<PAGE>
N-30D Table of Contents
Frank Russell Investment Company Fund Name N-30D Page
- ------------------------------------------ ----------
External Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equity I. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Equity II . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Equity III. . . . . . . . . . . . . . . . . . . . . . . . . . 37
Equity Q. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
International . . . . . . . . . . . . . . . . . . . . . . . . 60
Fixed Income I. . . . . . . . . . . . . . . . . . . . . . . . 87
Fixed Income II . . . . . . . . . . . . . . . . . . . . . . . 106
Fixed Income III. . . . . . . . . . . . . . . . . . . . . . . 116
Money Market. . . . . . . . . . . . . . . . . . . . . . . . . 130
Notes to Financial Statements . . . . . . . . . . . . . . . . 136
Tax Information . . . . . . . . . . . . . . . . . . . . . . . 147
Manager and Money Managers . . . . . . . . . . . . . . . . . 148
Internal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Diversified Equity. . . . . . . . . . . . . . . . . . . . . . 153
Special Growth. . . . . . . . . . . . . . . . . . . . . . . . 166
Equity Income . . . . . . . . . . . . . . . . . . . . . . . . 184
Quantitative Equity . . . . . . . . . . . . . . . . . . . . . 195
International Securities. . . . . . . . . . . . . . . . . . . 209
Diversified Bond. . . . . . . . . . . . . . . . . . . . . . . 237
Volatility Constrained Bond . . . . . . . . . . . . . . . . . 256
Multistrategy Bond. . . . . . . . . . . . . . . . . . . . . . 266
Notes to Financial Statements . . . . . . . . . . . . . . . . 280
Tax Information . . . . . . . . . . . . . . . . . . . . . . . 292
Manager and Money Managers . . . . . . . . . . . . . . . . . 293
Specialty Funds . . . . . . . . . . . . . . . . . . . . . . . . . 294
Real Estate Securities. . . . . . . . . . . . . . . . . . . . 298
Emerging Markets. . . . . . . . . . . . . . . . . . . . . . . 307
Equity T. . . . . . . . . . . . . . . . . . . . . . . . . . . 323
Limited Volatility Tax Free . . . . . . . . . . . . . . . . . 332
US Government Money Market. . . . . . . . . . . . . . . . . . 344
Tax Free Money Market . . . . . . . . . . . . . . . . . . . . 350
Notes to Financial Statements . . . . . . . . . . . . . . . . 362
Tax Information . . . . . . . . . . . . . . . . . . . . . . . 371
Manager and Money Managers . . . . . . . . . . . . . . . . . 372
<PAGE>
[PHOTO]
FRANK RUSSELL INVESTMENT COMPANY
1996 ANNUAL REPORT
EQUITY I FUND
EQUITY II FUND
EQUITY III FUND
EQUITY Q FUND
INTERNATIONAL FUND
FIXED INCOME I FUND
FIXED INCOME II FUND
FIXED INCOME III FUND
MONEY MARKET FUND
December 31, 1996
[LOGO]
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
Frank Russell Investment Company is a
"series mutual fund" with 23 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>
FRANK RUSSELL INVESTMENT COMPANY - EXTERNAL FEE FUNDS
ANNUAL REPORT
DECEMBER 31, 1996
TABLE OF CONTENTS
Page
Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . . 1
Equity I Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equity II Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Equity III Fund . . . . . . . . . . . . . . . . . . . . . . . . . 34
Equity Q Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 44
International Fund. . . . . . . . . . . . . . . . . . . . . . . . 58
Fixed Income I Fund . . . . . . . . . . . . . . . . . . . . . . . 86
Fixed Income II Fund. . . . . . . . . . . . . . . . . . . . . . . 106
Fixed Income III Fund . . . . . . . . . . . . . . . . . . . . . . 116
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . 130
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 136
Report of Independent Accountants . . . . . . . . . . . . . . . . 146
Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . 147
Manager and Money Managers. . . . . . . . . . . . . . . . . . . . 148
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>
TO OUR CLIENTS
Frank Russell Investment Company is pleased to present its 1996 Annual Report.
This report covers information on nine of the Funds and represents the Funds'
fifteenth year of operation.
During the past year we have continued our focus on the benefits of
multi-manager, multi-style diversification in structuring our funds. We remain
committed to providing our clients with superior investment solutions across
each of our multiple manager and style funds. These efforts proved worthwhile
in 1996 as our funds, in general, surpassed their respective benchmarks and
attracted many new investors, both creating significant growth in assets.
Frank Russell Investment Management Company continuously evaluates the funds we
offer our clients. Each of these funds is carefully monitored by Russell's
investment professionals to ensure that the most appropriate investment advisors
and strategies are utilized within each fund. The Advisors are monitored by the
Frank Russell Investment Management Company, using the expertise and advice of
the consulting group of Frank Russell Company.
In response to our clients' requests and inquiries, the Frank Russell Investment
Company opened a new fund, Equity T, during the year. The Fund commenced
operations on October 4, 1996. Its investment objective seeks to provide
capital growth focused on an after-tax basis, with strategies that invest
principally in equity securities. It is an attractive alternative for investors
seeking to minimize the impact of taxes on their investment returns. We believe
this fund provides our clients with an additional investment opportunity for
after-tax returns.
We look forward to having the opportunity of working with you over the upcoming
year and continuing to earn your support by exceeding your expectations. Thank
you for your continued confidence and investment with Frank Russell Investment
Company.
Sincerely,
/s/ George F. Russell, Jr. /s/ Lynn L. Anderson
George F. Russell, Jr. Lynn L. Anderson
Chairman President and Chief Executive Officer
Frank Russell Company Frank Russell Investment Company
<PAGE>
EQUITY I FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide capital growth and income.
INVESTS IN: Primarily U.S. equity securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns with moderate risk. The Fund employed the investment
management services of nine managers with three separate and distinct investment
styles.
<TABLE>
<CAPTION>
DATES EQUITY I ++ RUSSELL 1000-Registered Trademark- ** LIPPER-C- GROWTH & INCOME ++++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $10,597 $10,294 $10,202
1988 $12,338 $12,068 $11,724
1989 $16,137 $15,739 $14,355
1990 $15,227 $15,084 $13,710
1991 $19,982 $20,066 $17,660
1992 $21,785 $21,879 $19,123
1993 $24,314 $24,100 $21,268
1994 $24,505 $24,192 $21,049
1995 $33,311 $33,328 $27,491
1996 $41,167 $40,810 $33,192
- -----------------------------------------------------------------------------------------------------------------
Total $229,363 $227,560 $199,774
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
EQUITY I FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,358 23.58%
5 Years $ 20,602 15.55%#
10 Years $ 41,167 15.20%#
RUSSELL 1000 -Registered Trademark- INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,245 22.45%
5 Years $ 20,338 15.26%#
10 Years $ 40,810 15.10%#
LIPPER-C- GROWTH & INCOME FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,074 20.74%
5 Years $ 18,795 13.45%#
10 Years $ 33,192 12.75%#
* Assumes initial investment on January 1, 1987.
** Russell 1000-Registered Trademark- Index includes the 1,000 largest
companies in the Russell 3000-Registered Trademark- Index, the smallest of
which is valued at about $1,019 million. The Russell 1000 Index represents
the universe of stocks from which most active money managers typically
select.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ Lipper 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.
2 Equity I Fund
<PAGE>
EQUITY I FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Equity I Fund had a total return of
23.6% as compared to the Russell 1000-Registered Trademark- Index results of
22.5%. The Fund outperformed the Index primarily due to the value added by stock
selection throughout the year. Technology stocks provided the greatest source of
these opportunities as the Fund was overweighted in this sector for the entire
year. The Fund also benefited from an underweighting in utility stocks. Its
underweighting in the largest stocks of the Russell 1000 Index had a measurable
negative effect on performance, but was more than offset by other sources of
return.
PORTFOLIO HIGHLIGHTS
The strength of the market in 1996 defied most predictions after the big run-up
in 1995. Once again large capitalization stocks dominated with the largest 50
stocks of the Russell 1000 Index up more than 26% for the year while the next
largest 150 stocks gained only 20%. It was a downward progression from there
with small cap stocks in the Russell 2000-Registered Trademark- Index up only
16.5% for the year. Among Russell 1000 Index economic sectors, the "other"
energy sector, which includes oil service, drilling companies, gas distributors
and pipelines, was the strongest performer gaining nearly 40%. Technology stocks
were not far behind at 38%. The US equity market was a bit more volatile in 1996
than in 1995. A strong sell-off at mid-year was tied to rising interest rates
and sparked concerns over the arrival of a seemingly overdue market correction.
Technology stocks and small cap issues were the most severely impacted in the
market's rather rapid 7% decline in late-June/early-July.
The Equity I Fund's balance of investment styles helped lessen its vulnerability
to the market's rotation between sectors during the year. However, common to all
of the managers was their ability to produce significant returns in the
technology sector throughout most of 1996. The Value managers exploited
technology investment opportunities in the aftermath of the June/July sell-off
that left many technology stocks at very attractive valuation levels. The added
value from this opportunity, the larger exposure to financial services and
energy-related stocks, and underweighting to utilities gave the Value group of
managers the performance edge for the year, despite the fact that Value stocks
in general trailed Growth. In terms of individual stocks, significant
contributions were made by the Fund's largest holdings. The biggest position was
in Intel which gained over 130% in 1996. Other significant contributors included
Chase Manhattan Corp., Cisco Systems, and Boeing.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Intel Corp. 2.9%
Philip Morris Cos., Inc. 2.3
Chase Manhattan Corp. 1.5
Boeing Co. 1.4
Cisco Systems, Inc. 1.3
Johnson & Johnson 1.1
Columbia/HCa Healthcare Corp. 1.1
International Business Machines Corp. 1.1
American International Group, Inc. 1.0
Merck & Co., Inc. 0.9
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 19.1X
Portfolio Price/Book Ratio 3.01X
Market Capitalization - $ - Weighted Average 26.49 Bil
Number of Holdings 565
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Alliance Capital Management L.P. Growth
BZW Barclays Global Fund Advisors Market-Oriented
Columbus Circle Investors Growth
Equinox Capital Management, Inc. Value
INVESCO Capital Management, Inc. Market-Oriented
Lincoln Capital Management Co. Growth
Schneider Capital Management Value
Suffolk Capital Management, Inc. Market-Oriented
Trinity Investment Management Corp. Value
- -------------------------------------------------------------------
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 I Fund 3
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 97.1%
BASIC INDUSTRIES - 5.4%
Air Products & Chemicals, Inc. 29,400 $ 2,032
Aluminum Co. of America 69,500 4,431
ASARCO, Inc. 10,400 259
Bemis Co., Inc. 3,900 144
Bethlehem Steel Corp. (a) 10,200 92
Betz Laboratories, Inc. 900 53
Cytec Industries, Inc. 6,600 268
Dow Chemical Co. 57,600 4,514
Engelhard Corp. 10,200 195
Goodrich (B.F.) Co. 62,200 2,519
Hanna (M.A.) Co. 2,000 44
Hexcel Corp. (a) 70,000 1,137
Homestake Mining Co. 4,700 67
Illinois Tool Works, Inc. 38,700 3,091
IMC Global, Inc. 77,700 3,040
Inland Steel Industries, Inc. 41,000 820
International Specialty Products (a) 5,500 67
James River Corp. of Virginia 63,500 2,103
Jefferson Smurfit Corp. (a) 15,300 245
Kimberly-Clark Corp. 19,400 1,848
Lone Star Technologies, Inc. (a) 70,000 1,172
Lubrizol Corp. 11,400 353
Mark IV Industries, Inc. 500 11
Mead Corp. 21,600 1,256
Minnesota Mining & Manufacturing Co. 41,500 3,439
Monsanto Co. 173,000 6,725
Morton International, Inc. 2,300 94
Nalco Chemical Co. 15,100 545
Olin Corp. 21,200 798
Owens-Illinois, Inc. (a) 7,800 177
P.H. Glatfelter Co. 2,000 36
Potlatch Corp. 26,700 1,148
Precision Castparts Corp. 26,600 1,320
Rhone Poulenc SA - ADR 43,151 1,462
Rohm & Haas Co. 10,300 841
Sealed Air Corp. (a) 1,100 46
Sequa Corp. (a) 31,100 1,221
Sigma Aldrich Corp. 1,900 119
Temple-Inland, Inc. 700 38
Terra Industries, Inc. 10,300 152
USX-U.S. Steel Group 36,700 1,151
Westvaco Corp. 51,400 1,478
Witco Chemical Corp. 33,300 1,016
----------
51,567
----------
CAPITAL GOODS - 3.6%
Albany International Corp. Class A 55,000 1,272
Alcatel Alsthom Compagnie
Generale d'Electricite - ADR 109,736 1,756
American Power Conversion Corp. (a) 23,100 629
Aviall, Inc. (a) 23,000 213
Caterpillar, Inc. 36,600 2,754
Cooper Industries, Inc. 10,700 451
Crane Co. 3,000 87
Cummins Engine Co., Inc. 11,900 547
Dover Corp. 11,600 583
DSC Communications Corp. (a) 18,300 327
Duracell International, Inc. 1,900 133
Exide Corp. 60,000 1,380
Far East Levingston 290,000 1,513
Foster Wheeler Corp. 21,900 813
General Electric Co. 30,500 3,016
Giant Cement Holding, Inc. (a) 40,400 636
Harsco Corp. 7,900 541
Hubbell, Inc. Class B 3,500 151
Ingersoll-Rand Co. 44,900 1,998
Johnson Controls, Inc. 22,900 1,898
Magna International, Inc. Class A 32,500 1,812
Novellus Systems, Inc. (a) 10,800 585
SPS Technologies, Inc. (a) 31,700 2,037
Technip SA - ADR 26,400 1,231
Timken Co. 22,500 1,032
Tremont Corp. (a) 50,000 1,806
Tyco International, Ltd. 18,300 968
USA Waste Services, Inc. (a) 40,100 1,278
Watts Industries, Inc. Class A 25,000 597
Westinghouse Electric Corp. 60,000 1,192
Wheelabrator Technologies, Inc. 15,400 250
WMX Technologies, Inc. 38,300 1,250
----------
34,736
----------
CONSUMER BASICS - 18.9%
Abbott Laboratories 79,000 4,009
ALZA Corp. (a) 8,700 225
American Brands, Inc. 18,900 938
American Home Products Corp. 108,700 6,373
American Stores Co. 47,400 1,937
Amgen, Inc. (a) 39,800 2,164
Archer-Daniels-Midland Co. 96,470 2,122
Astra AB Class A - ADR 42,000 2,058
Bard (C.R.), Inc. 19,400 543
Baxter International, Inc. 80,500 3,301
Becton, Dickinson & Co. 23,000 998
Bergen Brunswig Corp. Class A 61,500 1,753
Beverly Enterprises, Inc. (a) 42,000 536
Biogen, Inc. 5,200 200
Biomet, Inc. 4,100 62
4 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Black & Decker Corp. 26,200 $ 789
Bristol-Myers Squibb Co. 73,500 7,993
Campbell Soup Co. 30,600 2,456
Cardinal Health, Inc. 45,165 2,631
Chiquita Brands International, Inc. 65,700 838
ChiRex, Inc. (a) 50,000 588
Coca-Cola Co. (The) 136,200 7,168
Coca-Cola Enterprises, Inc. 7,500 364
Columbia/HCA Healthcare Corp. 266,950 10,878
Coram Healthcare Corp. (a) 200,000 1,000
CPC International, Inc. 17,200 1,333
Dial Corp. 3,000 44
Dimon, Inc. 40,700 941
Dole Food, Inc. 26,400 894
FHP International Corp. (a) 1,600 59
Fresenius Medical Care AG - ADR (a) 27,400 771
General Nutrition Companies, Inc. (a) 7,600 128
Giant Food, Inc. Class A 4,300 148
Gillette Co. 49,700 3,864
Great Atlantic & Pacific Tea Co., Inc. 2,800 89
Health Management Associates Class A 45,500 1,024
HealthCare COMPARE (a) 15,600 661
HEALTHSOUTH Rehabilitation Corp. (a) 9,700 375
Hershey Foods Corp. 4,200 184
Hillenbrand Industries, Inc. 900 33
Hormel (George A.) & Co. 30,900 834
IBP, Inc. 58,100 1,409
International Multifoods Corp. 73,500 1,332
Interstate Bakeries Corp. 500 25
IVAX Corp. 91,800 941
Johnson & Johnson 220,300 10,960
Lilly (Eli) & Co. 19,100 1,394
Lincare Holdings, Inc. (a) 10,800 443
Liposome Co., Inc. (a) 20,000 383
McKesson Corp. 1,400 78
Medtronic, Inc. 39,400 2,679
Merck & Co., Inc. 112,850 8,943
Mylan Laboratories, Inc. 203,600 3,410
NovaCare, Inc. (a) 161,400 1,775
OrNda Healthcorp (a) 1,000 29
Owen Healthcare, Inc. (a) 4,600 122
Oxford Health Plans, Inc. 14,900 872
PepsiCo, Inc. 260,050 7,606
Pfizer, Inc. 104,900 8,694
Pharmacia & Upjohn, Inc. 29,100 1,153
Philip Morris Cos., Inc. 193,050 21,742
Physician Sales & Service, Inc. (a) 2,900 42
Procter & Gamble Co. 53,200 5,719
Quorum Health Group, Inc. (a) 1,800 53
Ralston-Purina Group 14,100 1,035
RJR Nabisco Holdings Corp. 30,020 1,021
Rykoff-Sexton, Inc. 80,000 1,270
Safeway, Inc. 9,400 402
Sara Lee Corp. 40,000 1,490
Schering-Plough Corp. 74,100 4,798
Smithkline Beecham PLC - ADR 81,100 5,515
Snap-On Tools Corp. 2,250 80
Sybron International Corp. (a) 600 20
Tenet Healthcare Corp. (a) 68,000 1,488
Tupperware Corp. 4,900 263
Tyson Foods, Inc. Class A 17,500 597
U.S. Surgical Corp. 19,600 772
Unilever NV 17,700 3,102
United Healthcare Corp. 13,800 621
Universal Corp. 51,200 1,645
US Bioscience, Inc. 563 7
Vons Cos., Inc. (a) 6,600 395
W. R. Grace & Co. 57,800 2,991
Watson Pharmaceuticals, Inc. (a) 2,100 94
Weis Markets, Inc. 2,800 89
Wellpoint Health Networks, Inc. Class A 18,806 645
----------
181,450
----------
CONSUMER DURABLES - 2.6%
AutoZone Inc. (a) 41,300 1,136
Chrysler Corp. 231,000 7,623
Cooper Tire & Rubber Co. 145,000 2,864
Dana Corp. 11,600 378
Elsag Bailey Process Automation NV 86,500 1,622
Fleetwood Enterprises, Inc. 4,200 115
Ford Motor Co. 159,100 5,071
General Motors Corp. 14,900 831
Harley-Davidson, Inc. 1,100 52
Leggett & Platt, Inc. 7,500 260
Maytag Corp. 13,200 261
PACCAR, Inc. 6,900 467
Sunbeam Oster, Inc. 14,600 376
UNC, Inc. (a) 122,800 1,473
Wabash National Corp. 59,100 1,086
Whirlpool Corp. 40,600 1,893
----------
25,508
----------
CONSUMER NON-DURABLES - 7.7%
Anheuser-Busch Cos., Inc. 26,400 1,056
Avon Products, Inc. 17,900 1,023
Barry (R.G.) Corp. 86,100 947
Equity I Fund 5
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Bed Bath & Beyond, Inc. 2,900 $ 70
CompUSA, Inc. 11,000 227
Dayton Hudson Corp. 153,400 6,021
Dollar General Corp. 4,625 148
Eastman Kodak Co. 38,900 3,122
Federated Department Stores, Inc. (a) 82,900 2,829
Gap, Inc. 170,200 5,127
Heilig-Meyers, Co. 100 2
Hills Store Co. (a) 27,926 168
Home Depot, Inc. (The) 66,900 3,353
Jones Apparel Group, Inc. 21,200 792
Kellwood Co. 60,000 1,200
Kmart Corp. (a) 206,400 2,141
Kohl's Corp. 27,900 1,095
Liz Claiborne, Inc. 11,200 433
Lowe's Cos., Inc. 55,900 1,984
Mattel, Inc. 136,343 3,784
May Department Stores Co. 27,800 1,300
Michaels Stores, Inc. (a) 100,000 1,187
Neiman-Marcus Group, Inc. (a) 14,500 370
NIKE, Inc. Class B 22,700 1,356
Payless ShoeSource, Inc. (a) 64,120 2,404
Penney (J.C.) Co., Inc. 68,000 3,315
Phar-Mor, Inc. (a) 121,500 661
Polaroid Corp. 40,000 1,740
PriceCostco, Inc. (a) 68,000 1,708
Rayonier, Inc. 31,000 1,190
Revco D.S., Inc. (a) 22,400 829
Russell Corp. 16,500 491
Sears Roebuck & Co. 163,600 7,546
SuperValu, Inc. 24,600 698
Tiffany & Co. 5,500 201
TJX Cos., Inc. 48,100 2,279
Toys "R" Us, Inc. (a) 209,800 6,294
Unifi, Inc. 35,000 1,124
V.F. Corp. 1,600 108
Wal-Mart Stores, Inc. 58,700 1,343
Warnaco Group, Inc. Class A 19,300 572
Woolworth Corp. (a) 10,200 223
Zale Corp. (a) 65,000 1,243
----------
73,704
----------
CONSUMER SERVICES - 3.2%
America West Airlines, Inc. Class B 76,400 1,213
AMR Corp. (a) 21,000 1,851
Boston Chicken, Inc. (a) 21,500 769
Brinker International, Inc. (a) 92,700 1,483
Carnival Corp. Class A 112,100 3,699
Choice Hotels International, Inc. (a) 4,900 86
Circus Circus Enterprises, Inc. (a) 6,500 224
Comair Holdings, Inc. 1,400 34
Continental Airlines, Inc. Class B 60,000 1,695
Delta Air Lines, Inc. 1,900 135
Disney (Walt) Co. 60,200 4,191
Hilton Hotels Corp. 97,000 2,534
International Game Technology 10,300 188
King World Productions, Inc. (a) 25,600 944
KLM Royal Dutch Airlines (a) 51,091 1,424
Marriot International, Inc. 17,300 956
McDonald's Corp. 20,800 941
Mirage Resorts, Inc. 17,200 372
Northwest Airlines Corp. Class A (a) 81,000 3,159
UAL Corp. 78,500 4,906
----------
30,804
----------
ENERGY - 6.9%
Amerada Hess Corp. NPV 58,300 3,374
Amoco Corp. 67,900 5,466
Apache Corp. 46,600 1,648
Atlantic Richfield Co. 37,400 4,956
Baker Hughes, Inc. 18,300 631
British Petroleum Co. PLC - ADR 26,900 3,803
Burlington Resources, Inc. 46,000 2,317
Chevron Corp. 3,300 215
Crown Centennial Petroleum Co. Class B (a) 98,000 1,176
Dresser Industries, Inc. 15,400 477
Enron Oil & Gas Co. 10,800 273
Exxon Corp. 85,200 8,350
Global Marine, Inc. (a) 7,000 144
Halliburton Co. 1,700 102
Kerr-McGee Corp. 6,500 468
LTV Corp. 7,200 86
McDermott International, Inc. 70,000 1,164
Mobil Corp. 12,250 1,498
Murphy Oil Corp. 4,500 250
NGC Corp. 14,000 326
Noble Drilling Corp. (a) 90,000 1,789
NorAm Energy Corp. 11,100 171
Occidental Petroleum Corp. 20,500 479
Oryx Energy Co. (a) 28,900 715
Petroleum Heat & Power, Inc. Class A 246,121 1,507
Pogo Producing Co. 2,100 99
Royal Dutch Petroleum Co. - ADR 18,500 3,159
Schlumberger, Ltd. 33,800 3,376
Smith International, Inc. (a) 3,700 166
