<PAGE>
N-30D Table of Contents
Frank Russell Investment Company Fund Name N-30D Page
- ------------------------------------------ ----------
External Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equity I. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Equity II . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Equity III. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Equity Q. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
International . . . . . . . . . . . . . . . . . . . . . . . . 55
Fixed Income I. . . . . . . . . . . . . . . . . . . . . . . . 76
Fixed Income II . . . . . . . . . . . . . . . . . . . . . . . 91
Fixed Income III. . . . . . . . . . . . . . . . . . . . . . . 100
Money Market. . . . . . . . . . . . . . . . . . . . . . . . . 112
Notes to Financial Statements . . . . . . . . . . . . . . . . 118
Additional Information . . . . . . . . . . . . . . . . . . . 128
Manager and Money Managers . . . . . . . . . . . . . . . . . 129
Internal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Diversified Equity. . . . . . . . . . . . . . . . . . . . . . 133
Special Growth. . . . . . . . . . . . . . . . . . . . . . . . 145
Equity Income . . . . . . . . . . . . . . . . . . . . . . . . 162
Quantitative Equity . . . . . . . . . . . . . . . . . . . . . 171
International Securities. . . . . . . . . . . . . . . . . . . 183
Diversified Bond. . . . . . . . . . . . . . . . . . . . . . . 203
Volatility Constrained Bond . . . . . . . . . . . . . . . . . 218
Multistrategy Bond. . . . . . . . . . . . . . . . . . . . . . 227
Notes to Financial Statements . . . . . . . . . . . . . . . . 239
Additional Information . . . . . . . . . . . . . . . . . . . 248
Manager and Money Managers . . . . . . . . . . . . . . . . . 249
Specialty Funds . . . . . . . . . . . . . . . . . . . . . . . . . 250
Real Estate Securities. . . . . . . . . . . . . . . . . . . . 253
Emerging Markets. . . . . . . . . . . . . . . . . . . . . . . 260
Limited Volatility Tax Free . . . . . . . . . . . . . . . . . 273
US Government Money Market. . . . . . . . . . . . . . . . . . 284
Tax Free Money Market . . . . . . . . . . . . . . . . . . . . 290
Notes to Financial Statements . . . . . . . . . . . . . . . . 300
Additional Information . . . . . . . . . . . . . . . . . . . 306
Manager and Money Managers . . . . . . . . . . . . . . . . . 307
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
Frank Russell Investment Company is a "series mutual fund" with 22 different
investment portfolios. These financial statements report on nine Funds, each
of which has distinct investment objectives and strategies.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
Responsible for overall management and administration of the Funds.
FRANK RUSSELL COMPANY
Consultant to Frank Russell Investment Management Company.
<PAGE>
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . 2
EQUITY I FUND . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EQUITY II FUND. . . . . . . . . . . . . . . . . . . . . . . . . . 15
EQUITY III FUND . . . . . . . . . . . . . . . . . . . . . . . . . 33
EQUITY Q FUND . . . . . . . . . . . . . . . . . . . . . . . . . . 43
INTERNATIONAL FUND. . . . . . . . . . . . . . . . . . . . . . . . 55
FIXED INCOME I FUND . . . . . . . . . . . . . . . . . . . . . . . 77
FIXED INCOME II FUND. . . . . . . . . . . . . . . . . . . . . . . 93
FIXED INCOME III FUND . . . . . . . . . . . . . . . . . . . . . . 103
MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . . . 115
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 121
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . 131
MANAGER AND MONEY MANAGERS. . . . . . . . . . . . . . . . . . . . 132
FRANK RUSSELL INVESTMENT COMPANY - EXTERNAL FEE FUNDS
Copyright-C- Frank Russell Company 1996. All rights reserved. This material
is proprietary and may not be reproduced, transferred, or distributed in any
form without prior written permission from Frank Russell Company. It is
delivered on an "as is" basis without warranty. The Russell logo is a
trademark and service mark of Frank Russell Company. Frank Russell Company
and Standard & Poor's Corporation are the owners of the trademarks, service
marks, and copyrights related to their respective indexes. This material must
be accompanied or preceded by a current Frank Russell Investment Company
Prospectus containing complete information concerning the investment
objectives and operations of the Company, charges, and expenses. The
Prospectus should be read carefully before an investment is made. The
performance as of April 1, 1995 is reported gross of investment advisory
fees. For periods thereafter, performance and yields are reported net of
investment advisory fees but gross of investment services fees, descriptions
of which can be obtained from the investment advisor. Investment services
fees and other account expenses will reduce performance (e.g. an investment
services fee of 0.2% of average managed assets will reduce a 10.0% annual
return to 9.8%). The performance quoted represents past performance and,
except for a money market fund, the 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. An investment in a money market fund is
neither insured nor guaranteed by the US government. There can be no assurance
that a money market fund will be able to maintain a stable net asset value of
$1.00 per share. Investments in securities of non-US issuers and foreign
currencies involve investment risks different than those of US issuers; the
Prospectus contains further information and details regarding these risks.
Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment
Company.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Trustees of Frank Russell Investment Company:
We have audited the accompanying statements of assets and liabilities and
statements of net assets of each of the series of Frank Russell Investment
Company (in this report comprised of Equity I, Equity II, Equity III, Equity
Q, International Fixed Income I, Fixed Income II, Fixed Income III and Money
Market (the "Funds")), as of December 31, 1995, and the related statements
of operations, the statements of changes in net assets and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Funds enumerated above as of December 31, 1995, the results of their
operations, the changes in their net assets and the financial highlights for
each of the periods indicated therein in conformity with generally accepted
accounting principles.
Boston, Massachusetts
February 12, 1996
/s/ Coopers & Lybrand LLP
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
-------- --------
<S> <C> <C>
COMMON STOCKS - 93.7%
BASIC INDUSTRIES - 6.6%
Air Products & Chemicals, Inc. 13,200 $ 696
Alco Standard Corp. 15,500 707
Allegheny Ludlum Corp. 16,200 300
Aluminum Co. of America 97,500 5,155
Bethlehem Steel Corp. (a) 50,700 710
Cyprus Amax Minerals Co. 18,800 491
De Beers Consolidated Mines, Ltd. - ADR 12,100 363
Dow Chemical Co. 50,400 3,547
Engelhard Corp. 11,750 256
Ethyl Corp. 29,900 374
Ferro Corp. 13,300 309
Fuller (H.B.) Co. 8,800 306
Goodrich (B.F.) Co. 36,500 2,487
Grace (W.R.) & Co. 20,600 1,218
Great Lakes Chemical Corp. 63,400 4,565
Illinois Tool Works, Inc. 13,000 767
IMC Global, Inc. 53,600 2,191
International Paper Co. 28,400 1,076
International Specialty Products (a) 53,000 576
J & L Specialty Steel, Inc. 20,300 381
James River Corp. of Virginia 26,000 627
Kimberly-Clark Corp. 71,682 5,932
Lawter International, Inc. 27,000 314
Loctite Corp. 3,400 162
Lone Star Technologies, Inc. (a) 60,000 660
Lukens, Inc. 10,100 290
Minnesota Mining & Manufacturing Co. 41,500 2,749
Monsanto Co. 18,000 2,205
NCH Corp. 5,900 341
P.H. Glatfelter Co. 16,000 274
Phelps Dodge Corp. 5,600 349
Potlatch Corp. 10,000 400
PPG Industries, Inc. 7,700 352
Praxair, Inc. 46,000 1,547
Precision Castparts Corp. 36,600 1,455
Reynolds Metals Co. 18,200 1,031
Rhone Poulenc SA - ADR 22,191 474
Rio Algom, Ltd. 16,900 308
Sequa Corp. (a) 31,100 949
Sonoco Products Co. 13,600 357
Union Carbide Corp. 24,200 907
Wellman, Inc. 15,600 354
Willamette Industries, Inc. 10,300 576
Witco Chemical Corp. 11,300 330
--------
49,418
--------
CAPITAL GOODS - 3.9%
Alcatel Alsthom Compagnie
Generale d'Electricite - ADR 55,100 964
Ball Corp. 6,300 173
Boston Scientific Corp. (a) 24,300 1,191
Briggs & Stratton Corp. 10,000 434
CBI Industries, Inc. 38,000 1,249
Cooper Industries, Inc. 22,077 811
Crane Co. 9,100 336
Culligan Water Technologies, Inc. 9,200 223
Cummins Engine Co., Inc. 32,900 1,217
Dover Corp. 8,900 328
Duracell International, Inc. 22,900 1,185
Emerson Electric Co. 4,700 384
Gardner Denver Machinery, Inc. (a) 2,728 50
General Electric Co. 68,300 4,918
General Signal Corp. 7,700 249
Giant Cement Holding, Inc. (a) 32,900 378
Giddings & Lewis, Inc. 30,000 488
Goulds Pumps, Inc. 15,000 373
Grainger (W.W.), Inc. 5,850 388
Harnischfeger Industries, Inc. 12,500 416
Harsco Corp. 6,200 360
Hubbell, Inc. Class B 6,370 419
ITT Industries, Inc. 25,400 610
Johnson Controls, Inc. 18,300 1,258
Kaydon Corp. 11,700 355
Magna International, Inc. Class A 29,700 1,285
National Service Industries, Inc. 11,300 366
SPS Technologies, Inc. (a) 31,700 1,692
Technip SA - ADR (a) 26,400 901
Tecumseh Products Co. Class A 17,300 895
Timken Co. 7,300 279
Varity Corp. (a) 17,900 665
Waste Management International
PLC - ADR (a) 25,000 269
Westinghouse Electric Corp. 46,600 769
WMX Technologies, Inc. 43,300 1,294
Wyman-Gordon Co. (a) 67,300 917
York International Corp. 15,000 705
Zurn Industries, Inc. 16,000 341
--------
29,135
--------
CONSUMER BASICS - 19.6%
Abbott Laboratories NPV 54,000 2,255
Allergan, Inc. 8,000 260
American Brands, Inc. 53,000 2,365
Equity I Fund 3
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
-------- --------
<S> <C> <C>
American Home Products Corp. 17,000 $ 1,649
American Stores Co. 97,500 2,608
Amgen, Inc. 52,700 3,122
Archer-Daniels-Midland Co. 200,745 3,613
Bard (C.R.), Inc. 11,100 358
Bausch & Lomb, Inc. 13,300 527
Bergen Brunswig Corp. Class A 18,800 468
Black & Decker Corp. 13,600 479
Bristol-Myers Squibb Co. 27,500 2,362
Cadbury Schweppes - ADR 11,600 386
Campbell Soup Co. 7,600 456
Carter-Wallace, Inc. 31,500 358
Chiquita Brands International, Inc. 65,700 903
Church and Dwight Co., Inc. 13,400 248
Clorox Co. 37,900 2,715
Coca-Cola Co. (The) 52,000 3,861
Columbia/HCA Healthcare Corp. 155,300 7,881
Community Psychiatric Centers 26,100 320
ConAgra, Inc. 45,500 1,877
Corning, Inc. 35,000 1,120
CPC International, Inc. 22,900 1,572
Dean Foods Co. 11,800 325
Dial Corp. (The) 47,000 1,392
Dimon, Inc. 40,700 717
Fleming Cos., Inc. 95,000 1,959
Forest Labs, Inc. (a) 9,500 430
Giant Food, Inc. Class A 11,500 362
Gillette Co. 59,400 3,096
Glaxo Holdings PLC - ADR 14,750 417
HealthCare COMPARE (a) 5,100 222
Hillenbrand Industries, Inc. 10,200 346
Hormel (George A.) & Co. 12,900 318
IBP, Inc. 22,600 1,141
International Dairy Queen, Inc. Class A (a) 17,200 391
Interstate Bakeries Corp. 45,000 1,007
Johnson & Johnson 110,300 9,444
Kroger Co. (a) 76,900 2,884
Lance, Inc. 16,600 270
Lilly (Eli) & Co. 85,400 4,804
Lincare Holdings, Inc. (a) 13,200 327
McKesson Corp. New 17,000 861
Medtronic, Inc. 32,100 1,794
Merck & Co., Inc. 139,500 9,172
Mylan Laboratories, Inc. 108,000 2,538
PacifiCare Health Systems, Inc., Class A (a) 6,600 568
PepsiCo, Inc. 208,700 11,661
Pfizer, Inc. 61,400 3,868
Pharmacia & Upjohn, Inc. (a) 88,300 3,422
Philip Morris Cos., Inc. 184,400 16,688
Procter & Gamble Co. 35,200 2,922
Quaker Oats Co. 10,800 373
Rhone Poulenc Rorer, Inc. 8,000 426
RJR Nabisco Holdings Corp. New 13,720 424
Sara Lee Corp. 47,600 1,517
Schering-Plough Corp. 102,100 5,590
Schweitzer-Mauduit International, Inc. 39,500 913
SmithKline Beecham PLC - ADR 51,500 2,858
St. Jude Medical, Inc. 9,600 410
Standard Commercial Corp. 19,998 197
Stanley Works 8,500 438
Tambrands, Inc. 3,600 172
U.S. Bioscience, Inc. (a) 1,126 5
U.S. Healthcare, Inc. 9,950 461
U.S. Surgical Corp. 12,700 271
Unilever NV 6,300 887
United Healthcare Corp. 62,000 4,061
Universal Corp. 31,400 765
UST Corp. 11,100 370
Warner-Lambert Co. 16,200 1,573
Weis Markets, Inc. 11,700 331
Wellpoint Health Networks, Inc. Class A (a) 12,500 402
--------
147,553
--------
CONSUMER DURABLES - 2.2%
Bandag, Inc. 5,400 292
Bassett Furniture Industries, Inc. 11,900 271
Carlisle Cos., Inc. 8,500 343
Donaldson Co., Inc. 12,700 319
Echlin, Inc. 16,700 610
Federal Signal Corp. 15,300 396
Fleetwood Enterprises, Inc. 15,700 404
Ford Motor Co. 123,272 3,575
General Motors Corp. 66,200 3,500
Genuine Parts Co. 8,400 344
Leggett & Platt, Inc. 14,900 361
PACCAR, Inc. 20,200 848
Polaris Industries, Inc. 12,300 361
Strattec Security Corp. 4,700 81
Tomkins PLC - ADR 22,100 395
UNC, Inc. (a) 122,800 738
Whirlpool Corp. 62,800 3,345
--------
16,183
--------
Equity I Fund 4
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
-------- --------
<S> <C> <C>
CONSUMER NON-DURABLES - 5.2%
Angelica Corp. 11,700 $ 240
Anheuser-Busch Cos., Inc. 25,000 1,672
Blair Corp. 7,800 247
Dayton Hudson Corp. 15,100 1,133
Federated Department Stores, Inc. (a) 106,100 2,918
Gap, Inc. 64,000 2,688
Handleman Co. 31,400 181
Hills Stores Co. New (a) 27,926 276
Jostens, Inc. 15,700 381
K mart Corp. 50,000 363
Kohl's Corp. (a) 4,100 215
Liz Claiborne, Inc. 15,600 433
Lowe's Cos., Inc. 26,600 891
Mattel, Inc. 54,275 1,669
May Department Stores Co. 40,900 1,728
Newell Co. 14,300 370
NIKE, Inc. Class B 8,000 557
Nine West Group, Inc. (a) 25,800 968
Office Depot, Inc. (a) 36,400 719
Penney (J.C.) Co., Inc. 47,000 2,238
Petrie Stores Corp. 14,700 40
Phar-Mor, Inc. New 121,500 957
Polaroid Corp. 15,000 711
Price Costco, Inc. (a) 41,500 633
Rayonier, Inc. 36,000 1,202
Reebok International, Ltd. 16,800 475
Rite Aid Corp. 56,800 1,945
Sears Roebuck & Co. 69,000 2,691
Semi-Tech Corp. Class A 40,000 260
Shaw Industries, Inc. 155,000 2,286
Stride Rite Corp. 36,500 274
SuperValu, Inc. 58,800 1,852
Toys ""R'' Us, Inc. (a) 112,800 2,452
Wal-Mart Stores, Inc. 148,300 3,317
Warnaco Group, Inc. Class A 8,200 204
--------
39,186
--------
CONSUMER SERVICES - 4.3%
AAR Corp. 29,100 640
America West Airlines, Inc. Class B (a) 20,000 340
AMR Corp. (a) 13,600 1,010
Brinker International, Inc. (a) 76,000 1,150
British Airways PLC - ADS 19,000 1,382
Carnival Corp. Class A 82,200 2,004
Delta Air Lines, Inc. 24,100 1,780
Disney (Walt) Co. 106,900 6,307
Harrah's Entertainment, Inc. 8,700 211
ITT Corp. New 64,400 3,413
King World Productions, Inc. (a) 9,100 354
KLM Royal Dutch Airlines 37,429 1,319
McDonald's Corp. 140,500 6,340
Mirage Resorts, Inc. (a) 39,800 1,373
Northwest Airlines Corp. Class A (a) 25,000 1,272
Patriot American Hospitality, Inc. 4,500 116
Royal Caribbean Cruises, Ltd. 12,600 277
UAL Corp. (a) 16,900 3,017
--------
32,305
--------
ENERGY - 7.9%
Amerada Hess Corp. NPV 31,600 1,675
Amoco Corp. 93,000 6,684
Apache Corp. 63,600 1,876
Ashland, Inc. 22,000 773
Atlantic Richfield Co. 11,500 1,274
British Petroleum Co. PLC - ADR 39,101 3,993
Burlington Resources, Inc. 38,500 1,511
Chevron Corp. 43,300 2,273
Diamond Shamrock, Inc. 17,800 461
Enron Oil & Gas Co. 9,800 235
Exxon Corp. 63,200 5,064
Halliburton Co. 7,500 380
Imperial Oil, Ltd. New 9,000 325
Kerr-McGee Corp. 15,200 965
Mesa, Inc. (a) 188,000 705
Mobil Corp. 36,150 4,049
Noble Drilling Corp. (a) 100,000 888
NorAm Energy Corp. 46,100 409
Oryx Energy Co. (a) 61,800 827
Petroleum Heat & Power, Inc. Class A 120,100 931
Questar Corp. 19,500 653
Reading & Bates Corp. New (a) 47,400 711
Renaissance Energy, Ltd. 32,900 819
Rowan Cos., Inc. (a) 13,300 131
Royal Dutch Petroleum Co. - ADR 29,800 4,206
Schlumberger, Ltd. 49,800 3,449
Seagull Energy Corp. (a) 58,000 1,291
Sun Company 3,901 107
Sun Energy Partners, L.P. 47,600 179
Tenneco, Inc. 54,700 2,714
Texaco, Inc. 30,100 2,363
Tosco Corp. New 45,000 1,716
Total Co. SA - ADR 67,698 2,302
Equity I Fund 5
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
-------- --------
<S> <C> <C>
Transocean AS 13,100 $ 226
Ultramar Corp. 17,800 458
Unocal Corp. 25,000 728
USX-Marathon Group 82,000 1,599
Washington Energy Co. 11,000 204
YPF Sociedad Anonima Class D - ADR 25,000 540
--------
59,694
--------
FINANCE - 16.1%
ACE, Ltd. 23,100 918
Aetna Life & Casualty Co. 27,100 1,877
Allstate Corp. 24,566 1,010
American Express Co. 33,600 1,390
American Financial Group, Inc. 35,200 1,078
American General Corp. 58,900 2,054
American International Group, Inc. 94,425 8,734
Banc One Corp. 21,600 815
Bank of Boston Corp. 42,400 1,961
Bank of New York Co., Inc. 70,400 3,432
BankAmerica Corp. 55,500 3,594
Barnett Banks, Inc. 20,400 1,204
Borg-Warner Security Corp. (a) 36,000 450
Chase Manhattan Corp. 17,300 1,049
Chemical Banking Corp. 129,100 7,585
Chubb Corp. (The) 55,800 5,399
CIGNA Corp. 55,450 5,725
Citicorp 45,100 3,033
Coast Savings Financial, Inc. (a) 42,900 1,485
CoreStates Financial Corp. 49,000 1,856
Countrywide Credit Industries, Inc. 94,200 2,049
Danielson Holding Corp. (a) 66,400 457
Dean Witter, Discover & Co. 55,945 2,629
Equifax, Inc. 20,000 428
Equitable of Iowa Cos. 9,600 308
Federal Home Loan Mortgage Corp. 46,200 3,858
Federal National Mortgage Association 64,700 8,031
First Bank System, Inc. 24,800 1,231
First Chicago NBD Corp. 45,127 1,783
First Interstate Bancorp 6,700 915
Fleet Financial Group, Inc. 15,500 632
General Re Corp. 24,700 3,829
Golden West Financial Corp. 24,200 1,337
Green Tree Financial Corp. 11,200 295
Home Beneficial Corp. Class B 15,500 364
Horace Mann Educators Corp. 12,800 400
ITT Hartford Group, Inc. 25,400 1,229
KeyCorp 7,200 261
Lehman Brothers Holdings, Inc. 44,000 935
Loews Corp. 5,400 423
Long Island Bancorp, Inc. 17,600 464
Marsh & McLennan Cos., Inc. 26,300 2,334
MBNA Corp. 76,800 2,832
Merrill Lynch & Co., Inc. 60,400 3,080
Morgan Stanley Group, Inc. 9,200 742
NationsBank Corp. 40,900 2,848
Norwest Corp. 141,300 4,663
Old Republic International Corp. 22,600 802
Paul Revere Corp. 40,000 830
Pohjola Series B 70,000 901
Provident Life & Accident Insurance Co.
Class B 14,100 409
Raymond James Financial, Inc. 16,800 355
Reliastar Financial Corp. 18,900 839
Southern National Corp. 46,200 1,213
St. Paul Cos., Inc. 25,800 1,435
State Street Boston Corp. 56,500 2,543
Sumitomo Bank of California 17,900 439
SunAmerica, Inc. 9,450 449
SunTrust Banks, Inc. 35,000 2,398
Torchmark Corp. 48,000 2,172
Transatlantic Holdings, Inc. 5,000 367
Travelers, Inc. 12,500 786
Unitrin, Inc. 3,300 155
UNUM Corp. 22,300 1,226
USF & G Corp. 15,700 264
Value Line, Inc. 7,860 288
Wells Fargo & Co. 2,100 453
--------
121,330
--------
GENERAL BUSINESS - 5.2%
Automatic Data Processing, Inc. 83,200 6,178
Block (H&R) Co., Inc. 8,100 328
Capital Cities/ABC, Inc. 15,700 1,937
Cascade Communications Corp. 12,100 1,029
CCH, Inc. Class A 18,100 1,000
Comdisco, Inc. 15,150 343
Computer Sciences Corp. (a) 24,900 1,749
Comsat Corp. Series 1 30,000 559
Cox Communications, Inc. Class A (a) 41,600 811
Deluxe Corp. 20,100 583
Donnelley (R.R.) & Sons Co. 28,500 1,122
Dow Jones & Co., Inc. 9,100 363
Equity I Fund 6
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
-------- -------
<S> <C> <C>
Dun & Bradstreet Corp. 6,400 $ 414
Figgie International Holdings, Inc.
Class A (a) 55,700 578
First Data Corp. 36,966 2,472
Gannett Co., Inc. 6,000 368
General Motors Corp. Class E 82,100 4,269
Harland (John H.) Co. 16,000 334
Ideon Group, Inc. 81,200 822
Knight-Ridder, Inc. 6,400 400
Lee Enterprises, Inc. 17,200 396
McClatchy Newspapers, Inc. Class A 2,500 57
McGraw-Hill, Inc. 3,200 279
Miller (Herman), Inc. 12,600 378
Moore Corp., Ltd. 15,200 283
New England Business Service, Inc. 17,500 383
New York Times Co. Class A 31,400 930
Ogden Corp. 26,100 558
Pinkerton's, Inc. New (a) 20,200 394
Portugal Telecom SA - ADR (a) 19,100 363
Reuters Holdings PLC Class B - ADR 16,100 890
Service Corp. International 19,700 867
Standard Register Co. 16,400 330
Tele-Communications, Inc. Class A 126,900 2,522
Tele-Communications, Inc.
Series A New (a) 54,375 1,455
Tribune Co. 11,800 721
True North Communications, Inc. 16,600 307
Viacom, Inc. Class B (a) 36,300 1,720
Washington Post Co. Class B 1,200 337
-------
38,829
-------
MISCELLANEOUS - 0.6%
American Real Estate Partners, L.P. 96,242 818
Canadian Pacific, Ltd. 57,000 1,033
Catellus Development Corp. (a) 80,000 480
Koger Equity, Inc. (a) 30,800 327
Newhall Land & Farming Co. 56,000 952
Providian Corp. 9,100 371
Tucker Properties Corp. 47,700 418
-------
4,399
-------
SHELTER - 0.5%
Essex Property Trust 22,000 424
Lafarge Coppee 15,500 291
Louisiana Pacific Corp. 13,700 332
Rayonier Timberlands, L.P. Class A 9,900 265
St. Lawrence Cement Inc. Class A 87,000 462
Standard Pacific Corp. New 22,000 138
Vulcan Materials Co. 6,100 351
Weyerhaeuser Co. 32,200 1,392
-------
3,655
-------
TECHNOLOGY - 11.6%
3Com Corp. 29,600 1,380
Advanced Micro Devices, Inc. 48,800 805
AMP, Inc. 34,600 1,328
Applied Materials, Inc. 107,300 4,212
BE Aerospace, Inc. (a) 105,000 1,116
Boeing Co. 63,200 4,953
CAE, Inc. 115,300 876
Cisco Systems, Inc. (a) 117,300 8,754
COMPAQ Computer Corp. (a) 60,400 2,899
Computer Associates International, Inc. 31,100 1,769
Cray Research, Inc. (a) 13,800 342
Curtiss-Wright Corp. 15,400 828
Diebold, Inc. 7,500 415
Digital Equipment Corp. (a) 8,400 539
EG&G, Inc. 21,700 526
Electronic Arts (a) 31,100 812
Ericsson (LM) Telephone Co.
Class B - ADR 110,570 2,142
FTP Software, Inc. (a) 24,300 705
General Motors Corp. Class H 42,800 2,103
Hewlett-Packard Co. 113,100 9,472
Honeywell, Inc. 17,800 866
Informix Corp. 39,600 1,188
Intel Corp. 182,000 10,329
Intelligent Electronics, Inc. 19,300 116
Intergraph Corp. (a) 28,200 444
International Business Machines Corp. 57,300 5,257
KLA Instruments Corp. 15,400 400
Lockheed Martin Corp. 34,200 2,702
LSI Logic Corp. 21,800 714
McDonnell Douglas Corp. 3,100 285
Micron Technology, Inc. 29,200 1,157
Microsoft Corp. (a) 45,100 3,958
Molex, Inc. Class A 7,200 220
Motorola, Inc. 30,700 1,750
Northrop Grumman Corp. 29,700 1,901
Oracle Systems Corp. 80,600 3,405
Pitney Bowes, Inc. 3,300 155
Equity I Fund 7
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
-------- -------
<S> <C> <C>
Raytheon Co. 18,800 $ 888
Seagate Technology (a) 28,500 1,354
Stratus Computer, Inc. (a) 9,800 339
Tandy Corp. 6,300 261
Thiokol Corp. 10,500 356
Thomson-CSF - ADR 15,500 349
TRW, Inc. 8,700 674
U.S. Robotics Corp. 2,100 184
United Technologies Corp. 13,800 1,309
Varian Associates, Inc. 6,100 290
-------
86,827
-------
TRANSPORTATION - 1.6%
Alexander & Baldwin, Inc. 13,500 311
American President Cos., Ltd. 14,600 336
BT Shipping, Ltd. - ADR (a) 201,600 680
Canadian National Railway Co. 5,000 75
Conrail, Inc. 28,200 1,974
CSX Corp. 38,600 1,761
Federal Express Corp. 8,400 621
GATX Corp. 11,200 545
Johnstown America Industries, Inc. (a) 57,500 266
Nordic American Tanker Shipping, Ltd.
1997 Warrants (a) 36,200 127
Norfolk Southern Corp. 36,000 2,858
OMI Corp. (a) 40,000 260
Overseas Shipholding Group, Inc. 45,000 855
Roadway Services, Inc. 5,700 279
Teekay Shipping Corp. 10,200 240
Trans World Airlines, Inc. New (a) 71,900 745
XTRA Corp. 3,800 161
Yellow Corp. 17,900 221
-------
12,315
-------
UTILITIES - 8.4%
Airtouch Communications, Inc. (a) 109,000 3,079
AT&T Corp. 168,950 10,940
BCE, Inc. 38,400 1,325
BellSouth Corp. 34,000 1,479
British Telecommunications PLC - ADR 5,600 316
Central Maine Power Co. 44,200 635
Coastal Corp. 7,400 276
Detroit Edison Co. 24,500 845
Dominion Resources, Inc. 30,100 1,242
Empresa Nacional de Electricidad
SA - ADR 6,500 372
Enron Corp. 43,000 1,639
ENSERCH Corp. 32,000 520
FPL Group, Inc. 20,500 951
General Public Utilities Corp. 84,800 2,883
GTE Corp. 87,600 3,854
KU Energy Corp. 12,700 381
Lincoln Telecommunications Co. 10,100 213
MCI Communications Corp. 186,200 4,864
New England Electric System 3,000 119
Niagara Mohawk Power Corp. 219,700 2,115
NIPSCO Industries, Inc. 26,600 1,017
Northeast Utilities 54,500 1,328
NYNEX Corp. 43,600 2,354
Pacific Gas & Electric Co. 71,000 2,015
Pacific Telesis Group 78,443 2,638
SCE Corp. 127,300 2,260
Southern New England
Telecommunications Corp. 17,400 692
Sprint Corp. 73,300 2,923
Talisman Energy, Inc. 31,800 643
Telefonica de Espana SA - ADR 54,000 2,261
Telefonos de Mexico SA Series L - ADR 70,000 2,231
Texas Utilities Co. 45,000 1,851
Unicom Corp. 60,800 1,991
WorldCom, Inc. (a) 20,000 705
-------
62,957
-------
TOTAL COMMON STOCKS
(cost $588,221) 703,786
-------
CONVERTIBLE PREFERRED STOCK - 0.4%
Boise Cascade Corp. Series G 20,000 573
Continental Airlines Finance Trust 9,300 495
Elsag Bailey Financing Trust 15,200 762
Glendale Federal Bank Series E 22,100 1,000
Sun, Inc. Series A 8,699 241
-------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $2,799) 3,071
-------
PREFERRED STOCKS - 0.3%
Nokia Corp. - ADR 65,800 2,558
-------
TOTAL PREFERRED STOCKS
(cost $3,203) 2,558
-------
8 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.9%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 37,001 $ 37,001
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $37,001) 37,001
--------
TOTAL INVESTMENTS
(identified cost $631,224)(c) - 99.3% 746,416
OTHER ASSETS AND LIABILITIES,
NET - 0.7% 5,081
--------
NET ASSETS - 100.0% $751,497
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes was $637,977
and net unrealized appreciation for all securities was $108,439. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $127,731 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $19,292.
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/96 119 $ (304)
-----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (Section) $ (304)
-----------
-----------
</TABLE>
(Section) At December 31, 1995, United States Treasury Notes, due 12/31/95,
valued at $4,250 were held as collateral by the custodian in
connection with futures contracts purchased by the Fund. The
settlement amount of these matured notes is included in Receivable for
Investments Sold on the Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
Equity I Fund 9
<PAGE>
EQUITY I FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $631,223,828)(Note 2) . . . . . . . . . . . . . . . . $746,416,336
Foreign currency holdings (identified cost $3,421) . . . . . . . . . . . . . . . . . . . . . 3,421
Foreign currency exchange spot contracts (cost $223,196)(Notes 2 and 6). . . . . . . . . . . 223,642
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,788,697
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,473,015
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,283,269
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . 46,247
------------
760,234,627
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 896,540
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . 4,445,858
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . 2,665,954
Accrued bookkeeping service fees (Note 4). . . . . . . . . . . . . . . . 6,151
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . . . . 378,240
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . . . . 29,884
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 92,117
Foreign currency exchange spot contracts (cost $223,196)(Notes 2 and 6). 223,196 8,737,940
--------------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $751,496,687
------------
------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,480,154
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,192,430
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (304,482)
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,411
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624,860,174
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $751,496,687
------------
------------
Net asset value, offering and redemption price per share
($751,496,687 divided by 26,841,064 shares of $.01 par value
shares of beneficial interest outstanding). . . . . . . . . . . . . . . . . . . . . . . . $ 28.00
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,559,600
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . 1,968,839
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,372
-------------
16,028,811
Expenses (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,021,465
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,166
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . 185,714
Bookkeeping service fees. . . . . . . . . . . . . . . . . . . . . . . . 25,946
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,717
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,851
Trustees' fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,510
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,329 3,778,698
------------ -------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,250,113
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,868,574
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,303,306
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,036,237
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,440,790
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (304,482)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (281,884)
------------
Net gain (loss) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,062,541
------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . $ 193,312,654
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity I Fund 11
<PAGE>
EQUITY I FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,250,113 $ 13,433,380
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,868,574 21,157,547
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,303,306 --
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,036,237 1,493,832
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,440,790 (32,567,886)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . (304,482) --
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . (281,884) (24,441)
------------- -------------
Net increase (decrease) in net assets resulting from operations. . . . . . 193,312,654 3,492,432
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . (12,344,719) (13,483,931)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . (73,241,302) (20,143,817)
In excess of net realized gain on investments. . . . . . . . . . . . . . -- (5,132,320)
Increase (decrease) in net assets from Fund share transactions. . . . . . . 96,528,353 68,153,245
------------- -------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . 204,254,986 32,885,609
Net assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . 547,241,701 514,356,092
------------- -------------
NET ASSETS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . $ 751,496,687 $ 547,241,701
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . 8,042,540 $ 218,753,104 7,318,044 $ 179,274,536
Fund shares issued to shareholders . .
in reinvestments of distributions . . 2,917,909 80,302,078 1,508,847 35,449,732
Fund shares redeemed . . . . . . . . .(7,584,655) (202,526,829) (6,007,113) (146,571,023)
---------- ------------- --------- -------------
Net increase (decrease). . . . . . . . 3,375,794 $ 96,528,353 2,819,778 $ 68,153,245
---------- ------------- --------- -------------
---------- ------------- --------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 Equity I Fund
<PAGE>
EQUITY I FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . $ 23.32 $ 24.91 $ 25.00 $ 25.17 $ 21.13
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . .52 .62 .60 .61 .75
Net realized and unrealized gain (loss) on investments . . . . 7.71 (.41) 2.18 1.54 5.61
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . . . 8.23 .21 2.78 2.15 6.36
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . (.52) (.62) (.60) (.62) (.75)
Net realized gain on investments . . . . . . . . . . . . . . . (3.03) (.94) (2.11) (1.70) (1.57)
In excess of net realized gain on investments. . . . . . . . . -- (.24) (.16) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . (3.55) (1.80) (2.87) (2.32) (2.32)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . $ 28.00 $ 23.32 $ 24.91 $ 25.00 $ 25.17
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . 35.94 0.79 11.61 9.02 31.22
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . . . .59 .12 .14 .15 .19
Net investment income to average net assets (a). . . . . . . . 1.91 2.52 2.36 2.53 3.14
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . 92.04 75.02 91.87 71.14 119.55
Net assets, end of year ($000 omitted) . . . . . . . . . . . . 751,497 547,242 514,356 410,170 330,507
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees. See
Note 4.
Equity I Fund 13
<PAGE>
EQUITY I FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS RUSSELL 1000
ENDED DECEMBER 31 EQUITY I -REGISTERED TRADEMARK- **
- ----------------- -------- -------------------------
<S> <C> <C>
Inception* $10,000 $10,000
1986 $11,623 $11,787
1987 $12,317 $12,134
1988 $14,341 $14,225
1989 $18,756 $18,551
1990 $17,699 $17,780
1991 $23,225 $23,652
1992 $25,321 $25,789
1993 $28,261 $28,407
1994 $28,482 $28,515
1995 $38,718 $39,285
</TABLE>
Equity I Fund
<TABLE>
<CAPTION>
PERIODS ENDED 12/31/95 GROWTH OF $10,000 TOTAL RETURN
- ---------------------- ----------------- ------------
<S> <C> <C>
1 Year $ 13,594 35.94%
5 Years $ 21,876 16.94%
10 Years $ 38,718 14.49%
</TABLE>
Russell 1000-Registered Trademark- Index
<TABLE>
<CAPTION>
PERIODS ENDED 12/31/95 GROWTH OF $10,000 TOTAL RETURN
- ---------------------- ----------------- ------------
<S> <C> <C>
1 Year $ 13,777 37.77%
5 Years $ 22,095 17.18%***
10 Years $ 39,285 14.66%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Russell 1000 Index includes the 1,000 largest companies
in the Russell 3000-Registered Trademark- Index, the
smallest of which is valued at about $450 million. The
Russell 1000 Index represents the universe of stocks
from which most active money managers typically select.
*** Annualized.
EQUITY I FUND returned 35.9% during 1995, trailing the Russell
1000-Registered Trademark- Index return of 37.8%. The portfolio was managed
in a manner consistent with its design to serve as a core investment for
those investors whose objectives include long-term growth or long-term
protection against inflation. The Fund uses a multi-style, multi-manager
strategy intended to achieve higher returns with moderate risk.
The dominance of large cap stocks during the year detracted from the Fund's
performance. Technology stocks led other sectors by a wide margin during the
first half of the year; but the market rotated to interest rate-sensitive
issues during the second and third quarters and defensive sectors (health
care, energy, and utilities) during the last four months. Consumer stocks
suffered through most of the year in response to a slowing economy and
employment fears driven by corporate restructurings. Although consumer
staples gained strength as investors sought the stocks of stable growth
companies, a weak holiday sales season strained an already weak retail
sector. Good technology stock selection gave the fund a strong boost early
in the year on top of the sector's generally strong start. However, the tech
sector slumped for most of the second half of 1995, taking the Fund's
technology holdings down with it. The Fund also lost ground in the fourth
quarter due to its underweighting in utilities versus the index.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
14 Equity I Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
COMMON STOCKS - 95.6%
BASIC INDUSTRIES - 5.0%
ABS Industries, Inc. 16,000 $ 120
AK Steel Holding Corp. 7,400 254
Albemarle Corp. 10,200 198
Allegheny Ludlum Corp. 14,800 274
Alumax, Inc. (a) 8,100 248
ASARCO, Inc. 8,900 285
Bio-Rad Laboratories, Inc. Class A (a) 1,900 81
Birmingham Steel Corp. 6,200 92
Boise Cascade Corp. 7,000 242
Brockway Standard Holdings Corp. (a) 12,000 186
Cambrex Corp. 6,000 248
Carpenter Technology Corp. 13,400 551
CasTech Aluminum Group, Inc. (a) 6,600 89
Chesapeake Corp. 4,000 119
Cleveland-Cliffs, Inc. 2,000 82
Commercial Metals Co. 40,500 1,002
Commonwealth Aluminum Corp. 7,600 117
Crompton & Knowles Corp. 7,100 94
Cyprus Amax Minerals Co. 25,500 666
Dexter Corp. 46,000 1,087
Dravo Corp. (a) 24,800 298
Easco, Inc. 22,000 173
Eastern Enterprises, Inc. 2,100 74
Ferro Corp. 51,900 1,207
First Brands Corp. 7,800 371
Fort Howard Corp. New (a) 14,000 313
Handy & Harman 25,500 421
Hanna (M.A.) Co. 5,800 162
Hecla Mining Co. (a) 11,800 81
J & L Specialty Steel, Inc. 8,700 163
Lukens, Inc. 4,000 115
Medusa Corp. 1,200 32
Mentor Graphics Corp. (a) 43,700 787
Mississippi Chemical Corp. New 7,200 167
New Jersey Steel Corp. (a) 24,900 212
Northwestern Steel & Wire Co. New (a) 3,800 30
Oregon Steel Mills, Inc. 1,800 25
Penwest, Ltd. 8,000 194
Proler International Corp. (a) 61,500 461
Quanex Corp. 2,600 50
Schnitzer STL Industries, Inc. Class A 900 27
Slater Industries, Inc. 18,000 171
St. Joe Paper Co. 11,900 655
Stone Container Corp. 14,500 208
Texas Industries, Inc. 2,000 106
Universal Stainless & Alloy Products, Inc. (a) 12,000 126
Varlen Corp. 1,100 24
Webco Industries, Inc. (a) 15,000 85
Wellman, Inc. 19,000 432
WHX Corp. (a) 44,700 486
Witco Chemical Corp. 8,100 237
Wolverine Tube, Inc. (a) 2,100 79
-------
14,007
-------
CAPITAL GOODS - 7.9%
Acme-Cleveland Corp. 2,800 53
ADCO Technologies, Inc. 22,000 151
Aetrium, Inc. 1,300 26
AFC Cable Systems, Inc. (a) 12,000 156
Ag-Chem Equipment Co., Inc. 5,000 131
American Buildings Co. New (a) 34,200 752
Ametek, Inc. 3,100 58
ANADIGICS, Inc. 1,200 26
Anixter International, Inc. 3,000 56
Apogee Enterprises, Inc. 61,000 1,037
Aptargroup, Inc. 21,700 811
Arden Industrial Products (a) 12,000 59
Baldor Electric Co. 1,500 30
Ball Corp. 4,800 132
Barnes Group, Inc. 1,400 50
Bel Fuse, Inc. (a) 1,600 17
Blount International, Inc. Class A 2,100 55
BMC West Corp. (a) 11,000 162
Briggs & Stratton Corp. 7,400 321
Cable Design Technologies Corp. (a) 5,000 220
Cascade Corp. 10,000 135
Charter Power Systems, Inc. 1,100 31
Cognex Corp. 25,400 883
Cohu, Inc. 26,000 650
Commercial Intertech Corp. 1,000 18
Core Industries, Inc. 47,000 605
Cummins Engine Co., Inc. 9,400 348
Daniel Industries, Inc. 1,500 21
Defiance, Inc. 23,000 135
Duriron Co., Inc. 72,600 1,688
Eastern Co. 22,900 281
Epic Design Technology, Inc. 1,400 29
Farr Co. (a) 21,000 158
Flow International Corp. (a) 6,000 55
Fluke Corp. 1,000 38
Giant Cement Holding, Inc. (a) 16,000 184
Global Industrial Technologies, Inc. (a) 6,800 128
Graco, Inc. 26,500 808
Harman International Industries, Inc. 1,500 60
Harmon Industries, Inc. New 12,000 171
Heist (C.H.) Corp. (a) 33,600 235
Hughes Supply, Inc. 1,000 28
Equity II Fund 15
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
Hurco Cos., Inc. (a) 26,000 $ 130
IDEX Corp. 30,900 1,259
II-VI, Inc. 2,600 28
Insituform Technologies, Inc. Class A (a) 12,535 143
Inverpower Controls, Ltd. 18,000 158
JLG Industries, Inc. 600 18
Kennametal, Inc. 5,200 165
Keystone International, Inc. 2,800 56
Litton Industries, Inc. (a) 3,300 147
Measurex Corp. 8,000 226
National Service Industries, Inc. 34,500 1,117
NCI Building Systems, Inc. (a) 8,500 207
Nu Horizons Electronics Corp. (a) 2,000 36
Outboard Marine Corp. 6,200 126
Plantronics, Inc. New (a) 8,000 289
Powell Industries, Inc. (a) 30,000 236
Regal-Beloit Corp. 2,000 44
Sanifill, Inc. (a) 22,300 744
Shelter Components Corp. 12,000 197
SIFCO Industries (a) 81,000 435
Sturm, Ruger & Co., Inc. 1,200 33
Symmetricom, Inc. (a) 2,600 35
Synalloy Corp. 1,300 27
Tecumseh Products Co. Class A 11,100 574
Tecumseh Products Co. Class B 4,000 199
TETRA Technologies, Inc. New 29,375 668
Timken Co. 29,500 1,128
U.S. Filter Corp. New (a) 18,800 501
United Waste Systems, Inc. (a) 22,300 820
USA Waste Services, Inc. (a) 11,000 208
Weatherford Enterra, Inc. (a) 9,500 274
Zurn Industries, Inc. 27,800 594
Zycon Corp. 16,000 180
------
21,994
------
CONSUMER BASICS - 15.7%
Advocat, Inc. (a) 12,000 133
Alpharma, Inc. Class A 7,000 183
American Medical Response (a) 11,800 383
American Oncology Resources, Inc. 16,300 791
Apple South 4,900 104
Ballard Medical Products 17,500 313
Ben & Jerry's Homemade, Inc. Class A (a) 1,300 19
Bergen Brunswig Corp. Class A 7,900 197
Beverly Enterprises, Inc. (a) 20,500 218
Bindley Western Industries, Inc. 1,300 22
Biogen, Inc. (a) 10,500 640
Bush Boake Allen, Inc. (a) 27,500 753
Carter-Wallace, Inc. 2,300 26
Central Sprinkler Corp. (a) 4,000 136
Cephalon, Inc. (a) 4,200 171
Church and Dwight Co., Inc. 45,200 836
CNS, Inc. 8,700 129
Coca-Cola Bottling Co. 19,500 675
Coherent, Inc. (a) 3,400 137
Collagen Corp. 8,000 165
Community Care of America, Inc. 9,400 98
Community Psychiatric Centers 8,000 98
Cor Therapeutics, Inc. (a) 9,600 78
Curative Technologies, Inc. (a) 2,200 31
Cytel Corp. (a) 2,900 18
Dean Foods Co. 5,000 138
Duckwall-ALCO Stores, Inc. New (a) 20,000 195
Dura Pharmaceuticals, Inc. (a) 21,300 735
FHP International Corp. (a) 7,400 207
Fleming Cos., Inc. 6,300 130
Flowers Industries, Inc. 94,350 1,144
FPA Medical Management, Inc. 14,900 138
General Nutrition Companies, Inc. 44,600 1,026
Genesis Health Ventures, Inc. (a) 2,800 102
Giant Food, Inc. Class A 37,000 1,165
GranCare, Inc. (a) 11,300 164
Grist Mill Co. New (a) 4,100 30
Health Care & Retirement Corp. (a) 4,900 171
Health Management Associates Class A 38,250 999
Health Management Systems, Inc. 17,400 670
HealthCare COMPARE (a) 15,000 652
Healthdyne Technologies, Inc. (a) 12,711 143
Healthdyne, Inc. 2,600 22
Healthsource, Inc. 20,000 720
HemaSure, Inc. (a) 12,200 151
Horizon/CMS Healthcare Corp. (a) 16,700 422
Hormel (George A.) & Co. 4,500 111
Hosposable Products, Inc. (a) 69,000 449
Hudson Foods, Inc. 5,800 100
IBP, Inc. 8,000 404
ICOS Corp. (a) 4,000 29
ICU Medical, Inc. (a) 1,700 29
Immucor Corp. (a) 16,700 154
Integrated Health Services, Inc. 6,100 153
International Multifoods Corp. 2,000 40
Interneuron Pharmaceuticals, Inc. (a) 22,200 561
Isomedix, Inc. (a) 12,000 173
Lance, Inc. 30,500 496
Lincare Holdings, Inc. (a) 3,400 84
Living Centers of America, Inc. (a) 4,165 146
Mariner Health Group, Inc. (a) 4,200 70
16 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
Maxicare Health Plans, Inc. New (a) 1,700 $ 46
Maxxim Medical, Inc. (a) 900 15
McCormick & Co., Inc. 48,500 1,170
Medical Imaging Centers
of America, Inc. New 133 1
MedImmune, Inc. (a) 1,700 34
MediSense, Inc. (a) 11,800 373
Mine Safety Appliances Co. 12,098 578
Minntech Corp. 18,300 357
Multicare Cos., Inc. (a) 7,000 168
Nature's Sunshine Products, Inc. 11,700 287
NBTY, Inc. (a) 30,000 143
Nellcor, Inc. (a) 15,896 922
Northfield Laboratories, Inc. (a) 3,100 57
Northland Cranberries, Inc. Class A 14,000 249
Odwalla, Inc. 1,600 25
OrNda Healthcorp (a) 36,200 842
Orthofix International NV 9,200 64
Outback Steakhouse, Inc. (a) 26,100 936
Owen Healthcare, Inc. 30,400 798
Pacific Physician Services, Inc. (a) 44,300 786
PCI Services, Inc. (a) 57,200 558
Pharmaceutical Marketing Services, Inc. (a) 1,900 28
PhyCor, Inc. 26,650 1,346
Physician Computer Network, Inc. (a) 5,300 47
Physician Sales & Service, Inc. 28,500 798
Physicians Health Services, Inc. Class A (a) 18,700 692
Prime Hospitality Corp. (a) 66,300 663
Protein Design Labs, Inc. (a) 1,700 39
Protocol Systems, Inc. (a) 14,000 145
Pure Pac (a) 14,000 72
Regency Health Services, Inc. (a) 18,420 187
Regeneron Pharmaceuticals, Inc. (a) 3,400 43
Renal Treatment Centers, Inc. (a) 14,100 620
Respironics, Inc. 27,500 564
Ruddick Corp. 74,000 851
Safety 1st, Inc. (a) 13,000 192
Salick Health Care, Inc. 2,500 93
Schultz Sav-O Stores, Inc. 40,500 597
Smithfield Foods, Inc. (a) 1,900 60
Smucker (J.M.) Co. 17,500 385
Smucker (J.M.) Co. Class B 22,000 424
Sola International, Inc. 25,300 639
Somatogen, Inc. (a) 4,400 83
Stanhome, Inc. 31,500 917
Starbucks Corp. 19,100 399
Starrett (L.S.) Co. Class A 23,000 595
Sterling Healthcare Group, Inc. (a) 15,000 159
Strategic Distribution, Inc. 43,260 335
Sun Healthcare Group, Inc. (a) 11,400 154
Sunrise Medical, Inc. (a) 5,200 96
Syncor International Corp. (a) 2,000 14
TheraTx, Inc. (a) 6,400 75
Thermotrex Corp. (a) 7,500 375
Thorn Apple Valley, Inc. 28,500 463
Total Renal Care Holdings, Inc. 14,500 428
U.S. Bioscience, Inc. (a) 256 1
Ultratech Stepper, Inc. 2,300 59
United American Healthcare Corp. (a) 2,000 20
United Dental Care, Inc. 11,400 470
Universal Foods Corp. 43,200 1,733
Universal Health Services, Inc. Class B (a) 5,900 262
Utah Medical Products (a) 15,000 296
Vencor, Inc. (a) 5,300 172
Vivra, Inc. 8,700 219
Watson Pharmaceuticals, Inc. (a) 24,900 1,217
-------
43,913
-------
CONSUMER DURABLES - 2.3%
Arvin Industries, Inc. 3,100 51
Bassett Furniture Industries, Inc. 1,200 27
Borg Warner Automotive, Inc. 3,400 109
Cavalier Homes, Inc. 6,700 139
Coast Distribution Systems (a) 25,000 150
Copart, Inc. (a) 1,300 34
CORT Business Services Corp. 7,800 129
Discount Auto Parts, Inc. (a) 1,000 31
Donaldson Co., Inc. 3,200 80
Excel Industries, Inc. 10,000 140
Federal-Mogul Corp. 21,100 414
Fleetwood Enterprises, Inc. 6,100 157
Flexsteel Industries, Inc. 22,200 228
Kinetic Concepts, Inc. 20,000 238
La-Z-Boy Chair Co. 36,000 1,112
Lear Seating Corp. (a) 2,300 67
National Presto Industries, Inc. 1,000 40
Polaris Industries, Inc. 1,400 41
PRI Automation, Inc. (a) 1,000 35
Pronet, Inc. (a) 9,000 264
Renters Choice, Inc. 1,000 13
Schult Homes Corp. 10,500 184
Simpson Industries, Inc. 14,000 122
Skyline Corp. 1,400 29
Smith (A.O.) Corp. 68,300 1,417
Titan Wheel International, Inc. 10,200 166
West, Inc. 38,000 893
Wynn's International, Inc. 8,000 237
-------
6,547
-------
Equity II Fund 17
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
CONSUMER NON-DURABLES - 5.7%
American Safety Razor Co. 15,000 $ 118
Baby Superstore, Inc. 1,400 79
Barnes & Noble, Inc. (a) 26,200 760
Block Drug Co., Inc. Class A 12,649 436
Bombay, Inc. (a) 9,100 58
Borders Group, Inc. (a) 12,700 235
Brown Group, Inc. 24,500 349
Cannondale Corp. (a) 1,000 16
Carson Pirie Scott & Co. (a) 1,700 34
Chic By H.I.S., Inc. (a) 61,800 340
Coastcast Corp. (a) 20,000 202
CompUSA, Inc. (a) 4,200 131
Consolidated Stores Corp. (a) 4,900 107
Coors (Adolph) Co. Class B 1,400 31
Daisytek International Corp. 6,000 184
Danskin, Inc. (a) 30,000 124
Department 56, Inc. (a) 4,800 184
Designs, Inc. (a) 5,000 35
Eagle Hardware and Garden, Inc. (a) 4,300 31
Family Dollar Stores, Inc. 6,600 91
Fieldcrest Cannon, Inc. (a) 32,500 540
First Team Sports, Inc. 1,000 15
Guilford Mills, Inc. 36,000 733
Haggar Corp. 29,500 531
Happiness Express, Inc. (a) 2,700 11
Hills Stores Co. New (a) 2,400 24
Innovex, Inc. 3,450 53
Jean Phillippe Fragrances, Inc. New (a) 14,000 114
Johnston Industries, Inc. 29,250 234
Jos. A. Bank Clothiers, Inc. (a) 38,700 73
Kenneth Cole Productions, Inc. Class A 4,200 79
Leslie's Poolmart 13,000 172
Longs Drug Stores Corp. 800 38
MacFrugals Bargains Close Outs, Inc. (a) 3,500 49
Nautica Enterprises, Inc. 24,200 1,041
North American Watch Corp. 41,500 799
Nutramax Products, Inc. New (a) 20,000 175
Office Depot, Inc. (a) 11,775 233
Oxford Industries, Inc. 29,500 494
Paragon Trade Brands, Inc. (a) 2,500 58
PeopleSoft, Inc. 19,800 842
Pete's Brewing Co. (a) 3,300 46
PETsMART, Inc. 13,000 400
Phillips-Van Heusen Corp. 4,100 40
Quaker Fabric Corp. New (a) 20,000 175
Rayonier, Inc. 7,400 247
Redhook Ale Brewery, Inc. 1,200 31
Rex Stores Corp. (a) 2,000 36
Rite Aid Corp. 16,800 575
Robert Mondavi Corp. Class A (a) 2,600 72
Ross Stores, Inc. 6,900 132
Russ Berrie & Co., Inc. 1,300 16
Scholastic Corp. (a) 9,000 700
Score Board, Inc. (a) 30,000 131
Service Merchandise Co., Inc. (a) 11,000 55
Sports Authority, Inc. (a) 4,600 94
Springs Industries, Inc. 2,200 91
Starter Corp. (a) 3,600 25
Systemed, Inc. (a) 30,000 135
Tiffany & Co. 15,700 791
Timberland Co. Class A (a) 3,300 66
TJX Cos., Inc. 15,200 287
Tuesday Morning, Inc. (a) 23,000 127
Value City Department Stores, Inc. (a) 12,500 84
VWR Corp. 18,400 235
Waban, Inc. (a) 43,000 806
Zale Corp. New (a) 47,400 758
-------
16,008
-------
CONSUMER SERVICES - 3.0%
AAR Corp. 1,200 26
Airport Systems International, Inc. (a) 15,600 47
Alaska Air Group, Inc. (a) 5,100 83
AMC Entertainment, Inc. (a) 1,100 26
America West Airlines, Inc. Class B 8,200 139
Amtran, Inc. (a) 18,200 218
Applebee's International, Inc. 26,300 598
Bally Entertainment Group (a) 9,800 137
Brinker International, Inc. (a) 12,000 181
Buffets, Inc. (a) 14,000 196
Callaway Golf Co. 13,200 299
Children's Discovery Centers
of America, Inc. New (a) 20,000 90
Comair Holdings, Inc. 8,100 216
Continental Airlines, Inc. Class B (a) 3,800 165
Equity Inns, Inc. 13,000 149
GC Companies, Inc. (a) 1,000 33
Golf Enterprises, Inc. (a) 16,000 116
Grand Casinos, Inc. 10,800 251
Great Lakes Aviation, Ltd. (a) 29,900 101
Harvey's Casino Resorts 1,200 22
La Quinta Motor Inns, Inc. 44,600 1,221
Lone Star Steakhouse & Saloon (a) 9,700 371
Main Street & Main, Inc. New 35,000 92
Max & Erma's Restaurants, Inc. 20,900 123
Mesa Airlines, Inc. (a) 6,900 61
Monterey Pasta Co. (a) 14,000 68
18 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
O'Charleys, Inc. (a) 15,000 $214
Old Dominion Freight Lines, Inc. (a) 10,000 75
Papa Johns International, Inc. (a) 13,500 547
Penn National Gaming, Inc. (a) 3,100 40
Qantas Airways, Ltd. - ADR 18,100 302
Recoton Corp. (a) 9,700 175
Regal Cinemas, Inc. 11,400 331
Ride, Inc. 2,300 75
Ryan's Family Steak Houses, Inc. (a) 67,500 464
ShoLodge, Inc. (a) 14,000 133
Showboat, Inc. 2,800 74
Shuffle Master, Inc. 3,000 35
Studio Plus America, Inc. 4,800 124
Sunstone Hotel Investors, Inc. 42,300 423
Supertel Hospitality, Inc. (a) 12,000 120
Triarc Companies, Inc. Class A (a) 2,400 26
USAir Group, Inc. (a) 12,900 171
WMS Industries, Inc. (a) 3,800 62
-------
8,420
-------
ENERGY - 4.8%
Alamco, Inc. (a) 15,000 121
Arch Petroleum, Inc. New (a) 52,800 102
Basin Exploration, Inc. (a) 91,100 433
Belden & Blake Corp. (a) 10,000 175
Berry Petroleum Co. Class A 47,500 481
BJ Services Co. (a) 27,750 805
Callon Petroleum Co. (a) 5,600 56
Camco International, Inc. 16,600 465
Chesapeake Energy Corp. 6,300 209
Cliffs Drilling Co. (a) 8,000 118
Coho Energy, Inc. (a) 23,181 113
Cross Timbers Oil Co. 44,100 777
Crown Centennial Petroleum Co.
Class B (a) 26,300 385
Diamond Shamrock, Inc. 25,100 649
Digicon, Inc. New 34,666 277
Dual Drilling Co. (a) 8,000 91
Energen Corp. 1,700 41
Global Industries, Inc. (a) 8,000 238
Harcor Energy, Inc. New (a) 40,000 90
Helmerich & Payne, Inc. 2,500 74
ICO, Inc. New 30,000 146
K N Energy, Inc. 1,300 38
KCS Energy, Inc. 2,100 32
Key Production, Inc. (a) 22,600 121
Laclede Gas Co. 1,100 23
LTV Corp. New (a) 45,300 623
Marine Drilling Co, Inc. (a) 40,000 195
Newfield Exploration Co. (a) 3,400 92
Newpark Resources, Inc. New 7,350 164
Noble Drilling Corp. (a) 120,800 1,072
NorAm Energy Corp. 10,900 97
Nuevo Energy Co. (a) 2,600 58
Oceaneering International, Inc. (a) 4,300 55
Parker & Parsley Petroleum Co. 28,500 627
Petroleum Geo Services AS - ADR (a) 23,300 580
Production Operators Corp. 6,000 198
Quaker State Oil Refining Corp. 6,000 76
Questar Corp. 2,800 94
Reading & Bates Corp. New (a) 18,800 282
Smith International, Inc. (a) 43,500 1,022
Swift Energy Co. (a) 1,800 22
Tesoro Petroleum Corp. (a) 2,900 25
Tide West Oil, Inc. (a) 6,100 79
Ultramar Corp. 37,200 958
United Meridian Corp. (a) 2,800 49
Valero Energy Corp. 4,400 108
Varco International, Inc. (a) 9,700 116
Vintage Petroleum, Inc. 9,900 223
Wiser Oil Co. 35,500 426
World Fuel Services Corp. 2,850 45
-------
13,346
-------
FINANCE - 14.1%
20th Century Industries (a) 2,900 58
Aames Financial Corp. 2,100 59
AlBank Financial Corp. 6,000 180
Alexander & Alexander Services, Inc. 2,700 51
Allmerica Property & Casualty Cos. 30,100 813
Amcast Industrial Corp. 1,100 20
American Bankers Insurance Group, Inc. 21,100 823
American Travellars Corp. (a) 30,100 843
AMRESCO, Inc. 25,000 306
AT&T Capital Corp. 200 8
AVEMCO Corp. 31,000 496
Avondale Financial Corp. 8,000 116
Bankers Corp. 10,800 176
Bankers Life Holding Corp. 800 16
Berkley (W.R.) Corp. 20,000 1,065
BHC Financial, Inc. 12,000 213
California Federal Bank 7,300 115
Calumet Bancorp, Inc. (a) 1,000 28
CDI Corp. (a) 2,500 45
CFI ProServices, Inc. (a) 14,000 203
Charter One Financial, Inc. 28,700 872
CitiFed Bancorp, Inc. 7,000 238
City National Corp. 14,000 196
Equity II Fund 19
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
Coast Savings Financial, Inc. (a) 6,700 $ 232
Collective Bancorp, Inc. 2,400 61
Colonial BancGroup, Inc. 26,500 855
Corporate Express, Inc. 48,550 1,450
Countrywide Credit Industries, Inc. 14,100 307
Cullen Frost Bankers, Inc. 1,000 50
Cyrolife, Inc. (a) 800 12
FFY Financial Corp. 1,100 23
Financial Fed Corp. (a) 10,000 224
FINOVA Group, Inc. 4,000 193
First American Financial Corp. 700 19
First Bell Bancorp, Inc. 8,300 110
First Colony Corp. 2,600 66
First Commerce Corp. 19,200 607
First Financial Caribbean Corp. 8,000 147
First Mortgage Corp. (a) 20,000 115
First Palm Beach Bancorp, Inc. 1,100 23
First Republic Bancorp, Inc. (a) 12,000 158
First Tennessee National Corp. 14,500 874
FirstBank Puerto Rico 1,000 22
Flushing Financial Corp. 10,200 154
Fremont General Corp. 29,400 1,080
Greenpoint Financial Corp. 8,400 223
Hartford Steam Boiler Inspection
& Insurance Co. 900 45
Haven Bancorp 1,200 28
HCC Insurance Holdings, Inc. (a) 1,000 37
Horace Mann Educators Corp. 1,100 34
Imperial Credit Industries, Inc. 28,917 607
Jefferies Group, Inc. Rights 5,100 235
JSB Financial, Inc. 1,300 41
Keystone Financial, Inc. 32,200 950
Leader Financial Corp. 16,500 615
Life Bancorp, Inc. 1,700 25
Life Partners Group, Inc. 4,000 55
Litchfield Financial Corp. 10,000 130
Markel Corp. (a) 12,500 906
Mercury Finance Corp. 38,250 507
MLF Bancorp, Inc. 3,300 73
Money Store, Inc. 21,750 337
National Auto Credit, Inc. 1,500 24
National Re Corp. 20,500 779
North American Mortgage Co. 32,200 684
NS Bancorp, Inc. 4,000 155
Ohio Casualty Corp. 16,000 612
Old Kent Financial Corp. 16,050 656
Old Republic International Corp. 5,500 195
Olympic Financial, Ltd. (a) 11,500 187
ONBANCorp 1,800 60
One Valley Bancorp of West Virginia, Inc. 23,100 719
Orion Capital Corp. 3,300 143
Pace American Group, Inc. (a) 25,000 2
Paul Revere Corp. 900 19
PennCorp Financial Group, Inc. 16,100 473
Peoples Bank 2,700 51
Peoples Heritage Financial Group 29,700 668
Protective Life Corp. 1,000 31
Provident Bankshares Corp. 1,200 35
Queens County Bancorp 6,000 237
Regional Acceptance Corp. 8,600 80
Regions Financial Corp. 25,000 1,075
Reliance Bancorp, Inc. 3,400 48
Reliance Group Holdings, Inc. 10,700 92
Reliastar Financial Corp. 18,800 834
RenaissanceRe Holdings, Ltd. 22,500 672
Resource Bancshares Mortgage Group 13,369 185
Resource Mortgage Capital Corp. 2,100 42
Risk Capital Holdings, Inc. 10,300 237
Robert Half International, Inc. (a) 29,200 1,223
Roosevelt Financial Group, Inc. 8,400 161
Seacor Holdings, Inc. (a) 7,000 188
Security Connecticut Corp. 8,000 217
Silicon Valley Bancshares 1,100 26
Sotheby's Holdings Co., Inc. Class A 2,500 36
SouthTrust Corp. 26,500 679
Standard Financial, Inc. (a) 3,700 54
State Auto Financial Corp. 7,000 178
SunAmerica, Inc. 20,000 950
T R Financial Corp. 3,800 97
TCF Financial Corp. 12,100 401
TFC Enterprises, Inc. (a) 2,800 16
Titan Holdings, Inc. 12,400 178
Transatlantic Holdings, Inc. 13,000 954
Transnational Re Corp. Class A 24,500 600
Trenwick Group, Inc. Rights 10,700 599
Union Bank 100 5
Union Planters Corp. 44,670 1,424
United Fire & Casualty Co. 17,050 699
US Facilities Corp. 32,900 691
USLIFE Corp. 2,600 78
Vesta Insurance Group, Inc. 9,200 501
Washington National Corp. 1,100 30
Westco Bancorp, Inc. 8,000 216
Westcorp, Inc. 10,527 195
World Acceptance Corp. 3,400 36
Zenith National Insurance Corp. 24,000 513
Zions Bancorp 11,500 923
-------
39,433
-------
20 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
GENERAL BUSINESS - 9.9%
AccuStaff, Inc. 12,400 $ 536
Active Voice Corp. (a) 1,000 26
Advo Systems, Inc. 1,700 44
Alternative Resources Corp. 20,500 605
American Business Information, Inc. 10,500 197
American Business Products, Inc. 1,200 34
American Radio Systems Corp. Class A 23,950 653
Applied Voice Technology, Inc. (a) 2,500 33
Ascend Communications, Inc. 29,900 2,426
BISYS Group, Inc. New (a) 8,000 242
Bowne & Co., Inc. 1,600 32
CACI International, Inc. Class A (a) 2,000 23
Cascade Communications Corp. 5,600 476
Catalina Marketing Corp. (a) 1,100 69
Central Newspapers, Inc. Class A 25,500 800
CIDCO, Inc. (a) 6,900 174
Clear Channel Communications, Inc. 2,400 106
Cognos, Inc. (a) 9,500 424
Coherent Communications Systems Corp. 3,400 64
Comarco, Inc. (a) 16,000 230
Comnet Cellular, Inc. (a) 6,400 185
Comsat Corp. Series 1 6,800 127
Corrections Corp. America 4,800 178
Crawford & Co. 4,500 73
Day Runner, Inc. (a) 1,000 35
Devon Group, Inc. New (a) 1,000 29
DeVRY, Inc. 26,600 718
DSP Communications, Inc. 3,800 164
Duplex Products, Inc. (a) 37,000 301
Effective Management Systems, Inc. (a) 16,000 72
Emmis Broadcasting Corp. Class A (a) 200 6
Ennis Business Forms, Inc. 36,050 442
Franklin Quest Co. (a) 4,500 88
General Communication, Inc. Class A (a) 28,800 140
Gibson Greetings, Inc. (a) 3,600 58
Grey Advertising 4,000 784
GTECH Holdings Corp. (a) 7,800 203
Harvey Entertainment Co. (a) 2,300 17
Houghton Mifflin Co. 14,500 624
Hunt Manufacturing Co. 63,000 1,095
Infinity Broadcasting Corp. 6,000 224
Interim Services, Inc. (a) 3,300 114
International Family Entertainment, Inc.
Class B (a) 1,100 18
Jones Intercable, Inc. Class A (a) 38,500 472
Kronos, Inc. (a) 6,000 285
Lee Enterprises, Inc. 37,000 851
Macromedia, Inc. 22,600 1,172
Mail Boxes Etc (a) 2,500 31
McClatchy Newspapers, Inc. Class A 28,000 640
McGrath RentCorp 12,000 222
Media General, Inc. Class A 24,800 753
META Group, Inc. 2,600 79
Metricom, Inc. (a) 1,300 17
Miller (Herman), Inc. 1,600 48
Mobile Telecommunication
Technologies Corp. (a) 19,000 404
National Media Corp. (a) 3,000 63
Network Equipment Technologies, Inc. (a) 24,300 665
New England Business Service, Inc. 2,100 46
Norrell Corp. 1,200 35
Ortel Corp. (a) 3,300 36
Paging Network, Inc. 18,200 432
Paychex, Inc. 34,800 1,723
PC Service Source, Inc. (a) 12,000 97
PMT Services, Inc. (a) 700 21
QUALCOMM, Inc. (a) 11,200 480
QuickResponse Services, Inc. (a) 17,700 319
Saga Communications Class A 10,000 162
SFX Broadcasting, Inc. Class A (a) 6,000 178
Spelling Entertainment Group, Inc. (a) 2,400 30
SPS Transaction Services, Inc. (a) 1,400 41
Steris Corp. 31,400 1,005
Systems & Computer Technology Corp. (a) 8,000 159
TCSI Corp. (a) 7,700 139
TRM Copy Centers Corp. (a) 26,000 260
True North Communications, Inc. 3,200 59
U.S. Delivery Systems, Inc. (a) 15,900 461
United Video Satellite Group Class A (a) 1,200 32
United Wisconsin Services, Inc. 2,100 46
US Office Products Co. (a) 24,400 546
Vanguard Cellular Systems, Inc. Class A (a) 20,100 402
Viking Office Products, Inc. (a) 30,300 1,409
Wackenhut Corp. 7,300 131
Wackenhut Corrections Corp. (a) 2,000 50
Washington Post Co. Class B 2,400 677
-------
27,567
-------
MISCELLANEOUS - 3.5%
Apollo Group, Inc. Class A 22,200 866
Associated Group, Inc. Class B (a) 28,500 506
Chris Craft Industries, Inc. 31,160 1,348
Citation Corp. (a) 12,000 138
Clarcor, Inc. 1,000 20
Crawford & Co. Class A 21,500 344
Daig Corp. 31,300 720
Eckerd Corp. (a) 19,450 868
Fiberstars, Inc. (a) 25,000 97
FRP Properties, Inc. (a) 6,000 123
Equity II Fund 21
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
Griffon Corp. (a) 59,000 $ 531
Gyrodyne Co. of America, Inc. 4,500 63
Ha-Lo Industries, Inc. (a) 8,000 242
Hirsch International Group Class A 10,937 134
ITT Educational Services, Inc. (a) 10,000 246
Jabil Circuit, Inc. (a) 15,000 161
Landair Services, Inc. (a) 11,600 151
Learning Tree International, Inc. 10,000 155
Leather Factory, Inc. (a) 40,000 97
M.D.C. Holdings, Inc. 25,000 178
Mark VII, Inc. (a) 12,000 186
Mercer International, Inc. (a) 8,500 173
Miller Industries, Inc. (a) 8,000 198
National Wireless Holdings, Inc. (a) 10,000 132
NN Ball & Roller, Inc. 18,000 306
NUMAR Corp. (a) 13,000 145
On Assignment, Inc. (a) 20,400 668
PXRE Corp. 27,700 734
Supreme Industries, Inc. Class A 19,800 166
Texoil, Inc. (a) 65,000 102
Tracor, Inc. New (a) 4,400 64
------
9,862
------
SHELTER - 1.2%
American Woodmark Corp. (a) 15,200 63
Beazer Homes USA, Inc. (a) 1,700 35
Butler Manufacturing Co. 900 35
Cameron Ashley, Inc. (a) 20,000 193
Centex Construction Products, Inc. (a) 16,700 240
Champion Enterprises, Inc. 5,700 176
Continental Homes Holding Corp. 1,300 32
Elcor Chemical Corp. 1,100 24
Fastenal Co. 8,600 363
Granite Construction, Inc. 1,300 41
Lone Star Industries, Inc. 8,000 200
Redman Industries, Inc. New (a) 1,200 40
Ryland Group, Inc. 23,800 333
Smith (Charles E.) Residential Realty, Inc. 29,000 685
Southdown, Inc. (a) 12,000 234
Toll Brothers, Inc. (a) 18,600 428
U.S. Home Corp. New (a) 1,900 55
USG Corp. New (a) 5,600 168
-------
3,345
-------
TECHNOLOGY - 17.8%
Activision, Inc. New 4,700 51
ACX Technologies, Inc. 4,600 70
Adaptec, Inc. (a) 20,400 834
ADC Telecommunications, Inc. 26,900 975
Affiliated Computer Services, Inc.
Class A (a) 1,200 45
Altera Corp. 22,400 1,112
Amdahl Corp. (a) 10,400 88
AmeriData Technologies, Inc. (a) 14,700 141
Amplicon, Inc. 10,000 142
Applied Magnetics Corp. (a) 7,800 145
Applix, Inc. 3,200 86
Artisoft, Inc. (a) 4,000 25
Aseco Corp. (a) 1,400 22
Aspen Technology, Inc. (a) 5,900 199
Atria Software, Inc. 22,800 883
Augat, Inc. 43,700 748
Auspex Systems, Inc. (a) 21,900 394
Avnet, Inc. 7,125 319
Baan Co. NV 7,800 352
Banctec, Inc. (a) 2,800 52
Bell Industries 30,633 689
BI Incorporated Co. New (a) 20,000 152
BMC Industries, Inc. 11,000 256
Boole & Babbage, Inc. 7,500 178
Breed Technologies, Inc. 7,900 146
Brooktree Corp. NPV (a) 3,200 38
Brooktrout Technology, Inc. (a) 2,200 62
Burr-Brown Corp. 2,700 67
Business Objects S.A. - ADR (a) 13,100 629
Cadence Design Systems, Inc. 4,950 208
Cambridge Technology Partners, Inc. (a) 9,000 508
CBT Group PLC - ADR 12,000 624
CDW Computer Centers, Inc. (a) 16,200 644
CEM Corp. (a) 12,000 159
Checkmate Electronics, Inc. New (a) 9,500 140
Cheyenne Software, Inc. (a) 13,100 342
Circon Corp. (a) 31,900 642
Coeur d'Alene Mines Corp. 4,900 84
Computer Horizons Corp. 1,000 37
Computer Products, Inc. (a) 3,600 41
Computervision Corp. New (a) 17,800 274
Compuware Corp. (a) 5,200 96
Comverse Technology, Inc. New (a) 38,600 772
Consilium, Inc. (a) 20,000 237
Control Data Systems, Inc. (a) 2,000 39
CyCare Systems, Inc. (a) 800 20
Data General Corp. (a) 7,100 98
Data Transmission Network Corp. (a) 3,000 145
Datastream Systems, Inc. 2,100 39
Davidson & Associates, Inc. 26,100 561
22 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
DH Technology, Inc. 10,500 $ 239
DSP Group, Inc. (a) 16,400 180
Dynamics Research Corp. (a) 57,222 443
Dynatech Corp. 4,200 71
Edmark Corp. New 1,500 46
EG&G, Inc. 62,000 1,503
Egghead, Inc. (a) 3,200 20
Electro Scientific Industries, Inc. (a) 1,700 48
Electroglas, Inc. 5,400 134
Electromagnetic Sciences, Inc. (a) 15,000 165
Eltron International, Inc. 1,500 53
Enterprise Systems, Inc. (a) 5,300 156
Esterline Corp. (a) 3,000 71
Evans & Sutherland Computer Corp. (a) 22,500 501
Exar Corp. (a) 13,000 192
EXECUTONE Information Systems, Inc. (a) 50,000 116
FORE Systems 7,500 445
Franklin Electronic Publishers, Inc. (a) 1,000 29
FTP Software, Inc. (a) 4,100 119
Fulcrum Technologies, Inc. (a) 2,000 62
Fusion Systems Corp. (a) 1,700 47
Gentex Corp. (a) 1,300 29
Gerber Scientific, Inc. 52,000 845
Glenayre Technologies, Inc. 3,250 202
Global Village Communication (a) 9,000 169
GT Interactive Software Corp. 37,400 519
GTI Corp. 7,600 133
Hadco Corp. (a) 15,200 428
Haemonetics Corp. (a) 2,500 44
HBO & Co. 27,700 2,112
HCIA, Inc. 15,900 731
Hello Direct, Inc. 13,000 88
Hyperion Software Corp. 3,400 71
InaCom Corp. (a) 1,800 25
Information Storage Devices Inc. 1,100 12
Informix Corp. 10,100 303
Input/Output, Inc. (a) 39,800 2,298
Insight Enterprises, Inc. 1,200 15
Integrated Circuit Systems, Inc. (a) 14,200 176
Intelligent Electronics, Inc. 17,613 106
International Rectifier Corp. 24,000 600
Intuit, Inc. 9,400 733
Iomega Corp. (a) 3,700 180
IPC Information Systems, Inc. (a) 2,100 35
Jack Henry & Assocociates, Inc. 1,400 35
Keane, Inc. (a) 1,000 22
Komag, Inc. (a) 3,900 178
Kulicke & Soffa Industries, Inc. 8,600 198
Liberty Technologies, Inc. (a) 25,000 113
Linear Technology Corp. 18,800 738
Littlefuse, Inc. (a) 1,600 58
Loronix Information Systems, Inc. (a) 32,500 83
M-Wave, Inc. (a) 10,700 64
MapInfo Corp. (a) 1,000 20
Marcam Corp. (a) 8,000 118
Marshall Industries (a) 19,100 614
Mattson Technology, Inc. 2,500 38
Maxim Integrated Products, Inc. 16,200 620
McAfee Associates, Inc. 17,500 748
Medic Computer Systems, Inc. (a) 13,000 783
Mercury Interactive Corp. (a) 2,700 48
Merisel, Inc. (a) 17,000 72
Merix Corp. (a) 5,000 147
Metrologic Instruments, Inc. (a) 15,000 143
Micro Linear Corp. (a) 2,100 22
Microchip Technology, Inc. (a) 13,000 475
Microcom, Inc. (a) 4,100 107
Molex, Inc. Class A 19,000 580
Mylex Corp. (a) 3,200 61
National Semiconductor Corp. (a) 35,500 790
NetFRAME Systems, Inc. (a) 3,800 19
NetManage, Inc. 43,500 1,001
Network Computing Devices, Inc. (a) 5,900 41
Network Express, Inc. 2,900 15
Network General Corp. (a) 16,900 556
Oak Technology, Inc. (a) 4,000 169
Optical Data Systems, Inc. 28,100 688
Parametric Technology Corp. (a) 14,800 980
Peak Technologies Group, Inc. (a) 25,350 780
Perceptron, Inc. 2,100 45
Phamis, Inc. (a) 1,600 48
Phoenix Technologies, Ltd. (a) 2,200 34
Photronics, Inc. 1,700 45
Picturetel Corp. New 13,000 557
Pinnacle Micro, Inc. 1,500 22
Pittway Corp. Class A 25,041 1,697
Planar Systems, Inc. (a) 5,900 112
Platinum Technology, Inc. (a) 11,000 202
Pomeroy Computer Resources, Inc. 1,300 17
Premenos Technology Corp. 5,250 138
Project Software & Development, Inc. 1,500 52
Quarterdeck Corp. 4,700 129
Rational Software Corp. New (a) 2,400 54
Saville Systems Ireland PLC - ADR 13,800 195
Scientific Games Holdings Corp. 1,600 60
Security Dynamics Technologies, Inc. 3,500 192
Software Artistry, Inc. 1,000 14
Software Spectrum, Inc. (a) 8,000 168
Equity II Fund 23
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
SPSS, Inc. (a) 18,700 $ 358
Stac, Inc. (a) 5,100 73
Storage Technology Corp. (a) 10,000 239
Stratus Computer, Inc. (a) 2,900 100
Structural Dynamics Research Corp. (a) 13,600 396
Systemsoft Corp. (a) 5,700 63
Tandem Computers, Inc. (a) 23,400 249
Tech Data Corp. (a) 7,500 112
Tech-Sym Corp. (a) 19,000 606
Teledyne, Inc. 4,800 123
Tellabs, Inc. 9,700 359
Tencor Instruments 22,000 533
Teradyne, Inc. 10,800 270
TGV Software, Inc. 19,600 176
Thiokol Corp. 1,200 41
Three-Five Systems, Inc. (a) 1,700 29
Trident Microsystems, Inc. (a) 11,900 277
Triquint Semiconductor, Inc. (a) 2,900 39
Tylan General, Inc. 2,300 28
Uniphase Corp. (a) 22,100 790
Unisys Corp. (a) 34,100 192
Veeco Instruments, Inc. (a) 1,300 18
Veritas Software Corp. 2,000 74
Viewlogic Systems, Inc. (a) 4,700 47
Wall Data, Inc. (a) 2,400 39
Watkins-Johnson Co. 2,000 87
Westcott Communications, Inc. (a) 14,100 194
Western Digital Corp. (a) 9,500 170
Wind River Systems, Inc. (a) 2,700 78
Zebra Technologies Corp. Class A 2,600 88
Zygo Corp. 1,400 35
-------
49,892
-------
TRANSPORTATION - 2.2%
Air Express International Corp. 7,500 169
Airborne Freight Corp. 4,700 125
Alexander & Baldwin, Inc. 24,000 552
American President Cos., Ltd. 6,100 140
Arnold Industries, Inc. 30,500 530
Covenant Transport, Inc. Class A (a) 10,800 122
Fritz Companies, Inc. 24,300 1,008
GATX Corp. 1,900 92
Hornbeck Offshore Services, Inc. (a) 9,000 177
Knight Transportation, Inc. (a) 10,000 138
Liqui-Box Corp. 2,100 61
M.S. Carriers, Inc. (a) 6,000 117
MTL, Inc. (a) 41,500 560
Navistar International Corp. (a) 17,500 184
Overseas Shipholding Group, Inc. 33,500 637
Tidewater, Inc. 10,200 321
Transport Corp. of America 16,000 178
U.S. Xpress Enterprises, Inc. Class A (a) 14,000 98
Wisconsin Central Transportation Corp. (a) 13,600 889
XTRA Corp. 1,400 59
-------
6,157
-------
UTILITIES - 2.5%
ACC Corp. 1,300 29
Atlanta Gas Light Co. 4,000 79
Atlantic Energy, Inc. 4,000 77
Bangor Hydro-Electric Co. 2,300 26
Boston Edison Co. 3,000 88
Brooklyn Union Gas Co. (The) 3,300 97
C-Tec Corp. (a) 1,200 37
California Energy, Inc. (a) 4,900 96
Cellular Communications
of Puerto Rico, Inc. (a) 23,700 634
Centennial Cellular Corp. Class A (a) 40,500 694
Centerior Energy Corp. 14,300 127
Central Hudson Gas & Electric Corp. 1,000 31
Central Louisiana Electric Co., Inc. 1,000 27
Century Telephone Enterprises, Inc. 20,400 648
CILCORP, Inc. 1,000 42
Citizens Utility Co. Class A 6,604 84
Columbia Gas System, Inc. (a) 6,700 294
Commonwealth Energy System 1,000 45
Delmarva Power & Light Co. 2,800 64
Eastern Utilities Associates 1,100 26
El Paso Natural Gas Co. 6,500 184
Enron Global Power & Pipelines L.L.C. 1,400 35
ENSERCH Corp. 6,000 97
Equitable Resources, Inc. 3,200 100
Frontier Corp. 15,000 450
Hawaiian Electric Industries, Inc. 5,200 202
Idaho Power Co. 2,400 72
Kansas City Power & Light Co. 4,100 107
Long Island Lighting Co. 16,700 273
MCN Corp. 3,900 91
MidAmerican Energy Co. 4,300 72
Minnesota Power & Light Co. 1,700 48
Montana Power Co. 7,000 158
National Fuel & Gas Co. 3,500 118
New Jersey Resources Corp. 1,000 30
New York State Electric & Gas Corp. 8,800 228
NICOR, Inc. 2,100 58
Northwestern Public Service Co. 1,000 28
24 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
ONEOK, Inc. 3,400 $ 78
Pennsylvania Enterprises, Inc. 1,000 38
Peoples Energy Corp. 1,900 60
Piedmont Natural Gas Co., Inc. 1,100 26
Primark Corp. (a) 3,000 90
Public Service Co. of New Mexico (a) 4,400 78
Puget Sound Power & Light Co. 2,200 51
Rochester Gas & Electric Corp. 5,300 120
TNP Enterprises, Inc. 1,400 26
UGI Corp. New 1,600 33
United Illuminating Co. 1,000 37
United States Cellular Corp. (a) 11,600 391
US Long Distance Corp. (a) 3,000 41
UtiliCorp United, Inc. 2,600 76
Washington Gas & Light Co. 1,500 31
Washington Water Power Co. 3,000 52
WPL Holdings, Inc. 1,200 37
WPS Resources Corp. 1,000 34
------
6,895
------
TOTAL COMMON STOCKS
(cost $229,082)
267,386
-------
OPTIONS PURCHASED - 0.1%
Russell 2000-Registered Trademark- Index
Mar 310 Calls (a) 130* $ 195
-------
TOTAL OPTIONS PURCHASED
(cost $189)
195
-------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.1%
Genesis Health Ventures, Inc. (conv.)
6.000% due 11/30/03 $ 100 $ 162
--------
TOTAL LONG-TERM INVESTMENTS
(cost $131) 162
--------
SHORT-TERM INVESTMENTS - 3.8%
Frank Russell Investment Company
Money Market Fund, due on demand (b)
10,764 10,764
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $10,764) 10,764
--------
TOTAL INVESTMENTS
(identified cost $240,166)(c) - 99.6% 278,507
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - 0.4% 1,059
--------
NET ASSETS - 100.0% $279,566
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax
purposes was $240,536 and net unrealized appreciation for all securities
was $37,971. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of
market value over tax cost of $50,417 and aggregate gross
unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $12,446.
* Number of contracts.
The accompanying notes are an integral part of the financial statements.
Equity II Fund 25
<PAGE>
EQUITY II FUND
FUTURES AND OPTIONS WRITTEN
December 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 400 Midcap Index Futures Contracts
expiration date 03/96 52 $ (80)
Russell 2000-Registered Trademark- Index
Futures Contracts expiration date 03/96 13 10
--------------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ (70)
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
CONTRACTS (000)
--------- -------
<S> <C> <C>
PUT OPTIONS WRITTEN
(Notes 2 and 3)
Russell 2000-Registered Trademark- Index
Mar 310 (a) 130 $ 72
------
Total liability for options written
(premiums received $78)(***)
$ 72
------
------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes, due
12/31/95, valued at $3,250 were held as collateral by the
custodian in connection with options written and futures
contracts purchased by the Fund. The settlement amount of
these matured notes is included in Receivable for Investments
Sold on the Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
26 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS,
Investments at market (identified cost $240,166,098)(Note 2). $ 278,506,840
Receivables:
Dividends and interest..................................... 402,413
Investments sold........................................... 4,599,050
Fund shares sold........................................... 1,126,352
Daily variation margin on futures contracts (Notes 2 and 3) 43,844
-------------
284,678,499
LIABILITIES
Payables:
Investments purchased......................... $ 4,604,479
Fund shares redeemed.......................... 161,953
Accrued bookkeeping service fees (Note 4)..... 4,759
Accrued management fees (Note 4).............. 177,770
Accrued transfer agent fees (Note 4).......... 20,558
Other accrued expenses and payables........... 71,533
Options written, at market value
(premiums received $77,607)(Notes 2 and 3).... 71,500 5,112,552
----------- -------------
NET ASSETS....................................... $ 279,565,947
-------------
-------------
NET ASSETS CONSIST OF:
Undistributed net investment income.......................... $ 179,756
Accumulated net realized gain (loss)......................... 6,219,359
Unrealized appreciation (depreciation) on:
Investments................................................ 38,340,740
Futures contracts.......................................... (69,525)
Options written............................................ 6,107
Shares of beneficial interest................................ 96,795
Additional paid-in capital................................... 234,792,715
-------------
NET ASSETS.................................................... $ 279,565,947
-------------
-------------
Net asset value, offering and redemption price per share ,
($279,565,947 divided by 9,679,528 shares of $.01 par value,
shares of beneficial interest outstanding)................... $ 28.88
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
Equity II Fund 27
<PAGE>
EQUITY II FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends................................................... $ 2,465,144
Dividends from Money Market Fund (Note 5)................... 1,494,861
Interest.................................................... 446,056
------------
4,406,061
Expenses (Notes 2 and 4):
Management fees............................... $ 1,456,132
Custodian fees................................ 352,831
Transfer agent fees........................... 140,015
Bookkeeping service fees...................... 20,268
Professional fees............................. 19,049
Registration fees............................. 30,058
Trustees' fees................................ 4,364
Miscellaneous................................. 14,963 2,037,680
----------- ------------
Net investment income........................... 2,368,381
------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments................................................. 31,405,903
Futures contracts........................................... 807,995
Options written............................................. 2,154,282
Net change in unrealized appreciation or depreciation of:
Investments................................................. 25,733,658
Futures contracts........................................... (69,525)
Options written............................................. (511,087)
-------------
Net gain (loss) on investments................................ 59,521,226
Net increase (decrease) in net assets resulting from operations $ 61,889,607
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
28 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income........................ $ 2,368,381 $ 2,702,405
Net realized gain (loss) from:
Investments................................ 31,405,903 189,908
Futures contracts.......................... 807,995 --
Options written............................ 2,154,282 378,412
Net change in unrealized appreciation
or depreciation of:
Investments................................ 25,733,658 (7,895,169)
Futures contracts.......................... (69,525) --
Options written (511,087) 302,629
------------- ------------
Net increase (decrease) in net assets
resulting from operations................... 61,889,607 (4,321,815)
Distributions to shareholders:
Net investment income........................ (2,492,894) (2,305,128)
Net realized gain on investments............. (26,029,358) (1,119,102)
In excess of net realized gain on investments -- (3,032,617)
Increase (decrease) in net assets from
Fund share transactions..................... 43,221,134 42,334,732
------------- -------------
INCREASE (DECREASE) IN NET ASSETS.............. 76,588,489 31,556,070
Net assets at beginning of year................ 202,977,458 171,421,388
------------- -------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $179,756 and $85,930, respectively)....... $ 279,565,947 $ 202,977,458
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Fund Shares Sold...... 3,638,096 $ 101,842,162 3,105,721 $ 79,232,323
Fund Shares Issued to
Shareholders in
Reinvestments of
Distributions........ 938,560 26,562,853 231,579 5,793,421
Fund Shares Redeemed.. (3,015,897) (85,183,881) (1,666,677) (42,691,012)
---------- ------------- ---------- ------------
Net Increase (Decrease) 1,560,759 $ 43,221,134 1,670,623 $ 42,334,732
---------- ------------- ---------- ------------
---------- ------------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity II Fund 29
<PAGE>
EQUITY II FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR. $25.00 $26.58 $27.71 $26.32 $19.24
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. .27 .36 .32 .30 .41
Net realized and unrealized
gain (loss) on investments....... 6.80 (.86) 3.97 3.13 7.65
------ ------ ------ ------ ------
Total Income From Investment
Operations....................... 7.07 (.50) 4.29 3.43 8.06
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income............. (.29) (.31) (.31) (.30) (.41)
Net realized gain on investments.. (2.90) (.21) (4.72) (1.74) (.57)
In excess of net realized
gain on investments.............. -- (.56) (.39) -- --
------ ------ ------ ------ ------
Total Distributions............... (3.19) (1.08) (5.42) (2.04) (.98)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR....... $28.88 $25.00 $26.58 $27.71 $26.32
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN (%)(a)................ 28.67 (2.60) 16.70 13.31 42.40
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)................... .83 .23 .34 .32 .37
Net investment income to average
net assets (a)................... .97 1.46 1.14 1.10 1.79
Portfolio turnover................ 89.31 58.04 87.25 43.33 42.16
Net assets, end of year
($000 omitted).................. 279,566 202,977 171,421 120,789 101,206
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees. See
Note 4.
30 Equity II Fund
<PAGE>
EQUITY II FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000
INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS RUSSELL 2500
ENDED DECEMBER 31 EQUITY II -REGISTERED TRADEMARK-**
----------------- --------- ------------------------
<S> <C> <C>
Inception* $10,000 $10,000
1986 $11,017 $11,198
1987 $12,153 $10,674
1988 $14,004 $13,100
1989 $17,453 $15,645
1990 $14,876 $13,317
1991 $21,184 $19,537
1992 $24,003 $22,699
1993 $28,012 $26,453
1994 $27,284 $26,173
1995 $35,105 $34,471
</TABLE>
Equity II Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year 12,867 28.67%
5 Years 23,598 18.73%***
10 Years 35,105 13.37%***
Russell 2500-TM- Index
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
1 Year 13,170 31.70%
5 Years 25,884 20.95%***
10 Years 34,471 13.17%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Russell 2500 Index is composed of the bottom 500 stocks in the Russell
1000-Registered Trademark- Index and all the stocks in the Russell 2000-
Registered Trademark- Index. The largest security in this index has a
market capitalization of about $1.3 billion.
*** Annualized.
EQUITY II FUND returned 28.7% during 1995, trailing the Russell 2500-TM-
Index return of 31.7%. The portfolio was managed in a manner consistent with
its objective to maximize total return, primarily through capital
appreciation, by assuming a higher level of volatility than is ordinarily
expected from the Equity I Fund.
The year was a difficult one for small cap investors relative to the strong
gains of large cap stocks. Although the financial services, technology, and
health care sectors of the Russell 2500-TM- all posted returns in excess of
40% for the year, their performance came in bursts with strong rotations
throughout the year. Good technology stock selection added significant value
but was eclipsed by other factors. The Fund's balance of Value and Growth
investment styles was a marked disadvantage, given the outperformance of
stocks of small, rapidly growing companies during the year. A slightly
smaller cap orientation than the index also negatively impacted returns due
to the market's favor for large company stocks. The market's rotation to
defensive sectors (health care, energy, and utilities) in the latter part of
the year also detracted from the Fund's performance.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Equity II Fund 31
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------------ -----------
<S> <C> <C>
COMMON STOCKS - 96.1%
BASIC INDUSTRIES - 8.6%
Air Products & Chemicals, Inc. 11,800 $ 622
AK Steel Holding Corp. 6,500 223
Alumax, Inc. (a) 18,800 576
Aluminum Co. of America 7,500 397
ASARCO, Inc. 30,000 960
Bethlehem Steel Corp. (a) 45,300 634
Boise Cascade Corp. 27,000 935
Champion International Corp. 6,300 265
Crown Vantage, Inc. (a) 1,340 18
Cyprus Amax Minerals Co. 36,050 942
Dow Chemical Co. 43,900 3,089
du Pont (E.I.) de Nemours & Co. 7,300 510
Eastman Chemical Co. 6,700 420
Federal Paper Board, Inc. 18,300 949
Goodrich (B.F.) Co. 19,800 1,349
Great Lakes Chemical Corp. 20,200 1,454
International Paper Co. 45,600 1,727
James River Corp. of Virginia 18,400 444
Methanex Corp. (a) 45,500 333
Potlatch Corp. 13,600 544
Reynolds Metals Co. 20,200 1,144
Union Carbide Corp. 6,200 233
USX-U.S. Steel Group 30,700 944
Wellman, Inc. 8,800 200
Willamette Industries, Inc. 6,500 363
-----------
19,275
-----------
CAPITAL GOODS - 3.1%
AGCO Corp. 13,500 689
Ball Corp. 7,000 193
Caterpillar, Inc. 5,000 294
Cummins Engine Co., Inc. 32,000 1,184
Deere & Co. 13,200 465
General Electric Co. 26,800 1,930
Harnischfeger Industries, Inc. 11,500 382
Johnson Controls, Inc. 11,300 777
Tecumseh Products Co. Class A 7,700 398
Timken Co. 9,600 367
Varity Corp. (a) 7,700 285
-----------
6,964
-----------
CONSUMER BASICS - 10.1%
Allergan, Inc. 7,900 257
American Stores Co. 72,600 1,942
Archer-Daniels-Midland Co. 110,150 1,983
Bausch & Lomb, Inc. 11,900 472
Bergen Brunswig Corp. Class A 16,000 398
Black & Decker Corp. 11,600 409
Bristol-Myers Squibb Co. 33,500 2,877
Columbia/HCA Healthcare Corp. 23,500 1,193
Community Psychiatric Centers 32,700 401
Dial Corp. (The) 38,200 1,132
Hanson PLC - ADR 47,800 729
IBP, Inc. 19,400 980
McKesson Corp. 12,900 653
Philip Morris Cos., Inc. 21,500 1,946
RJR Nabisco Holdings Corp. 41,780 1,290
Sara Lee Corp. 42,600 1,358
Schering-Plough Corp. 20,900 1,144
Tenet Healthcare Corp. (a) 42,200 876
U.S. Surgical Corp. 16,300 348
United Healthcare Corp. 12,600 824
Warner-Lambert Co. 14,500 1,407
-----------
22,619
-----------
CONSUMER DURABLES - 3.5%
Federal-Mogul Corp. 30,900 606
Ford Motor Co. 34,200 992
General Motors Corp. 83,500 4,415
PACCAR, Inc. 18,700 785
Whirlpool Corp. 20,300 1,082
-----------
7,880
-----------
CONSUMER NON-DURABLES - 4.8%
Anheuser-Busch Cos., Inc. 21,900 1,465
Burlington Coat Factory Warehouse Corp. (a) 10,600 109
Burlington Industries, Inc. (a) 54,700 718
CML Group, Inc. 45,300 232
Dayton Hudson Corp. 23,800 1,785
Melville Corp. 19,100 587
Michaels Stores, Inc. (a) 19,400 267
Penney (J.C.) Co., Inc. 15,000 714
Pier 1 Imports, Inc. 36,300 413
Price Costco, Inc. (a) 37,000 564
Reebok International, Ltd. 8,200 232
Sears Roebuck & Co. 23,800 928
SuperValu, Inc. 64,700 2,038
Toys "R" Us, Inc. (a) 29,900 650
-----------
10,702
-----------
Equity III Fund 33
<PAGE>
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------------ -----------
<S> <C> <C>
CONSUMER SERVICES - 0.7%
AMR Corp. (a) 12,200 $ 906
Brinker International, Inc. (a) 43,800 662
-----------
1,568
-----------
ENERGY - 12.8%
Amerada Hess Corp. NPV 12,300 652
Amoco Corp. 23,400 1,682
Atlantic Richfield Co. 18,700 2,071
British Petroleum Co. PLC - ADR 9,362 956
Castle Energy Corp. New (a) 7,600 64
Chevron Corp. 25,100 1,318
Diamond Shamrock, Inc. 16,200 419
Exxon Corp. 19,600 1,570
Haliburton Co. 4,600 233
Helmerich & Payne, Inc. 7,800 232
Kerr-McGee Corp. 9,900 629
LTV Corp. New (a) 43,900 604
Mobil Corp. 38,800 4,346
Murphy Oil Corp. 22,900 950
NorAm Energy Corp. 51,700 459
Norsk Hydro AS - ADR 8,400 352
Questar Corp. 18,300 613
Repsol - ADR 21,200 697
Royal Dutch Petroleum Co. - ADR 10,100 1,425
Tenneco, Inc. 41,600 2,064
Texaco, Inc. 27,000 2,120
Total Co. SA - ADR 24,000 816
Unocal Corp. 24,200 705
USX-Marathon Group 76,000 1,482
Valero Energy Corp. 32,800 803
YPF Sociedad Anonima Class D - ADR 53,500 1,156
-----------
28,418
-----------
FINANCE - 18.3%
Aetna Life & Casualty Co. 11,400 789
Allstate Corp. 22,031 906
AMBAC, Inc. 17,500 820
American General Corp. 49,700 1,733
Banc One Corp. 19,400 732
Bank of New York Co., Inc. 18,200 887
BankAmerica Corp. 55,400 3,587
Bankers Trust New York Corp. 23,100 1,536
Barnett Banks, Inc. 18,200 1,074
Beneficial Corp. 12,800 597
Central Fidelity Banks, Inc. 20,600 654
Chase Manhattan Corp. 15,500 940
Chemical Banking Corp. 35,700 2,097
Chubb Corp. (The) 15,700 1,519
Citicorp 26,200 1,762
CoreStates Financial Corp. 41,600 1,576
Countrywide Credit Industries, Inc. 51,100 1,111
Dean Witter, Discover & Co. 26,700 1,255
Federal National Mortgage Association 15,900 1,974
First Bank System, Inc. 28,300 1,404
First Chicago NBD Corp. 35,291 1,394
First Colony Corp. 14,700 373
Fleet Financial Group, Inc. 19,896 811
Golden West Financial Corp. 12,500 691
Great Western Financial Corp. 29,500 752
Life Re Corp. 22,900 573
Loews Corp. 2,800 219
Mid Ocean, Ltd. 25,900 949
NationsBank Corp. 23,100 1,608
North American Mortgage Co. 4,500 96
Old Republic International Corp. 23,200 824
Paine Webber Group, Inc. 19,400 388
PNC Bank Corp. 24,200 780
Prudential Reinsurance Holdings, Inc. 22,000 514
Reliance Group Holdings, Inc. 45,900 396
Southern National Corp. 39,400 1,034
St. Paul Cos., Inc. 3,200 178
TIG Holdings, Inc. 25,100 715
UNUM Corp. 13,900 765
USF & G Corp. 37,900 641
-----------
40,654
-----------
GENERAL BUSINESS - 1.9%
ADT, Ltd. (a) 61,200 918
American Greetings Corp. Class A 8,800 243
Comdisco, Inc. 18,750 424
Comsat Corp. Series 1 22,600 421
McGraw-Hill, Inc. 4,500 392
New York Times Co. Class A 22,700 672
Ogden Corp. 22,100 472
Tribune Co. 10,500 643
-----------
4,185
-----------
MISCELLANEOUS - 1.6%
Chelsea GCA Realty, Inc. 10,300 309
Colonial Properties Trust 17,100 436
Geon Co. 34,400 839
Irvine Apartment Communities, Inc. 30,700 591
34 Equity III Fund
<PAGE>
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------------ -----------
<S> <C> <C>
Macerich Co. 23,000 $ 460
PXRE Corp. 14,200 376
South West Property Trust, Inc. 13,300 180
Stolt-Nielsen SA 9,600 274
-----------
3,465
-----------
SHELTER - 1.2%
Kaufman & Broad Home Corp. 22,600 336
Lafarge Coppee 14,500 272
Louisiana Pacific Corp. 29,300 711
Weyerhaeuser Co. 28,900 1,250
-----------
2,569
-----------
TECHNOLOGY - 7.3%
Advanced Micro Devices, Inc. 26,000 429
Apple Computer, Inc. 12,500 397
Augat, Inc. 18,700 320
Boeing Co. 22,500 1,763
Coltec Industries, Inc. (a) 20,300 236
COMPAQ Computer Corp. (a) 13,100 629
Data General Corp. (a) 35,600 490
Hewlett-Packard Co. 11,600 972
Intel Corp. 23,400 1,328
International Business Machines Corp. 42,500 3,899
Kaman Corp. Class A 15,600 172
Northrop Grumman Corp. 20,500 1,312
Pitney Bowes, Inc. 3,200 150
Raytheon Co. 17,000 803
Seagate Technology (a) 17,100 812
Storage Technology Corp. (a) 36,000 860
Sundstrand Corp. 3,100 218
TRW, Inc. 2,500 194
United Technologies Corp. 12,900 1,223
-----------
16,207
-----------
TRANSPORTATION - 2.6%
Conrail, Inc. 20,300 1,421
CSX Corp. 32,800 1,497
Federal Express Corp. (a) 19,400 1,433
GATX Corp. 8,800 428
Ryder System, Inc. 37,900 938
-----------
5,717
-----------
UTILITIES - 19.6%
AT&T Corp. 9,500 615
BCE, Inc. 63,200 2,180
BellSouth Corp. 30,400 1,322
Boston Edison Co. 23,900 705
CINergy Corp. 12,900 395
Detroit Edison Co. 21,900 756
Dominion Resources, Inc. 26,900 1,110
Entergy Corp. 51,700 1,512
Equitable Resources, Inc. 22,800 713
FPL Group, Inc. 18,400 853
General Public Utilities Corp. 72,200 2,455
GTE Corp. 82,800 3,643
MCI Communications Corp. 48,100 1,257
New England Electric System 21,900 868
New York State Electric & Gas Corp. 20,900 541
Niagara Mohawk Power Corp. 65,700 632
Northeast Utilities 49,900 1,216
NYNEX Corp. 56,700 3,062
Pacific Enterprises 4,500 127
Pacific Gas & Electric Co. 45,900 1,302
Pacific Telesis Group 104,100 3,500
PacifiCorp. 20,600 438
PP&L Resources, Inc. 29,100 728
Public Service Enterprise Group, Inc. 21,800 668
Rochester Gas & Electric Corp. 10,800 244
SCE Corp. 116,600 2,070
Sprint Corp. 94,800 3,780
Texas Utilities Co. 79,200 3,257
U.S. West, Inc. 54,600 1,952
Unicom Corp. 54,400 1,781
-----------
43,682
-----------
TOTAL COMMON STOCKS
(cost $186,042) 213,905
-----------
CONVERTIBLE PREFERRED STOCK - 0.4%
Atlantic Richfield Co. 33,300 783
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $825) 783
-----------
Equity III Fund 35
<PAGE>
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
------------ -----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.8%
AMR Corp. (conv.)
