<PAGE>
MEMORIAL FUNDS
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
June 30, 1998 (Unaudited) SEMI-ANNUAL REPORT
- -------------------------------------------------------------------------
Dear Memorial Fund Shareholder:
Since their inception in March 1998, more than $250 million has been invested by
shareholders across the four Memorial Funds. It is a remarkably successful
performance that represents an investment commitment far exceeding our initial
expectations for the Funds' first quarter. I am pleased and gratified by your
confidence in the Funds and I want to convey my appreciation to you and to the
International Cemetery and Funeral Association ("ICFA") and the other industry
members who have supported the Memorial Funds throughout their development
process.
At the ICFA annual convention in Atlanta last March, we gave the first of a
continuing series of presentations designed to educate potential investors on
how the Memorial Funds can meet their unique investment needs. The continuing
success of these presentations, together with our meetings with state
associations and individual industry members, has proven the value of this focus
on education. Building on this success, we plan an even more comprehensive
marketing campaign during the fourth quarter of 1998, continuing our
presentations at industry conferences and developing a comprehensive media
advertising campaign. These efforts will give us greater exposure to the members
of the funeral and cemetery industries and will ultimately contribute to the
growth of the Memorial Funds.
Meeting and working with the people who make up the funeral and cemetery
industries has been especially rewarding and illuminating. It has confirmed our
belief that on every level, from small independent companies to large
consolidated operations, the industries embrace dynamic, talented professionals
who strive diligently to serve the families and loved ones who rely on them in
the most trying of circumstances.
But the experiences gathered during this development stage of the Funds has
taught another lesson: The funeral and cemetery industries today are still
largely under-served by the investment community, even as other retail and
institutional clients are benefiting from products and services geared to their
special needs. The management of the Memorial Funds is determined to address
this issue. We are in a position to understand the unique regulatory and
investment requirements of the industry. We are committed to providing a mutual
fund product designed to meet these unique requirements. We will continue to
listen to our shareholders as we go forward with plans to expand our current
offering. Toward that end, I am pleased to announce that by year end we plan to
offer two new portfolios especially designed to meet the asset allocation needs
of our industries.
On behalf of the Board of Trustees of the Memorial Funds, I thank you for your
support and promise that we will continue to merit it. We believe we have had an
uncommonly successful beginning; we will remain committed to the same goal of
meeting the investment needs of the funeral and cemetery industries for many
years to come.
Sincerely,
/s/ Christopher W. Hamm
- ----------------------------
Christopher W. Hamm
President-Memorial Funds
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA 1
Portfolio Performance....................................... 1
Sub-Adviser Interviews...................................... 3
Government Bond Fund...................................... 3
Corporate Bond Fund....................................... 5
Growth Equity Fund........................................ 7
Value Equity Fund......................................... 9
Performance Data............................................ 11
FINANCIAL STATEMENTS OF THE MEMORIAL FUNDS
Schedules of Investments.................................... 13
Government Bond Fund...................................... 13
Corporate Bond Fund....................................... 14
Growth Equity Fund........................................ 17
Value Equity Fund......................................... 19
Notes to Schedules of Investments........................... 20
Statements of Assets and Liabilities........................ 21
Statements of Operations.................................... 22
Statements of Changes in Net Assets......................... 23
Financial Highlights........................................ 24
Notes to Financial Statements............................... 26
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PERFORMANCE
GENERAL UNITED STATES MARKET COMMENTARY
The U.S. bond market continued its rally during the second quarter, posting
a 2.6% gain as measured by the Lehman Brothers Government Bond Index, and 2.5%
as measured by the Lehman Brothers Corporate Bond Index. The benchmark thirty
year Treasury Bond ended the quarter yielding 5.62%, down over 30 basis points
from 5.94% at the end of March. The two year Treasury yield of 5.54% left the
two to thirty year spread a very slim 8 basis points (the same spread was 36
basis points in March).
The U.S. economy was characterized by slowing growth and low inflation during
the second quarter. This provides the Federal Reserve Bank with little incentive
to increase rates, and thus the discount rate remained at 5.00%.
The domestic equity market cooled somewhat during the second quarter, providing
mixed returns that varied across the spectrum of capitalization and style. Large
cap stocks gained 3.3% as measured by the S&P 500 Stock Index, and 2.5% as
measured by the Russell 1000 Index. As mentioned, there was a considerable
difference in returns for differing investment styles. The Russell 1000 Growth
Index gained 4.5% for the quarter, while the Russell 1000 Value Index gained
only 0.4%. Capitalization was also a factor in that the largest companies
generally provided the best performance. Overall, the uncertainty in future
corporate earnings resulting from the economic problems in the Far East affected
the market.
During the quarter, the markets vacillated, as the S&P 500 Stock Index gained
1.04% in April, lost 1.74% in May, and recovered 4.06% in June. The other
capitalization ranges were essentially flat in April, recorded significant
declines in May, and recovered in June (with the exception of the Russell 2000
Small Cap Index, which was flat).
As one would expect, industry groups associated with growth investing provided
the best returns. The Technology portion of the Russell 1000 Index returned 8.4%
for the quarter on a cap-weighted basis. This was followed by Health Care at
7.2%. Transportation and Communications Services were at the bottom losing 6.0%
and 4.8%, respectively. These also happened to be the only sectors where the
equal-weighted measure exceeded the cap weighted.
FUND PERFORMANCE-INCEPTION TO DATE
GOVERNMENT BOND FUND
The Northern Trust Company ("NTC") recorded a good first quarter for the
Fund, with a quarterly return of 2.59%. This was just slightly behind the 2.63%
for the Lehman Brothers Government Bond Index. The return resulted from the
manager's positioning of the Fund for declining interest rates that occurred
during the quarter. The slight underperformance resulted from the significant
cash flow into the Fund in late April. For the next six months, NTC anticipates
interest rates will remain relatively stable and that bonds should continue to
perform well in this environment.
1 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
The first quarter of management by Conseco Capital Management ("CCM") was
successful, as the Fund returned 2.82% versus 2.48% for the Lehman Brothers
Corporate Bond Index. This performance resulted from an overweight in U.S.
Treasury securities which benefited from a decline in interest rates during the
quarter, and an underweight in corporate bonds which helped to avoid the losses
associated with a widening of spreads between the credit qualities of corporate
bonds during the quarter. The widening of spreads resulted from the concerns in
the U.S. economy about the unknown effect of the economic crisis in Asia. During
the next quarter, CCM is expecting to increase the corporate bond exposure of
the Fund to take advantage of the widened spreads between credit qualities as
certain corporate names currently represent good values. CCM also expects to
increase the Fund's exposure allowed in BBB rated bonds up to the allowable
limit within the next six months.
GROWTH EQUITY FUND
Davis Hamilton Jackson & Associates, Inc. delivered good results for the
quarter ending June 30, 1998, recording a return of 5.81% for the quarter versus
3.3% for the S&P 500 Stock Index and 4.5% for the Russell 1000 Growth Index. The
success of the quarter resulted from the Fund's holdings in growth companies
which recorded steady or increasing quarterly earnings in the retail,
technology, financial services and health care industries. The largest
overweights in the portfolio versus the Russell 1000 Growth Index include
cyclicals, financials and utilities. For the next six months, the manager does
not anticipate any major shifts in the portfolio construction as they feel it is
properly positioned for market uncertainties caused by the weakness in the Asian
economies.
VALUE EQUITY FUND
Beutel, Goodman Capital Management ("BGCM") had a difficult quarter, as the
portfolio recorded a -4.75% performance for the quarter, versus the S&P 500
Stock Index gain of 3.3% and the Russell 1000 Value Index gain of 0.4%. This
underperformance resulted from several factors. First, the portfolio holds lower
price/ earning ratio ("P/E") stocks relative to the overall market. Secondly,
BGCM's value approach currently favors mid-cap stocks that were "out-of-favor"
during the quarter. Finally, BGCM has significant holdings in the energy and
consumer cyclical sectors. The oil sector, in particular, has been directly
impacted by the fall in oil prices, caused by the Asian economic concerns as
well as continued over-production by OPEC members. Beutel Goodman is optimistic
and believes that historically high valuations in high P/E stocks will decline,
and the marketplace will begin favoring the lower P/E stocks such as those owned
by the Fund.
2 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Forum Investment Advisors, LLC, the investment adviser to the Memorial Funds,
posed various questions to the sub-advisers of the four portfolios subsequent to
the end of the reporting period. Those questions, and the responses received
from the investment managers, provide interesting insight into the investment
style, portfolio positioning and expectations of the managers for the remainder
of 1998.
AN INTERVIEW WITH MR. MONTY MEMLER OF THE NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND")
Q: WHAT ATTRIBUTES OF YOUR FUND HAD THE MOST SIGNIFICANT IMPACT ON PERFORMANCE?
WHY?
A: In assessing performance since inception, it is important to keep in mind
that significant monies did not flow into the Fund until the latter part of
April. In addition, the magnitude of the subsequent cash additions creates some
"noise" in the relative performance figures during the initial period. Aside
from the cashflow influences, the most significant impact on the Fund's relative
return profile was generated from our relative duration decision. Since our
initial purchases, the Fund has been positioned to reflect our constructive
outlook for interest rates. As a result, the Fund has experienced greater price
appreciation in response to the decrease in Treasury rates.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: The performance of the Fund was much as we anticipated during the period.
The relative performance numbers for June, which were absent the effects of any
significant cashflow activity, reflect our expectations for the relative
performance profile. In other words, we believe that the Fund is presently
constructed to perform better in a steady-to-lower interest rate environment.
Q: WHAT WERE THE LARGEST POSITIONS YOU ADDED TO AND SUBTRACTED FROM THE FUND?
