Table of Contents
Page
Letter to Shareholders 2
Fund Performance Reviews
Bond Fund 4
Balanced Fund 5
High Income Fund 6
Growth and Income Fund 7
Capital Appreciation Fund 9
International Stock Fund 10
Family of Investments 12
Portfolios of Investments
Cash Reserves Fund 14
Bond Fund 15
Balanced Fund 17
High Income Fund 20
Growth and Income Fund 26
Capital Appreciation Fund 28
International Stock Fund 30
Financial Statements
Statements of Assets & Liabilities 34
Statements of Operations 36
Statements of Changes in Net Assets 38
Financial Highlights 40
Notes to Financial Statements 47
Report of Independent Accountants 53
Tax Information 54
Letter to Shareholders
Dear Shareholder,
This first Annual Report of MEMBERS Mutual Funds covers the period from
commencement of operations on December 29, 1997, through the Funds' fiscal year
end, October 31, 1998. If you were investing through most of this inaugural
period, congratulations. You have experienced what may well prove to be some of
the most volatile investment markets in recent times!
* After an erratic January, U.S. stocks surged in February through May,
trailed off through much of June, then staged a dramatic climb to their mid-July
peaks some 15% or more above their beginning levels. They then plummeted,
especially in the month of August, more than erasing year-to-date gains. They
struggled to hold their values through September, then recovered strongly
beginning in early October and through (and past) the end of the month. By the
end of October, in spite of these extreme gyrations, U.S. stocks had provided
returns for this ten-month period right in line with their long-term historical
average of approximately 10%.
* U.S. bonds traced a much less volatile and very favorable path
through the first several months of the year, until mid-August. Suddenly, U.S.
Treasury securities accelerated their price advance while corporate,
mortgage-backed and municipal bonds moved in the opposite direction. However,
for the entire ten-month period investment grade U.S. bond returns, much like
U.S. stock returns, were about in line with their long-term historical average.
* International securities struggled to at best match their U.S.
counterparts. Debt of companies and governments in "young" economies around the
world weakened early in the year, worsened mid-year and, with Russia's default
in mid-August, plummeted in price along with these countries' stock markets. The
investment markets in Western Europe, however, moved more in line with the U.S.
markets, producing widely mixed investment results among the various
international investment markets.
This extremely divergent behavior of international markets reflected the vastly
different economic scenarios unfolding in the various regions. Since mid-1997,
developing Asia was moving from economic boom fueled by huge capital inflows
(which led to vast excesses of production capacity) to severe recession that was
aggravated by rampant capital outflows as banks and other investors from around
the globe sought safer investments. Russia, an oil export-dependent nation
struggling to convert from a government-controlled to a free economy, was
knocked to its knees by the recessionary and deflationary wave from Asia. And,
further ripples from Asia were (and still are) eroding the foundations of other
financially weak and commodity-dependent countries.
At the other extreme, the economies of Western Europe and the U.S. were
broad-based, conservatively financed and thriving before the Asia/Russia
problems developed, and were only marginally impacted as these problems played
out in 1998. As summarized above, however, their investment markets were still
buffeted, not due to severe changes in their true economic fortunes, but by
changes in investors' expectations, amplified by changes in their attitudes.
Throughout this period, U.S. investors have been struggling to discern the
staying power of our healthy economy in the face of the economic erosion
happening elsewhere in the world. Their expectations, through most of 1997, had
been that we would survive the troubles virtually unscathed. As more facts
became available, expectations were dampened, then revived, then were doused
again. By August, with the distant problems still lingering and Russia's default
actually impacting some U.S. financial institutions, investors were simply
unable to back down their expectations one more time while maintaining their
basically positive longer term outlook. Their expectations turned down sharply
along with their attitudes. And, they became sellers of nearly everything except
U.S. Treasury securities.
Then, of course, with encouragement from the Federal Reserve's unanticipated
interest rate cut, attitudes recovered in early October, sending both the stock
and bond markets back to near their highs for the year.
It is important to note that, through all the international turmoil, the U.S.
economy has been impacted only marginally. Increasing impacts seem reasonable to
expect, however, but perhaps only in the form of slightly slower near-term
growth and slightly squeezed corporate profits. Looking ahead to the first
couple of years of the new millennium, the prospects for an actual economic
downturn -a recession -- are certainly higher than generally perceived at the
beginning of the year, but are still far from a certainty. And the nation's
ability to grow longer term, as it provides the products and services desired by
its own citizens and people throughout the world, remains unquestioned.
As such, we believe strongly that long-term investors should not let the market
turbulence and near-term economic prospects deter them from continuing with
their investment programs. Even if a recession were probable, ultimate
investment success is not dependent upon taking cover during every economic
storm. Just as we all "survived" this year's chaotic markets with quite
attractive year-to-date returns, longer-term investment success can be achieved
by riding out the storms. In fact, exiting a long-term program when bad weather
is forecast then re-entering it when the clouds have cleared will usually
diminish actual investor long-term returns. Inevitably, investors are too late
getting out and too late to come back in.
The following pages present summaries of the portfolio management principles and
strategies that were employed in each of the MEMBERS Funds during this reporting
period, as well as the current portfolio attributes that will impact the Funds'
performance going forward. We encourage you to read these summaries to learn
more about the nature of each fund and how it may react in various economic
environments. The better you understand your investments, the easier it will be
for you to "live with" them over time, and the more likely you will be to reach
the financial goals you are pursuing with these investments.
And that is our ultimate goal -- YOUR financial success. We thank you for the
opportunity to serve you in this pursuit.
Sincerely,
/s/ Lawrence R. Halverson
Lawrence R. Halverson, CFA
President
Fund Performance Review
MEMBERS Bond Fund
Over the first half of the year, the bond market marked time trading in a
relatively narrow range. Intermediate Treasury yields varied between 5.5% and
6.0%. Most major sectors of the market, including corporate and mortgage-backed
securities "earned the coupon" over the period providing little price
appreciation and total returns of 3% to 4%. Of course, this proved to be the
"calm before the storm" as the summer months were among the most volatile in
bond market history.
In early August, the confluence of a number of events drove U.S. Government
bond prices sharply higher, dropping yields from 5.5% to a low of 4.0% in
September, before rebounding to 4.5% at the end of October. Corporate and
mortgage-backed securities lagged the performance of Treasuries. The High Yield
bond sector was particularly hard hit, suffering a negative 5% total return in
the third calendar quarter. While October brought some recovery, high yield
bonds still yield in excess of 10% compared to 4 1/2% for Treasuries, a very
wide spread by historical standards.
[Graphic: line chart showing Bond Fund Cumulative Performance of $10,000 Since
Inception for the following:
12/29/97 04/30/98 10/31/98
Class A Shares $9,570 $9,698 $10,151
Class B Shares 10,000 9,667 10,085
Lehman Brothers Intermediate
Government/Corporate Bond Index 10,000 10,226 10,820]
Cumulative Total Return
(Since 12/29/97 Inception)
% Return Without % Return After
Sales Charge Sales Charge***
Class A Shares* 6.08% 1.51%
Class B Shares** 5.36 0.86
Lipper Short-Intermediate
Investment Grade Fund Index 5.07 --
LBIGCB 8.20 --
* Maximum Sales Charge is 4.3% for A Shares.
** Maximum Contingent Deferred Sales Charge is 4.5% for B Shares.
*** Assuming Maximum Sales Charge
This chart compares a $10,000 investment made in the Fund on its inception date
to a $10,000 investment made in the index on that date. All dividends and
capital gains are reinvested. Further information relating to the Fund's
performance, including expense reimbursements, is contained in the Prospectus
and elsewhere in this report. Past performance is not indicative of future
performance. Indices are unmanaged and investors cannot invest in them.
Additionally, the Lehman index return does not reflect expenses or sales
charges.
[Graphic: pie chart showing Bond Fund Diversification of Investments Among
Market Sectors as follows: Foreign Bonds 2%, Cash and Other Assets 5%, Corporate
Notes and Bonds 65%, and U.S. Government and Agency Obligations 28%.]
The Russian debt default in August and renewed fears that the "Asian
contagion" financial crisis could spill over into South America, particularly
Brazil, resulted in a classic "flight to quality" as investors sought the safety
of U.S. Treasury securities. Weakness in the U.S. stock market and concern that
the domestic economy was slowing and might even fall into recession made the bad
situation even worse.
A particularly disturbing fact was the amount of leverage in the financial
system, evidenced by the collapse of Long Term Capital Management, a bond "hedge
fund." Investments were leveraged 20 to 1 with borrowed funds. Margin calls and
forced selling -- " -- into an illiquid and nervous market resulted in a vicious
cycle of lower and lower prices. High yield, emerging market debt, and even some
better quality corporate and mortgage securities were pummeled by the selling.
As we progressed through October, however, a sense of normalcy returned to
the markets. The forced selling of securities by hedge funds abated. And,
policymakers began a coordinated easing of monetary policy, lowering interest
rates and providing liquidity to the financial systems. While not out of the
woods yet, confidence and liquidity are returning to the markets.
MEMBERS Bond Fund weathered this storm quite well, providing shareholders
with a 6.08% (Class A shares at net asset value) total return for the period
from the December 29, 1997 commencement of operations through October 31, 1998.
This compares to the 8.20% return of the Lehman Brothers Intermediate
Government/Corporate Index and 5.07% return calculated by Lipper Analytical
Services for its index of Short/Intermediate Investment Grade Bond mutual funds.
The Bond Fund's return lagged the Lehman index due to it's much heavier
concentration in corporate bonds which under-performed Governments over the
period.
As the accompanying chart shows, the Fund is well diversified across the
major sectors of the bond market. It now has 31 holdings with an average
portfolio credit quality of AA and average term to maturity of 5.6 years.
We believe we are in the final stages of a long decline in interest rates
that began in 1981. There is still some room for interest rates to decline, but
investors should not expect double-digit returns from the bond market. Most
sectors of the bond market provide generous yield spreads compared to
Treasuries. We expect to be emphasizing corporate and mortgage-backed
securities, and may add some top tier high yield bonds given today's compelling
valuations. By staying primarily with intermediate term investment grade bonds,
and emphasizing the areas where we see the most value, we expect MEMBERS Bond
Fund to serve a valuable stabilizing role and provide competitive total returns
within a diversified portfolio of investments.
MEMBERS Balanced Fund
The U.S. stock market, as measured by the S&P 500, surged to the middle of
July, swooned through August and September, and then strongly rebounded in
October. Despite all of the volatility, the S&P 500 has still managed to produce
a return of 16.70% from the December 29, 1997 commencement of operations of
MEMBERS Balanced Fund. However, with the exception of only a handful of the
largest stocks making up the S&P 500, the average large capitalization stock has
not fared nearly as well. This is also true for smaller capitalization stocks,
as evidenced by the S&P 400 Midcap index which returned only 3.81% over the same
time period.
Meanwhile, U.S. Treasury bonds fared very well during this time frame while
corporate and mortgage-backed bonds lagged. High yield securities, after
"earning the coupon" during the first half of the year, fell hard due to
investor concerns regarding a potential U.S. recession. As represented by the
Lehman Intermediate Government/Corporate Bond index, the broad
government/corporate bond market advanced 8.20% since the Fund's inception.
Money market returns remained steady, which became very important to many
investors seeking to stabilize their portfolios through the course of the year,
and provided total returns near the 4.29% earned by 90-day U.S. Treasury bills.
In this volatile and fluctuating environment, MEMBERS Balanced Fund Class A
shares provided a return of 8.92% (Class A shares at net asset value) since the
inception of the Fund. This modestly exceeded the 8.34% return of the Lipper
Balanced Fund index over the same time frame despite the fact that most balanced
funds take a more aggressive posture than the Balanced Fund in constructing
their mix of stocks, bonds and money market investments. However, the return
lagged the 11.96% return that would have been realized from a hypothetical
portfolio consisting of 45% S&P 500 index, 40% Lehman Brothers Intermediate
Government/Corporate Bond index and 15% 90-day U.S. Treasury bills. This
under-performance is due to the stock and bond portions of the portfolio
slightly under-performing their benchmarks throughout 1998.
[Graphic: line chart showing Balanced Fund Cumulative Performance of $10,000
Since Inception for the following:
12/29/97 04/30/98 10/31/98
Class A Shares $9,470 $10,330 $10,315
Class B Shares 10,000 10,432 10,374
Blended Synthetic Index 10,000 10,872 11,196
(45% S&P 500 Index return of 16.70%, 40% Lehman Brothers Intermediate
Government/Corporate Bond Index return of 8.20%, 15% 90-Day Treasury Bill
return of 4.29%)]
Cumulative Total Return
(Since 12/29/97 Inception)
% Return Without % Return After
Sales Charge Sales Charge***
Class A Shares* 8.92% 3.15%
Class B Shares** 8.24 3.74
Lipper Balanced Fund Index 8.34 --
Blended Synthetic Index 11.43 --
* Maximum Sales Charge is 5.3% for A Shares.
** Maximum Contingent Deferred Sales Charge is 4.5% for B Shares.
*** Assuming Maximum Sales Charge
This chart compares a $10,000 investment made in the Fund on its inception date
to a $10,000 investment made in the index on that date. All dividends and
capital gains are reinvested. Further information relating to the Fund's
performance, including expense reimbursements, is contained in the Prospectus
and elsewhere in this report. Past performance is not indicative of future
performance. Indices are unmanaged and investors cannot invest in them.
Additionally, the Blended index return does not reflect expenses or sales
charges.
[Graphic: pie chart showing Balanced Fund Diversification of Investments Among
Market Sectors as follows Common Stocks 52%, Cash and Other Assets 6%, Corporate
Notes & Bonds 22%, and U.S. Government Obligations 20%.]
Because the stocks and bonds owned in MEMBERS Balanced Fund are largely the
same as the securities comprising MEMBERS Capital Appreciation, Growth and
Income and Bond Funds, please review management's discussion of those funds
elsewhere in this report for a more complete description of the Balanced Fund's
portfolio positioning and results to date.
Looking ahead, the Fund will continue to be managed as a diversified
portfolio of the most attractive stocks, bonds and money market investments
identified by the CIMCO portfolio management team. The normal range of asset
allocation exposures is from 60% to 40% stocks, 40% to 60% bonds, and up to 20%
money market instruments. Currently, stocks comprise slightly over 52% of net
assets and bonds are just over 42% of net assets, with the remaining
approximately 6% invested in money market instruments.
These proportions vary over time in reaction to the pace at which the
management team is finding attractive individual stocks and bonds. For example,
as attractively priced individual stocks become more plentiful, the stock
portion of the portfolio will grow, and vice versa. The management team uses
this "bottom up" asset allocation approach instead of more traditional "top
down" asset allocation tactics because we believe that such market timing-based
tactics, over the long term, are rarely successful.
The Balanced Fund, through its diversification and flexibility, may be the
most "investment efficient" of all the MEMBERS Mutual Funds. It is specifically
designed to help investors harvest broad market returns within long-term
investment programs, and most importantly, to manage their way through difficult
markets with the help of the risk reduction effects of its broad
diversification.
MEMBERS High Income Fund
The domestic high yield bond market, after experiencing solid gains through
the first half of 1998, underwent a difficult four-month stretch suffering its
worst period of returns since the high yield bear market of 1991. Since the
commencement of operations of MEMBERS High Income Fund on December 29, 1997, the
high yield bond market as represented by the Lehman Brothers High Yield Bond
index provided a total return (interest income plus or minus change in market
price) of -2.10%. Similar funds as represented by the Lipper High Yield Bond
Fund index, returned -5.14%. MEMBERS High Income Fund's total return for this
period was -5.78% (Class A shares at net asset value). This slightly lags the
market and peer group benchmarks primarily due to the timing of the Fund's
startup. Its initial assets were not fully invested by the early January strong
advance in the high yield market.
[Graphic: line chart showing High Income Fund Cumulative Performance of $10,000
Since Inception for the following:
12/29/97 04/30/98 10/31/98
Class A Shares $9,570 $9,844 $9,016
Class B Shares 10,000 9,799 8,962
Lehman Brothers High
Yield Bond Index 10,000 10,398 9,790]
Cumulative Total Return
(Since 12/29/97 Inception)
% Return Without % Return After
Sales Charge Sales Charge***
Class A Shares* (5.78)% (9.84)%
Class B Shares** (6.39) (10.60)
Lipper High Yield Bond Index (5.14) --
LBHYI (2.10) --
* Maximum Sales Charge is 4.3% for A Shares.
** Maximum Contingent Deferred Sales Charge is 4.5% for B Shares.
*** Assuming Maximum Sales Charge
This chart compares a $10,000 investment made in the Fund on its inception date
to a $10,000 investment made in the index on that date. All dividends and
capital gains are reinvested. Further information relating to the Fund's
performance, including expense reimbursements, is contained in the Prospectus
and elsewhere in this report. Past performance is not indicative of future
performance. Indices are unmanaged and investors cannot invest in them.
Additionally, the Lehman index return does not reflect expenses or sales
charges.
[Graphic: pie chart showing High Income Fund Diversification of Investments
Among Market Sectors as follows: Other Industrial Media and Consumer Sectors
48%, Communication 19%, Telecommunication 12%, Technology 5%, Retail 6%, and
Cash and Other Assets 10%.]
