31, 1998, the aggregate cost of securities for federal income
tax purposes was $35,661,562 and the net unrealized appreciation of
investments based on that cost was $11,944,030 which is comprised of
$12,211,152 aggregate gross unrealized appreciation and $267,122
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
MARCH 31, 1998
ASSET ALLOCATION FUND
OBJECTIVE: To seek to realize as high a level of total return, including current
income and capital appreciation, as is consistent with reasonable investment
risk. The Fund will follow a flexible policy for allocating assets among common
stocks, bonds and cash.
PORTFOLIO: The normal range of investments is 50-70% stocks, 25-35% bonds and 0-
15% cash equivalents. Up to 50% of the stock allocation may be invested in
foreign stocks.
STRATEGY: To adjust the mix between asset sectors to capitalize on the changing
financial markets and economic conditions.
NET ASSETS: $36,133,250
The Asset Allocation Fund invests in seven categories of assets: large-
capitalization stocks, small-capitalization stocks, foreign stocks, investment-
grade bonds, below investment-grade bonds, convertible securities and cash
equivalents. The proportion of the Fund in each category is adjusted as
appropriate to take advantage of market trends and opportunities, and securities
within each category are actively managed.
The Fund benefited from an emphasis on equities during its first year of
operation, as the stock market continued to soar, led by large-capitalization
stocks, which make up 30% of the Fund's holdings. Foreign investments,
particularly Asian stocks, have been modest since the Fund's inception; with
some signs of improvement in Asia, there may be opportunities for new
investments in the region. Within the bond sector of the Fund, the main focus is
on investment-grade bonds, as historically narrow yield spreads limit the
attractiveness of assuming the additional risk of holding a large position in
below investment-grade bonds. A 6% cash position at the end of March makes it
possible to take advantage of new investment opportunities that may arise.
SECTOR ALLOCATION
3/31/98
Large-Cap Stocks 32%
Investment-Grade Bonds 23%
Small-Cap Stocks 16%
Foreign Stocks 11%
Below Investment-Grade Bonds 8%
Cash Equivalents 6%
Convertible Securities 3%
Other Assets 1%
PERFORMANCE RELATIVE TO RELEVANT INDICES
3/31/97 9/30/97 3/31/98
- -------------------------------------------------------------------------------
Asset Allocation Stock Fund Class A 9,524 11,390 12,239
Asset Allocation Stock Fund Class B 10,000 11,920 12,769
Asset Allocation Stock Fund Class B Redemption Value 12,369
S&P 500 Index 10,000 12,626 14,790
Merrill Lynch Domestic Master Index 10,000 10,712 11,205
Merrill Lynch 91-Day T-Bill 10,000 10,272 10,536
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
Asset Allocation Fund
(Class A - without initial sales charge) 28.51%
- -------------------------------------------------------
S&P 500(R) Index 47.90%
- -------------------------------------------------------
Merrill Lynch Domestic Master Index 12.05%
- -------------------------------------------------------
Merrill Lynch 91-Day Treasury Bill 5.36%
- -------------------------------------------------------
In the graph, the Fund is compared against three indices representing the three
major components of the Fund: equities, fixed income and cash equivalent
investments. The indices cannot be invested in directly and does not include
sales charges.
The Merrill Lynch Domestic Master Index is an unmanaged market value weighted
index comprised of U.S. government, mortgage and investment-grade corporate
bonds. The index measures the income provided by, and the price changes of, the
underlying securities.
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
Investors should be aware of the risks of investments in foreign securities,
particularly investments in securities of companies in developing nations. These
include the risks of currency fluctuation, of political and economic instability
and of less well-developed government supervision and regulation of business and
industry practices, as well as differences in accounting standards. Small-cap
stocks also may carry additional risk. Smaller or newer issuers are more likely
to realize more substantial growth as well as suffer more significant losses
than larger or more established issuers. Investments in such companies can be
both more volatile and more speculative.
<PAGE>
MASON STREET FUNDS
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (56.51%)
DOMESTIC COMMON STOCK (45.50%)
SMALL CAP COMMON STOCK (15.52%)
BASIC MATERIALS (0.15%)
<F1> Ivex Packaging Corp. 2,200 $53,900
---------------------------------------------------------------------
CAPITAL GOODS (1.48%)
<F1> Jabil Circuit, Inc. 600 19,988
Kaydon Corporation 3,200 130,800
Omniquip International, Inc. 3,600 89,100
<F1> Qlogic Corporation 1,100 39,050
<F1> Stoneridge, Inc. 3,600 72,000
Teleflex, Inc. 2,300 96,600
<F1> Trident International, Inc. 3,600 55,350
<F1> Triumph Group, Inc. 700 31,062
---------------------------------------------------------------------
TOTAL 533,950
=====================================================================
CONSUMER CYCLICAL (2.40%)
<F1> Carriage Services, Inc. 500 12,000
Industrial Distribution Group, Inc. 2,800 52,325
<F1> Interim Services, Inc. 1,700 57,375
<F1> Jones Apparel Group, Inc. 2,100 115,631
<F1> K&G Men's Center, Inc. 2,600 53,625
<F1> Michaels Stores, Inc. 1,300 48,588
<F1> O'Reilly Automotive Inc. 4,900 135,056
<F1> Promus Hotel Corporation 1,600 76,400
<F1> ProSoft I-Net Solutions Inc. 5,200 33,475
<F1> Robert Half International, Inc. 3,900 187,200
Service Corporation International 1,700 72,144
Stewart Enterprises, Inc. 400 22,250
---------------------------------------------------------------------
TOTAL 866,069
=====================================================================
CONSUMER STAPLES (1.27%)
<F1> Advanced Health Corporation 2,000 25,625
<F1> Blyth Industries, Inc. 2,700 92,137
Cardinal Health, Inc. 1,600 141,100
<F1> Heftel Broadcasting Corporation 900 40,275
<F1> Metzler Group, Inc. 700 34,825
<F1> Patterson Dental Company 4,050 125,550
---------------------------------------------------------------------
TOTAL 459,512
=====================================================================
ENERGY (1.87%)
<F1> Barrett Resources Corporation 1,300 45,419
<F1> BJ Services Company 3,600 131,175
<F1> EVI, Inc. 1,700 78,731
<F1> Global Industries, Ltd. 6,000 122,250
<F1> Marine Drilling Companies, Inc. 1,700 36,762
<F1> Nabors Industries, Inc. 2,800 66,325
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (CONTINUED)
<F1> Pride International, Inc. 2,200 $52,525
Transocean Offshore Inc. 2,800 144,025
---------------------------------------------------------------------
TOTAL 677,212
=====================================================================
FINANCE (1.27%)
<F1> Affiliated Managers Group, Inc. 200 6,975
<F1> ESG Re Limited 2,000 52,000
Financial Security Assurance
Holdings Ltd. 2,200 120,175
Headlands Mortgage Co. 2,200 37,331
Investors Financial Services Corp. 2,400 132,000
Olympic Financial Ltd., warrants 500 7,500
<F1> Trammell Crow Company 2,200 62,700
Waddell & Reed Financial, Inc. 1,600 41,600
---------------------------------------------------------------------
TOTAL 460,281
=====================================================================
HEALTHCARE (3.21%)
<F1> ABR Information Services, Inc. 2,300 64,688
American HomePatient, Inc. 3,600 69,975
Home Health Corporation of
America, Inc. 3,800 10,569
<F1> Lincare Holdings, Inc. 1,900 134,187
<F1> MedCath, Inc. 4,900 88,966
Meridian Diagnostics Inc. 6,600 84,150
NCS HealthCare, Inc. 1,000 33,500
<F1> Pharmerica, Inc. 6,800 101,150
<F1> PhyCor, Inc. 3,300 74,456
<F1> PSS World Medical, Inc. 2,400 56,400
<F1> Quorum Health Group, Inc. 4,450 149,631
<F1> Sybron International Corporation 6,400 167,200
<F1> VWR Scientific Products Corporation 1,600 56,500
<F1> Wesley Jessen VisionCare, Inc. 2,100 69,038
---------------------------------------------------------------------
TOTAL 1,160,410
=====================================================================
TECHNOLOGY (2.79%)
<F1> Brooks Automation, Inc. 1,400 22,050
<F1> Cambridge Technology
Partners, Inc. 2,400 118,950
<F1> CBT Group Public Limited Company 2,000 103,500
<F1> Computer Horizons Corporation 1,500 75,375
<F1> Cotelligent Group, Inc. 1,800 53,325
Galileo International, Inc. 2,000 77,625
<F1> GaSonics International Corporation 4,400 45,100
HBO & Company 2,300 138,862
Integrated Process Equipment Corp. 1,700 34,212
Kent Electronics Corp. 1,300 27,381
<F1> Novellus Systems, Inc. 500 21,625
<PAGE>
MARCH 31, 1998
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
<F1> PMC-Sierra, Inc. 900 $34,200
<F1> Sterling Software, Inc. 900 50,850
<F1> Tellabs, Inc. 1,400 93,975
<F1> Transaction Systems
Architects, Inc. Cl A 1,300 50,537
<F1> Uniphase Corporation 1,400 58,888
---------------------------------------------------------------------
TOTAL 1,006,455
=====================================================================
TRANSPORTATION (1.08%)
<F1> Heartland Express, Inc. 3,500 97,125
<F1> Jevic Transportation, Inc. 3,800 57,000
<F1> Knight Transportation, Inc. 2,300 73,600
Mark VII, Inc. 4,600 85,100
<F1> Swift Transportation Co., Inc. 3,300 79,200
---------------------------------------------------------------------
TOTAL 392,025
=====================================================================
TOTAL SMALL CAP COMMON STOCK 5,609,814
=====================================================================
LARGE CAP COMMON STOCK (29.98%)
BASIC MATERIALS (0.81%)
Ecolab, Inc. 6,000 174,000
Monsanto Company 2,300 119,600
---------------------------------------------------------------------
TOTAL 293,600
=====================================================================
CAPITAL GOODS (3.05%)
AlliedSignal, Inc. 5,200 218,400
Avery Dennison Corporation 4,300 229,513
Boeing Company 2,100 109,462
General Electric Company 4,500 387,844
Tyco International Ltd. 2,900 158,413
---------------------------------------------------------------------
TOTAL 1,103,632
=====================================================================
COMMUNICATION SERVICES (1.12%)
AT&T Corporation 800 52,500
MCI Communications Corporation 2,200 108,900
<F1> Teleport Communications Group, Inc. 2,000 117,500
<F1> WorldCom, Inc. 2,900 124,881
---------------------------------------------------------------------
TOTAL 403,781
=====================================================================
CONSUMER CYCLICAL (4.73%)
Borg-Warner Automotive, Inc. 3,800 243,675
<F1> Federated Department Stores, Inc. 2,200 113,987
Harley-Davidson, Inc. 7,300 240,900
<F1> Kohl's Corporation 3,700 302,475
The New York Times Company Cl A 3,100 217,000
Steelcase, Inc. 5,300 193,450
Tribune Company 3,100 218,550
Wal-Mart Stores, Inc. 3,500 177,844
---------------------------------------------------------------------
TOTAL 1,707,881
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER STAPLES (7.05%)
<F1> Benckiser N.V. 3,100 $170,500
Campbell Soup Company 3,700 209,975
Hershey Foods Corporation 3,700 265,013
<F1> Keebler Foods Company 7,300 219,000
McDonald's Corporation 1,500 90,000
Newell Co. 4,000 193,750
PepsiCo, Inc. 5,700 243,319
Philip Morris Companies, Inc. 3,900 162,581
Procter & Gamble Company 2,600 219,375
The Quaker Oats Company 1,300 74,425
The ServiceMaster Company 5,500 157,094
Unilever NV 4,000 274,500
Walgreen Co. 7,600 267,425
---------------------------------------------------------------------
TOTAL 2,546,957
=====================================================================
ENERGY (2.28%)
British Petroleum Company PLC 1,200 103,275
Diamond Offshore Drilling, Inc. 2,800 127,050
Exxon Corporation 1,800 121,725
Mobil Corporation 1,700 130,263
<F1> R&B Falcon Corporation 1,900 56,287
Schlumberger Limited 1,900 143,925
Tosco Corporation 4,000 141,000
---------------------------------------------------------------------
TOTAL 823,525
=====================================================================
FINANCE (3.91%)
Banc One Corporation 2,310 146,108
BankAmerica Corporation 1,200 99,150
Chase Manhattan Corporation 800 107,900
Citicorp 700 99,400
Franklin Resources, Inc. 5,000 265,000
Morgan Stanley Dean Witter & Co. 4,500 327,937
The Bank of New York
Company, Inc. 950 59,672
Travelers Group, Inc. 5,100 306,000
---------------------------------------------------------------------
TOTAL 1,411,167
=====================================================================
HEALTHCARE (2.10%)
Bristol-Myers Squibb Company 1,600 166,900
Eli Lilly and Company 2,300 137,138
Guidant Corporation 1,000 73,375
<F1> HEALTHSOUTH Corporation 3,751 105,262
Johnson & Johnson 1,400 102,637
Merck & Co., Inc. 800 102,700
Pfizer, Inc. 700 69,781
---------------------------------------------------------------------
TOTAL 757,793
=====================================================================
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (4.11%)
<F1> Cisco Systems, Inc. 2,100 $143,587
Compaq Computer Corporation 2,700 69,863
<F1> Fiserv, Inc. 5,000 316,875
Hewlett-Packard Company 2,500 158,438
Intel Corporation 1,100 85,869
International Business
Machines Corporation 2,200 228,525
Lucent Technologies, Inc. 1,000 127,875
<F1> Microsoft Corporation 3,200 286,400
Motorola, Inc. 1,100 66,688
---------------------------------------------------------------------
TOTAL 1,484,120
=====================================================================
TRANSPORTATION (0.82%)
<F1> AMR Corporation 600 85,912
<F1> FDX Corporation 1,200 85,350
Southwest Airlines Co. 4,200 124,163
---------------------------------------------------------------------
TOTAL 295,425
=====================================================================
TOTAL LARGE CAP COMMON STOCK 10,827,881
=====================================================================
TOTAL DOMESTIC COMMON STOCK 16,437,695
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