DO YOU EXPECT ANY MAJOR SHIFTS DURING THE REMAINDER OF 1998?
A: The largest positions added to the Fund are represented by several Treasury
issues spread across the maturity spectrum. The purpose of these initial
purchases was to gain interest rate exposure in a very cost efficient manner. As
we proceed forward in the management of the Fund, we anticipate shifting the
composition of the Fund towards non-Treasury sectors in order to generate a
greater level of yield. Examples of such security types may include Agency
issues, Mortgage-backed issues, and Corporate obligations. Our participation in
these areas will be dictated by relative value opportunities as they arise.
These sector and issue decisions are where we anticipate generating the majority
of relative performance over the longer term.
Q: WHAT IS THE FUND'S CURRENT DURATION? HOW DOES THIS COMPARE TO THE LEHMAN
BROTHERS GOVERNMENT BOND INDEX?
A: Duration measures the sensitivity of a debt security's price to changes in
interest rates. One of our objectives is to maintain a duration between 75% and
125% of the Lehman Brothers Government Bond Index. In fact, we have maintained a
duration greater than that of the Index. As of the end of the period, the
duration of the Fund was 5.59 years versus 5.18 years for the Index.
3 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. MONTY MEMLER OF THE NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND (CONTINUED)
Q: WHAT IS YOUR OUTLOOK FOR INTEREST RATES IN THE NEAR TERM? HOW WILL YOUR
OUTLOOK AFFECT THE COMPOSITION OF YOUR FUND?
A: We feel that bonds will remain an attractive investment option for three
reasons. First, generous U.S. real yields compare favorably with those of other
industrialized countries. Second, fallout from Asia is making the cyclical U.S.
economic backdrop more benign. Third, reduction in supply will support Treasury
prices.
Bond investors experienced a volatile but rewarding quarter as renewed turmoil
in Asia more than offset concerns about continued strong growth in the domestic
economy. Economic and policy developments emanating from Asia caused bond
sentiment to shift from expectations that the Federal Reserve was contemplating
raising rates in order to cool the economy to a belief that a possible economic
slowdown was in the offing. Bonds rallied sharply and the yield curve flattened
amidst this shift, initially in a classic "flight to quality" and subsequently
on growing expectations that Asia's woes would curb U.S. growth and keep
inflation subdued. The change in sentiment and ensuing rally drew considerable
support from Chairman Greenspan's early June testimony to Congress where his
comments began with a declaration that "an assessment [of U.S. economic
conditions] cannot be made in isolation but depends critically on what is
happening in the rest of the world."
The combination of slower cyclical growth and subdued inflation should allow the
Federal Reserve to keep monetary policy on hold for the rest of the year. We
believe bonds will perform well in this environment, especially when viewed
against a secular backdrop which remains highly favorable. Our constructive view
of the bond market has not been built on expectations of continuous global
economic and financial strife. However, the scope and severity of near-term
uncertainties continues to enhance the constructive fundamental case we have
long been making for bonds.
Q: WHAT IS YOUR CURRENT ALLOCATION AMONG SECTORS OF YOUR STRATEGY? HOW DOES
THIS COMPARE TO YOUR BENCHMARK?
A: Our current allocation among sectors includes an 8.4% exposure to Agency
issues and a 7.3% position in assorted Corporate obligations. Agency issues
represent just over 15% of the Lehman Brothers Government Bond Index.
Accordingly, we plan to increase our exposure to these securities in the near
future. While the Index does not contain any Corporate issues, we anticipate
increasing the Fund's exposure towards the 10% maximum limitation. Both security
types have lagged the performance of the Treasury sector as the risk premiums
that investors have demanded for non-Treasury issues have increased in recent
months. We plan to take advantage of these wider spreads in an attempt to
increase the yield profile of the Fund.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH JUNE 30, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY
TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND
HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
4 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. GREG HAHN OF CONSECO CAPITAL MANAGEMENT, INC.
SUB-ADVISER TO CORPORATE BOND FUND ("FUND")
Q: WHAT ATTRIBUTES OF THE FUND HAD THE MOST SIGNIFICANT IMPACT ON PERFORMANCE?
WHY?
A: The most significant reason for the outperformance of the Fund during this
period was its large U.S. Treasury position. The Fund held a larger Treasury
position during the initial "start-up" or funding phase. We believed it was more
important to invest the large cashflows in U.S. Treasury securities so the Fund
was fully invested rather than leave the funds in cash and wait to find
corporate bond investments. This strategy allowed our Fund shareholders to
benefit from the decline in interest rates which the bond market experienced
during the second quarter. Over this period, U.S. Treasury bonds outperformed
corporate bonds.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: Our biggest challenge during the period was quickly and efficiently
investing the cashflows the Fund received in a manner that would reflect the
general nature of the Fund. This meant investing the assets substantially in
Corporate bonds, Asset-backed securities, Mortgage-backed securities and Taxable
municipal bonds. The remainder of the Fund was invested in U.S. Treasury
securities so that the duration of the Fund was relatively neutral to the
duration of the Lehman Brothers Corporate Bond Index. Thus, the performance of
the Fund met our expectations as of June 30th.
Q: WHAT IS THE FUND'S CURRENT DURATION? HOW DOES THIS COMPARE TO THE LEHMAN
BROTHERS CORPORATE BOND INDEX?
A: One of our objectives is to maintain a duration between 75% and 125% of the
Lehman Brothers Corporate Bond Index. In fact, we have maintained a duration
slightly longer than that of the Index. As of the end of June, the duration of
the Fund was 6.11 years versus 6.04 years for the Index.
Q: WHAT IS YOUR OUTLOOK FOR INTEREST RATES IN THE NEAR TERM? HOW WILL YOUR
OUTLOOK AFFECT THE COMPOSITION OF THE FUND?
A: The environment in the second quarter of 1998 proved positive for both the
economy and the financial markets. During the quarter we experienced above-trend
growth in the economy, slowing inflation, and lower levels of interest rates.
While the U.S. economy posted strong growth numbers through the first half of
1998, we believe there is considerable evidence, particularly from recent jobs
growth, industrial production, and trade data, for a significant slowdown during
the second half of the year. With the unemployment rate bouncing off a 28-year
low, there is little slack in our labor markets. Historically, this would result
in a pickup in the rate of inflation. The improvement in productivity throughout
the economy, however, has allowed for a higher rate of economic growth without
higher inflation.
Looking forward, we expect to experience stability in interest rates as a
shrinking industrial sector, combined with trade imbalances, helps to slow U.S.
economic growth. We believe the Federal Reserve will remain on the sidelines and
not alter monetary policy until the financial crisis in Southeast Asia is
perceived to be under control. Until the Fed is clear on the direction of
monetary policy, the shape of the yield curve should remain flat and investors
may find better opportunities investing in securities with shorter maturities.
While we have
5 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. GREG HAHN OF CONSECO CAPITAL MANAGEMENT, INC.
SUB-ADVISER TO CORPORATE BOND FUND (CONTINUED)
experienced some easing in our labor markets recently, the low level of
unemployment during the first half of 1998 may cause some pressure on wages.
Still, we believe this is an excellent environment for bond investors partly
because we believe interest rates will remain at current low levels. During a
period such as this, our strategy will be to maintain a duration neutral
relative to the Index.
Q: WHAT IS YOUR OUTLOOK WITH REGARD TO CREDIT SPREADS BETWEEN GOVERNMENT AND
CORPORATE BONDS? HOW DOES THIS AFFECT THE FUND?
A: Recently, we have experienced a general widening in corporate spreads as the
general supply of corporate bonds has increased and investors have preferred
U.S. Treasury bonds as a safe haven given the problems in the Southeast Asian
financial markets. The spread widening has been most pronounced in lower rated
BBB securities and in the Yankee sector. Our investment philosophy is deeply
rooted in the belief that through investing in securities that we consider to be
undervalued, we will provide better returns without assuming significant levels
of risk. We will take advantage of this spread widening to invest in corporate
names we feel have become undervalued.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH JUNE 30, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY
TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND
HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
6 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. JACK HAMILTON OF DAVIS HAMILTON JACKSON & ASSOCIATES, INC.
SUB-ADVISER TO GROWTH EQUITY FUND ("FUND")
Q: WHAT ATTRIBUTES HAD THE MOST SIGNIFICANT IMPACT ON PERFORMANCE? WHY?
A: Large exposure to consistent growth companies within retail, technology,
financial services and health care industries and modest weightings in basic
materials, energy, capital goods, and communications services contributed
positively to our performance. Plus, earnings estimates of the companies held in
the Fund have remained steady or increased as a group against a large number of
stocks in the market that have seen downward revisions due to export and
currency exposure and the collapse of the Asian economies. The fact that the
market favored large companies over smaller and midcap stocks helped too.
Q: HOW DID PERFORMANCE COMPARE TO YOUR EXPECTATIONS?
A: It exceeded them. Our stock selection emphasizes companies with above
average growth rates where growth is stable or accelerating. The market
continues to pay a large P/E premium for companies that can deliver strong
earnings growth that is less impacted by the level of economic activity around
the globe. We keep roughly one-third of the Fund in mid cap growth issues and
this tactical allocation did not impair our returns. The S&P Midcap Index lost
2.2% in the second quarter, the Russell Midcap Index fell 1.5% and the Russell
2000 Index of smaller stocks declined 4.7%. Despite these negative results from
these indices, the Fund still outperformed its benchmarks.
Q: WHAT WERE THE LARGEST POSITIONS ADDED TO AND SUBTRACTED FROM THE FUND? DO WE
EXPECT MAJOR SHIFTS IN THE BALANCE OF 1998?