6.125% due 11/01/24 $ 1,080 $ 1,126
Unisys Corp. (Conv.)
8.250% due 08/01/00 885 788
-----------
TOTAL LONG-TERM INVESTMENTS
(cost $1,883) 1,914
-----------
SHORT-TERM INVESTMENTS - 0.7%
Frank Russell Investment Company
Money Market Fund, due on demand (b) 1,583 1,583
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,583) 1,583
-----------
TOTAL INVESTMENTS
(identified cost $190,333)(c) - 98.0% 218,185
OTHER ASSETS AND LIABILITIES,
NET - 2.0% 4,356
-----------
NET ASSETS - 100.0% $ 222,541
-----------
-----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes
was $190,842 and net unrealized appreciation for all securities
was $27,343. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of
market value over tax cost of $31,652 and aggregate gross
unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $4,309.
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
------------ --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/96 7 $ (7)
--------------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ (7)
--------------
--------------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes,
due 12/31/95, valued at $3,500 were held as collateral by the
custodian in connection with futures contracts purchased by
the Fund. The settlement amount of these matured notes is
included in Receivable for Investments Sold on the Statement
of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
36 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $190,332,732) (Note 2)...................... $218,184,814
Receivables:
Dividends and interest.......................................................... 841,994
Investments sold................................................................ 4,171,648
Fund shares sold................................................................ 509,972
Daily variation margin on futures contracts (Notes 2 and 3)..................... 11,097
------------
223,719,525
LIABILITIES
Payables:
Investments purchased........................................... $934,097
Fund shares redeemed............................................ 63,369
Accrued bookkeeping service fees (Note 4)....................... 3,000
Accrued management fees (Note 4)................................ 114,827
Accrued transfer agent fees (Note 4)............................ 16,653
Other accrued expenses and payables............................. 47,047 1,178,993
-------- ------------
NET ASSETS............................................................................ $222,540,532
------------
------------
NET ASSETS CONSIST OF:
Undistributed net investment income................................................ $ 29,502
Accumulated net realized gain (loss)............................................... 4,575,413
Unrealized appreciation (depreciation) on:
Investments..................................................................... 27,852,284
Futures contracts............................................................... (6,800)
Shares of beneficial interest...................................................... 76,457
Additional paid-in capital......................................................... 190,013,676
------------
NET ASSETS............................................................................ $222,540,532
------------
------------
Net asset value, offering and redemption price per share
($222,540,532 divided by 7,645,686 shares of $.01 par value
shares of beneficial interest outstanding)......................................... $29.11
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity III Fund 37
<PAGE>
EQUITY III FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends.......................................................................... $ 6,214,479
Dividends from Money Market Fund (Note 5).......................................... 509,009
Interest........................................................................... 421,348
------------
7,144,836
Expenses (Notes 2 and 4):
Management fees.................................................... $945,888
Custodian fees..................................................... 182,500
Transfer agent fees................................................ 116,720
Bookkeeping service fees........................................... 12,000
Professional fees.................................................. 17,172
Registration fees.................................................. 18,259
Trustees' fees..................................................... 4,352
Miscellaneous...................................................... 13,727 1,310,618
-------- ------------
Net investment income................................................................. 5,834,218
------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments........................................................................ 23,476,461
Futures contracts.................................................................. 660,171
Options written.................................................................... 770,438
Net change in unrealized appreciation or depreciation of:
Investments........................................................................ 30,571,095
Futures contracts.................................................................. (6,800)
Options written.................................................................... (96,288)
------------
Net gain (loss) on investments........................................................ 55,375,077
------------
Net increase (decrease) in net assets resulting from operations....................... $ 61,209,295
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income............................................. $ 5,834,218 $ 6,207,725
Net realized gain (loss) from:
Investments.................................................... 23,476,461 13,351,739
Futures contracts.............................................. 660,171 --
Options written................................................ 770,438 442,659
Net change in unrealized appreciation or depreciation of:
Investments.................................................... 30,571,095 (17,624,466)
Futures contracts.............................................. (6,800) --
Options written................................................ (96,288) 27,529
------------ ------------
Net increase (decrease) in net assets resulting from operations...... 61,209,295 2,405,186
Distributions to shareholders:
Net investment income............................................. (5,956,213) (6,118,015)
Net realized gain on investments.................................. (20,008,945) (14,198,014)
In excess of net realized gain on investments..................... -- (765,734)
Increase (decrease) in net assets from Fund share transactions....... 9,489,136 14,853,656
------------ ------------
INCREASE (DECREASE) IN NET ASSETS.................................... 44,733,273 (3,822,921)
Net assets at beginning of year...................................... 177,807,259 181,630,180
------------ ------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $29,502 and $151,457, respectively)............................ $222,540,532 $177,807,259
------------ ------------
------------ ------------
</TABLE>
FUND SHARE TRANSACTIONS
<TABLE>
<CAPTION>
1995 1994
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Fund shares sold......................... 1,995,925 $55,610,295 1,755,472 $46,981,185
Fund shares issued to shareholders
in reinvestments of distributions....... 841,738 24,119,117 793,254 19,533,671
Fund shares redeeme...................... (2,546,275) (70,240,276) (1,910,090) (51,661,200)
---------- ----------- ---------- -----------
Net increase (decrease).................. 291,388 $ 9,489,136 638,636 $14,853,656
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity III Fund 39
<PAGE>
EQUITY III FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............................ $ 24.18 $ 27.05 $ 26.75 $ 27.08 $ 23.30
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... .82 .93 .89 .98 1.08
Net realized and unrealized gain (loss) on investments..... 7.73 (.85) 2.99 2.24 5.21
------- ------- ------- ------- -------
Total Income From Investment Operations.................... 8.55 .08 3.88 3.22 6.29
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income...................................... (.83) (.91) (.90) (.99) (1.07)
In excess of net investment income......................... -- -- (.00) -- --
Net realized gain on investments........................... (2.79) (1.94) (2.68) (2.56) (1.44)
In excess of net realized gain on investments.............. -- (.10) -- -- --
------- ------- ------- ------- -------
Total Distributions........................................ (3.62) (2.95) (3.58) (3.55) (2.51)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR.................................. $ 29.11 $ 24.18 $ 27.05 $ 26.75 $ 27.08
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%)(a)........................................... 35.96 1.16 14.95 12.30 27.86
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a)............... .65 .17 .16 .20 .25
Net investment income to average net assets (a)............ 2.90 3.39 3.09 3.57 4.05
Portfolio turnover......................................... 103.40 85.92 76.77 84.56 56.99
Net assets, end of year ($000 omitted)..................... 222,541 177,807 181,630 166,782 138,076
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net
of investment management fees but gross of any investment services fees.
See Note 4.
40 Equity III Fund
<PAGE>
EQUITY III FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS RUSSELL 1000
ENDED DECEMBER 31 EQUITY III -REGISTERED TRADEMARK- VALUE **
- ----------------- ---------- -------------------------------
<S> <C> <C>
Inception* $10,000 $10,000
1986 $11,474 $11,998
1987 $11,304 $12,058
1988 $13,813 $14,850
1989 $17,690 $18,591
1990 $16,677 $17,088
1991 $21,324 $21,292
1992 $23,946 $24,233
1993 $27,525 $28,625
1994 $27,844 $28,056
1995 $37,858 $38,815
</TABLE>
Equity III Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- --------
<S> <C> <C>
1 Year $13,596 35.96%
5 Years $22,701 17.81%***
10 Years $37,858 14.23%***
</TABLE>
Russell 1000-Registered Trademark- Value Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- --------
<S> <C> <C>
1 Year $13,835 38.35%
5 Years $22,715 17.83%***
10 Years $38,815 14.53%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Russell 1000-Registered Trademark- Value Index includes stocks from the
Russell 1000-Registered Trademark- Index with a less than average growth
orientation. The Index represents the universe of stocks from which most
Value money managers typically select.
*** Annualized.
EQUITY III FUND returned 36% during 1995, trailing the Russell
1000-Registered Trademark- Value Index return of 38.4%. The portfolio was
managed in a manner consistent with its objective to provide exposure to the
value style of investing, utilizing common stocks that typically allow for a
higher level of dividend income than the broader market. The fund employs a
multi-style, multi-manager strategy wherein companies whose market prices are
low relative to earnings are found particularly attractive. Beyond that, the
criteria may vary. Some managers focus on yield while others concentrate on
low price-to-book ratios.
The fund trailed the index for the year, but despite its weak showing in the
fourth quarter, finished ahead of the average Value manager. This year it
was particularly difficult for the fund to keep pace with the index, given
the dominance of large cap stocks. The slowing of the economy also had a
negative impact on the fund's cyclical holdings. Other sources of performance
gains and shortfalls were examples of the sector rotation-driven nature of
the market. Strong gains from good technology stock selection early in the
year were overshadowed by weak returns in the fourth quarter attributable to
underweighted positions in utilities and energy-related issues.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
Equity III Fund 41
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS - 95.0%
BASIC INDUSTRIES - 6.3%
Air Products & Chemicals, Inc. 11,100 $ 586
Albemarle Corp. 5,300 103
Allegheny Ludlum Corp. 7,700 142
Aluminum Co. of America 33,200 1,755
Arco Chemical Co. 9,700 472
Boise Cascade Corp. 33,100 1,146
Bowater, Inc. 2,900 103
Cabot Corp. 30,900 1,665
Carpenter Technology Corp. 12,500 514
Champion International Corp. 57,400 2,411
Consolidated Papers, Inc. 700 39
Crown Cork & Seal Co., Inc. (a) 15,900 664
Dow Chemical Co. 65,200 4,588
du Pont (E.I.) de Nemours & Co. 40,600 2,837
Eastern Enterprises, Inc. 14,600 515
Eastman Chemical Co. 17,525 1,098
Engelhard Corp. 19,300 420
Federal Paper Board, Inc. 37,300 1,935
Freeport McMoRan Copper &
Gold, Inc. Class B 22,100 622
Georgia Gulf Corp. 2,700 83
Goodrich (B.F.) Co. 1,300 89
IMC Global, Inc. 31,900 1,304
Inland Steel Industries, Inc. 5,400 136
International Paper Co. 49,500 1,875
James River Corp. of Virginia 8,600 207
Kimberly-Clark Corp. 100 8
Lyondell Petrochemical Co. 4,300 98
Mead Corp. 5,600 293
Minnesota Mining &
Manufacturing Co. 200 13
Monsanto Co. 13,600 1,666
Nucor Corp. 11,700 668
Phelps Dodge Corp. 23,700 1,475
Pope & Talbot, Inc. 6,300 83
PPG Industries, Inc. 34,200 1,565
Praxair, Inc. 18,700 629
Premark International, Inc. 5,700 289
Reynolds Metals Co. 7,400 419
Rohm & Haas Co. 3,800 245
Temple-Inland, Inc. 24,800 1,094
Texas Industries, Inc. 18,100 959
Union Carbide Corp. 65,600 2,460
USX-U.S. Steel Group 200 6
Wellman, Inc. 11,000 250
Westvaco Corp. 16,500 458
Willamette Industries, Inc. 7,500 420
Worthington Industries, Inc. 18,600 385
--------
38,792
--------
CAPITAL GOODS - 6.1%
Alliance Semiconductor Corp. 2,500 28
Ametek, Inc. 100 2
Arrow Electronics, Inc. (a) 14,400 621
Atmel Corp. 25,800 571
Boston Scientific Corp. (a) 20,600 1,009
Browning-Ferris Industries, Inc. 37,500 1,106
Caterpillar, Inc. 16,200 952
Cooper Industries, Inc. 9,700 356
Cummins Engine Co., Inc. 1,200 44
Dover Corp. 90,900 3,352
Duracell International, Inc. 10,600 549
Duriron Co., Inc. 15,599 363
Emerson Electric Co. 18,900 1,545
Exide Corp. 3,900 179
Fluor Corp. 13,900 917
General Electric Co. 146,400 10,541
General Signal Corp. 3,500 113
Grainger (W.W.), Inc. 3,600 239
Harnischfeger Industries, Inc. 17,900 595
Harsco Corp. 9,000 523
Ingersoll-Rand Co. 9,100 320
ITT Industries, Inc. 21,400 514
Johnson Controls, Inc. 20,800 1,430
Kaydon Corp. 5,500 167
Kennametal, Inc. 8,100 257
Litton Industries, Inc. (a) 49,300 2,194
Measurex Corp. 1,600 45
Millipore Corp. 200 8
National Service Industries, Inc. 34,200 1,107
Novellus Systems, Inc. (a) 11,200 605
Parker-Hannifin Corp. 32,300 1,106
Pentair, Inc. 5,500 274
Raychem Corp. 23,900 1,359
Tecumseh Products Co. Class A 28,700 1,485
TRINOVA Corp. 1,400 40
Tyco International, Ltd. 28,100 1,001
Varity Corp. (a) 32,000 1,188
Wheelabrator Technologies, Inc. 13,600 228
WMX Technologies, Inc. 22,400 670
--------
37,603
--------
CONSUMER BASICS - 18.5%
Abbott Laboratories NPV 61,100 2,551
ALZA Corp. (a) 9,100 225
American Home Products Corp. 35,800 3,473
Amgen, Inc. 1,900 113
Apria Healthcare Group, Inc. 6,000 170
Archer-Daniels-Midland Co. 114,625 2,063
Equity Q Fund 43
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
Bausch & Lomb, Inc. 7,500 $ 297
Baxter International, Inc. 35,700 1,495
Becton, Dickinson & Co. 32,500 2,438
Black & Decker Corp. 28,300 998
Bristol-Myers Squibb Co. 44,240 3,799
Campbell Soup Co. 11,100 666
Cardinal Health, Inc. 35,000 1,916
Church and Dwight Co., Inc. 7,900 146
Coca-Cola Co. (The) 100,500 7,462
Coca-Cola Enterprises, Inc. 72,400 1,937
Colgate-Palmolive Co. 13,000 913
Columbia/HCA Healthcare Corp. 58,300 2,959
ConAgra, Inc. 36,108 1,489
CPC International, Inc. 26,700 1,832
Dole Food, Inc. 12,700 445
Forest Labs, Inc. (a) 5,000 226
General Nutrition Companies, Inc. 7,300 168
Gillette Co. 3,600 188
Health Care & Retirement Corp.(a) 28,200 987
Health Management Associates Class A 9,300 243
HEALTHSOUTH Rehabilitation Corp. 66,000 1,922
Heinz (H.J.) Co. 54,450 1,804
Hershey Foods Corp. 14,100 917
Humana, Inc. (a) 21,600 591
IBP, Inc. 64,400 3,252
Johnson & Johnson 57,200 4,898
Kroger Co. (a) 37,600 1,410
Lilly (Eli) & Co. 82,300 4,629
Manor Care, Inc. 9,200 322
Medtronic, Inc. 35,500 1,984
Merck & Co., Inc. 120,807 7,943
Nabisco Holdings Corp. Class A 3,500 114
Nash Finch Co. 3,700 66
Outback Steakhouse, Inc. (a) 22,000 789
PepsiCo, Inc. 87,500 4,889
Pfizer, Inc. 52,800 3,326
Philip Morris Cos., Inc. 149,500 13,530
Procter & Gamble Co. 108,200 8,981
Quaker Oats Co. 200 7
Ralston Purina Co. 14,600 911
Rhone Poulenc Rorer, Inc. 25,700 1,369
Safeway, Inc. New (a) 56,400 2,905
Sara Lee Corp. 49,700 1,584
Schering-Plough Corp. 45,800 2,508
Smith's Food & Drug Centers, Inc.
Class B 11,800 298
Snap-On Tools Corp. 14,500 656
Tenet Healthcare Corp. (a) 25,200 523
United Healthcare Corp. 22,500 1,473
Vivra, Inc. 4,600 115
Vons Cos., Inc.(a) 11,200 315
Warner-Lambert Co. 18,500 1,796
--------
115,026
--------
CONSUMER DURABLES - 2.3%
Chrysler Corp. 22,000 1,218
Cooper Tire & Rubber Co. 5,500 135
Dana Corp. 47,400 1,386
Eaton Corp. 18,400 987
Echlin, Inc. 43,700 1,595
Ford Motor Co. 72,300 2,097
General Motors Corp. 60,800 3,215
Goodyear Tire & Rubber Co. 22,100 1,003
La-Z-Boy Chair Co. 17,000 525
Leggett & Platt, Inc. 17,800 432
Modine Manufacturing Co. 3,600 86
National Presto Industries, Inc. 1,600 64
PACCAR, Inc. 4,000 168
Standard Products Co. 14,800 261
Whirlpool Corp. 14,500 772
--------
13,944
--------
CONSUMER NON-DURABLES - 3.8%
Anheuser-Busch Cos., Inc. 22,200 1,485
Avon Products, Inc. 5,300 399
Circuit City Stores, Inc. 8,900 246
Consolidated Stores Corp. (a) 4,300 94
Coors (Adolph) Co. Class B 8,900 197
CPI Corp. 3,800 61
Dayton Hudson Corp. 4,900 368
Eastman Kodak Co. 6,600 442
Fruit of the Loom, Inc. Class A (a) 8,800 215
Gap, Inc. 14,700 617
Home Depot, Inc. (The) 11,100 531
International Flavors &
Fragrances, Inc. 9,900 475
Limited, Inc. (The) 38,900 676
Longs Drug Stores Corp. 24,000 1,149
Lowe's Cos., Inc. 12,000 402
Melville Corp. 11,200 344
Newell Co. 33,700 872
NIKE, Inc. Class B 41,300 2,876
Nine West Group, Inc. (a) 3,200 120
Office Depot, Inc. (a) 65,000 1,284
Penney (J.C.) Co., Inc. 20,700 986
44 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- -------
<S> <C> <C>
Price Costco, Inc. (a) 14,500 $ 221
Rayonier, Inc. 1,300 43
Rite Aid Corp. 7,500 257
Ross Stores, Inc. 79,100 1,513
Sears Roebuck & Co. 42,400 1,654
Springs Industries, Inc. 300 12
TJX Cos., Inc. 7,400 140
Toys "R" Us, Inc. (a) 25,500 555
V.F. Corp. 12,500 659
Waban, Inc.(a) 22,600 424
Wal-Mart Stores, Inc. 193,700 4,333
Warnaco Group, Inc. Class A 7,300 182
--------
23,832
--------
CONSUMER SERVICES - 2.7%
AMR Corp. (a) 5,400 401
Boyd Gaming Corp. (a) 4,200 49
Brinker International, Inc.(a) 5,100 77
Buffets, Inc. (a) 6,300 88
Callaway Golf Co. 29,400 665
Carnival Corp. Class A 15,900 388
Circus Circus Enterprises, Inc. (a) 13,400 374
Cracker Barrel Old Country Store, Inc. 6,900 119
Delta Air Lines, Inc. 20,600 1,522
Disney (Walt) Co. 69,400 4,095
Harrah's Entertainment, Inc. 10,300 250
International Game Technology 16,800 183
ITT Corp. New 21,400 1,134
King World Productions, Inc. (a) 51,800 2,014
La Quinta Motor Inns, Inc. 35,900 983
Marriot International, Inc. 15,900 608
McDonald's Corp. 17,300 781
MGM Grand, Inc. (a) 100 2
Mirage Resorts, Inc. (a) 17,500 604
Southwest Airlines Co. 8,300 192
UAL Corp. (a) 13,800 2,462
--------
16,991
--------
ENERGY - 7.5%
Amoco Corp. 25,900 1,862
Anadarko Petroleum Corp. 4,700 254
Apache Corp. 1,900 56
Ashland, Inc. 6,300 221
Atlantic Richfield Co. 27,600 3,057
Baker Hughes, Inc. 33,400 814
Burlington Resources, Inc. 100 4
Chevron Corp. 64,800 3,402
Cooper Cameron Corp. (a) 2,778 99
Dresser Industries, Inc. 18,200 444
Exxon Corp. 160,200 12,836
FINA, Inc. Class A 700 35
Halliburton Co. 50,600 2,562
Mobil Corp. 34,700 3,886
Murphy Oil Corp. 200 8
Occidental Petroleum Corp. 54,600 1,167
Oryx Energy Co.(a) 5,300 71
Parker & Parsley Petroleum Co. 100 2
Phillips Petroleum Co. 24,000 819
Pittston Services Group 13,000 408
Royal Dutch Petroleum Co. - ADR 60,200 8,496
Schlumberger, Ltd. 100 7
Sonat Offshore Drilling, Inc. 9,100 407
Sun Company 9,400 257
Tenneco, Inc. 30,000 1,489
Texaco, Inc. 29,800 2,339
Union Texas Petroleum Holdings, Inc. 7,000 136
Unocal Corp. 24,600 716
Valero Energy Corp. 18,100 444
--------
46,298
--------
FINANCE - 15.9%
Aetna Life & Casualty Co. 6,400 443
AFLAC, Inc. 54,625 2,369
Ahmanson (H.F.) & Co. 30,700 814
Allstate Corp. 74,079 3,046
AMBAC, Inc. 1,400 66
American Express Co. 5,400 223
American Financial Group, Inc. 13,100 401
American General Corp. 46,400 1,618
American International Group, Inc. 28,700 2,655
American National Insurance Co. 5,600 370
AT&T Capital Corp. 10,600 405
Banc One Corp. 26,600 1,004
Bank of Boston Corp. 19,746 913
Bank of New York Co., Inc. 76,984 3,753
Bank South Corp. 8,200 249
BankAmerica Corp. 117,300 7,595
Bankers Life Holding Corp. 10,200 207
Bankers Trust New York Corp. 5,400 359
BanPonce Corp. 2,000 78
Barnett Banks, Inc. 13,100 773
BayBanks, Inc. 1,500 147
Bear Stearns Cos., Inc. 135,373 2,691
Beneficial Corp. 3,500 163
Chase Manhattan Corp. 15,300 928
Equity Q Fund 45
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Chemical Banking Corp. 40,500 $ 2,379
Chubb Corp. (The) 4,400 426
CIGNA Corp. 15,000 1,549
Citicorp 35,800 2,408
CNA Financial Corp. (a) 4,900 556
Comerica, Inc. 6,600 265
CoreStates Financial Corp. 8,200 311
Dean Witter, Discover & Co. 10,600 498
Edwards (A.G.), Inc. 58,900 1,406
Federal National Mortgage Association 33,500 4,158
First Chicago NBD Corp. 129,981 5,134
First Colony Corp. 2,600 66
First Fidelity Bancorp New 6,300 475
First Security Corp. 39,500 1,501
First Tennessee National Corp. 1,700 102
First Union Corp. 10,500 584
First USA, Inc. 14,000 621
First Virginia Banks, Inc. 1,300 54
Firstar Corp. 4,600 182
Fleet Financial Group, Inc. 16,900 689
Fleet Financial Group, Inc. New
1996 Warrants (a) 134 2
General Re Corp. 400 62
Golden West Financial Corp. 3,700 204
Great Western Financial Corp. 9,300 237
Green Tree Financial Corp. 19,600 517
Greenpoint Financial Corp. 29,900 792
Horace Mann Educators Corp. 200 6
Household International Corp. 15,300 905
Huntington Bancshares, Inc. 16,600 394
Integra Financial Corp. 6,900 435
ITT Hartford Group, Inc. 21,400 1,035
Jefferson-Pilot Corp. 15,750 732
Kansas City Life Insurance Co. 800 42
KeyCorp 14,400 522
Lehman Brothers Holdings, Inc. 63,900 1,358
Leucadia National Corp. 200 5
Lincoln National Corp. 51,100 2,747
Loews Corp. 46,800 3,668
MBIA, Inc. 1,700 128
MBNA Corp. 36,700 1,353
Mellon Bank Corp. 200 11
Mercantile Bancorp, Inc. 3,800 175
Mercury Finance Corp. 10,700 142
Mercury General Corp. 10,800 510
Meridian Bancorp, Inc. 23,600 1,097
Merrill Lynch & Co., Inc. 10,800 551
MGIC Investment Corp. 200 11
Midlantic Corp. 9,000 591
Morgan (J.P.) & Co., Inc. 100 8
Morgan Stanley Group, Inc. 17,900 1,443
National City Corp. 25,100 831
NationsBank Corp. 96,005 6,684
Norwest Corp. 46,800 1,544
Old Kent Financial Corp. 11,400 466
Old Republic International Corp. 27,700 983
Paine Webber Group, Inc. 3,900 78
PNC Bank Corp. 28,000 903
Protective Life Corp. 6,100 191
Republic New York Corp. 3,900 242
SAFECO Corp. 6,400 221
Salomon, Inc. 48,100 1,708
Southern National Corp. 6,000 158
SouthTrust Corp. 6,300 161
St. Paul Cos., Inc. 4,300 239
Star Banc Corp. 20,600 1,226
State Street Boston Corp. 4,300 194
Student Loan Marketing Association 11,400 751
TIG Holdings, Inc. 18,200 519
Torchmark Corp. 3,400 154
Transamerica Corp. 3,300 240
Travelers, Inc. 91,200 5,734
UJB Financial Corp. 3,900 139
Union Bank 7,600 409
Unitrin, Inc. 4,800 227
UNUM Corp. 5,200 286
Washington Mutual, Inc. 4,200 120
Washington National Corp. 2,600 72
Wilmington Trust Corp. 1,500 45
--------
98,842
--------
GENERAL BUSINESS - 4.4%
ADT, Ltd. (a) 4,700 71
American Greetings Corp. Class A 44,500 1,229
Ascend Communications, Inc. 4,200 341
BHC Communications, Inc. Class A 3,800 359
Capital Cities/ABC, Inc. 20,000 2,468
Central Newspapers, Inc. Class A 10,900 342
Comcast Corp. Special Class A 19,300 350
Comdisco, Inc. 1,350 31
Cox Communications, Inc. Class A (a) 5,200 101
Donnelley (R.R.) & Sons Co. 16,600 654
Gartner Group, Inc. Class A New (a) 15,300 731
Harcourt General, Inc. 5,300 222
Kelly Services, Inc. Class A 12,200 339
Knight-Ridder, Inc. 2,100 131
Lee Enterprises, Inc. 200 5
46 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Manpower, Inc. 35,000 $ 984
Miller (Herman), Inc. 1,700 51
New York Times Co. Class A 40,700 1,206
Olsten Corp. 3,600 142
Omnicom Group, Inc. 25,000 931
Paging Network, Inc. 6,800 162
PHH Group, Inc. 35,200 1,646
Pulitzer Publishing Co. 6,400 306
SBC Communications, Inc. 89,350 5,138
Service Corp. International 9,700 427
Staples, Inc. 116,900 2,849
SunGard Data Systems 6,100 169
Tele-Communications, Inc. Class A 66,300 1,318
Time Warner, Inc. 38,400 1,454
Tribune Co. 15,500 947
Turner Broadcasting Systems, Inc. Class B 16,200 421
Viacom, Inc. Class B (a) 2,300 108
Wallace Computer Services, Inc. 1,200 65
Washington Post Co. Class B 4,700 1,324
--------
27,022
--------
MISCELLANEOUS - 0.3%
Castle & Cook, Inc. New 4,233 71
Chris Craft Industries, Inc. 5,964 258
Eckerd Corp. (a) 31,800 1,419
Providian Corp. 5,100 208
Terra Industries, Inc. 3,900 55
--------
2,011
--------
SHELTER - 0.6%
Centex Corp. 2,500 87
Georgia Pacific Corp. 13,400 920
Granite Construction, Inc. 16,700 526
Lennar Corp. 8,200 206
Louisiana Pacific Corp. 9,200 223
Owens-Corning Fiberglas Corp. (a) 7,400 332
Pulte Corp. 18,600 625
USG Corp. New (a) 7,300 219
Weyerhaeuser Co. 17,100 740
--------
3,878
--------
TECHNOLOGY - 12.8%
3Com Corp. 300 14
Adaptec, Inc. (a) 9,900 405
Adobe Systems, Inc. 4,200 260
Advanced Micro Devices, Inc. 9,000 149
AlliedSignal, Inc. 66,400 3,154
Altera Corp. 4,600 228
AMP, Inc. 16,100 618
Amphenol Corp. Class A (a) 19,900 483
Analog Devices, Inc. 47,200 1,670
Apple Computer, Inc. 8,100 257
Applied Materials, Inc. 12,500 491
Autodesk, Inc. 45,000 1,530
Avery Dennison Corp. 13,700 687
Avnet, Inc. 46,900 2,099
Bay Networks, Inc. 14,700 603
Beckman Instruments, Inc. 400 14
Boeing Co. 64,200 5,032
Cabletron Systems, Inc. (a) 6,650 539
Cadence Design Systems, Inc. 4,800 202
Cisco Systems, Inc. (a) 19,400 1,448
Coltec Industries, Inc. (a) 5,900 69
COMPAQ Computer Corp. (a) 22,100 1,061
Computer Associates International, Inc. 11,750 668
Cray Research, Inc. (a) 100 2
Cypress Semiconductor Corp. 34,200 436
Dell Computer Corp. 22,600 783
Diebold, Inc. 3,000 166
Digital Equipment Corp. (a) 16,000 1,026
Electronic Arts (a) 200 5
EMC Corp. (a) 22,500 346
Gateway 2000, Inc. (a) 4,600 112
General Binding Corp. 3,900 77
General Dynamics Corp. 4,400 260
General Instrument Corp. (a) 10,700 250
General Motors Corp. Class H 64,300 3,159
Glenayre Technologies, Inc. 7,900 490
Harris Corp. 2,400 131
Hewlett-Packard Co. 91,000 7,621
Informix Corp. 67,000 2,010
Integrated Device Technology 24,100 310
Intel Corp. 5,400 306
International Business Machines Corp. 104,200 9,560
Komag, Inc. (a) 4,800 219
Lam Research Corp. (a) 12,600 573
Lockheed Martin Corp. 23,100 1,825
Loral Corp. 10,000 354
LSI Logic Corp. 3,900 128
Maxim Integrated Products, Inc. 17,600 673
McDonnell Douglas Corp. 3,400 313
Micro Warehouse, Inc. (a) 8,800 381
Micron Technology, Inc. 19,100 757
Microsoft Corp. (a) 38,300 3,361
Molex, Inc. Class A 1,100 34
Equity Q Fund 47
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Motorola, Inc. 54,700 $ 3,118
National Semiconductor Corp. (a) 9,800 218
Northern Telecom, Ltd. 8,200 353
Novell, Inc. (a) 32,600 460
Oracle Systems Corp. 64,500 2,725
Parametric Technology Corp. (a) 1,900 126
Quantum Corp. (a) 4,500 73
Raytheon Co. 16,700 789
Read-Rite Corp. (a) 29,900 691
Rockwell International Corp. 25,900 1,369
Scientific-Atlanta, Inc. 1,700 26
Seagate Technology (a) 32,700 1,553
Silicon Graphics, Inc. (a) 11,700 322
Solectron Corp. (a) 11,000 485
Storage Technology Corp. (a) 35,700 852
Sun Microsystems, Inc. 14,000 639
Sybase, Inc. (a) 5,000 179
Symbol Technologies, Inc. (a) 6,100 241
Synopsys, Inc. 5,500 209
Tandem Computers, Inc. (a) 3,900 41
Tandy Corp. 5,100 212
Teradyne, Inc. 15,000 375
Texas Instruments, Inc. 58,100 3,007
Textron, Inc. 22,500 1,519
Thomas & Betts Corp. 1,200 89
TRW, Inc. 11,800 914
Varian Associates, Inc. 20,700 987
Watkins-Johnson Co. 1,600 69
Xerox Corp. 2,500 342
Xilinx, Inc. 4,500 135
--------
79,467
--------
TRANSPORTATION - 0.9%
Burlington Northern, Inc. 15,600 1,217
Conrail, Inc. 15,200 1,064
CSX Corp. 14,200 648
Federal Express Corp. 2,000 148
Florida East Coast Industries, Inc. 200 14
GATX Corp. 5,500 267
Norfolk Southern Corp. 8,200 651
Ryder System, Inc. 27,300 676
Union Pacific Corp. 15,200 1,002
--------
5,687
--------
UTILITIES - 12.9%
Allegheny Power System, Inc. 5,800 166
American Water Works, Inc. 3,500 136
Ameritech Corp. 84,200 4,968
AT&T Corp. 130,000 8,418
Baltimore Gas & Electric Co. 7,300 208
BellSouth Corp. 125,300 5,451
Boston Edison Co. 3,200 94
California Energy, Inc. (a) 2,300 45
Carolina Power & Light Co. 8,500 293
Centerior Energy Corp. 9,700 86
Central & Southwest Corp. 40,400 1,126
Central Maine Power Co. 12,700 183
CILCORP, Inc. 8,500 360
Cincinnati Bell, Inc. 25,400 883
CMS Energy Corp. 5,800 173
Coastal Corp. 100 4
Columbia Gas System, Inc. (a) 2,300 101
Consolidated Edison Co.
of New York, Inc. 96,200 3,078
Consolidated Natural Gas Co. 37,700 1,711
Detroit Edison Co. 30,500 1,052
Dominion Resources, Inc. 11,200 462
DQE, Inc. 1,800 55
Duke Power Co. 8,400 398
El Paso Natural Gas Co. 2,700 77
Enron Corp. 47,800 1,822
Entergy Corp. 99,600 2,913
FPL Group, Inc. 12,100 561
General Public Utilities Corp. 8,300 282
GTE Corp. 244,753 10,769
Houston Industries, Inc. 17,200 417
Illinova Corp. 2,200 66
MCI Communications Corp. 48,600 1,270
National Fuel & Gas Co. 4,900 165
New England Electric System 2,900 115
New York State Electric & Gas Corp. 29,800 771
Niagara Mohawk Power Corp. 6,400 62
Northeast Utilities 9,900 241
Northern States Power Co. 10,900 535
NYNEX Corp. 6,500 351
ONEOK, Inc. 11,900 272
Pacific Enterprises 1,300 37
Pacific Gas & Electric Co. 133,700 3,794
Pacific Telesis Group 31,200 1,049
PacifiCorp. 28,300 601
Panhandle Eastern Corp. 46,600 1,299
Peco Energy Co. 16,200 488
Pinnacle West Capital Corp. 3,800 109
Portland General Electric Co. 23,400 682
Potomac Electric Power Co. 10,000 263
PP&L Resources, Inc. 11,400 285
48 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Public Service Co. of Colorado 2,400 $ 85
Public Service Enterprise Group, Inc. 53,800 1,648
SCE Corp. 159,900 2,838
Sonat, Inc. 6,300 224
Southern Co. 18,800 463
Southern New England
Telecommunications Corp. 11,800 469
Sprint Corp. 152,250 6,071
Texas Utilities Co. 16,200 666
TransCanada Pipelines, Ltd. 4,500 62
Tucson Electric Power Co. (a) 17,400 57
U.S. West Media Group (a) 50,300 956
U.S. West, Inc. 33,800 1,208
Unicom Corp. 124,100 4,064
Washington Gas & Light Co. 7,600 156
Western Resources, Inc. 34,100 1,138
Williams Cos. (The) 22,600 992
--------
79,844
--------
TOTAL COMMON STOCKS
(cost $480,239) 589,237
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)
---------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.0%
WMX Technologies, Inc. (conv.)
2.000% due 01/24/05 $ 167 144
--------
TOTAL LONG-TERM INVESTMENTS
(cost $258) 144
--------
SHORT-TERM INVESTMENTS - 4.1%
Frank Russell Investment Company
Money Market Fund, due on demand (b) 25,472 25,472
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $25,472) 25,472
--------
TOTAL INVESTMENTS
(identified cost $505,969)(c) - 99.1% $614,853
OTHER ASSETS AND LIABILITIES,
NET - 0.9% 5,406
--------
NET ASSETS - 100.0% $620,259
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes was $507,128
and net unrealized appreciation for all securities was $107,725. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $117,248 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $9,523.
FUTURES CONTRACTS
December 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/96 86 $ (60)
--------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ (60)
--------
--------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes, due 12/31/95, valued
at $6,000 were held as collateral by the custodian in connection with
futures contracts purchased by the Fund. The settlement amount of these
matured notes is included in Receivable for Investments Sold on the
Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
Equity Q Fund 49
<PAGE>
EQUITY Q FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $505,968,657)(Note 2) . . . . . . . . . . . . $614,852,562
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,502,884
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,447,926
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,852,495
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 32,399
------------
631,688,266
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . $10,231,434
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . 793,038
Accrued bookkeeping service fees (Note 4). . . . . . . . . . . . . . 5,841
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . . . 311,455
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . . . 22,148
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 65,747 11,429,663
----------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $620,258,603
------------
------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 16,959,866
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,883,902
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,543)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,015
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494,270,363
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $620,258,603
------------
------------
Net asset value, offering and redemption price per share
($620,258,603 divided by 20,401,468 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . $30.40
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
50 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,873,093
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . 1,320,380
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,465
------------
13,643,938
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . $2,434,051
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,054
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . 141,918
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . 23,375
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . 26,248
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . 25,865
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,460
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,716 2,998,687
---------- ------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,645,251
------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,195,198
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316,359
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550,868
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,427,252
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,543)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (214,197)
------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . 151,215,937
------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . $161,861,188
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Q Fund 51
<PAGE>
EQUITY Q FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,645,251 $ 11,280,726
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,195,198 15,394,913
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316,359 --
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550,868 1,017,325
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,427,252 (23,595,261)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . (59,543) --
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . (214,197) 128,010
------------ ------------
Net increase (decrease) in net assets resulting from operations. . . . . . 161,861,188 4,225,713
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . (10,815,119) (11,243,421)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . (47,298,452) (15,148,864)
In excess of net realized gain on investments. . . . . . . . . . . . . . -- (3,441,395)
Increase (decrease) in net assets from Fund share transactions . . . . . . 85,849,747 73,330,565
------------ ------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 189,597,364 47,722,598
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . 430,661,239 382,938,641
------------ ------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $37,306 at December 31, 1994) . . . . . . . . . . . . . . . . . . . . $620,258,603 $430,661,239
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS
1995 1994
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . . . . . . . . 6,435,805 $185,897,050 5,273,653 $134,441,281
Fund shares issued to shareholders
in reinvestments of distributions. . . . . . . . . . 1,857,979 55,099,559 1,141,327 28,032,603
Fund shares redeemed . . . . . . . . . . . . . . . . . (5,522,121) (155,146,862) (3,497,670) (89,143,319)
----------- ------------- ----------- ------------
Net increase (decrease). . . . . . . . . . . . . . . . 2,771,663 $ 85,849,747 2,917,310 $ 73,330,565
----------- ------------- ----------- ------------
----------- ------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52 Equity Q Fund
<PAGE>
EQUITY Q FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 24.43 $ 26.03 $ 25.23 $ 24.90 $ 20.20
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .59 .69 .66 .67 .75
Net realized and unrealized gain (loss) on investments . . 8.52 (0.41) 2.71 1.73 5.58
------- ------- ------- ------- -------
Total Income From Investment Operations. . . . . . . . . . 9.11 0.28 3.37 2.40 6.33
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.61) (.69) (.66) (.68) (.75)
Net realized gain on investments . . . . . . . . . . . . . (2.53) (.97) (1.85) (1.39) (.88)
In excess of net realized gain on investments. . . . . . . -- (.22) (.06) -- --
------- ------- ------- ------- -------
Total Distributions. . . . . . . . . . . . . . . . . . . . (3.14) (1.88) (2.57) (2.07) (1.63)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 30.40 $ 24.43 $ 26.03 $ 25.23 $ 24.90
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 37.91 .99 13.80 9.97 32.14
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . . .58 .11 .15 .18 .23
Net investment income to average net assets (a). . . . . . . 2.07 2.74 2.50 2.80 3.23
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . 74.00 45.87 54.69 58.35 51.37
Net assets, end of year ($000 omitted) . . . . . . . . . . . 620,259 430,661 382,939 290,357 215,779
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net
of investment management fees but gross of any investment services fees.
See Note 4.
Equity Q Fund 53
<PAGE>
EQUITY Q FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS RUSSELL 1000
ENDED DECEMBER 31 EQUITY Q -REGISTERED TRADEMARK- **
- ----------------- -------- -------------------------
<S> <C> <C>
INCEPTION* $ 10,000 $ 10,000
1987 $ 8,486 $ 8,636
1988 $ 9,942 $ 10,124
1989 $ 12,637 $ 13,203
1990 $ 12,029 $ 12,654
1991 $ 15,895 $ 16,834
1992 $ 17,478 $ 18,354
1993 $ 19,891 $ 20,218
1994 $ 20,087 $ 20,295
1995 $ 27,702 $ 27,960
</TABLE>
EQUITY Q FUND
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $13,791 37.91%
5 Years $23,030 18.15%***
Inception $27,702 12.60%***
</TABLE>
RUSSELL 1000-REGISTERED TRADEMARK- INDEX
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $13,777 37.77%
5 Years $22,095 17.18%***
Inception $27,960 12.73%***
</TABLE>
* Assumes initial investment on June 1, 1987.
** Russell 1000 Index includes the 1,000 largest companies in the Russell 3000
-Registered Trademark- Index, the smallest of which is valued at about $450
million. The Russell 1000 Index represents the universe of stocks from
which most active money managers typically select.
*** Annualized.
EQUITY Q FUND returned 37.9% during 1995, edging the Russell
1000-Registered Trademark- Index return of 37.8%. The portfolio was managed in
a manner consistent with its objective to provide a total return greater than
the US stock market, as measured by the Russell 1000 Index over a market cycle
of four to six years, while maintaining volatility and diversification similar
to the index.
Historically, no single economic or industrial sector has been consistently
favored by the equity markets. By approximately duplicating the broad market's
structure, an investor can reduce the possibility of being overweighted in an
out-of-favor sector, and by selecting the most attractive stocks within each
sector, an investor can increase the potential for earning a return that is
above the market average.
Despite losing ground during a difficult fourth quarter, the Fund managed to
outperform the index for the year. Good security selection through most of the
year added value over the fund's benchmark. Unlike other Funds that attempted
to add value via sector selection, Equity Q's sector-neutral posture helped it
keep pace with the market which underwent strong rotations among economic
sectors over the course of the year.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
54 Equity Q Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
COMMON STOCKS - 89.8%
ARGENTINA - 0.2%
Banco de Galicia Y Buenos Aires
Class B New - ADR 7,371 $ 151
Banco Frances del Rio la Plata - ADR 4,238 114
Buenos Aires Embotelladora SA
Class B - ADR 1,686 35
Comercial de Plata (a) 23,620 63
Naviera Perez Companc Class B 39,513 209
Sociedad Comercial del Plata - ADR (a) 1,928 51
Telecom Argentina SA Class B - ADR 1,485 71
Telefonica de Argentina Class B - ADR 13,060 356
Transportadora de Gas Del Sur
Class B - ADR 5,591 72
YPF Sociedad Anonima Class D - ADR 13,560 293
--------
1,415
--------
AUSTRALIA - 3.4%
Amcor, Ltd. 37,000 262
Australia & New Zealand
Bank Group, Ltd. 614,098 2,880
Australian Gas & Light Co. 98,165 369
Australian National Industries, Ltd. 519,483 386
Australian Resources, Ltd. 12,971 13
Australian Tourism Group 14,811 11
Azon Limited 7,691 11
Boral, Ltd. 40,000 101
BRL Hardy, Ltd. 2,716 5
Broken Hill Proprietary Co. 112,703 1,592
BT Property Trust (Units) 13,085 16
Burns Philip & Co., Ltd. 73,239 164
Burswood Property Trust (Units) 16,027 21
Caltex Australia 110,342 435
Coca-Cola Amatil, Ltd. 16,418 131
Coeval Holdings (a)(d) 100,000 0
Coles Myer, Ltd. 129,917 405
Commonwealth Bank of Australia 8,647 69
CSR, Ltd. 228,147 743
Eastern Aluminum 236,000 195
Elders Australia, Ltd. 300,000 381
Eltin, Ltd. 203,977 447
Foodland Associated, Ltd. 6,528 22
Foster's Brewing Group, Ltd. (a) 189,000 310
Gasgoyne Gold Mines NL 2,841 5
George Weston Foods, Ltd. 266 1
Giant Resources (a)(d) 400,000 0
GIO Australia Holdings 332,037 772
Goodman Fielder Wattie 252,938 254
GWA International, Ltd. 9,601 10
Holyman Limited 3,977 8
Lend Lease Corp. 29,602 429
M.I.M. Holdings, Ltd. 32,930 46
Mt. Leyshon Gold Mines, Ltd. 1,058 3
National Australia Bank, Ltd. 132,328 1,190
News Corp. 703,850 3,756
Normandy Poseidon 42,200 61
North Broken Hill Peko 167,614 467
Orion Resources NL 3,977 5
Pacific Dunlop, Ltd. 78,888 185
Pasminco, Ltd. 240,000 294
Pioneer International, Ltd. 172,600 445
Publishing Broadcasting, Ltd. 39,030 136
QCT Resources 16,834 19
QNI Limited 483,480 1,021
RGC Limited 170,531 849
Ross Mining NL 10,376 10
Rothmans Holdings 65,525 268
Santos, Ltd. 314,200 918
Schroders Property Fund 87,604 143
Sea World Property Australia, Ltd. 2,814 2
Simsmetal, Ltd. 4,818 28
Southcorp Holdings, Ltd. 164,600 383
St. Barbara Mines, Ltd. 6,548 4
Stockland Trust Group 55,600 128
Stockland Trust Group New (a) 2,253 5
T N T, Ltd. (a) 279,219 369
Tabcorp. Holdings, Ltd. 60,000 169
Walker Corp., Ltd. 17,294 6
Wesfarmers 50,765 311
Wesfi, Ltd. 1,794 5
Western Mining Corp. 613,342 3,939
Westfield Trust 170,806 307
Westfield Trust New Units (a) 7,375 13
Westpac Banking Corp. 110,674 490
Wills (W.D. & H.O.) 68,000 101
Woodside Petroleum, Ltd. 44,000 225
--------
26,749
--------
AUSTRIA - 0.4%
Austrian Airlines (a) 280 47
Bank Austria AG 3,500 283
Brau-Union Goess AG 2,528 123
BWT AG 2,200 226
Creditanstalt Bankverein 7,488 416
EA-Generali AG 300 90
EVN Energ-Versorg 900 124
Flughafen Wien AG 1,534 103
Interunfall Vericherungs AG 500 78
Lenzing AG 600 51
Leykam-Murzta Papi (a) 1,400 44
International Fund 55
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Oester Brau Beteil 1,562 $ 71
Oester Elektrizita Class A 9,220 554
OMV AG 2,296 199
Radex-Heraklith 2,375 72
Universale-Bau (a) 750 39
VA Technologie AG (BR) 2,300 292
Wienerberger Baustoff 600 119
Z Landerbank Bank Austria AG 8,460 336
--------
3,267
--------
BELGIUM - 0.6%
Arbed SA NPV (a) 2,546 288
Banque Bruxelles Lambert New 57 9
Banque Bruxelles Lambert NPV 549 95
Barco NV NPV 560 65
Electrabel NPV 4,452 1,059
Generale de Banque NPV 2,380 825
Gevaert Photo-Producten NPV 1,000 62
Groupe Bruxelles Lambert NPV 500 68
Kredietbank NPV 2,961 810
Petrofina SA NPV 1,350 413
Societe Generale de Belgique NPV 876 73
Solvay SA NPV 759 412
Tractebel Investments International NPV 150 62
UCB Capital NV 431 574
--------
4,815
--------
BRAZIL - 0.2%
Cesp Cia Energetic - ADS (a) 4,600 38
Compania Energetica de Minas Gerais (a) 323,649 7
Eletrobras (centrais) NPV 1,003,580 272
Sider Nacional Cia NPV 5,060,000 104
Telecomunicacoes Brasileiras - ADR 20,460 985
Telecomunicacoes Brasileiras NPV 4,826,000 187
Usinas Siderurgicas de Minas - ADR 4,116 33
--------
1,626
--------
CANADA - 0.6%
Abitibi-Price, Inc. 4,300 62
Air Canada, Inc. (a) 12,700 43
Alcan Aluminum, Ltd. 12,800 397
Bank of Montreal 9,800 222
Bank of Nova Scotia Halifax 10,036 219
Barrick Gold Corp. 28,100 741
Brascan, Ltd. Class A 3,700 65
Canadian Imperial Bank of Commerce 10,100 300
Canfor Corp. 4,100 45
Cominco, Ltd. 12,500 256
Domtar, Inc. NPV (a) 14,500 113
Fletcher Challenge Canada, Ltd.
Class A 4,100 65
Imasco, Ltd. IF 6,200 120
Imperial Oil, Ltd. New 14,000 506
Inco, Ltd. 15,700 519
MacMillan Bloedel, Ltd. 9,400 116
National Bank of Canada 9,100 74
Noranda, Inc. 3,200 66
Petro-Canada 12,500 144
Placer Dome, Inc. 31,300 755
Ranger Oil, Ltd. 11,400 71
Royal Bank of Canada 5,040 115
Suncor, Inc. NPV 2,300 72
TransCanada Pipelines, Ltd. 4,100 57
United Dominion Industries, Ltd. 2,400 52
Varity Corp. (a) 20 1
--------
5,196
--------
CHILE - 0.1%
Administradora de Fondos de
Pensiones Provida SA - ADR 1,300 36
Chile Fund, Inc. 10,298 268
Chilectra SA - ADR 3,194 154
Chilgener SA - ADR 4,370 109
Compania de Telefonos (Chile) SA - ADR 1,836 152
Enersis SA - ADR 3,114 89
--------
808
--------
CHINA - 0.1%
Huaneng Power International, Inc.
- ADR Seires N (a) 32,400 466
Yizheng Chemical Fibre Series H 775,000 174
--------
640
--------
DENMARK - 0.6%
Bang & Olufsen Holding Series B 14,000 431
Carlsberg AS Series B 6,000 335
Coloplast AS Class B (Regd) 4,900 433
Den Danske Bank 7,380 509
ISS International Series B 8,800 198
Novo Nordisk AS Class B 14,439 1,977
Sophus Berendsen Class B 2,400 270
Tele Danmark AS Series B 7,200 393
Unidanmark Class A (Regd) 3,300 163
--------
4,709
--------
56 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
FINLAND - 0.5%
America Group Class A 22,800 $ 356
Cultor Oy Series I 2,000 83
Cultor OY Series II 6,350 263
Enso Gutzeit OY Series A 12,000 80
Kymmene Corp. 16,900 447
Merita, Ltd. Series A (a) 206,000 521
Metsa Serla OY Class B 9,000 277
Nokia AB Series A 14,008 551
Nokia AB Series K 9,000 356
Outokumpu OY Class A 36,500 579
Partek AB OY 6,000 69
Rautaruukki OY 58,000 353
Repola OY 6,900 130
Stockmann OY AB Series B 1,300 68
Valmet Corp. Class A 6,000 150
--------
4,283
--------
FRANCE - 5.7%
Accor SA 3,355 435
Alcatel Alsthom 19,345 1,668
Assurances Generales de France 5,565 186
AXA 20,401 1,375
Banque Nationale Paris 44,380 2,002
Bertrand Faure SA 10,000 255
Boiron 1,500 146
Bouygues 4,948 498
Carrefour SA 3,804 2,308
Castorama Dubois 4,582 750
Cetelem 1,300 244
Chargeurs SA 2,414 484
Christian Dior 6,000 647
Cie de St. Gobain 10,854 1,184
Cie de Suez 22,952 947
Cie Finance Paribas Class A (BR) 10,344 567
Clarins 3,657 348
Compagnie Bancaire SA 1,214 136
Credit Commercial de France 10,500 536
Credit Local de France 7,325 586
Credit Lyonnais Cert d'Invest. (a) 6,525 313
Credit National 1,483 109
D.M.C. Dollfuss-Mieg 3,900 159
Eaux (cie Generale) 43,687 4,362
Ecco STE 2,731 413
Erid Beghin-Say 2,048 351
Groupe Danone 3,482 575
GTM - Entrepose 2,700 189
Guilbert SA 1,312 154
Havas 2,975 236
L'Air Liquide 2,320 384
L'Oreal (Societe) 763 204
Lafarge Corp. SA (BR) 11,473 739
Lagardere Groupe (Regd) 11,000 202
Lapeyre (BR) 5,470 273
Legrand 1,900 293
LVMH Moet-Hennessy 5,522 1,150
Michelin (Cie Gen) Class B (Regd) 11,515 459
Moulinex (a) 46,000 629
Pechiney Cert d'Invest. 9,900 374
Pechiney International Class A (a) 7,922 275
Peugeot SA 2,765 365
Pinault-Printemps Redoute SA 3,199 638
Poliet 4,110 334
Primagaz Cie 2,425 193
Primagaz Cie 1998 Warrants (a) 220 2
Promodes 1,700 400
Renault 5,500 158
Rhone Poulenc SA Class A - ADR 13,800 296
Roussel Uclaf 660 112
Sanofi 16,155 1,036
Schneider SA 600 21
SEITA 10,200 370
SGS Thomson Microelectronics (a) 7,400 283
Sidel SA 4,660 1,452
Simco (a) 13 1
Societe Generale 22,521 2,782
Societe Nationale Elf d'Aquitaine 14,094 1,038
Sodexho 1,000 294
Sommer-Allibert 700 186
Synthelabo 7,500 470
Thomson-CSF 29,835 665
Total Co. SA Class B 54,972 3,710
TV Francaise (TFI) 12,373 1,326
Union des Assurances Federales 2,300 275
Union Financiere de France Banque SA 2,100 175
Usinor Sacilor (a) 81,500 1,078
Valeo 10,351 479
Worms & Cie (Regd) 3,150 149
--------
45,433
--------
GERMANY - 4.6%
AEG AG 1,150 117
Allianz AG 1998 Warrants (a) 7,000 430
Allianz AG Holdings 344 671
Altana AG 311 181
AVA ALG Handels VB 1,220 413
Bankgesell Berlin 1,450 369
BASF AG 2,250 501
Bayer AG 10,800 2,850
International Fund 57
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Bayer Motoren Werk 727 $ 372
Bayerische Hypotheken - und
Wechsel Bank AG 17,390 438
Bayerische Vereinsbank AG 33,500 995
Beiersdorf AG 500 350
Berliner Kraft & Licht 300 90
BHF - Bank AG 17,000 468
Bilfinger & Berger 1,705 645
Buderus AG 1,227 477
Commerzbank AG 2,472 584
Continental AG 22,000 307
Daimler-Benz AG 11,001 5,537
Deutsche Bank AG 36,110 1,711
Deutsche Pfandbrief &
Hypothekenbank AG 11,400 443
Dresdner Bank AG 52,100 1,391
Fag Kugelfischer (a) 1,300 168
Gehe AG 1,390 707
Gehe AG New (a) 437 216
Hoechst AG 10,492 2,845
Hornback Baumarkt AG 1,949 84
M.A.N. AG 990 268
Mannesmann AG 11,546 3,676
Muenchener Rueckversicherungs
- Gesellschaft 540 1,174
Muenchener Rueckversicherungs
- Gesellschaft New (a) 49 105
Praktiker Bau und
Heimwerkemaerkte AG (a) 2,245 69
Preussag AG 450 126
Rhoen - Klinikum AG 4,829 478
RWE AG 1,500 544
SAP AG 4,000 620
Schering AG 5,740 380
Siemens AG 4,297 2,351
Thyssen AG (a) 1,900 345
VEBA AG 39,290 1,668
VEBA International Finance
1998 Warrants (a) 2,700 425
Volkswagen AG 4,115 1,376
Wella AG 1996 Warrants (a) 300 15
--------
36,980
--------
HONG KONG - 3.9%
Allied Properties, Ltd. 148,000 17
Amoy Properties, Ltd. (a) 108,000 107
Cathay Pacific Airways 270,000 412
Cheung Kong Holdings, Ltd. 335,000 2,040
Citic Pacific, Ltd. 226,000 773
Cross Harbour Tunnel Co. 27,000 51
Dairy Farm International Holdings, Ltd. 228,621 210
Dao Heng Bank Group, Ltd. 103,000 370
Dickson Concept International 65,000 61
First Pacific Co. 614,584 684
Great Eagle Holdings 21,510 56
Guangdong Investment 530,000 319
Guangzhou Investment 1,704,000 326
Guoco Group, Ltd. 120,000 579
HSBC Holdings (UK Regd) PLC 59,750 904
Hang Lung Development Co. (a) 76,000 121
Hang Seng Bank 206,000 1,845
Harbour Centre Development 10,000 12
Henderson Investment, Ltd. 88,000 72
Hong Kong & China Gas Co., Ltd. 692 1
Hong Kong & Shanghai Hotel 38,000 55
Hong Kong Aircraft Engineering 16,400 42
Hong Kong Electric 302,500 992
Hong Kong Ferry 44,500 43
Hong Kong Land Holdings, Ltd. 697,203 1,290
Hong Kong Telecommunications 756,000 1,349
Hongkong China, Ltd. 50,000 15
Hopewell Holdings, Ltd. 274,346 158
Hutchison Whampoa, Ltd. 932,000 5,677
Hysan Development 38,000 100
Jardine International Motor 48,000 55
Johnson Electric Holdings, Ltd. 202,000 361
Kowloon Motor Bus 31,200 51
Kumagai Gumi Hong Kong 68,000 49
Lai Sun Development Co., Ltd. 136,000 16
Lai Sun Garment International 34,200 33
Lane, Crawford International Class A 46,000 63
Liu Chong Hing Investment, Ltd. 12,000 12
Maanshan Iron & Steel 776,000 108
Mandarin Oriental International, Ltd. 322,154 390
National Mutual Asia 192,000 174
New Asia Realty & Trust Class A 12,000 23
New World Development Co., Ltd. 638,000 2,781
New World Infrastructure, Ltd. (a) 436 1
Playmates International Holdings 31,661 4
Regal Hotels International 642,519 151
San Miguel Brewery 47,600 20
Shanghai Petrochemical Class H 972,100 280
Shaw Bros. (H.K.), Ltd. 11,000 12
Shun Tak Holdings, Ltd. 66,000 47
Sing Tao 370,000 144
Sino Land Co. 595,718 462
South China Morning Post 138,000 84
Stelux Holdings International 242,639 62
58 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Sun Hung Kai & Co. 34,000 $ 7
Sun Hung Kai Properties, Ltd. 352,900 2,887
Swire Pacific, Ltd. Class A 197,500 1,532
Swire Pacific, Ltd. Class B 37,500 47
Tai Cheung Holdings 53,000 41
Television Broadcast 219,000 780
Top Glory International Holdings, Ltd. 156,000 16
Wharf Holdings 435,224 1,449
Wheelock & Co. 82,000 141
Winsor Industrial Corp., Ltd. 43,500 37
--------
31,001
--------
INDIA - 0.0%
Perusahaan Persero Telekom - ADR (a) 14,000 354
--------
354
--------
IRELAND - 0.1%
Allied Irish Banks 59,000 323
Irish Life PLC 25,000 95
Smurfit (Jefferson) 66,000 157
--------
575
--------
ITALY - 2.6%
Alitalia-Linee Aeree (a) 116,000 48
Alleanza Assicurazioni di Risp 160 1
Assicurazioni Generali SPA 67,558 1,636
Banca Commerciale Italiana 111,124 237
Banca Pop di Bergamo CV 24,000 332
Banco Ambrosiano Veneto di Risp NC 13,000 17
Banco Commerciale Italiana di Risp 43,000 89
Banco di Napoli di Risp (a) 253,000 81
Banco di Roma (a) 221,750 226
Banco Fideuram SPA 94,725 109
Benetton Group SPA 22,000 262
Burgo (Cartiere) SPA 31,500 157
CIR Compagnie Industriali Riunite (a) 203,000 135
Cogefar Inpresit (a) 17,000 14
Credito Italiano 35,000 41
Credito Italiano di Risp NC 87,500 88
Danieli & Co. 3,000 19
Danieli & Co. di Risp NC 20,080 54
Danieli & Co. 1999 Warrants (a) 5,020 3
Edison 157,000 676
Editoriale La Repubblica SPA (a) 125,000 112
Ente Nazionale Idrocarburi SPA (Regd)(a) 44,000 154
Ericsson 1,150 14
Fiat SPA 687,000 2,232
Fiat SPA di Risp NC 77,000 136
Fidis 30,000 58
Finmeccanica SPA (a) 182,000 94
First Banco S. Paolo 45,500 269
I.M.I. 93,068 586
Industria Macchine Automatiche SPA (a) 40,000 270
Industrie Natuzzi SPA - ADR 11,100 504
Istituto National Assicurazioni 328,000 435
Italcementi 29,750 178
Italcementi di Risp NC 10,500 26
Italgas (Soc. Ital.) 60,591 184
La Rinascente 43,500 263
La Rinascente di Risp NC 13,000 37
Magneti Marelli SPA 12,500 15
Marzotto & Figli 5,000 30
Mondadori (Arnoldo) Editore 48,179 417
Montedison SPA (Ferruzzi Agricola)(a) 605,000 405
Olivetti & Cie SPA (a) 5,041,000 4,041
Parmalat Finanziaria SPA 73,000 63
Pirelli & Co. 40,250 51
R.A.S. 3,740 42
Saipem AG 10,000 23
Sasib SPA 31,343 138
Sasib SPA di Risp NC 85,507 209
Sirti SPA 36,500 205
SME (Meridonale di)(a) 30,059 61
SNIA BPD (a) 170,000 142
SOFAP 125,000 140
SOPAF di Risp 195,500 155
Sorin Biomedica Group SPA 8,000 19
Stet 237,910 673
Stet di Risp NC 229,290 468
Telecom Italia SPA 657,150 1,022
Telecom Italia di Risp 380,895 466
Telecom Italia Mobile SPA (a) 1,187,604 2,090
Telecom Italia Mobile SPA - di Risp (a) 15,500 16
Unicem di Risp (a) 12,463 67
--------
20,735
--------
JAPAN - 31.9%
Achilles Corp. 140,000 541
Advantest 3,000 153
Aisin Seiki Co., Ltd. 14,000 184
Aiwa Co. 20,000 468
Ajinomoto Co., Inc. 3,000 33
Alps Electric Co. 56,000 645
Amada Co., Ltd. 78,000 770
Aoki Corp. 85,000 356
Apic Yamada Corp. 12,000 476
International Fund 59
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Arabian Oil Co. 2,400 $ 99
Asahi Bank 80,000 1,007
Asahi Breweries 8,000 94
Bank of Yokohama 14,000 114
Banyu Pharmaceutical 4,000 49
Brother Industries 104,000 565
Canon Sales Co., Inc. 3,050 81
Canon, Inc. 57,000 1,032
Chiba Bank, Ltd. 13,000 117
Chubu Electric Power Co., Inc. 2,400 56
Chugai Pharmaceutical Co. 88,000 843
Chuo Trust & Banking 70,000 678
Citizen Watch Co., Ltd. 39,000 298
Cosmo Oil Co. 176,000 961
CSK Corp., Ltd. 13,400 419
Dai Ichi Kangyo Bank 30,000 590
Dai Ichi Pharmaceutical Co. 74,000 1,054
Dai Nippon Printing, Ltd. 66,000 1,119
Dai Nippon Screen Manufacturing Co. (a) 91,000 799
Daicel Chemical Industries 45,000 256
Daido Steel Co. 100,000 504
Daiei, Inc. 282,000 3,414
Daifuku Machinery Co. 16,000 226
Daikin Industries 113,000 1,105
Daikyo, Inc. 6,000 45
Daishinku Corp. 71,000 798
Daiwa Bank 240,000 1,941
Daiwa Danchi Co., Ltd. (a) 45,000 241
Daiwa House Industries Co. 55,000 906
Daiwa Kosho Lease Co. Ltd. 65,000 648
Daiwa Securities 273,000 4,178
DDI Corp. 538 4,169
Denny's Japan 1,000 33
Diamond Lease Co. 20,000 271
Dowa Mining Co. 70,000 338
East Japan Railway 540 2,625
Ebara Corp. 50,000 731
Eisai Co. 4,000 70
Familymart, Co. 6,000 271
Fanuc Co. 12,000 520
Fuji Denki Reiki 57,000 762
Fuji Electric Co. 160,000 814
Fuji Fire & Marine Insurance 40,000 211
Fuji Oil Co. 84,000 594
Fuji Photo Film Co. 47,000 1,357
Fujisawa Pharmaceutical 45,000 431
Fujita Corp. 24,000 108
Fujita Kanko, Inc. 3,000 66
Fujitsu Denso 20,000 643
Fujitsu, Ltd. 152,000 1,693
Fukui Bank 160,000 852
Fukuyama Transporting Co. 9,000 85
Futaba Corp. 21,000 962
Gakken Co. (a) 225,000 1,482
General Sekiyu KK 19,000 174
Gunze Limited 15,000 91
Gunze Sangyo, Inc. 80,000 365
Hankyu Corp. 30,000 164
Hanwa Co. (a) 25,000 103
Haseko Corp. 47,000 190
Heiwa Corp. 30,000 782
Heiwa Real Estate 50,000 387
Hitachi Zosen Corp. 86,000 446
Hitachi, Ltd. 386,000 3,888
Hokkai Can Co. 60,000 411
Hokkaido Takushoku Bank, Ltd. 300,000 889
Hokko Chemical Industries 50,000 271
Hokuetsu Bank 90,000 473
Honda Motor Co., Ltd. 89,000 1,836
Hoya Corp. 2,000 69
Hyakugo Bank 80,000 457
Inax Corp. 31,000 294
Industrial Bank of Japan 50,000 1,516
Intec, Inc. 38,000 648
Ishihara Sangyo (a) 39,000 127
Ishikawajima-Harima Heavy Industries 220,000 927
Ishizuka Glass Co. 70,000 354
Ito-Yokado Co., Ltd. 39,000 2,402
Itochu Corp. 27,000 182
Itoham Foods 105,000 793
Izumiya Co. 6,000 96
Japan Airport Terminal 6,000 73
Japan Aviation Electronics (a) 8,000 57
Japan Energy Corp. 61,000 204
Japan Steel Works (a) 15,000 43
Japan Synthetic Rubber 20,000 122
Japan Tobacco, Inc. 101 875
Joshin Denki Co. 6,000 78
Juroku Bank 80,000 415
Kajima Corp. 10,000 99
Kaken Pharmaceutical 35,000 315
Kamigumi Co. 6,000 58
Kaneka Corp. 14,000 88
Kanematsu Corp. 448,000 1,749
Kankaku Securities (a) 32,000 136
Kao Corp. 104,000 1,289
Kawasaki Heavy Industries 450,000 2,070
Kawasaki Kisen (a) 130,000 413
60 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Kawasho Corp. (a) 163,000 $ 682
Keihin Electric Express 16,000 96
Keio Teito Electric Railway 22,000 128
Keisei Electric Railway 10,000 84
Kinden Corp. 3,000 51
Kinki Nippon Railway 59,000 446
Kirin Brewery Co. 20,000 236
Kissei Pharmaceutical Co. 1,000 30
Kitz Corporation 100,000 408
Kiyo Bank 100,000 505
Koa Fire & Marine 60,000 367
Koa Oil Company 50,000 434
Kokuyo Co., Ltd. 22,000 511
Komatsu Forklift Co., Ltd. 87,000 716
Komori Corp. 104,000 2,619
Koyo Seiko Co., Ltd. 5,000 46
Kumagai Gumi Co. 178,000 715
Kumiai Chemical Industry Co. 65,000 373
Kurabo Industries 275,000 1,052
Kuraray Co., Ltd. 62,000 679
Kureha Chemical Industrial Co. 40,000 188
Kyocera Corp. 40,000 2,971
Kyokuto Boeki 58,000 511
Kyowa Hakko Kogyo 44,000 415
Maeda Corp. 10,000 98
Maeda Corp. 1997 Warrants (a) 90 133
Makita Corp. 38,000 607
Marubeni Corp. 163,000 882
Maruetsu, Inc. 33,000 268
Marui Co., Ltd. 54,000 1,124
Matsushita Electric Industrial Co., Ltd. 239,000 3,889
Matsushita Electric Works 10,000 106
Matsuzakaya Co. 64,000 812
Minebea Co., Ltd. 4,000 34
Mitsubishi Cable Industries 50,000 266
Mitsubishi Chemical 80,000 389
Mitsubishi Corp. 27,000 332
Mitsubishi Electric Corp. 147,000 1,058
Mitsubishi Estate Company, Ltd. 59,000 737
Mitsubishi Gas & Chemical 80,000 360
Mitsubishi Heavy Industries 149,000 1,188
Mitsubishi Kakoki 30,000 282
Mitsubishi Material 94,000 487
Mitsubishi Motors Corp. 110,000 896
Mitsubishi Oil Co. 22,000 195
Mitsubishi Paper Mills 47,000 283
Mitsubishi Trust & Banking 141,000 2,349
Mitsubishi Warehouse 4,000 62
Mitsui & Co. 250,000 2,194
Mitsui Fudosan Co., Ltd. 149,000 1,833
Mitsui Mining & Smelting (a) 65,000 261
Mitsui Petrochemical Industry 54,000 442
Mitsui Soko Co. 44,000 353
Mitsui Toatsu Chemical 250,000 1,005
Mitsui Trust and Banking 21,000 230
Mizuno Corp. 55,000 477
Mochida Pharmaceutical Co. 2,000 28
Mori Seiki Co. 5,000 113
Murata Manufacturing Co. 32,000 1,178
Nagasakiya Co. (a) 140,000 601
Nagoya Railroad Co., Ltd. 95,000 478
Namco 32,000 1,066
Nankai Electric Railway 17,000 115
National House Industrial 13,000 238
NEC Corp. 623,000 7,603
New Oji Paper Co. 35,000 317
Nichido Fire & Marine 208,000 1,672
Nichiei Co., Ltd. of Kyoto 89,000 351
Nichimo Co. (a) 88,000 385
Nikko Securities Co., Ltd. 36,000 464
Nikon Corp. 97,000 1,315
Nippon Denso Co. 57,000 1,065
Nippon Express Co. 71,000 684
Nippon Hodo Co. 17,000 288
Nippon Oil Co. 217,000 1,362
Nippon Paper Industries 77,000 535
Nippon Road Co. 85,000 716
Nippon Sheet Glass 105,000 457
Nippon Steel Corp. 1,342,000 4,601
Nippon Suisan (a) 296,000 1,224
Nippon Telegraph & Telephone Corp. 549 4,440
Nippon Zeon Co., Ltd. (a) 65,000 349
Nissan Motor Co., Ltd. 665,000 5,107
Nissan Shatai Co. 65,000 365
Nisshin Steel Co. 190,000 767
Nisshinbo Industries, Inc. 24,000 232
Nissho Electronics Corp. 1,000 24
Nitto Denko Corp. 17,000 263
NKK Corp. (a) 128,000 345
Nomura Securities 280,000 6,102
North Pacific Bank 100,000 512
NSK, Ltd. 110,000 799
NTT Data Communications Systems Corp. 86 2,890
Obayashi Corp. 228,000 1,811
Odakyu Electric Railway 25,000 171
Okamoto Industries, Inc. 8,000 52
Okamura Corp. 50,000 383
Ono Pharmaceutical 9,000 346
International Fund 61
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Osaka Gas Co. 204,000 $ 705
Pioneer Electronics Corp. 115,000 2,105
Renown, Inc. (a) 63,000 219
Ricoh Co., Ltd. 60,000 657
Royal Co., Ltd. 8,000 130
Ryobi, Ltd. 17,000 87
Sagami Co. 36,000 262
Sagami Railway Co. 14,000 61
Sakura Bank 215,000 2,728
Sanden Corp. 14,000 90
Sangetsu Co. 14,000 353
Sankyo Aluminum 50,000 268
Sankyo Co. 41,000 921
Sankyo Seiko Co. 83,000 756
Sankyu, Inc. 200,000 827
Sanrio Co. 1,000 12
Sanshin Electronics 46,000 775
Sanwa Bank 95,000 1,932
Sanyo Electric Co., Ltd. 138,000 795
Sapporo Breweries 6,000 56
Secom Co. 2,000 139
Sega Enterprises 5,300 293
Seibu Railway Co. 18,000 837
Seino Transportation 5,000 84
Sekisui Chemical Co., Ltd. 95,000 1,399
Sekisui House, Ltd. 98,000 1,253
Settsu Corp. (a) 41,000 129
Seven-Eleven Japan NPV 3,000 212
Sharp Corp. 375,000 5,993
Shikoku Electric Power 41,200 950
Shin-Etsu Chemical Co. 21,000 435
Shionogi & Co. 5,000 42
Shiseido Co., Ltd. 23,000 274
Showa Aircraft Industry 4,000 43
Showa Aluminium Co. 100,000 484
Showa Denko (a) 147,000 461
Showa Shell Sekiyu 48,000 402
Sintokogio 50,000 436
Skylark Co. 2,000 37
Snow Brand Milk 125,000 799
Sony Corp. 141,300 8,471
Sony Music Entertainment, Inc. 18,000 941
Sumitomo Bakelite Co., Ltd. 11,000 87
Sumitomo Bank 213,000 4,518
Sumitomo Corp. 206,000 2,095
Sumitomo Electric Industries 95,000 1,141
Sumitomo Forestry 101,000 1,546
Sumitomo Metal Industries, Ltd. (a) 721,000 2,186
Sumitomo Realty & Development 596,000 4,214
Sumitomo Rubber Industries 90,000 751
Sumitomo Sitix Corp. 70,000 1,275
Sumitomo Trust & Banking 142,000 2,008
Taisei Corp. 16,000 107
Taisho Pharmaceutical Co., Ltd. 5,000 99
Takashimaya Co. 40,000 639
Takeda Chemical Industries 14,000 231
Tanabe Seiyaku Co. 62,000 446
TDK Corp. 19,000 970
Teijin, Ltd. 191,000 977
Teikoku Oil 13,000 88
TOA Corp. 50,000 368
Tobu Railway Co. 84,000 526
Toenec Corp. 30,000 267
Toho Co. 1,700 272
Toho Gas Co. 100,000 323
Tohoku Electric Power 40,400 974
Tokio Marine & Fire 221,000 2,890
Tokyo Broadcasting 82,000 1,350
Tokyo Dome Corp. 4,000 69
Tokyo Electric Co., Ltd. (a) 200,000 984
Tokyo Electronics 11,000 426
Tokyo Kisen Co. 37,000 293
Tokyo Ohka Kogyo 56,200 1,633
Tokyo Steel Manufacturing 25,000 460
Tokyo Tatemono Co., Ltd. 8,000 38
Tokyotokeiba Co. 7,000 29
Tokyu Construction 26,000 125
Tokyu Corp. 45,000 318
Tokyu Land Corp. 17,000 74
Tomen Corp. 155,000 572
Tonen Corp. 34,000 497
Toppan Printing 39,000 514
Toshiba Tungaloy Co. (a) 1,000 6
Tostem Corp. 2,000 66
Toto, Ltd. 3,000 42
Toyo Construction 210,000 1,224
Toyo Trust & Banking 51,000 450
Toyota Motor Corp. 206,000 4,369
Tsubakimoto Chain 50,000 301
UBE Industries (a) 80,000 302
Uni-Charm Corp. 10,000 252
Victor Co. of Japan (a) 33,000 419
Wacoal Corp. 84,000 1,139
Yamaha Motor Co. 213,000 2,854
Yamaichi Securities Co. 111,000 863
Yamanouchi Pharmaceutical 5,000 108
Yamato Transport 14,000 167
Yamazaki Baking Co., Ltd. 44,000 818
62 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Yaskawa Electric Corp. (a) 90,000 $ 425
Yasuda Fire & Marine
Insurance Co., Ltd. (The) 154,000 1,089
Yasuda Trust & Banking 121,000 716
Yokogawa Electric Co. 16,000 151
Yokohama Rubber Co. 70,000 424
Yurtec Corp. 22,000 386
Zexel Corporation 60,000 408
--------
254,291
--------
MALAYSIA - 1.9%
Affin Holdings Berhad 410,000 791
Affin Holdings Berhad 1999 Warrants (a) 98,600 65
Berjaya Sports 138,000 321
Carlsberg Brewery Malaysia Berhad 79,000 370
Commerce Asset Holdings 112,000 565
Commerce Asset Holdings Rights (a) 54,000 139
Faber Group Berhad (a) 132,000 113
Genting Berhad 63,000 526
Golden Hope Plantation 39,000 65
Highlands & Lowlands 43,000 69
Hume Industries Berhad 3,000 14
Idris Hydraulic (a) 55,000 65
Kuala Lumpur Kepong 25,000 79
Magnum CP Berhad 500 1
Malayan Banking Berhad 27,250 223
Malayan Banking Berhad 250 2
Malaysia Mining Corp. 22,000 32
Malaysian Helicopter Services 800 1
MBF Capital Berhad 234,000 237
Multi Purpose Holding 348,000 510
New Straits Times 210,000 703
Perlis Plantations 26,000 81
Petronas Gas Berhad (a) 82,000 279
Renong Berhad 917,000 1,358
Resorts World Berhad 379,000 2,030
Selangor Properties 31,000 30
Sime Darby Berhad (Resident Shares) 687,600 1,827
Sime UEP Properties Berhad 100,000 145
Tan Chong Motor Holdings 432,000 427
Technical Resource Industries Berhad (a) 354,000 1,045
Telekom Malaysia 175,000 1,364
United Engineers Berhad 251,000 1,601
--------
15,078
--------
MEXICO - 0.4%
Cemex SA de CV Class B NPV 39,709 144
Cemex SA de CV NPV 104,790 345
Cifra SA de CV - ADR (a) 431,503 454
Compania Cervecerias Unidas SA - ADR 3,214 74
Empresa Nacional de Electric - ADR 9,929 226
Fomento Economico Mexicano
SA de CV Series B NPV 60,457 136
Gruma SA Series B NPV (a) 29,933 84
Grupo Embotellador de Mexico (a) 144,120 245
Grupo Financiero Banamex AC
Series B NPV 82,052 137
Grupo Financiero Banamex AC
Series L NPV 1,158 2
Grupo Industrial Maseca Series B NPV 172,343 105
Grupo Modelo SA Series C 13,312 63
Grupo Sidek Series B NPV (a) 55,450 24
Grupo Television SA de CV - GDR 11,767 265
Kimberly-Clark, Mexico Class A NPV 11,138 168
Pan American Beverage Class A 6,177 198
Telefonos de Mexico SA Series L - ADR 17,989 573
--------
3,243
--------
NETHERLANDS - 3.5%
ABN AMRO Holdings NV 25,434 1,158
Aegon NV 5,500 243
Ahold-NV 19,672 803
AKZO Nobel NV 1,729 200
Boskalis Westminster CVA 16,073 229
CSM NV CVA 18,609 812
DSM NV (BR) 5,300 436
Elsevier NV 244,392 3,259
Fortis Amev NV 6,185 414
Hagemeyer NV 4,184 218
International Nederlanden CVA 29,775 1,989
KNP BT (Kon) NV 14,900 383
Kon Ptt Nederland 24,597 894
Nedlloyd Groep NV 11,000 250
Nutricia Verenigde Bedrijven CVA 3,510 284
Philips Electronics 18,800 680
Polygram 25,741 1,367
Randstad Holdings NV 10,000 454
Royal Dutch Petroleum Co. (BR) 42,694 5,965
Unilever NV CVA 13,660 1,920
Ver Ned Uitgevers 9,130 1,253
Wolters Kluwer CVA 47,362 4,480
--------
27,691
--------
NEW ZEALAND - 0.4%
Air New Zealand Class B 191,278 650
Brierley Investments, Ltd. 17,642 14
International Fund 63
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Carter Holt Harvey 246,441 $ 531
Fernz Corp. 3,700 10
Fisher & Paykel 8,216 25
Fletcher Challenge, Ltd. 239,595 553
Fletcher Challenge, Ltd. (Forests Division) 140,894 201
Lion Nathan, Ltd. 241,000 575
Tasman Properties, Ltd. (a) 982,783 424
Telecom Corp. of New Zealand 68,000 293
Wrightson Limited 300,000 228
--------
3,504
--------
NORWAY - 1.1%
Aker AS Series A 2,800 37
Aker AS Series B 21,900 266
Bergesen DY AS Series A 22,320 444
Bergesen DY AS Series B 2,900 56
Den Norske Creditbank AS 38,000 99
Det Norske Luftsfartsverk AS Series B 2,600 115
Dyno Industrier AS 13,200 308
Elkem AS Series A 7,800 88
Hafslund Nycomed AS Series A 4,745 124
Hafslund Nycomed AS Series B 19,063 483
Kvaerner Industries AS 9,590 339
Kvaerner Industries AS Series B 500 17
Leif Hoegh & Co. AS 6,700 99
NCL Holdings AS (a) 8,857 7
Norsk Hydro AS 78,046 3,278
Norske Skogindustrier AS Class A 1,200 35
Olav Thon Eiendomsselskap AS 23,500 390
Orkla AS New 20,889 1,039
Saga Petroleum AS Series A 2,000 27
Saga Petroleum AS Series B 8,070 101
Schibsted AS 69,600 945
Simrad AS Class B 10,100 112
Veidekke AS 6,100 123
--------
8,532
--------
PHILIPPINES - 0.0%
Enron Global Power & Pipelines L.L.C. 2,144 53
--------
53
--------
PORTUGAL - 0.0%
Jeronimo Martins 5,830 323
--------
323
--------
SINGAPORE - 2.4%
Amcol Holdings 53,000 146
Chuan HUP Holdings, Ltd. 134,000 121
City Developments 289,000 2,104
DBS Land 167,000 564
Development Bank (Alien Market) 102,000 1,269
Far East Levingston 51,000 240
First Capital Corp. 105,000 291
Fraser & Neave 102,000 1,298
Hai Sun Hup Group 220,000 148
Haw Par Brothers International, Ltd. 62,100 133
Hotel Properties 63,000 98
Inchcape Berhad 31,000 99
Jardine Matheson Holdings, Ltd. 125,342 859
Jardine Strategic Holdings, Ltd. 619,656 1,896
Jardine Strategic Holdings, Ltd.
1998 Warrants (a) 58,794 19
Jurong Shipyard 36,000 277
Keppel Corp. 176,000 1,568
Lum Chang Holdings 40,000 33
Marco Polo Developments, Ltd. 30,000 46
Natsteel, Ltd. 100,000 205
Neptune Orient Lines, Ltd. 214,000 241
Overseas Chinese Banking (Alien Market) 60,332 755
Overseas Union Bank (Alien Market) 71,500 493
Overseas Union Enterprises 37,000 187
Parkway Holdings 24,000 65
Prima, Ltd. 11,000 42
Robinson & Co., Ltd. 30,000 125
Sembawang Shipyard 102,000 566
Shangri-La Hotel 3,000 12
Singapore Airlines, Ltd. (Alien Market) 51,000 476
Singapore Land 130,000 841
Singapore Press Holdings (Alien Market) 41,600 735
Straits Trading Co. 130,000 305
Times Publishing 29,000 67
Total Access Communication, Ltd. (a) 11,000 72
United Engineers 18,000 36
United Industrial Corp., Ltd. 491,000 482
United Overseas Bank, Ltd. (Alien Market) 134,379 1,292
United Overseas Bank, Ltd. 1997 Warrants (a) 17,618 71
United Overseas Land 248,000 472
WBL Corp., Ltd. 22,000 51
--------
18,800
--------
SOUTH KOREA - 0.3%
Bank of Seoul 14,000 121
Cho Hung Bank 18,000 209
Hanil Bank 12,000 128
Kookmin Bank 8,300 153
Kookmin Bank New (a) 2,281 41
Korea Electric Power Corp. 11,500 457
64 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Pohang Iron & Steel 5,700 $ 373
Samsung Electronics Co. (a) 90 12
Samsung Electronics Co. - GDR (a) 399 33
Samsung Electronics Co. - GDS (a) 7,736 451
Samsung Electronics Co. New (a) 3 1
Samsung Electronics, Ltd. 1,904 346
Yukong, Ltd. 3,971 137
Yukong, Ltd. New (a) 284 10
--------
2,472
--------
SPAIN - 2.6%
Argentaria 17,950 739
Asturiana Del Zinc (a) 10,351 82
Aumar (Aut Del Mar) 8,149 106
Banco Bilbao Vizcaya 32,216 1,160
Banco Central Hispano
Americano SA (Regd) 26,900 545
Banco de Santander SA (Regd) 72,293 3,630
Banco Intercontinental (Regd) 10,000 973
Banco Pastor SA 4,000 211
Banco Popular Espanol (Regd) 6,323 1,166
Banco Zaragozano (Regd) 4,200 69
Bodegas Y Bebidas Series III (BR) 2,500 64
Centros Commerciales Pryca 47,407 995
Conserva Campofrio SA 950 32
Cristale Espanola (BR)(a) 7,024 394
Ebro Agricolas 44,900 470
Empresa Nacional de Celulosas 9,500 154
Empresa Nacional de Electricidad 24,006 1,360
Fab Autom Renault 1,500 25
Fom Construction Y Contra 5,030 386
Fuerzas Electricat Series A 69,323 494
Gas Natural SDG SA 2,738 427
Grupo Anaya SA 1,900 42
Iberdrola SA 184,960 1,693
Koipe SA 1,145 67
Obrascon SA 7,000 85
Prosegur Compania (Regd) 11,000 273
Repsol SA 31,810 1,042
Sarrio SA 19,700 76
Sevillana de Electrica 46,173 359
Sociedad General Azucarera
de Espana SA de CV 10,650 374
Tabacalera SA Series A (Regd) 23,593 895
Tableros de Fibras Series B 14,314 158
Telefonica de Espana 122,987 1,703
Union Electrica Fenosa 28,100 169
Uralita 14,700 133
Vallehermoso SA 4,200 78
Viscofan Envoltura 25,500 303
--------
20,932
--------
SWEDEN - 3.0%
Asea AB Series A 3,730 363
Astra AB Series A 184,085 7,347
Astra AB Series B 59,030 2,338
Atlas Copco AB Series B 21,550 325
Avesta-Sheffield 33,500 295
BT Industries AB (a) 35,000 385
Electrolux AB Series B 15,000 616
Esselte AB Series B 6,430 96
Foreninsbanken Kredit AB Series A (a) 183,000 518
Hennes & Mauritz AB Series B 10,770 600
Hoganas AB B Shares 18,300 535
Hufvudstaden Fast Series A 9,200 67
Incentive AB Series B Free 9,000 393
Investor AB Series A Free 1,400 46
Investor AB Series B Free 14,000 462
Kinnevik Investment Series B 23,400 731
Mo Och Domsjo AB Series B 700 30
Munksjo AB 50,800 333
OM Gruppen AB (a) 41,200 621
Sandvik AB Series B 21,570 378
Scribona AB Series B Free 4,140 44
Skand Enskilda Barken Series A 423,870 3,511
Skanska AB Series B Free 4,800 165
SKF AB Series A Free 16,000 302
Stadshypotek AB Series A 15,000 300
Stora Kopparbergs Series B 18,000 216
Svenska Celluosa Series B Free 20,000 310
Svenska Handelsbank Series A 7,600 158
Telefonaktiebolaget Ericsson (LM)
Series B 58,520 1,146
Trelleborg AB Series B Free 44,500 479
Volvo AB Series A 1,700 35
Volvo AB Series B 25,450 521
--------
23,666
--------
SWITZERLAND - 3.8%
Adia SA (a) 300 49
Baer Holdings AG (BR) 230 257
Baloise Holdings (Regd) 160 333
BBC Brown Boveri (BR) 1,486 1,726
Bil GT Gruppe AG 420 248
Bobst AG 30 47
International Fund 65
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Ciba Geigy AG (BR) 175 $ 153
Ciba Geigy AG (Regd) 2,722 2,395
CS Holdings (Regd) 20,788 2,131
Elektrowatt AG (BR) 250 91
Fischer (Georg) AG (BR) 300 390
Helvetia Schweizerische Vericherungs
- Gesellschaft (Regd) 250 130
Hilti AG 225 179
Holderbank Financiere Glarus AG (BR) 515 395
Intershop Holding AG (BR) 100 57
Landis & Gyr AG (Regd) 50 41
Merkur Holding AG (Regd) 260 57
Nestle SA (Regd) 2,426 2,684
Phoenix Mecano (BR) 800 401
Richemont Series A (BR) 200 300
Roche Holdings Genusscheine AG NPV 649 5,134
Sandoz AG (Regd) 2,187 2,002
Sarna Kunststoff Holdings AG (Regd) 100 108
Schindler Holding AG 25 26
Schindler Holding AG (Regd) 70 75
Schweiz Bankgesellsch (BR) 1,700 1,842
Schweiz Bankverein (BR) 5,077 2,073
Schweiz Bankverein (Regd) 2,101 429
Schweiz Ruckversicher (Regd) 390 454
SGS Holding (BR) 510 1,012
SMH AG Neuenburg (BR) 240 144
SMH AG Neuenburg (Regd) 4,000 524
Swissair (Regd)(a) 440 320
Winterthur (BR) 240 171
Winterthur (Regd) 1,175 831
Zurich Versicherungsgesellschaft (Regd) 9,900 2,961
--------
30,170
--------
THAILAND - 0.2%
Advanced Information Services
(Alien Market) 15,400 269
Bangkok Bank (Alien Market) 31,700 385
Bank of Ayudhya Public Co., Ltd.
(Alien Market) 27,800 156
Land & House (Alien Market) 5,500 90
Siam Cement Co. (Alien Market) 2,450 136
Siam Commercial Bank (Alien Market) 19,000 250
Thai Farmers Bank (Alien Market) 19,200 194
--------
1,480
--------
UNITED KINGDOM - 14.7%
Abbey National PLC 122,000 1,205
Airtours PLC 135,000 766
Allied Colloids PLC 252,000 521
Amersham International PLC 10,000 138
Amstrad PLC 43,012 131
Argos PLC 78,290 724
Argyll Group PLC 374,863 1,980
ASDA-MFI Group PLC 1,394,059 2,403
Associated British Ports PLC 122,000 548
B.A.T. Industries PLC 232,958 2,051
BAA PLC 21,760 165
Barclays Bank PLC 151,000 1,731
BASS PLC 105,485 1,177
Berisford PLC 10,200 32
BICC PLC 66,000 282
BOC Group PLC 23,000 322
Boots Co. PLC 27,351 248
British Commonwealth Shipping
PLC (a)(d) 30,000 0
British Aerospace PLC 179,020 2,213
British Gas PLC 230,500 909
British Land Co. PLC 21,098 125
British Petroleum Co. PLC 811,528 6,774
British Steel PLC 215,728 545
British Telecommunications PLC 268,707 1,473
BTR PLC 257,866 1,314
Bunzl PLC 19,776 61
Burton Group PLC 170,772 357
Cable & Wireless PLC 193,360 1,384
Cadbury Schweppes PLC 532,428 4,395
Caradon PLC 284,582 864
Carlton Communications PLC 2,460 37
Charter PLC (Regd) 5,079 68
Chubb Security PLC 115,000 569
Coats Viyella PLC 57,000 154
Compass Group PLC 50,000 380
Costain Group PLC (a) 136,502 151
Cowie Group PLC 119,375 534
Dalgety PLC 81,500 513
Dixon Group PLC 22,042 152
E D & F Man Group PLC 140,000 302
East Midlands Electricity PLC 46,880 485
Electrocomponents PLC 31,000 173
English China Clay PLC 25,233 124
First Leisure Corp. PLC 120,000 710
Forte PLC 306,306 1,572
General Electric Co. PLC 238,044 1,309
GKN PLC 12,000 145
Glaxo Wellcome PLC 560,515 7,965
Glynwed International PLC 75,200 373
Granada Group PLC 117,000 1,172
Grand Metropolitan PLC 281,833 2,029
66 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Great Portland Estates PLC 33,962 $ 92
Great University Stores PLC 42,816 455
Greenalls Group PLC 20,553 188
Guardian Royal Exchange PLC 187,000 802
Guinness PLC 194,280 1,429
HSBC Holdings PLC 51,000 796
Hammerson Property PLC 93,531 512
Hanson PLC 323,000 963
Heywood Williams Group PLC 33,666 129
Hillsdown Holdings PLC 306,739 810
Huntingdon International Holdings
PLC - ADR (a) 117,800 648
Imperial Chemical Industries PLC 121,548 1,439
Inchcape PLC 73,000 282
Invesco PLC 273,000 1,075
Kingfisher PLC 182,857 1,539
Ladbroke Group, Ltd. PLC 408,730 930
Laing (John) PLC Class A NV 82,800 354
LASMO PLC 173,240 468
London Clubs International 100,000 655
London Electricity PLC 64,720 576
London International Group PLC 32,600 65
Lonrho PLC 230,287 629
Manchester United PLC 125,000 377
Marks & Spencer PLC 122,323 855
MEPC PLC 97,221 596
MFI Furniture Group PLC 133,100 331
Midlands Electric PLC 6,306 74
National Grid Group PLC (a) 125,722 389
National Power PLC 131,995 921
National Westminster Bank PLC 270,296 2,722
Northern Foods PLC 22,084 59
Ocean Group PLC 9,810 59
Pearson PLC 60,000 581
Pen & Orient DFD PLC 95,808 708
Pilkington Brothers PLC 149,974 470
Pilkington PLC New (a) 37,493 118
Polly Peck International
Holdings PLC (a)(d) 228,423 0
Powergen PLC 40,088 331
Provident Financial PLC 52,000 661
Racal Electronics PLC 256,000 1,131
Rank Organisation PLC 98,750 715
Reckitt & Colman PLC 64,275 711
Redland PLC 15,275 92
Reed International PLC 118,940 1,813
Reuter's Holdings PLC 119,206 1,091
Rexam PLC 65,000 357
Rolls-Royce PLC 255,370 746
Royal Bank of Scotland Group PLC 107,000 974
RTZ Corp. PLC (Regd) 130,000 1,890
Sainsbury (J.) PLC 163,082 994
Scottish Hydro-Electric PLC 60,000 335
Scottish Power PLC 21,253 122
Sears PLC 536,904 867
Securicor Group PLC Class A 4,311 59
Shell Transportation & Trading
PLC (Regd) 188,200 2,489
Smith & Nephew PLC 67,889 197
Smith (David S.) Holdings PLC 96,000 423
SmithKline Beecham PLC Class A 175,898 1,940
SmithKline Beecham/BEC Units PLC 349,192 3,807
South West Water PLC 79,000 637
Spring Ram Corp. PLC 31,777 13
Stagecoach Holdings PLC 140,000 772
Standard Chartered Bank Group PLC 62,000 528
Storehouse PLC 27,200 141
Sun Alliance Group PLC 77,000 447
T & N PLC 130,000 327
Tarmac, Ltd. PLC 452,845 724
Taylor Woodrow PLC 610,794 1,115
Tesco Store Holdings PLC 95,463 440
Thorn EMI PLC 28,374 668
Tomkins PLC 371,500 1,624
Trafalgar House PLC (a) 360,000 155
Trinity Holdings PLC 100,000 551
TSB Group PLC 208,208 1,072
Unilever PLC 30,375 624
United Biscuits PLC 120,587 478
United Newspaper, Ltd. PLC 80,200 691
Vendome PLC 67,000 611
Vickers, Ltd. PLC 97,000 383
Vodafone Group PLC 1,106,500 3,970
Welsh Water PLC 37,333 449
Whitbread & Co. PLC 27,479 290
Willis Corroon Group PLC 128,000 280
Wimpey (George), Ltd. PLC 32,746 73
Wolseley PLC 1,340 9
WPP Group PLC 250,000 637
Yorkshire Electricity PLC 42,300 439
Zeneca Group PLC 17,000 329
--------
117,073
--------
TOTAL COMMON STOCKS
(cost $639,336) 715,894
--------
CONVERTIBLE PREFERRED STOCKS - 0.0%
AUSTRALIA - 0.0%
TNT, Ltd. 17,000 24
--------
24
--------
International Fund 67
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
UNITED KINGDOM - 0.0%
Trafalgar House PLC (a) 205,000 $ 175
--------
175
--------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $377) 199
--------
PREFERRED STOCKS - 1.0%
AUSTRALIA - 0.2%
News Corp., Ltd. 134,802 630
Sydney Harbour Casino Holdings, Ltd. (a) 704,564 891
--------
1,521
--------
AUSTRIA - 0.0%
Bau Holdings AG 2,200 83
Creditanstalt Bankverein 3,475 179
EA Generali AG 300 48
Z Landerbank Bank Austria 1,681 80
--------
390
--------
BRAZIL - 0.2%
Banco Bradesco SA NPV 35,410,375 310
Banco Itau SA (Regd) 301,000 84
Brahma (cia Cervej) NPV 622,229 256
Brasmotor SA NPV 529,000 105
CEMIG SA 6,778,050 150
Cim Port Itau (Cia) 507,000 121
Coteminas (Cia Tec) NPV 371,000 124
Lojas Americanas NPV 5,224,000 123
Petrol Brasileiros 1,158,000 99
Telec SP Telesp NPV 1,443,753 212
Telecomunicacoes Brasileiras NPV 110,018 5
Uniao de Bancos Brasileiros NPV 2,488,000 97
Usiminas Uni Sd Mg NPV 181,000,000 147
--------
1,833
--------
FRANCE - 0.0%
Legrand 1,450 145
--------
145
--------
GERMANY - 0.5%
Bayer Motoren Werk 900 324
Escada AG 500 87
Fag Kugelfischer (a) 700 87
Fielmann AG 1,348 69
GEA AG 840 258
Henkel 600 226
Hornbach Holding AG 2,890 252
Hugo Boss 250 208
Jungheinrich 900 128
Krones AG NV 1,330 528
Lufthansa AG NV 1,400 183
Porsche AG (a) 1,025 532
RWE AG NV 700 195
SAP AG 1,000 151
Wella AG 750 404
--------
3,632
--------
ITALY - 0.1%
Autostrade Conc. SPA 145,000 159
Fiat SPA (Priv) 232,000 424
--------
583
--------
NETHERLANDS - 0.0%
International Nederlanden CVA 2,901 15
--------
15
--------
TOTAL PREFERRED STOCKS
(cost $8,417) 8,119
--------
<CAPTION>
PRINICPAL
AMOUNT
(000)
---------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.8%
BELGIUM - 0.0%
Kredietbank (conv.)
5.750% due 12/31/03 BEF 1,500 60
--------
60
--------
FRANCE - 0.0%
Michelin (Cie Gle)(conv.)
2.500% due 01/01/01 FRF 235 126
--------
126
--------
ITALY - 0.0%
Danieli & Co.
