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MEMORIAL FUNDS
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
December 31, 1999 ANNUAL REPORT
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Dear Memorial Funds Shareholder:
I am happy to report to you on the continuing success of the Memorial Funds.
Since their inception in March 1998, investments in our four funds have grown to
approximately $300 million, as of December 31, 1999. We thank you for your
consistent support.
We have been very pleased with the strong performance of Government Bond Fund,
Corporate Bond Fund and the Growth Equity Fund, particularly when that
performance is analyzed on a risk-reward basis. We have been less satisfied,
however, with the performance of the Value Equity Fund, and are likely to
propose some changes in the management of that fund in the near future.
As of December 31, 1999, we have been actively pursuing new distribution
channels in an effort to increase asset levels and reduce expense ratios in each
of the funds. Given the expertise of the portfolio managers we have assembled to
manage the funds, and their conservative approach to investing, we are confident
that these efforts will succeed.
If you have any questions or would like additional information about our Funds,
please call Forum Fund Services, LLC, the Funds' distributor, at (888) 263-5593.
On behalf of the Board of Trustees of the Memorial Funds, I would like to thank
all of you who have supported us. We remain committed to meeting your needs for
many years to come.
Sincerely,
/s/ Christopher W. Hamm
Christopher W. Hamm
President-Memorial Funds
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TABLE OF CONTENTS
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INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA
Portfolio Performance....................................... 1
Sub-Adviser Interviews:..................................... 2
Government Bond Fund...................................... 2
Corporate Bond Fund....................................... 6
Growth Equity Fund........................................ 7
Value Equity Fund......................................... 9
Performance Data............................................ 12
FINANCIAL STATEMENTS OF THE MEMORIAL FUNDS
Schedules of Investments:
Government Bond Fund...................................... 14
Corporate Bond Fund....................................... 15
Growth Equity Fund........................................ 18
Value Equity Fund......................................... 20
Notes to Schedules of Investments........................... 21
Statements of Assets and Liabilities........................ 22
Statements of Operations.................................... 23
Statements of Changes in Net Assets......................... 24
Financial Highlights........................................ 26
Notes to Financial Statements............................... 29
Independent Auditors' Report................................ 32
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA
DECEMBER 31, 1999
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PORTFOLIO PERFORMANCE
FORUM INVESTMENT ADVISORS, LLC REVIEW OF SUB-ADVISORS PERFORMANCE
GOVERNMENT BOND FUND -- NORTHERN TRUST COMPANY
For the 4th quarter of 1999, the fund out-performed the Lehman Brothers
Government Bond Index, with a negative total return of (0.58%) versus (0.63%)
for the Index. For the full year, the Fund generated a negative total return of
(2.39%), under-performing the (2.23%) for the Index. Rising interest rates,
particularly sharp in the 4th quarter, overwhelmed higher income from
non-Treasury securities and spread tightening on some agency paper. The Advisor
is now positioned with neutral portfolio duration relative to the index, and
continues to be overweight relative to the index in mortgage-backed securities
and U.S. Agency paper.
CORPORATE BOND FUND -- CONSECO CAPITAL MANAGEMENT, INC.
The negative total return of the Corporate Bond Fund for 1999 was (1.77%),
out-performing the (1.96%) return of the Lehman Brothers Corporate Bond Index.
Corporate bonds out-performed Treasuries in 1999 and spreads for corporate bonds
tightened. The Advisor expects this spread contraction to continue, with greater
variation among sub-sectors. For example, rising interest rates may negatively
affect bank spreads, while rising oil prices may positively effect energy
company spreads. The advisor's strategy for 2000 reflects these outlooks. The
portfolio is positioned with a duration modestly lower than the Index,
positioning it for out-performance should interest rates continue to rise.
GROWTH EQUITY FUND -- DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
The total return of the Growth Equity Fund for 1999 was 24.56%,
out-performing the 21.04% return (including dividends) of the S&P 500 Index. The
Advisor benefited in 1999 from two key disciplines, focusing on companies with
strong earnings growth, and selling companies whose growth prospects weakened.
The year was characterized by the market's narrow focus on a relatively small
number of companies, including IP0's, creating a frustrating environment for
this and other advisors, as expectation-meeting performance was not always
rewarded by investors. The Fund was overweight relative to the index in
technology, capital goods and consumer cyclicals.
VALUE EQUITY FUND -- BEUTEL, GOODMAN CAPITAL MANAGEMENT
The value sector of the market continues to be generally ignored, with the
strong market in 1999 centered in a relatively short list of names in the growth
category. Further, adherence to the strict principals of value investing by the
Advisor continues to result in disappointing performance for the Fund. The 1999
negative total return of (3.88%) under-performed the 7.34% total return of the
Russell 1000 Value Index. Comparisons to the index are also made more difficult
as more "growth" names are included in the value sub-index. The Advisor
anticipates that the markets will begin to broaden, and that, based on
historical full market cycles, value stocks are overdue for a period of
out-performance.
1 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA
DECEMBER 31, 1999
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Forum Investment Advisors, LLC, the investment adviser to the Memorial Funds,
posed various questions to 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 2000.
AN INTERVIEW WITH MR. MONTY MEMLER OF NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND")
Q: HOW WAS YOUR PERFORMANCE FOR THE FUND'S FISCAL YEAR AND SINCE THE INCEPTION
OF THE FUND?
A: Treasury rates from 2-years to 30-years rose between 40 and 60 basis points
during the final quarter of the year, resulting in total increases between 140
and 180 basis points for the entire 1999 period. Volatility remained high as
investors anticipated and reacted to the Federal Reserve's reversal of the
easing in late 1998. The increased volatility reflects continued uncertainty
about the decision-making model the Fed is using. The market's current guess is
that the Federal Reserve has shifted to a "pre-emptive" mode that places greater
emphasis on actual versus potential economic growth and is particularly
concerned with the tight labor markets. While productivity data continues to
support a higher economic growth "speed limit" than previously thought possible,
current GDP growth of 4-5% leaves even the productivity optimists uneasy.
The Fund continued to perform well versus its performance benchmark. But, for
the period, income and spread tightening could not offset higher interest rates.
This left absolute returns in negative territory. For the latest calendar
quarter, the Fund generated a negative total return-after-expenses of (0.58%)
versus a (0.63%) return for the Lehman Brothers U.S. Government Bond Index. For
the year, the Fund generated a negative total return after-expenses of (2.39%)
versus (2.23%) for the index. Since its inception date, the Fund has generated a
positive annualized total return-after-expenses of 3.03% versus 3.27% for
the index.
Q: WHAT ATTRIBUTES OF YOUR PORTFOLIO HAD THE MOST SIGNIFICANT IMPACT ON THE
PERFORMANCE OF YOUR PORTFOLIO?
A: The portfolio has been positioned with similar interest rate sensitivity and
greater non-Treasury exposure versus the benchmark. We have maintained this
posture throughout the year, and as a result, our interest rate decision had
little impact on the relative performance during the period.
Our sector decisions, however, did have a positive impact on relative
performance. Throughout the year the Fund was overweighted in non-Treasury
securities such as Agency and Agency Mortgage-backed securities. In sharp
contrast to the concerns of potentially higher interest rates, investor's degree
of risk tolerance has increased significantly with respect to non-Treasury bond
sectors. As a result, the liquidity premium investors attached to these sectors
has slowly unwound and relative performance has been strong.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: From an interest rate perspective, the directional movement towards higher
interest rates was at the higher end of the range we anticipated. As mentioned
above, Treasury yields increased between 180 and 140 basis points throughout the
maturity spectrum. However, given our neutral interest rate posture, we were
successful with the management of the relative interest rate factors.
The contribution of spread sensitive securities was positive, as we anticipated.
The Fund was structured to reflect an overweight of non-Treasury securities,
which outperformed Treasuries over the course of the year.
2 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
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AN INTERVIEW WITH MR. MONTY MEMLER OF NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND") (CONTINUED)
Q: WHAT WERE THE LARGEST POSITIONS YOU ADDED TO AND SUBTRACTED FROM YOUR
PORTFOLIO? DO YOU EXPECT ANY MAJOR PORTFOLIO SHIFTS DURING THE YEAR 2000?
A: During 1999, we continued to increase the Fund's overall sensitivity to
changes in spreads from both Mortgage-backed and Agency securities.
Specifically, the Agency exposure was increased from 25% to 38% of the
portfolio, while Mortgage-backed issues were increased from 17% to 21% of the
portfolio. We liquidated all of the Fund's Corporate exposure earlier in
the year.
Further 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 CURRENT DURATION OF YOUR PORTFOLIO? HOW DOES THIS COMPARE TO THE
LEHMAN BROTHERS U.S. GOVERNMENT BOND INDEX?
A: As stated above, the duration of the portfolio is similar to that of the
Index. As of December 31, 1999, the duration of the Fund was 4.94 versus 5.12
for the Lehman Brothers U.S. Government Bond Index.
Q: WHAT IS YOUR OUTLOOK FOR INTEREST RATES IN THE NEAR TERM? HOW DOES YOUR
OUTLOOK AFFECT THE COMPOSITION OF YOUR PORTFOLIO?
A: Given a similar duration as that of the index, the Fund is positioned to
reflect a neutral outlook. Our latest policy, as of the end of December, takes
into account the following:
DOMESTIC AND INTERNATIONAL CHANGES
After all the attention Y2K received, it created minimal market disruptions.
Proposed changes to Germany's tax laws were positive for taxpayers and the
market alike, while major U.S. and European stock indexes reached new highs
despite higher global bond yields. Boris Yeltsin stepped down as Russia's
president. On the U.S. economic front, revised real gross domestic product (GDP)
growth for the third quarter was 5.7%, yet inflation remained in check.
Nonetheless, expectations increased that the Fed will raise rates in February.
WORLD ECONOMIC RECOVERY IS WELL-ENTRENCHED
The global economy in 2000 is expected to post its strongest growth since
the onset of the business slump in Asia in the second half of 1997. We
anticipate positive contributions to global economic growth from almost all
regions of the world. In the U.S., however, the pace of growth should moderate
during the next 12 months as a result of the higher interest-rate structure
already in place and likely to be increased by the Federal Reserve.
There is only tentative evidence that higher interest rates are starting to
dampen U.S. domestic final demand growth. That evidence is most noticeable in
the residential real estate sector where the pace of both the construction and
sales of homes has moderated. This sector is expected to weaken further during
the next 12 months. To date, consumer spending remains robust. The current and
forecast slowdown in housing activity,
3 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
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AN INTERVIEW WITH MR. MONTY MEMLER OF NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND") (CONTINUED)
however, should weaken the demand for home appliances and furnishings. Although
business capital spending is expected to moderate in 2000, the magnitude of that
moderation remains much in doubt. After a hiatus in the fourth quarter of 1999
and perhaps extending into the first quarter of the new year because of Y2K
issues, information technology expenditures are expected to pick up again.
