MEMORIAL FUNDS
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
June 30, 2000 SEMI-ANNUAL REPORT
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Dear Memorial Funds Shareholder:
On behalf of the Board of Trustees, I am happy to present the Semi-Annual Report
for the Memorial Funds for the period ended June 30, 2000. We thank you for your
continuing support.
As of June 30, 2000, assets in the four Memorial Funds totaled $246 million. We
continue to be quite pleased with the performance of the Corporate Bond Fund and
Government Bond Fund, each of which ranked in the top half of its Lipper
category for the twelve months ended June 30. Lipper, Inc. ranked the Corporate
Bond Fund 70 out of 174 Corporate Debt Funds A-Rated for the one-year period
ended June 30, 2000, and ranked the Government Bond Fund 46 out of 184 General
U.S. Government Funds for the same period, with both ratings based on total
return.(1) The Growth Equity Fund has performed very well during the first six
months of the year, exceeding the S&P 500 Index, the Russell 1000 Growth Index
and the Lipper Large-Cap Growth Funds Average. The performance of the Value
Equity Fund has continued to lag, and consequently the Board of Trustees, with
shareholder approval, effected a change in Sub-adviser for the Fund. PPM America
assumed those responsibilities effective April 1, 2000.
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, I would like to thank all of you who have supported us
with your investments. We remain committed to meeting your investment needs for
many years to come.
Sincerely,
/s/ Christopher W. Hamm
Christopher W. Hamm
President-Memorial Funds
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(1) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Lipper, Inc. is an
independent mutual fund research and ranking service.
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TABLE OF CONTENTS
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INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA
Sub-Adviser Interviews:
Government Bond Fund...................................... 1
Corporate Bond Fund....................................... 6
Growth Equity Fund........................................ 8
Value Equity Fund......................................... 10
FINANCIAL STATEMENTS OF THE MEMORIAL FUNDS
Schedules of Investments:
Government Bond Fund...................................... 12
Corporate Bond Fund....................................... 13
Growth Equity Fund........................................ 16
Value Equity Fund......................................... 18
Notes to Schedules of Investments........................... 20
Statements of Assets and Liabilities........................ 21
Statements of Operations.................................... 22
Statements of Changes in Net Assets......................... 23
Financial Highlights........................................ 25
Notes to Financial Statements............................... 27
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA
JUNE 30, 2000 (unaudited)
Forum Investment Advisors, LLC, the investment adviser to the Memorial Funds,
posed various questions to the sub-advisers of the four portfolios subsequent to
the end of the reporting period. Those questions, and the responses received
from the investment managers, provide insight into the investment style,
portfolio positioning and the expectations of the managers for 2000.
AN INTERVIEW WITH MR. MONTY MEMLER OF THE NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND")
Q: HOW WAS YOUR PERFORMANCE FOR THE FIRST SIX MONTHS OF THE FUND'S FISCAL YEAR
(JANUARY 1-JUNE 30, 2000), FOR THE ONE-YEAR ENDING JUNE 30, 2000, AND SINCE
THE FUND'S INCEPTION?
A: Bond-market performance during the first six months of the year was
atypical, to say the least. In the first quarter, despite much
stronger-than-expected economic growth and somewhat higher-than-anticipated
inflation, yields of 30-year Treasury bonds declined nearly 65 basis points.
This dramatic divergence pushed the Treasury coupon yield curve to an inverted
configuration, with 2-year Treasury notes yielding 65 basis points more than
30-year securities at the end of March 2000. This reflected the market's rapid
adjustment to the belief that burgeoning Treasury surpluses would reduce the
outstanding supply of Treasury bonds. In the second quarter, nearly unchanged
Treasury yields masked significant sentiment shifts during the latter three
months. The first half of the second quarter was marked by increasing investor
anxiety about the strong pace of economic growth and its implications for
inflation and monetary policy. These worries manifest themselves in rising
interest rates and widening swap spreads, both of which peaked shortly after the
central bank's 50-basis-point federal funds last rate hike on May 16, 2000. The
Fed's aggressive move--capping a series of increases in the overnight lending
rate totaling 100 basis points in the first half of the year--was followed by a
string of weaker than expected economic data, which bond buyers embraced as
signaling an increasing likelihood of an impending "soft landing." Subsequently,
Treasury rates declined significantly, especially in shorter maturities more
sensitive to monetary policy.
Year-to-date, the Fund has generated a positive total return, after expenses, of
4.26% versus a 4.97% return for the Lehman Brothers U.S. Government Bond Index.
For the trailing one-year period, the Fund has generated a positive total
return, after expenses, of 4.18% versus 5.01% for the Lehman Brothers U.S.
Government Bond Index. Since its inception date on March 30, 1998, the Fund has
generated, after expenses, an annualized total return of 4.27% versus 4.77% for
the index.
Q: WHAT ATTRIBUTES OF YOUR PORTFOLIO HAD THE MOST SIGNIFICANT IMPACT ON THE
PERFORMANCE OF YOUR PORTFOLIO? WHY?
A: The portfolio has been positioned with similar interest rate sensitivity and
greater non-Treasury exposure versus the benchmark. We maintained this posture
throughout the first half of the year. As a result, our interest rate decision
had little impact on the relative performance during the period.
Our sector decisions had a negative impact on relative performance. Throughout
the first six months, the fund was overweighted in non-Treasury securities, such
as Agency and Agency Mortgage-backed securities. Ripple effects from the
Treasury market's performance led nearly all spread sectors to
Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. MONTY MEMLER OF THE NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND") (CONTINUED)
underperform Treasury securities. The damage was greatest in long-dated
maturities, where spread product could not keep pace with the buying frenzy in
long Treasuries. Other factors also contributed to spread sector
underperformance. Comments from Washington questioning whether government
sponsored enterprises such as Fannie Mae and Freddie Mac still merit federal
government support caused spreads on agency and mortgage debt to widen versus
Treasury issues. However, some relief was apparent late in the second quarter,
as investor's degree of risk tolerance reflected improvement with respect to
non-Treasury bond sectors. For the period, Agency and Agency Mortgage-backed
securities underperformed duration equivalent Treasuries.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: We entered the first half of the year with the expectation that additional
Fed tightening activity would be moderate. As a consequence, we also expected
any upward pressure on Treasury rates to be modest. Expecting debt reduction to
be a positive underpinning for the market, we were willing to maintain a neutral
interest rate posture in the Fund. As a result, we were successful with the
management of the relative interest rate factors. We were somewhat surprised,
however, by the magnitude of the revised surplus estimates and the resultant
positive reaction and corresponding returns provided by the Treasury market,
especially from longer-dated maturities.
The contribution of spread sensitive securities was more negative than what we
had anticipated. The Fund was structured to reflect an overweight of high
quality non-Treasury securities. As stated above, these securities
underperformed Treasuries during the first six months.
Q: WHAT WERE THE LARGEST POSITIONS YOU ADDED TO AND SUBTRACTED FROM YOUR
PORTFOLIO? DO YOU EXPECT ANY MAJOR PORTFOLIO SHIFTS DURING THE REMAINDER OF
2000?
A: During the first half, we maintained the Fund's overall sensitivity to
changes in spreads from both Mortgage-backed and Agency securities with only
minor adjustments.
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 GOVERNMENT BOND INDEX?
A: As stated above, the duration of the portfolio is similar to that of the
index. As of June 30, 2000, the duration of the Fund was 5.21 years versus 5.32
years for the Lehman Brothers U.S. Government Bond Index.
Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. MONTY MEMLER OF THE NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND") (CONTINUED)
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 June, reflects
the following:
ECONOMIC OUTLOOK
FED LIKELY TO ACHIEVE GROWTH-SLOWDOWN GOAL IN SECOND HALF
The preponderance of recent economic evidence suggests there has been a
pronounced moderation in the pace of domestic demand for goods and services,
particularly at the consumer level. Retail sales have declined for two months
running and do not appear to be rebounding significantly. The slowdown in
consumer spending is most noticeable in durable goods. This weakening in
household spending is confirmed by a decline in consumer confidence. Although
the residential real estate market has not turned down in any meaningful sense,
both the demand and supply of houses appear to have plateaued. The May
employment report, which included an outright decline in private sector jobs,
probably exaggerated the weakening in the labor market due to survey timing and
seasonal adjustment problems. Nevertheless, the recent modest increase in weekly
initial jobless claims does point to some diminution in the excess demand for
labor.
Gross domestic product (GDP) growth has slowed significantly in the second
quarter of each of the past two years, only to rebound sharply. Why should we
expect less of a rebound this year? One reason is that the character of the
current slowdown is different from that of the prior two years. Domestic final
demand growth has declined dramatically this year in contrast to the two prior
years. Moreover, this year's second-quarter slowdown is different in that it has
come after repeated Fed interest-rate hikes. The federal funds rate was flat in
the four quarters preceding the 1998 second-quarter slowdown and dropped 75
basis points in the four quarters preceding the 1999 second-quarter slowdown.
Not only has the inflation rate including energy prices moved up this year, but
so too has the inflation rate excluding energy. Most of the acceleration in
consumer "core" inflation has occurred in the services components--primarily
shelter, medical care, public transportation and education. The higher energy
prices we continue to experience are likely to translate into faster price
increases for some core items. If, however, aggregate economic demand continues
along its current, more moderate growth path as we expect, then core inflation
should crest in the second half of this year. Although the economic slowdown
will have only minimal effects on medical care and education costs, it should
moderate price increases of shelter and public transportation services, as well
as keep a lid on price increases for an array of core goods.