6 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Texaco, Inc. 50,100 $ 4,916
Tosco Corp. 35,000 2,769
Transocean Offshore, Inc. 39,600 2,480
Union Texas Petroleum Holdings, Inc. 43,400 971
Unocal Corp. 25,500 1,036
USX-Marathon Group 217,700 5,198
Western Atlas, Inc. (a) 200 14
YPF Sociedad Anonima Class D - ADR 45,000 1,136
----------
66,705
----------
FINANCE - 17.6%
Aetna, Inc. 32,200 2,576
AFLAC, Inc. 105,000 4,489
Ahmanson (H.F.) & Co. 72,400 2,353
Allstate Corp. 126,166 7,302
AMBAC, Inc. 12,700 843
American Financial Group, Inc. 41,400 1,563
American General Corp. 64,900 2,653
American International Group, Inc. 87,725 9,496
AmSouth Bancorp 4,000 193
Associates First Capital Corp. Class A 35,800 1,580
Banc One Corp. 196,930 8,468
Bancorp Hawaii, Inc. 16,800 706
Bank of Boston Corp. 1,900 122
BankAmerica Corp. 24,600 2,454
Bankers Life Holding Corp. 4,200 105
Bankers Trust New York Corp. 1,900 164
Barnett Banks, Inc. 33,300 1,369
Bear Stearns Cos., Inc. 19,660 548
Beneficial Corp. 29,100 1,844
Charter One Financial, Inc. 9,800 412
Chase Manhattan Corp. 166,584 14,868
Chubb Corp. (The) 94,800 5,095
Citicorp 15,600 1,607
CNA Financial Corp. (a) 4,600 492
Coast Savings Financial, Inc. (a) 39,500 1,447
Comerica, Inc. 15,900 833
Commerce Bancshares, Inc. 2,150 99
Conseco, Inc. 17,800 1,135
Corporate Express, Inc. (a) 3,500 103
Countrywide Credit Industries, Inc. 67,400 1,929
Danielson Holding Corp. (a) 128,300 641
Dean Witter, Discover & Co. 33,745 2,236
Dime Bancorp, Inc. (a) 22,500 332
Edwards (A.G.), Inc. 18,200 612
Equifax, Inc. 5,800 178
Federal Home Loan Mortgage Corp. 14,900 1,641
Federal National Mortgage Association 169,600 6,318
First America Bank Corp. 1,100 66
First American Corp. 800 46
First Bank System, Inc. 9,200 628
First Chicago NBD Corp. 21,901 1,177
First Empire State Corp. 500 144
First Tennessee National Corp. 13,300 497
First Union Corp. 66,200 4,899
Firstar Corp. 11,700 614
Fleet Financial Group, Inc. 30,400 1,516
General Re Corp. 28,500 4,496
Golden West Financial Corp. 7,600 480
Great Western Financial Corp. 50,900 1,476
Green Tree Financial Corp. 33,700 1,302
Greenpoint Financial Corp. 7,000 331
Household International Corp. 44,600 4,114
ITT Hartford Group, Inc. 15,400 1,039
Jefferson-Pilot Corp. 4,900 277
Lehman Brothers Holdings, Inc. 68,800 2,159
Loews Corp. 9,300 877
MBNA Corp. 134,650 5,588
Mercantile Bankshares Corp. 5,600 178
Mercury General Corp. 2,300 121
Merrill Lynch & Co., Inc. 64,300 5,240
MGIC Investment Corp. 8,500 646
Morgan Stanley Group, Inc. 43,800 2,502
National City Corp. 57,800 2,594
NationsBank Corp. 71,900 7,028
Northern Trust Corp. 4,200 152
Norwest Corp. 63,500 2,762
Old Republic International Corp. 28,650 766
PaineWebber Group, Inc. 54,200 1,524
Paul Revere Corp. 40,000 1,490
PMI Group, Inc. (The) 2,000 111
Progressive Corp. 15,500 1,044
Republic New York Corp. 9,700 792
Robert Half International, Inc. 2,900 100
Salomon, Inc. 40,500 1,909
Schwab (Charles) Corp. 2,500 80
Scor SA - ADR (a) 38,600 1,327
Southern National Corp. 50,200 1,820
SouthTrust Corp. 11,300 393
Standard Federal Bancorporation 4,400 250
Star Banc Corp. 2,800 257
State Street Boston Corp. 68,000 4,386
Student Loan Marketing Association 1,100 102
SunAmerica, Inc. 2,600 115
SunTrust Banks, Inc. 78,000 3,842
Synovus Financial Corp. 2,100 67
Equity I Fund 7
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
TCF Financial Corp. 21,900 $ 953
Torchmark Corp. 69,000 3,484
Transamerica Financial Corp. 7,600 600
Transatlantic Holdings, Inc. 5,700 459
U.S. Bancorp of Oregon 24,800 1,113
Union Planters Corp. 2,500 97
USLIFE Corp. 10,800 359
Zions Bancorp 500 52
Zurich Reins Centre Holdings, Inc. 4,100 128
----------
169,375
----------
GENERAL BUSINESS - 4.4%
American Greetings Corp. Class A 8,700 247
Ascend Communications, Inc. 37,100 2,300
Automatic Data Processing, Inc. 162,800 6,980
Cascade Communications Corp. 18,300 1,009
Central Newspapers, Inc. Class A 10,500 462
Comdisco, Inc. 11,000 349
Computer Sciences Corp. (a) 47,000 3,860
Comsat Corp. Series 1 28,400 699
Cox Communications, Inc. Class A (a) 51,600 1,193
CUC International, Inc. 41,100 976
Ecolab, Inc. 1,000 38
Figgie International Holdings, Inc. Class A (a) 95,700 1,125
First Data Corp. 71,152 2,597
Gannett Co., Inc. 14,800 1,108
Gartner Group, Inc. Class A 1,900 74
GTECH Holdings Corp. (a) 1,700 54
Knight-Ridder, Inc. 28,300 1,083
Meredith Corp. 8,500 448
MFS Communications, Inc. 10,100 548
New York Times Co. Class A 60,600 2,303
Nextel Communications, Inc. Class A (a) 10,100 131
Omnicom Group, Inc. 1,800 82
Omnipoint Corp. (a) 1,400 27
QUALCOMM, Inc. (a) 28,300 1,125
Quintiles Transnational Corp. (a) 3,900 256
Reuters Holdings PLC Class B - ADR 22,800 1,744
SBC Communications, Inc. 19,000 983
Service Corp. International 113,100 3,167
Staples, Inc. 187,000 3,366
Stewart Enterprises, Inc. Class A 2,900 98
Tele-Communications - TCI, Group A (a) 37,600 489
Tele-Communications Liberty Media, Grade A (a) 45,300 1,291
Tribune Co. 26,500 2,090
Wallace Computer Services, Inc. 7,600 262
----------
42,564
----------
MISCELLANEOUS - 1.0%
American Real Estate Partners, L.P. 140,242 1,280
Bradley Real Estate, Inc. 32,722 589
Brandywine Realty Trust 7,300 142
Canadian Pacific, Ltd. 57,000 1,510
Catellus Development Corp. (a) 130,000 1,479
Crown American Realty Trust 17,100 128
Echelon International Corp., Inc. (a) 127 2
Newhall Land & Farming Co. 76,000 1,282
Providian Corp. 6,200 319
Tenneco, Inc. 60,800 2,744
----------
9,475
----------
SHELTER - 0.4%
Armstrong World Industries, Inc. 22,900 1,592
Centex Corp. 16,800 632
Schuller Corp. 27,800 295
Sherwin-Williams Co. 900 50
St. Lawrence Cement Inc. Class A 39,400 288
Standard Pacific Corp. 22,000 127
USG Corp. (a) 5,400 183
Vulcan Materials Co. 6,000 365
----------
3,532
----------
TECHNOLOGY - 16.3%
3Com Corp. (a) 38,000 2,783
Adaptec, Inc. 39,600 1,584
ADC Telecommunications, Inc. 12,600 391
Altera Corp. (a) 21,400 1,554
American Management Systems, Inc. 3,500 85
Andrew Corp. 900 48
Apple Computer, Inc. (a) 69,700 1,446
Avery Dennison Corp. 15,800 559
Avnet, Inc. 13,800 804
AVX Corp. 5,600 120
BE Aerospace, Inc. (a) 156,800 4,253
Beckman Instruments, Inc. 13,500 518
Boeing Co. 122,000 12,978
Cabletron Systems, Inc. 22,500 748
Cadence Design Systems, Inc. 6,000 239
CAE, Inc. 115,300 872
CDW Computer Centers, Inc. 1,400 83
Cisco Systems, Inc. 195,600 12,445
COMPAQ Computer Corp. (a) 114,300 8,487
Computer Associates International, Inc. 30,250 1,505
Compuware Corp. (a) 4,300 215
Curtiss-Wright Corp. 20,100 1,013
Dell Computer Corp. 45,200 2,401
EG&G, Inc. 30,300 610
8 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Electronic Data Systems Corp. 45,500 $ 1,968
Electronics For Imaging, Inc. (a) 800 65
Ericsson (LM) Telephone Co. Class B - ADR 32,470 978
Gateway 2000, Inc. (a) 1,300 70
General Dynamics Corp. 6,200 437
Guidant Corp. 15,200 866
Harris Corp. 6,500 446
HBO & Co. 43,500 2,583
Hewlett-Packard Co. 170,400 8,563
Honeywell, Inc. 53,900 3,544
Informix Corp. (a) 40,800 831
Intel Corp. 214,500 28,073
International Business Machines Corp. 70,600 10,661
KLA Instruments Corp. (a) 30,400 1,075
Lexmark International Group, Inc. Class A (a) 5,000 138
Litton Industries, Inc. (a) 1,500 71
Lockheed Martin Corp. 80,600 7,375
Longview Fibre Co. 60,000 1,102
LSI Logic Corp. (a) 35,300 944
McAfee Associates, Inc. 7,300 318
Medic Computer Systems, Inc. 4,300 173
Micron Electronics, Inc. (a) 200 4
Microsoft Corp. 105,000 8,676
Molex, Inc. Class A 14,348 509
Netscape Communications Corp. 57,600 3,269
Northrop Grumman Corp. 9,800 811
Novell, Inc. (a) 6,400 60
Oracle Systems Corp. 51,800 2,156
Parametric Technology Corp. 4,900 252
Picturetel Corp. (a) 2,300 59
Premisys Communications, Inc. (a) 1,300 44
Raytheon Co. 23,800 1,145
Read-Rite Corp. (a) 16,700 418
SCI Systems, Inc. (a) 7,000 312
Seagate Technology 45,600 1,801
Sequent Computer Systems, Inc. (a) 20,000 353
Storage Technology Corp. (a) 43,900 2,091
Sun Microsystems, Inc. 12,000 308
Symbol Technologies, Inc. (a) 11,400 504
Tandem Computers, Inc. (a) 40,000 550
Thermo Instrument Systems, Inc. 1,100 36
Thomas & Betts Corp. 1,500 67
TRW, Inc. 5,600 277
U.S. Robotics Corp. 27,400 1,973
United Technologies Corp. 35,600 2,350
Western Digital Corp. (a) 5,400 307
Xerox Corp. 34,800 1,831
Xilinx, Inc. (a) 28,500 1,047
----------
157,232
----------
TRANSPORTATION - 1.6%
Alexander & Baldwin, Inc. 2,200 54
BT Shipping, Ltd. - ADR (a) 191,600 575
Conrail, Inc. 5,915 589
Consolidated Freightways Corp. (a) 2,400 21
Consolidated Freightways, Inc. 18,600 414
CSX Corp. 61,600 2,603
Federal Express Corp. 1,400 62
Johnstown America Industries, Inc. (a) 60,000 262
Nordic American Tanker Shipping, Ltd. 1997
Warrants (a) 36,200 163
Norfolk Southern Corp. 38,800 3,395
OMI Corp. (a) 153,700 1,345
Overseas Shipholding Group, Inc. 45,000 765
Ryder System, Inc. 80,600 2,267
Trinity Industries, Inc. 12,200 458
Union Pacific Corp. 20,300 1,221
Werner Enterprises, Inc. 75,000 1,359
----------
15,553
----------
UTILITIES - 7.5%
360 Communications Co. (a) 7,500 173
Airtouch Communications, Inc. (a) 166,000 4,192
Allegheny Power System, Inc. 15,900 483
Alltel Corp. 5,900 185
AT&T Corp. 138,200 6,012
Baltimore Gas & Electric Co. 17,000 455
BCE, Inc. 38,400 1,834
Bell Atlantic Corp. 21,700 1,405
BellSouth Corp. 10,900 440
Boston Edison Co. 32,200 865
Centerior Energy Corp. 60,500 650
Central Maine Power Co. 44,200 514
Century Telephone Enterprises, Inc. 30,300 936
Cincinnati Bell, Inc. 3,000 185
Columbia Gas System, Inc. 2,700 172
Consolidated Natural Gas Co. 14,700 812
DTE Energy Co. 47,700 1,544
Edison International 55,000 1,093
El Paso Natural Gas Co. 2,500 126
Enova Corp. 28,900 657
Enron Corp. 10,000 431
ENSERCH Corp. 32,000 736
Entergy Corp. 116,400 3,230
Equity I Fund 9
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Equitable Resources, Inc. 18,400 $ 547
Florida Progress Corp. 1,900 61
GPU, Inc. 68,900 2,317
GTE Corp. 41,700 1,897
Idaho Power Co. 8,500 265
IPALCO Enterprises, Inc. 4,800 131
KU Energy Corp. 6,500 195
LG&E Energy Corp. 1,800 44
Long Island Lighting Co. 31,200 690
Lucent Technologies, Inc. 70,600 3,265
MCI Communications Corp. 65,300 2,130
National Fuel & Gas Co. 10,300 425
New England Electric System 7,300 255
New York State Electric & Gas Corp. 47,300 1,023
Niagara Mohawk Power Corp. (a) 358,200 3,537
NICOR, Inc. 19,000 679
NIPSCO Industries, Inc. 6,600 262
NYNEX Corp. 76,200 3,667
Pacific Enterprises 9,700 295
Pacific Gas & Electric Co. 78,100 1,640
PacifiCorp. 7,400 152
Pinnacle West Capital Corp. 24,000 762
Potomac Electric Power Co. 75,000 1,931
PP&L Resources, Inc. 4,100 94
Public Service Co. of Colorado 800 31
Public Service Enterprise Group, Inc. 500 14
Sonat, Inc. 32,000 1,648
Southern New England Telecommunications Corp. 38,900 1,512
Telefonica de Espana SA - ADR 63,000 4,363
Telefonos de Mexico SA Series L - ADR 110,000 3,630
Telephone & Data Systems, Inc. 1,600 58
Texas Utilities Co. 45,000 1,834
Unicom Corp. 61,500 1,668
United States Cellular Corp. (a) 600 17
Western Resources, Inc. 700 22
WorldCom, Inc. 147,300 3,830
----------
72,021
----------
TOTAL COMMON STOCKS
(cost $754,111) 934,226
----------
CONVERTIBLE PREFERRED STOCKS - 0.3%
Elsag Bailey Financing Trust 15,000 570
Elsag Bailey Financing Trust (144A) 21,700 825
Glendale Federal Bank Series E 22,100 1,299
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $2,371) 2,694
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 2.4%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 20,856 20,856
United States Treasury Bills
5.040% due 02/06/97 (b)(c)(d) 2,700 2,686
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $23,542) 23,542
----------
TOTAL INVESTMENTS
(identified cost $780,024)(e) - 99.8% 960,462
OTHER ASSETS AND LIABILITIES, NET - 0.2% 1,491
----------
NET ASSETS - 100.0% $ 961,953
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Rate noted is yield-to-maturity (unaudited).
(d) Held as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
NV - Nonvoting
PLC - Public Limited Company
144A - Represents private placement security for qualified buyers according to
rule 144A of the Security Act of 1933.
The accompanying notes are an integral part of the financial statements.
10 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 03/97 46 $ (200)
S&P 400 Midcap Index Futures Contracts
expiration date 03/97 26 54
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ (146)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $2,686 were
held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
Equity I Fund 11
<PAGE>
EQUITY I FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $780,024,316) (Note 2). . . . . . . . . . . . . . . . . . . . $ 960,461,544
Foreign currency holdings (identified cost $25,153). . . . . . . . . . . . . . . . . . . . . . . . . 24,796
Receivables:,
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,720,331
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,278,515
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,221,407
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967,706,593
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,173,151
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,440,202
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 539,822
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,670
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 413,045
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,753,890
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 961,952,703
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . $ (31)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,816,424
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,436,775
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (146,025)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,029
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763,528,531
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 961,952,703
---------------
---------------
Net asset value, offering and redemption price per share
($961,952,703 divided by 31,702,860 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30.34
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,959,069
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,268,112
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,151
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,368,332
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,261,927
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505,399
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,056
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,184
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,044
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,033
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,779
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,510
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,248,932
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,119,400
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,080,575
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,877,216 110,957,791
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,244,345
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,457 65,402,802
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,360,593
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 188,479,993
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity I Fund 13
<PAGE>
EQUITY I FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,119,400 $ 12,250,113
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,957,791 84,208,117
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 65,402,802 96,854,424
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 188,479,993 193,312,654
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,119,400) (12,344,719)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . (104,398) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (104,790,877) (73,241,302)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 138,990,698 96,528,353
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 210,456,016 204,254,986
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 751,496,687 547,241,701
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of
net investment income of $31 at December 31, 1996) . . . . . . . . . . . . . . $ 961,952,703 $ 751,496,687
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 Equity I Fund
<PAGE>
EQUITY I FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 28.00 $ 23.32 $ 24.91 $ 25.00 $ 25.17
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .42 .52 .62 .60 .61
Net realized and unrealized gain (loss) on investments . . 5.96 7.71 (.41) 2.18 1.54
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . . 6.38 8.23 .21 2.78 2.15
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.42) (.52) (.62) (.60) (.62)
Net realized gain on investments . . . . . . . . . . . . . (3.62) (3.03) (.94) (2.11) (1.70)
In excess of net realized gain on investments. . . . . . . -- -- (.24) (.16) --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (4.04) (3.55) (1.80) (2.87) (2.32)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 30.34 $ 28.00 $ 23.32 $ 24.91 $ 25.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 23.58 35.94 0.79 11.61 9.02
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . .71 .59 .12 .14 .15
Net investment income to average net assets (a). . . . . . 1.38 1.91 2.52 2.36 2.53
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 99.51 92.04 75.02 91.87 71.14
Net assets, end of year ($000 omitted) . . . . . . . . . . 961,953 751,497 547,242 514,356 410,170
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . .0464 N/A N/A N/A N/A
</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.
The accompanying notes are an integral part of the financial statements.
Equity I Fund 15
<PAGE>
EQUITY II FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To enhance total return, primarily through capital appreciation and
by assuming a higher level of volatility than is ordinarily expected from the
Equity I Fund.
INVESTS IN: Primarily small capitalization and "emerging growth-type" company
U.S. equity securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns with moderate risk. The Fund employed the investment
management services of six small capitalization stock fund managers with three
separate and distinct investment styles.
<TABLE>
<CAPTION>
DATES EQUITY II ++ RUSSELL 2500-TM- ** LIPPER-C- SMALL CO. GROWTH ++++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $11,032 $9,532 $9,509
1988 $12,711 $11,699 $11,319
1989 $15,842 $13,972 $13,849
1990 $13,503 $11,893 $12,440
1991 $19,229 $17,447 $18,791
1992 $21,787 $20,271 $21,104
1993 $25,427 $23,623 $24,620
1994 $24,766 $23,374 $24,367
1995 $31,865 $30,784 $31,880
1996 $37,761 $36,642 $38,182
- ----------------------------------------------------------------------------------------------------
Total $223,923 $209,237 $216,061
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
EQUITY II FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,850 18.51%
5 Years $ 19,638 14.45%#
10 Years $ 37,761 14.21%#
RUSSELL 2500-TM- INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,903 19.03%
5 Years $ 21,002 16.00%#
10 Years $ 36,642 13.87%#
LIPPER-C- SMALL CO. GROWTH FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,977 19.77%
5 Years $ 20,319 15.23%#
10 Years $ 38,182 14.34%#
* Assumes initial investment on January 1, 1987.
** Russell 2500-TM- 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 $2.6 billion.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ 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.
16 Equity II Fund
<PAGE>
EQUITY II FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Equity II Fund had a total return of
18.5% as compared to the Russell 2500-TM- Index results of 19%. The Russell 2500
Index outperformed the Fund primarily due to the Fund's slight underweighting in
medium-sized company stocks. As investors became more defensive towards year
end, the Fund's Growth managers struggled. The Fund was also disadvantaged on a
comparative basis by the lack of real estate investment trust securities (REITs)
representation in the portfolio--a sector that gained over 35% and represents
over 4% of the Russell 2500 Index.
PORTFOLIO HIGHLIGHTS
The small capitalization market showed signs of a rebound at the beginning of
1996, but lost momentum at the end of the second quarter when investors became
worried about slowing economic growth and a boost in interest rates by the
Federal Reserve. Unlike the large cap market, where Growth stocks captured
investors' favor, small Value stocks dramatically outperformed small Growth
stocks. Weakness among two of the largest small cap growth-oriented sectors,
consumer and technology, and a disproportionate share of strong-performing
energy and financial services issues among value-oriented stocks favored Value
investors during the year. The Russell 2000-Registered Trademark- Index's
"other" energy sector, which includes oil services, drilling companies, gas
distributors and pipelines, gained over 75% during the year--over two times
better than the next best performing sector, financial services.