The secular argument for low inflation remains intact. Productivity growth is
expected to stay strong in the U.S. and strengthen abroad as new technologies
continue to be used in an ever-widening sphere of industries. The pace of
corporate restructuring overseas is quickening, which also should enhance global
productivity growth. Nevertheless, shorter-term cyclical factors are starting to
put upward pressure on inflation. In 1999, the doubling of crude oil prices was
largely responsible for the rise in consumer inflation. This year, non-energy
consumer inflation is at risk to rise faster due to increases in import prices
and the pass-through to consumers of the buildup in prices farther down the
production pipeline.
Although the Federal Open Market Committee (FOMC) officially maintained a
neutral short-term stance at its December meeting, it indicated that the
controlling factor for this neutral stance was uncertainty surrounding Y2K. The
FOMC believes core inflation will start to rise if the aggregate demand for U.S.
goods and services does not moderate significantly and soon. Although we are
forecasting a slowdown in demand in 2000, it is unlikely to be of sufficient
magnitude in the first half of the year to satisfy the Fed. As a result, we
anticipate the FOMC will tighten policy further in the first half of this year.
NEUTRAL PORTFOLIO DURATIONS RECOMMENDED
A difficult year for bond investors ended on a sour note as
faster-than-expected economic growth and robust equity markets--a pattern that
prevailed through much of 1999--pushed interest rates sharply higher in the
fourth quarter. A look at last year's performance of the financial markets is
useful in assessing the bond market's prospects in 2000. A year ago, we
considered the Treasury market fairly valued and recommended neutral portfolio
durations. At that time, we believed our positive secular view regarding the
economy's non-inflationary growth potential would become the consensus opinion
and that a domestic demand-induced economic slowdown would keep bond yields in
check. We were right about productivity and its implications for an increasingly
favorable growth/inflation tradeoff, but we were wrong in believing that the Fed
and market consensus had fully embraced our view. Consequently, we misread the
central bank's course of action when it initiated a series of rate hikes
beginning in late June. More significant was our underestimating the pace of
economic growth. Unexpectedly strong GDP growth was the major cause of last
year's interest-rate backup as well as the strong corporate earnings growth that
propelled the equity market upward.
Taking last year's lessons and today's growth rate into account, we expect the
Fed will act to cool the current robust pace of GDP growth, potentially
pressuring short rates in the near term. The timeliness, effectiveness and
extent of the Fed's response are likely to be the keys to the direction of
interest rates in 2000.
Our continued optimism regarding future productivity gains leads us to conclude
that inflation will remain a good story for bonds and that the monetary
authority does not have much work to do to achieve a somewhat slower rate of
non-inflationary growth. Nevertheless, in line with the consensus, we realize
that the market's current focus is on growth rather than inflation, making for a
potentially bumpy start to the year as the central bank's efforts to slow growth
will be scrutinized closely. Notwithstanding this scrutiny, we anticipate that
any rise in rates will be muted.
4 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
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AN INTERVIEW WITH MR. MONTY MEMLER OF NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND") (CONCLUDED)
At the same time, counterintuitively, we accept that in the new economy we
should not expect rates to fall very much. One of the hallmarks of this economic
environment is that faster productivity gains should lead to high real
(inflation-adjusted) yields because investment returns should also be
historically high. This is a key explanation for the excellent equity returns
generated during the past five years. Real yields of approximately 4% for
10-year Treasury notes certainly qualify as high, but since we expect
productivity gains to continue apace, we are not looking for a meaningful
reduction in real yields at this point in the economic cycle. Thus, our base
case is for interest rates to stay fairly close to their current levels. We
believe there are two primary risks in these assumptions. The first is that we
are wrong about productivity gains. If productivity gains do not continue, all
their attendant benefits will prove illusory. In that event, fast GDP growth
will lead to higher inflation and higher interest rates before a classic cycle
peak ensues. All current evidence makes this a low-probability outcome. A second
and potentially greater risk is that the Fed -- despite Chairman Greenspan's
generally supportive statements -- mishandles what truly is a new economy by
overreacting to continued strong supply-driven growth and tightens monetary
policy aggressively. In this instance, inflation would likely remain low with
market rates initially moving higher before eventually declining substantially.
Finally, one risk that is mentioned frequently, increasingly synchronized global
growth, does not alarm us. We believe overseas growth will be accompanied by
heightened productivity, as in the U.S., limiting any pickup in global
inflation. Some evidence already exists that productivity is rising worldwide in
tandem with growth, and we expect signs will build in this direction. Balancing
the risks and opportunities of these various scenarios leads us to recommend
maintaining neutral portfolio durations at this time.
Q: WHAT IS YOUR CURRENT ALLOCATION AMONG SECTORS OF YOUR STRATEGY? HOW DOES
THIS COMPARE TO YOUR BENCHMARK?
A: As noted above, we did make some modest changes to the sector exposure
during the past year. Our current allocation among sectors includes 38% exposure
to Agency issues, which continue to represent a growing percentage of the index.
Currently, Agencies represent nearly 22% of the Lehman Brothers U.S. Government
Bond Index. The Fund's mortgage-backed exposure represents 21% of the portfolio.
The Lehman Brothers U.S. Government Bond Index does not contain any
mortgage-backed issues. At the present time, the Fund has no exposure to
Corporate obligations, and the index does not contain any Corporate issues
although spreads are tighter. We continue to view non-Treasury sectors as
attractive and are maintaining our overweighted positions.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH DECEMBER 31, 1999. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT
ANY TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES
AND OTHER HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
5 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
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AN INTERVIEW WITH MR. GREGORY 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 THE
PERFORMANCE?
A: Each of the spread sectors outperformed similar duration Treasuries during
1999. While all sectors of the corporate market experienced spread tightening in
the year, the energy sector outperformed others based on the increasing price
of oil.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO OUR ORIGINAL
EXPECTATIONS?
A: Although we had expected a positive year for the spread sectors as growth
returned to the global economy, the rapid pace of growth was a surprise. This
rapid pace forced the Fed to take action and the Fed Funds Rate tightened 75
basis points ("bp") during the year. In addition, yields across the Treasury
curve increased dramatically. The 10-year Treasury's yield increased by
approximately 179 bp during the year, placing 1999 among the worst years ever
for Treasury investors.
Q: WHAT IS THE FUND'S CURRENT DURATION?
A: The portfolio duration at December 31, 1999 was 5.53 years while the
duration of the Lehman Brothers Corporate Index was 5.66 years.
Q: HOW DID THE PERFORMANCE COMPARE TO THE LEHMAN BROTHERS CORPORATE BOND INDEX?
A: From its inception date through December 31, 1999, the Fund returned 3.13%
while the Lehman Brothers Corporate Bond Index returned 2.75% over the
same period.
Q: WHAT IS YOUR OUTLOOK FOR INTEREST RATES IN THE NEAR TERM? HOW WILL YOUR
OUTLOOK AFFECT THE COMPOSITION OF THE FUND?
A: With extremely strong economic growth continuing, the Fed is expected to
raise the Fed Funds rate at least 25bp at the next Federal Open Market Committee
(FOMC) meeting in early February. We by no means expect the kind of interest
rate volatility we experienced in the market during last year. However, we do
expect rates to drift higher in 2000 as the struggle between continued growth
and inflation continues.
Q: WHAT IS YOUR OUTLOOK WITH REGARD TO CREDIT SPREADS BETWEEN GOVERNMENT AND
CORPORATE BONDS? HOW DOES THIS AFFECT THE FUND?
A: Corporate bond spreads have rallied significantly during the quarter, but we
still expect spreads to tighten further from these levels. We do, however,
expect some corporate sub-sectors to outperform others in the current
high-interest rate environment. The banking sector, for instance, may come under
some pressure as higher interest rates affect ongoing operations. Other sectors,
such as the energy sector, are benefiting from the huge increase in the price of
oil (almost reaching $30 per barrel). As a result, we will look to exit some of
our bank holdings in favor of increased energy sector holdings.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH DECEMBER 31, 1999. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT
ANY TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES
AND OTHER HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
6 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
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AN INTERVIEW WITH MR. JACK HAMILTON OF DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
SUB-ADVISER TO GROWTH EQUITY FUND ("FUND")
Q: WHAT ATTRIBUTES HAD THE MOST SIGNIFICANT IMPACT ON PERFORMANCE?
A: The stock market exhibited narrow leadership again in 1999. Only half of the
stocks in the S&P 500 produced a positive return for the year, even as the index
advanced 21.0% including dividends. The technology sector within the S&P 500
posted a 75% return, accounting for more than two-thirds of the total return
from the index. Four sectors declined in value during the year: health care,
consumer staples, utilities and transportation. The dominant factor impacting
individual stock performance was earnings growth. Companies with rapid and
accelerating rates of growth that consistently exceeded analysts' estimates
remained market leaders, almost without regard for traditional measures of
valuation. Our research kept the portfolio invested in companies with strong
earnings growth, and our sell disciplines helped us react quickly to companies
exhibiting a slowdown in their growth metrics. Because the technology sector had
the largest number of companies maintaining high rates of growth, the portfolio
kept an overweight position relative to the S&P 500 throughout the year. The
stock market indices measuring mid-cap and small stock performance were
generally behind the large capitalization S&P 500. Within the S&P 500, 90% of
the index performance came from companies in the top quintile of market value or
companies larger than $20 billion. The portfolio had an average market
capitalization very close to the S&P 500 despite a 25-30% holding in mid-size
companies. Large positions in Microsoft, General Electric, Cisco, Wal-Mart and
Oracle kept returns above the S&P 500 for the year.
Q: HOW DID PERFORMANCE COMPARE TO OUR EXPECTATIONS?
A: Performance met our expectations. Given our philosophy of maintaining a
diversified portfolio, 1999 was a challenging year. Many companies held in the
portfolio exhibited all of the characteristics we look for and consistently
achieved or exceeded market expectations in their businesses. However, with
rising interest rates, many industries and market sectors remained out of favor
with investors. The IPO market was very popular, with many untested companies
instantly attaining multi-billion dollar market valuations although bereft of
earnings. Our research, which is focused on profitable and growing companies
with seasoned management, kept us out of this sector of the market.
Q: WHAT WERE THE LARGEST POSITIONS ADDED AND SUBTRACTED IN 1999?
A: The largest additions or new positions were in the technology sector.
America Online, Adobe, Motorola, Oracle and First Data were all added during the
year. We also purchased Viacom, Exxon, Mobil, Citigroup, Marsh & McClennan,
Johnson & Johnson and Anheuser-Busch. The most significant deletions were in
stocks where our sell disciplines responded to changes in growth rates. Waste
Management, Office Depot, Clorox, McKesson HBOC, Washington Mutual,
UnumProvident, Eli Lilly, Watson Pharmaceuticals and VISX were all eliminated.
7 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
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AN INTERVIEW WITH MR. JACK HAMILTON OF DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
SUB-ADVISER TO GROWTH EQUITY FUND ("FUND") (CONCLUDED)
Q: HOW DO THE INDUSTRY ALLOCATIONS COMPARE TO THE RUSSELL 1000 GROWTH INDEX AND
THE S&P 500?