We believe the Fed is very close to achieving the degree of moderation in
aggregate demand it desires. The slowdown in the pace of economic activity
already being observed is expected to be reinforced by the lagged effects of
monetary policy tightenings implemented earlier this year. The fact the Fed
chose
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. MONTY MEMLER OF THE NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND") (CONTINUED)
not to tighten policy at its June 28 meeting and the conciliatory tone of the
statement announcing this decision suggests the Fed, too, believes it is close
to achieving its goals. Nevertheless, because core inflation is likely to move
marginally higher in the next few months and because economic growth could show
signs of a temporary re-acceleration, there remains the risk of some additional
modest Fed tightening this summer. Although our base-case forecast envisions
economic growth settling in at a rate at or near the economy's long-run
potential growth rate, our most likely alternative scenario is growth re-
accelerates next year and inflationary pressures re-emerge. The probable
catalyst for this would be stronger foreign demand. If that happens, more
aggressive Fed tightening than we currently anticipate could precipitate a
sudden and sharp slowing in economic activity due to the high level of
indebtedness of the private sector.
FIXED INCOME OUTLOOK
MAINTAIN NEUTRAL PORTFOLIO DURATIONS BUT OVERWEIGHT LONG TREASURY BONDS
While we fully respect the accumulating evidence that the economy is
slowing, we do not share the developing consensus opinion that the monetary
authority is finished tightening. We believe the Fed will act again to address
what it recently reiterated were "risks [that] continue to be weighted mainly
toward conditions that may generate heightened inflation pressures in the
foreseeable future." Consequently, although we continue to recommend neutral
portfolio durations for long-term oriented investors, we believe a short-term
opportunity has presented itself. Specifically, we believe short-maturity
Treasury rates significantly below the federal funds 6.5% target rate are
unsustainably low. Thus, we are making a tactical decision to adopt slightly
shorter than benchmark durations by reducing exposure to short-term Treasury
securities in favor of higher-yielding cash equivalents while we wait for the
market to realign itself to our view. This shift does not alter our decision to
overweight long Treasury bonds. In fact, the Clinton Administration's recent $1
trillion upward revision to the next decade's budget surplus bolsters the case
we have been making for a greater inversion between 10-year and 30-year Treasury
yields. We are not worried political developments in the near term will alter
the perception that most of the burgeoning surplus will be used to pay down
outstanding government debt, but it is a potential development we continue to
scrutinize closely.
Our other fairly long held recommendation to maintain an overweight to spread
product in general--but to concentrate it in high quality, short-term and
intermediate-term maturities--is unchanged. We continue to overweight mortgage
spread product, believing volatility will stay relatively low, and swap spreads
will be stable to tighter. However, we still recommend caution regarding credit
risk, especially in longer maturities where both additional Treasury curve
inversion and credit concerns would be most detrimental. Even though the recent
economic slowing has been greeted by credit spread contraction in the past
month, we are concerned this optimism may be misplaced. While it may be
premature to paint too gloomy a picture on the credit front, there definitely
have been signs of credit deterioration in pockets of corporate America. A
slower economy is apt to put greater pressure on many corporate borrowers,
Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. MONTY MEMLER OF THE NORTHERN TRUST COMPANY
SUB-ADVISER TO GOVERNMENT BOND FUND ("FUND") (CONCLUDED)
especially those who are struggling to find traction in today's
hyper-competitive environment. We also have seen with increasing frequency
capital markets are showing no mercy for companies that disappoint investors. We
feel it is prudent to be even more vigilant in evaluating credits and to broadly
diversify holdings among industries and companies best positioned to weather a
more uncertain environment than has prevailed recently.
Q: WHAT IS YOUR CURRENT SECTOR ALLOCATION? HOW DOES THIS COMPARE TO YOUR
BENCHMARK?
A: As noted above, we made few changes to the sector exposure during the first
six months. Our current allocation among sectors includes 36% exposure to Agency
issues, which continue to represent a growing percentage of the index.
Currently, Agencies represent nearly 25% of the Lehman Brothers U.S. Government
Bond Index. The Fund's mortgage-backed exposure represents 24% of the portfolio.
The Lehman US 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.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value of an investment will fluctuate so that the shares, when
redeemed, may be worth more or less than their original cost. During the period,
some of the Fund's fees were waived or expenses reimbursed; otherwise total
return would have been lower. Performance assumes reinvestment of dividends and
capital gain distributions.
The Lehman Brothers U.S. Government Bond Index is an unmanaged index,
representing all publicly issued, non-convertible, domestic debt of the U.S.
Government or any agency thereof. Individuals cannot invest directly in the
Index.
The opinions expressed in this interview reflect those of the portfolio manager
only through June 30, 2000. 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.
Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
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 credit spread sectors widened significantly during the second
quarter of 2000. Much of this widening can be attributed to the Federal Open
Market Committee (FOMC) increasing the Fed Funds Rate 50 basis points during the
quarter and fears that further increases would follow. In addition, there is
increasing fear of a higher level of impairments and downgrades.
Q: HOW DID YOUR PERFORMANCE OVER THE PERIOD COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: We expected credit spreads to tighten during the quarter as they were
already at the wide end of recent historical ranges; however, credit spreads
moved sharply wider in April. Volatility in the equity markets associated with a
sell off in technology and small cap stocks translated into wider swap spreads
and wider credit spreads across the board, especially in the lower quality BBB
Sector where we were overweighted.
As the FOMC continued to raise short term interest rates, market participants
questioned when the increases would stop and whether the economy would have a
soft or a hard landing from the recent period of strong growth. This uncertainty
also drove credit spreads wider.
Q: HOW DOES THIS COMPARE TO THE LEHMAN BROTHERS U.S. CREDIT INDEX?
A: From its inception date through June 30, 2000, the Fund returned 3.77% while
the Lehman Brothers Index returned 3.33% over the same period.
Q: WHAT IS THE FUND'S CURRENT DURATION?
A: The portfolio duration at June 30, 2000 was 5.44 years while the duration of
the Lehman Brothers U.S. Credit Index was 5.49 years.
Q: WHAT IS YOUR OUTLOOK FOR INTEREST RATES IN THE NEAR TERM? HOW WILL YOUR
OUTLOOK AFFECT THE COMPOSITION OF THE FUND?
A: With growth showing signs of slowing, the Fed will likely finish their
involvement for the rest of the year by increasing interest rates one last time.
Our belief is that the economy will continue to exhibit signs of moderation and
that the actions taken by the Fed will begin to pay dividends in restraining
inflation.
Restrained inflation, the FOMC's control over the short end of the Treasury
yield curve and continued Treasury buy backs of longer maturities, will cause
the Treasury yield curve to remain inverted for at least the near term. Despite
only marginally higher yields than short-term maturities, long-dated spread
product is attractive due to wider spreads and reduced risk of price
depreciation from higher Treasury yields.
Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. GREGORY HAHN OF CONSECO CAPITAL MANAGEMENT, INC.
SUB-ADVISER TO CORPORATE BOND FUND ("FUND") (CONCLUDED)
Q: WHAT IS YOUR OUTLOOK WITH REGARD TO CREDIT SPREADS BETWEEN GOVERNMENT AND
CORPORATE BONDS? HOW DOES THIS AFFECT THE FUND?
A: Market expectations that the FOMC tightening cycle is near the end should
reduce volatility in the equity and credit markets, causing credit spreads to
tighten. To take advantage of the expected credit spread rally we continue our
overweight in the BBB credit sector.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value of an investment will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost. Average annual total returns
of the Fund's Institutional shares for the 1-year and since inception (March 25,
1998) periods ending June 30, 2000 were 3.18% and 3.77%, respectively.
Performance assumes the reinvestment of dividends and capital gain
distributions. During the period, some of the Fund's fees were waived or
expenses reimbursed; otherwise total return would have been lower.
The Lehman Brothers U.S. Credit Index is an unmanaged index, representing all
publicly issued, fixed-rate, non-convertible investment grade debt registered
under the Securities Act of 1933. One cannot invest directly in the Index.
The opinions expressed in this interview reflect those of the portfolio manager
only through June 30, 2000. The manager's opinions are subject to change at any
time based on the market and other conditions. The composition, industries and
holdings of the portfolio are subject to change.
Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. PATRICK CLEGG 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: During the second quarter of 2000, the technology sector relinquished its
role as the best performing area. Following three consecutive quarters of
substantial gains and market dominance, P/E multiples contracted during the
quarter for the technology sector, compressing valuation and thrusting new
sectors into stock market leadership. The decline in the market's largest sector
pulled the S&P 500 down 2.7% in the second quarter, and left it down 0.4% year
to date. This negative return is the first, on a semi-annual basis, from the S&P
500 since the last Fed tightening campaign in 1994. The technology sector
remained ahead of the market return in the first half, but the sector is now up
only 3% for the year. For comparative purposes the NASDAQ Composite, comprised
primarily of technology companies, dropped 13.2% in the June quarter. The fund
declined 2.1% in the second quarter, but remained up 5.9% in the first half of
2000. Health care was the best performing sector in the first half, advancing
23%. The fund's holdings in the pharmaceutical area helped performance while
medium-sized specialty companies Allergan and Forest Labs also were strong.