The high yield market sell-off occurred in tandem with the collapse of U.S.
and international equity prices as investors became concerned that Asian and
Russian economic problems might cause a domestic recession, thus increasing the
likelihood of high yield bond defaults. In the view of MFS, CIMCO's subadviser
to the Fund, the negative returns during this time frame were exacerbated by a
shortage of liquidity among institutional investors in high yield securities as
several mutual funds were forced to sell into an already illiquid market in
order to meet redemptions by skittish shareholders.
Throughout 1998, the Fund's investment strategy became more conservative.
Additions to higher quality names were made, especially in the energy and
healthcare sectors where the Fund had been under-weighted. Exposure to cyclical
sectors was reduced by selling bonds of several paper, metal and general
industrial companies. The Fund's largest weighting remains in the communications
industry. However, bonds of some telecommunications companies have been sold,
particularly those of companies that will require additional funding in order to
complete the construction of their networks.
MFS managers assess the value of the high yield market by looking at the
spread between the yields on high yield bonds and Treasury securities. Overall,
the high yield market currently yields well above 10% compared to 4.6% for
Treasury securities of similar maturity, resulting in a yield spread nearing
6.0%. The spread began the year at 3.5% and has risen to its widest level since
May 1991, a time when the high yield market was experiencing default rates
approaching 10%. In contrast, the default rate this year has been around 2%.
While default rates could increase somewhat in the coming year if U.S. economic
growth slows and corporate profits decline as generally expected, it is unlikely
that the market will experience the magnitude of credit problems that occurred
in 1991. The credit quality of the average high yield issuer is much better
today than it was prior to the 1990-1991 recession.
Our outlook for the high yield sector is one of prudent caution, sprinkled
with optimism. It had been the top performing bearing income sector during 7 of
the preceeding 8 quarters to June 30. Asset classes that have performed that
well are prone to experience periods of consolidation. Our last shareholder
letter, dated April 30, 1998, expressed this potential even though we felt at
the time that the high yield sector still provided reasonable value. Now,
despite the increasing risk of a recession, it is our view that investors could
still be well served by having some high yield exposure in their fixed income
portfolio. But, they must be willing and able to accept some principal value
risk in order to reap the exceptionally high yields that are now available.
MEMBERS Growth and Income Fund
The stock market's recent "wild ride" included the worst monthly return and
one of the best monthly returns of the decade. The S&P 500 lost more than 14% in
August then advanced in excess of 8% in the month of October, bringing its
year-to-date total return to 14.6% and its return since commencement of Fund
operations to 16.7%. However, this capitalization-weighted index (which is more
heavily influenced by the stocks of the larger companies) masks the much more
modest net returns of most stocks. The average stock in the S&P 500 advanced
only 0.4% year-to-date! We are encouraged, however, to see that stocks across
all capitalization groups participated in the October recovery, which is
noteworthy in that it indicates the breadth of the market is improving.
MEMBERS Growth and Income Fund returned 9.6% (Class A shares at net asset
value) for the period from December 29, 1997 through October 31, 1998. This far
exceeded the average stock's return as well as the 6.64% return of the average
Growth and Income mutual fund as calculated by Lipper Analytical Services for
this period.
The Fund's performance for the first ten months of 1998 was driven by
outperformance, relative to the market, in the consumer cyclical, communications
services, technology, and healthcare sectors. The relative sector
representations in the Fund are based on our analysis of the attractiveness of
each individual stock. This tactic sometimes leads to over- or under-weightings
of certain sectors before our perceptions of their relative attractiveness are
validated by the market. This was the case during the period as an underweighted
position in the consumer cyclical sector dampened the effect of its return
outperformance. Strong performers in the Fund during the period included
Wal-Mart, CVS Corporation, Cox Communications, Amoco, EMC, Texas Instruments,
and IBM.
During the Fund's startup phase, it utilized S&P 500 futures contracts to
provide diversified market exposure while cash inflows accumulated to an amount
that could be cost effectively added to the individual stock positions in the
portfolio. The assets of the Fund are now large enough that use of futures for
this purpose is not necessary.
[Graphic: line chart showing Growth and Income Fund Cumulative Performance of
$10,000 Since Inception for the following:
12/29/97 04/30/98 10/31/98
Class A Shares $9,470 $10,979 $10,376
Class B Shares 10,000 11,113 10,447
S&P 500 Index 10,000 11,717 11,670]
Cumulative Total Return
(Since 12/29/97 Inception)
% Return Without % Return After
Sales Charge Sales Charge***
Class A Shares* 9.57% 3.76%
Class B Shares** 8.97 4.47
Lipper Growth & Income Index 6.64 --
S&P 500 Index 16.70 --
* Maximum Sales Charge is 5.3% for A Shares.
** Maximum Contingent Deferred Sales Charge is 4.5% for B Shares.
*** Assuming Maximum Sales Charge
This chart compares a $10,000 investment made in the Fund on its inception date
to a $10,000 investment made in the index on that date. All dividends and
capital gains are reinvested. Further information relating to the Fund's
performance, including expense reimbursements, is contained in the Prospectus
and elsewhere in this report. Past performance is not indicative of future
performance. Indices are unmanaged and investors cannot invest in them.
Additionally, the S&P index return does not reflect expenses or sales charges.
The Growth and Income Fund is currently modestly overweighted in the basic
materials, energy, technology, and utility sectors. The Fund is underweighted in
the consumer cyclical and finance sectors. As noted above, these sector weights
are a function of our analysis of individual stocks and not the result of an
overall assessment of the economy.
Investors still vividly remember the sharp market decline from mid-July
through August in response to troubled economies around the world, slower growth
domestically and profitability concerns. However, the market recovered when the
Federal Reserve Board eased rates in September amid concerns of a slowing global
economy. Then, an unexpected second rate cut in October, combined with
coordinated rate cuts around the world, eased many investors' fears of a global
economic recession.
Sensing an accommodative Fed, the market has advanced sharply in anticipation
of more rate cuts to maintain our nation's economic growth profile. While these
Fed actions should provide some support, risks remain that could lead to
continued market volatility. Still, the rapid recovery of the market during
October confirms that favorable economic and demographic fundamentals are still
in place and the market continues to see strong cash inflows. These elements
reinforce the need for long-term investors to maintain their investment
discipline and avoid attempts to "time" the market during these unsettling
times. We continue to believe that long-term investors will be rewarded by
accumulating a diversified portfolio of quality, reasonably priced securities
like those we seek to provide in MEMBERS Growth and Income Fund.
[Graphic: pie chart showing Growth and Income Fund Diversification of
Investments Among Market Sectors as follows: Cash and Other Assets 6%, Finance
13%, Technology 16%, Consumer Staples 8%, Energy 8%, Drugs 8%, Communication 7%,
Consumer Cyclicals 7%, Durable Goods 6%, Retail 6%, Other Sections 15%.]
MEMBERS Capital Appreciation Fund
Financial markets remained volatile as the Asian financial crisis and its
spillover effects continued to concern investors. Driven by a general flight to
quality, large-capitalization "blue chip" issues remained the best performing
stock market segment while other segments trailed, some by substantial amounts.
This is reflected in the divergent return performances of various stock market
indexes from the December 29, 1997 commencement of operations of the Fund to its
October 31, 1998 fiscal year end: the large-cap dominated S&P 500 returned 16.7%
during the period while mid-capitalization stocks, as measured by the S&P 400,
gained only 3.8% and small-capitalization stocks, as measured by the Russell
2000, actually lost approximately 10% of their value!
[Graphic: line chart showing Capital Appreciation Fund Cumulative Performance of
$10,000 Since Inception for the following:
12/29/97 04/30/98 10/31/98
Class A Shares $9,470 $11,109 $10,465
Class B Shares 10,000 11,261 10,541
S&P 400 Index 10,000 11,717 10,381]
Cumulative Total Return
(Since 12/29/97 Inception)
% Return Without % Return After
Sales Charge Sales Charge***
Class A Shares* 10.51% 4.65%
Class B Shares** 9.91 5.41
Lipper Capital Appreciation Index 6.66 --
S&P 400 Index 3.81 --
* Maximum Sales Charge is 5.3% for A Shares.
** Maximum Contingent Deferred Sales Charge is 4.5% for B Shares.
*** Assuming Maximum Sales Charge
This chart compares a $10,000 investment made in the Fund on its inception date
to a $10,000 investment made in the index on that date. All dividends and
capital gains are reinvested. Further information relating to the Fund's
performance, including expense reimbursements, is contained in the Prospectus
and elsewhere in this report. Past performance is not indicative of future
performance. Indices are unmanaged and investors cannot invest in them.
Additionally, the S&P index return does not reflect expenses or sales charges.
Members Capital Appreciation Fund, with its mid-to-large-capitalization
orientation, returned 10.5% (Class A shares at net asset value) during this
period. This was right in line with the blended return of the mid- and
large-capitalization indices and far outpaced the 6.7% average return for
capital appreciation mutual funds as calculated by Lipper Analytical Services
for this period.
This performance was driven by strong outperformance in the technology and
consumer staples sectors. Stocks such as EMC Corporation, Gateway, and Micron
Technology led our outperformance in the technology sector, while Safeway,
MediaOne Group, and Rite Aid drove the consumer staples results. The Fund's
healthcare holdings also outperformed with Biogen and Alza Corporation among the
strongest contributors to results. The weakest performing sector was the finance
sector where stocks such as Bankers Trust and Citigroup were negatively impacted
by the Asian financial crisis. Our utilities holdings also underperfomed, but
our significant underweighting in this sector relative to the market mitigated
the impact. The remaining sectors had a relatively neutral impact on overall
results.
During the Fund's startup phase, it utilized S&P 500 futures contracts to
provide diversified market exposure while cash inflows accumulated to an amount
that could be cost effectively added to the individual stock positions in the
portfolio. The assets of the Fund are now large enough that use of futures for
this purpose is not necessary.
At present, we believe that the consumer staples, healthcare, and
communication services sectors offer the most attractive investment
opportunities and we have overweighted them in the Capital Appreciation Fund.
Conversely, we are underweighted in the utilities and consumer cyclical sectors
as we believe that many of the component stocks within those sectors are fairly
valued. All other sector weights approximate those of the market. Our sector
weights reflect the types of stocks we are finding that appear most attractive;
we do not attempt to make general judgments about the relative prospects of
various broad economic sectors. We do, however, ensure that our portfolios
remain well diversified across economic sectors.
[Graphic: pie chart showing Capital Appreciation Fund Diversification of
Investments Among Market Sectors as follows: Cash and Other Assets 4%,
Technology 17%, Finance 13%, Retail 12%, Consumer Cyclicals 9%, Basic Materials
6%, Energy 5%, Drugs 9%, Health Services 5%, and Other Sectors 20%.]
Looking ahead, we currently see particular value in small- and
mid-capitalization stocks. They have underperformed large-capitalization stocks
in recent years, at a time when the financial performance of the average small
and mid-sized company has advanced at least in line with the average larger
firm. We are currently evaluating a number of opportunities within this market
segment and may increase our exposure to the lower market capitalization tiers.
While overall valuation levels for U.S. equities remain at the upper end of
historical ranges, this seems justified by the still quite positive underlying
fundamentals, especially for the more reasonably valued segments of the markets.
The long-term outlook for stocks remains favorable with continued stable profit
growth, low inflation, and strong demand for equities. We continue to believe
that long-term investors will be rewarded by accumulating a diversified
portfolio of quality, reasonably priced securities like those we seek to provide
in MEMBERS Capital Appreciation Fund.
MEMBERS International Stock Fund
Since the December 29, 1997 inception of MEMBERS International Stock Fund,
the international stock market has experienced some of the most tumultuous and
volatile periods within recent history. Returns from the broad international
market, as measured by the Morgan Stanley Europe, Australia and Far East (EAFE)
index, were 10.90% since the Fund's inception. However, your Fund also invests
in smaller capitalization stocks and emerging market company stocks, each of
which has experienced lower returns than the EAFE index as measured by their
market and peer group indexes. The Morgan Stanley Small Cap EAFE index has
returned 2.30% since December 29, 1997 while the Morgan Stanley Emerging Market
index has experienced a negative total return of (30.82%) over the same time
frame.
Despite the difficult markets, MEMBERS International Stock Fund has managed
to post a positive return of 3.60% (Class A shares at net asset value) since the
inception of the Fund. This performance lags the EAFE index return of 10.90% and
slightly lags the average international stock fund's performance of 5.27%, as
measured by the Lipper International Stock Fund Index. However, the Fund's
performance does exceed that of the pure international small-cap market and
substantially exceeds the negative performance delivered by pure emerging market
funds, which according to the Lipper Emerging Market Fund Index, averaged
(29.59%) for the same time period.
The positive returns generated by the overall EAFE index to date mask periods
of substantial market turmoil, volatility and negative sentiment. The first 6
months of 1998 saw the large capitalized stocks, as reflected in the EAFE index,
deliver a 16% total return, in line with with solid U.S. stock market returns.
This rise was primarily due to strength in Western Europe and relaxing concerns
over economic difficulties occurring within the Pacific Basin. Sentiment
abruptly shifted, triggered by a series of events including:
oMoratorium on Russian debt payments and collapse of the Russian ruble
oGeneral terrorism in Africa and nuclear concerns occurring between
India and Pakistan
oCivil uprisings forcing leadership changes in Indonesia
oContinued inaction by Japanese authorities in addressing the feared
and accelerating "deflationary death spiral" that has especially plagued
the economies and markets of Pacific Rim and Far East countries since late
last year
oCollapse of broad commodity market prices creating substantial
economic and budgetary pressures on the commodity producing countries of
South America, Mexico, and Canada
[Graphic: line chart showing International Stock Fund Cumulative Performance of
$10,000 Since Inception for the following:
12/29/97 04/30/98 10/31/98
Class A Shares $9,470 $11,157 $9,811
Class B Shares 10,000 11,301 9,840
Morgan Stanley
Capital International
Europe, Asia, & Far
East Index 10,000 11,592 11,090]
Cumulative Total Return
(Since 12/29/97 Inception)
% Return Without % Return After
Sales Charge Sales Charge***
Class A Shares* 3.60% (1.89)%
Class B Shares** 2.90 (1.60)
Lipper International Stock Fund Index 5.27 --
EAFE Index 10.90 --
* Maximum Sales Charge is 5.3% for A Shares.
** Maximum Contingent Deferred Sales Charge is 4.5% for B Shares.
*** Assuming Maximum Sales Charge
This chart compares a $10,000 investment made in the Fund on its inception date
to a $10,000 investment made in the index on that date. All dividends and
capital gains are reinvested. Further information relating to the Fund's
performance, including expense reimbursements, is contained in the Prospectus
and elsewhere in this report. Past performance is not indicative of future
performance. Indices are unmanaged and investors cannot invest in them.
Additionally, the EAFE index return does not reflect expenses or sales charges.
Combined with the difficult market that U.S. stocks experienced, the EAFE
dropped about 15% during the calendar third quarter, with smaller cap and
emerging markets dropping even further (18% and 22%, respectively). Many foreign
stock exchanges experienced multi-decade lows as measured by their major
indexes.
Fortunately, the month of October saw a broad-based recovery occur, with the
EAFE gaining nearly 10.5%. This recovery was driven by new investor interest in
foreign markets "after the fall" and was helped by the Japanese government
delivering a reasonably acceptable liquidity package to help jump-start their
economy and banking environment. As is generally the case, optimism surrounding
an improved Japanese market environment, coupled with a U.S. stock recovery,
helped lift the international small cap and emerging markets also.
[Graphic: pie chart showing Capital Appreciation Fund Diversification of
Investments Among Market Sectors as follows: Spain 4%, France 13%, United
Kingdom 12%, Germany 6%, Australia 5%, Japan 12%, Cash and Other Investments 9%,
Other Countries 18%, Pacific Rim (ex. Japan) 8%, Latin America 8%, and
Switzerland 5%]
Currently, each of the sub-components of the MEMBERS International Stock Fund
has outperformed its benchmark primarily due to positive stock selection.
The large-cap portion of the Fund has approximately 50 holdings in 13
developed countries. Currently the fund is overweighted in the Far East,
compared to its benchmark, due to an oversized position in Singapore (through
investments in Singapore Airlines and United Overseas Bank). The Fund is still
underweighted in Japan, although many strong values are starting to emerge
within their export-based manufacturing and technology sectors. The Fund
continues to own substantial positions in Hitachi, Eisai Co, Mazda Motor Corp
and Nippon. The Fund is underweighted in Europe, as strong general upward price
gains have reduced values available as compared to other opportunities. Within
Europe, the Fund still maintains an overweighted position in France, with key
holdings in Suez Lyonnaise des Eaux, Groupe Danone and Dexia France, while
remaining substantially underweighted in the U.K. and slightly underweighted in
Germany.
The small-cap and emerging markets portions of the Fund remain broadly
diversified with over 138 positions being held across 37 countries. Relative
values continue to be sought out throughout the world with more attractive
opportunities being evaluated in light of what has transpired over the past
several months. Samples of recent additions include Banamex and Grupo Televisa
in Mexico, South African Breweries, Liechtenstein Global Trust, a money
management firm in Switzerland, and Want Want Holdings in Singapore.