7.250% due 01/01/00 ITL 30,120 17
--------
17
--------
JAPAN - 0.7%
Bank of Tokyo - Cayman Finance, Ltd.
(Perpetual Maturity)
4.250% due 12/31/99 JPY 300,000 4,010
68 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
------ ------
<S> <C> <C>
Hitachi, Ltd. (conv.)
2.700% due 03/31/97 50,000 $ 620
Izumiya Co. (conv.)
0.800% due 08/31/99 40,000 453
Yamanouchi Pharmacutical (conv.)
1.250% due 03/31/14 30,000 335
--------
5,418
--------
SWITZERLAND - 0.1%
Sandoz Capital (conv.)
1.250% due 10/23/02 CHF 755 740
--------
740
--------
TOTAL LONG-TERM INVESTMENTS
(cost $5,689) 6,361
--------
SHORT-TERM INVESTMENTS - 6.5%
UNITED STATES - 6.5%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $51,392 51,392
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $51,392) 51,392
--------
TOTAL INVESTMENTS
(identified cost $705,211)(c) - 98.1% 781,965
Other Assets and Liabilities,
Net - 1.9% 14,812
--------
Net Assets - 100.0% $796,777
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes was $709,031
and net unrealized appreciation for all securities was $72,934. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $112,683 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $39,749.
(d) Securities are currently undergoing bankruptcy proceedings and present
negligible market value.
The accompanyng notes are an integral part of the financial statements.
International Fund 69
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- -------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
All-Ordinaries Index
Futures Contracts (Australia)
expiration date 03/96 53 $ (8)
CAC - 40 Index
Futures Contracts (France)
expiration date 03/96 45 48
DAX - 30 Index
Futures Contracts (Germany)
expiration date 03/96 22 (42)
FTSE - 100 Index
Futures Contracts (UK)
expiration date 03/96 108 191
Hang Seng Index
Futures Contracts (Hong Kong)
expiration date 01/96 30 33
TOPIX Index
Futures Contracts (Japan)
expiration date 03/96 169 1,112
--------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $1,334
--------
--------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes, due 12/31/95, valued
at $5,500 were held as collateral by the custodian in connection with
futures contracts purchased by the Fund. The settlement amount of these
matured notes is included in Receivable for Investments Sold on the
Statement of Assets and Liabilities.
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- --------------------------------------------- ------ ------
<S> <C> <C>
Basic Industries 7.7% $ 62,361
Capital Goods 8.3 66,115
Consumer Basics 11.4 90,951
Consumer Durable Goods 6.7 54,052
Consumer Non-Durables 6.1 48,481
Consumer Services 2.2 17,499
Energy 4.7 37,099
Finance 17.5 139,252
General Business 5.4 42,870
Miscellaneous 6.6 52,726
Shelter 3.0 23,661
Technology 3.8 30,005
Transportation 1.6 12,624
Utilities 5.8 46,516
Long-Term Investments 0.8 6,361
Short-Term Investments 6.5 51,392
----- --------
Total Investments 98.1 781,965
Other Assets and Liabilities, Net 1.9 14,812
----- --------
NET ASSETS 100.0% $796,777
----- --------
----- --------
<CAPTION>
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- --------------------------------------------- ------ ------
<S> <C> <C>
Japan 32.6% $259,709
Europe 29.8 237,819
United Kingdom 14.7 117,248
Pacific Basin 12.7 101,322
Latin America 1.1 8,925
Other 0.7 5,550
Short-Term Investments 6.5 51,392
----- --------
Total Investments 98.1 781,965
Other Assets and Liabilities, Net 1.9 14,812
----- --------
NET ASSETS 100.0% $796,777
----- --------
----- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
70 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $705,211,065)(Note 2) . . . . . . . . . . . . . . . . . . . . . $781,964,629
Foreign currency holdings (identified cost $9,106,291) . . . . . . . . . . . . . . . . . . . . . . . . 9,103,186
Closed forward foreign currency exchange contracts (Notes 2) . . . . . . . . . . . . . . . . . . . . . 197,762
Forward foreign currency exchange contracts (cost $79,426,839)(Notes 2 and 6). . . . . . . . . . . . . 79,164,344
Foreign currency exchange spot contracts (cost $1,346,275)(Notes 2 and 6). . . . . . . . . . . . . . . 1,346,318
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,491,584
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,985,698
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,641,999
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818,795
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . 3,002,656
------------
LIABILITIES 886,716,971
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,733,232
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912,177
Accrued bookkeeping service fees (Note 4). . . . . . . . . . . . . . . . . . 17,420
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . . . . . . . 497,365
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . . . . . . . 29,250
Other accrued expenses and payables. . . . . . . . . . . . . . . . . . . . . 346,864
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . 42,052
Forward foreign currency exchange contracts
(cost $79,426,839)(Notes 2 and 6) . . . . . . . . . . . . . . . . . . . . . . 79,012,309
Foreign currency exchange spot contracts
(cost $1,346,275)(Notes 2 and 6). . . . . . . . . . . . . . . . . . . . . . . 1,346,275
Collateral on securities loaned, at market (Note 3). . . . . . . . . . . . . . 3,002,656 89,939,600
----------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $796,777,371
------------
------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . . $ (1,712,195)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767,904
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,753,564
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333,509
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,391
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,723
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717,248,475
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $796,777,371
------------
------------
Net asset value, offering and redemption price per share
($796,777,371 divided by 21,972,311 shares of $.01 par value
shares of beneficial interest outstanding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36.26
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Fund 71
<PAGE>
INTERNATIONAL FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,086,070
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,486,830
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,498
Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,929,738)
-----------
16,239,660
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,112,338
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,707,729
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,515
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,632
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,770
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,980
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,563
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,351
-----------
Expenses before waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,332,878
Expenses waived by Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,558) 6,247,320
----------- -----------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,992,340
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,276,750
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,053,963
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,258
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,783,487
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333,509
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479,806
-----------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,072,773
-----------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $76,065,113
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
72 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,992,340 $ 10,243,257
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,276,750 68,826,701
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,053,963 --
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . 145,258 (3,059,016)
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,783,487 (45,373,352)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333,509 --
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . 479,806 (1,153,948)
------------ ------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . 76,065,113 29,483,642
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,261,547) (5,968,486)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (1,712,195) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (19,789,300) (71,880,739)
In excess of net realized gain on investments. . . . . . . . . . . . . . . . . . . -- (4,442,348)
Increase (decrease) in net assets from Fund share transactions . . . . . . . . . . . 81,295,220 164,491,211
------------ ------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 122,597,291 111,683,280
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . 674,180,080 562,496,800
------------ ------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net
investment income of $1,712,195 and undistributed
net investment income of $453,074, respectively) . . . . . . . . . . . . . . . . . $796,777,371 $674,180,080
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
FUND SHARE TRANSACTIONS
Fund shares sold . . . . . . . . . . . . . . 7,634,975 $268,170,784 6,138,023 $236,514,257
Fund shares issued to shareholders
in reinvestments of distributions . . . . . 885,952 31,552,805 2,266,373 76,306,494
Fund shares redeemed . . . . . . . . . . . . (6,215,446) (218,428,369) (3,802,087) (148,329,540)
---------- ------------- ---------- -------------
Net increase (decrease). . . . . . . . . . . 2,305,481 $ 81,295,220 4,602,309 $ 164,491,211
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Fund 73
<PAGE>
INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . $ 34.28 $ 37.34 $ 28.92 $ 31.96 $ 29.18
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . .48 .61 .58 .67 .73
Net realized and unrealized gain (loss) on investments (a) . . . . . . . 3.16 .65 9.63 (2.62) 3.16
------- ------- ------- ------- -------
Total Income From Investment Operations. . . . . . . . . . . . . . . . . 3.64 1.26 10.21 (1.95) 3.89
------- ------- ------- ------- -------
DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . (.64) (.36) (.57) (.67) (.80)
In excess of net investment income . . . . . . . . . . . . . . . . . . . (.08) -- (.16) -- --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . (.94) (3.73) (1.06) (.42) (.31)
In excess of net realized gain on investments. . . . . . . . . . . . . . -- (.23) -- -- --
------- ------- ------- ------- -------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . (1.66) (4.32) (1.79) (1.09) (1.11)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . $ 36.26 $ 34.28 $ 37.34 $ 28.92 $ 31.96
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%)(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.71 5.38 35.56 (6.11) 13.47
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses net to average net assets (b) . . . . . . . . . . . . .88 .32 .39 .45 .48
Operating expenses gross to average net assets (b) . . . . . . . . . . . .89 .34 .41 .46 .48
Net investment income to average net assets (b). . . . . . . . . . . . . 1.41 1.63 1.83 2.46 2.61
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.78 71.09 62.04 48.99 53.13
Net assets end of year ($000 omitted). . . . . . . . . . . . . . . . . . 796,777 674,180 562,497 348,869 252,828
Per share amount of fees waived ($ omitted). . . . . . . . . . . . . . . .0041 .0093 .0091 .0030 --
</TABLE>
(a) Provision for federal income tax for the year ended December 31, 1991
amounted to $.024 per share.
(b) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees. See
Note 4.
74 International Fund
<PAGE>
INTERNATIONAL FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 INTERNATIONAL MSCI EAFE **
- ----------------- ------------- ------------
<S> <C> <C>
Inception* $10,000 $10,000
1986 $16,005 $16,994
1987 $18,312 $21,231
1988 $21,999 $27,301
1989 $27,292 $30,249
1990 $22,942 $23,233
1991 $26,033 $26,136
1992 $24,444 $23,039
1993 $33,136 $30,629
1994 $34,919 $33,097
1995 $38,657 $36,921
</TABLE>
International Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- -------- -------
<S> <C> <C>
1 Year $11,071 10.71%
5 Years $16,850 10.99% ***
10 Years $38,657 14.47% ***
</TABLE>
MSCI EAFE Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- -------- -------
<S> <C> <C>
1 Year $11,155 11.55%
5 Years $15,892 9.71% ***
10 Years $36,921 13.95% ***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Morgan Stanley Capital International Europe, Australia, Far East Index is
an index composed of an arithmetic, market value-weighted average of the
performance of over 1,100 securities listed on the stock exchanges of the
countries of Europe, Australia, and the Far East. The index is calculated
on a total-return basis, which includes reinvestment of gross dividends
before deduction of withholding taxes.
*** Annualized.
INTERNATIONAL FUND returned 10.7% for 1995, trailing the Morgan Stanley Capital
International Europe, Australia, Far East (MSCI EAFE) Index return of 11.6%. The
portfolio was managed in a manner consistent with its objective to provide
favorable total return with reduced volatility using a multi-style,
multi-manager strategy. The Fund offers a high degree of diversification among
countries and currencies, which typically results in a low correlation with US
equities and reduced portfolio volatility.
Non-US markets lagged the US market by a wide margin in most cases during 1995.
The Swiss market was the one notable exception, with a return of over 42%,
including a 14% appreciation of the Swiss franc over the dollar. Japan was the
weakest market, down over 1% for the year, as it continued to struggle with an
economic recession and banking sector woes. The Fund was underweighted in Swiss
stocks for most of 1995 and also underweighted in large Japanese banks late in
the year. Both were factors in the Fund trailing the index.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Investments in securities of non-US issuers and foreign currencies involve
investment risks different from those of US issuers. The Prospectus contains
further information and details regarding these risks.
International Fund 75
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
LONG-TERM INVESTMENTS - 97.0%
ASSET-BACKED SECURITIES - 6.5%
Advanta Home Equity Loan Trust
9.000% due 02/25/06 $107 $111
Case Equipment Loan Trust
Series 1995-B Class A3
6.150% due 09/15/02 2,950 2,981
Chevy Chase Auto Receivables Trust
Series 1995-2 Class A
5.800% due 06/15/02 1,265 1,268
Contimortgage Home Equity Loan Trust
Mortgage Pass-thru Certificate
Series 1995-1 Class A2-A
8.600% due 06/15/25 625 652
Daimler-Benz Auto Grantor Trust
Series 1995-A Class A
5.850% due 05/15/02 798 801
Discover Card Trust
Series 1991 Class F-A
7.850% due 11/21/00 765 804
Series 1992-B Class A
6.800% due 06/16/00 115 118
DR Structured Finance Corp.
Series 1994-K1 Class A-1
7.600% due 08/15/07 710 447
Federal Housing Authority: Project Citi 68
Mortgage Pass-thru Certificate
7.430% due 06/27/21 1,707 1,731
First Chicago Master Trust II Credit Card
Certificates Series 1994-L
7.150% due 04/15/01 3,895 4,090
Green Tree Financial Corp.
Series 1994-7 Class A-2
7.600% due 03/15/20 3,390 3,458
Series 1995-A Class A
7.250% due 07/15/05 600 608
Greenwich Capital Acceptance, Inc.
Mortgage Pass-thru Certificate
Series 1993 Class LB-1
7.460% due 04/25/23 (c) 1,470 1,482
Lehman Pass-thru Securities, Inc.
Series 1991-2 Class A-1
8.000% due 03/20/99 189 194
Premier Auto Trust
Series 1994-4 Class A-5
6.650% due 08/15/00 2,570 2,618
Resolution Trust Corp.
Mortgage Pass-thru Certificates
Series 1992-C2 Class A-1
9.000% due 10/25/22 $83 $85
Series 1992-M2 Class A-4
8.465% due 03/25/20 56 56
Series 1994-C1 Class D
8.000% due 06/25/26 428 437
Series 1994-C2 Class D
8.000% due 04/25/25 293 299
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 400 397
Salomon Brothers
Mortgage Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16 Class
7.790% due 11/25/24 (c) 3,785 3,884
Sears Mortgage Securities Corp.
Series 1992 Class A
7.587% due 10/25/22 (c) 3,976 4,016
Sears Savings Bank
Mortgage Pass-thru Certificate
Series 1992-A Class A
8.700% due 05/25/32 (c) 1,258 1,257
Standard Credit Card Master Trust I
Series 1995-10 Class A
5.900% due 02/07/01 2,215 2,236
Series 1995-8 Class A
6.700% due 09/07/02 4,330 4,415
Wal Mart Stores, Inc.
Series 1994-B3
8.800% due 12/30/14 360 427
World Omni Automobile
Lease Securitization Trust
Series 1995-A Class A
6.050% due 11/25/01 2,675 2,691
---------
41,563
---------
CORPORATE BONDS AND NOTES - 15.9%
American Brands, Inc.
8.625% due 11/15/21 500 603
American Express Co.
8.500% due 08/15/01 45 51
Fixed Income I Fund 77
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
American General Finance Corp.
8.250% due 01/15/98 $ 705 $ 740
7.250% due 03/01/98 365 377
8.500% due 08/15/98 375 401
AMR Corp.
9.500% due 05/15/01 250 283
Analog Devices, Inc.
6.625% due 03/01/00 225 228
Appalachian Power Co. (MTN)
8.500% due 12/01/22 330 400
Aristar, Inc.
6.300% due 07/15/00 190 193
Associates Corp. of North America
6.250% due 03/15/99 1,520 1,544
AT&T Corp.
8.625% due 12/01/31 440 512
Atlantic Richfield Co.
9.125% due 08/01/31 310 407
AVCO Financial Services, Inc.
7.250% due 07/15/99 415 434
8.500% due 10/15/99 655 712
Bank of New York, Inc.
7.875% due 11/15/02 500 550
Bank One, Columbus, Ohio
7.375% due 12/01/02 195 206
BankAmerica Corp.
6.850% due 03/01/03 425 442
Barnett Bank, Inc.
6.900% due 09/01/05 475 495
Bear Stearns Co., Inc.
6.750% due 08/15/00 775 797
Bell Telephone Co. of Pennsylvania
8.350% due 12/15/30 645 810
BellSouth Telecommunications
7.625% due 05/15/35 155 165
Beneficial Corp.
8.400% due 05/15/08 757 924
C.I.T. Group Holdings, Inc. (MTN)
7.000% due 09/30/97 1,030 1,055
Case Corp.
7.250% due 08/01/05 395 417
Caterpillar Financial Services (MTN)
9.500% due 02/06/07 80 100
Central Fidelity Banks, Inc.
8.150% due 11/15/02 280 309
Champion International Corp.
7.700% due 12/15/99 655 694
Chemical Banking Corp.
10.375% due 03/15/99 260 292
10.125% due 11/01/00 250 293
Chesapeake & Potomac Telephone Co.
8.375% due 10/01/29 405 507
Chevron Corp. Profit Sharing
Savings Plan Trust Fund
8.110% due 12/01/04 385 427
Chrysler Financial Corp.
9.500% due 12/15/99 445 500
Citicorp
7.125% due 06/01/03 75 79
9.500% due 02/01/02 195 228
Coastal Corp.
10.375% due 10/01/00 195 228
Coca-Cola Enterprises, Inc.
8.500% due 02/01/22 450 539
Commercial Credit Group, Inc.
5.750% due 07/15/00 255 254
8.700% due 06/15/10 795 987
Commonwealth Edison Co. Series 85
7.375% due 09/15/02 1,120 1,184
Connecticut Light & Power Co.
7.875% due 10/01/24 775 894
Consolidated Natural Gas Co.
8.625% due 12/01/11 345 364
Consolidated Rail Corp.
Pass-thru Certificate Structured Note
Series 1995 Class A
6.760% due 05/25/15 614 632
CoreStates Capital Corp.
5.875% due 10/15/03 290 281
CSFB Finance Co., Ltd.
Series 1995-A Class A
7.000% due 11/15/05 450 449
Dayton Hudson Corp. (MTN)
9.350% due 06/16/20 485 589
Discover Credit Corp. (MTN)
8.350% due 04/27/99 465 497
Dole Food Co., Inc.
6.750% due 07/15/00 280 283
Duke Power Co.
7.000% due 07/01/33 1,030 1,041
78 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
Eaton Corp.
7.000% due 04/01/11 $ 545 $ 543
Equitable Life Assurance Society
6.950% due 12/01/05 925 939
7.700% due 12/01/15 975 992
ERP Operating, L.P.
8.500% due 05/15/99 725 768
Evans Whitycombe Trust
Series 1994 Class A-1
7.980% due 08/01/01 500 539
Federal Express Corp.
Series 1993 Class B1
6.680% due 01/01/08 725 727
First Chicago Corp.
8.875% due 03/15/02 600 683
First Fidelity Bancorp
9.625% due 08/15/99 415 466
First Interstate Bancorp (MTN)
9.375% due 01/23/02 225 259
First National Bank of Boston
8.375% due 12/15/02 750 839
First Union Corp.
6.550% due 10/15/35 1,950 2,028
First USA Bank
5.750% due 01/15/99 975 972
Fleet Financial Group, Inc.
8.125% due 07/01/04 675 754
Ford Motor Credit Co.
7.750% due 10/01/99 1,870 1,986
Ford Motor Credit Co. (MTN) CMS Floater
4.820% due 07/12/96 (c) 375 373
Franchise Finance Corp.
7.000% due 11/30/00 750 753
General Electric Capital Corp.
8.300% due 09/20/09 470 561
General Motors Acceptance Corp.
6.625% due 10/01/02 1,845 1,896
General Motors Acceptance Corp. (MTN)
8.000% due 12/05/96 5,000 5,113
Georgia-Pacific Corp.
7.375% due 12/01/25 460 459
Goldman Sachs Group, L.P.
6.875% due 09/15/99 825 844
6.375% due 06/15/00 415 420
6.200% due 12/15/00 725 727
Hanson America, Inc. (conv.)
2.390% due 03/01/01 725 602
Hertz Corp.
7.000% due 04/15/01 850 888
9.000% due 11/01/09 390 481
Household Finance Corp.
6.375% due 06/30/00 750 764
Integra Financial Corp.
6.500% due 04/15/00 850 867
International Lease Finance Corp.
5.750% due 01/15/99 685 686
International Paper Co.
9.400% due 06/01/02 600 706
ITT Financial Corp.
7.400% due 11/15/25 640 672
ITT Financial Corp. New
6.250% due 11/15/00 420 424
Liberty Mutual Insurance Co.
8.200% due 05/04/07 750 833
Martin Marietta Corp.
7.000% due 03/15/11 325 325
Merry Land & Investment, Inc.
6.875% due 11/01/03 175 178
7.250% due 06/15/05 800 824
Minnesota Mutual Life Insurance Co.
8.250% due 09/15/25 800 872
Motorola, Inc.
7.500% due 05/15/25 375 423
Nabisco, Inc.
6.700% due 06/15/02 325 331
NationsBank Corp.
6.625% due 01/15/98 250 255
New England Mutual Life Insurance Co.
7.875% due 02/15/24 750 775
New England Power Co. Series U
8.000% due 08/01/22 115 125
New England Telephone & Telegraph Co.
7.875% due 11/15/29 430 506
News America Holdings, Inc.
7.700% due 10/30/25 1,250 1,278
Noranda, Inc.
8.625% due 07/15/02 115 130
Northwestern Bell Telephone Co.
7.750% due 05/01/30 330 372
Norwest Corp. (MTN)
6.375% due 09/15/02 650 664
Norwest Financial, Inc.
6.250% due 11/01/02 425 432
Fixed Income I Fund 79
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
NWA Trust Series B
10.230% due 06/21/14 $ 634 $ 740
NYNEX Corp.
9.550% due 05/01/10 655 769
Occidental Petroleum Corp.
10.125% due 11/15/01 255 305
Occidental Petroleum Corp. (MTN)
8.500% due 11/09/01 295 331
Pennsylvania Power & Light Co.
6.875% due 03/01/04 1,200 1,252
Pennzoil Co.
10.125% due 11/15/09 215 272
PepsiCo, Inc.
7.625% due 12/18/98 360 380
Philip Morris Cos., Inc.
8.750% due 06/01/01 865 968
Phillips Petroleum Co.
9.375% due 02/15/11 90 113
Pitney Bowes Credit Corp.
8.550% due 09/15/09 780 943
Praxair, Inc.
6.850% due 06/15/05 680 706
Procter & Gamble Co.
8.000% due 10/26/29 220 263
Procter & Gamble Co.
Sharing ESOP Series A
9.360% due 01/01/21 450 575
Ralston Purina Co.
7.875% due 06/15/25 720 784
Republic New York Corp.
9.750% due 12/01/00 130 151
8.250% due 11/01/01 240 267
RJR Nabisco, Inc.
8.625% due 12/01/02 805 839
Rockwell International Corp.
8.875% due 09/15/99 300 331
Salomon, Inc.
7.000% due 01/20/98 850 860
Salomon, Inc. (MTN)
6.360% due 04/01/98 575 576
6.820% due 07/26/99 100 101
Seagram Co., Ltd.
8.350% due 01/15/22 740 862
Shopping Center Associates
6.750% due 01/15/04 750 748
SKW Real Estate, L.P. Class C
7.450% due 04/15/03 775 778
Smith Barney Holdings, Inc.
7.980% due 03/01/00 775 831
Southern California Edison Co.
Series 1986-C
8.625% due 04/15/19 405 427
System Energy Resources, Inc.
6.000% due 04/01/98 800 801
Taubman Realty Group, L.P.
8.000% due 06/15/99 725 760
Tenneco, Inc.
10.000% due 03/15/08 525 675
Texaco Capital, Inc.
9.750% due 03/15/20 225 308
8.875% due 09/01/21 440 561
Texas Utilities Electric Co.
9.500% due 08/01/99 1,370 1,511
Time Warner Entertainment Co., L.P.
10.150% due 05/01/12 400 496
8.375% due 07/15/33 5,625 6,003
Time Warner, Inc.
6.835% due 08/15/00 (c) 750 754
7.975% due 08/15/04 450 477
8.110% due 08/15/06 900 958
8.180% due 08/15/07 900 967
Transamerica Financial Corp.
8.375% due 02/15/98 360 380
Transamerica Financial Corp. (MTN)
8.900% due 02/15/96 685 687
U.S. Bancorp of Oregon
7.000% due 03/15/03 90 94
Union Carbide Chemicals & Plastics
7.875% due 04/01/23 710 790
Union Oil Co. (MTN)
9.400% due 02/15/11 390 490
United Airlines, Inc.
10.250% due 07/15/21 3,000 3,754
United Technologies Corp.
8.750% due 03/01/21 445 555
US West Communications, Inc.
7.250% due 10/15/35 715 745
Virginia Electric & Power Co.
8.750% due 04/01/21 335 400
Wachovia Corp. New
6.800% due 06/01/05 280 292
Weyerhaeuser Co.
8.500% due 01/15/25 625 768
Whirlpool Corp.
9.500% due 06/15/00 400 455
---------
101,304
---------
80 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES - 36.6%
Citicorp Mortgage Securities, Inc.
Series 1987-2 Class A-1
8.500% due 04/01/02 $ 3,515 $ 3,597
Federal Home Loan Mortgage Corp.
Participation Certificate
Group #14-1607 8.000% due 08/01/18 82 84
Group #17-0164 9.000% due 05/01/16 191 202
Group #17-0170 9.000% due 06/01/16 173 183
Group #17-0171 9.000% due 06/01/16 358 378
Group #17-0181 9.000% due 08/01/16 90 95
Group #17-0195 9.000% due 10/01/16 425 449
Group #17-0196 9.000% due 10/01/16 272 287
Group #17-0197 9.000% due 10/01/16 559 590
Group #17-0204 9.000% due 11/01/16 128 135
Group #17-0208 9.000% due 12/01/16 134 142
Group #26-0607 12.000% due 06/01/14 247 279
Group #27-8582 9.000% due 10/01/16 48 51
Group #28-4634 9.000% due 01/01/17 2 3
Group #30-0025 12.500% due 04/01/16 418 478
Group #30-5382 9.000% due 12/01/17 116 122
Group #A0-0690 9.000% due 02/01/20 2,236 2,375
Group #C0-0413 8.000% due 08/01/25 133 137
Group #D5-2246 7.000% due 04/01/24 267 269
Group #D5-3905 7.500% due 06/01/24 300 307
Group #D6-0224 9.000% due 05/01/25 175 184
Group #D6-0678 8.000% due 06/01/25 1,832 1,898
Group #D6-1491 8.000% due 06/01/25 1,999 2,072
Group #D6-1887 8.000% due 07/01/25 1,804 1,869
Group #D6-2110 8.000% due 07/01/25 2,031 2,105
Group #D6-2114 8.000% due 07/01/25 362 375
Group #D6-2134 8.000% due 07/01/25 892 924
Group #D6-2156 8.000% due 07/01/25 1,821 1,887
Group #D6-2913 8.000% due 08/01/25 2,001 2,074
Group #D6-3976 7.000% due 09/01/25 444 448
Group #E0-0333 8.000% due 08/01/09 288 299
Group #E2-0123 7.500% due 08/01/09 328 338
Group #E2-0145 7.500% due 11/01/09 (c) 248 255
Group #E2-0153 8.000% due 01/01/10 101 104
Group #E4-7089 7.000% due 05/01/08 237 242
Group #E4-8842 7.000% due 07/01/08 282 287
Group #E5-6830 6.500% due 02/01/09 431 434
Group #E5-6953 6.500% due 02/01/09 65 66
Group #E5-9472 7.500% due 08/01/09 148 152
Group #E5-9494 7.000% due 08/01/09 532 543
Group #E5-9512 7.500% due 08/01/09 185 190
Group #E5-9554 7.500% due 08/01/09 803 826
Group #E5-9577 7.500% due 09/01/09 542 557
Group #E5-9921 7.500% due 11/01/09 125 128
Group #E5-9923 7.500% due 11/01/09 424 437
Group #E5-9926 7.500% due 11/01/09 146 150
Group #E5-9932 7.500% due 11/01/09 323 332
Group #E6-0172 8.000% due 02/01/10 642 665
Group #E6-0173 8.000% due 02/01/10 341 353
Group #E6-0194 8.000% due 03/01/10 243 251
Group #G1-0239 7.000% due 07/01/09 22 23
Group #M1-1773 7.500% due 03/01/97 425 431
Group #M1-3104 7.000% due 03/01/97 181 184
Group #M1-3357 7.500% due 04/01/97 605 612
Group #M1-3486 7.500% due 04/01/97 104 105
Group #M1-4825 7.000% due 08/01/97 18 19
Group #M1-9003 7.000% due 04/01/97 336 342
Group #M1-9073 7.500% due 11/01/97 270 274
Pool # E60386 8.000% due 04/01/10 111 115
Federal Home Loan Mortgage Corp.
Series K Class K-5
7.760% due 05/01/12 2,677 2,677
Federal Home Loan Mortgage Corp.
7.500% 7 Year TBA (b) 490 502
6.500% 15 Year TBA (b) 9,710 9,762
7.000% 30 Year TBA (b) 26,820 27,063
7.500% 30 Year TBA (b) 6,855 7,029
8.000% 30 Year TBA (b) 10,140 10,508
Federal National Mortgage Association
Pool #040208 8.000% due 01/01/02 3 3
Pool #040403 8.000% due 01/01/02 6 6
Pool #040841 8.000% due 01/01/02 101 104
Pool #041060 8.000% due 02/01/02 185 192
Pool #042014 8.000% due 03/01/02 10 11
Pool #042675 8.000% due 02/01/02 11 11
Pool #043467 8.000% due 03/01/02 14 14
Pool #046329 8.000% due 04/01/02 7 7
Pool #047205 8.000% due 05/01/02 65 67
Pool #047293 8.000% due 05/01/02 52 54
Pool #047565 8.000% due 07/01/02 91 94
Pool #047690 8.000% due 05/01/02 9 10
Pool #048419 8.000% due 06/01/02 78 80
Pool #048902 8.000% due 06/01/02 130 135
Pool #049385 8.000% due 06/01/02 13 13
Pool #049441 8.000% due 06/01/02 5 5
Pool #050656 7.500% due 11/01/22 608 623
Pool #050752 7.000% due 05/01/00 608 619
Pool #050758 7.000% due 06/01/00 174 178
Pool #050762 6.500% due 07/01/08 549 551
Pool #050974 6.500% due 01/01/09 1,152 1,158
Fixed Income I Fund 81
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
Pool #051057 8.000% due 06/01/02 $ 102 $ 106
Pool #053628 8.000% due 07/01/02 89 92
Pool #053865 8.000% due 07/01/02 38 39
Pool #061217 8.000% due 05/01/03 19 19
Pool #065408 8.000% due 09/01/18 (c) 421 436
Pool #067922 8.000% due 07/01/03 408 423
Pool #070424 8.000% due 06/01/02 15 16
Pool #076261 8.000% due 12/01/03 245 254
Pool #087274 8.000% due 08/01/04 148 154
Pool #120778 8.000% due 03/01/17 83 87
Pool #124542 7.000% due 11/01/99 913 929
Pool #125335 7.500% due 06/01/24 289 296
Pool #153690 8.000% due 07/01/02 295 306
Pool #156065 8.000% due 09/01/02 399 413
Pool #156799 8.000% due 03/01/05 197 204
Pool #178066 7.000% due 09/01/99 440 448
Pool #183514 8.000% due 08/01/22 324 336
Pool #187852 10.500% due 08/01/10 11 12
Pool #190506 6.500% due 12/01/08 810 814
Pool #190962 6.500% due 07/01/09 492 495
Pool #207010 6.500% due 04/01/09 35 35
Pool #208101 6.500% due 05/01/00 99 100
Pool #211454 7.000% due 05/01/00 190 193
Pool #216515 6.500% due 06/01/08 56 57
Pool #220817 6.500% due 06/01/08 29 29
Pool #223595 6.500% due 07/01/08 101 101
Pool #224716 6.500% due 07/01/23 230 228
Pool #231502 7.000% due 10/01/23 410 414
Pool #234968 6.500% due 09/01/08 230 231
Pool #235710 7.000% due 11/25/23 505 509
Pool #238372 7.000% due 11/25/23 1,786 1,800
Pool #239803 7.000% due 11/25/23 285 287
Pool #244216 7.500% due 02/01/24 715 733
Pool #244286 7.000% due 05/01/24 350 353
Pool #244370 7.000% due 11/25/23 966 974
Pool #246161 7.000% due 11/25/23 92 93
Pool #246197 7.000% due 11/25/23 545 550
Pool #247337 7.000% due 11/01/23 946 953
Pool #248444 6.500% due 05/01/09 201 202
Pool #250009 6.500% due 04/01/09 922 926
Pool #250030 7.000% due 05/01/24 429 433
Pool #250155 8.500% due 12/01/24 300 313
Pool #250179 7.500% due 11/01/24 678 695
Pool #250345 7.000% due 08/01/01 2,006 2,023
Pool #250350 7.500% due 10/01/25 1,772 1,816
Pool #263021 6.500% due 05/01/09 58 58
Pool #266371 6.500% due 01/01/01 389 394
Pool #269791 6.500% due 05/01/09 389 391
Pool #270990 6.500% due 02/01/01 49 49
Pool #270992 6.500% due 02/01/01 297 300
Pool #271758 7.500% due 09/01/23 876 898
Pool #275276 7.500% due 06/01/24 327 335
Pool #275277 7.500% due 06/01/24 430 440
Pool #275290 7.000% due 06/01/24 436 439
Pool #276075 6.500% due 04/01/09 632 635
Pool #277550 6.500% due 04/01/09 344 346
Pool #278623 8.500% due 08/01/24 965 1,008
Pool #279004 7.000% due 04/01/24 246 248
Pool #279137 6.500% due 05/01/09 505 507
Pool #280352 6.500% due 05/01/09 277 278
Pool #280980 6.500% due 05/01/09 46 46
Pool #280984 6.500% due 05/01/09 1,813 1,822
Pool #281297 6.500% due 05/01/09 447 449
Pool #281298 6.500% due 05/01/09 287 289
Pool #281439 6.500% due 04/01/09 292 293
Pool #282305 7.000% due 05/01/24 660 665
Pool #283040 6.500% due 05/01/09 447 449
Pool #283486 6.500% due 05/01/09 487 489
Pool #283947 7.500% due 06/01/24 234 240
Pool #284279 7.000% due 05/01/24 485 489
Pool #284451 6.500% due 05/01/09 467 469
Pool #284577 6.500% due 05/01/09 824 828
Pool #285147 7.000% due 06/01/24 830 837
Pool #286112 7.000% due 06/01/24 1,906 1,921
Pool #286978 7.000% due 06/01/24 452 456
Pool #287464 6.500% due 06/01/09 432 434
Pool #287716 7.500% due 09/01/24 710 727
Pool #289234 6.500% due 06/01/09 695 698
Pool #289660 7.500% due 08/01/24 214 219
Pool #290876 7.500% due 07/01/24 751 769
Pool #295187 6.500% due 09/01/09 60 61
Pool #299256 8.500% due 12/01/24 231 242
Pool #303555 7.000% due 09/01/25 2,008 2,025
Pool #304260 8.500% due 01/01/25 378 394
Pool #305563 8.500% due 01/01/25 70 73
Pool #306227 8.500% due 02/01/25 203 212
Pool #312495 7.000% due 07/01/25 697 703
Pool #316786 7.000% due 07/01/25 737 743
Pool #316938 7.000% due 07/01/25 345 348
Pool #319622 7.000% due 08/01/25 806 813
Pool #319647 7.000% due 08/01/25 252 254
Pool #319761 7.000% due 08/01/25 629 634
Pool #320080 7.000% due 08/01/25 2,003 2,019
Pool #324205 7.000% due 09/01/25 2,267 2,285
82 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
Federal National Mortgage Association
7.500% 7 Year TBA (b) $ 455 $ 466
7.000% 30 Year TBA (b) 1,255 1,265
GTD REMIC Trust 1991-48 Class G
7.800% due 12/25/04 548 549
Principal Only Strip
Zero Coupon due 03/25/04 298 237
REMIC Trust Series 1992-G36 Class A
7.000% due 04/25/15 915 925
REMIC Trust Series 1993-89 Class Z
7.000% due 06/25/23 3,572 3,218
Government National Mortgage Association
Pool #008528 6.500% due 10/20/24 (c) 4,677 4,774
Pool #139796 9.500% due 03/15/16 128 138
Pool #146110 9.500% due 05/15/16 34 36
Pool #148211 9.500% due 02/15/16 140 151
Pool #148618 8.500% due 08/15/16 21 23
Pool #152577 9.000% due 10/15/16 97 104
Pool #152837 9.000% due 10/15/16 50 54
Pool #154592 9.000% due 04/15/16 280 299
Pool #157439 9.000% due 05/15/16 232 247
Pool #157532 8.500% due 07/15/16 57 60
Pool #161209 9.000% due 08/15/16 209 223
Pool #161412 9.000% due 05/15/16 51 55
Pool #161598 9.000% due 06/15/16 137 147
Pool #164705 9.000% due 09/15/16 496 529
Pool #165541 8.500% due 07/15/16 158 167
Pool #168336 9.000% due 08/15/20 28 30
Pool #170864 8.500% due 01/15/17 19 20
Pool #173346 9.000% due 10/15/16 141 151
Pool #174110 8.500% due 11/15/16 407 432
Pool #174840 9.000% due 10/15/16 234 250
Pool #175753 9.000% due 10/15/16 120 128
Pool #177139 9.000% due 11/15/16 121 129
Pool #177163 9.000% due 10/15/16 75 80
Pool #179721 10.500% due 09/15/20 66 74
Pool #181250 9.000% due 11/15/16 139 149
Pool #183409 8.500% due 10/15/16 229 242
Pool #183690 8.500% due 01/15/17 139 148
Pool #186658 9.000% due 11/15/16 327 349
Pool #188014 9.000% due 12/15/16 172 184
Pool #188459 8.500% due 05/15/17 128 136
Pool #188531 8.500% due 05/15/17 118 125
Pool #193313 9.000% due 11/15/16 247 263
Pool #194421 8.500% due 01/15/17 164 174
Pool #194842 9.000% due 11/15/16 12 13
Pool #195538 9.000% due 11/15/16 59 63
Pool #195910 8.500% due 12/15/16 89 94
Pool #196528 8.500% due 02/15/17 299 317
Pool #197003 8.500% due 02/15/17 108 114
Pool #197387 8.500% due 01/15/17 555 589
Pool #198202 8.500% due 01/15/17 194 205
Pool #199668 8.500% due 02/15/17 262 277
Pool #199686 8.000% due 03/15/17 178 187
Pool #201206 8.500% due 02/15/17 220 233
Pool #201795 8.500% due 02/15/17 162 172
Pool #204153 8.500% due 01/15/17 173 184
Pool #204268 8.500% due 02/15/17 173 184
Pool #213265 8.500% due 03/15/17 209 221
Pool #213365 8.000% due 04/15/17 31 33
Pool #225968 8.500% due 07/15/17 231 245
Pool #266892 7.000% due 06/15/23 344 348
Pool #273024 10.500% due 08/15/20 106 118
Pool #285402 10.500% due 05/15/20 53 60
Pool #286050 9.000% due 09/15/20 25 27
Pool #290338 10.500% due 06/15/20 1,175 1,315
Pool #290680 10.500% due 08/15/20 83 93
Pool #294919 10.500% due 09/15/20 23 26
Pool #295408 10.500% due 08/15/20 66 74
Pool #297998 10.500% due 11/15/20 146 164
Pool #299159 10.500% due 11/15/20 188 211
Pool #299683 10.500% due 11/15/20 42 48
Pool #300795 10.500% due 12/15/20 91 102
Pool #301683 10.500% due 01/15/21 147 165
Pool #303754 9.000% due 12/15/21 776 825
Pool #310003 9.000% due 07/15/21 26 27
Pool #321967 7.000% due 05/15/23 335 340
Pool #329174 7.500% due 05/15/07 130 134
Pool #332559 7.000% due 04/15/23 127 128
Pool #334930 7.500% due 08/15/23 771 793
Pool #336092 7.000% due 09/15/23 132 133
Pool #336136 7.000% due 04/15/23 117 118
Pool #336166 7.000% due 02/15/23 294 298
Pool #336917 7.000% due 05/15/23 709 718
Pool #337344 7.000% due 08/15/23 341 345
Pool #337419 7.000% due 06/15/23 478 484
Pool #337470 7.000% due 07/15/23 91 92
Pool #338364 7.500% due 12/15/22 45 47
Pool #339059 7.000% due 10/15/23 339 343
Pool #339637 7.500% due 04/01/23 540 556
Pool #342398 7.000% due 06/15/23 492 499
Pool #342805 7.000% due 06/15/23 115 117
Pool #343557 7.000% due 05/15/23 343 347
Pool #343608 7.000% due 05/15/23 250 253
Pool #343620 7.000% due 06/15/23 548 555
Pool #343632 7.000% due 07/15/23 346 351
Fixed Income I Fund 83
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
Pool #345984 7.000% due 12/15/23 $ 90 $ 91
Pool #346058 7.000% due 01/15/24 798 808
Pool #346836 7.000% due 10/15/23 122 123
Pool #347706 7.000% due 12/15/23 121 122
Pool #348651 7.500% due 05/15/23 231 238
Pool #348875 7.000% due 07/15/23 339 343
Pool #348895 7.000% due 07/15/23 452 458
Pool #349383 7.000% due 06/15/23 106 107
Pool #350138 7.500% due 03/15/23 99 102
Pool #351270 7.000% due 07/15/23 91 93
Pool #352023 7.000% due 11/15/23 543 549
Pool #352050 7.000% due 10/15/23 557 564
Pool #352510 7.000% due 10/15/23 549 555
Pool #352789 7.000% due 10/15/23 340 345
Pool #353020 7.000% due 06/15/24 990 1,002
Pool #355230 7.000% due 09/15/23 478 484
Pool #356127 7.000% due 10/15/23 106 107
Pool #356693 7.000% due 08/15/23 369 373
Pool #356952 7.000% due 06/15/23 549 555
Pool #357351 7.000% due 11/15/23 341 345
Pool #358427 7.000% due 09/15/23 353 357
Pool #358519 7.000% due 12/15/23 498 504
Pool #358542 7.000% due 07/15/23 469 475
Pool #358565 7.000% due 05/15/23 478 484
Pool #359935 7.000% due 11/15/23 86 88
Pool #360181 7.000% due 08/15/23 135 136
Pool #360418 7.000% due 10/15/23 339 343
Pool #361056 6.500% due 08/15/08 207 209
Pool #362703 7.000% due 10/15/23 366 371
Pool #363166 7.000% due 11/15/23 119 120
Pool #364136 7.000% due 08/15/23 140 142
Pool #364600 7.000% due 08/15/23 181 183
Pool #366219 7.000% due 11/15/23 499 505
Pool #366912 9.000% due 11/15/24 329 349
Pool #368782 7.000% due 10/15/23 420 425
Pool #368988 6.500% due 03/15/09 247 249
Pool #370096 7.000% due 11/15/23 490 496
Pool #370280 7.000% due 11/15/23 352 357
Pool #370996 7.000% due 12/15/23 547 554
Pool #371085 7.000% due 10/15/23 80 81
Pool #371874 7.500% due 06/15/24 1,319 1,357
Pool #372850 7.000% due 01/15/24 703 711
Pool #373788 7.000% due 10/15/23 392 397
Pool #373794 7.000% due 10/15/23 96 97
Pool #374718 7.000% due 11/15/23 377 381
Pool #377593 6.500% due 10/15/10 207 208
Pool #378011 7.000% due 06/15/24 837 847
Pool #80163 7.000% due 12/15/23 121 122
Pool #390783 9.000% due 07/15/24 876 928
Pool #394904 6.500% due 06/15/09 462 466
Pool #395148 6.500% due 04/15/09 210 212
Pool #402850 9.000% due 01/15/25 207 219
Pool #404874 9.000% due 12/15/24 32 34
Pool #405929 9.000% due 04/15/25 445 472
Pool #407106 9.000% due 11/15/24 497 526
Pool #413246 9.000% due 07/15/25 31 33
Pool #413886 7.500% due 08/15/25 692 712
Pool #414098 7.500% due 08/15/25 38 39
Pool #418359 7.000% due 12/15/25 941 952
Pool #780029 9.000% due 11/15/24 1,301 1,393
Government National Mortgage Association
7.000% 15 Year TBA (b) 1,045 1,069
6.500% 30 Year TBA (b) 15,000 14,878
7.000% 30 Year TBA (b) 3,455 3,496
8.000% 30 Year TBA (b) 10,000 10,419
8.500% 30 Year TBA (b) 1,630 1,725
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class D
8.060% due 06/15/21 969 998
Mid-St Trust II Class A-3 CMO
9.350% due 04/01/98 633 678
PNC Mortgage Securities Corp.
Series 1994-3 Class A-1
7.500% due 06/18/10 1,466 1,468
United States Department
of Veteran Affairs
REMIC Series 1992-1 Class 2-E
7.750% due 03/15/16 775 810
---------
233,392
---------
NON-US BONDS - 1.8%
Canada, Government of
8.750% due 12/01/05 CAD 3,000 2,457
Germany, Republic of
7.500% due 11/11/04 DEM 5,000 3,839
6.250% due 01/04/24 7,700 5,000
--------
11,296
--------
UNITED STATES GOVERNMENT
AGENCIES - 4.6%
Federal National Mortgage Association
8.200% due 03/10/16 $3,360 4,055
Federal National Mortgage
Association (MTN)
7.640% due 06/16/04 570 589
84 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
Government Backed Trust Certificates
Class 1-C
9.250% due 11/15/01 $12,825 $14,247
Series 2-E
9.400% due 05/15/02 (c) 2,415 2,694
Series T-3
9.625% due 05/15/02 (c) 2,855 3,176
Resolution Funding Corp.
8.875% due 07/15/20 2,275 3,016
8.625% due 01/15/21 1,200 1,560
8.625% due 01/15/30 240 316
---------
29,653
---------
UNITED STATES GOVERNMENT
TREASURIES - 30.1%
United States Treasury Bonds
10.750% due 08/15/05 12,855 17,662
12.750% due 11/15/10 2,455 3,739
13.875% due 05/15/11 4,620 7,520
10.375% due 11/15/12 1,780 2,463
7.250% due 05/15/16 2,500 2,855
7.500% due 11/15/16 550 645
8.750% due 05/15/17 3,310 4,377
8.875% due 08/15/17 960 1,286
8.125% due 08/15/19 18,910 23,776
7.875% due 02/15/21 6,780 8,349
8.125% due 08/15/21 150 190
7.250% due 08/15/22 1,075 1,243
6.250% due 08/15/23 320 329
United States Treasury Notes
4.375% due 11/15/96 6,905 6,854
6.750% due 02/28/97 3,585 3,646
6.875% due 02/28/97 1,490 1,517
6.625% due 03/31/97 65 66
6.500% due 04/30/97 170 173
6.500% due 05/15/97 10,665 10,843
8.500% due 05/15/97 605 631
6.500% due 08/15/97 8,170 8,333
8.750% due 10/15/97 165 175
5.750% due 10/31/97 6,355 6,417
8.875% due 11/15/97 175 186
5.625% due 01/31/98 570 575
5.125% due 02/28/98 415 414
5.125% due 03/31/98 2,390 2,386
5.375% due 05/31/98 4,290 4,304
5.125% due 06/30/98 $1,805 $1,801
8.250% due 07/15/98 985 1,054
5.250% due 07/31/98 1,970 1,971
9.250% due 08/15/98 60 66
4.750% due 08/31/98 550 544
5.125% due 11/30/98 7,995 7,969
5.875% due 03/31/99 480 489
6.500% due 04/30/99 1,035 1,073
6.750% due 06/30/99 550 575
6.375% due 07/15/99 4,890 5,066
6.875% due 07/31/99 2,290 2,405
6.875% due 08/31/99 325 342
6.000% due 10/15/99 80 82
7.750% due 11/30/99 2,140 2,319
6.375% due 01/15/00 9,075 9,422
7.750% due 01/31/00 9,245 10,042
7.125% due 02/29/00 795 846
6.250% due 08/31/00 7,550 7,814
7.500% due 11/15/01 3,975 4,378
6.375% due 08/15/02 2,000 2,097
6.250% due 02/15/03 5,760 6,009
5.750% due 08/15/03 315 319
7.250% due 05/15/04 3,000 3,330
United States Treasury
Zero Coupon due 11/15/99 325 265
Zero Coupon due 11/15/21 4,675 953
--------
192,185
--------
YANKEE BONDS - 1.5%
African Development Bank
8.800% due 09/01/19 535 677
Alberta, Province of
9.250% due 04/01/00 265 300
Asian Development Bank
8.500% due 05/02/01 295 332
British Columbia Hydro & Power
15.500% due 07/15/11 220 246
European Investment Bank
10.125% due 10/01/00 320 377
Inter-American Development Bank
7.000% due 06/15/25 1,385 1,474
Manitoba, Province of
9.250% due 04/01/20 335 440
New Brunswick, Province of
9.750% due 05/15/20 320 428
Fixed Income I Fund 85
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ---------
<S> <C> <C>
Newfoundland, Province of
10.000% due 12/01/20 $150 $202
Nova Scotia, Province of
9.125% due 05/01/21 585 727
Quebec, Province of
7.500% due 07/15/23 900 944
7.125% due 02/09/24 875 880
Saskatchewan, Province of
6.625% due 07/15/03 100 102
8.000% due 07/15/04 1,290 1,438
St. George Bank, Ltd.
7.150% due 10/15/05 975 1,009
--------
9,576
--------
TOTAL LONG-TERM INVESTMENTS
(cost $591,901) 618,969
--------
NUMBER
OF
SHARES
-------
PREFERRED STOCKS - 0.9%
Australia & New Zealand
Banking Group, Ltd. 13,400 365
Banco Bilbao Vizcaya International - ADR 10,000 279
ConAgra Capital LC Series B (c) 15,000 321
Credit Lyonnais Capital - ADR 22,600 562
Credit Lyonnais Capital S.C.A. - ADR 100,000 2,400
Lasalle National Corp. Series K 17,000 892
Texaco Capital Series B (c) 18,000 378
TIG Holdings, Inc. 7,500 801
--------
TOTAL PREFERRED STOCKS (cost $6,443) 5,998
--------
SHORT-TERM INVESTMENTS - 14.2%
Federal Home Loan Mortgage Corp.
Discount Notes
5.740% due 01/16/96 (a) $2,825 $2,818
Frank Russell Investment Company
Money Market Fund due on demand (a) 87,276 87,276
United States Treasury Bills
6.337% due 04/04/96 750 740
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $90,834) 90,834
--------
TOTAL INVESTMENTS
(identified cost $689,178)(d) - 112.1% 715,801
OTHER ASSETS AND LIABILITIES
NET - (12.1%) (77,484)
--------
NET ASSETS - 100.0% $638,317
--------
--------
</TABLE>
(a) At cost, which approximates market.
(b) Forward commitment. See Note 2.
(c) Adjustable or floating rate security.
(d) At December 31, 1995, the cost for federal income tax purposes was $689,671
and net unrealized appreciation for all securities was $26,130. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $27,758 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $1,628.
(MTN) represents Medium Term Note.
The accompanying notes are an integral part of the financial statements.
86 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $689,177,676) (Note 2). . . . . . . . . . . . . . $ 715,801,469
Forward foreign currency exchange contracts (cost $18,521,556)(Notes 2 and 6) . . . . . . 18,541,592
Receivables:,
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,378,951
Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . 9,249,463
Investments sold (delayed settlement). . . . . . . . . . . . . . . . . . . . . . . . . . 8,333,250
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,305,926
-------------
761,610,651
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,431
Investments purchased (regular settlement) . . . . . . . . . . . . . . . 9,384,414
Investments purchased (delayed settlement) . . . . . . . . . . . . . . . 95,122,777
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . 229,826
Accrued bookkeeping service fees (Note 4). . . . . . . . . . . . . . . . 8,179
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . . . . . 163,361
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . . . . . 24,790
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 75,253
Forward foreign currency exchange contracts
(cost $18,521,556)(Notes 2 and 6). . . . . . . . . . . . . . . . . . . 18,262,607 123,293,638
----------- --------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 638,317,013
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 233,747
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . (12,913,856)
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,623,793
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . . . . . 272,168
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295,704
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623,805,457
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $638,317,013
------------
------------
Net asset value, offering and redemption price per share
($638,317,013 divided by 29,570,412 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . $ 21.59
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income I Fund 87
<PAGE>
FIXED INCOME I FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,124,302
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . 3,280,664
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573,221
------------
39,978,187
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,330,021
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,021
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,410
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . 52,174
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,666
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,210
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,487
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,035 1,945,024
---------- ----------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,033,163
----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,665,181
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 122,658
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,912,005
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 272,168
------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,972,012
------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . $ 91,005,175
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
88 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,033,163 $35,839,298
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,665,181 (20,124,615)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . 122,658 2,274
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,912,005 (31,162,485)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . 272,168 --
------------ -----------
Net increase (decrease) in net assets resulting from operations. . . . . . 91,005,175 (15,445,528)
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . (38,659,290) (35,367,734)
In excess of net realized gain on investments. . . . . . . . . . . . . . -- (1,318,765)
Increase (decrease) in net assets from Fund share transactions . . . . . . 89,932,896 14,474,759
------------ ------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 142,278,781 (37,657,268)
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . 496,038,232 533,695,500
------------ ------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $233,747 and $322,119, respectively). . . . . . . . . . . . . . . . . $638,317,013 $496,038,232
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
----------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . . . . . . . . 13,120,392 $272,492,800 7,398,287 $152,608,961
Fund shares issued to shareholders
in reinvestments of distributions. . . . . . . . . . 1,572,860 32,941,373 1,552,275 31,130,208
Fund shares redeemed . . . . . . . . . . . . . . . . . (10,440,155) (215,501,277) (8,182,615) (169,264,410)
------------ ---------- --------- -------------
Net increase (decrease). . . . . . . . . . . . . . . . 4,253,097 $89,932,896 767,947 $14,474,759
----------- ---------- --------- ------------
----------- ---------- --------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income I Fund 89
<PAGE>
FIXED INCOME I FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from
the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . $19.59 $21.74 $21.61 $22.29 $20.86
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.42 1.46 1.50 1.63 1.71
Net realized and unrealized gain (loss) on investments . . . . . . . . . . 2.02 (2.06) .72 (.07) 1.49
------ ----- ----- ----- -----
Total Income From Investment Operations. . . . . . . . . . . . . . . . . . 3.44 (.60) 2.22 1.56 3.20
------ ------ ----- ------ -----
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . (1.44) (1.44) (1.50) (1.62) (1.69)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . -- -- (.01) -- --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . -- -- (.58) (.62) (.08)
In excess of net realized gain on investments. . . . . . . . . . . . . . . -- (.11) -- -- --
------ ------ ------ ------ -----
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.44) (1.55) (2.09) (2.24) (1.77)
------ ------ ------ ------ -----
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . $21.59 $19.59 $21.74 $21.61 $22.29
----- ------ ------ ------ ------
----- ------ ------ ------ ------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.03 (2.97) 10.46 7.26 16.01
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . . . . . . . . . .35 .10 .09 .10 .10
Net investment income to average net assets (a). . . . . . . . . . . . . . 6.82 7.06 6.71 7.45 8.08
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138.05 173.97 173.27 211.26 121.91
Net assets, end of year ($000 omitted) . . . . . . . . . . . . . . . . . . . 638,317 496,038 533,696 530,857 458,201
</TABLE>
(a) For periods prior to April 1, 1995, fund performance operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees. See
Note 4.
90 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 FIXED I LB AGGREGATE **
- ----------------- -------- -------------------------
<S> <C> <C>
Inception* $10,000 $10,000
1986 $11,694 $11,526
1987 $11,868 $11,844
1988 $12,908 $12,779
1989 $14,631 $14,636
1990 $15,889 $15,947
1991 $18,434 $18,499
1992 $19,772 $19,869
1993 $21,839 $21,806
1994 $21,190 $21,170
1995 $25,011 $25,081
</TABLE>
Fixed Income I Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $11,803 18.03%
5 Years $15,741 9.49%***
10 Years $25,011 9.60%***
</TABLE>
Lehman Brothers Aggregate Bond Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $11,848 18.48%
5 Years $15,727 9.48%***
10 Years $25,081 9.63%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Lehman Brothers Aggregate Bond Index is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index,
and the Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
*** Annualized.
THE FIXED INCOME I FUND returned 18% for 1995, trailing the Lehman Brothers
Aggregate Bond Index return of 18.5%. The portfolio was managed in a manner
consistent with its objective to reduce risk and provide exposure to multiple
strategies for adding value by employing managers with separate and distinct
assignments. The Fund seeks to provide investors a conservative vehicle to meet
the traditional bond investing objectives of core fixed income exposure and
diversification against equities.
While interest rates fell throughout 1995, bond investors experienced an
eventful year. Bond markets reacted disapprovingly to the US budget impasse in
Washington, but soon resumed their bullish form. By year end, investors bid the
30-year treasury bond yield down to 5.94%, a two-year low. For the year, the
Fund trailed the index, largely due to the negative impact of falling interest
rates on its mortgage-backed securities holdings. Duration was an important
factor in returns for most of the year, with long maturity bonds up more than
30%. Corporate bonds led other sectors for most of 1995.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Fixed Income I Fund 91
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
LONG-TERM INVESTMENTS - 86.9%
ASSET-BACKED SECURITIES - 7.9%
Advanta Home Equity Loan Trust
Series 1994-1 Class A-2
6.300% due 07/25/25 $ 246 $ 244
ALPS Pass-thru Trust
Series 1994-1 Class A-2
7.150% due 11/15/97 (c) 333 338
Chase Manhattan Grantor Trust
Series 1995-B Class A
5.900% due 11/15/01 774 778
Daimler-Benz Auto Grantor Trust
Series 1995-A Class A
5.850% due 05/15/02 1,730 1,738
EQCC Home Equity Loan Trust
Series 1993-4 Class A
5.725% due 12/15/08 79 77
Ford Credit Grantor Trust
Series 1994-B Class A
7.300% due 10/15/99 1,023 1,043
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 258 252
Green Tree Financial Corp.
Series 1992-2 Class A-2
7.050% due 01/15/18 66 67
Series 1994-1 Class A-1
5.600% due 04/15/19 659 658
Series 1995-A Class A
7.250% due 07/15/05 289 293
Series 1995-D Class A2
6.250% due 09/15/25 800 806
NationsBank Auto Grantor Trust
Series 1995-A Class A
5.850% due 06/15/02 1,687 1,695
Nissan Auto Receivables Grantor Trust
Series 1995-A Class A
6.100% due 08/15/01 1,980 1,997
Remodelers Home Improvement Loan
Series 1995-3 Class A2
6.800% due 12/20/07 425 438
Resolution Trust Corp.
Mortgage Pass-thru Certificates
Series 1992-CHF Class B
7.150% due 12/25/20 808 816
Series 1992-M2 Class A-4
8.465% due 03/25/20 26 26
Series 1992-M3 Class A-1
7.750% due 07/25/30 102 104
SPNB Home Equity Loan
Series 1991-1 Class B
8.150% due 06/15/20 187 191
TMS Home Equity Loan Trust
Series 1993-D Class A-1
5.675% due 12/15/08 2,032 1,978
Series 1994-C Class A-1
6.775% due 09/15/07 610 610
UCFC Home Equity Loan Trust
Series 1994-B Class A-6
7.100% due 06/10/23 259 266
--------
14,415
--------
CORPORATE BONDS AND NOTES - 24.5%
Ahmanson (H.F.)
9.875% due 11/15/99 375 425
Associates Corp. of North America
6.000% due 03/15/00 400 403
Avalon Properties, Inc.
7.375% due 09/15/02 375 387
Bank of Boston Corp.
9.500% due 08/15/97 995 1,055
Bear Stearns Co., Inc.
6.750% due 08/15/00 1,275 1,311
BP America, Inc.
10.150% due 03/15/96 250 252
Capital One Bank (MTN)
8.125% due 02/27/98 1,150 1,201
Caterpillar Financial Services (MTN)
6.100% due 07/15/99 1,250 1,262
Chase Manhattan Corp.
7.500% due 12/01/97 950 982
5.938% due 12/05/09 (c) 200 194
Chemical Banking Corp.
10.375% due 03/15/99 250 281
10.125% due 11/01/00 259 304
CIT Group Holdings, Inc. (MTN)
5.500% due 02/28/97 425 426
Continental Bank Corp.
9.875% due 06/15/96 175 178
Enterprise Rent-A-Car USA
Finance Co. (MTN)
7.875% due 03/15/98 1,100 1,150
ERP Operating, L.P.
6.625% due 12/22/97 (c) 700 704
8.500% due 05/15/99 625 662
First Union Corp.
6.750% due 01/15/98 750 764
Fixed Income II Fund 93
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
First USA Bank
8.200% due 02/15/98 $ 250 $ 260
5.750% due 01/15/99 875 872
Fleet Financial Group, Inc.
7.250% due 10/15/97 1,025 1,054
Ford Motor Credit Co. (MTN)
9.125% due 06/20/96 1,500 1,523
Ford Motor Credit Co. CMS Floater (MTN)
4.820% due 07/08/96 (c) 2,000 1,992
Franchise Finance Corp.
7.000% due 11/30/00 575 578
General Motors Acceptance Corp. (MTN)
8.250% due 08/29/96 400 407
7.850% due 05/08/97 350 360
6.625% due 03/22/99 725 743
Georgia Pacific Corp.
9.850% due 06/15/97 675 712
Goldman Sachs Group, L.P.
7.625% due 05/29/97 550 563
6.375% due 06/15/00 325 329
6.200% due 12/15/00 275 277
Greyhound Financial Corp.
9.670% due 07/01/97 750 790
GTE Corp.
10.750% due 09/15/17 1,150 1,288
Health & Rehabilitation Properties Trust
6.345% due 07/13/99 (c) 725 721
Hertz Corp.
9.500% due 05/15/98 675 729
Huntington Bancshares, Inc.
Series A (MTN)
6.150% due 10/15/98 1,500 1,520
International Lease Finance Corp.
5.500% due 04/01/97 1,000 997
ITT Corp. New
6.250% due 11/15/00 1,200 1,211
Merrill Lynch & Co., Inc.
9.000% due 05/01/98 900 962
Midlantic Corp.
9.250% due 09/01/99 375 416
Morgan Stanley Group, Inc.
8.000% due 10/15/96 450 457
Occidental Petroleum Corp.
9.625% due 07/01/99 650 661
Occidental Petroleum Corp. (MTN)
5.950% due 11/09/98 1,225 1,231
Salomon, Inc.
6.700% due 12/01/98 500 502
Salomon, Inc. CMT Floater (MTN)
5.767% due 04/05/99 (c) 1,100 1,045
Shawmut Corp.
8.875% due 04/01/96 600 604
8.125% due 02/01/97 533 547
Smith Barney Holdings, Inc.
6.000% due 03/15/97 650 653
7.875% due 10/01/99 675 719
7.980% due 03/01/00 765 820
System Energy Resources, Inc.
7.625% due 04/01/99 1,500 1,556
Taubman Realty Group, L.P.
8.000% due 06/15/99 350 367
Tennessee Gas Pipeline Co.
9.250% due 05/15/96 450 455
9.000% due 01/15/97 450 464
Time Warner, Inc.
9.625% due 05/01/02 1,175 1,361
Transamerica Corp.
9.875% due 01/01/98 775 837
USF&G Corp.
7.000% due 05/15/98 2,350 2,402
Wells Fargo & Co.
8.200% due 11/01/96 100 103
--------
45,029
--------
EURODOLLAR BONDS - 0.5%
Chrysler Financial Corp.
9.500% due 04/12/96 275 277
Goldman Sachs Group, L.P.
5.000% due 08/23/96 700 696
--------
973
--------
MORTGAGE-BACKED SECURITIES - 24.2%
FDIC REMIC Trust
Series 1994-C1 Class 2A-1
6.300% due 09/25/25 61 61
Series 1994-C1 Class 2A-2
7.850% due 09/25/25 700 721
Federal Home Loan Mortgage Corp.
Participation Certificates
Group # 23-0114 7.375% due 03/01/06 (c) 365 373
Group # 25-1211 6.250% due 06/01/07 255 253
Group # 84-6187 7.557% due 04/01/24 (c) 45 45
Group # 84-6188 6.786% due 12/01/99 (c) 1,056 1,079
Group # 84-6190 7.358% due 04/01/29 (c) 770 796
94 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Group # 85-0105 9.000% due 09/01/05 $ 442 $ 462
Group # D2-9159 7.500% due 10/01/07 621 639
Group # D3-2311 8.500% due 12/01/17 975 1,025
Group # G0-0238 8.500% due 07/01/24 1,156 1,216
Group # G5-0215 8.000% due 08/01/97 2,904 2,924
Group # G5-0238 8.000% due 01/01/00 829 835
Group # G5-0249 8.500% due 03/01/00 909 914
Group # G5-0258 7.500% due 05/01/00 2,409 2,439
Group # G5-0297 7.500% due 10/01/00 191 193
Group # G5-0307 7.500% due 08/01/00 441 452
Group # L7-3024 8.000% due 12/01/99 177 178
Group # L7-3057 8.000% due 01/01/00 30 30
Group # L7-3072 8.000% due 01/01/00 113 113
Group # L7-3123 8.000% due 03/01/00 332 334
Group # L9-0165 8.500% due 03/01/00 460 462
Group # L9-0166 7.500% due 05/01/00 581 588
Group # M9-0380 8.500% due 01/01/00 230 232
Group # M9-0386 8.000% due 02/01/00 629 634
Series 1357 Class E Inverse Floater
3.667% due 08/15/97 (c) 548 536
Series 1442 Class S Inverse Floater
4.920% due 12/15/97 543 538
Federal National Mortgage Association
Pool # 040063 8.500% due 12/01/08 203 212
Pool # 116591 7.248% due 01/01/21 (c) 512 516
Pool # 124940 7.943% due 07/01/23 (c) 715 730
Pool # 149168 10.000% due 04/01/20 553 608
Pool # 250229 9.500% due 02/01/25 898 957
Pool # 300695 9.500% due 12/01/24 483 515
Pool # 303172 7.523% due 12/01/24 (c) 720 740
Pool # 303453 9.500% due 05/01/25 1,119 1,192
Pool # 303599 6.565% due 10/01/24 (c) 1,432 1,480
Pool # 305054 9.500% due 03/01/25 834 889
Pool # 305160 9.500% due 02/01/25 327 349
Pool # 305620 9.500% due 02/01/25 720 767
Pool # 306250 9.500% due 02/01/25 363 387
Federal National Mortgage Association
REMIC Trust Series 1995-W2 Class 1A
7.610% due 05/25/22 660 674
Government National Mortgage Association
Pool # 002626 7.250% due 01/15/04 299 313
Pool # 007192 7.250% due 05/15/05 158 165
Pool # 007397 7.250% due 07/15/05 149 156
Pool # 008000 7.375% due 06/20/22 (c) 2,008 2,047
Pool # 008334 7.250% due 10/15/05 329 344
Pool # 008348 7.000% due 12/20/23 (c) 1,185 1,213
Pool # 008597 7.500% due 02/20/25 (c) 569 579
Pool # 008623 7.500% due 04/20/25 370 377
Pool # 008633 7.500% due 05/20/25 (c) 24 25
Pool # 008638 6.000% due 06/20/25 (c) 494 502
Pool # 008644 7.500% due 06/20/25 (c) 899 917
Pool # 038360 10.000% due 11/15/09 67 74
Pool # 262217 10.000% due 11/15/18 10 11
Pool # 269081 10.000% due 03/15/19 183 202
Pool # 270351 10.000% due 10/15/19 325 357
Pool # 278723 10.000% due 08/15/19 371 408
Pool # 294892 10.000% due 08/15/20 177 195
Pool # 302208 10.000% due 01/15/21 248 273
Pool # 361934 9.000% due 01/15/25 374 397
Pool # 378520 9.000% due 10/15/24 618 655
Pool # 385922 9.000% due 10/15/24 82 87
Pool # 390595 9.000% due 08/15/24 348 368
Pool # 393733 9.000% due 03/15/25 353 374
Pool # 393743 9.000% due 02/15/25 396 420
Pool # 394228 9.000% due 05/15/25 322 341
Pool # 404124 9.000% due 07/15/25 676 716
Pool # 404834 9.000% due 01/15/25 27 29
Pool # 404985 9.000% due 04/15/25 90 95
Pool # 405350 9.000% due 11/15/24 197 209
Pool # 405540 9.000% due 12/15/25 644 682
Pool # 407358 9.000% due 04/15/25 381 404
Pool # 407720 9.000% due 07/15/25 215 228
Pool # 407985 9.500% due 03/15/25 235 252
Pool # 410067 9.500% due 07/15/25 790 848
Pool # 780285 9.500% due 11/15/25 877 941
Government National Mortgage Association
9.000% 30 Year TBA (b) 400 424
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class D
8.293% due 06/15/21 373 384
Resolution Trust Corp.
Series 1995-2 Class C1
7.450% due 05/25/29 338 335
--------
44,435
--------
UNITED STATES GOVERNMENT
AGENCIES - 1.5%
Federal Farm Credit Bank (MTN)
6.260% due 10/15/98 1,000 1,011
Federal National Mortgage Association
CMT Floater (MTN)
4.820% due 04/29/96 (c) 950 936
Resolution Funding Corp.
Interest Only Strips
Zero Coupon due 10/15/98 850 734
--------
2,681
--------
Fixed Income II Fund 95
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
UNITED STATES GOVERNMENT
Treasuries - 24.3%
United States Treasury
Interest Only Strips
Zero Coupon due 08/15/98 $ 1,175 $ 1,026
Zero Coupon due 11/15/98 5,600 4,826
United States Treasury Notes
7.500% due 12/31/96 2,200 2,248
6.875% due 02/28/97 6,025 6,136
6.750% due 05/31/97 2,900 2,960
6.375% due 06/30/97 2,000 2,033
5.375% due 11/30/97 3,255 3,266
7.250% due 02/15/98 2,950 3,068
6.125% due 05/15/98 7,000 7,140
5.375% due 05/31/98 700 702
5.250% due 07/31/98 725 725
5.125% due 11/30/98 4,075 4,062
7.750% due 12/31/99 2,550 2,766
6.250% due 08/31/00 1,010 1,045
6.125% due 09/30/00 1,250 1,288
5.625% due 11/30/00 1,345 1,357
--------
44,648
--------
YANKEE BONDS - 4.0%
Ford Capital BV
9.000% due 08/15/98 1,000 1,079
Forte
7.750% due 12/19/96 1,220 1,239
Household International
5.250% due 10/15/98 1,150 1,134
Ontario, Province of
17.000% due 11/05/11 945 1,090
11.500% due 03/10/13 1,585 1,837
Quebec, Province of
13.000% due 10/01/13 830 1,012
--------
7,391
--------
TOTAL LONG-TERM INVESTMENTS
(cost $159,410) 159,572
--------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- --------
<S> <C> <C>
PREFERRED STOCKS - 0.8%
ConAgra Capital LC Series B (c) 39,000 834
Texaco Capital Series B (c) 28,000 588
--------
TOTAL PREFERRED STOCKS
(cost $1,675) 1,422
--------
<CAPTION> PRINCIPAL
AMOUNT
(000)
---------
<S> <C>
SHORT-TERM INVESTMENTS - 11.3%
Frank Russell Investment Company
Money Market Fund, due on demand (a) $ 20,803 20,803
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $20,803) 20,803
--------
TOTAL INVESTMENTS
(identified cost $181,888)(d) - 99.0% 181,797
OTHER ASSETS AND LIABILITIES
NET - 1.0% 1,780
--------
NET ASSETS - 100.0% $183,577
--------
--------
</TABLE>
(a) At cost, which approximates market.
(b) Forward commitment. See Note 2.
(c) Adjustable or floating rate securities.
(d) At December 31, 1995, the cost for federal income tax purposes was $181,925
and net unrealized depreciation for all securities was $128. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $1,545 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $1,673.
(MTN) represents Medium Term Note.
The accompanying notes are an integral part of the financial statements.
96 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified
cost $181,888,188)(Note 2) . . . . . . . . . . . . $ 181,796,979
Receivables:
Dividends and interest . . . . . . . . . . . . . . 2,161,996
Investments sold . . . . . . . . . . . . . . . . . 10,527
Fund shares sold . . . . . . . . . . . . . . . . . 354,668
-------------
184,324,170
LIABILITIES
Payables:
Investments purchased (delayed
settlement)(Note 2) . . . . . . . . $427,625
Fund shares redeemed . . . . . . . . 170,314
Accrued bookkeeping service
fees (Note 4) . . . . . . . . . . . 5,124
Accrued management fees (Note 4). . . 76,807
Accrued transfer agent fees (Note 4). 14,850
Other accrued expenses and payables . 52,384 747,104
-------- -------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 183,577,066
-------------
-------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . $ 409,452
Accumulated net realized gain (loss) . . . . . . . . (5,292,179)
Unrealized appreciation (depreciation)
on investments . . . . . . . . . . . . . . . . . . (91,209)
Shares of beneficial interest . . . . . . . . . . . 98,980
Additional paid-in capital . . . . . . . . . . . . . 188,452,022
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 183,577,066
-------------
-------------
Net asset value, offering and redemption price
per share ($183,577,066 divided by 9,898,023 shares
of $.01 par value shares of beneficial interest
outstanding) . . . . . . . . . . . . . . . . . . . . $18.55
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income II Fund 97
<PAGE>
FIXED INCOME II FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $ 10,126,400
Dividends from Money Market Fund (Note 5) . . . . . . . 1,060,764
Dividends . . . . . . . . . . . . . . . . . . . . . . . 114,344
------------
11,301,508
Expenses (Notes 2 and 4):
Management fees . . . . . . . . . . . . $ 626,548
Custodian fees . . . . . . . . . . . . 135,762
Transfer agent fees . . . . . . . . . . 98,621
Bookkeeping service fees . . . . . . . 21,739
Professional fees . . . . . . . . . . . 22,016
Registration fees . . . . . . . . . . . 23,472
Trustees' fees . . . . . . . . . . . . 4,338
Miscellaneous . . . . . . . . . . . . . 9,176 941,672
------------
Net investment income . . . . . . . . . . . . . . . . . . 10,359,836
------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . (84,433)
Options written . . . . . . . . . . . . . . . . . . . . (12,969)
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . 4,916,070
Options written . . . . . . . . . . . . . . . . . . . . (424)
------------
Net gain (loss) on investments . . . . . . . . . . . . . 4,818,244
------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . $ 15,178,080
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
98 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . $ 10,359,836 $ 9,571,414
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . (84,433) (4,240,414)
Options written . . . . . . . . . . . (12,969) 22,750
Net change in unrealized appreciation
or depreciation of:
Investments . . . . . . . . . . . . . 4,916,070 (4,068,419)
Options written . . . . . . . . . . . (424) 424
------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . 15,178,080 1,285,755
Distributions to shareholders from net
investment income . . . . . . . . . . . (10,433,057) (9,088,740)
Increase (decrease) in net assets from
Fund share transactions . . . . . . . . 34,801,870 13,213,872
------------- -------------
INCREASE (DECREASE) IN NET ASSETS . . . . 39,546,893 5,410,887
Net assets at beginning of year . . . . . 144,030,173 138,619,286
------------- -------------
NET ASSETS AT END OF YEAR
(including undistributed net
investment income of $409,452
and $482,674, respectively) . . . . . . $ 183,577,066 $ 144,030,173
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . 5,221,430 $ 96,387,044 4,162,933 $ 76,778,267
Fund shares issued to shareholders
in reinvestments of distributions . . . 498,074 9,137,877 413,748 7,543,865
Fund shares redeemed . . . . . . . . . . (3,831,364) (70,723,051) (3,866,382) (71,108,260)
------------- ------------- ------------- -------------
Net increase (decrease) . . . . . . . . . 1,888,140 $ 34,801,870 710,299 $ 13,213,872
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income II Fund 99
<PAGE>
FIXED INCOME II FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $ 17.98 $ 18.99 $ 18.56 $ 19.68 $ 18.94
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . 1.16 1.21 .84 1.35 1.52
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . .59 (1.07) .44 (.83) .72
-------- -------- -------- -------- --------
Total Income From Investment Operations . . . 1.75 .14 1.28 .52 2.24
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . (1.18) (1.15) (.71) (1.36) (1.50)
Net realized gain on investments . . . . . -- -- -- (.28) --
Tax return of capital . . . . . . . . . . . -- -- (.14) -- --
-------- -------- -------- -------- --------
Total Distributions . . . . . . . . . . . . (1.18) (1.15) (.85) (1.64) (1.50)
NET ASSET VALUE, END OF YEAR . . . . . . . . $ 18.55 $ 17.98 $ 18.99 $ 18.56 $ 19.68
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . 9.95 .82 6.98 2.74 12.31
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net
assets (a). . . . . . . . . . . . . . . . .58 .19 .16 .19 .13
Net investment income to average net
assets (a). . . . . . . . . . . . . . . . 6.41 6.52 6.16 7.21 8.06
Portfolio turnover. . . . . . . . . . . . . 269.31 233.75 229.07 330.58 188.30
Net assets, end of year ($000 omitted). . . 183,577 144,030 138,619 182,735 156,685
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to
the Manager or money managers. For periods thereafter, they are reported
net of investment management fees but gross of any investment services
fees. See Note 4.
100 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 FIXED II ML 1-2.99 **
- ----------------- -------- ------------
<S> <C> <C>
Inception* $10,000 $10,000
1986 $10,934 $11,035
1987 $11,504 $11,658
1988 $12,447 $12,384
1989 $13,815 $13,730
1990 $15,156 $15,065
1991 $17,022 $16,824
1992 $17,489 $17,885
1993 $18,710 $18,852
1994 $18,863 $18,959
1995 $20,739 $21,045
</TABLE>
Fixed Income II Fund
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------ ------------ ------------
<S> <C> <C>
1 Year $ 10,995 9.95%
5 Years $ 13,684 6.47%***
10 Years $ 20,739 7.56%***
</TABLE>
Merrill Lynch 1-2.99 Years Treasury Index
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------ ------------ ------------
<S> <C> <C>
1 Year $ 11,100 11.00%
5 Years $ 13,969 6.91%***
10 Years $ 21,045 7.72%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Merrill Lynch 1-2.99 Years Treasury Index is an index composed of
approximately 160 issues in the form of publicly placed, coupon-bearing
US Treasury debt. Issues must carry a term to maturity of at least one
year, and par amounts outstanding must be no less than $10 million at
the start and at the close of the performance measurement periods.
*** Annualized.
FIXED INCOME II FUND returned 10% in 1995, trailing the Merrill Lynch 1-2.99
Years Treasury Index return of 11%. The portfolio was managed in a manner
consistent with its objective to maximize total return, limit price
volatility, and provide a consistent level of current income. The Fund seeks
to reduce risk and provide exposure to a variety of total-return and
income-producing strategies by employing the services of two bond managers,
each with a separate and distinct assignment.
During the year, short-term bond investors saw rates fall by over 200 basis
points in the one- to five-year segment of the market. The Fund lagged the
index in 1995 by 105 basis points. For most of the year, widening interest
rate spreads had a negative impact on the mortgage sector relative to the
index. This was partially offset by the income advantage of the sector and
good performance from corporate bond holdings.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
Fixed Income Fund 101
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
LONG-TERM INVESTMENTS - 76.5%
ASSET-BACKED SECURITIES - 5.4%
American Airlines, Inc.
Series 1990-P
10.600% due 03/04/09 $ 1,013 $ 1,295
Drexel Burnham Lambert CMO Trust
8.900% due 06/01/16 121 121
Equicon Home Equity Loan Trust
Series 1993-1 Class A
5.850% due 11/18/12 48 48
Fleetwood Credit Corp. Grantor Trust
Series 1994-B Class A
6.750% due 03/15/10 582 593
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 172 168
Green Tree Financial Corp.
Series 1995-5 Class A3
6.250% due 10/15/25 600 608
Series 1995-6 Class A3
6.650% due 11/15/25 900 921
Series 1995-7 Class A2
6.150% due 11/15/25 1,150 1,159
Series 1995-8 Class A2
6.150% due 12/15/26 950 964
Series 1995-A Class A
7.250% due 07/15/05 444 451
Greenwich Capital Acceptance, Inc.
Series 1994 Class A-1
7.650% due 11/25/24 (c) 1,341 1,368
Kearny Street Real Estate, L.P.
Series 1995-1 Class B
6.600% due 10/15/02 1,500 1,508
Olympic Automobile Receivables Trust
Series 1995-C Class A2
6.200% due 06/15/02 843 853
Prudential Home Mortgage Securities Co.
Mortgage Pass-thru Series 189
10.000% due 11/01/19 35 35
Series 1992-51 Class A-8
8.000% due 02/25/23 500 505
Resolution Trust Corp.
Mortgage Pass-thru Certificates
Series 1994-1 Class M-2
7.750% due 09/25/29 455 459
Series 1995-1 Class 2-C
7.500% due 10/25/28 (c) 325 330
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 300 298
Salomon Brothers Mortgage
Securities VII, Inc. Mortgage
Pass-thru Certificate
Series 1994-16 Class A
7.790% due 11/25/24 (c) 1,514 1,553
UCFC Home Equity Loan Trust
Series 1994-B Class A-6
7.100% due 06/10/23 296 303
--------
13,540
--------
CORPORATE BONDS AND NOTES - 21.7%
Acme Metals, Inc. Step Up Bond
13.500% due 08/01/04 370 304
Adelphia Communications Corp.
PIK Series B
9.500% due 02/15/04 803 626
ADT Operations, Inc.
8.250% due 08/01/00 375 396
American Airlines Class A-1
9.710% due 01/02/07 379 439
American Standard, Inc.
10.875% due 05/15/99 375 412
AMR Corp. (MTN)
9.950% due 03/07/01 1,000 1,131
Anchor Bancorp, Inc.
8.937% due 07/09/03 150 148
Arkla, Inc. (MTN)
8.780% due 07/19/96 1,000 1,012
Armco, Inc.
9.375% due 11/01/00 265 262
Bally's Casino Holdings, Inc.
Zero Coupon due 06/15/98 230 185
Banesto Delaware, Inc.
8.250% due 07/28/02 1,000 1,093
BellSouth Telecommunications, Inc.
5.850% due 11/15/45 1,100 1,112
Berkeley Federal Bank & Trust
12.000% due 06/15/05 325 335
Cablevision Industries Co.
9.250% due 04/01/08 380 407
Capital One Bank
8.625% due 01/15/97 325 334
Fixed Income III Fund 103
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Chevy Chase Savings Bank
9.250% due 12/01/05 $ 500 $ 510
Citicorp (MTN)
6.750% due 10/15/07 380 389
Clark Oil & Refining Corp.
9.500% due 09/15/04 200 207
Cleveland Electric Illum Co.
9.375% due 03/01/17 1,000 997
Cleveland Electric Illum Co. (MTN)
9.110% due 07/22/96 1,000 1,010
Cleveland Electric Illum Co. Series B
9.500% due 05/15/05 130 135
CMS Energy Corp.
9.500% due 10/01/97 1,000 1,035
Coast Federal Bank
13.000% due 12/31/02 250 284
Coast Savings Financial, Inc.
10.000% due 03/01/00 275 288
Columbia Gas Systems, Inc.
Series A
6.390% due 11/28/00 58 59
Series B
6.610% due 11/28/02 51 52
Series C
6.800% due 11/28/05 51 52
Series D
7.050% due 11/28/07 51 52
Series E
7.320% due 11/28/10 51 52
Series F
7.420% due 11/28/15 51 52
Series G
7.620% due 11/28/25 51 52
Columbia/HCA Health Care Corp.
6.630% due 07/15/45 550 568
Companhia Petroleo Ipiranga
8.625% due 02/25/02 (c) 650 634
Continental Cablevision, Inc.
8.500% due 09/15/01 100 104
8.625% due 08/15/03 125 130
8.300% due 05/15/06 750 753
Cott Corp.
9.375% due 07/01/05 475 474
CTC Mansfield Funding Corp.
10.250% due 03/30/03 1,000 1,014
Delta Air Lines, Inc.
10.375% due 02/01/11 195 244
Dime Bancorp, Inc.
10.500% due 11/15/05 395 435
EnviroSource, Inc.
9.750% due 06/15/03 570 502
Exide Corp.
10.750% due 12/15/02 250 271
Exide Corp. Step Up Bond
12.250% due 12/15/04 580 487
Falcon Holdings Group, L.P. PIK Series B
11.000% due 09/15/03 424 403
Federal Realty Investment Trust
8.875% due 01/15/00 725 786
First Nationwide Holdings, Inc.
12.250% due 05/15/01 425 484
First USA Bank
8.200% due 02/15/98 475 495
Ford Motor Credit Co. CMS Floater (MTN)
4.820% due 07/12/96 (c) 200 199
Gaylord Container Corp. Step Up Bond
12.750% due 05/15/05 165 163
General Medical Corp. of Virginia PIK
12.125% due 08/15/05 1,139 1,164
General Motors Acceptance Corp.
8.625% due 06/15/99 270 293
General Motors Acceptance Corp. (MTN)
5.480% due 07/19/96 (c) 2,000 2,001
7.375% due 04/15/99 1,000 1,048
Goldman Sachs Group, L.P.
6.375% due 06/15/00 1,050 1,062
Grancare, Inc.
9.375% due 09/15/05 775 787
Grancare, Inc. (conv.)
6.500% due 01/15/03 200 173
Grupo Industrial Durango SA de CV
12.000% due 07/15/01 625 548
Hanson America, Inc. (conv.)
2.390% due 03/01/01 550 457
Inland Steel Industries, Inc.
12.750% due 12/15/02 325 366
Koppers Industries, Inc.
8.500% due 02/01/04 550 528
Liberty Mutual Insurance Co.
8.200% due 05/04/07 575 639
Long Island Lighting Co.
6.250% due 07/15/01 190 182
8.900% due 07/15/19 200 202
104 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Nabisco, Inc.
8.000% due 01/15/00 $ 2,000 $ 2,126
New England Mutual Life Insurance Co.
7.875% due 02/15/24 400 413
News America Holdings, Inc.
8.875% due 04/26/23 375 434
7.700% due 10/30/25 325 332
Niagara Mohawk Power Corp.
7.375% due 08/01/03 190 178
5.875% due 09/01/02 260 232
NWA Trust
13.875% due 06/21/08 90 105
Owens-Illinois, Inc.
11.000% due 12/01/03 700 791
PDV America, Inc.
7.875% due 08/01/03 830 778
PennCorp. Financial Group, Inc.
9.250% due 12/15/03 775 787
Peters (JM), Co.
12.750% due 05/01/02 280 256
Pueblo Xtra International
9.500% due 08/01/03 255 238
Purity Supreme, Inc. Series B
11.750% due 08/01/99 350 383
Revlon Worldwide Corp. Series B
Zero Coupon due 03/15/98 290 215
Riggs National Corp. Washington, D.C.
9.650% due 06/15/09 875 1,015
Salomon, Inc.
9.375% due 04/15/98 250 266
6.700% due 12/01/98 450 452
7.125% due 08/01/99 425 429
Smith Barney Holdings, Inc.
7.980% due 03/01/00 325 348
6.500% due 10/15/02 275 280
Southland Corp. Series A
4.500% due 06/15/04 593 463
Stone Container Corp.
9.875% due 02/01/01 800 778
Stop & Shop Cos., Inc.
9.750% due 02/01/02 375 413
Summit Communications Group, Inc.
10.500% due 04/15/05 390 435
Swiss Bank Corp.
6.750% due 07/15/05 420 439
Taubman Realty Group, L.P.
8.000% due 06/15/99 450 472
Tenet Healthcare Corp.
8.625% due 12/01/03 775 814
Time Warner, Inc.
6.835% due 08/15/00 (c) 625 629
7.975% due 08/15/04 375 397
8.110% due 08/15/06 1,140 1,214
8.180% due 08/15/07 750 806
9.125% due 01/15/13 575 648
9.150% due 02/01/23 1,540 1,746
Toledo Edison Co.
8.700% due 09/01/02 500 460
Toledo Edison Co. (MTN)
8.000% due 12/31/98 500 497
Transco Energy Co.
9.375% due 08/15/01 500 574
U.S. West Communications, Inc.
7.200% due 11/10/26 400 412
UCC Investors Holding, Inc.
Step Up Bond
12.000% due 05/01/05 230 175
United Companies Financial Corp.
9.350% due 11/01/99 375 398
United Technologies Corp.
8.875% due 11/15/19 170 212
USF&G Corp.
8.375% due 06/15/01 250 274
Viacom, Inc.
7.750% due 06/01/05 650 689
Wellsford Residential Property Trust
9.375% due 02/01/02 475 532
Westpoint Stevens, Inc.
8.750% due 12/15/01 300 299
--------
54,852
--------
EURODOLLAR BONDS - 1.8%
Argentina, Republic of Series L
6.813% due 03/31/05 (c) 2,000 1,425
Bulgaria, Republic of Series A
6.750% due 07/28/24 (c) 550 292
Credit Lyonnais
6.844% due 09/19/49 (f) 230 209
Fifth Mexican Acceptance Corp. Class A
8.000% due 12/15/98 800 320
Hong Kong & Shanghai Bank
6.250% due 08/29/49 (f) 625 499
Indah Kiat Paper & Pulp
8.875% due 11/01/00 155 145
Fixed Income III Fund 105
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Mexico (United Mexican States)
6.766% due 12/31/19 (c) $ 2,000 $ 1,445
Midland Bank
6.063% due 12/31/49 (f) 170 137
--------
4,472
--------
MORTGAGE-BACKED SECURITIES - 27.5%
Asset Securitization Corp.
Series 1995-MD4 Class A1
7.100% due 08/13/29 699 729
Collateralized Mortgage Securities Corp.
Series J Class J-5 CMO
7.985% due 05/01/17 1,485 1,514
FDIC REMIC Trust
Series 1994-C1 Class 2A-2
7.850% due 09/25/25 500 515
Federal Home Loan Mortgage Corp
8.000% 30 Year TBA (e) 5,550 5,751
Participation Certificates
Series 1014 Class E
7.950% due 02/15/20 1,100 1,128
Series 1037 Class Z
9.000% due 02/15/21 1,542 1,655
Federal National Mortgage Association
Pool #024193 7.000% due 09/01/25 986 994
Pool #024205 7.000% due 09/01/25 986 994
Pool #050714 7.500% due 04/01/23 70 72
Pool #050748 7.500% due 06/01/23 76 78
Pool #050766 7.500% due 07/01/23 673 690
Pool #050796 7.500% due 09/01/23 451 463
Pool #050996 7.500% due 02/01/24 658 674
Pool #124032 10.000% due 02/01/05 515 542
Pool #190218 7.500% due 04/01/23 293 301
Pool #213445 7.500% due 07/01/23 84 86
Pool #228620 7.500% due 07/01/23 22 23
Pool #229089 7.500% due 07/01/23 515 528
Pool #242008 7.500% due 12/01/23 84 86
Pool #250329 7.000% due 08/01/25 295 298
Pool #250359 7.000% due 10/01/25 494 498
Pool #265289 7.000% due 05/01/24 96 96
Pool #265560 5.671% due 01/01/24 (c) 3,583 3,647
Pool #275296 7.000% due 07/01/24 507 512
Pool #280365 7.000% due 05/01/24 716 722
Pool #303016 6.000% due 10/01/01 1,388 1,386
Pool #303555 7.000% due 09/01/25 2,184 2,202
Pool #307564 7.000% due 06/01/25 860 867
Pool #312494 7.000% due 07/01/25 456 459
Pool #316260 7.500% due 07/01/25 937 960
Pool #316651 7.000% due 08/01/25 1,992 2,008
Pool #316681 7.000% due 07/01/25 931 939
Pool #317262 7.000% due 07/01/25 352 355
Pool #319580 7.000% due 08/01/25 122 123
Pool #319640 7.000% due 08/01/25 457 461
Pool #320186 7.500% due 08/01/25 691 709
Pool #321182 7.500% due 09/01/25 63 64
Federal National Mortgage Association
6.500% 7 Year TBA (e) 1,750 1,768
7.000% 15 Year TBA (e) 2,700 2,750
REMIC
9.100% due 12/25/12 21 21
REMIC Series 1994-3 Class SA
Inverse Floater
3.450% due 01/25/24 (c) 425 184
REMIC Trust Series 1994-79 Class Z
7.000% due 04/25/24 2,776 2,576
Government National Mortgage Association
Pool #008346 6.500% due 12/20/23 (c) 946 964
Pool #008288 7.250% due 09/20/23 (c) 834 847
Pool #008528 6.500% due 10/20/24 (c) 4,677 4,774
Pool #297864 9.000% due 10/15/21 139 148
Pool #330255 7.500% due 07/15/23 84 86
Pool #342022 7.500% due 05/15/23 97 100
Pool #345644 7.500% due 03/15/24 83 86
Pool #346746 7.000% due 09/15/23 606 613
Pool #348193 7.500% due 07/15/23 553 570
Pool #352050 7.000% due 10/15/23 1,020 1,032
Pool #352129 9.000% due 08/15/24 726 769
Pool #352542 7.000% due 01/15/24 239 242
Pool #360592 7.500% due 07/15/25 455 468
Pool #361036 7.500% due 07/15/23 141 145
Pool #362183 7.000% due 01/15/24 101 103
Pool #367356 7.000% due 01/15/24 25 25
Pool #369166 7.500% due 10/15/23 334 344
Pool #371259 7.000% due 01/15/24 115 116
Pool #372591 7.500% due 11/15/23 501 515
Pool #373789 7.500% due 10/15/23 414 427
Pool #376352 7.500% due 12/15/23 449 462
Pool #380708 9.000% due 01/15/25 276 292
Pool #380893 7.500% due 03/15/24 378 389
Pool #385312 9.000% due 11/15/24 599 635
Pool #389622 9.000% due 10/15/24 431 456
Pool #390005 7.000% due 04/15/24 861 871
Pool #394467 7.500% due 08/15/25 133 137
Pool #403241 9.000% due 02/15/25 948 1,005
Pool #403995 9.000% due 11/15/24 66 70
Pool #405540 9.000% due 12/15/25 520 551
Pool #418666 7.500% due 09/15/25 559 575
Pool #780023 7.000% due 09/15/24 735 744
Pool #780029 9.000% due 11/15/24 399 427
106 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Government National Mortgage Association
7.000% 30 Year TBA (e) $ 7,475 $ 7,563
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class D
8.060% due 06/15/21 (c) 770 792
Paine Webber Mortgage Acceptance Corp. IV
Series 1995-M1 Class A
6.700% due 01/15/07 720 733
Ryland Mortgage Securities Corp. CMO
Series 1993-8 Class A
7.870% due 09/25/23 (c) 1,003 1,018
--------
69,522
--------
MUNICIPAL BONDS - 0.6%
Atlanta Water & Sewer Revenue
4.750% due 01/01/23 350 321
Atlanta, Georgia, General Obligation
5.600% due 12/01/18 270 274
Salt River Project, Arizona,
Agricultural Improvement
& Power District Series B
5.250% due 01/01/19 290 285
South Carolina, Public Service
Authority Series C
5.000% due 01/01/25 650 617
--------
1,497
--------
NON-US BONDS - 3.5%
Canada, Government of
8.750% due 12/01/05 CD 1,000 819
Cemex SA (MTN)
8.500% due 08/31/00 $ 1,000 885
Germany, Republic of
6.250% due 01/04/24 DM 9,800 6,364
Italy, Republic of
6.875% due 09/27/23 $ 475 464
Poland, Government of
6.875% due 10/27/24 (c) 465 351
--------
8,883
--------
UNITED STATES GOVERNMENT
AGENCIES - 0.4%
Tennessee Valley Authority
6.235% due 07/15/45 1,100 1,139
--------
1,139
--------
UNITED STATES GOVERNMENT
TREASURIES - 11.4%
United States Treasury Bonds
7.500% due 11/15/16 2,250 2,638
8.125% due 08/15/19 2,510 3,156
7.875% due 02/15/21 4,365 5,375
7.125% due 02/15/23 1,776 2,031
United States Treasury Notes
5.375% due 05/31/98 2,500 2,508
6.750% due 05/31/99 3,900 4,074
6.750% due 06/30/99 1,150 1,202
6.875% due 08/31/99 3,100 3,258
6.375% due 01/15/00 460 478
7.125% due 02/29/00 900 958
5.875% due 02/15/04 500 509
5.875% due 11/15/05 1,285 1,314
United States Treasury Principal Only Strip
Zero Coupon due 11/15/99 650 530
Zero Coupon due 11/15/21 3,800 773
--------
28,804
--------
YANKEE BONDS - 4.2%
Bombril SA
8.000% due 08/26/98 400 363
Brazil, Federal Republic of
6.688% due 01/01/01 (c) 475 409
Christiana Bank
6.063% due 11/30/49 (c) 40 32
Czech National Bank
7.000% due 04/06/96 1,000 1,001
Den Norske Creditbank AS
6.125% due 11/30/49 (f) 210 166
Doman Industries, Ltd.
8.750% due 03/15/04 500 474
Domtar, Inc.
11.750% due 03/15/99 200 224
12.000% due 04/15/01 500 591
Ecuador, Republic of
3.000% due 02/28/25 (c) 1,850 668
Fairfax Financial Holdings, Ltd.
7.750% due 12/15/03 350 368
Lloyds Bank
6.063% due 12/31/99 (f) 290 241
Methanex Corp.
7.750% due 08/15/05 900 955
Mexico (United Mexican States)
6.250% due 12/31/19 750 488
6.609% due 12/31/19 (c) 1,000 723
Fixed Income III Fund 107
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
National Westminster Bank PLC
6.125% due 12/31/99 (c) $ 220 $ 185
Santander Finnish Issuances
6.775% due 09/30/49 (c) 500 450
St. George Bank, Ltd.
7.150% due 10/15/05 775 802
Standard Chartered Bank Group PLC
5.775% due 12/31/99 (c) 250 189
Telewest Communications PLC
Step Up Bond
11.000% due 10/01/07 1,725 1,041
Tembec Finance Corp.
9.875% due 09/30/05 700 695
Trizec Finance
10.875% due 10/15/05 375 384
Videotron Holdings PLC Step Up Bond
11.000% due 08/15/05 210 131
--------
10,580
--------
TOTAL LONG-TERM INVESTMENTS
(cost $188,271) 193,289
--------
OPTIONS PURCHASED - 0.1%
United States Treasury Bond
Feb 98.50 Call (b) 5,000* 155
--------
TOTAL OPTIONS PURCHASED
(cost $145) 155
--------
<CAPTION>
NUMBER
OF
SHARES
---------
<S> <C> <C>
PREFERRED STOCKS - 0.6%
Australia & New Zealand
Banking Group, Ltd. 7,200 196
California Federal Bank
of Los Angeles Series B 4,500 488
Credit Lyonnais Capital S.C.A. - ADR 3,500 87
Equity Residential Property Trust 2,000 51
Lasalle National Corp. Series K 3,000 158
Newscorp Overseas, Ltd. 10,000 223
Texaco Capital Series B 4,000 84
Wellsford Residential Property Trust Series B 5,600 144
--------
TOTAL PREFERRED STOCKS
(cost $1,423) 1,431
--------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 27.8%
Federal Home Loan Mortgage Corp.
Discount Notes
4.215% due 01/16/96 (a)(h) $ 2,475 $ 2,469
Frank Russell Investment Company
Money Market Fund, due on demand (a) 49,586 49,586
Mexico (United Mexican States)
Structured Note
Zero Coupon due 11/27/96 650 662
United States Treasury Bills
5.340% due 02/08/96 (a)(g)(h) 120 119
5.265% due 02/15/96 (a)(g)(h) 180 179
5.305% due 02/22/96 (a)(g)(h) 130 129
United States Treasury Notes
7.875% due 07/15/96 5,000 5,068
6.125% due 07/31/96 5,000 5,026
4.375% due 08/15/96 7,000 6,965
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $70,172) 70,203
--------
TOTAL INVESTMENTS
(identified cost $260,011)(d) - 105.0% 265,078
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (5.0%) (12,613)
--------
NET ASSETS - 100.0% $252,465
--------
--------
</TABLE>
(a) At cost, which approximates market.
(b) Nonincome-producing security.
(c) Adjustable or floating rate security.
(d) At December 31, 1995, the cost for federal income tax purposes was $259,862
and net unrealized appreciation for all securities was $5,216. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $7,034 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $1,818.
(e) Forward Commitment. See Note 2.
(f) Perpetual floating rate note.
(g) Held as collateral by the custodian in connection with futures contracts
and put options written.
(h) Rate noted is yield-to-maturity (unaudited).
(MTN) represents Medium Term Note.
* Number of contracts.
The accompanying notes are an integral part of the financial statements.
108 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
FUTURES AND OPTIONS WRITTEN
December 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
German 10 Year Bund
Futures Contracts
expiration date 03/96 40 $ 59
UK Long Gilt
Futures Contracts
expiration date 03/96 30 30
United States Treasury 5 Year Note
Futures Contracts
expiration date 03/96 120 68
United States Treasury 10 Year Note
Futures Contracts
expiration date 03/96 45 68
United States Treasury 30 Year Bond
Futures Contracts
expiration date 03/96 102 83
--------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (*) $ 308
--------
--------
</TABLE>
(*) At December 31, 1995, United States Treasury Bills valued at $422 were held
as collateral by the custodian in connection with futures contracts
purchased by the Fund.
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
CONTRACTS (000)
--------- --------
<S> <C> <C>
PUT OPTIONS WRITTEN
(Notes 2 and 3)
Eurodollar Futures Contracts
strike price 91.75
expiration date 03/96 19 $ 1
--------
Total Liability for Put Options Written
(premiums received $7)(++) $ 1
--------
--------
</TABLE>
(++) At December 31, 1995, United States Treasury Bills valued at $5 were held
as collateral by the custodian in connection with put options written.
The accompanying notes are an integral part of the financial statements.