A: The portfolio is diversified primarily against the S&P 500. With the Russell
rebalancing that occurred last summer and the subsequent performance of the
technology sector, the Russell 1000 Growth Index has become very concentrated in
a few sectors. At year-end, technology was more than 45% of the Russell 1000
Growth Index and consumer staples and health care were both nearly 14%. These
three areas now account for nearly three-fourths of the Russell 1000 Growth
Index. In the S&P 500, those three sectors totaled half of the index on December
31, 1999. Compared to the S&P 500, the portfolio carried larger weightings in
technology, capital goods and consumer cyclicals. During 1999 these three
sectors all performed above the return generated by the S&P 500. Financials,
consumer staples, energy, basic materials, communications services and health
care were held at percentages below the index. Among the sectors that were
underweighted in the portfolio, only the basic materials group generated a
return superior to the S&P 500.
Q: HOW DID GROWTH STOCK INVESTING COMPARE TO THE S&P 500?
A: Growth stocks outperformed the S&P 500. Technology was the primary reason
for this outcome, while the traditional growth sectors such as health care,
communication services and consumer staples performed poorly. Performance was
more even between growth and value investment styles in sectors removed from
technology.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH DECEMBER 31, 1999. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT
ANY TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES
AND OTHER HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
8 Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
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AN INTERVIEW WITH MR. J. PHILIP FERGUSON OF BEUTEL, GOODMAN CAPITAL MANAGEMENT
SUB-ADVISER TO VALUE EQUITY FUND ("FUND")
Q: WHAT ATTRIBUTES OF YOUR FUND HAD THE MOST SIGNIFICANT IMPACT ON PERFORMANCE?
A: The overall market in 1999 was again narrowly focused and one-dimensional.
It was an extraordinary year for growth stock investors, especially in the
technology sector, but the broadly based market turned in a lackluster year. 67%
of NYSE stocks and 52% of S&P 500 stocks were actually DOWN for the year.
Looking strictly at the Russell 1000 Value Index, the best performance was
achieved in the areas characterized by high betas, low dividend yields, high P/E
ratios, high price/book ratios, large market capitalizations, highly liquid
trading volume, and high growth rate expectations. In other words, it was a
short list of large-cap stocks with growth characteristics that accounted for
most of the 7.4% return for the Index for the year; the true "value" stocks
within the Index were negative performers.
Relative to the Russell 1000 Value Index, our portfolio benefited from an
overweighting in companies with higher growth expectations and from positive
contributions in the energy and consumer staples areas. Our performance was hurt
by the portfolio's emphasis on stocks with the following characteristics: low
beta, high yield, low P/E ratio, low price/book ratio, mid-tier trading volume
characteristics, and, most significantly, by a bias toward the medium-sized
stocks within the index. Our stock selection was also a negative contributor,
especially in the consumer discretionary area where we had particularly poor
experience with holdings in R. R. Donnelly, Service Corp International, Warnaco
Group and Waste Management. These are substantial companies with leading market
shares within their respective industries, and at the time of purchase, they
each had compelling value characteristics. But in each case, subsequent
announcements of weakening fundamentals resulted in swift and significant damage
to the stock price.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: We were extremely disappointed in the performance of the portfolio. We
adhere to strict principles of value investing, and these have gone largely
unrewarded in the marketplace over the last two years.
The value benchmark has also become a difficult bogey for an active manager with
strict value investing disciplines. The Russell 1000 Value Index has become
"growthier" in recent years as the strength of the large-cap growth stocks has
forced more growth stocks from the 1000 Growth Index into the 1000 Value Index.
By definition, each sub-index accounts for 50% of the capitalization of the
Russell 1000, so the enormous recent strength of such companies as Microsoft and
Cisco Systems has pushed a large number of companies from the growth sub-index
into the value sub-index. Many of these companies are not appropriate for a
value
9 Memorial Funds
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- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. J. PHILIP FERGUSON OF BEUTEL, GOODMAN CAPITAL MANAGEMENT
SUB-ADVISER TO VALUE EQUITY FUND ("FUND") (CONTINUED)
portfolio, yet they become a part of the value benchmark. The following
companies are examples of current members of the value sub-index, even though
they have clear growth characteristics and, in some cases, are devoid of
earnings or appreciable revenues:
<TABLE>
<CAPTION>
COMPANY 1999 PRICE APPRECIATION
------- -----------------------
<S> <C>
AVX Corporation 194%
Cabletron Systems 210
Intuit, Inc. 194
Novellus Systems 147
Safeguard Scientifics 494
Scient Corporation 160
SDL, Inc. 1,050
Symantec Corp. 170
</TABLE>
Q: WHAT WERE THE LARGEST POSITIONS YOU ADDED TO AND SUBTRACTED FROM THE FUND IN
1999?
A: We added several quality companies in the economy-sensitive area, including
Hercules, Ingersoll-Rand, Nucor and Whirlpool. We also made net additions to the
financial and utilities sectors with new positions in Edison International, MGIC
Investment Corp., Southern Company and SouthTrust.
We cut back our weighting in the technology sector, as many of our holdings
there met or exceeded our sell targets for them. Weatherford International and
Sysco also were sold at their sell targets, after posting year-to-date
appreciation of 91% and 23%, respectively. As the year progressed, we became
much less tolerant of holding companies with softening fundamentals. Examples of
stocks in this category include Albertsons, Allstate, Federal Mogul, Lockheed
Martin, Newbridge Networks, Service Corporation International and Warnaco.
Q: HOW DO YOUR CURRENT INDUSTRY ALLOCATIONS COMPARE TO THE RUSSELL 1000 VALUE
INDEX SECTOR WEIGHTS?
A: Our industry allocations differ markedly from the Russell 1000 Value Index.
Over half of the benchmark's weight is comprised of Financials and Utilities.
Our total weight in these interest-sensitive areas is 37.7%, with 23.1% in the
Financials and 14.6% in Utilities. The weighting in technology stocks for the
benchmark is a relatively small 5.8%. We closed the year with 9.0% in this area.
Our three holdings, American Power Conversion, EDS and Intel, were among our
best performers for the year. Our overall energy weighting is in line with the
benchmark's weight of 11.1%, but we are light in the international oils (Royal
Dutch was the sole holding at year-end) and more heavily weighted in the "Other
Energy" category with positions in Burlington Resources, Cooper Cameron and El
Paso Energy.
10 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
AN INTERVIEW WITH MR. J. PHILIP FERGUSON OF BEUTEL, GOODMAN CAPITAL MANAGEMENT
SUB-ADVISER TO VALUE EQUITY FUND ("FUND") (CONCLUDED)
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?
A: 1999 was a very difficult year for value investors because the market
focused solely on growth, particularly in the technology sector. It was also one
of the narrowest markets in recent memory, with all of the gain in the S&P 500
being accounted for by only 30 stocks. As we closed the year, the large-cap
growth stocks were expensively valued by any historic measure, while value
stocks as a group sold at deep discounts to the market averages.
The markets have begun to broaden in the last few weeks and we are hopeful that
a new trend is developing. The separation in performance between the growth and
value sectors has never been more pronounced, as noted below. Extreme
disparities of performance like this are generally corrected in subsequent
periods.
<TABLE>
<CAPTION>
GROWTH VALUE
COMPONENT COMPONENT
-------------- -------------
<S> <C> <C>
Russell 1000 Index +33.2% +7.4%
Russell Midcap Index +51.3 (0.1)
Russell 2000 Index +43.1 (1.6)
</TABLE>
Value investing is founded on the soundest of financial principles. Over full
market cycles, there is an ebb and flow to market leadership, and history tells
us that value stocks are long overdue for a period of outperformance.