Looking forward, given the uncertain investment outlook and difficult recent
past, it is important to remember what the MEMBERS International Fund is trying
to accomplish. This Fund is striving to harvest the favorable long-term stock
returns that your managers believe are available within the large company
international developed markets, small company international developed markets,
and through selective companies that reside in emerging market economies, and to
do so through utilizing a strong value-oriented investment approach combined
with carefully managed and selective exposure to all three international stock
categories. Currently, the allocation of new monies flowing into the fund
remains 70% towards international large-cap, 15% towards international small-cap
and 15% towards emerging markets. We believe that this investment approach will,
over the long term, provide solid risk-adjusted returns and excellent
diversification opportunities to compliment your U.S. domestic stock investment
holdings.
Family of Investments
MEMBERS Mutual Funds are a group of open-end investment companies, typically
called mutual funds. Each Fund is a separate investment portfolio with its own
investment objective, policies, restrictions and attendant risks. The
information in this table provides an overview, summarizing the Funds'
investment objectives, management, and primary strategies. For more specific and
complete information on the Funds, please refer to your prospectus and the
statement of additional information.
Cash Reserves Fund
Investment Objective
The Cash Reserves Fund seeks high current income from money market instruments
consistent with the preservation of capital and liquidity. The Fund intends to
maintain a stable net asset value of $1.00 per share.
Portfolio Management
The Fund is managed by a team of CIMCO's portfolio managers.
Primary Investment Strategies
The Cash Reserves Fund invests exclusively in U.S. dollar-denominated money
market securities maturing in thirteen months or less from the date of purchase,
including those issued by U.S. and foreign financial institutions, corporate
issuers, the U.S. Government and its agencies and instrumentalities,
municipalities, foreign governments, and multinational organizations such as the
World Bank. At least 95% of the Fund's assets must be rated in the highest
short-term category (or its unrated equivalent), and 100% of the Fund's assets
must be invested in securities rated in the two highest categories.
For a listing of the securities held in the portfolio on October 31, 1998,
please turn to page 14.
Bond Fund
Investment Objective
The Bond Fund seeks to generate a high level of current income, consistent with
the prudent limitation of risk, primarily through investment in a diversified
portfolio of income bearing securities.
Portfolio Management
The Fund is managed by a team of CIMCO's portfolio managers.
Primary Investment Strategies
To keep current income relatively stable and to limit share price volatility,
the Bond Fund emphasizes investment grade securities and maintains an
intermediate (typically 3 to 6 years) average portfolio duration. Under normal
circumstances, the Fund invests at least 80% of its assets in such securities.
The Fund may invest in the following instruments: o Corporate Debt Securities o
U.S. Government Debt Securities o Foreign Government Debt Securities o Other
issuer Debt Securities.
The Fund may also invest in asset-backed and mortgage-backed securities,
including securities backed by credit union originated loans, to the extent
permitted by law and available in the market.
For a listing of the securities held in the portfolio at October 31, 1998,
please turn to page 15.
Balanced Fund
Investment Objective
The Balanced Fund seeks a high total return through the combination of income
and capital appreciation.
Portfolio Management
The Fund is managed by a team of CIMCO's portfolio managers.
Primary Investment Strategies
The Balanced Fund invests in a broadly diversified array of securities including
common stocks, bonds and money market instruments. The percentage of the Fund's
assets invested in equity securities, income bearing securities and money market
instruments may vary somewhat depending upon the availability of attractively
priced stocks and bonds and anticipated cash needs of the Fund. Generally,
however, common stocks will constitute 60% to 40% of the Fund's assets, bonds
will constitute 40% to 60% of the Fund's assets and money market instruments may
constitute up to 20% of the Fund's assets.
For a listing of the securities held in the portfolio at October 31, 1998,
please turn to page 17.
High Income Fund
Investment Objective
The High Income Fund seeks high current income by investing primarily in a
diversified portfolio of lower-rated, higher yielding income securities. The
Fund also seeks capital appreciation, but only when consistent with its primary
goal.
Portfolio Management
CIMCO uses one or more subadvisers under a "manager of managers" approach to
make investment decisions for this Fund. Massachusetts Financial Services
Company (MFS) is the only subadviser currently used by CIMCO to manage the
assets of the Fund.
Primary Investment Strategies
The High Income Fund invests primarily in lower-rated, higher-yielding income
bearing securities, such as "junk" bonds. Because the performance of these
securities has historically been strongly influenced by economic conditions, the
Fund may rotate securities selection by business sector according to the
economic outlook. Under normal market conditions, the Fund invests at least 80%
of its assets in bonds rated lower than investment grade (BBB/Baa) and their
unrated equivalents or other high-yielding securities.
For a listing of the securities held in the portfolio at October 31, 1998,
please turn to page 20.
Growth and Income Fund
Investment Objective
The Growth and Income Fund seeks long-term capital growth with income as a
secondary consideration.
Portfolio Management
The Fund is managed by a team of CIMCO's portfolio managers.
Primary Investment Strategies
The Growth and Income Fund will focus on stocks of companies with financial and
market strength and a long-term record of financial performance, and will, under
normal market conditions, maintain at least 80% of its assets in such stocks.
Primarily through ownership of a diversified portfolio of common stocks and
securities convertible into common stocks, the Fund will seek a rate of return
in excess of returns typically available from less variable investment
alternatives. The Fund will typically invest in securities representing every
sector of the S&P 500 in approximately the same weightings such sector has in
the S&P 500.
For a listing of the securities held in the portfolio at October 31, 1998,
please turn to page 26.
Capital Appreciation Fund
Investment Objective
The Capital Appreciation Fund seeks long-term capital appreciation.
Portfolio Management
The Fund is managed by a team of CIMCO's portfolio managers.
Primary Investment Strategies
The Capital Appreciation Fund invests primarily in common stocks, and will,
under normal market conditions, maintain at least 80% of its assets in such
securities. The Fund seeks stocks that have a low market price relative to the
portfolio managers' expected level and certainty of the issuing company's future
earnings. Relative to the Growth and Income Fund, the Capital Appreciation Fund
will include some smaller, less developed issuers and some companies undergoing
more significant changes in their operations or experiencing significant changes
in their markets. The Fund will diversify its holdings among various industries
and among companies within those industries but will often be less diversified
than the Growth and Income Fund.
For a listing of the securities held in the portfolio at October 31, 1998,
please turn to page 28.
International Stock Fund
Investment Objective
The International Stock Fund seeks long-term growth of capital by investing
primarily in foreign equity securities.
Portfolio Management
CIMCO uses one or more subadvisers under a "manager of managers" approach to
make investment decisions for this fund. IAI International Limited and Lazard
Asset Management are the subadvisers currently used by CIMCO to manage the
assets of the Fund.
Primary Investment Strategies
Under normal market conditions, the International Stock Fund invests at least
80% of its assets in foreign equity securities. Foreign securities are issued by
companies organized or whose principal operations are outside the U.S., issued
by a foreign government, principally traded outside of the U.S., or quoted or
denominated in a foreign currency. Equity securities include common stocks,
securities convertible into common stocks, preferred stocks, and other
securities representing equity interests such as American depository receipts,
European depository receipts and Global depository receipts.
For a listing of the securities held in the portfolio at October 31, 1998,
please turn to page 30.
CASH REVERSES FUND - Portfolio of Investments
Value
Par Value (Note 2)
COMMERCIAL PAPER (A) - 71.22%
Finance - 50.03%
$ 200,000 American Express Credit Corp.
5.210%, 11/30/98 $ 199,169
200,000 American General Finance Co.
5.030%, 01/27/99 197,569
200,000 Associates Corp. of North America
5.150%, 01/06/99 198,112
200,000 Caterpillar Financial Services
5.351%, 01/04/99 198,098
260,000 CIT Group Holdings, Inc.
5.160%, 12/08/98 258,621
161,000 Ford Motor Credit Corp.
5.120%, 01/08/99 159,443
100,000 Ford Motor Credit Corp.
5.090%, 01/27/99 98,752
260,000 G.E. Capital Corp.
5.450%, 11/09/98 259,685
280,000 General Motors Acceptance Corp.
5.440%, 11/10/98 279,619
225,000 Goldman Sachs Group LP
5.320%, 12/14/98 223,570
100,000 Household Finance Corp.
5.049%, 01/05/99 99,088
200,000 Merrill Lynch & Co., Inc.
5.411%, 11/18/98 199,489
250,000 Norwest Financial, Inc.
5.220%, 01/21/99 247,064
2,618,279
Durable Goods - 5.07%
268,000 Deere & Co.
5.430%, 01/11/99 265,130
Consumer Staples - 4.75%
250,000 Procter & Gamble Co.
5.330%, 12/16/98 248,334
Media - 3.80%
200,000 Disney (Walt) Co.
5.130%, 12/08/98 198,946
Technology - 3.79%
200,000 Motorola, Inc.
5.171%, 12/22/98 198,535
Chemicals - 3.78%
200,000 du Pont (E.I.) de Nemours & Co.
5.000%, 01/14/99 197,946
Total Commercial Paper 3,727,170
( Cost $3,727,170 )
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (A) - 25.96%
Federal Home Loan Mortgage Corp. - 10.40%
$ 100,000 5.249%, 12/17/98 $ 99,329
250,000 5.180%, 01/15/99 247,302
200,000 5.050%, 01/19/99 197,784
544,415
U.S. Treasury Bill - 8.11%
425,000 5.040%, 11/12/98 424,345
Federal Home Loan Bank - 5.57%
194,000 5.360%, 11/27/98 193,249
100,000 4.950%, 03/17/99 98,130
291,379
Federal National Mortgage Association - 1.88%
100,000 4.570%, 03/23/99 98,197
Total U.S. Government and Agency
Obligations 1,358,336
( Cost $1,358,336 )
CERTIFICATE OF DEPOSIT - 2.89%
150,985 State Street Eurodollar
4.750%, 11/02/98 150,985
Total Certificate of Deposit 150,985
( Cost $150,985 )
TOTAL INVESTMENTS - 100.07% 5,236,491
( Cost 5,236,491** )
NET OTHER ASSETS AND LIABILITIES - (0.07)% (3,410)
TOTAL NET ASSETS - 100.00% $5,233,081
** Aggregate cost for Federal tax purposes.
(A) Rate noted represents annualized yield at time of purchase.
See accompanying Notes to Financial Statements
BOND FUND - Portfolio of Investments
Value
Par Value (Note 2)
CORPORATE NOTES AND BONDS - 64.60%
Finance - 14.20%
$ 200,000 Aetna Services, Inc.
6.970%, 08/15/36 $ 208,049
100,000 Caterpillar Financial Services,
Series F, MTN
6.400%, 04/16/01 102,751
250,000 Carramerica Realty Corp.
6.625%, 10/01/00 248,111
150,000 General Motors Acceptance Corp., MTN
6.050%, 10/04/99 151,398
300,000 Kimco Realty Corp., MTN
6.960%, 07/16/07 286,560
996,869
Asset - Backed Securities - 11.43%
200,000 Chase Commercial Mortgage
Securities Corp.
Series 1997-2, Class C, CMO
6.600%, 12/19/07 199,382
200,000 Citibank Credit Card Master Trust I,
Series 1998-6 Class A, ABS
5.850%, 04/10/03 204,220
200,000 Deutsche Mortgage and
Asset Receiving Corp.,1998, Class C, CMO
6.861%, 03/15/08 196,942
200,000 Residential Funding Mortgage
Securities II Series 1998-HI2, Step
Coupon, Class A2, ABS (F) 6.290%, 07/25/13 201,906
802,450
Industrials - 7.23% 350,000 Motorola, Inc.
5.800%, 10/15/08 350,992
150,000 WMX Technologies, Inc.
7.000%, 05/15/05 156,425
507,417
Brokerage Services - 5.88%
200,000 Goldman Sachs LP 144A, MTN (C)
6.250%, 02/01/03 202,571
200,000 Travelers Group, Inc.
7.200%, 02/01/04 210,157
412,728
Utilities - 4.44%
$ 150,000 Cincinnati Gas & Electric Co.
6.450%, 02/15/04 $ 157,427
150,000 GTE North, Inc., Series A, Debenture
6.000%, 01/15/04 154,485
311,912
Communication - 4.39%
100,000 Cox Communication, Inc.
6.500%, 11/15/02 103,556
200,000 Worldcom, Inc.
6.125%, 8/15/01 204,760
308,316
Consumer Staples - 4.30%
300,000 Nabisco, Inc.
6.700%, 06/15/02 302,109
Consumer Products - 3.04%
100,000 Carter Holt Harvey, Ltd.,Yankee
8.875%, 12/01/04 107,456
100,000 International Paper Co.
7.500%, 05/15/04 106,254
213,710
Defense - 2.23%
150,000 Martin Marietta Technologies, Inc.
6.500%, 04/15/03 156,703
Energy - 2.16%
150,000 Transcontinental Gas Pipeline Corp.
6.125%, 01/15/05 151,345
Health Services - 2.12%
150,000 Columbia/HCA Healthcare Corp.
6.125%, 12/15/00 148,889
Metals and Mining - 1.61%
100,000 MAGMA Copper Co.
8.700%, 05/15/05 113,019
Retail - 1.57%
100,000 American Stores Co.
9.125%, 04/01/02 110,381
Total Corporate Notes and Bonds 4,535,848
( Cost $4,501,585 )
See accompanying Notes to Financial Statements.
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 27.94%
U.S. Treasury Notes - 20.62%
$ 700,000 5.625%, 04/30/00 $ 712,688
400,000 5.500%, 03/31/03 418,625
300,000 5.750%, 04/30/03 316,875
1,448,188
Federal Home Loan Mortgage Corp. - 4.31%
298,127 6.500%, 10/15/13 302,435
Federal National Mortgage
Association - 3.01%
200,000 6.000%, 05/15/08 211,670
Total U.S. Government and Agency
Obligations 1,962,293
( Cost $1,919,509 )
U.S. DENOMINATED FOREIGN GOVERNMENT BOND - 2.02%
150,000 United Mexican States, Global
9.875%, 01/15/07 141,750
Total U.S. Denominated Government
Foreign Bond 141,750
( Cost $156,551 )
CERTIFICATE OF DEPOSIT - 0.54%
38,124 State Street Eurodollar
4.750%, 11/02/98 38,124
Total Certificate of Deposit 38,124
( Cost $38,124 )
Shares Value
(Note 2)
INVESTMENT COMPANY - 2.85%
200,000 State Street Prime Money Market
5.48% $ 200,000
Total Investment Company 200,000
( Cost $200,000 )
TOTAL INVESTMENTS - 97.95% 6,878,015
( Cost $6,815,769** )
NET OTHER ASSETS AND LIABILITIES - 2.05% 144,282
TOTAL NET ASSETS - 100.00% $7,022,297
** Aggregate cost for Federal tax purposes.
(C) Security sold within the terms of private placement memorandum exempt
from registration under section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(F) Represents a security whose interest rate increases at predetermined
dates. The rate disclosed is the rate currently in effect.
MTN Medium Term Note
CMO Collateralized Mortgage Obligation
ABS Asset Backed Security
See accompanying Notes to Financial Statements.
BALANCED FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 51.57%
Technology - 9.28%
4,300 3Com Corp.* $ 155,069
5,700 EMC Corp.* 366,930
3,100 Gateway, Inc.* 173,016
2,700 Hewlett-Packard Co. 162,506
3,500 Interim Services, Inc.* 74,375
2,200 International Business Machines Corp. 326,563
3,700 Micron Technology, Inc.* 140,600
3,100 Motorola, Inc. 161,200
2,300 Philips Electronics N.V. 126,213
5,500 Seagate Technology, Inc.* 145,063
2,900 Texas Instruments, Inc. 185,419
6,000 Wang Laboratories, Inc.* 128,250
2,145,204
Finance - 6.43%
5,900 Allstate Corp. 254,069
4,690 Banc One Corp. 229,224
5,096 BankAmerica Corp. 292,702
2,000 Bankers Trust Corp. 125,625
4,200 Citigroup, Inc. 197,663
3,500 Edwards (A.G.), Inc. 120,969
3,400 Everest Reinsurance Holdings, Inc. 117,088
2,300 Morgan Stanley Dean Witter & Co. 148,925
1,486,265
Retail - 4.64%
3,900 CVS Corp. 178,181
4,600 Dayton Hudson Corp. 194,925
3,700 Safeway, Inc.* 176,906
3,800 Sears Roebuck & Co. 170,763
4,700 Tiffany & Co. 151,869
2,900 Wal-Mart Stores, Inc. 200,100
1,072,744
Chemicals - 4.50%
5,500 American Home Products Corp. 268,125
2,300 Bristol-Myers Squibb Co. 254,294
3,500 Centocor, Inc.* 155,750
2,500 Glaxo Wellcome PLC, ADR 155,625
3,900 Pharmacia & Upjohn, Inc. 206,456
1,040,250
Consumer Staples - 3.98%
4,100 Kimberly-Clark Corp. 197,825
2,000 General Mills, Inc. 147,000
6,300 Nabisco Holdings Corp., Class A 237,825
2,700 Sara Lee Corp. 161,156
7,600 Tyson Foods, Inc., Class A 174,800
918,606
Consumer Cyclical - 3.96%
3,400 Cox Communications, Inc., Class A $ 186,575
2,900 Crown Cork & Seal Co., Inc. 92,438
7,600 MediaOne Group, Inc.* 321,575
6,500 Owens-Illinois, Inc.* 198,656
10,800 Primedia, Inc.* 116,775
916,019
Energy - 3.95%
2,500 Amoco Corp. 140,313
2,000 Exxon Corp. 142,500
3,200 Kerr-McGee Corp. 127,600
3,400 Schlumberger Ltd. 178,500
4,500 Unocal Corp. 152,719
5,200 USX-Marathon Group 169,975
911,607
Communication - 3.54%
4,900 AirTouch Communications, Inc.* 274,400
2,800 Ameritech Corp. 151,025
2,600 Bell Atlantic Corp. 138,125
2,700 GTE Corp. 158,456
1,800 Telefonos de Mexico SA, Class L, ADR 95,063
817,069
Basic Materials - 3.36%
2,000 Dow Chemical, Inc. 187,250
5,400 Pall Corp. 136,350
3,300 Praxair, Inc. 132,825
5,000 Rohm & Haas Co. 168,750
4,900 Willamette Industries, Inc. 151,900
777,075
Durable Goods - 2.58%
1,400 General Motors Corp. 88,288
3,600 Raychem Corp. 110,025
3,000 Rockwell International Corp. 123,188
1,500 United Technologies, Inc. 142,875
2,942 Waste Management, Inc. 132,758
597,134
Health Services - 2.28%
3,500 Aetna, Inc. 261,188
6,900 Columbia\ HCA Healthcare Corp. 144,900
1,800 IMS Health, Inc. 119,700
525,788
See accompanying Notes to Financial Statements.