Fixed Income III Fund 109
<PAGE>
FIXED INCOME III FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $260,010,601)(Note 2). . . . . . . . . . . . . . . . . . . . . $265,078,302
Foreign currency holdings (identified cost $408,972). . . . . . . . . . . . . . . . . . . . . . . . . 412,247
Forward foreign currency exchange contracts (cost $6,746,595)(Notes 2 and 6). . . . . . . . . . . . . 6,746,595
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,699,398
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532,670
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052,016
Daily variation margin on futures contracts (Note 2 and 3) . . . . . . . . . . . . . . . . . . . . 78,108
Deferred organization expenses (Notes 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,593
------------
277,611,929
LIABILITIES
Payables:
Investments purchased (regular settlement). . . . . . . . . . . . . . . . . . . $ 550,599
Investments purchased (delayed settlement)(Note 2). . . . . . . . . . . . . . . 17,632,223
Fund shares redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,563
Accrued bookkeeping service fees (Note 4) . . . . . . . . . . . . . . . . . . . 5,306
Accrued management fees (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 115,204
Accrued transfer agent fees (Note 4). . . . . . . . . . . . . . . . . . . . . . 13,441
Other accrued expenses and payables . . . . . . . . . . . . . . . . . . . . . . 45,973
Forward foreign currency exchange contracts
(cost $6,746,595)(Notes 2 and 6) . . . . . . . . . . . . . . . . . . . . . . . . 6,760,332
Options written, at market value
(premiums received $6,536)(Notes 2 and 3). . . . . . . . . . . . . . . . . . . . 475 25,147,116
----------- ------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $252,464,813
------------
------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,680
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,760,415)
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,067,701
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,602
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,061
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,048)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,278
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,546,954
------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $252,464,813
------------
------------
Net asset value, offering and redemption price per share,
($252,464,813 divided by 24,427,830 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.34
------------
------------
</TABLE>
110 Fixed Income III Fund
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIXED INCOME III FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,706,084
Dividends from Money Market Fund (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 2,369,188
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,612
--------------
15,214,884
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 892,253
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,351
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,116
Bookkeeping service fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 25,990
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,510
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,829
Trustees' fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,348
Amortization of deferred organization expenses. . . . . . . . . . . . . . . . 6,048
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,793 1,246,238
----------- --------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,968,646
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 578,603
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,037,656
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,327
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,339
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,808,353
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,992
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,948
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,048)
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,392,170
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . $ 33,360,816
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income III Fund 111
<PAGE>
FIXED INCOME III FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . . $ 13,968,646 11,005,887
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . 578,603 (5,459,340)
Futures contracts . . . . . . . . . . . . . . . . . . . 3,037,656 (1,308,048)
Options written . . . . . . . . . . . . . . . . . . . . 379,327 68,997
Foreign currency-related transactions . . . . . . . . . 242,339 --
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . 14,808,353 (10,220,115)
Futures contracts . . . . . . . . . . . . . . . . . . . 315,992 (30,619)
Options written . . . . . . . . . . . . . . . . . . . . 43,948 (37,887)
Foreign currency-related transactions . . . . . . . . . (14,048) 615
------------ ------------
Net increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . . 33,360,816 (5,980,510)
Distributions to shareholders:
Net investment income . . . . . . . . . . . . . . . . . . (14,094,063) (10,933,568)
In excess of net realized gain on investments . . . . . . -- (62,326)
Increase (decrease) in net assets from Fund share
transactions . . . . . . . . . . . . . . . . . . . . . . 66,578,025 59,362,071
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . 85,844,778 42,385,667
Net Assets at Beginning of Year . . . . . . . . . . . . . . 166,620,035 124,234,368
------------ ------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $66,680 and $49,136, respectively) . . . . . . . . . . $252,464,813 $166,620,035
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . . 10,309,335 $102,755,822 9,007,408 $90,528,942
Fund shares issued to shareholders
in reinvestments of distributions . . . . 1,373,663 13,707,352 1,124,930 10,786,542
Fund shares redeemed . . . . . . . . . . . (5,030,481) (49,885,149) (4,260,253) (41,953,413)
----------- ------------ ----------- ------------
Net increase (decrease) . . . . . . . . . . 6,652,517 $ 66,578,025 5,872,085 $59,362,071
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
112 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year or period ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993++
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . $ 9.37 10.44 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . .67 .66 .49
Net realized and unrealized gain (loss) on investments. .97 (1.07) .52
-------- -------- --------
Total Income From Investment Operations . . . . . . . . 1.64 (.41) 1.01
-------- -------- --------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . (.67) (.66) (.48)
Net realized gain on investments . . . . . . . . . . . -- -- (.08)
In excess of net realized gain on investments . . . . . -- (.00) (.01)
-------- -------- --------
Total Distributions . . . . . . . . . . . . . . . . . . (.67) (.66) (.57)
-------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . $10.34 9.37 10.44
-------- -------- --------
-------- -------- --------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 17.99 (3.89) 10.22
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c) . . .61 .20 .20
Operating expenses, gross, to average net assets (b)(c) . .61 .20 .40
Net investment income to average net assets (b)(c). . . . 6.83 7.02 6.30
Portfolio turnover (b) . . . . . . . . . . . . . . . . . 141.37 134.11 181.86
Net assets, end of year ($000 omitted) . . . . . . . . . 252,465 166,620 124,234
Per share amount of fees waived ($ omitted) . . . . . . . -- -- .0003
Per share amount of fees reimbursed ($ omitted) . . . . . -- -- .0154
</TABLE>
++ For the period January 29, 1993 (commencement of operations) to
December 31, 1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the periods ended December 31, 1993 are annualized.
(c) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net
of investment management fees but gross of any investment services fees.
See Note 4.
Fixed Income III Fund 113
<PAGE>
FIXED INCOME III FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 FIXED III LB AGGREGATE **
- ----------------- -------- -------------------------
<S> <C> <C>
Inception* $10,000 $10,000
1993 $11,022 $10,768
1994 $10,593 $10,454
1995 $12,499 $12,386
</TABLE>
Fixed Income III Fund
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------ ------------ ------------
<S> <C> <C>
1 Year $ 11,799 17.99%
Inception $ 12,499 7.94%***
</TABLE>
Lehman Brothers Aggregate Bond Index
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------ ------------ ------------
<S> <C> <C>
1 Year $ 11,848 18.48%
Inception $ 12,386 7.61%***
</TABLE>
* Assumes initial investment on February 1, 1993.
** Lehman Brothers Aggregate Bond Index is composed of securities from
Lehman Brothers Government/Corporate Bond Index Mortgage-Backed
Securities Index, and the Asset-Backed Securities Index. Total return
comprises price appreciation/depreciation and income as a percentage
of the original investment. Indexes are rebalanced monthly by market
capitalization.
*** Annualized.
FIXED INCOME III FUND returned 18% in 1995, which lagged the Lehman Brothers
Aggregate Bond Index return of 18.5%. The portfolio was managed in a manner
consistent with its objective to provide maximum total return, primarily
through capital appreciation and by assuming a higher level of volatility than
is ordinarily expected from broad fixed income market portfolios. The Fund
seeks to diversify risk and provide exposure to a variety of total return
strategies by employing the services of three bond managers, each with a
separate and distinct assignment.
With the US bond market up dramatically in 1995, the Fund's foreign holdings
lagged through most of the year before contributing strong returns in the
fourth quarter. Domestic mortgage-backed securities and high yield bonds also
lagged for the greater part of the year which impacted Fund performance
negatively. Corporate and Treasury holdings performed well and were enhanced
by good security selection to help offset some of the underperformance caused
by other factors.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
114 Fixed III Income Fund
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
--------- ------ --------- -------
<S> <C> <C> <C> <C>
DOMESTIC COMMERCIAL PAPER - 39.5%
Associates Corp. of North America $ 27,000 5.690% 02/09/96 $26,834
Budget Funding Corp. 12,000 5.760 01/24/96 11,956
Budget Funding Corp. 9,800 5.700 02/05/96 9,746
CIT Group Holdings, Inc. 14,180 5.770 01/22/96 14,132
First Deposit Master Trust 10,000 5.700 02/15/96 9,929
First Deposit Master Trust 17,000 5.700 02/26/96 16,849
Ford Motor Credit Co. 15,000 5.700 02/05/96 14,917
Ford Motor Credit Co. 10,000 5.690 03/01/96 9,905
General Electric Capital Services, Inc. 10,000 5.700 02/06/96 9,943
General Motors Acceptance Corp. 20,000 5.780 02/02/96 19,897
IBM Credit Corp. 15,000 5.700 01/29/96 14,934
Merrill Lynch & Co., Inc. 7,000 5.730 01/31/96 6,967
PHH Corp. 12,000 5.700 01/26/96 11,953
Philip Morris 15,000 5.675 01/19/96 14,957
Redwood Receivable Corp. 18,000 5.850 01/31/96 17,911
--------
TOTAL DOMESTIC COMMERCIAL PAPER (cost $210,830) 210,830
--------
CORPORATE BONDS AND NOTES - 10.3%
First National Bank of Illinois (a) 10,000 5.200 02/16/96 9,999
Goldman Sachs Group L.P. (a) 20,000 5.540 08/26/96 20,000
Merrill Lynch & Co., Inc. (a) 20,000 5.740 04/04/96 20,000
Wachovia Bank 5,000 4.650 02/26/96 4,990
--------
TOTAL CORPORATE BONDS AND NOTES (cost $54,989) 54,989
--------
EURODOLLAR CERTIFICATES OF DEPOSIT - 2.6%
Abby National PLC 10,000 5.750 01/02/96 10,000
Mitsubishi Bank 4,000 5.830 03/08/96 4,000
--------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(cost $14,000) 14,000
--------
EURODOLLAR TIME DEPOSITS - 10.8%
Bank of Montreal 24,000 5.875 01/31/96 24,000
Banque Nationale de Paris 1,470 5.844 01/02/96 1,470
Canadian Imperial Bank 5,000 5.875 01/25/96 5,000
Canadian Imperial Bank 22,000 5.843 01/31/96 22,000
Mitsubishi Bank 5,000 6.125 01/18/96 5,000
--------
TOTAL EURODOLLAR TIME DEPOSITS (cost $57,470) 57,470
--------
YANKEE BANKERS ACCEPTANCE - 2.2%
Sanwa Bank, Ltd. 7,000 5.700 02/20/96 6,945
Sanwa Bank, Ltd. 5,000 5.770 05/29/96 4,880
--------
TOTAL YANKEE BANKERS ACCEPTANCE (cost $11,825) 11,825
--------
Money Market Fund 115
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
--------- ------ --------- --------
<S> <C> <C> <C> <C>
YANKEE CERTIFICATES OF DEPOSIT - 11.6%
Bank of Tokyo, Ltd. $ 8,000 6.350% 01/25/96 $ 8,000
Commerzbank AG 10,000 5.760 12/06/96 10,000
Mitsubishi Bank, Ltd., New York 14,000 5.800 04/15/96 14,001
National Westminster Bank PLC 4,000 5.810 01/25/96 4,000
Sanwa Bank, Ltd. 10,000 6.170 02/20/96 10,000
Sanwa Bank, Ltd. 8,000 6.230 02/23/96 7,999
Westdeutsche Landesbank 8,000 6.100 05/13/96 8,005
--------
TOTAL YANKEE CERTIFICATES OF DEPOSIT (cost $62,005) 62,005
--------
UNITED STATES GOVERNMENT AGENCIES - 9.6%
Aid to Chile Guaranteed Note (A) 14,477 5.750 06/01/05 14,494
Aid to INH Portugal Guaranteed Note (A) 12,500 5.817 12/01/17 12,734
Federal National Mortgage ASSOCIATION MTN (A) 12,000 5.210 04/04/97 11,946
Secondary Market Services 7,583 5.770 01/26/96 7,553
Secondary Market Services 4,646 5.750 02/12/96 4,615
--------
TOTAL UNITED STATES GOVERNMENT AGENCIES (cost $51,342) 51,342
--------
YANKEE COMMERCIAL PAPER - 13.5%
Beta Finance, Inc. 19,000 5.670 02/07/96 18,889
Bishopsgate 10,000 5.860 01/19/96 9,971
Cosco Co., Ltd. 15,000 5.710 02/13/96 14,898
Glaxo PLC 23,000 5.720 01/23/96 22,920
Hitachi Credit America Corp. 5,000 5.700 02/23/96 4,957
--------
TOTAL YANKEE COMMERCIAL PAPER (cost $71,635) 71,635
--------
TOTAL INVESTMENTS (amortized cost $534,096)(b) - 100.1% 534,096
--------
OTHER ASSETS AND LIABILITIES, NET - ( 0.1%) (453)
--------
NET ASSETS - 100.0% $533,643
--------
--------
</TABLE>
* The interest rate for all securities with a maturity greater than thirteen
months has an automatic reset feature resulting in an effective maturity of
thirteen months or less.
(a) Adjustable or floating rate security.
(b) The identified cost for federal income tax purposes is the same as shown
above.
(MTN) represents Medium Term Note.
The accompanying notes are an integral part of the financial statements.
116 Money Market Fund
<PAGE>
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at amortized cost which
approximates market (Note 2) . . . . . . . . . . . . $ 534,095,768
Interest receivable. . . . . . . . . . . . . . . . . . 2,450,356
-------------
536,546,124
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . $ 110,792
Dividends. . . . . . . . . . . . . . 2,747,187
Accrued transfer agent fees (Note 4) . 7,850
Other accrued expenses . . . . . . . . 37,415 2,903,244
----------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 533,642,880
-------------
-------------
NET ASSETS CONSIST OF:
Shares of beneficial interest . . . . . . . . . . . . $ 5,336,429
Additional paid-in capital . . . . . . . . . . . . . . 528,306,451
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 533,642,880
-------------
-------------
Net asset value, offering and redemption price
per share ($533,642,880 divided by
533,642,880 shares of $.01 par value, shares of
beneficial interest outstanding) . . . . . . . . . . $1.00
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Money Market Fund 117
<PAGE>
MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 30,202,917
ExpenseS (Notes 2 AND 4):
Management fees . . . . . . . . . . . $ 980,668
Custodian fees . . . . . . . . . . . 164,528
Transfer agent fees . . . . . . . . . 51,453
Professional fees . . . . . . . . . . 10,764
Registration fees . . . . . . . . . . 40,881
Trustees' fees . . . . . . . . . . . 4,295
Miscellaneous . . . . . . . . . . . . 7,267
----------
EXPENSES BEFORE WAIVER . . . . . . . . . 1,259,856
EXPENSES WAIVED BY MANAGER (NOTE 4). . . (980,668) 279,188
----------- ------------
NET INVESTMENT INCOME. . . . . . . . . . . . . . . . . 29,923,729
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . $ 29,923,729
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
118 Money Market Fund
<PAGE>
MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income and net increase
in net assets resulting from
operations . . . . . . . .. . . . . $ 29,923,729 $ 24,321,508
Distributions to shareholders from
net investment income . . . . . . . . . (29,923,729) (24,321,508)
Increase (decrease) in net assets from
Fund share transactions . . . . . . . . 31,341,062 86,303,556
------------- -------------
INCREASE (DECREASE) IN NET ASSETS . . . 31,341,062 86,303,556
Net assets at beginning of year . . . . 502,301,818 415,998,262
------------- -------------
NET ASSETS AT END OF YEAR . . . . . . . $ 533,642,880 $ 502,301,818
------------- -------------
------------- -------------
FUND SHARE TRANSACTIONS
(ON A CONSTANT DOLLAR BASIS):
Fund shares sold . . . . . . . . . . . 4,628,769,576 4,935,462,045
Fund shares issued to shareholders
in reinvestments of distributions . . 1,601,278 1,365,204
Fund shares redeemed . . . . . . . . . (4,599,029,792) (4,850,523,693)
------------- -------------
Net increase (decrease). . . . . . . . 31,341,062 86,303,556
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Money Market Fund 119
<PAGE>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from
the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . .0601 .0447 .0342 .0403 .0618
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . (.0601) (.0447) (.0342) (.0403) (.0618)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a) . . . . . . . . . . . 6.19 4.57 3.48 4.11 6.38
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
daily net assets (a) . . . . . . . . . . .06 .05 .07 .08 .07
Operating expenses, gross, to average
daily net assets (a) . . . . . . . . . . .26 .05 .07 .08 .07
Net investment income to average
daily net assets (a) . . . . . . . . . . 6.01 4.49 3.38 4.04 6.13
Net assets, end of year ($000 omitted) . . 533,643 502,302 415,998 347,464 316,426
Per share amount of fees
waived ($ omitted)(b) . . . . . . . . . .0020 -- -- -- --
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or any managers. For periods thereafter, they are reported net of
investment advisory fees but gross of investment service fees. See Note 4.
(b) See Note 4.
120 Money Market Fund
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 22 different investment portfolios referred to as "Funds."
These financial statements report on 9 Funds, each of which has distinct
investment objectives and strategies. The Investment Company is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. It is organized and operates as a
Massachusetts business trust under an amended master trust agreement dated
July 26, 1984. The Investment Company's master trust agreement permits the
Board of Trustees to issue an unlimited number of full and fractional
shares of beneficial interest at a $.01 par value.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies, which
require the use of estimates made by management. Such policies are
consistently followed by the Funds in the preparation of these financial
statements.
SECURITY VALUATION: United States equity and fixed-income securities
listed and traded principally on any national securities exchange are
valued on the basis of the last sale price or, lacking any sale, at the
closing bid price, on the primary exchange on which the security is
traded. United States over-the-counter equity and fixed-income securities
and options are valued on the basis of the closing bid price. Futures
contracts are valued on the basis of the last sale price. Many
fixed-income securities do not trade each day and, thus, last sale or bid
prices are frequently not available. Fixed-income securities, therefore,
may be valued using prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities.
International equity and fixed-income securities traded on a national
securities exchange are valued on the basis of the last sale price.
International securities traded over the counter are valued on the basis
of the mean of bid prices. In the absence of a last sale or mean bid
price, respectively, such securities may be valued on the basis of prices
provided by a pricing service if those prices are believed to reflect the
fair market value of such securities.
The Money Market Fund's portfolio investments are valued on the basis of
"amortized cost," a method by which each portfolio instrument is initially
valued at cost, and thereafter a constant accretion/amortization to
maturity of any discount or premium is assumed. The Money Market Fund is
permitted to utilize the amortized cost valuation method in accordance
with an exemptive order granted to the Investment Company by the
Securities and Exchange Commission, pursuant to which the Board of
Trustees of the Investment Company has agreed to adhere to certain
conditions. Money market instruments maturing within 60 days of the
valuation date held by Funds other than the Money Market Fund are also
valued at amortized cost unless the Board of Trustees determines that
amortized cost does not represent fair value.
The Funds may value certain securities for which market quotations are not
readily available at "fair value," as determined in good faith pursuant to
procedures established by the Board of Trustees.
INVESTMENT TRANSACTIONS: Securities transactions are recorded on a trade
date basis. The Funds may lend portfolio securities with a value of up to
50% of their total assets. The Funds will receive cash, U.S. government
treasuries or U.S. government agency securities as collateral. The Funds
will retain most rights of beneficial ownership, including dividends,
interest or other distributions on the loaned securities. Realized gains
and losses from securities transactions are recorded on the basis of
identified cost incurred by each money manager.
CHANGE IN ACCOUNTING PRINCIPLE: Effective January 1, 1995, the Funds
changed their method of accounting for the cost of investments from the
average cost method to the specific identification method. The new method
of accounting for the cost of investments was adopted because it better
matches specific costs with proceeds from sales of securities and more
closely conforms realized gains with related distributions. The change in
accounting principle had no effect on the Funds' net assets, net asset
values per share, their net increases (decreases) in net assets resulting
from operations, or their distributions. The effect of the change was to
increase (decrease) accumulated net realized gain (loss) on investments
and increase (decrease) net unrealized appreciation (depreciation) on
investments previously reported through December 31, 1994 by the following:
<TABLE>
<S> <C> <C> <C>
Equity I $6,021,086 International $4,898,083
Equity II 1,004,621 Fixed Income I 231,487
Equity III 393,732 Fixed Income II 11,434
Equity Q 5,939,266 Fixed Income III (259,599)
</TABLE>
Notes to Financial Statements 121
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date
and interest income is recorded on the accrual basis.
AMORTIZATION AND ACCRETION: All zero-coupon bond discounts and original
issue discounts are accreted for both tax and financial reporting
purposes. All short-term premiums/discounts are amortized/accreted for
both tax and financial reporting purposes.
FEDERAL INCOME TAXES: As a Massachusetts business trust, each Fund is a
separate corporate taxpayer and determines its net investment income and
capital gains (or losses) and the amounts to be distributed to each Fund's
shareholders without regard to the income and capital gains (or losses) of
the other Funds.
It is each Fund's intention to qualify as a regulated investment company
and distribute all of its taxable income. No federal income tax provision
was required for the year ended December 31, 1995. From November 1, 1995
to December 31, 1995, the Fixed Income II Fund incurred net realized
capital losses of $122,411. As permitted by tax regulations, the Fixed
Income II Fund intends to elect to defer these losses and treat them as
arising in the year ending December 31, 1996.
At December 31, 1995, certain Funds had net tax basis capital loss
carryforwards which may be applied against any net realized taxable gains
in each succeeding year or until their respective expiration dates,
whichever occurs first. Available capital loss carryforwards and
expiration dates are as follows:
<TABLE>
<CAPTION>
12/31/01 12/31/02 12/31/03 TOTALS
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fixed Income I $ -- $(12,046,548) $ -- $(12,046,548)
Fixed Income II (948,478) (3,534,633) (698,949) (5,182,060)
Fixed Income III -- (2,010,657) -- (2,010,657)
Money Market -- -- (42,377) (42,377)
</TABLE>
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: For all Funds, income
dividends and capital gain distributions, if any, are recorded on the
ex-dividend date. Dividends are generally declared and paid quarterly,
except for the International Fund, which generally declares and pays
dividends annually, and the Money Market Fund, which declares and records
dividends daily and pays monthly. Capital gain distributions are generally
declared and paid annually. An additional distribution may be paid by the
Funds to avoid imposition of federal income tax on any remaining
undistributed capital gains and net investment income.
The timing and characterization of certain income and capital gain
distributions are determined in accordance with federal tax regulations
which may differ from generally accepted accounting principles ("GAAP").
As a result, net investment income and net realized gain (or loss) on
investment and foreign currency-related transactions for a reporting
period may differ significantly from distributions during such period. The
differences between tax regulations and GAAP primarily relate to
investments in options, futures, forward contracts, passive foreign
investment companies, foreign-denominated investments, mortgage-backed
securities, and certain securities sold at a loss. Accordingly, a Fund may
periodically make a reclassification among certain of its capital accounts
without impacting its net asset value.
The following reclassifications have been made to reflect activity for the
year ended December 31, 1995:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED ADDITIONAL
INCOME GAIN (LOSS) PAID-IN CAPITAL
-------------- ------------ ---------------
<S> <C> <C> <C>
EQUITY I $ 94,606 $ (375,426) $ 280,820
EQUITY II 218,339 (91,467) (126,872)
EQUITY III 40 49,290 (49,330)
EQUITY Q 132,562 (301,978) 169,416
INTERNATIONAL 2,816,132 (2,374,503) (441,629)
FIXED INCOME I 537,755 (256,008) (281,747)
FIXED INCOME II -- 40,426 (40,426)
FIXED INCOME III 142,961 1,481 (144,442)
</TABLE>
122 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
EXPENSES: Expenses such as management, custodian, transfer agent,
bookkeeping, printing, and registration fees are charged directly to the
individual Funds; while indirect expenses, such as administrative,
insurance, and professional fees are allocated among all Funds principally
based on their relative net assets.
DEFERRED ORGANIZATION EXPENSES: Organization and initial registration
costs of the Fixed Income III Fund has been deferred and is being
amortized over 60 months on a straight-line basis.
REPURCHASE AGREEMENTS: The Funds may engage in repurchase agreements with
several financial institutions whereby a Fund, through its custodian,
receives delivery of the underlying securities. Each Fund's Money Manager
will monitor repurchase agreements daily to determine that the market
value (including accrued interest) at Fedwire closing time of the
underlying securities remains at least equal to 102% of the repurchase
price. The Money Manager will notify the Seller to immediately increase
the collateral on the repurchase agreement to 102% of the repurchase price
if collateral value falls below 102%.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts and transactions of
the Funds are translated into U.S. dollars on the following basis:
(a) Market value of investment securities, other assets and liabilities at
the closing rate of exchange on the valuation date.
(b) Purchases and sales of investment securities and income at the
closing rate of exchange prevailing on the respective trade dates of
such transactions.
Reported net realized gains or losses from foreign currency-related
transactions arise from: sales and maturities of short-term securities;
sales of foreign currencies; currency gains or losses realized between the
trade and settlement dates on securities transactions; the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books; and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized gains or losses from
foreign currency-related transactions arise from changes in the value of
assets and liabilities, other than investments in securities, at year-end,
resulting from changes in the exchange rates.
It is not practical to isolate that portion of the results of operations
of the International, Fixed Income I, Fixed Income II and Fixed Income III
Funds that arise as a result of changes in exchange rates from that
portion that arise from changes in market prices of investments during the
year. Such fluctuations are included with the net realized and unrealized
gain or loss from investments. However, for federal income tax purposes
these Funds do isolate the effects of changes in foreign exchange rates
from the fluctuations arising from changes in market prices for realized
gain (or loss) on debt obligations.
DERIVATIVES: To the extent permitted by the investment objectives,
restrictions and policies set forth in the Funds' Prospectus and Statement
of Additional Information, the Funds may participate in various
derivative-based transactions. Derivative securities are instruments or
agreements whose value is derived from an underlying security or index.
They include options, futures, swaps, forwards, structured notes and
stripped securities. These instruments offer unique characteristics and
risks that assist the Funds in meeting their investment strategies.
The Funds typically use derivatives in three ways: cash equitization,
hedging, and return enhancement. Cash equitization is a technique that may
be used by certain Funds through the use of options and futures to earn
"market-like" returns with a Fund's excess and liquidity reserve cash
balances. Hedging is used by some funds to limit or control risks, such as
adverse movements in exchange rates and interest rates. Return enhancement
can be accomplished through the use of derivatives in a Fund. By
purchasing certain instruments, a Fund may more effectively achieve the
desired portfolio characteristics that allow the Fund to meet its
investment objectives. Depending on how the derivatives are utilized and
their structure, the risks associated with them may vary widely. These
risks are generally categorized as market risk, liquidity risk and
counterparty or credit risk.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio
purchases and sales of securities denominated in a foreign currency,
certain Funds may enter into foreign currency exchange spot contracts and
forward foreign currency exchange contracts ("contracts"). The
International Fund may enter into foreign currency forward overlays on
liquidity reserve balances. Additionally, from time to time the
International, Fixed Income I, Fixed Income II and Fixed Income III Funds
may enter into contracts to hedge certain foreign currency-denominated
assets. Contracts are recorded at market value. Certain risks may
Notes to Financial Statements 123
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts. Realized gains or
losses arising from such transactions are included in net realized gain
(or loss) from foreign currency-related transactions.
FORWARD COMMITMENTS: The Funds may contract to purchase securities for a
fixed price at a future date beyond customary settlement time (not to
exceed 120 days)(i.e., a "forward commitment" or "delayed settlement"
transaction, e.g., to be announced ("TBA")) consistent with a Fund's
ability to manage its investment portfolio and meet redemption requests.
The price of the underlying securities and the date when the securities
will be delivered and paid for are fixed at the time the transaction is
negotiated. The Funds may dispose of a forward commitment transaction
prior to settlement if it is appropriate to do so and realize short-term
gains (or losses) upon such sale. When effecting such transactions, cash
or liquid high grade debt obligations of the Fund in a dollar amount
sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund's records at the trade date and maintained
until the transaction is settled. A forward commitment transaction
involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date or the other party to the
transaction fails to complete the transaction.
OPTIONS: The Funds, other than the Money Market Fund, may purchase and
sell (write) call and put options on securities and securities indices,
provided such options are traded on a national securities exchange or in
an over-the-counter market. These Funds may also purchase and sell put and
call options on foreign currencies. The domestic equity Funds utilize
options to equitize liquidity reserve balances.
When a Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current
market value of the option written. The Fund receives a premium on the
sale of a call option but gives up the opportunity to profit from any
increase in stock value above the exercise price of the option, and when
the Fund writes a put option it is exposed to a decline in the price of
the underlying security. If an option which the Fund has written either
expires on its stipulated expiration date or the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or loss, if the
cost of a closing purchase transaction exceeds the premium received when
the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a call option which the Fund has written is exercised,
the Fund realizes a capital gain or loss from the sale of the underlying
security, and the proceeds from such sale are increased by the premium
originally received. When a put option which a Fund has written is
exercised, the amount of the premium originally received will reduce the
cost of the security which a Fund purchases upon exercise of the option.
The Funds' use of written options involves, to varying degrees, elements
of market risk in excess of the amount recognized in the Statement of
Assets and Liabilities. The face or contract amounts of these instruments
reflect the extent of the Funds' exposure to off balance sheet risk. The
risks may be caused by an imperfect correlation between movements in the
price of the instrument and the price of the underlying securities and
interest rates. The Funds' activities in written options are conducted
through regulated exchanges, which do not result in counterparty credit
risks.
FUTURES: The domestic and international equity Funds utilize futures to
equitize liquidity reserve balances. Fixed Income III Fund may utilize
futures contracts (i.e., interest rate, foreign currency and index futures
contracts) to a limited extent. The face or contract amounts of these
instruments reflect the extent of the Funds' exposure to off balance sheet
risk. The primary risks associated with the use of futures contracts are
an imperfect correlation between the change in market value of the
securities held by the Fund and the prices of futures contracts, and the
possibility of an illiquid market. Changes in the initial settlement
values of futures contracts are accounted for as unrealized appreciation
(depreciation) until the contracts are terminated, at which time realized
gains and losses are recognized.
124 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT TRANSACTIONS
SECURITIES: During the year ended December 31, 1995, purchases and sales
of investment securities (excluding U.S. Government and Agency
obligations, short-term investments, options, futures and repurchase
agreements) were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES PURCHASES SALES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Equity I $608,950,313 $568,370,006 International $324,537,922 $250,093,104
Equity II 248,882,093 203,675,235 Fixed Income I 96,399,855 107,879,184
Equity III 173,373,654 161,914,796 Fixed Income II 60,334,182 59,769,199
Equity Q 422,771,768 367,241,460 Fixed Income III 94,770,957 74,122,088
</TABLE>
Purchases and sales of U.S. Government and Agency obligations (excluding
repurchase agreements, options, futures and other short-term securities)
were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Fixed Income I $805,012,473 $678,951,736
Fixed Income II 384,656,567 346,788,465
Fixed Income III 230,124,452 201,536,418
</TABLE>
Money Market purchases, sales and maturities of securities (excluding U.S.
Government and Agency obligations and repurchase agreements) were
$11,415,010,523, $45,011,094 and $11,322,298,567, respectively. Purchases,
sales and maturities of U.S. Government and Agency obligations (excluding
repurchase agreements) were $139,607,010, $881,025 and $163,700,000,
respectively.
OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written put
options and futures contract purchases for the year ended December 31,
1995 were as follows:
<TABLE>
<CAPTION>
EQUITY I WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS (1)
--------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 605 $ 756,172 -- $ --
Opened 1,568 1,360,418 327 98,431,544
Closed (2,173) (2,116,590) (208) (61,329,287)
--------- ----------- --------- -------------
Outstanding December 31, 1995 -- $ -- 119 $ 37,102,257
--------- ----------- --------- -------------
--------- ----------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY II WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS (1)
--------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 1,180 $ 1,145,694 -- $ --
Opened 2,075 1,231,698 365 51,962,388
Closed (3,125) (2,299,785) (300) (44,149,088)
--------- ----------- --------- -------------
Outstanding December 31, 1995 130 $ 77,607 65 $ 7,813,300
--------- ----------- --------- -------------
--------- ----------- --------- -------------
</TABLE>
Notes to Financial Statements 125
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
EQUITY III WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS (1)
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 330 $ 387,351 -- --
Opened 560 468,023 103 $ 31,030,969
Closed (890) (855,374) (96) (28,859,594)
--------- ---------- --------- -------------
Outstanding December 31, 1995 -- $ -- 7 $ 2,171,375
--------- ---------- --------- -------------
--------- ---------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY Q WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS (1)
--------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 545 $ 668,072 -- --
Opened 1,195 966,076 247 $ 73,852,616
Closed (1,740) (1,634,148) (161) (47,199,723)
--------- ----------- --------- -------------
Outstanding December 31, 1995 -- $ -- 86 $ 26,652,893
--------- ----------- --------- -------------
--------- ----------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
--------- -------------
<S> <C> <C>
Outstanding December 31, 1994 -- --
Opened 898 $ 104,114,416
Closed (471) (53,120,462)
--------- -------------
Outstanding December 31, 1995 427 $ 50,993,954
--------- -------------
--------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME II WRITTEN PUT OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Outstanding December 31, 1994 56,000 $ 30,874
Opened -- --
Closed (56,000) (30,874)
--------- ----------
Outstanding December 31, 1995 -- $ --
--------- ----------
--------- ----------
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME III WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS (1)
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 67 $ 58,763 169 $ 19,367,750
Opened 769 377,288 1,442 202,932,018
Closed (717) (381,677) (1,274) (184,197,407)
Expired (100) (47,838) -- --
--------- ---------- --------- -------------
Outstanding December 31, 1995 19 $ 6,536 337 $ 38,102,361
--------- ---------- --------- -------------
--------- ---------- --------- -------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each contract
was opened.
126 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SECURITIES LENDING: The International Fund may loan securities with a
value up to 50% of its total assets to certain brokers. The Fund receives
cash (U.S. currency) and securities issued or guaranteed by the U.S.
Government or its agencies as collateral against the loaned securities. To
the extent that a loan is secured by cash collateral, such collateral
shall be invested by State Street Bank and Trust Company ("State Street")
in short-term instruments, short-term investment funds maintained by State
Street, money market mutual funds, and such other short-term investments
as State Street may from time to time select, provided the investments
meet certain quality and diversification requirements. Income generated
from the investment of cash collateral, less negotiated rebate fees paid
to participating brokers, is divided between the Fund and State Street
Bank and is included as interest income for the Fund. To the extent that a
loan is secured by non-cash collateral, brokers pay the Fund negotiated
lenders' fees, which are divided between the Fund and State Street, and
are included as interest income for the Fund. All collateral received will
be in an amount at least equal to 100% of the market value of the loaned
securities at the inception of each loan. This collateral must be
maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. Should the borrower of the
securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Consequently, loans are
made only to borrowers which are deemed to be of good financial standing.
On December 7, 1995, the Fund suspended its securities lending program.
All outstanding loans were recalled over the following two months. As of
December 31, 1995, the value of outstanding securities on loan and the
value of collateral amounted to $2,277,384 and $3,002,656, respectively.
4. RELATED PARTIES
Frank Russell Investment Management Company ("FRIMCo" or "Manager")
operates and administers all of the Funds which comprise the Investment
Company, and manages the Money Market and the U.S. Government Money Market
Funds (the U.S. Government Money Market Fund is a series of the Investment
Company that is not presented here). FRIMCo is a wholly owned subsidiary
of Frank Russell Company, which researches and recommends to FRIMCo, and
to the Investment Company, one or more investment management organizations
to manage the portfolio of each of the other Funds.
On January 16, 1995 and March 28, 1995, the Investment Company's Board of
Trustees and shareholders, respectively, approved amendments to the
Investment Company's Management Agreement with the FRIMCo to (i) provide
for an annual management fee to be paid to the Manager by each Fund based
on the Fund's average daily net assets; and (ii) clarify the agency
relationship between the Investment Company and the Manager with respect
to fees paid to the money managers selected to manage the Investment
Company's assets. The amendments became effective April 1, 1995.
Prior to April 1, 1995, the Funds paid no management or advisory fees.
Rather, each shareholder entered into a written Asset Management Services
Agreement with the Manager, pursuant to which the shareholder paid an
asset management service fee directly to the Manager, which in turn,
acting as a fiduciary for the Funds, compensated the money managers.
Effective April 1, 1995, as approved by shareholders on March 28, 1995,
the Funds began incurring a management fee based on a percentage of their
average daily net assets as shown in the table below:
<TABLE>
<CAPTION>
ANNUAL RATE ANNUAL RATE
----------- -----------
<S> <C> <C> <C>
Equity I 0.60% Fixed Income I 0.30%
Equity II 0.75 Fixed Income II 0.50
Equity III 0.60 Fixed Income III 0.55
Equity Q 0.60 Money Market 0.25
International 0.75
</TABLE>
Notes to Financial Statements 127
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
For the year ended December 31, 1995, the management fee paid to FRIMCo,
in accordance with the Investment Company's Management Agreement with that
firm, amounted to $15,799,364 before waivers. Such fee is payable monthly
and is equal to the annual rate, by Fund, shown in the table above, of the
average daily net assets of the applicable Fund.
Prior to April 1, 1995, the Management Agreement provided that Fixed
Income III Fund expenses (exclusive of interest and taxes) exceeding 0.20%
of the Fund's average daily net assets, on an annual basis, would be paid
by FRIMCo. Effective April 1, 1995, the amendment to the management
contract, as approved by shareholders on March 28, 1995, provides that
Fixed Income III Fund expenses (exclusive of interest and taxes) exceeding
0.75% of its average daily net assets on an annual basis will be paid by
FRIMCo. There were no reimbursements for the year ended December 31, 1995.
Effective April 1, 1995 through December 31, 1995, the Manager voluntarily
agreed to waive its 0.25% management fee for the Money Market Fund, which
amounted to $980,668.
Additionally, effective April 1, 1995, as approved by shareholders on
March 28, 1995, each shareholder continues to enter into a written Asset
Management Services Agreement with the Manager, pursuant to which the
shareholder agrees to pay an annual shareholder investment services fee
calculated as a specified percentage of the shareholder's average net
assets in the Funds. In addition, a shareholder may pay additional fees,
expressed as fixed dollar amounts, for the other services or reports
provided by the Manager to the shareholder. Accordingly, the expense
information does not reflect an amount for fees paid directly by an
investor to the Manager.
Fees for bookkeeping services provided to the Funds are paid or accrued to
Frank Russell Company, an affiliate of the Investment Company. Frank
Russell Company provides its Portfolio Verification System ("PVS") to the
Funds, except the Money Market Fund, pursuant to a written Service
Agreement. The PVS computerized data base system records detailed
transactions data for each of the Funds necessary to prepare various
financial and Internal Revenue Service accounting reports. The Funds' fees
for the year ended December 31, 1995, were $349,124 before waivers. The
Manager voluntarily agreed to waive $85,558 of these fees for the
International Fund.
The Funds have a contract with FRIMCo to provide transfer agent services
to the Investment Company. Total fees for the year ended December 31, 1995
were $1,162,482.
The Funds also paid brokerage commissions for trades executed through
Frank Russell Securities, Inc., an affiliate of the Frank Russell
Investment Management Company. These commissions are net of a refund (up
to 70%) paid back to the Fund effecting such transactions after
reimbursement for research services provided to FRIMCo. Amounts retained
by Frank Russell Securities, Inc. for the year ended December 31, 1995
were as follows:
<TABLE>
<S> <C> <C> <C>
Equity I $76,563 Equity Q $ 134
Equity II 67 International 53,217
Equity III 30,213
</TABLE>
The Investment Company was paying each of its Trustees not affiliated with
FRIMCo a retainer of $16,000 per year plus out-of-pocket expenses.
Effective April 28, 1995, the annual retainer was increased to $20,000.
Total trustee expenses were $96,696 for the year ended December 31, 1995
and were allocated to each Fund on a pro rata basis, including 13
affiliated funds not represented here.
Russell Fund Distributors, Inc. (the "Distributor"), a wholly owned
subsidiary of FRIMCo, is the principal Distributor for Investment Company
shares. The Distributor receives no compensation from the Investment
Company for its services.
5. MONEY MARKET FUND
The Funds are permitted to invest their cash reserves (i.e., monies
awaiting investment in portfolio securities suitable for the Funds'
objectives) in the Money Market Fund. These investments are reflected as
purchases and redemptions of shares of the Money Market Fund. The interest
earned by the Money Market Fund related to these investments is reflected
as dividends paid (or payable) on such shares. As of December 31, 1995,
$283,877,000 of the Money Market Fund's net assets represents investments
by these Funds and $208,055,000 represents the investment of other
affiliated Funds not presented here.
128 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. COMMITMENTS
As of December 31, 1995, the Equity I, International, Fixed Income I, and
Fixed Income III Funds have entered into various forward foreign currency
exchange and foreign currency exchange spot contracts which contractually
obligate the Funds to deliver or receive currencies at specified future
dates. Open contracts were as follows:
<TABLE>
<CAPTION>
EQUITY I FUND
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- --------------- --------------- --------------
<S> <C> <C> <C>
USD 65,989 NOK 417,976 01/02/96 $ (1)
USD 82,797 NOK 526,836 01/03/96 378
USD 74,410 NOK 471,761 01/04/96 69
--------------
$ 446
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
USD 2,162,535 AUD 2,900,000 03/29/96 $ (16,423)
USD 7,132,115 DEM 10,200,000 03/29/96 10,492
USD 3,814,735 FRF 18,800,000 03/29/96 29,964
USD 15,850,110 GBP 10,200,000 03/29/96 (43,288)
USD 28,694,834 JPY 2,900,000,000 03/29/96 (243,239)
DEM 7,246,000 USD 5,096,930 03/21/96 24,888
FRF 32,640,000 USD 6,638,194 03/21/96 (36,086)
GBP 850,000 USD 1,298,630 06/03/96 (16,714)
JPY 578,220,000 USD 6,000,000 01/08/96 391,650
JPY 274,300,000 USD 2,738,755 03/21/96 50,791
--------------
$ 152,035
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
USD 37,025 AUD 50,000 01/02/96 $ 139
USD 170,809 AUD 229,427 01/08/96 (282)
USD 23,853 CHF 27,469 01/04/96 (39)
USD 13,758 FIM 60,000 01/02/96 37
USD 174,878 GBP 112,745 01/08/96 218
USD 755,190 SEK 5,014,838 01/04/96 91
USD 170,762 SGD 241,372 01/04/96 $ (121)
--------------
43
--------------
--------------
</TABLE>
Notes to Financial Statements 129
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
FIXED INCOME I FUND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
USD 4,815,062 DEM 6,933,690 01/04/96 $ 20,035
DEM 6,933,690 USD 4,999,055 01/04/96 163,958
DEM 5,403,208 USD 3,844,908 01/11/96 115,638
DEM 6,933,690 USD 4,882,530 02/05/96 (20,646)
--------------
$ 278,985
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME III FUND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
DEM 4,317,000 USD 3,014,665 01/18/96 $ 1,988
DEM 591,840 USD 420,565 12/09/96 1,333
DEM 4,698,000 USD 3,311,366 12/13/96 (17,058)
--------------
$ (13,737)
--------------
--------------
</TABLE>
The related net unrealized appreciation (depreciation) is reflected in the
preceding Funds' financial statements.
130 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
ADDITIONAL INFORMATION
December 31, 1995 (Unaudited)
On January 22, 1996, a special meeting of the shareholders of the Funds
was held for the purpose of voting on the following matter:
To approve the Investment Company's operation in accordance with the
exemptive order granted on June 27, 1995 to the Investment Company and
the Manager by the Securities and Exchange Commission.
The exemptive order permits the Manager to engage and terminate
unaffiliated money managers for each Fund without holding shareholder
meetings and to disclose in the Investment Company's prospectus, with
respect to each Fund, only the aggregate fees paid to that Fund's
money managers and the net advisory fees retained by the Manager
with respect to that Fund.
The results of the vote on the proposal for the 22 Funds, on which 9
are reported in these financial statements, were as follows:
<TABLE>
<CAPTION>
NUMBER OF % OF OUTSTANDING % OF SHARES
VOTE SHARES SHARES VOTED
----------- ----------- ---------------- -----------
<S> <C> <C> <C>
Affirmative 349,878,731 68.5% 99.9%
Against 226,716 -- 0.1%
Abstain 15,879 -- --
----------- ---------------- -----------
Total 350,121,326 68.5% 100.0%
----------- ---------------- -----------
----------- ---------------- -----------
</TABLE>
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, the Funds
designate the following amounts as capital gain dividends for their
taxable year ended December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Equity I $48,198,431
Equity II 15,617,795
Equity III 11,820,825
Equity Q 31,289,032
International 20,031,392
</TABLE>
Please consult a tax advisor for questions about federal or state
income tax laws.
Additional Information 131
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A Street, Tacoma, Washington 98402
(206) 627-7001
TRUSTEES
George F. Russell, Jr., Chairman
Lynn L. Anderson
Paul E. Anderson
Paul Anton, PhD
William E. Baxter
Lee C. Gingrich
Eleanor W. Palmer
OFFICERS
Lynn L. Anderson, President and Chief Executive Officer
Peter Apanovitch, Manager of Short Term Investment Funds
George W. Weber, Treasurer and Chief Accounting Officer
Randall P. Lert, Director of Investments
Karl Ege, Secretary
MANAGER
Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
CONSULTANT
Frank Russell Company
909 A Street
Tacoma, WA 98402
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
TRANSFER AGENT
Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
2600 - One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
DISTRIBUTOR
Russell Fund Distributors, Inc.
909 A Street
Tacoma, WA 98402
MONEY MANAGERS
EQUITY I
Alliance Capital Management L.P., Minneapolis, MN
Systematic Financial Management, L.P., Fort Lee, NJ
Columbus Circle Investors, Stamford, CT
Equinox Capital Management, Inc., New York, NY
INVESCO Capital Management, Inc., Atlanta, GA
Lincoln Capital Management Company, Chicago, IL
Suffolk Capital Management, Inc., New York, NY
Trinity Investment Management Corporation, Boston, MA
Wellington Management Company, Boston, MA
EQUITY II
Delphi Management, Inc., Boston, MA
Fiduciary International, Inc., New York, NY
GlobeFlex Capital, L.P., San Diego, CA
(added on 01/08/96)
Jacobs Levy Equity Management, Inc., Roseland, NJ
Mitchell Hutchins Institutional Investors, New York, NY
(replaced on 12/21/95)
Sirach Capital Management, Inc., Seattle, WA
Wellington Management Company, Boston, MA
EQUITY III
Brandywine Asset Management, Inc., Wilmington, DE
Equinox Capital Management, Inc., New York, NY
Trinity Investment Management Corporation, Boston, MA
EQUITY Q
BZW Barclays Global Fund Advisors, San Francisco, CA
Franklin Portfolio Associates Trust, Boston, MA
J.P. Morgan Investment Management Inc., New York, NY
INTERNATIONAL
Grantham, Mayo, Van Otterloo & Co., Boston, MA
J.P. Morgan Investment Management Inc., New York, NY
Marathon Asset Management Limited, London, England
Oechsle International Advisors, Boston, MA
Rowe Price-Fleming International, Inc., Baltimore, MD
FIXED INCOME I
Lincoln Capital Management Company, Chicago, IL
Pacific Investment Management Company, Newport Beach, CA
Standish, Ayer & Wood, Inc., Boston, MA
FIXED INCOME II
BlackRock Financial Management, New York, NY
Standish, Ayer & Wood, Inc., Boston, MA
FIXED INCOME III
BEA Associates, New York, NY
Pacific Investment Management Company, Newport Beach, CA
Standish, Ayer & Wood, Inc., Boston, MA
MONEY MARKET
Frank Russell Investment Management Co., Tacoma, WA
THIS REPORT IS PREPARED FROM THE BOOKS AND RECORDS OF THE FUNDS AND IS
SUBMITTED FOR THE GENERAL INFORMATION OF SHAREHOLDERS AND IS NOT AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY
AN EFFECTIVE PROSPECTUS. NOTHING HEREIN CONTAINED IS TO BE CONSIDERED AN
OFFER OF SALE OR A SOLICITATION OF AN OFFER TO BUY SHARES OF FRANK RUSSELL
INVESTMENT COMPANY. SUCH OFFERING IS MADE ONLY BY PROSPECTUS, WHICH INCLUDES
DETAILS AS TO OFFERING PRICE AND OTHER MATERIAL INFORMATION.
132 Manager and Money Managers
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
Frank Russell Investment Company is a "series mutual fund" with 22 different
investment portfolios. These financial statements report on eight Funds, each
of which has distinct investment objectives and strategies.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
Responsible for overall management and administration of the Funds.
FRANK RUSSELL COMPANY
Consultant to Frank Russell Investment Management Company.
<PAGE>
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . 2
DIVERSIFIED EQUITY FUND. . . . . . . . . . . . . . . . . . . . . . . . 3
SPECIAL GROWTH FUND. . . . . . . . . . . . . . . . . . . . . . . . . . 15
EQUITY INCOME FUND . . . . . . . . . . . . . . . . . . . . . . . . . . 33
QUANTITATIVE EQUITY FUND . . . . . . . . . . . . . . . . . . . . . . . 43
INTERNATIONAL SECURITIES FUND. . . . . . . . . . . . . . . . . . . . . 55
DIVERSIFIED BOND FUND. . . . . . . . . . . . . . . . . . . . . . . . . 75
VOLATILITY CONSTRAINED BOND FUND . . . . . . . . . . . . . . . . . . . 91
MULTISTRATEGY BOND FUND. . . . . . . . . . . . . . . . . . . . . . . . 101
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 113
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 122
MANAGER AND MONEY MANAGERS . . . . . . . . . . . . . . . . . . . . . . 123
FRANK RUSSELL INVESTMENT COMPANY -- INTERNAL FEE FUNDS
Copyright-C- Frank Russell Company 1996. All rights reserved. This material is
proprietary and may not be reproduced, transferred, or distributed in any form
without prior written permission from Frank Russell Company. It is delivered on
an "as is" basis without warranty. The Russell logo is a trademark and service
mark of Frank Russell Company. Frank Russell Company and Standard & Poor's
Corporation are the owners of the trademarks, service marks, and copyrights
related to their respective indexes. This material must be accompanied or
preceded by a current Frank Russell Investment Company Prospectus containing
complete information concerning the investment objectives and operations of the
Company, charges, and expenses. The Prospectus should be read carefully before
an investment is made. The performance quoted represents past performance and,
except for a money market fund, the 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. An investment in a money market fund is neither
insured nor guaranteed by the US government. There can be no assurance that a
money market fund will be able to maintain a stable net asset value of $1.00 per
share. Investments in securities on non-US issuers and foreign currencies
involve investment risks different than those of US issuers; the Prospectus
contains further information and details regarding these risks. Income from
tax-free funds may be subject to an alternative minimum tax. Russell Fund
Distributors, Inc., is the distributor of Frank Russell Investment Company.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Trustees of Frank Russell Investment Company:
We have audited the accompanying statements of assets and liabilities and
statements of net assets of each of the series of Frank Russell Investment
Company (in this report comprised of Diversified Equity, Special Growth, Equity
Income, Quantitative Equity, International Securities, Diversified Bond,
Volatility Constrained Bond, and Multistrategy Bond, (the "Funds")), as of
December 31, 1995, and the related statements of operations, the statements of
changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds enumerated above as of December 31, 1995, the results of their operations,
the changes in their net assets and the financial highlights for each of the
periods indicated therein in conformity with generally accepted accounting
principles.
Boston, Massachusetts
February 12, 1996
/s/ COOPERS & LYBRAND L.L.P.
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
COMMON STOCKS - 94.5%
BASIC INDUSTRIES - 6.6%
Air Products & Chemicals, Inc. 5,900 $ 311
Alco Standard Corp. 11,000 502
Allegheny Ludlum Corp. 10,100 187
Aluminum Co. of America 68,100 3,601
Bethlehem Steel Corp. (a) 36,500 511
Boise Cascade Corp. 10,000 346
CalMat Co. 11,800 215
Cyprus Amax Minerals Co. 14,000 366
De Beers Consolidated Mines, Ltd. - ADR 10,300 309
Dow Chemical Co. 36,300 2,555
du Pont (E.I.) de Nemours & Co. 6,100 426
Engelhard Corp. 11,550 251
Ethyl Corp. 18,700 234
Ferro Corp. 8,300 193
Fuller (H.B.) Co. 6,400 222
Goodrich (B.F.) Co. 24,900 1,696
Grace (W.R.) & Co. 14,600 863
Great Lakes Chemical Corp. 43,700 3,146
Illinois Tool Works, Inc. 10,300 608
IMC Global, Inc. 36,800 1,504
International Paper Co. 21,800 826
J & L Specialty Steel, Inc. 15,100 283
Kimberly-Clark Corp. 52,998 4,386
Lawter International, Inc. 16,600 193
Loctite Corp. 5,000 238
Lone Star Technologies, Inc. (a) 40,000 440
Lukens, Inc. 8,000 230
Minnesota Mining & Manufacturing Co. 24,000 1,590
Monsanto Co. 13,000 1,593
NCH Corp. 5,100 295
P.H. Glatfelter Co. 12,600 216
Phelps Dodge Corp. 4,300 268
Potash Corp. of Saskatchewan, Inc. 9,300 659
Potlatch Corp. 8,300 332
PPG Industries, Inc. 6,400 293
Praxair, Inc. 31,600 1,063
Precision Castparts Corp. 21,400 851
Reynolds Metals Co. 13,000 736
Rhone Poulenc SA - ADR 18,714 400
Rio Algom, Ltd. 13,400 245
Sequa Corp. (a) 21,000 641
Sonoco Products Co. 9,765 256
Wellman, Inc. 23,700 538
Willamette Industries, Inc. 7,700 430
Witco Chemical Corp. 6,900 201
---------
35,249
---------
CAPITAL GOODS - 3.6%
Alcatel Alsthom Compagnie
Generale d'Electricite - ADR 41,200 721
Ball Corp. 5,100 140
Boston Scientific Corp. (a) 18,300 897
Briggs & Stratton Corp. 6,300 273
CBI Industries, Inc. 31,900 1,049
Cooper Industries, Inc. 13,300 489
Crane Co. 8,200 302
Culligan Water Technologies, Inc. 6,700 162
Cummins Engine Co., Inc. 26,500 981
Dover Corp. 8,360 308
Duracell International, Inc. 16,200 838
Emerson Electric Co. 3,500 286
Gardner Denver Machinery, Inc. (a) 152 3
General Electric Co. 48,600 3,499
General Signal Corp. 5,900 191
Giant Cement Holding, Inc. (a) 15,900 183
Goulds Pumps, Inc. 9,400 234
Grainger (W.W.), Inc. 3,300 219
Harnischfeger Industries, Inc. 6,700 223
Harsco Corp. 5,000 291
Hubbell, Inc. Class B 4,095 269
ITT Industries, Inc. 19,000 456
Johnson Controls, Inc. 13,300 914
Kaydon Corp. 9,300 282
Magna International, Inc. Class A 21,700 939
National Service Industries, Inc. 8,000 259
SPS Technologies, Inc. (a) 14,200 758
Technip SA - ADR (a) 25,938 885
Tecumseh Products Co. Class A 14,100 730
Timken Co. 8,200 314
Varity Corp. (a) 5,800 215
Weatherford Enterra, Inc. (a) 4,647 134
Westinghouse Electric Corp. 34,900 576
WMX Technologies, Inc. 24,000 717
Wyman-Gordon Co. (a) 6,300 86
Zurn Industries, Inc. 12,400 265
---------
19,088
---------
CONSUMER BASICS - 19.4%
Abbott Laboratories NPV 38,300 1,599
Allergan, Inc. 18,800 611
American Brands, Inc. 36,000 1,607
American Home Products Corp. 12,600 1,222
American Stores Co. 58,935 1,577
Amgen, Inc. 39,300 2,329
Archer-Daniels-Midland Co. 144,573 2,602
Diversified Equity Fund 3
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Bard (C.R.), Inc. 8,100 $ 261
Bausch & Lomb, Inc. 10,900 432
Bergen Brunswig Corp. Class A 13,700 341
Black & Decker Corp. 8,700 307
Bristol-Myers Squibb Co. 21,050 1,808
Cadbury Schweppes - ADR 7,300 243
Campbell Soup Co. 5,400 324
Carter-Wallace, Inc. 23,400 266
Chiquita Brands International, Inc. 43,600 600
Church and Dwight Co., Inc. 8,200 152
Clorox Co. 25,600 1,834
Coca-Cola Co. (The) 33,100 2,458
Columbia/HCA Healthcare Corp. 111,600 5,664
Community Psychiatric Centers 16,000 196
ConAgra, Inc. 32,100 1,324
Corning, Inc. 20,000 640
CPC International, Inc. 15,500 1,064
Dean Foods Co. 7,100 195
Dial Corp. (The) 33,700 998
Dimon, Inc. 35,000 617
Fleming Cos., Inc. 66,000 1,361
Forest Labs, Inc. (a) 7,300 330
Giant Food, Inc. Class A 9,900 312
Gillette Co. 41,900 2,184
Glaxo Holdings PLC - ADR 9,900 280
HealthCare COMPARE (a) 3,600 157
Hillenbrand Industries, Inc. 6,200 210
Hormel (George A.) & Co. 9,400 231
IBP, Inc. 16,300 823
International Dairy Queen, Inc.
Class A (a) 12,300 280
Johnson & Johnson 75,600 6,473
Kroger Co. (a) 54,200 2,033
Lance, Inc. 11,300 184
Lilly (Eli) & Co. 61,800 3,476
Lincare Holdings, Inc. (a) 9,900 245
McKesson Corp. New 12,200 618
Medtronic, Inc. 24,200 1,352
Merck & Co., Inc. 96,500 6,345
Mylan Laboratories, Inc. 74,000 1,739
PacifiCare Health Systems, Inc.,
Class A (a) 4,700 404
PepsiCo, Inc. 146,500 8,186
Pfizer, Inc. 46,800 2,948
Pharmacia & Upjohn, Inc. (a) 55,200 2,139
Philip Morris Cos., Inc. 124,825 11,297
Procter & Gamble Co. 24,900 2,067
Quaker Oats Co. 6,200 214
Rhone Poulenc Rorer, Inc. 3,700 197
RJR Nabisco Holdings Corp. New 10,543 326
Sara Lee Corp. 34,400 1,097
Schering-Plough Corp. 69,300 3,794
Schweitzer-Mauduit International, Inc. 29,700 687
SmithKline Beecham PLC - ADR 37,300 2,070
St. Jude Medical, Inc. 9,750 417
Standard Commercial Corp. 15,513 153
Stanley Works 5,300 273
Tambrands, Inc. 2,600 124
U.S. Bioscience, Inc. (a) 1,501 7
U.S. Healthcare, Inc. 6,150 285
U.S. Surgical Corp. 13,800 295
Unilever NV 4,500 633
United Healthcare Corp. 34,100 2,234
Universal Corp. 29,500 719
UST Corp. 6,600 220
Vons Cos., Inc. (a) 17,700 499
Warner-Lambert Co. 11,700 1,135
Weis Markets, Inc. 8,400 236
Wellpoint Health Networks, Inc.
Class A (a) 7,800 250
---------
102,810
---------
CONSUMER DURABLES - 2.1%
Bandag, Inc. 3,900 211
Bandag, Inc. Class A 1,300 69
Bassett Furniture Industries, Inc. 7,300 166
Carlisle Cos., Inc. 6,600 266
Donaldson Co., Inc. 10,200 256
Echlin, Inc. 10,000 365
Federal Signal Corp. 11,100 287
Fleetwood Enterprises, Inc. 9,300 239
Ford Motor Co. 87,593 2,540
General Motors Corp. 40,624 2,148
Genuine Parts Co. 6,000 246
Leggett & Platt, Inc. 11,600 281
PACCAR, Inc. 15,400 647
Polaris Industries, Inc. 9,300 273
Strattec Security Corp. 1,260 22
Tomkins PLC - ADR 15,100 270
UNC, Inc. (a) 112,200 674
Whirlpool Corp. 44,400 2,365
---------
11,325
---------
4 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
CONSUMER NON-DURABLES - 5.3%
Angelica Corp. 8,600 $ 176
Anheuser-Busch Cos., Inc. 17,900 1,197
Blair Corp. 4,600 145
Dayton Hudson Corp. 11,000 825
Eastman Kodak Co. 11,000 737
Federated Department Stores, Inc. (a) 79,100 2,175
Gap, Inc. 35,700 1,499
Handleman Co. 19,100 110
Hills Stores Co. New (a) 17,926 177
Jostens, Inc. 21,200 514
K mart Corp. 35,000 254
Kohl's Corp. (a) 2,900 152
Liz Claiborne, Inc. 9,900 275
Lowe's Cos., Inc. 18,800 630
Mattel, Inc. 38,193 1,174
May Department Stores Co. 28,900 1,221
Newell Co. 11,972 310
NIKE, Inc. Class B 6,000 418
Nine West Group, Inc. (a) 21,200 795
Office Depot, Inc. (a) 25,400 502
Penney (J.C.) Co., Inc. 32,500 1,548
Petrie Stores Corp. 7,400 20
Phar-Mor, Inc. New 98,500 776
Price Costco, Inc. (a) 29,900 456
Rayonier, Inc. 13,000 434
Reebok International, Ltd. 11,600 328
Rite Aid Corp. 40,100 1,373
Salant Corp. (a) 125,700 487
Sears Roebuck & Co. 47,700 1,860
Semi-Tech Corp. Class A 30,000 195
Shaw Industries, Inc. 100,000 1,475
Stride Rite Corp. 24,300 182
SuperValu, Inc. 41,100 1,295
Toys "R" Us, Inc. (a) 79,240 1,723
Wal-Mart Stores, Inc. 104,900 2,347
Warnaco Group, Inc. Class A 5,800 146
---------
27,931
---------
CONSUMER SERVICES - 4.2%
America West Airlines, Inc. Class B (a) 16,000 272
AMR Corp. (a) 9,800 728
Brinker International, Inc. (a) 51,600 780
British Airways PLC - ADS 12,500 909
Carnival Corp. Class A 58,700 1,431
Continental Airlines, Inc. Class B (a) 8,800 383
Delta Air Lines, Inc. 17,000 1,256
Disney (Walt) Co. 78,100 4,608
Harrah's Entertainment, Inc. 6,200 150
ITT Corp. New 46,500 2,465
King World Productions, Inc. (a) 5,600 218
KLM Royal Dutch Airlines 27,956 985
McDonald's Corp. 92,900 4,192
Mirage Resorts, Inc. (a) 28,000 966
Northwest Airlines Corp. Class A (a) 15,700 799
Patriot American Hospitality, Inc. 3,500 90
Royal Caribbean Cruises, Ltd. 8,600 189
VAL Corp. (a) 10,850 1,937
---------
22,358
---------
ENERGY - 8.0%
Amerada Hess Corp. NPV 35,000 1,855
Amoco Corp. 64,300 4,622
Apache Corp. 41,900 1,236
Ashland, Inc. 14,300 502
Atlantic Richfield Co. 10,400 1,152
Basin Exploration, Inc. (a) 81,400 387
British Petroleum Co. PLC - ADR 28,237 2,884
Burlington Resources, Inc. 22,700 891
Chevron Corp. 26,048 1,368
Diamond Shamrock, Inc. 13,100 339
Enron Oil & Gas Co. 6,900 166
Exxon Corp. 41,400 3,317
Halliburton Co. 6,200 314
Imperial Oil, Ltd. New 6,500 235
Kerr-McGee Corp. 6,800 432
Mesa, Inc. (a) 70,000 263
Mobil Corp. 28,330 3,173
Murphy Oil Corp. 15,000 623
Noble Drilling Corp. (a) 90,000 799
NorAm Energy Corp. 55,300 491
Oryx Energy Co. (a) 38,000 508
Petroleum Heat & Power, Inc. Class A 79,100 613
Questar Corp. 6,100 204
Reading & Bates Corp. New (a) 45,600 684
Renaissance Energy, Ltd. 23,700 590
Royal Dutch Petroleum Co. - ADR 20,130 2,841
Schlumberger, Ltd. 39,600 2,742
Seagull Energy Corp. (a) 35,700 794
Sun Company 1,933 53
Sun Energy Partners, L.P. 25,700 96
Tenneco, Inc. 35,500 1,762
Texaco, Inc. 21,400 1,680
Tosco Corp. New 20,000 763
Total Co. SA - ADR 44,005 1,496
Diversified Equity Fund 5
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ---------
<S> <C> <C>
Transocean AS 9,700 $ 167
Unocal Corp. 22,000 640
USX-Marathon Group 62,400 1,216
Washington Energy Co. 22,000 409
---------
42,307
---------
FINANCE - 16.5%
ACE, Ltd. 14,800 588
Aetna Life & Casualty Co. 22,700 1,572
Allstate Corp. 16,408 675
American Express Co. 27,600 1,142
American Financial Group, Inc. 41,900 1,283
American General Corp. 42,100 1,468
American International Group, Inc. 68,462 6,333
Banc One Corp. 15,600 589
Bank of Boston Corp. 29,700 1,374
Bank of New York Co., Inc. 38,500 1,877
BankAmerica Corp. 46,700 3,024
Barnett Banks, Inc. 14,700 867
Borg-Warner Security Corp. (a) 14,800 185
California Federal Bank 40,000 630
California Federal Bank (a) 2,400 11
Central Fidelity Banks, Inc. 7,700 244
Chase Manhattan Corp. 12,500 758
Chemical Banking Corp. 95,600 5,617
Chubb Corp. (The) 39,300 3,802
CIGNA Corp. 38,850 4,011
Citicorp 31,700 2,132
Coast Savings Financial, Inc. (a) 24,900 862
CoreStates Financial Corp. 32,600 1,235
Countrywide Credit Industries, Inc. 69,300 1,507
Dean Witter, Discover & Co. 39,500 1,857
Equifax, Inc. 18,000 385
Equitable of Iowa Cos. 6,700 215
Federal Home Loan Mortgage Corp. 33,900 2,831
Federal National Mortgage Association 43,800 5,437
First Bank System, Inc. 23,800 1,181
First Chicago NBD Corp. 32,486 1,283
First Interstate Bancorp 4,700 642
Fleet Financial Group, Inc. 11,600 473
General Re Corp. 17,960 2,784
Golden West Financial Corp. 19,300 1,066
Green Tree Financial Corp. 7,600 200
Home Beneficial Corp. Class B 11,200 263
Horace Mann Educators Corp. 10,000 313
ITT Hartford Group, Inc. 19,000 919
Lehman Brothers Holdings, Inc. 28,000 595
Loews Corp. 4,400 345
Long Island Bancorp, Inc. 15,400 406
Marsh & McLennan Cos., Inc. 18,500 1,642
MBNA Corp. 55,500 2,047
Merrill Lynch & Co., Inc. 42,400 2,162
Morgan Stanley Group, Inc. 5,600 452
NationsBank Corp. 28,000 1,950
Norwest Corp. 90,700 2,993
Old Republic International Corp. 34,500 1,225
Onex Corp. 37,000 403
Paul Revere Corp. 22,200 461
Pohjola Series B 15,000 193
Provident Life & Accident
Insurance Co. Class B 8,900 258
Raymond James Financial, Inc. 12,700 268
Signet Banking Corp. 16,800 399
Southern National Corp. 30,800 809
St. Paul Cos., Inc. 24,500 1,363
Standard Federal Bancorporation 5,400 213
State Street Boston Corp. 36,000 1,620
SunAmerica, Inc. 8,550 406
SunTrust Banks, Inc. 24,500 1,678
Torchmark Corp. 36,000 1,629
Transatlantic Holdings, Inc. 3,700 271
Travelers, Inc. 7,400 465
Unitrin, Inc. 3,200 151
UNUM Corp. 16,400 902
USF & G Corp. 23,000 387
Value Line, Inc. 5,300 194
---------
87,522
---------
GENERAL BUSINESS - 5.3%
Automatic Data Processing, Inc. 57,275 4,253
Block (H&R) Co., Inc. 6,600 267
Capital Cities/ABC, Inc. 11,300 1,394
Cascade Communications Corp. 9,100 774
CCH, Inc. Class A 12,300 680
Comdisco, Inc. 15,750 356
Computer Sciences Corp. (a) 20,500 1,440
Cox Communications, Inc. Class A (a) 22,900 447
Deluxe Corp. 16,300 473
Donnelley (R.R.) & Sons Co. 14,700 579
Dow Jones & Co., Inc. 6,700 267
Dun & Bradstreet Corp. 3,600 233
Figgie International Holdings, Inc.
Class A (a) 27,000 280
First Data Corp. 30,059 2,010
6 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ---------
<S> <C> <C>
Flightsafety International, Inc. 9,900 $ 497
Gannett Co., Inc. 4,200 258
General Motors Corp. Class E 57,700 3,000
Harland (John H.) Co. 10,000 209
Ideon Group, Inc. 63,900 647
Knight-Ridder, Inc. 4,100 256
Lee Enterprises, Inc. 13,600 313
McClatchy Newspapers, Inc. Class A 2,500 57
Miller (Herman), Inc. 8,700 261
Moore Corp., Ltd. 11,200 209
New England Business Service, Inc. 11,500 252
New York Times Co. Class A 36,400 1,078
Ogden Corp. 20,800 445
Pinkerton's, Inc. New (a) 12,900 252
Portugal Telecom SA - ADR (a) 17,600 334
Reuters Holdings PLC Class B - ADR 11,300 624
Service Corp. International 16,200 713
Standard Register Co. 10,100 203
Tele-Communications, Inc. Class A 73,300 1,457
Tele-Communications, Inc. Series A
New (a) 42,575 1,139
Tribune Co. 8,500 520
True North Communications, Inc. 11,600 215
Viacom, Inc. Class B (a) 27,300 1,292
Washington Post Co. Class B 900 253
---------
27,937
---------
MISCELLANEOUS - 0.5%
American Real Estate Partners, L.P. 64,426 548
Canadian Pacific, Ltd. 16,700 303
Home State Holdings, Inc. (a) 33,000 305
Koger Equity, Inc. (a) 37,500 398
Newhall Land & Farming Co. 47,900 814
Providian Corp. 6,500 265
---------
2,633
---------
SHELTER - 0.5%
Essex Property Trust 13,000 250
Lafarge Coppee 12,800 240
Louisiana Pacific Corp. 10,600 257
Rayonier Timberlands, L.P. Class A 6,000 161
St. Lawrence Cement Inc. Class A 58,200 309
Standard Pacific Corp. New 35,000 219
Vulcan Materials Co. 4,200 242
Weyerhaeuser Co. 23,300 1,007
---------
2,685
---------
TECHNOLOGY - 11.9%
3Com Corp. 22,100 1,030
Advanced Micro Devices, Inc. 35,000 578
AMP, Inc. 28,900 1,109
Applied Materials, Inc. 76,400 2,999
BE Aerospace, Inc. (a) 75,000 797
Boeing Co. 52,200 4,091
CAE, Inc. 95,000 722
Cisco Systems, Inc. (a) 83,200 6,209
COMPAQ Computer Corp. (a) 42,800 2,054
Computer Associates International, Inc. 24,450 1,391
Cray Research, Inc. (a) 9,900 245
Diebold, Inc. 5,400 299
Digital Equipment Corp. (a) 8,700 558
EG&G, Inc. 14,000 340
Electronic Arts (a) 25,100 656
Ericsson (LM) Telephone Co.
Class B - ADR 84,870 1,644
FTP Software, Inc. (a) 18,300 531
General Motors Corp. Class H 31,800 1,562
Hewlett-Packard Co. 80,500 6,742
Honeywell, Inc. 13,600 661
Informix Corp. 29,100 873
Intel Corp. 129,400 7,343
Intelligent Electronics, Inc. 12,300 74
Intergraph Corp. (a) 22,100 348
International Business Machines Corp. 42,200 3,872
KLA Instruments Corp. 12,700 330
Lockheed Martin Corp. 21,500 1,699
LSI Logic Corp. 16,500 540
McDonnell Douglas Corp. 1,600 147
Micron Technology, Inc. 21,800 864
Microsoft Corp. (a) 33,500 2,940
Molex, Inc. Class A 5,100 156
Motorola, Inc. 21,700 1,237
Northrop Grumman Corp. 23,200 1,485
Oracle Systems Corp. 59,200 2,501
Pitney Bowes, Inc. 2,700 127
Raytheon Co. 13,700 647
Seagate Technology (a) 23,900 1,135
Stratus Computer, Inc. (a) 7,500 260
Tandy Corp. 6,000 249
Textron, Inc. 1,900 128
Thomson-CSF - ADR 11,500 259
TRW, Inc. 6,300 488
U.S. Robotics Corp. 1,600 140
United Technologies Corp. 8,900 844
Varian Associates, Inc. 7,200 343
---------
63,247
---------
Diversified Equity Fund 7
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ---------
<S> <C> <C>
TRANSPORTATION - 1.8%
Alexander & Baldwin, Inc. 10,000 $ 230
American President Cos., Ltd. 9,000 207
BT Shipping, Ltd. - ADR (a) 155,000 523
Canadian National Railway Co. 3,700 56
Conrail, Inc. 20,400 1,428
CSX Corp. 28,050 1,280
Federal Express Corp. 5,000 369
GATX Corp. 8,900 433
Johnstown America Industries, Inc. (a) 85,000 393
Laidlaw, Inc. Class B 65,000 666
Nordic American Tanker
Shipping, Ltd. 1997 Warrants (a) 28,400 99
Norfolk Southern Corp. 23,900 1,897
OMI Corp. (a) 38,600 251
Overseas Shipholding Group, Inc. 19,100 363
Roadway Services, Inc. 3,500 171
Teekay Shipping Corp. 9,400 222
Trans World Airlines, Inc. New (a) 59,000 612
XTRA Corp. 2,700 115
Yellow Corp. 10,600 132
---------
9,447
---------
UTILITIES - 8.8%
Airtouch Communications, Inc. (a) 81,200 2,294
AT&T Corp. 123,700 8,010
BCE, Inc. 43,000 1,484
BellSouth Corp. 24,590 1,070
British Telecommunications PLC - ADR 3,500 198
Centerior Energy Corp. 13,500 120
Central Maine Power Co. 46,400 667
Coastal Corp. 5,300 197
Detroit Edison Co. 17,700 611
Dominion Resources, Inc. 21,800 899
Empresa Nacional de Electricidad
SA - ADR 5,100 292
Enron Corp. 28,800 1,098
ENSERCH Corp. 21,000 341
FPL Group, Inc. 14,800 686
General Public Utilities Corp. 51,000 1,734
GTE Corp. 73,000 3,212
KU Energy Corp. 8,100 243
Lincoln Telecommunications Co. 14,200 300
MCI Communications Corp. 136,300 3,561
New England Electric System 4,700 186
Niagara Mohawk Power Corp. 166,600 1,604
NIPSCO Industries, Inc. 17,700 677
Northeast Utilities 43,700 1,065
NYNEX Corp. 29,700 1,604
Pacific Gas & Electric Co. 61,600 1,748
Pacific Telesis Group 54,500 1,833
SCE Corp. 71,850 1,275
Southern New England
Telecommunications Corp. 14,000 557
Sprint Corp. 42,200 1,683
Talisman Energy, Inc. 23,100 467
Telefonica de Espana SA - ADR 38,000 1,591
Telefonos de Mexico SA Series L - ADR 55,000 1,753
Texas Utilities Co. 32,600 1,341
Unicom Corp. 43,800 1,434
WorldCom, Inc. (a) 19,537 688
---------
46,523
---------
TOTAL COMMON STOCKS
(cost $415,813) 501,062
---------
CONVERTIBLE PREFERRED STOCK - 0.5%
Boise Cascade Corp. Series G 32,000 916
Continental Airlines Finance Trust (144A) 5,000 266
Elsag Bailey Financing Trust (144A) 11,100 556
Glendale Federal Bank Series E 22,100 1,000
Sun, Inc. Series A 5,867 163
---------
Total Convertible Preferred Stocks
(cost $2,590) 2,901
---------
PREFERRED STOCKS - 0.4%
Cooper Industries, Inc. 34,000 468
Nokia Corp. - ADR 46,000 1,788
---------
TOTAL PREFERRED STOCKS
(cost $2,752) 2,256
---------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 3.3%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 17,607 17,607
---------
TOTAL SHORT-TERM INVESTMENTS
(cost $17,607) 17,607
---------
8 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
MARKET
VALUE
(000)
---------
<S> <C>
TOTAL INVESTMENTS
(identified cost $438,762)(c) - 98.7% $ 523,826
OTHER ASSETS AND LIABILITIES,
NET - 1.3% 6,819
---------
NET ASSETS - 100.0% $ 530,645
---------
---------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes was $443,656
and net unrealized appreciation for all securities was $80,170. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $94,568 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $14,398.
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/96 60 $ (160)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ (160)
----------
----------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes, due 12/31/95, valued
at $4,250 were held as collateral by the custodian in connection with
futures contracts purchased by the Fund. The settlement amount of these
matured notes is included in Receivable for Investments Sold on the
Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
Diversified Equity Fund 9
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $438,762,253)(Note 2) . . . . . . . . . . . . . . . . . . $ 523,825,793
Foreign currency holdings (identified cost $1,711) . . . . . . . . . . . . . . . . . . . . . . . 1,711
Foreign currency exchange spot contracts (cost $166,102)(Notes 2 and 6). . . . . . . . . . . . . 166,445
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,279,388
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,074,541
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,757,583
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . 21,000
--------------
535,126,461
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,147,466
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,866
Accrued bookkeeping service fees (Note 4). . . . . . . . . . . . . . . . . 6,254
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . . . . . . 351,418
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . . . . . . 38,371
Other accrued expenses and payables. . . . . . . . . . . . . . . . . . . . 149,507
Foreign currency exchange spot contracts
(cost $166,102)(Notes 2 and 6) . . . . . . . . . . . . . . . . . . . . . . 166,102 4,480,984
-------------- --------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 530,645,477
--------------
--------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,714,811
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,063,519
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (160,438)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,420
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,890,165
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 530,645,477
--------------
--------------
Net asset value, offering and redemption price per share
($530,645,477 divided by 13,741,952 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38.62
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF OPERATIONS
December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,471,549
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,406,414
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,387
-------------
12,378,350
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,842,471
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408,204
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293,066
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . 25,080
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,741
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,277
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,453
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,720 4,679,012
------------ -------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,699,338
-------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,416,347
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,332,925
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,735,415
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,149,433
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (160,438)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (221,411)
-------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . 139,252,271
-------------
Net increase (decrease) in net assets resulting from operations. . . . . . . .
$ 146,951,609
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Equity Fund 11
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,699,338 $ 7,002,428
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,416,347 15,198,932
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,332,925 --
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,735,415 1,794,598
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,149,433 (24,528,128)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . (160,438) --
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . (221,411) (8,888)
-------------- -------------
Net increase (decrease) in net assets resulting from operations. . . . . . 146,951,609 (541,058)
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . (7,795,700) (7,065,524)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . (53,844,603) (21,049,116)
In excess of net realized gain on investments. . . . . . . . . . . . . . -- (2,943,524)
Increase (decrease) in net assets from Fund share transactions . . . . . . 31,298,027 57,215,430
-------------- -------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 116,609,333 25,616,208
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . 414,036,144 388,419,936
-------------- -------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $3,804 at December 31, 1994). . . . . . . . . . . . . . . . . . . . . $ 530,645,477 $ 414,036,144
-------------- -------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>>
Fund shares sold . . . . . . . . . . . . . . 4,083,541 $150,019,014 4,843,591 $165,116,498
Fund shares issued to shareholders
in reinvestments of distributions. . . . . 1,155,887 44,249,578 634,408 20,718,465
Fund shares redeemed . . . . . . . . . . . . (4,330,675) (162,970,565) (3,781,553) (128,619,533)
---------- ------------- ----------- ------------
Net increase (decrease). . . . . . . . . . . 908,753 $ 31,298,027 1,696,446 $ 57,215,430
---------- ------------- ----------- ------------
---------- ------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . $ 32.26 34.88 $ 35.60 36.36 30.66
-------- ------- ------ -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . .60 .58 .56 .60 .81
Net Realized and Unrealized Gain (Loss) on Investments . . . . . 10.63 (.49) 3.03 2.30 8.36
-------- ------- ------ -------- -------
Total Income From Investment Operations. . . . . . . . . . . . . 11.23 .09 3.59 2.90 9.17
-------- ------- ------ -------- -------
LESS DISTRIBUTIONS:
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . (.60) (.58) (.55) (.61) (.82)
Net Realized Gain on Investments . . . . . . . . . . . . . . . . (4.27) (1.87) (3.76) (3.05) (2.65)
In Excess of Net Realized Gain on Investments. . . . . . . . . . -- (.26) -- -- --
-------- ------- ------ -------- -------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . (4.87) (2.71) (4.31) (3.66) (3.47)
-------- ------- ------ -------- -------
NET ASSET VALUE END OF YEAR. . . . . . . . . . . . . . . . . . . . $ 38.62 32.26 34.88 $ 35.60 36.36
-------- ------- ------ -------- -------
-------- ------- ------ -------- -------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . 35.17 (0.01) 10.53 8.32 31.05
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . . . . . .95 .95 .96 .98 .98
Net investment income to average net assets. . . . . . . . . . . 1.56 1.73 1.54 1.69 2.28
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . 92.53 57.53 99.80 77.02 116.53
Net assets, end of year ($000 omitted) . . . . . . . . . . . . . 530,645 414,036 388,420 337,549 325,746
</TABLE>
Diversified Equity Fund 13
<PAGE>
DIVERSIFIED EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 DIVERSIFIED EQUITY RUSSELL 1000-Registered Trademark-** LIPPER-C- GROWTH & INCOME++
- ----------------- ------------------ ------------------------------------ ---------------------------
<S> <C> <C> <C>
Inception* $10,000 $10,000 $10,000
1986 $11,463 $11,787 $11,608
1987 $12,259 $12,134 $11,842
1988 $14,266 $14,225 $13,610
1989 $18,412 $18,551 $16,663
1990 $17,121 $17,780 $15,915
1991 $22,436 $23,652 $20,500
1992 $24,302 $25,789 $22,198
1993 $26,863 $28,407 $24,688
1994 $26,860 $28,515 $24,434
1995 $36,307 $39,285 $31,912
</TABLE>
Diversified Equity Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- -------------- ------------ ------------
<S> <C> <C>
1 Year $13,517 35.17%
5 Years $21,206 16.22%***
10 Years $36,307 13.76%***
</TABLE>
Russell 1000-Registered Index- Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- -------------- ------------ ------------
<S> <C> <C>
1 Year $13,777 37.77%
5 Years $22,095 17.18%***
10 Years $39,285 14.66%***
</TABLE>
Lipper Growth & Income Funds Average
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- -------------- ------------ ------------
<S> <C> <C>
1 Year $13,060 30.60%
5 Years $20,052 14.93%***
10 Years $31,912 12.30%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Russell 1000 Index includes the 1,000 largest companies in the Russell
3000-Registered Trademark- Index, the smallest of which is valued at about
$450 million. The Russell 1000 Index represents the universe of stocks from
which most active money managers typically select.
++ Lipper-C- Growth & Income Funds Average is the average total return for the
universe of funds within the Growth and Income Funds investment objective.
The total return for the funds reflects adjustments for income dividends
and capital gains distributions reinvested as of the ex-dividend dates.
*** Annualized.
DIVERSIFIED EQUITY FUND returned 35.2% during 1995, trailing the Russell
1000-Registered Trademark- Index return of 37.8%. The portfolio was managed
in a manner consistent with its design to serve as a core investment for
those investors whose objectives include long-term growth or long-term
protection against inflation. The Fund uses a multi-style, multi-manager
strategy intended to achieve higher returns with moderate risk by employing
the services of nine managers with three separate and distinct assignments.
The dominance of large cap stocks during the year detracted significantly from
the Fund's performance. Technology stocks led other sectors by a wide margin
during the first half of the year; but the market rotated to interest
rate-sensitive issues during the second and third quarters and defensive sectors
(health care, energy, and utilities) during the last four months. Consumer
stocks suffered through most of the year in response to a slowing economy and
employment fears driven by corporate restructurings. Although consumer staples
gained strength as investors sought the stocks of stable growth companies, a
weak holiday sales season strained an already weak retail sector. Good
technology stock selection gave the Fund a strong boost early in the year on top
of the sector's generally strong start. However, the tech sector slumped for
most of the second half of 1995, taking the Fund's technology holdings down with
it. The Fund also lost ground in the fourth quarter due to its underweighting in
utilities versus the index.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
14 Diversified Equity Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ --------
<S> <C> <C>
COMMON STOCKS - 90.7%
BASIC INDUSTRIES - 5.0%
ABS Industries, Inc. 16,000 $ 120
AK Steel Holding Corp. 8,600 295
Albemarle Corp. 10,100 196
Allegheny Ludlum Corp. 16,300 302
Alumax, Inc. (a) 8,200 251
ASARCO, Inc. 9,100 291
Bio-Rad Laboratories, Inc. Class A (a) 1,300 55
Birmingham Steel Corp. 6,300 94
Boise Cascade Corp. 7,300 253
Brockway Standard Holdings Corp. (a) 12,000 186
Cambrex Corp. 6,000 248
Carpenter Technology Corp. 29,200 1,201
CasTech Aluminum Group, Inc. (a) 6,800 92
Chesapeake Corp. 4,400 130
Cleveland-Cliffs, Inc. 2,200 90
Commercial Metals Co. 41,766 1,034
Commonwealth Aluminum Corp. 7,700 118
Crompton & Knowles Corp. 7,200 95
Cyprus Amax Minerals Co. 27,500 718
Dexter Corp. 46,000 1,087
Dravo Corp. (a) 25,700 308
Easco, Inc. 22,000 173
Eastern Enterprises, Inc. 2,200 78
Ferro Corp. 52,000 1,209
First Brands Corp. 9,200 438
Fort Howard Corp. New (a) 28,000 627
Handy & Harman 26,200 432
Hanna (M.A.) Co. 6,300 176
Hecla Mining Co. (a) 8,800 61
J & L Specialty Steel, Inc. 8,800 165
Lukens, Inc. 3,100 89
Medusa Corp. 1,300 34
Mentor Graphics Corp. (a) 49,000 882
Mississippi Chemical Corp. New 7,300 170
New Jersey Steel Corp. (a) 28,000 238
Northwestern Steel & Wire Co. New (a) 3,900 31
Oregon Steel Mills, Inc. 2,300 32
Penwest, Ltd. 8,000 194
Proler International Corp. (a) 73,500 551
Quanex Corp. 1,800 35
Schnitzer STL Industries, Inc. Class A 800 24
Slater Industries, Inc. 18,000 171
St. Joe Paper Co. 12,400 682
Stone Container Corp. 15,800 227
Texas Industries, Inc. 2,200 117
Universal Stainless & Alloy Products, Inc. (a) 15,500 163
Varlen Corp. 1,100 24
Webco Industries, Inc. (a) 18,000 102
Wellman, Inc. 24,500 557
WHX Corp. (a) 56,900 619
Witco Chemical Corp. 7,900 231
Wolverine Tube, Inc. (a) 1,900 71
------
15,767
------
CAPITAL GOODS - 7.3%
Acme-Cleveland Corp. 4,000 75
ADCO Technologies, Inc. 21,300 146
AFC Cable Systems, Inc. (a) 13,000 169
Ag-Chem Equipment Co., Inc. 5,000 131
American Buildings Co. New (a) 31,200 686
Ametek, Inc. 3,500 66
ANADIGICS, Inc. 1,200 26
Anixter International, Inc. 4,600 86
Apogee Enterprises, Inc. 56,500 960
Aptargroup, Inc. 19,000 710
Arden Industrial Products (a) 15,000 73
Baldor Electric Co. 2,400 48
Ball Corp. 8,100 223
Barnes Group, Inc. 1,800 65
Blount International, Inc. Class A 1,800 47
BMC West Corp. (a) 9,000 133
Briggs & Stratton Corp. 8,200 356
Cable Design Technologies Corp. (a) 5,000 220
Cascade Corp. 11,600 157
Charter Power Systems, Inc. 1,100 31
Cognex Corp. 23,600 820
Cohu, Inc. 28,000 700
Commercial Intertech Corp. 1,000 18
Cummins Engine Co., Inc. 9,500 352
Daniel Industries, Inc. 1,700 24
Defiance, Inc. 25,000 147
Duriron Co., Inc. 74,700 1,737
Eastern Co. 24,400 299
Epic Design Technology, Inc. 3,600 74
Farr Co. (a) 22,800 171
Flow International Corp. (a) 6,000 55
Fluke Corp. 1,000 38
Giant Cement Holding, Inc. (a) 16,000 184
Global Industrial Technologies, Inc. (a) 6,300 119
Graco, Inc. 30,300 924
Harmon Industries, Inc. New 8,000 114
Heist (C.H.) Corp. (a) 33,900 237
Hughes Supply, Inc. 1,000 28
Hurco Cos., Inc. (a) 30,700 154
IDEX Corp. 33,000 1,345
II-VI, Inc. 2,800 30
Insituform Technologies, Inc. Class A (a) 10,235 116
Special Growth Fund 15
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ --------
<S> <C> <C>
Inverpower Controls, Ltd. 21,000 $ 185
JLG Industries, Inc. 1,000 29
Kennametal, Inc. 6,500 206
Keystone International, Inc. 3,200 64
Litton Industries, Inc. (a) 3,600 160
Measurex Corp. 8,900 251
Monarch Machine Tool Co. 44,000 550
National Service Industries, Inc. 34,500 1,117
NCI Building Systems, Inc. (a) 10,500 256
Nu Horizons Electronics Corp. (a) 2,600 46
Outboard Marine Corp. 6,000 122
Plantronics, Inc. New (a) 8,000 289
Powell Industries, Inc. (a) 22,000 173
Regal-Beloit Corp. 2,500 54
Sanifill, Inc. (a) 22,100 738
Shelter Components Corp. 12,850 210
SIFCO Industries (a) 88,000 473
Symmetricom, Inc. (a) 3,000 41
Synalloy Corp. 1,300 27
Tecumseh Products Co. Class A 13,600 704
Tecumseh Products Co. Class B 4,000 199
TETRA Technologies, Inc. New 31,500 717
Timken Co. 33,100 1,266
U.S. Filter Corp. New (a) 20,300 540
United Waste Systems, Inc. (a) 23,100 849
USA Waste Services, Inc. (a) 11,200 211
Weatherford Enterra, Inc. (a) 10,450 302
Zurn Industries, Inc. 32,800 701
Zycon Corp. 16,000 180
------
22,754
------
CONSUMER BASICS - 13.9%
Advocat, Inc. (a) 14,000 156
Alpharma, Inc. Class A 7,000 183
American Medical Response (a) 9,900 322
American Oncology Resources, Inc. 12,000 582
Ballard Medical Products 15,500 277
Bergen Brunswig Corp. Class A 8,900 221
Beverly Enterprises, Inc. (a) 20,800 221
Bindley Western Industries, Inc. 1,500 26
Biogen, Inc. (a) 17,000 1,037
Bush Boake Allen, Inc. (a) 25,000 684
Carter-Wallace, Inc. 2,300 26
Central Sprinkler Corp. (a) 4,000 136
Church and Dwight Co., Inc. 45,600 844
CNS, Inc. 8,800 131
Coca-Cola Bottling Co. 21,000 727
Coherent, Inc. (a) 3,700 150
Collagen Corp. 8,000 165
Community Care of America, Inc. 9,300 96
Community Health Systems, Inc. (a) 2,400 86
Community Psychiatric Centers 8,300 102
Cor Therapeutics, Inc. (a) 9,800 80
Cytel Corp. (a) 2,000 12
Dean Foods Co. 5,600 154
Duckwall-ALCO Stores, Inc. New (a) 17,200 168
Dura Pharmaceuticals, Inc. (a) 22,000 759
FHP International Corp. (a) 8,300 232
Fleming Cos., Inc. 9,100 188
Flowers Industries, Inc. 94,800 1,149
FPA Medical Management, Inc. 14,000 130
General Nutrition Companies, Inc. 46,000 1,058
Genesis Health Ventures, Inc. (a) 3,700 135
Giant Food, Inc. Class A 43,000 1,355
GranCare, Inc. (a) 8,000 116
Grist Mill Co. New (a) 1,800 13
Health Care & Retirement Corp. (a) 4,900 172
Health Management Associates Class A 33,150 866
Health Management Systems, Inc. 15,000 578
HealthCare COMPARE (a) 16,300 709
Healthdyne Technologies, Inc. (a) 11,062 124
Healthdyne, Inc. 2,600 22
Healthsource, Inc. 20,000 720
HemaSure, Inc. (a) 21,000 260
Horizon/CMS Healthcare Corp. (a) 17,100 432
Hormel (George A.) & Co. 5,000 123
Hudson Foods, Inc. 3,700 64
IBP, Inc. 7,400 374
ICOS Corp. (a) 4,200 30
ICU Medical, Inc. (a) 2,100 36
Immucor Corp. (a) 15,000 139
Integrated Health Services, Inc. 6,200 155
International Multifoods Corp. 2,200 44
Interneuron Pharmaceuticals, Inc. (a) 28,100 710
Isomedix, Inc. (a) 10,200 147
Lance, Inc. 35,000 569
Lincare Holdings, Inc. (a) 3,300 82
Living Centers of America, Inc. (a) 4,300 151
Mariner Health Group, Inc. (a) 2,300 39
Maxxim Medical, Inc. (a) 1,200 20
McCormick & Co., Inc. 48,500 1,170
MedImmune, Inc. (a) 900 18
MediSense, Inc. (a) 12,000 380
Mine Safety Appliances Co. 12,000 573
Minntech Corp. 18,600 363
Multicare Cos., Inc. (a) 9,000 216
Nature's Sunshine Products, Inc. 12,066 296
16 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ --------
<S> <C> <C>
NBTY, Inc. (a) 30,000 $ 143
Nellcor, Inc. (a) 16,072 932
Northfield Laboratories, Inc. (a) 3,100 57
Northland Cranberries, Inc. Class A 14,000 249
Odwalla, Inc. 1,600 25
OrNda Healthcorp (a) 38,200 888
Orthofix International NV 9,300 65
Outback Steakhouse, Inc. (a) 27,300 979
Owen Healthcare, Inc. 25,000 656
Pacific Physician Services, Inc. (a) 47,000 834
Pharmaceutical Marketing Services, Inc. (a) 2,000 30
PhyCor, Inc. 29,375 1,483
Physician Computer Network, Inc. (a) 5,400 48
Physician Sales & Service, Inc. 30,400 851
Physicians Health Services, Inc. Class A (a) 20,400 755
Prime Hospitality Corp. (a) 67,200 672
Protein Design Labs, Inc. (a) 2,600 59
Protocol Systems, Inc. (a) 14,000 145
Pure Pac (a) 16,000 82
Regency Health Services, Inc. (a) 21,360 216
Regeneron Pharmaceuticals, Inc. (a) 3,500 44
Renal Treatment Centers, Inc. (a) 15,400 678
Respironics, Inc. 29,800 611
Ruddick Corp. 86,000 989
Safety 1st, Inc. (a) 8,800 130
Salick Health Care, Inc. 2,500 92
Schultz Sav-O Stores, Inc. 43,500 642
Smithfield Foods, Inc. (a) 2,400 76
Smucker (J.M.) Co. 19,000 418
Smucker (J.M.) Co. Class B 22,000 423
Snap-On Tools Corp. 1,600 72
Sofamor/Danek Group, Inc. (a) 2,900 82
Sola International, Inc. 21,600 545
Somatogen, Inc. (a) 4,600 87
Stanhome, Inc. 31,500 917
Starbucks Corp. 37,700 787
Starrett (L.S.) Co. Class A 24,500 634
Sterling Healthcare Group, Inc. (a) 15,000 159
Strategic Distribution, Inc. 36,050 279
Sun Healthcare Group, Inc. (a) 11,700 158
Sunrise Medical, Inc. (a) 5,300 98
Syncor International Corp. (a) 2,700 18
TheraTx, Inc. (a) 5,600 66
Thermotrex Corp. (a) 7,700 385
Total Renal Care Holdings, Inc. 16,000 472
U.S. Bioscience, Inc. (a) 264 1
Ultratech Stepper, Inc. 2,300 59
United Dental Care, Inc. 11,900 491
Universal Foods Corp. 42,700 1,713
Universal Health Services, Inc.
Class B (a) 3,400 151
Utah Medical Products (a) 14,000 276
Vencor, Inc. (a) 6,600 214
Vivra, Inc. 6,600 166
Watson Pharmaceuticals, Inc. (a) 26,600 1,300
------
43,705
------
CONSUMER DURABLES - 2.5%
Arrow Automotive Industries, Inc. (a) 44,000 275
Arvin Industries, Inc. 3,100 51
Bassett Furniture Industries, Inc. 1,200 27
Borg Warner Automotive, Inc. 3,200 102
Cavalier Homes, Inc. 6,700 139
Coachmen Industries, Inc. 32,100 698
Coast Distribution Systems (a) 21,000 126
Copart, Inc. (a) 1,400 37
CORT Business Services Corp. 7,700 127
Discount Auto Parts, Inc. (a) 1,600 50
Donaldson Co., Inc. 4,000 100
Excel Industries, Inc. 7,000 98
Federal-Mogul Corp. 23,800 467
Fleetwood Enterprises, Inc. 6,200 160
Flexsteel Industries, Inc. 27,112 278
Kinetic Concepts, Inc. 23,000 273
La-Z-Boy Chair Co. 36,000 1,112
Lear Seating Corp. (a) 3,100 90
National Presto Industries, Inc. 1,000 40
Polaris Industries, Inc. 2,000 59
PRI Automation, Inc. (a) 1,400 49
Pronet, Inc. (a) 10,000 294
Renters Choice, Inc. 1,400 18
Schult Homes Corp. 12,000 210
Simpson Industries, Inc. 12,000 105
Skyline Corp. 1,300 27
Smith (A.O.) Corp. 72,500 1,504
Titan Wheel International, Inc. 8,850 144
West, Inc. 38,000 893
Wynn's International, Inc. 6,000 178
------
7,731
------
CONSUMER NON-DURABLES - 5.5%
American Safety Razor Co. 12,000 95
Baby Superstore, Inc. 4,400 250
Barnes & Noble, Inc. (a) 26,800 777
Block Drug Co., Inc. Class A 13,751 474
Bombay, Inc. (a) 9,200 59
Special Growth Fund 17
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ --------
<S> <C> <C>
Borders Group, Inc. (a) 12,900 $ 239
Brown Group, Inc. 24,500 349
Cannondale Corp. (a) 1,300 20
Carson Pirie Scott & Co. (a) 1,700 34
Chic By H.I.S., Inc. (a) 1,800 10
Claire's Stores, Inc. 4,800 85
Coastcast Corp. (a) 20,000 203
CompUSA, Inc. (a) 4,400 137
Consolidated Stores Corp. (a) 5,800 126
Coors (Adolph) Co. Class B 1,400 31
Daisytek International Corp. 6,000 184
Danskin, Inc. (a) 45,000 186
Department 56, Inc. (a) 2,500 96
Designs, Inc. (a) 6,300 44
Eagle Hardware and Garden, Inc. (a) 4,400 32
Family Dollar Stores, Inc. 6,700 92
Fieldcrest Cannon, Inc. (a) 36,500 607
First Team Sports, Inc. 1,300 19
Guilford Mills, Inc. 37,000 754
Haggar Corp. 31,090 560
Happiness Express, Inc. (a) 2,600 11
Hills Stores Co. New (a) 2,100 21
Innovex, Inc. 3,500 53
Jean Phillippe Fragrances, Inc. New (a) 10,000 81
Johnston Industries, Inc. 30,500 244
Jos. A. Bank Clothiers, Inc. (a) 38,700 73
Kenneth Cole Productions, Inc. Class A 2,400 45
Leslie's Poolmart 13,000 172
Longs Drug Stores Corp. 1,000 48
MacFrugals Bargains Close Outs, Inc. (a) 3,600 50
Nautica Enterprises, Inc. 25,700 1,105
North American Watch Corp. 45,000 866
Nutramax Products, Inc. New (a) 20,000 175
Office Depot, Inc. (a) 22,725 449
Oxford Industries, Inc. 31,500 528
Paragon Trade Brands, Inc. (a) 2,800 65
PeopleSoft, Inc. 18,800 799
Pete's Brewing Co. (a) 3,400 48
PETsMART, Inc. 15,000 461
Phillips-Van Heusen Corp. 4,200 41
Quaker Fabric Corp. New (a) 20,000 175
Rayonier, Inc. 7,900 264
Redhook Ale Brewery, Inc. 1,300 34
Rex Stores Corp. (a) 2,000 35
Rite Aid Corp. 19,200 658
Robert Mondavi Corp. Class A (a) 3,100 85
Ross Stores, Inc. 7,000 134
Russ Berrie & Co., Inc. 1,300 16
Scholastic Corp. (a) 11,100 863
Score Board, Inc. (a) 30,000 131
Service Merchandise Co., Inc. (a) 11,900 59
Sports Authority, Inc. (a) 4,700 96
Springs Industries, Inc. 2,100 87
Systemed, Inc. (a) 30,000 135
Tiffany & Co. 14,800 745
Timberland Co. Class A (a) 3,400 68
TJX Cos., Inc. 14,900 281
Tranzonic Cos. Class B 24,200 336
Tuesday Morning, Inc. (a) 20,000 110
Value City Department Stores, Inc. (a) 12,500 84
VWR Corp. 21,814 278
Waban, Inc. (a) 45,800 859
Zale Corp. New (a) 49,800 797
------
17,128
------
CONSUMER SERVICES - 2.9%
Airport Systems International, Inc. (a) 21,200 64
Alaska Air Group, Inc. (a) 6,100 99
AMC Entertainment, Inc. (a) 1,100 26
America West Airlines, Inc. Class B 8,300 141
Amtran, Inc. (a) 16,000 192
Applebee's International, Inc. 29,500 671
Bally Entertainment Group (a) 10,000 140
Brinker International, Inc. (a) 10,000 151
Buffets, Inc. (a) 15,400 216
Callaway Golf Co. 13,400 303
Children's Discovery Centers
of America, Inc. New (a) 20,000 90
Comair Holdings, Inc. 9,750 260
Continental Airlines, Inc. Class B (a) 3,800 165
Equity Inns, Inc. 14,000 161
Falcon Cable Systems Co. L.P. 53,700 591
GC Companies, Inc. (a) 700 23
Golf Enterprises, Inc. (a) 14,000 102
Grand Casinos, Inc. 11,100 258
Great Lakes Aviation, Ltd. (a) 22,300 75
Harvey's Casino Resorts 1,000 18
La Quinta Motor Inns, Inc. 53,500 1,465
Lone Star Steakhouse & Saloon (a) 10,200 390
Main Street & Main, Inc. New 35,000 92
Max & Erma's Restaurants, Inc. 19,800 116
Mesa Airlines, Inc. (a) 7,800 69
Monterey Pasta Co. (a) 18,000 88
O'Charleys, Inc. (a) 15,000 214
Old Dominion Freight Lines, Inc. (a) 8,000 60
Papa Johns International, Inc. (a) 14,500 587
Penn National Gaming, Inc. (a) 2,800 36
18 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ -------
<S> <C> <C>
Recoton Corp. (a) 9,600 $ 173
Regal Cinemas, Inc. 9,500 275
Ride, Inc. 1,100 36
Ryan's Family Steak Houses, Inc. (a) 76,000 522
ShoLodge, Inc. (a) 15,333 146
Showboat, Inc. 3,700 97
Shuffle Master, Inc. 3,000 35
Studio Plus America, Inc. 4,800 124
Sunstone Hotel Investors, Inc. 43,300 433
Supertel Hospitality, Inc. (a) 12,000 120
Triarc Companies, Inc. Class A (a) 1,000 11
USAir Group, Inc. (a) 13,100 174
WMS Industries, Inc. (a) 1,300 21
------
9,030
------
ENERGY - 4.9%
Alamco, Inc. (a) 8,000 64
Arch Petroleum, Inc. New (a) 61,800 120
Basin Exploration, Inc. (a) 110,000 522
Belden & Blake Corp. (a) 10,000 175
Berry Petroleum Co. Class A 54,200 549
BJ Services Co. (a) 23,550 683
Callon Petroleum Co. (a) 5,600 56
Camco International, Inc. 19,300 540
Chesapeake Energy Corp. 10,800 359
Cliffs Drilling Co. (a) 9,000 133
Coho Energy, Inc. (a) 104,480 509
Cross Timbers Oil Co. 47,300 834
Crown Centennial Petroleum Co.