A: The largest changes will occur based on our discipline of monitoring
earnings performance in each security held and secondarily by setting price
targets for positions upon purchase. There were only two complete liquidations
in the quarter; Cendant, due to the discovery of fraud and a resulting downward
earnings and growth rate revision, and Thermo Electron, whose business is being
impacted by more price competition in Asia. Several positions were reduced as
price targets were achieved and our analysis contemplated no change in growth
rates or earnings estimates. We do not project a large change in strategy for
the Fund unless our confidence in earnings growth among sectors or the specific
holdings changes.
Q: HOW DO THE INDUSTRY ALLOCATIONS COMPARE TO THE RUSSELL 1000 GROWTH INDEX AND
THE S&P 500 INDEX?
A: The Fund is much more diversified than the Russell 1000 Growth Index. The
Russell is very concentrated in three industry sectors: technology, consumer
staples, and health care. Two-thirds of the Russell is in these groups, while
the S&P 500 Stock Index would hold less than 45% in the same categories.
Consequently, the Russell dramatically underweights basic materials, energy,
communication services, transportation, and utilities with less than 10% in
those five industries combined. The S&P has approximately 25% exposure to those
five industries. By comparison, the Fund is diversified by sector with attention
to the weightings in both indices. The midcap holdings in the Fund bring the
average capitalization well below both benchmarks. With an earnings growth
focus, our largest industry concentrations are in technology, consumer staples,
and
7 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. JACK HAMILTON OF DAVIS HAMILTON JACKSON & ASSOCIATES, INC.
SUB-ADVISER TO GROWTH EQUITY FUND (CONTINUED)
consumer cyclicals (primarily retail). The Fund is below the Russell weighting
in health care, basic materials and consumer staples; neutral in technology,
communications services, energy, transportation and capital goods; and has a
larger tilt in consumer cyclicals, financials, and utilities.
Q: HOW HAS THE "ASIAN CRISIS" AFFECTED PERFORMANCE? WILL IT IMPACT THE
REMAINDER OF 1998?
A: We anticipated that large exporters and businesses that trade in global
commodities would have a more difficult profit outlook until Asia stabilizes. We
have de-emphasized these sectors in the Fund and envision keeping an emphasis on
companies with more domestic revenues and products and services not in
competition with Asian exports on world markets. We think the Asian turmoil will
continue to pressure commodity producers in industries such as chemicals, paper,
energy, semiconductors, metals, and capital goods. Service industries should
experience a smaller impact. Given our anticipation, we do not believe that the
Fund was impacted negatively by the Asian weakness.
Q: WHAT IS OUR OUTLOOK FOR GROWTH STOCK INVESTING IN THE SECOND HALF OF 1998?
HOW DOES THIS COMPARE TO THE S&P 500 INDEX?
A: We believe growth stocks will continue to outperform a value style for the
balance of the year for several reasons. First, the rate of earnings growth is
decelerating in the U.S., causing investors to pay a larger premium for stable
growth. Inflation is also absent, particularly at the producer level, making it
difficult for cyclical companies and commodity producers to raise prices to
protect profit margins. Third, the world economy is slowing and is racked with
overcapacity in many industries. Until investors can more clearly forecast a
renewal of economic growth, the confidence in 1999 earnings will be low and
falling. This traditionally benefits companies with organic growth and strong
consumer brands or franchises. With these factors in mind it is our judgment
that the S&P 500 Stock Index will trail the returns generated by the Russell
1000 Growth Index due to a larger exposure to the broad economy in the second
half of 1998.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH JUNE 30, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY
TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND
HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
8 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. PHILIP FERGUSON OF BEUTEL, GOODMAN CAPITAL MANAGEMENT
SUB-ADVISER TO VALUE EQUITY FUND ("FUND")
Q: WHAT ATTRIBUTES OF THE FUND HAD THE MOST SIGNIFICANT IMPACT ON PERFORMANCE?
WHY?
A: The market was "driven" this quarter by the stocks of the very largest
companies and by those with the highest P/E ratios. Our style tends to favor
mid-sized companies and those with low P/E ratios, so we were somewhat out of
synch with the current market momentum. Also, we have significant holdings in
the energy sector and in cyclical stocks in general. These sectors of the market
did not perform as well as the growth area of the market. Our technology
holdings were positive contributors, with especially nice gains from IBM, Intel,
and American Power Conversion.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: It is impossible to predict how the Fund will compare to the overall market
for a period as short as one quarter. Over a market cycle, however, we would
expect to outperform the overall market and our specific benchmark.
Q: WHAT WERE THE LARGEST POSITIONS YOU ADDED TO AND SUBTRACTED FROM THE FUND?
DO YOU EXPECT ANY MAJOR SHIFTS DURING THE REMAINDER OF 1998?
A: The Fund is well diversified. Our five largest holdings at the end of this
initial management period are Electronic Data Systems, IBM, King World
Productions, MBIA Corporation, and SLM Holdings. We do not anticipate making any
"wholesale" changes over the balance of the year, yet the character of the Fund
will certainly evolve as individual positions are initiated or eliminated from
our list of holdings.
Q: HOW DO YOUR CURRENT INDUSTRY ALLOCATIONS COMPARE TO THE RUSSELL 1000 VALUE
INDEX SECTOR WEIGHTS?
A: Our Fund is more evenly distributed than the Russell 1000 Value Index. Over
half of the Russell 1000 Value Index, for instance, is accounted for by the
Financial and Utilities sectors. Our investment process has led us to
underweight these sectors and to overweight such sectors as Technology, Capital
Goods, and Consumer Cyclicals.
Q: HOW HAS THE "ASIAN CRISIS" AFFECTED THE PERFORMANCE OF THE FUND? HOW DO YOU
SEE THIS CRISIS AFFECTING THE FUND OVER THE REMAINDER OF 1998?
A: It is difficult to generalize about this issue. The Asian situation has
created many cross-currents as it has worked its way through the world economy.
Our energy positions were negatively affected, as the reduction in Asian demand
for energy was a contributing factor to reduced oil prices. Several industrial
holdings were hurt by reduced demand for their products and services; examples
would include AMP, Brunswick, and Fluor Corporation. Several of our best gainers
during the quarter were stocks perceived to be insulated from Asian problems,
such as King World Productions, Cognizant, and Waste Management. As the crisis
evolves over the balance of the year, Fund holdings will be affected on a
stock-by-stock basis.
9 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. PHILIP FERGUSON OF BEUTEL, GOODMAN CAPITAL MANAGEMENT
SUB-ADVISER TO VALUE EQUITY FUND (CONTINUED)
Q: WHAT IS YOUR OUTLOOK FOR YOUR STYLE OF VALUE INVESTING OVER THE NEXT SIX
MONTHS? HOW DOES THIS COMPARE TO YOUR OUTLOOK FOR THE S&P 500 INDEX?
A: As we enter the last half of this calendar year, the high P/E growth stocks
continue to outperform value stocks. Valuation levels for the overall market,
and especially for the large capitalization growth stocks, are at historic
highs. The market moves in cycles, and history tells us that value stocks are
overdue for a period of outperformance. We hope that we will see this trend
reversal during the last half of this year. The Fund is comprised of solid
companies selling at unrealistically low valuation levels-when the reversal
comes, this Fund should see strong relative performance.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH JUNE 30, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY
TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND
HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
10 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (unaudited) (continued)
JUNE 30, 1998
- --------------------------------------------------------------------------------
These charts reflect a comparison in the change in value of $10,000 investment
in Government Bond Fund and Corporate Bond Fund, including reinvested dividends
and distributions, since inception of each Fund. The result is compared with a
broad-based securities market index. Each Fund's total return includes operating
expenses that reduces returns, while the total return of the Fund's respective
Index does not. Investment return and principal value of an investment in the
Funds will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A
GUARANTEE OF FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND VS. LEHMAN BROTHERS
GOVERNMENT BOND INDEX
<S> <C> <C>
GOVERNMENT BOND FUND
3/31/98 $10,003
4/30/98 $10,042
5/31/98 $10,137
6/30/98 $10,261
Total Return on 6/30/98
Institutional Shares
Since Inception on 3/30/98: 2.61%
Value on 6/30/98
Government Bond Fund: $10,261
Lehman Brothers Government Bond Index: $10,264
<CAPTION>
GOVERNMENT BOND FUND VS. LEHMAN BROTHERS
GOVERNMENT BOND INDEX
<S> <C>
LEHMAN BROTHERS GOVERNMENT BOND INDEX
3/31/98 $10,000
4/30/98 $10,045
5/31/98 $10,148
6/30/98 $10,264
Total Return on 6/30/98
Since Inception on 3/30/98:
Value on 6/30/98
Government Bond Fund:
Lehman Brothers Government Bond Index:
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CORPORATE BOND FUND VS. LEHMAN BROTHERS
CORPORATE BOND INDEX
<S> <C> <C>
CORPORATE BOND FUND LEHMAN BROTHERS CORPORATE BOND INDEX
3/31/98 $9,998 $10,000
4/30/98 $10,049 $10,063
5/31/98 $10,163 $10,183
6/30/98 $10,280 $10,258
Total Return on 6/30/98
Institutional Shares
Since Inception on 3/25/98: 2.80%
Value on 6/30/98
Corporate Bond Fund: $10,280
Lehman Brothers Corporate Bond Index: $10,258
</TABLE>
EACH FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
11 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
These charts reflect a comparison in the change in value of $10,000 investment
in Growth Equity Fund and Value Equity Fund, including reinvested dividends and
distributions, since inception of each Fund. The result is compared with a
broad-based securities market index. Each Fund's total return includes operating
expenses that reduces returns, while the total return of the Fund's respective
Index does not. Investment return and principal value of an investment in the
Funds will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A
GUARANTEE OF FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH EQUITY FUND VS. RUSSELL 1000
GROWTH INDEX
<S> <C> <C> <C>
GROWTH EQUITY GROWTH EQUITY RUSSELL 1000
FUND (TRUST) FUND (INST) GROWTH INDEX
03/31/98 $10,000 $10,000 $10,000
04/30/98 $10,060 $10,070 $10,132
05/31/98 $9,880 $9,880 $9,840
06/30/98 $10,561 $10,581 $10,433
Total Return on 6/30/98
Trust Shares Institutional Shares
Since Inception on 3/30/98: 5.61% 5.81%
Value on 6/30/98
Growth Equity Fund (Trust): $10,561
Growth Equity Fund (Inst): $10,581
Russell 1000 Growth Index: $10,433
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALUE EQUITY FUND VS.