FOREIGN COMMON STOCK (11.01%)
CAPITAL GOODS (1.13%)
British Aerospace U.K. 8,900 293,310
City Development Sing. 23,000 113,223
---------------------------------------------------------------------
TOTAL 406,533
=====================================================================
COMMUNICATION SERVICES (1.69%)
Philippines Long Distance
Telephone Company Phil. 6,600 183,975
Royal PTT Nederland N.V. Neth. 4,000 207,226
Telecomunicacoes Brasileiras
S.A. Telebras ADR Braz. 1,700 220,681
---------------------------------------------------------------------
TOTAL 611,882
=====================================================================
CONSUMER CYCLICAL (1.44%)
Nintendo C., Inc. Japan 2,800 241,468
La Rinascente SpA Italy 26,000 278,418
---------------------------------------------------------------------
TOTAL 519,886
=====================================================================
ENERGY (1.06%)
Elf Aquitaine Fr. 1,950 255,565
Smedvig ASA-A Norw. 6,100 128,016
---------------------------------------------------------------------
TOTAL 383,581
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (1.18%)
HSBC Holdings PLC U.K. 5,500 $168,236
Muenchener Rueckversicherungs-
Gesellschaft AG Ger. 600 259,553
---------------------------------------------------------------------
TOTAL 427,789
=====================================================================
HEALTHCARE (1.59%)
Glaxo Wellcome U.K. 10,900 291,868
Novartis Ag-Reg Shs. Switz. 160 283,165
---------------------------------------------------------------------
TOTAL 575,033
=====================================================================
MISCELLANEOUS (0.75%)
Schneider S.A. Fr. 3,500 269,462
---------------------------------------------------------------------
TECHNOLOGY (1.62%)
Ericsson LM B Swe. 5,700 270,944
Philips Electronics, Inc. Neth. 4,300 315,588
---------------------------------------------------------------------
TOTAL 586,532
=====================================================================
TRANSPORTATION (0.55%)
Railtrack Group PLC U.K. 12,000 196,933
---------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCK 3,977,631
=====================================================================
TOTAL COMMON STOCK 20,415,326
=====================================================================
PREFERRED STOCK (2.98%)
Primedia, Inc. 5,000 $532,500
Sinclair Capital 5,000 547,500
---------------------------------------------------------------------
TOTAL 1,080,000
---------------------------------------------------------------------
TOTAL PREFERRED STOCK 1,080,000
---------------------------------------------------------------------
BONDS (30.97%)
INVESTMENT-GRADE BONDS (23.09%)
FEDERAL GOVERNMENT AND AGENCIES (12.52%)
Federal National Mortgage
Association, 6%, 5/1/11 $1,330,655 $1,309,863
U.S. Treasury, 0.00%, 2/15/19 PO 1,200,000 342,300
U.S. Treasury, 6.125%, 8/15/07 1,000,000 1,027,813
U.S. Treasury, 5.625%, 12/31/02 500,00 498,907
U.S. Treasury, 5.375%, 2/15/01 250,00 248,437
U.S. Treasury, 5.50%, 2/29/00 1,100,000 1,097,938
---------------------------------------------------------------------
TOTAL 4,525,258
---------------------------------------------------------------------
AUTO RELATED (0.36%)
Team Fleet Financing Co.,
7.35%, 5/15/03 (144a) 125,000 129,400
---------------------------------------------------------------------
<PAGE>
MARCH 31, 1998
Shares/Par Market Value
---------------------------------------------------------------------
COMMERCIAL MORTGAGES (10.21%)
Asset Securitization Corporation,
1.25%, 11/13/26 IO $17,839,819 $728,400
First Union-Lehman Brothers
Commercial Mortgage Trust,
1.307%, 4/18/27 IO 6,949,104 524,449
Merrill Lynch Mortgage
Investors, 7.12%, 6/18/29 1,500,000 1,545,330
Merrill Lynch Mortgage
Investors, 8.10%, 6/25/22 500,00 521,005
Midland Realty Acceptance Corp.,
1.389%, 1/25/29 IO (144a) 4,872,733 368,525
---------------------------------------------------------------------
TOTAL 3,687,709
---------------------------------------------------------------------
TOTAL INVESTMENT-GRADE BONDS 8,342,367
---------------------------------------------------------------------
BELOW INVESTMENT-GRADE BONDS (7.88%)
BASIC MATERIALS (0.57%)
Pindo Deli Fin Mauritius,
10.75%, 10/1/07 (144a) 250,000 205,000
---------------------------------------------------------------------
BROADCASTING (0.66%)
<F2> Fox/Liberty Networks LLC,
9.75%, 8/15/07 (144a) 350,000 238,875
---------------------------------------------------------------------
FINANCE COMPANIES (2.04%)
BF Saul Real Estate,
9.75%, 4/1/08 250,000 251,875
Olympic Financial Ltd.,
11.50%, 3/15/07 500,000 485,000
---------------------------------------------------------------------
TOTAL 736,875
---------------------------------------------------------------------
HOSPITAL SUPPLIES (0.69%)
Medaphis Corp.,
9.50%, 2/15/05 (144a) 250,000 250,000
---------------------------------------------------------------------
LEISURE RELATED (2.11%)
SFX Entertainment, Inc.,
9.125%, 2/1/08 250,000 247,500
Trump Atlantic, 11.25%, 5/1/06 250,000 256,875
Venitian Casino/LVSands,
12.25%, 11/15/04 (144a) 250,000 259,375
---------------------------------------------------------------------
TOTAL 763,750
---------------------------------------------------------------------
PROFESSIONAL SERVICES (0.66%)
<F2> Decisionone Holdings,
11.50%, 8/1/08 400,000 239,000
---------------------------------------------------------------------
TELECOMMUNICATIONS (1.15%)
<F2> Hyperion Telecommunications,
13.00%, 4/15/03 350,000 267,750
Shares/Par Market Value
---------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
<F2> KMC Telecommunications
Hldgs, 12.50%, 2/15/08 $250,000 $146,875
---------------------------------------------------------------------
TOTAL 414,625
=====================================================================
TOTAL BELOW INVESTMENT-GRADE BONDS 2,848,125
=====================================================================
TOTAL BONDS 11,190,492
=====================================================================
MONEY MARKET INVESTMENTS (8.28%)
FINANCE SERVICES (8.01%)
<F3> Associates Corporation of North
America, 5.56%, 4/30/98 $1,000,000 $995,521
<F3> General Electric Capital Corporation,
6.02%, 4/1/98 900,000 900,000
<F3> Sears Roebuck Acceptance Corp.,
5.56%, 4/22/98 1,000,000 996,757
---------------------------------------------------------------------
TOTAL 2,892,278
=====================================================================
FEDERAL GOVERNMENT AND AGENCIES (0.27%)
<F3> Federal National Mortgage
Association, 5.39%, 5/26/98 100,000 99,176
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 2,991,454
=====================================================================
TOTAL INVESTMENTS (98.74%)
(COST $30,200,296)<F4> 35,677,272
=====================================================================
OTHER ASSETS, LESS LIABILITIES (1.26%) 455,978
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $36,133,250
=====================================================================
ADR - American Depositary Receipt
IO - Interest Only Security
PO - Principal Only Security
<F1> Non-Income Producing
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F2> Deferred interest security that presently receives no coupon payments.
At a predetermined date the stated coupon rate becomes effective.
<F3> Partially held by the custodian in a segregated account as collateral
for open futures positions. Information regarding open futures
contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuer Contracts Date Appreciation
----------------------------------------------------------------------
S&P 500R Stock Index
(Total market value at
3/31/98, $832,875) 3 6/98 $9,367
<F4> At March 31, 1998, the aggregate cost of securites for federal income
tax purposes was $30,200,296 and the net unrealized appreciation of
investments based on that cost was $5,476,976 which is comprised of
$5,936,077 aggregate gross unrealized appreciation and $459,101
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
MASON STREET FUNDS
HIGH YIELD BOND FUND
OBJECTIVE: To seek high current income and capital appreciation by investing
primarily in fixed income securities that are rated below investment-grade by
the major rating agencies.
PORTFOLIO: Diversified mix of below investment-grade fixed income securities,
commonly known as "junk bonds."
STRATEGY: To identify attractive investment opportunities through rigorous
industry and credit analysis and to generate superior performance by selecting
companies with stable or improving credit fundamentals.
NET ASSETS: $34,172,241
Investing in a portfolio of high yield bonds provides investors who can accept a
moderate level of risk with a high level of current income, coupled with the
opportunity for capital gains. Holdings of particular interest include solid
investments in entities that have the possibility of a positive event, such as a
significant improvement in credit rating or earnings or a change in ownership.
In a high yield portfolio, some defaults over time are inevitable; high coupons
and diversification across many holdings mitigate the impact of defaults on the
total portfolio.
During its first year of operation, the Mason Street High Yield Bond Fund
significantly outperformed the Lehman Brothers High Yield Intermediate Market
Index. This strong performance can be attributed to insightful selection of
market sectors and individual securities, the selective inclusion of undervalued
preferred stocks, and the relatively high proportion of positive to negative
credit developments in the Fund's portfolio.
In recent months, the Fund's strategy has been guided by several major themes. A
strong emphasis has been placed on sectors that are generally considered less
cyclical than the overall market. Heavily cyclical issues have seemed unduly
risky and overpriced at this stage in the economic cycle. In line with this
approach, a strong presence has been maintained in the leisure sector, which
includes entertainment, gaming and lodging investments. Gaming companies in
particular have experienced strength, in large part because of industry
consolidation and the entry of large investment-grade real estate investment
trusts (REITs) as new investors in the sector. Increasing emphasis has been
placed on the rapidly growing telecommunications industry, with holdings
concentrated in alternative facilities-based telephone providers operating in
territories with favorable competitive conditions. To date these investments
have performed well.
The Fund has also benefited from its commitment to diversification through
international investing. The Fund's international exposure has been repositioned
in recent months, with a renewed emphasis on Canada and Western Europe and a
reduction of exposure to Latin American and Asian markets. Overall, selective
emerging market opportunities provided a net benefit to results, and the Fund
remains committed to pursuing value in these markets. The current risk/reward
relationships in the marketplace, however, seem to warrant a relatively
conservative international posture for the immediate future.
Throughout the year the Fund has remained essentially fully invested, with cash
balances maintained at no more than 5% of assets. At the end of the fiscal year,
the Fund is positioned conservatively with a balanced sector mix and strong
overall asset quality.
SECTOR ALLOCATION
3/31/98
Leisure 18%
Telecommunications 17%
Broadcasting/Media 16%
Cable TV 9%
Consumer/Healthcare 8%
Transportation 7%
Finance 7%
Professional Services 7%
Other 5%
Basic Materials/Energy 4%
Cash Equivalents 2%
<PAGE>
MARCH 31, 1998
PERFORMANCE RELATIVE TO LEHMAN BROTHERS
HIGH YIELD INTERMEDIATE MARKET INDEX
3/31/97 9/30/97 3/31/98
- ----------------------------------------------------------------------------
High Yield Bond Fund Class A 9,524 11,082 11,709
High Yield Bond Fund Class B 10,000 11,595 12,209
High Yield Bond Fund Class B Redemption Value 11,809
Lehman Brothers Municipal Bond Index 10,000 10,886 11,447
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
High Yield Bond Fund
(Class A - without initial sales charge) 22.95%
- -------------------------------------------------------
Lehman Brothers High Yield
Intermediate Market Index 14.47%
- -------------------------------------------------------
The total return performance for the High Yield Bond Fund is shown in comparison
with the Lehman Brothers High Yield Intermediate Market Index. The Lehman
Brothers index is an appropriate measure of portfolio performance since it has a
quality and maturity profile that resembles the High Yield Bond Fund. The index
cannot be invested in directly and does not include sales charges.
The Lehman Brothers High Yield Intermediate Market Index is made up of dollar
denominated, nonconvertible, SEC publicly registered fixed rate noninvestment-
grade issues. The bonds will have remaining maturities of between one and ten
years and have an outstanding par value of at least $100 million. Yankee and
global bonds (SEC registered) of issuers in G-7 countries are included. Original
issue zero coupon bonds and step-up coupon structures are also included;
however, the index excludes pay-in kind (PIK) bonds. Each bond must be rated Ba1
or lower by Moody's Investor Service. If a Moody's rating is unavailable, the
bonds must be rated BB+ or lower by Standard & Poor's, or by Fitch if an S&P
rating is unavailable. A few unrated bonds are included in the index; to be
eligible they must have previously held a high yield rating or have been
associated with a high yield issuer. The index is an unmanaged market value
weighted index and measures the income provided by, and the price changes of,
the underlying securities.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
Bonds and other debt obligations are affected by changes in interest rates and
the creditworthiness of their issuers. High yield bonds generally have greater
price swings and higher default risks than investment-grade bonds.