THE OPINIONS EXPRESSED IN THIS INTERVIEW REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH DECEMBER 31, 1999. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT
ANY TIME BASED ON THE MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES
AND OTHER HOLDINGS OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
11 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
These charts reflect a comparison in the change in value of a $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 reduce 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 U.S. GOVERNMENT BOND INDEX
GOVERNMENT BOND FUND LEHMAN BROTHERS U.S. GOVERNMENT BOND INDEX
<S> <C> <C>
3/29/1998 $10,000 $10,000
4/30/1998 $10,042 $10,045
5/31/1998 $10,137 $10,148
6/30/1998 $10,261 $10,264
7/31/1998 $10,267 $10,280
8/31/1998 $10,525 $10,547
9/30/1998 $10,814 $10,832
10/31/1998 $10,726 $10,795
11/30/1998 $10,770 $10,798
12/31/1998 $10,795 $10,822
1/31/1999 $10,872 $10,885
2/28/1999 $10,618 $10,625
3/31/1999 $10,654 $10,667
4/30/1999 $10,678 $10,691
5/31/1999 $10,585 $10,597
6/30/1999 $10,545 $10,576
7/31/1999 $10,506 $10,560
8/31/1999 $10,498 $10,560
9/30/1999 $10,599 $10,646
10/31/1999 $10,624 $10,663
11/30/1999 $10,613 $10,648
12/31/1999 $10,537 $10,579
Average Annual Total Return as of 12/31/99
Institutional Shares
One year (2.39%)
Since Inception on 3/29/98: 3.03%
Value on 12/31/99
Government Bond Fund: $10,537
Lehman Brothers U.S. Government Bond Index: $10,579
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CORPORATE BOND FUND VS. LEHMAN BROTHERS CORPORATE BOND INDEX
CORPORATE BOND FUND LEHMAN BROTHERS CORPORATE BOND INDEX
<S> <C> <C>
3/25/1998 $10,000 $10,000
4/30/1998 $10,049 $10,063
5/31/1998 $10,163 $10,183
6/30/1998 $10,280 $10,258
7/31/1998 $10,289 $10,249
8/31/1998 $10,481 $10,297
9/30/1998 $10,694 $10,631
10/31/1998 $10,592 $10,467
11/30/1998 $10,695 $10,664
12/31/1998 $10,751 $10,695
1/31/1999 $10,844 $10,801
2/28/1999 $10,613 $10,545
3/31/1999 $10,677 $10,619
4/30/1999 $10,705 $10,650
5/31/1999 $10,584 $10,508
6/30/1999 $10,539 $10,453
7/31/1999 $10,525 $10,395
8/31/1999 $10,511 $10,370
9/30/1999 $10,610 $10,483
10/31/1999 $10,608 $10,532
11/30/1999 $10,617 $10,543
12/31/1999 $10,561 $10,487
Average Annual Total Return as of 12/31/99
Institutional
Shares
One year (1.77%)
Since Inception on 3/25/98: 3.13%
Value on 12/31/99
Corporate Bond Fund: $10,561
Lehman Brothers Corporate Bond Index: $10,487
</TABLE>
EACH FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT. CHANGES IN VALUE OF LEHMAN BROTHERS U.S. GOVERNMENT
BOND INDEX AND LEHMAN BROTHERS CORPORATE BOND INDEX ARE BASED ON AN INCEPTION
DATE OF 3/31/98.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
12 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONCLUDED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
These charts reflect a comparison in the change in value of a $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 reduce 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
GROWTH EQUITY FUND (TRUST) GROWTH EQUITY FUND (INST) RUSSELL 1000 GROWTH INDEX
<S> <C> <C> <C>
3/29/1998 $10,000 $10,000 $10,000
4/30/1998 $10,060 $10,070 $10,224
5/31/1998 $9,880 $9,880 $9,934
6/30/1998 $10,561 $10,581 $10,543
7/31/1998 $10,431 $10,451 $10,473
8/31/1998 $9,081 $9,111 $8,901
9/30/1998 $9,913 $9,943 $9,585
10/31/1998 $10,423 $10,463 $10,355
11/30/1998 $10,963 $11,003 $11,143
12/31/1998 $12,057 $12,097 $12,148
1/31/1999 $12,931 $12,970 $12,861
2/28/1999 $12,320 $12,360 $12,274
3/31/1999 $12,861 $12,911 $12,920
4/30/1999 $12,924 $12,974 $12,936
5/31/1999 $12,598 $12,648 $12,539
6/30/1999 $13,598 $13,659 $13,417
7/31/1999 $13,082 $13,143 $12,991
8/31/1999 $12,977 $13,048 $13,203
9/30/1999 $12,870 $12,942 $12,926
10/31/1999 $13,651 $13,723 $13,902
11/30/1999 $13,945 $14,006 $14,652
12/31/1999 $15,018 $15,053 $16,176
Average Annual Total Return as of 12/31/99
Trust Institutional
Shares Shares
One year 24.56% 24.44%
Since Inception on 3/29/98: 26.06% 26.23%
Value on 12/31/99
Growth Equity Fund (Trust): $15,018
Growth Equity Fund (Inst): $15,053
Russell 1000 Growth Index: $16,176
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALUE EQUITY FUND VS. RUSSELL 1000 VALUE INDEX VALUE EQUITY VALUE EQUITY RUSSELL 1000
<S> <C> <C> <C>
FUND (TRUST) FUND (INST) VALUE INDEX
3/29/1998 $10,000 $10,000 $10,000
4/30/1998 $10,040 $10,040 $10,136
5/31/1998 $9,640 $9,640 $9,986
6/30/1998 $9,475 $9,485 $10,113
7/31/1998 $8,854 $8,874 $9,935
8/31/1998 $7,504 $7,524 $8,456
9/30/1998 $8,078 $8,108 $8,942
10/31/1998 $8,770 $8,790 $9,635
11/30/1998 $8,800 $8,830 $10,083
12/31/1998 $9,194 $9,224 $10,427
1/31/1999 $8,883 $8,913 $10,510
2/28/1999 $8,612 $8,632 $10,362
3/31/1999 $8,807 $8,837 $10,576
4/30/1999 $9,772 $9,802 $11,564
5/31/1999 $9,601 $9,631 $11,437
6/30/1999 $9,754 $9,794 $11,769
7/31/1999 $9,523 $9,563 $11,424
8/31/1999 $9,180 $9,220 $11,000
9/30/1999 $8,654 $8,694 $10,616
10/31/1999 $8,846 $8,886 $11,227
11/30/1999 $8,553 $8,583 $11,139
12/31/1999 $8,837 $8,858 $11,193
Average Annual Total Return as of 12/31/99
Trust Institutional
Shares Shares
One year (3.88%) (3.96%)
Since Inception on 3/29/98: (6.80%) (6.67%)
Value on 12/31/99
Value Equity Fund (Trust): $8,837
Value Equity Fund (Inst): $8,858
Russell 1000 Value Index: $11,193
</TABLE>
EACH FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT. CHANGES IN VALUE OF RUSSELL 1000 GROWTH INDEX AND
RUSSELL 1000 VALUE INDEX ARE BASED ON AN INCEPTION DATE OF 3/30/98.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
13 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------- -----------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATION
(3.5%)
2,500,000 FHLMC, Series 2080 PE,
6.00%, 11/15/21
(cost $2,471,094).... $ 2,394,188
-----------
GOVERNMENT BONDS & NOTES (37.9%)
5,500,000 FHLB, 5.50%, 7/14/00..... 5,479,821
2,000,000 FHLB, 5.25%, 4/25/02..... 1,945,464
2,500,000 FHLMC, 5.75%, 7/15/03.... 2,420,728
3,500,000 FHLMC, 6.25%, 7/15/04.... 3,419,500
3,500,000 FHLMC, 6.63%, 9/15/09.... 3,396,589
2,500,000 FNMA, 5.63%, 3/15/01..... 2,476,738
2,000,000 FNMA, 5.38%, 3/15/02..... 1,952,460
5,000,000 FNMA, 5.75%, 6/15/05..... 4,752,000
-----------
Total Government Bonds & Notes
(cost $26,382,191) 25,843,300
-----------
MORTGAGE BACKED SECURITIES (17.6%)
2,454,700 FHLMC, Gold Pool 1936,
6.00%, 11/01/28........ 2,251,790
1,815,921 FHLMC, Gold Pool G00767,
7.50%, 8/01/27......... 1,800,832
2,836,240 FNMA, Pool 440700, 6.00%,
11/01/28............... 2,599,074
2,820,214 FNMA, Pool 440737, 6.00%,
12/01/28............... 2,584,387
2,986,736 GNMA, Pool 476998, 6.50%,
7/15/29................ 2,806,597
-----------
Total Mortgage Backed Securities
(cost $12,763,771) 12,042,680
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------- -----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (38.1%)
U.S. INFLATION INDEX NOTE (4.4%)
3,000,000 3.63%, 1/15/08
(cost $3,026,070).... $ 2,972,919
-----------
U.S. TREASURY NOTES (15.1%)
5,500,000 6.63%, 7/31/01........... 5,537,812
2,000,000 5.75%, 8/15/03........... 1,958,750
850,000 6.50%, 10/15/06.......... 847,875
2,000,000 6.13%, 8/15/07........... 1,950,000
-----------
Total U.S. Treasury Notes
(cost $10,674,318) 10,294,437
-----------
U.S. TREASURY BONDS (18.6%)
1,500,000 7.13%, 2/15/23........... 1,562,345
12,150,000 6.00%, 2/15/26........... 11,117,250
(cost $14,256,023)....... 12,679,595
-----------
Total U.S. Treasury Obligations
(cost $27,956,411) 25,946,951
-----------
SHORT-TERM HOLDING (2.9%)
2,004,473 Merrimac U.S. Government
Fund, 5.11%
(cost $2,004,473).... 2,004,473
-----------
Total Investments (100.0%)
(cost $71,577,940) $68,231,592
===========
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. 14
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------ ------------
<C> <S> <C>
ASSET BACKED SECURITIES (3.9%)
1,400,000 Chase Funding Mortgage
Loan, 7.06%,
8/25/14............... $ 1,392,895
1,415,663 General Motors
Acceptance Corp.,
5.83%, 5/15/33........ 1,336,648
1,500,000 Residential Asset
Securities Corp.,
7.08%, 9/25/20........ 1,493,063
1,620,000 Residential Funding
Mortgage Securities
II, 7.34%, 7/25/12.... 1,613,674
------------
Total Asset Backed Securities
(cost $5,942,456) 5,836,280
------------
COLLATERALIZED MORTGAGE OBLIGATIONS
(8.0%)
300,000 Commonwealth Edison
Transitional Funding
Trust, Series 1998-1
A7, 5.74%, 12/25/10... 270,686
1,600,000 EQCC Home Equity Loan
Trust, Series 1996-4
A6, 6.88%, 7/15/14.... 1,595,864
1,500,000 EQCC Home Equity Loan
Trust, 7.07%,
11/25/24.............. 1,492,628
1,300,000 FHLMC, 6.50% VR,
1/15/22............... 1,260,500
936,667 FHLMC, 7.50% VR,
12/15/24.............. 939,505
1,000,000 First Plus Home Loan
Trust, Series 1998-3
A5, 6.49%, 7/10/17.... 982,165
1,643,934 First Union-Chase
Mortgage Trust, Series
1999-C2, Class A1,
6.36%, 6/15/08........ 1,583,413
754,804 First Union Commercial
Mortgage Trust, Series
1999-C1, Class A1,
5.73%, 1/15/08........ 711,780
2,000,000 First Union Lehman
Brothers, 6.60%,
5/18/07............... 1,917,990
489,229 FNMA, 6.50%, 4/1/28..... 462,199
500,000 Money Store Home Equity
Trust, Series 1996-D
A13, 6.64%, 9/15/14... 497,303
256,781 Mortgage Index
Amortizing Trust,