Energy was another market leading sector with rising earnings estimate revisions
due to persistently strong commodity prices and increases in capital budgets.
The fund maintained a market weighting in this sector which is a relatively
large commitment given our growth style. Utilities were the only other sector to
post returns above the S&P 500. The fund carried a market weighting in this
segment with our holding in Enron. Consumer Cyclicals, Telecommunications and
Basic Materials were at the bottom of first half performance. Fears that the
Federal Reserve's tightening bias would choke off consumer spending pulled the
Consumer Cyclicals down. In addition, same store sales during April and May were
weak relative to analyst expectations for the first time in more than a year.
The fund held underweighted positions in all of these areas. This helped
relative performance. Even within the volatile technology sector our focus on
companies with earnings lessened the price decline suffered by the fund during
the second quarter sell-off. Several technology holdings including EMC Corp,
Adobe Systems, Comverse Technology, Intel, Linear Technology, Oracle Systems,
Paychex, Texas Instruments, and Waters Corporation had substantial price
advances during the first half of 2000.
Q: HOW DID PERFORMANCE COMPARE TO YOUR EXPECTATIONS?
A: Performance exceeded our expectations in the first half. Outperforming the
S&P 500 by more than 600 basis points with such narrow leadership is a strong
outcome with a diversified portfolio. Many growth funds accentuated their
returns in the first quarter with the very hot IPO market. Most, if not all, of
those extra gains disappeared in the second quarter, leaving them materially
behind the S&P in the first half. Our performance was more even with the fund
performing well in the first quarter and then also outperforming a more
challenging environment in the second quarter.
Q: WHAT WERE THE LARGEST POSITIONS ADDED AND SUBTRACTED IN THE FIRST HALF OF
2000?
A: The largest additions or new positions had strong earnings trends as a
common theme. The purchases increased the fund weighting in that sector or acted
as a replacement of another holding where our analysis indicated fundamentals
were no longer improving. The largest additions were to
Memorial Funds
8
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. PATRICK CLEGG OF DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
SUB-ADVISER TO GROWTH EQUITY FUND ("FUND") (CONCLUDED)
Broadwing Inc., Sprint PCS, Best Buy, Cardinal Health, Walt Disney, Robert Half
International, BJ Services, Chubb Corp., Forest Labs, Pfizer, Dell Computer,
Nortel Networks, and Oracle Systems. The most significant deletions occurred
where earnings growth showed evidence of slowing relative to our expectations.
Positions that were eliminated included Cintas Corp., Tandy Corp., Home Depot,
McDonald's, American International Group, Bristol-Myers Squibb, America Online,
IBM Corp., Lexmark International, Lucent Technologies, Synopsys Inc., and
Reliant Energy.
Q: HOW DID THE INDUSTRY ALLOCATIONS COMPARE TO THE RUSSELL 1000 GROWTH INDEX
AND THE S&P 500?
A: The portfolio continues to be diversified primarily against the industry
sector weightings in the S&P 500. The June rebalancing of the Russell Index has
further skewed the sector allocations to levels that do not represent what we
consider to be a diversified portfolio. The Russell 1000 Growth Index technology
sector weighting as of June 30 was 57.5% using S&P sector classifications. By
fund guidelines we cannot have a portfolio concentration in an industry that is
so large. The S&P 500's technology sector holding was 33.2% on June 30. The fund
held 37.3% of its holdings in that area. The sector overweights relative to the
S&P 500 were in Technology, Capital Goods, and Consumer Staples. Market
positions were held in Energy, Health Care, Financials, and Utilities. Basic
Materials, Transportation, and Consumer Cyclicals had smaller than index
positions.
Q: HOW DID GROWTH STOCK INVESTING COMPARE TO THE S&P 500?
A: As we expected, the market began to broaden in participation in the second
quarter. Small and midcap stocks are ahead of the S&P 500 in the first half, and
sectors apart from technology are beginning to perform better. Growth stocks
maintained their lead over value mainly due to the continued influence of the
technology sector. Health care leadership was also concentrated among the large
capitalization pharmaceutical companies with the highest growth rates.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Due to current market
volatility, the Growth Equity Fund's current performance may be less than the
figures presented. Investment return and principal value of an investment will
fluctuate so that the shares, when redeemed, may be worth more or less than
their original cost. Average annual total return of the Fund's Institutional
shares for the 1-year and since inception (March 30, 1998) periods ending June
30, 2000 were 16.73% and 23.02% respectively. Performance assumes reinvestment
of dividends and capital gain distributions. During the period, some of the
Fund's fees were waived or expenses reimbursed; otherwise total return would
have been lower.
The S&P 500 Index is an unmanaged index representing the average performance of
500 widely held, publicly traded, large capitalization stocks. The Russell 1000
Growth Index is an unmanaged index representing stocks in the Russell 1000 Index
with higher price-to-book ratios and higher forecasted growth values.
Individuals cannot invest in an index.
The opinions expressed in this Interview reflect those of the portfolio manager
only through June 30, 2000. 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.
Memorial Funds
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MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. RICH BRODY OF PPM AMERICA, INC.
SUB-ADVISER TO VALUE EQUITY FUND ("FUND")
Q: YOU BEGAN TO MANAGE THE VALUE EQUITY FUND AS OF APRIL 1ST. WOULD YOU
DESCRIBE YOUR INVESTMENT APPROACH.
A: PPM America adheres to an active "true value" approach to investing which
seeks to generate outstanding long-term returns while maintaining a reasonable
risk profile. We focus on a universe of approximately 800 stocks with market
capitalizations above $1.5 billion. We apply intensive fundamental analysis to
those securities that appear undervalued on a current or normalized basis. We
select stocks that we determine are cheaply priced, using criteria such as asset
value, price/cash flow, P/E and dividend yield. As of June 30, 2000, the
portfolio was trading at approximately 12x forecasted 2000 earnings and the
portfolio's dividend yield was approximately 2.9%. This contrasts with the S&P
500 trading at 25x forecasted 2000 earnings and yielding 1.1%.
Q: HOW DO YOU CONSTRUCT YOUR PORTFOLIO?
A: We utilize a team-driven approach with five portfolio manager/analysts, each
of whom is responsible for generating investment ideas and developing purchase
recommendations. Before a stock can be added to the portfolio the majority of
the team must agree on the purchase. The portfolio is fully invested in 50-55
stocks, with most positions weighted at 1 1/2 - 2 1/2% of the portfolio.
Industry weightings are the result of our bottom-up stock selection process,
with maximum allowable overweightings assigned to each sector. There are no
minimum sector weightings.
Q: AFTER CONSTRUCTING THE PORTFOLIO IN THE LAST QUARTER, WHAT WERE YOUR LARGEST
POSITIONS AS OF JUNE 30TH?
A: Philip Morris, Charter One Financial, Washington Mutual, Federated
Department Stores, Aetna, Inc., HCA-Healthcare Company and Key Corp. are our
largest holdings. Our largest individual position as of June 30th was Philip
Morris at 2.61%.
Q: HOW DO THE INDUSTRY ALLOCATIONS IN THE PORTFOLIO COMPARE TO THE S&P 500
INDEX?
A: Compared to the S&P 500, the portfolio carried larger weightings in
financials, cyclicals and basic materials. The larger underweights compared to
the S&P 500 are technology and healthcare.
Q: WHAT FACTORS HAD THE MOST SIGNIFICANT IMPACT ON PERFORMANCE IN THE SECOND
QUARTER?
A: All major stock indices declined in the second quarter. The S&P 500 fell
about 12.0% before it rallied in June to cut the second quarter loss to -2.7%.
The NASDAQ plunged almost 35.0% in April and then rallied 16.0% in June to end
the quarter down about -13.2%.
The best performing sector in the S&P 500 in the second quarter was healthcare,
up 23.9%. Our under-weight in the healthcare sector (4.4% vs. 11.9%) hurt our
performance. Our over-weights in consumer cyclicals and basic materials also
hurt our performance, as those sectors declined substantially during
Memorial Funds
10
<PAGE>
MEMORIAL FUNDS
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONCLUDED)
JUNE 30, 2000 (unaudited)
AN INTERVIEW WITH MR. RICH BRODY OF PPM AMERICA, INC.
SUB-ADVISER TO VALUE EQUITY FUND ("FUND") (CONCLUDED)
the quarter. Our portfolio benefited from our under-weighting in the technology
sector (S&P Technology down -9.1% for the quarter). However, our stock selection
in the technology sector was a negative contributor as Xerox, Computer
Associates and Compuware all declined during the quarter after announcing
disappointing earnings. These stocks are currently selling at extremely
attractive valuations and we continue to own them because we believe that their
long-term prospects are attractive.
Stocks that turned in strong performance for the quarter were Lockheed Martin,
Cigna Corporation, HCA-Healthcare Company, Philip Morris Company, Inc., Aetna
Inc., First Energy Corporation and Maytag Corporation. Our performance was
slightly under the Russell 1000 Value Index and the S&P 500 Barra Value Index.
Q: HOW DID YOUR PERFORMANCE FOR THE QUARTER COMPARE TO YOUR ORIGINAL
EXPECTATIONS?