After a slow start, the Equity II Fund was ahead of the Russell 2500 Index for
most of 1996 before stumbling in the fourth quarter. The strength of REITs and
weakness of health care, specialty retailers, business equipment and services,
and computer peripheral companies' stocks were major factors in the fourth
quarter's underperformance. All of the Value-oriented managers generated very
healthy returns. The Growth managers struggled due to weakness in the consumer
and healthcare sectors.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Sunamerica, Inc. 1.0%
Compuware Corp. 0.9
Fremont General Corp. 0.8
AccuStaff, Inc. 0.8
Vintage Petroleum, Inc. 0.8
McAfee Associates, Inc. 0.8
American Bankers Insurance Group, Inc. 0.7
ADC Telecommunications, Inc. 0.7
CBT Group PLC - ADR 0.7
U.S. Filter Corp. 0.7
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 19.3x
Portfolio Price/Book Ratio 2.53x
Market Capitalization - $ - Weighted Average 1.19 Bil
Number of Holdings 878
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Delphi Management, Inc. Small Cap-Value
Jacobs Levy Equity Management, Inc. Small Cap-Value
Fiduciary International, Inc. Small Cap-Growth
Sirach Capital Management, Inc. Small Cap-Growth
GlobeFlex Capital, L.P. Small Cap-Market
Oriented
Wellington Management Co. Small Cap-Market
Oriented
- -------------------------------------------------------------------
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 17
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 93.9%
BASIC INDUSTRIES - 4.1%
AK Steel Holding Corp. 7,900 $ 313
Albemarle Corp. 14,300 259
Alumax, Inc. (a) 8,200 274
Amax Gold, Inc. (a) 3,600 23
Amcast Industrial Corp. 2,100 52
Battle Mountain Gold Co. 38,700 266
Bethlehem Steel Corp. (a) 69,700 627
Bio-Rad Laboratories, Inc. Class A 2,850 85
Birmingham Steel Corp. 7,000 133
Bowater, Inc. 5,600 211
Brush Wellman, Inc. 3,700 61
BWay Corp. (a) 6,000 115
Cabot Corp. 7,600 191
Cambrex Corp. 5,400 177
Carbide/Graphite Group, Inc. (The)(a) 6,000 116
Carpenter Technology Corp. 6,100 223
Chaparral Steel Co. 1,400 17
ChemFirst, Inc. 6,100 141
Chesapeake Corp. 4,700 147
Cincinnati Milacron, Inc. 5,000 109
Cleveland-Cliffs, Inc. 4,900 222
Commercial Metals Co. 2,000 60
Commonwealth Aluminum Corp. 7,600 117
Consolidated Papers, Inc. 6,900 339
Dexter Corp. 8,300 265
Dravo Corp. (a) 2,200 31
Easco, Inc. 18,000 131
Ethyl Corp. 20,900 201
Fort Howard Corp. New (a) 14,000 387
Hecla Mining Co. (a) 38,600 217
Inland Steel Industries, Inc. 30,600 612
International Specialty Products (a) 7,000 86
J & L Specialty Steel, Inc. 6,000 68
Lone Star Technologies, Inc. (a) 3,000 50
Lubrizol Corp. 15,200 471
Mark IV Industries, Inc. 3,151 71
Material Sciences Corp. (a) 700 13
Medusa Corp. 2,000 69
Mississippi Chemical Corp. 44,337 1,064
Mueller Industries, Inc. (a) 5,800 223
National Steel Corp. Class B (a) 6,400 59
Olin Corp. 21,700 816
Olympic Steel, Inc. (a) 22,400 563
Oregon Metallurgical Corp. 20,700 657
Oregon Steel Mills, Inc. 11,500 193
P.H. Glatfelter Co. 4,500 81
PENWEST, Ltd. 6,000 105
Pope & Talbot, Inc. 2,700 43
Potlatch Corp. 8,600 370
Precision Castparts Corp. 3,300 164
Premark International, Inc. 29,900 665
Quanex Corp. 4,300 118
Rexene Corp. 11,500 157
Rouge Steel Co. Class A 2,200 46
Schulman (A.), Inc. 5,000 123
Slater Steel, Inc. 10,000 109
Texas Industries, Inc. 15,300 775
Titanium Metals Corp. (a) 19,200 626
Tredegar Industries, Inc. 1,100 44
Universal Stainless & Alloy Products, Inc. (a) 12,000 105
Webco Industries, Inc. (a) 15,000 79
WHX Corp. (a) 51,500 457
Witco Chemical Corp. 5,500 168
Wolverine Tube, Inc. (a) 3,700 130
----------
14,890
----------
CAPITAL GOODS - 5.1%
ABC Rail Products Corp. (a) 5,000 99
ABT Building Products Corp. (a) 1,800 45
AFC Cable Systems, Inc. (a) 5,000 119
Allwaste, Inc. (a) 9,500 49
American Buildings Co. New (a) 3,000 70
American Power Conversion Corp. (a) 32,800 894
ANTEC Corp. (a) 10,500 93
Aptargroup, Inc. 21,700 765
Avondale Industries, Inc. (a) 2,900 62
Baldor Electric Co. 2,800 69
Barnes Group, Inc. 800 48
Bearings, Inc. 1,900 53
Belden, Inc. 9,400 348
BMC West Corp. (a) 8,000 98
Briggs & Stratton Corp. 7,400 326
BWIP Holding, Inc. Class A 5,900 97
Cable Design Technologies Corp. 3,000 92
Central Tractor Farm & Country, Inc. (a) 5,000 69
Charter Power Systems, Inc. 3,000 91
Cohu, Inc. 39,500 908
Columbus McKinnon Corp. 39,000 595
Control Devices, Inc. (a) 6,100 77
Core Industries, Inc. 47,000 775
Culligan Water Technologies, Inc. (a) 15,600 632
Cummins Engine Co., Inc. 12,300 566
Daniel Industries, Inc. 7,400 109
DT Industries, Inc. 1,500 52
Exide Corp. 11,400 262
Farr Co. (a) 6,000 100
Flow International Corp. (a) 10,000 91
Fluke Corp. 2,700 120
FSI International, Inc. (a) 11,100 166
18 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Giant Cement Holding, Inc. (a) 7,000 $ 110
Giddings & Lewis, Inc. 21,100 272
Gleason Corp. 2,500 83
Global Industrial Technologies, Inc. (a) 6,800 150
Greenbrier Companies, Inc. 2,100 22
Harmon Industries, Inc. 7,000 129
Hubbell, Inc. Class B 6,600 285
Hughes Supply, Inc. 5,000 216
Hurco Cos., Inc. 16,000 86
Insituform Technologies, Inc. Class A (a) 5,400 40
Juno Lighting, Inc. 3,600 57
Kennametal, Inc. 12,400 482
Kuhlman Corp. 8,300 161
MagneTek, Inc. (a) 5,400 70
Martin Marietta Materials, Inc. 1,600 37
Measurex Corp. 4,400 106
Mitcham Industries, Inc. (a) 10,000 96
National Service Industries, Inc. 15,900 594
NCI Building Systems, Inc. (a) 26,100 891
OHM Corp. (a) 4,600 39
Park Electrochemical Corp. 4,100 93
Plantronics, Inc. New (a) 3,000 135
Powell Industries, Inc. (a) 8,000 111
Rexel, Inc. (a) 8,700 138
Scotman Industries, Inc. 1,400 33
Shelter Components Corp. 8,000 98
SIFCO Industries 55,000 571
Silicon Valley Group, Inc. (a) 14,800 296
SPS Technologies, Inc. (a) 900 58
Synalloy Corp. 7,000 110
Tecumseh Products Co. Class A 3,500 200
TETRA Technologies, Inc. New (a) 43,568 850
Thomas Industries, Inc. 1,300 27
Timken Co. 12,100 555
U.S. Filter Corp. (a) 55,850 1,773
United Waste Systems, Inc. 45,900 1,572
Zurn Industries, Inc. 5,500 144
----------
18,630
----------
CONSUMER BASICS - 9.0%
ABR Information Services, Inc. 15,400 604
American HomePatient, Inc. 26,400 706
American Medical Response (a) 3,000 97
Apogee, Inc. (a) 15,000 54
ARV Assisted Living, Inc. (a) 6,000 64
Bergen Brunswig Corp. Class A 7,900 225
Bindley Western Industries, Inc. 3,800 74
BioChem Pharma, Inc. (a) 26,300 1,312
Biogen, Inc. 21,000 808
Bob Evans Farms, Inc. 9,200 123
Bush Boake Allen, Inc. (a) 600 16
Central Sprinkler Corp. (a) 5,700 137
Chemed Corp. 1,900 69
ChiRex, Inc. (a) 35,000 411
Church and Dwight Co., Inc. 3,000 69
Coca-Cola Bottling Co. 19,500 931
Coherent, Inc. (a) 19,800 841
Cohr, Inc. (a) 31,000 821
Collagen Corp. 6,000 109
Cross (A.T.) Co. Class A 4,900 57
Curative Technologies, Inc. (a) 37,800 1,035
Dean Foods Co. 6,500 210
Duckwall-ALCO Stores, Inc. New (a) 6,000 84
Dura Pharmaceuticals, Inc. 34,200 1,629
Equity Corp. International 15,000 289
ESC Medical Systems, Ltd. 15,200 388
Gensia, Inc. (a) 11,000 50
GranCare, Inc. (a) 5,000 89
Health Care & Retirement Corp. 26,500 759
Health Management Associates Class A 40,000 900
Healthcare Services Group, Inc. (a) 10,000 100
Healthdyne Technologies, Inc. (a) 9,711 86
Heartland Express, Inc. 33,000 796
Herbalife International, Inc. 37,100 1,206
Home Health Corp. of America, Inc. (a) 10,000 109
Horizon/CMS Healthcare Corp. (a) 27,700 350
Hormel (George A.) & Co. 7,300 197
Hosposable Products, Inc. (a) 79,000 365
Immucor Corp. (a) 8,000 75
Instrumentation Laboratory S.p.A. - ADR (a) 61,500 600
International Multifoods Corp. 3,200 58
Lincare Holdings, Inc. (a) 38,600 1,583
Mariner Health Group, Inc. (a) 21,400 177
Maxxim Medical, Inc. (a) 7,500 94
Medicis Pharmaceutical Corp. Class A 31,300 1,362
Minntech Corp. 7,000 81
MMI Companies, Inc. 5,600 181
Nature's Sunshine Products, Inc. 5,000 90
NBTY, Inc. (a) 55,600 1,049
Northland Cranberries, Inc. Class A 5,000 112
NovaCare, Inc. (a) 107,900 1,187
Pediatric Services of America, Inc. (a) 6,500 124
Pediatrix Medical Group (a) 9,800 361
PhyCor, Inc. 27,700 779
PhyMatrix Corp. (a) 50,400 718
Physiometrix, Inc. (a) 25,000 88
Prime Hospitality Corp. (a) 5,000 81
Protocol Systems, Inc. (a) 9,000 115
Ralcorp Holdings, Inc. (a) 6,800 144
Equity II Fund 19
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Renal Treatment Centers, Inc. 30,000 $ 765
Respironics, Inc. (a) 7,000 117
Ruddick Corp. 3,500 49
Safeskin Corp. (a) 20,400 994
Safety 1st, Inc. (a) 10,000 103
Schultz Sav-O Stores, Inc. 40,500 567
Sequus Pharmaceuticals, Inc. (a) 20,800 330
Snap-On Tools Corp. 11,600 413
Sola International, Inc. (a) 25,000 950
Stanhome, Inc. 4,200 111
Starbucks Corp. (a) 12,000 342
Starrett (L.S.) Co. Class A 23,000 653
Strategic Distribution, Inc. (a) 18,160 143
Sun Healthcare Group, Inc. (a) 16,300 220
Sunrise Medical, Inc. (a) 5,700 90
Total Renal Care Holdings, Inc. (a) 35,000 1,269
Transitional Hospitals Corp. (a) 22,000 212
Universal Corp. 7,300 235
----------
32,792
----------
CONSUMER DURABLES - 1.5%
Aftermarket Technology Corp. 18,500 315
Arctic Cat, Inc. 4,300 43
Arvin Industries, Inc. 8,700 215
ASM Lithography Holding NV 19,500 970
Bandag, Inc. 3,900 185
Coachmen Industries, Inc. 33,000 936
CORT Business Services Corp. (a) 5,000 103
Excel Industries, Inc. 7,000 116
Kimball International, Inc. Class B 1,000 41
Kinetic Concepts, Inc. 5,000 61
La-Z-Boy Chair Co. 1,300 38
Lithia Motors, Inc., Class A 9,100 100
Myers Industries, Inc. 2,400 41
National Presto Industries, Inc. 1,000 37
Outboard Marine Corp. 17,800 294
Pronet, Inc. (a) 22,100 94
Schult Homes Corp. 3,500 82
Smith (A. O.) Corp. 34,800 1,040
Standard Products Co. 1,800 46
TBC Corp. (a) 6,400 48
Titan Wheel International, Inc. 13,200 168
Toro Co. 4,700 172
US Industries, Inc. New (a) 11,700 402
West, Inc. 1,300 37
----------
5,584
----------
CONSUMER NON-DURABLES - 5.8%
Abercrombie & Fitch Co. Class A (a) 24,600 406
AnnTaylor Stores Corp. (a) 30,100 527
Block Drug Co., Inc. Class A 13,028 599
Brown Group, Inc. 8,100 149
Canandaigua Wine, Inc. Class A (a) 11,500 326
Carson Pirie Scott & Co. (a) 6,400 162
Cash America International, Inc. 9,838 84
Cole National Corp. Class A (a) 5,000 131
Daisytek International Corp. (a) 2,000 82
Designer Holdings, Ltd. (a) 53,200 858
Dress Barn, Inc. (a) 8,700 130
Fieldcrest Cannon, Inc. (a) 7,000 112
Fingerhut Cos., Inc. 14,800 181
Gadzooks, Inc. 36,900 673
Goody's Family Clothing, Inc. (a) 46,800 825
Handleman Co. (a) 7,100 60
Helen of Troy, Ltd. New (a) 6,000 131
Huffy Corp. 11,000 158
Jean Phillippe Fragrances, Inc. New (a) 12,000 75
Just For Feet, Inc. 44,200 1,155
Kellwood Co. 8,000 160
Land's End, Inc. (a) 4,000 106
Leslie's Poolmart (a) 8,000 103
MacFrugals Bargains Close Outs, Inc. (a) 7,400 193
Mercantile Stores, Inc. 3,700 183
Mohawk Industries, Inc. (a) 38,500 852
Morningstar Group, Inc. (a) 43,600 856
Movado Group, Inc. 41,500 1,100
Nautica Enterprises, Inc. 50,400 1,260
Nutramax Products, Inc. New (a) 8,000 86
Paragon Trade Brands, Inc. (a) 40,800 1,224
PeopleSoft, Inc. 23,000 1,101
Quaker Fabric Corp. New (a) 9,000 126
Rayonier, Inc. 6,500 249
Rite Aid Corp. 21,500 855
Ross Stores, Inc. 15,800 786
Russ Berrie & Co., Inc. 1,300 23
Russell Corp. 5,100 152
Shopko Stores, Inc. 47,700 715
Sports & Recreation, Inc. (a) 7,600 59
SuperValu, Inc. 5,100 145
Tiffany & Co. 25,000 916
TJX Cos., Inc. 23,300 1,104
Value City Department Stores, Inc. (a) 84,900 891
Valuevision International, Inc. Class A (a) 7,300 39
Video Update, Inc. Class A (a) 25,000 94
Waban, Inc. (a) 30,500 793
Windmere Corp. 21,600 278
----------
21,273
----------
20 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
CONSUMER SERVICES - 2.0%
AAR Corp. 4,400 $ 133
America West Airlines, Inc. Class B 25,700 408
Atlantic Southeast Airlines, Inc. 15,900 348
Aztar Corp. (a) 40,900 286
CKE Restaurants, Inc. 7,600 274
Equity Inns, Inc. 8,000 104
GC Companies, Inc. (a) 1,000 35
Harvey's Casino Resorts 2,100 35
Hollywood Entertainment Corp. (a) 36,300 672
Hollywood Park, Inc. (a) 5,600 84
King World Productions, Inc. (a) 19,000 701
Lodgenet Entertainment Corp. (a) 7,000 122
Luby's Cafeterias, Inc. 33,500 666
Marcus Corp. 900 19
Max & Erma's Restaurants, Inc. (a) 14,000 91
Mesa Airlines, Inc. (a) 12,200 82
O'Charleys, Inc. (a) 8,000 100
Players International, Inc. (a) 12,500 66
Qantas Airways, Ltd. ADR 28,500 475
Recoton Corp. (a) 8,000 118
Red Roof Inns, Inc. (a) 3,600 56
Rio Hotel & Casino, Inc. (a) 3,700 54
Ruby Tuesday, Inc. 3,900 72
Ryan's Family Steak Houses, Inc. (a) 108,700 747
ShoLodge, Inc. (a) 10,000 127
Showbiz Pizza Time, Inc. 45,200 819
Skywest, Inc. 4,100 57
Speedway Motorsports, Inc. 6,600 139
Studio Plus America, Inc. 7,000 110
Sunstone Hotel Investors, Inc. 21,000 276
Supertel Hospitality, Inc. (a) 12,000 108
----------
7,384
----------
ENERGY - 8.1%
AGL Resources, Inc. 400 9
Alamco, Inc. (a) 10,000 113
Apache Corp. 26,900 952
Arch Petroleum, Inc. New (a) 34,800 87
Barrett Resources Corp. (a) 18,000 767
Basin Exploration, Inc. (a) 91,100 558
Belden & Blake Corp. (a) 7,100 181
BJ Services Co. (a) 20,000 1,020
Camco International, Inc. 1,600 74
Coho Energy, Inc. (a) 13,181 94
Cross Timbers Oil Co. 32,500 817
Dailey Petroleum Services Corp. (a) 8,000 82
Energen Corp. 1,700 51
Energy Ventures, Inc. (a) 16,900 860
ENSCO International, Inc. (a) 26,312 1,276
Enserch Exploration, Inc. (a) 21,100 248
Evergreen Resources, Inc. (a) 16,000 130
Flores & Rucks, Inc. (a) 15,000 799
Forcenergy, Inc. (a) 3,200 115
Giant Industries, Inc. 36,000 504
Global Industries, Inc. 4,000 73
Harcor Energy, Inc. New (a) 25,000 119
Helmerich & Payne, Inc. 19,900 1,037
Hugoton Energy Corp. (a) 3,600 36
ICO, Inc. 12,800 78
Indiana Energy, Inc. 100 2
Laclede Gas Co. 1,100 27
Louis Dreyfus Natural Gas Corp. (a) 400 7
LTV Corp. 54,400 646
Marine Drilling Co, Inc. (a) 55,300 1,085
MidAmerican Energy Holdings Co. 12,400 197
Mitchell Energy & Development Corp. 3,400 75
Newfield Exploration Co. 27,800 723
Noble Drilling Corp. (a) 77,700 1,544
Nuevo Energy Co. (a) 14,200 738
NUI Corp. 1,200 27
Oryx Energy Co. (a) 33,100 819
Parallel Petroleum Corp. (a) 19,800 93
Parker & Parsley Petroleum Co. 37,900 1,393
Plains Resources, Inc. (a) 3,800 59
Pool Energy Services Co. (a) 52,300 804
Pride Petroleum Services, Inc. (a) 14,200 327
Production Operators Corp. 3,000 140
Quaker State Oil Refining Corp. 11,200 158
Questar Corp. 8,500 312
Reading & Bates Corp. (a) 20,000 530
Santa Fe Energy Resources, Inc. (a) 80,000 1,110
Snyder Oil Corp. 17,000 295
Stone Energy Corp. (a) 26,000 777
Sun Co., Inc. 13,600 332
Tesoro Petroleum Corp. (a) 9,300 130
Texoil, Inc. (a) 65,000 69
Transocean Offshore, Inc. 15,000 939
Tuboscope Vetco International Corp. (a) 8,000 123
Ultramar Diamond Shamrock Corp. 10,800 342
Union Texas Petroleum Holdings, Inc. 19,500 436
USX-Delhi Group 69,500 1,103
Vastar Resources, Inc. 16,000 608
Veritas DGC, Inc. (a) 34,000 629
Vintage Petroleum, Inc. 61,400 2,118
Wiser Oil Co. 35,500 701
----------
29,498
----------
FINANCE - 19.9%
Acceptance Insurance Companies, Inc. (a) 800 16
Equity II Fund 21
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
ALBANK Financial Corp. 5,000 $ 157
Allied Group, Inc. 2,250 73
Allmerica Financial Corp. 9,100 305
Allmerica Property & Casualty Cos. 2,800 85
American Bankers Insurance Group, Inc. 38,900 1,979
American Eagle Group, Inc. 22,000 104
American Financial Group, Inc. 6,000 226
American National Insurance Co. 10,800 796
AMRESCO, Inc. (a) 35,300 935
AmSouth Bancorp 15,600 755
AmVestors Financial Corp. 3,300 49
Associated Banc-Corp. 1,000 42
Astoria Financial Corp. 44,700 1,648
AVEMCO Corp. 36,000 563
Bancorp Hawaii, Inc. 2,200 92
BankAtlantic Bancorp, Inc. 45,900 602
Bankers Corp. 6,000 121
BanPonce Corp. 26,600 891
Bay View Capital Corp. 1,800 76
Bear Stearns Cos., Inc. 56,210 1,567
Berkley (W.R.) Corp. 16,000 812
BHC Financial, Inc. 8,000 126
Capmac Holdings, Inc. 2,600 86
Capsure Holdings Corp. 6,800 77
Carolina First Corp. 4,000 77
CCB Financial Corp. 1,000 68
Central Fidelity Banks, Inc. 2,500 64
Centura Banks, Inc. 1,300 58
CFI ProServices, Inc. (a) 5,000 69
Charter One Financial, Inc. 35,460 1,489
CitiFed Bancorp, Inc. 6,000 198
City National Corp. 14,000 303
Cityscape Financial Corp. 24,200 629
CNB Bancshares, Inc. 1,050 44
Collective Bancorp, Inc. 27,400 959
Colonial BancGroup, Inc. 27,500 1,100
Commerce Bancorp, Inc. 1,500 49
Commerce Group, Inc. 2,200 56
Commercial Federal Corp. 4,200 202
Community First Bankshares, Inc. 1,500 41
Compass Bancshares, Inc. 2,600 103
Conseco, Inc. 13,000 829
Corporate Express, Inc. (a) 35,350 1,038
CorVel Corp. (a) 4,000 113
Countrywide Credit Industries, Inc. 25,500 730
Cullen Frost Bankers, Inc. 4,000 132
Dauphin Deposit Corp. 1,800 59
Delphi Financial Group, Inc. 28,500 841
Delta Financial Corp. (a) 1,400 25
Deposit Guaranty Corp. 2,000 62
Dime Community Bancorp, Inc. (a) 30,000 435
Donaldson, Lufkin & Jenrette, Inc. 23,100 832
Donegal Group, Inc. 7,800 156
Downey Financial Corp. 1,650 32
Eaton Vance Corp. 23,900 1,138
Enhance Financial Services Group, Inc. 2,600 95
Envoy Corp. New (a) 29,100 1,095
Everest Re Holdings, Inc. 6,400 184
Executive Risk, Inc. 23,000 851
EXEL, Ltd. 17,000 644
Fidelity National Financial 5,721 87
Financial Fed Corp. 6,000 101
First American Corp. 11,000 634
First American Financial Corp. 33,000 1,357
First Bell Bancorp, Inc. 6,300 83
First Commerce Corp. 20,900 807