COMMON STOCKS (continued)
Transportation - 1.59%
1,200 Delta Air Lines, Inc. $ 126,675
2,400 FDX Corp.* 126,150
3,500 Norfolk Southern Corp. 115,281
368,106
Utilities - 1.48%
3,400 Northern States Power Co. 91,800
2,700 PG & E Corp. 82,181
6,100 Williams Companies, Inc. 167,369
341,350
Total Common Stocks 11,917,217
( Cost $11,589,250 )
Par Value
CORPORATE NOTES AND BONDS - 21.68%
Finance - 9.44%
$ 200,000 Aetna Services, Inc.
6.970%, 08/15/36 208,049
1,000,000 Associates Corp. of North America
5.750%, 11/01/03 1,000,420
50,000 Caterpillar Financial Services,
Series F, MTN
6.400%, 04/16/01 51,376
50,000 General Motors Acceptance Corp., MTN
6.050%, 10/04/99 50,466
700,000 Kimco Realty Corp., MTN
6.960%, 07/16/07 668,640
200,000 Residential Funding Mortgage
Securities II, Series 1998-HI2, Step
Coupon, Class A2, ABS (F)
6.290%, 07/25/13 201,906
2,180,857
Consumer Staples - 3.05%
700,000 Nabisco, Inc.
6.700%, 06/15/02 704,921
Asset-Backed Securities - 2.60%
200,000 Chase Commercial Mortgage Securities
Corp. Series 1997-2, Class C, CMO
6.600%, 12/19/07 199,382
200,000 Citibank Credit Card Master Trust I,
Series 1998-6 Class A, ABS
5.850%, 04/10/03 204,220
200,000 Deutsche Mortgage and
Asset Receiving Corp., 1998, Class C,
CMO
6.861%, 03/15/08 196,942
600,544
Brokerage Services - 1.79%
$ 200,000 Goldman Sachs LP 144A, MTN (C)
6.250%, 02/01/03 $ 202,571
200,000 Travelers Group, Inc.
7.200%, 02/01/04 210,157
412,728
Communication - 1.12%
50,000 Cox Communication, Inc.
6.500%, 11/15/02 51,778
200,000 Worldcom, Inc.
6.400%, 08/15/05 207,887
259,665
Consumer Products - 0.92%
100,000 Carter Holt Harvey, Ltd.,Yankee
8.875%, 12/01/04 107,456
100,000 International Paper Co.
7.500%, 05/15/04 106,254
213,710
Utilities - 0.92%
50,000 Cincinnati Gas & Electric Co.
6.450%, 02/15/04 52,476
100,000 GTE Hawaiian Telephone Co., Debenture
7.375%, 09/01/06 109,120
50,000 GTE North, Inc., Series A, Debenture
6.000%, 01/15/04 51,495
213,091
Energy - 0.68%
100,000 Coastal Corp., Senior Note
8.125%, 09/15/02 107,376
50,000 Transcontinental Gas Pipeline Corp.
6.125%, 01/15/05 50,448
157,824
Metals and Mining - 0.49%
100,000 MAGMA Copper Co.
8.700%, 05/15/05 113,019
Defense - 0.23%
50,000 Martin Marietta Technologies, Inc.
6.500%, 04/15/03 52,234
Industrials - 0.23%
50,000 WMX Technologies, Inc.
7.000%, 05/15/05 52,142
See accompanying Notes to Financial Statements.
CORPORATE NOTES AND BONDS (continued)
Health Services - 0.21%
$ 50,000 Columbia/HCA Healthcare Corp.
6.125%, 12/15/00 $ 49,630
Total Corporate Notes and Bonds 5,010,365
( Cost $4,989,830 )
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 19.70%
U.S. Treasury Notes - 16.53%
1,000,000 4.500%, 09/30/00 1,005,000
1,000,000 5.500%, 03/31/03 1,046,563
700,000 5.625%, 04/30/00 712,688
1,000,000 5.750%, 04/30/03 1,056,250
3,820,501
Federal National Mortgage Association. - 3.17%
722,956 6.500%, 06/01/13 733,402
Total U.S. Government and Agency
Obligations 4,553,903
( Cost $4,489,916 )
U.S. DENOMINATED FOREIGN GOVERNMENT BOND - 0.20%
50,000 United Mexican States, Global
9.875%, 01/15/07 47,250
Total U.S. Denominated Government
Foreign Bond 47,250
( Cost $52,183 )
CERTIFICATE OF DEPOSIT - 0.30%
68,625 State Street Eurodollar
4.750%, 11/02/98 68,625
Total Certificate of Deposit 68,625
( Cost $68,625 )
Shares
INVESTMENT COMPANY- 4.33%
1,000,000 State Street Prime Money Market
5.48% $ 1,000,000
Total Investment Company 1,000,000
( Cost $1,000,000 )
TOTAL INVESTMENTS - 97.78% 22,597,360
(Cost $22,189,804**)
NET OTHER ASSETS AND LIABILITIES - 2.22% 512,487
TOTAL NET ASSETS - 100.00% $23,109,847
* Non-income producing security.
** Aggregate cost for Federal tax purposes.
(C) Security sold within the terms of private placement memorandum exempt
from registration under section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(F) Represents a security whose interest rate increases at predetermined
dates. The rate disclosed is the rate currently in effect.
ADR American Depositary Receipt
CMO Collaterized Mortgage Obligation
MTN Medium Term Note
ABS Asset Backed Security
See accompanying Notes to Financial Statements.
HIGH INCOME FUND - Portfolio of Investments
Value
Par Value (Note 2)
CORPORATE NOTES AND BONDS - 90.95%
Communication - 19.41%
$ 135,000 Allegiance Telecom, Inc., 144A, Step
Coupon With Warrants (B)(C)
11.750%, 02/15/08 $ 55,355
25,000 American Cellular, 144A (C)
Senior Note
10.500%, 05/15/08 23,500
95,000 Charter Communication South East, L.P.
Series B, Senior Note
11.250%, 03/15/06 101,887
30,000 Convergent Communication, 144A (C)
With Warrants
13.000%, 04/01/08 20,100
130,000 Dolphin Telecom PLC, Step Coupon, 144A
Senior Discount Note (B)(C)(D)
11.500%, 06/01/08 41,275
60,000 Esprit Telecom Group PLC, Yankee (D)
Senior Note
10.875%, 06/15/08 52,200
90,000 Exodus Communications, Inc., 144A (C)
Senior Note
11.250%, 07/01/08 80,325
25,000 Flag, Ltd., 144A, Senior Note (C)(D)
8.250%, 01/30/08 23,125
60,000 Intelcom Group (USA), Inc.
StepCoupon (B)
12.500%, 05/01/06 40,200
55,000 Intermedia Communication,
Step Coupon, Series B (B)
11.250%, 07/15/07 36,575
50,000 ITC Deltacom, 144A (C)
Senior Note
9.750%, 11/15/08 50,000
10,000 Lenfest Communications
8.375%, 11/01/05 10,450
50,000 Lenfest Communications, 144A (C)
Senior Subordinate Note
8.250%, 02/15/08 49,750
35,000 Lenfest Communications
Senior Subordinate Note
10.500%, 06/15/06 39,288
175,000 Metronet Communications, Yankee,
Step Coupon Senior Discount Note (B)(D)
9.950%, 06/15/08 95,813
45,000 Metronet Communications, Yankee,
Step Coupon Senior Discount Note (B)(D)
10.750%, 11/01/07 26,550
100,000 Millicom International Cellular, Yankee
Senior Discount Note, Step Coupon (B)(D)
13.500%, 06/01/06 60,000
55,000 MJD Communications, 144A (C)
Senior Subordinate Note
9.500%, 05/01/08 53,350
Communication (continued)
$ 50,000 Mobile Telecommunication Technology
Senior Note
13.500%, 12/15/02 $ 54,375
90,000 Nextel Communications, Step Coupon (B)
9.950%, 02/15/08 48,600
100,000 Nextel Communications, Step Coupon
Senior Discount Note (B)
9.750%, 10/31/07 55,500
45,000 Nextel International, Inc., 144A, Step
Coupon Senior Discount Note (B) (C)
12.125%, 04/15/08 16,650
50,000 Nextlink Communications
Senior Note
9.625%, 10/01/07 46,250
70,000 Pagemart Wireless, Inc., Step Coupon, 144A
Senior Discount Note (B) (C)
11.250%, 02/01/08 36,400
50,000 Paging Network
Senior Subordinate Note
8.875%, 02/01/06 46,500
3,000 Pathnet, Inc., 144A (C)
With Warrants
12.250%, 04/15/08 2,175
55,000 PSINET, Inc., 144A, Senior Note (C)
10.000%, 02/15/05 53,213
65,000 Rural Cellular Corp. Series B
Senior Subordinate Note
9.625%, 05/15/08 61,263
31,000 Rural Cellular Corp., Series B, PIK
11.375%, 05/15/10 26,505
25,000 Qwest Communications International,
Step Coupon Senior Discount Note (B)
9.470%, 10/15/07 19,625
75,000 Qwest Communications International,
144A (C) Senior Note
7.500%, 11/01/08 74,685
15,000 RCN Corp., Step Coupon
Senior Discount Note (B)
11.125%, 10/15/07 7,800
30,000 Telesystem International, Yankee, Step
Coupon Senior Discount Note (B)(D)
13.250%, 06/30/07 12,000
25,000 Telesystem International, Yankee, Step
Coupon Senior Discount Note (B)(D)
10.500%, 11/01/07 8,000
25,000 Telewest Communications PLC, Yankee (D)
Debenture
9.625%, 10/01/06 24,500
170,000 Triton Communications, 144A, Step Coupon
Senior Discount Note (B)(C)
11.000%, 05/01/08 65,450
50,000 Versatel Telecom BV, 144A (D)(E)
With Warrants
Senior Note
13.250%, 05/15/08 46,500
See accompanying Notes to Financial Statements.
CORPORATE NOTES AND BONDS (continued)
Communication (continued)
$ 89 Viatel, Inc.,Series A, PIK
10.000%, 04/15/10 $ 53
20,000 Viatel, Inc.,144A, Senior Note (C)
11.250, 04/15/08 17,600
160,000 Viatel, Inc.,Step Coupon, 144A (B) (C)
Senior Discount Note
12.500%, 04/15/08 78,400
220,000 United International Holdings, Step Coupon,
Series B Senior Discount Note (B)
10.750%, 02/15/08 103,400
110,000 Western Wireless
Senior Subordinate Note
10.500%, 02/01/07 113,300
1,878,487
Telecommunications - 12.12%
110,000 Chancellor Media Corp., Series B
8.750%, 06/15/07 108,350
90,000 Classic Cable, Inc., 144A (C)
Senior Subordinate Note
9.875%, 08/01/08 89,550
60,000 Cumulus Media, Inc.
10.375%, 07/01/08 61,200
110,000 Fox/Liberty Networks
Senior Note
8.875%, 08/15/07 106,425
50,000 Frontiervision
Senior Subordinate Note
11.000%, 10/15/06 55,000
40,000 Frontiervision Holdings LP, Step Coupon
Senior Discount Note (B)
11.875%, 09/15/07 32,000
90,000 Granite Broadcasting Corp.
10.375%, 05/15/05 85,500
50,000 Intermedia Capital Partners
Senior Note
11.250%, 08/01/06 54,750
50,000 LIN Television Corp.
8.375%, 03/01/08 47,500
40,000 Northeast Optic Network
Senior Note
12.750%, 08/15/08 35,200
40,000 NTL, Inc., 144A, Step Coupon
Senior Note (B) (C)
9.750%, 04/01/08 21,850
100,000 NTL, Inc., 144A, Step Coupon
Senior Note (B) (C)
12.375%, 10/01/08 55,505
110,000 Rogers Cablesystem, Yankee (D)
9.625%, 08/01/02 117,425
Telecommunications (continued)
$ 100,000 Spectrasite Holdings, Inc., 144A,
Step Coupon Senior Discount Note (B)(C)
12.000%, 07/15/08 $ 39,000
150,000 Telemundo Holdings, Inc., 144A, Step
Coupon Senior Discount Note (B) (C)
11.500%, 08/15/08 73,500
85,000 Time Warner, Inc., LLC
Senior Note
9.750%, 07/15/08 85,638
50,000 Verio, Inc.
Senior Note
10.375%, 04/01/05 47,500
60,000 Young Broadcasting, Inc., Series B
8.750%, 06/15/07 57,000
1,172,893
Retail - 5.56%
25,000 Chiles Offshore
10.000%, 05/01/08 20,000
50,000 Cole National Group
Senior Subordinate Note
8.625%, 08/15/07 48,000
110,000 Friendly Ice Cream Corp.
10.500%, 12/01/07 100,100
60,000 Jitney-Jungle Stores
12.000%, 03/01/06 64,800
25,000 Musicland Group, 144A (C)
Senior Note
9.875%, 03/15/08 23,500
100,000 Pathmark Stores
Senior Subordinate Note
11.625%, 06/15/02 95,000
25,000 Planet Hollywood, 144A (C)
Senior Subordinate Note
12.000%, 04/01/05 11,750
100,000 Red Roof Inns, Senior Note
9.625%, 12/15/03 98,500
75,000 Williams Scotsman, Inc.
9.875%, 06/01/07 75,750
537,400
Technology - 5.43%
110,000 Argo-Tech Corp.
Senior Subordinate Note
8.625%, 10/01/07 101,750
50,000 Be Aerospace, Inc., 144A (C)
Senior Note
9.500%, 11/01/08 51,250
75,000 Be Aerospace, Inc., Series B, 144A (C)
Senior Note
8.000%, 03/01/08 70,125
75,000 Level 3 Communications, Inc., 144A (C)
Senior Note
9.1250%, 05/01/08 70,500
See accompanying Notes to Financial Statements.
Technology (continued)
$ 150,000 K & F Industries, Series B
Senior Subordinate Note
9.250%, 10/15/07 $ 142,500
80,000 Unisys Corp., Series B
Senior Discount Note
12.000%, 04/15/03 88,900
525,025
Metals and Mining - 4.87%
45,000 AK Steel Corp., Senior Note
9.125%, 12/15/06 46,463
100,000 Commonwealth Aluminum
Senior Subordinate Note
10.750%, 10/01/06 92,000
100,000 CSC Holdings, Inc., Senior Note
9.250%, 11/01/05 105,000
75,000 Doe Run Resources Corp., Series B
11.250%, 03/15/05 56,250
50,000 Fibermark, Inc.
Senior Note
9.375%, 10/15/06 49,125
25,000 Keystone Consolidated Industries
Senior Note
9.625%, 08/01/07 23,000
50,000 Metal Management, Inc., 144A (C)
Senior Subordinate Note
10.000%, 05/15/08 29,000
30,000 Schuff Steel Company
10.500%, 06/01/08 23,700
50,000 WCI Steel, Inc., Series B
Senior Note
10.000%, 12/01/04 47,000
471,538
Finance - 4.70%
30,000 AMSC Acquisition Co., Inc., Series B
With Warrants
12.250%, 04/01/08 13,800
65,000 DTI Holdings, 144A
Step Coupon (B)(C)
With Warrants
12.500%, 03/01/08 21,450
50,000 Global Crossing Holding LTD, 144A (C)
Senior Note
9.625%, 05/15/08 48,375
125,000 Grove Holdings LLC, 144A, Step Coupon
Debenture (B)(C)
11.625%, 05/01/09 46,250
105,000 Pinnacle Holdings, Step Coupon
Senior Discount Note (B)
10.000%, 03/15/08 48,300
75,000 P & L Coal Holdings Corp., 144A (C)
Senior Subordinate Note
9.625%, 05/15/08 74,250
Finance (continued)
$ 60,000 Silgan Holdings, Inc.