Series 1997-1 A1,
6.68%, 8/25/04 #...... 254,895
------------
Total Collateralized Mortgage
Obligations
(cost $12,212,887)
11,968,928
------------
CORPORATE BONDS & NOTES (66.8%)
2,600,000 AES Eastern Energy,
9.00%, 1/2/17......... 2,450,565
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------ ------------
<C> <S> <C>
CORPORATE BONDS & NOTES, CONTINUED
3,000,000 Alltel Corp., 6.80%,
5/1/29................ $ 2,616,408
1,500,000 Ameritech Capital
Funding, 6.55%,
1/15/28............... 1,305,114
2,600,000 Armstrong World
Industries, 6.35%,
8/15/03............... 2,507,905
565,000 Associates Corp. of
North America, 5.60%,
1/15/01............... 558,549
1,500,000 AT&T Corp., 6.50%,
3/15/29............... 1,288,047
2,000,000 Avco Financial Services,
6.00%, 8/15/02........ 1,942,182
1,500,000 Bellsouth
Telecommunications,
6.00% VR, 6/15/02..... 1,470,357
500,000 Carramerica Realty,
6.63%, 3/1/05......... 454,624
1,000,000 Case Credit Corp.,
5.95%, 8/1/00......... 996,409
1,000,000 Centura Banks, Inc.,
6.50%, 3/15/09........ 907,024
1,000,000 Choice Hotels
International Corp.,
7.13%, 5/1/08......... 930,376
450,000 Colonial Realty LP,
7.50%, 7/15/01........ 446,575
1,000,000 Commonwealth Edison,
8.38%, 2/15/23........ 973,297
1,565,569 Continental Airlines,
Inc., 6.65%,
3/15/19............... 1,417,098
1,000,000 CPI Corp., 9.00%,
3/15/02 (+)........... 1,019,067
2,500,000 East Coast Power LLC,
7.54%, 6/30/17........ 2,216,534
1,200,000 Edison Mission Energy,
7.73%, 6/15/09........ 1,192,673
2,000,000 ENSCO International,
Inc., 7.20%,
11/15/27.............. 1,750,142
1,575,000 Fidelity Investments,
7.57%, 6/15/29 (+).... 1,518,650
650,000 First Interstate
Bancorp, 9.13%,
2/1/04................ 690,736
3,000,000 First Union National
Bank, 5.80%,
12/1/08............... 2,655,420
3,000,000 Ford Motor Co., 7.45%,
7/16/31............... 2,892,630
1,000,000 Ford Motor Credit Co.,
6.70%, 7/16/04........ 979,345
3,500,000 General Motors
Acceptance Corp.,
6.75%, 2/7/02......... 3,479,665
2,000,000 Household Finance Corp.,
6.13% VR, 7/15/02..... 1,949,262
1,800,000 Key Bank NA, 6.50%,
4/15/08............... 1,675,656
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. 15
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------ ------------
<C> <S> <C>
CORPORATE BONDS & NOTES, CONTINUED
1,000,000 LASMO (USA), Inc.,
7.30%, 11/15/27....... $ 913,739
3,000,000 Lehman Brothers
Holdings, 6.63%,
12/27/02.............. 2,937,621
1,500,000 Lehman Brothers
Holdings, 7.00%,
5/15/03............... 1,479,914
1,500,000 Liberty Media Group,
8.50%, 7/15/29........ 1,523,091
400,000 Marriott International,
Inc., 6.63%,
11/15/03.............. 384,452
750,000 MCN Investment Corp.,
6.35%, 4/2/02......... 730,297
500,000 Merrill Lynch, 6.07%,
4/6/04................ 480,005
2,900,000 Morgan Stanley Dean
Witter, 5.88%,
2/28/01............... 2,873,636
3,000,000 Motorola, Inc., 6.50%,
11/15/28.............. 2,584,977
2,600,000 Mutual Life Insurance
Co. of NY, 11.25% VR,
8/15/24 (+)........... 3,354,585
1,500,000 National Rural Utilities
Corp., 5.50%,
1/15/05............... 1,399,220
1,000,000 NGC Corp., 7.13%,
5/15/18............... 879,613
1,500,000 Noble Drilling Corp.,
7.50%, 3/15/19........ 1,435,458
2,000,000 Osprey Trust, 8.31%,
1/15/03 (+)........... 1,987,158
5,450,000 PNC Bank Corp., 7.50%,
11/1/09............... 5,376,152
3,600,000 Public Service Electric
& Gas Co., 6.13%,
8/1/02................ 3,526,956
1,000,000 Puget Sound Energy,
Inc., 7.00%, 3/9/29... 875,703
700,000 Reckson Operating
Partnership, 7.40%,
3/15/04............... 675,443
1,000,000 Reynolds (R.J.) Tobacco
Holding, 7.38%,
5/15/03............... 939,870
1,500,000 Rohm & Haas Co., 7.85%,
7/15/29............... 1,511,862
250,000 Rollins Truck Leasing
Corp., 6.88%,
8/1/01................ 248,576
862,166 Seabrook Station-Unit 1,
7.83%, 1/2/19......... 809,565
3,000,000 Sears Roebuck Acceptance
Corp., 6.12%,
12/13/01.............. 2,930,253
200,000 Shopko Stores, 6.50%,
8/15/03............... 190,013
1,000,000 Sprint Capital Corp.,
6.90%, 5/1/19......... 914,246
1,500,000 Suntrust Capital, 7.90%,
6/15/27............... 1,407,485
2,500,000 Tele-Communications,
Inc., 9.80%, 2/1/12... 2,925,645
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------ ------------
<C> <S> <C>
CORPORATE BONDS & NOTES, CONTINUED
2,000,000 Texas Instruments,
7.00%, 8/15/04........ $ 1,966,584
1,500,000 Texas Utilities Electric
Co., 6.75%, 4/1/03.... 1,481,565
1,500,000 Tyco International Group
SA, 5.88%, 11/1/04.... 1,389,984
3,000,000 U.S. Bank N.A., 6.30%,
7/15/08............... 2,772,543
1,500,000 Union Planters Bank NA,
6.50%, 3/15/08........ 1,349,673
1,200,000 United Dominion Realty
Trust, 8.13%,
11/15/00.............. 1,206,530
1,500,000 Utilicorp United, 7.63%,
11/15/09.............. 1,447,206
1,000,000 Waste Management, Inc.,
7.65%, 3/15/11........ 863,958
------------
Total Corporate Bonds & Notes
(cost $103,991,115) 100,057,888
------------
MORTGAGE BACKED SECURITIES (5.2%)
1,498,952 FHLMC, Pool C32933,
7.50%, 1/1/28......... 1,485,681
512,398 FHLMC, Pool E69646,
6.00%, 3/01/13........ 487,781
388,127 FHLMC, Pool E70688,
6.00%, 6/1/13......... 369,480
850,829 FHLMC, Pool E75926,
6.00%, 4/1/14......... 808,996
1,344,470 FHLMC, Pool E76404,
6.00%, 4/1/14......... 1,279,878
901,944 FNMA, Pool 251818,
6.00%, 6/1/18......... 840,512
233,880 FNMA, Pool 313873,
7.00%, 12/1/27........ 228,171
259,342 FNMA, Pool 399774,
7.00%, 5/1/28......... 251,293
762,405 FNMA, Pool 422848,
6.00%, 4/1/18......... 710,477
279,934 FNMA, Pool 428152,
7.00%, 5/1/28......... 271,246
918,204 FNMA, Pool 428968,
6.00%, 6/1/28......... 841,424
299,354 GNMA, Pool 504583,
7.50%, 10/15/29....... 296,329
------------
Total Mortgage Backed Securities
(cost $8,158,855) 7,871,268
------------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. 16
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS (concluded)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS & NOTES (4.1%)
150,000 Denver, CO, Urban
Renewal Authority, Tax
Increment RV, Adams
Mark Hotel, Series A,
6.37%, 9/1/02......... $ 147,257
1,000,000 Madison, WI, Community
Development Authority
RV, 6.20%, 7/2/18..... 1,012,024
875,000 Oklahoma County, OK,
Finance Authority
MFHR, Oakridge Village
Apartments, Series A,
8.05%, 10/1/09........ 885,232
240,000 Reeves County, TX, Tax
COP, 6.70%, 3/31/05... 240,042
2,000,000 Reeves County, TX, Tax
COP, Law Enforcement
Center, 7.25%,
6/1/11................ 1,898,884
200,000 Show Low, AZ, IDA
Hospital RV, Navapache
Regional Medical
Center, Series B, ACA
Insured, 6.25%,
12/1/00............... 199,408
250,000 Show Low, AZ, IDA
Hospital RV, Navapache
Regional Medical
Center, Series B, ACA
Insured, 6.50%,
12/1/02............... 246,734
290,000 Show Low, AZ, IDA
Hospital RV, Navapache
Regional Medical
Center, Series B, ACA
Insured, 6.60%,
12/1/03............... 284,514
250,000 St. Charles County, MO,
Public Arena Authority
Leasehold Taxable RV,
Family Area Project,
6.54%, 9/15/05........ 232,851
1,000,000 Wickliffe, KY, Solid
Waste Disposal
Facilities RV,
Westvaco Corp Project,
7.67%, 1/15/27 (+).... 978,780
------------
Total Municipal Bonds & Notes
(cost $6,332,154) 6,125,726
------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------ ------------
<C> <S> <C>
PREFERRED STOCK (1.4%)
1,000 Centaur Funding Corp.,
9.08%, 4/21/20 (+).... $ 1,023,750
40,000 Lincoln National
Capital, 6.40%,
8/13/01............... 997,500
------------
Total Preferred Stock
(cost $2,000,000) 2,021,250
------------
U.S. TREASURY OBLIGATIONS (7.2%)
U.S. TREASURY NOTE (4.7%)
7,260,000 6.00%, 8/15/09
(cost $7,198,450)..... 7,035,397
------------
U.S. TREASURY BONDS (2.5%)
125,000 5.25%, 11/15/28......... 103,047
4,405,000 5.25%, 2/15/29.......... 3,645,138
------------
Total U.S. Treasury Bonds
(cost $3,964,184) 3,748,185
------------
Total U.S. Treasury Obligations
(cost $11,162,634) 10,783,582
------------
SHORT-TERM HOLDING (3.4%)
5,099,256 Merrimac U.S. Government
Fund, 5.11%
(cost $5,099,256)..... 5,099,256
------------
Total Investments (100.0%)
(cost $154,899,357) $149,764,178
============
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. 17
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------- -----------
<C> <S> <C>
COMMON STOCK (95.7%)
APPAREL & ACCESSORY STORES (1.0%)
10,170 Intimate Brands, Inc..... $ 438,581
-----------
BUILDING MATERIALS, HARDWARE, &
GARDEN SUPPLY (2.8%)
17,400 Home Depot, Inc.......... 1,192,988
-----------
BUSINESS SERVICES (14.9%)
6,800 Adobe Systems, Inc....... 457,300
9,300 America Online,
Inc. *................. 701,569
16,600 First Data Corp.......... 818,588
15,100 Microsoft Corp. *........ 1,762,925
10,000 Omnicom Group, Inc....... 1,000,000
7,300 Oracle Corp. *........... 818,056
4,800 Siebel Systems,
Inc. *................. 403,200
6,500 Synopsys, Inc. *......... 433,874
-----------
6,395,512
-----------
CHEMICALS & ALLIED PRODUCTS (5.1%)
14,400 Estee Lauder Cos.,
Inc.................... 726,300
8,900 Procter & Gamble Co...... 975,106
11,600 Schering-Plough Corp..... 489,375
-----------
2,190,781
-----------
COMMUNICATIONS (5.1%)
12,900 AT&T Corp................ 654,675