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
BONDS (77.21%)
BASIC MATERIALS (2.35%)
PAPER (0.84%)
Pindo Deli Fin Mauritius,
10.75%, 10/1/07 (144a) $350,000 $287,000
---------------------------------------------------------------------
STEEL (1.51%)
Renco Steel Holdings, Inc.,
10.875%, 2/1/05 (144a) 500,000 517,500
---------------------------------------------------------------------
TOTAL BASIC MATERIALS 804,500
=====================================================================
BROADCASTING/MEDIA (5.16%)
BROADCASTING (3.95%)
<F2> Big City Radio, Inc.,
11.25%, 3/15/05 (144a) 650,000 476,938
<F2> Fox Kids Worldwide, Inc.,
10.25%, 11/1/07 (144a) 1,050,000 672,000
Fox Kids Worldwide, Inc.,
9.25%, 11/1/07 (144a) 200,000 201,000
---------------------------------------------------------------------
TOTAL 1,349,938
=====================================================================
PRINTING AND PUBLISHING (1.21%)
<F2> Diva System Corp.,
12.625%, 3/1/08 (144a) 750,000 412,502
---------------------------------------------------------------------
TOTAL BROADCASTING/MEDIA 1,762,440
=====================================================================
CABLE TELEVISION (4.57%)
<F2> Telewest PLC, 11.00%, 10/1/07 500,000 405,000
<F2> NTL, Inc., 9.75%, 4/1/08 (144a) 1,000,000 650,000
Rogers Communications,
8.875%, 7/15/07 500,000 505,000
---------------------------------------------------------------------
TOTAL CABLE TELEVISION 1,560,000
=====================================================================
CONSUMER RELATED (5.91%)
CONSUMER STAPLES (2.43%)
North Atlantic Trading, Inc.,
11.00%, 6/15/04 500,000 520,000
<F2> SF Holdings Group, Inc.,
12.75%, 3/15/08 (144a) 550,000 306,625
---------------------------------------------------------------------
TOTAL 826,625
=====================================================================
FOODS/FOOD SERVICES (3.48%)
Iowa Select Farms L.P.,
10.75%, 12/1/05 (144a) 800,000 782,000
Planet Hollywood, 12.00%, 4/1/05 400,000 408,000
---------------------------------------------------------------------
TOTAL 1,190,000
=====================================================================
TOTAL CONSUMER RELATED 2,016,625
=====================================================================
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY RELATED (1.48%)
OIL AND GAS INDEPENDENT (1.48%)
Belden & Blake Corp.,
9.875%, 6/15/07 (144a) $500,000 $505,000
---------------------------------------------------------------------
FINANCE (5.27%)
FINANCE COMPANIES (3.72%)
Arcadia Financial, Ltd.,
11.50%, 3/15/07 1,000,000 970,000
BF Saul Real Estate,
9.75%, 4/1/08 (144a) 300,000 302,250
---------------------------------------------------------------------
TOTAL 1,272,250
=====================================================================
INSURANCE (1.55%)
Superior Nat'l Capital Trust I,
10.75%, 12/1/17 (144a) 500,000 530,000
---------------------------------------------------------------------
TOTAL FINANCE 1,802,250
=====================================================================
HEALTHCARE (2.20%)
HEALTHCARE (0.74%)
Magellan Health Services,
9.00%, 2/15/08 (144a) 250,000 251,250
---------------------------------------------------------------------
HOSPITAL SUPPLIES (1.46%)
Medaphis Corp.,
9.50%, 2/15/05 (144a) 500,000 500,000
---------------------------------------------------------------------
TOTAL HEALTHCARE 751,250
=====================================================================
LEISURE (17.96%)
GAMING (11.17%)
Alliance Gaming Corp.,
10.00%, 8/1/07 (144a) 700,000 723,625
Casino America, Inc.,
12.50%, 8/1/03 250,000 277,500
Station Casinos, Inc.,
9.75%, 4/15/07 (144a) 750,000 846,563
Trump Atlantic, 11.25%, 5/1/06 750,000 770,625
Trump Hotels & Casino Resorts,
15.50%, 6/15/03 500,000 575,000
Venitian Casino/LV Sands,
12.25%, 11/15/04 (144a) 600,000 622,500
---------------------------------------------------------------------
TOTAL 3,815,813
=====================================================================
LEISURE RELATED (5.85%)
<F2> Hedstrom Holdings Inc.,
12.00%, 6/1/09 (144a) 1,110,000 688,200
Premier Park, Inc., 9.25%, 4/1/06 300,000 306,750
SFX Entertainment, Inc.,
9.125%, 2/1/08 (144a) 500,000 495,000
Shares/Par Market Value
---------------------------------------------------------------------
LEISURE RELATED (CONTINUED)
Town Sports Intl., Inc.,
9.75%, 10/15/04 $500,000 $507,500
---------------------------------------------------------------------
TOTAL 1,997,450
=====================================================================
MOVIE THEATERS (0.94%)
Hollywood Theaters, Inc.,
10.625%, 8/1/07 (144a) 300,000 325,500
---------------------------------------------------------------------
TOTAL LEISURE 6,138,763
=====================================================================
OTHER INDUSTRIES (3.53%)
APPAREL, TEXTILE (0.86%)
PT Polysindo, 13.00%, 6/15/01 400,000 296,000
---------------------------------------------------------------------
AUTO RELATED (1.17%)
Exide Corporation,
2.90%, 12/15/05 (144a) 650,000 398,938
---------------------------------------------------------------------
HOUSEHOLD FURNISHINGS, APPLIANCES (1.50%)
Imperial Home,
11.00%, 3/15/08 (144a) 500,000 511,250
---------------------------------------------------------------------
TOTAL OTHER INDUSTRIES 1,206,188
=====================================================================
SERVICES (6.95%)
PROFESSIONAL SERVICES (6.95%)
Apcoa Inc., 9.25%, 3/15/08 (144a) 250,000 250,625
<F2> AP Holdings Inc.,
11.25%, 3/15/08 (144a) 250,000 149,375
<F2> Decisionone Holdings,
11.50%, 8/1/08 750,000 448,125
Decisionone Holdings,
9.75%, 8/1/07 250,000 241,875
Federal Data Corp.,
10.125%, 8/1/05 500,000 517,500
Kinder-Care Learning Center,
9.50%, 2/15/09 500,000 511,250
Sitel Corp., 9.25%, 3/15/06 (144a) 250,000 255,625
---------------------------------------------------------------------
TOTAL SERVICES 2,374,375
=====================================================================
TELECOMMUNICATIONS (14.79%)
<F2> Call-Net Enterprises, 9.27%, 8/15/07 350,000 248,500
<F2> GST USA, Inc., 13.875%, 12/15/05 400,000 334,000
<F2> Hyperion Telecommunications,
13.00%, 4/15/03 650,000 497,250
Hyperion Telecommunications,
12.25%, 9/1/04 120,000 135,300
ITC Deltacom Inc.,
11.00%, 6/1/07 (144a) 263,000 298,505
<PAGE>
MARCH 31, 1998
Shares/Par Market Value
---------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
<F2> KMC Telecommunication Hldgs.,
12.50%, 2/15/08 $1,750,000 $1,028,127
<F2> Metronet Communications,
10.75%, 11/1/07 250,000 161,875
<F2> Nextel Communications, Inc.,
9.75%, 10/31/07 750,000 484,688
<F2> Nextel Communications, Inc.,
9.75%, 2/15/08 500,000 318,125
Paging Network, Inc.,
10.00%, 10/15/08 500,000 525,000
<F2> Pinnacle Hldgs., Inc.,
10.00%, 3/15/08 850,000 527,000
<F2> 21st Century Telecom,
12.25%, 2/15/08 500,000 293,750
Winstar Communications,
10.00%, 3/15/08 200,000 202,750
---------------------------------------------------------------------
TOTAL TELECOMMUNICATIONS 5,054,870
=====================================================================
TRANSPORTATION (7.04%)
TRUCKING AND SHIPPING (7.04%)
Greyhound Lines, Inc.,
11.50%, 4/15/07 (144a) 1,000,000 1,112,500
Navigator Gas Trans PLC,
12.00%, 6/30/07 (144a) 200,000 227,500
Navigator Gas Trans PLC,
10.50%, 6/30/07 (144a) 500,000 527,502
Ryder TRS Incorporated,
10.00%, 12/01/06 500,000 537,500
---------------------------------------------------------------------
TOTAL TRANSPORTATION 2,405,002
=====================================================================
TOTAL BONDS 26,381,263
=====================================================================
PREFERRED STOCK (19.93%)
BROADCASTING/MEDIA (10.90%)
BROADCASTING (7.79%)
Chancellor Media Corp.-
Los Angeles (144a) 7,941 $965,824
Citadel Broadcasting Co. (144a) 2,663 326,218
Sinclair Capital (144a) 12,500 1,368,750
---------------------------------------------------------------------
TOTAL 2,660,792
=====================================================================
PRINTING AND PUBLISHING (3.11%)
Primedia, Inc. 10,000 1,065,000
---------------------------------------------------------------------
TOTAL BROADCASTING/MEDIA 3,725,792
=====================================================================
CABLE TELEVISION (4.76%)
<F3> CSC Holdings, Inc. PIK 11,226 1,302,216
<F3> NTL, Inc. PIK (144a) 2,740 326,060
---------------------------------------------------------------------
TOTAL CABLE TELEVISION 1,628,276
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY RELATED (0.66%)
GAS UTILITY (0.66%)
Petroleum Heat & Power Inc. (144a) 22,500 $225,000
---------------------------------------------------------------------
FINANCE (1.43%)
BANKS (1.43%)
California Fed Pfd. Capital 18,000 487,125
---------------------------------------------------------------------
TELECOMMUNICATIONS (2.18%)
21st Century Telecom 3,000 336,000
<F3> Hyperion Telecommunications PIK 3,564 409,860
---------------------------------------------------------------------
TOTAL TELECOMMUNICATIONS 745,860
=====================================================================
TOTAL PREFERRED STOCK 6,812,053
=====================================================================
COMMON STOCK AND WARRANTS (0.31%)
FINANCE (0.04%)
FINANCE COMPANIES (0.04%)
Arcadia Financial, Ltd. 1,000 $15,000
---------------------------------------------------------------------
LEISURE (0.27%)
LEISURE RELATED (0.27%)
<F1> Hedstrom Holdings, Inc. (144a) 67,324 92,570
---------------------------------------------------------------------
TOTAL COMMON STOCK AND WARRANTS 107,570
=====================================================================
MONEY MARKET INVESTMENTS (2.05%)
FINANCE SERVICES (2.05%)
General Electric Capital Corporation,
6.02%, 4/1/98 $400,000 $400,000
General Electric Capital Corporation,
5.54%, 4/8/98 300,000 299,677
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 699,677
=====================================================================
TOTAL INVESTMENTS (99.50%)
(COST $32,819,519)<F4> 34,000,563
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.50%) 171,678
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $34,172,241
=====================================================================
<F1> Non-Income Producing
<F2> Deferred interest security that presently receives no coupon payments.
At a predetermined date the stated coupon rate becomes effective.
<F3> PIK - Payment in Kind
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F4> At March 31, 1998, the aggregate cost of securites for federal income
tax purposes was $32,819,519 and the net unrealized appreciation of
investments based on that cost was $1,181,044 which is comprised of
$1,912,414 aggregate gross unrealized appreciation and $731,370
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
MASON STREET FUNDS
MUNICIPAL BOND FUND
OBJECTIVE: To seek a high level of current income exempt from federal income
taxes, consistent with preservation of capital, by investing primarily in
investment-grade municipal obligations.
PORTFOLIO: Diversified investment-grade bonds, with the ability to invest up to
20% of assets in lower-rated securities.
STRATEGY: To actively manage the portfolio to take advantage of changes in
interest rates, quality, sector and maturity of fixed income securities.
NET ASSETS: $28,644,592
The Municipal Bond Fund is managed with a balanced focus on income, total
return, quality of securities, and avoidance of federal income taxes. There are
five major classes of securities in the Fund: revenue bonds, general obligation
bonds, pre-refunded bonds, insured bonds, and money market investments, which
are cash equivalents. For revenue bonds, interest and principal is paid from
revenue from a specific source which the bonds fund, such as a tollway system or
a municipal power agency. General obligation bonds are secured by the general
credit of the issuing municipality, which can generally raise taxes as necessary
to meet obligations. Insured bonds are guaranteed by insurance companies such as
Municipal Bond Individual Assurance Corporation (MBIA) or the Financial Guaranty
Insurance Company (FGIC)<F1>. Pre-refunded bonds are backed by an escrow of
securities, usually U.S. Treasury securities. The securities in the escrow are
selected to meet the interest payments and to pay off the pre-refunded bonds on
their first call date. As indicated in the accompanying chart, the quality of
securities held in the Fund is quite high, with 72% of total market value
invested in bonds that are either insured or have been pre-refunded.
The Fund performed well during its first year of operation, with total return a
full percentage point higher than the Lehman Brothers Municipal Bond Index, with
which it is compared. This strong performance resulted mainly from favorable
selection of securities, combined with management of the Fund's interest rate
exposure, which benefited from a drop in interest rates. Because the Fund was
established at a low point in the market, most holdings have large unrealized
gains. Changes in holdings have therefore been minimal, to avoid subjecting
shareholders to excessive capital gains taxes. At present, municipal bonds are
cheap relative to taxable bonds because of an unusually large supply of
municipals due to the many new issues encouraged by the low interest rate
environment. This relative cheapness of municipal bonds should be considered by
investors who may be making a choice between a municipal fund and a taxable bond
fund.
<F1> Insurance applies only to the prompt payment of principal and interest of
the bonds in the Fund and does not remove the market risks associated with
your investment. There is also no guarantee that the insurer will be able
to meet its commitments.
PERCENTAGE HOLDINGS
3/31/98
Insured Bonds 49%
Revenue Bonds 22%
Pre-refunded Bonds 19%
General Obligation Bonds 8%
Money Market Investments 2%
PERFORMANCE RELATIVE TO LEHMAN BROTHERS
MUNICIPAL BOND INDEX
3/31/97 9/30/97 3/31/98
- ----------------------------------------------------------------------------
Municipal Bond Fund Class A 9,524 10,263 10,641
Municipal Fund Class B 10,000 10,735 11,093
Municipal Fund Class B Redemption Value 10,693
Lehman Brothers Municipal Bond Index 10,000 10,656 11,071
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
Municipal Bond Fund
(Class A - without initial sales charge) 11.73%
- -------------------------------------------------------
Lehman Brothers Municipal Bond Index 10.71%
- -------------------------------------------------------
The total return performance for the Municipal Bond Fund is shown in comparison
with the Lehman Brothers Municipal Bond Index. The Lehman Brothers index is an
appropriate measure of portfolio performance since it has a quality and maturity
profile that resembles the Municipal Bond Fund. The index cannot be invested in
directly and does not include sales charges.
The Lehman Brothers Municipal Bond Index includes municipal bonds that have: a
minimum credit rating of Baa; been issued as part of an issuance of at least $50
million; a maturity value of at least $3 million; a maturity of at least one
year; and been issued after December 31, 1990. Recently the index included
40,924 issues totaling $600 billion par amount. The index represents
approximately 30% of the municipal bond market capitalization.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
<PAGE>
MARCH 31, 1998
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
MUNICIPAL BONDS (96.51%)
CALIFORNIA (3.60%)
California Housing
Financing Agency, 5.75%,
2/1/29 RB, MBIA, AMT $1,000,000 $1,035,300
---------------------------------------------------------------------
COLORADO (3.97%)
Douglas County, Colorado
School District RE.1, 6.5%,
12/15/16 GO, PR, MBIA 1,000,000 1,138,490
---------------------------------------------------------------------
DISTRICT OF COLUMBIA (3.62%)
District of Columbia, 5.1%,
6/1/03 GO, AMBAC 1,000,000 1,035,710
---------------------------------------------------------------------
FLORIDA (3.49%)
Dade County, Florida,
Water & Sewer, 5.25%,
10/1/26 RB, FGIC 1,000,000 1,003,430
---------------------------------------------------------------------
ILLINOIS (15.20%)
Chicago, Illinois Board of
Education, 6.75%, 12/1/09
GO, AMBAC 1,000,000 1,183,900
Chicago, Illinois O'Hare
International Airport, 5.7%,
1/1/08 RB, MBIA, AMT 1,000,000 1,059,500
Illinois State Toll Highway
Authority, 6.0%, 1/1/09
RB, FGIC 1,000,000 1,114,460
Metropolitan Fair & Exposition
Authority, 5.0%, 6/1/15 RB, BIGI
Insurance purchased by MBIA 1,000,000 982,970
---------------------------------------------------------------------
TOTAL 4,340,830
=====================================================================
KENTUCKY (3.93%)
Louisville & Jefferson County,
Kentucky Regional Airport
Authority, 6.5%, 7/1/17
RB, MBIA, AMT 1,000,000 1,128,150
---------------------------------------------------------------------
Shares/Par Market Value
---------------------------------------------------------------------
MICHIGAN (7.66%)
Nice Community School District,
Michigan, Marquette & Baraga
Counties, 5.25%, 5/1/16
GO, MBIA $1,000,000 $1,006,500
Pinckney Michigan Community
Schools, 7.25%, 5/1/06
GO, FGIC 1,000,000 1,186,810
---------------------------------------------------------------------
TOTAL 2,193,310
=====================================================================
MASSACHUSETTS (3.84%)
Massachusetts State Port
Authority, 5.75%, 7/1/12 RB 1,000,000 1,099,330
---------------------------------------------------------------------
MINNESOTA (3.01%)
Northern Municipal Power Agency,
Electric Systems, 7.25%,
1/1/16 RB 825,000 861,317
---------------------------------------------------------------------
NEBRASKA (3.67%)
Nebraska Investment Finance
Authority, Single Family Housing,
6.25%, 3/1/21 RB, AMT, GNMA,
FNMA, FHLMC 990,000 1,050,954
---------------------------------------------------------------------
NEVADA (3.88%)
Clark County, Nevada, Sanitation
District, 6.8%, 7/1/12 RB, PR 1,000,000 1,111,050
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
NEW YORK (25.69%)
Metropolitan Transportation
Authority, 5.625%,
7/1/25 RB, MBIA $1,000,000 $1,045,310
New York City Municipal Water
Finance Authority, 5.75%,
6/15/29 RB 1,000,000 1,049,510
New York State Local Government
Assistance Corporation,
7.0%, 4/1/16 RB, PR 1,000,000 1,101,630
New York St. Dormitory Authority,
5.125%, 2/15/08 RB 1,000,000 1,023,680
New York St. Medical Care
Facility Financing Agency,
5.375%, 2/15/25 RB, FHA 1,000,000 1,007,910
Port Authority of New York and
New Jersey, 5.75%, 12/1/25
RB, AMT, MBIA 1,000,000 1,046,710
The City of New York,
6.0%, 4/15/09 GO 1,000,000 1,085,990
---------------------------------------------------------------------
TOTAL 7,360,740
=====================================================================
TEXAS (7.24%)
Brazos, Texas, Higher Education
Authority, 5.5%, 6/1/02
RB, AMT, GTD STD LNS 965,000 1,002,345
Hays, Texas, Consolidated
Independent School District,
5.875%, 8/15/22 GO PSF 1,000,000 1,071,750
---------------------------------------------------------------------
TOTAL 2,074,095
=====================================================================
WASHINGTON (7.71%)
Washington State Public Power
Supply System, 6.5%, 7/1/15
RB, PR 2,000,000 2,209,460
---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS 27,642,166
=====================================================================
MONEY MARKET INVESTMENTS (2.09%)
Greensboro, NC,
3.7%, 4/1/14 CP $600,000 $600,000
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 600,000
=====================================================================
TOTAL INVESTMENTS (98.60%)
(COST $26,803,665)<F1> 28,242,166
=====================================================================
OTHER ASSETS, LESS LIABILITIES (1.40%) 402,426
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $28,644,592
=====================================================================
<F1> At March 31,1998, the aggregate cost of securities for federal income
tax purposes was $26,803,665 and the net unrealized appreciation of
investments based on that cost was $1,438,501 which is comprised of
$1,439,789 aggregate gross unrealized appreciation and $1,288
aggregate gross unrealized depreciation.