Senior Subordinate Note
9.000%, 06/01/09 $ 56,850
80,000 Thermadyne Holdings Corp.
9.875%, 06/01/08 72,800
160,000 Thermadyne Holdings Corp., Step
Coupon (B) Debenture
12.500%, 06/01/08 72,400
454,475
Energy - 4.41%
110,000 Anacomp, Inc.
Senior Subordinate Note
10.875%, 04/01/04 107,525
70,000 Chesapeake Energy, 144A (C)
Senior Note
9.625%, 05/01/05 59,500
75,000 Clark R&M, Inc., 144A (C)
Senior Note
8.625%, 08/15/08 70,125
45,000 Continental Resources, 144A (C)
Senior Subordinate Note
10.250%, 08/01/08 36,225
75,000 Ocean Energy, Inc., Series B
8.875%, 07/15/07 73,875
50,000 Pride International, Inc.
Senior Note
9.375%, 05/01/07 45,500
25,000 Petsec Energy, Series B
Senior Subordinate Note
9.500%, 06/15/07 20,000
15,000 Pool Energy Services, 144A (C)
Senior Subordinate Note
8.375%, 04/01/08 14,325
427,075
Basic Materials - 4.19%
65,000 Buckeye Cellulos
Senior Subordinate Note
9.250%, 09/15/08 64,838
50,000 Florida Coast Paper LLC
12.750%, 06/01/03 32,500
25,000 Galey & Lord, Inc.
9.125%, 03/01/08 22,250
100,000 Polymer Group, Inc.
9.000%, 07/01/07 93,000
100,000 Repap New Brunswick, Yankee (D)
Senior Note
10.625%, 04/15/05 65,500
See accompanying Notes to Financial Statements.
Basic Materials (continued)
$ 25,000 Synthetic Industries, Inc., Series B
Senior Subordinate Note
9.250%, 02/15/07 $ 24,125
110,000 US Timberlands Co.
Senior Note
9.625%, 11/15/07 103,400
405,613
Consumer Staples - 3.51%
15,000 Finlay Enterprises, Inc.
Debentures
9.000%, 05/01/08 11,325
20,000 Globe Manufacturing Corp., 144A (C)
Senior Subordinate Note
10.000%, 08/01/08 15,600
25,000 International Utility Structures, Yankee,
144A (C)(D)
Senior Subordinate Note
10.750%, 02/01/08 20,750
115,000 Pierce Leahy Corp.
Senior Subordinate Note
11.125%, 07/15/06 124,200
75,000 Remington Products Co. LLC, Series B
Senior Subordinate Note
11.000%, 05/15/06 52,500
35,000 Samsonite Corp.
Senior Subordinate Note
10.750%, 06/15/08 24,675
100,000 Revlon Consumer Products, 144A (C)
Senior Subordinate Note
8.625%, 02/01/08 90,250
339,300
Media - 3.50%
50,000 Albritton Communications, Series B
Senior Subordinate Debenture Bond
9.750%, 11/30/07 51,000
110,000 AMC Entertainment
Senior Subordinate Note
9.500%, 03/15/09 102,300
100,000 Cinemark USA, Series B
Senior Subordinate Note
9.625%, 08/01/08 99,000
60,000 HMV Media Group PLC, 144A (C)(D)
Senior Subordinate Note
10.250%, 05/15/08 49,200
60,000 Satelites Mexicanos SA, 144A (C)(D)
10.125%, 11/01/04 37,200
338,700
Chemicals and Drugs - 3.04%
$ 110,000 Acetex Corp.
Senior Note
9.750%, 10/01/03 $ 102,300
120,000 NL Industries
Senior Note
11.750%, 10/15/03 124,800
25,000 PCI Chemical Canada, Inc., Yankee (D)
9.250%, 10/15/07 18,750
65,000 Sterling Chemicals, Inc., Series A
Senior Subordinate Note
11.250%, 04/01/07 48,750
294,600
Durable Goods - 2.88%
110,000 Hayes Wheels International, Inc.
Senior Subordinate Note
11.000%, 07/15/06 118,938
25,000 International Knife & Saw
Senior Subordinate Note
11.375%, 11/15/06 24,500
75,000 Oxford Automotive, Inc.
10.125%, 06/15/07 69,000
65,000 Simonds Industries, 144A (C)
Senior Subordinate Note
10.250%, 07/01/08 61,750
5,000 Talon Automotive, 144A (C)
Senior Subordinate Note
9.625%, 05/01/08 4,400
278,588
Consumer Services - 2.17%
75,000 Eldorado Resorts
Senior Subordinate Note
10.500%, 08/15/06 78,000
40,000 Iron Mountain, Inc.
10.125%, 10/01/06 41,800
50,000 Iron Mountain, Inc.
8.750%, 09/30/09 49,500
50,000 Specialty Foods Acquisition, Series B
Senior Note
10.250%, 08/15/01 41,000
210,300
Recreation - 2.06%
150,000 Boyd Gaming Corp.
Senior Subordinate Note
9.500%, 07/15/07 145,500
50,000 Casino America, Inc.
Senior Note
12.500%, 08/01/03 53,375
198,875
See accompanying Notes to Financial Statements.
Building & Construction - 1.89%
$ 25,000 American Standard Companies, Inc.
7.375%, 02/01/08 $ 24,563
50,000 American Standard Companies, Inc.
7.625%, 02/15/10 49,688
50,000 Building Material Corp., Series B
Senior Note
8.625%, 12/15/06 49,625
60,000 Nortek, Inc., Series B
Senior Note
9.250%, 03/15/07 59,400
183,276
Health Care Services - 1.78%
35,000 Alaris Medical, Inc., Step Coupon, 144A
Senior Discount Note (B)(C)
11.125%, 08/01/08 15,925
30,000 Oxford Health Plans, 144A (C)
Senior Note
11.000%, 05/15/05 24,300
25,000 Pharmerica, Inc., 144A (C)
Senior Note
8.375%, 04/01/08 21,500
30,000 Prime Medical Services, 144A(C)
Senior Note
8.750%, 04/01/08 27,300
80,000 Tenet Healthcare Corp.
Senior Subordinate Note
8.625%, 01/15/07 83,200
172,225
Capital Goods - 1.70%
50,000 Agco Corp., Senior Subordinate Note
8.500%, 03/15/06 47,500
20,000 Johnstown America Industries, Inc., Series C
Senior Note
11.750%, 08/15/05 20,675
20,000 Johnstown America Industries, Inc.
Senior Subordinate Note
11.750%, 08/15/05 20,675
90,000 Newcor, Inc., 144A (C)
Senior Subordinate Note
9.875%, 03/01/08 75,600
164,450
Printing - 1.63%
110,000 Big Flower Press, Inc.
Senior Subordinate Note
8.875%, 07/01/07 105,870
50,000 Hollinger International, Inc.
9.250%, 03/15/07 52,125
157,995
Defense Electronics - 1.38%
$ 125,000 L-3 Communications Corp., Series B
Senior Subordinate Note
10.375%, 05/01/07 $ 133,438
Transportation - 1.37%
35,000 Gulfmark Offshore
8.750%, 06/01/08 31,850
110,000 Mark IV Industrial
Senior Subordinate Note
7.500%, 09/01/07 101,013
132,863
Industrial - 1.13%
65,000 GCI, Inc., Senior Note
9.750%, 08/01/07 60,938
55,000 Numatics, Inc., 144A (C)
Senior Subordinate Note
9.625%, 04/01/08 48,400
109,338
Schools - 1.09%
110,000 Kindercare Learning Centers, Inc.
Senior Subordinate Note
9.500%, 02/15/09 105,875
Containers / Packaging - 1.04%
15,000 Ball Corp., 144A (C)
Senior Subordinate Note
8.250%, 08/01/08 15,544
85,000 Gaylord Container, Corp., 144A (C)
Senior Subordinate Note
9.875%, 02/15/08 37,400
50,000 Graham Packaging Co., 144A (C)
Senior Subordinate Note
8.750%, 01/15/08 47,500
100,444
Machinery - 0.09%
10,000 Grove Worldwide, 144A (C)
Senior Subordinate Note
9.250%, 05/01/08 8,500
Total Corporate Notes and Bonds 8,801,273
( Cost $9,887,440 )
Shares
PREFERRED STOCK - 0.23%
Media - 0.23%
250 Primedia, Inc., Series H 22,500
Total Preferred Stock 22,500
( Cost $24,850 )
See accompanying Notes to Financial Statements.
Par Value
CERTIFICATE OF DEPOSIT - 8.32%
$ 804,779 State Street Eurodollar
4.750%, 11/02/98 $ 804,779
Total Certificate of Deposit 804,779
( Cost $804,779 )
TOTAL INVESTMENTS - 99.50% 9,628,552
( Cost $10,717,069** )
NET OTHER ASSETS AND LIABILITIES - 0.50% 48,702
TOTAL NET ASSETS 100.00% $9,677,254
- -------------------------------
** Aggregate cost for Federal tax purposes was $10,718,409.
PIK Payment-In-Kind
(B) Represents securities that remain zero coupon until predetermined
date, at which the stated coupon rate becomes the effective rate.
(C) Security sold within the terms of private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(D) Notes and bonds, issued by foreign entities, denominated in U.S.
dollars. The aggregate of these securities are 7.40% of total net
assets.
(E) Securities purchased as part of a private placement which have not
been registered with the Securities and Exchange Commission under the
Securities act of 1933 and are considered illiquid. On October 31,
1998, the total market value of these investments was $46,500 or
0.01% of the total net assets.
Security Par Date Acquired Cost Basis
Versatel Telecom BV, 144A
Senior Note, With Warrants
13.250%, 05/15/08 $ 25,000 05/21/98 $ 25,000
Versatel Telecom BV, 144A
Senior Note, With Warrants
13.250%, 05/15/08 25,000 07/01/98 26,375
OTHER INFORMATION (UNAUDITED):
S&P Ratings: % of Portfolio
BBB 1.14%
BB 16.09
B 66.89
CCC 6.17
NOTRATED 9.71
100.00%
See accompanying Notes to Financial Statements.
GROWTH AND INCOME FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 94.36%
Technology - 16.30%
14,400 Computer Associates International, Inc. $ 567,000
13,500 EMC Corp.* 869,062
10,600 Harris Corp. 371,662
7,400 Hewlett-Packard Co. 445,386
4,600 International Business Machines Corp. 682,812
7,300 Motorola, Inc. 379,600
6,600 Philips Electronics N.V. 362,173
7,700 Texas Instruments, Inc. 492,317
4,170,012
Finance - 12.72%
11,700 Allstate Corp. 503,831
11,470 Banc One Corp. 560,596
10,692 BankAmerica Corp. 614,122
5,000 Bankers Trust Corp. 314,063
10,200 Citigroup, Inc. 480,038
6,500 Edwards (A.G.), Inc. 224,656
7,100 Everest Reinsurance Holdings, Inc. 244,506
4,800 Morgan Stanley Dean Witter & Co. 310,800
3,252,612
Consumer Staples - 8.44%
6,700 General Mills, Inc. 492,450
10,800 Kimberly-Clark Corp. 521,100
12,400 Nabisco Holdings Corp., Class A 468,100
6,000 Sara Lee Corp. 358,125
13,900 Tyson Foods, Inc., Class A 319,700
2,159,475
Drugs - 8.31%
14,400 American Home Products Corp. 702,000
5,500 Bristol-Myers Squibb Co. 608,094
6,900 Glaxo Wellcome PLC, ADR 429,525
7,300 Pharmacia & Upjohn, Inc. 386,444
2,126,063
Energy - 8.10%
5,900 Amoco Corp. 331,138
4,500 Exxon Corp. 320,625
7,000 Schlumberger Ltd. 367,500
5,400 Texaco, Inc. 320,288
9,500 Unocal Corp. 322,406
12,500 USX-Marathon Group 408,594
2,070,551
Communication - 7.01%
7,100 AirTouch Communications, Inc.* 397,600
7,400 Ameritech Corp. 399,138
4,700 Bell Atlantic Corp. 249,688
Communication (continued)
5,900 GTE Corp. $ 346,256
5,200 Sprint Corp. 399,100
1,791,782
Consumer Cyclical - 6.67%
4,700 Cox Communications, Inc., Class A* 257,913
11,000 Crown Cork & Seal Co., Inc. 350,625
18,000 MediaOne Group, Inc.* 761,625
11,000 Owens-Illinois, Inc.* 336,188
1,706,351
Durable Goods - 6.62%
7,538 Dana Corp. 315,183
4,100 General Motors Corp. 258,556
8,400 Rockwell International Corp. 344,925
2,252 SPX Corp.* 122,593
3,600 United Technologies, Inc. 342,900
6,852 Waste Management, Inc. 309,197
1,693,354
Retail - 6.14%
10,300 CVS Corp. 470,581
10,800 Sears Roebuck & Co. 485,325
8,900 Wal-Mart Stores, Inc. 614,100
1,570,006
Basic Materials - 3.96%
4,900 Dow Chemical, Inc. 458,763
9,700 Dexter Corp. 283,725
5,200 Georgia Pacific Co. 269,100
1,011,588
Utility - 3.77%
2,800 Duke Energy Corp. 181,125
8,400 Northern States Power Co. 226,800
7,000 PG & E Corp. 213,063
12,500 Williams Companies, Inc. 342,969
963,957
Health Services - 3.68%
6,700 Aetna, Inc. 499,988
15,800 Tenet Healthcare Corp.* 441,413
941,401
Transportation - 2.64%
7,000 Burlington Northern Santa Fe Corp. 216,125
2,200 Delta Air Lines, Inc. 232,238
6,900 Norfolk Southern Corp. 227,269
675,632
Total Common Stocks 24,132,784
( Cost $24,092,593 )
See accompanying Notes to Financial Statements.
Par Value
CERTIFICATE OF DEPOSIT - 1.61%
$ 412,791 State Street Eurodollar
4.750%, 11/02/98 $ 412,791
Total Certificate of Deposit 412,791 ( Cost $412,791 )
Shares
INVESTMENT COMPANY - 3.91%
1,000,000 State Street Prime Money Market
5.48% 1,000,000
Total Investment Company 1,000,000 ( Cost $1,000,000 )
TOTAL INVESTMENTS - 99.88% 25,545,575
( Cost $25,505,384** )
NET OTHER ASSETS AND LIABILITIES - 0.12% 31,454
TOTAL NET ASSETS - 100.00% $25,577,029
- ------------------------------
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $25,505,779.
ADR American Depositary Receipt
See accompanying Notes to Financial Statements.
CAPITAL APPRECIATION FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 96.22%
Technology - 17.07%
7,100 3Com Corp.* $ 256,044
7,500 Dallas Semiconductor Corp. 277,500
10,600 EMC Corp. * 682,375
6,100 Gateway, Inc. 340,456
16,400 Interim Services, Inc.* 348,500
2,200 International Business Machines Corp. 326,563
6,600 Micron Technology, Inc.* 250,800
9,500 Seagate Technology, Inc* 250,563
5,600 Texas Instruments, Inc. 358,050
18,600 Wang Laboratories, Inc.* 397,575
3,488,426
Finance - 12.83%
8,300 Allstate Corp. 357,419
6,370 Banc One Corp. 311,334
3,300 Bankers Trust Corp. 207,281
10,800 Citigroup, Inc. 508,275
7,700 Edwards (A.G.), Inc. 266,131
7,200 Everest Reinsurance Holdings, Inc. 247,950
3,700 Morgan Stanley Dean Witter & Co. 239,575
14,300 Mutual Risk Management Ltd. 483,519
2,621,484
Retail - 12.20%
7,500 Consolidated Stores Corp.* 123,281
13,800 Dayton Hudson Corp. 584,775
11,600 Rite Aid Corp. 460,375
13,400 Safeway, Inc.* 640,688
8,100 Tiffany & Co. 261,731
12,500 TJX Companies, Inc. 236,719
2,700 Wal-Mart Stores, Inc. 186,300
2,493,869
Consumer Cyclical - 9.48%
8,200 Cox Communications, Inc., Class A* 449,975
15,100 MediaOne Group, Inc.* 638,919
18,200 Owens-Illinois, Inc.* 556,238
27,100 Primedia, Inc.* 293,019
1,938,151
Drugs - 9.18%
7,000 ALZA Corp.* 335,125
2,400 Biogen, Inc.* 166,800
2,300 Bristol-Myers Squibb Co. 254,294
5,600 Centocor, Inc.* 249,200
4,200 Elan Corp., PLC, ADR* 294,263
3,900 Glaxo Wellcome PLC, ADR 242,775
6,300 Pharmacia & Upjohn, Inc. 333,506
1,875,963
Basic Materials - 6.31%
2,500 Dow Chemical, Inc. $ 234,063
8,900 Pall Corp. 224,725
7,100 Praxair, Inc. 285,775
7,600 Rohm & Haas Co. 256,500
9,300 Willamette Industries, Inc. 288,300
1,289,363
Energy - 5.27%
5,000 Kerr-McGee Corp. 199,375
7,300 Unocal Corp. 247,744
11,300 USX-Marathon Group 369,369
9,600 Weatherford International, Inc.* 261,000
1,077,488
Health Services - 5.01%
6,100 Aetna, Inc. 455,213
11,900 Columbia\ HCA Healthcare Corp. 249,900
4,800 IMS Health, Inc. 319,200
1,024,313
Communication - 4.72%
12,700 AirTouch Communications, Inc.* 711,200
4,800 Telefonos de Mexico SA, Class L, ADR 253,500
964,700
Consumer Staples - 4.61%
8,400 Nabisco Holdings Corp., Class A 317,100
4,700 Sara Lee Corp. 280,531
15,000 Tyson Foods, Inc., Class A 345,000
942,631
Durable Goods - 3.75%
9,300 Raychem Corp. 284,231
5,000 Rockwell International Corp. 205,313
6,110 Waste Management, Inc. 275,714
765,258
Transportation - 2.94%
1,600 Delta Air Lines, Inc. 168,900
4,300 FDX Corp.* 226,012
6,500 Midwest Express Holdings, Inc.* 205,563
600,475
Utilities - 2.85%
5,400 PG & E Corp. 164,363
6,000 Sonat, Inc. 181,875
8,600 Williams Companies., Inc. 235,963
582,201
Total Common Stocks 19,664,322
( Cost $19,282,305 )
See accompanying Notes to Financial Statements.