First Colorado Bankcorp, Inc. 4,300 73
First Financial Caribbean Corp. 4,000 111
First Financial Corp. 4,000 97
First Hawaiian Creditcorp, Inc. 2,500 88
First Mortgage Corp. (a) 15,500 64
First Republic Bancorp, Inc. (a) 6,000 101
First Security Corp. 8,000 270
First Tennessee National Corp. 2,300 86
First Virginia Banks, Inc. 2,400 115
FirstBank Puerto Rico 1,000 26
FirstFed Financial Corp. (a) 1,700 37
Flushing Financial Corp. 6,200 112
Fremont General Corp. 73,350 2,274
Great Financial Corp. 2,100 61
Greenpoint Financial Corp. 26,900 1,271
Guarantee Life Companies, Inc. 1,800 33
Guaranty National Corp. 3,300 55
HCC Insurance Holdings, Inc. 12,100 290
Hibernia Corp. 23,600 313
Imperial Bancorp 2,700 65
Imperial Credit Industries, Inc. 62,236 1,299
Inter-Regional Financial Group, Inc. 1,800 63
Jefferies Group, Inc. 20,000 808
Keystone Financial, Inc. 2,550 64
Lehman Brothers Holdings, Inc. 31,500 988
Leucadia National Corp. 34,200 915
Liberty Corp. 1,100 43
Life USA Holdings, Inc. New (a) 3,700 43
Litchfield Financial Corp. 7,350 103
Long Island Bancorp, Inc. 6,900 241
MAF Bancorp, Inc. 3,411 117
Magna Group, Inc. 7,000 207
Markel Corp. (a) 12,500 1,113
ML Bancorp, Inc. 6,600 92
22 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Money Store, Inc. (The) 53,800 $ 1,486
NAC Reinsurance Corp. 9,900 335
New York Bancorp, Inc. 900 35
North American Mortgage Co. 7,300 144
North Fork Bancorporation, Inc. 9,400 335
Ocean Financial Corp. (a) 5,000 127
Ohio Casualty Corp. 2,500 89
Old Kent Financial Corp. 15,595 743
Old National Bancorp 1,000 39
Old Republic International Corp. 16,300 436
ONBANCorp. Inc. 5,400 200
One Valley Bancorp of West Virginia, Inc. 1,250 46
Orion Capital Corp. 3,300 202
Penn Treaty American Corp. (a) 4,000 102
PennCorp Financial Group, Inc. 23,800 857
Peoples Heritage Financial Group 39,312 1,091
PFF Bancorp, Inc. (a) 9,000 132
Price (T. Rowe) & Associates, Inc. 10,700 463
Provident Bankshares Corp. 1,260 49
Quaker City Bancorp, Inc. (a) 7,400 141
Queens County Bancorp 2,666 126
RAC Financial Group, Inc. 33,600 689
Raymond James Financial, Inc. 1,800 54
RCSB Financial, Inc. 29,000 834
Reliance Group Holdings, Inc. 19,000 173
RenaissanceRe Holdings, Ltd. 30,500 1,007
Republic Bancorp, Inc. 3,900 45
Resource Bancshares Mortgage Group 8,954 128
Riggs National Corp. 10,300 178
Robert Half International, Inc. 20,900 718
Security Capital Corp. 1,000 73
Security Connecticut Corp. 7,300 256
Selective Insurance Group, Inc. 24,600 935
Signet Banking Corp. 17,400 535
Silicon Valley Bancshares (a) 1,100 35
Sotheby's Holdings Co., Inc. Class A 45,000 838
Southern Pacific Funding Corp. (a) 19,800 616
SouthTrust Corp. 11,800 410
Sovereign Bancorp, Inc. 58,655 763
St. Paul Bancorp, Inc. 3,200 94
Standard Federal Bancorporation 14,200 808
Standard Financial, Inc. 3,700 73
State Auto Financial Corp. 7,500 135
SunAmerica, Inc. 61,400 2,725
Susquehanna Bancshares, Inc. 1,000 35
T R Financial Corp. 3,800 135
TCF Financial Corp. 20,000 870
Titan Holdings, Inc. 8,020 132
Transatlantic Holdings, Inc. 18,000 1,449
Trenwick Group, Inc. 21,000 971
UICI (a) 21,000 675
Union Planters Corp. 43,302 1,689
UnionBanCal Corp. 2,200 116
United Fire & Casualty Co. 25,575 902
Unitrin, Inc. 1,600 89
US Facilities Corp. 52,300 1,026
USF&G Corp. 38,800 810
USLIFE Corp. 36,900 1,227
Valley National Bancorp 2,200 56
Washington Federal, Inc. 6,200 161
Washington Mutual, Inc. 24,900 1,077
Washington National Corp. 5,100 140
Westamerica Bancorporation 1,000 58
Westcorp, Inc. 6,365 139
Western National Corp. 5,200 100
Whitney Holding Corp. 1,000 35
Zenith National Insurance Corp. 1,100 30
----------
72,912
----------
GENERAL BUSINESS - 9.6%
AccuStaff, Inc. 103,500 2,186
American Business Products, Inc. 1,200 30
American Greetings Corp. Class A 51,600 1,464
American Residential Services, Inc. (a) 3,200 87
APAC Teleservices, Inc. 35,100 1,334
Ascend Communications, Inc. 15,000 930
Assisted Living Concepts, Inc. (a) 5,600 85
Banta Corp. 25,500 574
BISYS Group, Inc. New (a) 25,000 925
Bowne & Co., Inc. 4,600 113
Caribiner International, Inc. (a) 17,000 854
Cascade Communications Corp. 10,800 595
Central Newspapers, Inc. Class A 28,600 1,258
Cognos, Inc. 43,500 1,207
Comarco, Inc. (a) 5,000 90
Comnet Cellular, Inc. (a) 1,793 50
Comsat Corp. Series 1 12,200 300
COREStaff, Inc. 27,000 635
Dames & Moore, Inc. 2,800 41
DeVRY, Inc. 30,000 705
DSP Communications, Inc. 37,300 718
Educational Medical, Inc. (a) 8,700 96
Effective Management Systems, Inc. (a) 16,000 92
Ennis Business Forms, Inc. 36,050 406
Franklin Quest Co. (a) 4,700 99
G & K Services, Inc. Class A 17,100 641
General Communication, Inc. Class A (a) 16,000 126
Gibson Greetings, Inc. (a) 3,600 70
Globe Business Resources, Inc. (a) 12,000 114
Equity II Fund 23
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Golden Books Family Entertainment, Inc. (a) 7,300 $ 79
Grey Advertising 4,000 1,000
Harland (John H.) Co. 23,900 789
Harte Hanks Communications 26,400 733
Houghton Mifflin Co. 14,500 821
Hunt Manufacturing Co. 700 13
Iron Mountain, Inc. (a) 5,000 151
Jones Intercable, Inc. Class A (a) 50,500 518
Katz Digital Technologies, Inc. (a) 20,000 62
Kelly Services, Inc. Class A 2,200 59
Kronos, Inc. 4,000 122
Lee Enterprises, Inc. 37,000 860
Logicon, Inc. 3,600 131
McClatchy Newspapers, Inc. Class A 28,000 980
Merrill Corp. 1,400 32
META Group, Inc. (a) 39,600 1,030
Metricom, Inc. (a) 6,500 97
MicroAge, Inc. (a) 43,700 869
Miller (Herman), Inc. 3,900 219
MSC Industrial Direct Co., Inc. Class A (a) 2,800 104
New England Business Service, Inc. 2,100 45
Ortel Corp. (a) 16,800 395
Outdoor Systems, Inc. 15,550 435
Paychex, Inc. 17,500 899
PC Service Source, Inc. (a) 9,600 71
Pegasus Communications Corp. Class A (a) 10,000 133
Personnel Group of America, Inc. (a) 7,400 179
Quintiles Transnational Corp. (a) 14,000 917
Richey Electronics, Inc. (a) 12,000 137
Saga Communications Class A 5,000 98
SFX Broadcasting, Inc. Class A (a) 3,500 103
Sovran Self Storage, Inc. 26,500 828
Spelling Entertainment Group, Inc. (a) 7,700 57
Standard Register Co. 2,100 68
Steris Corp. (a) 20,000 870
Thomas Nelson, Inc. 5,800 86
TRM Copy Centers Corp. (a) 10,000 97
True North Communications, Inc. 3,500 77
United Wisconsin Services, Inc. 2,200 58
Universal Outdoor Holdings, Inc. (a) 32,600 750
US Office Products Co. 49,100 1,657
Viking Office Products, Inc. 20,000 530
Wackenhut Corp. 5,000 86
Washington Post Co. Class B 3,400 1,139
Young Broadcasting Corp. Class A (a) 21,000 614
Zilog, Inc. (a) 6,200 162
----------
34,985
----------
MISCELLANEOUS - 2.3%
Apollo Group, Inc. Class A 17,000 567
Arden Realty Group, Inc. 37,000 1,027
Castle & Cook, Inc. New (a) 8,200 130
Childtime Learning Centers (a) 6,100 57
Chris Craft Industries, Inc. 4,502 189
Citation Corp. (a) 9,000 89
Cornell Corrections, Inc. (a) 7,100 63
FRP Properties, Inc. (a) 6,000 150
Griffon Corp. (a) 77,600 951
Gyrodyne Co. of America, Inc. (a) 1,500 17
Ha-Lo Industries, Inc. 30,250 832
Hirsch International Group Class A 6,250 113
Insignia Financial Group, Inc. Class A 40,000 900
Jabil Circuit, Inc. (a) 2,300 92
Landair Services, Inc. (a) 11,000 110
Leather Factory, Inc. (a) 60,000 49
M.D.C. Holdings, Inc. 14,300 123
Mark VII, Inc. (a) 5,000 138
McWhorter Technologies, Inc. (a) 1,800 41
NN Ball & Roller, Inc. 5,000 76
NUMAR Corp. (a) 8,000 107
On Assignment, Inc. (a) 25,000 713
Philip Environmental, Inc. (a) 9,600 139
PXRE Corp. 36,787 911
S3, Inc. (a) 30,400 494
Supreme Industries, Inc. Class A (a) 15,000 85
Tracor, Inc. New (a) 6,600 140
Youth Services International, Inc. 10,000 150
----------
8,453
----------
SHELTER - 2.5%
Ameron International Corp. 1,400 72
Cameron Ashley, Inc. (a) 10,000 136
Centex Construction Products, Inc. 9,700 175
Centex Corp. 27,500 1,035
Champion Enterprises, Inc. 38,700 755
Continental Homes Holding Corp. 5,000 106
Crossmann Communities, Inc. (a) 5,100 87
Dayton Superior Corp. Class A (a) 58,100 763
Fibreboard Corp. New (a) 2,500 84
Florida Rock Industries, Inc. 700 23
Granite Construction, Inc. 28,800 547
Lennar Corp. 33,000 899
Lone Star Industries, Inc. 4,300 159
Pacific Greystone Corp. (a) 8,000 88
Plum Creek Timber Co. L.P. 23,000 598
Ryland Group, Inc. 6,700 92
Schuller Corp. 28,600 304
Smith (Charles E.) Residential Realty, Inc. 29,000 848
Southdown, Inc. 36,500 1,136
St. Joe Corp. 12,000 780
24 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Standard Pacific Corp. 24,400 $ 140
Vulcan Materials Co. 5,100 310
----------
9,137
----------
TECHNOLOGY - 17.9%
Actel Corp. (a) 26,700 634
ACX Technologies, Inc. (a) 10,100 201
ADC Telecommunications, Inc. 63,200 1,959
Advanced Micro Devices, Inc. (a) 20,400 525
American Management Systems, Inc. 15,300 371
Amplicon, Inc. 5,000 99
Astea International, Inc. (a) 12,000 68
Banctec, Inc. (a) 39,300 811
BDM International, Inc. (a) 15,000 802
Bell Industries 35,541 760
Berg Electronics Corp. (a) 16,000 470
BI Incorporated Co. New (a) 15,000 105
Boole & Babbage, Inc. 4,500 108
Brooktrout Technology, Inc. 20,200 561
Burr-Brown Corp. (a) 5,600 143
Caere Corp. (a) 7,900 90
California Microwave, Inc. (a) 7,100 104
Cambridge Technology Partners, Inc. 27,000 901
CBT Group PLC - ADR 34,500 1,854
CCC Information Services Group (a) 28,100 429
CDW Computer Centers, Inc. 18,000 1,066
Channell Commercial Corp. (a) 8,000 96
Chips & Technologies, Inc. (a) 11,400 205
Citrix Systems, Inc. 21,000 814
Coeur d'Alene Mines Corp. 12,400 188
Compuware Corp. (a) 49,200 2,460
Comverse Technology, Inc. New (a) 46,400 1,746
Consilium, Inc. (a) 15,000 82
Cypress Semiconductor Corp. (a) 19,200 271
Data Transmission Network Corp. 6,000 129
Destec Energy, Inc. (a) 2,500 39
DH Technology, Inc. (a) 4,000 92
Documentum, Inc. (a) 3,700 126
DSP Group, Inc. (a) 8,000 68
DST Systems, Inc. (a) 31,500 988
DuPont Photomasks, Inc. (a) 2,000 91
Egghead, Inc. (a) 10,900 56
Electro Scientific Industries, Inc. (a) 2,000 52
Electromagnetic Sciences, Inc. (a) 5,000 96
Electronic Arts (a) 38,400 1,147
Electronics For Imaging, Inc. (a) 11,500 937
Encad, Inc. 23,100 941
ESS Technology, Inc. (a) 13,500 378
Esterline Corp. (a) 5,800 152
Etec Systems, Inc. (a) 2,000 75
Evans & Sutherland Computer Corp. (a) 1,500 36
Exar Corp. (a) 8,000 124
FORE Systems 20,000 657
Gateway 2000, Inc. (a) 13,300 712
Genus, Inc. (a) 10,900 59
Gerber Scientific, Inc. 4,100 61
Global Village Communication (a) 13,000 41
GTI Corp. 9,200 43
Hadco Corp. (a) 34,000 1,653
Harris Corp. 9,600 659
Hello Direct, Inc. (a) 20,000 90
Hyperion Software Corp. (a) 30,200 638
InaCom Corp. (a) 23,600 941
Input/Output, Inc. 3,000 55
Inso Corp. (a) 30,400 1,186
Integrated Circuit Systems, Inc. (a) 8,000 107
Intelligent Electronics, Inc. (a) 11,000 88
Jack Henry & Assocociates, Inc. 22,000 776
Kaman Corp. Class A 1,000 13
Kentek Information Systems, Inc. 16,000 90
KLA Instruments Corp. (a) 29,300 1,036
Kulicke & Soffa Industries, Inc. (a) 11,900 226
KVH Industries, Inc. (a) 10,000 70
Landauer, Inc. 3,500 86
Legato Systems, Inc. 23,000 742
Littlefuse, Inc. (a) 16,000 768
Lo-Jack Corp. (a) 10,000 97
Longview Fibre Co. 6,100 112
Marshall Industries (a) 29,000 888
McAfee Associates, Inc. 48,350 2,109
Medic Computer Systems, Inc. 14,000 563
MetaTools, Inc. (a) 4,900 57
Metrologic Instruments, Inc. (a) 6,000 96
Molex, Inc. Class A 20,000 710
National Semiconductor Corp. (a) 22,500 548
Natural Microsystems Corp. 13,000 409
Network Appliance, Inc. (a) 13,400 677
Nimbus CD International, Inc. (a) 5,900 50
ON Technology Corp. (a) 20,000 108
Orbital Sciences Corp. Class A (a) 14,400 245
Pacific Scientific Co. 3,700 42
Par Technology Corp. (a) 9,000 125
Photronics, Inc. (a) 4,000 109
Pittway Corp. Class A 19,561 1,047
Pure Atria Corp. (a) 18,000 439
RadiSys Corp. (a) 16,600 805
Rational Software Corp. New (a) 28,800 1,130
Read-Rite Corp. (a) 23,000 575
Saville Systems Ireland PLC - ADR (a) 29,200 1,164
Equity II Fund 25
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Sensormatic Electronics Corp. 32,500 $ 544
Siebel Systems, Inc. 26,600 718
Silicon Storage Technology, Inc. (a) 7,100 34
Software Artistry, Inc. (a) 12,000 82
Software Spectrum, Inc. (a) 4,000 115
SpaceLabs, Inc. (a) 1,100 23
Splash Technology Holdings, Inc. (a) 6,000 129
Storage Technology Corp. (a) 22,600 1,076
StorMedia, Inc., Class A 3,900 63
Structural Dynamics Research Corp. (a) 80,300 1,576
Sykes Enterprises, Inc. 41,200 1,493
Symantec Corp. (a) 35,400 513
Tandem Computers, Inc. (a) 105,500 1,451
TB Wood's Corporation 10,000 108
Tech-Sym Corp. (a) 25,500 759
Tellabs, Inc. 18,000 677
Teradyne, Inc. (a) 42,000 1,024
Thiokol Corp. 6,200 277
Thomas & Betts Corp. 7,500 333
Transaction Systems Architects, Inc. Class A 25,000 819
Trident Microsystems, Inc. (a) 35,400 589
TSX Corp. 12,700 110
ULTRADATA Corp. (a) 24,000 99
Uniphase Corp. 16,000 840
Veritas Software Corp. 33,000 1,625
VideoServer, Inc. (a) 15,300 643
VLSI Technology, Inc. (a) 60,300 1,425
Voice Control Systems, Inc. (a) 12,000 95
Wall Data, Inc. (a) 5,900 87
Watkins-Johnson Co. 8,500 208
Western Digital Corp. (a) 14,500 825
Xircom, Inc. (a) 37,400 813
Zero Corp. 4,400 88
----------
65,613
----------
TRANSPORTATION - 2.5%
Air Express International Corp. 2,500 80
Alexander & Baldwin, Inc. 2,700 66
American Freightways Corp. (a) 4,400 48
APL, Ltd. 6,400 151
Arnold Industries, Inc. 30,500 477
Caliber Systems, Inc. 12,100 233
Consolidated Freightways Corp. (a) 4,600 41
Consolidated Freightways, Inc. 9,200 205
Genesee & Wyoming, Inc. Class A (a) 21,100 691
Hvide Marine, Inc. Class A (a) 6,000 130
Kirby Corp. (a) 3,100 61
Knight Transportation, Inc. (a) 4,000 75
MTL, Inc. (a) 37,500 759
Navistar International Corp. (a) 24,900 227
Offshore Logistics, Inc. (a) 12,400 240
Overseas Shipholding Group, Inc. 32,200 547
Pittston Burlington Group 3,100 62
Roadway Express, Inc. 5,300 101
Rollins Truck Leasing Corp. 4,900 62
Rural/Metro Corp. (a) 15,800 561
Seacor Holdings, Inc. (a) 15,000 945
Transport Corp. of America (a) 10,000 103
Trico Marine Services, Inc. (a) 7,800 374
Trinity Industries, Inc. 24,100 904
Werner Enterprises, Inc. 5,100 92
Wisconsin Central Transportation Corp. 28,500 1,126
Yellow Corp. (a) 58,100 835
----------
9,196
----------
UTILITIES - 3.6%
American Water Works, Inc. 9,800 202
Aquarion Co. 1,000 28
Bay State Gas Co. 1,100 31
Black Hills Corp. 1,000 28
Boston Edison Co. 12,400 333
Brooklyn Union Gas Co. (The) 8,500 256
CellStar Corp. (a) 7,600 135
Cellular Communications of Puerto Rico, Inc. (a) 27,500 536
Centennial Cellular Corp. Class A (a) 49,500 594
Central Hudson Gas & Electric Corp. 2,900 91
Central Louisiana Electric Co., Inc. 2,200 61
Central Maine Power Co. 9,900 115
Citizens Utility Co. Class A 95,560 1,039
Commonwealth Energy System 2,000 47
Connecticut Natural Gas Corp. 1,000 25
Delmarva Power & Light Co. 10,100 206
E'town Corp. 300 9
Eastern Enterprises, Inc. 5,700 202
Empire District Electric Co. 1,400 26
Enova Corp. 13,500 307
Equitable Resources, Inc. 8,400 250
Hawaiian Electric Industries, Inc. 4,100 148
Illinova Corp. 13,000 357
IPALCO Enterprises, Inc. 1,750 48
Long Island Lighting Co. 33,700 746
MDU Resources Group, Inc. 1,900 44
Minnesota Power & Light Co. 4,600 126
Montana Power Co. 13,300 284
National Fuel & Gas Co. 7,500 309
Nevada Power Co. 12,200 250
New England Electric System 7,900 276
26 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
New Jersey Resources Corp. 2,600 $ 76
New York State Electric & Gas Corp. 9,100 197
Niagara Mohawk Power Corp. (a) 45,900 453
Northeast Utilities 36,500 484
Northwest Natural Gas Co. 2,550 61
Northwestern Public Service Co. 5,000 171
ONEOK, Inc. 8,300 249
Orange & Rockland Utilities, Inc. 1,900 68
Peoples Energy Corp. 6,500 220
Piedmont Natural Gas Co., Inc. 4,005 94
Premiere Technologies, Inc. (a) 12,200 305
Primark Corp. (a) 3,000 74
Public Service Co. of New Mexico 10,700 210
Public Service Co. of North Carolina, Inc. 1,700 31
Puget Sound Power & Light Co. 10,200 245
Rochester Gas & Electric Corp. 9,500 182
Sierra Pacific Resources 9,900 285
SIG Corp., Inc. 1,000 35
Telco Systems, Inc. (a) 2,000 38
TNP Enterprises, Inc. 3,700 101
TresCom International, Inc. (a) 8,500 62
UGI Corp. 4,600 103
United Illuminating Co. 24,200 759
UtiliCorp United, Inc. 10,000 270
Washington Water Power Co. 10,600 197
Western Resources, Inc. 30,500 942
WICOR, Inc. 3,200 115
WPL Holdings, Inc. 3,800 107
----------
13,243
----------
TOTAL COMMON STOCKS
(cost $291,606) 343,590
----------
OPTIONS PURCHASED- 0.0%
Russell 2000-Registered Tradmark- Index
Mar 320 Call (a) 30* 138
----------
TOTAL OPTIONS PURCHASED
(cost $123) 138
----------
CONVERTIBLE PREFERRED STOCKS - 0.1%
Callon Petroleum Co. Series A 2,000 88
Triathlon Broadcasting Co. 15,000 128
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $220) 216
----------
PREFERRED STOCKS - 0.2%
Finova Finance Trust 13,000 682
----------
TOTAL PREFERRED STOCKS
(cost $650) 682
----------
PRINCIPAL
AMOUNT
(000)
---------
SHORT-TERM INVESTMENTS - 7.7%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 25,752 25,752
United States Treasury Bills (b)(c)(d)
5.040% due 02/06/97 2,400 2,388
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $28,140) 28,140
----------
TOTAL INVESTMENTS
(identified cost $320,739)(e) - 101.9% 372,766
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (1.9%) (6,811)
----------
NET ASSETS - 100.0% $ 365,955
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Rate noted is yield-to-maturity (unaudited).