RUSSELL 1000 VALUE INDEX
<S> <C> <C> <C>
VALUE EQUITY VALUE EQUITY RUSSELL 1000
FUND (TRUST) FUND (INST) VALUE INDEX
03/31/98 $10,000 $10,000 $10,000
04/30/98 $10,040 $10,040 $10,045
05/31/98 $9,640 $9,640 $9,879
06/30/98 $9,475 $9,485 $9,990
Total Return on 3/30/98
Trust Shares Institutional Shares
Since Inception on 3/30/98: (5.26%) (4.75%)
Value on 6/30/98
Value Equity Fund (Trust): $9,475
Value Equity Fund (Inst): $9,485
Russell 1000 Value Index: $9,990
</TABLE>
EACH FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
12 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS (unaudited)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
CORPORATE BONDS & NOTES (7.3%)
1,000,000 Associates Corp. of North America,
6.38%, 7/15/02........................ $ 1,011,391
1,250,000 Finova Capital Corp., 6.63%, 9/15/01.... 1,270,699
1,000,000 Ford Motor Credit Co., 6.00%, 1/14/03... 997,394
1,000,000 Lehman Brothers Holdings, 6.00%,
2/26/01............................... 996,982
-----------
Total Corporate Bonds & Notes
(cost $4,276,025) 4,276,466
-----------
GOVERNMENT BONDS & NOTES (8.5%)
2,500,000 FHLMC, 5.75%, 4/15/08................... 2,500,515
2,500,000 FNMA, 5.75%, 6/15/05.................... 2,512,363
-----------
Total Government Bonds & Notes
(cost $4,961,375) 5,012,878
-----------
U.S. TREASURY OBLIGATIONS (79.3%)
U.S. TREASURY NOTES (57.2%)
4,875,000 6.25%, 8/31/02.......................... 5,002,974
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
U.S. TREASURY NOTES, CONTINUED
8,350,000 6.50%, 10/15/06......................... $ 8,871,884
9,000,000 6.63%, 7/31/01.......................... 9,272,818
10,275,000 6.88%, 7/31/99.......................... 10,419,496
-----------
Total U.S. Treasury Notes
(cost $33,434,238) 33,567,172
-----------
U.S. TREASURY BONDS (22.1%)
12,500,000 6.00%, 2/15/26
(cost $12,672,867).................... 13,007,825
-----------
Total U.S. Treasury Obligations
(cost $46,107,105) 46,574,997
-----------
SHORT-TERM HOLDINGS (4.9%)
2,870,303 Dreyfus Government Cash Management Fund
(cost $2,870,303)..................... 2,870,303
-----------
Total Investments (100.0%)
(cost $58,214,808) $58,734,644
-----------
-----------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements 13 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS (unaudited) (continued)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ ------------
<C> <S> <C>
ASSET BACKED SECURITIES (0.8%)
1,000,000 California Infrastructure Pacific Gas &
Electric, Series 1997-1 A6, 6.38%,
9/25/08............................... $ 1,017,555
300,000 EQCC Home Equity Loan Trust, Series
1998-1 A6F, 6.25%, 12/15/07........... 300,029
------------
Total Asset Backed Securities
(cost $1,314,257) 1,317,584
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (4.9%)
FHLMC (0.7%)
1,000,000 Series 1928 C, 7.50% V/R, 12/15/24 (a)
(cost $1,017,187)................... 1,026,713
------------
FNMA (0.4%)
598,637 6.50%, 1/1/26
(cost $595,363)..................... 596,812
------------
OTHER (3.8%)
1,000,000 First Plus Home Loan Trust, 6.49% V/R,
7/10/17 (a)........................... 1,010,755
2,000,000 First Union-Lehman Brothers-Bank of
America, Series 1998-C2 C, 6.73%,
9/18/12............................... 2,019,376
500,000 Money Store Home Equity Trust, Series
1996-D A13, 6.38%, 9/15/14............ 507,488
2,000,000 Morgan Stanley Capital, 6.63%,
7/15/30............................... 2,044,240
300,000 Mortgage Index Amortizing Trust, Series
1997-1 A1, 6.68%, 8/25/04............. 302,016
------------
Total Other
(cost $5,833,519) 5,883,875
------------
Total Collateralized Mortgage Obligations
(cost $7,446,069) 7,507,400
------------
CORPORATE BONDS & NOTES (45.7%)
500,000 Amsouth Bank of Alabama, 6.45%,
2/1/18................................ 516,329
565,000 Associates Corp. of North America,
5.60%, 1/15/01........................ 559,989
2,000,000 Associates Corp. of North America,
7.88%, 9/30/01........................ 2,113,006
1,500,000 Bellsouth Telecommunications, 6.00% V/R,
6/15/02 (a)........................... 1,504,097
1,500,000 Branch Banking & Trust Corp., 6.38% V/R,
6/30/05 (a)........................... 1,510,590
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS & NOTES, CONTINUED
1,000,000 Choice Hotels Corporation Inc., 7.13%,
5/1/08 (b)............................ $ 1,017,896
500,000 Chrysler Financial Corp., 9.50%,
12/15/99.............................. 524,474
2,250,000 Cincinnati Financial Corp., 6.90%,
5/15/28............................... 2,323,598
1,000,000 Continental Cablevision Corp, 8.50%,
9/15/01............................... 1,067,095
150,000 Cummins Engine Company Inc., 6.45%,
3/1/05................................ 151,376
2,000,000 Duke Realty, 6.75%, 5/30/08............. 2,013,344
400,000 EOP Operating LP, 6.38%, 2/15/03 (b).... 398,483
300,000 EOP Operating LP, 6.50%, 6/15/04 (b).... 300,098
1,000,000 EOP Operating LP, 6.76%, 6/15/07 (b).... 1,003,290
500,000 EOP Operating LP, 6.75%, 2/15/08 (b).... 500,995
1,000,000 Equitable Companies Inc., 7.00%,
4/1/28................................ 1,037,958
1,000,000 GTE Corp., 6.84%, 4/15/18............... 1,010,330
3,500,000 General Motors Acceptance Corp., 7.13%,
5/1/01................................ 3,604,874
1,000,000 Goodrich (B.F.), 7.00%, 4/15/38......... 1,034,333
1,000,000 Healthsouth Corp., 7.00%, 6/15/08....... 998,140
1,000,000 Hertz Corp., 6.63%, 5/15/08............. 1,011,861
2,000,000 Huntington Bank, 6.60%, 6/15/18......... 1,978,972
1,800,000 Key Bank NA, 6.50%, 4/15/08............. 1,830,791
300,000 Lehman Brothers Holdings, 6.25%,
4/1/03................................ 300,540
1,000,000 Loew's Companies, Inc., 6.88%,
2/15/28............................... 1,024,515
750,000 MCN Investment Corp., 6.35% V/R, 4/2/02
(a)................................... 754,605
1,000,000 Mellon Financial Co., 7.63%, 11/15/99... 1,022,355
2,100,000 Mellon Financial Co., 6.38%, 2/15/10.... 2,112,205
6,500,000 Merrill Lynch & Co., Inc., 6.75%,
6/1/28................................ 6,601,017
2,900,000 Morgan Stanley Dean Witter, 5.88%,
2/28/01............................... 2,892,811
1,000,000 NGC Corporation, 7.13%, 5/15/18......... 1,020,255
1,000,000 National-Oilwell, Inc., 6.88%, 7/1/05
(b)................................... 1,000,310
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements 14 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS (unaudited) (continued)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ ------------
CORPORATE BONDS & NOTES, CONTINUED
<C> <S> <C>
1,660,000 News America Holdings, 8.00%,
10/17/16.............................. $ 1,837,665
100,000 Occidental Petroleum Corp., 6.40% V/R,
4/1/03 (a)............................ 100,798
500,000 Owens Corning, 7.50%, 5/1/05............ 510,401
3,600,000 Public Service Electric & Gas Co.,
6.13%, 8/1/02......................... 3,620,765
250,000 Rollins Truck Leasing Corp., 6.88%,
8/1/01................................ 255,379
1,000,000 Salomon Smith Barney Holdings, 6.25%,
6/15/05............................... 999,327
915,890 Seabrook Station-Unit 1, 7.83%,
1/2/19................................ 977,973
550,000 Shopko Stores, 8.50%, 3/15/02........... 581,887
200,000 Shopko Stores, 6.50%, 8/15/03........... 198,413
1,200,000 Simon DeBartolo Group, Inc., 6.75%,
7/15/04 (b)........................... 1,201,674
500,000 Simon DeBartolo Group, Inc., 6.75%,
6/15/05 (b)........................... 498,206
300,000 Standard Federal Bancorporation, 7.75%,
7/17/06............................... 327,327
1,500,000 Texas Utilities Electric Co., 8.25%,
4/1/04................................ 1,645,898
1,000,000 Tommy Hilfiger, 6.50%, 6/1/03........... 1,002,338