Par Value Value
(Note 2)
CERTIFICATE OF DEPOSIT - 0.02%
$ 3,227 State Street Eurodollar
4.750%, 11/02/98 $ 3,227
Total Certificate of Deposit 3,227
( Cost $3,227 )
Shares
INVESTMENT COMPANY - 2.45%
500,000 State Street Prime Money Market
5.48% 500,000
Total Investment Company 500,000
( Cost $500,000 )
TOTAL INVESTMENTS - 98.69% 20,167,549
( Cost $19,785,532** )
NET OTHER ASSETS AND LIABILITIES - 1.31% 267,839
TOTAL NET ASSETS - 100.00% $20,435,388
- -------------------------------
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $ 19,787,320.
ADR American Depositary Receipt
INTERNATIONAL STOCK FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 89.51%
Argentina - 1.17%
3,300 Telefonica de Argentina S.A., ADR $ 109,106
4,400 YPF S.A., ADR 127,325
11,100 Quilmes Industrial SA, ADR 101,981
338,412
Austria - 0.22%
736 Eybl International AG* 17,054
700 KTM Motorradholding AG* 48,359
65,413
Australia - 5.28%
126,770 Boral, Ltd. 206,151
63,196 Broken Hill Proprietary Co., Ltd. 537,553
24,300 Cochlear, Ltd. 123,199
31,882 Commonwealth Bank of Australia 396,618
547,916 M.I.M. Holdings, Ltd. 267,301
1,530,822
Belgium - 0.36%
2,020 Compagnie Maritime Belge S.A. 103,984
Brazil - 2.50%
14,200 Banco Bradesco S.A., ADR 80,947
5,700 Comanhia Brasileira de Distribuicao
Grupo Pao de Acucar, ADR 91,913
9,700 Companhia Cervejaria Brahma, ADR 93,363
3,358 Companhia Enegetica de Minaas
Gerais S.A., ADR 65,309
10,000 Companhia Paranaense de Energia-Copel, ADR 77,500
162,800 Companhia Riograndense de Telecomunicacoes 47,766
1,230,000 Eletropaulo Metropolitana* 41,450
16,500 Souza Cruz S.A., ADR 112,038
1,500 Telecomunicacoes Brasileiras S.A., ADR 113,906
724,192
Canada - 0.26%
5,900 Club Monaco, Inc.* 12,427
3,300 Maple Leaf Foods, Inc. 27,803
2,100 Queensway Financial Holdings, Ltd.* 36,066
76,296
China - 0.18%
232,000 Shenzhen Expressway Co., Ltd. 52,421
Chile - 0.70%
6,700 Administradora de Fondos de Pensiones
Provida, ADR 95,056
2,100 Banco BHIF, ADR 23,100
7,500 Quinenco S.A., ADR* 54,375
5,200 Santa Isabel S.A., ADR 30,225
202,756
Columbia - 0.15%
5,900 Banco Ganadero S.A., ADR $ 42,406
Czech Republic - 0.22%
2,900 Czeske Energeticke Zavody * 65,643
Denmark - 0.11%
400 Falck A/S 31,123
Finland - 2.75%
4,900 Amer Group, Ltd.* 55,439
2,560 Asko Oyj, Class A 42,430
305 Orion-YHTYMA Oy, Class B* 7,261
3,300 Rocla Oyj 28,166
1,600 Sampo Insurance Co.,Ltd, Class A 49,861
3,500 Santasalo-Jot Oyj 29,873
22,670 UPM-Kymmene Oyj 542,226
600 Vaisala Oy, Class A 42,517
797,773
France - 12.62%
1,100 Carbone Lorraine* 63,364
429 C.E.A. Industries 47,879
1,100 Cie des Signaux S.A.* 75,225
9,946 CNP Assurances* 338,206
340 Compagnie Plastic Omnium S.A.* 32,193
4,462 Dexia France 657,830
3,354 Eridania Beghin-Say S.A. 603,759
2,544 Groupe Danone 672,728
10,694 Michelin, Class B 440,835
900 Scor, ADR 51,525
3,781 Suez Lyonnaise des Eaux 677,220
3,660,764
Germany - 6.22%
4,790 BASF AG 202,101
11,067 Bayer AG 445,900
6,730 BHF-Bank AG 259,580
600 Data Modul AG 21,187
2,040 Deutche Bank AG* 131,817
6,034 Deutsche Telekom AG 163,170
300 DIS Deutscher Industrie Service AG 14,684
800 Hawesko Holdings AG* 40,080
400 Kamps AG* 18,106
210 KSB AG Vorzug 33,970
7,500 Marseille-Kliniken AG* 122,230
6,430 Veba AG* 352,800
1,805,625
Greece - 0.30%
3,811 Hellenic Telecommunication
Organization S.A. 86,607
See accompanying Notes to Financial Statements.
COMMON STOCKS (continued)
Hong Kong - 1.89%
132,000 CDL Hotels International, Ltd. $ 33,746
154,000 Esprit Holdings, Ltd. 57,166
69,000 Giordano International, Ltd. 8,285
7,000 Guangshen Railway Co., Ltd. 52,500
185,310 Jardine Strategic Holdings, Ltd. 296,496
75,000 Peregrine Investments Holdings, Ltd* (A) 0
30,000 Shaw Brothers, Ltd. 12,395
49,000 Yue Yuen Industrial Holdings 87,308
547,896
India - 0.96%
10,600 Larsen & Toubro, Ltd. GDR 72,369
4,400 Hindalco Industries Ltd. GDR 51,590
9,400 State Bank of India GDR, 144A(C) 75,200
7,300 Mahanagar Tele Nigam GDR 78,475
277,634
Italy - 3.76%
5,600 Banca Popolare di Brescia 131,857
1,154 Banca Popolare di Milano 9,130
2,700 Industrie Natuzzi SpA, ADR* 49,106
6,900 Interpump Group SpA* 27,863
18,300 Manuli Rubber Industries SpA 55,647
49,300 Premafin Finanziaria SpA* 27,216
157,050 Telecom Italia SpA 791,309
1,092,128
Ireland - 0.40%
7,800 Adare Printing Group PLC 73,833
19,100 Anglo Irish Bank Corp. PLC 41,612
115,445
Israel - 0.72%
3,700 ECI Telecommunications, Ltd. 122,563
6,800 Supersol, Ltd., ADR* 86,700
209,263
Japan - 11.99%
3,000 ADERANS Co., Ltd. 84,942
43,000 Eisai Co., Ltd. 674,423
109,000 Hitachi, Ltd. 554,586
1,000 Honma Golf Co., Ltd.* 4,033
1,000 Kawasumi Laboratories 16,731
3,000 Laox 18,816
109,000 Mazda Motor Corp.* 406,821
13,000 Namco, Ltd. 286,100
44 Nippon Telegraph & Telephone Corp. 344,299
Japan (contined)
148,000 Nippon Yusen Kabushiki Kaisha $ 490,159
3,600 Paris Miki, Inc.* 60,448
98,460 Sekisui Chemical Co., Ltd. 536,440
3,477,798
Korea - 0.89%
4,456 Samsung Electronics, GDR 101,263
15,300 SK Telecom Co., Ltd., ADR* 157,781
259,044
Malaysia - 0.08%
31,000 Jaya Tiasa Holdings Berhad* 23,576
Mexico - 2.51%
33,880 Cemex S.A. de C.V., CPO 80,611
1,800 Fomento Economico Mexicano, ADR 46,913
15,200 Fomento Economico Mexicano,
S.A. de C.V., Class B, ADR* 39,098
66,000 Grupo Financiero Banamex Accival,
S.A. de C.V., Class B* 68,560
3,300 Grupo Televisa SA, GDR* 89,513
10,800 Grupo Industrial Maseca S.A. de C.V., ADR 133,650
32,100 Kimberly-Clark de Mexico, Class A 93,366
3,200 Panamerican Beverage, Class A 64,800
8,500 Pepsi-Gemex S.A., ADR 55,250
6,700 Tubos de Acero de Mexico S.A., ADR 56,950
728,711
Norway - 0.27%
730 Electric Farm ASA* 0
19,000 P4 Radio Hele Norge ASA* 77,414
77,414
Netherlands - 1.74%
11,000 KLM-Konin Luchtvaart Mij N.V.* 332,058
3,900 N.V. Holdingmaatschappij de Telegraaf 98,525
11,700 Scala Business Solutions N.V.* 75,306
505,889
New Zealand - 0.54%
191,337 Carter Holt Harvey, Ltd. 156,037
Portugal - 2.69%
21,732 Banco Pinto and Sotto Mayor 416,440
4 Banco Totta & Acores, S.A., Registered 111
1,278 Brisa-Auto Estradas de Portugal,S.A.,
Registered 59,419
See accompanying Notes to Financial Statements.
COMMON STOCKS (continued)
Portugal (continued)
4,156 Brisa-Auto Estradas de Portugal,
S.A., Private Placement* $ 201,300
2,900 Companhia de Seguros Mundial
Confianca, S.A.* 78,510
500 Portugal Telecom S.A., ADR 23,625
779,405
Phillipines - 0.22%
466,000 Benpres Holdings Corp.* 50,238
5,600 Benpres Holdings Corp., ADR* 12,074
900 Benpres Holdings Corp., GDR* 1,440
63,752
Poland - 0.32%
8,000 Bank Handlowly W. Warszawie, 144A (C) 91,600
Peru - 0.35%
2,700 Credicorp, Ltd.* 18,225
6,500 Telefonica del Peru S.A., ADR 84,500
102,725
Russia - 0.03%
4,200 A.O. Tatneft, ADR 8,138
South Africa - 1.47%
17,600 ABSA Group, Ltd. 95,900
15,671 Barlow, Ltd. 74,191
13,300 JD Group, Ltd. 61,778
12,900 Rembrandt Group, Ltd. 85,962
5,600 South African Breweries, Ltd.* 108,849
426,680
Singapore - 3.72%
75,959 Singapore Airlines, Ltd.,
Foreign Registered 466,722
119,597 United Overseas Bank, Ltd.,
Foreign Registered 562,161
43,000 Want Want Holdings, Ltd.* 51,170
1,080,053
Spain - 3.73%
1,800 Banco Pastor, S.A. 96,223
42,575 Fuerzas Electricas de Cataluna,
S.A., Class A 429,196
34,438 Iberdrola, S.A. 556,201
1,081,620
Sweden - 0.91%
5,800 Caran AB, Class B 44,607
3,100 Elanders AB, Class B 56,822
4,700 Getinge Industrier AB, Class B 72,294
3,900 IFS AB, Class B* 36,993
9,100 Monark Stiga AB 43,158
1,372 Ortivus AB, Class B* 9,321
263,195
Switzerland - 4.63%
340 Edipresse, S.A.* $ 92,814
100 Eichhof Holding AG, Registered 113,620
780 Gretag Imaging Group* 70,784
80 Liechtenstein Global Trust AG 99,336
55 Moevenpick Holding AG 24,185
130 SAIA-Burgess Electronics AG* 31,459
993 The Swatch Group 547,271
934 Swisscom AG, Registered* 316,295
520 Swisslog Holdings AG, Registered 47,381
1,343,145
Thailand - 0.12%
43,000 Bangkok Expressway Public Co., Ltd.,
Foreign Registered* 33,937
United Kingdom - 12.12%
15,800 Ashtead Group PLC 51,844
71,490 Blue Circle Industries PLC 390,161
230,030 BTR PLC 402,422
8,700 Carpetright PLC 26,653
29,269 Cookson Group PLC 60,759
20,400 Corporate Services Group PLC 51,227
3,100 Denison International PLC, ADR* 45,725
12,100 Devro PLC 57,124
24,700 Dialog Corp. PLC* 64,610
35,800 Enterprise Oil PLC* 244,526
1,947 Euromoney Publications PLC 47,262
5,100 Games Workshop Group PLC 47,385
5,200 Goode Durrant PLC* 27,248
43,215 Greenalls Group PLC 235,125
20,600 Hogg Robinson PLC 76,905
8,500 Hozelock Group PLC 29,527
31,864 Imperial Tobacco Group PLC 328,063
13,900 JBA Holdings PLC 67,483
2,400 Manganese Bronze Holdings PLC* 8,699
15,100 Man (Ed&F) Group PLC* 83,168
126,720 Rolls-Royce PLC 467,773
9,088 Seton Healthcare Group PLC 115,628
5,700 Signet Group PLC, ADR* 91,913
78,542 Tomkins PLC 363,562
11,926 United Biscuits Holdings PLC* 46,918
19,700 Victrex PLC 46,831
8,800 Westminster Health Care Holdings PLC 38,156
3,516,697
Venezuela - 0.41%
3,500 Compania Anonima Nacional Telefonos
de Venezuela, ADR 54,250
16,000 Mavesa, S.A., ADR 64,000
118,250
Total Common Stocks 25,964,269
( Cost $26,900,288 )
See accompanying Notes to Financial Statements.
PREFERRED STOCKS - 1.62%
Brazil - 0.85%
180,000 Banco Itau S.A. $ 87,519
410,000 Companhia Cimento Portland Itau 54,992
437,169 Telecomunicacoes de Sao Paulo S.A.* 73,295
580,000 Telecomunicacoes de Sao Paulo
Celular S.A., Class B 28,686
244,492
Germany - 0.77%
2,900 Fielmann AG 129,535
1,900 ProSbien Media AG 94,616
224,151
Total Preferred Stocks 468,643
( Cost $488,695 )
Par Value
CERTIFICATE OF DEPOSIT - 13.05%
$3,785,761 State Street Eurodollar
4.750%, 11/02/98 $ 3,785,761
Total Certificate of Deposit 3,785,761
( Cost $3,785,761 )
TOTAL INVESTMENTS - 104.18% 30,218,673
( Cost $31,174,744** )
NET OTHER ASSETS AND LIABILITIES - (4.18)% 1,212,905)
TOTAL NET ASSETS - 100.00% $29,005,768
- ----------------------------------
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $31,201,088.
(A) As of January 8, 1998, security trading has been suspended.
(C) Security sold within the terms of private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
ADR American Depository Receipt
GDR Global Depository Receipt
As of October 31, 1998, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized appreciation of $18,592.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange For Settlement Date (Depreciation)
<S> <C> <C> <C>
Japanese Yen 109,158,283 U.S. Dollars 946,325 12/02/98 $ (4,320)
Singapore Dollars538,497 U.S.Dollars 311,000 03/19/99 22,912
$ 18,592
</TABLE>
OTHER INFORMATION (UNAUDITED):
Industry Concentration as a Percentage of Net Assets:
% of Net Assets % of Net Assets
Finance 17.66% Basic Materials 4.44%
Certificate of Deposit 13.05 Chemicals & Drugs 4.11
Consumer Staples 8.82 Health 4.04
Communication 8.60 Metals & Mining 3.99
Transportation 7.57 Agriculture 2.08
Energy 7.01 Technology 1.87
Building & Construction 6.21 Media 1.73
Industrial 5.92 Business Services 1.16
Consumer Cyclical 5.92 Net Other Assets
and Liabilities (4.18)
100.00%
See accompanying Notes to Financial Statements.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Bond
Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 5,236,491 $ 6,815,769
Net unrealized appreciation (depreciation) -- 62,246
----------------- -----------------
Total investments at value 5,236,491 6,878,015
Cash -- --
Foreign currency (Cost $1,235,539)(Note 2) -- --
Receivables:
Investments sold -- --
Fund shares sold 71 35,329
Dividends and interest 40 103,141
Dividend tax reclaim -- --
Due from Adviser, net 12,794 14,399
Net unrealized appreciation on forward currency contracts -- --
Deferred organization and offering costs 39,060 39,060
Prepaid insurance 121 121
----------------- -----------------
Total Assets 5,288,577 7,070,065
----------------- -----------------
Liabilities:
Payables:
Investments purchased -- --
Fund shares repurchased 12,000 1,566
Due to custodian 210 205
Administration and transfer agent fees 7,673 8,145
Trustees' fees 171 221
Distribution fees - Class B 568 1,324
Shareholder servicing fees -- 1,423
Accrued expenses and other payables 34,874 34,884
----------------- -----------------
Total Liabilities 55,496 47,768
----------------- -----------------
Net Assets $ 5,233,081 $ 7,022,297
================= =================
Net Assets consist of
Paid-in capital $ 5,209,323 $ 6,926,107
Accumulated undistributed (distribution in excess of) net investment income 23,338 23,446
Accumulated net realized gain (loss) on investments sold,
foreign currency related transactions and futures contracts 420 10,498
Net unrealized appreciation (depreciation) of investments (including
appreciation of foreign currency related transactions of $31,501 in
the International Stock Fund) -- 62,246
----------------- -----------------
Total Net Assets $ 5,233,081 $ 7,022,297
================= =================
Class A Shares:
Net Assets $ 4,338,718 $ 4,797,089
Shares of beneficial interest outstanding 4,338,098 472,995
Net Asset Value and redemption price per share $ 1.00 $ 10.14
Sales charge of offering price* 0.06 0.46
----------------- -----------------
Maximum offering price per share $ 1.06 $ 10.60
================= =================
Class B Shares:
Net Assets $ 894,363 $ 2,225,208
Shares of beneficial interest outstanding 894,343 219,351
Net Asset Value and offering price per share** $ 1.00 $ 10.14
================= =================
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Sales charge of offering price is 5.3% for the Cash Reserves Fund, 4.3% for
the Bond Fund, 5.3% for the Balanced Fund, 4.3% for the High Income Fund
and 5.3% for the Growth and Income Fund, Capital Appreciation Fund and
International Stock Fund.