A: We have a long-term investment horizon. Our investment approach seeks to
identify situations where the market has over-reacted to short-term trends,
creating value opportunities for the long-term investor. Although value
investing has been unrewarding over the last several years, we believe our
stocks should perform very well over a full market cycle. As of June 30, 2000,
our portfolio was trading at an attractive price to earnings ratio of
approximately 12x forecasted 2000 earnings versus 25x for the S&P 500 Index, 19x
for the S&P 500 Barra Value Index and 19x for the Russell 1000 Value Index. We
will continue to focus on identifying the best value stocks that have attractive
fundamentals and can be purchased at a significant discount to the market.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value of an investment will fluctuate so that the shares, when
redeemed, may be worth more or less than their original cost. Average annual
total return of the Value Equity Fund's Institutional shares for the 1-year and
since inception (March 30, 1998) periods ending June 30, 2000 were -18.35% and
-9.45% respectively. Performance assumes reinvestment of dividends and capital
gain distributions. During the period, some of the Fund's fees were waived or
expenses reimbursed; otherwise total return would have been lower.
The S&P 500 Index is an unmanaged index representing the average performance of
500 widely held, publicly traded, large capitalization stocks. The Russell 1000
Value Index is an unmanaged index representing stocks in the Russell 1000 Index
with lower price-to-book ratios and lower forecasted growth values. The S&P
Barra Value Index is an unmanaged index representing stocks in the S&P 500 Index
with lower price to book ratios. Individuals cannot invest in an index.
The opinions expressed in this Interview reflect those of the portfolio manager
only through June 30, 2000. 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.
Memorial Funds
11
<PAGE>
GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (4.1%)
2,500,000 FHLMC, Series 2080 PE, 6.00%,
11/15/21
(cost $2,471,094).......... $ 2,390,338
-----------
GOVERNMENT BONDS & NOTES (36.3%)
5,500,000 FHLB, 5.50%, 7/14/00........... 5,497,795
2,000,000 FHLB, 5.25%, 4/25/02........... 1,946,812
2,500,000 FHLMC, 5.75%, 7/15/03.......... 2,416,550
2,500,000 FHLMC, 6.63%, 9/15/09.......... 2,415,073
2,500,000 FNMA, 5.63%, 3/15/01........... 2,479,825
2,000,000 FNMA, 5.38%, 3/15/02........... 1,952,232
5,000,000 FNMA, 5.75%, 6/15/05........... 4,742,910
-----------
Total Government Bonds & Notes
(cost $21,653,087) 21,451,197
-----------
MORTGAGE BACKED SECURITIES (19.7%)
1,714,210 FHLMC, Gold Pool G00767, 7.50%,
8/01/27...................... 1,697,973
2,373,174 FHLMC, Gold Pool C18118, 6.00%,
11/01/28..................... 2,176,267
2,720,601 FNMA, Pool 440700, 6.00%,
11/01/28..................... 2,494,413
2,738,038 FNMA, Pool 440737, 6.00%,
12/01/28..................... 2,510,400
2,905,590 GNMA, Pool 476998, 6.50%,
7/15/29...................... 2,758,553
-----------
Total Mortgage Backed Securities
(cost $12,305,117) 11,637,606
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (36.9%)
U.S. TREASURY BONDS (23.6%)
1,800,000 7.50%, 11/15/16................ $ 2,027,813
1,500,000 7.13%, 2/15/23................. 1,664,532
10,450,000 6.00%, 2/15/26................. 10,218,145
-----------
Total U.S. Treasury Bonds
(cost $14,505,282) 13,910,490
-----------
U.S. TREASURY NOTES (13.3%)
4,000,000 6.63%, 7/31/01................. 4,007,500
1,000,000 5.75%, 8/15/03................. 983,125
850,000 6.50%, 10/15/06................ 859,829
2,000,000 6.13%, 8/15/07................. 1,988,750
-----------
Total U.S. Treasury Notes
(cost $7,997,304) 7,839,204
-----------
Total U.S. Treasury Obligations
(cost $22,502,586) 21,749,694
-----------
SHORT-TERM HOLDINGS (3.0%)
1,795,335 Merrimac U.S. Government Fund,
5.89%
(cost $1,795,335).......... 1,795,335
-----------
Total Investments (100.0%)
(cost $60,727,219) $59,024,170
===========
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
12
<PAGE>
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------ ------------
<C> <S> <C>
ASSET BACKED SECURITIES (3.4%)
1,400,000 Chase Funding Mortgage Loan
7.06% VR,
8/25/14..................... $ 1,386,427
1,364,397 General Motors Acceptance
Corp., 5.83% VR,
5/15/33..................... 1,287,480
1,620,000 Residential Funding Mortgage
Securities II, 7.34% VR,
7/25/12..................... 1,605,314
------------
Total Asset Backed Securities
(cost $4,390,935) 4,279,221
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (8.0%)
300,000 Commonwealth Edison
Transitional Funding Trust,
Series 1998-1 A7, 5.74%,
12/25/10.................... 269,339
815,620 FHLMC, 7.50%, 12/15/24........ 815,904
1,000,000 First Plus Home Loan Trust,
Series 1998-3 A5, 6.49%,
7/10/17..................... 980,975
1,588,753 First Union-Chase Mortgage
Trust, Series 1999-C2,
Class A1, 6.36% VR,
6/15/08..................... 1,531,181
727,909 First Union Commercial
Mortgage Trust, Series
1999-C1, Class A1,
5.73%, 1/15/08.............. 686,202
2,000,000 First Union Lehman Brothers,
6.60%, 5/18/07.............. 1,934,812
475,439 FNMA, 6.50%, 4/01/28.......... 448,775
2,954,191 JP Morgan Commercial Mortgage
Finance Corp., Series
2000-C9, Class A,
17.59%, 10/15/32............ 2,981,366
418,331 Money Store Home Equity Trust,
Series 1996-D A13, 6.64%,
9/15/14..................... 416,446
213,678 Mortgage Index Amortizing
Trust, Series 1997-1 A1,
6.68%, 8/25/04 (#).......... 208,870
------------
Total Collateralized Mortgage Obligations
(cost $10,401,144) 10,273,870
------------
</TABLE>
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS & NOTES (57.7%)
2,600,000 AES Eastern Energy, 9.00%,
1/02/17..................... $ 2,532,777
1,500,000 Ameritech Capital Funding,
6.55%, 1/15/28.............. 1,283,099
565,000 Associates Corp. of North
America, 5.60%, 1/15/01..... 560,658
2,500,000 Bank of America Corp., 5.88%,
2/15/09..................... 2,211,615
420,000 Bellsouth Capital Funding,
7.88%, 2/15/30.............. 419,168
500,000 Carramerica Realty, 6.63%,
3/01/05..................... 464,674
1,000,000 Centura Banks, Inc., 6.50%,
3/15/09..................... 908,020
1,000,000 Choice Hotels International
Corp., 7.13%, 5/01/08....... 899,720
1,000,000 Commonwealth Edison, 8.38%,
2/15/23..................... 986,708
1,000,000 CPI Corp., 9.00%, 3/15/02
(-)......................... 1,009,254
2,500,000 East Coast Power LLC, 7.54%,
6/30/017.................... 2,257,015
3,100,000 Farmers Insurance Exchange
Capital, 7.05%, 7/15/28
(-)......................... 2,493,234
1,575,000 Fidelity Investments, 7.57%,
6/15/29 (-)................. 1,496,952
3,000,000 First Union National Bank,
5.80%, 120/1/08............. 2,571,819
1,150,000 Ford Motor Credit Co., 7.88%,
6/15/10..................... 1,150,368
2,000,000 General Electric Global
Insurance, 6.45%, 3/01/19... 1,741,942
3,500,000 General Motors Acceptance
Corp., 6.75%, 2/7/02........ 3,469,921
525,000 General Motors Acceptance
Corp., 7.75%, 1/19/10....... 523,210
2,000,000 Household Finance Corp.,
6.13% VR, 7/15/02........... 1,942,668
1,800,000 Key Bank NA, 6.50%,
4/15/08..................... 1,653,140
3,000,000 Lehman Brothers Holdings,
6.63%, 12/27/02............. 2,921,574
3,000,000 Liberty Media Group, 8.25%,
2/01/30..................... 2,763,030
1,000,000 Lockheed Martin Corp., 8.20%,
12/01/09.................... 1,011,143
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
13
<PAGE>
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS & NOTES, CONTINUED
750,000 MCN Investment Corp.,
6.35% VR, 4/02/02........... $ 731,820
2,900,000 Morgan Stanley Dean Witter,
5.88%, 2/28/01.............. 2,878,586
1,000,000 NGC Corp., 7.13%,
5/15/18..................... 897,082
375,000 Noble Drilling Corp., 7.50%,
3/15/19..................... 355,580
1,375,000 Northrop Grumman Corp.,
9.38%, 10/15/24............. 1,400,957
3,600,000 Public Service Electric & Gas