100,000 Travelers Group, Inc., 6.88%,
2/15/2098............................. 102,142
1,000,000 US Bancorp, 6.50%, 2/1/08............... 1,003,339
1,550,000 US West Capital Funding, Inc., 6.13%,
7/15/02............................... 1,554,690
1,650,000 United Illuminating Co., 6.25%,
12/15/02.............................. 1,639,635
1,200,000 Vastar Resources, Inc., 6.00%
V/R, 4/20/00 (a)...................... 1,201,077
250,000 WMX Technologies, Inc., 7.00%,
10/15/06.............................. 258,863
1,000,000 Waste Management, Inc., 7.65%,
3/15/11............................... 1,074,075
1,000,000 Worldcom Inc., 7.75%, 4/1/04............ 1,064,174
3,000,000 360 Communications Co., 7.50%, 3/1/06... 3,219,135
------------
Total Corporate Bonds & Notes
(cost $69,004,170) 69,615,713
------------
MORTGAGE BACKED SECURITIES (6.5%)
601,935 FHLMC, Pool E69646, 6.00%, 3/1/13....... 596,789
1,980,000 FHLMC, Pool E70688, 6.00%, 6/1/13....... 1,963,071
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ ------------
<C> <S> <C>
MORTGAGE BACKED SECURITIES, CONTINUED
2,000,000 FNMA TBA, 6.50%, 1/1/13................. $ 2,011,876
987,763 FNMA, Pool 251818, 6.00%, 6/1/18........ 972,028
377,283 FNMA, Pool 313873, 7.00%, 12/1/27....... 384,489
263,859 FNMA, Pool 399774, 7.00%, 5/1/28........ 267,991
987,580 FNMA, Pool 422848, 6.00%, 4/1/18........ 971,848
1,479,001 FNMA, Pool 425701, 6.50%, 5/1/13........ 1,488,999
347,865 FNMA, Pool 428152, 7.00%, 5/1/28........ 353,313
990,000 FNMA, Pool 428968, 6.00%, 1/1/28........ 964,824
------------
Total Mortgage Backed Securities
(cost $9,918,431) 9,975,228
------------
MUNICIPAL BONDS & NOTES (4.5%)
1,000,000 Carmel, IN, City Center Redevelopment
Project, Tax RV, FSA insured, 6.80%,
12/15/12.............................. 1,023,125
150,000 Denver, CO, Urban Renewal Authority, Tax
Increment Revenue Bonds, Adams Mark
Hotel, Series A, 6.37%, 9/1/02........ 150,635
1,000,000 Madison, WI, Community Development
Authority RV, 6.20%, 7/2/18........... 998,858
955,000 Oklahoma County, OK, Finance Authority
MFH RV, Oakridge Village Apartments,
Series A, 8.05%, 10/1/09.............. 1,023,487
300,000 Reeves County, TX, Tax Certificates of
Participation, 6.70%, 3/31/05......... 303,202
150,000 Show Low, AZ, IDA Hospital RV, Navapache
Regional Medical Center, Series B, ACA
insured, 5.85%, 12/1/98............... 150,083
200,000 Show Low, AZ, IDA Hospital RV, Navapache
Regional Medical Center, Series B, ACA
insured, 5.85%, 12/1/99............... 200,418
200,000 Show Low, AZ, IDA Hospital RV, Navapache
Regional Medical Center, Series B, ACA
insured, 5.85%, 12/1/00............... 200,609
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements 15 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS (unaudited) (continued)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ ------------
MUNICIPAL BONDS & NOTES, CONTINUED
<C> <S> <C>
250,000 Show Low, AZ, IDA Hospital RV, Navapache
Regional Medical Center, Series B, ACA
insured, 5.85%, 12/1/02............... $ 251,888
290,000 Show Low, AZ, IDA Hospital RV, Navapache
Regional Medical Center, Series B, ACA
insured, 5.85%, 12/1/03............... 292,471
250,000 St. Charles County, MO, Public Arena
Authority Leasehold Taxable RV, Family
Area Project, 6.54%, 9/15/05.......... 254,561
2,000,000 Tallulah, LA, Youth Correctional, RV,
AMBAC insured, 6.65%, 11/1/08......... 2,031,700
------------
Total Municipal Bonds & Notes
(cost $6,783,856) 6,881,037
------------
U.S. TREASURY OBLIGATIONS (33.4%)
U.S. TREASURY NOTES (27.2%)
2,000,000 5.38%, 2/15/01.......................... 1,992,344
4,000,000 5.38%, 6/30/03.......................... 3,980,313
1,500,000 5.38%, 6/30/03.......................... 1,494,377
2,200,000 5.50%, 2/15/01.......................... 2,193,127
1,500,000 5.50%, 3/31/00.......................... 1,499,766
2,150,000 5.50%, 3/31/00.......................... 2,150,003
3,750,000 5.50%, 3/31/03.......................... 3,748,820
650,000 5.50%, 5/31/03.......................... 650,203
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ ------------
<C> <S> <C>
U.S. TREASURY NOTES, CONTINUED
1,000,000 5.63%, 5/15/08.......................... $ 1,014,063
4,800,000 5.75%, 4/30/03.......................... 4,848,005
1,500,000 6.50%, 5/15/05.......................... 1,580,625
5,500,000 6.50%, 5/15/05.......................... 5,799,922
9,450,000 6.50%, 5/15/05.......................... 9,978,614
500,000 7.25%, 5/15/04.......................... 542,657
------------
Total U.S. Treasury Notes
(cost $41,375,532) 41,472,839
------------
U.S. TREASURY BONDS (6.2%)
8,800,000 6.13%, 11/15/27
(cost $9,354,218)..................... 9,420,786
------------
Total U.S. Treasury Obligations
(cost $50,729,750) 50,893,625
------------
SHORT-TERM HOLDINGS (4.2%)
4,000,000 Baker Hughes, Inc. CP, 6.25%, 7/1/98.... 4,000,000
360,912 Dreyfus Government Cash Management
Fund.................................. 360,912
2,000,000 Southland CP, 5.54%, 7/17/98............ 1,995,076
------------
Total Short-Term Holdings
(cost $6,355,988) 6,355,988
------------
Total Investments (100.0%)
(cost $151,552,521) $152,546,575
------------
------------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements 16 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS (unaudited) (continued)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
COMMON STOCK (96.3%)
BUILDING MATERIALS, HARDWARE, & GARDEN
SUPPLY (1.9%)
7,000 Home Depot, Inc......................... $ 581,439
-----------
BUSINESS SERVICES (9.7%)
13,400 BMC Software, Inc.(c)................... 695,964
6,100 Cognizant Corp.(c)...................... 384,300
8,700 DST Systems, Inc.(c).................... 487,200
6,600 Microsoft Corp.(c)...................... 715,277
13,000 Parametric Technology Co.(c)............ 352,626
5,100 Robert Half International, Inc.(c)...... 284,963
-----------
2,920,330
-----------
CHEMICALS & ALLIED PRODUCTS (7.4%)
6,500 Clorox Co............................... 619,935
6,000 Estee Lauder Companies, Inc............. 418,120
6,700 Procter & Gamble Co..................... 610,120
6,300 Schering-Plough Corp.................... 577,235
-----------
2,225,410
-----------
COMMUNICATIONS (5.4%)
8,000 AT&T Corp............................... 457,002
4,400 Clear Channel Communications, Inc.(c)... 480,150
8,400 SBC Communications, Inc................. 336,000
9,000 Univision Communications, Inc.(c)....... 335,250
-----------
1,608,402
-----------
DOMESTIC DEPOSITORY INSTITUTIONS (1.7%)
11,550 Washington Mutual, Inc.................. 501,704
-----------
EDUCATIONAL SERVICES (2.3%)
18,050 Symbol Technologies, Inc................ 681,388
-----------
ELECTRIC, GAS & SANITARY SERVICES (5.5%)
9,400 Duke Energy Corp........................ 556,950
13,400 Houston Industries, Inc................. 413,725
13,500 USA Waste Services, Inc.(c)............. 666,565
-----------
1,637,240
-----------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS (10.6%)
14,500 American Power Conversion Corp.(c)...... 435,000
9,000 Ascend Communications, Inc.(c).......... 446,060
8,700 Emerson Electric Co..................... 525,260
6,300 General Electric Co..................... 573,300
10,800 General Instrument Corp.(c)............. 293,625
4,500 Linear Technology Corp.................. 271,405
7,800 Lucent Technologies, Inc................ 648,865
-----------
3,193,515
-----------
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
ENGINEERING, ACCOUNTING, RESEARCH,
MANAGEMENT & RELATED SERVICES (1.7%)
11,500 Halliburton Co.......................... $ 512,465
-----------
FEDERAL AGENCIES & INSTRUMENTALITIES (2.0%)
10,000 FNMA.................................... 607,500
-----------