Class B (a) 36,600 535
Diamond Shamrock, Inc. 27,900 722
Digicon, Inc. New 29,333 235
Dual Drilling Co. (a) 8,000 91
Energen Corp. 1,900 46
Equity Oil Co. (a) 105,000 591
Global Industries, Inc. (a) 8,000 238
Harcor Energy, Inc. New (a) 38,000 86
Helmerich & Payne, Inc. 3,000 89
ICO, Inc. New 30,000 146
K N Energy, Inc. 1,300 38
KCS Energy, Inc. 1,500 23
Key Production, Inc. (a) 13,900 75
LTV Corp. New (a) 48,400 666
Marine Drilling Co, Inc. (a) 40,000 195
Maynard Oil Co. (a) 90,500 611
Newfield Exploration Co. (a) 2,000 54
Newpark Resources, Inc. New 9,450 210
Noble Drilling Corp. (a) 130,500 1,158
NorAm Energy Corp. 11,100 99
Nuevo Energy Co. (a) 2,500 56
Oceaneering International, Inc. (a) 4,300 55
Parker & Parsley Petroleum Co. 31,000 682
Petroleum Geo Services AS - ADR (a) 23,000 572
Production Operators Corp. 6,000 198
Quaker State Oil Refining Corp. 6,200 78
Questar Corp. 3,200 107
Reading & Bates Corp. New (a) 19,100 287
Smith International, Inc. (a) 45,900 1,079
Swift Energy Co. (a) 2,700 32
Tesoro Petroleum Corp. (a) 2,900 25
Tide West Oil, Inc. (a) 6,100 79
Ultramar Corp. 41,100 1,058
United Meridian Corp. (a) 2,900 50
Valero Energy Corp. 4,800 118
Wiser Oil Co. 37,500 450
World Fuel Services Corp. 3,300 52
------
15,430
------
FINANCE - 13.3%
20th Century Industries (a) 2,200 44
Aames Financial Corp. 2,100 59
AlBank Financial Corp. 7,000 210
Alexander & Alexander Services, Inc. 3,500 67
Allmerica Property & Casualty Cos. 34,000 918
Amcast Industrial Corp. 1,300 24
American Bankers Insurance Group, Inc. 23,500 917
American Travellars Corp. (a) 31,900 893
AMRESCO, Inc. 12,500 153
AT&T Capital Corp. 1,400 54
AVEMCO Corp. 33,000 528
Avondale Financial Corp. 10,000 145
Bankers Corp. 10,800 176
Bankers Life Holding Corp. 1,300 26
Berkley (W.R.) Corp. 19,000 1,012
BHC Financial, Inc. 14,000 249
California Federal Bank 7,500 118
CFI ProServices, Inc. (a) 14,000 203
Charter One Financial, Inc. 24,900 756
CitiFed Bancorp, Inc. 7,000 238
City National Corp. 5,500 77
Coast Savings Financial, Inc. (a) 7,500 260
Collective Bancorp, Inc. 2,400 61
Colonial BancGroup, Inc. 29,500 951
Corporate Express, Inc. 63,600 1,900
Countrywide Credit Industries, Inc. 14,200 309
Cullen Frost Bankers, Inc. 1,000 50
Special Growth Fund 19
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
FFY Financial Corp. 1,000 $ 21
Financial Fed Corp. (a) 9,000 201
FINOVA Group, Inc. 4,100 198
First American Financial Corp. 1,300 35
First Bell Bancorp, Inc. 6,900 91
First Colony Corp. 3,000 76
First Commerce Corp. 22,100 699
First Financial Caribbean Corp. 10,000 184
First Mortgage Corp. (a) 30,000 172
First Palm Beach Bancorp, Inc. 1,400 30
First Republic Bancorp, Inc. (a) 14,000 184
First Tennessee National Corp. 16,000 964
Flushing Financial Corp. 10,300 156
Fremont General Corp. 29,850 1,097
Greenpoint Financial Corp. 9,300 246
Hartford Steam Boiler Inspection
& Insurance Co. 1,400 70
Haven Bancorp 1,200 28
HCC Insurance Holdings, Inc. (a) 1,000 37
Horace Mann Educators Corp. 1,200 37
Imperial Credit Industries, Inc. 31,692 666
Jefferies Group, Inc. Rights 9,800 451
JSB Financial, Inc. 1,500 47
Keystone Financial, Inc. 32,450 957
Leader Financial Corp. 20,400 760
Life Bancorp, Inc. 1,800 27
Life Partners Group, Inc. 3,600 49
Litchfield Financial Corp. 10,000 130
Markel Corp. (a) 9,500 689
Mercury Finance Corp. 41,850 555
MLF Bancorp, Inc. 3,400 76
Money Store, Inc. 23,250 360
National Auto Credit, Inc. 1,500 24
National Re Corp. 18,400 699
North American Mortgage Co. 33,700 716
NS Bancorp, Inc. 5,000 193
Ohio Casualty Corp. 17,000 650
Old Kent Financial Corp. 17,300 707
Olympic Financial, Ltd. (a) 12,500 203
ONBANCorp 1,800 60
One Valley Bancorp
of West Virginia, Inc. 24,500 763
Orion Capital Corp. 4,200 182
Pace American Group, Inc. (a) 25,000 2
Paul Revere Corp. 1,000 21
PennCorp Financial Group, Inc. 17,000 499
Peoples Bank 2,800 53
Peoples Heritage Financial Group 31,500 709
Protective Life Corp. 1,000 31
Provident Bankshares Corp. 2,000 59
Queens County Bancorp 7,000 276
Regional Acceptance Corp. 8,700 80
Regions Financial Corp. 26,000 1,118
Reliance Bancorp, Inc. 3,800 54
Reliance Group Holdings, Inc. 10,900 94
Reliastar Financial Corp. 20,000 887
RenaissanceRe Holdings, Ltd. 22,000 657
Resource Bancshares Mortgage Group 16,044 223
Resource Mortgage Capital Corp. 2,600 52
Risk Capital Holdings, Inc. 20,300 467
Robert Half International, Inc. (a) 31,000 1,298
Roosevelt Financial Group, Inc. 8,500 163
Seacor Holdings, Inc. (a) 7,000 188
Security Connecticut Corp. 8,000 217
Selective Insurance Group, Inc. 15,500 550
Sotheby's Holdings Co., Inc. Class A 2,500 36
SouthTrust Corp. 29,500 756
Standard Financial, Inc. (a) 4,300 63
State Auto Financial Corp. 8,000 204
SunAmerica, Inc. 18,000 855
T R Financial Corp. 3,000 76
TCF Financial Corp. 16,000 530
TFC Enterprises, Inc. (a) 2,800 16
Titan Holdings, Inc. 12,200 175
Transatlantic Holdings, Inc. 9,000 660
Transnational Re Corp. Class A 26,000 637
Trenwick Group, Inc. Rights 11,000 616
Union Planters Corp. 47,950 1,528
United Fire & Casualty Co. 19,300 791
US Facilities Corp. 36,900 775
USLIFE Corp. 2,800 84
Vesta Insurance Group, Inc. 9,500 518
Washington National Corp. 1,400 39
Westco Bancorp, Inc. 5,000 135
Westcorp, Inc. 9,530 176
Zenith National Insurance Corp. 25,800 551
Zions Bancorp 13,000 1,043
------
41,850
------
GENERAL BUSINESS - 9.2%
AccuStaff, Inc. 12,800 554
Active Voice Corp. (a) 800 21
Advo Systems, Inc. 1,900 49
Alternative Resources Corp. 20,300 599
American Business Information, Inc. 9,000 169
American Business Products, Inc. 1,200 34
American Radio Systems Corp. Class A 23,050 628
20 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Applied Voice Technology, Inc. (a) 2,200 $ 29
Ascend Communications, Inc. 26,000 2,109
BISYS Group, Inc. New (a) 6,000 182
Bowne & Co., Inc. 1,600 32
CACI International, Inc. Class A (a) 2,100 24
Cascade Communications Corp. 4,600 391
Catalina Marketing Corp. (a) 1,300 82
Central Newspapers, Inc. Class A 29,000 910
CIDCO, Inc. (a) 7,600 192
Cognos, Inc. (a) 11,100 495
Coherent Communications Systems Corp. 3,600 68
Comarco, Inc. (a) 16,000 230
Comnet Cellular, Inc. (a) 8,100 234
Comsat Corp. Series 1 7,000 130
Corrections Corp. America 4,800 178
Crawford & Co. 4,500 73
Day Runner, Inc. (a) 1,000 35
Devon Group, Inc. New (a) 1,000 29
DeVRY, Inc. 20,300 548
DSP Communications, Inc. 3,900 169
Duplex Products, Inc. (a) 42,500 345
Effective Management Systems, Inc. (a) 20,000 90
Emmis Broadcasting Corp. Class A (a) 500 15
Ennis Business Forms, Inc. 36,650 449
Franklin Quest Co. (a) 12,200 238
General Communication, Inc. Class A (a) 30,000 146
Gibson Greetings, Inc. (a) 3,700 59
Grey Advertising 4,400 862
GTECH Holdings Corp. (a) 7,500 195
Harvey Entertainment Co. (a) 2,400 18
Houghton Mifflin Co. 15,500 667
Hunt Manufacturing Co. 61,000 1,060
Infinity Broadcasting Corp. 12,000 447
Interim Services, Inc. (a) 2,400 83
International Family Entertainment, Inc.
Class B (a) 1,600 26
Jones Intercable, Inc. Class A (a) 44,000 539
Kronos, Inc. (a) 6,000 285
Lee Enterprises, Inc. 40,000 920
Macromedia, Inc. 23,500 1,219
Mail Boxes Etc (a) 3,000 38
McClatchy Newspapers, Inc. Class A 29,500 675
McGrath RentCorp 9,000 167
Media General, Inc. Class A 27,800 844
META Group, Inc. 2,800 85
Metricom, Inc. (a) 2,200 29
Miller (Herman), Inc. 1,600 48
Mobile Telecommunication
Technologies Corp. (a) 37,100 788
National Media Corp. (a) 3,100 65
Network Equipment Technologies, Inc. (a) 26,300 720
New England Business Service, Inc. 2,100 46
Norrell Corp. 1,400 41
Olsten Corp. 4,900 194
Paging Network, Inc. 28,700 682
Paychex, Inc. 32,450 1,606
PC Service Source, Inc. (a) 15,000 122
PMT Services, Inc. (a) 1,300 39
QUALCOMM, Inc. (a) 9,100 390
QuickResponse Services, Inc. (a) 16,900 304
Saga Communications Class A 11,250 183
SFX Broadcasting, Inc. Class A (a) 8,000 238
Spelling Entertainment Group, Inc. (a) 2,400 30
SPS Transaction Services, Inc. (a) 1,600 47
Steris Corp. 29,700 950
Systems & Computer Technology Corp. (a) 8,000 159
TCSI Corp. (a) 8,300 149
TRM Copy Centers Corp. (a) 30,000 300
True North Communications, Inc. 2,000 37
U.S. Delivery Systems, Inc. (a) 20,500 595
United Video Satellite Group Class A (a) 1,000 27
United Wisconsin Services, Inc. 2,100 46
US Office Products Co. (a) 25,200 564
Vanguard Cellular Systems, Inc.
Class A (a) 28,000 560
Viking Office Products, Inc. (a) 29,500 1,372
Wackenhut Corp. 10,000 180
Wackenhut Corrections Corp. (a) 1,800 45
Washington Post Co. Class B 2,700 761
------
28,983
------
MISCELLANEOUS - 3.2%
Apollo Group, Inc. Class A 19,200 749
Associated Group, Inc. Class B (a) 30,000 532
Chris Craft Industries, Inc. 32,379 1,400
Citation Corp. (a) 10,000 115
Crawford & Co. Class A 21,400 342
Daig Corp. 35,000 805
Eckerd Corp. (a) 22,000 982
Fiberstars, Inc. (a) 23,000 89
FRP Properties, Inc. (a) 9,000 184
Griffon Corp. (a) 66,000 594
Gyrodyne Co. of America, Inc. 4,975 70
Ha-Lo Industries, Inc. (a) 8,000 242
Hirsch International Group Class A 10,937 134
ITT Educational Services, Inc. (a) 9,000 222
Jabil Circuit, Inc. (a) 15,000 161
Special Growth Fund 21
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Landair Services, Inc. (a) 11,000 $ 143
Learning Tree International, Inc. 10,000 155
Leather Factory, Inc. (a) 40,000 98
M.D.C. Holdings, Inc. 25,000 178
Mark VII, Inc. (a) 12,000 186
Mercer International, Inc. (a) 8,600 175
Miller Industries, Inc. (a) 10,000 248
National Wireless Holdings, Inc. (a) 10,000 132
NN Ball & Roller, Inc. 18,000 306
NUMAR Corp. (a) 13,000 145
On Assignment, Inc. (a) 18,300 599
PXRE Corp. 27,000 716
Supreme Industries, Inc. Class A 22,000 184
Texoil, Inc. (a) 65,000 102
Tracor, Inc. New (a) 4,400 64
------
10,052
------
SHELTER - 1.3%
American Woodmark Corp. (a) 18,700 77
Beazer Homes USA, Inc. (a) 1,600 33
Butler Manufacturing Co. 1,500 59
Cameron Ashley, Inc. (a) 20,000 192
Centex Construction Products, Inc. (a) 15,000 216
Champion Enterprises, Inc. 5,000 154
Continental Homes Holding Corp. 1,200 30
Elcor Chemical Corp. 1,500 33
Fastenal Co. 9,000 380
Granite Construction, Inc. 4,900 154
Lone Star Industries, Inc. 7,000 175
Oriole Homes Corp. Class B (a) 37,500 230
Pulte Corp. 5,600 188
Redman Industries, Inc. New (a) 1,200 40
Ryland Group, Inc. 26,900 377
Smith (Charles E.) Residential Realty, Inc. 32,600 770
Southdown, Inc. (a) 12,000 234
Toll Brothers, Inc. (a) 19,100 439
U.S. Home Corp. New (a) 2,300 67
USG Corp. New (a) 5,700 171
------
4,019
------
TECHNOLOGY - 17.5%
Activision, Inc. New 3,900 42
ACX Technologies, Inc. 3,600 54
Adaptec, Inc. (a) 22,300 912
ADC Telecommunications, Inc. 37,900 1,374
Affiliated Computer Services, Inc. Class A (a) 1,300 48
Altera Corp. 24,000 1,191
Amdahl Corp. (a) 10,500 89
AmeriData Technologies, Inc. (a) 12,800 123
Amplicon, Inc. 9,000 128
Applied Magnetics Corp. (a) 7,900 147
Applied Science & Technology, Inc. (a) 1,800 23
Applix, Inc. 3,200 86
Artisoft, Inc. (a) 3,300 21
Aseco Corp. (a) 1,500 24
Aspen Technology, Inc. (a) 6,500 219
Atria Software, Inc. 19,600 760
Augat, Inc. 49,000 839
Auspex Systems, Inc. (a) 23,700 427
Avnet, Inc. 7,700 345
Baan Co. NV 15,000 677
Banctec, Inc. (a) 2,900 54
Bell Industries 34,696 781
BI Incorporated Co. New (a) 24,000 183
BMC Industries, Inc. 10,200 237
Boole & Babbage, Inc. 7,500 178
Breed Technologies, Inc. 11,300 209
Brooktree Corp. NPV (a) 3,200 38
Brooktrout Technology, Inc. (a) 1,400 40
Burr-Brown Corp. 3,000 74
Business Objects S.A. - ADR (a) 12,200 586
Cadence Design Systems, Inc. 4,950 208
Cambridge Technology Partners, Inc. (a) 10,900 616
CBT Group PLC - ADR 12,500 650
CDW Computer Centers, Inc. (a) 20,000 795
CEM Corp. (a) 12,000 159
Checkmate Electronics, Inc. New (a) 9,500 140
Cheyenne Software, Inc. (a) 13,400 350
Circon Corp. (a) 34,800 700
Coeur d'Alene Mines Corp. 3,800 65
Computer Horizons Corp. 1,200 45
Computer Products, Inc. (a) 3,700 42
Computervision Corp. New (a) 15,300 235
Compuware Corp. (a) 5,300 98
Comverse Technology, Inc. New (a) 40,200 804
Consilium, Inc. (a) 15,700 186
Control Data Systems, Inc. (a) 2,400 47
CyCare Systems, Inc. (a) 1,300 33
Data General Corp. (a) 7,200 99
Data Transmission Network Corp. (a) 3,000 146
Datastream Systems, Inc. 2,200 41
Davidson & Associates, Inc. 22,000 473
DH Technology, Inc. 10,500 239
DSP Group, Inc. (a) 16,900 186
Dynamics Research Corp. (a) 64,350 499
Edmark Corp. New 1,500 46
22 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
EG&G, Inc. 66,500 $ 1,613
Egghead, Inc. (a) 2,900 18
Electro Scientific Industries, Inc. (a) 1,800 51
Electroglas, Inc. 5,800 144
Electromagnetic Sciences, Inc. (a) 15,000 165
Eltron International, Inc. 1,400 49
Enterprise Systems, Inc. (a) 5,300 156
Esterline Corp. (a) 3,200 76
Evans & Sutherland Computer Corp. (a) 26,000 578
Exar Corp. (a) 13,000 192
EXECUTONE Information Systems, Inc. (a) 47,000 109
FORE Systems 14,000 831
Franklin Electronic Publishers, Inc. (a) 1,000 29
FTP Software, Inc. (a) 4,700 136
Fulcrum Technologies, Inc. (a) 2,000 62
Fusion Systems Corp. (a) 2,200 60
Gentex Corp. (a) 1,300 29
Gerber Scientific, Inc. 50,000 812
Glenayre Technologies, Inc. 5,000 310
Global Village Communication (a) 9,000 169
GT Interactive Software Corp. 40,300 559
GTI Corp. 8,100 142
Hadco Corp. (a) 9,600 270
Haemonetics Corp. (a) 2,500 44
HBO & Co. 26,100 1,990
HCIA, Inc. 13,800 635
Hello Direct, Inc. 12,000 81
Hyperion Software Corp. 3,800 80
InaCom Corp. (a) 1,800 25
Information Storage Devices Inc. 1,100 12
Informix Corp. 19,600 588
Input/Output, Inc. (a) 41,000 2,368
Insight Enterprises, Inc. 1,200 15
Integrated Circuit Systems, Inc. (a) 14,300 177
Intelligent Electronics, Inc. 20,279 122
International Rectifier Corp. 27,400 685
Intuit, Inc. 15,000 1,170
Iomega Corp. (a) 3,700 180
Jack Henry & Assocociates, Inc. 1,400 35
Keane, Inc. (a) 1,000 22
Komag, Inc. (a) 3,900 178
Kulicke & Soffa Industries, Inc. 8,700 200
Liberty Technologies, Inc. (a) 35,000 157
Linear Technology Corp. 20,900 820
Littlefuse, Inc. (a) 1,400 51
Loronix Information Systems, Inc. (a) 30,400 78
M-Wave, Inc. (a) 11,100 67
MapInfo Corp. (a) 1,200 24
Marcam Corp. (a) 9,000 133
Marshall Industries (a) 22,700 729
Mattson Technology, Inc. 2,500 37
Maxim Integrated Products, Inc. 18,000 688
McAfee Associates, Inc. 18,150 776
Medic Computer Systems, Inc. (a) 13,600 819
Mercury Interactive Corp. (a) 2,700 48
Merisel, Inc. (a) 17,000 72
Merix Corp. (a) 5,000 147
Metrologic Instruments, Inc. (a) 15,000 142
Micro Linear Corp. (a) 2,100 22
Microchip Technology, Inc. (a) 13,800 504
Microcom, Inc. (a) 4,400 114
Molex, Inc. Class A 16,000 488
Mylex Corp. (a) 3,200 61
National Semiconductor Corp. (a) 40,000 890
NetManage, Inc. 46,600 1,072
Network Computing Devices, Inc. (a) 6,000 42
Network General Corp. (a) 18,000 592
Oak Technology, Inc. (a) 6,600 279
Optical Data Systems, Inc. 31,800 779
Parametric Technology Corp. (a) 15,600 1,033
Peak Technologies Group, Inc. (a) 21,250 653
Perceptron, Inc. 2,100 45
Phamis, Inc. (a) 1,800 54
Phoenix Technologies, Ltd. (a) 2,300 36
Photronics, Inc. 2,200 59
Picturetel Corp. New 20,000 857
Pinnacle Micro, Inc. 1,500 22
Pittway Corp. Class A 32,078 2,173
Planar Systems, Inc. (a) 6,000 114
Platinum Technology, Inc. (a) 15,000 276
Premenos Technology Corp. 9,000 236
Project Software & Development, Inc. 1,500 52
Quarterdeck Corp. 4,800 131
Rational Software Corp. New (a) 2,500 56
Saville Systems Ireland PLC - ADR 14,800 209
Scientific Games Holdings Corp. 2,000 75
Security Dynamics Technologies, Inc. 3,600 197
Software Artistry, Inc. 1,000 14
Software Spectrum, Inc. (a) 9,000 189
SPSS, Inc. (a) 17,900 342
Stac, Inc. (a) 5,200 74
Storage Technology Corp. (a) 10,200 244
Stratus Computer, Inc. (a) 3,000 104
Structural Dynamics Research Corp. (a) 14,600 425
Systemsoft Corp. (a) 5,800 65
Tandem Computers, Inc. (a) 23,800 253
Tech Data Corp. (a) 7,700 115
Tech-Sym Corp. (a) 20,500 653
Special Growth Fund 23
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
Teledyne, Inc. 4,900 $ 126
Tellabs, Inc. 18,700 692
Tencor Instruments 26,300 638
Teradyne, Inc. 41,182 1,030
TGV Software, Inc. 19,600 176
Thiokol Corp. 1,200 41
Three-Five Systems, Inc. (a) 1,800 30
Trident Microsystems, Inc. (a) 12,200 284
Triquint Semiconductor, Inc. (a) 3,000 41
Tylan General, Inc. 1,400 17
Uniphase Corp. (a) 18,500 661
Unisys Corp. (a) 32,100 181
Veeco Instruments, Inc. (a) 1,300 18
Veritas Software Corp. 2,000 74
Viewlogic Systems, Inc. (a) 4,700 47
Wall Data, Inc. (a) 2,500 41
Watkins-Johnson Co. 2,000 88
Westcott Communications, Inc. (a) 14,200 195
Western Digital Corp. (a) 9,600 172
Wind River Systems, Inc. (a) 3,000 86
Zygo Corp. 1,300 32
------
55,035
------
TRANSPORTATION - 1.9%
Air Express International Corp. 9,000 203
Airborne Freight Corp. 4,700 125
Alexander & Baldwin, Inc. 25,000 575
American President Cos., Ltd. 6,000 138
Covenant Transport, Inc. Class A (a) 11,500 129
Fritz Companies, Inc. 28,400 1,179
GATX Corp. 2,000 97
Hornbeck Offshore Services, Inc. (a) 10,000 196
Knight Transportation, Inc. (a) 12,000 165
Liqui-Box Corp. 2,700 79
M.S. Carriers, Inc. (a) 6,000 117
MTL, Inc. (a) 46,500 628
Navistar International Corp. (a) 17,700 186
Overseas Shipholding Group, Inc. 36,300 690
Tidewater, Inc. 10,400 328
Transport Corp. of America 16,000 178
U.S. Xpress Enterprises, Inc. Class A (a) 15,000 105
Wisconsin Central Transportation Corp. (a) 11,400 745
XTRA Corp. 1,700 72
------
5,935
------
UTILITIES - 2.3%
ACC Corp. 700 16
Atlanta Gas Light Co. 4,200 83
Atlantic Energy, Inc. 4,100 79
Bangor Hydro-Electric Co. 2,400 28
Boston Edison Co. 3,200 94
Brooklyn Union Gas Co. (The) 3,400 99
C-Tec Corp. (a) 1,200 37
California Energy, Inc. (a) 5,000 98
Cellular Communications
of Puerto Rico, Inc. (a) 28,566 764
Centennial Cellular Corp. Class A (a) 43,500 745
Centerior Energy Corp. 14,500 129
Central Hudson Gas & Electric Corp. 1,000 31
Central Louisiana Electric Co., Inc. 1,100 30
Century Telephone Enterprises, Inc. 21,900 695
CILCORP, Inc. 1,000 42
Citizens Utility Co. Class A 6,706 85
Columbia Gas System, Inc. (a) 6,900 303
Commonwealth Energy System 1,000 45
Delmarva Power & Light Co. 2,900 66
Eastern Utilities Associates 1,600 38
El Paso Natural Gas Co. 6,600 187
Enron Global Power & Pipelines L.L.C. 1,400 35
ENSERCH Corp. 6,100 99
Equitable Resources, Inc. 2,900 91
Frontier Corp. 15,100 453
Hawaiian Electric Industries, Inc. 5,400 209
Idaho Power Co. 2,400 72
Kansas City Power & Light Co. 4,800 125
Long Island Lighting Co. 16,800 275
MidAmerican Energy Co. 4,300 72
Minnesota Power & Light Co. 1,800 51
Montana Power Co. 7,100 161
National Fuel & Gas Co. 3,100 104
New Jersey Resources Corp. 1,000 30
New York State Electric & Gas Corp. 8,900 230
NICOR, Inc. 2,100 58
Northwestern Public Service Co. 1,000 28
ONEOK, Inc. 4,400 101
Pennsylvania Enterprises, Inc. 700 27
Peoples Energy Corp. 1,900 60
Piedmont Natural Gas Co., Inc. 900 21
Primark Corp. (a) 2,600 78
Public Service Co. of New Mexico (a) 4,500 79
Puget Sound Power & Light Co. 2,400 56
Rochester Gas & Electric Corp. 5,400 122
TNP Enterprises, Inc. 1,500 28
UGI Corp. New 2,100 44
United Illuminating Co. 1,000 37
United States Cellular Corp. (a) 12,800 432
24 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------ ------
<S> <C> <C>
US Long Distance Corp. (a) 3,100 $ 42
UtiliCorp United, Inc. 2,600 76
Washington Gas & Light Co. 1,600 33
Washington Water Power Co. 3,100 54
WPL Holdings, Inc. 1,200 37
WPS Resources Corp. 400 14
-------
7,128
-------
TOTAL COMMON STOCKS
(cost $239,505) 284,547
-------
OPTIONS PURCHASED - 0.1%
Russell 2000-Registered Trademark-
Index Mar 310 Calls (a) 170* 255
-------
TOTAL OPTIONS PURCHASED
(cost $247) 255
-------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.1%
Genesis Health Ventures, Inc. (conv.)
6.000% due 11/30/03 $100 162
-------
TOTAL LONG-TERM INVESTMENTS
(cost $131) 162
-------
SHORT-TERM INVESTMENTS - 7.6%
Frank Russell Investment Company
Money Market Fund, due on demand (b) 24,047 24,047
-------
TOTAL SHORT-TERM INVESTMENTS
(cost $24,047) 24,047
-------
TOTAL INVESTMENTS
(identified cost $263,930)(c) - 98.5% 309,011
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - 1.5% 4,667
-------
NET ASSETS - 100.0% $313,678
-------
-------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes
was $264,065 and net unrealized appreciation for all securities
was $44,946. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of
market value over tax cost of $57,957 and aggregate gross
unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $13,011.
* Number of contracts.
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 25
<PAGE>
SPECIAL GROWTH FUND
FUTURES AND OPTIONS WRITTEN
December 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- --------------
<S> <C> <C>
S&P 500 Index Futures Contracts
expiration Date 03/96 8 $ (11)
S&P 400 Midcap Index Futures Contracts
expiration Date 03/96 98 (56)
Russell 2000-Registered Trademark-
Index Futures Contracts expiration date 03/96 44 29
-------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ (38)
-------
-------
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C> <C>
PUT OPTIONS WRITTEN
(Notes 2 and 3)
Russell 2000-Registered Trademark-
Index Mar 310 (a) 170 $ 94
-------
Total liability for options written
(premiums received $101)(***) $ 94
-------
-------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes,
due 12/31/95, valued at $6,750 were held as collateral by the
custodian in connection with options written and futures
contracts purchased by the Fund. The settlement amount
of these matured notes is included in Receivable for Investments
Sold on the Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
26 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $263,930,369)(Note 2) . . . . . . . . . . . $ 309,010,847
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,039
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503,895
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,692,839
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962,338
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . 44,100
------------
319,217,058
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . $ 4,895,306
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . 186,698
Accrued bookkeeping service fees (Note 4) . . . . . . . . . . . . 5,052
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . . 245,541
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . . 36,076
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . 77,218
Options written, at market value
(premiums received $101,487)(Notes 2 and 3). . . . . . . . . . . . 93,500 5,539,391
----------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $313,677,667
------------
------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . $ 286,547
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . 7,270,959
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,080,476
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,873)
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,987
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,088
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,989,483
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $313,677,667
------------
------------
Net asset value, offering and redemption price per share
($313,677,667 divided by 8,008,760 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . $39.17
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 27
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 2,697,679
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . 1,465,072
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,655
----------
4,663,406
Expenses (Notes 2 and 4):
Management Fees. . . . . . . . . . . . . . . . . . . . . $ 2,588,270
Custodian Fees . . . . . . . . . . . . . . . . . . . . . 348,236
Transfer Agent Fees. . . . . . . . . . . . . . . . . . . 263,453
Bookkeeping Service Fees . . . . . . . . . . . . . . . . 18,212
Professional Fees. . . . . . . . . . . . . . . . . . . . 16,881
Registration Fees. . . . . . . . . . . . . . . . . . . . 60,587
Trustees' Fees . . . . . . . . . . . . . . . . . . . . . 4,375
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . 16,700 3,316,714
----------- ----------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,346,692
----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,338,109
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516,129
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,189,384
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,555,328
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,873)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (554,772)
----------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . 67,006,305
----------
Net increase (decrease) in net assets resulting from operations . . . . . . .$68,352,997
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . $ 1,346,692 $ 1,076,743
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . 33,338,109 (2,327,246)
Futures contracts. . . . . . . . . . . . . 516,129 --
Options written. . . . . . . . . . . . . . 2,189,384 563,049
Net change in unrealized appreciation
or depreciation of:
Investments. . . . . . . . . . . . . . . . 31,555,328 (6,925,050)
Futures contracts. . . . . . . . . . . . . (37,873) --
Options written. . . . . . . . . . . . . . (554,772) 325,532
------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . 68,352,997 (7,286,972)
Distributions to shareholders:
Net investment income. . . . . . . . . . . . (1,514,994) (682,770)
Net realized gain on investments . . . . . . (25,900,014) (2,632,245)
In excess of net realized gain on
investments . . . . . . . . . . . . . . . . -- (2,652,494)
Increase (decrease) in net assets from Fund
share transactions . . . . . . . . . . . . . 43,663,052 53,440,122
------------- -------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . 84,601,041 40,185,641
Net assets at beginning of year . . . . . . . 229,076,626 188,890,985
------------- -------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $286,547 and $71,005, respectively) . . . $ 313,677,667 $ 229,076,626
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FUND SHARE TRANSACTIONS
Fund shares sold . . . . . . . . . . 3,140,651 $117,908,654 3,413,718 $116,189,471
Fund shares issued to shareholders
in reinvestments of distributions . 483,880 18,530,761 113,186 3,980,109
Fund shares redeemed . . . . . . . . (2,460,757) (92,776,363) (1,955,454) (66,729,458)
----------- ------------- ----------- ------------
Net increase (decrease). . . . . . . 1,163,774 $ 43,663,052 1,571,450 $ 53,440,122
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 29
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . $ 33.47 $ 35.82 $ 36.63 $ 34.47 $24.71
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . .18 .16 .07 .05 .24
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . 9.25 (.71) 5.22 4.22 10.34
------- ------- ------- ------- ------
Total Income From Investment Operations. . . . . 9.43 (.55) 5.29 4.27 10.58
------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . (.21) (.10) (.07) (.06) (.24)
Net realized gain on investments . . . . . . . . (3.52) (.85) (6.03) (2.05) (.58)
In excess of net realized gain on investments . -- (.85) -- -- --
------- ------- ------- ------- ------
Total Distributions. . . . . . . . . . . . . . . (3.73) (1.80) (6.10) (2.11) (.82)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . $39.17 $33.47 $35.82 $36.63 $34.47
------- ------- ------- ------- ------
------- ------- ------- ------- ------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . 28.52 (3.71) 15.48 12.52 43.11
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . 1.22 1.20 1.31 1.33 1.36
Net investment income to average net assets . . .49 .50 .19 .14 .80
Portfolio turnover . . . . . . . . . . . . . . 87.56 55.40 91.97 42.20 42.81
Net assets, end of year ($000 omitted) . . . . 313,678 229,077 188,891 134,913 105,245
</TABLE>
30 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS SPECIAL LIPPER-C- SMALL
ENDED DECEMBER 31 GROWTH RUSSELL 2500-TM- ** CO. GROWTH ++
- ----------------- --------- ------------------------- -------------------
<S> <C> <C> <C>
Inception* $ 10,000 $ 10,000 $ 10,000
1986 $ 10,807 $ 11,198 $ 10,482
1987 $ 11,513 $ 10,674 $ 9,968
1988 $ 13,104 $ 13,100 $ 11,865
1989 $ 16,239 $ 15,645 $ 14,517
1990 $ 13,920 $ 13,317 $ 13,039
1991 $ 19,921 $ 19,537 $ 19,698
1992 $ 22,415 $ 22,699 $ 22,122
1993 $ 25,885 $ 26,453 $ 25,807
1994 $ 24,923 $ 26,173 $ 25,542
1995 $ 32,030 $ 34,471 $ 33,417
</TABLE>
Special Growth Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------------- ------------ --------------
<S> <C> <C>
1 Year $12,852 28.52%
5 Years $23,010 18.13%***
10 Years $32,030 12.34%***
</TABLE>
Russel 2500-TM- Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ---------------------------- ------------ --------------
<S> <C> <C>
1 Year $13,170 31.70%
5 Years $25,884 20.95%***
10 years $34,471 13.17%***
</TABLE>
Lipper-C- Small Co. Growth Funds Average
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ---------------------------- ------------ --------------
<S> <C> <C>
1 Year $13,083 30.83%
5 Years $25,628 20.71%***
10 Years $33,417 12.82%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Russell 2500 Index is composed of the bottom 500
stocks in the Russell 1000-Registered Trademark- Index
and all the stocks in the Russell 2000-Registered Trademark-
Index. The largest security in this index has a market
capitalization of about $1.3 billion.
++ Lipper-C- Small Co. Growth Funds Average is the
average total return for the universe of funds within the
Small Company Growth Funds investment objective. The total return
for the funds reflects adjustments for income dividends and
capital gains distributions reinvested as of the ex-dividend dates.
*** Annualized.
SPECIAL GROWTH FUND returned 28.5% during 1995, trailing the Russell 2500-TM-
Index return of 31.7%. The portfolio was managed in a manner consistent with
its objective to maximize total return, primarily through capital
appreciation, by assuming a higher level of volatility than is ordinarily
expected from the Diversified Equity Fund.
The year was a difficult one for small cap investors relative to the strong
gains of large cap stocks. Although the financial services, technology, and
health care sectors of the Russell 2500 all posted returns in excess of 40%
for the year, their performance came in bursts with strong rotations
throughout the year. Good technology stock selection added significant value
but was eclipsed by other factors. The Fund's balance of Value and Growth
investment styles was a marked disadvantage, given the outperformance of
stocks of small, rapidly growing companies during the year. A slightly
smaller cap orientation than the index also negatively impacted returns due
to the market's favor for large company stocks. The market's rotation to
defensive sectors (health care, energy, and utilities) in the latter part of
the year also detracted from the Fund's performance. Special Growth also
lagged the Lipper Small Company Growth Funds Average by 2.3% for the year.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
Special Growth Fund 31
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS - 91.4%
BASIC INDUSTRIES - 8.2%
Air Products & Chemicals, Inc. 8,900 $ 469
AK Steel Holding Corp. 4,500 154
Alumax, Inc. (a) 15,600 478
Aluminum Co. of America 5,900 312
ASARCO, Inc. 23,400 749
Bethlehem Steel Corp.(a) 34,100 477
Boise Cascade Corp. 22,200 769
Champion International Corp. 5,300 223
Crown Vantage, Inc. (a) 1,540 21
Cyprus Amax Minerals Co. 27,775 726
Dow Chemical Co. 35,400 2,491
du Pont (E.I.) de Nemours & Co. 3,300 231
Eastman Chemical Co. 5,500 344
Federal Paper Board, Inc. 14,600 757
Goodrich (B.F.) Co. 14,900 1,015
Great Lakes Chemical Corp. 15,300 1,102
International Paper Co. 30,100 1,140
James River Corp. of Virginia 15,400 372
Mark IV Industries, Inc. 10,900 215
Methanex Corp. (a) 37,500 274
Potlatch Corp. 7,600 304
Reynolds Metals Co. 15,700 889
Stone Container Corp. 11,300 162
Union Camp Corp. 3,700 176
Union Carbide Corp. 6,400 240
USX-U.S. Steel Group 24,000 739
--------
14,829
--------
CAPITAL GOODS - 2.7%
AGCO Corp. 10,900 556
Caterpillar, Inc. 4,100 241
Cummins Engine Co., Inc. 26,400 977
Deere & Co. 10,800 381
General Electric Co. 20,200 1,454
Harnischfeger Industries, Inc. 8,100 269
Johnson Controls, Inc. 7,400 509
Mid-American Waste Systems, Inc. (a) 4,800 17
Tecumseh Products Co. Class A 5,500 285
Varity Corp. (a) 6,000 222
--------
4,911
--------
CONSUMER BASICS - 9.5%
American Stores Co. 46,500 1,244
Archer-Daniels-Midland Co. 82,545 1,486
Bausch & Lomb, Inc. 6,000 238
Bergen Brunswig Corp. Class A 13,400 333
Beverly Enterprises, Inc. (a) 26,900 286
Black & Decker Corp. 10,200 360
Bristol-Myers Squibb Co. 26,300 2,259
Columbia/HCA Healthcare Corp. 17,700 898
Community Psychiatric Centers 28,800 353
Dial Corp. (The) 28,800 853
Hanson PLC - ADR 39,400 601
IBP, Inc. 14,800 747
McKesson Corp. 12,100 613
Philip Morris Cos., Inc. 16,400 1,484
RJR Nabisco Holdings Corp. 33,060 1,021
Sara Lee Corp. 32,100 1,023
Schering-Plough Corp. 15,700 860
Tambrands, Inc. 2,500 119
Tenet Healthcare Corp. (a) 33,900 703
U.S. Surgical Corp. 12,300 263
United Healthcare Corp. 4,300 282
Warner-Lambert Co. 11,000 1,067
--------
17,093
--------
CONSUMER DURABLES - 3.3%
Chrysler Corp. 4,200 233
Federal-Mogul Corp. 25,300 497
Ford Motor Co. 27,400 795
General Motors Corp. 67,900 3,590
Whirlpool Corp. 15,300 814
--------
5,929
--------
CONSUMER NON-DURABLES - 4.8%
Anheuser-Busch Cos., Inc. 17,500 1,170
Burlington Coat Factory
Warehouse Corp. (a) 9,500 97
Burlington Industries, Inc. (a) 46,600 612
CML Group, Inc. 35,400 181
Dayton Hudson Corp. 21,800 1,635
Melville Corp. 14,900 458
Michaels Stores, Inc. (a) 16,000 220
Penney (J.C.) Co., Inc. 12,400 591
Pier 1 Imports, Inc. 29,900 340
Price Costco, Inc. (a) 27,900 425
Reebok International, Ltd. 6,400 181
Sears Roebuck & Co. 17,900 698
SuperValu, Inc. 47,400 1,493
Toys "R" Us, Inc. (a) 24,700 538
--------
8,639
--------
</TABLE>
Equity Income Fund 33
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
CONSUMER SERVICES - 0.7%
AMR Corp. (a) 9,200 $ 683
Brinker International, Inc.(a) 34,300 519
--------
1,202
--------
ENERGY - 11.8%
Amerada Hess Corp. NPV 9,900 525
Amoco Corp. 17,700 1,272
Atlantic Richfield Co. 20,100 2,226
British Petroleum Co. PLC - ADR 7,044 719
Castle Energy Corp. New (a) 6,800 57
Chevron Corp. 10,300 541
Exxon Corp. 18,400 1,474
Halliburton Co. 2,800 142
Helmerich & Payne, Inc. 5,600 167
LTV Corp. New (a) 35,400 487
Mobil Corp. 30,600 3,427
Murphy Oil Corp. 18,300 759
NorAm Energy Corp. 55,800 495
Norsk Hydro AS - ADR 6,900 289
Repsol - ADR 17,500 575
Royal Dutch Petroleum Co. - ADR 7,600 1,073
Tenneco, Inc. 28,400 1,409
Texaco, Inc. 20,700 1,625
Total Co. SA - ADR 18,100 615
Unocal Corp. 19,900 580
USX-Marathon Group 63,400 1,236
Valero Energy Corp. 27,600 676
YPF Sociedad Anonima Class D - ADR 44,100 955
--------
21,324
--------
FINANCE - 17.5%
Aetna Life & Casualty Co. 6,200 429
Allstate Corp. 16,620 683
AMBAC, Inc. 14,400 675
American General Corp. 40,900 1,426
Banc One Corp. 19,100 721
Bank of New York Co., Inc. 18,500 902
BankAmerica Corp. 36,700 2,376
Bankers Trust New York Corp. 18,600 1,237
Barnett Banks, Inc. 13,700 808
Beneficial Corp. 12,400 578
Central Fidelity Banks, Inc. 5,800 184
Chase Manhattan Corp. 11,700 709
Chemical Banking Corp. 39,600 2,327
Chubb Corp. (The) 11,800 1,142
Citicorp 9,800 659
CoreStates Financial Corp. 33,100 1,254
Countrywide Credit Industries, Inc. 41,700 907
Dean Witter, Discover & Co. 20,100 945
Federal National Mortgage Association 12,000 1,490
First Bank System, Inc. 20,800 1,032
First Chicago NBD Corp. 26,942 1,064
First Colony Corp. 10,800 274
Fleet Financial Group, Inc. 16,773 683
Golden West Financial Corp. 14,100 779
Great Western Financial Corp. 22,500 574
Life Re Corp. 17,100 428
Mid Ocean, Ltd. 20,000 733
NationsBank Corp. 17,400 1,211
North American Mortgage Co. 4,100 87
Old Republic International Corp. 8,200 291
Paine Webber Group, Inc. 15,700 314
PNC Bank Corp. 20,000 645
Prudential Reinsurance Holdings, Inc. 18,500 432
Reliance Group Holdings, Inc. 37,200 321
Reliastar Financial Corp. 13,200 586
Signet Banking Corp. 14,500 344
Southern National Corp. 29,700 780
St. Paul Cos., Inc. 3,200 178
TIG Holdings, Inc. 19,300 550
UNUM Corp. 10,400 572
USF & G Corp. 14,800 251
--------
31,581
--------
GENERAL BUSINESS - 1.6%
ADT, Ltd. (a) 51,600 774
Donnelley (R.R.) & Sons Co. 13,000 512
New York Times Co. Class A 20,300 601
Ogden Corp. 19,000 406
Tribune Co. 7,900 483
--------
2,776
--------
MISCELLANEOUS - 1.6%
Chelsea GCA Realty, Inc. 8,200 246
Colonial Properties Trust 13,400 342
Geon Co. 28,500 695
Irvine Apartment Communities, Inc. 24,600 474
Macerich Co. 19,000 380
PXRE Corp. 10,600 281
South West Property Trust, Inc. 11,000 149
Stolt-Nielsen SA 8,600 245
--------
2,812
--------
</TABLE>
34 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- ---------
<S> <C> <C>
SHELTER - 1.3%
Kaufman & Broad Home Corp. 18,000 $ 268
Lafarge Coppee 12,900 242
Louisiana Pacific Corp. 24,200 587
Weyerhaeuser Co. 29,000 1,254
--------
2,351
--------
TECHNOLOGY - 7.0%
Advanced Micro Devices, Inc. 20,500 338
Apple Computer, Inc. 10,400 330
Augat, Inc. 15,400 264
Boeing Co. 17,000 1,332
Coltec Industries, Inc. (a) 16,400 191
COMPAQ Computer Corp. (a) 9,900 475
Data General Corp. (a) 29,400 404
Hewlett-Packard Co. 8,700 729
Intel Corp. 17,700 1,004
International Business Machines Corp. 38,900 3,569
Kaman Corp. Class A 12,300 135
Northrop Grumman Corp. 16,000 1,024
Pitney Bowes, Inc. 2,700 127
Raytheon Co. 12,800 605
Storage Technology Corp. (a) 28,100 671
Sundstrand Corp. 9,700 683
Tandy Corp. 4,100 170
TRW, Inc. 4,800 372
United Technologies Corp. 2,500 238
--------
12,661
--------
TRANSPORTATION - 2.4%
Conrail, Inc. 15,300 1,071
CSX Corp. 22,000 1,004
Federal Express Corp. (a) 16,200 1,197
GATX Corp. 7,200 350
Ryder System, Inc. 25,900 641
XTRA Corp. 2,100 89
--------
4,352
--------
UTILITIES - 19.0%
AT&T Corp. 7,200 466
BCE, Inc. 52,300 1,804
BellSouth Corp. 23,000 1,001
Boston Edison Co. 17,300 510
Centerior Energy Corp. 13,200 117
CINergy Corp. 10,700 328
Detroit Edison Co. 16,500 569
Dominion Resources, Inc. 20,300 837
Entergy Corp. 41,600 1,217
Equitable Resources, Inc. 18,400 575
FPL Group, Inc. 13,900 645
General Public Utilities Corp. 33,900 1,153
GTE Corp. 84,600 3,722
MCI Communications Corp. 33,166 866
New England Electric System 5,400 214
New York State Electric & Gas Corp. 17,000 440
Niagara Mohawk Power Corp. 53,300 513
Northeast Utilities 44,300 1,080
NYNEX Corp. 42,340 2,286
Pacific Enterprises 4,200 119
Pacific Gas & Electric Co. 58,200 1,651
Pacific Telesis Group 46,800 1,574
PacifiCorp. 17,000 361
Panhandle Eastern Corp. 3,100 86
PP&L Resources, Inc. 24,000 600
Public Service Enterprise Group, Inc. 17,500 536
Rochester Gas & Electric Corp. 8,500 192
SCE Corp. 100,800 1,789
Sonat, Inc. 5,600 200
Southern New England
Telecommunications Corp. 14,000 557
Sprint Corp. 68,600 2,735
Texas Utilities Co. 62,400 2,566
U.S. West, Inc. 45,100 1,612
Unicom Corp. 41,200 1,348
--------
34,269
--------
TOTAL COMMON STOCKS
(cost $144,856) 164,729
--------
CONVERTIBLE PREFERRED STOCKS - 0.4%
Atlantic Richfield Co. 27,900 656
--------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $691) 656
--------
PRINCIPAL
AMOUNT
(000)
---------
LONG-TERM INVESTMENTS - 0.9%
AMR Corp. (conv.)
6.125% due 11/01/24 $ 865 902
Unisys Corp. (conv.)
8.250% due 08/01/00 745 663
--------
TOTAL LONG-TERM INVESTMENTS
(cost $1,548) 1,565
--------
</TABLE>
Equity Income Fund 35
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.4%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 7,951 $ 7,951
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $7,951) 7,951
--------
TOTAL INVESTMENTS
(identified cost $155,046)(c) - 97.1% 174,901
OTHER ASSETS AND LIABILITIES,
NET - 2.9% 5,215
--------
NET ASSETS - 100.0% $180,116
--------
--------
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- --------------
FUTURE CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/96 32 $ (56)
--------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ (56)
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax
purposes was $155,464 and net unrealized appreciation for all securities
was $19,437. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of
market value over tax cost of $22,850 and aggregate gross
unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $3,413.
(***) At December 31, 1995, United States Treasury Notes,
due 12/31/95, valued at $4,000 were held as collateral by the
custodian in connection with futures contracts purchased by
the Fund. The settlement amount of these matured notes is
included in Receivable for Investments Sold on the Statement
of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
36 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $155,045,566)(Note 2) . . . . . . . . . . . . $174,901,062
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,663
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649,121
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,672,669
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100,417
Daily variation margin on futures contracts (Notes 2 and 3) . . . . . . . . . . . 11,200
------------
181,336,132
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . $ 860,498
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . 178,410
Accrued bookkeeping service fees (Note 4). . . . . . . . . . . . . . . 3,000
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . . . . 121,015
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . . . . 15,285
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 42,106 1,220,314
---------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,115,818
------------
------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 5,694,570
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,855,663
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56,472)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,865
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,575,192
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,115,818
------------
------------
Net asset value, offering and redemption price per share
($180,115,818 divided by 4,686,463 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . $38.43
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Income Fund 37
<PAGE>
EQUITY INCOME FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,003,782
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . 448,996
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,104
------------
5,830,882
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . $1,314,461
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . 172,301
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . 181,317
Bookkeeping service fees . . . . . . . . . . . . . . . . . . 12,000
Professional fees. . . . . . . . . . . . . . . . . . . . . . 13,160
Registration fees. . . . . . . . . . . . . . . . . . . . . . 24,610
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . 4,338
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . 11,488 1,733,675
---------- -----------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,097,207
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,001,868
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 553,919
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563,424
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,576,087
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . (56,472)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75,229)
-----------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . 44,563,597
-----------
Net increase (decrease) in net assets resulting from operations. . . . . . . $48,660,804
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . $ 4,097,207 $ 3,830,220
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,001,868 10,254,455
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . 553,919 --
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . 563,424 468,597
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,576,087 (13,667,583)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . (56,472) --
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . (75,229) (9,002)
------------ -------------
Net increase (decrease) in net assets resulting from operations. . . . 48,660,804 876,687
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . (4,229,298) (3,777,456)
Net realized gain on investments . . . . . . . . . . . . . . . . . . (16,619,522) (12,526,614)
Increase (decrease) in net assets from Fund share transactions . . . . 8,018,497 10,180,286
------------ ------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . 35,830,481 (5,247,097)
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . 144,285,337 149,532,434
------------ ------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $130,702 at December 31, 1994). . . . . . . . . . . . . . . . . . $180,115,818 $144,285,337
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
FUND SHARE TRANSACTIONS
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,419,456 $ 52,652,979 1,730,988 $ 61,068,122
Fund shares issued to shareholders
in reinvestments of distributions . . . . . . . . . . . . . . . . . . 338,403 12,788,889 295,380 9,722,940
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . (1,551,581) (57,423,371) (1,710,889) (60,610,776)
----------- ------------ ----------- ------------
Net increase (decrease). . . . . . . . . . . . . . . . . . . . . . . . 206,278 $ 8,018,497 315,479 $ 10,180,286
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Income Fund 39
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHTLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from
the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $ 32.21 $ 35.90 $ 35.32 $ 36.54 $ 30.75
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . .94 .90 .83 .99 1.11
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . 10.08 (.70) 3.69 3.08 7.15
------- ------- ------- ------- -------
Total Income From Investment Operations. . 11.02 .20 4.52 4.07 8.26
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . (.97) (.89) (.83) (1.00) (1.10)
In excess of net investment income . . . . -- -- (.00) -- --
Net realized gain on investments . . . . . (3.83) (3.00) (3.11) (4.29) (1.37)
------- ------- ------- ------- -------
Total Distributions. . . . . . . . . . . . (4.80) (3.89) (3.94) (5.29) (2.47)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR . . . . . . . . $ 38.43 $ 32.21 $ 35.90 $ 35.32 $ 36.54
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%) . . . . . . . . . . . . . . 34.76 .69 13.23 11.51 27.52
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . 1.06 1.04 1.05 1.08 1.11
Net investment income to average net
assets. . . . . . . . . . . . . . . . . . 2.51 2.56 2.23 2.68 3.11
Portfolio turnover . . . . . . . . . . . . 92.40 89.91 78.72 95.07 61.73
Net assets, end of year ($000 omitted) . . 180,116 144,285 149,532 134,365 122,689
</TABLE>
40 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[CHART]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
PERIODS ENDED RUSSELL 1000-Registered LIPPER-C- EQUITY
DECEMBER 31 EQUITY INCOME Trademark- VALUE** INCOME ++
- ------------- ------------- ----------------------- ----------------
<S> <C> <C> <C>
Inception* $10,000 $10,000 $10,000
1986 $11,342 $11,998 $11,428
1987 $11,065 $12,058 $11,194
1988 $13,214 $14,850 $12,725
1989 $16,598 $18,591 $15,333
1990 $15,453 $17,088 $14,372
1991 $19,706 $21,292 $18,157
1992 $21,974 $24,233 $19,861
1993 $24,878 $28,625 $22,595
1994 $25,048 $28,056 $22,024
1995 $33,755 $38,815 $28,579
</TABLE>
Equity Income Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------------- -------------- -------------
<S> <C> <C>
1 Year $ 13,476 34.76%
5 Years $ 21,844 16.91%***
10 Years $ 33,755 12.93%***
</TABLE>
Russell 1000-Registered Trademark- Value Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------------- -------------- -------------
<S> <C> <C>
1 Year $ 13,835 38.35%
5 Years $ 22,715 17.83%***
10 Years $ 38,815 14.53%***
</TABLE>
Lipper-C- Equity Income Funds Average
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------------- -------------- -------------
<S> <C> <C>
1 Year $ 12,976 29.76%
5 Years $ 19,885 14.74%***
10 Years $ 28,579 11.07%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Russell 1000 Value Index includes stocks from the
Russell-Register Trademark- 1000 Index with a less than average growth
orientation. The Index represents the universe of stocks from which
most price-driven managers typically select.
++ Lipper Equity-Copyright- Income Funds Average is the average
total return for the universe of funds within the Equity Income
Funds investment objective. The total return for the funds reflects
adjustments for income dividends and capital gains distributions
reinvested as of the ex-dividend dates.
*** Annualized.
EQUITY INCOME FUND returned 34.8% during 1995, trailing the Russell 1000
Value Index return of 38.4%. The portfolio was managed in a manner consistent
with its objective to provide exposure to the value style of investing,
utilizing common stocks that typically provide a higher level of dividend
income than the broader market. The Fund employs a multi-style, multi-manager
strategy wherein companies whose market prices are low relative to earnings
are found particularly attractive. Beyond that, the criteria may vary. Some
managers focus on yield while others concentrate on low price-to-book ratios.
This year it was particularly difficult for the Fund to keep pace with the
index, given the dominance of large cap stocks. The slowing of the economy
also had a negative impact on the Fund's cyclical holdings. Other sources of
performance gains and shortfalls were examples of the sector rotation-driven
nature of the market. Strong gains from good technology stock selection early
in the year were overshadowed by weak returns in the fourth quarter
attributable to underweighted positions in utilities and energy-related
issues. Despite its weak showing in the fourth quarter, the Fund finished
ahead of the average Value manager. The Fund ended the year 500 basis points
ahead of the Lipper Equity Income Funds Average.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
Equity Income Fund 41
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS - 94.1%
BASIC INDUSTRIES - 6.8%
Air Products & Chemicals, Inc. 11,200 $ 591
Albemarle Corp. 4,100 79
Allegheny Ludlum Corp. 6,600 122
Aluminum Co. of America 38,700 2,046
Arco Chemical Co. 8,700 423
Boise Cascade Corp. 33,200 1,150
Bowater, Inc. 2,500 89
Cabot Corp. 26,800 1,444
Carpenter Technology Corp. 14,100 580
Champion International Corp. 44,000 1,848
Crown Cork & Seal Co., Inc. (a) 12,000 501
Dow Chemical Co. 51,500 3,624
du Pont (E.I.) de Nemours & Co. 28,800 2,012
Eastern Enterprises, Inc. 8,300 293
Eastman Chemical Co. 11,900 745
Engelhard Corp. 18,500 402
Federal Paper Board, Inc. 28,500 1,478
Freeport McMoRan Copper
& Gold, Inc. Class B 8,100 228
Georgia Gulf Corp. 300 9
Goodrich (B.F.) Co. 4,500 307
IMC Global, Inc. 24,800 1,014
Inland Steel Industries, Inc. 4,000 101
International Paper Co. 45,400 1,720
James River Corp. of Virginia 5,600 135
Lyondell Petrochemical Co. 3,800 87
Mead Corp. 5,900 308
Monsanto Co. 15,000 1,838
Newmont Mining Corp. 200 9
Nucor Corp. 10,400 594
Phelps Dodge Corp. 25,300 1,575
PPG Industries, Inc. 25,000 1,144
Praxair, Inc. 18,700 629
Precision Castparts Corp. 100 4
Premark International, Inc. 5,200 263
Reynolds Metals Co. 7,500 425
Rohm & Haas Co. 3,000 193
Temple-Inland, Inc. 20,600 909
Texas Industries, Inc. 17,300 917
Union Carbide Corp. 50,533 1,895
USX-U.S. Steel Group 600 18
Wellman, Inc. 9,000 205
Westvaco Corp. 14,100 391
Willamette Industries, Inc. 6,200 347
Witco Chemical Corp. 100 3
Worthington Industries, Inc. 16,100 333
--------
33,028
--------
CAPITAL GOODS - 5.9%
Alliance Semiconductor Corp. 1,950 22
Arrow Electronics, Inc. (a) 11,900 513
Atmel Corp. 20,500 454
Boston Scientific Corp. (a) 14,300 701
Browning-Ferris Industries, Inc. 29,600 873
Caterpillar, Inc. 13,900 817
Cooper Industries, Inc. 8,300 305
Cummins Engine Co., Inc. 1,100 41
Dover Corp. 74,200 2,736
Duracell International, Inc. 8,200 424
Duriron Co., Inc. 12,899 300
Emerson Electric Co. 7,800 638
Exide Corp. 2,700 124
Fluor Corp. 7,600 502
General Electric Co. 118,300 8,518
General Signal Corp. 3,200 104
Grainger (W.W.), Inc. 2,500 166
Harnischfeger Industries, Inc. 9,900 329
Harsco Corp. 9,000 523
Ingersoll-Rand Co. 6,000 211
ITT Industries, Inc. 16,300 391
Johnson Controls, Inc. 21,600 1,485
Kaydon Corp. 5,200 158
Kennametal, Inc. 7,300 232
Litton Industries, Inc. (a) 6,900 307
National Service Industries, Inc. 22,800 738
Novellus Systems, Inc. (a) 12,500 675
Parker-Hannifin Corp. 28,550 978
Pentair, Inc. 1,100 55
Raychem Corp. 20,100 1,143
Tecumseh Products Co. Class A 30,800 1,594
Timken Co. 200 8
TRINOVA Corp. 1,500 43
Tyco International, Ltd. 21,400 762
Varity Corp. (a) 28,600 1,061
Wheelabrator Technologies, Inc. 12,000 200
WMX Technologies, Inc. 17,100 510
--------
28,641
--------
CONSUMER BASICS - 17.8%
Abbott Laboratories NPV 35,442 1,480
ALZA Corp. (a) 9,800 243
American Home Products Corp. 30,300 2,939
Apria Healthcare Group, Inc. 5,000 141
Archer-Daniels-Midland Co. 96,147 1,731
Bard (C.R.), Inc. 1,000 32
Bausch & Lomb, Inc. 5,800 230
Quantitative Equity Fund 43
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Baxter International, Inc. 27,700 $ 1,160
Becton, Dickinson & Co. 22,700 1,703
Black & Decker Corp. 25,400 895
Bristol-Myers Squibb Co. 37,600 3,229
Cardinal Health, Inc. 23,400 1,281
Church and Dwight Co., Inc. 2,800 52
Coca-Cola Co. (The) 70,400 5,227
Coca-Cola Enterprises, Inc. 65,300 1,747
Colgate-Palmolive Co. 10,100 710
Columbia/HCA Healthcare Corp. 47,100 2,390
ConAgra, Inc. 34,750 1,433
CPC International, Inc. 21,900 1,503
Dole Food, Inc. 3,700 130
Forest Labs, Inc. (a) 3,900 176
General Nutrition Companies, Inc. 9,800 225
Gillette Co. 9,050 472
Health Care & Retirement Corp. (a) 23,700 830
Health Management Associates Class A 7,100 185
Heinz (H.J.) Co. 19,450 644
Hershey Foods Corp. 11,100 722
Humana, Inc. (a) 16,600 454
IBP, Inc. 53,700 2,712
Johnson & Johnson 56,300 4,821
Kroger Co. (a) 30,300 1,136
Lilly (Eli) & Co. 65,500 3,684
Manor Care, Inc. 6,400 224
McKesson Corp. New 200 10
Medtronic, Inc. 24,000 1,341
Merck & Co., Inc. 99,970 6,573
Nabisco Holdings Corp. Class A 3,100 101
Outback Steakhouse, Inc. (a) 14,800 531
PepsiCo, Inc. 70,000 3,911
Pfizer, Inc. 26,200 1,651
Philip Morris Cos., Inc. 118,500 10,724
Procter & Gamble Co. 79,100 6,565
Ralston Purina Co. 13,000 811
Rhone Poulenc Rorer, Inc. 16,300 868
Safeway, Inc. New (a) 33,400 1,720
Sara Lee Corp. 23,200 740
Schering-Plough Corp. 44,800 2,453
Smith's Food & Drug Centers, Inc. Class B 20,300 513
Snap-On Tools Corp. 14,300 647
Tenet Healthcare Corp. (a) 14,600 303
United Healthcare Corp. 17,900 1,172
Vivra, Inc. 3,400 85
Vons Cos., Inc. (a) 17,300 489
Warner-Lambert Co. 14,600 1,418
--------
87,167
--------
CONSUMER DURABLES - 2.3%
AutoZone Inc. (a) 100 3
Chrysler Corp. 13,300 736
Cooper Tire & Rubber Co. 3,600 89
Dana Corp. 36,000 1,053
Eaton Corp. 14,800 794
Echlin, Inc. 35,500 1,296
Ford Motor Co. 59,510 1,726
General Motors Corp. 51,400 2,718
Genuine Parts Co. 100 4
Goodyear Tire & Rubber Co. 11,800 535
La-Z-Boy Chair Co. 20,000 618
Leggett & Platt, Inc. 15,600 378
Modine Manufacturing Co. 11,500 276
National Presto Industries, Inc. 3,800 151
PACCAR, Inc. 4,200 176
Whirlpool Corp. 10,000 532
--------
11,085
--------
CONSUMER NON-DURABLES - 3.6%
Alberto Culver Co. Class B 5,800 199
Anheuser-Busch Cos., Inc. 18,700 1,251
Avon Products, Inc. 4,700 354
Block Drug Co., Inc. Class A 953 33
Circuit City Stores, Inc. 6,900 191
Coors (Adolph) Co. Class B 15,700 347
CPI Corp. 4,400 70
Dayton Hudson Corp. 4,200 315
Eastman Kodak Co. 8,000 536
Fruit of the Loom, Inc. Class A (a) 7,600 185
Gap, Inc. 9,500 399
Home Depot, Inc. (The) 7,800 373
International Flavors & Fragrances, Inc. 8,200 394
Limited, Inc. (The) 37,000 643
Longs Drug Stores Corp. 20,300 972
Lowe's Cos., Inc. 9,400 315
May Department Stores Co. 200 8
Melville Corp. 6,200 191
Newell Co. 28,300 732
NIKE, Inc. Class B 22,900 1,594
Nine West Group, Inc. (a) 2,500 94
Penney (J.C.) Co., Inc. 15,900 757
Price Costco, Inc. (a) 13,800 210
Rayonier, Inc. 2,700 90
Ross Stores, Inc. 59,600 1,140
Sears Roebuck & Co. 43,200 1,685
Springs Industries, Inc. 1,000 41
44 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
TJX Cos., Inc. 6,200 $ 117
Toys "R" Us, Inc. (a) 16,000 348
V.F. Corp. 9,900 522
Waban, Inc. (a) 12,000 225
Wal-Mart Stores, Inc. 150,000 3,357
Warnaco Group, Inc. Class A 2,200 56
--------
17,744
--------
CONSUMER SERVICES - 2.8%
AMR Corp. (a) 4,000 297
Boyd Gaming Corp. (a) 3,500 41
Brinker International, Inc. (a) 4,500 68
Buffets, Inc. (a) 900 13
Callaway Golf Co. 18,500 419
Carnival Corp. Class A 9,000 219
Circus Circus Enterprises, Inc. (a) 10,400 290
Cracker Barrel Old Country Store, Inc. 4,500 78
Delta Air Lines, Inc. 15,300 1,130
Disney (Walt) Co. 60,300 3,558
Harrah's Entertainment, Inc. 9,200 223
HFS, Inc. (a) 1,500 123
International Game Technology 11,600 126
ITT Corp. New 16,300 864
King World Productions, Inc. (a) 37,100 1,442
La Quinta Motor Inns, Inc. 30,200 827
Marriot International, Inc. 14,300 547
McDonald's Corp. 18,400 830
Mirage Resorts, Inc. (a) 16,700 576
Southwest Airlines Co. 3,500 81
UAL Corp. (a) 11,800 2,106
--------
13,858
--------
ENERGY - 7.3%
Amerada Hess Corp. NPV 100 5
Amoco Corp. 27,000 1,941
Anadarko Petroleum Corp. 5,000 271
Ashland, Inc. 4,300 151
Atlantic Richfield Co. 15,600 1,728
Baker Hughes, Inc. 20,300 495
Chevron Corp. 53,200 2,793
Cooper Cameron Corp. (a) 2,300 82
Diamond Shamrock, Inc. 2,100 54
Exxon Corp. 133,622 10,706
FINA, Inc. Class A 700 35
Halliburton Co. 30,000 1,519
Indiana Energy, Inc. 2,000 48
Mobil Corp. 34,418 3,855
Occidental Petroleum Corp. 48,600 1,039
Oryx Energy Co. (a) 3,700 49
Phillips Petroleum Co. 20,500 700
Pittston Services Group 6,000 188
Royal Dutch Petroleum Co. - ADR 42,975 6,065
Sonat Offshore Drilling, Inc. 7,800 349
Sun Company 5,200 142
Tenneco, Inc. 18,700 928
Texaco, Inc. 20,600 1,617
Union Texas Petroleum Holdings, Inc. 6,800 132
Unocal Corp. 20,200 588
Valero Energy Corp. 17,800 436
--------
35,916
--------
FINANCE - 15.6%
Aetna Life & Casualty Co. 5,800 402
AFLAC, Inc. 46,825 2,031
Ahmanson (H.F.) & Co. 17,800 472
Allstate Corp. 68,327 2,810
AMBAC, Inc. 1,100 52
American Express Co. 6,300 261
American Financial Group, Inc. 6,000 184
American General Corp. 38,400 1,339
American International Group, Inc. 21,100 1,952
American National Insurance Co. 2,100 139
AT&T Capital Corp. 4,800 184
Banc One Corp. 20,500 774
Bank of Boston Corp. 16,584 767
Bank of New York Co., Inc. 59,172 2,885
BankAmerica Corp. 99,700 6,456
Bankers Trust New York Corp. 3,600 239
Barnett Banks, Inc. 5,700 336
BayBanks, Inc. 1,100 108
Bear Stearns Cos., Inc. 116,882 2,323
Beneficial Corp. 2,100 98
Boatmen's BancShares, Inc. 100 4
Centura Banks, Inc. 100 4
Chase Manhattan Corp. 11,400 691
Chemical Banking Corp. 32,600 1,915
Chubb Corp. (The) 3,900 377
CIGNA Corp. 13,100 1,353
Citicorp 25,100 1,688
CNA Financial Corp. (a) 3,900 443
Comerica, Inc. 4,300 173
CoreStates Financial Corp. 7,100 269
Dean Witter, Discover & Co. 9,700 456
Quantitative Equity Fund 45
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Edwards (A.G.), Inc. 38,100 $ 910
Federal National Mortgage Association 36,900 4,580
First Chicago NBD Corp. 90,652 3,581
First Colony Corp. 2,300 58
First Fidelity Bancorp New 4,200 317
First Union Corp. 9,000 501
First USA, Inc. 10,400 462
Firstar Corp. 3,300 131
Fleet Financial Group, Inc. 18,500 754
Fleet Financial Group, Inc.
New 1996 Warrants (a) 157 2
General Re Corp. 700 109
Golden West Financial Corp. 2,800 155
Great Western Financial Corp. 5,400 138
Greenpoint Financial Corp. 33,600 890
Household International Corp. 12,000 710
Huntington Bancshares, Inc. 26,100 620
Integra Financial Corp. 6,100 384
ITT Hartford Group, Inc. 16,300 789
Jefferson-Pilot Corp. 14,700 684
Kansas City Life Insurance Co. 1,300 68
KeyCorp 10,700 388
Lehman Brothers Holdings, Inc. 31,000 659
Lincoln National Corp. 41,800 2,247
Loews Corp. 38,800 3,041
MBIA, Inc. 1,500 113
MBNA Corp. 31,000 1,143
Mercantile Bancorp, Inc. 3,000 138
Mercury Finance Corp. 8,300 110
Mercury General Corp. 1,600 76
Meridian Bancorp, Inc. 6,400 298
Merrill Lynch & Co., Inc. 9,300 474
Midlantic Corp. 6,100 400
Morgan Stanley Group, Inc. 11,000 887
National City Corp. 20,900 692
NationsBank Corp. 79,316 5,522
Northern Trust Corp. 200 11
Norwest Corp. 30,900 1,020
Old Kent Financial Corp. 700 29
Old Republic International Corp. 19,500 692
Paine Webber Group, Inc. 2,600 52
PNC Bank Corp. 10,400 335
Protective Life Corp. 2,900 91
Republic New York Corp. 5,600 348
SAFECO Corp. 5,200 179
Salomon, Inc. 38,300 1,360
Southern National Corp. 5,400 142
SouthTrust Corp. 2,200 56
St. Paul Cos., Inc. 3,500 195
Star Banc Corp. 21,600 1,285
State Street Boston Corp. 3,700 167
Student Loan Marketing Association 9,400 619
TIG Holdings, Inc. 16,400 467
Torchmark Corp. 1,300 59
Transamerica Corp. 3,000 218
Travelers, Inc. 79,300 4,985
UMB Financial Corp. 110 3
Union Bank 3,300 176
United Counties Bancorporation 100 22
UNUM Corp. 3,200 175
Washington Mutual, Inc. 3,100 88
Washington National Corp. 2,000 54
Wilmington Trust Corp. 1,500 45
--------
76,089
--------
GENERAL BUSINESS - 4.6%
American Greetings Corp. Class A 28,600 790
Ascend Communications, Inc. 13,100 1,063
BHC Communications, Inc. Class A 2,900 274
Capital Cities/ABC, Inc. 16,800 2,073
Central Newspapers, Inc. Class A 6,000 188
Comcast Corp. Special Class A 17,300 314
Cox Communications, Inc. Class A (a) 4,700 92
Donnelley (R.R.) & Sons Co. 12,600 496
Gartner Group, Inc. Class A New (a) 11,000 525
Harcourt General, Inc. 8,200 343
Kelly Services, Inc. Class A 10,500 291
Manpower, Inc. 29,500 830
Media General, Inc. Class A 100 3
Miller (Herman), Inc. 1,700 51
New York Times Co. Class A 26,900 797
Olsten Corp. 2,400 95
Omnicom Group, Inc. 20,400 760
Paging Network, Inc. 6,000 143
PHH Group, Inc. 39,200 1,833
Pulitzer Publishing Co. 5,400 258
Reader's Digest Association, Inc.
Class A NV 100 5
SBC Communications, Inc. 68,600 3,945
Service Corp. International 7,400 326
Staples, Inc. 81,500 1,987
SunGard Data Systems 8,300 230
Tele-Communications, Inc. Class A 52,700 1,047
Time Warner, Inc. 31,500 1,193
Total Systems Services, Inc. 100 3
Tribune Co. 6,400 391
46 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Turner Broadcasting Systems, Inc. Class B 13,500 $ 351
Viking Office Products, Inc. (a) 7,200 335
Wallace Computer Services, Inc. 3,600 196
Washington Post Co. Class B 4,100 1,155
Wiley (John) & Son Inc. Class A 200 6
--------
22,389
--------
MISCELLANEOUS - 0.4%
Castle & Cook, Inc. New 1,233 21
Chris Craft Industries, Inc. 4,804 208
Eckerd Corp. (a) 30,200 1,348
Providian Corp. 4,000 162
--------
1,739
--------
SHELTER - 0.6%
Centex Corp. 300 10
Georgia Pacific Corp. 8,800 604
Granite Construction, Inc. 19,200 605
Lennar Corp. 9,000 226
Owens-Corning Fiberglas Corp. (a) 3,400 153
Pulte Corp. 18,500 622
USG Corp. New (a) 5,600 168
Weyerhaeuser Co. 14,000 605
--------
2,993
--------
TECHNOLOGY - 12.5%
Adaptec, Inc. (a) 5,000 204
ADC Telecommunications, Inc. 100 4
Advanced Micro Devices, Inc. 6,200 102
AlliedSignal, Inc. 52,200 2,480
Altera Corp. 2,200 109
AMP, Inc. 14,300 549
Amphenol Corp. Class A (a) 20,500 497
Analog Devices, Inc. 42,100 1,489
Apple Computer, Inc. 7,200 229
Applied Materials, Inc. 7,100 279
Autodesk, Inc. 36,400 1,238
Avery Dennison Corp. 10,600 531
Avnet, Inc. 44,200 1,978
Bay Networks, Inc. 10,600 435
Boeing Co. 48,900 3,833
Broderbund Software, Inc. (a) 1,200 73
Cadence Design Systems, Inc. 5,400 227
Cisco Systems, Inc. (a) 20,200 1,507
Coltec Industries, Inc. (a) 7,300 85
COMPAQ Computer Corp. (a) 15,600 749
Computer Associates International, Inc. 9,800 557
Cypress Semiconductor Corp. 33,000 421
Dell Computer Corp. 18,000 623
Diebold, Inc. 5,000 277
Digital Equipment Corp. (a) 12,700 814
EMC Corp. (a) 10,900 168
Gateway 2000, Inc. (a) 4,100 100
General Binding Corp. 5,000 99
General Dynamics Corp. 12,800 757
General Instrument Corp. (a) 5,800 136
General Motors Corp. Class H 47,000 2,309
Glenayre Technologies, Inc. 6,600 409
Harris Corp. 1,900 104
Hewlett-Packard Co. 69,700 5,837
Informix Corp. 55,200 1,656
Integrated Device Technology 13,500 174
Intel Corp. 10,900 619
International Business Machines Corp. 83,300 7,643
Komag, Inc. (a) 4,000 183
Lam Research Corp. (a) 4,900 223
Lockheed Martin Corp. 17,700 1,398
Loral Corp. 9,900 350
LSI Logic Corp. 4,600 151
Marquette Electronics, Inc. Class A (a) 6,600 134
Maxim Integrated Products, Inc. 8,600 329
McDonnell Douglas Corp. 4,200 386
Micro Warehouse, Inc. (a) 7,400 320
Micron Technology, Inc. 14,200 563
Microsoft Corp. (a) 32,800 2,878
Motorola, Inc. 45,500 2,594
National Semiconductor Corp. (a) 8,100 180
Novell, Inc. (a) 20,800 294
Oracle Systems Corp. 26,100 1,103
Parametric Technology Corp. (a) 700 46
Quantum Corp. (a) 2,300 37
Raytheon Co. 2,600 123
Read-Rite Corp. (a) 21,600 500
Rockwell International Corp. 20,700 1,095
Seagate Technology (a) 25,700 1,221
Silicon Graphics, Inc. (a) 9,500 261
Solectron Corp. (a) 200 9
Storage Technology Corp. (a) 25,900 618
Sun Microsystems, Inc. 11,600 529
Sybase, Inc. (a) 4,300 154
Symbol Technologies, Inc. (a) 5,300 209
Synopsys, Inc. 3,900 148
Tandy Corp. 4,200 174
Quantitative Equity Fund 47
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
Teradyne, Inc. 13,700 $ 343
Texas Instruments, Inc. 42,800 2,215
Textron, Inc. 15,600 1,053
TRW, Inc. 5,900 457
United Technologies Corp. 1,100 104
Varian Associates, Inc. 14,900 710
Vishay Intertechnology, Inc. 9,200 289
Watkins-Johnson Co. 9,100 397
Xilinx, Inc. 3,600 108
--------
61,187
--------
TRANSPORTATION - 0.8%
Arnold Industries, Inc. 100 2
Burlington Northern, Inc. 9,200 718
Conrail, Inc. 13,600 952
CSX Corp. 10,300 470
Florida East Coast Industries, Inc. 100 7
GATX Corp. 4,900 238
Norfolk Southern Corp. 4,100 325
Ryder System, Inc. 18,500 458
Union Pacific Corp. 14,300 943
--------
4,113
--------
UTILITIES - 13.1%
Allegheny Power System, Inc. 4,300 123
American Water Works, Inc. 200 8
Ameritech Corp. 69,900 4,124
AT&T Corp. 99,000 6,410
Baltimore Gas & Electric Co. 5,100 145
Bell Atlantic Corp. 330 22
BellSouth Corp. 91,500 3,980
Boston Edison Co. 7,900 233
California Energy, Inc. (a) 2,700 53
Carolina Power & Light Co. 9,200 317
Centerior Energy Corp. 7,900 70
Central & Southwest Corp. 7,100 198
Central Maine Power Co. 25,300 364
CILCORP, Inc. 6,900 292
Cincinnati Bell, Inc. 18,300 636
CMS Energy Corp. 4,700 140
Columbia Gas System, Inc. (a) 12,500 548
Consolidated Edison Co.
of New York, Inc. 78,700 2,518
Consolidated Natural Gas Co. 24,300 1,103
Detroit Edison Co. 24,800 856
Dominion Resources, Inc. 9,300 384
Duke Power Co. 9,500 450
El Paso Natural Gas Co. 1,300 37
Enron Corp. 24,900 949
Entergy Corp. 71,200 2,083
FPL Group, Inc. 10,900 505
General Public Utilities Corp. 16,500 561
GTE Corp. 184,140 8,102
Houston Industries, Inc. 15,400 373
Idaho Power Co. 2,000 60
Illinova Corp. 2,000 60
MCI Communications Corp. 40,000 1,045
New England Electric System 2,600 103
New York State Electric & Gas Corp. 32,400 838
Niagara Mohawk Power Corp. 5,900 57
Northeast Utilities 7,700 188
Northern States Power Co. 5,900 290
NYNEX Corp. 9,000 486
ONEOK, Inc. 12,000 275
Pacific Gas & Electric Co. 128,800 3,655
Pacific Telesis Group 23,000 773
PacifiCorp. 23,800 506
Panhandle Eastern Corp. 40,500 1,129
Peco Energy Co. 12,500 377
Pinnacle West Capital Corp. 3,100 89
Portland General Electric Co. 17,000 495
Potomac Electric Power Co. 8,100 213
PP&L Resources, Inc. 9,300 233
Public Service Co. of Colorado 2,000 71
Public Service Enterprise Group, Inc. 36,900 1,130
SCE Corp. 186,300 3,307
Sonat, Inc. 5,700 203
Southern Co. 12,446 306
Southern New England
Telecommunications Corp. 8,800 350
Sprint Corp. 125,300 4,996
Texas Utilities Co. 12,100 498
TransCanada Pipelines, Ltd. 5,100 70
Tucson Electric Power Co. (a) 23,900 78
U.S. West Media Group (a) 41,600 790
U.S. West, Inc. 25,400 908
Unicom Corp. 101,000 3,308
Washington Gas & Light Co. 1,000 21
Western Resources, Inc. 22,300 744
Williams Cos. (The) 16,300 716
--------
63,952
--------
TOTAL COMMON STOCKS
(cost $370,158) 459,901
--------
48 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.0%
WMX Technologies, Inc. (conv.)
2.000% due 01/24/05 $ 25 $ 21
--------
TOTAL LONG-TERM INVESTMENTS
(cost $46) 21
--------
SHORT-TERM INVESTMENTS - 4.4%
Frank Russell Investment Company
Money Market Fund, due on demand (b) 21,541 21,541
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $21,541) 21,541
--------
TOTAL INVESTMENTS
(identified cost $391,745)(c) - 98.5% 481,463
--------
OTHER ASSETS AND LIABILITIES,
NET - 1.5% 7,485
--------
NET ASSETS - 100.0% $488,948
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes
was $392,720 and net unrealized appreciation for all securities
was $88,743. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of
market value over tax cost of $95,638 and aggregate gross
unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $6,895.
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
CONTRACTS (000)
------- --------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/96 60 $ (55)
--------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ (55)
--------
--------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes, due
12/31/95, valued at $5,500 were held as collateral by the
custodian in connection with futures contracts purchased by
the Fund. The settlement amount of these matured notes is
included in Receivable for Investments Sold on the Statement
of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
Quantitative Equity Fund 49
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $391,745,457)(Note 2) . . $481,463,249
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593,795
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . 1,218,251
Investments sold . . . . . . . . . . . . . . . . . . . . . . . 10,805,102
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . 1,624,076
Daily variation margin on futures contracts (Notes 2 and 3). . 21,000
------------
495,725,473
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . $5,947,783
Fund shares redeemed . . . . . . . . . . . . . . . 397,636
Accrued bookkeeping service fees (Note 4). . . . . 5,750
Accrued management fees (Note 4) . . . . . . . . . 323,532
Accrued transfer agent fees (Note 4) . . . . . . . 39,156
Other accrued expenses . . . . . . . . . . . . . . 63,317 6,777,174
---------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $488,948,299
------------
------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . $ 2,561
Accumulated net realized gain (loss). . . . . . . . . . . . . . . 20,743,070
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 89,717,788
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . (55,213)
Shares of beneficial interest . . . . . . . . . . . . . . . . . . 158,955
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . 378,381,138
------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $488,948,299
------------
------------
Net asset value, offering and redemption price per share
($488,948,299 divided by 15,895,547 shares of $.01 par value
shares of beneficial interest outstanding). . . . . . . . . . . . $30.76
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
50 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,503,830
Dividends from Money Market Fund (Note 5) . . . . . . . . . . . . . 846,794
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,404
------------
11,729,028
Expenses (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . $3,469,134
Custodian fees. . . . . . . . . . . . . . . . . . . . . 271,908
Transfer agent fees . . . . . . . . . . . . . . . . . . 276,771
Bookkeeping service fees. . . . . . . . . . . . . . . . 23,062
Professional fees . . . . . . . . . . . . . . . . . . . 22,143
Registration fees . . . . . . . . . . . . . . . . . . . 35,584
Trustees' fees. . . . . . . . . . . . . . . . . . . . . 4,439
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 24,362 4,127,403
---------- ------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . 7,601,625
------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,340,418
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . 441,477
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . 1,273,528
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,354,634
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . (55,213)
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . (250,179)
------------
Net gain (loss) on investments. . . . . . . . . . . . . . . . . . . . 133,104,665
------------
Net increase (decrease) in net assets resulting from operations . . . $140,706,290
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Quantitative Equity Fund 51
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,601,625 $ 6,811,978
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,340,418 11,339,993
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 441,477 --
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,273,528 1,360,068
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,354,634 (18,625,251)
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . (55,213) --
Options written . . . . . . . . . . . . . . . . . . . . . . . . . . . (250,179) 116,517
------------ ------------
Net increase (decrease) in net assets resulting from operations . . . . . 140,706,290 1,003,305
Distributions to shareholders:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . (7,728,318) (6,763,825)
Net realized gain on investments. . . . . . . . . . . . . . . . . . . . (41,635,634) (15,563,510)
Increase (decrease) in net assets from Fund share transactions. . . . . . 17,013,464 87,269,459
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . . 108,355,802 65,945,429
Net assets at beginning of year . . . . . . . . . . . . . . . . . . . . . 380,592,497 314,647,068
------------ ------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net
investment income of $2,561 and $129,254, respectively) . . . . . . . . $488,948,299 $380,592,497
------------ ------------
------------ ------------
</TABLE>
FUND SHARE TRANSACTIONS
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . . . 4,324,277 $ 124,379,767 6,025,143 $154,549,223
Fund shares issued to shareholders
in reinvestments of distributions. . . . . 1,137,910 34,236,981 575,744 14,421,907
Fund shares redeemed . . . . . . . . . . . . (4,885,755) (141,603,284) (3,180,658) (81,701,671)
---------- ------------- ---------- ------------
Net increase (decrease). . . . . . . . . . . 576,432 $ 17,013,464 3,420,229 $ 87,269,459
---------- ------------- ---------- ------------
---------- ------------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from
the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . $ 24.84 $ 26.44 $ 25.82 $ 25.88 $ 21.07
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . .50 .49 .45 .49 .58
Net realized and unrealized gain (loss) on investments . . . 8.72 (.19) 2.69 1.67 5.93
------- ------- ------- ------- -------
Total Income From Investment Operations 9.22 .30 3.14 2.16 6.51
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . (.51) (.49) (.45) (.49) (.58)
Net realized gain on investments . . . . . . . . . . . . . . (2.79) (1.41) (2.07) (1.73) (1.12)
------- ------- ------- ------- -------
Total Distributions. . . . . . . . . . . . . . . . . . . . . (3.30) (1.90) (2.52) (2.22) (1.70)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . $ 30.76 $ 24.84 $ 26.44 $ 25.82 $ 25.88
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . 37.69 .19 12.56 8.67 31.70
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . . . .93 .94 .98 1.02 1.03
Net investment income to average net assets. . . . . . . . . 1.71 1.95 1.68 1.94 2.39
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . 78.83 45.97 62.48 59.19 58.07
Net assets, end of year ($000 omitted) . . . . . . . . . . . 488,948 380,592 314,647 244,870 201,614
</TABLE>
Quantitative Equity Fund 53
<PAGE>
QUANTITATIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS RUSSELL 1000 LIPPER -C-
ENDED DECEMBER 31 QUANTITATIVE EQUITY -REGISTERED TRADEMARK-** GROWTH & INCOME ++
- ----------------- ------------------- -------------------------- ------------------
<S> <C> <C> <C>
Inception* $ 10,000 $ 10,000 $ 10,000
1987 $ 9,071 $ 8,636 $ 8,574
1988 $ 10,437 $ 10,124 $ 9,854
1989 $ 13,158 $ 13,203 $ 12,065
1990 $ 12,420 $ 12,654 $ 11,523
1991 $ 16,358 $ 16,834 $ 14,843
1992 $ 17,775 $ 18,354 $ 16,072
1993 $ 20,008 $ 20,218 $ 17,875
1994 $ 20,046 $ 20,295 $ 17,691
1995 $ 27,602 $ 27,960 $ 23,105
</TABLE>
Quantitative Equity Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $13,769 37.69%
5 Years $22,223 17.31%***
Inception $27,602 12.55%***
</TABLE>
Russell 1000-Registered Trademark- Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $13,777 37.77%
5 Years $22,095 17.18%***
Inception $27,960 12.73%***
</TABLE>
Lipper-C- Growth & Income Funds Average
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $13,060 30.60%
5 Years $20,052 14.93%***
Inception $23,105 10.35%***
</TABLE>
* Assumes initial investment on June 1, 1987. Lipper index comparison for the
initial investment began July 1, 1987.
** Russell 1000 Index includes the 1,000 largest companies in the Russell
3000-Registered Trademark- Index, the smallest of which is valued at about
$450 million. The Russell 1000 Index represents the universe of stocks from
which most active money managers typically select.
++ Lipper-C- Growth & Income Funds Average is the average total return for the
universe of funds within the Growth and Income Funds investment objective.
The total return for the funds reflects adjustments for income dividends
and capital gains distributions reinvested as of the ex-dividend dates.
*** Annualized.
QUANTITIATIVE EQUITY FUND returned 37.7% during 1995, nearly matching the
Russell 1000-Registered Trademark- Index return of 37.8%. The portfolio was
managed in a manner consistent with its objective to provide a total return
greater than the US stock market, as measured by the Russell 1000 Index over a
market cycle of four to six years, while maintaining volatility and
diversification similar to the index.
Historically, no single economic or industrial sector has been consistently
favored by the equity markets. By approximately duplicating the broad market's
structure, an investor can reduce the possibility of being overweighted in an
out-of-favor sector, and by selecting the most attractive stocks within each
sector, an investor can increase the potential for earning a return that is
above the market average.
Despite losing ground during a difficult fourth quarter, the Fund managed to
outperform the Lipper-Registered Trademark- Growth & Income Funds Average. The
Fund ended the year over 700 basis points ahead of the Lipper peer group. Good
security selection through most of the year helped keep the Fund's performance
close to the benchmark. Unlike other funds that attempted to add value via
sector selection, Quantitative Equity's sector-neutral posture helped it keep
pace with the market which underwent strong rotations among economic sectors
over the course of the year.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
54 Quantitative Equity Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
COMMON STOCKS - 92.6%
ARGENTINA - 0.2%
Banco de Galicia Y Buenos Aires
Class B New - ADR 6,104 $ 125
Banco Frances del Rio la Plata - ADR 3,611 97
Buenos Aires Embotelladora SA
Class B - ADR 1,507 31
Comercial de Plata (a) 20,590 55
Naviera Perez Companc Class B 26,154 139
Sociedad Comercial del Plata - ADR (a) 1,556 41
Telecom Argentina SA Class B - ADR 1,280 61
Telefonica de Argentina Class B - ADR 9,510 259
Transportadora de Gas Del Sur
Class B - ADR 4,760 61
YPF Sociedad Anonima Class D - ADR 9,210 199
------
1,068
------
AUSTRALIA - 3.6%
Amcor, Ltd. 50,800 358
Australia & New Zealand Bank Group, Ltd. 499,266 2,341
Australian Gas & Light Co. 70,713 265
Australian National Industries, Ltd. 336,270 249
Australian Resources, Ltd. 11,455 11
Australian Tourism Group 13,080 9
Azon Limited 6,793 9
Boral, Ltd. 40,000 101
BRL Hardy, Ltd. 2,399 3
Broken Hill Proprietary Co. 87,915 1,242
BT Property Trust (Units) 11,556 14
Burns Philip & Co., Ltd. 53,238 119
Burswood Property Trust (Units) 14,154 19
Caltex Australia 199,133 786
Coca-Cola Amatil, Ltd. 14,857 118
Coles Myer, Ltd. 111,704 348
Commonwealth Bank of Australia 2,106 17
CSR, Ltd. 200,768 654
Eastern Aluminum 272,000 224
Elders Australia, Ltd. 300,000 381
Eltin, Ltd. 153,513 337
Foodland Associated, Ltd. 5,765 20
Foster's Brewing Group, Ltd. (a) 166,560 274
Gasgoyne Gold Mines NL 2,509 4
George Weston Foods, Ltd. 229 1
Giant Resources (a)(d) 250,000 0
GIO Australia Holdings 275,524 641
Goodman Fielder Wattie 175,401 176
GWA International, Ltd. 8,479 9
Holyman Limited 3,513 7
Lend Lease Corp. 30,001 435
M.I.M. Holdings, Ltd. 31,460 43
Mt. Leyshon Gold Mines, Ltd. (a) 979 3
National Australia Bank, Ltd. 87,087 783
News Corp. 569,217 3,038
Normandy Poseidon 37,000 54
North Broken Hill Peko 165,844 462
Orion Resources NL 3,513 5
Pacific Dunlop, Ltd. 119,496 280
Pasminco, Ltd. 160,000 196
Pioneer International, Ltd. 157,700 407
Publishing Broadcasting, Ltd. 36,360 127
QCT Resources 14,867 17
QNI Limited 246,736 521
RGC Limited 117,397 585
Ross Mining NL 9,164 9
Rothmans Holdings 58,371 239
Santos, Ltd. 178,500 521
Sea World Property Australia, Ltd. 2,485 2
Simsmetal, Ltd. 4,255 25
Southcorp Holdings, Ltd. 144,600 336
St. Barbara Mines, Ltd. 5,783 4
Stockland Trust Group 48,100 111
Stockland Trust Group New (a) 1,949 4
T N T, Ltd. (a) 262,790 348
Tabcorp. Holdings, Ltd. 52,000 147
Walker Corp., Ltd. 15,274 5
Wesfarmers 60,319 369
Wesfi, Ltd. 1,585 5
Western Mining Corp. 507,763 3,261
Westfield Trust 150,480 271
Westfield Trust New Units (a) 6,510 12
Westpac Banking Corp. 149,566 663
Wills (W.D. & H.O.) 18,000 27
Woodside Petroleum, Ltd. 28,000 143
------
22,195
------
AUSTRIA - 0.4%
Bank Austria AG 2,400 193
Brau-Union Goess AG 1,346 65
BWT AG 1,700 175
Creditanstalt Bankverein 5,264 292
EA-Generali AG 122 37
EVN Energ-Versorg 582 80
Flughafen Wien AG 1,323 89
Interunfall Vericherungs AG 900 141
Lenzing AG 310 26
Oester Brau Beteil 1,200 55
Oester Elektrizita Class A 6,870 413
OMV AG 1,231 107
VA Technologie AG (BR) 2,000 254
Wiener Allianz Verscherung 700 142
International Securities Fund 55
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Wienerberger Baustoff 233 $ 46
Z Landerbank Bank Austria AG 12,210 485
------
2,600
------
BELGIUM - 0.6%
Algem Maatsch Voor Nijverheidskredit
Almanij NPV 205 62
Arbed SA NPV (a) 2,115 240
Banque Bruxelles Lambert NPV 184 32
Barco NV NPV 702 81
Electrabel NPV 2,928 696
Generale de Banque NPV 1,980 686
Groupe Bruxelles Lambert NPV 200 27
Kredietbank NPV 2,301 629
Petrofina SA NPV 1,330 407
Societe Generale de Belgique NPV 356 30
Solvay SA NPV 680 369
UCB Capital NV 330 439
------
3,698
------
BRAZIL - 0.2%
Cesp Cia Energetic - ADS (a) 3,600 30
Compania Energetica de Minas Gerais (a) 279,032 6
Eletrobras (centrais) NPV 655,618 178
Sider Nacional Cia NPV 3,980,000 82
Telecomunicacoes Brasileiras - ADR 15,624 752
Telecomunicacoes Brasileiras NPV 3,421,000 132
Usinas Siderurgicas de Minas - ADR 3,738 30
------
1,210
------
CANADA - 0.6%
Abitibi-Price, Inc. 4,200 60
Air Canada, Inc. (a) 11,600 39
Alcan Aluminum, Ltd. 9,140 283
Bank of Nova Scotia Halifax 77 2
Barrick Gold Corp. 22,300 588
BCE, Inc. NPV 1,100 38
Brascan, Ltd. Class A 5,900 104
CAE, Inc. 6,100 46
Canadian Imperial Bank of Commerce 9,900 295
CCL Industries, Inc. Class B 7,400 62
Cominco, Ltd. 11,900 244
Domtar, Inc. NPV (a) 14,000 109
Imperial Oil, Ltd. New 12,000 434
Laidlaw, Inc. Class B 8,200 83
MacMillan Bloedel, Ltd. 6,520 81
Moore Corp., Ltd. 4,600 86
National Bank of Canada 10,100 82
Noranda, Inc. 4,300 89
Placer Dome, Inc. 24,800 598
Royal Bank of Canada 4,000 91
Teck Corp. Class B 13,400 261
Transalta Corp. 8,000 86
United Dominion Industries, Ltd. 1,100 24
------
3,785
------
CHILE - 0.1%
Administradora de Fondos de
Pensiones Provida SA - ADR 1,208 33
Chile Fund, Inc. 7,134 186
Chilectra SA - ADR 2,570 124
Chilgener SA - ADR 4,052 101
Compania de Telefonos (Chile) SA - ADR 1,704 141
Enersis SA - ADR 2,619 75
------
660
------
CHINA - 0.1%
Huaneng Power International, Inc.