Co., 6.13%, 8/01/02......... 3,535,920
1,000,000 Puget Sound Energy Inc.,
7.00%, 3/09/29.............. 870,926
700,000 Reckson Operating Partnership,
7.40%, 3/15/04.............. 675,851
1,000,000 Reynolds (R.J.) Tobacco
Holding, 7.38%, 5/15/03..... 932,547
5,500,000 Rohm & Haas Co., 7.85%,
7/15/29..................... 5,575,767
815,041 Seabrook Station-Unit 1,
7.83%,
1/02/19..................... 771,089
3,000,000 Sears Roebuck Acceptance
Corp., 6.12%, 12/13/01...... 2,942,181
200,000 Shopko Stores, 6.50%,
8/15/03..................... 191,450
1,500,000 Suntrust Capital, 7.90%,
6/15/27..................... 1,345,239
2,500,000 Tele-Communications, Inc.,
9.80%, 2/01/12.............. 2,874,228
614,000 Time Warner Cos., Inc., 7.57%,
2/01/24..................... 581,989
1,390,000 Time Warner Cos., Inc., 6.88%,
6/15/18..................... 1,236,402
3,000,000 U.S. Bank N.A., 6.30%,
7/15/08..................... 2,707,536
1,500,000 Union Planters Bank N.A.,
6.50%, 3/15/08.............. 1,315,406
</TABLE>
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS & NOTES, CONTINUED
1,950,000 WorldCom, Inc., 8.00%,
5/15/06..................... $ 1,973,864
3,000,000 WorldCom, Inc., 7.75%,
4/01/07..................... 3,003,456
------------
Total Corporate Bonds & Notes
(cost $76,529,226) 74,069,585
------------
MORTGAGE BACKED SECURITIES (10.0%)
1,379,382 FHLMC, Pool C00910, 7.50%,
1/01/30..................... 1,361,790
1,482,674 FHLMC, Pool C32933, 7.50%,
11/01/29.................... 1,463,764
649,603 FNMA, Pool C38675 8.00%,
6/01/30..................... 653,512
868,211 FNMA, Pool 251818, 6.00%,
6/01/18..................... 809,449
223,944 FNMA, Pool 253038, 8.00%,
2/01/30..................... 225,012
4,330,999 FNMA, Pool 253266, 8.00%,
5/01/30..................... 4,351,475
226,138 FNMA, Pool 313873, 7.00%,
6/01/24..................... 219,773
257,722 FNMA, Pool 399774, 7.00%,
5/01/28..................... 249,226
748,980 FNMA, Pool 422848, 6.00%,
4/01/18..................... 698,288
240,211 FNMA, Pool 428152, 7.00%,
5/01/28..................... 232,292
901,629 FNMA, Pool 428968, 6.00%,
6/01/28..................... 826,668
998,586 FNMA, Pool 534645, 8.00%,
5/01/30..................... 1,003,347
499,681 FNMA, Pool 536935, 8.00%,
5/01/30..................... 502,063
297,873 GNMA, Pool 504583, 7.50%,
10/15/29.................... 296,048
------------
Total Mortgage Backed Securities
(cost $13,062,898)
........................................... 12,892,707
------------
MUNICIPAL BONDS & NOTES (3.9%)
150,000 Denver, CO, Urban Renewal
Authority, Tax Increment RV,
Adams Mark Hotel, Series A,
6.37%, 9/01/02.............. 147,386
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
14
<PAGE>
CORPORATE BOND FUND
SCHEDULE OF INVESTMENTS (concluded)
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS & NOTES, CONTINUED
845,000 Oklahoma County, OK, Finance
Authority MFHR, Oakridge
Village Apartments, Series
A,
8.05%, 10/01/09............. $ 834,590
215,000 Reeves County, TX, Tax COP,
6.70%, 3/31/05.............. 208,215
2,000,000 Reeves County, TX, Tax COP,
Law Enforcement Center,
7.25%, 6/01/11.............. 1,885,080
200,000 Show Low, AZ, IDA Hospital RV,
Navapache Regional Medical
Center, Series B, ACA
Insured, 6.25%,
12/01/00.................... 199,160
250,000 Show Low, AZ, IDA Hospital RV,
Navapache Regional Medical
Center, Series B, ACA
Insured, 6.50%,
12/01/02.................... 244,765
290,000 Show Low, AZ, IDA Hospital RV,
Navapache Regional Medical
Center, Series B, ACA
Insured, 6.60%,
12/01/03.................... 281,694
250,000 St. Charles County, MO, Public
Arena Authority Leasehold
Taxable RV, Family Area
Project, 6.54%,
9/15/05..................... 240,938
1,000,000 Wickliffe, KY, Solid Waste
Disposal Facilities RV,
Westvaco Corp. Project,
7.67%, 1/15/27.............. 944,020
------------
Total Municipal Bonds & Notes
(cost $5,275,900) 4,985,848
------------
PREFERRED STOCK (2.3%)
1,000,000 Centaur Funding Corp., 9.08%,
4/21/20 (( 7/8))............ 1,990,626
4,000,000 Lincoln National Capital,
6.40%,
8/13/01..................... 981,252
------------
Total Preferred Stock
(cost $3,029,731) 2,971,878
------------
</TABLE>
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
----------- ------------------------------ ------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (10.2%)
U.S. TREASURY BONDS (8.7%)
2,195,000 6.75%, 5/15/05................ $ 2,247,131
4,360,000 6.50%, 2/15/10................ 4,509,875
270,000 5.25%, 2/15/29................ 239,625
4,150,000 6.13%, 8/15/29................ 4,195,395
------------
Total U.S. Treasury Bonds
(cost $11,117,279) 11,192,026
------------
U.S. TREASURY NOTES (1.5%)
1,950,000 5.50%, 1/31/03
(cost $1,903,992)........... 1,909,781
------------
Total U.S. Treasury Obligations
(cost $13,021,271) 13,101,807
------------
SHORT-TERM HOLDINGS (4.5%)
COMMERCIAL PAPER (3.9%)
2,500,000 Koch Industries, 6.89%,
7/03/00..................... 2,500,000
2,500,000 Morgan Stanley Group, 6.85%,
7/03/00..................... 2,500,000
------------
Total Commercial Paper
(cost $5,000,000) 5,000,000
------------
Cash Management Accounts (0.6%)
805,415 Merrimac U.S. Government Fund,
5.89%
(cost $805,415)............... 805,415
------------
Total Short-Term Holdings
(cost $5,805,415) 5,805,415
------------
Total Investments (100.0%)
(cost $131,516,520) $128,380,331
============
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
15
<PAGE>
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
COMMON STOCK (98.7%)
APPAREL & ACCESSORY STORES (0.9%)
14,240 Intimate Brands, Inc. ......... $ 281,240
-----------
BUSINESS SERVICES (12.9%)
4,100 Adobe Systems, Inc. ........... 533,000
12,200 First Data Corp. .............. 605,425
1,900 Mercury Interactive Corp.
(+).......................... 183,825
10,000 Microsoft Corp. (+)............ 800,000
3,700 Omnicom Group, Inc. ........... 329,531
10,300 Oracle Corp. (+)............... 865,844
20,000 Robert Half International, Inc.
(+).......................... 570,000
-----------
3,887,625
-----------
CHEMICALS & ALLIED PRODUCTS (4.2%)
4,900 Estee Lauder Cos., Inc. ....... 242,244
5,600 Forest Laboratories, Inc.
(+).......................... 565,600
3,900 OM Group, Inc. ................ 171,600
4,900 Procter & Gamble Co. .......... 280,525
-----------
1,259,969
-----------
COMMUNICATIONS (6.5%)
2,500 Amdocs Ltd. (+)................ 191,875
5,900 AT&T Corp. .................... 186,588
9,100 Broadwing, Inc. ............... 236,031
3,300 Clear Channel Communications,
Inc. (+)..................... 247,500
15,100 SBC Communications, Inc. ...... 653,075
7,500 Sprint Corp. (PCS Group) (+)... 446,250
-----------
1,961,319
-----------
DOMESTIC DEPOSITORY INSTITUTIONS (3.6%)
11,350 Citigroup, Inc. ............... 683,838
4,400 Providian Financial Corp. ..... 396,000
-----------
1,079,838
-----------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (12.0%)
8,400 American Power Conversion Corp.
(+).......................... 342,825
27,300 General Electric Co. .......... 1,446,899
8,100 Molex, Inc. ................... 389,813
11,000 Motorola, Inc. ................ 319,688
6,000 Nortel Networks Corp. ......... 409,500
10,500 Texas Instruments, Inc. ....... 721,218
-----------
3,629,943
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
ENGINEERING, ACCOUNTING, RESEARCH,
MANAGEMENT & RELATED SERVICES (3.3%)
14,000 Paychex, Inc. ................. $ 588,000
6,400 PerkinElmer, Inc. ............. 423,200
-----------
1,011,200
-----------
FEDERAL AGENCIES & INSTRUMENTALITIES (0.9%)
5,400 Federal National Mortgage
Association.................. 281,813
-----------
FOOD & KINDRED PRODUCTS (1.4%)
5,700 Anheuser-Busch Cos., Inc. ..... 425,719
-----------
GENERAL MERCHANDISE STORES (2.2%)
11,300 Wal-Mart Stores, Inc. ......... 651,163
-----------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (18.2%)
3,700 Applied Materials, Inc. (+).... 335,313
18,100 Cisco Systems, Inc. (+)........ 1,150,480
3,800 Comverse Technology, Inc.