(d) Held as collateral by the custodian in connection with futures
contracts purchased and options written by the Fund.
(e) See Note 2 for federal income tax information.
* Number of contracts.
ABBREVIATIONS:
ADR - American Depositary Receipt
PLC - Public Limited Company
The accompanying notes are an integral part of the financial statements.
Equity II Fund 27
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 400 Midcap Index Futures Contracts
expiration date 03/97 65 $ 138
S&P 500 Index Futures Contracts
expiration date 03/97 26 (21)
Russell 2000-Registered Trademark- Index Futures
Contracts
expiration date 03/97 39 17
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 134
----------
----------
NUMBER MARKET
OF VALUE
CONTRACTS (000)
---------- ----------
PUT OPTIONS WRITTEN
(Notes 2 and 3)
Russell 2000-Registered Trademark- Index
strike price 320.00
expiration date 03/97 30 $ 11
----------
Total liability for options written
(premiums received $19)(#) $ 11
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $2,388 were
held as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
The accompanying notes are an integral part of the financial statements.
28 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $320,738,731)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 372,766,239
Receivables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380,875
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,133,217
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613,369
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,893,700
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,340,257
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,558,187
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 250,179
Other accrued expenses and payables. . . . . . . . . . . . . . . . . . . . . . 499,195
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 280,050
Options written, at market value
(premiums received $18,659)(Notes 2 and 3) . . . . . . . . . . . . . . . . . . 11,250
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,939,118
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 365,954,582
---------------
---------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195,470
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,235,742
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,027,508
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,628
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,409
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,802
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,233,023
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 365,954,582
---------------
---------------
Net asset value, offering and redemption price per share
($365,954,582 divided by 12,180,210 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30.05
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity II Fund 29
<PAGE>
EQUITY II FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,362,214
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,341,118
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,366
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,817,698
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,448,618
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328,506
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,406
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,569
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,131
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,764
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,684
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,906
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,106,584
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,711,114
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,629,990
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,117,874
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,713 40,937,577
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,686,768
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,153
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,302 13,891,223
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,828,800
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 56,539,914
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,711,114 $ 2,368,381
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,937,577 34,368,180
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 13,891,223 25,153,046
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 56,539,914 61,889,607
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,695,387) (2,492,894)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (40,869,501) (26,029,358)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 72,413,609 43,221,134
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 86,388,635 76,588,489
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 279,565,947 202,977,458
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $195,470 and $179,756, respectively). . . . . . . . . . . . . . . . . . . . $ 365,954,582 $ 279,565,947
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity II Fund 31
<PAGE>
EQUITY II FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR. . . . . . . . . . . . . . $ 28.88 $ 25.00 $ 26.58 $ 27.71 $ 26.32
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .16 .27 .36 .32 .30
Net realized and unrealized gain (loss) on investments . . 4.96 6.80 (.86) 3.97 3.13
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 5.12 7.07 (.50) 4.29 3.43
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.16) (.29) (.31) (.31) (.30)
Net realized gain on investments . . . . . . . . . . . . . (3.79) (2.90) (.21) (4.72) (1.74)
In excess of net realized gain on investments. . . . . . . -- -- (.56) (.39) --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (3.95) (3.19) (1.08) (5.42) (2.04)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 30.05 $ 28.88 $ 25.00 $ 26.58 $ 27.71
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 18.51 28.67 (2.60) 16.70 13.31
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . .95 .83 .23 .34 .32
Net investment income to average net assets (a). . . . . . .52 .97 1.46 1.14 1.10
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 120.78 89.31 58.04 87.25 43.33
Net assets, end of year ($000 omitted) . . . . . . . . . . 365,955 279,566 202,977 171,421 120,789
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . .0381 N/A N/A N/A N/A
</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.
32 Equity II Fund
<PAGE>
EQUITY III FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To achieve a high level of current income, while maintaining the
potential for capital appreciation.
INVESTS IN: Primarily income-producing U.S. equity securities.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve a high
level of current income and the potential for capital appreciation with moderate
risk. The Fund employed the investment management services of three managers
with three separate approaches to Value-oriented investment.
<TABLE>
<CAPTION>
DATES EQUITY III ++ RUSSELL 1000-Registered Trademark- VALUE ** LIPPER-C- EQUITY INCOME ++++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $9,852 $10,050 $9,796
1988 $12,039 $12,377 $11,135
1989 $15,418 $15,495 $13,418
1990 $14,535 $14,242 $12,577
1991 $18,586 $17,747 $15,889
1992 $20,871 $20,198 $17,379
1993 $23,990 $23,858 $19,772
1994 $24,268 $23,384 $19,273
1995 $32,996 $32,351 $25,009
1996 $39,893 $39,352 $29,653
- --------------------------------------------------------------------------------------------------------
Total $222,448 $219,054 $183,901
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
EQUITY III FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,090 20.90%
5 Years $ 21,464 16.51%#
10 Years $ 39,893 14.84%#
RUSSELL 1000-Registered Trademark- VALUE INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,164 21.64%
5 Years $ 22,174 17.27%#
10 Years $ 39,352 14.68%#
LIPPER-C- EQUITY INCOME FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,857 18.57%
5 Years $ 18,663 13.29%#
10 Years $ 29,653 11.48%#
* Assumes initial investment on January 1, 1987.
** 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.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ Lipper-C- Equity 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.
34 Equity III Fund
<PAGE>
EQUITY III FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Equity III Fund had a total return
of 20.9% as compared to the Russell 1000 Value-Registered Trademark-Index
results of 21.6%. The Fund's slight underperformance relative to the Russell
1000 Value Index was primarily due to an underweighting in the largest
capitalization issues as well as bank stocks.
PORTFOLIO HIGHLIGHTS
Investors favored Growth stocks over Value- and Yield-oriented alternatives
for most of 1996. However, the fourth quarter proved to be a strong
one for Value stocks as investors sought more defensive investment
options. There were two dominant themes in the performance of Value
stocks during the year. Financial services companies enjoyed a banner
year, with the Russell 1000-Registered Trademark- Index financial services
sector rising more than 34%. Despite the negative overhang of rising
interest rates, bank stocks led the way as they benefited from strong
balance sheets and improving earnings growth. Bank stocks also enjoyed
the trend toward consolidation, as the prospect of mergers and acquisitions
became another catalyst for stock price appreciation. The other strong
performers within the financial services sector were securities brokerage
stocks which continued to be an obvious beneficiary of the market's
strength, not to mention the huge sums of assets flowing into the
market. In contrast to the financial services sector, utility stocks
struggled through 1996. Sweeping deregulation of both the telecommunications
and electrical utilities industries negatively impacted the stocks
within the sector. The utilities sector of the Russell 1000 Index
rose a meager 2.9%.
Given this backdrop, the Equity III Fund managers faced some major
challenges in 1996. Rising interest rates limited their enthusiasm
towards bank stocks and other financial services stocks in general.
The Fund's underweighting to the sector proved a distinct disadvantage
for most of the year. Similarly, its underweighting in the largest
cap stocks in its Value universe also had some negative implications.
However, good security selection was nearly enough to overcome these
other factors. Strong technology stock selection and the combined
benefit of good defensive selection and an underweighting in the utilities
sector provided significant added value.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Chase Manhattan Corp. 2.2%
NYNEX Corp. 2.1
International Business Machines Corp. 2.1
Texaco, Inc. 1.9
U.S. West Communications Group 1.7
Banc One Corp. 1.5
American General Corp. 1.4
Entergy Corp. 1.4
Exxon Corp. 1.3
Allstate Corp. 1.3
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 15.1x
Portfolio Price/Book Ratio 2.15x
Market Capitalization - $ - Weighted Average 20.21 Bil
Number of Holdings 198
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Brandywine Asset Management, Inc. Value
Equinox Capital Management, Inc. Value
Trinity Investment Management Corp. Value
- -------------------------------------------------------------------
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 35
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 95.6%
BASIC INDUSTRIES - 7.8%
AK Steel Holding Corp. 12,700 $ 503
Alumax, Inc. (a) 44,100 1,472
Boise Cascade Corp. 19,300 613
Bowater, Inc. 18,800 707
Crown Vantage, Inc. (a) 11,940 100
Dow Chemical Co. 26,600 2,085
Eastman Chemical Co. 5,500 304
FMC Corp. (a) 16,300 1,143
Goodrich (B.F.) Co. 24,500 992
Great Lakes Chemical Corp. 12,900 603
Hanna (M.A.) Co. 1,100 24
James River Corp. of Virginia 45,300 1,501
Mead Corp. 20,700 1,203
Olin Corp. 25,600 963
Phelps Dodge Corp. 12,400 837
Potlatch Corp. 13,900 598
Rohm & Haas Co. 5,900 482
Temple-Inland, Inc. 16,300 882
USX-U.S. Steel Group 35,400 1,111
Westvaco Corp. 41,200 1,184
----------
17,307
----------
CAPITAL GOODS - 3.8%
AGCO Corp. 21,800 624
Browning-Ferris Industries, Inc. 23,000 604
Caterpillar, Inc. 31,900 2,400
Cummins Engine Co., Inc. 7,900 363
Foster Wheeler Corp. 15,600 579
General Electric Co. 16,000 1,582
Johnson Controls, Inc. 16,600 1,376
Silicon Valley Group, Inc. (a) 16,400 328
Timken Co. 14,400 661
----------
8,517
----------
CONSUMER BASICS - 8.7%
American Brands, Inc. 14,000 695
American Home Products Corp. 15,000 879
Archer-Daniels-Midland Co. 113,142 2,489
Baxter International, Inc. 23,900 980
Becton, Dickinson & Co. 8,600 373
Bergen Brunswig Corp. Class A 14,900 425
Beverly Enterprises, Inc. (a) 41,700 532
Black & Decker Corp. 13,400 404
Bristol-Myers Squibb Co. 19,400 2,110
Columbia/HCA Healthcare Corp. 32,800 1,337
Foundation Health Corp. (a) 20,900 663
IBP, Inc. 63,200 1,533
Philip Morris Cos., Inc. 19,900 2,241
RJR Nabisco Holdings Corp. 28,980 985
Sara Lee Corp. 28,700 1,069
Schering-Plough Corp. 18,400 1,191
Tenet Healthcare Corp. (a) 44,000 962
Transitional Hospitals Corp. (a) 39,400 379
----------
19,247
----------
CONSUMER DURABLES - 3.6%
Chrysler Corp. 76,500 2,524
Dana Corp. 10,100 330
Federal-Mogul Corp. 21,500 473
Ford Motor Co. 82,700 2,636
General Motors Corp. 10,100 563
Whirlpool Corp. 29,700 1,385
----------
7,911
----------
CONSUMER NON-DURABLES - 4.5%
Anheuser-Busch Cos., Inc. 25,000 1,000
Burlington Coat Factory Warehouse Corp. (a) 30,200 393
Burlington Industries, Inc. (a) 44,900 494
Dayton Hudson Corp. 34,700 1,362
Eastman Kodak Co. 4,200 337
Federated Department Stores, Inc. (a) 78,700 2,686
Penney (J.C.) Co., Inc. 22,900 1,116
Russell Corp. 9,300 277
Sears Roebuck & Co. 18,500 853
SuperValu, Inc. 18,100 513
Toys "R" Us, Inc. (a) 33,600 1,008
----------
10,039
----------
CONSUMER SERVICES - 2.3%
AMR Corp. (a) 30,200 2,662
Brinker International, Inc. (a) 47,700 763
Carnival Corp. Class A 36,900 1,218
King World Productions, Inc. (a) 7,000 258
Wendy's International, Inc. 8,200 168
----------
5,069
----------
ENERGY - 10.7%
Amerada Hess Corp. NPV 35,900 2,078
Amoco Corp. 19,900 1,602
Atlantic Richfield Co. 19,400 2,570
British Petroleum Co. PLC - ADR 10,562 1,493
Castle Energy Corp. (a) 9,600 102
Chevron Corp. 31,800 2,067
Dresser Industries, Inc. 10,900 338
Elf Aquitaine - ADR 16,700 756
Exxon Corp. 28,500 2,793
LTV Corp. 34,100 405
36 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Mobil Corp. 8,700 $ 1,063
Murphy Oil Corp. 13,300 740
Occidental Petroleum Corp. 41,200 963
Sun Co., Inc. 21,500 524
Texaco, Inc. 42,300 4,151
Union Texas Petroleum Holdings, Inc. 17,600 394
USX-Marathon Group 44,800 1,070
Valero Energy Corp. 24,600 704
----------
23,813
----------
FINANCE - 23.5%
Aetna, Inc. 13,500 1,080
AFLAC, Inc. 15,700 671
Ahmanson (H.F.) & Co. 48,700 1,583
Allstate Corp. 48,231 2,791
AMBAC, Inc. 15,800 1,049
American General Corp. 76,600 3,131
Banc One Corp. 79,630 3,424
Bank of Boston Corp. 8,800 565
BankAmerica Corp. 18,400 1,835
Barnett Banks, Inc. 21,200 872
Beneficial Corp. 21,200 1,344
Chase Manhattan Corp. 55,056 4,914
Chubb Corp. (The) 43,200 2,322
Countrywide Credit Industries, Inc. 43,400 1,242
Dean Witter, Discover & Co. 31,100 2,060
Everest Re Holdings, Inc. 39,300 1,130
Federal National Mortgage Association 71,900 2,678
First Bank System, Inc. 10,900 744
First Chicago NBD Corp. 26,591 1,429
First Tennessee National Corp. 13,200 493
First Union Corp. 28,600 2,116
First Virginia Banks, Inc. 10,700 512
Firstar Corp. 18,600 976
Fleet Financial Group, Inc. 9,900 494
John Alden Financial Corp. 14,800 274
Life Re Corp. 9,900 382
Lincoln National Corp. 28,800 1,512
Loews Corp. 3,700 349
Mellon Bank Corp. 7,500 533
Mercantile Bancorp, Inc. 13,100 673
Mid Ocean, Ltd. 20,700 1,087
Morgan (J.P.) & Co., Inc. 6,900 674
National City Corp. 12,500 561
NationsBank Corp. 16,700 1,632
Norwest Corp. 25,000 1,088
Old Republic International Corp. 6,300 169
Provident Companies, Inc. 11,600 561
Reliance Group Holdings, Inc. 55,000 502
Republic New York Corp. 2,400 196
Salomon, Inc. 26,000 1,225
Southern National Corp. 12,500 453
TCF Financial Corp. 9,000 392
Transamerica Financial Corp. 5,500 435
----------
52,153
----------
GENERAL BUSINESS - 1.9%
Gannett Co., Inc. 10,800 809
Knight-Ridder, Inc. 17,100 654
SBC Communications, Inc. 13,700 709
Tribune Co. 18,300 1,443
Viacom, Inc. Class B (a) 14,600 509
----------
4,124
----------
MISCELLANEOUS - 2.1%
Chelsea GCA Realty, Inc. 8,000 277
Colonial Properties Trust 13,400 407
Geon Co. 27,100 532
Oasis Residential, Inc. 7,200 164
Prentiss Properties Trust 11,300 282
Providian Corp. 11,100 570
South West Property Trust, Inc. 13,600 229
Tenneco, Inc. 45,200 2,040
Town & Country Trust 11,400 167
----------
4,668
----------
SHELTER - 0.2%
Evans Withycombe Residential, Inc. 11,700 246
Vulcan Materials Co. 4,600 280
----------
526
----------
TECHNOLOGY - 7.9%
Advanced Micro Devices, Inc. (a) 2,200 57
Amdahl Corp. (a) 46,300 561
Avnet, Inc. 16,400 955
Beckman Instruments, Inc. 10,700 411
Boeing Co. 11,700 1,245
COMPAQ Computer Corp. (a) 6,300 468
Data General Corp. (a) 26,200 380
EG&G, Inc. 23,400 471
Harris Corp. 2,700 185
Hewlett-Packard Co. 15,700 789
Intel Corp. 15,900 2,081
International Business Machines Corp. 31,200 4,711
Lam Research Corp. (a) 11,200 314
Lockheed Martin Corp. 16,600 1,519
Equity III Fund 37
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
MEMC Electronic Materials, Inc. (a) 12,700 $ 286
Northrop Grumman Corp. 5,800 480
Seagate Technology 22,600 893
Tandy Corp. 21,600 950
Teradyne, Inc. (a) 26,600 648
----------
17,404
----------
TRANSPORTATION - 2.6%
Conrail, Inc. 4,293 428
CSX Corp. 44,500 1,880
Federal Express Corp. 18,800 837
Ryder System, Inc. 34,500 970
Trinity Industries, Inc. 11,500 431
Union Pacific Corp. 19,800 1,190
----------
5,736
----------
UTILITIES - 16.0%
AT&T Corp. 40,300 1,753
BCE, Inc. 31,000 1,480
Boston Edison Co. 23,900 642
Century Telephone Enterprises, Inc. 5,200 161
DTE Energy Co. 35,400 1,146
Edison International 51,700 1,028
Enova Corp. 7,300 166
Entergy Corp. 108,900 3,022
Equitable Resources, Inc. 32,500 967
GPU, Inc. 36,100 1,214
GTE Corp. 33,000 1,501
MCI Communications Corp. 50,000 1,631
New England Electric System 28,000 976
New York State Electric & Gas Corp. 37,200 804
Niagara Mohawk Power Corp. (a) 56,900 562
NYNEX Corp. 97,900 4,711
Pacific Enterprises 28,600 869
Pacific Gas & Electric Co. 31,200 655
Pacific Telesis Group 56,300 2,069
PacifiCorp. 45,600 935
Peco Energy Co. 24,800 626
Potomac Electric Power Co. 52,500 1,352
Southern New England
Telecommunications Corp. 30,100 1,170
Texas Utilities Co. 30,300 1,235
U.S. West Communications Group 116,700 3,764
Unicom Corp. 41,900 1,137
----------
35,576
----------
TOTAL COMMON STOCKS
(cost $180,133) 212,090
CONVERTIBLE PREFERRED STOCK - 0.3%
Atlantic Richfield Co. 34,700 746
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $864) 746
----------
PREFERRED STOCKS - 0.7%
RJR Nabisco Holdings Class C 209,400 1,413
----------
TOTAL PREFERRED STOCKS
(cost $1,353) 1,413
----------
PRINCIPAL
AMOUNT
(000)
---------
SHORT-TERM INVESTMENTS - 3.3%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 6,405 6,405
United States Treasury Bills
5.040% due 02/06/97 (b)(c)(d) 1,000 995
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $7,400) 7,400
----------
TOTAL INVESTMENTS
(identified cost $189,750)(e) - 99.9% 221,649
OTHER ASSETS AND LIABILITIES, NET - 0.1% 129
----------
NET ASSETS - 100.0% $ 221,778
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
(d) Rate noted is yield-to-maturity (unaudited).
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
PLC - Public Limited Company
The accompanying notes are an integral part of the financial statements.
38 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 03/97 12 $ (25)
S&P Barra Value Futures Contracts
expiration date 03/97 11 48
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 23
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $2,388 were
held as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
The accompanying notes are an integral part of the financial statements.
Equity III Fund 39
<PAGE>
EQUITY III FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $189,750,241)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 221,649,394
Receivables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539,905
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457,934
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,514
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,074,747
LIABILITIES
Payables:
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 952,877
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 137,984
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,280
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 126,100
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,297,241
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221,777,506
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . $ (90)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,374,450
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,899,067
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,650
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,712
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,406,717
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221,777,506
---------------
---------------
Net asset value, offering and redemption price per share
($221,777,506 divided by 7,471,182 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29.68
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,235,560
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437,490
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,368
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,757,418
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,340,374
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,792
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,157
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,346
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,965
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,734
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,666
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,849
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,764,883
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,992,535
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,642,519
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,032,912 33,675,431
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,046,783
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,450 4,076,233
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,751,664
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 42,744,199
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity III Fund 41
<PAGE>
EQUITY III FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,992,535 $ 5,834,218
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,675,431 24,907,070
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 4,076,233 30,468,007
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 42,744,199 61,209,295
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,022,037) (5,956,213)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . (14,090) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (30,908,594) (20,008,945)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . (7,562,504) 9,489,136
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . (763,026) 44,733,273
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 222,540,532 177,807,259
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net investment income
of $90 and undistributed net investment income
of $29,502, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221,777,506 $ 222,540,532
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
42 Equity III Fund
<PAGE>
EQUITY III FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 29.11 $ 24.18 $ 27.05 $ 26.75 $ 27.08
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .70 .82 .93 .89 .98
Net realized and unrealized gain (loss) on investments . . 5.10 7.73 (.85) 2.99 2.24
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 5.80 8.55 .08 3.88 3.22
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.71) (.83) (.91) (.90) (.99)
Net realized gain on investments . . . . . . . . . . . . . (4.52) (2.79) (1.94) (2.68) (2.56)
In excess of net realized gain on investments. . . . . . . -- -- (.10) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (5.23) (3.62) (2.95) (3.58) (3.55)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 29.68 $ 29.11 $ 24.18 $ 27.05 $ 26.75
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 20.90 35.96 1.16 14.95 12.30
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . .79 .65 .17 .16 .20
Net investment income to average net assets (a). . . . . . 2.23 2.90 3.39 3.09 3.57
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 100.78 103.40 85.92 76.77 84.56
Net assets, end of year ($000 omitted) . . . . . . . . . . 221,778 222,541 177,807 181,630 166,782
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . .0447 N/A N/A N/A N/A
</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 III Fund 43
<PAGE>
EQUITY Q FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide total return greater than the total return of the U.S.
stock market as measured by the Russell 1000-Registered Trademark- Index over
a market cycle of four to six years, while maintaining volatility and
diversification similar to the Russell 1000 Index.
INVESTS IN: Primarily U.S. equity securities.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns through security selection with sector diversification generally similar
to its benchmark index. The Fund employed the investment management services of
three managers using three distinctive quantitative approaches to investment.
<TABLE>
<CAPTION>
DATES EQUITY Q ++ RUSSELL 1000-Registered Trademark- ** LIPPER-C- GROWTH & INCOME ++++
<S> <C> <C> <C>
Inception* $10,000 $10,000 $10,000
1987 $8,486 $8,636 $8,574
1988 $9,942 $10,124 $9,854
1989 $12,637 $13,203 $12,065
1990 $12,029 $12,654 $11,523
1991 $15,895 $16,833 $14,843
1992 $17,478 $18,354 $16,072
1993 $19,891 $20,218 $17,875
1994 $20,087 $20,295 $17,691
1995 $27,702 $27,960 $23,105
1996 $34,259 $34,236 $27,897
- -----------------------------------------------------------------------------------------------------------------
Total 188,406 192,513 $169,499
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
EQUITY Q FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,367 23.67%
5 Years $ 21,553 16.60%#
Inception $ 34,259 13.71%#
RUSSELL 1000-Registered Trademark- INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,245 22.45%
5 Years $ 20,338 15.26%#
Inception $ 34,236 13.70%#
LIPPER-C- GROWTH & INCOME FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,074 20.74%
5 Years $ 18,795 13.45%#
Inception $ 27,897 11.40%#
* Assumes initial investment on June 1, 1987. Lipper Index comparison for
the initial investment began July 1, 1987
** Russell 1000-Registered Trademark- Index includes the 1,000 largest
companies in the Russell 3000-Registered Trademark- Index, the smallest of
which is valued at about $1,019 million. The Russell 1000 Index represents
the universe of stocks from which most active money managers typically
select.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ Lipper-C- Growth & Income Funds Average is the average total return for the
universe of funds within the Growth & 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.