---------------------------------------------------------------------
CP = Commercial Paper
RB = Revenue Bond
GO = General Obligation
PR = Pre-refunded security will be called on the first call date
(with certainty)
AMT = Subject to the Alternative Minimum Tax
Scheduled principal and interest payments are guaranteed by:
MBIA (Municipal Bond Insurance Organization)
AMBAC (AMBAC Indemnity Corporation)
FGIC (Financial Guaranty Insurance Company)
BIGI (Bond Investors Guarantee Insurance)
GNMA (Government National Mortgage Association)
FNMA (Federal National Mortgage Association)
FHLMC (Federal Home Loan Mortgage Corporation)
FHA (Federal Housing Authority)
GTD STD LNS (Guaranteed Student Loans)
PSF (Permanent School Fund, State of Texas)
The accompanying Notes are an integral part of the Finanacial Statements.
<PAGE>
MARCH 31, 1998
SELECT BOND FUND
OBJECTIVE: To seek high income and capital appreciation, consistent with
preservation of capital.
PORTFOLIO: Diversified investment-grade corporate, Treasury and government
agency bonds, with maturities generally exceeding one year.
STRATEGY: To actively manage the portfolio to take advantage of changes in
interest rates, quality and maturity of fixed income securities.
NET ASSETS: $29,260,753
The Select Bond Fund performed well for the year just ended, outperforming the
index with which it is compared. This strong performance resulted from several
factors. An aggressive interest rate posture early in the year generated good
results when interest rates subsequently declined. However, a defensive interest
rate posture for the last six months has detracted from performance somewhat as
interest rates declined further. Bond selection has contributed to performance,
as corporate bonds, especially those of banks and financial service companies,
have responded well to continued economic strength. Holdings in commercial
mortgage-backed securities, which are essentially a higher-yield substitute for
high-quality corporate bonds, boosted overall returns during the latter months
of the year. The Fund's present posture is defensive, with an underweighting in
corporate bonds balanced by an overweighted position in mortgage-backed and
asset-backed securities, which perform well when interest rates rise.
PERCENTAGE HOLDINGS
3/31/98
Mortgage-Backed and Asset-Backed Securities 43%
Government and Government Agencies 28%
Corporate Bonds 19%
Money Market Investments 8%
Other Assets 2%
The Corporate Bonds sector includes bonds of companies headquartered outside the
United States. The Government and Government Agencies category includes taxable
bonds of domestic and foreign governments. Consistent with the Fund's stated
parameters, no more than 15% of the portfolio is invested in foreign securities,
and no more than 15% is invested in high yield securities.
PERFORMANCE RELATIVE TO
MERRILL LYNCH DOMESTIC MASTER INDEX
3/31/97 9/30/97 3/31/98
- ----------------------------------------------------------------------------
Select Bond Fund Class A 9,524 10,358 10,677
Select Bond Fund Class B 10,000 10,838 11,134
Select Bond Fund Class B Redemption Value 10,734
Merrill Lynch Domestic Master Index 10,000 10,712 11,205
TOTAL RETURN
For the 12 months ended March 31, 1998
- -------------------------------------------------------
Select Bond Fund
(Class A - without initial sales charge) 12.11%
- -------------------------------------------------------
Merrill Lynch Domestic Master Index 12.05%
- -------------------------------------------------------
Since the Fund invests broadly in U.S. government, mortgage and corporate bonds,
the graph depicts an appropriate comparison to the Merrill Lynch Domestic Master
Index. The index is an unmanaged market value weighted index comprised of U.S.
government, mortgage and investment-grade corporate bonds. The index measures
the income provided by, and the price changes of, the underlying securities. The
index cannot be invested in directly and does not include sales charges.
This graph assumes an initial investment of $10,000 made in Class A and Class B
shares, with all sales charges on March 31, 1997 (commencement of operations).
Returns shown include fee waivers and deductions for all Fund expenses. In the
absence of fee waivers, total return would be reduced. Past performance 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. Returns on p. 3 reflect the maximum sales charge for Class
A and a 4% contingent deferred sales charge for Class B.
<PAGE>
MASON STREET FUNDS
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
BONDS (90.09%)
CORPORATE BONDS (19.14%)
BANK HOLDING COMPANIES (4.36%)
First Union Institutional Capital II,
7.85%, 1/1/27 $250,000 $259,008
NationsBank Lease Pass Thru Trust -
Class 1, 7.442%, 1/10/11 (144a) 500,000 520,770
Societe Generale Real Estate Co.,
7.64%, 12/29/49 500,000 495,686
---------------------------------------------------------------------
TOTAL 1,275,464
=====================================================================
COMMUNICATIONS (3.64%)
<F1> Panamsat, 11.375%, 8/1/03 500,000 511,250
<F2> WorldCom, Inc, 7.75%, 4/1/27 500,000 554,791
---------------------------------------------------------------------
TOTAL 1,066,041
=====================================================================
FOREIGN BANKS - BRANCHES & AGENCIES (1.70%)
Fuji JGB Investments LLC,
9.87%, 12/31/49 500,000 496,875
---------------------------------------------------------------------
LIFE INSURANCE (2.49%)
Travelers Group Inc.,
6.875%, 2/15/28 750,000 728,731
---------------------------------------------------------------------
MEDIA/CABLE (1.79%)
<F2> Time Warner Entertainment,
7.25%, 9/1/08 500,000 522,986
---------------------------------------------------------------------
PERSONAL CREDIT INSTITUTION (0.92%)
Industrial Credit & Investment Corp.,
7.55%, 8/15/07 300,000 270,000
---------------------------------------------------------------------
RETAILERS (1.65%)
LB Mortgage Trust - Class A3,
8.396%, 1/20/17 418,394 482,877
---------------------------------------------------------------------
TEXTILES (1.75%)
Polysindo International Finance,
11.375%, 6/15/06 800,000 512,000
---------------------------------------------------------------------
TRANSPORTATION - RAIL-ROAD (0.84%)
Union Pacific Corporation,
6.625%, 2/1/08 250,000 246,877
---------------------------------------------------------------------
TOTAL CORPORATE BONDS 5,601,851
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
GOVERNMENT BONDS
(DOMESTIC AND FOREIGN)
AND AGENCY BONDS (27.73%)
<F2> Federal National Mortgage
Association, 12%, 12/1/12 $91,357 $104,633
Federal National Mortgage
Association, 12%, 12/1/17 132,236 153,022
Federal National Mortgage
Association, 12%, 2/1/18 170,449 197,268
Federal National Mortgage
Association, 12%, 10/1/17 242,086 279,988
<F2> Federal National Mortgage
Association, 12%, 9/1/12 520,960 595,685
Federal National Mortgage
Association, 12%, 9/1/17 167,605 193,741
Federal National Mortgage
Association, 12.25%, 1/1/18 77,821 91,489
Federal National Mortgage
Association, 12.50%, 4/1/18 127,000 149,265
Federal National Mortgage
Association, 11%, 12/1/17 153,145 173,484
Federal National Mortgage
Association, 11%, 12/1/12 58,965 65,598
<F2> Federal National Mortgage
Association, 11%, 9/1/17 480,867 543,530
Federal National Mortgage
Association, 11%, 2/1/18 177,248 199,016
Federal National Mortgage
Association, 13%, 12/1/17 100,711 118,587
Federal National Mortgage
Association, 13%, 2/1/18 220,828 260,094
Federal National Mortgage
Association, 11.50%, 4/1/18 266,000 303,323
Federal National Mortgage
Association, 13%, 11/1/12 91,033 106,694
<F2> Federal National Mortgage
Association, 13%, 11/1/07 329,947 390,884
Federal National Mortgage
Association, 14%, 12/1/17 67,588 81,528
<F2> Federal National Mortgage
Association, 6.22%, 2/1/06 489,976 489,976
Federal National Mortgage
Association, 6.96%, 10/1/07 298,951 310,274
<F2> Federal National Mortgage
Association, 7.36%, 4/1/11 491,625 526,732
Federal National Mortgage
Association, 10%, 10/1/17 62,426 68,522
<F3> Hellenic Republic, 8.6%, 3/26/08 60,000,000 195,703
<PAGE>
MARCH 31, 1998
Shares/Par Market Value
---------------------------------------------------------------------
<F3> Hellenic Republic, 8.8%, 6/19/07 $300,000,000 $978,514
<F4> Poland, 14%, 2/12/00 1,500,000 384,889
<F4> Poland, 12%, 2/12/03 3,000,000 682,896
<F4> Poland, 12%, 10/12/01 2,000,000 467,427
---------------------------------------------------------------------
TOTAL GOVERNMENT AND AGENCY BONDS 8,112,762
=====================================================================-
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES (43.22%)
COMMERCIAL MORTGAGES (34.08%)
Asset Securitization Corporation -
Class CS1, 1.257%, 11/13/26 IO 17,839,819 728,400
<F2> Chase Commercial Mortgage
Securities Corporation -
Class A2, 6.60%, 12/12/29 500,000 501,940
<F2> Chase Commercial Mortgage
Securities Corp. - Class B,
6.60%, 12/12/29 500,000 501,570
Credit Suisse First Boston Mortgage
Securities Corp. - Class B, 9.591%,
4/25/25 (144a) 457,000 536,111
Credit Suisse First Boston Mortgage
Securities Corp. - Class A2,
7.26%, 6/20/29 (144a) 246,959 257,379
<F2> Credit Suisse First Boston Mortgage
Securities Corp. - Class B,
7.28%, 6/20/29 (144a) 250,000 259,870
<F2> Credit Suisse First Boston Mortgage
Securities Corp. - Class D,
7.46%, 6/20/29 (144a) 500,000 514,315
Commerical Mortgage Acceptance
Corporation - Class B,
6.647%, 12/15/30 500,000 504,505
DLJ Mortgage Acceptance Corp. -
Class A1B, 7.29%, 11/12/21 (144a) 250,000 262,783
DLJ Mortgage Acceptance Corp. -
Class S, .3571%, 10/15/17 IO (144a) 29,887,252 800,885
DLJ Mortgage Acceptance Corp. -
Class S, .718%, 2/15/31 IO (144a) 10,000,000 454,688
First Union-Lehman Brothers
Commercial Mortgage Trust -
Class C, 7.02%, 11/18/29 500,000 497,570
First Union-Lehman Brothers
Commercial Mortgage Trust -
Class, 1.307%, 4/18/27 IO 13,898,208 1,048,898
Merrill Lynch Mortgage
Investors, Inc. - Class E,
7.12%, 6/18/29 500,000 492,005
Merrill Lynch Mortgage
Investors, Inc. - Class E,
8.097%, 6/25/22 (144a) 500,000 521,005
Midland Realty Acceptance Corp. -
Class AEC, 1.389%, 1/25/29
(144a) IO 9,745,466 737,050
Shares/Par Market Value
---------------------------------------------------------------------
Nomura Asset Securities Corp.,
6.769%, 3/15/30 $200,000 $203,500
Nomura Asset Securities Corp.,
7.349%, 3/15/30 600,000 603,750
Red Mountain Funding LLC -
Class E, 7.365%, 1/15/19 (144a) 176,000 173,437
Red Mountain Funding LLC -
Class F, 7.471%, 1/15/19 (144a) 400,000 370,088
---------------------------------------------------------------------
TOTAL 9,969,749
=====================================================================
CREDIT CARD ASSET-BACKED (0.85%)
Iroquois Trust - Class A,
6.752%, 6/25/07 (144a) 250,000 249,610
---------------------------------------------------------------------
MANUFACTURED HOUSING (2.30%)
Mid-State Trust VI - Class A3,
7.54%, 7/1/35 661,860 672,417
---------------------------------------------------------------------
OTHER ASSET-BACKED (4.85%)
Greentree Recreation & Consumer
Trust - Class A1, 6.49%, 2/15/18 215,899 216,577
FMAC Loan Receivables Trust 98-A,
6.2%, 9/15/20 300,000 299,484
Heilig Meyers Master Trust,
6.125%, 1/20/07 500,000 496,797
Newcourt Equipment - Class B,
6.764%, 9/20/04 (144a) 405,062 407,180
---------------------------------------------------------------------
TOTAL 1,420,038
=====================================================================
RESIDENTIAL MORTGAGES (1.14%)
BCF L.L.C. Mortgage Pass Thru
Certificate - Class B3, 7.75%,
3/25/37 (144a) 331,241 334,093
---------------------------------------------------------------------
TOTAL MORTGAGE-BACKED AND ASSET-BACKED SECURITIES 12,645,907
=====================================================================
TOTAL BONDS 26,360,520
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
MONEY MARKET INVESTMENTS (7.51%)
FEDERAL GOVERNMENT AND AGENCIES (0.68%)
<F2> Federal National Mortgage
Association, 5.39%, 5/26/98 $200,000 $198,353
FINANCE SERVICES (6.83%)
<F2> Ford Motor Credit Corp.,
5.53%, 4/15/98 1,000,000 997,849
<F2> General Electric Capital Corporation,
6.019%, 4/1/98 1,000,000 1,000,000
---------------------------------------------------------------------
TOTAL 1,997,849
=====================================================================
TOTAL MONEY MARKET INVESTMENTS 2,196,202
=====================================================================
TOTAL INVESTMENTS (97.60%)
(COST $28,838,531)<F5> 28,556,722
=====================================================================
OTHER ASSETS, LESS LIABILITIES (2.40%) 704,031
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $29,260,753
=====================================================================
IO - Interest Only Security
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F1> Deferred interest security that presently receives no coupon payments.