(+).......................... 353,400
9,500 Dell Computer Corp. (+)........ 468,469
8,900 EMC Corp. (+).................. 684,743
4,100 Hewlett-Packard Co. ........... 511,988
7,400 Intel Corp. ................... 989,287
4,600 Linear Technology Corp. ....... 294,113
2,700 Minnesota Mining and
Manufacturing Co. ........... 222,750
9,187 Symbol Technologies, Inc. ..... 496,098
-----------
5,506,641
-----------
INSURANCE AGENTS, BROKERS & SERVICE (2.6%)
7,400 Marsh & McLennan Cos., Inc. ... 772,837
-----------
INSURANCE CARRIERS (3.0%)
7,200 AFLAC, Inc. ................... 330,750
9,300 Chubb Corp. ................... 571,950
-----------
902,700
-----------
MEASURING, ANALYZING, & CONTROLLING
INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (4.4%)
4,431 Agilent Technologies, Inc.
(+).......................... 326,766
6,000 Allergan, Inc. ................ 447,000
4,500 Waters Corp. (+)............... 561,656
-----------
1,335,422
-----------
MOTION PICTURES (1.9%)
15,200 Walt Disney Co. ............... 589,950
-----------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
16
<PAGE>
GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS (concluded)
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
OIL & GAS EXTRACTION (4.3%)
8,000 Apache Corp. .................. $ 470,500
6,500 B.J. Services Co. (+).......... 406,250
6,800 Enron Corp. ................... 438,600
-----------
1,315,350
-----------
PETROLEUM REFINING & RELATED INDUSTRIES
(2.6%)
7,900 Conoco Inc., Class A........... 173,800
8,000 Exxon Mobil Corp. ............. 628,000
-----------
801,800
-----------
PHARMACEUTICAL PREPARATIONS (4.9%)
6,500 Merck & Co., Inc. ............. 498,063
20,300 Pfizer, Inc. .................. 974,399
-----------
1,472,462
-----------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (2.5%)
11,000 Viacom, Inc., Class B (+)...... 750,063
-----------
RETAIL-CONSUMER ELECTRONICS (1.0%)
5,000 Best Buy Co., Inc. (+)......... 316,250
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
SECURITY & COMMODITY BROKERS, DEALERS,
EXCHANGES & SERVICES (1.9%)
6,800 Morgan Stanley Dean Witter..... $ 566,100
-----------
WHOLESALE TRADE-DURABLE GOODS (2.3%)
6,800 Johnson & Johnson.............. 692,750
-----------
WHOLESALE TRADE-NONDURABLE GOODS (1.2%)
4,800 Cardinal Health, Inc. ......... 355,200
-----------
Total Common Stock
(cost $24,228,487) 29,847,354
-----------
SHORT-TERM HOLDINGS (1.3%)
379,190 Merrimac U.S. Government Fund,
5.89%
(cost $379,190)................ 379,190
-----------
Total Investments (100.0%)
(cost $24,607,677) $30,226,544
===========
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
17
<PAGE>
VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
COMMON STOCK (99.1%)
APPAREL & OTHER FINISHED PRODUCTS MADE
FROM FABRICS & SIMILAR MATERIALS (3.4%)
10,500 Liz Claiborne, Inc. ........... $ 370,125
22,400 V.F. Corp. .................... 533,400
-----------
903,525
-----------
BUSINESS SERVICES (3.8%)
10,800 Computer Associates
International, Inc. ......... 552,824
43,000 Compuware Corp. (+)............ 446,125
-----------
998,949
-----------
CHEMICALS & ALLIED PRODUCTS (5.8%)
23,100 Occidental Petroleum Corp. .... 486,544
12,000 PPG Industries, Inc. .......... 531,750
14,600 Rohm & Haas Co. ............... 503,700
-----------
1,521,994
-----------
COMMUNICATIONS (8.7%)
7,500 Bell Atlantic Corp. ........... 381,094
9,600 BellSouth Corp. ............... 409,200
15,200 CenturyTel, Inc. .............. 437,000
8,200 GTE Corp. ..................... 510,450
12,800 SBC Communications, Inc. ...... 553,600
-----------
2,291,344
-----------
DOMESTIC DEPOSITORY INSTITUTIONS (13.2%)
11,600 Bank of America Corp. ......... 498,800
27,800 Charter One Financial, Inc. ... 639,399
11,100 Chase Manhattan Corp. ......... 511,294
32,200 KeyCorp........................ 567,525
10,400 SouthTrust Corp. .............. 235,300
57,000 Sovereign Bancorp, Inc. ....... 400,784
21,600 Washington Mutual, Inc. ....... 623,699
-----------
3,476,801
-----------
ELECTRIC, GAS & SANITARY SERVICES (4.1%)
23,300 FirstEnergy Corp. ............. 544,638
20,200 GPU, Inc. ..................... 546,662
-----------
1,091,300
-----------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (2.1%)
14,700 Maytag Corp. .................. 542,063
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
FABRICATED METAL PRODUCTS, EXCEPT
MACHINERY & TRANSPORTATION
EQUIPMENT (5.1%)
12,900 Cooper Industries, Inc. ....... $ 420,056
18,800 Fortune Brands, Inc. .......... 433,575
20,300 Lockheed Martin Corp. ......... 503,694
-----------
1,357,325
-----------
GENERAL MERCHANDISE STORES (6.0%)
17,600 Federated Department Stores,
Inc. (+)..................... 594,000
80,600 KMart Corp. (+)................ 549,087
13,100 Sears, Roebuck & Co. .......... 427,388
-----------
1,570,475
-----------
HEALTH SERVICES (2.2%)
19,100 HCA - The Healthcare Co. ...... 580,163
-----------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (3.0%)
12,800 Parker-Hannifin Corp. ......... 438,400
6,000 United Technologies Corp. ..... 353,250
-----------
791,650
-----------
INSURANCE CARRIERS (9.5%)
9,100 Aetna Life & Casualty, Inc. ... 584,106
10,900 American Financial Group,
Inc. ........................ 270,456
8,900 American General Corp. ........ 542,900
6,000 CIGNA Corp. ................... 561,000
9,700 Hartford Financial Services
Group........................ 542,594
-----------
2,501,056
-----------
MEASURING, ANALYZING, & CONTROLLING
INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (1.8%)
22,500 Xerox Corp. ................... 466,875
-----------
METAL MINING (1.9%)
13,300 Phelps Dodge Corp. ............ 494,594
-----------
PAPER & ALLIED PRODUCTS (4.0%)
18,200 Fort James Corp. .............. 420,875
14,700 Mead Corp. .................... 371,175
32,500 Pactiv Corp. (+)............... 255,938
-----------
1,047,988
-----------
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
18
<PAGE>
VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (concluded)
JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
PETROLEUM REFINING & RELATED INDUSTRIES (4.6%)
14,500 Ashland, Inc. ................. $ 508,406
3,100 Chevron Corp. ................. 262,919
8,700 Phillips Petroleum Co. ........ 440,981
-----------
1,212,306
-----------
PRIMARY METAL INDUSTRIES (2.0%)
15,500 Nucor Corp. ................... 514,406
-----------
RAILROAD TRANSPORTATION (3.9%)
21,000 Burlington Northern Santa Fe
Corp. ....................... 481,688
25,900 CSX Corp. ..................... 548,756
-----------
1,030,444
-----------
SECURITY & COMMODITY BROKERS, DEALERS,
EXCHANGES & SERVICES (1.4%)
12,500 Franklin Resources, Inc. ...... 379,688
-----------
TOBACCO PRODUCTS (2.6%)
25,900 Philip Morris Cos., Inc. ...... 687,968
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT/ SECURITY
SHARES DESCRIPTION VALUE
----------- ------------------------------- -----------
<C> <S> <C>
TRANSPORTATION EQUIPMENT (10.0%)
20,100 Brunswick Corp. ............... $ 332,906
33,800 Delphi Automotive Systems
Corp. ....................... 492,213
11,400 Ford Motor Co. ................ 490,200
6,400 General Motors Corp. .......... 371,600
13,700 ITT Industries, Inc. .......... 416,138
12,000 TRW, Inc. ..................... 520,500
1,493 Visteon Corp. (+).............. 18,099
-----------
2,641,656
-----------
Total Common Stock
(cost $28,330,275) 26,102,570
-----------
SHORT-TERM HOLDINGS (0.9%)
234,099 Merrimac U.S. Government Fund,
5.89%
(cost $234,100)............ 234,100
-----------
Total Investments (100.0%)
(cost $28,564,375) $26,336,670
===========
</TABLE>
See Notes to Schedules of Investments and
Notes to Financial Statements. Memorial Funds
19
<PAGE>
NOTES TO SCHEDULES OF INVESTMENTS
(unaudited)
(+) Non-income producing securities.
(( 7/8)) Securities that may be resold to "qualified institutional buyers" under
rule 144A or securities offered pursuant to 4(2) of the Securities Act
of 1933, as amended. The Board of Trustees has deemed these securities
to be liquid at June 30, 2000.
(#) 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 June 30, 2000.