44 Equity Q Fund
<PAGE>
EQUITY Q FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Equity Q Fund had a total return of
23.7% as compared to the Russell 1000-Registered Trademark- Index results of
22.5%. The Fund outperformed the Russell 1000 Index on the strength of security
selection, particularly in the consumer discretionary, technology, and financial
services sectors.
PORTFOLIO HIGHLIGHTS
As in 1995, investors in the stock market in 1996 generally favored the large
capitalization stocks of industry leaders. This was most evident in the
relative performance of stocks within sectors. Large performance gaps were
obvious between industry leaders and the next tier companies. Investors seemed
to give valuation little consideration. In many industries, such as
semiconductors and software, companies such as Intel and Microsoft dramatically
outperformed the next tier companies.
This was a market well suited to the strategies employed in the Equity Q Fund
because the market environment greatly favored stock pickers, particularly those
focused on large company stocks. The Fund benefited from being nearly equally
weighted with its underlying index along capitalization and economic sector
dimensions. With its focus on stock selection, it benefited from the trend in
investor sentiment toward industry leaders. Holdings in the technology and
financial services sectors made the largest contribution to the Fund. Selection
was favorable in almost all sectors, with the notable exception of producer
durables.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Intel Corp. 2.2%
Philip Morris Cos, Inc. 2.1
Merck & Co., Inc. 2.0
Exxon Corp. 1.8
BankAmerica Corp. 1.8
General Electric Co. 1.6
GTE Corp. 1.5
Bristol-Myers Squibb Co. 1.4
Coca-Cola Co. (The) 1.2
Caterpillar, Inc. 1.2
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 17.7x
Portfolio Price/Book Ratio 2.95x
Market Capitalization - $ - Weighted Average 32.17 Bil
Number of Holdings 539
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Franklin Portfolio Associates Trust Market-Oriented
J.P. Morgan Investment Management, Inc. Market-Oriented
BZW Barclays Global Fund Advisors Market-Oriented
- -------------------------------------------------------------------
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 Q Fund 45
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 99.0%
BASIC INDUSTRIES - 4.1%
Air Products & Chemicals, Inc. 6,000 $ 415
Albemarle Corp. 5,300 96
Allegheny Teldyne, Inc. 49,900 1,148
Aluminum Co. of America 22,400 1,428
ASARCO, Inc. 51,500 1,281
Bethlehem Steel Corp. (a) 73,900 665
Boise Cascade Corp. 7,600 241
Bowater, Inc. 6,000 226
Cabot Corp. 26,900 676
Champion International Corp. 15,400 666
Cincinnati Milacron, Inc. 4,700 103
Crompton & Knowles Corp. 5,600 108
Cytec Industries, Inc. 9,500 386
Dexter Corp. 3,200 102
Dow Chemical Co. 80,000 6,270
du Pont (E.I.) de Nemours & Co. 57,100 5,389
Fort Howard Corp. (a) 27,600 763
Georgia Gulf Corp. 2,700 73
IMC Global, Inc. 7,500 293
Inco, Ltd. 9,700 309
Inland Steel Industries, Inc. 53,200 1,064
International Paper Co. 48,000 1,938
International Specialty Products (a) 32,200 395
Jefferson Smurfit Corp. (a) 10,400 166
Kimberly-Clark Corp. 600 57
Mead Corp. 8,400 488
Nalco Chemical Co. 24,400 881
Nucor Corp. 11,400 581
P.H. Glatfelter Co. 26,600 479
Phelps Dodge Corp. 7,500 506
PPG Industries, Inc. 22,600 1,268
Praxair, Inc. 17,200 793
Precision Castparts Corp. 800 40
Quanex Corp. 5,900 162
Reynolds Metals Co. 8,500 479
Rohm & Haas Co. 10,100 824
Sealed Air Corp. (a) 100 4
Temple-Inland, Inc. 8,800 476
Terra Industries, Inc. 19,500 288
UCAR International, Inc. (a) 600 22
Union Camp Corp. 900 43
Union Carbide Corp. 11,000 450
USX-U.S. Steel Group 9,500 298
Westvaco Corp. 41,300 1,187
Worthington Industries, Inc. 3,400 62
----------
33,589
----------
CAPITAL GOODS - 5.5%
Alliance Semiconductor Corp. (a) 11,300 79
American Power Conversion Corp. (a) 19,800 540
Anixter International, Inc. (a) 4,900 79
Browning-Ferris Industries, Inc. 34,800 914
Calgon Carbon Corp. 7,700 94
Caterpillar, Inc. 129,900 9,775
Cooper Industries, Inc. 40,700 1,714
Cummins Engine Co., Inc. 4,900 225
Deere & Co. 68,500 2,783
Dover Corp. 70,700 3,553
Emerson Electric Co. 6,200 600
Exide Corp. 3,900 90
Foster Wheeler Corp. 4,700 175
General Electric Co. 130,400 12,893
Grainger (W.W.), Inc. 6,300 506
Harsco Corp. 8,000 548
Ingersoll-Rand Co. 35,200 1,566
ITT Industries, Inc. 11,600 284
Johnson Controls, Inc. 9,700 804
Martin Marietta Materials, Inc. 7,802 181
Newport News Shipbuilding, Inc. (a) 1,680 25
Nordson Corp. 600 38
Parker-Hannifin Corp. 8,700 337
Raychem Corp. 26,100 2,091
Safeguard Scientifics, Inc. 3,100 98
TRINOVA Corp. 3,400 124
Tyco International, Ltd. 37,600 1,988
WMX Technologies, Inc. 88,300 2,881
Zurn Industries, Inc. 4,700 123
----------
45,108
----------
CONSUMER BASICS - 21.4%
Abbott Laboratories 66,600 3,380
Albertson's, Inc. 19,400 691
ALZA Corp. (a) 59,600 1,542
American Home Products Corp. 37,200 2,181
Amgen, Inc. (a) 78,500 4,268
Apria Healthcare Group, Inc. (a) 17,300 324
Archer-Daniels-Midland Co. 187,981 4,136
Bausch & Lomb, Inc. 15,800 553
Becton, Dickinson & Co. 34,500 1,496
Beverly Enterprises, Inc. (a) 71,700 914
Biogen, Inc. 50,600 1,948
Black & Decker Corp. 84,500 2,546
Bristol-Myers Squibb Co. 104,840 11,401
Campbell Soup Co. 29,500 2,367
46 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Cardinal Health, Inc. 34,500 $ 2,010
Church and Dwight Co., Inc. 2,400 55
Coca-Cola Co. (The) 187,200 9,851
Coca-Cola Enterprises, Inc. 4,800 233
Colgate-Palmolive Co. 12,300 1,135
Columbia/HCA Healthcare Corp. 105,700 4,307
ConAgra, Inc. 58,708 2,921
CPC International, Inc. 13,600 1,054
Dole Food, Inc. 15,800 535
Eckerd Corp. 10,132 324
FHP International Corp. (a) 3,700 136
Fleming Cos., Inc. 33,000 569
Food Lion, Inc. Class A 40,700 397
Forest Labs, Inc. (a) 8,500 278
General Mills, Inc. 8,000 507
General Nutrition Companies, Inc. (a) 8,300 140
Genetics Institute, Inc. (a) 10,200 864
Gillette Co. 76,500 5,948
Health Care & Retirement Corp. 34,050 975
Health Management Associates Class A 20,400 459
Hershey Foods Corp. 25,400 1,111
Hormel (George A.) & Co. 12,800 346
Humana, Inc. (a) 40,000 765
Interstate Bakeries Corp. 15,900 781
Johnson & Johnson 190,000 9,453
Kellogg Co. 21,000 1,378
Laboratory Corp. of America Holdings (a) 3,300 9
Manor Care, Inc. 12,200 329
Meditrust 7,200 288
Merck & Co., Inc. 205,407 16,278
Nabisco Holdings Corp. Class A 5,000 194
NovaCare, Inc. (a) 81,700 899
Omnicare, Inc. 20,600 662
PepsiCo, Inc. 228,200 6,675
Pfizer, Inc. 78,100 6,473
Philip Morris Cos., Inc. 153,200 17,254
Physician Reliance Network, Inc. 24,900 190
Pioneer Hi-Bred International, Inc. 3,200 224
Procter & Gamble Co. 72,500 7,794
Ralston-Purina Group 22,700 1,666
RJR Nabisco Holdings Corp. 101,000 3,434
Rubbermaid, Inc. 22,600 514
Safeway, Inc. 104,700 4,476
Sara Lee Corp. 42,200 1,572
Schering-Plough Corp. 65,600 4,248
Smith's Food & Drug Centers, Inc. Class B 6,000 186
Stanley Works 29,500 797
Tenet Healthcare Corp. (a) 59,600 1,304
Tyson Foods, Inc. Class A 11,600 396
U.S. Surgical Corp. 27,500 1,083
Unilever NV 21,800 3,820
United Healthcare Corp. 40,400 1,818
Vivra, Inc. (a) 7,600 210
Vons Cos., Inc. (a) 17,300 1,036
Warner-Lambert Co. 39,800 2,985
Watson Pharmaceuticals, Inc. (a) 1,400 63
Wellpoint Health Networks, Inc. Class A 119,903 4,122
----------
175,278
----------
CONSUMER DURABLES - 3.5%
Arvin Industries, Inc. 1,400 35
AutoZone Inc. (a) 14,300 393
Callaway Golf Co. 14,300 411
Chrysler Corp. 102,700 3,389
Cooper Tire & Rubber Co. 6,700 132
Dana Corp. 31,500 1,028
Donaldson Co., Inc. 1,900 64
Eaton Corp. 9,600 670
Ford Motor Co. 225,500 7,188
General Motors Corp. 170,000 9,477
Goodyear Tire & Rubber Co. 2,300 118
Kimball International, Inc. Class B 21,200 869
Lear Corp. (a) 4,700 160
Leggett & Platt, Inc. 22,700 786
Maytag Corp. 40,800 806
Modine Manufacturing Co. 3,600 94
Oakwood Homes Corp. 19,800 453
PACCAR, Inc. 13,700 928
Sunbeam Oster, Inc. 36,000 927
Whirlpool Corp. 14,500 676
----------
28,604
----------
CONSUMER NON-DURABLES - 5.4%
Alberto Culver Co. Class B 13,300 638
Anheuser-Busch Cos., Inc. 2,500 100
Avon Products, Inc. 3,500 200
Barnes & Noble, Inc. (a) 3,100 84
Block Drug Co., Inc. Class A 9,682 445
Borders Group, Inc. (a) 19,600 703
Brunswick Corp. 34,100 818
Circuit City Stores, Inc. 10,100 304
Dayton Hudson Corp. 212,800 8,352
Eastman Kodak Co. 30,900 2,480
Federated Department Stores, Inc. (a) 41,700 1,423
Equity Q Fund 47
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Footstar, Inc. (a) 1,600 $ 40
Fruit of the Loom, Inc. Class A (a) 11,200 424
Gap, Inc. 64,100 1,931
International Flavors & Fragrances, Inc. 11,000 495
Jones Apparel Group, Inc. 20,200 755
Limited, Inc. (The) 38,900 715
Liz Claiborne, Inc. 6,100 236
Longs Drug Stores, Inc. 9,600 472
Lowe's Cos., Inc. 28,900 1,026
Mattel, Inc. 24,600 683
Mercantile Stores, Inc. 20,200 997
Neiman-Marcus Group, Inc. (a) 9,800 250
Newell Co. 32,500 1,024
NIKE, Inc. Class B 7,400 442
Nine West Group, Inc. (a) 3,600 167
Nordstrom, Inc. 7,400 262
Payless ShoeSource, Inc. (a) 21,600 810
Penney (J.C.) Co., Inc. 23,100 1,126
Revco D.S., Inc. (a) 20,100 744
Ross Stores, Inc. 66,300 3,298
Sears Roebuck & Co. 98,300 4,534
SuperValu, Inc. 7,200 204
Toys "R" Us, Inc. (a) 29,400 882
V.F. Corp. 7,200 486
Valspar Corp. 2,200 125
Wal-Mart Stores, Inc. 216,300 4,948
Woolworth Corp. (a) 67,800 1,483
----------
44,106
----------
CONSUMER SERVICES - 3.0%
AMR Corp. (a) 22,800 2,009
Boston Chicken, Inc. (a) 43,400 1,551
Boyd Gaming Corp. (a) 4,200 35
Carnival Corp. Class A 22,900 756
Circus Circus Enterprises, Inc. (a) 13,400 461
Disney (Walt) Co. 76,518 5,327
Extended Stay America, Inc. 4,800 96
Harrah's Entertainment, Inc. (a) 10,100 201
HFS, Inc. 36,700 2,193
Hilton Hotels Corp. 112,600 2,942
International Game Technology 12,000 219
ITT Corp. (a) 31,600 1,371
King World Productions, Inc. (a) 76,800 2,832
MGM Grand, Inc. (a) 22,900 799
Mirage Resorts, Inc. 17,300 374
Promus Hotel Corp. (a) 46,900 1,389
Ruby Tuesday, Inc. 37,000 684
Southwest Airlines Co. 10,400 230
UAL Corp. 17,600 1,100
----------
24,569
----------
ENERGY - 8.5%
Anadarko Petroleum Corp. 4,700 304
Ashland, Inc. 6,300 276
Atlantic Richfield Co. 15,300 2,027
Baker Hughes, Inc. 71,000 2,449
Burlington Resources, Inc. 44,300 2,232
Chevron Corp. 33,000 2,145
Cooper Cameron Corp. (a) 2,778 213
ENSCO International, Inc. (a) 14,700 713
Exxon Corp. 154,400 15,131
Global Marine, Inc. (a) 12,800 264
Halliburton Co. 11,100 669
Kerr-McGee Corp. 17,200 1,238
LTV Corp. 16,300 194
Lyondell Petrochemical Co. 6,500 143
Mobil Corp. 60,900 7,445
Occidental Petroleum Corp. 62,400 1,459
Oryx Energy Co.(a) 121,700 3,012
PanEnergy Corp. 26,600 1,197
Parker & Parsley Petroleum Co. 25,200 926
Phillips Petroleum Co. 124,700 5,518
Pogo Producing Co. 2,300 109
Royal Dutch Petroleum Co. - ADR 52,800 9,016
Schlumberger, Ltd. 5,600 559
Seagull Energy Corp. (a) 67,100 1,476
Smith International, Inc. (a) 3,400 153
Tesoro Petroleum Corp. (a) 800 11
Texaco, Inc. 78,700 7,722
Tosco Corp. 3,400 269
Ultramar Diamond Shamrock Corp. 2,800 89
Union Pacific Resources Group, Inc. 13,400 392
Union Texas Petroleum Holdings, Inc. 33,400 747
Unocal Corp. 13,700 557
USX-Marathon Group 28,000 668
Vastar Resources, Inc. 10,500 399
----------
69,722
----------
FINANCE - 17.4%
Advanta Corp. Class B 2,300 94
Aetna, Inc. 10,200 816
Ahmanson (H.F.) & Co. 27,900 907
Allstate Corp. 50,814 2,941
48 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
AMBAC, Inc. 27,100 $ 1,799
American Financial Group, Inc. 3,200 121
American General Corp. 30,200 1,234
American International Group, Inc. 14,000 1,515
American National Insurance Co. 5,900 435
AmSouth Bancorp 38,700 1,872
Banc One Corp. 109,400 4,704
Bancorp Hawaii, Inc. 11,500 483
Bank of Boston Corp. 13,879 892
BankAmerica Corp. 145,300 14,494
Bankers Life Holding Corp. 24,700 617
Barnett Banks, Inc. 61,900 2,546
Bear Stearns Cos., Inc. 60,575 1,689
Beneficial Corp. 4,900 311
Boatmen's BancShares, Inc. 22,800 1,468
Central Fidelity Banks, Inc. 5,400 139
Charter One Financial, Inc. 44,600 1,873
Chase Manhattan Corp. 4,700 419
Chubb Corp. (The) 25,800 1,387
CIGNA Corp. 40,400 5,520
Citicorp 30,300 3,121
Citizens Bancorp Maryland 700 43
City National Corp. 36,300 785
CNA Financial Corp. (a) 9,900 1,059
Comerica, Inc. 42,700 2,236
Commerce Bancshares, Inc. 8,075 373
Conseco, Inc. 13,300 848
ContiFinancial Corp. (a) 4,000 144
CoreStates Financial Corp. 20,200 1,048
Crestar Financial Corp. 3,300 245
Dean Witter, Discover & Co. 14,900 987
Dime Bancorp, Inc. (a) 9,700 143
Edwards (A.G.), Inc. 42,800 1,439
Federal Home Loan Mortgage Corp. 4,400 485
Federal National Mortgage Association 176,500 6,575
First America Bank Corp. 2,300 138
First Chicago NBD Corp. 133,481 7,175
First Tennessee National Corp. 6,100 228
First Union Corp. 25,200 1,865
First USA, Inc. 11,000 381
First Virginia Banks, Inc. 3,000 144
Firstar Corp. 6,800 357
Fleet Financial Group, Inc. 23,919 1,193
Golden West Financial Corp. 30,600 1,932
Great Western Financial Corp. 13,700 397
Greenpoint Financial Corp. 19,700 931
Horace Mann Educators Corp. 6,500 262
ITT Hartford Group, Inc. 63,900 4,313
KeyCorp 95,800 4,838
Lehman Brothers Holdings, Inc. 158,200 4,964
Lincoln National Corp. 15,400 808
Loews Corp. 23,300 2,196
Mark Twain Bancshares, Inc. 1,700 83
MBIA, Inc. 6,400 648
Mercantile Bancorp, Inc. 700 36
Mercantile Bankshares Corp. 3,700 117
Mercury Finance Corp. 16,100 197
Mercury General Corp. 6,100 320
Merrill Lynch & Co., Inc. 22,200 1,809
Money Store, Inc. 5,300 146
Morgan (J.P.) & Co., Inc. 23,000 2,245
Morgan Stanley Group, Inc. 41,200 2,354
National City Corp. 6,600 296
NationsBank Corp. 63,463 6,204
Norwest Corp. 40,200 1,749
Ohio Casualty Corp. 5,000 177
Old Kent Financial Corp. 3,600 171
Old Republic International Corp. 50,150 1,342
PaineWebber Group, Inc. 8,400 236
PMI Group, Inc. (The) 3,400 188
PNC Bank Corp. 51,150 1,925
Regions Financial Corp. 5,500 284
Republic New York Corp. 5,000 408
Robert Half International, Inc. 9,000 309
SAFECO Corp. 16,200 636
Salomon, Inc. 40,700 1,918
Schwab (Charles) Corp. 18,500 592
Signet Banking Corp. 6,400 197
Sotheby's Holdings Co., Inc. Class A 19,000 354
SouthTrust Corp. 38,000 1,321
St. Paul Cos., Inc. 12,400 727
Standard Federal Bancorporation 11,300 643
Star Banc Corp. 8,800 809
Student Loan Marketing Association 14,000 1,304
SunAmerica, Inc. 5,900 262
Synovus Financial Corp. 2,600 84
TCF Financial Corp. 3,200 139
Torchmark Corp. 7,700 389
Transamerica Financial Corp. 9,800 774
Transatlantic Holdings, Inc. 500 40
Travelers, Inc. 205,433 9,322
Union Planters Corp. 3,500 137
UnionBanCal Corp. 800 42
Unitrin, Inc. 3,800 212
USLIFE Corp. 29,300 974
Washington Federal, Inc. 6,900 179
Equity Q Fund 49
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Washington Mutual, Inc. 6,500 $ 281
Wilmington Trust Corp. 3,200 126
----------
142,635
----------
GENERAL BUSINESS - 3.1%
America Online, Inc. (a) 22,200 738
Belo (A.H.) Corp. Class A 9,200 321
BHC Communications, Inc. Class A (a) 2,700 274
Central Newspapers, Inc. Class A 2,100 92
Comcast Corp. Special Class A 18,700 332
Comsat Corp. Series 1 9,200 227
Cox Communications, Inc. Class A (a) 5,200 120
Donnelley (R.R.) & Sons Co. 14,400 452
Ecolab, Inc. 6,900 260
First Data Corp. 35,600 1,299
Harcourt General, Inc. 5,300 244
Knight-Ridder, Inc. 32,100 1,228
McClatchy Newspapers, Inc. Class A 1,900 66
Media General, Inc. Class A 7,100 215
Meredith Corp. 4,100 216
MFS Communications, Inc. 27,800 1,508
Moore Corp., Ltd. 146,100 2,977
New York Times Co. Class A 26,400 1,003
Olsten Corp. 77,800 1,177
Omnicom Group, Inc. 22,600 1,034
Paging Network, Inc. (a) 8,900 136
PHH Group, Inc. 25,400 1,092
SBC Communications, Inc. 39,250 2,031
Service Corp. International 21,100 591
Staples, Inc. 31,250 562
Stewart Enterprises, Inc. Class A 7,100 240
TCI Satellite Entertainment, Inc., Class A (a) 6,600 65
Tele-Communications - TCI, Group A (a) 66,300 862
Tele-Communications Liberty Media, Grade A (a) 17,600 502
Time Warner, Inc. 50,500 1,894
Viacom, Inc. Class B (a) 34,300 1,196
Wallace Computer Services, Inc. 23,200 800
Washington Post Co. Class B 4,100 1,374
----------
25,128
----------
MISCELLANEOUS - 0.4%
Chris Craft Industries, Inc. 8,942 374
Providian Corp. 26,900 1,382
Security Capital Pacific Trust 51,700 1,183
Tenneco, Inc. 8,400 379
----------
3,318
----------
SHELTER - 0.5%
Centex Corp. 42,200 1,588
Louisiana Pacific Corp. 16,000 338
Owens-Corning Fiberglas Corp. 8,400 358
Schuller Corp. 37,900 403
Southdown, Inc. 4,900 152
USG Corp. (a) 11,700 396
Weyerhaeuser Co. 8,900 422
----------
3,657
----------
TECHNOLOGY - 14.7%
3Com Corp. (a) 5,400 396
ADC Telecommunications, Inc. 61,200 1,897
AlliedSignal, Inc. 51,000 3,417
Altera Corp. (a) 4,200 305
Apple Computer, Inc. (a) 14,400 299
Applied Materials, Inc. (a) 15,800 567
Ascend Communications, Inc. 17,900 1,110
Avery Dennison Corp. 30,200 1,068
Avnet, Inc. 37,400 2,179
AVX Corp. 3,500 75
Bay Networks, Inc. (a) 16,600 347
Boeing Co. 64,600 6,872
Checkpoint Systems, Inc. 25,800 639
Cisco Systems, Inc. 111,000 7,062
Coltec Industries, Inc. (a) 5,900 111
COMPAQ Computer Corp. (a) 55,300 4,106
Computer Associates International, Inc. 13,200 657
Compuware Corp. (a) 17,000 850
Dell Computer Corp. 51,000 2,709
Destec Energy, Inc. (a) 7,600 119
EG&G, Inc. 14,300 288
EMC Corp. (a) 21,800 722
General Dynamics Corp. 31,500 2,221
General Instrument Corp. (a) 12,800 277
General Motors Corp. Class H 50,900 2,863
Guidant Corp. 26,700 1,522
Harris Corp. 18,700 1,283
HBO & Co. 31,700 1,882
Hewlett-Packard Co. 154,400 7,759
Honeywell, Inc. 21,100 1,387
Input/Output, Inc. 49,500 916
Intel Corp. 140,100 18,336
International Business Machines Corp. 57,200 8,637
Lockheed Martin Corp. 19,847 1,816
Lucent Technologies, Inc. 36,600 1,693
McDonnell Douglas Corp. 15,400 986
Microsoft Corp. 102,200 8,444
Molex, Inc. Class A 400 14
National Computer Systems, Inc. 1,600 40
50 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
National Semiconductor Corp. (a) 12,400 $ 302
Netscape Communications Corp. 34,000 1,930
Northrop Grumman Corp. 2,800 232
Oracle Systems Corp. 50,100 2,085
Perkin-Elmer Corp. 11,400 671
Pitney Bowes, Inc. 71,200 3,880
Quantum Corp. (a) 4,500 128
Raytheon Co. 7,200 346
Read-Rite Corp. (a) 27,500 687
SCI Systems, Inc. (a) 13,600 607
Scientific-Atlanta, Inc. 7,000 105
Sensormatic Electronics Corp. 6,700 112
Silicon Graphics, Inc. (a) 12,600 321
Storage Technology Corp. (a) 46,500 2,215
Sun Microsystems, Inc. 118,200 3,029
Symbol Technologies, Inc. (a) 7,000 310
Tandem Computers, Inc. (a) 57,700 793
Textron, Inc. 16,300 1,536
Thermo Electron Corp. 20,900 862
Thermo Instrument Systems, Inc. 7,800 258
Thomas & Betts Corp. 17,900 794
U.S. Robotics Corp. 6,600 475
VLSI Technology, Inc. (a) 93,700 2,214
Xerox Corp. 17,000 895
----------
120,658
----------
TRANSPORTATION - 1.5%
Alexander & Baldwin, Inc. 5,100 126
Burlington Northern, Inc. 11,400 985
Consolidated Freightways Corp. (a) 1,500 13
Consolidated Freightways Inc. 30,100 670
CSX Corp. 54,700 2,311
Federal Express Corp. 8,000 356
GATX Corp. 8,400 407
Norfolk Southern Corp. 38,300 3,351
Offshore Logistics, Inc. (a) 31,400 608
Ryder System, Inc. 5,600 158
Tidewater, Inc. 26,100 1,181
Trinity Industries, Inc. 11,200 420
Union Pacific Corp. 16,500 992
Yellow Corp. (a) 14,600 210
----------
11,788
----------
UTILITIES - 10.0%
Airtouch Communications, Inc. (a) 52,700 1,331
Allegheny Power System, Inc. 9,400 286
American Water Works, Inc. 4,400 91
Ameritech Corp. 141,600 8,584
AT&T Corp. 114,800 4,994
Baltimore Gas & Electric Co. 6,000 160
Bell Atlantic Corp. 87,200 5,646
BellSouth Corp. 104,900 4,235
Black Hills Corp. 1,300 37
Centerior Energy Corp. 46,600 501
CINergy Corp. 41,100 1,372
Coastal Corp. 32,100 1,569
Columbia Gas System, Inc. 11,300 719
Commonwealth Energy System 2,300 54
Consolidated Edison Co. 17,200 503
Consolidated Natural Gas Co. 39,100 2,160
Dominion Resources, Inc. 13,700 527
DTE Energy Co. 2,900 94
Edison International 34,700 690
Enron Corp. 28,300 1,220
Entergy Corp. 226,200 6,277
Frontier Corp. 12,000 271
GPU, Inc. 8,800 296
GTE Corp. 267,353 12,165
Illinova Corp. 5,900 162
IPALCO Enterprises, Inc. 7,000 191
Long Island Lighting Co. 157,800 3,491
MCI Communications Corp. 53,200 1,736
National Fuel & Gas Co. 5,700 235
New England Electric System 4,700 164
New York State Electric & Gas Corp. 28,200 610
Niagara Mohawk Power Corp. (a) 30,600 302
NICOR, Inc. 2,300 82
Northeast Utilities 9,900 131
Northern States Power Co. 10,400 477
NYNEX Corp. 32,300 1,554
Orange & Rockland Utilities, Inc. 2,300 83
Pacific Gas & Electric Co. 32,700 687
PacifiCorp. 42,800 877
Peco Energy Co. 28,800 727
Peoples Energy Corp. 10,500 356
Pinnacle West Capital Corp. 30,300 962
Portland General Electric Co. 6,400 269
Potomac Electric Power Co. 500 13
PP&L Resources, Inc. 1,100 25
SIG Corp., Inc. 1,200 42
Southern Co. 49,200 1,113
Sprint Corp. 101,550 4,049
Telephone & Data Systems, Inc. 2,800 101
Texas Utilities Co. 3,700 151
TransCanada Pipelines, Ltd. 4,500 79
U.S. West Communications Group 36,700 1,184
U.S. West Media Group 59,700 1,104
Unicom Corp. 112,400 3,049
Equity Q Fund 51
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Union Electric Co. 5,000 $ 193
United States Cellular Corp. (a) 1,900 53
Western Resources, Inc. 72,000 2,223
Williams Cos. (The) 37,350 1,401
WorldCom, Inc. 4,400 114
----------
81,772
----------
TOTAL COMMON STOCKS
(cost $646,172) 809,932
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 1.2%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 8,014 8,014
United States Treasury Bills (b)(c)(d)
5.040% due 02/06/97 1,700 1,692
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $9,706) 9,706
----------
TOTAL INVESTMENTS
(identified cost $655,878)(e) - 100.2% 819,638
----------
OTHER ASSETS AND LIABILITIES, NET - (0.2%) (1,357)
----------
NET ASSETS - 100.0% $ 818,281
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Rate noted is yield-to-maturity (unaudited).