FOOD & KINDRED PRODUCTS (2.1%)
15,000 PepsiCo, Inc............................ 617,810
-----------
FOOD STORES (1.2%)
7,000 Albertson's, Inc........................ 362,689
-----------
GENERAL MERCHANDISE STORES (3.6%)
10,500 Dayton Hudson Corp...................... 509,250
9,500 Wal-Mart Stores, Inc.................... 577,125
-----------
1,086,375
-----------
HEALTH CARE (0.8%)
4,100 IMS Health Incorporated................. 243,950
-----------
HOLDING & OTHER INVESTMENT OFFICES (2.7%)
8,300 Crescent Real Estate Equities Co........ 279,088
13,000 Paychex, Inc............................ 528,938
-----------
808,026
-----------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (4.4%)
7,900 Cisco Systems, Inc.(c).................. 727,295
2,500 Hewlett-Packard Co...................... 149,688
4,000 IBM Corp................................ 459,252
-----------
1,336,235
-----------
INSURANCE CARRIERS (4.6%)
5,000 American International Group, Inc....... 730,000
11,500 SunAmerica, Inc......................... 660,533
-----------
1,390,533
-----------
MEASURING, ANALYZING, & CONTROLLING
INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (1.5%)
7,300 Medtronic, Inc.......................... 465,375
-----------
MISCELLANEOUS RETAIL (4.1%)
10,800 Bed Bath & Beyond, Inc.(c).............. 559,575
10,500 Costco Cos., Inc.(c).................... 662,157
-----------
1,221,732
-----------
MOTION PICTURES (2.7%)
9,500 Time Warner, Inc........................ 811,658
-----------
OIL & GAS EXTRACTION (3.5%)
10,000 Enron Corp.............................. 540,625
7,000 Nabors Industries, Inc.(c).............. 138,687
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements 17 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS (unaudited) (continued)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
OIL & GAS EXTRACTION, CONTINUED
10,000 Noble Affiliates, Inc................... $ 380,000
-----------
1,059,312
-----------
PHARMACEUTICAL PREPARATIONS (6.3%)
5,900 Bristol-Myers Squibb Co................. 678,130
3,500 Merck & Co., Inc........................ 468,125
3,500 Pfizer, Inc............................. 380,405
8,000 Watson Pharmaceuticals, Inc.(c)......... 373,500
-----------
1,900,160
-----------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (1.6%)
10,000 Meredith Corp........................... 469,375
-----------
SECURITY & COMMODITY BROKERS, DEALERS,
EXCHANGES & SERVICE (2.7%)
8,800 Morgan Stanley, Dean Witter, & Co....... 804,100
-----------
TRANSPORTATION BY AIR (1.0%)
9,800 Southwest Airlines Co................... 290,325
-----------
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
WHOLESALE TRADE--DURABLE GOODS (2.9%)
5,500 Johnson & Johnson....................... $ 405,625
12,000 Omnicare, Inc........................... 457,500
-----------
863,125
-----------
WHOLESALE TRADE--NONDURABLE GOODS (2.4%)
9,000 McKesson Corp........................... 731,250
-----------
Total Common Stock
(cost $27,071,259) 28,931,423
-----------
SHORT-TERM HOLDINGS (3.7%)
1,105,789 Dreyfus Government Cash Management Fund
(cost $1,105,789)..................... 1,105,789
-----------
Total Investments (100.0%)
(cost $28,177,048) $30,037,212
-----------
-----------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements 18 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (unaudited) (continued)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
COMMON STOCK (92.5%)
AGRICULTURAL PRODUCTION--CROPS (1.4%)
7,500 Dole Food Co., Inc...................... $ 372,656
-----------
APPAREL & OTHER FINISHED PRODUCTS MADE
FROM FABRICS & SIMILAR MATERIALS (2.4%)
15,100 Warnaco Group, Inc.--Class A............ 640,807
-----------
BUSINESS SERVICES (8.9%)
25,200 Electronic Data Systems Corp............ 1,008,000
24,100 First Data Corp......................... 802,832
14,200 Service Corp. International............. 608,826
-----------
2,419,658
-----------
COMMUNICATIONS (1.4%)
7,000 GTE Corp................................ 389,376
-----------
ELECTRIC, GAS & SANITARY SERVICES (8.6%)
11,200 Duke Energy Corp........................ 663,600
22,100 El Paso Natural Gas Co.................. 845,325
16,700 USA Waste Services, Inc.(c)............. 824,564
-----------
2,333,489
-----------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (8.6%)
23,600 AMP, Inc................................ 811,251
25,000 American Power Conversion Corp.(c)...... 750,000
10,500 Intel Corp.............................. 778,313
-----------
2,339,564
-----------
ENGINEERING, ACCOUNTING, RESEARCH,
MANAGEMENT & RELATED SERVICES (3.2%)
17,100 Fluor Corp.............................. 872,100
-----------
GENERAL MERCHANDISE STORES (3.2%)
16,100 Federated Department Stores, Inc.(c).... 866,382
-----------
HEALTH SERVICES (4.8%)
20,200 Columbia HCA Healthcare Corp............ 588,327
22,700 Tenet Healthcare Corp.(c)............... 709,375
-----------
1,297,702
-----------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (9.4%)
16,300 Cooper Cameron Corp.(c)................. 831,300
15,300 Cummins Engine Co., Inc................. 784,125
8,000 IBM Corp................................ 918,500
-----------
2,533,925
-----------
INSURANCE AGENTS, BROKERS & SERVICE (2.0%)
9,000 Marsh & McLennan Cos., Inc.............. 543,935
-----------
<CAPTION>
SECURITY
FACE/SHARE AMOUNT DESCRIPTION VALUE
- ------------------------------------------------------------ -----------
<C> <S> <C>
INSURANCE CARRIERS (5.9%)
2,500 General Re Corp......................... $ 633,750
13,000 MBIA, Inc............................... 973,375
-----------
1,607,125
-----------
METAL MINING (2.0%)
22,400 Newmont Mining Corp..................... 529,200
-----------
MOTION PICTURES (3.7%)
39,300 King World Productions, Inc.(c)......... 1,002,150
-----------
NONDEPOSITORY CREDIT INSTITUTIONS (3.2%)
17,500 SLM Holding Corp........................ 857,502
-----------
OIL & GAS EXTRACTION (8.6%)
18,100 Burlington Resources, Inc............... 779,430
11,900 Cognizant Corp.(c)...................... 749,700
35,700 R & B Falcon Corp.(c)................... 807,710
-----------
2,336,840
-----------
PHARMACEUTICAL PREPARATIONS (1.1%)
3,500 R.P. Scherer Corp.(c)................... 310,185
-----------
PRIMARY METAL INDUSTRIES (1.8%)
10,900 Nucor Corp.............................. 501,400
-----------
RUBBER & MISCELLANEOUS PLASTICS
PRODUCTS (2.6%)
19,200 EVI Weatherford, Inc.(c)................ 712,803
-----------
TRANSPORTATION EQUIPMENT (7.6%)
15,100 Boeing Co............................... 672,890
25,500 Brunswick Corp.......................... 631,125
14,400 Dana Corp............................... 770,400
-----------
2,074,415
-----------
WHOLESALE TRADE--NONDURABLE GOODS (2.1%)
22,200 Sysco Corp.............................. 568,875
-----------
Total Common Stock
(cost $25,867,385) 25,110,089
-----------
SHORT-TERM HOLDINGS (7.5%)
26,389 Dreyfus Government Cash Management
Fund.................................. 26,389
250,000 FHLB Discount Note, 5.56%, 7/6/98....... 249,810
1,450,000 FNMA Discount Note, 5.84%, 7/6/98....... 1,448,900
300,000 FNMA Discount Note, 5.58%, 7/6/98....... 299,771
-----------
Total Short Term Holdings
(cost $2,024,871) 2,024,870
-----------
Total Investments (100.0%)
(cost $27,892,256) $27,134,959
-----------
-----------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements 19 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) The interest rates shown reflect the variable rate in effect on June 30,
1998.
(b) Securities that may be resold to "qualified institutional buyers" under rule
144A or securities offered pursuant to 4(2) of the Securities Act of 1933,
as amended. The Board of Trustees has deemed these securities to be liquid
at June 30, 1998.