</TABLE>
See Notes to Financial Statements. Memorial Funds
20
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000 (unaudited)
<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................................... $60,727,219 $131,516,520 $24,607,677 $28,564,375
Net unrealized appreciation (depreciation)............ (1,703,049) (3,136,189) 5,618,867 (2,227,705)
----------- ------------ ----------- -----------
Total investments at value.......................... 59,024,170 128,380,331 30,226,544 26,336,670
Interest, dividends and other receivables............... 952,549 2,235,508 17,625 50,333
Receivable for investments sold......................... -- 1,580,916 127,690 --
Organization costs, net of amortization (Note 2)........ 16,468 16,403 16,468 16,468
Prepaid expenses........................................ 1,250 2,583 790 647
----------- ------------ ----------- -----------
Total Assets................................................ 59,994,437 132,215,741 30,389,117 26,404,118
----------- ------------ ----------- -----------
LIABILITIES
Dividends payable....................................... 295,384 641,437 -- 128,990
Payable for Fund shares redeemed........................ -- 72,500 7,500 10,400
Payable for investments purchased....................... -- 1,409,499 -- --
Payable to investment adviser (Note 3).................. 1,504 3,202 1,359 1,172
Payable to investment sub-adviser (Note 3).............. 33,243 69,907 8,155 7,029
Payable to administrator (Note 3)....................... 7,522 16,009 4,077 3,515
Payable to shareholder servicing agent (Note 3)......... 8,381 22,393 -- 599
Accrued fees, other liabilities and other expenses...... 21,864 47,730 12,483 15,693
----------- ------------ ----------- -----------
Total Liabilities........................................... 367,898 2,282,677 33,574 167,398
----------- ------------ ----------- -----------
NET ASSETS.................................................. $59,626,539 $129,933,064 $30,355,543 $26,236,720
=========== ============ =========== ===========
COMPONENTS OF NET ASSETS
Paid in capital......................................... $62,615,498 $140,684,446 $20,795,921 $33,423,143
Undistributed (distributions in excess of) net
investment income..................................... 981 65,927 (42,300) (1,656)
Net unrealized appreciation (depreciation) of
investments........................................... (1,703,049) (3,136,189) 5,618,867 (2,227,705)
Accumulated net realized gain (loss) from investments... (1,286,891) (7,681,120) 3,983,055 (4,957,062)
----------- ------------ ----------- -----------
NET ASSETS.................................................. $59,626,539 $129,933,064 $30,355,543 $26,236,720
=========== ============ =========== ===========
SHARES OF BENEFICIAL INTEREST............................... 6,186,174 13,962,703 2,292,680 3,348,205
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE) PER SHARE... $ 9.64 $ 9.31 $ 13.24 $ 7.84
</TABLE>
See Notes to Financial Statements. Memorial Funds
21
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
GOVERNMENT CORPORATE GROWTH VALUE
BOND FUND BOND FUND EQUITY FUND EQUITY FUND
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income....................................... $ -- $ 122,800 $ 119,094 $ 336,289
Interest income....................................... 2,145,546 5,289,295 32,261 40,511
Securities lending income............................. 5,063 7,674 2,271 111
---------- ----------- ----------- -----------
Total Investment Income................................... 2,150,609 5,419,769 153,626 376,911
---------- ----------- ----------- -----------
EXPENSES
Investment advisory (Note 3).......................... 10,237 21,989 9,654 7,987
Sub-advisory (Note 3)................................. 68,249 146,593 57,926 47,924
Shareholder servicing (Note 3)........................ 85,311 183,241 48,114 39,867
Administration (Note 3)............................... 51,187 109,361 28,965 23,962
Transfer agent (Note 3)............................... 12,284 12,566 14,385 13,404
Accounting (Note 3)................................... 19,500 28,500 21,500 21,259
Distribution--Trust Shares (Note 3)................... -- -- 157 70
Legal................................................. 10,088 21,629 5,666 4,704
Audit................................................. 7,250 7,250 5,152 7,250
Custody............................................... 4,109 11,363 5,241 4,423
Trustees.............................................. 2,314 4,460 1,174 966
Compliance............................................ 4,650 6,342 16,060 3,963
Pricing............................................... 421 2,093 1,210 832
Reporting............................................. 1,930 4,152 1,096 902
Amortization of organization costs (Note 2)........... 3,000 3,000 3,000 3,000
Miscellaneous......................................... 7,288 23,690 1,223 1,179
---------- ----------- ----------- -----------
Total Expenses............................................ 287,818 586,229 220,523 181,692
---------- ----------- ----------- -----------
Expenses reimbursed and fees waived (Note 4).............. (27,991) (32,335) (24,597) (18,982)
---------- ----------- ----------- -----------
Net Expenses.............................................. 259,827 553,894 195,926 162,710
---------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS).............................. 1,890,782 4,865,875 (42,300) 214,201
---------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from investments............. (634,187) (2,839,871) 4,127,925 (1,500,625)
Net change in unrealized appreciation (depreciation)
on investments...................................... 1,643,299 1,998,990 (2,103,584) (2,154,994)
---------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments.... 1,009,112 (840,881) 2,024,341 (3,655,619)
---------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................... $2,899,894 $4,024,994 $1,982,041 $(3,441,418)
========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements. Memorial Funds
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND CORPORATE BOND FUND
---------------------------- ----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET ASSETS--BEGINNING OF PERIOD............................. $ 69,081,987 $65,675,565 $152,390,629 $137,337,990
OPERATIONS
Net investment income..................................... 1,890,782 3,472,501 4,865,875 8,590,349
Net realized loss from investments........................ (634,187) (65,093) (2,839,871) (4,742,972)
Net change in unrealized appreciation (depreciation) of
investments............................................. 1,643,299 (4,425,792) 1,998,990 (6,321,805)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
operations............................................ 2,899,894 (1,605,384) 4,024,994 (2,474,428)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income--Institutional Shares............... (1,890,782) (3,472,501) (4,865,875) (8,525,409)
Net realized capital gain from investments--Institutional
Shares.................................................. -- -- -- (64,940)
------------ ------------ ------------ ------------
Total distributions to shareholders................... (1,890,782) (3,472,501) (4,865,875) (8,590,349)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of shares--Institutional Shares...................... 11,305,829 23,623,194 14,901,418 46,850,315
Reinvestment of distributions--Institutional Shares....... 117,744 800,527 481,715 297,903
Redemption of shares--Institutional Shares................ (21,888,133) (15,939,414) (36,999,817) (21,030,802)
------------ ------------ ------------ ------------
Net increase (decrease) from capital transactions....... (10,464,560) 8,484,307 (21,616,684) 26,117,416
------------ ------------ ------------ ------------
Net increase (decrease) in net assets................... (9,455,448) 3,406,422 (22,457,565) 15,052,639
------------ ------------ ------------ ------------
NET ASSETS--END OF PERIOD (A)............................... $ 59,626,539 $69,081,987 $129,933,064 $152,390,629
============ ============ ============ ============
(A) Including accumulated undistributed net investment
income.................................................. $ 981 $ 981 $ 65,927 $ 65,927
============ ============ ============ ============
SHARES SHARES SHARES SHARES
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares--Institutional Shares...................... 1,192,582 2,428,982 1,588,750 4,910,769
Reinvestment of distributions--Institutional Shares....... 12,425 81,464 52,086 30,819
Redemption of shares--Institutional Shares................ (2,288,403) (1,646,393) (3,987,545) (2,247,532)
------------ ------------ ------------ ------------
Net increase (decrease) in shares......................... (1,083,396) 864,053 (2,346,709) 2,694,056
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements. Memorial Funds
23
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
<TABLE>
<CAPTION>
GROWTH EQUITY FUND VALUE EQUITY FUND
---------------------------- ----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET ASSETS--BEGINNING OF PERIOD............................. $ 42,398,195 $ 26,799,219 $ 37,309,635 $ 30,974,497
OPERATIONS
Net investment income (loss).............................. (42,300) (40,947) 214,201 339,693
Net realized gain (loss) from investments................. 4,127,925 3,509,663 (1,500,625) (1,526,723)
Net change in unrealized appreciation (depreciation) of
investments............................................. (2,103,584) 4,718,673 (2,154,994) (568,697)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
operations............................................ 1,982,041 8,187,389 (3,441,418) 1,755,727
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income--Trust Shares....................... -- (21) -- (3,042)
Net investment income--Institutional Shares............... -- (1,694) (215,857) (338,111)
Net realized capital gain from investments--Trust
Shares.................................................. -- (66,157) -- --
Net realized capital gain from investments--Institutional
Shares.................................................. -- (5,153,827) -- --
Return of capital--Trust Shares........................... -- (3,996) -- --
Return of capital--Institutional Shares................... -- (311,013) -- --
------------ ------------ ------------ ------------
Total distributions to shareholders..................... -- (5,536,708) (215,857) (341,153)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of shares--Trust Shares.............................. 18,500 258,856 -- 132,500
Sale of shares--Institutional Shares...................... 818,381 66,333,303 1,148,313 28,294,889
Reinvestment of distributions--Trust Shares............... -- 70,174 322 2,720
Reinvestment of distributions--Institutional Shares....... -- 2,652,027 17,530 89,810
Redemption of shares--Trust Shares........................ (576,722) (169,280) (218,812) (186,539)
Redemption of shares--Institutional Shares................ (14,284,852) (56,196,785) (8,362,993) (19,921,362)
------------ ------------ ------------ ------------
Net increase (decrease) from capital transactions....... (14,024,693) 12,948,295 (7,415,640) 8,432,018
------------ ------------ ------------ ------------
Net increase (decrease) in net assets................... (12,042,652) 15,598,976 (11,072,915) 6,335,138
------------ ------------ ------------ ------------
NET ASSETS--END OF PERIOD (A)............................... $ 30,355,543 $ 42,398,195 $ 26,236,720 $ 37,309,635
============ ============ ============ ============
(A) Including accumulated undistributed net investment
income.................................................. $ (42,300) $ -- $ (1,656) $ --
============ ============ ============ ============
SHARES SHARES SHARES SHARES
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of shares--Trust Shares.............................. 1,498 21,397 16,602
Sale of shares--Institutional Shares...................... 65,222 5,356,774 140,918 3,060,722
Reinvestment of distributions--Trust Shares............... -- 5,968 37 302
Reinvestment of distributions--Institutional Shares....... -- 224,237 2,099 10,032
Redemption of shares--Trust Shares........................ (46,846) (14,620) (27,719) (22,427)
Redemption of shares--Institutional Shares................ (1,118,159) (4,535,771) (1,029,282) (2,174,325)
------------ ------------ ------------ ------------
Net increase (decrease) in shares......................... (1,098,265) 1,057,985 (913,947) 890,906
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements. Memorial Funds
24
<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
---------------------------- ----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.50 $ 10.25 $ 9.34 $ 10.09
------- ------- -------- --------
Investment Operations:
Net investment income..................................... 0.26 0.50 0.30 0.57
Net realized and unrealized gain (loss) on investments.... 0.14 (0.75) (0.03) (0.75)
------- ------- -------- --------
Total from Investment Operations............................ 0.40 (0.25) 0.27 (0.18)
------- ------- -------- --------
Distributions from:
Net investment income..................................... (0.26) (0.50) (0.30) (0.57)
Net realized gain on investments.......................... -- -- -- 0.00
------- ------- -------- --------
Total Distributions......................................... (0.26) (0.50) (0.30) (0.57)
------- ------- -------- --------
Net asset value, end of period.............................. $ 9.64 $ 9.50 $ 9.31 $ 9.34
======= ======= ======== ========
Total Return (a)............................................ 4.26% (2.39)% 2.97% 1.77%
Ratio/Supplementary Data:
Ratios to average net assets:
Expenses, including reimbursement/waiver of fees.......... 0.76%(b) 0.73% 0.76%(b) 0.68%
Expenses, excluding reimbursement/waiver of fees.......... 0.84%(b) 0.79% 0.80%(b) 0.74%
Net investment income (loss), including
reimbursement/waiver of fees............................ 5.54%(b) 5.17% 6.64%(b) 5.94%
Portfolio Turnover Rate..................................... 19% 25% 150% 291%
Net assets at end of period (000's omitted)................. $59,627 $69,082 $129,933 $152,391
</TABLE>
------------------------------
(a) Total returns would have been lower had certain expenses not been reduced
during the period shown (Note 4).