- ADR Seires N (a) 24,100 346
Yizheng Chemical Fibre Series H 555,000 125
------
471
------
DENMARK - 0.6%
Bang & Olufsen Holding Series B 10,000 308
Carlsberg AS Series B 5,000 279
Coloplast AS Class B (Regd) 3,500 309
Den Danske Bank 5,625 388
ISS International Series B 7,000 158
Novo Nordisk AS Class B 11,278 1,544
Sophus Berendsen Class B 2,100 236
Tele Danmark AS Series B 6,500 355
Unidanmark Class A (Regd) 2,600 129
------
3,706
------
FINLAND - 0.5%
America Group Class A 21,500 335
Cultor Oy Series I 1,900 79
Kemira Oy (a) 5,000 42
Kymmene Corp. 10,000 264
Merita, Ltd. Series A (a) 164,667 416
Metsa Serla OY Class B 8,000 246
Nokia AB Series A 11,244 442
Nokia AB Series K 7,000 277
56 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Outokumpu OY Class A 24,200 $ 384
Partek AB OY 8,900 102
Rautaruukki OY 50,000 305
Repola OY 1,000 19
Stockmann OY AB Series B 1,200 63
Valmet Corp. Class A 6,500 163
------
3,137
------
FRANCE - 6.0%
Accor SA 2,440 315
Alcatel Alsthom 17,352 1,496
Assurances Generales de France 4,256 142
AXA 15,589 1,051
Banque Nationale Paris 40,919 1,846
Boiron 1,700 166
Bouygues 3,921 395
CarnaudMetalbox 600 27
Carrefour SA 2,964 1,798
Castorama Dubois 3,540 580
Cetelem 1,100 206
Chargeurs SA 1,730 347
Christian Dior 5,500 593
Cie de St. Gobain 7,922 864
Cie de Suez 21,673 894
Cie Finance Paribas Class A (BR) 11,374 624
Clarins 2,628 250
Compagnie Bancaire SA 898 100
Credit Commercial de France 7,800 398
Credit Local de France 6,167 494
Credit Lyonnais Cert d'Invest. (a) 7,200 346
Credit National 1,683 124
D.M.C. Dollfuss-Mieg 6,450 263
Eaux (cie Generale) 35,135 3,508
Ecco STE 2,357 357
Erid Beghin-Say 1,815 311
Essilor Internationale 950 182
Groupe Danone 2,971 490
GTM - Entrepose 1,900 133
Guilbert SA 1,189 140
Havas 2,400 190
L'Air Liquide 2,524 418
L'Oreal (Societe) 556 149
Lafarge Corp. SA (BR) 10,021 646
Lagardere Groupe (Regd) 9,500 175
Lapeyre (BR) 3,750 187
Legrand 1,450 224
LVMH Moet-Hennessy 4,103 855
Michelin (Cie Gen) Class B (Regd) 13,340 532
Moulinex (a) 35,000 479
Pechiney Cert d'Invest. 8,860 335
Pechiney International Class A (a) 7,482 259
Peugeot SA 3,365 444
Pinault-Printemps Redoute SA 2,433 485
Poliet 3,350 272
Primagaz Cie 4,122 327
Primagaz Cie 1998 Warrants (a) 190 2
Promodes 1,500 353
Renault 5,000 144
Rhone Poulenc SA Class A - ADR 8,500 182
Roussel Uclaf 530 90
S.G.E. 2,113 46
Saint Louis 175 46
Sanofi 11,357 728
Schneider SA 590 20
SEITA 8,500 308
SGS Thomson Microelectronics (a) 5,800 222
Sidel SA 3,650 1,137
Simco (a) 62 5
Simco (Regd) 764 73
Societe Generale 17,846 2,205
Societe Nationale Elf d'Aquitaine 10,365 764
Sodexho 660 194
Synthelabo 6,500 407
Thomson-CSF 13,699 305
Total Co. SA Class B 44,007 2,970
TV Francaise (TFI) 9,212 988
Union des Assurances Federales 2,000 239
Union Financiere de France Banque SA 1,500 125
Usinor Sacilor (a) 67,400 891
Valeo 8,239 382
Worms & Cie (Regd) 2,450 116
------
37,359
------
GERMANY - 5.2%
Allianz AG 1998 Warrants (a) 5,500 338
Allianz AG Holdings 351 684
Altana AG 262 153
AVA ALG Handels VB 1,190 403
Bankgesell Berlin 3,050 777
BASF AG 2,700 601
Bayer AG 12,170 3,211
Bayer Motoren Werk 400 205
Bayerische Hypotheken - und
Wechsel Bank AG 26,440 666
Bayerische Vereinsbank AG 35,000 1,039
Beiersdorf AG 400 280
International Securities Fund 57
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
BHF - Bank AG 15,000 $ 413
Bilfinger & Berger 1,161 439
Buderus AG 1,093 425
Commerzbank AG 2,381 563
Continental AG 13,000 181
Daimler-Benz AG 8,704 4,381
Deutsche Bank AG 32,660 1,548
Deutsche Pfandbrief & Hypothekenbank AG 4,800 186
Dresdner Bank AG 49,700 1,327
Gehe AG 1,078 549
Gehe AG New (a) 405 201
Hoechst AG 9,033 2,450
Hornback Baumarkt AG 1,135 49
M.A.N. AG 1,000 270
Mannesmann AG 9,521 3,031
Muenchener Rueckversicherungs
- Gesellschaft 460 1,000
Muenchener Rueckversicherungs
- Gesellschaft New (a) 41 88
Praktiker Bau und Heimwerkemaerkte AG (a) 2,084 64
Preussag AG 550 154
Rheinmetall Berlin 100 14
Rhoen - Klinikum AG 3,860 382
RWE AG 1,500 544
SAP AG 1,500 233
Schering AG 4,370 289
Siemens AG 4,068 2,226
Thyssen AG (a) 1,600 291
VEBA AG 31,070 1,319
VEBA International Finance 1998 Warrants (a) 2,700 425
Volkswagen AG 3,405 1,138
Wella AG 1996 Warrants (a) 300 15
-------
32,552
-------
HONG KONG - 3.9%
Allied Properties, Ltd. 140,000 16
Amoy Properties, Ltd. (a) 100,500 100
Cathay Pacific Airways 223,000 340
Cheung Kong Holdings, Ltd. 242,000 1,474
Citic Pacific, Ltd. 197,000 674
Cross Harbour Tunnel Co. 25,000 47
Dairy Farm International Holdings, Ltd. 152,547 140
Dao Heng Bank Group, Ltd. 80,000 288
Dickson Concept International 60,000 56
First Pacific Co. 472,399 525
Great Eagle Holdings 19,470 50
Guangdong Investment 348,000 209
Guangzhou Investment 1,300,000 249
Guoco Group, Ltd. 96,000 463
HSBC Holdings (UK Regd) PLC 57,550 871
Hang Lung Development Co. (a) 71,000 113
Hang Seng Bank 164,000 1,469
Harbour Centre Development 8,000 9
Henderson Investment, Ltd. 81,000 67
Hong Kong & China Gas Co., Ltd. 576 1
Hong Kong & Shanghai Hotel 24,500 35
Hong Kong Aircraft Engineering 14,800 38
Hong Kong Electric 230,000 754
Hong Kong Ferry 41,000 40
Hong Kong Land Holdings, Ltd. 566,207 1,047
Hong Kong Telecommunications 702,000 1,253
Hongkong China, Ltd. 48,000 14
Hopewell Holdings, Ltd. 265,547 153
Hutchison Whampoa, Ltd. 707,000 4,306
Hysan Development 35,000 93
Jardine International Motor 52,000 59
Johnson Electric Holdings, Ltd. 222,000 396
Kowloon Motor Bus 11,600 19
Kumagai Gumi Hong Kong 63,000 46
Lai Sun Development Co., Ltd. 128,000 15
Lai Sun Garment International 32,200 31
Lane, Crawford International Class A 48,000 66
Liu Chong Hing Investment, Ltd. 12,000 12
Maanshan Iron & Steel 506,000 71
Mandarin Oriental International, Ltd. 377,898 457
National Mutual Asia 12,000 11
New Asia Realty & Trust Class A 11,000 21
New World Development Co., Ltd. 474,000 2,066
New World Infrastructure, Ltd. (a) 346 1
Regal Hotels International 673,906 159
San Miguel Brewery 51,600 22
Shanghai Petrochemical Class H 724,800 209
Shaw Bros. (H.K.), Ltd. 10,000 11
Shun Tak Holdings, Ltd. 60,000 42
Sing Tao 546,000 212
Sino Land Co. 319,056 248
South China Morning Post 128,000 78
Stelux Holdings International 170,372 44
Sun Hung Kai & Co. 33,000 7
Sun Hung Kai Properties, Ltd. 278,400 2,277
Swire Pacific, Ltd. Class A 158,000 1,226
Swire Pacific, Ltd. Class B 32,500 41
Tai Cheung Holdings 48,000 37
Television Broadcast 149,000 531
Wharf Holdings 329,442 1,097
Wheelock & Co. 76,000 130
Winsor Industrial Corp., Ltd. 40,500 34
------
24,570
------
INTERNATIONAL SECURITIES FUND 58
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
INDIA - 0.0%
Perusahaan Persero Telekom - ADR (a) 11,000 $ 278
------
278
------
IRELAND - 0.1%
Allied Irish Banks 52,000 284
Irish Life PLC 20,000 76
Smurfit (Jefferson) 58,000 139
------
499
------
ITALY - 2.7%
Assicurazioni Generali SPA 50,612 1,226
Banca Commerciale Italiana 114,125 244
Banca Pop di Bergamo CV 19,800 274
Banco Commerciale Italiana di Risp 37,000 77
Banco di Napoli di Risp (a) 239,784 77
Banco di Roma (a) 207,750 211
Banco Fideuram SPA 77,525 90
Benetton Group SPA 16,400 195
Burgo (Cartiere) SPA 30,500 152
CIR Compagnie Industriali Riunite (a) 174,500 116
CIR Compagnie Industriali Riunite di Risp (a) 60,500 21
Credito Italiano 32,500 38
Credito Italiano di Risp NC 70,000 71
Danieli & Co. 3,000 19
Danieli & Co. di Risp NC 13,400 36
Danieli & Co. 1999 Warrants (a) 3,350 2
Edison 135,000 581
Editoriale La Repubblica SPA (a) 85,000 76
Ente Nazionale Idrocarburi SPA (Regd)(a) 39,000 136
Fiat SPA 553,666 1,799
Fiat SPA di Risp NC 74,000 131
Fidis 24,500 47
Finmeccanica SPA (a) 130,622 67
First Banco S. Paolo 42,000 249
I.M.I. 77,040 485
Industria Macchine Automatiche SPA (a) 25,000 168
Industrie Natuzzi SPA - ADR 10,800 490
Istituto National Assicurazioni 282,000 374
Italcementi 28,500 170
Italcementi di Risp NC 9,000 22
Italgas (Soc. Ital.) 41,000 125
La Rinascente 34,100 206
La Rinascente di Risp NC 12,000 34
Magneti Marelli SPA 17,500 21
Marzotto & Figli 4,000 24
Mondadori (Arnoldo) Editore 43,306 375
Montedison SPA (Ferruzzi Agricola)(a) 250,000 167
Montedison SPA di Risp
(Ferruzzi Agricola) NC (a) 500,000 296
Olivetti & Cie SPA (a) 3,869,494 3,102
Parmalat Finanziaria SPA 71,000 62
Pirelli & Co. 73,750 93
R.A.S. 3,090 35
Saipem AG 45,000 104
Sasib SPA 43,255 191
Sasib SPA di Risp NC 102,147 250
Sirti SPA 31,000 174
SME (Meridonale di)(a) 25,612 52
SNIA BPD (a) 130,000 108
SOPAF di Risp 172,500 137
Sorin Biomedica Group SPA 8,000 19
Stet 118,330 335
Stet di Risp NC 176,600 360
Telecom Italia SPA 542,528 844
Telecom Italia di Risp 356,518 436
Telecom Italia Mobile SPA (a) 942,895 1,659
Telecom Italia Mobile SPA - di Risp (a) 31,100 33
Unicem di Risp (a) 10,460 56
-------
16,942
-------
JAPAN - 32.8%
Achilles Corp. 60,000 231
Advantest 2,000 102
Aisin Seiki Co., Ltd. 11,000 145
Ajinomoto Co., Inc. 3,000 33
Alps Electric Co. 31,000 357
Amada Co., Ltd. 66,000 652
Aoki Corp. 67,000 281
Apic Yamada Corp. 13,000 516
Arabian Oil Co. 1,800 75
Asahi Bank 70,000 881
Asahi Breweries 7,000 83
Bank of Yokohama 15,000 123
Banyu Pharmaceutical 11,000 135
Brother Industries 130,000 706
Canon Sales Co., Inc. 2,050 55
Canon, Inc. 46,000 833
Chiba Bank, Ltd. 8,000 72
Chugai Pharmaceutical Co. 75,000 718
Chugoku Bank 11,000 190
Chuo Trust & Banking 85,000 823
Citizen Watch Co., Ltd. 23,000 176
Cosmo Oil Co. 144,000 787
CSK Corp., Ltd. 10,500 328
Dai Ichi Kangyo Bank 75,000 1,475
Dai Ichi Pharmaceutical Co. 42,000 598
Dai Nippon Printing, Ltd. 49,000 831
Dai Nippon Screen Manufacturing Co. (a) 88,000 772
Daicel Chemical Industries 53,000 301
59 INTERNATIONAL SECURITIES FUND
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Daido Steel Co. 85,000 $ 428
Daiei, Inc. 225,000 2,724
Daifuku Machinery Co. 9,000 127
Daikin Industries 94,000 920
Daikyo, Inc. 6,000 45
Daishi Bank 38,000 215
Daishinku Corp. 30,000 337
Daiwa Bank 247,000 1,998
Daiwa Danchi Co., Ltd. (a) 40,000 214
Daiwa House Industries Co. 48,000 790
Daiwa Kosho Lease Co. Ltd. 40,000 399
Daiwa Securities 211,000 3,229
DDI Corp. 426 3,301
Dowa Mining Co. 40,000 193
East Japan Railway 435 2,115
Ebara Corp. 60,000 877
Eisai Co. 3,000 53
Familymart, Co. 6,000 271
Fanuc Co. 10,000 433
Fuji Denki Reiki 31,000 414
Fuji Electric Co. 150,000 763
Fuji Fire & Marine Insurance 40,000 211
Fuji Heavy Industries (a) 10,000 39
Fuji Oil Co. 72,000 509
Fuji Photo Film Co. 35,000 1,010
Fujisawa Pharmaceutical 31,000 297
Fujita Corp. 43,000 194
Fujita Kanko, Inc. 3,000 66
Fujitsu Denso 18,000 579
Fujitsu, Ltd. 142,000 1,582
Fukui Bank1 35,000 719
Fukuyama Transporting Co. 9,000 85
Futaba Corp. 17,000 779
Gakken Co. (a) 196,000 1,291
General Sekiyu KK 12,000 110
Gunze Limited 12,000 73
Gunze Sangyo, Inc. 50,000 228
Hankyu Corp. 22,000 120
Hanwa Co. (a) 20,000 83
Haseko Corp. 49,000 198
Heiwa Corp. 20,000 521
Hitachi Cable 10,000 71
Hitachi Zosen Corp. 62,000 321
Hitachi, Ltd. 312,000 3,143
Hokkai Can Co. 50,000 342
Hokkaido Takushoku Bank, Ltd. 250,000 741
Hokko Chemical Industries 50,000 271
Hokuetsu Bank 74,000 389
Honda Motor Co., Ltd. 89,000 1,836
Hoya Corp. 2,000 69
Hyakugo Bank 70,000 400
Inax Corp. 37,000 351
Intec, Inc. 37,000 631
Ishihara Sangyo (a) 24,000 78
Ishikawajima-Harima Heavy Industries 195,000 822
Ishizuka Glass Co. 80,000 404
Ito-Yokado Co., Ltd. 32,000 1,971
Itochu Corp. 23,000 155
Itoham Foods 45,000 340
Izumiya Co. 4,000 64
Japan Airport Terminal 4,000 48
Japan Aviation Electronics (a) 5,000 36
Japan Energy Corp. 41,000 137
Japan Synthetic Rubber 30,000 182
Japan Tobacco, Inc. 110 954
Joshin Denki Co. 5,000 65
Juroku Bank 70,000 363
Kaken Pharmaceutical 60,000 540
Kamigumi Co. 5,000 48
Kaneka Corp. 11,000 69
Kanematsu Corp. 394,000 1,538
Kankaku Securities (a) 31,000 132
Kao Corp. 87,000 1,079
Kawasaki Heavy Industries 327,000 1,504
Kawasaki Kisen (a) 120,000 381
Kawasho Corp. (a) 122,000 510
Keihin Electric Express 12,000 72
Keio Teito Electric Railway 18,000 105
Keisei Electric Railway 7,000 59
Kinden Corp. 2,000 34
Kinki Nippon Railway 39,000 295
Kirin Brewery Co. 16,000 189
Kitz Corporation 80,000 326
Koa Fire & Marine 50,000 306
Koa Oil Company 40,000 348
Kokuyo Co., Ltd. 20,000 465
Komatsu Forklift Co., Ltd. 67,000 552
Komori Corp. 80,000 2,015
Koyo Seiko Co., Ltd. 4,000 36
Kumagai Gumi Co. 147,000 591
Kumiai Chemical Industry Co. 45,000 258
Kurabo Industries 162,000 620
Kuraray Co., Ltd. 54,000 591
Kureha Chemical Industrial Co. 45,000 211
Kyocera Corp. 31,000 2,303
Kyokuto Boeki 51,000 449
Kyowa Hakko Kogyo 36,000 340
Maeda Corp. 9,000 88
Maeda Corp. 1997 Warrants (a) 85 125
Makita Corp. 28,000 447
INTERNATIONAL SECURITIES FUND 60
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Marubeni Corp. 142,000 $ 769
Marudai Food Co. 15,000 108
Maruetsu, Inc. 25,000 203
Marui Co., Ltd. 64,000 1,333
Matsushita Electric Industrial Co., Ltd. 190,000 3,092
Matsushita ElectricWorks 7,000 74
Matsuzakaya Co. 51,000 647
Mitsubishi Chemical 220,000 1,070
Mitsubishi Corp. 27,000 332
Mitsubishi Electric Corp. 100,000 720
Mitsubishi Estate Company, Ltd. 34,000 425
Mitsubishi Gas & Chemical 39,000 176
Mitsubishi Heavy Industries 118,000 941
Mitsubishi Kakoki 25,000 235
Mitsubishi Material 99,000 513
Mitsubishi Motors Corp. 100,000 815
Mitsubishi Oil Co. 22,000 195
Mitsubishi Paper Mills 30,000 180
Mitsubishi Trust & Banking 112,000 1,866
Mitsubishi Warehouse 3,000 47
Mitsui & Co. 208,000 1,825
Mitsui Fudosan Co., Ltd. 88,000 1,082
Mitsui Mining & Smelting (a) 70,000 281
Mitsui Petrochemical Industry 58,000 475
Mitsui Soko Co. 22,000 176
Mitsui Toatsu Chemical 210,000 844
Mitsui Trust and Banking 16,000 175
Mizuno Corp. 60,000 520
Mochida Pharmaceutical Co. 2,000 28
Mori Seiki Co. 2,000 45
Murata Manufacturing Co. 23,000 846
Nagasakiya Co. (a) 110,000 472
Nagoya Railroad Co., Ltd. 21,000 106
Namco 32,000 1,066
Nankai Electric Railway 12,000 81
National House Industrial 11,000 201
NEC Corp. 493,000 6,016
New Oji Paper Co. 28,000 253
Nichido Fire & Marine 169,000 1,359
Nichiei Co., Ltd. of Kyoto 71,000 280
Nichimo Co. (a) 100,000 438
Nikko Securities Co., Ltd. 29,000 374
Nikon Corp. 77,000 1,044
Nippon Denso Co. 46,000 860
Nippon Express Co. 32,000 308
Nippon Hodo Co. 11,000 186
Nippon Oil Co. 212,000 1,331
Nippon Paper Industries 62,000 431
Nippon Road Co. 60,000 506
Nippon Sheet Glass 103,000 448
Nippon Steel Corp. 1,054,000 3,614
Nippon Suisan (a) 260,000 1,075
Nippon Telegraph & Telephone Corp. 441 3,566
Nippon Zeon Co., Ltd. (a) 52,000 280
Nissan Motor Co., Ltd. 505,000 3,879
Nissan Shatai Co. 45,000 252
Nisshin Steel Co. 80,000 323
Nisshinbo Industries, Inc. 22,000 213
Nitto Denko Corp. 15,000 232
NKK Corp. (a) 104,000 280
Nomura Securities 214,000 4,663
NSK, Ltd. 78,000 567
NTT Data Communications Systems Corp. 68 2,285
Obayashi Corp. 166,000 1,318
Odakyu Electric Railway 18,000 123
Okamoto Industries, Inc. 7,000 45
Okamura Corp. 80,000 612
Ono Pharmaceutica l8,000 308
Onoda Cement Co. 5,000 27
Osaka Gas Co. 165,000 571
Pioneer Electronics Corp. 88,000 1,611
Renown, Inc. (a) 56,000 195
Ricoh Co., Ltd. 40,000 438
Ryobi, Ltd. 13,000 67
Sagami Co. 29,000 211
Sagami Railway Co. 11,000 48
Sakura Bank 150,000 1,903
Sanden Corp. 11,000 71
Sangetsu Co. 6,000 151
Sankyo Aluminum 35,000 187
Sankyo Co. 32,000 719
Sankyo Seiko Co. 96,000 874
Sankyu, Inc. 180,000 744
Sanrio Co. 1,000 12
Sanshin Electronics 40,000 674
Sanwa Bank 78,000 1,586
Sanyo Electric Co., Ltd. 75,000 432
Sapporo Breweries 5,000 46
Secom Co. 2,000 139
Sega Enterprises 3,800 210
Seibu Railway Co. 6,000 279
Seino Transportation 13,000 218
Sekisui Chemical Co., Ltd. 59,000 869
Sekisui House, Ltd. 89,000 1,138
Settsu Corp. (a) 39,000 123
Seven-Eleven Japan NPV 2,000 141
Sharp Corp. 292,000 4,666
Shikoku Electric Power 35,700 823
61 INTERNATIONAL SECURITIES FUND
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Shin-Etsu Chemical Co. 16,000 $ 332
Shionogi & Co. 5,000 42
Shiseido Co., Ltd. 5,000 60
Showa Aircraft Industry 8,000 85
Showa Aluminium Co. 90,000 436
Showa Denko (a) 180,000 565
Showa Shell Sekiyu 37,300 312
Sintokogio 62,000 540
Skylark Co. 2,000 37
Snow Brand Milk 90,000 575
Sony Corp. 108,400 6,499
Sony Music Entertainment, Inc. 16,000 837
Sumitomo Bakelite Co., Ltd. 9,000 71
Sumitomo Bank 168,000 3,563
Sumitomo Corp. 157,000 1,597
Sumitomo Electric Industries 81,000 973
Sumitomo Forestry 84,000 1,285
Sumitomo Metal Industries, Ltd. (a) 632,000 1,916
Sumitomo Realty & Development 499,000 3,528
Sumitomo Rubber Industries 76,000 634
Sumitomo Sitix Corp. 56,000 1,020
Sumitomo Trust & Banking 119,000 1,683
Taisei Corp. 15,000 100
Taisho Pharmaceutical Co., Ltd. 5,000 99
Takashimaya Co. 45,000 719
Takeda Chemical Industries 15,000 247
Tanabe Seiyaku Co. 42,000 302
TDK Corp. 12,000 612
Teijin, Ltd. 182,000 931
Teikoku Oil 13,000 88
TOA Corp. 25,000 184
Tobu Railway Co. 55,000 344
Toenec Corp. 22,000 196
Toho Co. 1,300 208
Toho Gas Co. 100,000 323
Tohoku Electric Power 45,400 1,095
Tokio Marine & Fire 137,000 1,791
Tokyo Broadcasting 62,000 1,021
Tokyo Dome Corp. 3,000 51
Tokyo Electric Co., Ltd. (a) 224,000 1,102
Tokyo Electronics 8,000 310
Tokyo Ohka Kogyo 44,700 1,299
Tokyo Steel Manufacturing 19,000 350
Tokyo Tatemono Co., Ltd. 7,000 33
Tokyotokeiba Co. 6,000 25
Tokyu Construction 28,000 135
Tokyu Corp. 27,000 191
Tokyu Land Corp. 68,000 296
Tomen Corp. 130,000 480
Tonen Corp. 21,000 307
Toppan Printing 30,000 395
Tostem Corp. 2,000 66
Toto, Ltd. 3,000 42
Toyo Construction (a) 190,000 1,108
Toyo Engineering Co. 3,000 19
Toyo Trust & Banking 10,000 88
Toyota Motor Corp. 152,000 3,224
Tsubakimoto Chain 45,000 271
Uni-Charm Corp. 35,000 881
Victor Co. of Japan (a) 28,000 355
Wacoal Corp. 72,000 976
Yamaha Motor Co. 180,000 2,405
Yamaichi Securities Co. 127,000 988
Yamanouchi Pharmaceutica l4,000 86
Yamato Transport 13,000 155
Yamazaki Baking Co., Ltd. 36,000 669
Yaskawa Electric Corp. (a) 70,000 330
Yasuda Fire & Marine
Insurance Co., Ltd. (The) 150,000 1,061
Yasuda Trust & Banking 55,000 325
Yokogawa Electric Co. 11,000 104
Yokohama Rubber Co. 80,000 484
Yurtec Corp. 11,000 193
Zexel Corporation 80,000 544
---------
204,433
---------
MALAYSIA - 1.8%
Affin Holdings Berhad 297,000 573
Affin Holdings Berhad 1999 Warrants (a) 85,000 56
Berjaya Sports 104,000 242
Carlsberg Brewery Malaysia Berhad 35,000 164
Commerce Asset Holdings 97,000 489
Commerce Asset Holdings Rights (a) 43,333 112
Genting Berhad 50,000 418
Highlands & Lowlands 22,000 35
Magnum CP Berhad 7,500 14
Malayan Banking Berhad 750 6
Malayan United Industries 33,000 27
MBF Capital Berhad 170,000 172
Multi Purpose Holding 258,000 378
New Straits Times 170,000 569
Petronas Gas Berhad (a) 65,000 221
Renong Berhad 716,000 1,060
Resorts World Berhad 302,000 1,617
Selangor Properties 21,000 20
Sime Darby Berhad (Resident Shares) 425,800 1,132
Sime UEP Properties Berhad 80,000 116
62 INTERNATIONAL SECURITIES FUND
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Tan Chong Motor Holdings 484,000 $ 478
Technical Resource Industries Berhad (a) 262,000 774
Telekom Malaysia 156,000 1,216
United Engineers Berhad 178,000 1,135
--------
11,024
--------
MEXICO - 0.4%
Cemex SA de CV Class B NPV 33,360 121
Cemex SA de CV NPV 67,657 222
Cifra SA de CV - ADR (a) 292,640 307
Compania Cervecerias Unidas SA - ADR 2,702 62
Empresa Nacional de Electric - ADR 7,939 181
Fomento Economico Mexicano
SA de CV Series B NPV 56,047 126
Gruma SA Series B NPV (a) 25,169 71
Grupo Embotellador de Mexico (a) 70,612 120
Grupo Financiero Banamex AC
Series B NPV 76,168 128
Grupo Financiero Banamex AC
Series L NPV 925 1
Grupo Financiero Bancomer
Series C - GDS (a) 520 3
Grupo Industrial Maseca Series B NPV 148,656 91
Grupo Modelo SA Series C 11,920 56
Grupo Sidek Series B NPV (a) 47,520 21
Grupo Television SA de CV - GDR 8,557 193
Kimberly-Clark, Mexico Class A NPV 8,490 128
Pan American Beverage Class A 4,754 152
Telefonos de Mexico SA Series L - ADR 13,675 436
------
2,419
------
NETHERLANDS - 3.5%
ABN AMRO Holdings NV 23,245 1,059
Ahold-NV 14,396 588
AKZO Nobel NV 1,315 152
Boskalis Westminster CVA 14,128 202
CSM NV CVA 12,404 541
DSM NV (BR) 5,900 485
Elsevier NV 198,216 2,643
Fortis Amev NV 5,539 371
Hagemeyer NV 2,708 141
International Nederlanden CVA 23,437 1,566
KNP BT (Kon) NV 12,700 326
Kon Ptt Nederland 21,354 776
Nedlloyd Groep NV 10,800 245
Nutricia Verenigde Bedrijven CVA 2,354 190
Philips Electronics 15,600 564
Polygram 18,353 974
Randstad Holdings NV 7,000 318
Royal Dutch Petroleum Co. (BR) 35,587 4,972
Unilever NV CVA 10,900 1,532
Ver Ned Uitgevers 7,250 995
Wolters Kluwer CVA 37,058 3,506
--------
22,146
--------
NEW ZEALAND - 0.4%
Air New Zealand Class B 95,440 325
Carter Holt Harvey 218,855 472
DB Group, Ltd. (a) 92,500 54
Fernz Corp. 3,900 10
Fletcher Challenge, Ltd. 144,237 333
Fletcher Challenge, Ltd. (Forests Division) 80,275 114
Lion Nathan, Ltd. 217,156 518
Tasman Properties, Ltd. (a) 915,005 395
Telecom Corp. of New Zealand 51,600 223
Wrightson Limited 150,000 114
-------
2,558
-------
NORWAY - 1.1%
Aker AS Series A 1,600 22
Aker AS Series B 1,700 21
Bergesen DY AS Series A 9,110 181
Bergesen DY AS Series B 2,600 51
Den Norske Creditbank AS 53,700 141
Det Norske Luftsfartsverk AS Series B 3,100 137
Dyno Industrier AS 2,400 56
Elkem AS Series A 9,900 112
Hafslund Nycomed AS Series A 5,828 152
Hafslund Nycomed AS Series B 14,810 375
Kvaerner Industries AS 7,110 251
Kvaerner Industries AS Series B 1,750 59
NCL Holdings AS (a) 5,428 4
Norsk Hydro AS 68,354 2,871
Norske Skogindustrier AS Class A 1,400 41
Olav Thon Eiendomsselskap AS 18,300 303
Orkla AS New 15,861 789
Orkla AS Series B Free 700 33
Saga Petroleum AS Series A 1,900 25
Saga Petroleum AS Series B 6,610 82
Schibsted AS 50,100 680
Simrad AS Class B 11,200 124
Unitor AS 1,900 26
Veidekke AS 8,100 164
--------
6,700
--------
INTERNATIONAL SECURITIES FUND 63
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
PHILIPPINES - 0.0%
Enron Global Power & Pipelines L.L.C. 1,849 $ 46
---------
46
---------
PORTUGAL - 0.1%
Jeronimo Martins 6,796 377
---------
377
---------
SINGAPORE - 2.4%
Chuan HUP Holdings, Ltd. 136,000 123
City Developments 229,000 1,668
DBS Land 76,000 257
Development Bank (Alien Market) 100,000 1,244
Far East Levingston 16,000 75
First Capital Corp. 89,000 247
Fraser & Neave 78,000 993
Hai Sun Hup Group 155,000 104
Haw Par Brothers International, Ltd. 105,300 225
Hotel Properties 66,000 102
Inchcape Berhad 33,000 106
Jardine Matheson Holdings, Ltd. 112,003 767
Jardine Strategic Holdings, Ltd. 388,361 1,188
Jardine Strategic Holdings, Ltd.
1998 Warrants (a) 39,817 13
Jurong Shipyard 42,000 324
Keppel Corp. 136,000 1,211
Lum Chang Holdings 70,800 59
Metro Holdings, Ltd. 10,800 42
Natsteel, Ltd. 87,000 178
Neptune Orient Lines, Ltd. 181,000 203
Overseas Chinese Banking (Alien Market) 48,333 605
Overseas Union Bank (Alien Market) 61,100 421
Overseas Union Enterprises 32,000 162
Prima, Ltd. 7,000 27
Robinson & Co., Ltd. 22,000 92
Sembawang Shipyard 79,000 438
Shangri-La Hotel 6,000 23
Singapore Airlines, Ltd. (Alien Market) 41,000 383
Singapore Land 117,000 757
Singapore Press Holdings (Alien Market) 25,760 455
Straits Trading Co. 140,000 329
Times Publishing 39,000 90
Total Access Communication, Ltd. (a) 7,000 46
United Industrial Corp., Ltd. 690,000 678
United Overseas Bank, Ltd. (Alien Market) 78,966 759
United Overseas Bank, Ltd. 1997 Warrants (a) 15,866 64
United Overseas Land 229,000 435
WBL Corp., Ltd. 22,000 51
--------
14,944
--------
SOUTH KOREA - 0.3%
Bank of Seoul 13,000 113
Hanil Bank 11,000 118
Kookmin Bank 5,700 105
Kookmin Bank New (a) 2,117 38
Korea Electric Power Corp. 8,700 345
Pohang Iron & Steel 4,810 314
Samsung Electronics Co. (a) 678 119
Samsung Electronics Co. - GDR (a) 325 28
Samsung Electronics Co. - GDS (a) 7,020 410
Samsung Electronics Co. New (a) 48 9
Samsung Electronics, Ltd. 1,250 227
Yukong, Ltd. 3,571 123
Yukong, Ltd. New (a) 356 12
---------
1,961
---------
SPAIN - 2.8%
Argentaria 10,500 433
Asturiana Del Zinc (a) 4,586 37
Aumar (Aut Del Mar) 8,480 111
Banco Bilbao Vizcaya 18,436 664
Banco Central Hispano
Americano SA (Regd) 46,700 947
Banco de Santander SA (Regd) 57,094 2,867
Banco Exterior Espana 3,200 86
Banco Intercontinental (Regd) 6,375 620
Banco Pastor SA 3,000 158
Banco Popular Espanol (Regd) 5,247 968
Banco Zaragozano (Regd) 6,200 102
Bodegas Y Bebidas Series III (BR) 2,875 74
Centros Commerciales Pryca 39,100 820
Conserva Campofrio SA 950 32
Cristale Espanola (BR)(a) 3,789 212
Cubiertas Y Mzov 543 30
Dragados Y Construcciones SA 4,100 54
Ebro Agricolas 29,240 306
Empresa Nacional de Celulosas 11,900 193
Empresa Nacional de Electricidad 17,797 1,008
Fab Autom Renault 1,700 28
Fom Construction Y Contra 3,155 242
Fuerzas Electricat Series A 59,521 424
Gas Natural SDG SA 2,081 324
Grupo Anaya SA 2,200 48
Iberdrola SA 176,672 1,617
Koipe SA 1,212 71
Obrascon SA 8,000 97
Prosegur Compania (Regd) 8,000 199
Repsol SA 27,786 911
Sevillana de Electrica 38,366 298
64 INTERNATIONAL SECURITIES FUND
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Sociedad General Azucarera
de Espana SA de CV 12,271 $ 431
Tabacalera SA Series A (Regd) 20,569 780
Tableros de Fibras Series B 18,834 208
Telefonica de Espana 97,827 1,355
Union Electrica Fenosa 26,500 159
Uralita 17,750 161
Vallehermoso SA 4,266 79
Viscofan Envoltura 20,000 237
--------
17,391
--------
SWEDEN - 3.0%
Asea AB Series A 2,560 249
Astra AB Series A 146,180 5,835
Astra AB Series B 48,890 1,937
Atlas Copco AB Series B 14,740 222
Avesta-Sheffield 24,500 216
BT Industries AB (a) 30,000 330
Electrolux AB Series B 8,840 363
Esselte AB Series B Free 3,090 46
Foreninsbanken Kredit AB Series A (a) 161,000 456
Hennes & Mauritz AB Series B 7,500 418
Hoganas AB B Shares 14,000 409
Hufvudstaden Fast Series A 6,600 48
Incentive AB Series B Free 8,000 349
Investor AB Series A Free 1,500 49
Investor AB Series B Free 12,000 396
Kinnevik Investment Series B 23,500 734
Mo Och Domsjo AB Series B 800 34
Munksjo AB 40,900 268
OM Gruppen AB (a) 36,000 542
Sandvik AB Series B 15,050 264
Scribona AB Series B Free 3,060 33
Skand Enskilda Barken Series A 334,420 2,770
Skanska AB Series B Free 4,900 168
SKF AB Series A Free 14,000 265
SKF AB Series B Free 1,800 34
Stadshypotek AB Series A 10,000 200
Stora Kopparbergs Series B 12,350 148
Svenska Celluosa Series B Free 17,000 264
Svenska Handelsbank Series A 8,900 185
Telefonaktiebolaget Ericsson (LM)
Series B 54,560 1,068
Trelleborg AB Series B Free 39,800 429
Volvo AB Series B 11,050 226
---------
18,955
---------
SWITZERLAND - 3.8%
Baer Holdings AG (BR) 210 234
Baloise Holdings (Regd) 95 198
BBC Brown Boveri (BR) 1,009 1,172
Bil GT Gruppe AG 370 218
Ciba Geigy AG (BR) 50 44
Ciba Geigy AG (Regd) 1,996 1,757
CS Holdings (Regd) 17,740 1,819
Fischer (Georg) AG (BR) 495 644
Helvetia Schweizerische Vericherungs
- Gesellschaft (Regd) 200 104
Hilti AG 175 140
Holderbank Financiere Glarus AG (BR) 390 299
Nestle SA (Regd) 2,025 2,240
Phoenix Mecano (BR) 500 251
Richemont Series A (BR) 200 300
Roche Holdings Genusscheine AG NPV 519 4,106
Sandoz AG (Regd) 1,734 1,587
Sarna Kunststoff Holdings AG (Regd) 100 108
Schweiz Bankgesellsch (BR) 1,402 1,519
Schweiz Bankverein (BR) 3,897 1,591
Schweiz Bankverein (Regd) 1,501 306
Schweiz Ruckversicher (Regd) 1,057 1,230
SGS Holding (BR) 450 893
SGS Holding (Regd) 200 68
SMH AG Neuenburg (BR) 196 117
SMH AG Neuenburg (Regd) 3,700 484
Swissair (Regd)(a) 180 131
Winterthur (BR) 160 114
Winterthur (Regd) 560 396
Zurich Versicherungsgesellschaft (Regd) 5,525 1,652
---------
23,722
---------
THAILAND - 0.2%
Advanced Information Services
(Alien Market) 11,600 203
Bangkok Bank (Alien Market) 21,500 261
Bank of Ayudhya Public Co., Ltd.
(Alien Market) 23,300 131
Land & House (Alien Market) 5,000 82
Siam Cement Co. (Alien Market) 2,100 116
Siam Commercial Bank (Alien Market) 17,000 224
Thai Farmers Bank (Alien Market) 13,900 140
---------
1,157
---------
UNITED KINGDOM - 15.2%
Abbey National PLC 89,000 879
Airtours PLC 120,000 681
INTERNATIONAL SECURITIES FUND 65
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
Number Market
of Value
Shares (000)
------ ------
<S> <C> <C>
Allied Colloids PLC 175,000 $ 362
Amersham International PLC 10,000 138
Amstrad PLC 37,637 115
Argos PLC 58,000 537
Argyll Group PLC 353,341 1,866
ASDA-MFI Group PLC 1,023,220 1,764
Associated British Ports PLC 95,000 427
B.A.T. Industries PLC 196,724 1,732
BAA PLC 18,000 136
Barclays Bank PLC 130,000 1,490
Barratt Development PLC 11,800 45
BASS PLC 101,399 1,132
Berisford PLC 9,000 29
BICC PLC 55,000 235
BOC Group PLC 26,000 364
Boots Co. PLC 13,985 127
British & Commonwealth
Shipping PLC (a)(d) 23,000 0
British Aerospace PLC 114,246 1,412
British Gas PLC 176,600 697
British Land Co. PLC 13,871 82
British Petroleum Co. PLC 687,133 5,736
British Telecommunications PLC 230,560 1,264
BTR PLC 217,525 1,108
Bunzl PLC 17,041 53
Burton Group PLC 144,093 301
Cable & Wireless PLC 149,000 1,067
Cadbury Schweppes PLC 416,518 3,438
Caradon PLC 222,916 677
Carlton Communications PLC 2,160 32
Charter PLC (Regd) 5,079 68
Chubb Security PLC 95,000 470
Coats Viyella PLC 48,000 130
Compass Group PLC 37,000 282
Costain Group PLC (a) 113,766 125
Cowie Group PLC 97,812 437
Dalgety PLC 70,000 441
Dixon Group PLC 21,661 149
E D & F Man Group PLC 110,000 237
East Midlands Electricity PLC 35,080 363
Electrocomponents PLC 23,000 128
English China Clay PLC 24,724 122
First Leisure Corp. PLC 85,000 503
Forte PLC 318,044 1,632
General Electric Co. PLC 160,508 882
GKN PLC 9,000 109
Glaxo Wellcome PLC 477,198 6,781
Glynwed International PLC 64,700 321
Granada Group PLC 104,000 1,042
Grand Metropolitan PLC 216,010 1,555
Great Portland Estates PLC 89,882 243
Great University Stores PLC 9,596 102
Greenalls Group PLC 28,360 260
Guardian Royal Exchange PLC 161,600 693
Guinness PLC 163,900 1,205
HSBC Holdings PLC 43,000 671
Hammerson Property PLC 100,953 553
Hanson PLC 271,000 808
Heywood Williams Group PLC 21,041 81
Hillsdown Holdings PLC 229,695 606
Huntingdon International Holdings
PLC - ADR (a) 92,000 506
Imperial Chemical Industries PLC 94,314 1,117
Inchcape PLC 62,200 241
Invesco PLC 219,000 862
Kingfisher PLC 161,142 1,356
Ladbroke Group, Ltd. PLC 280,076 637
Laing (John) PLC Class A NV 43,000 184
LASMO PLC 116,270 314
London Clubs International 80,000 524
London Electricity PLC 58,637 522
London International Group PLC 28,074 56
Lonrho PLC 163,205 446
Manchester United PLC 100,000 301
Marks & Spencer PLC 82,122 574
MEPC PLC 78,540 481
MFI Furniture Group PLC 107,800 268
Midlands Electric PLC 13,339 157
National Grid Group PLC (a) 113,216 350
National Power PLC 95,638 668
National Westminster Bank PLC 201,000 2,024
Northern Foods PLC 21,658 58
Ocean Group PLC 8,900 54
Pearson PLC 51,000 494
Pen & Orient DFD PLC 105,693 781
Pilkington Brothers PLC 158,273 497
Pilkington PLC New (a) 39,568 124
Polly Peck International
Holdings PLC (a)(d) 200,054 0
Powergen PLC 23,987 198
Provident Financial PLC 36,000 458
Racal Electronics PLC 191,000 844
Rank Organisation PLC 72,500 525
Reckitt & Colman PLC 56,357 624
Redland PLC 36,199 218
Reed International PLC 87,940 1,340
Reuter's Holdings PLC 71,981 659
Rexam PLC 44,000 242
</TABLE>
66 INTERNATIONAL SECURITIES FUND
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
Rolls-Royce PLC 169,037 $ 494
Royal Bank of Scotland Group PLC 91,000 828
RTZ Corp. PLC (Regd) 97,500 1,417
Sainsbury (J.) PLC 132,278 806
Scottish Hydro-Electric PLC 48,000 268
Scottish Power PLC 6,333 36
Sears PLC 460,281 743
Securicor Group PLC Class A 4,238 58
Shell Transportation & Trading
PLC (Regd) 149,700 1,980
Smith & Nephew PLC 72,735 211
Smith (David S.) Holdings PLC 65,500 289
SmithKline Beecham PLC Class A 126,901 1,399
SmithKline Beecham/BEC Units PLC 245,565 2,677
South West Water PLC 64,500 520
Spring Ram Corp. PLC 23,222 9
Stagecoach Holdings PLC 115,000 634
Standard Chartered Bank Group PLC 55,000 468
Storehouse PLC 47,149 245
Sun Alliance Group PLC 62,000 360
T & N PLC 140,648 354
Tarmac, Ltd. PLC 602,336 964
Taylor Woodrow PLC 490,722 895
Tesco Store Holdings PLC 135,029 623
Thorn EMI PLC 18,743 441
Tomkins PLC 294,500 1,287
Trafalgar House PLC (a) 313,616 135
Trinity Holdings PLC 80,000 441
TSB Group PLC (a) 148,720 766
Unilever PLC 26,346 541
United Biscuits PLC 109,028 433
United Newspaper, Ltd. PLC 70,200 604
Vendome PLC 53,000 483
Vickers, Ltd. PLC 87,000 343
Vodafone Group PLC 885,800 3,178
Welsh Water PLC 31,250 376
Whitbread & Co. PLC 35,238 372
Willis Corroon Group PLC 69,000 151
Wimpey (George), Ltd. PLC 39,047 87
Wolseley PLC 1,179 8
WPP Group PLC 215,000 548
Yorkshire Electricity PLC 35,900 372
Zeneca Group PLC 15,000 290
-------
94,763
-------
TOTAL COMMON STOCKS
(cost $521,606) 577,326
-------
CONVERTIBLE PREFERRED STOCKS - 0.0%
UNITED KINGDOM - 0.0%
Trafalgar House PLC (a) 215,000 184
-------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $380) 184
-------
PREFERRED STOCKS - 1.0%
AUSTRALIA - 0.2%
News Corp., Ltd. 71,764 336
Sydney Harbour Casino Holdings, Ltd. (a) 569,968 720
-------
1,056
-------
AUSTRIA - 0.0%
Bau Holdings AG 1,500 56
Creditanstalt Bankverein 2,053 106
Z Landerbank Bank Austria AG 1,039 50
-------
212
-------
BRAZIL - 0.2%
Banco Bradesco SA NPV 26,884,742 235
Banco Itau SA (Regd) 253,000 71
Brahma (cia Cervej) NPV 379,465 156
Brasmotor SA NPV 445,000 88
CEMIG SA 4,389,910 97
Cim Port Itau (Cia) 313,600 75
Coteminas (Cia Tec) NPV 312,000 104
Lojas Americanas NPV 4,389,000 103
Petrol Brasileiros NPV 713,990 61
Telec SP Telesp NPV 881,356 130
Telecomunicacoes Brasileiras NPV 94,858 5
Uniao de Bancos Brasileiros NPV 2,307,000 90
Usiminas Uni Sd Mg NPV 154,000,000 125
-------
1,340
-------
FRANCE - 0.0%
Legrand 1,250 125
-------
125
-------
GERMANY - 0.5%
Bayer Motoren Werk 600 217
Fielmann AG 1,250 65
GEA AG 460 141
Henkel 460 173
Hornbach Holding AG 2,150 187
Jungheinrich 900 128
Krones AG NV 1,147 455
International Securities Fund 67
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
Lufthansa AG NV 1,200 $ 156
Porsche AG (a) 700 365
SAP AG 3,650 552
Volkswagen AG NV 200 48
Wella AG 550 296
-------
2,783
-------
ITALY - 0.1%
Autostrade Conc. SPA 140,000 153
Fiat SPA (Priv) 196,000 358
-------
511
-------
NETHERLANDS - 0.0%
International Nederlanden CVA 2,274 12
-------
12
-------
TOTAL PREFERRED STOCKS
(cost $6,149) 6,039
-------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)
---------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.9%
BELGIUM - 0.0%
Kredietbank (conv.)
5.750% due 12/31/03 BEF 1,125 45
-------
45
-------
FRANCE - 0.0%
Michelin (Cie Gle)(conv.)
2.500% due 01/01/01 FRF 191 103
-------
103
-------
ITALY - 0.0%
Danieli & Co. (conv.)
7.250% due 01/01/00 ITL 20,100 $ 11
-------
11
-------
JAPAN - 0.8%
Bank of Tokyo - Cayman Finance, Ltd.
(Perpetual Maturity)
4.250% due 03/31/49 JPY 270,000 3,609
Hitachi, Ltd. (conv.)
2.700% due 03/31/97 40,000 496
Izumiya Co. (conv.)
0.800% due 08/31/99 $ 45,000 $ 510
Yamanouchi Pharmacutical (conv.)
1.250% due 03/31/14 20,000 223
-------
4,838
-------
SWITZERLAND - 0.1%
Sandoz Capital (conv.)
1.250% due 10/23/02 CHF 650 636
-------
636
-------
TOTAL LONG-TERM INVESTMENTS
(cost $5,009) 5,633
-------
SHORT-TERM INVESTMENTS - 3.8%
UNITED STATES - 3.8%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 23,702 23,702
-------
TOTAL SHORT-TERM INVESTMENTS
(cost $23,702) 23,702
-------
TOTAL INVESTMENTS
(identified cost $556,846)(c) - 98.3% 612,884
OTHER ASSETS AND LIABILITIES,
NET - 1.7% 10,505
-------
NET ASSETS - 100.0% $623,389
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes was $560,781
and net unrealized appreciation for all securities was $52,103. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $86,491 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $34,388.
(d) Securities are currently undergoing bankruptcy proceedings and present
negligible market value.
68 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
All-Ordinaries Index
Futures Contracts (Australia)
expiration date 03/96 14 $ (1)
CAC - 40 Index
Futures Contracts (France)
expiration date 03/96 16 17
DAX - 30 Index
Futures Contracts (Germany)
expiration date 03/96 10 (19)
FTSE - 100 Index
Futures Contracts (UK)
expiration date 03/96 35 47
Hang Seng Index
Futures Contracts (Hong Kong)
expiration date 03/96 11 13
TOPIX Index
Futures Contracts (Japan)
expiration date 03/96 70 374
-------------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (***) $ 431
-------------
-------------
</TABLE>
(***) At December 31, 1995, United States Treasury Notes, due 12/31/95,
valued at $4,000 were held as collateral by the custodian in connection
with futures contracts purchased by the Fund. The settlement amount of
these matured notes is included in Receivable for Investments Sold on the
Statement of Assets and Liabilities.
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSESTS (000)
- ---------------------------------- ------- ----------
<S> <C> <C>
Basic Industries 8.2% $ 51,001
Capital Goods 8.6 53,389
Consumer Basics 11.9 73,895
Consumer Durable Goods 6.8 42,498
Consumer Non-Durables 6.4 39,922
Consumer Services 2.3 14,120
Energy 4.9 30,821
Finance 18.1 112,909
General Business 5.5 34,100
Miscellaneous 6.6 40,903
Shelter 3.2 20,046
Technology 3.7 23,243
Transportation 1.4 9,064
Utilities 6.0 37,638
Long-Term Investments 0.9 5,633
Short-Term Investments 3.8 23,702
------- ----------
Total Investments 98.3 612,884
Other Assets and Liabilities, Net 1.7 10,505
------- ----------
NET ASSETS 100.0% $ 623,389
------- ----------
------- ----------
</TABLE>
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- ----------------------------------- ------- ----------
<S> <C> <C>
Japan 33.6% $ 209,271
Europe 31.1 194,222
United Kingdom 15.2 94,947
Pacific Basin 12.8 79,982
Latin America 1.1 6,697
Other 0.7 4,063
Short-Term Investments 3.8 23,702
------- ----------
Total Investments 98.3 612,884
Other Assets and Liabilities, Net 1.7 10,505
------- ----------
NET ASSETS 100.0% $ 623,389
------- ----------
------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Securities Fund 69
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost
$556,845,725)(Note 2)..................................... $ 612,884,179
Foreign currency holdings (identified cost $5,587,801)..... 5,842,125
Forward foreign currency exchange contracts
(cost $51,586,378)(Notes 2 and 6)......................... 51,447,417
Foreign currency exchange spot contracts
(cost $1,036,258)(Notes 2 and 6).......................... 1,036,146
Receivables:,
Dividends and interest................................... 1,143,724
Investments sold......................................... 5,303,391
Fund shares sold......................................... 2,133,300
Foreign taxes recoverable................................ 765,738
Short-term investments held as collateral for
securities loaned, at market (Note 3)..................... 3,673,642
-------------
684,229,662
LIABILITIES
Payables:
Investments purchased......................... $ 3,914,079
Fund shares redeemed.......................... 407,267
Accrued bookkeeping service fees (Note 4)..... 17,420
Accrued management fees (Note 4).............. 496,277
Accrued transfer agent fees (Note 4).......... 45,956
Other accrued expenses and payables........... 286,371
Daily variation margin on futures contracts
(Notes 2 and 3).............................. 19,052
Forward foreign currency exchange contracts
(cost $51,586,378)(Notes 2 and 6).............. 50,944,813
Foreign currency exchange spot contracts
(cost $1,036,258)(Notes 2 and 6)............... 1,036,242
Collateral on securities loaned,
at market (Note 3)............................. 3,673,642 60,841,119
----------- -------------
NET ASSETS................................................... $ 623,388,543
-------------
-------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income $ (2,395,248)
Accumulated net realized gain (loss)....................... 4,758,770
Unrealized appreciation (depreciation) on:
Investments.............................................. 56,038,454
Futures contracts........................................ 431,831
Foreign currency-related transactions.................... 503,437
Shares of beneficial interest.............................. 110,123
Additional paid-in capital................................. 563,941,176
-------------
NET ASSETS................................................... $ 623,388,543
-------------
-------------
Net asset value, offering and redemption price per share
($623,388,543 divided by 11,012,306 shares of $.01 par value
shares of beneficial interest outstanding)................. $56.61
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
70 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends................................................... $ 13,241,739
Dividends from Money Market Fund (Note 5)................... 1,603,964
Interest.................................................... 494,290
Less foreign taxes withheld................................. (1,699,839)
------------
13,640,154
Expenses (Notes 2 and 4):
Management fees................................ $ 5,723,534
Custodian fees................................. 1,520,293
Transfer agent fees............................ 333,651
Bookkeeping service fees....................... 165,549
Professional fees.............................. 42,746
Registration fees.............................. 62,351
Trustees' fees................................. 4,517
Miscellaneous.................................. 56,595
------------
Expenses before waivers........................ 7,909,236
Expenses waived by Manager..................... (83,475) 7,825,761
------------ ------------
Net investment income......................................... 5,814,393
------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments.................................................. 23,860,138
Futures contracts............................................ 208,923
Foreign currency-related transactions........................ 260,551
Net change in unrealized appreciation or depreciation of:
Investments.................................................. 29,328,416
Futures contracts............................................ 431,831
Foreign currency-related transactions........................ 781,608
------------
Net gain (loss) on investments................................ 54,871,467
------------
Net increase (decrease) in net assets resulting from operations $ 60,685,860
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Securities Fund 71
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income.......................... $ 5,814,393 $ 3,738,629
Net realized gain (loss) from:
Investments.................................. 23,860,138 59,472,591
Futures contracts............................ 208,923 --
Foreign currency-related transactions........ 260,551 (2,534,203)
Net change in unrealized appreciation
or depreciation of:
Investments.................................. 29,328,416 (41,059,424)
Futures contracts............................ 431,831 --
Foreign currency-related transactions........ 781,608 (958,114)
------------- -------------
Net increase (decrease) in net assets
resulting from operations...................... 60,685,860 18,659,479
Distributions to shareholders:
Net investment income.......................... (9,375,452) (359,274)
In excess of net investment income............. (2,395,248) (199,502)
Net realized gain on investments............... (18,007,535) (61,808,165)
Increase (decrease) in net assets from fund
Share transactions............................ 29,147,560 152,558,729
------------- -------------
INCREASE (DECREASE) IN NET ASSETS............... 60,055,185 108,851,267
Net assets at beginning of year................. 563,333,358 454,482,091
------------- -------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess
of net investment income of $2,395,248
and $199,502, respectively).................... $ 623,388,543 $ 563,333,358
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Fund shares sold........ 3,789,941 $ 207,530,515 4,244,850 $ 257,139,963
Fund shares issued to
shareholders in
reinvestments of
distributions.......... 370,011 20,569,490 840,864 44,431,854
Fund shares redeemed.... (3,586,875) (198,952,445) (2,488,621) (149,013,088)
---------- ------------- ---------- -------------
Net increase (decrease). 573,077 $ 29,147,560 2,597,093 $ 152,558,729
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
72 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 53.96 $ 57.95 $ 44.75 $ 49.15 $ 44.60
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............ .56 .44 .40 .61 .72
Net realized and unrealized gain
(loss) on investments (a)....... 4.89 1.23 14.53 (4.02) 4.60
------- ------- ------- ------- -------
Total Income From
Investment Operations............ 5.45 1.67 14.93 (3.41) 5.32
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income............ (.88) (.04) (.38) (.68) (.76)
In excess of net
investment income............... (.23) (.02) (.23) -- --
Net realized gain on investments. (1.69) (5.60) (1.12) (.31) (.01)
------- ------- ------- ------- -------
Total Distributions.............. (2.80) (5.66) (1.73) (.99) (.77)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR...... $ 56.61 $ 53.96 $ 57.95 $ 44.75 $ 49.15
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%).................. 10.20 4.86 33.48 (6.94) 11.99
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets.............. 1.30 1.30 1.38 1.45 1.49
Operating expenses, gross,
to average net assets........... 1.31 1.33 1.42 1.47 1.49
Net investment income to
average net assets.............. .97 .70 .82 1.37 1.68
Portfolio turnover............... 42.96 72.23 60.22 48.93 52.46
Net assets, end of year
($000 omitted).................. 623,389 563,333 454,482 262,886 243,065
Per share amount of fees
waived ($ omitted)............. .0080 .0178 .0161 .0054 --
</TABLE>
(a) Provision for federal income tax for the year ended December 31, 1991
amounted to $.03 per share.
International Securities Fund 73
<PAGE>
INTERNATIONAL SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 INTERNATIONAL SECURITIES MSCI EAFE** LIPPER-C- INTERNATIONAL++
- ----------------- ------------------------ ----------- -------------------------
<S> <C> <C> <C>
Inception* $10,000 $10,000 $10,000
1986 $14,854 $16,994 $15,034
1987 $17,214 $21,231 $16,865
1988 $21,010 $27,301 $19,661
1989 $25,682 $30,249 $24,085
1990 $21,743 $23,233 $21,208
1991 $24,350 $26,136 $23,845
1992 $22,659 $23,039 $22,857
1993 $30,246 $30,629 $31,905
1994 $31,717 $33,097 $31,583
1995 $34,953 $36,921 $34,497
</TABLE>
International Securities Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ----------------- ----------- ------------
<S> <C> <C>
1 Year $ 11,020 10.20%
5 Years $ 16,075 9.95%***
10 Years $ 34,953 13.33%***
</TABLE>
MSCI EAFE Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ----------------- ----------- ------------
<S> <C> <C>
1 Year $ 11,155 11.55%
5 Years $ 15,892 9.71%***
10 Years $ 36,921 13.95%***
</TABLE>
Lipper-C- International Funds Average
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ----------------- ----------- ------------
<S> <C> <C>
1 Year $ 10,923 9.23%
5 Years $ 16,266 10.22%***
10 Years $ 34,497 13.18%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Morgan Stanley Capital International Europe, Australia, Far East Index is
an index composed of an arithmetic, market value-weighted average of the
performance of over 1,100 securities listed on the stock exchanges of the
countries of Europe, Australia, and the Far East. The index is calculated
on a total-return basis, which includes reinvestment of gross dividends
before deduction of withholding taxes.
++ Lipper-C- International Funds Average is the average total return for the
universe of funds within the International Funds investment objective. The
total return for the funds reflects adjustments for income dividends and
capital gains distributions reinvested as of the ex-dividend dates.
INTERNATIONAL SECURITIES FUND returned 10.2% for 1995, trailing the Morgan
Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index
return of 11.6%. The portfolio was managed in a manner consistent with its
objective to provide favorable total return with reduced volatility using a
multi-style, multi-manager strategy. The Fund offers a high degree of
diversification among countries and currencies, which typically results in a low
correlation with US equities and reduced portfolio volatility.
Non-US markets lagged the US market by a wide margin in most cases during 1995.
The Swiss market was the one notable exception, with a return of over 42%,
including a 14% appreciation of the Swiss franc over the dollar. Japan was the
weakest market, down over 1% for the year, as it continued to struggle with an
economic recession and banking sector woes. The Fund was underweighted in Swiss
stocks for most of 1995 and also underweighted in large Japanese banks late in
the year. Both were factors in the Fund trailing the index. However, it was able
to outperform the average manager, with the Lipper-Registered Trademark-
International Funds Average up only 9.2%.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Investments in securities of non-US issuers and foreign currencies involve
investment risks different from those of US issuers. The Prospectus contains
further information and details regarding these risks.
74 International Securities Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
LONG-TERM INVESTMENTS - 97.9%
ASSET-BACKED SECURITIES - 5.5%
Advanta Home Equity Loan Trust
9.000% due 02/25/06 $ 107 $ 111
Case Equipment Loan Trust
Series 1995-B Class A3
6.150% due 09/15/02 2,500 2,526
Chevy Chase Auto Receivables Trust
Series 1995-2 Class A
5.800% due 06/15/02 545 546
Contimortgage Home Equity Loan
Series 1994-3 Class A-4
7.850% due 06/01/24 714 737
Series 1994-4 Class A-6
8.270% due 12/15/24 551 578
Contimortgage Home Equity Loan Trust
Mortgage Pass-thru Certificate
Series 1995-1 Class A2-A
8.600% due 06/15/25 350 365
Daimler-Benz Auto Grantor Trust
Series 1995-A Class A
5.850% due 05/15/02 346 348
Discover Card Trust
Series 1991 Class F-A
7.850% due 11/21/00 780 820
Series 1992-B Class A
6.800% due 06/16/00 635 650
DR Structured Finance Corp.
Series 1994-K1 Class A-1
7.600% due 08/15/07 616 388
First Chicago Master Trust II
Credit Card Certificates
Series 1994-L
7.150% due 04/15/01 2,520 2,646
Green Tree Financial Corp.
Series 1995-A Class A
7.250% due 07/15/05 556 563
Lehman Pass-thru Securities, Inc.
Series 1991-2 Class A-1
8.000% due 03/20/99 98 101
Premier Auto Trust
Series 1994-4 Class A-5
6.650% due 08/15/00 5,190 5,287
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1992 Class A-3
10.600% due 05/25/24 (c) 851 861
Series 1992-M2 Class A-4
8.465% due 03/25/20 35 36
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1994-C1 Class D
8.000% due 06/25/26 476 486
Series 1994-C2 Class D
8.000% due 04/25/25 390 398
Series 1995-C1 Class C
6.920% due 02/25/27 (c) 350 347
Sears Savings Bank
Mortgage Pass-thru Certificate
Series 1992-A Class A
8.720% due 05/25/32 (c) 1,258 1,257
Standard Credit Card Master Trust I
Series 1995-8 Class A
6.700% due 09/07/02 3,845 3,921
Series 1995-10 Class A
5.900% due 02/07/01 1,475 1,489
TMS Home Equity Loan Trust
Series 1994-D Class A-4
8.750% due 01/15/21 700 757
Wal Mart Stores, Inc.
Series 1994-B3
8.800% due 12/30/14 315 374
World Omni Automobile Lease
Securitization Trust
Series 1995-A Class A
6.050% due 11/25/01 2,675 2,691
-------
28,283
-------
CORPORATE BONDS AND NOTES - 16.8%
American Brands, Inc.
8.625% due 11/15/21 420 507
American Express Co.
8.500% due 08/15/01 255 286
American General Finance Corp.
8.250% due 01/15/98 500 525
7.250% due 03/01/98 455 471
8.500% due 08/15/98 260 278
AMR Corp.
9.500% due 05/15/01 150 170
Analog Devices, Inc.
6.625% due 03/01/00 125 127
Appalachian Power Co. (MTN)
8.500% due 12/01/22 395 479
Aristar, Inc.
6.300% due 07/15/00 1,020 1,037
Diversified Bond Fund 75
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Associates Corp. of North America
6.250% due 03/15/99 $ 1,010 $ 1,026
AT&T Corp.
8.625% due 12/01/31 220 256
Atlantic Richfield Co.
9.125% due 08/01/31 275 361
AVCO Financial Services, Inc.
7.250% due 07/15/99 275 288
8.500% due 10/15/99 405 440
Bank of New York, Inc.
7.875% due 11/15/02 350 385
Bank One, Columbus, Ohio
7.375% due 12/01/02 120 127
BankAmerica Corp.
6.850% due 03/01/03 425 442
Barnett Bank, Inc.
6.900% due 09/01/05 200 208
Bear Stearns Co., Inc.
6.750% due 08/15/00 750 771
Bell Telephone Co. of Pennsylvania
8.350% due 12/15/30 355 446
BellSouth Telecommunications
7.625% due 05/15/35 255 272
Beneficial Corp.
8.400% due 05/15/08 1,235 1,508
C.I.T. Group Holdings, Inc. (MTN)
7.000% due 09/30/97 970 994
Case Corp.
7.250% due 08/01/05 330 348
Caterpillar Financial Services (MTN)
9.500% due 02/06/07 420 523
Central Fidelity Banks, Inc.
8.150% due 11/15/02 170 188
Champion International Corp.
7.700% due 12/15/99 530 562
Chemical Banking Corp.
10.375% due 03/15/99 155 174
10.125% due 11/01/00 200 235
Chesapeake & Potomac Telephone Co.
8.375% due 10/01/29 230 288
Chrysler Financial Corp.
9.500% due 12/15/99 275 309
Citicorp
9.500% due 02/01/02 120 140
7.125% due 06/01/03 390 410
Coastal Corp.
10.375% due 10/01/00 120 140
Coca-Cola Enterprises, Inc.
8.500% due 02/01/22 475 569
Commercial Credit Group, Inc.
5.750% due 07/15/00 295 293
8.700% due 06/15/10 380 472
Commonwealth Edison Co.
Series 85
7.375% due 09/15/02 945 999
Connecticut Light & Power Co.
7.875% due 10/01/24 790 911
Consolidated Natural Gas Co.
8.625% due 12/01/11 200 211
Consolidated Rail Corp.
Pass-thru Certificate Structured Note
Series 1995 Class A
6.760% due 05/25/15 499 514
CoreStates Capital Corp.
5.875% due 10/15/03 205 199
CSFB Finance Co., Ltd.
Series 1995-A Class A
7.000% due 11/15/05 450 449
Dayton Hudson Corp. (MTN)
9.350% due 06/16/20 295 358
Discover Credit Corp. (MTN)
8.350% due 04/27/99 360 384
Dole Food Co., Inc.
6.750% due 07/15/00 170 172
Duke Power Co.
7.000% due 07/01/33 695 703
Eaton Corp.
7.000% due 04/01/11 315 314
Equitable Life Assurance Society
6.950% due 12/01/05 775 786
7.700% due 12/01/15 800 814
ERP Operating, L.P.
8.500% due 05/15/99 850 901
Evans Whitycombe Trust
Series 1994 Class A-1
7.980% due 08/01/01 600 647
Federal Express Corp.
Series 1993 Class B1
6.680% due 01/01/08 600 602
First Chicago Corp.
8.875% due 03/15/02 505 575
First Fidelity Bancorp
9.625% due 08/15/99 255 287
76 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
First Interstate Bancorp (MTN)
9.375% due 01/23/02 $ 135 $ 155
First Union Corp.
6.550% due 10/15/35 1,550 1,612
Fleet Financial Group, Inc.
8.125% due 07/01/04 525 586
Ford Motor Credit Co.
7.750% due 10/01/99 1,505 1,598
Ford Motor Credit Co. (MTN) CMS Floater
4.820% due 07/12/96 (c) 325 323
General Electric Capital Corp.
8.300% due 09/20/09 235 281
General Motors Acceptance Corp.
6.625% due 10/01/02 1,550 1,593
General Motors Acceptance Corp. (MTN)
8.650% due 04/11/96 1,500 1,511
8.000% due 12/05/96 1,000 1,023
Georgia-Pacific Corp.
7.375% due 12/01/25 350 349
Goldman Sachs Group, L.P.
6.875% due 09/15/99 675 691
6.375% due 06/15/00 465 470
6.200% due 12/15/00 425 426
Hanson America, Inc. (conv.)
2.390% due 03/01/01 550 457
Hertz Corp.
7.000% due 04/15/01 790 826
9.000% due 11/01/09 230 284
Household Finance Corp.
6.375% due 06/30/00 1,200 1,223
International Lease Finance Corp.
5.750% due 01/15/99 455 456
ITT Financial Corp.
7.400% due 11/15/25 505 530
ITT Financial Corp. New
6.250% due 11/15/00 340 343
Liberty Mutual Insurance Co.
8.200% due 05/04/07 725 805
8.500% due 05/15/25 500 556
May Department Stores Co.
9.875% due 12/01/02 400 483
Merry Land & Investment, Inc.
7.250% due 06/15/05 750 772
Minnesota Mutual Life Insurance Co.
8.250% due 09/15/25 750 817
Motorola, Inc.
7.500% due 05/15/25 325 367
Nabisco, Inc.
6.700% due 06/15/02 260 264
NationsBank Corp.
6.625% due 01/15/98 170 173
New England Mutual Life Insurance Co.
7.875% due 02/15/24 1,550 1,601
New England Power Co. Series U
8.000% due 08/01/22 620 674
New England Telephone & Telegraph Co.
7.875% due 11/15/29 235 277
News America Holdings, Inc.
7.700% due 10/30/25 975 997
Noranda, Inc.
8.625% due 07/15/02 70 79
Northwestern Bell Telephone Co.
7.750% due 05/01/30 630 710
Norwest Corp. (MTN)
6.375% due 09/15/02 575 587
Norwest Financial, Inc.
6.250% due 11/01/02 525 533
NWA Trust
10.230% due 06/21/14 732 854
NYNEX Corp.
9.550% due 05/01/10 422 495
Occidental Petroleum Corp.
10.125% due 11/15/01 210 251
Occidental Petroleum Corp. (MTN)
8.500% due 11/09/01 245 274
Ohio Edison Co. 1st Mortgage
8.500% due 05/01/96 1,000 1,008
Pennsylvania Power & Light Co.
6.875% due 03/01/04 1,000 1,044
Pennzoil Co.
10.125% due 11/15/09 85 108
PepsiCo, Inc.
7.625% due 12/18/98 285 301
Philip Morris Cos., Inc.
8.875% due 07/01/96 2,500 2,541
8.750% due 06/01/01 675 756
Phillips Petroleum Co.
9.375% due 02/15/11 490 613
Pitney Bowes Credit Corp.
8.550% due 09/15/09 460 556
Praxair, Inc.
6.850% due 06/15/05 550 571
Procter & Gamble Co.
8.000% due 10/26/29 145 173
Diversified Bond Fund 77
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Procter & Gamble Co.
Sharing ESOP Series A
9.360% due 01/01/21 $ 275 $ 351
Ralston Purina Co.
7.875% due 06/15/25 565 615
Republic New York Corp.
9.750% due 12/01/00 190 220
8.250% due 11/01/01 150 167
RJR Nabisco, Inc.
8.625% due 12/01/02 735 766
Rockwell International Corp.
8.875% due 09/15/99 255 282
Salomon, Inc.
7.000% due 01/20/98 600 607
Salomon, Inc. (MTN)
6.360% due 04/01/98 700 701
6.125% due 05/15/98 50 50
6.820% due 07/26/99 75 76
Seagram Co., Ltd.
8.350% due 01/15/22 220 256
Shopping Center Associates
6.750% due 01/15/04 750 748
SKW Real Estate, L.P. Class C
7.450% due 04/15/03 850 853
Smith Barney Holdings, Inc.
7.980% due 03/01/00 925 992
Southern California Edison Co.
Series 1986-C
8.625% due 04/15/19 230 242
System Energy Resources, Inc.
6.000% due 04/01/98 675 676
Taubman Realty Group, L.P.
8.000% due 06/15/99 850 891
Tenneco, Inc.
10.000% due 03/15/08 415 534
Texaco Capital, Inc.
9.750% due 03/15/20 190 260
8.875% due 09/01/21 220 281
Texas Utilities Electric Co.
9.500% due 08/01/99 805 888
Time Warner Entertainment Co., L.P.
10.150% due 05/01/12 350 434
8.375% due 03/15/23 575 619
8.375% due 07/15/33 1,975 2,108
Time Warner, Inc.
6.835% due 08/15/00 (c) 500 503
7.975% due 08/15/04 300 318
8.110% due 08/15/06 600 639
8.180% due 08/15/07 600 644
Transamerica Financial Corp.
8.375% due 02/15/98 210 221
Transamerica Financial Corp. (MTN)
8.900% due 02/15/96 410 411
9.250% due 02/16/98 500 535
U.S. Bancorp of Oregon
7.000% due 03/15/03 470 489
Union Carbide Chemicals & Plastics
7.875% due 04/01/23 590 656
Union Oil Co. (MTN)
9.400% due 02/15/11 470 590
United Airlines, Inc.
10.250% due 07/15/21 1,250 1,564
United Technologies Corp.
8.750% due 03/01/21 380 474
US West Communications, Inc.
7.250% due 10/15/35 875 911
Virginia Electric & Power Co.
8.750% due 04/01/21 200 239
Wachovia Corp. New
6.800% due 06/01/05 305 318
Wellsford Residential Property Trust
9.375% due 02/01/02 750 841
Weyerhaeuser Co.
8.500% due 01/15/25 500 615
Whirlpool Corp.
9.000% due 03/01/03 220 256
9.500% due 06/15/00 250 285
Wilmington Trust
10.370% due 01/02/07 1,964 2,305
--------
86,289
--------
EURODOLLAR BONDS - 0.2%
Euratom
7.750% due 01/15/97 1,200 1,228
--------
1,228
--------
MORTGAGE-BACKED SECURITIES - 37.6%
American Southwest Financial Corp.
Series G Class G-4 CMO
12.250% due 11/01/14 363 410
Citicorp Mortgage Securities, Inc.
Series 1992-1 Class A-5
8.000% due 04/25/21 2,689 2,713
Collateralized Mortgage Obligation
Trust 56 Class B CMO
9.985% due 12/01/18 327 357
78 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
DLJ Mortgage Acceptance Corp.
Series 1993 Class A-2 CMO
7.650% due 09/18/03 $ 2,500 $ 2,604
FDIC REMIC Trust
Series 1994-C1 Class 2A-2
7.850% due 09/25/25 850 876
Federal Home Loan Mortgage Corp.
Participation Certificate
Group #17-0171 9.000% due 06/01/16 417 441
Group #17-0195 9.000% due 10/01/16 142 150
Group #17-0197 9.000% due 10/01/16 18 19
Group #17-0202 9.000% due 11/01/16 392 414
Group #17-0203 9.000% due 11/01/16 203 215
Group #18-1338 8.000% due 05/01/08 192 199
Group #18-2098 8.000% due 11/01/08 33 35
Group #18-2161 6.750% due 08/01/07 562 565
Group #18-6664 8.500% due 02/01/08 256 267
Group #21-7242 7.000% due 05/01/02 109 111
Group #26-0607 12.000% due 06/01/14 121 137
Group #28-4634 9.000% due 01/01/17 14 14
Group #30-0025 12.500% due 04/01/16 209 239
Group #30-8522 12.000% due 12/01/15 104 119
Group #50-1051 7.000% due 06/01/03 449 458
Group #A0-0690 9.000% due 02/01/20 1,122 1,192
Group #C0-0140 9.000% due 07/01/22 396 420
Group #C0-0413 8.000% due 08/01/25 89 92
Group #D2-3334 8.500% due 09/01/22 145 152
Group #D2-3590 8.500% due 09/01/22 48 50
Group #D5-0323 7.000% due 04/01/24 733 739
Group #D5-1011 7.000% due 04/01/24 136 137
Group #D5-1373 7.000% due 04/01/24 147 149
Group #D5-1426 7.000% due 04/01/24 51 51
Group #D5-2246 7.000% due 04/01/24 367 370
Group #D6-0678 8.000% due 06/01/25 130 135
Group #D6-0679 8.000% due 06/01/25 308 319
Group #D6-2015 8.000% due 07/01/25 1,738 1,801
Group #D6-2113 8.000% due 07/01/25 612 634
Group #E0-0318 7.500% due 06/01/09 359 369
Group #E0-0332 7.500% due 08/01/09 226 233
Group #E0-0339 7.500% due 09/01/09 402 413
Group #E0-0344 7.500% due 10/01/09 271 279
Group #E0-0353 7.500% due 12/01/09 919 946
Group #E2-0145 7.500% due 11/01/09 (c) 206 212
Group #E2-0153 8.000% due 01/01/10 91 94
Group #E5-6296 6.500% due 01/01/09 391 393
Group #E5-6562 6.500% due 02/01/09 1,106 1,112
Group #E5-6737 6.500% due 02/01/09 247 248
Group #E5-6830 6.500% due 02/01/09 109 110
Group #E5-6953 6.500% due 02/01/09 122 123
Group #E5-9461 7.500% due 08/01/09 244 251
Group #E5-9610 7.500% due 08/01/09 231 237
Group #E5-9853 8.000% due 10/01/09 457 473
Group #G1-0329 7.500% due 02/01/10 243 250
Group #L7-0277 7.000% due 08/01/98 39 40
Group #M1-1780 7.000% due 04/01/97 165 168
Group #M1-3072 7.000% due 03/01/97 494 502
Group #M1-3104 7.000% due 03/01/97 310 315
Group #M1-4743 7.000% due 08/01/97 28 28
Pool #D6-1022 8.000% due 06/01/25 1,925 1,995
Pool #D6-1023 8.000% due 06/01/25 1,839 1,906
Federal Home Loan Mortgage Corp.
Participation Certificate
Series 1053 Class G
7.000% due 03/15/21 2,000 2,036
Federal Home Loan Mortgage Corp.
7.500% 7 Year TBA (b) 280 287
6.500% 15 Year TBA (b) 7,600 7,640
7.000% 30 Year TBA (b) 15,285 15,423
7.500% 30 Year TBA (b) 10,110 10,366
8.000% 30 Year TBA (b) 6,960 7,212
Federal National Mortgage Association
Pool #030891 9.500% due 06/01/01 86 90
Pool #038842 8.000% due 07/01/10 44 46
Pool #042678 8.000% due 03/01/17 154 160
Pool #046939 8.000% due 05/01/17 58 60
Pool #047728 8.000% due 05/01/02 94 97
Pool #050377 9.500% due 12/01/05 66 69
Pool #050389 9.500% due 01/01/06 221 232
Pool #050621 7.000% due 08/01/99 6 6
Pool #050748 7.500% due 12/31/99 229 234
Pool #050752 7.000% due 05/01/00 119 121
Pool #050758 7.000% due 06/01/00 93 94
Pool #050765 7.000% due 07/01/23 95 96
Pool #050766 7.500% due 07/01/23 404 414
Pool #050989 7.000% due 02/01/09 137 139
Pool #052078 8.000% due 07/01/02 117 122
Pool #053718 8.000% due 08/01/17 128 133
Pool #054738 8.000% due 09/01/02 55 57
Pool #055397 8.000% due 07/01/17 395 411
Pool #057194 8.000% due 10/01/17 115 120
Pool #061217 8.000% due 05/01/03 3 3
Pool #061354 8.000% due 05/01/03 133 138
Pool #062502 8.000% due 06/01/03 52 54
Pool #063743 9.500% due 07/01/03 148 156
Diversified Bond Fund 79
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Pool #064518 9.500% due 08/01/02 $ 196 $ 206
Pool #070607 8.000% due 07/01/02 455 472
Pool #070694 9.500% due 12/01/05 104 110
Pool #087274 8.000% due 08/01/04 384 398
Pool #103914 9.500% due 09/01/05 59 63
Pool #110503 8.000% due 01/01/17 175 183
Pool #120778 8.000% due 03/01/17 59 62
Pool #124542 7.000% due 11/01/99 474 483
Pool #124721 7.000% due 02/01/23 952 962
Pool #124748 6.500% due 03/01/00 80 81
Pool #125350 6.500% due 06/01/09 1,872 1,882
Pool #127926 8.000% due 05/01/20 82 86
Pool #145536 8.000% due 06/01/03 47 48
Pool #157517 7.000% due 04/01/07 216 220
Pool #161640 7.500% due 12/01/22 236 242
Pool #183514 8.000% due 08/01/22 56 58
Pool #184344 7.500% due 10/01/22 189 194
Pool #187852 10.500% due 08/01/10 62 68
Pool #190506 6.500% due 12/01/08 319 320
Pool #190560 6.500% due 01/01/09 357 358
Pool #199710 7.000% due 05/01/00 35 35
Pool #204951 8.000% due 05/01/22 337 351
Pool #208747 7.000% due 05/01/00 230 234
Pool #210307 7.000% due 04/01/00 409 416
Pool #217364 8.000% due 01/01/22 583 606
Pool #224716 6.500% due 07/01/23 999 989
Pool #226836 7.000% due 09/25/08 235 240
Pool #229363 6.500% due 08/01/23 51 50
Pool #232574 6.500% due 08/01/08 499 502
Pool #233079 7.000% due 09/15/08 99 101
Pool #235711 7.000% due 11/25/23 162 164
Pool #236344 7.000% due 09/25/08 227 231
Pool #237598 7.500% due 05/01/24 199 204
Pool #238739 7.000% due 11/25/23 423 426
Pool #239057 7.000% due 09/01/23 309 312
Pool #240738 6.500% due 10/01/08 186 187
Pool #244286 7.000% due 05/01/24 168 169
Pool #244550 7.000% due 11/25/23 476 481
Pool #244970 7.000% due 11/25/23 456 460
Pool #245865 6.500% due 02/01/09 318 319
Pool #246599 7.000% due 11/25/23 155 157
Pool #248089 7.000% due 11/25/23 407 410
Pool #250030 7.000% due 05/01/24 28 28
Pool #250035 6.500% due 05/01/09 57 57
Pool #263037 6.500% due 05/01/09 391 393
Pool #265868 6.500% due 01/01/24 151 150
Pool #268936 6.500% due 01/01/24 48 48
Pool #270164 6.500% due 02/01/09 672 676
Pool #278623 8.500% due 08/01/24 440 459
Pool #279123 6.500% due 04/01/09 353 355
Pool #279585 7.500% due 04/01/24 418 428
Pool #280199 7.000% due 04/01/24 64 64
Pool #280256 7.000% due 05/01/24 379 382
Pool #280810 6.500% due 05/01/09 234 235
Pool #281940 6.500% due 05/01/09 387 389
Pool #282125 6.500% due 05/01/09 92 92
Pool #282300 6.500% due 04/01/09 756 760
Pool #282424 6.500% due 05/01/09 422 424
Pool #282833 7.000% due 06/01/09 190 194
Pool #283260 7.500% due 06/01/24 666 682
Pool #283947 7.500% due 06/01/24 164 168
Pool #284192 6.500% due 05/01/09 114 114
Pool #284451 6.500% due 05/01/09 57 58
Pool #284659 7.000% due 05/01/09 305 311
Pool #284690 7.000% due 06/01/09 293 298
Pool #285203 7.000% due 06/01/24 228 230
Pool #285280 7.000% due 06/01/24 411 414
Pool #286112 7.000% due 06/01/24 2,858 2,881
Pool #286570 7.000% due 06/01/24 800 806
Pool #286829 7.000% due 06/01/24 339 343
Pool #287464 6.500% due 06/01/09 131 132
Pool #288772 8.500% due 11/01/24 285 297
Pool #288935 7.500% due 07/01/24 802 822
Pool #290876 7.500% due 07/01/24 50 51
Pool #292564 8.500% due 12/01/24 472 493
Pool #295473 7.500% due 09/01/24 168 172
Pool #296279 7.500% due 10/01/24 594 608
Pool #299256 8.500% due 12/01/24 90 94
Pool #303555 7.000% due 09/01/25 3,163 3,189
Pool #307029 7.000% due 07/01/25 828 835
Pool #316681 7.000% due 07/01/25 751 757
Pool #316938 7.000% due 07/01/25 296 298
Pool #318203 7.000% due 08/01/25 780 787
Pool #318949 7.000% due 08/01/25 803 809
Pool #319622 7.000% due 08/01/25 654 659
Pool #319647 7.000% due 08/01/25 725 731
Pool #320080 7.000% due 08/01/25 310 313
Pool #320320 7.000% due 08/01/25 977 985
Pool #320333 7.000% due 08/01/25 128 129
Federal National Mortgage Association
7.500% 7 Year TBA (b) 1,260 1,290
7.000% 30 Year TBA (b) 5,650 5,696
80 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Federal National Mortgage Association
Interest Only Inverse Floater
Series 1993-208 Class SA
0.273% due 02/25/23 (c) $ 56,427 $ 511
Principal Only Strip
Zero Coupon due 10/25/21 238 190
REMIC Trust Series 1992-G57 Class Z
7.800% due 10/25/22 4,750 4,907
REMIC Trust Series 1992-G36 Class A
7.000% due 04/25/15 686 694
Government National Mortgage Association
Pool #008148 6.500% due 02/20/23 (c) 4,799 4,892
Pool #008482 7.250% due 08/20/24 (c) 1,862 1,898
Pool #008503 7.250% due 09/20/24 (c) 2,792 2,846
Pool #146110 9.500% due 05/15/16 30 33
Pool #147480 9.500% due 03/15/16 53 57
Pool #149590 9.000% due 05/15/16 92 98
Pool #153267 9.500% due 04/15/16 21 23
Pool #154050 9.500% due 05/15/16 33 35
Pool #155749 8.500% due 06/15/16 46 49
Pool #156576 8.500% due 01/15/17 239 253
Pool #159956 9.000% due 06/15/16 403 430
Pool #161666 9.000% due 08/15/16 35 37
Pool #166178 8.500% due 07/15/16 237 251
Pool #168336 9.000% due 08/15/20 150 160
Pool #169824 9.000% due 11/15/16 72 77
Pool #170662 8.500% due 08/15/16 341 361
Pool #171553 9.000% due 07/15/16 526 562
Pool #171772 9.000% due 10/15/16 775 827
Pool #171776 9.000% due 11/15/16 185 198
Pool #172035 9.000% due 08/15/16 103 110
Pool #172723 8.500% due 07/15/16 71 75
Pool #172908 9.000% due 09/15/16 46 49
Pool #173049 9.000% due 07/15/16 348 371
Pool #174840 9.000% due 10/15/16 68 73
Pool #180290 8.500% due 11/15/16 603 639
Pool #182526 8.500% due 02/15/17 338 358
Pool #182616 9.000% due 06/15/17 44 47
Pool #182643 9.000% due 10/15/16 8 8
Pool #187956 9.000% due 11/15/16 26 28
Pool #190486 8.000% due 03/15/17 133 140
Pool #192748 8.500% due 08/15/17 69 74
Pool #192883 8.500% due 01/15/17 150 159
Pool #193242 8.500% due 01/15/17 138 146
Pool #193800 9.000% due 10/15/16 135 144
Pool #194001 8.500% due 02/15/17 349 370
Pool #196932 8.500% due 04/15/17 30 32
Pool #197268 8.500% due 05/15/17 177 188
Pool #199031 8.500% due 01/15/17 135 143
Pool #199531 8.500% due 02/15/17 341 362
Pool #202144 8.500% due 02/15/17 588 623
Pool #202883 8.500% due 03/15/17 169 179
Pool #204828 8.500% due 02/15/17 7 7
Pool #205426 8.500% due 02/15/17 153 162
Pool #208209 8.000% due 05/15/17 32 33
Pool #209198 8.500% due 03/15/17 266 282
Pool #209432 9.000% due 05/15/17 155 165
Pool #211127 8.500% due 03/15/17 320 339
Pool #211129 8.500% due 06/15/17 65 69
Pool #213365 8.000% due 04/15/17 29 30
Pool #216928 8.500% due 05/15/17 283 299
Pool #217536 8.500% due 05/15/17 104 110
Pool #220383 8.500% due 07/15/17 310 329
Pool #224505 9.000% due 07/15/17 43 46
Pool #225968 8.500% due 07/15/17 61 65
Pool #246616 9.000% due 04/15/18 19 20
Pool #290338 10.500% due 06/15/20 95 106
Pool #291365 10.500% due 07/15/20 38 42
Pool #295123 10.500% due 10/15/20 78 87
Pool #297999 10.500% due 12/15/20 182 204
Pool #299159 10.500% due 11/15/20 523 585
Pool #299881 9.000% due 04/15/21 20 22
Pool #301982 10.500% due 01/15/21 165 185
Pool #305463 9.000% due 04/15/21 15 15
Pool #330230 7.000% due 06/15/23 79 80
Pool #330867 7.000% due 11/15/22 325 329
Pool #335301 6.500% due 03/15/09 189 191
Pool #338250 7.000% due 11/15/22 527 534
Pool #340165 6.500% due 03/15/09 26 26
Pool #340376 7.000% due 05/15/23 505 511
Pool #343370 7.000% due 07/15/23 534 541
Pool #344510 7.000% due 09/15/23 364 368
Pool #345119 7.500% due 12/15/08 476 493
Pool #345170 7.000% due 08/15/23 512 518
Pool #345626 7.500% due 03/15/24 670 690
Pool #347721 6.500% due 06/15/09 269 271
Pool #350386 7.000% due 05/15/23 326 330
Pool #350934 7.000% due 08/15/23 91 92
Pool #351129 6.500% due 07/15/08 245 247
Pool #351553 7.000% due 10/15/23 479 485
Pool #351711 7.000% due 10/15/23 511 517
Pool #351923 7.500% due 06/15/23 654 673
Pool #352163 7.000% due 06/15/23 490 497
Pool #352474 7.000% due 06/15/23 528 536
Pool #354191 7.000% due 06/15/23 364 369
Pool #355637 7.000% due 07/15/23 348 353
Diversified Bond Fund 81
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Pool #356469 7.000% due 07/15/23 $ 345 $ 349
Pool #356697 7.000% due 08/15/23 371 375
Pool #356952 7.000% due 06/15/23 1,584 1,603
Pool #357959 7.000% due 07/15/23 488 494
Pool #358499 7.000% due 07/15/23 38 39
Pool #358674 7.000% due 06/15/23 81 82
Pool #358801 7.500% due 06/15/23 837 863
Pool #359897 7.000% due 10/15/23 68 69
Pool #361279 7.000% due 12/15/23 37 38
Pool #362159 7.500% due 12/15/08 189 196
Pool #363681 7.000% due 11/15/23 73 75
Pool #363760 7.000% due 11/15/23 74 75
Pool #363909 7.500% due 05/15/24 634 652
Pool #364318 7.000% due 08/15/23 519 525
Pool #364400 7.000% due 11/15/23 63 64
Pool #364457 7.000% due 09/15/23 551 557
Pool #366328 7.000% due 09/15/23 76 77
Pool #366437 7.000% due 09/15/23 35 36
Pool #367124 7.000% due 10/15/23 483 489
Pool #367861 7.000% due 10/15/23 125 127
Pool #368988 6.500% due 03/15/09 232 234
Pool #370426 7.000% due 09/15/23 519 526
Pool #370890 7.000% due 11/15/23 295 298
Pool #370931 7.000% due 11/15/23 327 331
Pool #371539 7.000% due 10/15/23 294 297
Pool #371828 6.500% due 06/15/09 584 590
Pool #372782 6.500% due 01/15/09 579 584
Pool #373788 7.000% due 10/15/23 93 95
Pool #374508 7.000% due 10/15/23 66 67
Pool #376293 7.000% due 11/15/23 69 69
Pool #376535 9.000% due 06/15/24 352 372
Pool #381495 7.000% due 12/15/23 75 76
Pool #386652 9.000% due 01/15/25 619 656
Pool #389814 6.500% due 05/15/09 147 148
Pool #390393 6.500% due 03/15/09 209 211
Pool #390730 7.000% due 03/15/24 97 99
Pool #403980 9.000% due 10/15/24 744 788
Pool #404014 9.000% due 12/15/24 676 716
Pool #405801 9.000% due 11/15/24 790 837
Pool #412531 7.000% due 12/15/25 990 1,002
Pool #413889 7.500% due 08/15/25 195 201
Pool #414123 7.500% due 08/15/25 459 472
Pool #415808 7.000% due 12/15/25 545 551
Pool #419251 9.000% due 11/15/25 355 376
Pool #780023 7.000% due 09/15/24 1,325 1,341
Pool #818263 5.000% due 05/20/24 (c) 2,509 2,501
Government National Mortgage Association
7.000% 15 Year TBA (b) 290 297
6.500% 30 Year TBA (b) 5,000 4,959
7.000% 30 Year TBA (b) 2,750 2,783
8.000% 30 Year TBA (b) 1,000 1,042
8.500% 30 Year TBA (b) 1,940 2,054
Mid-St Trust II
Class A-3 CMO
9.350% due 04/01/98 573 614
Morgan Stanley Mortgage Trust
Class P-4 CMO
7.850% due 08/20/18 45 45
PNC Mortgage Securities Corp.
Series 1994-3 Class A-1
7.500% due 06/18/10 733 734
Ryland Acceptance Corp. Four
Series 88 Class E CMO
7.950% due 01/01/19 2,322 2,365
Thomson McKinnon Mortgage
Assets Series 10 Class Z CMO
9.100% due 06/20/19 4,441 4,438
United States Department
of Veteran Affairs REMIC
Series 1992-1 Class 2-E
7.750% due 03/15/16 550 575
--------
193,112
--------
NON-US BONDS - 1.2%
Canada, Government of
8.750% due 12/01/05 CAD 3,000 2,457
Germany, Republic of
7.500% due 11/11/04 DEM 5,000 3,839
--------
6,296
--------
UNITED STATES GOVERNMENT
AGENCIES - 5.1%
Federal National Mortgage Association
8.200% due 03/10/16 $ 2,310 2,788
Federal National Mortgage
Association (MTN)
7.640% due 06/16/04 1,480 1,529
Government Backed Trust Certificates
Class 1-C
9.250% due 11/15/01 8,305 9,226
82 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Government Backed Trust Certificates
Series 2-E
9.400% due 05/15/02 (c) $ 1,135 $ 1,266
Series T-3
9.625% due 05/15/02 (c) 4,955 5,512
Resolution Funding Corp.
8.875% due 07/15/20 3,155 4,182
8.625% due 01/15/21 880 1,144
8.625% due 01/15/30 390 514
--------
26,161
--------
UNITED STATES GOVERNMENT
TREASURIES - 29.9%
United States Treasury Bonds
10.750% due 08/15/05 9,075 12,468
12.750% due 11/15/10 2,425 3,694
13.875% due 05/15/11 2,280 3,711
7.500% due 11/15/16 6,800 7,973
8.750% due 05/15/17 8,255 10,917
8.875% due 08/15/17 615 824
8.125% due 08/15/19 11,550 14,522
7.875% due 02/15/21 3,965 4,883
8.125% due 08/15/21 2,845 3,601
7.250% due 08/15/22 1,990 2,302
7.125% due 02/15/23 250 286
United States Treasury Notes
4.375% due 11/15/96 4,665 4,631
6.750% due 02/28/97 2,775 2,822
6.875% due 02/28/97 1,600 1,630
6.500% due 05/15/97 3,535 3,594
8.500% due 05/15/97 3,270 3,410
6.500% due 08/15/97 10,805 11,021
8.750% due 10/15/97 555 588
5.750% due 10/31/97 2,795 2,822
8.875% due 11/15/97 955 1,016
5.625% due 01/31/98 1,235 1,245
5.125% due 02/28/98 40 40
5.125% due 03/31/98 1,780 1,777
5.375% due 05/31/98 4,515 4,530
5.125% due 06/30/98 2,460 2,455
8.250% due 07/15/98 1,770 1,894
5.250% due 07/31/98 1,405 1,405
5.125% due 11/30/98 1,000 997
5.875% due 03/31/99 2,595 2,641
6.750% due 06/30/99 1,325 1,385
6.375% due 07/15/99 1,295 1,342
6.875% due 07/31/99 1,750 1,837
6.875% due 08/31/99 1,600 1,682
6.375% due 01/15/00 1,275 1,324
7.750% due 01/31/00 12,750 13,850
7.125% due 02/29/00 5,795 6,169
6.875% due 03/31/00 5,000 5,286
8.750% due 08/15/00 795 903
6.250% due 02/15/03 5,275 5,503
5.750% due 08/15/03 245 248
United States Treasury
Principal Only Strip
Zero Coupon due 11/15/99 200 163
--------
153,391
--------
YANKEE BONDS - 1.6%
African Development Bank
8.800% due 09/01/19 295 373
Alberta, Province of
9.250% due 04/01/00 160 181
Asian Development Bank
8.500% due 05/02/01 180 203
European Investment Bank
10.125% due 10/01/00 190 224
Hydro Quebec
9.710% due 12/24/97 1,000 1,074
Inter-American Development Bank
7.000% due 06/15/25 1,025 1,091
Manitoba, Province of
9.250% due 04/01/20 200 263
New Brunswick, Province of
9.750% due 05/15/20 190 254
Newfoundland, Province of
10.000% due 12/01/20 90 121
Nova Scotia, Province of
9.125% due 05/01/21 640 796
Quebec, Province of
7.500% due 07/15/23 775 812
7.125% due 02/09/24 705 709
Saskatchewan, Province of
8.000% due 07/15/04 1,045 1,165
St. George Bank, Ltd.
7.150% due 10/01/05 775 802
--------
8,068
--------
TOTAL LONG-TERM INVESTMENTS
(cost $480,677) 502,828
--------
Diversified Bond Fund 83
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- --------
<S> <C> <C>
OPTIONS PURCHASED - 0.2%
United States Treasury Notes
Feb 96.5 Call (e) 1,500* $ 841
--------
TOTAL OPTIONS PURCHASED
(cost $745) 841
--------
PREFERRED STOCKS - 0.6%
Australia & New Zealand
Banking Group, Ltd. 23,500 640
ConAgra Capital LC Series B (c) 13,000 278
Credit Lyonnais Capital S.C.A. - ADR 15,700 390
Lasalle National Corp. Series K 14,000 735
Texaco Capital Series B 15,600 328
TIG Holdings, Inc. 7,200 768
--------
TOTAL PREFERRED STOCKS
(cost $3,197) 3,139
--------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 11.8%
Federal Home Loan Mortgage Corp.
Discount Notes (a)
5.740% due 01/16/96 $ 2,750 $ 2,744
Frank Russell Investment Company
Money Market Fund due on demand (a) 58,140 58,140
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $60,884) 60,884
--------
TOTAL INVESTMENTS
(identified cost $545,503)(d) - 110.5% 567,692
OTHER ASSETS AND LIABILITIES,
NET - (10.5%) (53,884)
--------
NET ASSETS - 100.0% $513,808
--------
--------
</TABLE>
(a) At cost, which approximates market.
(b) Forward commitment. See Note 2.
(c) Adjustable or floating rate security.
(d) At December 31, 1995, the cost for federal income tax purposes was
$545,000 and net unrealized appreciation for all securities was $22,692.
This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$24,147 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $1,455.
(e) Nonincome-producing security.
* Number of contracts.
The accompanying notes are an integral part of the financial statements.
84 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $545,502,660)(Note 2) . . . . . . . . . . $567,692,373
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,224
Forward foreign currency exchange contracts (cost $3,990,013)(Notes 2 and 6) . . 3,990,013
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,899,324
Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . 9,014,627
Investments sold (delayed settlement). . . . . . . . . . . . . . . . . . . . . 3,810,937
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,491,635
------------
594,957,133
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . $15,186,615
Investments purchased (delayed settlement) . . . . . . . . . . . 61,620,975
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . 159,046
Accrued bookkeeping service fees (Note 4). . . . . . . . . . . . 10,439
Accrued management fees (Note 4) . . . . . . . . . . . . . . . . 194,225
Accrued transfer agent fees (Note 4) . . . . . . . . . . . . . . 37,154
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . 66,265
Forward foreign currency exchange contracts
(cost $3,990,013)(Notes 2 and 6) . . . . . . . . . . . . . . . . 3,874,042 81,148,761
----------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $513,808,372
------------
------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . $ 48,520
Accumulated net realized gain (loss). . . . . . . . . . . . . . . . (10,540,994)
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,189,713
Foreign currency-related transactions . . . . . . . . . . . . . . 115,902
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . 216,916
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 501,778,315
------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $513,808,372
------------
------------
Net asset value, offering and redemption price per share
($513,808,372 divided by 21,691,574 shares of $.01 par value
shares of beneficial interest outstanding). . . . . . . . . . . . . $23.69
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Bond Fund 85
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,382,350
Dividends from Money Market Fund (Note 5) . . . . . . . . . . . . . 2,704,342
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,510
-----------
37,365,202
Expenses (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . $2,308,823
Custodian fees. . . . . . . . . . . . . . . . . . . . . 313,176
Transfer agent fees . . . . . . . . . . . . . . . . . . 240,755
Bookkeeping service fees. . . . . . . . . . . . . . . . 56,280
Professional fees . . . . . . . . . . . . . . . . . . . 28,282
Registration fees . . . . . . . . . . . . . . . . . . . 61,072
Trustees' fees. . . . . . . . . . . . . . . . . . . . . 4,501
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 35,709 3,048,598
---------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . 34,316,604
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,954,837
Foreign currency-related transactions . . . . . . . . . . . . . . . 84,358
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,675,270
Foreign currency-related transactions . . . . . . . . . . . . . . . 115,902
-----------
Net gain (loss) on investments. . . . . . . . . . . . . . . . . . . . 49,830,367
-----------
Net increase (decrease) in net assets resulting from operations . . . $84,146,971
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
86 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,316,604 $ 33,198,214
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,954,837 (15,176,170)
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . 84,358 (491,175)
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,675,270 (33,079,340)
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . 115,902 (27,109)
------------ -----------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . 84,146,971 (15,575,580)
Distributions to shareholders:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,786,410) (32,359,732)
In excess of net realized gain on investments . . . . . . . . . . . . . . . . . . -- (182,259)
Increase (decrease) in net assets from Fund share transactions. . . . . . . . . . . (60,866,783) 96,091,443
------------ -----------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . (11,506,222) 47,973,872
Net assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 525,314,594 477,340,722
------------ -----------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $48,520 and $268,550, respectively). . . . . . . . . . . . . . . . . . . . . . $513,808,372 $525,314,594
------------ -----------
------------ -----------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS
1995 1994
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fund shares sold. . . . . . . . . . . . . . . . . . . 7,173,629 $163,517,029 10,821,598 $243,887,095
Fund shares issued to shareholders
in reinvestments of distributions . . . . . . . . . 841,387 19,186,853 814,891 18,064,635
Fund shares redeemed. . . . . . . . . . . . . . . . . (10,716,980) (243,570,665) (7,359,378) (165,860,287)
----------- ------------ ---------- ------------
Net increase (decrease) . . . . . . . . . . . . . . . (2,701,964) $(60,866,783) 4,277,111 $ 96,091,443
----------- ------------ ---------- ------------
----------- ------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Bond Fund 87
<PAGE>
DIVERSIFIED BOND FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . $ 21.53 $ 23.73 $ 23.49 $ 24.29 $ 22.81
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . 1.54 1.46 1.48 1.62 1.72
Net realized and unrealized gain (loss) on investments . . . . . . . 2.18 (2.22) .83 (.10) 1.61
------- ------- ------- ------- -------
Total Income From Investment Operations. . . . . . . . . . . . . . . 3.72 (.76) 2.31 1.52 3.33
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . (1.56) (1.42) (1.48) (1.63) (1.69)
In excess of net investment income. . . . . . . . . . . . . . . . . -- -- (.01) -- --
Net realized gain on investments . . . . . . . . . . . . . . . . . . -- -- (.58) (.69) (.16)
In excess of net realized gain on investments. . . . . . . . . . . . -- (.02) -- -- --
------- ------- ------- ------- -------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . (1.56) (1.44) (2.07) (2.32) (1.85)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . . . . $ 23.69 $ 21.53 $ 23.73 $ 23.49 $ 24.29
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.76 (3.25) 10.02 6.57 15.29
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets . . . . . . . . . . . .59 .56 .58 .62 .74
Operating expenses, gross, to average net assets . . . . . . . . . . .59 .56 .58 .67 .74
Net investment income to average net assets. . . . . . . . . . . . . 6.69 6.57 6.13 6.79 7.38
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . . . 135.85 153.21 177.74 228.37 130.96
Net assets, end of year ($000 omitted) . . . . . . . . . . . . . . . 513,808 525,315 477,341 412,394 344,081
Per share amount of fees waived ($ omitted). . . . . . . . . . . . . -- -- -- .0115 --
</TABLE>
88 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS LIPPER-C-
ENDED DECEMBER 31 DIVERSIFIED BOND LB AGGREGATE ** INTERMEDIATE++
- ----------------- ----------------- --------------- ----------------------------
<S> <C> <C> <C>
* $ 10,000 $ 10,000 $ 10,000
1986 $ 11,549 $ 11,526 $ 11,366
1987 $ 11,694 $ 11,844 $ 11,670
1988 $ 12,590 $ 12,779 $ 12,481
1989 $ 14,167 $ 14,636 $ 13,898
1990 $ 15,242 $ 15,947 $ 14,881
1991 $ 17,573 $ 18,499 $ 17,141
1992 $ 18,726 $ 19,869 $ 18,297
1993 $ 20,602 $ 21,806 $ 20,036
1994 $ 19,933 $ 21,170 $ 19,367
1995 $ 23,473 $ 25,081 $ 22,578
</TABLE>
Diversified Bond Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- -------------- -------------- -------------
<S> <C> <C>
1 Year $ 11,776 17.76%
5 Years $ 15,400 9.01%***
10 Years $ 23,473 8.90%***
</TABLE>
Lehman Brothers Aggregate Bond Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- -------------- -------------- -------------
<S> <C> <C>
1 Year $ 11,848 18.48%
5 Years $ 15,727 9.48%***
10 Years $ 25,081 9.63%***
</TABLE>
Lipper-C- Intermediate Investment Grade Debt Funds Average
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- -------------- -------------- -------------
<S> <C> <C>
1 Year $ 11,658 16.58%
5 Years $ 15,172 8.69%***
10 Years $ 22,578 8.48%***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Lehman Brothers Aggregate Bond Index is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index,
and the Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
++ Lipper-C- Intermediate (5-10 Yr.) Investment Grade Debt Funds Average is
the average total return for the universe of funds within the Intermediate
Investment Grade Debt Funds investment objective. The total return for the
funds reflects adjustments for income dividends and capital gains
distributions reinvested as of the ex-dividend dates.