(d) Held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NV - Nonvoting
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 400 Midcap Index Futures Contracts
expiration date 03/97 23 $ 17
S&P 500 Index Futures Contracts
expiration date 03/97 15 (78)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ (61)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $1,692 were
held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
52 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $655,877,675)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 819,637,791
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,735,864
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,122,521
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 966,116
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 824,462,292
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 962,702
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,422,498
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 461,652
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,220
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 171,760
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,180,832
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 818,281,460
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,512,999
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,760,116
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,861)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,384
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631,820,822
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 818,281,460
---------------
---------------
Net asset value, offering and redemption price per share
($818,281,460 divided by 24,838,448 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32.94
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Q Fund 53
<PAGE>
EQUITY Q FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,549,753
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,681,440
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,133
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,328,326
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,392,254
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380,590
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,863
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,977
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,637
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,997
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,753
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,061
--------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,186,132
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,142,194
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,985,060
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,075,031 91,060,091
--------------- ---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,876,214
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,318) 54,874,896
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . 145,934,987
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . $ 159,077,181
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
54 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,142,194 $ 10,645,251
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,060,091 62,062,425
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 54,874,896 89,153,512
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 159,077,181 161,861,188
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,142,194) (10,815,119)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . (120,226) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (85,726,607) (47,298,452)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 137,934,703 85,849,747
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 198,022,857 189,597,364
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 620,258,603 430,661,239
--------------- ---------------
NET ASSETS AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 818,281,460 $ 620,258,603
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Q Fund 55
<PAGE>
EQUITY Q FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 30.40 $ 24.43 $ 26.03 $ 25.23 $ 24.90
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .58 .59 .69 .66 .67
Net realized and unrealized gain (loss) on investments . . 6.33 8.52 (0.41) 2.71 1.73
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . . 6.91 9.11 0.28 3.37 2.40
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.58) (.61) (.69) (.66) (.68)
In excess of net investment income . . . . . . . . . . . . (.01) -- -- -- --
Net realized gain on investments . . . . . . . . . . . . . (3.78) (2.53) (.97) (1.85) (1.39)
In excess of net realized gain on investments. . . . . . . -- -- (.22) (.06) --
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . (4.37) (3.14) (1.88) (2.57) (2.07)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 32.94 $ 30.40 $ 24.43 $ 26.03 $ 25.23
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 23.67 37.91 .99 13.80 9.97
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . .71 .58 .11 .15 .18
Net investment income to average net assets (a). . . . . . 1.80 2.07 2.74 2.50 2.80
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 74.59 74.00 45.87 54.69 58.35
Net assets, end of year ($000 omitted) . . . . . . . . . . 818,281 620,259 430,661 382,939 290,357
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . .0332 N/A N/A N/A N/A
</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.
56 Equity Q Fund
<PAGE>
INTERNATIONAL FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide favorable total return and diversification for US
investors.
INVESTS IN: Primarily the equity securities of non-US companies in developed
foreign markets.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns than its benchmark index with moderate risk by employing the investment
management services of five managers with separate and distinct investment
approaches. The Fund's primary source of added value is intended to be stock
selection with only moderate country allocations relative to the index to
capture the diversification benefits of international investment in an asset
allocation context.
<TABLE>
<CAPTION>
DATES INTERNATIONAL ++ MSCI EAFE ** LIPPER-C- INTERNATIONAL ++++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $11,442 $12,493 $11,218
1988 $13,745 $16,065 $13,077
1989 $17,052 $17,800 $16,020
1990 $14,334 $13,671 $14,107
1991 $16,265 $15,380 $15,860
1992 $15,273 $13,557 $15,204
1993 $20,704 $18,024 $21,222
1994 $21,818 $19,477 $21,007
1995 $24,153 $21,726 $22,946
1996 $26,080 $23,109 $25,597
- ----------------------------------------------------------------------------------------------------
Total $190,866 $181,302 $186,258
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,798 7.98%
5 Years $ 16,034 9.90%#
10 Years $ 26,080 10.06%#
SALOMON BROTHERS BROAD MARKET INDEX (BMI) EX-US +
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,870 8.67%
5 Years $ 15,000 8.45%#
MSCI EAFE INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,636 6.36%
5 Years $ 15,025 8.48%#
10 Years $ 23,109 8.74%#
LIPPER-C- INTERNATIONAL FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,155 11.55%
5 Years $ 16,139 10.05%#
10 Years $ 25,597 9.85%#
* Assumes initial investment on January 1, 1987.
** Morgan Stanley Capital International Europe, Australia, Far East Index is
an index composed of an arithmetic, market value-weighted average of the
performance of approximately 1,600 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.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ 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.
+ Salomon Brothers BMI Index ex-US is a comprehensive float-weighted equity
index consisting of every company with an investable market capitalization
of over $100 million in 22 countries. This Index has broader representation
than the MSCI EAFE benchmark. However, 10 years of historical performance
information is not available because it was constructed on June 30, 1989.
# Annualized.
58 International Fund
<PAGE>
INTERNATIONAL FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the International Fund had a total return
of 8%, as compared to the MSCI EAFE Index results of 6.4%. The Fund outperformed
this benchmark primarily due to good issue selection, and superior returns from
Canadian holdings which are not represented in the EAFE Index.
PORTFOLIO HIGHLIGHTS
While returns from international investments appeared somewhat mediocre overall
when compared to domestic returns, substantial return opportunities were
available on a market-by-market basis. Currency effect had a negative impact on
returns overall as the dollar strengthened versus most foreign currencies.
Several European markets produced significant returns surpassing even the U.S.
market, due to falling interest rates as they adopted fiscal restraints for
meeting requirements of membership into the European Monetary Union. The United
Kingdom (UK) was the more important story during 1996 due to its dominant
weighting (nearly 33% of the region by capitalization). The UK market rose 27.4%
in US dollars but only 15.6% in local currency as the British pound strengthened
for most of 1996. In contrast, the Pacific Basin region was down 8.4% for the
year, entirely due to the 15.4% loss from Japan which accounts for nearly 79% of
the Pacific Basin market capitalization. Other Pacific Basin markets fared
better. The Hong Kong market rose over 33% as investors expressed their optimism
towards China's impending takeover.
Good stock selection, particularly in the European markets, was a strong
positive in the International Fund during 1996. Although modest in magnitude,
country weighting decisions in aggregate had a negative influence on Fund
performance despite a slight underweighting in Japan in the latter half of the
year. The Fund's underweighting in the UK hurt performance the most. Although
local market returns were relatively weak, compared to other European markets,
currency appreciation boosted the UK market return to US investors by more than
10%.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Novartis AG (Regd)(Switzerland) 1.2%
British Petroleum Co. PLC (UK) 1.0
Astra AB Series A (Sweden) 1.0
Sony Corp. (Japan) 0.9
Hoechst AG (Germany) 0.7
Royal Dutch Petroleum Co. (Netherlands) 0.7
Eaux (cie Generale) (France) 0.7
Toyota Motor Corp. (Japan) 0.7
Daimler-Benz AG (Germany) 0.7
Nippon Telegraph & Telephone Corp. (Japan) 0.7
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 19.9x
Portfolio Price/Book Ratio 2.06x
Market Capitalization - $ - Weighted Average 15.3 Bil
Number of Holdings 1,490
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Grantham, Mayo, Van Otterloo & Co. Value
J.P. Morgan Investment Management, Inc. Market-Oriented
Marathon Asset Management, Ltd. Value
Oechsle International Advisors Growth
Rowe Price-Fleming International, Inc. Market-Oriented
- -------------------------------------------------------------------
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 59
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 90.6%
ARGENTINA - 0.1%
Banco de Galicia y Buenos Aires Class B - ADR 3,987 $ 96
Banco Frances del Rio la Plata - ADR 6,974 192
Comercial de Plata (a) 5,010 13
Naviera Perez Companc Class B 45,248 318
Sociedad Comercial del Plata - ADR (a) 1,928 49
Telecom Argentina SA Class B - ADR 1,485 60
Telefonica de Argentina Class B - ADR 10,020 259
Transportadora de Gas Del Sur Class B - ADR 5,591 68
YPF Sociedad Anonima Class D - ADR 7,486 189
----------
1,244
----------
AUSTRALIA - 3.2%
Adelaide Brighton 4,500 6
Amalgamated Holdings, Ltd. 2,800 14
Amcor, Ltd. 39,000 251
Australia & New Zealand Bank Group, Ltd. 318,334 2,006
Australian Gas & Light Co. 58,766 334
Australian National Industries, Ltd. 519,483 516
Boral, Ltd. 126,815 361
Brambles Industries, Ltd. 3,600 70
Broken Hill Proprietary Co. 348,571 4,965
Burswood Property Trust (Units) 9,657 12
Caltex Australia 100,000 369
Capral Aluminum, Ltd. 4,000 13
Coca-Cola Amatil, Ltd. 6,818 73
Coles Myer, Ltd. 98,777 407
Commonwealth Bank of Australia 3,885 37
Commonwealth Installment Receipt Trustee, Ltd. 28,000 174
Cortecs International, Ltd. (a) 5,466 16
CRA, Ltd. 4,200 66
CSL, Ltd. 2,700 13
CSR, Ltd. 321,347 1,124
Cultus Petroleum NL (a) 14,800 15
Eastern Aluminum 236,000 231
Elders Australia, Ltd. 307,594 516
Eltin, Ltd. 260,510 598
Eltin, Ltd. Rights New 51,069 114
Email, Ltd. 117,965 382
F.H. Faulding & Co., Ltd. 2,500 17
Foodland Associated, Ltd. 4,732 23
Foster's Brewing Group, Ltd. 14,300 29
G.E. Crane Holdings, Ltd. 1,300 11
General Property Trust 6,400 12
GIO Australia Holdings 276,680 708
Goodman Fielder Wattie 198,020 246
Grosvenor Trust 9,100 11
Hardie (James) Industries, Ltd. 6,900 22
HIH Winterthur International Holdings, Ltd. 4,100 10
Leighton Holdings, Ltd. Class A 4,943 21
Lend Lease Corp. 10,123 196
Mayne Nickless, Ltd. 5,100 35
Mirvac, Ltd. 7,900 16
National Australia Bank, Ltd. 146,013 1,718
National Mutual Holdings, Ltd. (a) 61,000 91
News Corp. 479,285 2,530
Normandy Poseidon 6,599 9
North Broken Hill Peko 10,138 30
Pacific Dunlop, Ltd. 187,188 476
Pasminco, Ltd. 248,800 392
Pioneer International, Ltd. 112,400 335
Publishing Broadcasting, Ltd. 42,730 208
QBE Insurance Group 2,200 12
QNI, Ltd. 345,380 695
RGC Limited 180,139 800
Rothmans Holdings 19,728 127
Santos, Ltd. 297,800 1,207
Schroders Property Fund 51,881 95
Simsmetal, Ltd. 3,718 21
Smith (Howard), Ltd. 16,947 139
Soul Pattinson & Co., Ltd. 600 27
Southcorp Holdings, Ltd. 166,900 531
Tabcorp. Holdings, Ltd. 54,700 261
Village Roadshow, Ltd. 3,400 13
Walker Corp., Ltd. 12,015 8
Wesfarmers 53,256 372
Western Mining Corp. 767,593 4,838
Westfield Holdings 900 15
Westfield Trust 150,015 284
Westpac Banking Corp. 51,300 292
Wills (W.D. & H.O.)(a) 40,400 67
Woodside Petroleum, Ltd. 38,900 284
----------
29,917
----------
AUSTRIA - 0.3%
Bank Austria AG 3,500 259
Boehler-Uddeholm AG 2,000 143
Brau-Union Goess AG 2,528 156
Creditanstalt-Bankverein 7,488 507
EA-Generali AG 300 89
EVN Energ-Versorg 1,080 163
Flughafen Wien AG 1,534 78
Interunfall Vericherungs AG 480 66
60 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Lenzing AG 50 $ 3
Leykam-Murzta Papi 140 4
Oester Brau Beteil 1,562 106
Oester Elektrizita Class A 7,700 576
OMV AG 2,296 259
Universale-Bau (a) 100 5
VA Technologie AG (BR) 2,300 361
Wienerberger Baustoff 600 116
Z Landerbank Bank Austria AG 8,460 273
----------
3,164
----------
BELGIUM - 0.5%
Arbed SA NPV 3,546 385
Credit Communal Holding Dexia NPV (a) 960 88
Electrabel NPV 3,402 805
Fortis AG 5,800 930
Generale de Banque NPV 1,199 430
Kredietbank NPV 3,520 1,154
Petrofina SA NPV 1,350 430
Solvay SA NPV 759 465
UCB Capital NV 99 258
----------
4,945
----------
BRAZIL - 0.3%
CEMIG SA - ADR 6,844 234
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar (Regd.) - GDR 6,240 111
Eletrobras (centrais) NPV 764,130 274
Sider Nacional cia NPV 3,558,460 101
Telecomunicacoes Brasileiras - ADR 19,043 1,466
Telecomunicacoes Brasileiras - ADR (144A) 417 32
Telecomunicacoes Brasileiras NPV 3,084,000 221
TELESP Telec San Paulo NPV (a) 61,873 13
Usinas Siderurgicas de Minas - ADR 24,555 251
White Martins SA NPV 59,520,000 86
----------
2,789
----------
CANADA - 2.3%
Abitibi Price, Inc. (a) 5,900 93
Air Canada, Inc. (a) 9,000 40
Alcan Aluminum, Ltd. 11,850 400
Anderson Exploration, Ltd. (a) 4,900 63
Avenor, Inc. (a) 900 13
Barrick Gold Corp. 32,900 946
BC Telecom, Inc. (a) 5,800 126
BCE, Inc. NPV 14,800 713
BCE Mobile Communications, Inc. (a) 1,900 56
Bombardier, Inc. Class A 1,200 22
Bombardier, Inc. Class B 12,700 234
Brascan, Ltd. Class A 47,700 1,062
CAE, Inc. 2,700 20
Cambior, Inc. 1,000 15
Canadian Natural Resources, Ltd. (a) 1,300 36
Canadian Pacific, Ltd. 44,500 1,178
Canadian Tire Corp. Class A (a) 5,900 98
Canfor Corp. 700 7
CCL Industries, Inc. Class B 2,300 25
Co-Steel, Inc. 2,100 37
Cominco, Ltd. 52,600 1,310
Corel Corp. (a) 3,500 26
Cott Corp. 4,100 29
Dofasco, Inc. NPV 5,801 110
Dominion Textile, Inc. 1,800 9
Domtar, Inc. NPV 87,600 739
Donohue, Inc. Class A 4,200 76
Echo Bay Mines, Ltd. 5,900 39
Falconbridge, Ltd. 2,000 43
Fletcher Challenge Canada, Ltd. Class A 6,200 98
George Weston, Ltd. 2,000 98
Gulf Canada Resources, Ltd. (a) 3,300 24
Hudson's Bay Co. 41,000 683
Imasco, Ltd. 10,800 265
Imasco, Ltd. IF 17,000 417
Imperial Oil, Ltd. 23,200 1,093
Inco, Ltd. (Canadian Listed) 5,800 185
Inco, Ltd. (U.S. Listed) 80,831 2,576
Inmet Mining Corp. (a) 3,900 19
International Forest Products, Ltd. Class A (a) 2,400 19
IPSCO, Inc. 1,600 46
Laidlaw, Inc. Class A 1,100 13
Laidlaw, Inc. Class B 9,000 105
MacMillan Bloedel, Ltd. 8,400 110
Magna International, Inc. Class A 2,400 134
Methanex Corp. (a) 12,800 116
Molson Companies, Ltd. Class A 3,900 61
Moore Corp., Ltd. 6,800 141
Newbridge Networks Corp. 11,600 329
Noranda, Inc. 18,000 402
Noranda Forest, Inc. 10,600 72