(c) Non-income producing securities
(d) Definition of certain terms:
<TABLE>
<S> <C>
ACA American Capital Assets
AMBAC American Municipal Bond Assurance Corporation
CP Commercial Paper
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
IDA Industrial Development Authority
MFH Multi-Family Housing
RV Revenue Bonds
V/R Variable Rate
</TABLE>
See Notes to Financial Statements 20 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT CORPORATE GROWTH VALUE
BOND FUND BOND FUND EQUITY FUND EQUITY FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2)
Investments at cost............... $ 58,214,808 $ 151,552,521 $ 28,177,048 $ 27,892,256
Net unrealized appreciation
(depreciation)................... 519,836 994,054 1,860,164 (757,297)
------------- ------------- ------------- -------------
Total investments at value...... 58,734,644 152,546,575 30,037,212 27,134,959
Interest, dividends and other
receivables........................ 1,192,500 1,566,878 10,993 24,310
Receivable for securities sold...... -- 8,449,970 371,929 --
Receivable for fund shares sold..... -- 15,585,000 3,861,750 1,549,750
Organization costs, net............. 28,468 28,403 28,468 28,468
------------- ------------- ------------- -------------
Total assets............................ 59,955,612 178,176,826 34,310,352 28,737,487
------------- ------------- ------------- -------------
LIABILITIES:
Dividends payable................... 67,437 402,972 1,177 7,518
Payable for securities purchased.... -- 31,043,854 225,268 --
Payable to sub-adviser (Note 3)..... 6,025 25,834 4,521 4,065
Payable to administrator (Note 3)... 4,945 14,753 3,482 3,137
Accrued fees, other liabilities and
other expenses..................... 17,474 56,077 23,473 22,863
------------- ------------- ------------- -------------
Total liabilities....................... 95,881 31,543,490 257,921 37,583
------------- ------------- ------------- -------------
NET ASSETS.............................. $ 59,859,731 $ 146,633,336 $ 34,052,431 $ 28,699,904
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
COMPONENTS OF NET ASSETS:
Paid in capital..................... $ 59,337,668 $ 144,895,257 $ 32,168,630 $ 29,491,099
Undistributed net investment
income............................. -- 32 -- --
Net unrealized appreciation
(depreciation)..................... 519,836 994,054 1,860,164 (757,297)
Accumulated net realized gain
(loss)............................. 2,227 743,993 23,637 (33,898)
------------- ------------- ------------- -------------
NET ASSETS.............................. $ 59,859,731 $ 146,633,336 $ 34,052,431 $ 28,699,904
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSETS BY SHARE CLASS
Trust Shares........................ $ -- $ -- $ 228,790 $ 206,625
Institutional Shares................ 59,859,731 146,633,336 33,823,641 28,493,279
------------- ------------- ------------- -------------
NET ASSETS.............................. $ 59,859,731 $ 146,633,336 $ 34,052,431 $ 28,699,904
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SHARES OF BENEFICIAL INTEREST
OUTSTANDING
Trust Shares........................ -- -- 21,656 21,817
Institutional Shares................ 5,907,088 14,465,584 3,196,020 3,004,540
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE) PER SHARE
Trust Shares........................ $ -- $ -- $ 10.56 $ 9.47
Institutional Shares................ $ 10.13 $ 10.14 $ 10.58 $ 9.48
</TABLE>
See Notes to Financial Statements 21 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1998(a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT CORPORATE GROWTH VALUE
BOND FUND BOND FUND EQUITY FUND EQUITY FUND
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income..................... $ -- $ -- $ 24,393 $ 39,064
Interest income..................... 271,278 1,164,762 27,812 21,920
--------- ----------- ----------- -----------
Total investment income................. 271,278 1,164,762 52,205 60,984
--------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees (Note 3)... 6,778 29,063 5,793 5,440
Sub-advisory fees (Note 3).......... 9,037 38,751 11,587 10,880
Shareholder services (Note 3)....... 2,249 9,688 1,892 1,776
Administration fees (Note 3)........ 6,778 29,063 5,793 5,440
Transfer agent services (Note 3).... 8,106 7,331 10,158 10,158
Accounting services (Note 3)........ 10,258 9,581 12,258 12,258
Distribution fee (Note 3)........... 54 -- 195 187
Legal............................... 1,229 5,059 1,055 991
Audit............................... 3,320 3,460 3,320 3,320
Custody fees........................ 525 5,229 4,997 1,761
Trustees' fees (Note 3)............. 491 2,023 422 396
Amortization of organization
costs.............................. 1,532 1,597 1,532 1,532
D&O insurance....................... 556 12,566 1,108 1,020
Miscellaneous....................... 2,103 32,008 2,489 3,951
--------- ----------- ----------- -----------
Total expenses.......................... 53,016 185,419 62,599 59,110
Expenses reimbursed and fees waived
(Note 4)............................... (14,378) (36,167) (12,544) (11,826)
--------- ----------- ----------- -----------
Net expenses............................ 38,638 149,252 50,055 47,284
--------- ----------- ----------- -----------
NET INVESTMENT INCOME................... 232,640 1,015,510 2,150 13,700
--------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments sold................... 2,227 743,993 23,637 (33,898)
Net change in unrealized
appreciation (depreciation)........ 519,836 994,054 1,860,164 (757,297)
--------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS......................... 522,063 1,738,047 1,883,801 (791,195)
--------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. $754,703 $2,753,557 $1,885,951 $ (777,495)
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations
See Notes to Financial Statements 22 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT CORPORATE GROWTH VALUE EQUITY
BOND FUND BOND FUND EQUITY FUND FUND
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS--BEGINNING OF PERIOD (a)..... $ -- $ -- $ -- $ --
- ---------------------------------------- ------------ ------------- ------------ ------------
OPERATIONS:
Net investment income................. 232,640 1,015,510 2,150 13,700
Net realized gain (loss) on
investments sold..................... 2,227 743,993 23,637 (33,898)
Net change in unrealized appreciation
(depreciation)....................... 519,836 994,054 1,860,164 (757,297)
------------ ------------- ------------ ------------
Net increase (decrease) in net
assets resulting from operations... 754,703 2,753,557 1,885,951 (777,495)
------------ ------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Trust Shares... (939) -- (14) (97)
Net investment income--Institutional
Shares............................... (231,701) (1,015,478) (2,136) (13,603)
------------ ------------- ------------ ------------
Total distributions to
shareholders....................... (232,640) (1,015,478) (2,150) (13,700)
------------ ------------- ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares--Trust Shares.......... 744,796 -- 1,523,334 1,421,848
Sale of shares--Institutional
Shares............................... 59,335,175 145,091,766 32,208,054 29,522,277
Reinvestment of distributions--Trust
Shares............................... 640 -- 14 97
Reinvestment of
distributions--Institutional
Shares............................... 142,700 205,583 961 6,083
Redemption of shares--Trust Shares.... (745,437) -- (1,302,403) (1,206,242)
Redemption of shares--Institutional
Shares............................... (140,206) (402,092) (261,330) (252,964)
------------ ------------- ------------ ------------
Net increase from capital
transactions....................... 59,337,668 144,895,257 32,168,630 29,491,099
------------ ------------- ------------ ------------
Net increase........................ 59,859,731 146,633,336 34,052,431 28,699,904
------------ ------------- ------------ ------------
NET ASSETS--END OF PERIOD (Including
line (A)).............................. $59,859,731 $ 146,633,336 $34,052,431 $28,699,904
- ---------------------------------------- ------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
(A) Accumulated undistributed net
investment income................... $ -- $ 32 $ -- $ --
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
<CAPTION>
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
------------ ------------- ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares--Trust Shares.......... 74,480 -- 152,163 142,463
Sale of shares--Institutional
Shares............................... 5,906,880 14,485,004 3,221,902 3,030,915
Reinvestment of distributions--Trust
Shares............................... 64 -- 1 10
Reinvestment of
distributions--Institutional
Shares............................... 14,119 20,317 91 642
Redemption of shares--Trust Shares.... (74,544) -- (130,508) (120,656)
Redemption of shares--Institutional
Shares............................... (13,911) (39,737) (25,973) (27,017)
------------ ------------- ------------ ------------
Net increase in shares................ 5,907,088 14,465,584 3,217,676 3,026,357
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations
See Notes to Financial Statements 23 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
CONTAINED BELOW IS PER SHARE OPERATING PERFORMANCE DATA FOR A SHARE OF
BENEFICIAL INTEREST OUTSTANDING, TOTAL INVESTMENT RETURN, RATIOS TO AVERAGE NET
ASSETS AND OTHER SUPPLEMENTAL DATA FOR EACH PERIOD INDICATED.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30,
1998(a)
----------------------------------
GOVERNMENT CORPORATE
BOND FUND BOND FUND
--------------- --------------
INSTITUTIONAL INSTITUTIONAL
SHARES SHARES
--------------- --------------
<S> <C> <C>
Net asset value, beginning of period............................. $ 10.00 $ 10.00
--------------- --------------
Investment Operations
Net investment income........................................ 0.13 0.14
Net realized and unrealized gain on investments.............. 0.13 0.14
--------------- --------------
Total from Investment Operations................................. 0.26 0.28
--------------- --------------
Distributions from net investment income......................... (0.13) (0.14)
--------------- --------------
Net asset value, end of period................................... $ 10.13 $ 10.14
--------------- --------------
--------------- --------------
Total Return(c).................................................. 2.61% 2.80%
Ratio/Supplementary Data:
Ratios to average net assets:
Expenses, including reimbursement/waiver..................... 0.85%(b) 0.77%(b)
Expenses, excluding reimbursement/waiver..................... 1.15%(b) 0.96%(b)
Net investment income, including reimbursement/waiver........ 5.15%(b) 5.24%(b)
Portfolio turnover rate.......................................... 4.77% 189.66%
Net assets at end of period (000's omitted)...................... $59,860 $146,633
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations
(b) Annualized
(c) Total return would have been lower had certain expenses not been reimbursed
or waived during the period shown (Note 4)
See Notes to Financial Statements 24 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONTAINED BELOW IS PER SHARE OPERATING PERFORMANCE DATA FOR A SHARE OF
BENEFICIAL INTEREST OUTSTANDING, TOTAL INVESTMENT RETURN, RATIOS TO AVERAGE NET
ASSETS AND OTHER SUPPLEMENTAL DATA FOR EACH PERIOD INDICATED.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998 (a)
---------------------------------------------------------------------------
GROWTH VALUE
EQUITY FUND EQUITY FUND
-------------------------------- -------------------------------------
INSTITUTIONAL INSTITUTIONAL
TRUST SHARES SHARES TRUST SHARES SHARES
------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $10.00 $ 10.00 $ 10.00 $ 10.00
------------- ------------- ------- --------
Investment Operations
Net investment income......................... 0.02 -- 0.01 0.04
Net realized and unrealized gain (loss) on
investments.................................. 0.54 0.58 (0.53) (0.51)
------------- ------------- ------- --------
Total from Investment Operations.................. 0.56 0.58 (0.52) (0.47)
------------- ------------- ------- --------
Distributions from net investment income.......... -- -- (0.01) (0.05)
------------- ------------- ------- --------
Net asset value, end of period.................... $10.56 $ 10.58 $ 9.47 $ 9.48
------------- ------------- ------- --------
------------- ------------- ------- --------
Total Return(d)................................... 5.61% 5.81% (5.26)% (4.75)%
Ratio/Supplementary Data:
Ratios to average net assets:
Expenses, including reimbursement/waiver...... 1.43%(b) 1.29%(b) 1.44%(b) 1.30%(b)
Expenses, excluding reimbursement/waiver...... 3.95%(b) 1.57%(b) 3.97%(b) 1.58%(b)
Net investment income, including
reimbursement/waiver......................... 0.46%(b) 0.05%(b) 0.18%(b) 0.38%(b)
Average commission rate(c)........................ .0587 .0587 .0548 .0548
Portfolio turnover rate........................... 6.34% 6.34% 4.80% 4.80%
Net assets at end of period (000's omitted)....... $ 229 $33,824 $ 207 $ 28,493
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations
(b) Annualized
(c) Amount represents the average commission per share, paid to brokers, on the
purchase and sale of portfolio securities
(d) Total return would have been lower had certain expenses not been reimbursed
or waived during the period shown (Note 4)
See Notes to Financial Statements 25 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Memorial Funds (the "Trust") is an open-end management investment company
organized as a Delaware business trust. The Trust currently has four active
diversified investment portfolios (each a "Fund" and, collectively, the
"Funds"). The Trust Instrument of the Trust authorizes each Fund to issue an
unlimited number of shares of beneficial interest. The classes of each Fund and
their date of commencement of operations are as follows:
<TABLE>
<S> <C>
Government Bond Fund (Trust Shares and
Institutional Shares) March 30, 1998
Corporate Bond Fund (Institutional Shares) March 25, 1998
Growth Equity Fund (Trust Shares and Institutional
Shares) March 30, 1998
Value Equity Fund (Trust Shares and Institutional
Shares) March 30, 1998
</TABLE>
As of June 30, 1998, all Trust Shares in the Government Bond Fund had been
redeemed.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles which require management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates. The following represent significant accounting policies of the Funds:
SECURITY VALUATION--Securities, other than short-term securities, held by the
Funds for which market quotations are readily available, are valued using the
last reported sales price provided by independent pricing services. If no sales
are reported, the mean of the last bid and asked price is used. In the absence
of readily available market quotations, securities are valued at fair value as
determined by the Board of Trustees. Securities with a maturity of 60 days or
less are valued at amortized cost.