*** Annualized.
DIVERSIFIED BOND FUND returned 17.8% for 1995, trailing the Lehman Brothers
Aggregate Bond Index return of 18.5%. The portfolio was managed in a manner
consistent with its objective to reduce risk and provide exposure to multiple
strategies for adding value by employing managers with separate and distinct
assignments. The Fund seeks to provide investors a conservative vehicle to meet
the traditional objectives of bond investing core fixed income exposure and
diversification against equities.
While interest rates fell throughout 1995, bond investors experienced an
eventful year. Bond markets reacted disapprovingly to the US budget impasse in
Washington, but soon resumed their bullish form. By year end, investors bid the
30-year treasury bond yield down to 5.94%, a two-year low. For the year, the
Fund trailed the index, largely due to the negative impact of falling interest
rates on its mortgage-backed securities holdings. Duration was an important
factor in returns for most of the year, with long maturity bonds up more than
30%. Fund managers added value in the corporate bond sector, which led other
sectors for most of 1995. Although it lagged the index, the Fund's performance
was nearly 120 basis points better than the Lipper-Registered Trademark-
Intermediate Investment Grade Debt Funds Average.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Diversified Bond Fund 89
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
LONG-TERM INVESTMENTS - 93.6%
ASSET-BACKED SECURITIES - 9.9%
Advanta Mortgage Loan Trust
Series 1993-4 Class A-1
7.270% due 06/25/08 $ 695 $ 696
ALPS Pass-thru Trust
Series 1994-1 Class A-2
7.150% due 11/15/97 (c) 416 422
Chase Manhattan Grantor Trust
Series 1995-B Class A
5.900% due 11/15/01 967 972
Daimler-Benz Auto Grantor Trust
Series 1995-A Class A
5.850% due 05/15/02 1,346 1,351
EQCC Home Equity Loan Trust
Series 1993-4 Class A
5.725% due 12/15/08 101 98
Ford Credit Grantor Trust
Series 1994-B Class A
7.300% due 10/15/99 1,183 1,205
Series 1995-A Class A
5.900% due 05/15/00 832 835
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 664 648
Green Tree Financial Corp.
Series 1992-2 Class A-2
7.050% due 01/15/18 84 85
Series 1994-1 Class A-1
5.600% due 04/15/19 1,013 1,012
Series 1995-A Class A
7.250% due 07/15/05 378 383
Series 1995-D Class A2
6.250% due 09/15/25 1,025 1,033
NationsBank Auto Grantor Trust
Series 1995-A Class A
5.850% due 06/15/02 1,446 1,453
Nissan Auto Receivables Grantor Trust
Series 1995-A Class A
6.100% due 08/15/01 2,250 2,269
Remodelers Home Improvement Loan
Series 1995-3 Class A2
6.800% due 12/20/07 550 566
Resolution Trust Corp.
Mortgage Pass-thru Certificates
Series 1992-CHF Class B
7.150% due 12/25/20 1,123 1,135
Series 1992-M2 Class A-4
8.465% due 03/25/20 44 44
Series 1992-M3 Class A-1
7.750% due 07/25/30 171 174
SPNB Home Equity Loan
Series 1991-1 Class B
8.150% due 06/15/20 311 318
TMS Home Equity Loan Trust
Series 1993-D Class A-1
5.675% due 12/15/08 1,414 1,376
Series 1994-C Class A-1
6.775% due 09/15/07 920 921
UCFC Home Equity Loan Trust
Series 1993-B1 Class A-1
6.075% due 07/25/14 223 223
Series 1994-B Class A-6
7.100% due 06/10/23 740 762
------
17,981
------
CORPORATE BONDS AND NOTES - 25.8%
Ahmanson (H.F.)
9.875% due 11/15/99 400 453
Avalon Properties, Inc.
7.375% due 09/15/02 500 516
Bank of Boston Corp.
9.500% due 08/15/97 1,250 1,326
Bear Stearns Co., Inc.
6.750% due 08/15/00 1,000 1,028
Capital One Bank (MTN)
8.125% due 02/27/98 1,750 1,828
Caterpillar Financial Services (MTN)
6.100% due 07/15/99 1,400 1,414
Chase Manhattan Corp.
7.500% due 12/01/97 500 517
5.938% due 12/05/09 (c) 800 774
Chemical Banking Corp.
10.375% due 03/15/99 895 1,006
CIT Group Holdings, Inc.
7.625% due 12/05/96 475 483
ERP Operating, L.P.
6.625% due 12/22/97 (c) 875 880
8.500% due 05/15/99 1,000 1,060
First Union Corp.
6.750% due 01/15/98 410 418
First USA Bank
8.100% due 02/21/97 340 350
5.750% due 01/15/99 875 872
Fleet Financial Group, Inc.
7.250% due 10/15/97 1,225 1,260
Fleet/Norstar Financial Group, Inc.
7.650% due 03/01/97 875 894
Ford Motor Credit Co. CMS Floater (MTN)
4.820% due 07/08/96 (c) 3,200 3,188
Volatility Constrained Bond Fund 91
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
DECEMBER 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Franchise Finance Corp.
7.000% due 11/30/00 $ 675 $ 678
General Motors Acceptance Corp.
7.750% due 04/15/97 465 477
General Motors Acceptance Corp. (MTN)
6.625% due 03/22/99 300 308
Georgia Pacific Corp.
9.850% due 06/15/97 700 738
Goldman Sachs Group, L.P.
7.625% due 05/29/97 450 461
6.375% due 06/15/00 550 556
6.200% due 12/15/00 450 453
Greyhound Financial Corp.
8.500% due 02/15/99 775 831
GTE Corp.
10.750% due 09/15/17 1,200 1,344
Health & Rehabilitation Properties Trust
6.345% due 07/13/99 (c) 975 970
Hertz Corp.
9.500% due 05/15/98 900 972
Huntington Bancshares, Inc.
Series A (MTN) 6.150% due 10/15/98 1,700 1,722
ITT Corp.
6.250% due 11/15/00 450 454
Merrill Lynch & Co., Inc.
9.000% due 05/01/98 1,265 1,353
6.700% due 08/01/00 400 412
Midlantic Corp.
9.250% due 09/01/99 450 499
Occidental Petroleum Corp.
9.625% due 07/01/99 900 915
Occidental Petroleum Corp. (MTN)
5.950% due 11/09/98 1,400 1,407
5.960% due 11/09/98 150 151
Salomon, Inc.
6.700% due 12/01/98 500 502
Salomon, Inc. CMT Floater (MTN)
5.767% due 04/05/99 (c) 2,350 2,233
Shawmut Corp.
8.875% due 04/01/96 650 654
Smith Barney Holdings, Inc.
6.000% due 03/15/97 1,075 1,079
7.875% due 10/01/99 1,000 1,065
System Energy Resources, Inc.
7.625% due 04/01/99 2,000 2,074
Taubman Realty Group, L.P.
8.000% due 06/15/99 475 498
Tennessee Gas Pipeline Co.
9.250% due 05/15/96 818 828
9.000% due 01/15/97 750 773
Time Warner, Inc.
9.625% due 05/01/02 925 1,071
Transamerica Corp.
9.875% due 01/01/98 500 540
USF&G Corp.
7.000% due 05/15/98 2,500 2,555
------
46,840
------
EURODOLLAR BONDS - 1.1%
Chrysler Financial Corp.
9.500% due 04/12/96 900 907
Goldman Sachs Group, L.P.
5.000% due 08/23/96 1,050 1,044
-----
1,951
-----
MORTGAGE-BACKED SECURITIES - 31.6%
FDIC REMIC Trust
Series 1994-C1 Class 2A-1
6.300% due 09/25/25 91 91
Series 1994-C1 Class 2A-2
7.850% due 09/25/25 1,100 1,134
Federal Home Loan Mortgage Corp.
Participation Certificates
Group # 17-0163 14.000% due 04/01/16 18 21
Group # 23-0114 7.375% due 03/01/06 (c) 548 560
Group # 27-4537 8.000% due 06/01/96 7 7
Group # 27-4978 8.000% due 07/01/96 9 9
Group # 30-9784 8.000% due 12/01/17 1,212 1,259
Group # 40-9223 6.906% due 01/01/24 (c) 749 761
Group # 54-4461 8.500% due 04/01/09 254 265
Group # 84-6188 6.786% due 12/01/99 (c) 1,176 1,201
Group # 84-6190 7.358% due 04/01/29 (c) 867 896
Group # 85-0105 9.000% due 09/01/05 589 616
Group # A0-1509 0.000% due 03/01/20 538 592
Group # D2-9159 7.500% due 10/01/07 828 852
Group # G0-0238 8.500% due 07/01/24 1,233 1,298
Group # G5-0215 8.000% due 08/01/97 3,967 3,994
Group # G5-0238 8.000% due 01/01/00 974 980
Group # G5-0258 7.500% due 05/01/00 2,248 2,276
Group # G5-0297 7.500% due 10/01/00 954 966
Group # L7-3024 8.000% due 12/01/99 197 198
Group # L7-3099 8.000% due 02/01/00 466 469
Group # L7-3102 8.500% due 01/01/00 487 490
Group # L7-3115 8.000% due 02/01/00 333 336
Group # L9-0152 8.000% due 02/01/00 735 740
Group # L9-0166 7.500% due 05/01/00 975 988
Group # M9-0379 8.500% due 12/01/99 447 449
Group # M9-0386 8.000% due 02/01/00 241 242
92 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
-------- -------
<S> <C> <C>
Group # M9-0387 7.500% due 02/01/00 $ 823 $ 833
Federal Home Loan Mortgage Corp.
Participation Certificates
Series 1357 Class E Inverse Floater
3.464% due 08/15/97 (c) 594 580
Series 1442 Class S Inverse Floater
4.920% due 12/15/97 543 538
Federal National Mortgage Association
Pool #013957 8.500% due 11/01/01 244 254
Pool #019455 8.750% due 03/01/04 76 79
Pool #067546 7.000% due 10/01/05 206 211
Pool #081582 7.000% due 02/01/07 399 407
Pool #116591 7.248% due 01/01/21 (c) 717 723
Pool #212919 6.910% due 01/01/21 (c) 983 978
Pool #300695 9.500% due 12/01/24 215 229
Pool #303172 7.523% due 12/01/24 (c) 800 823
Pool #303293 7.485% due 07/01/24 (c) 781 801
Pool #303599 6.565% due 10/01/24 (c) 955 986
Pool #304670 9.500% due 01/01/25 799 851
Pool #305450 9.500% due 01/01/25 764 814
Pool #306052 9.500% due 02/01/25 729 776
Pool #308163 9.500% due 04/01/25 808 861
Pool #308278 9.500% due 04/01/25 486 518
Pool #325732 9.500% due 09/01/17 924 991
Federal National Mortgage Association
REMIC Trust Series 1995-W2 Class 1A
7.610% due 05/25/22 792 809
Government National Mortgage Association
Pool #003196 7.250% due 11/15/03 251 262
Pool #005719 7.250% due 02/15/05 306 320
Pool #007204 7.250% due 05/15/05 35 36
Pool #007433 7.250% due 07/15/05 188 197
Pool #007612 7.250% due 06/15/05 340 356
Pool #008000 7.375% due 06/20/22 (c) 2,678 2,729
Pool #008348 7.000% due 12/20/23 (c) 1,027 1,051
Pool #008580 7.250% due 11/15/05 180 188
Pool #008597 7.500% due 02/20/25 (c) 788 802
Pool #008623 7.500% due 04/20/25 405 413
Pool #008638 6.000% due 06/20/25 (c) 790 804
Pool #008644 7.500% due 06/20/25 (c) 1,404 1,433
Pool #009360 7.250% due 01/15/06 307 321
Pool #121490 10.000% due 03/15/15 182 201
Pool #148859 10.000% due 01/15/16 193 213
Pool #175626 10.000% due 04/15/16 152 168
Pool #204521 10.000% due 11/15/17 69 76
Pool #228783 10.000% due 09/15/17 313 346
Pool #252144 10.000% due 11/15/18 152 169
Pool #254833 10.000% due 09/15/18 311 344
Pool #260557 10.000% due 02/15/19 291 322
Pool #260968 10.000% due 08/15/18 21 24
Pool #261984 10.000% due 07/15/18 20 22
Pool #262831 10.000% due 11/15/18 103 114
Pool #270471 10.000% due 06/15/19 309 342
Pool #271132 9.000% due 06/15/24 246 260
Pool #272887 10.000% due 04/15/19 64 70
Pool #288862 10.000% due 07/15/20 139 153
Pool #324490 9.500% due 06/15/22 22 24
Pool #342846 9.000% due 01/15/23 789 839
Pool #377441 9.000% due 02/15/25 284 301
Pool #378868 9.000% due 07/15/25 436 462
Pool #380710 9.000% due 01/15/25 313 331
Pool #384636 9.000% due 07/15/25 448 475
Pool #390783 9.000% due 07/15/24 116 123
Pool #393727 9.000% due 03/15/25 442 469
Pool #394228 9.000% due 05/15/25 109 115
Pool #395869 9.000% due 05/15/25 109 115
Pool #397838 9.000% due 07/15/25 371 393
Pool #400765 9.000% due 08/15/24 202 215
Pool #401241 9.000% due 01/15/25 446 472
Pool #402837 9.000% due 11/15/24 496 525
Pool #403594 9.000% due 02/15/25 299 317
Pool #403954 9.000% due 09/15/24 187 198
Pool #404067 9.000% due 03/15/25 430 455
Pool #404594 9.000% due 01/15/25 449 475
Pool #404874 9.000% due 12/15/24 446 472
Pool #406396 9.000% due 04/15/25 381 404
Pool #407372 9.000% due 04/15/25 424 449
Pool #407720 9.000% due 07/15/25 213 225
Pool #409793 9.000% due 01/15/25 26 27
Pool #410045 9.000% due 06/15/25 323 342
Pool #413246 9.000% due 07/15/25 446 473
Pool #780285 9.500% due 11/15/25 1,072 1,150
Government National Mortgage Association
9.000% 30 Year TBA (b) 200 212
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class D
8.293% due 06/15/21 497 512
Resolution Trust Corp.
Series 1995-2 Class C1
7.450% due 05/25/29 411 409
-------
57,467
-------
MUNICIPAL BONDS - 0.4%
Oklahoma County Industrial Revenue Authority
6.050% due 10/01/21 (c) 675 675
-------
675
-------
Volatility Constrained Bond Fund 93
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
-------- -------
<S> <C> <C>
UNITED STATES GOVERNMENT
AGENCIES - 1.8%
Federal Farm Credit Bank (MTN)
6.260% due 10/15/98 $ 1,000 $ 1,011
Federal National Mortgage Association
CMT Floater (MTN)
4.820% due 04/29/96 (c) 1,525 1,502
Resolution Funding Corp.
Interest Only Strips
Zero Coupon due 10/15/98 950 821
-------
3,334
-------
UNITED STATES GOVERNMENT
TREASURIES - 18.4%
United States Treasury
Interest Only Strips
Zero Coupon due 09/15/98 2,315 2,022
Zero Coupon due 11/15/98 8,600 7,411
United States Treasury Notes
6.875% due 02/28/97 1,215 1,237
6.750% due 05/31/97 3,675 3,751
7.250% due 02/15/98 1,740 1,809
6.125% due 05/15/98 4,300 4,386
5.375% due 05/31/98 1,550 1,555
5.250% due 07/31/98 975 975
5.125% due 11/30/98 4,100 4,087
7.750% due 12/31/99 3,550 3,852
6.375% due 01/15/00 590 613
6.250% due 08/31/00 660 683
6.125% due 09/30/00 775 798
5.625% due 11/30/00 310 313
-------
33,492
-------
YANKEE BONDS - 4.6%
Forte
7.750% due 12/19/96 1,360 1,381
Household International
5.250% due 10/15/98 1,350 1,331
Ontario, Province of
17.000% due 11/05/11 1,295 1,494
11.500% due 03/10/13 2,415 2,798
Quebec, Province of
13.000% due 10/01/13 1,180 1,440
-------
8,444
-------
TOTAL LONG-TERM INVESTMENTS
(cost $170,429) 170,184
-------
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
-------- -------
<S> <C> <C>
PREFERRED STOCKS - 1.2%
ConAgra Capital LC Series B (c) 63,000 $ 1,347
Texaco Capital Series B (c) 43,000 903
-------
TOTAL PREFERRED STOCKS
(cost $2,650) 2,250
-------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
--------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.3%
Frank Russell Investment Company
Money Market Fund, due on demand (a) $ 7,872 7,872
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $7,872) 7,872
--------
TOTAL INVESTMENTS
(identified cost $180,951)(d) - 99.1% 180,306
OTHER ASSETS AND LIABILITIES,
NET - 0.9% 1,575
--------
NET ASSETS - 100.0% $181,881
--------
--------
</TABLE>
(a) At cost, which approximates market.
(b) Forward commitment. See Note 2.
(c) Adjustable or floating rate security.
(d) At December 31, 1995, the cost for federal income tax purposes was $180,930
and net unrealized depreciation for all securities was $624. This consisted
of aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $1,665 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $2,289.
(MTN) represents Medium Term Note.
The accompanying notes are an integral part of the financial statements.
94 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $180,950,768)(Note 2). . . . . . . . . . . . $ 180,306,598
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,012,720
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546,285
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,504
--------------
183,260,107
LIABILITIES
Payables:
Investments purchased (regular settlement). . . . . . . . . . . . . $ 521,180
Investments purchased (delayed settlement). . . . . . . . . . . . . 213,813
Fund shares redeemed. . . . . . . . . . . . . . . . . . . . . . . . 490,646
Accrued bookkeeping service fees (Note 4) . . . . . . . . . . . . . 5,178
Accrued management fees (Note 4). . . . . . . . . . . . . . . . . . 78,595
Accrued transfer agent fees (Note 4). . . . . . . . . . . . . . . . 23,031
Other accrued expenses and payables . . . . . . . . . . . . . . . . 46,193 1,378,636
------------ --------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181,881,471
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,112
Accumulated net realized gain (loss). . . . . . . . . . . . . . . . . . . . . . . . . (10,437,926)
Unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . . (644,170)
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,687
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,813,768
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181,881,471
--------------
--------------
Net asset value, offering and redemption price per share
($181,881,471 divided by 9,468,744 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . $ 19.21
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Volatility Constrained Bond Fund 95
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,747,564
Dividends from Money Market Fund (Note 5) . . . . . . . . . . 951,503
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 180,950
-------------
13,880,017
Expenses (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . $ 985,215
Custodian fees. . . . . . . . . . . . . . . 148,049
Transfer agent fees . . . . . . . . . . . . 154,077
Bookkeeping service fees. . . . . . . . . . 22,829
Professional fees . . . . . . . . . . . . . 22,648
Registration fees . . . . . . . . . . . . . 56,874
Trustees' fees. . . . . . . . . . . . . . . 4,361
Miscellaneous . . . . . . . . . . . . . . . 13,805 1,407,858
------------- -------------
Net investment income . . . . . . . . . . . . . . . . . . . . . 12,472,159
-------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . (890,274)
Options written. . . . . . . . . . . . . . . . . . . . . . . . (19,453)
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 6,898,312
Options written. . . . . . . . . . . . . . . . . . . . . . . . (2,847)
-------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . 5,985,738
-------------
Net increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,457,897
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
96 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . $ 12,472,159 $ 13,053,872
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . (890,274) (6,449,438)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . (19,453) 37,625
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,898,312 (6,853,429)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . (2,847) 2,847
------------- -------------
Net increase (decrease) in net assets resulting from operations. . . . 18,457,897 (208,523)
Distributions to shareholders from net investment income . . . . . . . (12,574,744) (12,896,175)
Increase (decrease) in net assets from Fund share transactions . . . . (19,008,806) (17,560,079)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . (13,125,653) (30,664,777)
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . 195,007,124 225,671,901
------------- -------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $55,112 and $157,697, respectively) . . . . . . . . . . . . . . . $ 181,881,471 $ 195,007,124
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . . . 4,380,834 $ 83,390,317 5,306,519 $ 102,279,878
Fund shares issued to shareholders
in reinvestments of distributions. . . . . 400,321 7,621,504 342,050 6,519,884
Fund shares redeemed . . . . . . . . . . . . (5,771,882) (110,020,627) (6,596,369) (126,359,841)
------------- -------------- ------------- --------------
Net increase (decrease). . . . . . . . . . . (990,727) $ (19,008,806) (947,800) $ (17,560,079)
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Volatility Constrained Bond Fund 97
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . 1.21 1.15 .82 1.34 1.45
Net realized and unrealized gain (loss) on investments . . . . . . . .58 (1.16) .45 (.88) .80
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . . . . . . 1.79 (.01) 1.27 46 2.25
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . (1.22) (1.13) (.71) (1.28) (1.43)
Tax return of capital. . . . . . . . . . . . . . . . . . . . . . . . -- -- (.29) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . (1.22) (1.13) (1.00) (1.28) (1.43)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . . . . $ 19.21 $ 18.64 $ 19.78 $ 19.51 $ 20.33
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.89 (.02) 6.67 2.29 12.00
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . . . . . . . .71 .67 .66 .68 .62
Net investment income to average net assets. . . . . . . . . . . . . 6.33 5.97 5.79 6.74 7.34
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . . . 256.72 182.65 220.77 312.05 159.20
Net assets, end of year ($000 omitted) . . . . . . . . . . . . . . . 181,881 195,007 225,672 292,909 293,603
</TABLE>
98 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS VOLATILITY LIPPER -C- SHORT
ENDED DECEMBER 31 CONSTRAINED M-L 1-2.99 ** 1-5 YR ++
- ----------------- ----------- -------------- ----------------
<S> <C> <C> <C>
Inception* $10,000 $10,000 $10,000
1986 $10,868 $11,035 $10,948
1987 $11,333 $11,658 $11,505
1988 $12,213 $12,384 $12,295
1989 $13,511 $13,730 $13,539
1990 $14,717 $15,065 $14,634
1991 $16,482 $16,824 $16,373
1992 $16,860 $17,885 $17,306
1993 $17,984 $18,852 $18,372
1994 $17,981 $18,959 $18,304
1995 $19,759 $21,045 $20,272
</TABLE>
<TABLE>
<CAPTION>
Volatility Constrained Bond Fund
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- --------------- ------------ ----------
<S> <C> <C>
1 Year $ 10,989 9.89%
5 Years $ 13,426 6.06% ***
10 Years $ 19,759 7.04% ***
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch 1-2.99 Years Treasury Index
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- --------------- ------------ ----------
<S> <C> <C>
1 Year $ 11,100 11.00%
5 Years $ 13,969 6.91% ***
10 Years $ 21,045 7.72% ***
</TABLE>
<TABLE>
<CAPTION>
Lipper-C- Short Investment Grade Debt Funds Average
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- --------------- ------------ ----------
<S> <C> <C>
1 Year $ 11,075 10.75%
5 Years $ 13,852 6.73% ***
10 Years $ 20,272 7.32% ***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Merrill Lynch 1-2.99 Years Treasury Index is an index composed of
approximately 160 issues in the form of publicly placed, coupon-bearing US
Treasury debt. Issues must carry a term to maturity of at least one year,
and par amounts outstanding must be no less than $10 million at the start and
at the close of the performance measurement periods.
++ Lipper-C- Short (1-5 Yr.) Investment Grade Debt Funds Average is the average
total return for the universe of funds within the Short Investment Grade Debt
Funds investment objective. The total return for the funds reflects
adjustments for income dividends and capital gains distributions reinvested
as of the ex-dividend dates. This type of fund which invests at least 65% of
assets in investment grade debt issues (rated in top four grades) with
average maturities of five years or less.
*** Annualized.
VOLATILITY CONSTRAINED BOND FUND returned 9.9% in 1995, trailing the Merrill
Lynch 1-2.99 Years Treasury Index return of 11%. The portfolio was managed in a
manner consistent with its objective to maximize total return, limit price
volatility, and provide a consistent level of current income. The Fund seeks to
reduce risk and provide exposure to a variety of total-return and income-
producing strategies by employing the services of two bond managers, each with a
separate and distinct assignment.
During the year, short-term bond investors saw rates fall by over 200 basis
points in the one- to five-year segment of the market. For most of the year,
widening interest rate spreads had a negative impact on the mortgage sector
relative to the index. This was partially offset by the income advantage of the
sector and good performance from corporate bond holdings.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Volatility Constrained Bond Fund 99
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
LONG-TERM INVESTMENTS - 84.8%
ASSET-BACKED SECURITIES - 5.9%
American Airlines, Inc.
Series 1990-H
9.800% due 01/02/08 $ 1,190 $ 1,446
Fleetwood Credit Corp.
Grantor Trust Series 1994-B Class A
6.750% due 03/15/10 582 593
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 215 210
Green Tree Financial Corp.
Series 1995-5 Class A3
6.250% due 10/15/25 600 608
Series 1995-6 Class A3
6.650% due 11/15/25 900 921
Series 1995-7 Class A2
6.150% due 11/15/25 1,150 1,159
Series 1995-8 Class A2
6.150% due 12/15/26 950 964
Series 1995-A Class A
7.250% due 07/15/05 400 406
Greenwich Capital Acceptance, Inc.
Series 1994 Class A-1
7.650% due 11/25/24 (c) 1,341 1,368
Olympic Automobile Receivables Trust
Series 1995-C Class A2
6.200% due 06/15/02 843 853
Resolution Trust Corp.
Mortgage Pass-thru Certificates
Series 1994-1 Class M-2
7.750% due 09/25/29 455 459
Series 1995-1 Class 2-C
7.500% due 10/25/28 (c) 325 330
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 300 298
Salomon Mortgage Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16 Class A
7.790% due 11/25/24 (c) 2,271 2,329
TMS Home Equity Loan Trust
Series 1992-B Class A
6.900% due 07/15/07 382 387
UCFC Home Equity Loan Trust
Series 1994-B Class A-6
7.100% due 06/10/23 518 532
--------
12,863
--------
CORPORATE BONDS AND NOTES - 23.3%
Acme Metals, Inc. Step Up Bond
13.500% due 08/01/04 370 304
Adelphia Communications Corp. PIK
Series B
9.500% due 02/15/04 631 492
ADT Operations, Inc.
8.250% due 08/01/00 400 422
American Airlines Class A-1
9.710% due 01/02/07 379 439
American Standard, Inc.
10.875% due 05/15/99 350 384
AMR Corp. (MTN)
9.950% due 03/07/01 1,000 1,131
Anchor Bancorp, Inc.
8.937% due 07/09/03 375 369
Arkla, Inc. (MTN)
9.300% due 03/01/96 1,000 1,004
8.780% due 07/19/96 500 506
Armco, Inc.
9.375% due 11/01/00 265 262
Bally's Casino Holdings, Inc.
Zero Coupon due 06/15/98 230 185
Banesto Delaware, Inc.
8.250% due 07/28/02 500 547
BellSouth Telecommunications, Inc.
5.850% due 11/15/45 1,100 1,112
Berkeley Federal Bank & Trust
12.000% due 06/15/05 300 309
Cablevision Industries Co.
9.250% due 04/01/08 320 342
Capital One Bank (MTN)
8.125% due 02/27/98 325 339
Chevy Chase Savings Bank
9.250% due 12/01/05 500 510
Citicorp (MTN)
6.750% due 10/15/07 380 389
Clark Oil & Refining Corp.
10.500% due 12/01/01 75 79
9.500% due 09/15/04 150 155
Cleveland Electric Illum Co.
9.375% due 03/01/17 1,000 997
Series B
9.500% due 05/15/05 130 135
Cleveland Electric Illum Co. (MTN)
9.110% due 07/22/96 1,000 1,010
CMS Energy Corp.
9.500% due 10/01/97 1,000 1,035
Multistrategy Bond Fund 101
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Coast Federal Bank
13.000% due 12/31/02 $ 375 $ 427
Coast Savings Financial, Inc.
10.000% due 03/01/00 175 183
Coastal Corp.
10.375% due 10/01/00 500 584
Columbia Gas Systems, Inc.
Series A
6.390% due 11/28/00 63 64
Series B
6.610% due 11/28/02 58 59
Series C
6.800% due 11/28/05 58 60
Series D
7.050% due 11/28/07 58 59
Series E
7.320% due 11/28/10 58 59
Series F
7.420% due 11/28/15 58 59
Series G
7.620% due 11/28/25 58 59
Columbia/HCA Health Care Corp.
6.630% due 07/15/45 550 568
Companhia Petroleo Ipiranga
8.625% due 02/25/02 (c) 600 585
Continental Cablevision, Inc.
8.500% due 09/15/01 125 130
8.625% due 08/15/03 100 104
8.300% due 05/15/06 650 652
Cott Corp.
9.375% due 07/01/05 350 349
CP Limited Partnership
8.750% due 03/02/00 500 526
CTC Mansfield Funding Corp.
10.250% due 03/30/03 500 507
Delta Air Lines, Inc.
10.375% due 02/01/11 195 244
Dime Bancorp, Inc.
10.500% due 11/15/05 320 352
EnviroSource, Inc.
9.750% due 06/15/03 470 414
Exide Corp.
10.750% due 12/15/02 250 271
Exide Corp. Step Up Bond
12.250% due 12/15/04 665 559
Falcon Holdings Group, L.P. PIK Series B
11.000% due 09/15/03 420 399
Federal Realty Investment Trust
8.875% due 01/15/00 650 705
First Nationwide Holdings, Inc.
12.250% due 05/15/01 425 484
First USA Bank
8.200% due 02/15/98 500 521
Ford Motor Credit Co. (MTN)
4.800% due 07/22/96 200 199
Ford Motor Credit Co. CMS Floater (MTN)
4.820% due 07/12/96 (c) 250 249
Gaylord Container Corp. Step Up Bond
12.750% due 05/15/05 165 163
General Medical Corp. of Virginia PIK
12.125% due 08/15/05 897 916
General Motors Acceptance Corp.
8.625% due 06/15/99 130 141
8.400% due 10/15/99 185 201
General Motors Acceptance Corp. (MTN)
5.480% due 07/19/96 (c) 2,000 2,001
7.375% due 04/15/99 940 985
Goldman Sachs Group, L.P
6.375% due 06/15/00 400 405
6.200% due 02/15/01 300 299
Grancare, Inc.
9.375% due 09/15/05 700 711
Grancare, Inc. (conv.)
6.500% due 01/15/03 200 173
Grupo Industrial Durango SA de CV
12.000% due 07/15/01 555 487
Hanson America, Inc. (conv.)
2.390% due 03/01/01 775 643
Inland Steel Industries, Inc.
12.750% due 12/15/02 275 309
Koppers Industries, Inc.
8.500% due 02/01/04 500 480
Liberty Mutual Insurance Co.
8.200% due 05/04/07 500 555
Long Island Lighting Co.
6.250% due 07/15/01 190 182
8.900% due 07/15/19 200 202
Nabisco, Inc.
8.000% due 01/15/00 2,000 2,126
New England Mutual Life Insurance Co.
7.875% due 02/15/24 325 336
News America Holdings, Inc.
8.875% due 04/26/23 350 405
7.700% due 10/30/25 300 307
Niagara Mohawk Power Corp.
5.875% due 09/01/02 240 214
7.375% due 08/01/03 200 187
102 Multistrategy Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
NWA Trust
13.875% due 06/21/08 $ 90 $ 105
Owens-Illinois, Inc.
11.000% due 12/01/03 900 1,017
PDV America, Inc.
7.875% due 08/01/03 750 703
PennCorp. Financial Group, Inc.
9.250% due 12/15/03 700 711
Peters (J.M.), Inc.
12.750% due 05/01/02 230 210
Pueblo Xtra International
9.500% due 08/01/03 220 206
Purity Supreme, Inc. Series B
11.750% due 08/01/99 375 411
Revlon Worldwide Corp. Series B
Zero Coupon due 03/15/98 290 215
Riggs National Corp. Washington, D.C.
9.650% due 06/15/09 250 290
Salomon, Inc.
9.375% due 04/15/98 100 106
6.700% due 12/01/98 425 427
7.125% due 08/01/99 275 278
Salomon, Inc. (MTN)
6.360% due 04/01/98 125 125
6.125% due 05/15/98 75 75
Smith Barney Holdings, Inc.
7.980% due 03/01/00 400 429
6.500% due 10/15/02 225 229
Stone Container Corp.
9.875% due 02/01/01 700 681
Stop & Shop Cos., Inc.
9.750% due 02/01/02 300 331
Summit Communications Group, Inc.
10.500% due 04/15/05 390 435
Swiss Bank Corp.
6.750% due 07/15/05 420 439
Taubman Realty Group, L.P.
8.000% due 06/15/99 450 472
Tenet Healthcare Corp.
8.625% due 12/01/03 700 735
Time Warner, Inc.
6.835% due 08/15/00 (c) 375 377
7.975% due 08/15/04 225 238
8.110% due 08/15/06 840 894
8.180% due 08/15/07 450 483
9.125% due 01/15/13 845 952
9.150% due 02/01/23 990 1,123
Toledo Edison Co.
8.700% due 09/01/02 500 460
Toledo Edison Co. (MTN)
8.000% due 12/31/98 500 497
U.S. West Communications, Inc.
7.200% due 11/10/26 375 386
UCC Investors Holding, Inc.
Step Up Bond
12.000% due 05/01/05 220 167
United Companies Financial Corp.
9.350% due 11/01/99 375 398
USAT Holdings, Inc.
9.050% due 05/15/98 (c) 200 196
Varity Corp.
11.375% due 11/15/98 250 261
Viacom, Inc.
7.750% due 06/01/05 700 743
Wellsford Residential Property Trust
9.375% due 02/01/02 475 533
Westpoint Stevens, Inc.
8.750% due 12/15/01 250 249
--------
50,903
--------
EURODOLLAR BONDS - 3.1%
Argentina, Republic of Series L
6.813% due 03/31/05 (c) 2,000 1,425
Bulgaria, Republic of Series A
6.750% due 07/28/24 (c) 550 292
Cemex SA
8.875% due 06/10/98 2,000 1,925
Credit Lyonnais
6.844% due 09/19/49 (f) 230 209
Fifth Mexican Acceptance Corp. Class A
8.000% due 12/15/98 550 220
Hong Kong & Shanghai Bank
6.250% due 08/29/49 (f) 535 427
Indah Kiat Paper & Pulp
8.875% due 11/01/00 195 182
Mexico (United Mexican States)
6.766% due 12/31/19 (c) 2,000 1,445
Midland Bank
6.063% due 12/31/49 (f) 170 137
Nacional Financier
9.375% due 04/23/99 (c) 500 484
--------
6,746
--------
Multistrategy Bond Fund 103
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES - 31.2%
Asset Securitization Corp.
Series 1995-MD4 Class A1
7.100% due 08/13/29 $ 699 $ 729
Collateralized Mortgage Securities Corp.
Series J Class J-5 CMO
7.985% due 05/01/17 1,980 2,019
FDIC REMIC Trust
Series 1994-C1 Class 2A-2
7.850% due 09/25/25 500 515
Federal Home Loan Mortgage Corp.
6.000% 5 Year TBA (e) 185 186
8.000% 30 Year TBA (e) 5,450 5,648
Participation Certificates
Series 1014 Class E
7.950% due 02/15/20 1,100 1,128
Series 1037 Class Z
9.000% due 02/15/21 1,542 1,655
Federal National Mortgage Association
Pool #050748 7.500% due 06/01/23 19 20
Pool #050766 7.500% due 07/01/23 561 575
Pool #050775 7.500% due 08/01/23 119 122
Pool #050796 7.500% due 09/01/23 361 370
Pool #050996 7.500% due 02/01/24 658 674
Pool #124032 10.000% due 02/01/05 515 542
Pool #190504 7.349% due 11/01/23 (c) 2,010 2,059
Pool #227029 7.500% due 09/01/23 259 266
Pool #228620 7.500% due 07/01/23 132 135
Pool #231431 7.500% due 10/01/23 93 95
Pool #250060 7.500% due 06/01/24 260 266
Pool #250179 7.500% due 11/01/24 504 516
Pool #250345 7.000% due 09/01/25 451 455
Pool #250350 7.500% due 10/01/25 985 1,009
Pool #250359 7.000% due 10/01/25 1,283 1,294
Pool #276234 7.000% due 05/01/24 515 520
Pool #286017 7.000% due 06/01/24 744 750
Pool #303016 6.000% due 10/01/01 1,254 1,252
Pool #303555 7.000% due 09/01/25 2,059 2,075
Pool #312494 7.000% due 07/01/25 480 484
Pool #316651 7.000% due 08/01/25 291 294
Pool #316681 7.000% due 07/01/25 1,373 1,384
Pool #317262 7.000% due 07/01/25 403 406
Pool #318863 7.000% due 08/01/25 794 801
Pool #319580 7.000% due 08/01/25 903 910
Pool #320094 7.000% due 09/01/25 197 199
Pool #321110 7.000% due 09/01/25 272 274
Pool #322344 7.500% due 09/01/25 63 65
Pool #324193 7.000% due 09/01/25 986 994
Pool #324205 7.000% due 09/01/25 986 994
Federal National Mortgage Association
6.500% 7 Year TBA (e) 150 152
7.000% 15 Year TBA (e) 2,700 2,750
REMIC
9.100% due 12/25/12 32 32
REMIC Series 1994-3 Class SA
3.450% due 01/25/24 (c) 425 184
REMIC Trust Series 1990-21 Class Z
9.000% due 03/25/20 3,300 3,515
REMIC Trust Series 1994-79 Class Z
7.000% due 04/25/24 2,247 2,085
Government National Mortgage Association
Pool #008163 6.500% due 03/20/23 (c) 2,420 2,468
Pool #008288 7.250% due 09/20/23 (c) 834 847
Pool #008528 6.500% due 10/20/24 (c) 4,677 4,774
Pool #321855 7.500% due 06/15/23 199 205
Pool #330320 7.500% due 10/15/23 43 44
Pool #345696 7.000% due 06/15/24 58 59
Pool #348193 7.500% due 07/15/23 508 523
Pool #348888 7.000% due 07/15/23 1,662 1,682
Pool #351437 7.000% due 02/15/24 23 24
Pool #352050 7.000% due 10/15/23 1,043 1,056
Pool #352129 9.000% due 08/15/24 718 760
Pool #353132 7.500% due 07/15/23 129 133
Pool #359600 7.500% due 07/15/23 91 93
Pool #362175 7.000% due 01/15/24 247 250
Pool #369166 7.500% due 10/15/23 356 366
Pool #369168 7.500% due 11/15/23 223 229
Pool #372108 7.000% due 06/15/24 25 25
Pool #376352 7.500% due 12/15/23 921 947
Pool #384568 7.000% due 04/15/24 198 200
Pool #385312 9.000% due 11/15/24 587 621
Pool #389622 9.000% due 10/15/24 431 456
Pool #393138 7.500% due 04/15/24 257 265
Pool #401237 9.000% due 01/15/25 296 314
Pool #403241 9.000% due 02/15/25 664 703
Pool #404014 9.000% due 12/15/24 261 277
Pool #405334 9.000% due 10/15/24 170 181
Pool #409930 7.500% due 08/15/25 503 518
Pool #780029 9.000% due 11/15/24 399 427
Government National Mortgage Association
7.000% 30 Year TBA (e) 5,900 5,970
Paine Webber Mortgage Acceptance Corp. IV
Series 1995-M1 Class A
6.700% due 01/15/07 720 733
Ryland Acceptance Corp.
Series 83 Class 83-E CMO
8.150% due 10/01/17 127 127
104 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Ryland Mortgage Securities Corp. CMO
Series 1993-8 Class A
7.870% due 09/25/23 (c) $ 2,564 $ 2,604
--------
68,279
--------
MUNICIPAL BONDS - 0.5%
Atlanta Water & Sewer Revenue
4.750% due 01/01/23 290 266
Chicago, Illinois, General Obligation
5.500% due 01/01/24 155 152
Salt River Project, Arizona,
Agricultural Improvement
& Power District Series B
5.250% due 01/01/19 290 285
South Carolina, Public Service Authority
Series C
5.125% due 01/01/21 500 485
--------
1,188
--------
NON-US BONDS - 3.7%
Canada, Government of
8.750% due 12/01/05 CD 1,000 819
Germany, Republic of
6.250% due 01/04/24 DM 9,800 6,364
Italy, Republic of
6.875% due 09/27/23 $ 470 459
Poland, Government of
6.875% due 10/27/24 (c) 455 343
--------
7,985
--------
UNITED STATES GOVERNMENT
AGENCIES - 0.5%
Tennessee Valley Authority
6.235% due 07/15/45 1,100 1,139
--------
1,139
--------
UNITED STATES GOVERNMENT
TREASURIES - 12.5%
United States Treasury Bonds
7.250% due 05/15/16 975 1,113
7.500% due 11/15/16 1,800 2,111
8.125% due 08/15/19 1,850 2,326
7.875% due 02/15/21 4,455 5,486
7.125% due 02/15/23 2,081 2,379
United States Treasury Notes
5.375% due 05/31/98 1,700 1,706
5.125% due 11/30/98 1,500 1,495
6.750% due 05/31/99 2,450 2,559
6.750% due 06/30/99 1,050 1,098
6.875% due 07/31/99 85 89
6.875% due 08/31/99 300 315
7.750% due 11/30/99 95 103
7.125% due 02/29/00 1,000 1,065
6.375% due 08/15/02 660 692
6.250% due 02/15/03 150 156
5.750% due 08/15/03 1,150 1,164
5.875% due 02/15/04 375 381
5.875% due 11/15/05 2,050 2,096
United States Treasury
Principal Only Strip
Zero Coupon due 11/15/99 465 379
Zero Coupon due 11/15/21 3,475 709
--------
27,422
--------
YANKEE BONDS - 4.1%
Bombril SA
8.000% due 08/26/98 400 363
Brazil, Federal Republic of
6.688% due 01/01/01 (c) 475 409
Christiana Bank
6.063% due 11/30/49 (c) 80 64
Den Norske Creditbank AS
6.125% due 11/30/49 (f) 170 134
Doman Industries, Ltd.
8.750% due 03/15/04 420 398
Domtar, Inc.
11.750% due 03/15/99 200 224
12.000% due 04/15/01 500 591
Ecuador, Republic of
3.000% due 02/28/25 (c) 1,800 650
Fairfax Financial Holdings, Ltd.
7.750% due 12/15/03 275 289
Lloyds Bank
6.063% due 12/31/99 (f) 290 241
Methanex Corp.
7.750% due 08/15/05 775 822
Mexico (United Mexican States)
6.547% due 12/31/19 (c) 1,000 723
6.250% due 12/31/19 750 488
National Westminster Bank PLC
6.125% due 12/31/99 (c) 220 185
Multistrategy Bond Fund 105
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
Santander Finnish Issuances
6.775% due 09/30/49 (c) $ 500 $ 450
St. George Bank, Ltd.
7.150% due 10/15/05 700 725
Standard Chartered Bank Group PLC
5.775% due 12/31/99 (f) 250 189
Telewest Communications
PLC Step Up Bond
11.000% due 10/01/07 1,700 1,026
Tembec Finance Corp.
9.875% due 09/30/05 600 596
Trizec Finance
10.875% due 10/15/05 350 359
Videotron Holdings PLC Step Up Bond
11.000% due 08/15/05 200 124
--------
9,050
--------
TOTAL LONG-TERM INVESTMENTS
(cost $180,887) 185,575
--------
OPTIONS PURCHASED - 0.1%
United States Treasury Bond
Feb 98.50 Call (b) 5,000* 155
--------
TOTAL OPTIONS PURCHASED
(cost $145) 155
--------
<CAPTION>
NUMBER
OF
SHARES
------
<S> <C> <C>
PREFERRED STOCKS - 0.6%
Australia & New Zealand
Banking Group, Ltd 5,300 144
California Federal Bank
of Los Angeles Series B 4,475 486
Credit Lyonnais Capital S.C.A. - ADR 6,400 159
Equity Residential Property Trust 4,000 102
Lasalle National Corp. Series K 2,500 131
Newscorp Overseas, Ltd. 8,000 178
Texaco Capital Series B 2,100 44
Wellsford Residential Property Trust Series B 5,000 129
--------
TOTAL PREFERRED STOCKS
(cost $1,361) 1,373
--------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 19.3%
Federal Home Loan Mortgage Corp.
Discount Notes
4.215% due 01/16/96 (a)(h) $ 900 $ 898
Frank Russell Investment Company
Money Market Fund, due on demand (a) 28,165 28,165
Mexico (United Mexican States)
Structured Note
Zero Coupon due 11/27/96 600 611
United States Treasury Bills
5.340% due 02/08/96 (a)(g)(h) 115 114
5.265% due 02/15/96 (a)(g)(h) 120 119
5.305% due 02/22/96 (a)(g)(h) 140 139
5.305% due 06/27/96 (h) 150 147
United States Treasury Notes
6.125% due 07/31/96 5,000 5,026
4.375% due 08/15/96 7,000 6,965
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $42,159) 42,184
--------
TOTAL INVESTMENTS
(identified cost $224,552)(d) - 104.8% 229,287
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (4.8%) (10,522)
--------
NET ASSETS - 100.0% $218,765
--------
--------
</TABLE>
(a) At cost, which approximates market.
(b) Nonincome-producing security.
(c) Adjustable or floating rate security.
(d) At December 31, 1995, the cost for federal income tax purposes was $224,674
and net unrealized appreciation for all securities was $4,613. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $6,562 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $1,949.
(e) Forward commitment. See Note 2.
(f) Perpetual floating rate note.
(g) Held as collateral by the custodian in connection with futures contracts
and put options written.
(h) Rate noted is yield-to-maturity (unaudited).
(MTN) represents Medium Term Note.
* Number of contracts.
The accompanying notes are an integral part of the financial
statements.
106 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
FUTURES AND OPTIONS WRITTEN
December 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
German 10 Year Bund
Futures Contracts
expiration date 03/96 40 $ 59
UK Long Gilt
Futures Contracts
expiration date 03/96 30 29
United States Treasury 5 Year Note
Futures Contracts
expiration date 03/96 80 51
United States Treasury 10 Year Note
Futures Contracts
expiration date 03/96 110 110
United States Treasury 30 Year Bond
Futures Contracts
expiration date 03/96 25 37
-------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (*) $ 286
-------
-------
</TABLE>
(*) At December 31, 1995, United States Treasury Bills valued at $367 were held
as collateral by the custodian in connection with futures contracts
purchased by the Fund.
PUT OPTIONS WRITTEN
(Notes 2 and 3)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
CONTRACTS (000)
--------- -------
<S> <C> <C>
Eurodollar Futures Contract
strike price 91.75
expiration date 03/96 19 $ 1
-------
Total Liability for Put Options Written
(premiums received $7)(++) $ 1
-------
-------
</TABLE>
(++) At December 31, 1995, United States Treasury Bills valued at $5 were held
as collateral by the custodian in connection with put options written.
The accompanying notes are an integral part of the financial
statements.
Multistrategy Bond Fund 107
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost
$224,551,998)(Note 2). . . . . . . . . . . . . . . . . . . . . . $ 229,287,406
Foreign currency holdings (identified cost $409,166). . . . . . . 412,445
Forward foreign currency exchange contracts (cost $6,746,595)
(Notes 2 and 6). . . . . . . . . . . . . . . . . . . . . . . . . 6,746,595
Receivables:
Dividends and interest. . . . . . . . . . . . . . . . . . . . . 3,384,860
Investments sold. . . . . . . . . . . . . . . . . . . . . . . . 399,502
Fund shares sold. . . . . . . . . . . . . . . . . . . . . . . . 451,136
From Manager (Note 4) 83,382
Daily variation margin on futures contracts (Notes 2 and 3) . . 65,190
Deferred organization expenses (Note 2) . . . . . . . . . . . . . 14,117
---------------
240,844,633
LIABILITIES
Payables:
Investments purchased (regular settlement). . . . . $ 463,170
Investments purchased (delayed settlement)(Note 2). 14,533,047
Fund shares redeemed . . . . . . . . . . . . . . . 105,789
Accrued bookkeeping service fees (Note 4) . . . . . 5,776
Accrued management fees (Note 4). . . . . . . . . . 120,287
Accrued transfer agent fees (Note 4). . . . . . . . 24,518
Other accrued expenses and payables . . . . . . . . 65,746
Forward foreign currency exchange contracts
(cost $6,746,595)(Notes 2 and 6). . . . . . . . . . 6,760,332
Options written, at market value
(premiums received $6,536)(Notes 2 and 3) . . . . . 475 22,079,140
----------- ---------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 218,765,493
---------------
---------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . $ 13,737
Accumulated net realized gain (loss) . . . . . . . . . (614,377)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . 4,735,408
Futures contracts. . . . . . . . . . . . . . . . . . 286,219
Options written. . . . . . . . . . . . . . . . . . . 6,061
Foreign currency-related transactions. . . . . . . . (14,044)
Shares of beneficial interest. . . . . . . . . . . . . 213,480
Additional paid-in capital . . . . . . . . . . . . . . 214,139,009
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 218,765,493
---------------
---------------
Net asset value, offering and redemption price per
share ($218,765,493 divided by 21,348,039 shares
of $.01 par value, shares of beneficial interest
outstanding) . . . . . . . . . . . . . . . . . . . . . . $10.25
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
108 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,445,853
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . 1,999,570
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,967
----------------
14,579,390
Expenses (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . $ 1,271,039
Custodian fees. . . . . . . . . . . . . . . . 154,337
Transfer agent fees.. . . . . . . . . . . . . 186,523
Bookkeeping service fees. . . . . . . . . . . 26,872
Registration fees . . . . . . . . . . . . . . 66,781
Professional fees . . . . . . . . . . . . . . 17,222
Trustees' fees . . . . . . . . . . . . . . . 4,352
Amortization of deferred organization
expenses . . . . . . . . . . . . . . . . . . 5,690
Miscellaneous . . . . . . . . . . . . . . . . 12,704
--------------
Expenses before reimbursement . . . . . . . . 1,745,520
Expenses reimbursed by Manager (Note 4) . . . (83,382) 1,662,138
-------------- ----------------
Net investment income . . . . . . . . . . . . . . . . . . . . . 12,917,252
----------------
REALIZED AND UNREALIZED,
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 1,563,456
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . 3,136,612
Options written. . . . . . . . . . . . . . . . . . . . . . . . 379,327
Foreign currency-related transactions. . . . . . . . . . . . . 242,452
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 13,490,293
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . 294,891
Options written. . . . . . . . . . . . . . . . . . . . . . . . 43,948
Foreign currency-related transactions. . . . . . . . . . . . . (14,044)
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . 19,136,935
--------------
Net increase (decrease) in net assets resulting from
operations. . . . . . . . . . . . . . .. . . . . . . . . . . . $ 32,054,187
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
Multistrategy Bond Fund 109
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . $ 12,917,252 $ 9,107,483
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . 1,563,456 (5,043,783)
Futures contracts . . . . . . . . . . . . . . . . 3,136,612 (981,398)
Options written . . . . . . . . . . . . . . . . . 379,327 68,998
Foreign currency-related transactions . . . . . . 242,452 --
Net change in unrealized appreciation or
depreciation of:
Investments . . . . . . . . . . . . . . . . . . . 13,490,293 (8,695,141)
Futures contracts . . . . . . . . . . . . . . . . 294,891 (7,547)
Options written . . . . . . . . . . . . . . . . . 43,948 (37,887)
Foreign currency-related transactions . . . . . . (14,044) --
------------- ------------
Net increase (decrease) in net assets resulting
from operations. . . . . . . . . . . . . . . . . . . 32,054,187 (5,589,275)
Distributions to shareholders:
Net investment income . . . . . . . . . . . . . . . (13,104,794) (8,986,943)
Increase (decrease) in net assets from Fund
share transactions . . . . . . . . . . . . . . . . . 26,780,829 89,237,389
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . 45,730,222 74,661,171
Net assets at beginning of year . . . . . . . . . . . 173,035,271 98,374,100
------------ ------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $13,737 and $96,915, respectively). . . . . . . $218,765,493 $173,035,271
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . 9,709,055 $94,838,687 12,276,488 $119,806,005
Fund shares issued to
shareholders in reinvestments
of distributions. . . . . . . . 1,058,466 10,420,168 703,819 6,739,486
Fund shares redeemed . . . . . . (8,041,858) (78,478,026) (3,901,970) (37,308,102)
---------- ---------- ---------- -----------
Net increase (decrease). . . . . 2,725,663 $26,780,829 9,078,337 $89,237,389
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
110 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year or period ended December 31, and other performance information derived
from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993++
------- ------- ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . $9.29 $10.31 $10.00
------- ------- ------
Income From Investment Operations:
Net investment income . . . . . . . . . . . . .65 .58 .46
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . . . .97 (1.03) .40
------- ------- ------
Total Income From Investment Operations . . . 1.62 (.45) .86
------- ------- ------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . (.66) (.57) (.46)
Net realized gain on investments. . . . . . . -- -- (.08)
In excess of net realized gain on investments -- -- (.01)
------- ------- ------
Total Distributions . . . . . . . . . . . . . (.66) (.57) (.55)
------- ------- ------
NET ASSET VALUE, END OF YEAR . . . . . . . . . $10.25 $9.29 $10.31
------- ------- ------
------- ------- ------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . 17.92 (4.35) 8.74
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net
assets (b)(c). . . . . . . .. . . . . . . . . .85 .85 .85
Operating expenses, gross, to average net
assets (b)(c) . . . . . . . . . . . . . . . . .89 .90 1.20
Net investment income to average net
assets (b). . . . . . . . . . . . . . . . . . 6.61 6.26 5.60
Portfolio turnover (b). . . . . . . . . . . . 142.26 136.39 188.95
Net assets, end of year ($000 omitted). . . . 218,765 173,035 98,374
Per share amount of fees waived ($ omitted) . -- -- .0002
Per share amount of fees reimbursed
($ omitted)(c) . . . . . . . . . . . . . . . .0042 .0043 .0286
</TABLE>
++ For the period January 29, 1993 (commencement of operations) to December 31,
1993.
(a)Periods less than one year are not annualized.
(b)The ratios for the period ended December 31, 1993 are annualized.
(c)See Note 4.
Multistrategy Bond Fund 111
<PAGE>
MULTISTRATEGY BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 MULTISTRATEGY BOND LB AGGREGATE** LIPPER-C- INTERMEDIATE++
- ----------------- ------------------ -------------- ------------------------
<S> <C> <C> <C>
Inception* $10,000 $10,000 $10,000
1993 $10,874 $10,768 $10,506
1994 $10,401 $10,454 $10,155
1995 $12,265 $12,386 $11,839
</TABLE>
Multistrategy Bond Fund
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------ --------- ------
<S> <C> <C>
1 Year $ 11,792 17.92%
Inception $ 12,265 7.24%***
</TABLE>
Lehman Brothers Aggregate Bond Index
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------ --------- ------
<S> <C> <C>
1 Year $ 11,848 18.48%
Inception $ 12,386 7.61%***
</TABLE>
Lipper-C- Intermediate Investment Grade Debt Funds Average
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------ --------- ------
<S> <C> <C>
1 Year $ 11,658 16.58%
Inception $ 11,839 6.33%***
</TABLE>
*Assumes initial investment on February 1, 1993. Lipper index comparison
for the initial investment began January 1, 1993.
**Lehman Brothers Aggregate Bond Index is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index,
and the Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
++Lipper-C- Intermediate (5-10 Yr.) Investment Grade Debt Funds Average
is the average total return for the universe of funds with the Intermediate
Investment Grade Debt Funds investment objective. The total return for the
funds reflects adjustments for income dividends and capital gains
distributions reinvested as of the ex-dividend dates. This type of funds
invests at least 65% of assets in U.S. Treasury Bills, Notes and Bonds with
average maturities of five to ten years.
***Annualized.
MULTISTRATEGY BOND FUND returned 17.9% in 1995, which lagged the Lehman
Brothers Aggregate Bond Index Return of 18.5%. The portfolio was managed in a
manner consistent with its objective to provide maximum total return,
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from broad fixed income market
portfolios. The Fund seeks to diversify risk and provide exposure to a
variety of total return strategies by employing the services of three bond
managers, each with a separate and distinct assignment.
With the US Bond market up dramatically in 1995, the Fund's foreign holdings
lagged through most of the year before contributing strong returns in the
fourth quarter. Domestic mortgage-backed securities and high yield bonds also
lagged for the greater part of the year, which impacted Fund performance
negatively. Corporate and Treasury holdings performed well and were enhanced
by good security selection to help offset some of the underperformance caused
by other factors.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
112 Multistrategy Bond Fund
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 22 different investment portfolios referred to as "Funds."
These financial statements report on 8 Funds, each of which has distinct
investment objectives and strategies. The Investment Company is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. It is organized and operates as a
Massachusetts business trust under an amended master trust agreement dated
July 26, 1984. The Investment Company's master trust agreement permits the
Board of Trustees to issue an unlimited number of full and fractional shares
of beneficial interest at a $.01 par value.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies, which
require the use of estimates made by management. Such policies are
consistently followed by the Funds in the preparation of these financial
statements.
SECURITY VALUATION: United States equity and fixed-income securities listed
and traded principally on any national securities exchange are valued on the
basis of the last sale price or, lacking any sale, at the closing bid price,
on the primary exchange on which the security is traded. United States
over-the-counter equity and fixed-income securities and options are valued on
the basis of the closing bid price. Futures contracts are valued on the basis
of the last sale price. Many fixed-income securities do not trade each day
and, thus, last sale or bid prices are frequently not available. Fixed-income
securities, therefore, may be valued using prices provided by a pricing
service when such prices are believed to reflect the fair market value of
such securities.
International equity and fixed-income securities traded on a national
securities exchange are valued on the basis of the last sale price.
International securities traded over the counter are valued on the basis of
the mean of bid prices. In the absence of a last sale or mean bid price,
respectively, such securities may be valued on the basis of prices provided
by a pricing service if those prices are believed to reflect the fair market
value of such securities.
Money Market instruments held by the Funds maturing within 60 days of the
valuation date and valued at "amortized cost" unless the Board of Trustees
determines that amortized cost does not represent fair value.
The Funds may value certain securities for which market quotations are not
readily available at "fair value," as determined in good faith pursuant to
procedures established by the Board of Trustees.
INVESTMENT TRANSACTIONS: Securities transactions are recorded on a trade
date basis. The Funds may lend portfolio securities with a value of up to 50%
of their total assets. The Funds will receive cash, U.S. government
treasuries or U.S. government agency securities as collateral. The Funds will
retain most rights of beneficial ownership, including dividends, interest or
other distributions on the loaned securities. Realized gains and losses from
securities transactions are recorded on the basis of identified cost incurred
by each money manager.
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis.
AMORTIZATION AND ACCRETION: All zero-coupon bond discounts and original
issue discounts are accreted for both tax and financial reporting purposes.
All short-term premiums/discounts are amortized/accreted for both tax and
financial reporting purposes.
FEDERAL INCOME TAXES: As a Massachusetts business trust, each Fund is a
separate corporate taxpayer and determines its net investment income and
capital gains (or losses) and the amounts to be distributed to each Fund's
shareholders without regard to the income and capital gains (or losses) of
the other Funds.
Notes to Financial Statements 113
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
It is each Fund's intention to qualify as a regulated investment company and
distribute all of its taxable income. No federal income tax provision was
required for the year ended December 31, 1995. From November 1, 1995 to
December 31, 1995, the Volatility Constrained Bond Fund incurred net realized
capital losses of $9,180. As permitted by tax regulations, the Volatility
Constrained Bond Fund intends to elect to defer these losses and treat them
as arising in the year ending December 31, 1996.
At December 31, 1995, certain Funds had net tax basis capital loss
carryforwards which may be applied against any net realized taxable gains in
each succeeding year or until their respective expiration dates, whichever
occurs first. Available capital loss carryforwards and expiration dates are
as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/02 12/31/03 TOTALS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Diversified Bond $ -- $(9,899,442) $ -- $(9,899,442)
Volatility Constrained Bond (2,298,957) (5,583,410) (1,871,605) (9,753,972)
</TABLE>
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: For all Funds, income dividends
and capital gain distributions, if any, are recorded on the ex-dividend date.
Dividends are generally declared and paid quarterly for the equity Funds,
annually for the International Securities Fund and monthly for the fixed
income Funds. Capital gain distributions are generally declared and paid
annually. An additional distribution may be paid by the Funds to avoid
imposition of federal income tax on any remaining undistributed capital gains
and net investment income.
The timing and characterization of certain income and capital gain
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles ("GAAP"). As a
result, net investment income and net realized gain (or loss) on investment
and foreign currency-related transactions for a reporting period may differ
significantly from distributions during such period. The differences between
tax regulations and GAAP primarily relate to investments in options, futures,
forward contracts, passive foreign investment companies, foreign-denominated
investments, mortgage-backed securities, and certain securities sold at a
loss. Accordingly, a Fund may periodically make reclassifications among
certain of its capital accounts without impacting its net asset value.
The following reclassifications have been made to reflect activity for the
year ended December 31, 1995:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED ADDITIONAL
INCOME GAIN (LOSS) PAID-IN CAPITAL
--------------- -------------- ----------------
<S> <C> <C> <C>
Diversified Equity $ 92,558 $ 18,251 $ (110,809)
Special Growth 383,844 (220,155) (163,689)
Equity Income 1,389 115,609 (116,998)
Quantitative Equity -- 20,078 (20,078)
International Securities 3,760,561 (3,243,107) (517,454)
Diversified Bond 249,777 (354,610) 104,833
Volatililty Constrained Bond -- 95,965 (95,965)
Multistrategy Bond 104,364 (3,809) (100,555)
</TABLE>
EXPENSES: Expenses such as management, custodian, transfer agent, bookkeeping,
printing, and registration fees are charged directly to the individual Funds;
while indirect expenses, such as administrative, insurance, and professional
fees are allocated among all Funds principally based on their relative net
assets.
DEFERRED ORGANIZATION EXPENSES: Organization and initial registration costs of
Multistrategy Bond Fund have been deferred and are being amortized over 60
months on a straight-line basis.
114 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
REPURCHASE AGREEMENTS: The Funds may engage in repurchase agreements with
several financial institutions whereby a Fund, through its custodian,
receives delivery of the underlying securities. Each Fund's Money Manager
will monitor repurchase agreements daily to determine that the market value
(including accrued interest) at Fedwire closing time of the underlying
securities remains at least equal to 102% of the repurchase price. The Money
Manager will notify the Seller to immediately increase the collateral on the
repurchase agreement to 102% of the repurchase price if collateral value
falls below 102%.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts and transactions of the
Funds are translated into U.S. dollars on the following basis:
(a) Market value of investment securities, other assets and liabilities at
the closing rate of exchange on the valuation date.
(b) Purchases and sales of investment securities and income at the closing
rate of exchange prevailing on the respective trade dates of such
transactions.
Reported net realized gains or losses from foreign currency-related
transactions arise from: sales and maturities of short-term securities; sales
of foreign currencies; currency gains or losses realized between the trade
and settlement dates on securities transactions; the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds' books; and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized gains or losses from foreign currency-related
transactions arise from changes in the value of assets and liabilities, other
than investments in securities, at year-end, resulting from changes in the
exchange rates.
It is not practical to isolate that portion of the results of operations of
the International Securities, Diversified Bond, Volatility Constrained Bond
and Multistrategy Bond Funds that arise as a result of changes in exchange
rates from that portion that arise from changes in market prices of
investments during the year. Such fluctuations are included with the net
realized and unrealized gain or loss from investments. However, for federal
income tax purposes these Funds do isolate the effects of changes in foreign
exchange rates from the fluctuations arising from changes in market prices
for realized gain (or loss) on debt obligations.
DERIVATIVES: To the extent permitted by the investment objectives,
restrictions and policies set forth in the Funds' Prospectus and Statement of
Additional Information, the Funds may participate in various derivative-based
transactions. Derivative securities are instruments or agreements whose value
is derived from an underlying security or index. They include options,
futures, swaps, forwards, structured notes and stripped securities. These
instruments offer unique characteristics and risks that assist the Funds in
meeting their investment strategies.
The Funds typically use derivatives in three ways: cash equitization,
hedging, and return enhancement. Cash equitization is a technique that may be
used by certain Funds through the use of options and futures to earn
"market-like" returns with a Funds' excess and liquidity reserve cash
balances. Hedging is used by some Funds to limit or control risks, such as
adverse movements in exchange rates and interest rates. Return enhancement
can be accomplished through the use of derivatives in a Fund. By purchasing
certain instruments, a Fund may more effectively achieve the desired
portfolio characteristics that assist the Funds in meeting their investment
objectives. Depending on how the derivatives are utilized and their
structure, the risks associated with them may vary widely. These risks are
generally categorized as market risk, liquidity risk and counterparty or
credit risk.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio
purchases and sales of securities denominated in a foreign currency, certain
Funds may enter into foreign currency exchange spot contracts and forward
foreign currency exchange contracts ("contracts"). The International
Securities Fund may enter into foreign currency forward overlays on liquidity
reserve balances. Additionally, from time to time the International
Securities, Diversified Bond, Volatility Constrained Bond and Multistrategy
Bond Funds may enter into contracts to hedge certain foreign
currency-denominated assets. Contracts are recorded at market value. Certain
risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts. Realized
gains or losses arising from such transactions are included in net realized
gain (or loss) from foreign currency-related transactions.
Notes to Financial Statements 115
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FORWARD COMMITMENTS: The Funds may contract to purchase securities for a
fixed price at a future date beyond customary settlement time (not to exceed
120 days)(i.e., a "forward commitment" or "delayed settlement" transaction,
e.g., to be announced ("TBA")) consistent with a Fund's ability to manage its
investment portfolio and meet redemption requests. The price of the
underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated. The Funds may
dispose of a forward commitment transaction prior to settlement if it is
appropriate to do so and realize short-term gains (or losses) upon such sale.
When effecting such transactions, cash or liquid high-grade debt obligations
of the Fund in a dollar amount sufficient to make payment for the portfolio
securities to be purchased will be segregated on the Fund's records at the
trade date and maintained until the transaction is settled. A forward
commitment transaction involves a risk of loss if the value of the security
to be purchased declines prior to the settlement date or the other party to
the transaction fails to complete the transaction.
OPTIONS: The Funds may purchase and sell (write) call and put options on
securities and securities indices, provided such options are traded on a
national securities exchange or in an over-the-counter market. These Funds
may also purchase and sell put and call options on foreign currencies. The
domestic equity Funds utilize options to equitize liquidity reserve balances.
When a Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. The Fund receives a premium on the sale of a
call option but gives up the opportunity to profit from any increase in stock
value above the exercise price of the option, and when the Fund writes a put
option it is exposed to a decline in the price of the underlying security. If
an option which the Fund has written either expires on its stipulated
expiration date or the Fund enters into a closing purchase transaction, the
Fund realizes a gain (or loss, if the cost of a closing purchase transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related
to such option is extinguished. If a call option which the Fund has written
is exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security, and the proceeds from such sale are increased by the
premium originally received. When a put option which a Fund has written is
exercised, the amount of the premium originally received will reduce the cost
of the security which a Fund purchases upon exercise of the option.
The Funds' use of written options involves, to varying degrees, elements of
market risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The face or contract amounts of these instruments reflect the
extent of the Funds' exposure to off balance sheet risk. The risks may be
caused by an imperfect correlation between movements in the price of the
instrument and the price of the underlying securities and interest rates. The
Funds' activities in written options are conducted through regulated
exchanges, which do not result in counterparty credit risks.
FUTURES: The domestic and international equity Funds utilize futures to
equitize liquidity reserve balances. Multistrategy Bond Fund may utilize
futures contracts (i.e., interest rate, foreign currency and index futures
contracts) to a limited extent. The face or contract amounts of these
instruments reflect the extent of the Funds' exposure to off balance sheet
risk. The primary risks associated with the use of futures contracts are an
imperfect correlation between the change in market value of the securities
held by the Fund and the prices of futures contracts and the possibility of
an illiquid market. Changes in the initial settlement values of futures
contracts are accounted for as unrealized appreciation (depreciation) until
the contracts are terminated, at which time realized gains and losses are
recognized.
3. INVESTMENT TRANSACTIONS
SECURITIES: During the year ended December 31, 1995, purchases and sales of
investment securities excluding U.S. Government and Agency obligations,
short-term investments, options, futures and repurchase agreements were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Diversified Equity $436,869,833 $455,771,508
Special Growth 249,994,270 224,249,380
Equity Income 144,689,534 152,930,831
Quantitative Equity 338,314,431 356,292,119
International Securities 253,000,004 249,677,571
Diversified Bond 84,483,671 96,821,867
Volatility Constrained Bond 66,828,607 80,372,982
Multistrategy Bond 93,100,726 72,196,222
</TABLE>
116 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Purchases and sales of U.S. Government and Agency obligations (excluding
repurchase agreements, options, futures and other short-term securities) were
as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Diversified Bond $619,544,075 $639,085,567
Volatility Constrained Bond 413,854,692 397,644,434
Multistrategy Bond 202,850,167 190,725,781
</TABLE>
OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written put
options and futures contract purchases for the year ended December 31, 1995
were as follows:
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 480 $ 589,886 -- $ --
Opened 1,440 1,212,786 182 54,413,896
Closed (1,920) (1,802,672) (122) (35,699,958)
------------ ------------ ------------ ------------
Outstanding December 31, 1995 -- $ -- 60 $ 18,713,938
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SPECIAL GROWTH WRITTEN PUT OPTIONS FUTURES CONTRACTS
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 1,200 $ 1,159,510 -- $ --
Opened 2,190 1,269,133 365 56,362,491
Closed (3,220) (2,327,156) (215) (36,145,068)
------------ ------------ ------------ ------------
Outstanding December 31, 1995 170 $ 101,487 150 $ 20,217,423
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 185 $ 229,854 -- $ --
Opened 435 362,022 85 25,465,261
Closed (620) (591,876) (53) (15,513,589)
------------ ------------ ------------ ------------
Outstanding December 31, 1995 -- $ -- 32 $ 9,951,672
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 640 $ 775,554 -- $ --
Opened 750 633,355 116 34,978,624
Closed (1,390) (1,408,909) (56) (16,369,911)
------------ ------------ ------------ ------------
Outstanding December 31, 1995 -- $ -- 60 $ 18,608,713
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Notes to Financial Statements 117
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
VOLATILITY CONSTRAINED BOND WRITTEN PUT OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------ ------------
<S> <C> <C>
Outstanding December 31, 1994 133,500 $ 79,772
Opened -- --
Closed (133,500) (79,772)
------------ ------------
Outstanding December 31, 1995 -- $ --
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
MULTISTRATEGY BOND WRITTEN PUT OPTIONS FUTURES CONTRACTS
AGGREGATE
NUMBER OF PREMIUMS NUMBER OF FACE VALUE OF
CONTRACTS RECEIVED CONTRACTS CONTRACTS(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1994 67 $ 58,763 175 $ 18,982,344
Opened 769 377,288 1,315 151,352,250
Exercised (100) (47,838) -- --
Closed (717) (381,677) (1,205) (138,502,178)
------------ ------------ ------------ -------------
Outstanding December 31, 1995 19 $ 6,536 285 $ 31,832,416
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SECURITIES FUTURES CONTRACTS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------ ------------
<S> <C> <C>
Outstanding December 31, 1994 -- --
Opened 485 $ 54,521,405
Closed (302) (35,157,475)
------------ ------------
Outstanding December 31, 1995 156 $ 19,363,930
------------ ------------
------------ ------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each contract
was opened.
SECURITIES LENDING: The International Securities Fund may loan securities
with a value up to 50% of its total assets to certain brokers. The Fund
receives cash (U.S. currency) and securities issued or guaranteed by the U.S.
Government or its agencies as collateral against the loaned securities. To
the extent that a loan is secured by cash collateral, such collateral shall
be invested by State Street Bank and Trust Company ("State Street") in
short-term instruments, short-term investment funds maintained by State
Street, money market mutual funds, and such other short-term investments as
State Street may from time to time select, provided the investments meet
certain quality and diversification requirements. Income generated from the
investment of cash collateral less negotiated rebate fees paid to
participating brokers is divided between the Fund and State Street Bank and
is included as interest income for the Fund. To the extent that a loan is
secured by non-cash collateral, brokers pay the Fund negotiated lenders'
fees, which are divided between the Fund and State Street, and are included
as interest income for the Fund. All collateral received will be in an amount
at least equal to 100% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than
100% of the market value of the loaned securities during the period of the
loan. Should the borrower of the securities fail financially, there is a risk
of delay in recovery of the securities or loss of rights in the collateral.
Consequently, loans are made only to borrowers which are deemed to be of good
financial standing. On December 7, 1995, the Fund suspended its securities
lending program. All outstanding loans were recalled over the following two
months. As of December 31, 1995, the value of outstanding securities on loan
and the value of collateral amounted to $3,436,372 and $3,673,642,
respectively.
118 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. RELATED PARTIES
Frank Russell Investment Management Company ("FRIMCo" or "Manager") operates
and administers all the Funds which comprise the Investment Company, and
manages the U.S. Government Money Market and Money Market Funds (two series
of the Investment Company not presented in this annual report). FRIMCo is a
wholly owned subsidiary of Frank Russell Company, which researches and
recommends to FRIMCo, and to the Investment Company, one or more investment
management organizations to manage the portfolio of each of the other Funds.
For the year ended December 31, 1995, the management fee paid to Frank
Russell Investment Management Company ("FRIMCo" or "Manager"), in accordance
with the Investment Company's Management Agreement with that firm, amounted
to $21,502,947 before waivers. Such fee is payable monthly and is equal to
the annual rate, by Fund, shown in the table below, of the average daily net
assets of the applicable Fund.
<TABLE>
<CAPTION>
ANNUAL RATE
-------------
<S> <C>
Diversified Equity 0.78%
Special Growth 0.95
Equity Income 0.80
Quantitative Equity 0.78
International Securities 0.95
Diversified Bond 0.45
Volatility Constrained Bond 0.50
Multistrategy Bond 0.65
</TABLE>
The management contract also provides that if any Fund's expenses (exclusive
of interest and taxes) exceed specified limits on an annual basis, such
excess will be paid by FRIMCo. For the year ended December 31, 1995, FRIMCo
voluntarily agreed to reimburse all expenses of the Multistrategy Bond Fund
that exceeded the annual rate of 0.85% of its average daily net assets. The
amount of such reimbursement was $83,382.
Fees for bookkeeping services provided to the Funds are paid or accrued to
Frank Russell Company, an affiliate of the Investment Company. Frank Russell
Company provides its Portfolio Verification System ("PVS") to the Funds,
pursuant to a written Service Agreement. The PVS computerized data base
system records detailed transactions data for each of the Funds necessary to
prepare various financial and Internal Revenue Service accounting reports.
The Funds' total fees for the year ended December 31, 1995 were $349,884
before waivers. The Manager voluntarily agreed to waive $83,475 of these fees
for the International Securities Fund.
The Funds have a contract with FRIMCo to provide transfer agent services to
the Investment Company. Total fees for the year ended December 31, 1995 were
$1,929,613.
The Funds also paid brokerage commissions for trades executed through Frank
Russell Securities, Inc., an affiliate of the Frank Russell Investment
Management Company. These commissions are net of a refund (up to 70%) paid
back to the Fund effecting such transactions after reimbursement for research
services provided to FRIMCo. Amounts retained by Frank Russell Securities,
Inc. for the year ended December 31, 1995 were as follows:
<TABLE>
<S> <C>
Diversified Equity $63,262
Special Growth 1,442
Equity Income 30,547
Quantitative Equity 108
International Securities 91,467
</TABLE>
The Investment Company was paying each of its Trustees not affiliated with
FRIMCo a retainer of $16,000 per year plus out-of-pocket expenses. Effective
April 25, 1995, the annual retainer was increased to $20,000. Total trustee
expenses were $96,696 for the year ended December 31, 1995 and were allocated
to each Fund on a pro rata basis, including 14 affiliated funds not presented
here.
Russell Fund Distributors, Inc. (the "Distributor"), a wholly owned
subsidiary of FRIMCo, is the principal Distributor of the Investment Company
shares. The Distributor receives no compensation from the Investment Company
for its services.
Notes to Financial Statements 119
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. MONEY MARKET FUND
The Funds are permitted to invest their cash reserves (i.e., monies awaiting
investment in portfolio securities suitable for the Funds' objectives) in the
Frank Russell Investment Company Money Market Fund (a series of Frank Russell
Investment Company not presented in this annual report). These investments
are reflected as purchases and redemptions of shares of the Money Market
Fund. The interest earned by the Money Market Fund related to these investments
is reflected as dividends paid (or payable) on such shares. As of December 31,
1995, $157,451,000 of the Money Market Fund's net assets represents
investments by these Funds and $334,481,000 represents the investments of
other affiliated Funds not presented here.
6. COMMITMENTS
As of December 31, 1995 Diversified Equity, International Securities,
Diversified Bond and Multistrategy Bond Funds have entered into various
forward foreign currency exchange and foreign currency exchange spot
contracts which contractually obligate the Fund to deliver or receive
currencies at specified future dates. Open contracts were as follows:
DIVERSIFIED EQUITY FUND
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
USD 52,097 NOK 329,481 01/02/96 $ (1)
USD 65,549 NOK 417,086 01/03/96 299
USD 48,456 NOK 307,213 01/04/96 45
--------------
$ 343
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SECURITIES FUND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
USD 1,046,290 AUD 1,400,000 03/29/96 $ (10,236)
USD 2,315,627 DEM 3,300,000 03/29/96 (4,783)
USD 1,915,410 FRF 9,400,000 03/29/96 6,939
USD 7,784,000 GBP 5,000,000 03/29/96 (35,558)
USD 13,830,575 JPY 1,400,000,000 03/29/96 (95,322)
DEM 5,765,000 USD 4,055,176 03/21/96 19,802
FRF 25,910,000 USD 5,269,473 03/21/96 (28,646)
GBP 3,595,000 USD 5,699,190 02/01/96 120,591
JPY 722,775,000 USD 7,500,000 01/08/96 489,562
JPY 217,400,000 USD 2,170,636 03/21/96 40,255
---------------
$ 502,604
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
USD 135,358 AUD 181,810 01/08/96 $ (223)
USD 23,853 CHF 27,469 01/04/96 (39)
USD 138,411 GBP 89,234 01/08/96 173
USD 599,192 SEK 3,978,934 01/04/96 72
USD 133,640 SGD 188,900 01/04/96 (95)
BRL 5,627 USD 5,804 01/02/96 16
---------------
$ (96)
---------------
---------------
</TABLE>
120 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DIVERSIFIED BOND FUND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
DEM 5,403,208 USD 3,884,908 01/11/96 $ 115,638
DEM 147,908 USD 105,104 12/09/96 333
--------------
$ 115,971
---------------
---------------
</TABLE>
MULTISTRATEGY BOND FUND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
DEM 4,317,000 USD 3,014,665 01/18/96 $ 1,988
DEM 591,840 USD 420,565 12/09/96 1,333
DEM 4,698,000 USD 3,311,366 12/13/96 (17,058)
-------------
$ (13,737)
-------------
-------------
</TABLE>
The related net unrealized appreciation (depreciation) is reflected in the
preceding Funds' financial statements.
7. DIVIDENDS
On February 1, 1996, the Board of Trustees declared the following dividends
from net investment income payable on February 9, 1996, to shareholders of
record on February 2, 1996:
<TABLE>
<S> <C>
Diversified Bond $ 0.1233
Volatility Constrained Bond 0.0991
Multistrategy Bond 0.0528
</TABLE>
Notes to Financial Statements 121
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
ADDITIONAL INFORMATION
December 31, 1995 (Unaudited)
On January 22, 1996, a special meeting of the shareholders of the Funds was
held for the purpose of voting on the following matter:
To approve the Investment Company's operation in accordance with the
exemptive order granted on June 27, 1995 to the Investment Company and
the Manager by the Securities and Exchange Commission.
The exemptive order permits the Manager to engage and terminate
unaffiliated money managers for each Fund without holding shareholder
meetings and to disclose in the Investment Company's prospectus, with
respect to each Fund, only the aggregate fees paid to that Fund's money
managers and the net advisory fees retained by the Manager with respect
to that Fund.
The results of the vote on the proposal for the 22 Funds, on which 8 are
reported in these financial statements, were as follows:
<TABLE>
<CAPTION>
NUMBER OF % OF OUTSTANDING % OF SHARES
VOTE SHARES SHARES VOTED
--------------------- ----------- ---------------- ------------
<S> <C> <C> <C>
Affirmative 349,878,731 68.5% 99.9%
Against 226,716 -- 0.1%
Abstain 15,879 -- --
----------- ---------------- ------------
Total 350,121,326 68.5% 100.0%
----------- ---------------- ------------
----------- ---------------- ------------
</TABLE>
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the
following amounts as capital gain dividends for their taxable year ended
December 31, 1995:
<TABLE>
<S> <C>
Diversified Equity $35,078,456
Special Growth 16,739,577
Equity Income 9,173,168
Quantitative Equity 27,443,680
International Securities 17,973,915
Multistrategy Bond 2,646
</TABLE>
Please consult a tax advisor for questions about federal or state income tax
laws.
122 Additional Information
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A Street, Tacoma, Washington 98402
(206) 627-7001
TRUSTEES
George F. Russell, Jr., Chairman
Lynn L. Anderson
Paul E. Anderson
Paul Anton, PhD
William E. Baxter
Lee C. Gingrich
Eleanor W. Palmer
OFFICERS
Lynn L. Anderson, President and Chief Executive Officer
Peter Apanovitch, Manager of Short Term Investment Funds
George W. Weber, Treasurer and Chief Accounting Officer
Randall P. Lert, Director of Investments
Karl Ege, Secretary
MANAGER
Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
CONSULTANT
Frank Russell Company
909 A Street
Tacoma, WA 98402
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
TRANSFER AGENT
Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
Legal Counsel
Stradley, Ronon, Stevens & Young
2600 - One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
DISTRIBUTOR
Russell Fund Distributors, Inc.
909 A Street
Tacoma, WA 98402
MONEY MANAGERS
DIVERSIFIED EQUITY
Alliance Capital Management L.P., Minneapolis, MN
Systematic Financial Management, L.P., Fort Lee, NJ
Columbus Circle Investors, Stamford, CT
Equinox Capital Management, Inc., New York, NY
INVESCO Capital Management, Inc. Atlanta, GA
Lincoln Capital Management Company, Chicago, IL
Suffolk Capital Management, Inc., New York, NY
Trinity Investment Management Corporation, Boston, MA
Wellington Management Company, Boston, MA
SPECIAL GROWTH
Delphi Management, Inc., Boston, MA
Fiduciary International, Inc., New York, NY
Globeflex Capital, L.P., San Diego, CA
(added on 01/08/96)
Jacobs Levy Equity Management, Inc., Roseland, NJ
Mitchell Hutchins Institutional Investors, New York, NY
(replaced on 12/21/95)
Sirach Capital Management, Inc., Seattle, WA
Wellington Management Company, Boston, MA
EQUITY INCOME
Brandywine Asset Management, Inc., Wilmington, DE
Equinox Capital Management, Inc., New York, NY
Trinity Investment Management Corporation, Boston, MA
QUANTITATIVE EQUITY
BZW Barclays Global Fund Advisors, San Francisco, CA
Franklin Portfolio Associates Trust, Boston, MA
J.P. Morgan Investment Management Inc., New York, NY
INTERNATIONAL SECURITIES
Grantham, Mayo, Van Otterloo & Co., Boston, MA
J.P. Morgan Investment Management Inc., New York, NY
Marathon Asset Management Limited, London, England
Oechsle International Advisors, Boston, MA
Rowe Price-Fleming International, Inc., Baltimore, MD
DIVERSIFIED BOND
Lincoln Capital Management Company, Chicago, IL
Pacific Investment Management Company, Newport Beach, CA
Standish, Ayer & Wood, Inc., Boston, MA
VOLATILITY CONSTRAINED BOND
Blackrock Financial Management, New York, NY
Standish, Ayer & Wood, Inc., Boston, MA
MULTISTRATEGY BOND
BEA Associates, New York, NY
Pacific Investment Management Company, Newport Beach, CA
Standish, Ayer & Wood, Inc., Boston, MA
This report is prepared from the books and records of the Funds and is submitted
for the general information of shareholders and is not authorized for
distribution to prospective investors unless accompanied or preceded by an
effective Prospectus. Nothing herein contained is to be considered an offer of
sale or a solicitation of an offer to buy shares of Frank Russell Investment
Company. Such offering is made only by Prospectus, which includes details as to
offering price and other material information.
Manager and Money Managers 123
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
Frank Russell Investment Company is a "series mutual fund" with 22 different
investment portfolios. These financial statements report on five Funds, each
of which has distinct investment objectives and strategies.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
Responsible for overall management and administration of the Funds.
FRANK RUSSELL COMPANY
Consultant to Frank Russell Investment Management Company.
<PAGE>
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . 2
REAL ESTATE SECURITIES FUND. . . . . . . . . . . . . . . . . . . . . . 3
EMERGING MARKETS FUND . . . . . . . . . . . . . . . . . . . . . . . . 11
LIMITED VOLATILITY TAX FREE FUND . . . . . . . . . . . . . . . . . . . 25
U.S. GOVERNMENT MONEY MARKET FUND. . . . . . . . . . . . . . . . . . . 37
TAX FREE MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . 43
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 53
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 59
MANAGER AND MONEY MANAGERS . . . . . . . . . . . . . . . . . . . . . . 60
FRANK RUSSELL INVESTMENT COMPANY - SPECIALTY FUNDS
Copyright -C- Frank Russell Company 1996. All rights reserved. This material is
proprietary and may not be reproduced, transferred, or distributed in any form
without prior written permission from Frank Russell Company. It is delivered on
an "as is" basis without warranty. The Russell logo is a trademark and service
mark of Frank Russell Company. Frank Russell Company and Standard & Poor's
Corporation are the owners of the trademarks, service marks, and copyrights
related to their respective indexes. This material must be accompanied or
preceded by a current Frank Russell Investment Company Prospectus containing
complete information concerning the investment objectives and operations of the
Company, charges, and expenses. The Prospectus should be read carefully before
an investment is made. The performance quoted represents past performance and,
except for a money market fund, the 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. An investment in a money market fund is neither
insured nor guaranteed by the U.S. government. There can be no assurance that a
money market fund will be able to maintain a stable net asset value of $1.00
per share. Investments in securities of non-US issuers and foreign currencies
involve investment risks different than those of US issuers; the Prospectus
contains further information and details regarding these risks. Income from
tax-free funds may be subject to an alternative minimum tax. Russell Fund
Distributors, Inc., is the distributor of Frank Russell Investment Company.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Trustees of Frank Russell Investment Company:
We have audited the accompanying statements of assets and liabilities and
statements of net assets of each of the series of Frank Russell Investment
Company (in this report comprised of Real Estate Securities Fund, Emerging
Markets Fund, Limited Volatility Tax Free Fund, U.S. Government Money Market
Fund, and Tax Free Money Market Fund (the "Funds")), as of December 31, 1995,
and the related statements of operations, the statements of changes in net
assets and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds enumerated above as of December 31, 1995, the results of their
operations, the changes in their net assets and the financial highlights for
each of the periods indicated therein in conformity with generally accepted
accounting principles.
Boston, Massachusetts
February 12, 1996
/s/ Coopers & Lybrand LLP.
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS - 91.7%
APARTMENT - 23.0%
Associated Estates Realty Corp. (c) 245,000 $ 5,268
Avalon Properties, Inc. (c) 262,900 5,652
Camden Property Trust (c) 277,500 6,625
Colonial Properties Trust (c) 200,300 5,108
Columbus Realty Trust (c) 227,800 4,414
Equity Residential Properties Trust (c) 69,700 2,135
Merry Land and Investment Co., Inc. (c) 367,100 8,673
Oasis Residential, Inc. (c) 234,800 5,342
Post Properties, Inc. (c) 262,000 8,351
Security Capital Pacific Trust (c) 138,615 2,738
Smith (Charles E.) Residential Realty, Inc. (c) 178,300 4,212
Summit Properties, Inc. (c) 134,800 2,679
United Dominion Realty Trust, Inc. (c) 372,400 5,585
--------
66,782
--------
HEALTH CARE - 6.9%
Health Care Property Investors, Inc. (c) 253,200 8,894
Nationwide Health Properties, Inc. (c) 267,500 11,235
--------
20,129
--------
HOTELS - 4.6%
Bristol Hotel Co. (a) 42,900 1,046
Felcor Suite Hotels, Inc. (c) 138,300 3,838
Patriot American Hospitality, Inc. (c) 156,200 4,022
Starwood Lodging Trust New (c) 151,600 4,510
--------
13,416
--------
OFFICE/INDUSTRIAL - 18.2%
Beacon Properties Corp. (c) 123,400 2,838
Cali Realty Corp. (c) 253,900 5,554
Carr Realty Corp. (c) 118,200 2,881
Cousins Properties, Inc. (c) 284,400 5,759
Crescent Real Estate Equities (c) 130,100 4,440
Duke Realty Investments, Inc. (c) 184,600 5,792
Highwoods Properties, Inc. (c) 196,000 5,537
Liberty Property Trust (c) 259,000 5,374
Reckson Associates Realty Corp. (c) 148,800 4,371
Security Capital Industrial Trust (c) 95,700 1,675
Spieker Properties, Inc. (c) 134,700 3,384
Weeks Corp. (c) 217,300 5,460
--------
53,065
--------
SELF STORAGE - 2.2%
Shurgard Storage Centers, Inc. Class A (c) 87,700 2,368
Storage USA, Inc. (c) 122,000 3,980
--------
6,348
--------
SHOPPING CENTER - 17.3%
Bradley Real Estate, Inc. (c) 164,000 2,214
Developers Diversified Realty Corp. (c) 324,300 9,729
Federal Realty Investment Trust New (c) 420,700 9,571
Kimco Realty Corp. (c) 444,750 12,119
Price (The), Inc. (c) 171,000 4,745
Sizeler Property Investors, Inc. (c) 96,300 855
Vornado Realty Trust (c) 295,500 11,082
--------
50,315
--------
OUTLET CENTERS - 2.3%
Chelsea GCA Realty, Inc. (c) 109,100 3,273
HGI Realty, Inc. (c) 13,500 309
Tanger Factory Centers, Inc. (c) 126,400 3,160
--------
6,742
--------
REGIONAL MALLS - 17.2%
CBL & Associates Properties, Inc. (c) 204,500 4,448
DeBartolo Realty Corp. (c) 537,500 6,988
Glimcher Realty Trust (c) 398,000 6,866
J.P. Realty, Inc. (c) 338,700 7,409
Macerich Co. (c) 333,000 6,660
Mills Corp. (The) (c) 44,900 763
Rouse Co. (The) 501,000 10,208
Simon Property Group, Inc. (c) 167,800 4,089
Taubman Centers, Inc. (c) 246,500 2,464
--------
49,895
--------
TOTAL COMMON STOCKS
(cost $244,230) 266,692
--------
Specialty Funds Real Estate Securities Fund 3
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- --------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 7.6%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $22,127 $ 22,127
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $22,127) 22,127
--------
TOTAL INVESTMENTS
(identified cost $266,357)(d) - 99.3% 288,819
--------
OTHER ASSETS AND LIABILITIES,
NET - 0.7% 2,171
--------
NET ASSETS - 100.0% $290,990
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Real Estate Investment Trust.
(d) At December 31, 1995, the cost for federal income tax purposes was $266,409
and net unrealized appreciation for all securities was $22,410. This
consisted of aggregate gross unrealized appreciation for all securities
in which there was an excess of market value over tax cost of $27,876 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $5,466.
The accompanying notes are an integral part of the financial statements.
4 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $266,356,526)(Note 2)......................... $288,818,934
Receivables:
Dividends.......................................................................... 2,460,627
Investments sold................................................................... 1,021,859
Fund shares sold................................................................... 1,017,761
------------
293,319,181
LIABILITIES
Payables:
Investments purchased............................................ $ 734,184
Fund shares redeemed............................................. 1,280,854
Accrued bookkeeping service fees (Note 4)........................ 1,150
Accrued management fees (Note 4)................................. 204,822
Accrued transfer agent fees (Note 4)............................. 55,211
Other accrued expenses........................................... 53,024 2,329,245
---------- ------------
NET ASSETS............................................................................. $290,989,936
------------
------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss)................................................. $ (2,439,743)
Unrealized appreciation (depreciation) on investments................................ 22,462,408
Shares of beneficial interest........................................................ 123,766
Additional paid-in capital........................................................... 270,843,505
------------
NET ASSETS............................................................................. $290,989,936
------------
------------
Net asset value, offering and redemption price per share,
($290,989,936 divided by 12,376,566 shares of $.01 par value
shares of beneficial interest outstanding)............................................ $23.51
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Real Estate Securities Fund 5
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................................................................ $16,205,619
Dividends from Money Market Fund (Note 5)............................................ 1,156,241
-----------
17,361,860
Expenses (Notes 2 and 4):
Management fees.................................................... $ 2,065,552
Custodian fees..................................................... 90,904
Transfer agent fees................................................ 297,051
Bookkeeping service fees........................................... 5,231
Professional fees.................................................. 14,711
Registration fees.................................................. 42,580
Trustees' fees..................................................... 4,366
Miscellaneous...................................................... 14,880 2,535,275
----------- -----------
Net investment income.................................................................. 14,826,585
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments.............................................. (947,446)
Net change in unrealized appreciation or depreciation of investments................... 14,217,578
-----------
Net gain (loss) on investments......................................................... 13,270,132
-----------
Net increase (decrease) in net assets resulting from operations........................ $28,096,717
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income.................................................. $ 14,826,585 $ 10,250,499
Net realized gain (loss) from investments.............................. (947,446) 2,709,077
Net change in unrealized appreciation or depreciation of
investments during the year........................................... 14,217,578 (787,306)
------------ ------------
Net increase (decrease) in net assets resulting from operations.......... 28,096,717 12,172,270
Distributions to shareholders:
Net investment income.................................................. (15,134,155) (10,055,022)
Net realized gain on investments....................................... -- (3,360,493)
In excess of net realized gain on investments.......................... -- (1,491,333)
Tax return of capital.................................................. (207,871) --
Increase (decrease) in net assets from Fund share transactions........... 69,027,371 66,775,555
------------ ------------
INCREASE (DECREASE) IN NET ASSETS........................................ 81,782,062 64,040,977
Net assets at beginning of year.......................................... 209,207,874 145,166,897
------------ ------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income of $390,637 at
December 31, 1994)..................................................... $290,989,936 $209,207,874
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS 1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fund shares sold........................................ 4,842,544 $108,140,650 4,115,042 $ 95,055,963
Fund shares issued to shareholders in reinvestments of
distributions.......................................... 548,366 12,360,832 543,891 12,030,634
Fund shares redeemed.................................... (2,298,035) (51,474,111) (1,752,061) (40,311,042)
---------- ------------ ---------- ------------
Net increase (decrease)................................. 3,092,875 $ 69,027,371 2,906,872 $ 66,775,555
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Real Estate Securities Fund 7
<PAGE>
REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $ 22.53 $ 22.76 $ 21.50 $ 19.33 $ 14.99
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................ 1.32 1.25 1.05 1.08 1.11
Net realized and unrealized gain (loss) on
investments......................................... 1.03 .40 2.68 2.16 4.36
------- ------- ------- ------- -------
Total Income From Investment Operations.............. 2.35 1.65 3.73 3.24 5.47
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income................................ (1.35) (1.23) (1.04) (1.07) (1.13)
Net realized gain on investments..................... -- (.45) (1.43) -- --
In excess of net realized gain on investments........ -- (.20) -- -- --
Tax return of capital................................ (.02) -- -- -- --
------- ------- ------- ------- -------
Total Distributions.................................. (1.37) (1.88) (2.47) (1.07) (1.13)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR........................... $ 23.51 $ 22.53 $ 22.76 $ 21.50 $ 19.33
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%)....................................... 10.87 7.24 17.42 17.29 37.08
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expense, net, to average net assets........ 1.04 1.05 1.11 1.20 1.26
Operating expenses, gross, to average net assets..... 1.04 1.05 1.11 1.20 1.31
Net investment income to average net assets.......... 6.10 5.65 4.52 5.60 6.50
Portfolio turnover................................... 23.49 45.84 58.38 19.72 13.28
Net assets, end of year ($000 omitted)............... 290,990 209,208 145,167 75,902 42,771
Per share amount of fees reimbursed ($ omitted)...... -- -- -- -- .0076
</TABLE>
8 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 REAL ESTATE SECURITIES NAREIT EQUITY REIT** LIPPER-C- REAL ESTATE++
- ----------------- ---------------------- -------------------- -----------------------
<S> <C> <C> <C>
Inception* $ 10,000 $ 10,000 $10,000
1989 $ 9,843 $ 9,690 $ 9,692
1990 $ 8,276 $ 8,203 $ 8,093
1991 $ 11,345 $ 11,182 $10,712
1992 $ 13,306 $ 12,733 $12,093
1993 $ 15,624 $ 15,237 $14,911
1994 $ 16,755 $ 15,721 $14,614
1995 $ 18,576 $ 18,119 $16,528
</TABLE>
Real Estate Securities Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $ 11,087 10.87%
5 Years $ 22,446 17.55%
Inception $ 18,576 10.13%***
</TABLE>
NAREIT Equity REIT Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $ 11,526 15.26%
5 Years $ 22,088 17.17%
Inception $ 18,119 9.71%***
</TABLE>
Lipper Real Estate Benchmark
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $ 11,310 13.10%
5 Years $ 20,421 15.35%
Inception $ 16,528 8.37%***
</TABLE>
* Assumes initial investment on August 1, 1989. Lipper index comparison for
the initial investment began October 1, 1989.
** NAREIT Equity REIT Index is an index composed of all the data based on the
last closing price of the month for all tax-qualified REIT's listed on the
New York Stock Exchange, American Stock Exchange, and the NASDAQ National
Market System. The data is market value-weighted. The total-return
calculation is based upon whether it is 1-month, 3-months or 12-months.
Only those REITS listed for the entire period are used in the total return
calculation.
++ Lipper-C- Real Estate Benchmark is the average total return for the
universe of funds within the Real Estate Funds investment objective. The
total return for the funds reflects adjustments for income dividends and
capital gains distributions reinvested as of the ex-dividend dates.
*** Annualized.
REAL ESTATE SECURITIES FUND returned 10.9% in 1995, which trailed the NAREIT
Equity REIT Index return of 15.3%. The portfolio was managed in a manner
consistent with its objective to achieve a high level of total return
generated through above-average current income, while maintaining the
potential for capital appreciation by investing primarily in the equity
securities of companies in the real estate industry.
Although it was an excellent year for real estate investment trust
investments, the Fund fell behind the index early in the year and proceeded to
lose further ground in the ensuing months. The Fund's bearish view, and
subsequent underweighting, of the self storage and hotel sectors in the first
quarter resulted in the Fund missing out on the strong gains posted by
securities in these sectors early in the year. The Fund's underperformance
late in the year was driven by an overweighting of investments in retail and
apartment property securities, which lagged other sectors of the market by a
considerable margin.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
Specialty Funds Real Estate Securities Fund 9
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
COMMON STOCKS - 69.4%
ARGENTINA - 4.8%
Banco Frances del Rio la Plata - ADR 8,970 $ 241
Buenos Aires Embotelladora SA - ADR 18,000 371
Central Puerto SA Class B 120,000 456
Comercial de Plata (a) 201,100 533
Cresud SA (a) 349,500 475
Dalmine Siderca SA 615,830 597
Inversiones Y Representaciones 66,529 168
Inversiones Y Representaciones SA - GDR 6,225 159
Naviera Perez Companc Class B 414,540 2,197
Telecom Argentina Class B 87,122 411
Telefonica de Argentina Class B 150,000 405
Telefonica de Argentina Class B - ADR 36,950 1,007
YPF Sociedad Anonima Class D - ADR 57,100 1,234
--------
8,254
--------
AUSTRALIA - 0.3%
Lihir Gold, Ltd. (a) 444,200 485
--------
485
--------
AUSTRIA - 0.6%
Julius Meinl International 5,626 178
Nafta (a) 5,110 340
Tabak AS (a) 3,500 540
--------
1,058
--------
BANGLADESH - 0.2%
Apex Tannery (a) 2,300 44
Beximco Infusion 7,500 64
Eastern Housing, Ltd. 5,000 16
Orion Infusions, Ltd. (a) 80,000 275
--------
399
--------
BRAZIL - 2.8%
Compania Energetica de Minas - ADR (a) 25,623 557
Compania Energetica de Minas Gerais (a) 544,776 12
Forca E Luz (Cia Paul) NPC 4,047,000 196
Makro Atacadista - GDS (a) 30,000 171
Rhodia Ster SA NPV 129,820 116
Souza Cruz NPV 15,920 90
Telecomunicacoes Brasileiras - ADR 42,970 2,036
Telecomunicacoes Brasileiras -
ADR (144A) 88 4
Telecomunicacoes Brasileiras NPV 29,823,900 1,154
White Martins SA NPV 542,259,378 541
--------
4,877
--------
CHILE - 4.0%
Administradora de Fondos
de Pensiones Provida SA - ADR 20,470 565
Antofagasta Holdings PLC 190,000 841
Banco de A. Edwards Series A - ADR (a) 8,800 173
Banco O'Higgins - ADR 20,000 460
Chilgener SA - ADR 30,000 750
Compania de Telefonos (Chile) SA - ADR 13,922 1,154
Embotelladora Andina - ADR 17,000 614
Enersis SA - ADR 39,355 1,122
Laboratorio Chile SA - ADR 30,000 379
Madeco SA - ADR 4,942 133
Maderas Y Sinteticos Sociedad - ADR 25,400 495
Moneda Chile Fund (a) 5,125 51
Sociedad Quimica Y Minera
de Chile SA - ADR 2,030 95
Vina Concha Y Toro SA - ADR 5,750 104
--------
6,936
--------
CHINA - 0.3%
Huaneng Power International, Inc.