6,200 Clear Channel
Communications,
Inc. *................. 553,350
19,900 SBC Communications,
Inc.................... 970,125
-----------
2,178,150
-----------
DOMESTIC DEPOSITORY INSTITUTIONS (3.6%)
6,823 Bank of America Corp..... 342,429
14,550 Citigroup, Inc........... 808,434
4,400 Providian Financial
Corp................... 400,675
-----------
1,551,538
-----------
EATING & DRINKING PLACES (1.2%)
12,800 McDonald's Corp.......... 516,000
-----------
ELECTRIC, GAS & SANITARY SERVICES (0.8%)
14,000 Reliant Energy, Inc...... 320,250
-----------
ELECTRONIC & OTHER ELECTRICAL
EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (10.5%)
23,100 American Power Conversion
Corp. *................ 609,263
12,400 General Electric Co...... 1,918,900
7,100 Motorola, Inc............ 1,045,475
4,800 Solectron Corp. *........ 456,600
</TABLE>
<TABLE>
ELECTRONIC & OTHER ELECTRICAL
EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER EQUIPMENT,
CONTINUED
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------- -----------
<C> <S> <C>
4,900 Texas Instruments,
Inc.................... $ 474,688
-----------
4,504,926
-----------
ENGINEERING, ACCOUNTING, RESEARCH,
MANAGEMENT & RELATED SERVICES (1.4%)
14,800 Paychex, Inc............. 592,000
-----------
FEDERAL AGENCIES & INSTRUMENTALITIES
(1.3%)
8,800 Federal National Mortgage
Assocation............. 549,450
-----------
FOOD & KINDRED PRODUCTS (1.2%)
7,500 Anheuser-Busch Cos.,
Inc.................... 531,563
-----------
GENERAL MERCHANDISE STORES (2.5%)
15,800 Wal-Mart Stores, Inc..... 1,092,175
-----------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (19.8%)
11,300 Cisco Systems, Inc. *.... 1,210,513
5,300 Comverse Technology,
Inc. *................. 767,175
10,200 EMC Corp................. 1,114,350
4,900 IBM Corp................. 529,200
8,100 Intel Corp............... 666,731
5,100 Lexmark International
Group, Inc. *.......... 461,550
5,100 Linear Technology
Corp................... 364,969
12,540 Lucent Technologies,
Inc.................... 938,149
21,625 Symbol Technologies,
Inc.................... 1,374,539
10,700 Tandy Corp............... 526,306
10,800 Vitesse Semiconductor
Corp. *................ 566,325
-----------
8,519,807
-----------
INSURANCE AGENTS, BROKERS & SERVICE
(2.3%)
10,400 Marsh & McLennan Cos.,
Inc.................... 995,150
-----------
INSURANCE CARRIERS (2.4%)
8,500 AFLAC, Inc............... 401,094
5,750 American International
Group, Inc............. 621,719
-----------
1,022,813
-----------
MEASURING, ANALYZING, & CONTROLLING
INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (2.1%)
9,400 Allergan, Inc............ 467,650
8,400 Waters Corp. *........... 445,200
-----------
912,850
-----------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. 18
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS (concluded)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------- -----------
<C> <S> <C>
MISCELLANEOUS RETAIL (1.2%)
14,900 Bed Bath & Beyond,
Inc. *................. $ 517,775
-----------
OIL & GAS EXTRACTION (3.1%)
13,100 Apache Corp.............. 483,881
19,000 Enron Corp............... 843,125
-----------
1,327,006
-----------
PERSONAL SERVICES (0.9%)
7,000 Cintas Corp.............. 371,875
-----------
PETROLEUM REFINING & RELATED
INDUSTRIES (3.0%)
12,500 Conoco, Inc., Class A.... 309,375
11,900 Exxon Mobil Corp......... 958,694
-----------
1,268,069
-----------
PHARMACEUTICAL PREPARATIONS (3.0%)
11,300 Bristol-Myers Squibb
Co..................... 725,319
8,700 Merck & Co., Inc......... 583,444
-----------
1,308,763
-----------
</TABLE>
<TABLE>
PRINTING, PUBLISHING & ALLIED INDUSTRIES
(2.1%)
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ------------ ------------------------- -----------
<C> <S> <C>
15,200 Viacom, Inc. - Class
B *.................... $ 918,650
-----------
SECURITY & COMMODITY BROKERS, DEALERS,
EXCHANGES & SERVICES (2.2%)
6,700 Morgan Stanley Dean
Witter................. 956,425
-----------
WHOLESALE TRADE-DURABLE GOODS (2.2%)
10,200 Johnson & Johnson........ 949,875
-----------
Total Common Stock
(cost $33,400,521) 41,122,972
-----------
SHORT-TERM HOLDING (4.3%)
1,842,118 Merrimac U.S Government
Fund, 5.11% (cost
$1,842,118)............ 1,842,118
-----------
Total Investments (100.0%)
(cost $35,242,639) $42,965,090
===========
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. 19
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- --------------------- ------------------------------ -----------
<C> <S> <C>
COMMON STOCK (95.7%)
BUSINESS SERVICES (5.8%)
12,000 Electronic Data Systems
Corp........................ $ 803,250
27,400 First Data Corp............... 1,351,163
-----------
2,154,413
-----------
COMMUNICATIONS (5.8%)
19,900 GTE Corp...................... 1,404,194
15,302 SBC Communications, Inc....... 745,973
-----------
2,150,167
-----------
DOMESTIC DEPOSITORY INSTITUTIONS (6.5%)
25,400 First Union Corp.............. 833,438
27,600 SouthTrust Corp............... 1,043,625
20,800 Washington Mutual, Inc........ 540,800
-----------
2,417,863
-----------
ELECTRIC, GAS & SANITARY SERVICES (14.3%)
19,300 Duke Energy Corp.............. 967,412
48,600 Edison International.......... 1,272,713
32,200 El Paso Energy Corp........... 1,249,762
44,500 Southern Co................... 1,045,750
47,000 Waste Management, Inc......... 807,812
-----------
5,343,449
-----------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT
COMPUTER EQUIPMENT (7.9%)
67,800 American Power Conversion
Corp. *..................... 1,788,225
17,900 Whirlpool Corp................ 1,164,619
-----------
2,952,844
-----------
FOOD & KINDRED PRODUCTS (2.5%)
32,900 Hercules, Inc................. 917,088
-----------
GENERAL MERCHANDISE STORES (3.2%)
23,500 Federated Department Stores,
Inc. *...................... 1,188,219
-----------
HEALTH SERVICES (2.1%)
26,500 Columbia HCA Healthcare
Corp........................ 776,781
-----------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER
EQUIPMENT (7.3%)
19,300 Ingersoll-Rand Co............. 1,062,706
9,200 Intel Corp.................... 757,274
42,300 Pall Corp..................... 912,094
-----------
2,732,074
-----------
INSURANCE AGENTS, BROKERS & SERVICE (5.5%)
12,500 Marsh & McLennan Cos., Inc.... 1,196,094
</TABLE>
<TABLE>
INSURANCE AGENTS, BROKERS & SERVICE, CONTINUED
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- --------------------- ------------------------------ -----------
<C> <S> <C>
14,400 MGIC Investment Corp.......... $ 866,700
-----------
2,062,794
-----------
INSURANCE CARRIERS (2.6%)
18,100 MBIA, Inc..................... 955,906
-----------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC,
MEDICAL & OPTICAL GOODS (3.3%)
19,400 Baxter International, Inc..... 1,218,563
-----------
NONDEPOSITORY CREDIT INSTITUTIONS (5.1%)
27,400 Household International,
Inc......................... 1,020,650
20,600 SLM Holding Corp.............. 870,350
-----------
1,891,000
-----------
OIL & GAS EXTRACTION (2.3%)
26,500 Burlington Resources, Inc..... 876,156
-----------
PAPER & ALLIED PRODUCTS (4.6%)
14,000 Bowater, Inc.................. 760,375
15,400 Champion International
Corp........................ 953,838
-----------
1,714,213
-----------
PETROLEUM REFINING & RELATED INDUSTRIES (5.5%)
23,600 Cooper Cameron Corp. *........ 1,154,925
14,700 Royal Dutch Petroleum Company,
New York Registered
Shares...................... 888,431
-----------
2,043,356
-----------
PRIMARY METAL INDUSTRIES (2.6%)
18,000 Nucor Corp.................... 986,625
-----------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (5.0%)
37,300 Donnelley (R.R) & Sons Co..... 925,507
11,700 Gannett Co., Inc.............. 954,281
-----------
1,879,788
-----------
TRANSPORTATION EQUIPMENT (3.8%)
24,300 Dana Corp..................... 727,481
24,900 Goodrich (B.F.) Co............ 684,751
-----------
1,412,232
-----------
Total Common Stock
(cost $35,746,242) 35,673,531
-----------
SHORT-TERM HOLDING (4.3%)
1,600,655 Merrimac U.S. Government Fund,
5.11% (cost $1,600,655)..... 1,600,655
-----------
Total Investments (100.0%)
(cost $37,346,897) $37,274,186
===========
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. 20
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
(*) Non-income producing securities.
(+) 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. These securities are deemed to be liquid at December 31, 1999 by
procedures approved by the Board of Trustees.
(#) Securities that are fair valued as determined by the Board of Trustees. (See
Note 2 to Notes to Financial Statements).
Definition of certain terms:
<TABLE>
<S> <C>
ACA American Capital Access Corp.
COP Certificates of Participation
EQCC EquiCredit Corporation
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Assoc.
GNMA Government National Mortgage Assoc.
IDA Industrial Development Authority
MFHR Multi Family Housing Revenue
RV Revenue Bonds
VR Variable Rate--these securities are deemed to have a
maturity remaining until the next adjustment of the
interest rate or the longer of the demand period or
readjustment. The interest rates shown reflect the rate in
effect on December 31, 1999.