At a predetermined date the stated coupon rate becomes effective.
<F2> Partially held by the custodian in a segregated account as collateral
for open futures and forward positions. Information regarding open
futures contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuers Contracts Date Appreciation
----------------------------------------------------------------------
U.S. Treasury Bond Futures
(Total market value at
3/31/98, $4,810,000) 40 6/98 $30,625
U.S. Treasury Note Futures
(Total market value at
3/31/98, $337,125) 3 6/98 $188
Foreign forward currency contracts outstanding at March 31, 1998:
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Currency Contract Month (Depreciation)
----------------------------------------------------------------------
Sell DEM 924,000 6/98 $6,955
Sell DEM 194,000 6/98 2,156
Sell PLZ 1,286,670 6/98 (105,243)
---------
($96,132)
DEM - German Deutschemark
PLZ - Polish Zlotty
<F3> Foreign security denominated in Greek Drachma.
<F4> Foreign security denominated in Polish Zlotty.
<F5> At March 31, 1998, the aggregate cost of securites for federal income
tax purposes was $28,838,531 and the net unrealized depreciation of
investments based on that cost was $281,809 which is comprised of
$174,823 aggregate gross unrealized appreciation and $456,632
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $29,614,223) $41,734,833
Money Market Investments (cost $798,923) 798,923
- -----------------------------------------------------------------------
42,533,756
=======================================================================
Cash 90,479
Due from Sale of Securities 959,596
Due from Sale of Fund Shares 48,615
Unamortized Organizational Costs 16,530
Dividends and Interest Receivable 3,355
- -----------------------------------------------------------------------
TOTAL ASSETS 43,652,331
=======================================================================
LIABILITIES
Due on Purchase of Securities 70,412
Other Accrued Liabilities 33,151
Due to Investment Advisor 25,836
Accrued Shareholder Servicing Fees 5,581
Accrued Administrative Fees 3,444
Due on Redemption of Fund Shares 3,582
- -----------------------------------------------------------------------
TOTAL LIABILITIES 142,006
=======================================================================
NET ASSETS $43,510,325
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,000,807 shares outstanding) $31,348,532
Undistributed Accumulated Net
Realized Gain on Investments 41,183
Net Unrealized Appreciation of
Investment Securities 12,120,610
- -----------------------------------------------------------------------
NET ASSETS FOR 3,000,807
SHARES OUTSTANDING $43,510,325
=======================================================================
Per Share of Class A (Based on
2,871,235 Shares Issued and Outstanding):
OFFERING PRICE $15.22
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $14.50
=======================================================================
Per Share of Class B (Based on 129,572
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $14.43
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $548) $34,737
Interest 84,013
- -----------------------------------------------------------------------
TOTAL INCOME 118,750
=======================================================================
Expenses
Management Fees 257,514
Shareholder Servicing Fees 85,838
Transfer Agent Fees 57,800
Registration Fees 40,262
Other Expenses 44,549
Distribution Fees:
Class A 33,634
Class B 5,260
Administrative Fees 34,335
Custody Fees 16,727
- -----------------------------------------------------------------------
TOTAL EXPENSES 575,919
=======================================================================
Less:
Custodian Fees Paid Indirectly (4,887)
Expenses Reimbursed by Affiliates (120,116)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 450,916
=======================================================================
NET INVESTMENT LOSS (332,166)
=======================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on Investments 1,864,006
Net Change in Unrealized Appreciation
of Investments for the Period 12,120,610
- -----------------------------------------------------------------------
NET GAIN ON INVESTMENTS 13,984,616
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $13,652,450
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
AGGRESSIVE GROWTH STOCK FUND
For the Twelve
Months Ended
March 31, 1998
- -----------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Loss $(332,166)
Net Realized Gain on Investments 1,864,006
Net Change in Unrealized Appreciation
of Investments for the Period 12,120,610
- -----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 13,652,450
=============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Realized Gain on Investments (1,513,217)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (45,705)
- -----------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (1,558,922)
=============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,757,475 Shares 28,325,850
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (121,508 shares) 1,511,566
Payments for 8,348 Shares Redeemed (110,997)
- -----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Class A
Fund Share Transactions (2,870,635 shares) 29,726,419
=============================================================================
Class B
Proceeds from Sale of 126,434 Shares 1,647,644
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (3,678 shares) 45,607
Payments for 1,140 Shares Redeemed (14,873)
- -----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Class B
Fund Share Transactions (128,972 shares) 1,678,378
=============================================================================
TOTAL INCREASE IN NET ASSETS 43,498,325
NET ASSETS
Beginning of Period 12,000
=============================================================================
END OF PERIOD $43,510,325
=============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
-------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding throughout the period) March 31, 1998 March 31, 1998
- -------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Loss<F1> (0.12) (0.21)
Net Realized and Unrealized
Gains on Investments 5.18 5.18
- -------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.06 4.97
===============================================================================
Less Distributions:
Distributions from Net Investment Income 0.00 0.00
Distributions from Realized
Gains on Investments (0.56) (0.54)
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.56) (0.54)
===============================================================================
NET ASSET VALUE, END OF PERIOD $14.50 $14.43
===============================================================================
TOTAL RETURN<F2> 51.57% 50.59%
===============================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $41,640,193 $1,870,132
===============================================================================
RATIO OF NET EXPENSES TO
AVERAGE NET ASSETS 1.30% 1.95%
===============================================================================
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS 1.64% 2.29%
===============================================================================
RATIO OF NET INVESTMENT LOSS TO
AVERAGE NET ASSETS (0.96)% (1.61)%
===============================================================================
PORTFOLIO TURNOVER RATE 64.91% 64.91%
===============================================================================
AVERAGE COMMISSION RATE $0.0548 $0.0548
===============================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
INTERNATIONAL EQUITY FUND
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $25,689,376) $27,111,225
Money Market Investments (cost $3,492,475) 3,492,475
- -----------------------------------------------------------------------
30,603,700
=======================================================================
Cash 65,840
Due from Sale of Fund Shares 179,924
Dividends Receivable 120,489
Unamortized Organizational Costs 16,519
Other Receivables 1,529
- -----------------------------------------------------------------------
TOTAL ASSETS 30,988,001
=======================================================================
LIABILITIES
Due on Purchase of Securities 11,553
Other Accrued Liabilities 28,456
Due to Investment Advisor 20,834
Accrued Administrative Fees 13,742
Due on Redemption of Fund Shares 10,677
Accrued Shareholder Servicing Fees 3,937
Accrued Distribution Expense 2,045
- -----------------------------------------------------------------------
TOTAL LIABILITIES 91,244
=======================================================================
NET ASSETS $30,896,757
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,920,454 shares outstanding) $29,184,788
Undistributed Net Investment Income 115,120
Undistributed Accumulated Net
Realized Gain on Investments 175,688
Net Unrealized Appreciation (Depreciation) of:
Investment Securities 1,421,849
Foreign Currency Transactions (688)
- -----------------------------------------------------------------------
NET ASSETS FOR 2,920,454
SHARES OUTSTANDING $30,896,757
=======================================================================
Per Share of Class A (Based on
2,783,288 Shares Issued and Outstanding):
OFFERING PRICE $11.11
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $10.58
=======================================================================
Per Share of Class B (Based on 137,166
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $10.53
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $78,856) $667,687
Interest 421,775
- -----------------------------------------------------------------------
TOTAL INCOME 1,089,462
=======================================================================
Expenses
Management Fees 231,461
Custody Fees 88,942
Shareholder Servicing Fees 68,077
Transfer Agent Fees 53,278
Other Expenses 46,210
Registration Fees 39,573
Distribution Fees:
Class A 26,652
Class B 4,343
Administrative Fees 27,231
- -----------------------------------------------------------------------
TOTAL EXPENSES 585,767
=======================================================================
Less:
Expenses Reimbursed by Affiliates (132,677)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 453,090
=======================================================================
NET INVESTMENT INCOME 636,372
=======================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES
Net Realized Gain on:
Investment Securities 175,688
Foreign Currency Transactions 5,723
- -----------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 181,411
=======================================================================
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities 1,421,849
Foreign Currency Transactions (688)
- -----------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
FOR THE PERIOD 1,421,161
=======================================================================
NET GAIN ON INVESTMENTS 1,602,572
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,238,944
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $636,372
Net Realized Gain on Investments 181,411
Net Unrealized Appreciation of Investments
and Foreign Currency Transactions for the Period 1,421,161
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 2,238,944
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (575,912)
Distributions to Class B Shareholders
from Net Investment Income (18,152)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (594,064)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,746,325 Shares 27,522,507
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (59,873 shares) 575,381
Payments for 23,510 Shares Redeemed (244,631)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (2,782,688 shares) 27,853,257
==============================================================================
Class B
Proceeds from Sale of 141,383 Shares 1,436,283
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (1,897 shares) 18,150
Payments for 6,714 Shares Redeemed (67,813)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (136,566 shares) 1,386,620
==============================================================================
TOTAL INCREASE IN NET ASSETS 30,884,757
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED
NET INVESTMENT INCOME OF $115,120) $30,896,757
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND
CLASS A CLASS B
--------------- ---------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.24 0.10
Net Realized and Unrealized
Gains on Investments 0.56 0.63
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.80 0.73
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.22) (0.20)
Distributions from Realized
Gains on Investments 0.00 0.00
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.22) (0.20)
================================================================================
NET ASSET VALUE, END OF PERIOD $10.58 $10.53
================================================================================
TOTAL RETURN<F2> 8.19% 7.49%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $29,451,833 $1,444,924
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.65% 2.30%
================================================================================
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS 2.13% 2.78%
================================================================================
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS 2.34% 1.69%
================================================================================
PORTFOLIO TURNOVER RATE 10.07% 10.07%
================================================================================
AVERAGE COMMISSION RATE $0.0016 $0.0016
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $24,649,137) $34,240,761
Money Market Investments (cost $4,692,797) 4,692,797
- -----------------------------------------------------------------------
38,933,558
=======================================================================
Cash 63,642
Due from Sale of Fund Shares 32,860
Due from Sale of Securities 25,677
Dividends and Interest Receivable 21,306
Futures Variation Margin 16,800
Unamortized Organizational Costs 16,530
- -----------------------------------------------------------------------
TOTAL ASSETS 39,110,373
=======================================================================
LIABILITIES
Due to Investment Advisor 23,437
Other Accrued Liabilities 17,985
Due on Purchase of Securities 16,959
Accrued Registration Fees 8,249
Accrued Shareholder Servicing Fees 5,062
Accrued Administrative Fees 3,122
- -----------------------------------------------------------------------
TOTAL LIABILITIES 74,814
=======================================================================
NET ASSETS $39,035,559
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,769,595 shares outstanding) $28,203,930
Undistributed Net Investment Income 23,034
Undistributed Accumulated Net
Realized Gain on Investments 1,168,002
Net Unrealized Appreciation of:
Investment Securities 9,591,624
Index Futures Contracts 48,969
- -----------------------------------------------------------------------
NET ASSETS FOR 2,769,595
SHARES OUTSTANDING $39,035,559
=======================================================================
Per Share of Class A (Based on
2,711,768 Shares Issued and Outstanding):
OFFERING PRICE $14.80
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $14.10
=======================================================================
Per Share of Class B (Based on 57,827
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $14.03
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $3,002) $318,476
Interest 187,641
- -----------------------------------------------------------------------
TOTAL INCOME 506,117
=======================================================================
Expenses
Management Fees 238,548
Shareholder Servicing Fees 79,516
Transfer Agent Fees 46,785
Registration Fees 39,400
Distribution Fees:
Class A 31,529
Class B 2,083
Administrative Fees 31,806
Other Expenses 21,736
Shareholder Reporting Expenses 13,708
Custody Fees 13,083
Directors Fees 4,933
Professional Fees 3,188
- -----------------------------------------------------------------------
TOTAL EXPENSES 526,315
=======================================================================
Less:
Custodian Fees Paid Indirectly (4,740)
Expenses Reimbursed by Affiliates (106,287)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 415,288
=======================================================================
NET INVESTMENT INCOME 90,829
=======================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 1,535,122
Futures Contracts 430,937
- -----------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 1,966,059
=======================================================================
Net Change in Unrealized Appreciation of:
Investment Securities 9,591,624
Index Futures Contracts 48,969
- -----------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
OF INVESTMENTS FOR THE PERIOD 9,640,593
=======================================================================
NET GAIN ON INVESTMENTS 11,606,652
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $11,697,481
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
GROWTH STOCK FUND
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $90,829
Net Realized Gain on Investments 1,966,059
Net Change in Unrealized Appreciation of
Investments for the Period 9,640,593
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 11,697,481
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (134,147)
Distributions to Class A Shareholders
from Net Realized Gain on Investments (787,500)
Distributions to Class B Shareholders
from Net Investment Income (1,034)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (10,555)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (933,236)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,643,059 Shares 26,708,776
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (75,479 shares) 921,596
Payments for 7,370 Shares Redeemed (90,416)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (2,711,168 shares) 27,539,956
==============================================================================
Class B
Proceeds from Sale of 56,279 Shares 707,826
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (951 shares) 11,573
Payments for 3 Shares Redeemed (41)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (57,227 shares) 719,358
==============================================================================
TOTAL INCREASE IN NET ASSETS 39,023,559
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD
(INCLUDES UNDISTRIBUTED NET INVESTMENT INCOME OF $23,034) $39,035,559
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
-------------- --------------
For the Twelve For the Twelve
(For a share outstanding Months Ended Months Ended
throughout the period) March 31, 1998 March 31, 1998
- ------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income (Loss)<F1> 0.04 (0.05)
Net Realized and Unrealized Gains
on Investments 4.41 4.41
- ------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.45 4.36
==============================================================================
Less Distributions:
Distributions from Net Investment Income (0.05) (0.03)
Distributions from Realized Gains
on Investments (0.30) (0.30)
- ------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.35) (0.33)
==============================================================================
NET ASSET VALUE, END OF PERIOD $14.10 $14.03
==============================================================================
TOTAL RETURN<F2> 45.08% 44.12%
==============================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $38,224,386 $811,173
==============================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.30% 1.95%
==============================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.63% 2.28%
==============================================================================
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 0.29% (0.36)%
==============================================================================
PORTFOLIO TURNOVER RATE 37.52% 37.52%
==============================================================================
AVERAGE COMMISSION RATE $0.0510 $0.0510
==============================================================================
<F1>Calculated based on average shares outstanding.