REALIZED GAIN AND LOSS--Security transactions are accounted for on a trade date
basis and realized gain and loss on investments sold are determined on the basis
of identified cost.
INTEREST AND DIVIDEND INCOME--Interest income is accrued as earned. Dividends on
securities held by the Funds are recorded on the ex-dividend date.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions of net investment income to
shareholders are declared daily and paid monthly by Government Bond Fund and
Corporate Bond Fund. Net investment income distributions for Growth Equity Fund
and Value Equity Fund are declared and paid quarterly. Net capital gains for the
Funds, if any, are distributed to shareholders at least annually. Distributions
are based on amounts calculated in accordance with applicable income tax
regulations.
ORGANIZATION COSTS--Costs incurred by the Funds in connection with their
organization have been capitalized and are being amortized using the
straight-line method over a five year period beginning with the commencement of
the Funds' operations.
FEDERAL TAXES--Each Fund intends to qualify, and continue to qualify, each year
as a regulated investment company under the Internal Revenue Code. In addition,
by distributing in each calendar year substantially all its net investment
income, capital gains and certain other amounts, if any, each Fund will not be
subject to a federal excise tax. As the Funds intend to meet these minimum
distribution requirements, no federal income tax provision is currently
required.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of each Fund is Forum Investment Advisors, LLC (the
"Adviser"). The Adviser receives monthly, from each Fund, an advisory fee at an
annual rate of 0.35% of the average daily net assets of Government Bond Fund and
Corporate Bond Fund, and 0.45% of the average daily net assets of Growth Equity
Fund and Value Equity Fund. In addition, the Adviser has retained the following
investment subadvisers (each a "Subadviser" and, collectively, the
"Subadvisers") for each Fund, pursuant to investment subadvisory agreements with
the Adviser, the Subadvisers and the Trust:
<TABLE>
<S> <C>
Government Bond Fund The Northern Trust Company
Corporate Bond Fund Conseco Capital Management, Inc.
Growth Equity Fund Davis Hamilton Jackson & Associates, Inc.
Value Equity Fund Beutel, Goodman Capital Management
</TABLE>
26 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Currently, the Adviser pays the Subadvisers of the Government Bond Fund and the
Corporate Bond Fund an annual fee of 0.20% of the average daily net assets of
each Fund. The Subadvisers for Growth Equity Fund and Value Equity Fund are
currently paid an annual fee of 0.30% of the average daily net assets of each
Fund. The amount of the fees paid by the Adviser to each Subadviser may vary
from time to time as a result of periodic negotiations with each Subadviser
regarding such matters as the nature and extent of the services provided (other
than investment selection and order placement activities). The amount of
advisory fees paid by each Fund will not vary as a result of changes in the
subadvisory fees, however. To assist in carrying out its responsibilities, the
Adviser has retained Wellesley Group, Inc. ("Wellesley"). Wellesley provides
data with which the Adviser and the Board of Trustees of the Trust can monitor
and evaluate the performance of the Funds and Subadvisers. Wellesley receives a
fee from the Adviser of 0.02% of the average annual net assets of the Funds
(breaking to 0.015% at average annual net asset levels of $250 million, and
0.01% at average annual net asset levels exceeding $500 million). As a minimum,
Wellesley shall receive an aggregate annual fee of $30,000.
On behalf of each Fund, the Trust has entered into an Administration Agreement
with Forum Administrative Services, LLC ("FAdS"). For its services, FAdS
receives a fee at an annual rate of 0.15% of the average daily net assets of
each Fund for the first $150 million in assets, and 0.10% of the average daily
net assets of each Fund over $150 million, subject to an annual minimum of
$30,000 per Fund.
Forum Shareholder Services, LLC ("FSS"), an affiliate of FAdS, serves as each
Fund's transfer agent and dividend disbursing agent, for which it receives a
base fee of $24,000 per year per Fund, plus $12,000 per year per Fund for each
additional share class, plus certain account charges.
Forum Financial Services, Inc. ("FFSI"), a registered broker-dealer and a member
of the National Association of Securities Dealers, Inc., acts as each Fund's
distributor pursuant to a Distribution Agreement with the Trust. The Trust has
adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "Act") with respect to Trust Shares under which the Trust pays
FFSI a distribution fee at an annual rate of 0.25% of the average daily net
assets of Trust Shares of each Fund. FFSI may pay any or all amounts of these
payments to various institutions which provide distribution or shareholder
services for Trust Shares. The Plan obligates the Trust to pay FFSI as
compensation for FFSI's distributions and shareholder services and not as
reimbursement for certain expenses incurred.
Forum Accounting Services, LLC ("FAcS") serves as the fund accountant for each
Fund. For its services, FAcS receives a base fee of $36,000 per year per Fund,
plus $12,000 per year per Fund for each additional share class, plus certain
amounts based upon the number and types of portfolio transactions within each
Fund.
The Trust has adopted a Shareholder Service Plan which allows it to obtain the
services of qualified financial institutions to act as shareholder servicing
agents for their customers. Under this plan, the Trust pays the service provider
a fee at an annual rate of 0.05% of the average daily net assets of
Institutional Shares of each Fund.
Each Trustee, who is not an "affiliated person" as defined in the Act, receives
from the Fund an annual fee of $5,000 plus out of pocket expenses. In addition,
each Trustee receives $500 per meeting attended. One Trustee has waived all fees
for the remainder of the fiscal year.
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Adviser, Subadvisers, FFSI, FSS, and FAcS have voluntarily waived a portion
of their fees. In addition, FAdS may, under certain circumstances, assume
certain expenses of the Funds. For the period ended June 30, 1998, fees waived
and estimated expenses reimbursed were as follows:
<TABLE>
<CAPTION>
INVESTMENT SUB EXPENSE
ADVISORY ADVISORY REIMBURSED
FEE FEE FFSI FSS FAcS BY FAdS TOTAL
--------- --------- ---- ---- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Bond Fund............... $ 5,423 $ 3,012 $ 54 $474 $3,065 $2,350 $ 14,378
Corporate Bond Fund................ 23,250 12,917 -- -- -- -- 36,167
Growth Equity Fund................. 3,862 3,862 195 765 3,065 795 12,544
Value Equity Fund.................. 3,626 3,627 187 760 3,065 561 11,826
</TABLE>
27 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 5. SECURITIES TRANSACTIONS
The cost of securities purchased and the proceeds from sales of securities,
other than short-term securities, for the period ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
COST OF
COST OF PROCEEDS FROM GOVERNMENT PROCEEDS FROM
PURCHASES SALES PURCHASES GOVERNMENT SALES
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Government Bond Fund............... $ 4,276,025 $ -- $ 52,097,502 $ 1,031,250
Corporate Bond Fund................ 127,921,913 45,191,024 165,203,114 103,623,166
Growth Equity Fund................. 27,956,932 911,287 -- --
Value Equity Fund.................. 26,555,780 657,343 -- --
</TABLE>
For federal income tax purposes, the tax basis of investment securities owned as
of June 30, 1998, was the same as for financial reporting purposes. The
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and net unrealized appreciation (depreciation) as of June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ --------------
<S> <C> <C> <C>
Government Bond Fund............... $ 523,228 $ 3,392 $ 519,836
Corporate Bond Fund................ 1,009,654 15,600 994,054
Growth Equity Fund................. 2,308,450 448,286 1,860,164
Value Equity Fund.................. 814,581 1,571,878 (757,297)
</TABLE>
28 Memorial Funds
<PAGE>
THE MEMORIAL GROUP
<TABLE>
<S> <C>
INVESTMENT ADVISER CUSTODIAN
Forum Investment Advisors, LLC BankBoston, N.A.
Two Portland Square P.O. Box 1959
Portland, Maine 04101 Boston, Massachusetts 02105
ADMINISTRATOR TRANSFER AGENT & DIVIDEND DISBURSING AGENT
Forum Administrative Services, LLC Forum Shareholder Services, LLC
Two Portland Square Two Portland Square
Portland, Maine 04101 Portland, Maine 04101
</TABLE>
This report is submitted for the general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors in the
Funds unless preceded or accompanied by an effective prospectus, which includes
information regarding the Funds' objectives and policies, experience of its
management, marketability of shares, and other information.