</TABLE>
See Notes to Financial Statements. 21
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<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................................... $71,577,940 $154,899,357 $35,242,639 $37,346,897
Net unrealized appreciation (depreciation)............ (3,346,348) (5,135,179) 7,722,451 (72,711)
----------- ------------ ----------- -----------
Total investments at value.......................... 68,231,592 149,764,178 42,965,090 37,274,186
Receivables for Fund shares sold........................ -- 899,793 -- --
Interest, dividends and other receivables............... 1,190,828 2,646,437 17,069 65,129
Organization costs, net of amortization (Note 2)........ 19,468 19,403 19,468 19,468
Prepaid expenses........................................ 2,499 5,166 1,580 1,294
----------- ------------ ----------- -----------
Total Assets................................................ 69,444,387 153,334,977 43,003,207 37,360,077
----------- ------------ ----------- -----------
LIABILITIES:
Dividends payable....................................... 277,345 778,183 -- 323
Payable for investments purchased....................... -- -- 549,383 --
Payable to investment adviser (Note 3).................. 25,257 54,951 10,378 9,022
Payable to administrator (Note 3)....................... 8,858 19,217 5,189 4,510
Payable to shareholder servicing agent (Note 3)......... 14,764 32,118 3,721 3,324
Accrued fees, other liabilities and other expenses...... 36,176 59,879 36,341 33,263
----------- ------------ ----------- -----------
Total Liabilities........................................... 362,400 944,348 605,012 50,442
----------- ------------ ----------- -----------
NET ASSETS.................................................. $69,081,987 $152,390,629 $42,398,195 $37,309,635
=========== ============ =========== ===========
COMPONENTS OF NET ASSETS:
Paid in capital......................................... $73,080,058 $162,301,130 $34,820,614 $40,838,783
Undistributed net investment income..................... 981 65,927 -- --
Net unrealized appreciation (depreciation) of
investments............................................ (3,346,348) (5,135,179) 7,722,451 (72,711)
Accumulated net realized loss from investments.......... (652,704) (4,841,249) (144,870) (3,456,437)
----------- ------------ ----------- -----------
NET ASSETS.................................................. $69,081,987 $152,390,629 $42,398,195 $37,309,635
=========== ============ =========== ===========
NET ASSETS BY SHARE CLASS
Trust Shares............................................ $ -- $ -- $ 564,901 $ 241,701
Institutional Shares.................................... 69,081,987 152,390,629 41,833,294 37,067,934
----------- ------------ ----------- -----------
NET ASSETS.................................................. $69,081,987 $152,390,629 $42,398,195 $37,309,635
=========== ============ =========== ===========
SHARES OF BENEFICIAL INTEREST
Trust Shares............................................ -- -- 45,348 27,681
Institutional Shares.................................... 7,269,570 16,309,412 3,345,617 4,234,471
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE) PER SHARE
Trust Shares............................................ $ -- $ -- $ 12.46 $ 8.73
Institutional Shares.................................... $ 9.50 $ 9.34 $ 12.50 $ 8.75
</TABLE>
See Notes to Financial Statements. 22
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT CORPORATE GROWTH VALUE
BOND FUND BOND FUND EQUITY FUND EQUITY FUND
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income....................................... $ -- $ 170,942 $ 280,965 $ 606,233
Interest income....................................... 3,960,350 9,399,142 89,288 113,556
----------- ----------- ---------- -----------
Total Investment Income................................... 3,960,350 9,570,084 370,253 719,789
----------- ----------- ---------- -----------
EXPENSES:
Investment advisory (Note 3).......................... 154,352 332,876 143,402 132,560
Shareholder servicing (Note 3)
Institutional Shares................................ 141,716 306,888 81,842 75,958
Administration (Note 3)............................... 100,664 216,654 61,458 56,811
Transfer agent (Note 3)
Trust Shares........................................ -- -- 675 489
Institutional Shares................................ 24,601 25,020 36,084 36,137
Accounting (Note 3)................................... 39,000 57,000 51,000 51,000
Distribution (Note 3)
Trust Shares........................................ -- -- 1,280 901
Legal................................................. 16,367 35,320 10,441 10,040
Audit................................................. 14,500 14,500 14,500 14,500
Custody............................................... 8,450 25,564 17,924 7,482
Trustees.............................................. 5,940 12,740 3,457 3,115
Registration
Trust Shares........................................ -- -- 44 2
Institutional Shares................................ 8,375 13,622 9,830 8,713
Reporting
Trust Shares........................................ -- -- 825 877
Institutional Shares................................ 3,741 9,168 2,305 2,585
Amortization of organization costs (Note 2)........... 6,000 6,000 6,000 6,000
Miscellaneous......................................... 8,883 20,869 7,839 5,903
----------- ----------- ---------- -----------
Total Expenses............................................ 532,589 1,076,221 448,906 413,073
Expenses reimbursed and fees waived (Note 4).............. (44,740) (96,486) (37,706) (32,977)
----------- ----------- ---------- -----------
Net Expenses.............................................. 487,849 979,735 411,200 380,096
----------- ----------- ---------- -----------
NET INVESTMENT INCOME (LOSS).............................. 3,472,501 8,590,349 (40,947) 339,693
----------- ----------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from investments............. (652,093) (4,742,972) 3,509,663 (1,526,723)
Net change in unrealized appreciation (depreciation)
on investments....................................... (4,425,792) (6,321,805) 4,718,673 (568,697)
----------- ----------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.... (5,077,885) (11,064,777) 8,228,336 (2,095,420)
----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................... $(1,605,384) $(2,474,428) $8,187,389 $(1,755,727)
=========== =========== ========== ===========
</TABLE>
See Notes to Financial Statements. 23
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND CORPORATE BOND FUND
----------------------------- -----------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998(A) 1999 1998(A)
---- ------- ---- -------
<S> <C> <C> <C> <C>
NET ASSETS--BEGINNING OF PERIOD $ 65,675,565 $ -- $137,337,990 $ --
OPERATIONS
Net investment income.................................... 3,472,501 1,774,865 8,590,349 5,074,635
Net realized gain (loss) from investments................ (652,093) 889,300 (4,742,972) 2,741,126
Net change in unrealized appreciation (depreciation) of
investments............................................. (4,425,792) 1,079,444 (6,321,805) 1,186,626
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
operations............................................ (1,605,384) 3,743,609 (2,474,428) 9,002,387
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income--Institutional Shares.............. (3,472,501) (1,774,865) (8,525,409) (5,074,635)
Net realized capital gain from investments--Institutional
Shares.................................................. -- (889,917) (64,940) (2,774,463)
------------ ------------ ------------ ------------
Total distributions to shareholders.................... (3,472,501) (2,664,782) (8,590,349) (7,849,098)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of shares--Institutional Shares..................... 23,623,194 85,999,880 46,850,315 177,765,653
Reinvestment of distributions--Institutional Shares...... 800,527 920,555 297,903 2,329,123
Redemption of shares--Institutional Shares............... (15,939,414) (22,323,697) (21,030,802) (43,910,075)
------------ ------------ ------------ ------------
Net increase from capital transactions................. 8,484,307 64,596,738 26,117,416 136,184,701
------------ ------------ ------------ ------------
Net increase in net assets............................. 3,406,422 65,675,565 15,052,639 137,337,990
------------ ------------ ------------ ------------
NET ASSETS--END OF PERIOD (A).............................. $ 69,081,987 $ 65,675,565 $152,390,629 $137,337,990
============ ============ ============ ============
(A) Including accumulated undistributed net investment
income................................................. $ 981 $ 423 $ 65,927 $ 423
============ ============ ============ ============
<CAPTION>
SHARES SHARES SHARES SHARES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS
Sale of shares--Institutional Shares..................... 2,428,982 8,492,304 4,910,769 17,666,188
Reinvestment of distributions--Institutional Shares...... 81,464 89,801 30,819 231,044
Redemption of shares--Institutional Shares............... (1,646,393) (2,176,588) (2,247,532) (4,281,876)
------------ ------------ ------------ ------------
Net increase in shares................................... 864,053 6,405,517 2,694,056 13,615,356
============ ============ ============ ============
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
See Notes to Financial Statements. 24
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH EQUITY FUND VALUE EQUITY FUND
----------------------------- -----------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998(A) 1999 1998(A)
---- ------- ---- -------
<S> <C> <C> <C> <C>
NET ASSETS--BEGINNING OF PERIOD $ 26,799,219 $ -- $ 30,974,497 $ --
OPERATIONS
Net investment income (loss)............................. (40,947) 33,237 339,693 104,472
Net realized gain (loss) from investments................ 3,509,663 3,424,032 (1,526,723) (1,929,714)
Net change in unrealized appreciation (depreciation) of
investments............................................. 4,718,673 3,003,778 (568,697) 495,986
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 8,187,389 6,461,047 (1,755,727) (1,329,256)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income--Trust Shares...................... (21) (297) (3,042) (905)
Net investment income--Institutional Shares.............. (1,694) (31,648) (338,111) (103,341)
Net realized capital gain from investments--Trust
Shares.................................................. (66,157) (18,252) -- --
Net realized capital gain from investments--Institutional
Shares.................................................. (5,153,827) (1,799,949) -- --
Return of capital--Trust Shares.......................... (3,996) -- -- --
Return of capital--Institutional Shares.................. (311,013) -- -- --
------------ ------------ ------------ ------------
Total distributions to shareholders.................... (5,536,708) (1,850,146) (341,153) (104,246)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of shares--Trust Shares............................. 258,856 1,620,834 152,500 1,519,346
Sale of shares--Institutional Shares..................... 66,333,303 48,487,911 28,294,889 34,931,423
Reinvestment of distributions--Trust Shares.............. 70,174 18,549 2,720 905
Reinvestment of distributions--Institutional Shares...... 2,652,027 1,285,045 89,810 45,654
Redemption of shares--Trust Shares....................... (169,280) (1,302,403) (186,539) (1,206,242)
Redemption of shares--Institutional Shares............... (56,196,785) (27,921,618) (19,921,362) (2,883,087)
------------ ------------ ------------ ------------
Net increase from capital transactions................. 12,948,295 22,188,318 8,432,018 32,407,999
------------ ------------ ------------ ------------
Net increase in net assets............................. 15,598,976 26,799,219 6,335,138 30,974,497
------------ ------------ ------------ ------------
NET ASSETS--END OF PERIOD (A).............................. $ 42,398,195 $ 26,799,219 $ 37,309,635 $ 30,974,497
============ ============ ============ ============
(A) Including accumulated undistributed net investment
income................................................. $ -- $ 1,715 $ -- $ 649
============ ============ ============ ============
<CAPTION>
SHARES SHARES SHARES SHARES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS
Sale of shares--Trust Shares............................... 21,397 161,489 16,602 153,755
Sale of shares--Institutional Shares....................... 5,356,774 4,716,662 3,060,722 3,655,098
Reinvestment of distributions--Trust Shares................ 5,968 1,622 302 105
Reinvestment of distributions--Institutional Shares........ 224,237 111,988 10,032 5,273
Redemption of shares--Trust Shares......................... (14,620) (130,508) (22,427) (120,656)
Redemption of shares--Institutional Shares................. (4,535,771) (2,528,273) (2,174,325) (322,329)
------------ ------------ ------------ ------------
Net increase in shares..................................... 1,057,985 2,332,980 890,906 3,371,246
============ ============ ============ ============
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
See Notes to Financial Statements. 25
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND CORPORATE BOND FUND
--------------------------- ---------------------------
INSTITUTIONAL SHARES INSTITUTIONAL SHARES
--------------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998(A) 1999 1998(A)
---- ------- ---- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.25 $ 10.00 $ 10.09 $ 10.00
------- ------- -------- --------
Investment Operations:
Net investment income................................... 0.51 0.39 0.57 0.43
Net realized and unrealized gain (loss) on
investments............................................ (0.75) 0.39 (0.75) 0.30
------- ------- -------- --------
Total from Investment Operations............................ (0.24) 0.78 (0.18) 0.73
------- ------- -------- --------
Distributions from:
Net investment income................................... (0.51) (0.39) (0.57) (0.43)
Net realized gain on investments........................ -- (0.14) -- (0.21)
------- ------- -------- --------
Total Distributions......................................... (0.51) (0.53) (0.57) (0.64)
------- ------- -------- --------
Net asset value, end of period.............................. $ 9.50 $ 10.25 $ 9.34 $ 10.09
======= ======= ======== ========
Total Return (b)............................................ (2.39)% 7.96% (1.77)% 7.50%
Ratio/Supplementary Data:
Ratios to average net assets:
Expenses, including reimbursement/waiver of fees........ 0.73% 0.73%(c) 0.68% 0.63%(c)
Expenses, excluding reimbursement/waiver of fees........ 0.79% 0.85%(c) 0.74% 0.76%(c)
Net investment income (loss), including
reimbursement/waiver of fees........................... 5.17% 5.05%(c) 5.94% 5.60%(c)
Portfolio turnover rate..................................... 25% 114% 291% 377%
Net assets at end of period (000's omitted)................. $69,082 $65,676 $152,391 $137,338
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Total returns would have been lower had certain expenses not been reduced
during the period shown (Note 4).
(c) Annualized.