<F2>Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
GROWTH AND INCOME STOCK FUND
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $33,869,062) $38,435,411
- -----------------------------------------------------------------------
Due from Sale of Securities 2,173,083
Due from Sale of Fund Shares 71,479
Dividends and Interest Receivable 41,193
Unamortized Organizational Costs 16,530
- -----------------------------------------------------------------------
TOTAL ASSETS 40,737,696
=======================================================================
LIABILITIES
Due on Purchase of Securities 1,340,507
Due to Investment Advisor 27,876
Other Accrued Liabilities 22,782
Accrued Registration Fees 8,662
Accrued Shareholder Servicing Fees 5,096
Accrued Administrative Fees 3,155
- -----------------------------------------------------------------------
TOTAL LIABILITIES 1,408,078
=======================================================================
NET ASSETS $39,329,618
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,161,911 shares outstanding) $32,330,139
Undistributed Net Investment Income 28,998
Undistributed Accumulated Net
Realized Gain on Investments 2,404,132
Net Unrealized Appreciation of
Investment Securities 4,566,349
- -----------------------------------------------------------------------
NET ASSETS FOR 3,161,911
SHARES OUTSTANDING $39,329,618
=======================================================================
Per Share of Class A (Based on
3,038,315 Shares Issued and Outstanding):
OFFERING PRICE $13.06
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $12.44
=======================================================================
Per Share of Class B (Based on 123,596
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $12.37
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $2,060) $462,835
Interest 41,179
- -----------------------------------------------------------------------
TOTAL INCOME 504,014
=======================================================================
Expenses
Management Fees 208,331
Shareholder Servicing Fees 80,127
Transfer Agent Fees 48,311
Other Expenses 44,834
Registration Fees 39,813
Distribution Fees:
Class A 31,548
Class B 3,769
Administrative Fees 32,051
Custody Fees 21,589
- -----------------------------------------------------------------------
TOTAL EXPENSES 510,373
=======================================================================
Less:
Custodian Fees Paid Indirectly (3,758)
Expenses Reimbursed by Affiliates (118,738)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 387,877
=======================================================================
NET INVESTMENT INCOME 116,137
=======================================================================
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net Realized Gain on Investments 6,264,818
Net Change in Unrealized Appreciation
of Investments for the Period 4,566,349
- -----------------------------------------------------------------------
NET GAIN ON INVESTMENTS 10,831,167
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $10,947,304
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $116,137
Net Realized Gain on Investments 6,264,818
Net Change in Unrealized Appreciation
of Investments for the Period 4,566,349
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 10,947,304
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (152,006)
Distributions to Class A Shareholders
from Net Realized Gain on Investments (3,768,242)
Distributions to Class B Shareholders
from Net Investment Income (2,604)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (92,540)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (4,015,392)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,700,758 Shares 27,377,915
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (366,764 shares) 3,917,041
Payments for 29,807 Shares Redeemed (358,157)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (3,037,715 shares) 30,936,799
==============================================================================
Class B
Proceeds from Sale of 116,172 Shares 1,379,764
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (8,931 shares) 95,020
Payments for 2,107 Shares Redeemed (25,877)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (122,996 shares) 1,448,907
==============================================================================
TOTAL INCREASE IN NET ASSETS 39,317,618
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD
(INCLUDES UNDISTRIBUTED NET INVESTMENT INCOME OF $28,998) $39,329,618
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME STOCK FUND
CLASS A CLASS B
-------------- --------------
For the Twelve For the Twelve
(For a share outstanding Months Ended Months Ended
throughout the period) March 31, 1998 March 31, 1998
- ------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income (Loss)<F1> 0.04 (0.03)
Net Realized and Unrealized Gains
on Investments 3.90 3.88
- ------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.94 3.85
==============================================================================
Less Distributions:
Distributions from Net Investment Income (0.06) (0.04)
Distributions from Realized Gains
on Investments (1.44) (1.44)
- ------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.50) (1.48)
==============================================================================
NET ASSET VALUE, END OF PERIOD $12.44 $12.37
==============================================================================
TOTAL RETURN<F2> 41.90% 40.96%
==============================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $37,800,412 $1,529,206
==============================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.20% 1.85%
==============================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.57% 2.22%
==============================================================================
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 0.37% (0.28)%
==============================================================================
PORTFOLIO TURNOVER RATE 140.29% 140.29%
==============================================================================
AVERAGE COMMISSION RATE $0.0440 $0.0440
==============================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $31,353,818) $43,312,795
Money Market Investments (cost $4,292,797) 4,292,797
- -----------------------------------------------------------------------
47,605,592
=======================================================================
Cash 12,644
Due from Sale of Fund Shares 171,101
Dividends and Interest Receivable 45,205
Futures Variation Margin 16,800
Unamortized Organizational Costs 16,530
Due from Sale of Securities 58
- -----------------------------------------------------------------------
TOTAL ASSETS 47,867,930
=======================================================================
LIABILITIES
Other Accrued Liabilities 11,442
Due to Investment Advisor 11,310
Accrued Registration Fees 9,359
Accrued Transfer Agent Fees 7,246
Accrued Shareholder Servicing Fees 6,088
Accrued Distribution Expense 3,861
Accrued Administrative Fees 3,758
Due on Redemption of Fund Shares 730
- -----------------------------------------------------------------------
TOTAL LIABILITIES 53,794
=======================================================================
NET ASSETS $47,814,136
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,315,845 shares outstanding) $35,159,466
Undistributed Net Investment Income 106,574
Undistributed Accumulated Net
Realized Gain on Investments 340,344
Net Unrealized Appreciation of:
Investment Securities 11,958,977
Index Futures Contracts 248,775
- -----------------------------------------------------------------------
NET ASSETS FOR 3,315,845
SHARES OUTSTANDING $47,814,136
=======================================================================
Per Share of Class A (Based on
3,019,915 Shares Issued and Outstanding):
OFFERING PRICE $15.15
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $14.43
=======================================================================
Per Share of Class B (Based on 295,930
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $14.35
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $4,195) $559,922
Interest 100,992
- -----------------------------------------------------------------------
TOTAL INCOME 660,914
=======================================================================
Expenses
Management Fees 104,488
Shareholder Servicing Fees 87,074
Transfer Agent Fees 55,777
Distribution Fees:
Class A 33,303
Class B 11,450
Registration Fees 41,629
Custody Fees 38,529
Administrative Fees 34,829
Shareholder Reporting Expenses 19,791
Other Expenses 17,258
Audit Fees 15,001
Directors' Fees 4,933
Professional Fees 3,192
- -----------------------------------------------------------------------
TOTAL EXPENSES 467,254
=======================================================================
Less:
Custodian Fees Paid Indirectly (3,987)
Expenses Reimbursed by Affiliates (157,294)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 305,973
=======================================================================
NET INVESTMENT INCOME 354,941
=======================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 136,583
Index Futures Contracts 398,819
- -----------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 535,402
=======================================================================
Net Change in Unrealized Appreciation of:
Investment Securities 11,958,977
Index Futures Contracts 248,775
=======================================================================
NET CHANGE IN UNREALIZED APPRECIATION
OF INVESTMENTS FOR THE PERIOD 12,207,752
=======================================================================
NET GAIN ON INVESTMENTS 12,743,154
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $13,098,095
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
INDEX 500 STOCK FUND
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $354,941
Net Realized Gain on Investments 535,402
Net Change in Unrealized Appreciation
of Investments and Foreign Currency Transactions
for the Period 12,207,752
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 13,098,095
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (300,021)
Distributions to Class A Shareholders
from Net Realized Gain on Investments (183,740)
Distributions to Class B Shareholders
from Net Investment Income (17,018)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (11,318)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (512,097)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 3,001,056 Shares 31,280,916
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (39,415 shares) 482,830
Payments for 21,156 Shares Redeemed (254,109)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (3,019,315 shares) 31,509,637
==============================================================================
Class B
Proceeds from Sale of 311,242 Shares 3,901,288
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (2,318 shares) 28,306
Payments for 18,230 Shares Redeemed (223,093)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (295,330 shares) 3,706,501
==============================================================================
TOTAL INCREASE IN NET ASSETS 47,802,136
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD
(INCLUDES UNDISTRIBUTED NET INVESTMENT INCOME OF $106,574) $47,814,136
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.13 0.05
Net Realized and Unrealized Gains on Investments 4.48 4.47
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.61 4.52
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.11) (0.10)
Distributions from Realized Gains on Investments (0.07) (0.07)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.18) (0.17)
================================================================================
NET ASSET VALUE, END OF PERIOD $14.43 $14.35
- --------------------------------------------------------------------------------
TOTAL RETURN<F2> 46.35% 45.44%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $43,567,584 $4,246,552
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 0.85% 1.50%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.30% 1.95%
================================================================================
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.04% 0.39%
================================================================================
PORTFOLIO TURNOVER RATE 2.47% 2.47%
================================================================================
AVERAGE COMMISSION RATE $0.0255 $0.0255
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
ASSET ALLOCATION FUND
March 31, 1998
- -------------------------------------------------------------------------------
ASSETS
Common Stocks (cost $12,105,511) $16,437,695
Bonds (cost $10,890,130) 11,190,492
Foreign Common Stock (cost $3,235,701) 3,977,631
Money Market Investments (cost $2,991,454) 2,991,454
Preferred Stock (cost $977,500) 1,080,000
- ----------------------------------------------------------------------------
35,677,272
============================================================================
Cash 32,711
Due from Sale of Securities 202,748
Due from Sale of Fund Shares 140,680
Dividends and Interest Receivable 135,631
Unamortized Organizational Costs 16,530
Futures Variation Margin 3,600
- ----------------------------------------------------------------------------
TOTAL ASSETS 36,209,172
============================================================================
LIABILITIES
Other Accrued Liabilities 30,779
Due to Investment Advisor 22,514
Due on Purchase of Securities 12,692
Accrued Shareholder Servicing Fees 4,644
Accrued Administrative Fees 2,895
Accrued Distribution Expense 2,398
- ----------------------------------------------------------------------------
TOTAL LIABILITIES 75,922
============================================================================
NET ASSETS $36,133,250
============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,934,445 shares outstanding) $29,951,343
Undistributed Net Investment Income 231,052
Undistributed Accumulated Net
Realized Gain on Investments 464,542
Net Unrealized Appreciation (Depreciation) of:
Investment Securities 5,476,976
Futures Contracts 9,367
Foreign Currency Transactions (30)
- ----------------------------------------------------------------------------
NET ASSETS FOR 2,934,445
SHARES OUTSTANDING $36,133,250
============================================================================
Per Share of Class A (Based on
2,806,418 Shares Issued and Outstanding):
OFFERING PRICE $12.93
============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $12.32
============================================================================
Per Share of Class B (Based on 128,027
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $12.26
============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- ----------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $957,934
Dividends (less foreign dividend tax of $7,589) 268,572
- ----------------------------------------------------------------------------
TOTAL INCOME 1,226,506
============================================================================
Expenses
Management Fees 212,831
Shareholder Servicing Fees 76,011
Transfer Agent Fees 46,134
Registration Fees 39,785
Distribution Fees:
Class A 29,773
Class B 4,738
Administrative Fees 30,404
Custody Fees 29,363
Shareholder Reporting Expenses 16,418
Audit Fees 16,290
Other Expenses 13,275
Directors' Fees 4,933
Professional Fees 3,836
- ----------------------------------------------------------------------------
TOTAL EXPENSES 523,791
============================================================================
Less:
Custodian Fees Paid Indirectly (10,926)
Expenses Reimbursed by Affiliates (98,299)
- ----------------------------------------------------------------------------
TOTAL NET EXPENSES 414,566
============================================================================
NET INVESTMENT INCOME 811,940
============================================================================
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 1,056,714
Futures Contracts 80,645
Foreign Currency Transactions (116)
- ----------------------------------------------------------------------------
NET REALIZED GAIN FOR THE PERIOD 1,137,243
============================================================================
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities 5,476,976
Future Contracts 9,367
Foreign Currency Transactions (30)
- ----------------------------------------------------------------------------
NET CHANGE IN UNREALIZED
APPRECIATION FOR THE PERIOD 5,486,313
============================================================================
NET GAIN ON INVESTMENTS 6,623,556
============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $7,435,496
============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $811,940
Net Realized Gain on Investments 1,137,243
Net Change in Unrealized Appreciation of
Investments and Foreign Currency
Transactions for the Period 5,486,313
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 7,435,496
================================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (627,696)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (650,292)
Distributions to Class B Shareholders from
Net Investment Income (20,006)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (22,525)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (1,320,519)
================================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,700,842 Shares 27,348,582
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (112,592 shares) 1,276,794
Payments for 7,616 Shares Redeemed (91,176)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (2,805,818 shares) 28,534,200
================================================================================
Class B
Proceeds from Sale of 127,870 Shares 1,480,265
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (3,763 shares) 42,525
Payments for 4,206 Shares Redeemed (50,717)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (127,427 shares) 1,472,073
================================================================================
TOTAL INCREASE IN NET ASSETS 36,121,250
NET ASSETS
Beginning of Period 12,000
================================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $231,052) $36,133,250
================================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
ASSET ALLOCATION FUND
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.31 0.23
Net Realized and Unrealized Gains on Investments 2.50 2.50
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.81 2.73
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.24) (0.22)
Distributions from Realized Gains on Investments (0.25) (0.25)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.49) (0.47)
================================================================================
NET ASSET VALUE, END OF PERIOD $12.32 $12.26
================================================================================
TOTAL RETURN<F2> 28.51% 27.69%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $34,564,169 $1,569,081
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.35% 2.00%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.67% 2.32%
================================================================================
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.67% 2.02%
================================================================================
PORTFOLIO TURNOVER RATE 65.67% 65.67%
================================================================================
AVERAGE COMMISSION RATE $0.0621 $0.0621
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -------------------------------------------------------------------------------
ASSETS
Bonds (cost $25,606,692) $26,381,263
Preferred Stock (cost $6,399,615) 6,812,053
Money Market Investments (cost $699,677) 699,677
Common Stock (cost $113,535) 107,570
- -------------------------------------------------------------------------------
34,000,563
===============================================================================
Cash 96,959
Due from Sale of Securities 1,144,617
Dividends and Interest Receivable 551,866
Due from Sale of Fund Shares 132,240
Unamortized Organizational Costs 16,530
- -------------------------------------------------------------------------------
TOTAL ASSETS 35,942,775
===============================================================================
LIABILITIES
Due on Purchase of Securities 1,455,174
Income Dividend Payable 258,545
Other Accrued Liabilities 27,763
Due to Investment Advisor 19,737
Accrued Shareholder Servicing Fees 4,380
Accrued Administrative Fees 2,767
Accrued Distribution Expense 2,168
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 1,770,534
===============================================================================
NET ASSETS $34,172,241
===============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,167,669 shares outstanding) $32,109,366
Undistributed Net Investment Income 61,039
Undistributed Accumulated Net
Realized Gain on Investments 820,792
Net Unrealized Appreciation of
Investment Securities 1,181,044
- -------------------------------------------------------------------------------