** Redemption price per share is equal to the Net Asset Value per share less
any applicable deferred sales charge.
</FN>
See accompanying Notes to Financial Statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 22,189,804 $ 10,717,069 $ 25,505,384 $ 19,785,532 $ 31,174,744
407,556 (1,088,517) 40,191 382,017 (956,071)
------------------ ------------------ ------------------ ------------------ -----------------
22,597,360 9,628,552 25,545,575 20,167,549 30,218,673
-- -- 36 -- 13,673
-- -- -- -- 1,238,210
112,843 33,090 15,010 129,780 277,565
280,312 91,342 326,435 131,324 13,731
131,966 210,259 21,345 11,368 52,186
-- -- -- -- 7,890
7,017 11,795 4,345 5,508 67
-- -- -- -- 18,592
39,060 39,060 39,060 39,060 39,060
121 203 121 121 813
------------------ ------------------ ------------------ ------------------ -----------------
23,168,679 10,014,301 25,951,927 20,484,710 31,880,460
------------------ ------------------ ------------------ ------------------ -----------------
-- 281,262 314,670 -- 2,809,373
2,150 -- 4,782 1,456 504
133 875 -- 75 --
9,244 9,850 9,892 8,849 12,076
479 306 757 470 763
4,233 2,208 8,204 3,994 789
3,090 1,975 4,882 3,028 4,917
39,503 40,571 31,711 31,450 46,270
------------------ ------------------ ------------------ ------------------ -----------------
58,832 337,047 374,898 49,322 2,874,692
------------------ ------------------ ------------------ ------------------ -----------------
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
================== ================== ================== ================== =================
$ 22,676,985 $ 10,808,901 $ 25,519,363 $ 25,045,308 $ 28,401,933
22,711 23,986 19,303 10,070 321,481
2,595 (67,116) (1,828) (2,007) 1,206,924
407,556 (1,088,517) 40,191 382,017 (924,570)
------------------ ------------------ ------------------ ------------------ -----------------
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
================== ================== ================== ================== =================
$ 15,670,183 $ 6,044,667 $ 11,169,102 $ 13,410,216 $ 27,656,348
1,467,763 682,660 1,026,186 1,214,721 2,674,063
$ 10.68 $ 8.85 $ 10.88 $ 11.04 $ 10.34
0.60 0.40 0.61 0.62 0.58
------------------ ------------------ ------------------ ------------------ -----------------
$ 11.28 $ 9.25 $ 11.49 $ 11.66 $ 10.92
================== ================== ================== ================== =================
$ 7,439,664 $ 3,632,587 $ 14,407,927 $ 7,025,172 $ 1,349,420
696,605 410,272 1,324,848 639,902 131,268
$ 10.68 $ 8.85 $ 10.88 $ 10.98 $ 10.28
================== ================== ================== ================== =================
Statements of Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Bond
Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ -- $ --
Interest 188,747 221,039
Less: Foreign taxes withheld -- --
----------------- -----------------
Total investment income 188,747 221,039
----------------- -----------------
EXPENSES:
Management fees (Note 3) 13,907 18,516
Administration and transfer agent fees (Note 3) 75,502 77,720
Registration expenses 28,218 27,178
Custodian fees 4,301 2,088
Professional fees 11,248 11,373
Reports to shareholder expense 1,023 1,216
Trustees' fees (Note 3) 1,033 1,084
Distribution fees - Class B (Note 3) 1,858 4,966
Shareholder servicing fees - Class A (Note 3) -- 7,603
Shareholder servicing fees - Class B (Note 3) -- 1,655
Amortization of organization and offering costs (Note 2) 28,717 28,717
Other expenses 1,455 1,644
----------------- -----------------
Total expenses before reimbursement 167,262 183,760
Less reimbursement (Note 3) (146,288) (145,479)
Less Management fee waiver (Note 3) -- (11,294)
----------------- -----------------
Total expenses net of reimbursement/waiver 20,974 26,987
----------------- -----------------
net investment income (loss) 167,773 194,052
----------------- -----------------
net realized and unrealized gain (loss) on investments (Note 2):
Net realized gain (loss) on investments (including a net realized gain on
foreign currency transactions of $92,467 in the International Stock Fund) 420 10,498
Net realized gain (loss) on futures contracts -- --
Net change in unrealized appreciation (depreciation) on investments
(including a net unrealized appreciation on foreign currency related
transactions of $31,501 in the International Stock Fund) -- 62,246
----------------- -----------------
NET realized and unrealized GAIN (LOSS) ONINVESTMENTS 420 72,744
----------------- -----------------
NET INCREASE (DECREASE)IN NET ASSETS FROM OPERATIONS $ 168,193 $ 266,796
================== =================
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Funds commenced operations on December 29, 1997.
</FN>
See accompanying Notes to Financial Statements.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund(1) Fund(1) Fund(1) Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended For the Period Ended For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 42,716 $ 1,418 $ 156,852 $ 61,570 $ 458,903
200,044 530,054 44,058 33,622 123,750
-- -- -- -- (50,892)
------------------ ----------------- ------------------ ------------------ -----------------
242,760 531,472 200,910 95,192 531,761
------------------ ----------------- ------------------ ------------------ -----------------
43,515 34,493 60,851 54,599 203,368
83,366 89,844 86,233 81,355 114,723
28,188 28,557 29,347 28,047 28,642
8,025 4,855 10,141 7,887 69,130
12,530 12,512 14,296 12,821 18,988
2,344 1,868 3,824 2,475 5,624
1,798 1,844 2,852 1,951 6,157
17,148 11,472 38,574 18,777 3,781
11,020 11,855 14,802 11,940 47,161
5,716 3,823 12,859 6,260 1,260
28,717 28,717 28,717 28,717 28,717
2,385 2,637 3,203 2,635 9,861
------------------ ----------------- ------------------ ------------------ -----------------
244,752 232,477 305,699 257,464 537,412
(153,963) (158,311) (156,486) (151,327) (223,725)
-- -- -- -- --
------------------ ----------------- ------------------ ------------------ -----------------
90,789 74,166 149,213 106,137 313,687
------------------ ----------------- ------------------ ------------------ -----------------
151,971 457,306 51,697 (10,945) 218,074
------------------ ----------------- ------------------ ------------------ -----------------
11,081 (67,321) (40,804) (46,187) 1,306,953
(8,486) -- 38,976 44,180 --
407,556 (1,088,517) 40,191 382,017 (924,570)
------------------ ----------------- ------------------ ------------------ -----------------
410,151 (1,155,838) 38,363 380,010 382,383
------------------ ----------------- ------------------ ------------------ -----------------
$ 562,122 $ (698,532) $ 90,060 $ 369,065 $ 600,457
================== ================= ================== ================== =================
Statements of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Bond
Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS at beginning of period $ 50,000 $ 50,000
----------------- ----------------
Increase in net assets from operations:
Net investment income 167,773 194,052
Net realized gain (loss) 420 10,498
Net change in unrealized appreciation (depreciation) -- 62,246
----------------- ----------------
Net increase (decrease) in net assets from operations 168,193 266,796
----------------- ----------------
Distributions to shareholders from:
Net investment income
Class A (157,807) (163,646)
Class B (9,966) (30,406)
Distributions in excess of net investment income
Class A -- --
Class B -- --
----------------- ----------------
Total distributions (167,773) (194,052)
----------------- ----------------
Capital Stock transactions:
Class A Shares
Shares sold 5,496,824 4,702,204
Issued to shareholders in reinvestment of distributions 157,329 163,461
Shares redeemed (1,364,778) (174,114)
----------------- ----------------
Net increase from capital stock transactions 4,289,375 4,691,551
----------------- ----------------
Class B Shares
Shares sold 1,315,996 2,223,002
Issued to shareholders in reinvestment of distributions 9,489 28,634
Shares redeemed (432,199) (43,634)
----------------- ----------------
Net increase from capital stock transactions 893,286 2,208,002
----------------- ----------------
Total increase in net assets 5,183,081 6,972,297
----------------- ----------------
NETASSETS at end of period (including line A) $ 5,233,081 $ 7,022,297
================= ================
(A) Undistributed (distribution in excess of) net investment income $ 23,338 $ 23,446
================= ================
OTHER INFORMATION:
Capital Share transactions:
Class A Shares
Shares sold 5,496,384 469,093
Issued to shareholders in reinvestment of distributions 157,376 16,269
Shares redeemed (1,364,662) (17,267)
----------------- ----------------
Net increase in shares outstanding 4,289,098 468,095
----------------- ----------------
Class B Shares
Shares sold 1,314,093 220,718
Issued to shareholders in reinvestment of distributions 9,643 2,834
Shares redeemed (430,393) (4,301)
----------------- ----------------
Net increase in shares outstanding 893,343 219,251
----------------- ----------------
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Funds commenced operations on December 29, 1997.
(2) Represents less than 1/2 of a share.
</FN>
See accompanying Notes to Financial Statements.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund(1) Fund(1) Fund(1) Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended For the Period Ended For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
151,971 457,306 51,697 (10,945) 218,074
2,595 (67,321) (1,828) (2,007) 1,306,953
407,556 (1,088,517) 40,191 382,017 (924,570)
562,122 (698,532) 90,060 369,065 600,457
(114,070) (352,444) (48,609) -- (19,999)
(37,901) (104,862) (3,088) -- (1)
(590) -- (3,054) (2,999) --
(306) -- (2,653) (1) --
(152,867) (457,306) (57,404) (3,000) (20,000)
15,586,877 6,528,079 11,287,655 13,061,416 26,957,663
114,515 350,011 51,706 2,999 19,999
(458,280) (149,760) (439,612) (198,712) (66,752)
15,243,112 6,728,330 10,899,749 12,865,703 26,910,910
7,559,659 4,060,617 15,004,465 7,326,656 1,487,111
37,560 92,006 5,698 1 1
(189,739) (97,861) (415,539) (173,037) (22,711)
7,407,480 4,054,762 14,594,624 7,153,620 1,464,401
23,059,847 9,627,254 25,527,029 20,385,388 28,955,768
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
$ 22,711 $ 23,986 $ 19,303 $ 10,070 $ 321,481
1,494,109 657,540 1,057,206 1,227,548 2,672,922
10,884 36,216 4,825 293 1,949
(42,130) (15,996) (40,745) (18,020) (5,708)
1,462,863 677,760 1,021,286 1,209,821 2,669,163
710,854 410,828 1,363,973 656,474 133,396
3,588 9,755 557 --(2) --(2)
(17,937) (10,411) (39,782) (16,672) (2,228)
696,505 410,172 1,324,748 639,802 131,168
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
<CAPTION>
Cash Reserves Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income 0.04 0.03
--------- ---------
Total from investment operations 0.04 0.03
--------- ---------
Less Distributions:
Distributions from net investment income (0.04) (0.03)
--------- ---------
Total distributions (0.04) (0.03)
--------- ---------
Net increase in net asset value -- --
--------- ---------
Net Asset Value, End of Period $ 1.00 $ 1.00
========= =========
Total Return2+ 4.21% 3.50%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,339 $ 894
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 4.76% 5.51%
After reimbursement of expenses by Adviser1 0.55% 1.30%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 0.67% (0.08)%
After reimbursement of expenses by Adviser1 4.88% 4.13%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Cash Reserves Fund Class A and Cash Reserves Fund Class B commenced investment operations on December 29, 1997.
</FN>
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Bond Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.45 0.39
Net realized and unrealized gain on investments 0.14 0.14
--------- ---------
Total from investment operations 0.59 0.53
--------- ---------
Less Distributions:
Distributions from net investment income (0.45) (0.39)
--------- ---------
Total distributions (0.45) (0.39)
--------- ---------
Net increase in net asset value 0.14 0.14
--------- ---------
Net Asset Value, End of Period $ 10.14 $ 10.14
========= =========
Total Return2+ 6.08% 5.36%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,797 $ 2,225
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 4.83% 5.58%
After reimbursement of expenses by Adviser1 0.60% 1.35%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 1.14% 0.39%
After reimbursement of expenses by Adviser1 5.37% 4.62%
Portfolio Turnover 95% 95%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Bond Fund Class A and Bond Fund Class B commenced investment operations on December 29, 1997.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Balanced Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.21 0.14
Net realized and unrealized gain on investments 0.68 0.68
--------- ---------
Total from investment operations 0.89 0.82
--------- ---------
Less Distributions:
Distributions from net investment income (0.21) (0.14)
--------- ---------
Total distributions (0.21) (0.14)
--------- ---------
Net increase in net asset value 0.68 0.68
--------- ---------
Net Asset Value, End of Period $ 10.68 $ 10.68
========= =========
Total Return2+ 8.92% 8.24%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 15,670 $ 7,440
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.40% 4.15%
After reimbursement of expenses by Adviser1 1.10% 1.85%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 0.23% (0.52)%
After reimbursement of expenses by Adviser1 2.53% 1.78%
Portfolio Turnover 60% 60%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Balanced Fund Class A and Balanced Fund Class B commenced investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
High Income Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.61 0.55
Net realized and unrealized (loss) on investments (1.15) (1.15)
--------- ---------
Total from investment operations (0.54) (0.60)
--------- ---------
Less Distributions:
Distributions from net investment income (0.61) (0.55)
--------- ---------
Total distributions (0.61) (0.55)
--------- ---------
Net decrease in net asset value (1.15) (1.15)
--------- ---------
Net Asset Value, End of Period $ 8.85 $ 8.85
========= =========
Total Return2+ (5.78)% (6.39)%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 6,045 $ 3,632
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.52% 4.27%
After reimbursement of expenses by Adviser1 1.00% 1.75%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 4.95% 4.20%
After reimbursement of expenses by Adviser1 7.47% 6.72%
Portfolio Turnover 56% 56%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) High Income Fund Class A and High Income Fund Class B commenced investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Growth and Income Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.07 0.01
Net realized and unrealized gain on investments 0.89 0.89
--------- ---------
Total from investment operations 0.96 0.90
--------- ---------
Less Distributions:
Distributions from net investment income (0.07) (0.01)
Distributions in excess of net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.08) (0.02)
--------- ---------
Net increase in net asset value 0.88 0.88
--------- ---------
Net Asset Value, End of Period $ 10.88 $ 10.88
========= =========
Total Return2+ 9.57% 8.97%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 11,169 $ 14,408
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 2.41% 3.16%
After reimbursement of expenses by Adviser1 1.00% 1.75%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (0.60)% (1.35)%
After reimbursement of expenses by Adviser1 0.81% 0.06%
Portfolio Turnover 5% 5%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Growth and Income Fund Class A and Growth and Income Fund Class B commenced investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Capital Appreciation Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income (loss) 0.01 (0.02)
Net realized and unrealized gain on investments 1.04 1.01
--------- ---------
Total from investment operations 1.05 0.99
--------- ---------
Less Distributions:
Distributions in excess of net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.01) (0.01)
--------- ---------
Net increase in net asset value 1.04 0.98
--------- ---------
Net Asset Value, End of Period $ 11.04 $ 10.98
========= =========
Total Return2+ 10.51% 9.91%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 13,410 $ 7,025
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.28% 4.03%
After reimbursement of expenses by Adviser1 1.20% 1.95%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (1.97)% (2.72)%
After reimbursement of expenses by Adviser1 0.11% (0.64)%
Portfolio Turnover 10% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Capital Appreciation Fund Class A and Capital Appreciation Fund Class B commenced investment operations on December 29, 1997.