(b) Annualized.
See Notes to Financial Statements. Memorial Funds
25
<PAGE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
Selected per share data for a share of the Fund outstanding throughout each
period:
<TABLE>
<CAPTION>
GROWTH EQUITY FUND VALUE EQUITY FUND
---------------------------- ----------------------------
INSTITUTIONAL SHARES INSTITUTIONAL SHARES
---------------------------- ----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.50 $ 11.49 $ 8.75 $ 9.19
------- ------- ------- -------
Investment Operations:
Net investment income (loss).............................. -- (0.01) 0.06 0.08
Net realized and unrealized gain on investments........... 0.74 2.67 (0.91) (0.44)
Total from Investment Operations............................ 0.74 2.66 (0.85) (0.36)
------- ------- ------- -------
Distributions from:
Net investment income..................................... --(c) -- (0.06) (0.08)
Net realized gain on investments.......................... -- (1.65) -- --
------- ------- ------- -------
Total Distributions......................................... 0.00 (1.65) (0.06) (0.08)
------- ------- ------- -------
Net asset value, end of period.............................. $ 13.24 $ 12.50 $ 7.84 $ 8.75
======= ======= ======= =======
Total Return (a)............................................ 5.92% 24.44% (9.72)% (3.96)%
Ratio/Supplementary Data:
Ratios to average net assets:
Expenses, including reimbursement/waiver of fees.......... 1.01%(b) 1.00% 1.02%(b) 1.00%
Expenses, excluding reimbursement/waiver of fees.......... 1.14%(b) 1.09% 1.14%(b) 1.09%
Net investment income (loss), including
reimbursement/waiver of fees............................ (0.22)(b) (0.10)% (3.38)(b) 0.90%
Portfolio turnover rate..................................... 28% 108% 121% 60%
Net assets at end of period (000's omitted)................. $30,356 $41,833 $26,237 $37,068
</TABLE>
------------------------------
(a) Total returns would have been lower had certain expenses not been reduced
during the period shown (Note 4).
(b) Annualized.
(c) Distributions per share were $.00037450.
See Notes to Financial Statements. Memorial Funds
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (unaudited)
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 30, 1998
Corporate Bond Fund (Institutional Shares) March 25, 1998
Growth Equity Fund (Trust and Institutional Shares) March 30, 1998
Value Equity Fund (Trust and Institutional Shares) March 30, 1998
</TABLE>
On February 28, 2000 existing Trust Shares of Value Equity Fund and Growth
Equity Fund were reclassified as Institutional Shares of beneficial interest.
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
June 30, 2000, Corporate Bond Fund holds securities valued at fair value as
determined by the Board of Trustees amounting to $208,870 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.
Memorial Funds
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (unaudited)
As of June 30, 2000, Government Bond Fund, Corporate Bond Fund and Value Equity
Fund have capital loss carryovers in the amounts of $630,263, $4,648,921,
$2,532,722, respectively, expiring December 31, 2007, available to offset future
net realized capital gains.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of each Fund is Forum Investment Advisors, LLC (the
"Adviser"). The Adviser receives monthly, from each Fund, an advisory fee at an
annual rate of 0.23% 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 PPM America, Inc.
</TABLE>
Currently, the Adviser pays the Sub-advisers of the Government Bond Fund and the
Corporate Bond Fund an annual fee of 0.20% of the average daily net assets of
each Fund. The 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 had adopted a plan of distribution pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act"). Currently, no
Rule 12b-1 fees are being charged, as all the remaining Trust Shares, the only
shares affected by the plan of distribution, were reclassified as Institutional
Shares on February 28, 2000.
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 the Institutional Shares of Government Bond Fund, Corporate Bond
Fund, Growth Equity Fund and Value Equity Fund.
Memorial Funds
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
June 30, 2000 (unaudited)
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. One Trustee
has waived all fees for the remainder of the fiscal year. In addition, each
Trustee receives $500 per meeting attended.
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Adviser, Sub-advisers, FSS, FFS 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 period ended June 30, 2000, the Sub-advisers,
Memorial Group, Inc. and FFS have voluntarily waived fees, and reimbursed
expenses as follows:
<TABLE>
<CAPTION>
INVESTMENT MEMORIAL EXPENSE
ADVISORY GROUP, INC. FFS REIMBURSEMENTS TOTAL
---------- ----------- ---- -------------- -------
<S> <C> <C> <C> <C> <C>
Government Bond Fund.................................. $11,669 $16,322 -- -- $27,991
Corporate Bond Fund................................... 25,562 6,773 -- -- 32,335
Growth Equity Fund.................................... -- 24,137 $157 $303 24,597
Value Equity Fund..................................... -- 18,735 70 177 18,982
</TABLE>
NOTE 5. SECURITIES TRANSACTIONS
The cost of securities purchased and the proceeds from sales of securities,
other than short-term securities, for the period ended June 30, 2000, 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.................. $12,829,661 $22,386,106 $12,829,661 $22,386,106
Corporate Bond Fund................... 181,557,185 202,153,817 83,631,467 79,665,050
Growth Equity Fund.................... 10,501,296 23,801,255 -- --
Value Equity Fund..................... 37,602,375 43,517,728 -- --
</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
June 30, 2000, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
TAX COST APPRECIATION DEPRECIATION (DEPRECIATION)
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Government Bond Fund.............................. $60,727,219 $ 177,318 $1,880,367 $(1,703,049)
Corporate Bond Fund............................... 131,516,520 334,975 3,471,164 (3,136,189)
Growth Equity Fund................................ 24,607,677 6,921,988 1,303,121 5,618,867
Value Equity Fund................................. 28,564,375 963,154 3,190,859 (2,227,705)
</TABLE>
NOTE 6. MISCELLANEOUS
On May 31, 2000, a special meeting of the shareholders of Value Equity Fund (the
"Fund") was held to consider and act upon a proposal to approve a new Investment
Sub-Advisory Agreement among the Memorial Funds, Forum Investment Advisors, LLC
and PPM America, Inc. Only shareholders of record on April 28, 2000 (the "Record
Date") were entitled to vote. Of the 3,775,070.004 shares of voting stock
outstanding for the Fund on the Record Date, 2,446,959.068 (64.82%) shares of
the Fund, constituting a quorum, were present by proxy or in person. The
proposal was approved by 100% of the shareholders present at the meeting.
Memorial Funds
29
<PAGE>
THE MEMORIAL FUNDS
INVESTMENT ADVISER
Forum Investment Advisors, LLC
Two Portland Square
Portland, Maine 04101
DISTRIBUTOR
Forum Fund Services, LLC
Two Portland Square
Portland, Maine 04101
SHAREHOLDER SERVICING AGENT
Memorial Group, Inc.
5847 San Felipe
Suite 4545
Houston, Texas 77057
TRANSFER AGENT & DIVIDEND DISBURSING AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
This report is submitted for the general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors in the
Funds unless preceded or accompanied by an effective prospectus, which includes
information regarding the Funds' objectives and policies, experience of its
management, marketability of shares, and other information.