NET ASSETS FOR 3,167,669
SHARES OUTSTANDING $34,172,241
===============================================================================
Per Share of Class A (Based on
3,041,500 Shares Issued and Outstanding):
OFFERING PRICE $11.33
===============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $10.79
===============================================================================
Per Share of Class B (Based on 126,169
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $10.79
===============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $2,441,525
Dividends 701,221
- -------------------------------------------------------------------------------
TOTAL INCOME 3,142,746
===============================================================================
Expenses
Management Fees 221,575
Shareholder Servicing Fees 73,858
Transfer Agent Fees 43,297
Registration Fees 39,661
Distribution Fees:
Class A 29,184
Class B 2,698
Administrative Fees 29,543
Custody Fees 28,783
Audit Fees 17,001
Shareholder Reporting Expenses 15,591
Other Expenses 12,264
Directors' Fees 4,933
Professional Fees 4,517
- -------------------------------------------------------------------------------
TOTAL EXPENSES 522,905
===============================================================================
Less:
Custodian Fees Paid Indirectly (27,758)
Expenses Reimbursed by Affiliates (108,746)
- -------------------------------------------------------------------------------
TOTAL NET EXPENSES 386,401
===============================================================================
NET INVESTMENT INCOME 2,756,345
===============================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on Investments 1,974,379
Net Change in Unrealized Appreciation
of Investments for the Period 1,181,044
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 3,155,423
===============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $5,911,768
===============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
HIGH YIELD BOND FUND
For the Twelve
Months Ended
March 31, 1998
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $2,756,345
Net Realized Gain on Investments 1,974,379
Net Change in Unrealized Appreciation of
Investments for the Period 1,181,044
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 5,911,768
===============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (2,730,612)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (1,131,057)
Distributions to Class B Shareholders from
Net Investment Income (31,293)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (22,530)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders (3,915,492)
===============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,716,144 Shares 27,328,578
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (336,168 shares) 3,598,592
Payments for 11,412 Shares Redeemed (122,333)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (3,040,900 shares) 30,804,837
===============================================================================
Class B
Proceeds from Sale of 121,471 Shares 1,315,485
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (4,331 shares) 46,162
Payments for 233 Shares Redeemed (2,519)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (125,569 shares) 1,359,128
===============================================================================
TOTAL INCREASE IN NET ASSETS 34,160,241
NET ASSETS
Beginning of Period 12,000
===============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $61,039) $34,172,241
===============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 1.01 0.93
Net Realized and Unrealized Gains
on Investments 1.19 1.20
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.20 2.13
================================================================================
Less Distributions:
Distributions from Net Investment Income (1.00) (0.93)
Distributions from Realized Gains
on Investments (0.41) (0.41)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.41) (1.34)
================================================================================
NET ASSET VALUE, END OF PERIOD $10.79 $10.79
================================================================================
TOTAL RETURN<F2> 22.95% 22.09%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $32,811,316 $1,360,925
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.30% 1.95%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS 1.66% 2.31%
================================================================================
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 9.30% 8.65%
================================================================================
PORTFOLIO TURNOVER RATE 178.61% 178.61%
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
MUNICIPAL BOND FUND
March 31, 1998
- -----------------------------------------------------------------------------
ASSETS
Bonds (cost $26,203,665) $27,642,166
Money Market Investments (cost $600,000) 600,000
- -----------------------------------------------------------------------------
28,242,166
=============================================================================
Cash 14,520
Interest Receivable 511,735
Unamortized Organizational Costs 16,530
Due from Sale of Fund Shares 83
- -----------------------------------------------------------------------------
TOTAL ASSETS 28,785,034
=============================================================================
LIABILITIES
Income Dividend Payable 101,330
Other Accrued Liabilities 24,328
Due to Investment Advisor 7,044
Accrued Shareholder Servicing Fees 3,720
Accrued Administrative Fees 2,348
Accrued Distribution Expense 1,672
- -----------------------------------------------------------------------------
TOTAL LIABILITIES 140,442
=============================================================================
NET ASSETS $28,644,592
=============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,715,965 shares outstanding) $27,188,250
Undistributed Net Investment Income 29,346
Overdistributed Net
Realized Gain on Investments (11,505)
Net Unrealized Appreciation of
Investment Securities 1,438,501
- -----------------------------------------------------------------------------
NET ASSETS FOR 2,715,965
SHARES OUTSTANDING $28,644,592
=============================================================================
Per Share of Class A (Based on
2,671,175 Shares Issued and Outstanding):
OFFERING PRICE $11.08
=============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $10.55
=============================================================================
Per Share of Class B (Based on 44,790
Shares Issued and Outstanding):
=============================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $10.55
=============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $1,425,930
- -----------------------------------------------------------------------------
Expenses
Management Fees 81,499
Shareholder Servicing Fees 67,916
Transfer Agent Fees 40,750
Registration Fees 38,790
Distribution Fees:
Class A 26,898
Class B 2,014
Administrative Fees 27,167
Audit Fees 17,305
Shareholder Reporting Expenses 13,198
Other Expenses 11,452
Custody Fees 7,207
Professional Fees 5,615
Directors' Fees 4,933
- -----------------------------------------------------------------------------
TOTAL EXPENSES 344,744
=============================================================================
Less:
Custodian Fees Paid Indirectly (5,484)
Expenses Reimbursed by Affiliates (106,599)
- -----------------------------------------------------------------------------
TOTAL NET EXPENSES 232,661
=============================================================================
NET INVESTMENT INCOME 1,193,269
=============================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 227,543
Futures Contracts 107,131
- -----------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 334,674
=============================================================================
Net Change in Unrealized Appreciation of
Investment Securities 1,438,501
- -----------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
FOR THE PERIOD 1,438,501
=============================================================================
NET GAIN ON INVESTMENTS 1,773,175
=============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,966,444
=============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $1,193,269
Net Realized Gain on Investments 332,018
Net Change in Unrealized Appreciation of
Investments for the Period 1,441,157
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 2,966,444
===============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (1,219,558)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (341,287)
Distributions to Class B Shareholders from
Net Investment Income (10,261)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (4,893)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders (1,575,999)
===============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,536,893 Shares 25,381,407
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (139,366 shares) 1,460,157
Payments for 5,684 Shares Redeemed (59,865)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (2,670,575 shares) 26,781,699
===============================================================================
Class B
Proceeds from Sale of 44,580 Shares 464,616
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (601 shares) 6,340
Payments for 991 Shares Redeemed (10,508)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (44,190 shares) 460,448
===============================================================================
TOTAL INCREASE IN NET ASSETS 28,632,592
===============================================================================
NET ASSETS
Beginning of Period 12,000
===============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $29,346) $28,644,592
===============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
MUNICIPAL BOND FUND
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.46 0.38
Net Realized and Unrealized Gains
on Investments 0.69 0.70
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.15 1.08
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.47) (0.40)
Distributions from Realized Gains
on Investments (0.13) (0.13)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.60) (0.53)
================================================================================
NET ASSET VALUE, END OF PERIOD $10.55 $10.55
================================================================================
TOTAL RETURN<F2> 11.73% 10.93%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $28,172,205 $472,387
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 0.85% 1.50%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS 1.24% 1.89%
================================================================================
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.38% 3.73%
================================================================================
PORTFOLIO TURNOVER RATE 169.37% 169.37%
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- ------------------------------------------------------------------------------
ASSETS
Bonds (cost $26,642,329) $26,360,520
Money Market Investments (cost $2,196,202) 2,196,202
- ------------------------------------------------------------------------------
28,556,722
==============================================================================
Cash 111,698
Due from Sale of Securities 1,008,025
Interest Receivable 353,129
Due from Sale of Fund Shares 53,254
Unamortized Organizational Costs 16,530
- ------------------------------------------------------------------------------
TOTAL ASSETS 30,099,358
==============================================================================
LIABILITIES
Due on Purchase of Securities 497,511
Income Dividend Payable 182,998
Due on Foreign Currency Contracts 96,132
Other Accrued Liabilities 28,855
Futures Variation Margin 19,781
Due to Investment Advisor 7,167
Accrued Shareholder Servicing Fees 3,771
Accrued Administrative Fees 2,390
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 838,605
==============================================================================
NET ASSETS $29,260,753
==============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,933,342 shares outstanding) $29,365,703
Undistributed Net Investment Income 68,879
Undistributed Accumulated Net
Realized Gain on Investments 172,097
Net Unrealized Appreciation (Depreciation) of:
Investment Securities (281,809)
Futures Contracts 30,813
Foreign Currency Transactions (94,930)
- ------------------------------------------------------------------------------
NET ASSETS FOR 2,933,342
SHARES OUTSTANDING $29,260,753
==============================================================================
Per Share of Class A (Based on
2,868,849 Shares Issued and Outstanding):
OFFERING PRICE $10.48
==============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $9.98
==============================================================================
Per Share of Class B (Based on 64,493
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $9.98
==============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $2,133,628
- ------------------------------------------------------------------------------
Expenses
Management Fees 82,010
Shareholder Servicing Fees 68,342
Other Expenses 53,206
Transfer Agent Fees 40,505
Registration Fees 38,960
Distribution Fees:
Class A 27,165
Class B 1,289
Administrative Fees 27,337
Custody Fees 26,671
- ------------------------------------------------------------------------------
TOTAL EXPENSES 365,485
==============================================================================
Less:
Custodian Fees Paid Indirectly (9,365)
Expenses Reimbursed by Affiliates (122,483)
- ------------------------------------------------------------------------------
TOTAL NET EXPENSES 233,637
==============================================================================
NET INVESTMENT INCOME 1,899,991
==============================================================================
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 1,686,104
Futures Contracts (197,368)
Foreign Currency Transactions 8,565
- ------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 1,497,301
==============================================================================
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities (281,809)
Futures Contracts 30,813
Foreign Currency Transactions (94,930)
- ------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED DEPRECIATION
FOR THE PERIOD (345,926)
==============================================================================
NET GAIN ON INVESTMENTS 1,151,375
==============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $3,051,366
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
SELECT BOND FUND
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $1,899,991
Net Realized Gain on Investments 1,497,301
Net Change in Unrealized Depreciation of
Investments and Foreign Currency Transactions
for the Period (345,926)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 3,051,366
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (1,894,078)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (1,304,159)
Distributions to Class B Shareholders from
Net Investment Income (11,475)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (12,480)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders (3,222,192)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,608,995 Shares 26,123,497
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (295,732 shares) 3,008,696
Payments for 36,478 Shares Redeemed (363,818)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (2,868,249 shares) 28,768,375
==============================================================================
Class B
Proceeds from Sale of 64,092 Shares 653,842
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (2,037 shares) 20,537
Payments for 2,236 Shares Redeemed (23,175)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (63,893 shares) 651,204
==============================================================================
TOTAL INCREASE IN NET ASSETS 29,248,753
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $68,879) $29,260,753
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.71 0.66
Net Realized and Unrealized Gains
on Investments 0.46 0.44
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.17 1.10
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.71) (0.64)
Distributions from Realized Gains
on Investments (0.48) (0.48)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.19) (1.12)
================================================================================
NET ASSET VALUE, END OF PERIOD $9.98 $9.98
================================================================================
TOTAL RETURN<F2> 12.11% 11.34%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $28,617,421 $643,332
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 0.85% 1.50%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS 1.29% 1.94%
================================================================================
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 6.93% 6.28%
================================================================================
PORTFOLIO TURNOVER RATE 362.32% 362.32%
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1
Mason Street Funds, Inc. was incorporated under the laws of the state of
Maryland on August 30, 1996 as an open-end investment company under the
Investment Company Act of 1940. Mason Street FundsSM consist of the Aggressive
Growth Stock Fund, International Equity Fund, Growth Stock Fund, Growth and
Income Stock Fund, Index 500 Stock Fund, Asset Allocation Fund, High Yield Bond
Fund, Municipal Bond Fund and the Select Bond Fund, collectively known as "the
Funds." The Funds commenced operations on March 31, 1997 at $10.00 per share
with 1,200 shares in each of the Funds owned by Northwestern Mutual Life
Insurance Company ("Northwestern Mutual"). On April 1, 1997, Northwestern Mutual
invested an additional $225 million in Mason Street FundsSM; $25 million in the
Class A shares in each of the Funds.
Each Fund offers two classes of shares: Class A shares with an initial sales
charge up to 4.75% and Class B shares with contingent deferred sales charge of
5.0% to 0% over a period of up to six years. Each class of shares has equal
rights with respect to voting privileges.
Organizational costs and initial registration expenses are being deferred and
amortized over the period of benefit, but not to exceed 60 months from the
Funds' commencement of operations. These costs, totaling $417,215, were advanced
by Northwestern Mutual and were reimbursed by the Funds equally.
NOTE 2
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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.
Principal accounting policies are summarized in the following Notes.
NOTE 3
Bonds are valued on the basis of prices furnished by a service which determines
prices for normal institutional size trading units of bonds, without regard to
exchange or over-the-counter prices. When quotations are not readily available,
bonds are valued using procedures approved by the Board of Directors. Stocks
listed on a national or foreign stock exchange are valued at the final sale
price, or final bid price in absence of a sale. Stocks not listed on a national
or foreign stock exchange are valued at the closing bid price on the over-the-
counter market. Money market investments with maturities exceeding 60 days but
generally not exceeding one year are valued by marking to market on the basis of
an average of the most recent bid prices or yields. Money market investments
with maturities of 60 days or less are valued on an amortized cost basis or, if
the current market value differs substantially from the amortized cost, by
marking to market.
NOTE 4
Securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollar amounts on the date of valuation. Purchases and
sales of securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. When the International Equity Fund, Asset Allocation Fund and
Select Bond Fund purchase or sell a foreign security they may enter into a
foreign exchange currency contract to minimize market risk from the trade date
to the settlement date of such transaction. Such foreign exchange currency
contracts are marked to market daily.
The Funds may enter into forward foreign currency contracts to hedge against
exchange rate risk arising from investments in securities denominated in foreign
currencies. Contracts are valued at the contractual forward rate and are marked
to market daily, with the change in market value recorded as an unrealized gain
or loss. When the contracts are closed, a realized gain or loss is incurred.
Risks may arise from changes in market value of the underlying instruments and
from the possible inability of counter parties to meet the terms of their
contracts.
The International Equity Fund, Asset Allocation Fund and Select Bond Fund do not
separately report the results of operations due to changes in foreign exchange
rates on investments from the fluctuations arising from changes in market prices
of securities held. Such fluctuations are included with the net realized or
unrealized gain or loss from investments.