</FN>
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
International Stock Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.08 0.03
Net realized and unrealized gain on investments 0.27 0.26
--------- ---------
Total from investment operations 0.35 0.29
--------- ---------
Less Distributions:
Distributions from net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.01) (0.01)
--------- ---------
Net increase in net asset value 0.34 0.28
--------- ---------
Net Asset Value, End of Period $ 10.34 $ 10.28
========= =========
Total Return2+ 3.60% 2.90%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 27,656 $ 1,350
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 2.76% 3.51%
After reimbursement of expenses by Adviser1 1.60% 2.35%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (0.01)% (0.76)%
After reimbursement of expenses by Adviser1 1.15% 0.40%
Portfolio Turnover 60% 60%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) International Stock Fund Class A and International Stock Fund Fund Class B commenced investment operations on
December 29, 1997.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
1. Organization
MEMBERS Mutual Funds, a Delaware Business Trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended (the "1940 Act") as an
open-end, management investment company. As of the date of this report, the
Trust offers seven Funds (individually, a "Fund," collectively, the "Funds")
each with two classes of shares: Class A and Class B. Each class of shares
represents an interest in the assets of the respective Fund and has identical
voting, dividend, liquidation and other rights, except that each class of shares
bears its own distribution fees and its proportional share of fund level
expenses, is subject to its own sales charges, if any, and has exclusive voting
rights on matters pertaining to the Rule 12b-1 plan as it relates to that class.
The accompanying financial statements include the Cash Reserves Fund, Bond Fund,
Balanced Fund, High Income Fund, Growth and Income Fund, Capital Appreciation
Fund and International Stock Fund, each commencing operations on December 29,
1997.
The only transactions of the Funds prior to commencement of operations were the
sale of 49,000 Class A shares and 1,000 Class B shares of Cash Reserves Fund at
$1 per share and the sale of 4,900 Class A shares and 100 Class B shares of Bond
Fund, Balanced Fund, High Income Fund, Growth and Income Fund, Capital
Appreciation Fund and International Stock Fund at $10 per share on November 10,
1997.
2. Significant Accounting Policies
The preparation of 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by each Fund in the
preparation of its financial statements
Portfolio Valuation: Investments in securities which are traded on a
recognized stock exchange or for which price quotations are available will
normally be valued on the basis of market quotations furnished by a pricing
service which has been approved by The Board of Trustees. Short-term
obligations that mature in sixty days or less are valued at amortized cost,
which constitutes fair value. All other securities and other assets are
appraised at their fair values as determined in good faith by and under the
general supervision of The Board of Trustees.
Security Transactions and Investment Income: Security transactions are
accounted for on a trade date basis. Net realized gains or losses on sales
are determined by the identified cost method. Interest income is recorded
on the accrual basis. Dividend income is recorded on ex-dividend date.
Federal Income Taxes: It is each Fund's intention to qualify as a regulated
investment company for federal income tax purposes by complying with the
appropriate provisions of the Internal Revenue Code of 1986, as amended.
Accordingly, no provisions for federal income taxes are required in the
accompanying financial statements.
Classes: Class-specific expenses are borne by that class. Income, non-class
specific expenses, and realized and unrealized gains/losses are allocated
to the respective classes on the basis of relative net assets.
Expenses: Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses of the Fund are
prorated to the Funds on the basis of relative net assets.
Organization and Offering Costs: Each Fund bears all costs in connection
with its organization, including registration and notification fees and
expenses with respect to the sale of their shares under federal and state
securities regulation. These organization and offering costs are being
amortized on a straight-line basis over five years and one year,
respectively. In the event any of the initial shares of a Fund are redeemed
by any holder thereof during the amortization period, the proceeds of such
redemptions will be reduced by an amount equal to the pro-rata portion of
unamortized deferred organizational expenses in the same proportion as the
number of shares being redeemed bears to the number of initial shares of
such Fund outstanding at the time of such redemption. To the extent that
proceeds of the redemptions are less than such pro-rata portion of any
unamortized organizational expenses, CIMCO has agreed to reimburse the Fund
promptly.
Repurchase Agreements: Each Fund may engage in repurchase agreements. In a
repurchase agreement, a security is purchased for a relatively short period
(usually not more than 7 days) subject to the obligation to sell it back to
the issuer at a fixed time and price plus accrued interest. The Funds will
enter into repurchase agreements only with member banks of the Federal
Reserve System and with "primary dealers" in U.S. Government securities.
Foreign Currency Transactions: The books and records are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars on the
following basis:
(1) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(2) purchases and sales of investment securities, income, and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The High Income and International Stock Funds report certain foreign
currency-related transactions as components of realized gains or losses for
financial reporting purposes, whereas such components are treated as
ordinary income for federal income tax purposes.
The Funds do not isolate the portion of gains and losses on investments in
securities that is due to changes in the foreign exchange rates from that
which is due to change in market prices of securities. Such amounts are
catergorized as gain or loss on investments for financial reporting
purposes.
Forward Foreign Currency Exchange Contracts: The High Income and
International Stock Funds may each purchase or sell forward foreign
currency contracts for defensive or hedging purposes when the Fund's
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value. The Funds realize a gain or a loss at the time the
forward contracts are closed out or offset by a matching contract. As of
October 31, 1998, International Stock Fund had open forward foreign
currency contracts.
Futures Contracts: The Funds (other than the Cash Reserves Fund) may
purchase and sell futures contracts and purchase and write options on
futures contracts. Cash or securities are deposited with brokers in order
to establish and maintain a position. Subsequent payments made or received
by the Fund based on the daily change in the market value of the position
are recorded as unrealized gains or losses until the contract is closed
out, at which time the gains or losses are realized.
Reclassification Adjustments: Paid in Capital, undistributed net investment
income, and accumulated net realized gain (loss) have been adjusted in the
Statement of Assets and Liabilities for permanent book-tax differences for
all Funds for the period from the commencement of investment operations to
October 31, 1998 as follows:
Decrease Increase Accumulated
Paid-in Undistributed Net Realized
Fund capital Investment Income Gain
Cash Reserves $ (23,338) $ 23,338 --
Bond (23,446) 23,446 --
Balanced (23,607) 23,607 --
High Income (24,191) 23,986 205
Growth & Income (25,010) 25,010 --
Capital Appreciation (24,015) 24,015 --
International Stock (23,378) 123,407 (100,029)
For federal income tax purposes, the High Income Fund, Growth and Income
Fund, and Capital Appreciation Fund have capital loss carryovers of
$66,186, $1,433, and $219, respectively, as of October 31, 1998, which if
not offset by subsequent capital gains, will expire in 2006.
3. Advisory, Administration and Distribution Agreements
The Trust has entered into an Investment Advisory Agreement with CIMCO Inc. (the
"Investment Adviser"). For its investment advisory services to the Portfolios,
CIMCO is entitled to receive a fee, which is calculated daily and paid monthly,
at an annual rate based upon the following percentages of average daily net
assets: 0.40% for the Cash Reserves Fund; 0.50% for the Bond Fund; 0.65% for the
Balanced Fund; 0.55% for the High Income Fund and Growth and Income Fund; 0.75%
for the Capital Appreciation Fund and 1.05% for the International Stock Fund.
The Investment Adviser has entered into Subadviser Agreements for the management
of the investments of the High Income Fund and the International Stock Fund. The
Investment Adviser is solely responsible for the payment of all fees to the
Subadvisers. The Subadvisers for these funds are Massachusetts Financial
Services Company for the High Income Fund and IAI International Limited and
Lazard Asset Management for the International Stock Fund.
The Investment Adviser voluntarily agrees to waive a portion of its fees and to
reimburse the Funds for certain expenses so that total expenses will not exceed
certain expense limitations. The Investment Adviser at its discretion, may
revise or discontinue the voluntary fee waivers and expense reimbursements at
any time. The Investment Adviser has agreed to waive fees and/or reimburse
expenses with respect to the Funds in order that total expenses will not exceed
the following amounts:
Fund Class A Class B
Cash Reserves Fund 0.55% 1.30%
Bond Fund* 0.90% 1.65%
Balanced Fund 1.10% 1.85%
High Income Fund 1.00% 1.75%
Growth and Income Fund 1.00% 1.75%
Capital Appreciation Fund 1.20% 1.95%
International Stock Fund 1.60% 2.35%
* For the period June 1, 1998 through October 31, 1998, the Investment
Adviser has also agreed to waive its 0.50% management fee on the Bond Fund,
which resulted in a net expense for that period of 0.40% and 1.15% for Class
A and Class B, respectively.
For the period from commencement of Fund operations on December 29, 1997 through
October 31, 1998, the Investment Adviser reimbursed expenses of $146,288 for the
Cash Reserves Fund, $145,479 for the Bond Fund, $153,963 for the Balanced Fund,
$158,311 for the High Income Fund, $156,486 for the Growth and Income Fund,
$151,327 for the Capital Appreciation Fund, and $223,725 for the International
Stock Fund. In addition, for the period from June 1, 1998 through October 31,
1998 the Investment Adviser waived its management fee of $11,294 for the Bond
Fund.
Any reimbursements made by the Investment Adviser to a Fund are subject to
repayment by the Fund within the subsequent eighteen months, to the extent that
the Fund is able to make the repayment within its expense cap.
The Trust and First Data Investor Services Group, Inc. ("First Data"), which is
a wholly-owned subsidiary of First Data Corporation, are parties to an agreement
under which First Data provides administration services for a fee calculated
daily and paid monthly, at the annual rate of 0.15% of the first $500 million of
the combined average daily net assets and 0.12% of the next $500 million of the
combined average daily net assets and 0.09% of the combined average daily net
assets over $1 billion. Currently, at October 31, 1998, the Funds are at the
minimum of $3,500 per Fund, per Class, per month until aggregate net assets
reach $392 million.
In addition, First Data also provides certain fund accounting, custody
administration and transfer agency services pursuant to certain fee
arrangements. Pursuant to such fee arrangements, First Data compensates the
Trust's custodian bank, State Street, for its services in addition to the fees
First Data receives.
CUNA Brokerage Services, Inc. (CUNA Brokerage) serves as distributor of the
Funds. The Trust adopted Distribution Plans (the "Plans") with respect to the
Trust's Class A and Class B shares pursuant to Rule 12b-1 under the 1940 Act.
Under the Plans, the Trust will pay service fees for Class A and Class B shares
at an aggregate annual rate of 0.25% of each Fund's daily net assets
attributable to the respective class of shares for all Funds except the Cash
Reserves Fund. The Trust will also pay distribution fees for Class B shares at
an aggregate annual rate of 0.75% of each Fund's daily net assets attributable
to Class B. The distribution fees are used to reimburse CUNA Brokerage for its
distribution expenses with respect to Class B shares only, including but not
limited to: (1) initial and ongoing sales compensation to selling brokers and
others engaged in the sale of Fund shares, (2) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares,
and (3) interest expenses on unreimbursed distribution expenses. The service
fees will be used to compensate selling brokers and others for providing
personal and account maintenance services to shareholders. In addition to
distribution fees, CUNA Brokerage received sales charges paid by the purchasers
or redeemers of the Funds' shares. For the period ended October 31, 1998, sales
charges received by CUNA Brokerage were as follows:
Cash Reserves $ 71,116
Bond 141,066
Balanced 477,159
High Income 205,263
Growth & Income 895,319
Capital Appreciation 467,163
International Stock 90,775
Certain officers and trustees of the Funds are also officers of the Trust. The
Funds do not compensate its officers or affiliated trustees. Effective September
4, 1997, the Trust pays each unaffiliated trustee $1,000 per Board of Trustees
meeting attended.
4. Dividends from Net Investment Income and Distributions of Capital Gains
With respect to the Cash Reserves Fund, Bond Fund, and High Income Fund,
dividends from net investment income are declared daily and net realized gains
from investment transactions, if any, are distributed to shareholders annually.
The Balanced Fund declares dividends from net investment income monthly and net
realized gains from investment transactions, if any, are distributed to
shareholders annually. The Growth and Income Fund declares dividends from net
investment income quarterly and net realized gains from investment transactions,
if any, are distributed to shareholders annually. The Capital Appreciation Fund
and the International Stock Fund declare dividends from net investment income
annually and net realized gains from investment transactions, if any, are
distributed to shareholders annually.
5. Securities Transactions
For the period from commencement of fund operations on December 29, 1997 through
October 31, 1998, aggregate cost of purchases and proceeds from sales of
securities, other than short-term investments, were as follows:
<TABLE>
<CAPTION>
U.S. Government Other Investment
Securities Securities
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Fund Purchases Sales Purchases Sales
Bond $ 3,534,211 $ 1,817,023 $ 6,407,956 $ 1,548,557
Balanced 6,709,484 3,542,248 18,701,027 750,544
High Income -- -- 13,320,723 3,362,220
Growth & Income -- -- 24,654,126 520,707
Capital Appreciation -- -- 20,141,463 812,924
International Stock -- -- 37,601,699 11,426,887
</TABLE>
At October 31, 1998, the aggregate gross unrealized appreciation (depreciation)
and net unrealized appreciation (depreciation) for all securities as computed on
a federal income tax basis for each fund were as follows:
Fund Appreciation (Depreciation) Net
Bond $ 91,278 $ (29,032) $ 62,246
Balanced 1,009,195 (601,639) 407,556
High Income 11,880 (1,101,737) (1,089,857)
Growth & Income 1,972,371 (1,932,575) 39,796
Capital Appreciation 1,672,448 (1,292,219) 380,229
International Stock 2,398,432 (3,380,847) (982,415)
6. Foreign Securities
Each Fund may invest in foreign securities, although only the High Income Fund
and International Stock Fund anticipate having significant investments in such
securities. The International Stock Fund may invest all of its assets in foreign
securities and the High Income Fund may invest up to half of its assets in
foreign securities. No Fund will concentrate its investments in any particular
foreign country.
Foreign securities means securities that are: (1) issued by companies organized
outside the U.S. or whose principal operations are outside the U.S. ("foreign
issuers"), (2) issued by foreign governments or their agencies or
instrumentalities (also "foreign issuers"), (3) principally traded outside the
U.S., or (4) quoted or denominated in a foreign currency ("non-dollar
securities").
Foreign securities include ADR's, EDR's, GDR's, and foreign money market
securities.
7. Financial Instruments
Investing in certain financial instruments including forward foreign currency
contracts and futures contracts involves risk other than that reflected in the
Statement of Assets and Liabilities. Risk associated with these instruments
include potential for an imperfect correlation between the movements in the
prices of instruments and the prices of the underlying securities and interest
rates, an illiquid secondary market for the instruments or inability of
counterparties to perform under the terms of the contracts, and changes in the
value of foreign currency relative to the U.S. dollar. The High Income Fund and
International Stock Fund enter into these contracts primarily to protect these
Funds from adverse currency movement.
8. Concentration of Risk
The High Income Fund invests in securities offering high current income which
generally will be in the lower rating categories of recognized ratings agencies
(so-called "junk bonds"). These securities generally involve more credit risk
than securities in the higher rating categories. In addition, the trading market
for high yield securities may be relatively less liquid than the market for
higher-rated securities. The Fund generally invests at least 80% of its assets
in high yield securities.
9. Capital shares and affiliated Ownership
Each fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value. Each Fund currently offers two classes of shares,
Class A and Class B. At October 31, 1998, investments in the Funds by affiliates
were as follows:
<TABLE>
<CAPTION>
CUNA Mutual CUNA Mutual CUMIS
Fund Class Life Insurance Company Insurance Society Insurance Society, Inc.
<S> <C> <C> <C> <C>
Cash Reserves A $ 1,563,090 $ 1,562,048 $ --
B -- 1,035 --
Bond A 1,569,535 1,568,489 --
B -- 1,039 --
Balanced A 3,004,118 3,061,604 5,006,869
B -- 1,014 --
High Income A 5,313,073 -- --
B 1,056 -- --
Growth and Income A -- 1,510,512 1,511,519
B -- 1,002 --
Capital Appreciation A -- 1,500,499 6,501,500
B -- 1,001 --
International Stock A 3,003,000 5,003,999 18,012,000
B -- 1,001 --
Total Investments $14,453,872 $14,213,243 $31,031,888
</TABLE>
<PAGE>
Report of Independent Accountants
The Board of Trustees and Shareholders
MEMBERS Mutual Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Cash Reserves Fund, Bond Fund, Balanced Fund,
High Income Fund, Growth and Income Fund, Capital Appreciation Fund and
International Stock Fund (funds within MEMBERS Mutual Funds) as of October 31,
1998, and the related statements of operations and changes in net assets and the
financial highlights for the period from December 29, 1997 (commencement of
operations) to October 31, 1998. These financial statements and the financial
highlights are the responsibility of the funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold, but not received or delivered,
we request confirmations from brokers and, where replies are not received, we
carry out other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Cash Reserves Fund, Bond Fund, Balanced Fund, High Income Fund, Growth and
Income Fund, Capital Appreciation Fund and International Stock Fund as of
October 31, 1998, and the results of their operations, the changes in their net
assets and the financial highlights for the period stated in the first paragraph
above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 11, 1998
Tax Information (Unaudited)
Of the Dividends paid by the Balanced Fund, Growth and Income Fund, and the
Capital Appreciation Fund 23.35%, 100%, and 100%, respectively, qualify for the
corporate dividends received deduction.
The International Stock Fund has made an election under Section 853 of the
Internal Revenue Code to pass through the benefit of foreign tax credits to its
shareholders. The amount per share of income from each country is $0.2077 and
foreign taxes paid to each country is $0.0181. This information is pertinent to
taxpayers who file a U.S. federal income tax return on the basis of fiscal year
ended October 31, 1998.