See Notes to Financial Statements. 26
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
GROWTH EQUITY FUND
---------------------------------------------------------
TRUST SHARES INSTITUTIONAL SHARES
--------------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998(A) 1999 1998(A)
---- ------- ---- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $11.45 $10.00 $ 11.49 $ 10.00
------ ------ ------- -------
Investment Operations:
Net investment income (loss)............................ (0.01) 0.01 (0.01) 0.01
Net realized and unrealized gain on investments......... 2.67 2.05 2.67 2.09
------ ------ ------- -------
Total from Investment Operations............................ 2.66 2.06 2.66 2.10
------ ------ ------- -------
Distributions from:
Net investment income..................................... (0.00)(d) (0.01) (0.00)(d) (0.01)
Net realized gain on investments.......................... (1.55) (0.60) (1.56) (0.60)
Return of capital......................................... (0.10) -- (0.09) --
------ ------ ------- -------
Total Distributions......................................... (1.65) (0.61) (1.65) (0.61)
------ ------ ------- -------
Net asset value, end of period.............................. $12.46 $11.45 $ 12.50 $ 11.49
====== ====== ======= =======
Total Return (b)............................................ 24.56% 20.57% 24.44% 20.97%
Ratio/Supplementary Data:
Ratios to average net assets:
Expenses, including reimbursement/waiver of fees........ 1.01% 1.25%(c) 1.00% 1.00%(c)
Expenses, excluding reimbursement/waiver of fees........ 1.32% 2.29%(c) 1.09% 1.19%(c)
Net investment income (loss), including
reimbursement/waiver of fees........................... (0.11)% 0.14%(c) (0.10)% 0.16%(c)
Portfolio turnover rate..................................... 108% 135% 108% 135%
Net assets at end of period (000's omitted)................. $ 565 $ 373 $41,833 $26,426
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Total returns would have been lower had certain expenses not been reduced
during the period shown (Note 4).
(c) Annualized.
(d) Distributions per share were $.00055.
See Notes to Financial Statements. 27
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONCLUDED)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
VALUE EQUITY FUND
---------------------------------------------------------
TRUST SHARES INSTITUTIONAL SHARES
--------------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998(A) 1999 1998(A)
---- ------- ---- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.16 $10.00 $ 9.19 $ 10.00
Investment Operations:
Net investment income................................... 0.08 0.02 0.08 0.03
Net realized and unrealized gain (loss) on
investments............................................ (0.43) (0.83) (0.44) (0.81)
------ ------ ------- -------
Total from Investment Operations........................ (0.35) (0.81) (0.36) (0.78)
------ ------ ------- -------
Distributions from:
Net investment income..................................... (0.08) (0.03) (0.08) (0.03)
Net realized gain on investments.......................... -- -- -- --
------ ------ ------- -------
Total Distributions......................................... (0.08) (0.03) (0.08) (0.03)
------ ------ ------- -------
Net asset value, end of period.......................... $ 8.73 $ 9.16 $ 8.75 $ 9.19
====== ====== ======= =======
Total Return (b)............................................ (3.88)% (8.06)% (3.96)% (7.76)%
Ratio/Supplementary Data:
Ratios to average net assets:
Expenses, including reimbursement/waiver of fees........ 1.07% 1.25%(c) 1.00% 1.00%(c)
Expenses, excluding reimbursement/waiver of fees........ 1.38% 2.40%(c) 1.09% 1.25%(c)
Net investment income (loss), including
reimbursement/waiver of fees........................... 0.86% 0.34%(c) 0.90% 0.59%(c)
Portfolio turnover rate..................................... 60% 37% 60% 37%
Net assets at end of period (000's omitted)................. $ 242 $ 304 $37,068 $30,670
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Total returns would have been lower had certain expenses not been reduced
during the period shown (Note 4).
(c) Annualized.
See Notes to Financial Statements. 28
Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
The 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 authorizes each Fund to issue an unlimited number
of shares of beneficial interest. The classes of each Fund and their dates of
commencement of operations are as follows:
<TABLE>
<S> <C>
Government Bond Fund (Institutional Shares) March 29, 1998
Corporate Bond Fund (Institutional Shares) March 25, 1998
Growth Equity Fund (Trust and Institutional Shares) March 29, 1998
Value Equity Fund (Trust and Institutional Shares) March 29, 1998
</TABLE>
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 as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern
time), on each Fund's business day. If no sales are reported, the mean of the
last bid and asked price is used. Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to reflect fair
value as quoted by dealers who make markets in those securities or by an
independent pricing source. U.S. Government obligations are valued at the last
reported bid price. In the absence of readily available market quotations,
securities are valued at fair value as determined by the Board of Trustees. At
December 31, 1999, Corporate Bond Fund holds securities valued at fair value as
determined by the Board of Trustees amounting to $254,895 or 0.2%, of the Fund's
net assets. 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 is 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 and registration of shares 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 each year as a regulated investment
company and distribute all its taxable income. 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.
As of December 31, 1999, Value Equity Fund has a capital loss carryover of
$1,035,112 expiring on December 31, 2006; and Government Bond Fund, Corporate
Bond Fund and Value Equity Fund have capital loss carryovers in the amounts of
$630,263, $4,648,921, $1,497,610, respectively, expiring December 31, 2007,
available to offset future net realized capital gains.
29 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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 an advisory fee at an annual rate of
0.23% of the average daily net assets of Government Bond Fund and Corporate Bond
Fund, and 0.35% of the average daily net assets of Growth Equity Fund and Value
Equity Fund. In addition, the Adviser has retained the following investment
sub-advisers (each a "Sub-adviser") for each Fund pursuant to an investment
sub-advisory agreement with the Adviser:
<TABLE>
<S> <C>
Government Bond Fund The Northern Trust Company
Corporate Bond Fund Conseco Capital Management, Inc.
Growth Equity Fund Davis Hamilton Jackson & Associates, L.P.
Value Equity Fund Beutel, Goodman Capital Management
</TABLE>
Currently, the Adviser pays the Sub-advisers of Government Bond Fund and
Corporate Bond Fund an annual fee of 0.20% of the average daily net assets of
each Fund. The Sub-advisers 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 Sub-adviser may vary
from time to time as a result of periodic negotiations with each Sub-adviser
regarding such matters as the nature and extent of the services provided (other
than investment selection and order placement activities). 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
Sub-advisers. Wellesley receives a fee from the Adviser of 0.02% of the average
annual net assets of the Funds (decreasing to 0.015% at average annual net
assets levels of $250 million but less than $500 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.
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 fee
of $24,000 per year, plus certain account and additional class charges.
Forum Fund Services, LLC ("FFS"), a registered broker-dealer and a member of the
National Association of Securities Dealers, Inc., acts as each Fund's
distributor pursuant to a separate distribution agreement with the Trust. Prior
to May 1, 1999, Forum Financial Services, Inc., served as each Fund's
distributor. The Trust has adopted a plan of distribution pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act"). Currently, FFS
has agreed to waive all Rule 12b-1 fees charged to the Funds.
Forum Accounting Services, LLC ("FAcS"), an affiliate of FAdS, serves as the
fund accountant for each Fund, for which it receives a fee of $36,000 per year,
per Fund, plus certain share class charges and 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 the Adviser and other qualified financial institutions to act as
shareholder servicing agents for their customers. Under this plan, the Trust
pays Memorial Group, Inc. a fee at an annual rate of 0.25% of the average daily
net assets of each Fund. Prior to July 1, 1999, FAdS paid Memorial Group, Inc. a
fee at an annual rate of 0.17% of the average daily net assets of Institutional
Shares of Government Bond Fund and Corporate Bond Fund and 0.15% of the average
daily net assets of the Institutional Shares of Growth Equity Fund and Value
Equity 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.
30 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Adviser, Sub-advisers, Memorial Group, Inc., FSS and FAcS may voluntarily
waive a portion of their fees. In addition, FAdS may, under certain
circumstances, assume certain expenses of the Funds. For the year end
December 31, 1999, the Sub-advisers, Memorial Group, Inc. and FFS have
voluntarily waived fees as follows:
<TABLE>
<CAPTION>
INVESTMENT MEMORIAL
ADVISORY GROUP, INC. FFS TOTAL
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
Government Bond Fund........................................ $44,740 $ -- $ -- $44,740
Corporate Bond Fund......................................... 96,486 -- -- 96,486
Growth Equity Fund.......................................... 25,163 11,263 1,280 37,706
Value Equity Fund........................................... 22,816 9,260 901 32,977
</TABLE>
NOTE 5. SECURITIES TRANSACTIONS
The cost of securities purchased and the proceeds from sales of securities,
other than short-term securities, for the year ended December 31, 1999, were as
follows:
<TABLE>
<CAPTION>
COST OF
GOVERNMENT PROCEEDS FROM
COST OF PURCHASES PROCEEDS FROM SALES PURCHASES GOVERNMENT SALES
------------------ --------------------- ------------- ------------------
<S> <C> <C> <C> <C>
Government Bond Fund............. $ 28,053,116 $ 15,988,782 $ 11,323,906 $ 10,756,909
Corporate Bond Fund.............. 428,398,689 404,272,820 172,999,912 169,701,837
Growth Equity Fund............... 49,039,160 42,047,386 -- --
Value Equity Fund................ 29,376,778 21,182,937 -- --
</TABLE>
For federal income tax purposes, the tax cost basis of investment securities
owned, the aggregate gross unrealized appreciation, the aggregate gross
unrealized depreciation and net unrealized appreciation (depreciation) as of
December 31, 1999, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET REALIZED
UNREALIZED UNREALIZED APPRECIATION
TAX COST APPRECIATION DEPRECIATION (DEPRECIATION)
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Government Bond Fund.............................. $ 71,577,940 $ -- $3,346,348 ($3,346,348)
Corporate Bond Fund............................... 155,075,722 57,886 5,369,430 (5,311,544)
Growth Equity Fund................................ 35,387,509 8,749,451 1,171,870 7,577,581
Value Equity Fund................................. 37,404,076 4,100,350 4,230,240 (129,890)
</TABLE>
NOTE 6. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR
For federal income tax purposes, dividends from short term capital gains are
classified as ordinary income. The percentage of qualifying dividends eligible
for the corporate dividend received deduction for Value Equity Fund was 100%.
31 Memorial Funds
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees of the Memorial Funds:
We have audited the accompanying statements of assets and liabilities of
Government Bond Fund, Corporate Bond Fund, Growth Equity Fund, and Value Equity
Fund, portfolios of the Memorial Funds, including the schedules of investments
as of December 31, 1999, the related statements of operations for the year then
ended and the statements of changes in net assets and financial highlights for
the year then ended and for the period March 29, 1998 (commencement of
operations)(March 25, 1998 for the Corporate Bond Fund)) to December 31, 1998.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Government Bond Fund, Corporate Bond Fund, Growth Equity Fund, and Value Equity
Fund as of December 31, 1999, the results of their operations, changes in their
net assets and their financial highlights for the year or periods described
above in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 2, 2000
32 Memorial Funds
<PAGE>
THE MEMORIAL GROUP
INVESTMENT ADVISER
Forum Investment Advisors, LLC
Two Portland Square
Portland, Maine 04101
<TABLE>
<S> <C>
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.