- ADR Series N (a) 3,700 53
Luoyang Glasswork Class H 38,000 10
Shanghai Dazhong Taxi Class B 317,570 232
Yizheng Chemical Fibre Series H 800,000 179
--------
474
--------
COLOMBIA - 0.2%
Banco Industrial Colombiano SA - ADR 24,400 400
--------
400
--------
CZECH REPUBLIC - 0.6%
Cesky IF (a) 11,582 133
Czechoslovakian Value Fund (Units)(a) 17,000 162
Czechoslovakian Value Fund
1998 Warrants (a) 3,400 7
Elektrarny Opatovice AS (a) 500 60
Komercni Banka AS - GDR (a) 7,700 139
Privat Fonds 10,300 189
SPT Telecom AS (a) 2,530 239
Vseobecny Investment Fund (a) 1,300 6
Vynosovy Investment Fund (a) 18,600 97
--------
1,032
--------
GHANA - 0.3%
Ashanti Goldfields Co., Ltd. - GDS 24,490 484
--------
484
--------
Specialty Funds Emerging Markets Fund 11
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
GREECE - 1.3%
AEGEK SA 14,000 $ 120
AEGEK SA New (a) 1,400 12
Alpha Credit Bank (Regd) 3,500 202
Athens Medical Center SA (Regd) 24,000 150
Ergo Bank (Regd) 22,000 876
Greek Progress Fund 17,410 148
Hellenic Bottling 12,332 403
Titan Cement Co. 8,000 336
--------
2,247
--------
HONG KONG - 1.9%
Alco Holdings 1,000,000 153
ASM Pacific Technology 212,000 184
Chen Hsong Holding 700,000 367
Cheung Kong Holdings, Ltd. 108,000 658
Formosa Fund - IDR (Regd)(a) 38 281
Fountain Set Holdings 1,500,000 287
Guangdong Investment 60,000 36
Guangzhou Investment 1,000,000 191
H.S.B.C. Holdings (UK Regd) 42,200 639
Johnson Electric Holdings, Ltd. 43,000 77
M.C. Packaging 199,000 71
Peregrine (Alien Market)(Units)(a) 5,400 40
Shangri-La Asia, Ltd. 52,000 64
Yue Yuen Industrial 323,000 85
Zhenhai Refining & Chemical Co., Ltd.
Series H 620,000 115
--------
3,248
--------
HUNGARY - 1.0%
Chemical Works of Gedeon Richter - ADR 31,652 592
Egis 21,719 482
Mol Magyar Olay-Es Gazipari - GDS (a) 80,000 640
--------
1,714
--------
INDIA - 2.7%
Arvind Mills - GDS 88,990 378
Ashok Leyland, Ltd. - GDR (a) 10,000 102
Bajaj Auto Ltd. - GDR 28,500 713
Century Textiles & Industries, Ltd. - GDR (a) 500 70
Genesis India Investment Co. (a) 95,742 950
Global Tele-Systems Group, Inc. (a) 525 9
Grasim Industries, Ltd. - GDR (a) 9,350 187
Grasim Industries, Ltd. - GDS 18,200 364
Hindalco Industries, Ltd. - GDR (a) 12,200 407
I.T.C., Ltd.- GDR (a) 17,600 156
Indian Hotels Co., Ltd. - GDR (a) 7,000 135
Indian Petrochemicals - GDR (a) 7,000 87
Indo Gulf Fertilizers & Chemicals - GDR 207,600 270
Larsen & Toubro - GDS 8,100 144
Larsen & Toubro, Ltd. - GDR 10,600 187
Perusahaan Persero Telekom - ADR (a) 8,300 210
Raymond Woolen Mills, Ltd. - GDR (a) 3,700 61
Tube Investments of India - GDR 123,080 214
Videocon International - GDS 25,900 64
--------
4,708
--------
INDONESIA - 2.4%
Astra International (Alien Market) 85,000 177
Bank Bali (Alien Market) 31,200 61
Bank Bali 2000 Warrants (Alien Market)(a) 14,400 4
Bank International Indonesia (Alien Market) 36,800 122
Bimantara Citra (Alien Market)(a) 131,500 109
Ciputra Development (Alien Market) 70,000 110
Dankos Laboratories (Alien Market) 46,250 107
HM Sampoerna (Alien Market) 26,500 276
Indorama Synthetic (Alien Market) 58,400 211
Indosat (Alien Market) 122,000 443
Inti Indorayon Utama (Alien Market) 161,000 169
Kalbe Farma (Alien Market) 88,000 298
Modern Photo Film Co. (Alien Market) 35,000 203
Ometraco Corporation 2000 Warrants (a) 75,000 4
Ometraco Finance (Alien Market) 700,000 321
Pabrik Kertas Tjiwi Kimia (Alien Market) 35,434 33
Perusahaan Per Ind Sat Cor - ADR 2,400 88
PT Sekar Bumi (Alien Market)(a) 75,000 66
Putra Surya Perkasa (Alien Market) 400,000 153
Semen Cibinong (Alien Market) 230,600 575
Semen Gresik (Alien Market) 88,000 246
Smart (Sinar Mas) AG (Alien Market) 300,000 167
Tambang Timah - GDR (a) 10,300 122
--------
4,065
--------
ISRAEL - 0.5%
Africa-Israel Investments, Ltd. (a) 85 102
ECI Telecom, Ltd. 4,300 98
Elbit, Ltd. 60 3
Israel Chemicals, Ltd. (a) 74,400 59
2 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
Koor Industries 280 $ 28
Teva Pharmaceutical Industries, Ltd. 252 115
Teva Pharmaceutical Industries, Ltd. - ADR 11,650 538
--------
943
--------
LUXEMBOURG - 0.5%
Millicom International Cellular SA (a) 30,000 915
--------
915
--------
MALAYSIA - 6.5%
AMMB Holdings Berhad 41,000 468
Arab Malaysian Corp. Berhad 518,000 1,876
Arab Malaysian Finance (Alien Market) 40,000 170
DCB Holdings Berhad 288,000 839
DCB Holdings Berhad 1999 Warrants (a) 33,000 33
Genting Berhad 72,500 605
Hong Leong Industries Berhad 75,000 399
IJM Corp. Berhad 471,000 749
IND Oxygen, Inc. 519,000 509
Kwong Yik Bank 89,000 191
Land & General Berhad 120,000 260
Linatex Process 137,500 552
London & Pacific Insurance Co. Berhad 4,000 17
Malaysian Assurance Alliance Berhad 9,125 41
Metacorp Berhad 114,000 296
Nestle Berhad 55,000 403
Petronas Gas Berhad (a) 260,000 886
Petronas Gas Berhad 2000 Warrants (a) 11,000 18
Public Finance Berhad (Alien Market) 300,000 650
Renong Berhad 109,000 161
Resorts World Berhad 90,000 482
Tanjong PLC 68,000 198
Telekom Malaysia 87,000 678
United Engineers Berhad 106,000 677
--------
11,158
--------
MEXICO - 7.3%
Cemex SA Class B NPV 314,000 1,140
Cemex SA de CV NPV 108,640 358
Cifra SA de CV Class B NPV (a) 100,000 104
Cifra SA de CV Class C NPV (a) 207,960 210
Compania Cervecerias Unidas SA - ADR 16,200 375
Desc Sociedad de Fomento Industrial
SA de CV Series B NPV (a) 48,000 176
Empresas ICA Sociedad - ADR 16,000 164
Empresas la Moderna SA de CV - ADR (a) 20,886 324
Fomento Economico Series B NPV 215,000 483
Grupo Carso Series A NPV (a) 84,000 453
Grupo Casa Autrey SA de CV - ADR 9,600 128
Grupo Financiero Banamex AC Series B 219,600 368
Grupo Financiero Banamex AC
Series L NPV 38,000 56
Grupo Financiero Bancomer
Series B NPV (a) 570,000 159
Grupo Mexico SA B Shares NPV (a) 107,000 452
Grupo Modelo SA Series C 58,000 274
Grupo Simec SA de CV - ADR (a) 20,700 129
Herdez Class B NPV (a) 300,000 65
Industrias Penoles NPV 228,700 949
Kimberly-Clark, Mexico Class A NPV 69,000 1,041
Pan American Beverage Class A 22,000 704
Sears Roebuck de Mexico
Series B - GDS (a) 21,000 95
Seguros Comercial America NPV
Series B (a) 870,000 203
Telefonos de Mexico SA Series L - ADR 108,465 3,457
Transportacion Maritima Mexica
Series A - ADR (a) 47,000 353
Transportacion Maritima Mexicana
SA de CV - ADR Series L (a) 28,100 235
Vitro Sociedad Anonima - ADR (a) 20,541 98
--------
12,553
--------
NETHERLANDS - 0.5%
Ceteco Holding NV CVA 25,357 811
--------
811
--------
PAKISTAN - 0.6%
Adamjee Insurance 15,875 47
Dandot Cement Co. (a) 7,887 4
Dewan Salmon Fibre (a) 10,300 25
DG Kahn Cement 96,954 85
DG Kahn Cement Rights (a) 29,086 10
Engro Chemical 15,320 63
Hub Power Co. - GDR (a) 15,000 261
Hub Power, Ltd. - GDR (a) 1,300 23
Khadim Ali Shah 15,972 12
National Development Bank 7,628 4
Nishat Textile (a) 47,633 41
Pakistan State Oil 49,506 383
Pakistan Telecommunications Corp. (a) 160,000 144
--------
1,102
--------
Specialty Funds Emerging Markets Fund 13
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
PAPUA NEW GUINEA - 0.4%
Oil Search, Ltd. (Australia Regd) 700,000 $ 604
--------
604
--------
PERU - 1.9%
Backus & Johnston Class T 64,948 112
CPT Telefonica del Peru B Shares 200,880 430
CPT Telefonica del Peru S.A. Series A 369,218 781
Credicorp, Ltd. (a) 66,853 1,153
Minas Buenaventura 24,944 161
Southern Peru Copper Corp. (a) 169,656 596
--------
3,233
--------
PHILIPPINES - 3.6%
Aboitiz Equity Ventures (a) 1,665,960 318
Ayala Land, Inc. Class B 296,712 362
Bacnotan Cement Co. 62,600 43
Bacnotan Consolidated Industries 96,730 553
Bacnotan Consolidated Industries Rights (a) 9,673 18
Belle Corporation (a) 2,600,000 357
C & P Homes, Inc. (a) 123,000 90
DMCI Holdings, Inc. (a) 430,000 154
Enron Global Power & Pipelines L.L.C. 25,000 622
Filinvest Land (a) 491,300 157
First Philippine Holdings Class B 147,679 287
JG Summit Holdings, Inc. Series B 755,000 207
Keppel Philippine Holdings Class B (a) 41,437 17
Keppil Phillipine Shipyard (a) 1,062,700 58
Manila Electric Co. Class B 21,000 171
Manila Mining Corp. Class B 64,450,180 120
Metro Pacific Corp. Class A 2,347,568 434
Philippine Long Distance Telephone Co. 9,500 516
Philippine Long Distance Telephone Co
- ADR 24,000 1,299
Philippine Long Distance Telephone Co.
- GDS 700 36
San Miguel Corp. Class B 75,000 257
SM Prime Holdings, Inc. - GDS (a) 7,500 102
--------
6,178
--------
POLAND - 0.4%
Agros Holdings Series C 12,200 102
Bank Slaski SA 3,400 198
Banka Przemyslowo 4,747 138
Debica Series A 7,500 113
E. Wedel SA 2,190 72
Zywiec 1,390 96
--------
719
--------
PORTUGAL - 3.5%
Banco Espir Santo (Regd) 39,000 589
Banco Totta e Acores (a) 867 14
Banco Totta e Acores (Regd) 12,840 212
Capital Portugal (a) 4,360 385
CEL-CAT Fabrica Nacional de
Condutores Electricos SA (a) 7,200 111
Cimpor Cimentos de Portugal 33,518 555
Corp. Ind. Norte 6,300 144
Empresa Fabril
de Maquinas Electricas - Efacec 33,600 227
Jeronimo Martins 10,000 555
Jornalgeste SGPS (a) 5,000 58
Portugal Telecom (a) 43,000 809
Portugal Telecom SA - ADR (a) 7,300 139
Sonae Investimento 100,900 2,157
Unicer-Uniao Cervj (Regd) 9,000 149
--------
6,104
--------
RUSSIA - 0.2%
AO Mosenergo - ADR (a) 5,600 44
Russian Depositary Trust (a) 1 122
Russian Depositary Trust (a) 1 53
SFMT, Inc. (a) 2,000 33
Templeton Russia Fund, Inc. 3,200 44
--------
296
--------
SINGAPORE - 0.4%
Far East Levingston 163,000 766
--------
766
--------
SOUTH AFRICA - 4.7%
Anglo America Coal 1,857 116
Anglo America Corp. 6,590 398
Anglo American Industrial Corp. 2,110 96
Barlow, Ltd. 33,600 479
Clinic Holdings, Ltd. 73,700 70
De Beers Centenary AG 6,926 210
De Beers Consolidated Mines, Ltd. - ADR 4,957 149
Engen, Ltd. 16,281 123
Free State Consolidated Gold Mines, Ltd. 9,610 72
Gencor, Ltd. 65,060 227
Gencor, Ltd. - ADR 54,679 190
Highstone Property 370,000 188
Impala Platinum Holdings, Ltd. 2,760 50
ISCOR 1,215,636 1,094
Lonrho PLC (a) 186,800 525
Malbak, Ltd. NPV 125,040 866
Murray & Roberts Holdings, Ltd. 57,500 406
14 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
Nampak, Ltd. 51,000 $ 283
Nampak, Ltd. - ADR (a) 19,260 68
PepsiCo International, Inc. (a) 2,000 200
Polifin, Ltd. (a) 1,603 3
Premier Group Holdings, Ltd. 49,634 82
Rembrandt Group, Ltd. 115,752 1,111
Rustenberg Platinum Holdings, Ltd. 3,341 55
Safmarine & Rennie Holdings, Ltd. 34,000 124
Sasol NPV 53,920 442
South African Breweries 9,244 339
Zambia Consolidated Copper
Series B (UK Regd)(a) 43,846 53
Zambia Copper Investments
PLC (BR)(a) 369,265 131
--------
8,150
--------
SOUTH KOREA - 3.5%
Daewoo Securities 4,370 114
Hanil Iron & Steel Co. 1,320 60
Hankook Tire Manufacturing 1,900 113
Hyundai Engineering &
Construction Co. New (a) 442 20
Hyundai Motor Co. - GDR (a) 9,000 131
Korea Electric Power Corp. 12,730 505
Korea Electric Power Corp. - ADR 3,000 80
Korea Electric Power Corp. New - ADR 5,000 133
Korea Long-Term Credit Bank 6,313 178
Korea Mobile Telecommunications Corp. 385 289
Korea Mobile Telecommunications Corp.
- GDR (a) 700 31
Kwang Ju Bank 16,000 152
Kwang Ju Bank New (a) 3,344 32
Pohang Iron & Steel 6,970 456
Samsung Construction (a) 3,371 87
Samsung Electronic Co. - GDR (a) 495 42
Samsung Electronics (a) 96 8
Samsung Electronics - GDR (a) 900 77
Samsung Electronics - GDS (a) 1,601 86
Samsung Electronics Co. - GDR (144A)(a) 6,160 591
Samsung Electronics Co. - GDS (a) 13,800 828
Samsung Electronics Co. New (a) 49 9
Samsung Electronics, Ltd. 1,000 182
Samsung Electronics, Ltd. - GDR (144A)(a) 12 1
Samsung Electronics, Ltd. - GDR (a) 62 6
Samsung Electronics, Ltd. - GDS (a) 1,600 96
Samsung Engineering & Construction (a) 34 1
Samsung Engineering & Construction
- GDS (a) 10,600 103
Shin Han Bank 23,790 466
Shin Han Bank New (a) 20,000 379
Shinil Engineering 5,564 96
Shinil Engineering New (a) 1,698 29
Ssangyong Investment & Securities 9,312 168
Ssangyong Oil Refining Co., Ltd. 19,120 542
--------
6,091
--------
SPAIN - 0.5%
Quilmes Industrial (Regd) 58,100 906
--------
906
--------
SRI LANKA - 0.5%
Aitken Spence & Co. 30,365 105
Blue Diamond Jewel NPV 97,911 29
Ceylon Theatre 6,830 41
Development Finance Corp. 84,999 472
Habarana Lodge, Ltd. 17,000 9
Hayleys 15,199 48
John Keells Holdings, Ltd. 26,666 69
National Development Bank 9,800 40
--------
813
--------
SWITZERLAND - 0.6%
Holderbank Financiere Glarus AG (BR) 1,392 1,068
--------
1,068
--------
TAIWAN - 2.7%
Advanced Semiconductor Engineering
- GDR (a) 11,650 150
Advanced Semiconductor Engineering
- GDR (a) 7,500 96
Asia Cement Corp. - GDR 13,300 216
Asia Cement Corp. - GDS 18,000 284
China Steel Corp. - ADR 28,970 464
China Steel Corp. - GDS 35,600 570
Hocheng Group Corp. - GDR 52,617 500
Microelectronics - GDS (a) 35,801 197
President Enterprises - GDS (a) 58,300 583
ROC Taiwan Fund (a) 50,200 527
Siliconware Precision Industries, Inc.
- GDR (a) 15,600 257
Taiwan Fund, Inc. 22,262 456
Yageo Corp. - GDR (a) 16,465 144
Yageo Corp. - GDR (144A)(a) 32,413 284
--------
4,728
--------
Specialty Funds Emerging Markets Fund 15
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
THAILAND - 5.1%
Advanced Information Services
(Alien Market) 25,000 $ 443
Bangkok Insurance PLC
(Alien Market) 5,900 94
Bank of Ayudhya Public Co., Ltd.
(Alien Market) 110,000 616
Electricity General Public Co. Ltd. (a) 15,300 45
Electricity Generating Public Co., Ltd.
(Alien Market)(a) 67,210 229
Finance One Public Co., Ltd.
(Alien Market) 15,000 95
Industrial Finance Corp. of Thailand
(Alien Market)(a) 420,000 1,426
International Cosmetics (Alien Market) 29,000 265
Land & House (Alien Market) 5,100 84
Lanna Lignite Public Co. (Alien Market)(a) 16,200 107
Nation Publishing (Alien Market) 35,500 43
Peregrine Bank - GDR (a) 49,400 424
Phatra Thanakit Co. (Alien Market) 39,600 340
Precious Shipping (Alien Market) 137,000 799
Regional Container Line (Alien Market) 29,950 321
Siam Cement Co. (Alien Market) 10,500 582
Siam Commercial Bank (Alien Market) 148,000 1,951
Thai Farmers Bank (a) 23,700 162
Thai Farmers Bank (Alien Market) 39,000 393
Thai Plastic & Chemical Co., Ltd.
(Alien Market)(a) 31,000 150
United Communications Industries 8,800 112
United Communications Industries
(Alien Market) 4,600 59
Wong Paitoon Footwear (Alien Market) 68,700 64
--------
8,804
--------
TURKEY - 0.5%
Akbank 25,000 5
Efes Sinai Yatirim (a) 268,800 18
EGE Biracilik Ve M 1,173,000 404
Erciyas Biracilik Ve Malt Sanayii
- ADR (a) 5,500 54
Koc Holding 202,800 29
T Garanti Bankasi 1,696,000 142
Tat Konserve Sanay 106,365 67
Tofas Turk Otomobil Fabrikasi 800,000 78
Tofas Turk Otomobil Fabrikasi
AS - GDS 48,000 24
Trakya Cam Sanayii AS 430,000 44
--------
865
--------
UNITED KINGDOM - 0.5%
Lonrho PLC 300,000 820
--------
820
--------
VENEZUELA - 0.7%
Electricidad de Caracas (Regd) 68,637 47
Mavesa SA - ADR 51,250 190
Sider Venezolana 122,000 39
Siderurgica Venezolana Sivensa - ADR 486,100 873
Venezolana de Ceme 3,564 4
Venprecar - GDS 11,600 42
--------
1,195
--------
ZIMBABWE - 0.4%
Delta Corp. 360,000 603
--------
603
--------
TOTAL COMMON STOCKS
(cost $124,649) 119,806
--------
PREFERRED STOCKS - 9.5%
BRAZIL - 9.2%
Acos Especitabira NPV 107,915,428 627
Banco Bradesco SA NPV 272,389,440 2,382
Banco Bradesco SA NPV Rights (a) 6,181,957 11
Banco Itau SA (Regd) 809,000 226
Brahma (cia Cervej) NPV 1,493,000 614
Brasmotor SA NPV 4,575,000 908
Casa Anglo Bras SA NPV 2,524,000 106
CEMIG SA 11,409,000 252
Ceval Alimentos SA - ADR 9,300 105
Ceval Alimentos SA NPV 15,847,000 181
Cim Port Itau (Cia) 910,000 217
Companhia Energetica de Sao Paulo
- ADR (Regd)(a) 9,200 76
Companhia Energetica
de Sao Paulo NPV (a) 1,225,000 36
Coteminas (Cia Tec) NPV 3,027,505 1,012
Duratex SA (BR) 3,364,000 117
Electrobras (centr) Series B NPV 10,140,439 2,744
Industrias Romi SA NPV (a) 3,310,700 68
Inepar SA - Industria
e Construction NPV 84,168,000 46
Iochpe Maxion SA - ADR 29,000 82
Kepler Weber SA NPV (a) 3,200 8
Lojas Renner SA NPV (a) 6,000,000 160
Marco Polo SA Class B NPV (a) 800,000 119
16 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- --------
<S> <C> <C>
Metalurgica Schulz NPV (a) 850,000 $ 25
Petro Ipiranga (cia) NPV 79,100,000 659
Petrobras Distribuidora NPV 4,915,000 131
Petrol Brasileiros 6,228,866 532
Randon Participacoes SA 170,777,104 104
Refrigeracao Parana SA NPV 285,893,430 571
Sadia Concordia SA NPV 635,000 470
Siderurgica Tubarao NPV 9,669,000 157
Telec SP Telesp NPV 4,732,000 696
Telecomunicacoes Brasileiras NPV 30,435,542 1,466
Vale Rio Doce (Cia) NPV 5,704,000 940
--------
15,848
--------
GREECE - 0.1%
AEGEK SA Rights (a) 2,800 17
Delta Dairy 10,500 155
--------
172
--------
RUSSIA - 0.2%
Fleming Russia Securities Fund (a) 53,458 307
--------
307
--------
SOUTH KOREA - 0.0%
Mando Machinery Corp. (a) 4,770 122
--------
122
--------
TOTAL PREFERRED STOCKS
(cost $17,375) 16,449
--------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
--------------
<S> <C> <C>
LONG-TERM INVESTMENTS - 2.4%
INDIA - 0.3%
Scici (conv.)
3.500% due 04/01/04 $ 250 250
Tata Iron & Steel Co. (conv.)
2.250% due 04/01/99 167 149
--------
399
--------
INDONESIA - 0.0%
Modernland Realty (conv.)
6.000% due 01/04/03 IDR 30 31
--------
31
--------
MALAYSIA - 0.3%
AMMB Holdings Berhad (conv.)
7.500% due 11/07/99 MYR 29 15
United Engineers Berhad (conv.)
2.000% due 03/01/04 $ 380 433
--------
448
--------
PORTUGAL - 0.1%
Jeronimo Martins (conv.)
13.500% due 01/31/97 PTE 14,000 200
--------
200
--------
SOUTH AFRICA - 0.0%
Sappi Bvi Finance (conv.)
7.500% due 08/01/02 $ 60 57
--------
57
--------
SOUTH KOREA - 0.4%
Inkel Corp. (conv.)
0.750% due 12/31/03 250 133
Shinwon Corp. (conv.)
0.500% due 12/31/08 520 525
--------
658
--------
TAIWAN - 0.6%
Nan Ya Plastics Corp. (conv.)
1.750% due 07/19/01 50 49
Nan Ya Plastics Corp. (conv.)(144 A)
1.750% due 07/19/01 300 296
U Ming Marine Holdings (Conv)
1.500% due 02/07/01 326 306
United Microelectronics Corp., Ltd. (conv.)
1.250% due 06/08/04 205 257
United Microelectronics Corp., Ltd.
(conv.)(144 A)
1.250% due 06/08/04 90 113
--------
1,021
--------
THAILAND - 0.5%
Bangkok Bank Public Co. (conv.)
3.250% due 03/03/04 690 731
Banpu Coal Co., Ltd. (conv.)
3.500% due 08/25/04 142 172
Specialty Funds Emerging Markets Fund 17
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- --------
<S> <C> <C>
Siam Sindhorn BVI, Ltd. (conv.)
2.000% due 07/31/00 $ 50 $ 45
--------
948
--------
UNITED KINGDOM - 0.2%
Barlow International Investments (conv.)
7.000% due 09/20/04 185 300
--------
300
--------
TOTAL LONG-TERM INVESTMENTS
(cost $4,339) 4,062
--------
SHORT-TERM INVESTMENTS - 16.5%
UNITED STATES - 16.5%
Frank Russell Investment Company
Money Market Fund, due on demand (b) 28,477 28,477
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $28,477) 28,477
--------
TOTAL INVESTMENTS
(identified cost $174,840)(c) - 97.8% 168,794
OTHER ASSETS AND LIABILITIES,
NET - 2.2% 3,879
--------
NET ASSETS - 100.0% $172,673
--------
--------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) At December 31, 1995, the cost for federal income tax purposes was
$176,221 and net unrealized depreciation for all securities was $7,427.
This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$12,674 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $20,101.
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- -------------------------------------------- ------ --------
<S> <C> <C>
Basic Industries 10.3% $ 17,765
Capital Goods 4.3 7,413
Consumer Basics 6.6 11,416
Consumer Durable Goods 2.5 4,253
Consumer Non-Durables 1.9 3,231
Consumer Services 1.0 1,707
Energy 5.6 9,763
Finance 14.1 24,329
General Business 5.6 9,615
Miscellaneous 9.2 15,972
Shelter 4.0 6,935
Technology 1.9 3,303
Transportation 0.6 1,102
Utilities 11.3 19,451
Long-Term Investments 2.4 4,062
Short-Term Investments 16.5 28,477
----- --------
Total Investments 97.8 168,794
Other Assets and Liabilities, Net 2.2 3,879
----- --------
NET ASSETS 100.0% $172,673
----- --------
----- --------
<CAPTION>
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- -------------------------------------------- ------ --------
<S> <C> <C>
Latin America 30.9% $ 53,296
Pacific Basin 28.9 49,829
Eurasia 16.1 27,898
Africa 5.4 9,294
Short-Term Investments 16.5 28,477
----- --------
Total Investments 97.8 168,794
Other Assets and Liabilities, Net 2.2 3,879
----- --------
NET ASSETS 100.0% $172,673
----- --------
----- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $174,839,895)(Note 2). . . . . . . . . . . . . . . $168,794,360
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486,859
Foreign currency holdings (identified cost $1,535,723). . . . . . . . . . . . . . . . . . 1,475,072
Foreign currency exchange spot contracts (cost $396,015)(Notes 2 and 6) . . . . . . . . . 395,516
Receivables:
Dividends and interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,214
Investments sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332,714
Fund shares sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,975,148
From Manager (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,115
Foreign taxes recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,669
Deferred organization expenses (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 15,474
------------
175,992,141
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,445,794
Fund shares redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,271
Accrued bookkeeping service fees (Note 4) . . . . . . . . . . . . . . . . . 12,308
Accrued management fees (Note 4). . . . . . . . . . . . . . . . . . . . . . 169,599
Accrued transfer agent fees (Note 4). . . . . . . . . . . . . . . . . . . . 29,211
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 140,894
Foreign currency exchange spot contracts (cost $396,015)(Notes 2 and 6) . . . 396,015 3,319,092
--------- ------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $172,673,049
------------
------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income. . . . . . . . . . . . . . . $ (226,144)
Accumulated distributions in excess of net realized gains . . . . . . . . . . . . . . . . (7,918,418)
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,045,535)
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . . . . . (68,830)
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,699
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,777,277
------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $172,673,049
------------
------------
Net asset value, offering and redemption price per share
($172,673,049 divided by 15,469,865 shares of $.01 par value
shares of beneficial interest outstanding). . . . . . . . . . . . . . . . . . . . . . . . $11.16
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Emerging Markets Fund 19
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,648,260
Dividends from Money Market Fund (Note 5) . . . . . . . . . . . . . . . . . . 1,335,478
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,783
Less foreign taxes withheld . . . . . . . . . . . . . . . . . . . . . . . . . (315,892)
------------
3,816,629
Expenses (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . $1,380,549
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . 818,534
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . 225,468
Bookkeeping service fees. . . . . . . . . . . . . . . . . . . . . 73,250
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . 25,822
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . 39,474
Trustees' fees. . . . . . . . . . . . . . . . . . . . . . . . . . 4,332
Amortization of deferred organization expenses. . . . . . . . . . 7,424
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 27,020
----------
Expenses before waivers and reimbursements. . . . . . . . . . . . 2,601,873
Expenses waived (Note 4). . . . . . . . . . . . . . . . . . . . . (25,061)
Expenses reimbursed by Manager (Note 4) . . . . . . . . . . . . . (37,115) 2,539,697
---------- ------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,932
------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,504,249)
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . (805,707)
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,221,432)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . 88,862
------------
Net gain (loss) on investments. . . . . . . . . . . . . . . . . . . . . . . . . (12,442,526)
------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . $(11,165,594)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,276,932 $ 1,153,059
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,504,249) 3,579,128
Foreign currency-related transactions . . . . . . . . . . . . . . . . (805,707) (374,943)
Net change in unrealized appreciation or depreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,221,432) (11,391,205)
Foreign currency-related transactions . . . . . . . . . . . . . . . . 88,862 (87,886)
------------ ------------
Net increase (decrease) in net assets resulting from operations . . . . . (11,165,594) (7,121,847)
Distributions to shareholders:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . (461,248) (832,396)
In excess of net investment income. . . . . . . . . . . . . . . . . . . (226,144) (902,784)
Net realized gain on investments. . . . . . . . . . . . . . . . . . . . -- (5,126,070)
In excess of net realized gain on investments . . . . . . . . . . . . . (400,869) (812,357)
Increase (decrease) in net assets from Fund share transactions. . . . . . 57,655,780 76,609,101
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . . 45,401,925 61,813,647
Net assets at beginning of year . . . . . . . . . . . . . . . . . . . . . 127,271,124 65,457,477
------------ ------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net
investment income of $226,144 and $902,784, respectively) . . . . . . . $172,673,049 $127,271,124
------------ ------------
------------ ------------
</TABLE>
FUND SHARE TRANSACTIONS
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . . . 8,376,850 $ 94,656,077 7,223,682 $ 97,277,256
Fund shares issued to shareholders
in reinvestments of distributions. . . . . 90,071 985,053 536,210 6,993,116
Fund shares redeemed . . . . . . . . . . . . (3,386,748) (37,985,350) (2,077,684) (27,661,271)
---------- ------------ ---------- ------------
Net increase (decrease). . . . . . . . . . . 5,080,173 $ 57,655,780 5,682,208 $ 76,609,101
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Emerging Markets Fund 21
<PAGE>
EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year or period ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993++
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . $ 12.25 $ 13.90 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 .15 .07
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . (1.12) (1.24) 4.09
------- ------- -------
Total Income From Investment Operations. . . . . . . . . . . . . . . . . . . (1.01) (1.09) 4.16
------- ------- -------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . (.03) (.10) (.07)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . (.02) (.10) (.01)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . -- (.31) (.18)
In excess of net realized gain on investments. . . . . . . . . . . . . . . . (.03) (.05) --
------- ------- -------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.08) (.56) (.26)
------- ------- -------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . $11.16 $ 12.25 $ 13.90
------- ------- -------
------- ------- -------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.21) (5.83) 41.83
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c)(d) . . . . . . . . . . 1.75 .80 .80
Operating expenses, gross, to average net assets (b)(c)(d) . . . . . . . . . 1.80 .83 1.60
Net investment income to average net assets (b)(c) . . . . . . . . . . . . . .88 1.10 1.33
Portfolio turnover (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.16 57.47 89.99
Net assets, end of year ($000 omitted) . . . . . . . . . . . . . . . . . . . 172,673 127,271 65,457
Per share amount of fees waived ($ omitted)(d) . . . . . . . . . . . . . . . .0022 .0044 .0016
Per share amount of fees reimbursed ($ omitted)(d) . . . . . . . . . . . . . .0032 .0017 .0420
</TABLE>
++ For the period January 29, 1993 (commencement of operations) to
December 31, 1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the periods ended December 31, 1993, are annualized.
(c) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees. See
Note 4.
(d) See Note 4.
22 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS EMERGING MARKET IFC INVESTABLE COMPOSITE ** EXTENDED BARING EM ++
ENDED DECEMBER 31 $10,000 $10,000 $10,000
- ----------------- --------------- ----------------------------- ---------------------
<S> <C> <C> <C>
inception* $10,000 $10,000 $10,000
1993 $14,183 $18,040 $17,628
1994 $13,356 $15,882 $16,793
1995 $12,260 $14,540 $15,956
</TABLE>
Emerging Markets Fund
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $ 9,179 (8.21)%
Inception $12,260 7.23%***
</TABLE>
IFC Investable Composite Index
<TABLE>
<CAPTION>
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $ 9,175 (8.25)%
Inception $14,540 13.69%***
</TABLE>
<TABLE>
<CAPTION>
Extended Baring Emerging Markets Index
PERIOD ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- -------
<S> <C> <C>
1 Year $ 9,501 (4.99)%
Inception $15,956 17.37%***
</TABLE>
* Assumes initial investment on February 1, 1993.
** International Finance Corporation (IFC) Investable Composite Index is a
market capitalization-weighted index of the performance of securities
listed on the stock exchange(s) of the countries included in the index,
calculated on a total-return basis. The investable index reflects the
accessibility of markets and individual stocks to foreign investors.
++ Extended Baring Emerging Markets Index is a market capitalization-
weighted index of companies' performance within 20 countries in Africa,
Asia, Europe and Latin America.
*** Annualized.
EMERGING MARKETS FUND lost 8.2% of its value in 1995, essentially matching
the (8.3%) return for the IFC Investable Composite Index, but trailing the
Extended Baring Emerging Markets Index return of (5.0%). The portfolio was
managed in a manner consistent with its objective to provide US investors an
opportunity to expand their international investments to include the emerging
stock markets of newly industrialized countries and further diversify the
equity portions of their portfolios. The Fund employs a multi-manager
strategy that embraces numerous techniques necessary for successful
investments in emerging markets.
Latin American markets were the worst performers for the year, as the Mexican
peso collapse in late December of 1994 preceded broad political and economic
problems in the region. In 1995, the region was down over 11%. Asian markets
were also poor performers, down 6.4%, with losses greater than 20% from
China, India, and Taiwan. The Fund's underweighting in South Africa hurt
performance as the region was up nearly 26% for the year. Many active
managers were underweighted in the region as South Africa was added for the
first time to both comparison indexes during the first half of the year.
Performance is historical and assumes reinvestment of all dividends and
capital gains. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than when
purchased. Past performance is not indicative of future results.
Investments in securities of non-US issuers and foreign currencies involve
investment risks different from those of US issuers. The Prospectus contains
further information and details regarding these risks.
Specialty Funds Emerging Markets Fund 23
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY (000)
--------- ------ -------- -------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - 97.8%
ALASKA - 2.3%
Alaska State Housing Finance Corp., Series A, Housing Revenue $ 1,000 4.500% 06/01/99 $ 1,009
North Slope Borough, Alaska, Zero Coupon, Series A, General Obligation 500 0.000 06/30/99 431
-------
1,440
-------
ARIZONA - 2.5%
Arizona State Transportation Board, Series A,
Special Obligations Revenue (pre-refunded 07/01/01) 1,425 6.450 07/01/06 1,593
-------
1,593
-------
CALIFORNIA - 9.9%
California Health Facilities Financing, Series D, Health Care Revenue 500 5.600 07/01/97 513
California Health Facilities Financing, Series D, Health Care Revenue 665 5.750 07/01/98 693
California State Public Works Lease, Series A,
State and Local Appropriation 500 5.100 12/01/98 515
California State Public Works Lease, State and Local Appropriation 600 5.250 12/01/98 620
California, State of, General Obligation 850 6.100 11/01/01 927
Los Angeles County, California, California Transporation
Participation Certficate, Series B, Tax Revenue 760 5.900 07/01/00 804
Sacramento, California Municipal Utility District,
Series Z, Utility Revenue 1,000 6.000 07/01/01 1,082
San Diego County, California Transportation Commission,
Series A, Tax Revenue 500 5.000 04/01/98 511
Southern California, Rapid Transit District Revenue 630 5.400 09/01/02 666
-------
6,331
-------
COLORADO - 4.1%
Denver, Colorado, City and County, General Obligation 500 5.950 08/01/97 517
Jefferson County, Colorado Participation Certificate,
Series 1988, Special Obligation Revenue (pre-refunded 12/01/96) 1,000 7.050 12/01/96 1,032
Jefferson County, Colorado School District,
Series A, General Obligation 1,000 5.500 12/15/01 1,063
-------
2,612
-------
DELAWARE - 1.6%
Delaware, State of, Series C, General Obligation 1,000 5.000 07/01/00 1,036
-------
1,036
-------
DISTRICT OF COLUMBIA - 0.8%
District of Columbia, Series A, General Obligation 500 7.250 06/01/98 534
-------
534
-------
Specialty Funds Limited Volatility Tax Free Fund 25
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY (000)
--------- ------ -------- -------
<S> <C> <C> <C> <C>
GEORGIA - 1.1%
DeKalb County, Georgia, General Obligation
(pre-refunded 01/01/97) $ 700 7.300% 01/01/98 $ 740
-------
740
-------
HAWAII - 0.8%
Hawaii, State of, Series B-F, General Obligation
(pre-refunded 08/01/96) 500 6.900 08/01/97 517
-------
517
-------
ILLINOIS - 7.7%
Chicago, Illinois School Financial Authority,
Series A, State and Local Appropriation 1,000 5.400 06/01/97 1,021
Chicago, Illinois Water Revenue, State and Local Debt 500 5.750 11/01/01 533
Chicago, Illinois, Series C, General Obligation 1,500 6.250 10/31/01 1,637
Illinois Health Facilities Authority, Series C,
Special Obligation Revenue (pre-refunded 04/01/99) 500 7.500 04/01/18 560
Illinois, State of, General Obligation 500 5.500 08/01/00 525
Illinois, State of, General Obligation (pre-refunded 06/01/98) 625 5.800 06/01/98 650
-------
4,926
-------
INDIANA - 4.9%
Indiana Health Facility Financing Authority Hospital Revenue 1,525 4.700 05/15/01 1,542
Indianapolis, Indiania Local Public Improvement
Bond Bank Series B, State and Local Appropriation 500 5.000 02/01/00 514
Richmond Indiana Hospital Authority Facilities Revenue 1,000 5.900 01/01/02 1,066
-------
3,122
-------
IOWA - 1.6%
Iowa Student Loan Liquidity Corp., Series A, Student Loan Revenue 1,000 6.000 03/01/98 1,034
-------
1,034
-------
KENTUCKY - 1.7%
McCracken County, Kentucky Hospital Revenue,
Series A, Health Care Revenue 1,000 5.700 11/01/00 1,060
-------
1,060
-------
LOUISIANA - 1.6%
Louisiana Public Facilities Authority Revenue, Health Care Revenue 500 5.500 10/15/99 522
Louisiana, State of, Series A, General Obligation 500 5.300 05/15/01 522
-------
1,044
-------
26 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY (000)
--------- ------ -------- -------
<S> <C> <C> <C> <C>
MASSACHUSETTS - 4.9%
Massachusetts State Housing Finance Agency, Series 43,
Housing Revenue $ 500 4.600% 06/01/00 $ 502
Massachusetts State Water Resources Authority,
Series C, Utility Revenue 2,500 5.250 12/01/01 2,602
-------
3,104
-------
MICHIGAN - 3.3%
Michigan Municipal Bond Authority Revenue,
Series B, State and Local Appropriation 550 6.900 05/01/99 596
Michigan State Trunk Line, Series A, Special Obligation Revenue
(pre-refunded 08/15/99) 400 7.000 08/15/17 446
Michigan State, South Central Power Agency,
Special Obligation Revenue (pre-refunded 11/01/96) 1,000 7.250 11/01/06 1,050
-------
2,092
-------
MINNESOTA - 2.9%
Minneapolis St. Paul, Minnesota Metropolitan Council,
Series D, General Obligation 535 5.900 09/01/97 553
Minnesota, State of, General Obligation 500 6.400 08/01/98 531
Minnesota, State of, General Obligation 700 5.600 10/01/99 738
-------
1,822
-------
NEW JERSEY - 1.6%
New Jersey State Educational Facilities Authority, Series B, University
Revenue 500 5.000 12/01/00 519
New Jersey State Transportation Trust Fund Authority, Series A,
State and Local Appropriation 500 5.500 06/15/00 526
-------
1,045
-------
NEW YORK - 9.7%
New York City, New York, General Obligation 500 7.000 02/01/00 511
New York City, New York, Series B, General Obligation 1,745 5.300 08/15/00 1,770
New York City, New York, Series C, General Obligation 500 6.125 08/01/01 522
New York State Dormitory Authority Revenue, Series A,
State and Local Appropriation 500 5.100 05/15/00 506
New York State Dormitory Authority Revenue, Series E,
State and Local Appropriation 500 7.300 07/01/99 540
New York State Urban Development Corp. Revenue,
State and Local Appropriation 1,000 5.000 04/01/00 1,008
New York State Urban Development Corp.
Revenue, Syracuse University Center, State and Local Appropriation 1,050 5.000 01/01/01 1,051
New York, New York, Series G, General Obligation 250 5.600 02/01/03 253
-------
6,161
-------
Specialty Funds Limited Volatility Tax Free Fund 27
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY (000)
--------- ------ -------- -------
<S> <C> <C> <C> <C>
OHIO - 0.6%
Montgomery County, Ohio Solid Waste Revenue $ 400 4.450% 11/01/01 $ 403
-------
403
-------
PENNSYLVANIA - 1.7%
Lehigh County, Pennsylvania, Special Obligation Revenue
(pre-refunded 08/01/00) 500 6.900 08/01/11 564
Pennsylvania, State of, General Obligation 500 5.300 07/01/99 519
-------
1,083
-------
RHODE ISLAND - 2.4%
Rhode Island Housing & Mortgage Finance Authority,
Series A, Housing Revenue 1,000 5.150 07/01/01 1,021
Rhode Island State Consolidated Capital Development,
Series B, General Obligation 500 6.000 05/15/97 514
-------
1,535
-------
SOUTH CAROLINA - 0.8%
Piedmont, South Carolina, Municipal Power Agency Service,
Series A, Utility Revenue 500 5.700 01/01/98 517
-------
517
-------
SOUTH DAKOTA - 1.0%
South Dakota State Lease Revenue, Series B,
State and Local Appropriation 650 5.700 09/01/97 668
-------
668
-------
TENNESSEE - 1.6%
Memphis, Tennessee Electric System Revenue,
Special Obligation Revenue (pre-refunded 01/01/96) 1,000 7.500 01/01/98 1,005
-------
1,005
-------
TEXAS - 12.3%
Abilene, Texas, Health Facilities Development Corp.,
Medical Center A, Health Care Revenue 500 5.100 09/01/99 515
Arlington, Texas Independant School District, General Obligation 600 5.150 02/15/99 619
Austin, Texas, Zero Coupon, General Obligation 675 0.000 09/01/97 633
Brownsville, Texas, Utilities System Revenue 600 5.000 09/01/00 621
Houston, Texas Independent School District,
Series A, General Obligation 1,000 5.400 08/15/01 1,055
Houston, Texas Water & Sewer System Revenue,
Special Obligation Revenue (pre-refunded 12/01/97) 780 8.000 12/01/07 855
28 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY (000)
--------- ------ -------- -------
<S> <C> <C> <C> <C>
Houston, Texas, General Obligation $ 850 5.600% 03/01/00 $ 895
Texas, State of, Series C, General Obligation 1,500 5.000 04/01/99 1,542
Texas, State of, Special Obligation Revenue (pre-refunded 04/01/00) 500 7.125 04/01/20 565
Waco, Texas Waterworks and Sewer, Utility Revenue 500 5.400 09/01/99 521
-------
7,821
-------
UTAH - 2.1%
Intermountain Power Agency, Series B, Utility Revenue 500 7.200 07/01/99 544
Utah State Building Ownership Authority, Series A,
State and Local Appropriation 750 5.125 05/15/00 776
-------
1,320
-------
VIRGINIA - 2.0%
Fairfax County Virginia, Series B, General Obligation 750 5.000 06/01/00 776
Virginia Public Building Authority Revenue, State
and Local Appropriation 500 5.100 08/01/99 517
-------
1,293
-------
WASHINGTON - 9.9%
Clark County, Washington Public Utility District Number
1, Utility Revenue 500 5.000 01/01/99 512
Washington State Public Power Supply System, Utility Revenue 400 5.100 07/01/00 410
Washington State Public Power Supply System,
Series B, Utility Revenue 650 7.200 07/01/99 708
Washington State Public Power Supply System,
Utility Revenue 500 6.300 07/01/01 539
Washington, State of, Series C, General Obligation 2,000 5.500 07/01/99 2,089
Washington, State of, Series R, General Obligation 500 5.000 07/01/99 514
Washington, State of, Series R-92 B, General Obligation 500 5.750 09/01/97 515
Washington, State of, Series R-92 C, General Obligation
(pre-refunded 09/01/96) 985 8.000 09/01/05 1,014
-------
6,301
-------
WYOMING - 0.4%
Wyoming Community Development Authority,
Series 4, Housing Revenue 250 4.800 06/01/00 252
-------
252
-------
TOTAL MUNICIPAL BONDS (Cost $60,917) 62,411
-------
Specialty Funds Limited Volatility Tax Free Fund 29
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY (000)
--------- ------ -------- -------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT OBLIGATIONS - 3.4%
Charleston County, South Carolina Industrial Revenue,
daily demand (b) $ 100 5.900% 01/01/07 $ 100
Harris County, Texas, Industrial Development Corp.,
Series B, daily demand (b) 500 6.000 03/01/24 500
Jackson County, Mississippi Pollution Control Revenue, daily demand (b) 200 5.900 12/01/16 200
Jackson County, Mississippi Pollution Control Revenue, daily demand (b) 500 5.900 06/01/23 500
Uinta County, Wyoming Pollution Control Revenue, daily demand (b) 900 5.900 08/15/20 900
-------
TOTAL SHORT-TERM TAX-EXEMPT OBLIGATIONS (cost $2,200) 2,200
-------
TOTAL INVESTMENTS (identified cost $63,117)(a) - 101.2% 64,611
OTHER ASSETS AND LIABILITIES,
NET - (1.2)% (773)
-------
NET ASSETS - 100.0% $63,838
-------
-------
</TABLE>
(a) At December 31, 1995, the cost for federal income tax purposes is the same
as shown above and net unrealized appreciation for all securities was
$1,494. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$1,494.
(b) Adjustable or floating rate security.
QUALITY RATINGS AS A % OF MARKET VALUE (UNAUDITED)
AAA 60%
AA 25
A 5
BBB 10
------
100%
-------
-------
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE (UNAUDITED)
General Obligation 35%
Refunded 17
State and Community Lease 14
Utility Revenue 14
Health Care Revenue 9
Housing Revenue 4
Student Loan Revenue 2
Other 5
------
100%
------
------
The accompanying notes are an integral part of the financial statements.
30 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $63,117,132)(Note 2) . . . . . . . $ 64,611,019
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,163
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,026,223
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,046,368
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 231,790
-----------
66,943,563
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . $ 2,970,201
Fund shares redeemed . . . . . . . . . . . . . . . . . . . 81,529
Accrued management fees (Note 4) . . . . . . . . . . . . . 26,621
Accrued transfer agent fees (Note 4) . . . . . . . . . . . 5,960
Other accrued expenses . . . . . . . . . . . . . . . . . . 21,685 3,105,996
---------- -----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,837,567
-----------
-----------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . $ 17,949
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . (1,371,186)
Unrealized appreciation (depreciation) on investments . . . . . . . . . 1,493,887
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . 30,049
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 63,666,868
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,837,567
-----------
-----------
Net asset value, offering and redemption price per share
($63,837,567 divided by 3,004,885 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . $ 21.24
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Limited Volatility Tax Free Fund 31
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,728,863
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . $ 294,007
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 52,377
Transfer agent fees. . . . . . . . . . . . . . . . . . . . 33,361
Professional fees. . . . . . . . . . . . . . . . . . . . . 9,755
Registration fees. . . . . . . . . . . . . . . . . . . . . 32,198
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . 4,300
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 6,501 432,499
---------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . 2,296,364
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments . . . . . . . . . . . . . . . . 20,010
Net change in unrealized appreciation or depreciation
of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,069,894
-----------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . 2,089,904
-----------
Net increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,386,268
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,296,364 $ 2,391,825
Net realized gain (loss) from investments . . . . . . . . . . . . . . 20,010 (476,148)
Net change in unrealized appreciation or depreciation of
investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,069,894 (2,209,158)
----------- -----------
Net increase (decrease) in net assets resulting from operations. . . . . 4,386,268 (293,481)
Distributions to shareholders from net investment income . . . . . . . . (2,311,453) (2,380,708)
Increase (decrease) in net assets from Fund share transactions . . . . . 12,787,880 437,904
----------- -----------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . 14,862,695 (2,236,285)
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . 48,974,872 51,211,157
----------- -----------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $17,949 and $33,038, respectively). . . . . . . . . . . . . . . . . $63,837,567 $48,974,872
----------- -----------
----------- -----------
</TABLE>
FUND SHARE TRANSACTIONS
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fund shares sold . . . . . . . . . . . . . . . . 1,982,132 $ 41,531,111 1,896,826 $ 39,960,833
Fund shares issued to shareholders in
reinvestments of distributions . . . . . . . 76,958 1,614,988 76,050 1,585,125
Fund shares redeemed . . . . . . . . . . . . . . (1,445,790) (30,358,219) (1,968,389) (41,108,054)
---------- ------------ ---------- ------------
Net increase (decrease) . . . . . . . . . . . . 613,300 $ 12,787,880 4,487 $ 437,904
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Limited Volatility Tax Free Fund 33
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . $20.48 $21.45 $21.03 $20.85 $20.49
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . .81 .86 .94 1.01 1.17
Net realized and unrealized gain (loss) on investments. . . . . .77 (.97) .42 .18 .35
------ ------ ------ ------ ------
Total Income From Investment Operations. . . . . . . . . . . . . . 1.58 (.11) 1.36 1.19 1.52
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . (.82) (.86) (.94) (1.01) (1.16)
In excess of net investment income . . . . . . . . . . . . . . -- -- (.00) -- --
------ ------ ------ ------ ------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . (.82) (.86) (.94) (1.01) (1.16)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . . $21.24 $20.48 $21.45 $21.03 $20.85
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . 7.81 (0.54) 6.58 5.85 7.64
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, to average net assets . . . . . . . . . . . .74 .72 .75 .80 .84
Net investment income to average net assets . . . . . . . . . . 3.91 4.14 4.40 4.89 5.68
Portfolio turnover (a). . . . . . . . . . . . . . . . . . . . . 73.91 71.71 24.05 18.21 129.12
Net assets, end of year ($000 omitted). . . . . . . . . . . . . 63,838 48,975 51,211 38,399 26,173
</TABLE>
(a) Beginning in 1992, variable rate daily demand securities were excluded
from the portfolio turnover calculation.
34 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1995 (Unaudited)
[GRAPH]
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
YEARLY PERIODS
ENDED DECEMBER 31 LIMITED VOLATILITY TAX FREE SB 3-MONTH T-BILL ** LIPPER-C- SHORT MUNI DEBT ++
- ----------------- --------------------------- -------------------- ----------------------------
<S> <C> <C> <C>
Inception* $10,000 $10,000 $10,000
1986 $10,932 $10,617 $10,920
1987 $11,242 $11,245 $11,281
1988 $11,830 $12,005 $11,956
1989 $12,652 $13,043 $12,803
1990 $13,427 $14,073 $13,621
1991 $14,452 $14,882 $14,722
1992 $15,298 $15,419 $15,665
1993 $16,304 $15,893 $16,635
1994 $16,216 $16,563 $16,601
1995 $17,483 $17,513 $17,822
</TABLE>
Limited Volatility Tax Free Fund
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $10,781 7.81%
5 Years $13,022 5.42% ***
10 Years $17,483 5.74% ***
</TABLE>
Salomon Brothers 3-Month Treasury Bill Index
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $10,574 5.74%
5 Years $12,444 4.47% ***
10 Years $17,513 5.76% ***
</TABLE>
Lipper-C- Short Municipal Debt Funds Average
<TABLE>
<CAPTION>
PERIODS ENDED GROWTH OF TOTAL
12/31/95 $10,000 RETURN
- ------------- --------- ------
<S> <C> <C>
1 Year $10,735 7.35%
5 Years $13,084 5.52% ***
10 Years $17,822 5.95% ***
</TABLE>
* Assumes initial investment on January 1, 1986.
** Salomon Brothers 3-Month Treasury Bill Index consists of equal dollar
amounts of three-month Treasury bills purchased at the beginning of
each of three consecutive months. As each bill matures, all proceeds
are rolled over or reinvested in a new three-month bill. The income
used to calculate the monthly return is derived by subtracting the
original amount invested from the maturity value.
++ Lipper-C- Short Municipal Debt Funds Average is the average total
return for the universe of funds within the Short Municipal Debt Funds
investment objective. The total return for the funds reflects
adjustments for income dividends and capital gains distributions
reinvested as of the ex-dividend dates.
*** Annualized.
LIMITED VOLATILITY TAX FREE FUND returned 7.8% in 1995, well ahead of the
5.7% return for the Salomon Brothers 3-Month Treasury Bill Index and above
the 7.4% return for the Lipper-Registered Trademark- Short Municipal Debt Funds
Average. The portfolio was managed in a manner consistent with its objective to
preserve capital while providing income exempt from federal income tax.
The threat of tax reform weighed heavily on investors' minds for most of
1995, leading to relatively weak returns for municipal bonds relative to
other asset classes. The lingering effects of the default of Orange County
also lessened demand. Like their taxable bond counterparts, longer-maturity
munis enjoyed the strongest returns. Although yields fell on all maturities,
the yields on longer maturities fell the most. The Fund struggled to
establish a favorable duration position for the first half of the year, which
caused performance to lag. However, it recovered in the second half of the
year.
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
The Limited Volatility Tax Free Fund's income may be subject to an alternative
minimum tax. See the Prospectus for further information.
Specialty Funds Limited Volatility Tax Free Fund 35
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------- ------ -------- --------
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT AGENCIES - 73.2%
Aid to Chile Guaranteed Note (LIBOR Floater)(a) $ 6,803 5.750% 06/01/15 $ 6,810
Aid to Sri Lanka Guaranteed Note (LIBOR Floater)(a) 4,125 5.817 06/15/12 4,172
Downey Savings & Loan 5,000 5.700 01/23/96 4,983
Federal Farm Credit Bank 3,000 6.390 04/17/96 3,006
Federal Farm Credit Bank 4,000 5.640 04/22/96 3,998
Federal Home Loan Bank 4,000 6.937 01/25/96 3,981
Federal Home Loan Bank 9,075 5.500 02/05/96 9,069
Federal Home Loan Bank 2,200 4.760 02/09/96 2,197
Federal Home Loan Bank 1,155 8.100 03/25/96 1,161
Federal Home Loan Bank 2,000 9.800 03/25/96 2,018
Federal Home Loan Bank 1,800 4.360 04/15/96 1,792
Federal Home Loan Bank 3,000 8.250 05/27/96 3,026
Federal Home Loan Bank 1,750 5.100 07/08/96 1,743
Federal Home Loan Bank 5,500 5.900 08/29/96 5,500
Federal Home Loan Bank 2,000 5.900 09/20/96 2,000
Federal Home Loan Bank MTN 1,000 5.550 04/12/96 997
Federal Home Loan Mortgage Corp. 1,000 4.675 03/25/96 998
Federal Home Loan Mortgage Corp. 3,000 4.580 03/29/96 2,991
Federal Home Loan Mortgage Association Discount Note 5,000 5.590 01/19/96 4,986
Federal Home Loan Mortgage Association Discount Note 3,000 5.310 04/29/96 2,948
Federal Home Loan Mortgage Association MTN 11,000 5.470 02/02/96 10,995
Federal Home Loan Mortgage Association MTN (a) 5,000 5.490 08/30/96 4,999
Federal Home Loan Mortgage Association MTN (a) 10,000 5.330 04/04/97 9,955
Secondary Market Services 8,000 5.700 01/17/96 7,980
Secondary Market Services 5,000 5.720 02/12/96 4,967
Student Loan Marketing Association Discount Note (LIBOR Floater)(a) 2,540 5.650 01/02/96 2,539
--------
TOTAL UNITED STATES GOVERNMENT AGENCIES
(cost $109,811) 109,811
--------
TOTAL INVESTMENTS
(amortized cost $109,811) - 73.2% 109,811
--------
REPURCHASE AGREEMENTS - 28.7%
Agreement with Lehman Brothers, Inc. and Chemical Bank (Tri-Party) of $8,000,
acquired December 15, 1995 at 5.760% to be repurchased at $8,041 on January 16, 1996 collateralized by
$8,030 Federal Home Loan Mortgage Corp. Bonds, due 01/01/96 to 11/01/96, valued at $8,211 8,000
Agreement with Zions First National Bank of $35,000, acquired December 29, 1995
at 5.850% to be repurchased at $35,023 on January 2, 1996 collateralized by
$35,591 United States Treasury Notes, due 11/30/96, valued at $35,792 35,000
--------
TOTAL REPURCHASE AGREEMENTS (cost $43,000) 43,000
--------
</TABLE>
Specialty Funds U.S. Government Money Market Fund 37
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
VALUE
(000)
--------
<S> <C>
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS
(Cost $152,811)(b) - 101.9% $152,811
OTHER ASSETS AND LIABILITIES, NET - (1.9%) (2,870)
--------
NET ASSETS - 100.0% $149,941
--------
--------
</TABLE>
* The interest rate for all securities with a maturity greater than
thirteen months has an automatic reset feature resulting in an
effective maturity of thirteen months or less.
(a) Adjustable or floating rate security.
(b) The identified cost for federal income tax purposes is the same as shown
above.
(MTN) represents Medium Term Note.
The accompanying notes are an integral part of the financial statements.
38 U.S. Government Money Market Fund Specialty Funds
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2).................. $109,810,803
Repurchase agreements (identified cost $43,000,000)(Note 2)....................... 43,000,000
Interest receivable............................................................... 879,887
------------
153,690,690
LIABILITIES
Payables:
Dividends...................................................... $ 727,622
Investments purchased.......................................... 2,947,785
Accrued transfer agent fees (Note 4)........................... 29,111
Other accrued expenses and payables............................ 44,772 3,749,290
---------- ------------
NET ASSETS........................................................................... $149,941,400
------------
------------
NET ASSETS CONSIST OF:
Shares of beneficial interest..................................................... $ 1,499,414
Additional paid-in capital........................................................ 148,441,986
------------
NET ASSETS........................................................................... $149,941,400
------------
------------
Net assets value, offering and redemption price per share
($149,941,400 divided by 149,941,400 shares of $.01 par value
shares of beneifical interest outstanding)........................................ $1.00
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds U.S. Government Money Market Fund 39
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest............................................................................. $ 8,311,248
Expenses (Notes 2 and 4):
Management fees................................................... $ 338,745
Custodian fees.................................................... 41,814
Transfer agent fees............................................... 208,500
Professional fees................................................. 8,114
Registration fees................................................. 83,455
Trustees' fees.................................................... 4,325
Miscellaneous..................................................... 7,543
----------
Expenses before waiver............................................ 692,496
Expenses waived by Manager (Note 4)............................... (261,988) 430,508
---------- ------------
Net investment income................................................................ 7,880,740
------------
Net increase in net assets resulting from operations................................. $ 7,880,740
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40 U.S. Government Money Market Fund Specialty Funds
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income and net increase
in net assets resulting from operations......................... $ 7,880,740 $ 3,251,920
Distributions to shareholders from net investment income............. (7,880,740) (3,251,920)
Increase (decrease) in net assets from Fund share transactions....... 37,864,438 16,667,251
------------ ------------
INCREASE (DECREASE) IN NET ASSETS.................................... 37,864,438 16,667,251
Net assets at beginning of year...................................... 112,076,962 95,409,711
------------ ------------
NET ASSETS AT END OF YEAR............................................ $149,941,400 $112,076,962
------------ ------------
------------ ------------
FUND SHARE TRANSACTIONS
(ON A CONSTANT DOLLAR BASIS):
Fund shares sold..................................................... 474,116,728 360,755,315
Fund shares issued to shareholders
in reinvestments of distributions.................................. 5,695,155 1,794,043
Fund shares redeemed................................................. (441,947,445) (345,882,107)
------------ ------------
Net increase (decrease).............................................. 37,864,438 16,667,251
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds U.S. Government Money Market Fund 41
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ........................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... .0580 .0380 .0284 .0347 .0573
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income...................................... (.0580) (.0380) (.0284) (.0347) (.0573)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR.................................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%).............................................. 5.98 3.87 2.88 3.53 5.90
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net assets (a).... .32 .57 .49 .41 .38
Operating expenses, gross, to average daily net assets (a).. .51 .57 .49 .41 .38
Net investment income to average daily net asses............ 5.82 3.91 2.85 3.47 5.74
Net assets, end of year ($000 omitted)...................... 149,941 112,077 95,410 153,976 182,747
Per share amount of fees waived ($ omitted)(a).............. .0019 -- -- -- --
</TABLE>
(a) See Note 4.
42 U.S. Government Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------- ------ -------- --------
<S> <C> <C> <C> <C>
ALABAMA - 2.4%
Mobile, Alabama Industrial Development Revenue weekly demand $ 1,150 5.250%(2) 12/01/97 $ 1,150
Mobile, Alabama Industrial Development Board Pollution Control
Revenue weekly demand 700 6.000(1) 06/01/15 700
--------
1,850
--------
ARIZONA - 1.1%
Maricopa County Arizona Industrial Development Authority Revenue
weekly demand 900 5.350(2) 10/01/04 900
--------
900
--------
CALIFORNIA - 2.6%
Apple Valley, California Unified School District, General Obligation 2,000 4.500 08/30/96 2,005
--------
2,005
--------
DISTRICT OF COLUMBIA - 2.7%
District of Columbia General Fund Recovery, General Obligation (a) 500 5.600 06/01/96 503
District of Columbia General Fund Recovery, General Obligation,
Series B, daily demand 1,600 6.000(1) 06/01/03 1,600
--------
2,103
--------
FLORIDA - 6.9%
Boca Raton, Florida Industrial Development Authority Revenue, weekly
demand 425 5.375(2) 12/01/14 425
Broward County, Florida Multi-family Housing Revenue, weekly demand 1,875 5.250(2) 12/01/10 1,875
Lee County, Florida Industrial Development Authority Revenue, weekly
demand 1,000 4.975(2) 04/01/10 1,000
Sarasota, Florida Multi-family Housing Authority, weekly demand 2,100 5.125(2) 08/01/06 2,100
--------
5,400
--------
GEORGIA - 1.1%
Cobb County, Georgia Multi-family Housing Authority, weekly demand 675 5.125(2) 12/01/97 675
Gwinnen County, Georgia School District, General Obligation
(pre-refunded 02/01/96)(b) 200 7.500 02/01/03 205
--------
880
--------
HAWAII - 1.3%
Honolulu, Hawaii City and County, General Obligation 450 9.000 03/01/96 454
Kauai County Hawaii, General Obligation (a) 560 6.600 08/01/96 569
--------
1,023
--------
Specialty Funds Tax Free Money Market Fund 43
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------- ------ -------- --------
<S> <C> <C> <C> <C>
ILLINOIS - 9.9%
Chicago, Illinois Park District, Series A $ 280 5.000% 10/30/96 $ 282
East Peoria, Illinois Multi-family Housing Authority, weekly demand 2,000 5.250(2) 06/01/08 2,000
Illinois Development Finance Authority, Industrial Revenue, weekly
demand 3,000 5.500(2) 12/01/05 3,000
Illinois Development Finance Authority, quarterly demand 700 4.000(4) 08/01/25 700
St. Clair County, Illinois Industrial Development Board Revenue,
weekly demand 1,000 5.500(2) 10/01/15 1,000
Troy Grove, Illinois Revenue, weekly demand 750 5.015(2) 05/01/10 750
--------
7,732
--------
INDIANA - 5.1%
Lake County, Indiana Judgment Funding, General Obligation 700 4.700 06/01/96 702
Lake County, Indiana Judgment Funding, General Obligation 700 4.700 12/01/96 704
Plymouth, Indiana, Multischool Building Corp. Revenue (a) 555 3.850 01/01/96 555
Wayne Township, Indiana Metropolitan School District, General
Obligation 1,000 3.950 01/01/96 1,000
Wayne Township, Indiana Metropolitan School District, General
Obligation 1,000 4.000 07/01/96 1,000
--------
3,961
--------
IOWA - 0.3%
Iowa Finance Authority, Small Business Development Revenue, weekly
demand 200 5.000(2) 11/01/15 200
--------
200
--------
KANSAS - 1.0%
Leawood, Kansas, Temporary Notes, General Obligation 800 4.000 03/15/96 800
--------
800
--------
KENTUCKY - 3.2%
Elsmere, Kentucky Industrial Building Revenue semiannual demand 510 3.500(5) 02/01/06 510
Kentucky Development Finance Authority, Health Care Revenue, weekly
demand 2,000 5.250(2) 09/01/06 2,000
--------
2,510
--------
MARYLAND - 1.1%
Montgomery County, Maryland Industrial Development Revenue, monthly
demand 900 4.050(3) 04/01/14 900
--------
900
--------
MICHIGAN - 8.8%
Lansing, Michigan Economic Development Corp., semiannual demand 1,830 3.850(5) 05/01/15 1,830
Livonia, Michigan Economic Development Corp., semiannual demand 310 3.950(5) 11/15/04 310
McDonald Tax Exempt Mortgage Bond Trust, thirteen-month demand 180 5.350(7) 01/15/09 180
Michigan State Job Development Authority Revenue, weekly demand 1,000 5.000(2) 08/01/15 1,000
Michigan State Job Development Authority Revenue, monthly demand 1,100 3.950(3) 11/01/14 1,100
Michigan State Strategic Fund Revenue, annual demand 50 4.350(6) 06/01/11 50
Michigan State Strategic Fund Revenue, weekly demand 2,370 5.319(2) 11/01/01 2,370
--------
6,840
--------
44 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
----- ---- --------- -----
<S> <C> <C> <C> <C>
MINNESOTA - 4.4%
Mandota Heights, Minnesota Commercial Development, weekly demand $1,630 5.300%(2) 12/01/15 $1,630
Minneapolis, Minnesota General Obligation, weekly demand 1,300 5.250(2) 12/01/05 1,300
Minnesota State, Housing Finance Agency, Single Family Housing
Revenue, annual demand 500 3.500(6) 07/01/25 500
------
3,430
------
MISSISSIPPI - 2.6%
DeSoto county, Mississippi Industrial Development Revenue,
weekly demand 1,000 5.015(2) 12/01/08 1,000
Jackson Mississippi Public School District General Obligation (a) 725 4.100 04/01/96 725
Jackson Mississippi Redevelopment Urban Renewal Authority
Revenue (a) 300 4.000 04/01/96 300
------
2,025
------
MISSOURI - 2.6%
Kansas City, Missouri Industrial Development Authority Revenue,
weekly demand 2,025 5.050(2) 08/01/18 2,025
------
2,025
------
NEBRASKA - 1.3%
Oshkosh, Nebraska Industrial Development Revenue, semiannual
demand 1,000 3.900(5) 12/01/96 1,000
------
1,000
------
NORTH CAROLINA - 0.6%
North Carolina State Prison Facility General Obligation 500 4.250 06/01/96 501
------
501
------
OHIO - 12.1%
Brecksville-Broadview Heights, Ohio School District 500 5.710 01/18/96 500
Buckeye, Ohio Tax-Exempt Mortgage Bond Trust, semniannual demand 505 4.150(5) 02/01/05 505
Cincinnati & Hamilton County, Ohio Port Authority, quarterly demand 260 3.900(4) 09/01/99 260
Citizens Federal Tax-Exempt Mortgage Bond Trust, semiannual demand 80 4.350(5) 09/01/08 80
Clark County, Ohio Hospital Improvement Revenue, semiannual demand 155 4.050(5) 04/01/09 155
Clarmont County, Ohio Economic Development Revenue,
semiannual demand 220 3.850(5) 05/01/12 220
Cuyahoga County Ohio, Health Care Facilities Revenue, weekly demand 100 5.200(2) 12/01/96 100
Cuyohoga County, Ohio Industrial Development Revenue,
semiannual demand 295 3.750(5) 06/01/99 295
Franklin County, Ohio Industrial Development Revenue,
semiannual demand 330 3.900(5) 04/01/15 330
Franklin County, Ohio Industrial Development Revenue,
semiannual demand 170 3.800(5) 11/01/15 170
Greater Cleveland Regional Transportation Participation
Certificates (a) 150 9.100 07/01/96 154
Mahoning County, Ohio Industrial Development Revenue,
Project A, weekly demand 15 5.200(2) 10/01/00 15
Mahoning County, Ohio Industrial Development Revenue,
Project B, weekly demand 75 5.200(2) 10/01/00 75
McDonald Tax Exempt Mortgage Bond Trust, thirteen-month demand 840 5.350(7) 01/15/09 840
Specialty Funds Tax Free Money Market Fund 45
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
----- ---- --------- -----
<S> <C> <C> <C> <C>
Montgomery County, Ohio, Economic Development Authority Revenue,
semiannual demand $ 460 3.800%(5) 12/15/04 $ 460
North Olmsted, Ohio, General Obligation 500 4.670 06/20/96 501
Ohio State Economic Development Revenue, semiannual demand 805 4.000(5) 03/01/98 805
Ohio State Higher Educational Facilities Community College
Revenue, weekly demand 700 5.150(2) 09/01/20 700
Scioto County, Ohio Health Care Facilities, semiannual demand 725 3.750(5) 12/01/15 725
Stark County, Ohio Health Care Facilities, semiannual demand 1,710 3.800(5) 09/15/16 1,710
Trumbull County, Ohio Correctional Facility, General Obligation 300 4.830 04/11/96 301
Trumbull County, Ohio Industrial Development Revenue Refunding,
weekly demand 575 5.200(2) 04/01/04 575
------
9,476
------
OKLAHOMA - 3.6%
Creek County, Oklahoma Industrial Development Authority Revenue,
semiannual demand 1,405 4.100(5) 12/01/05 1,405
Norman, Oklahoma Utilities Authority Revenue (a) 300 3.625 11/01/96 300
Tulsa, Oklahoma Industrial Development Authority, weekly demand 100 5.125(2) 09/01/03 100
Tulsa, Oklahoma Industrial University Revenue, weekly demand 1,000 5.250(2) 12/01/15 1,000
------
2,805
------
OREGON - 3.9%
Port of Portland, Oregon Public Grain Elevator Revenue,
weekly demand 3,075 5.250(2) 12/01/14 3,075
------
3,075
------
PENNSYLVANIA - 5.1%
Commonwealth Tax-Exempt Mortgage Bond Trust, semiannual demand 790 4.000(5) 11/01/05 790
McDonald Tax Exempt Mortgage Bond Trust, thirteen-month demand 180 5.350(7) 01/15/09 180
Pennsylvania State Higher Education Revenue, nine-month demand 750 3.900(9) 06/01/18 750
Philadelphia, Pennsylvania Tax & Revenue Anticipation Notes,
General Obligation 1,000 4.500 06/27/96 1,002
York County, Pennsylvania Industrial Development Authority,
weekly demand 1,225 4.850(2) 07/01/09 1,225
------
3,947
------
RHODE ISLAND - 2.4%
Narragansett, Rhode Island Bay Water Quality Commission Revenue 1,500 5.000 01/19/96 1,501
Rhode Island Homeownership Opportunity Housing & Mortgage
Finance Authority Revenue, nine-month demand (a) 345 3.850(9) 06/27/96 345
------
1,846
------
</TABLE>
46 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
--------- ------ --------- ------
<S> <C> <C> <C> <C>
SOUTH CAROLINA - 1.3%
Richland County, South Carolina School District 1 General Obligation $ 975 4.600% 03/01/96 $ 976
-------
976
-------
SOUTH DAKOTA - 2.6%
Sioux Falls, South Dakota Industrial Development Revenue, weekly demand 2,005 5.400(2) 06/01/06 2,005
-------
2,005
-------
TENNESSEE - 3.0%
Franklin County, Tennessee Health and Education Facilities, monthly demand 1,500 4.250(3) 09/01/10 1,500
Shelby County, Tennessee, Health, Education, and Hospital Facility Revenue (a) 845 3.800 08/01/96 845
-------
2,345
-------
TEXAS - 0.2%
Harris County, Texas Hospital District (pre-refunded 04/01/96)(b) 175 8.500 04/01/15 180
-------
180
-------
UTAH - 1.3%
West Valley City, Utah, Industrial Development Revenue, daily demand 1,000 6.100(1) 11/01/11 1,000
-------
1,000
-------
VIRGINIA - 1.4%
Norfolk, Virginia, Industrial Development Authority Revenue, weekly demand 1,075 5.125(2) 03/01/16 1,075
-------
1,075
-------
WASHINGTON - 0.3%
Washington, State of, Motor Vehicle Fuel, Series E, General Obligation
(pre-refunded 09/01/96)(b) 200 8.000 09/01/05 205
-------
205
-------
WEST VIRGINIA - 2.6%
Charleston, West Virginia Building Community Parking Facility Revenue,
weekly demand 2,000 5.150(2) 12/01/16 2,000
-------
2,000
-------
WISCONSIN - 1.9%
South Milwaukee, Wisconsin School District Tax and Revenue,
Anticipation Notes 1,300 3.949 06/28/96 1,300
Wisconsin, State of, General Obligation 200 6.500 05/01/96 202
-------
1,502
-------
</TABLE>
Specialty Funds Tax Free Money Market Fund 47
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
VALUE
(000)
-----
<S> <C>
TOTAL INVESTMENTS (amortized cost $78,522)(c) - 100.7% $ 78,522
OTHER ASSETS AND LIABILITIES, NET - (0.7)% (522)
--------
NET ASSETS - 100.0% $ 78,000
--------
--------
</TABLE>
(a) Bond is insured by AMBAC, FGIC, or MBIA.
(b) Pre-refunded: These bonds are collateralized by U.S. Treasury securities,
which are held in escrow by a trustee and used to pay principal and
interest in the tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
(c) The cost for federal income tax purposes is the same as shown above.
* All securities with a maturity date greater than thirteen months have a
demand feature, or an optional or mandatory put, or are pre-refunded
resulting in an effective maturity of thirteen months or less.
Variable Rate:
(1) Daily
(2) Weekly
(3) Monthly
(4) Quarterly
(5) Semiannual
(6) Annual
(7) Thirteen-month
(8) Eight-month
(9) Nine-month
QUALITY RATINGS AS A % OF MARKET VALUE (UNAUDITED)
VMIG1 or SP-1 + 100%
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE (UNAUDITED)
General Obligation 62%
Housing Revenue 13
Healthcare Revenue 9
Education Revenue 8
Port Authority Revenue 4
Utility Revenue 2
Pollution Control Revenue 1
Refunded 1
-------
100%
-------
-------
+ VMIG1: The highest short-term municipal note credit rating given by Moody's
to notes with a demand feature which are of the "best quality."
SP-1: The highest short-term municipal note credit rating given by Standard
& Poor's to notes with a "very strong or strong capacity to pay
principal and interest."
The accompanying notes are an integral part of the financial statements.
48 Tax Free Money Market Fund Security Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2).............. $ 78,522,028
Cash.......................................................................... 75,370
Interest receivable........................................................... 710,458
-------------
79,307,856
LIABILITIES
Payables:
Dividends..................................................... $ 253,319
Investments purchased......................................... 1,006,908
Accrued management fees (Note 4).............................. 17,048
Accrued transfer agent fees (Note 4).......................... 7,486
Other accrued expenses........................................ 23,437 1,308,198
------------ -------------
NET ASSETS...................................................................... $ 77,999,658
-------------
-------------
NET ASSETS CONSIST OF:
Shares of beneficial interest................................................. $ 779,997
Additional paid-in capital.................................................... 77,219,661
-------------
NET ASSETS...................................................................... $ 77,999,658
-------------
-------------
Net asset value, offering and redemption price per share
($77,999,658 divided by 77,999,658 shares $.01 par value
shares of beneficial interest outstanding).................................... $ 1.00
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Tax Free Money Market Fund 49
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest....................................................................... $ 3,584,631
Expenses (Notes 2 and 4):
Management fees................................................ $ 214,949
Custodian fees................................................. 44,719
Transfer agent fees............................................ 63,138
Professional fees.............................................. 7,032
Registration fees.............................................. 70,289
Trustees' fees................................................. 4,320
Miscellaneous.................................................. 6,940 411,387
------------ ------------
Net investment income............................................................. 3,173,244
------------
Net increase in net assets resulting from operations............................. $ 3,173,244
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
50 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income and net increase
in net assets resulting from operations. . . . . $ 3,173,244 $ 2,585,604
Distributions to shareholders from net investment
income. . . . . . . . . . . . . . . . . . . . . . (3,173,244) (2,585,604)
Increase (decrease) in net assets from Fund share
transactions. . . . . . . . . . . . . . . . . . . (22,819,224) 32,665,032
------------ ------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . (22,819,224) 32,665,032
Net assets at beginning of year. . . . . . . . . . 100,818,882 68,153,850
------------ ------------
NET ASSETS AT END OF YEAR . . . . . . . . . . . . $ 77,999,658 $100,818,882
------------ ------------
------------ ------------
FUND SHARE TRANSACTIONS (ON A CONSTANT DOLLAR
BASIS)
Fund shares sold . . . . . . . . . . . . . . . . . 133,513,901 198,014,484
Fund shares issued to shareholders in
reinvestments of distributions. . . . . . . . . . 868,416 524,203
Fund shares redeemed . . . . . . . . . . . . . . . (157,201,541) (165,873,655)
------------ ------------
Net increase (decrease). . . . . . . . . . . . . . (22,819,224) 32,665,032
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Tax Free Money Market Fund 51
<PAGE>
TAX FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year ended December 31, and other performance information derived from
the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR. . . . $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . .0370 .0279 .0251 .0304 .0473
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . (.0370) (.0279) (.0251) (.0304) (.0473)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR. . . . . . . $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (%) . . . . . . . . . . . . 3.76 2.83 2.55 3.09 4.84
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily
net assets . . . . . . . . . . . . . . .48 .40 .43 .45 .45
Operating expenses, gross, to average
daily net assets. . . . . . . . . . . . .48 .40 .43 .45 .46
Net investment income to average daily
net assets . . . . . . . . . . . . . . 3.69 2.84 2.52 3.03 4.73
Net assets, end of year ($000 omitted) . 78,000 100,819 68,154 73,203 61,288
Per share amount of fees remimbursed
($ omitted) . . . . . . . . . . . . . . -- -- -- -- .0001
</TABLE>
52 Tax Free Money Market Fund Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 22 different investment portfolios referred to as "Funds."
These financial statements report on 5 Funds, each of which has distinct
investment objectives and strategies. The Investment Company is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. It is organized and operates as a
Massachusetts business trust under an amended master trust agreement dated
July 26, 1984. The Investment Company's master trust agreement permits the
Board of Trustees to issue an unlimited number of full and fractional shares
of beneficial interest at a $.01 par value.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies, which
require the use of estimates made by management. Such policies are
consistently followed by the Funds in the preparation of these financial
statements.
SECURITY VALUATION: United States equity and fixed-income securities listed
and traded principally on any national securities exchange are valued on the
basis of the last sale price or, lacking any sale, at the closing bid price,
on the primary exchange on which the security is traded. United States
over-the-counter equity and fixed-income securities and options are valued
on the basis of the closing bid price. Futures contracts are valued on the
basis of the last sale price. Many fixed-income securities do not trade each
day and, thus, last sale or bid prices are frequently not available.
Fixed-income securities, therefore, may be valued using prices provided by a
pricing service when such prices are believed to reflect the fair market
value of such securities.
International equity and fixed-income securities traded on a national
securities exchange are valued on the basis of the last sale price.
International securities traded over the counter are valued on the basis of
the mean of bid prices. In the absence of a last sale or mean bid price,
respectively, such securities may be valued on the basis of prices provided
by a pricing service if those prices are believed to reflect the fair market
value of such securities.
The U.S. Government Money Market and the Tax Free Money Market Funds'
portfolio investments are valued on the basis of "amortized cost," a method
by which each portfolio instrument is initially valued at cost, and
thereafter a constant accretion/amortization to maturity of any discount or
premium is assumed. Both Funds utilize the amortized cost valuation method
in accordance with Rule 2a-7 of the Investment Company Act of 1940, as
amended. Money market instruments maturing within 60 days of the valuation
date held by Funds other than the U.S. Government Money Market and Tax Free
Money Market Funds are also valued at amortized cost unless the Board of
Trustees determines that amortized cost does not represent fair value.
Municipal investments of the Limited Volatility Tax Free Fund are appraised
or priced by an independent pricing source, approved by the Board of
Trustees, which utilizes information with respect to bond transactions,
quotations from bond dealers, market transactions in comparable securities,
and various relationships between securities.
The Funds may value certain securities for which market quotations are not
readily available at "fair value," as determined in good faith pursuant to
procedures established by the Board of Trustees.
INVESTMENT TRANSACTIONS: Securities transactions are recorded on a trade
date basis. The Funds, except Limited Volatility Tax Free and Tax Free Money
Market Funds, may lend portfolio securities with a value of up to 50% of
their total assets. The Funds will receive cash, U.S. government treasuries
or U.S. government agency securities as collateral. The Funds will retain
most rights of beneficial ownership, including dividends, interest or other
distributions on the loaned securities. Realized gains and losses from
securities transactions are recorded on the basis of identified cost
incurred by each money manager.
CHANGE IN ACCOUNTING PRINCIPLE: Effective January 1, 1995, the Emerging
Markets Fund changed its method of accounting for the cost of investments
from the average cost method to the specific identification method. The new
method of accounting for the cost of investments was adopted because it
better matches specific costs with proceeds from sales of securities and
more closely conforms realized gains with related distributions. The change
in accounting principle had no effect on the Fund's net assets, net asset
value per share, its net increase (decrease) in net assets resulting from
operations, or its distributions. The effect
Specialty Funds Notes to Financial Statements 53
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
of the change was to increase accumulated net realized gain (loss) on
investments and decrease net unrealized depreciation on investments
previously reported through December 31, 1994 by $797,463.
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Distributions from Real
Estate Investment Trusts (REITs) owned by the Real Estate Securities Fund
may have as their components dividend income, capital gains and/or returns
of capital. Distributions that are deemed to be capital gains or returns of
capital by the trusts are treated by the Fund, respectively, as an
adjustment to its realized capital gains or its cost of the investment. The
exact amount to be adjusted can be ascertained only at the end of each
REIT's fiscal year when finally determined and reported by the various
trusts.
AMORTIZATION AND ACCRETION: Discounts and premiums for the Limited
Volatility Tax Free Fund, all zero-coupon bond discounts, and original issue
discounts are amortized/accreted for both tax and financial reporting
purposes. All short-term premiums/discounts are amortized/accreted for both
tax and financial reporting purposes.
FEDERAL INCOME TAXES: As a Massachusetts business trust, each Fund is a
separate corporate taxpayer and determines its net investment income and
capital gains (or losses) and the amounts to be distributed to each Fund's
shareholders without regard to the income and capital gains (or losses) of
the other Funds.
It is each Fund's intention to qualify as a regulated investment company
and distribute all of its taxable income. No federal income tax provision
was required for the year ended December 31, 1995. From November 1, 1995
to December 31, 1995, the Emerging Markets Fund incurred net realized
capital losses of $1,534,569. As permitted by tax regulations, the
Emerging Markets Fund intends to elect to defer these losses and treat them
as arising in the year ending December 31, 1996.
At December 31, 1995, certain Funds had net tax basis capital loss
carryforwards which may be applied against any realized net taxable gains in
each succeeding year or until their respective expiration dates, whichever
occurs first. Available capital loss carryforwards and expiration dates are
as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/97 12/31/98 12/31/99 12/31/02 12/31/03 TOTALS
--------- --------- -------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Real Estate Securities -- -- -- -- -- $(2,387,399) $(2,387,399)
Emerging Markets -- -- -- -- -- (5,631,976) (5,631,976)
Limited Volatility Tax Free $(238,975) $(103,283) $(26,604) $(383,404) $(345,504) (110,634) (1,208,404)
U.S. Government Money Market -- -- -- -- (1,309) (4,913) (6,222)
</TABLE>
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: For all Funds, income
dividends and capital gain distributions, if any, are recorded on the
ex-dividend date. Dividends are generally declared and paid monthly for the
Limited Volatility Tax Free Fund; quarterly for the Real Estate Securities
Fund; and annually for the Emerging Markets Fund. The U.S. Government Money
Market and Tax Free Money Market Funds declare and record dividends daily
and pay them monthly. Capital gain distributions are generally declared and
paid annually. An additional distribution may be paid by the Funds to avoid
imposition of federal income tax on any remaining undistributed capital
gains and net investment income.
The timing and characterization of certain income and capital gain
distributions are determined in accordance with federal tax regulations
which may differ from generally accepted accounting principles ("GAAP"). As
a result, net investment income and net realized gain (or loss) on
investment and foreign currency-related transactions for a reporting period
may differ significantly from distributions during such period. The
differences between tax regulations and GAAP primarily relate to investments
in options, futures, forward contracts, passive foreign investment
companies, foreign-denominated investments, mortgage-backed securities, and
certain securities sold at a loss. Accordingly, a Fund may periodically make
reclassifications among certain of its capital accounts without impacting
its net asset value.
54 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The following reclassifications have been made to reflect activity for the
year ended December 31, 1995:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED ADDITIONAL
INCOME GAIN (LOSS) PAID-IN CAPITAL
-------------- ------------ ---------------
<S> <C> <C> <C>
Real Estate Securities $123,840 -- $(123,840)
Emerging Markets 87,099 $(192,697) 105,598
</TABLE>
EXPENSES: Expenses such as management, custodian, transfer agent,
bookkeeping, printing, and registration fees are charged directly to the
individual Funds; while indirect expenses, such as administrative,
insurance, and professional fees are allocated among all Funds principally
based on their relative net assets.
DEFERRED ORGANIZATION EXPENSES: Organization and initial registration costs
of the Emerging Markets Fund have been deferred and are being amortized over
60 months on a straight-line basis.
REPURCHASE AGREEMENTS: The Funds may engage in repurchase agreements with
several financial institutions whereby a Fund, through its custodian,
receives delivery of the underlying securities. Each Fund's Money Manager
will monitor repurchase agreements daily to determine that the market value
(including accrued interest) at Fedwire closing time of the underlying
securities remains at least equal to 102% of the repurchase price. The Money
Manager will notify the Seller to immediately increase the collateral on the
repurchase agreement to 102% of the repurchase price if collateral value
falls below 102%.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Emerging Markets
Fund are maintained in U.S. dollars. Foreign currency amounts and
transactions of the Fund are translated into U.S. dollars on the following
basis:
(a) Market value of investment securities, other assets and liabilities
at the closing rate of exchange on the valuation date.
(b) Purchases and sales of investment securities and income at the
closing rate of exchange prevailing on the respective trade dates of such
transactions.
Reported net realized gains or losses from foreign currency-related
transactions arise from sales and maturities of short-term securities; sales
of foreign currencies; currency gains or losses realized between the trade
and settlement dates on securities transactions; the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books; and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized gains or losses from foreign
currency-related transactions arise from changes in the value of assets and
liabilities, other than investments in securities, at year-end, resulting
from changes in the exchange rates.
It is not practical to isolate that portion of the results of operations of
the Emerging Markets Fund that arises as a result of changes in exchange
rates from that portion that arises from changes in market prices of
investments during the year. Such fluctuations are included with the net
realized and unrealized gain or loss from investments. However, for federal
income tax purposes the Fund does isolate the effects of changes in foreign
exchange rates from the fluctuations arising from changes in market prices
for realized gain (or loss) on debt obligations.
DERIVATIVES: To the extent permitted by the investment objectives,
restrictions and policies set forth in the Funds' Prospectus and Statement
of Additional Information, certain Funds may participate in various
derivative-based transactions. Derivative securities are instruments or
agreements whose value is derived from an underlying security or index. They
include options, futures, swaps, forwards, structured notes and stripped
securities. These instruments offer unique characteristics and risks that
assist the Funds in meeting their investment strategies.
Funds typically use derivatives in three ways: cash equitization, hedging,
and return enhancement. Cash equitization is a technique that may be used by
certain Funds through the use of options and futures to earn "market-like"
returns with a Fund's
Specialty Funds Notes to Financial Statements 55
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
excess and liquidity reserve cash balances. Hedging is used by some Funds to
limit or control risks, such as adverse movements in exchange rates and
interest rates. Return enhancement can be accomplished through the use of
derivatives in a Fund. By purchasing certain instruments, a Fund may more
effectively achieve the desired portfolio characteristics that assist the
Fund in meeting its investment objectives. Depending on how the derivatives
are utilized and their structure, the risks associated with them may vary
widely. These risks are generally categorized as market risk, liquidity risk
and counterparty or credit risk.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the
Emerging Markets Fund may enter into foreign currency exchange spot
contracts and forward foreign currency exchange contracts ("contracts").
Additionally, from time to time the Emerging Markets Fund may enter into
contracts to hedge certain foreign currency-denominated assets. Contracts
are recorded at market value. Certain risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the
terms of its contracts. Realized gains or losses arising from such
transactions are included in net realized gain (or loss) from foreign
currency-related transactions.
INVESTMENT IN EMERGING MARKETS: Investing in emerging markets may involve
special risks and considerations not typically associated with investing in
the United States markets. These risks include revaluation of currencies and
future adverse political and economic developments. Moreover, securities
issued in these markets may be less liquid and their prices more volatile
than those of comparable securities in the United States.
3. INVESTMENT TRANSACTIONS
SECURITIES: During the year ended December 31, 1995, purchases and sales of
investment securities excluding U.S. Government and Agency obligations,
short-term investments, and repurchase agreements were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES PURCHASES SALES
------------ ----------- ----------- -----------
<S> <C> <C> <S> <C> <C>
Real Estate Securities $110,219,142 $55,126,728 Limited Volatility $57,267,307 $42,677,451
Emerging Markets 143,593,571 94,294,965
</TABLE>
U.S. Government Money Market purchases, sales and maturities of U.S.
Government and Agency obligations (excluding repurchase agreements) were
$363,766,484, $93,411,702 and $272,016,000, respectively.
Tax Free Money Market purchases, sales and maturities of short-term tax
exempt obligations were $206,734,838, $204,652,740 and $25,675,000,
respectively.
4. RELATED PARTIES
Frank Russell Investment Management Company ("FRIMCo" or "Manager") operates
and administers all the Funds which comprise the Investment Company, and
manages the U.S. Government Money Market and the Money Market Funds (the
Money Market Fund is a series of the Investment Company that is not
presented here). FRIMCo is a wholly owned subsidiary of Frank Russell
Company, which researches and recommends to FRIMCo, and to the Investment
Company, one or more investment management organizations to manage the
portfolio of each of the other Funds.
On January 16, 1995 and March 28, 1995, the Investment Company's Board of
Trustees and shareholders, respectively, approved amendments to the
Investment Company's Management Agreement with FRIMCo to (i) provide for an
annual management fee to be paid to the Manager by the Emerging Markets Fund
based on the Fund's average daily net assets; and (ii) clarify the agency
relationship between the Investment Company and the Manager with respect to
fees paid to the money managers selected to manage the Investment Company's
assets. The amendments became effective April 1, 1995.
Prior to April 1, 1995, the Emerging Markets Fund paid no management or
advisory fees. Rather, each shareholder entered into a written Asset
Management Service Agreement with the Manager, pursuant to which the
shareholder paid an asset management service fee directly to the Manager,
which in turn, acting as a fiduciary for the Fund, compensated the money
managers. Effective April 1, 1995, as approved by shareholders on March 28,
1995, the Fund began incurring a management fee at the rate shown in the
table below.
56 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
For the year ended December 31, 1995, the management fee paid to the FRIMCo,
in accordance with the Investment Company's Management Agreement with that
firm, amounted to $4,293,802 before waivers. Such fee is payable monthly and
is equal to the annual rate, by Fund, shown in the table below, of the
average daily net assets of the applicable Fund.
<TABLE>
<CAPTION>
ANNUAL RATE ANNUAL RATE
----------- -----------
<S> <C> <S> <C>
Real Estate Securities 0.85% U.S. Government Money Market 0.25%
Emerging Markets 1.20 Tax Free Money Market 0.25
Limited Volatility Tax Free 0.50
</TABLE>
The management contract also provides that if any Fund's expenses (exclusive
of interest and taxes) exceed specified limits on an annual basis, such
excess will be paid by FRIMCo. Prior to April 1, 1995, the Management
Agreement provided that Emerging Markets Fund expenses (exclusive of
interest and taxes) exceeding 0.80% of its average daily net assets on an
annual basis, would be paid by FRIMCo. Effective April 1, 1995, the
amendment to the management contract, as approved by shareholders on March
28, 1995, provides that Fund expenses (exclusive of interest and taxes)
exceeding 2.00% of its average daily net assets on an annual basis will be
paid by FRIMCo. For the year ended December 31, 1995, the amount of such
reimbursement was $37,115.
Effective April 1, 1995 through December 31, 1995, the Manager voluntarily
agreed to waive its 0.25% management fee for the US Government Money Market
Fund, which amounted to $261,988.
Additionally, effective April 1, 1995, as approved by shareholders on March
28, 1995, each shareholder continues to enter into a written Asset
Management Services Agreement with the Manager, pursuant to which the
shareholder agrees to pay an annual shareholder investment services fee
calculated as a specified percentage of the shareholder's average net assets
in the Fund. For the period ended December 31, 1995, the Manager did not
impose such shareholder investment services fee with respect to the Emerging
Markets Fund. In addition, a shareholder may pay additional fees, expressed
as fixed dollar amounts, for the other services or reports provided by the
Manager to the shareholder. Accordingly, the expense information does not
reflect an amount for fees paid directly by an investor to the Manager.
Fees for bookkeeping services provided to the Funds are paid or accrued to
Frank Russell Company. Frank Russell Company provides its Portfolio
Verification System ("PVS") to the Real Estate Securities and Emerging
Markets Funds, pursuant to a written Service Agreement. The PVS computerized
data base system records detailed transactions data for each of the Funds
necessary to prepare various financial and Internal Revenue Service
accounting reports. Total fees for the year ended December 31, 1995 for the
Real Estate and Emerging Markets Funds were $78,481 before waivers. The
Manager voluntarily agreed to waive $25,061 of these fees for the Emerging
Markets Fund.
The Funds have a contract with FRIMCo to provide transfer agent services to
the Investment Company. Total fees for the year ended December 31, 1995 were
$827,518.
The Investment Company was paying each of its Trustees not affiliated with
FRIMCo a retainer of $16,000 per year plus out-of-pocket expenses. Effective
April 28, 1995, the retainer was increased to $20,000. Total trustee
expenses were $96,696 for the year ended December 31, 1995 and were
allocated to each Fund on a pro rata basis, including 17 other affiliated
funds not represented here.
Russell Fund Distributors, Inc. (the "Distributor"), a wholly owned
subsidiary of FRIMCo, is the principal Distributor of the Investment Company
shares. The Distributor receives no compensation from the Investment Company
for its services.
Specialty Funds Notes to Financial Statements 57
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. MONEY MARKET FUND
The Real Estate Securities and Emerging Markets Funds are permitted to
invest their cash reserves (i.e., monies awaiting investment in portfolio
securities suitable for the Funds' objectives) in the Frank Russell
Investment Company Money Market Fund (a series of Frank Russell Investment
Company not presented in this annual report). These investments are
reflected as purchases and redemptions of shares of the Money Market Fund.
The interest earned by the Money Market Fund related to these investments is
reflected as dividends paid (or payable) on such shares. As of December 31,
1995, $50,604,000 of the Money Market Fund's net assets represents
investments by these Funds and $441,328,000 represents the investments of
other affiliated Funds not presented here.
6. COMMITMENTS
As of December 31, 1995, the Emerging Markets Fund entered into various
foreign currency exchange spot contracts which contractually obligate the
Fund to deliver or receive currencies at specified future dates. Open
contracts were as follows:
EMERGING MARKETS FUND
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
-------------------- --------------- --------------- --------------
<S> <C> <C> <C>
USD 396,015 MYR 1,004,491 01/03/96 $(499)
-----
$(499)
-----
-----
</TABLE>
The related net unrealized appreciation (depreciation) is reflected in the
Emerging Markets Fund's financial statements.
7. DIVIDENDS
On February 1, 1996, the Board of Trustees declared the following dividends
from net investment income payable on February 9, 1996, to shareholders of
record on February 2, 1996:
Limited Volatility Tax Free $0.0726
58 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
ADDITIONAL INFORMATION
December 31, 1995 (Unaudited)
On January 22, 1996, a special meeting of the shareholders of the Funds was
held for the purpose of voting on the following matter:
To approve the Investment Company's operation in accordance with the
exemptive order granted on June 27, 1995 to the Investment Company and
the Manager by the Securities and Exchange Commission.
The exemptive order permits the Manager to engage and terminate
unaffiliated money managers for each Fund without holding shareholder
meetings and to disclose in the Investment Company's prospectus, with
respect to each Fund, only the aggregate fees paid to that Fund's money
managers and the net advisory fees retained by the Manager with respect
to that Fund.
The results of the vote on the proposal for the 22 Funds, on which 5 are
reported in these financial statements, were as follows:
<TABLE>
<CAPTION>
NUMBER OF % OF OUTSTANDING % OF SHARES
VOTE SHARES SHARES VOTED
------------- ----------- ---------------- -----------
<S> <C> <C> <C>
Affirmative 349,878,731 68.5% 99.9%
Against 226,716 -- 0.1%
Abstain 15,879 -- --
----------- ---- -----
Total 350,121,326 68.5% 100.0%
----------- ---- -----
----------- ---- -----
</TABLE>
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate
the following amounts as capital gain dividends for their taxable year ended
December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Real Estate Securities $ 964
Emerging Markets 182,288
Tax Free Money Market 8,804
</TABLE>
Please consult a tax advisor for questions about federal or state income tax
laws.
Specialty Funds Additional Information 59
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A Street, Tacoma, Washington 98402
(206) 627-7001
<TABLE>
<S> <C>
TRUSTEES CUSTODIAN
George F. Russell, Jr., Chairman State Street Bank and Trust Company
Lynn L. Anderson 1776 Heritage Drive
Paul E. Anderson North Quincy, MA 02171
Paul Anton, PhD
William E. Baxter
Lee C. Gingrich TRANSFER AGENT
Eleanor W. Palmer Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
OFFICERS
Lynn L. Anderson, President and Chief Executive Officer
Peter Apanovitch, Manager of Short Term Investment Funds LEGAL COUNSEL
George W. Weber, Treasurer and Chief Accounting Officer Stradley, Ronon, Stevens & Young
Randall P. Lert, Director of Investments 2600 - One Commerce Square
Karl Ege, Secretary Philadelphia, PA 19103-7098
MANAGER INDEPENDENT ACCOUNTANTS
Frank Russell Investment Management Company Coopers & Lybrand L.L.P.
909 A Street One Post Office Square
Tacoma, WA 98402 Boston, MA 02109
CONSULTANT DISTRIBUTOR
Frank Russell Company Russell Fund Distributors, Inc.
909 A Street 909 A Street
Tacoma, WA 98402 Tacoma, WA 98402
MONEY MANAGERS
REAL ESTATE SECURITIES
Cohen & Steers Capital Management, New York, NY
EMERGING MARKETS
Genesis Asset Managers Limited, London, England
Montgomery Asset Management, L.P., San Francisco, CA
J.P. Morgan Investment Management Inc., New York, NY
LIMITED VOLATILITY TAX FREE
Massachusetts Financial Services, Boston, MA
T. Rowe Price Associates, Inc., Baltimore, MD
U.S. GOVERNMENT MONEY MARKET
Frank Russell Investment Management Co., Tacoma, WA
TAX FREE MONEY MARKET
Weiss, Peck & Greer Advisors, Inc., New York, NY
</TABLE>
THIS REPORT IS PREPARED FROM THE BOOKS AND RECORDS OF THE FUNDS AND IS
SUBMITTED FOR THE GENERAL INFORMATION OF SHAREHOLDERS AND IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS. NOTHING HEREIN CONTAINED IS TO BE CONSIDERED AN OFFER
OF SALE OR A SOLICITATION OF AN OFFER TO BUY SHARES OF FRANK RUSSELL INVESTMENT
COMPANY. SUCH OFFERING IS MADE ONLY BY PROSPECTUS, WHICH INCLUDES DETAILS AS TO
OFFERING PRICE AND OTHER MATERIAL INFORMATION.
60 Manager and Money Managers Specialty Funds