Net realized and unrealized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade date and
the settlement date on security transactions, and the differences between the
amounts of dividends and foreign withholding taxes recorded on the Funds' books
and the U.S. dollar equivalent of the amounts actually received or paid.
NOTE 5
The Aggressive Growth Stock Fund, Growth Stock Fund, Index 500 Stock Fund, Asset
Allocation Fund, Municipal Bond Fund and the Select Bond Fund invest in futures
contracts as an alternative to investing in individual securities. The
Aggressive Growth Stock Fund, Growth Stock Fund, Index 500 Stock Fund, Asset
Allocation Fund, Municipal Bond Fund and the Select Bond Fund could be exposed
to market risk due to changes in the value of the underlying securities or due
to an illiquid secondary market. Futures contracts are marked to market daily
based upon quoted settlement prices. The Funds receive from or pay to brokers an
amount of cash equal to the daily fluctuation in the value of the contracts.
Such receipts or payments, known as the "variation margin," are recorded by the
Funds as unrealized gains or losses. When the contract is closed, the Funds
record a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
For federal income tax purposes, net unrealized appreciation (depreciation) on
open futures contracts is generally required to be treated as realized gains
(losses).
NOTE 6
Income, Fund expenses, realized and unrealized gains and losses are allocated
daily to each class of shares based on the value of shares outstanding for the
Aggressive Growth Stock Fund, International Equity Fund, Growth Stock Fund,
Growth and Income Stock Fund, Index 500 Stock Fund and Asset Allocation Fund.
Dividends and other distributions are calculated in a similar manner and are
declared and distributed to shareholders annually for these Funds. For the High
Yield Bond Fund, Municipal Bond Fund and Select Bond Fund, income and Fund
expenses are allocated daily to each class of shares based on the value of
settled shares. Realized and unrealized gains and losses are allocated daily to
each class of shares based on the value of shares outstanding. Dividends and
other distributions are calculated in a similar manner. Income dividends are
declared daily, paid monthly. Capital gain dividends are declared and
distributed annually for these Funds.
- -------------------------------------------------------------------------------
NOTE 7
Interest income and discounts earned are recorded daily on the accrual basis and
dividend income is recorded on the ex-dividend date or as soon as information
from foreign issuers is available. Where applicable, dividends are recorded net
of foreign dividend tax. Discounts on securities purchased in the Funds are
amortized over the life of the respective securities using the effective
interest method. Premiums for the Municipal Bond Fund are amortized to the
remaining life or earlier call date, whichever is earlier. Securities
transactions are accounted for on trade date. The basis for determining cost on
sale of securities is identified cost. For the twelve months ended March 31,
1998, transactions in securities other than money market investments were:
Total U.S. Gov't.
Total U.S. Gov't. Security Security
Security Security Sales/ Sales/
Fund Purchases Purchases Maturities Maturities
- ------------------------------------------------------------------------------
AGGRESSIVE GROWTH
STOCK FUND $49,309,971 _ $21,559,819 _
- ------------------------------------------------------------------------------
INTERNATIONAL
EQUITY FUND 27,653,903 _ 2,140,426 _
- ------------------------------------------------------------------------------
GROWTH STOCK FUND 33,933,801 _ 10,819,741 _
- ------------------------------------------------------------------------------
GROWTH AND INCOME
STOCK FUND 72,483,999 _ 44,881,446 _
- ------------------------------------------------------------------------------
INDEX 500 STOCK FUND 32,037,885 _ 820,652 _
- ------------------------------------------------------------------------------
ASSET ALLOCATION FUND 45,194,848 $7,160,208 18,751,241 $2,916,424
- ------------------------------------------------------------------------------
HIGH YIELD BOND FUND 80,647,473 _ 51,062,124 _
- ------------------------------------------------------------------------------
MUNICIPAL BOND FUND 70,308,021 _ 44,223,788 _
- ------------------------------------------------------------------------------
SELECT BOND FUND 117,337,835 50,678,197 90,870,266 46,304,976
- ------------------------------------------------------------------------------
NOTE 8
Northwestern Mutual Investment Services, Inc. ("NMIS") serves as investment
advisor to each of the Funds, with certain of the Funds also being served by a
subadvisor. Each Fund pays NMIS an annual fee for investment advisory services
based on average daily net assets of the Fund according to the following
schedule:
Fund Fee
- --------------------------------------------------
AGGRESSIVE GROWTH STOCK FUND 0.75%
- --------------------------------------------------
INTERNATIONAL EQUITY FUND 0.85%
- --------------------------------------------------
GROWTH STOCK FUND 0.75%
- --------------------------------------------------
GROWTH AND INCOME STOCK FUND 0.65%
- --------------------------------------------------
INDEX 500 STOCK FUND 0.30%
- --------------------------------------------------
ASSET ALLOCATION FUND 0.70%
- --------------------------------------------------
HIGH YIELD BOND FUND 0.75%
- --------------------------------------------------
MUNICIPAL BOND FUND 0.30%
- --------------------------------------------------
SELECT BOND FUND 0.30%
- --------------------------------------------------
J.P. Morgan Investment Management Inc. ("J.P. Morgan") and Templeton Investment
Counsel, Inc. ("Templeton") have been retained under investment subadvisory
agreements to provide investment advice and, in general, to conduct the
management investment program of the Growth and Income Stock Fund and the
International Equity Fund, respectively. Of the amounts received from the Growth
and Income Stock Fund, NMIS pays J.P. Morgan 0.45% on the first $100 million of
the combined net assets for all funds managed for Northwestern Mutual by J.P.
Morgan, 0.40% on the next $100 million, 0.35% on the next $200 million and 0.30%
on the combined net assets in excess of $400 million. Of the amounts received
from the International Equity Fund, NMIS pays Templeton 0.50% on the first $100
million of the combined net assets for all funds managed for Northwestern Mutual
by Templeton and 0.40% on the combined net assets in excess of $100 million.
Robert W. Baird & Co. Incorporated ("Baird") serves as the Distributor of the
Funds. Baird is an affiliate of Northwestern Mutual and NMIS. The Funds have a
12b-1 distribution plan and shareholder services agreement with Baird pursuant
to which a 0.35% and a 1.00% annual fee for Class A and Class B, respectively,
is calculated based on daily net assets.
The 0.35% fee for Class A is comprised of a 0.25% shareholder servicing fee and
a 0.10% distribution fee paid to Baird for various distribution expenses. The
1.00% fee for Class B is comprised of a 0.25% shareholder servicing fee and a
0.75% distribution fee. Of the 1.00%, 0.35% is paid to Baird for distribution
expenses; the remaining 0.65% is paid to Northwestern Mutual for reimbursement
of commissions paid to agents.
Baird received $357,002 of dealer allowances, Northwestern Mutual received
$101,130 of underwriting concessions from Class A sales charges and Northwestern
Mutual received $6,428 of contingent deferred sales charges from Class B shares
for the twelve months ended March 31, 1998.
Each Fund also pays the administrator, Northwestern Mutual, a monthly fee at an
annual rate of 0.10% plus costs for pricing securities. This administration fee
is for services including recordkeeping, preparation of reports and fund
accounting (except for the International Equity Fund). For the International
Equity Fund, Northwestern Mutual waives a portion of its fee equal to the fund
accounting fee paid to Brown Brothers Harriman & Co.
In addition, each Fund pays transfer agent and custodian fees, outside
professional and auditing fees, registration fees, trademark fees,
organizational costs, insurance premiums, Directors' fees and expenses, and the
printing and mailing costs of sending reports and other information to existing
shareholders.
The Funds pay a portion of their custodian fees indirectly through expense
offset arrangements. Custodian fees are reduced for maintaining compensating
balances in non-interest bearing accounts. The Funds could have invested the
assets used to pay for the custodian fees, had the assets not been used in the
expense offset arrangements.
NMIS and affiliates have agreed to waive their fees and absorb certain other
operating expenses during the first year of operations to the extent necessary
so that Total Operating Expenses will not exceed the following amounts:
Fund Class A Class B
- ------------------------------------------------------------
AGGRESSIVE GROWTH STOCK FUND 1.30% 1.95%
- ------------------------------------------------------------
INTERNATIONAL EQUITY FUND 1.65% 2.30%
- ------------------------------------------------------------
GROWTH STOCK FUND 1.30% 1.95%
- ------------------------------------------------------------
GROWTH AND INCOME STOCK FUND 1.20% 1.85%
- ------------------------------------------------------------
INDEX 500 STOCK FUND 0.85% 1.50%
- ------------------------------------------------------------
ASSET ALLOCATION FUND 1.35% 2.00%
- ------------------------------------------------------------
HIGH YIELD BOND FUND 1.30% 1.95%
- ------------------------------------------------------------
MUNICIPAL BOND FUND 0.85% 1.50%
- ------------------------------------------------------------
SELECT BOND FUND 0.85% 1.50%
- ------------------------------------------------------------
NMIS and affiliates have waived the following fees for the twelve months ended
March 31, 1998:
Distribution Fees
-----------------
Fund Class A Class B Other Total
- ----------------------------------------------------------------------------
AGGRESSIVE GROWTH
STOCK FUND _ $209 $119,907 $120,116
- ----------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND $1,856 _ 130,821 132,677
- ----------------------------------------------------------------------------
GROWTH STOCK FUND 9,675 _ 96,612 106,287
- ----------------------------------------------------------------------------
GROWTH AND INCOME
STOCK FUND _ 287 118,451 118,738
- ----------------------------------------------------------------------------
INDEX 500 STOCK FUND 30,728 _ 126,566 157,294
- ----------------------------------------------------------------------------
ASSET ALLOCATION FUND _ _ 98,299 98,299
- ----------------------------------------------------------------------------
HIGH YIELD BOND FUND _ 64 108,682 108,746
- ----------------------------------------------------------------------------
MUNICIPAL BOND FUND _ 21 106,578 106,599
- ----------------------------------------------------------------------------
SELECT BOND FUND 12,782 354 109,347 122,483
- ----------------------------------------------------------------------------
TOTAL $55,041 $935 $1,015,263 $1,071,239
- ----------------------------------------------------------------------------
The Aggressive Growth Stock Fund and Asset Allocation Fund paid commissions on
Fund transactions to an affiliated broker in the amount of $990 and $63,
respectively, during the twelve months ended March 31, 1998.
NOTE 9
Each Fund intends to comply with the requirements of the Internal Revenue Code
necessary to qualify as a regulated investment company and to make the requisite
distributions of income and capital gains to its shareholders sufficient to
relieve it from all or substantially all federal income taxes. Accordingly, no
provisions have been made for federal taxes.
Taxable distributions from net investment income and realized capital gains in
the Funds differ from book amounts earned during the period due to differences
in the timing of capital recognition, and due to the reclassification of certain
gains or losses from capital to income. The differences between cost amounts for
book purposes and tax purposes are due to treatment of passive foreign
investment companies and deferred wash losses.
It is the policy of the Fund to reclassify the net effect of permanent
differences between book and taxable income to capital accounts on the
statements of assets and liabilities.
DISTRIBUTIONS (UNAUDITED)
Dividends distributed during the fiscal year which were derived from interest on
U.S. government securities which is generally exempt from state income tax are
as follows:
Aggressive Growth Stock Fund................. 0.0%
International Equity Fund....................10.5%
Growth Stock Fund............................ 4.0%
Growth and Income Stock Fund................. 2.0%
Index 500 Stock Fund......................... 0.9%
Asset Allocation Fund........................11.8%
High Yield Bond Fund......................... 0.3%
Municipal Bond Fund.......................... 0.4%
Select Bond Fund.............................11.1%
Under IRC 854(b)(2) of the Internal Revenue Code, the Funds hereby designate the
following percentages of ordinary income dividends (including short-term capital
gain distributions) paid by each Fund as income qualifying for the dividends
received deduction for the twelve months ended March 31, 1998.
Aggressive Growth Stock Fund................. 2.1%
International Equity Fund.....................0.0%
Growth Stock Fund............................16.4%
Growth and Income Stock Fund................. 6.8%
Index 500 Stock Fund.........................70.0%
Asset Allocation Fund........................10.5%
High Yield Bond Fund.........................14.8%
Municipal Bond Fund...........................0.0%
Select Bond Fund..............................0.0%
The Municipal Bond Fund designates 96% of the income distribution as a tax-
exempt income distribution.
The International Equity Fund elects to pass foreign taxes through to the Fund's
shareholders. During the twelve months ended March 31, 1998, the amount was
$78,856. In addition, for the twelve months ended March 31, 1998, gross income
derived from sources within foreign countries amounted to $746,543 for the
International Equity Fund.
The following distributions through fiscal year ended March 31, 1998 are
designated as long-term capital gains:
Capital Gain Distributions
--------------------------
Fund 28% Rate 20% Rate
- ----------------------------------------------------------
GROWTH STOCK FUND _ $9,471
- ----------------------------------------------------------
INDEX 500 FUND _ 75,811
- ----------------------------------------------------------
MUNICIPAL BOND FUND $33,591 19,082
- ----------------------------------------------------------
SELECT BOND FUND 11,497 43,238
- ----------------------------------------------------------
The data is informational only. Every year in January, shareholders are sent a
Form 1099-DIV representing their portion of the capital gain distributions on a
calendar year basis to be reported on their income tax return.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Mason Street Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Aggressive Growth Stock Fund,
International Equity Fund, Growth Stock Fund, Growth and Income Stock Fund,
Index 500 Stock Fund, Asset Allocation Fund, High Yield Bond Fund, Municipal
Bond Fund and Select Bond Fund (constituting Mason Street Funds, Inc., hereafter
referred to as "the Funds") at March 31, 1998, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for the period March 31, 1997 (commencement of operations) to March 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of the securities at March 31, 1998 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
/s/Price Waterhouse LLP
Milwaukee, Wisconsin
May 7, 1998
DIRECTORS
JAMES D. ERICSON
President and Chief Executive Officer
Northwestern Mutual, Milwaukee
MARTIN F. STEIN
Chairman of the Board
EyeCare One Corporation, Milwaukee
JOHN K. MACIVER
Partner
Michael Best & Friedrich, Attorneys at Law, Milwaukee
STEPHEN N. GRAFF
Retired Partner
Arthur Andersen, LLP, Milwaukee
WILLIAM J. BLAKE
Chairman
Blake Financial Corporation, Milwaukee
WILLIAM A. MCINTOSH
Retired Division Head - U.S. Fixed Income
Salomon Brothers, Chicago
OFFICERS
JAMES D. ERICSON
President
MARK G. DOLL
Vice President and Treasurer
MERRILL C. LUNDBERG
Secretary
BARBARA E. COURTNEY
Controller
MASON STREET FUNDSSM
P.O. BOX 419419
KANSAS CITY, MO 64141-6419
1-888-MASONST (1-888-627-6678)
WWW.MASONSTREETFUNDS.COM
Robert W. Baird & Co. Incorporated, Distributor
94-1001
5/98