NOVA Corp. 32,100 285
Nova Scotia Power, Inc. 5,800 60
Numac Energy, Inc. (a) 500 2
Oshawa Group, Ltd. Class A 2,600 38
Pegasus Gold, Inc. (a) 1,500 11
Petro-Canada 12,500 177
Placer Dome, Inc. 36,800 800
Potash Corporation of Saskatchewan, Inc. 600 51
International Fund 61
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Provigo, Inc. (a) 3,400 $ 14
Quebecor, Inc. Class B 4,500 75
Ranger Oil, Ltd. 101,700 1,010
Repap Enterprises, Inc. (a) 8,400 24
Rio Algom, Ltd. (a) 3,800 85
Rogers Cantel Mobile Communications, Inc. Class B 4,900 97
Rogers Communications, Inc. Class B (a) 62,400 460
Royal Bank of Canada 5,040 177
Royal Oak Mines, Inc. (a) 9,500 30
Sears Canada, Inc. 3,700 28
Semi-Tech Corp. Class A 4,500 16
Semi-Tech Corp. Class B 4,500 17
Shell Canada, Ltd. Class A 2,000 78
Slocan Forest Products, Ltd. 2,100 24
Southam, Inc. 3,500 49
Stelco, Inc. Series A (a) 72,100 442
Suncor, Inc. NPV 29,300 1,213
TELUS Corp. 9,700 141
The Seagram Co., Ltd. 17,300 695
Thomson Corp. (a) 9,900 218
Torstar Corp. Class B 1,600 39
Transalta Corp. 10,800 136
TransCanada Pipelines, Ltd. 14,200 249
United Dominion Industries, Ltd. 1,800 42
Westcoast Energy, Inc. 6,800 114
----------
21,468
----------
CHILE - 0.1%
Administradora de Fondos de Pensiones Provida SA - ADR 1,300 24
Chile Fund, Inc. 10,298 215
Chilectra SA - ADR 2,534 131
Chilgener SA - ADR 4,370 91
Compania de Telefonos (Chile) SA - ADR 936 95
Enersis SA - ADR 5,809 161
----------
717
----------
CHINA - 0.1%
Huaneng Power International, Inc.- ADR Series N (a) 24,400 549
Yizheng Chemical Fibre Class H 711,000 173
----------
722
----------
DENMARK - 0.7%
Bang & Olufsen Holding Series B 14,000 680
Carlsberg AS Series B 5,900 399
Coloplast AS Class B (Regd) 4,900 557
Den Danske Bank 2,860 231
Jyske Bank AS (Regd.) 4,200 316
Novo Nordisk AS Class B 15,407 2,903
Sophus Berendsen Class B 3,850 495
Tele Danmark AS Series B 11,100 612
Unidanmark Class A (Regd) 3,300 171
----------
6,364
----------
FINLAND - 0.6%
America Group Class A 2,900 60
Cultor OY Series I 1,000 54
Enso OY Series A (a) 20,000 160
Huhtamaki OY Series I Free 600 28
Instrumentarium (a) 700 25
Instrumentarium Series A 2,000 73
Kesko 1,800 25
Kymmene OY (a) 36,000 755
Metra AB Series A 1,800 101
Metra AB Series B 500 28
Nokia AB Series A 17,508 1,016
Nokia AB Series K 16,300 943
Outokumpu OY Class A 47,500 811
Partek AB OY 4,800 75
Rautaruukki OY 66,858 618
Stockmann OY AB Series B 300 18
Valmet Corp. Series A 43,100 759
----------
5,549
----------
FRANCE - 6.5%
Accor SA 2,505 317
Alcatel Alsthom 33,038 2,654
Assurances Generales de France 20,902 675
AXA 10,578 673
Banque Nationale Paris 20,108 778
Bertrand Faure SA 4,303 168
BIC 150 23
Boiron 1,500 176
Bongrain SA 20 8
Bouygues 5,388 559
Canal Plus 5,379 1,188
Cap Gemini Sogeti (a) 200 10
Carrefour SA 4,378 2,849
Casino Guich-Perr 1,200 56
Castorama Dubois 3,347 576
CEP Communications 140 10
Cerus Co. (a) 3,100 79
Cetelem 200 23
CGIP 360 99
Chargeurs International SA (a) 1,366 68
62 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Christian Dior 9,940 $ 1,604
Cie de St. Gobain 11,287 1,597
Cie de Suez 5,462 232
Cie Finance Paribas Class A (BR) 31,814 2,152
Ciments Francais 108 3
Clarins 3,226 473
Club Mediterranee SA 270 18
Colas SA 130 19
Compagnie Bancaire SA 3,680 435
Credit Commercial de France 14,600 675
Credit Local de France 9,885 861
Credit Lyonnais Cert d'Invest. (a) 2,205 57
Credit National 502 29
D.M.C. Dollfuss-Mieg 5,810 141
Eaux (cie Generale) 55,978 6,937
Elf Gabon 70 18
Erid Beghin-Say 908 146
Essilor Internationale 80 24
Esso (Francaise) 40 5
Eurafrance 400 173
Euro Disney SCA (BR)(a) 13,000 26
Eurotunnel/Euro SA Units (a) 39,000 52
Finextel (Soc. Fin.) 2,292 35
GAN Group 2,245 45
Gaz et Eaux 52 21
Groupe Danone 5,566 776
GTM - Entrepose 2,700 125
Guilbert SA 1,891 370
Guyenne et Gascogne 90 36
Havas 1,790 126
Ingenico 100 2
L'Air Liquide 4,506 703
L'Oreal (Societe) 718 270
Labinal 120 23
Lafarge Corp. SA (BR) 5,346 321
Lagardere Groupe (Regd) 30,120 827
Lapeyre (BR) 4,390 252
Legrand 1,519 259
Legris Industries SA 100 4
LVMH Moet-Hennessy 4,334 1,210
Lyonnais Eaux Dumez 660 61
Michelin (Cie Gen) Class B (Regd) 4,315 233
Moulinex (a) 2,100 48
Nord-Est 16,150 402
Pathe SA (a) 2,316 558
Pechiney International Class A 24,322 1,019
Peugeot SA 7,040 792
Pinault-Printemps Redoute SA 3,539 1,404
Primagaz Cie 2,075 244
Primagaz Cie 1998 Warrants (a) 220 5
Promodes 2,650 748
Remy Cointreau SA 400 11
Renault 2,980 64
Rexel SA 980 297
Rhone-Poulenc SA Class A - ADR 20,469 698
S.G.E. (a) 1,100 24
Saint Louis 260 65
Salomon SA 340 29
Sanofi SA 16,041 1,595
Schneider SA 34,872 1,612
Scor SA 15,000 528
SEITA 370 15
SGS Thomson Microelectronics (a) 7,610 538
Sidel SA 21,364 1,470
Skis Rossignol SA 760 21
Societe Generale 33,037 3,572
Societe Nationale Elf d'Aquitaine 26,764 2,436
Sodexho 1,710 952
Sommer Allibert 2,326 69
Strafor-Facom SA 250 19
Sylea 280 31
Synthelabo 10,760 1,163
Technip 260 24
Thomson-CSF 3,535 115
Total Co. SA Class B 48,122 3,914
TV Francaise (TFI) 6,923 662
Union des Assurances Federales 7,640 942
Union des Assurances Paris 12,578 314
Union Financiere de France Banque SA 2,100 227
Usinor Sacilor 81,700 1,189
Valeo 24,121 1,488
Vallourec (Usin) 460 24
Worms & Cie (Regd) 910 55
----------
61,748
----------
GERMANY - 4.9%
Adidas AG 7,400 640
AGIV AG fuer Industrie und Verkehrswesen (a) 1,724 25
Allianz AG 1998 Warrants (a) 7,076 371
Allianz AG Holdings 302 549
Altana AG 151 117
AVA ALG Handels VB (a) 3,280 944
Bankgesellschaft Berlin AG 1,600 29
BASF AG 49,150 1,893
Bayer AG 60,496 2,469
Bayer Motoren Werk 500 349
Bayerische Hypotheken-und Wechsel Bank AG 31,290 946
International Fund 63
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
BHF - Bank AG 2,500 $ 57
Bilfinger & Berger BAU AG 19,550 718
Buderus AG 1,447 715
Colonia Konzern AG 5,000 413
Continental AG 6,889 124
Daimler-Benz AG (a) 94,152 6,486
Deutsche Bank AG 3,674 172
Deutsche Pfandbrief & Hypothekenbank AG 13,200 596
Deutsche Telekom AG (a) 82,647 1,743
Douglas Holding AG 4,200 165
Dresdner Bank AG 42,700 1,279
DT Babcock & Wilcox (a) 100 3
Fag Kugelfischer Georg Schaefer AG 11,560 157
Fresenius Medical Care AG - ADR (a) 41,360 1,163
Fried, Krupp AG Hoesch 6,000 971
Gehe AG 19,060 1,220
Henkel KGAA (a) 12,700 609
Hoechst AG 150,959 7,132
Hornback Baumarkt AG 1,949 62
Klockner Humb Deut (a) 8,400 38
Kolbenschmidt AG (a) 2,077 29
Mannesmann AG 11,893 5,155
Metallgesellschaft AG (a) 6,428 131
Muenchener Rueckversicherungs 589 1,472
Pfaff (GM) AG (a) 100 2
Praktiker Bau und Heimwerkemaerkte AG (a) 2,245 45
Puma AG Rudolph Dassler Sport (a) 50 2
Rhoen - Klinikum AG 3,402 356
SAP AG 5,730 780
Schering AG 8,374 707
Schwarz Pharma AG 1,750 130
Siemens AG 27,170 1,280
SKW Trostberg AG (a) 8,800 239
Veba AG 40,965 2,369
Veba International Finance 1998 Warrants (a) 3,000 961
Volkswagen International AG 432 180
Volkswagen International AG 1998 Warrants (a) 1,420 212
----------
46,205
----------
HONG KONG - 4.1%
Allied Properties, Ltd. 452,000 74
Amoy Properties, Ltd. 170,000 245
ASM Pacific Technology 14,000 11
Bank of East Asia, Ltd. 101,800 453
Cathay Pacific Airways 631,000 995
Champion Technology Holdings 84,000 16
Cheung Kong Holdings, Ltd. 350,000 3,111
China Overseas Land & Investment 162,000 82
Dairy Farm International Holdings, Ltd. 173,512 140
Dao Heng Bank Group, Ltd. 142,500 684
Dickson Concepts International, Ltd. 13,400 50
Electric & Eltek International Holdings Ltd. 148,000 33
First Pacific Co. 402,154 523
FPB Bank Holding Co., Ltd. 29,000 13
Furama Hotel Entertainment 8,000 14
Gold Peak Industries, Ltd. 22,000 15
Great Eagle Holdings 70,510 291
Guangdong Investment 377,000 363
Guangshen Railway Co., Ltd. (a) 1,192,000 516
Guangzhou Investment 836,000 400
Guoco Group, Ltd. 142,000 795
Hang Lung Development Co. (a) 236,000 519
Hang Seng Bank (a) 215,000 2,613
Henderson Investment, Ltd. 288,000 344
Henderson Land Development Co., Ltd. 171,000 1,724
HKR International, Ltd. 39,600 67
Hon Kwok Land Investment, Ltd. 34,000 13
Hong Kong & China Gas Co., Ltd. 283,200 547
Hong Kong & China Gas Co., Ltd. 1997 Warrants (a) 23,600 13
Hong Kong & Shanghai Hotel 6,000 11
Hong Kong Aircraft Engineering 29,900 92
Hong Kong Electric 416,500 1,384
Hong Kong Ferry 26,500 52
Hong Kong Land Holdings, Ltd. 607,523 1,689
Hong Kong Telecommunications 811,200 1,306
Hopewell Holdings, Ltd. 845,000 546
HSBC Holdings (UK Regd) PLC 56,400 1,207
Hutchison Whampoa, Ltd. (a) 582,000 4,571
Hysan Development 58,000 231
Kumagai Gumi Hong Kong 75,000 87
Lai Sun Development Co., Ltd. 58,000 88
Lai Sun Garment International 36,000 57
Liu Chong Hing Bank, Ltd. 9,000 15
Liu Chong Hing Investment, Ltd. 34,000 42
New Asia Realty & Trust Class A 28,000 103
New World Development Co., Ltd. 596,278 4,028
Oriental Press Group 108,000 49
Oriental Press Group 1998 Warrants (a) 7,200 1
Paul Y - ITC Construction Holding Co. 64,000 15
Peregrine Investment Holdings, Ltd. 33,000 57
Pokphand (CP) Co. (HK Regd) 42,000 16
Regal Hotels International 616,519 215
Shanghai Petrochemical Class H 792,000 241
Shaw Bros. (H.K.), Ltd. 28,000 33
64 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Shell Electric Manufacturing Co., Ltd. 17,000 $ 11
Shun Tak Holdings, Ltd. 142,000 95
Sing Tao 370,000 161
Sino Land Co. 10,000 12
South China Morning Post 168,490 139
Sun Hung Kai & Co. 41,000 10
Sun Hung Kai Properties, Ltd. (a) 251,200 3,077
Swire Pacific, Ltd. Class A 177,000 1,688
Swire Pacific, Ltd. Class B 75,000 113
Tai Cheung Holdings 104,000 98
Television Broadcast 254,000 1,015
Top Glory International Holdings, Ltd. 114,000 18
Wharf Holdings 245,000 1,223
Wheelock & Co. 151,000 430
Wing Lung Bank 7,600 52
Winsor Property Holdings, Ltd. (a) 23,000 37
Yue Yuen Industrial 46,000 18
----------
38,997
----------
IRELAND - 0.2%
Allied Irish Banks 143,000 960
Independent Newspapers PLC 125,000 646
Waterford Wedgwood (Units) 465,000 599
----------
2,205
----------
ITALY - 3.4%
Alitalia-Linee Aeree (a) 126,000 49
Ansaldo Trasporti SPA (a) 7,800 9
Assicurazioni Generali SPA 41,000 777
Banca NAZ Agricolt 16,000 10
Banca Pop di Bergamo CV 19,000 313
Banca Pop di Milano 131,343 667
Banca Toscana 9,300 18
Banco Commerciale Italiana di Risp 42,000 89
Banco di Napoli (a) 62,850 30
Banco di Roma (a) 12,666 10
Banco Fideuram SPA 300,900 662
Burgo (Cartiere) SPA 27,200 126
Caffaro SPA 4,700 5
Cementir SPA 17,500 11
Ciga Hotels (a) 88,100 38
CIR Compagnie Industriali di Risp 72,500 24
CIR Compagnie Industriali Riunite 79,300 49
Cofide NC Risp (a) 12,000 3
Cofide SPA (a) 129,400 60
Cogefar Inpresit (a) 49,216 38
Compart SPA (a) 132,500 52
Credito Italiano 72,500 80
Credito Italiano di Risp NC 38,000 35
Dalmine SPA (a) 204,400 46
Danieli & Co. 5,000 41
Edison 7,000 44
Editor L'Espresso (a) 7,000 19
Editoriale La Repubblica SPA (a) 125,000 173
Ente Nazionale Idrocarburi SPA (Regd) 544,862 2,796
Ericsson 950 13
Falck, Acciaierie Fer Lombarde 38,200 153
Fiat SPA 736,527 2,229
Fiat SPA di Risp 446,500 783
Finanziaria Autogrill SPA (a) 30,059 29
Finmeccanica SPA (a) 25,000 10
Gemina SPA (a) 126,800 62
Gewiss SPA 19,000 251
Gucci Group NV (a) 1,210 77
I.F.I.L. (a) 32,100 98
I.F.I.L. Risp NC 46,400 88
Industrie Natuzzi SPA - ADR 29,572 680
Istituto Mobiliane Italiano 62,668 537
Istituto Nazionale Delle Assicurazioni 2,211,835 2,881
Italcementi 10,750 60
Italcementi di Risp NC 15,250 37
Italgas (Soc. Ital.) 100,491 420
Luxottica Group SPA - ADR 4,100 213
Mediolanum SPA (a) 15,750 149
Milano Assicurazio 9,500 26
Mondadori (Arnoldo) Editore 92,800 756
Montedison SPA (Ferruzzi Agricola)(a) 900,118 614
Montedison SPA di Risp (Ferruzzi Agricola) NC (a) 35,200 22
Montefibre SPA 6,402 4
Olivetti & Cie SPA (a) 5,912,500 2,085
Parmalat Finanziaria SPA (a) 700,626 1,072
Pirelli & Co. 65,150 87
Pirelli & Co. di Risp 2,000 2
Pirelli NC di Risp 6,900 10
Premafin Finanziaria SPA (a) 35,500 10
Rinascente (LA) 15,500 90
Rinascente (LA) di Risp NC 10,600 27
Safilo SPA 2,300 40
Saipem AG 14,700 68
Sasib SPA di Risp NC 63,761 120
Simint SPA (a) 100,000 372
Sirti SPA 22,000 133
SOFAP 142,500 153
Sta Metallurgica Italiana SPA (a) 52,960 25
Stefanel SPA (a) 8,400 6
Stet 992,340 4,514
Stet di Risp 423,290 1,430
International Fund 65
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Telecom Italia di Risp 156,800 $ 306
Telecom Italia Mobile SPA 648,246 1,639
Telecom Italia Mobile SPA di Risp 198,652 284
Telecom Italia SPA 1,102,724 2,864
Unicem di Risp (a) 8,263 54
----------
31,857
----------
JAPAN - 25.8%
Advantest 15,300 717
Aida Engineering, Ltd. 2,000 13
Aisin Seiki Co., Ltd. 5,000 79
Aiwa Co. 2,000 34
Ajinomoto Co., Inc. 3,000 31
All Nippon Airways Co., Ltd. 16,000 121
Alps Electric Co. 28,000 305
Amada Co., Ltd. 78,000 606
Amano Corp. 2,000 21
Anritsu Corp. 4,000 43
Aoki Corp. (a) 85,000 177
Aoki International 1,000 16
Aoyama Trading Co. (a) 3,000 80
Apic Yamada Corp. 16,200 308
Arabian Oil Co. 2,400 89
Asahi Bank (a) 175,000 1,556
Asahi Breweries 8,000 83
Asahi Chemical Industrial (a) 19,000 108
Asahi Glass Co. 65,000 612
Ashikaga Bank 44,000 212
Autobacs Seven Co. 1,000 71
Bandai Co., Ltd. 2,000 52
Bank of Yokohama 23,000 149
Banyu Pharmaceutical 3,000 42
Brother Industries 228,000 984
Canon Sales Co., Inc. 19,800 441
Canon Sales Co., Inc. 1997 Warrants (a) 330 32
Canon, Inc. 102,000 2,255
Casio Computer Co. 7,000 54
Chiba Bank, Ltd. 5,000 34
Chiyoda Corp. 4,000 26
Chubu Electric Power Co., Inc. 4,400 87
Chugai Pharmaceutical Co. 13,000 109
Chugoku Electric Power 1,500 29
Chuo Trust & Banking 50,000 427
Citizen Watch Co., Ltd. (a) 44,000 315
Cosmo Oil Co. 235,000 1,130
Credit Saison Co. 5,000 112
CSK Corp., Ltd. 13,400 352
Dai Ichi Kangyo Bank 57,000 822
Dai Ichi Pharmaceutical Co. 124,000 1,992
Dai Nippon Printing, Ltd. 18,000 316
Dai Nippon Screen Manufacturing Co. 67,000 495
Daicel Chemical Industries 45,000 211
Daido Steel Co. 106,000 394
Daiei, Inc. 277,000 2,117
Daifuku Machinery Co. 16,000 202
Daiken Corp. 91,000 633
Daikin Industries 106,000 943
Daimaru, Inc. 3,000 16
Dainippon Pharmaceutical Co., Ltd. 9,000 76
Daishinku Corp. 60,000 471
Daishowa Paper Manufacturers (a) 9,000 39
Daito Trust Construction 2,190 24
Daiwa Bank (a) 305,000 1,593
Daiwa Danchi Co., Ltd. (a) 85,000 399
Daiwa House Industries Co. 60,000 772
Daiwa Kosho Lease Co.. Ltd. 60,000 461
Daiwa Securities 323,000 2,873
DDI Corp. 555 3,671
Denny's Japan 1,000 31
Dowa Mining Co. Series 5 1997 Warrants (a) 124 49
East Japan Railway 344 1,548
Ebara Corp. 87,000 1,134
Eisai Co. 42,300 833
Familymart, Co. 25,500 1,019
Fanuc Co. 16,400 525
Fuji Denki Reiki 59,000 555
Fuji Electric Co. 142,000 596
Fuji Heavy Industries 34,000 137
Fuji Oil Co. 120,000 856
Fuji Photo Film Co. 23,000 759
Fujikura 104,000 833
Fujisawa Pharmaceutical 45,000 404
Fujita Kanko, Inc. 3,000 56
Fujitec Co., Ltd. 3,000 30
Fujitsu, Ltd. 152,000 1,417
Fukui Bank 160,000 698
Fukuoka Bank 6,450 45
Furukawa Electric Co. 305,000 1,446
Futaba Corp. 15,000 622
Futaba Industrial 15,000 250
Gakken Co. 260,000 1,471
General Sekiyu KK 19,000 135
Green Cross Corp. (a) 13,000 65
Gunma Bank 4,000 35
Gunze, Ltd. 160,000 830
Hankyu Corp. (a) 30,000 149
Haseko Corp. (a) 47,000 126
Heiwa Corp. 2,000 31
Heiwa Real Estate 40,000 232
66 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Higo Bank 2,000 $ 13
Hino Motors, Ltd. 2,000 14
Hirose Electric 2,000 116
Hitachi Cable 4,000 27
Hitachi Maxell 3,000 66
Hitachi Metals 38,000 302
Hitachi Zosen Corp. 72,000 280
Hitachi, Ltd. 649,000 6,052
Hokkaido Electric 1,100 22
Hokkaido Takushoku Bank, Ltd. 300,000 583
Hokuetsu Bank 70,000 302
Hokuriku Bank 120,000 589
Hokuriku Electric Power 1,500 29
Honda Motor Co., Ltd. 14,000 400
Hosiden Electronics (a) 3,000 21
House Food Industry 2,000 32
Hoya Corp. 2,000 79
Hyakugo Bank 80,000 484
Inax Corp. 27,000 200
Industrial Bank of Japan 41,000 712
Intec, Inc. 62,000 873
Isetan Co. 49,000 635
Ishihara Sangyo (a) 40,000 97
Ishikawajima-Harima Heavy Industries 429,000 1,908
Isuzu Motors, Ltd. 32,000 142
Ito-Yokado Co., Ltd. 77,000 3,351
Itoham Foods, Inc. 95,000 589
Izumi Co. 33,000 462
Izumiya Co. 58,000 821
Japan Air Lines Co. (a) 54,000 287
Japan Airport Terminal 6,000 74
Japan Aviation Electronics (a) 8,000 47
Japan Energy Corp. 61,000 166
Japan Metals & Chemicals (a) 5,000 17
Japan Radio Co. 7,000 75
Japan Synthetic Rubber 20,000 131
Japan Tobacco, Inc. 267 1,810
Japan Wool Textile Co. 2,000 16
Jeol (a) 2,000 12
JGC Corp. 6,000 45
Joshin Denki Co. 6,000 62
Joyo Bank 5,000 30
Kajima Corp. 5,000 36
Kaken Pharmaceutical 2,000 12
Kamei Corp. 78,000 775
Kamigumi Co. 8,000 52
Kandenko Co., Ltd. 3,000 28
Kanebo (a) 28,000 58
Kaneka Corp. 5,000 26
Kansai Electric Power 6,900 143
Kao Corp. 153,000 1,784
Kashiyama Onward 4,000 56
Kawasaki Heavy Industries 426,000 1,762
Kawasaki Kisen (a) 194,000 442
Kawasho Corp. (a) 163,000 574
Keihin Electric Express 16,480 76
Kenwood Corp. (a) 13,000 62
Keyence Corp. 1,000 123
Kikkoman Corp. 6,000 35
Kinden Corp. 4,000 51
Kinki Nippon Railway 60,770 379
Kirin Beverage Corp. 20,000 269
Kirin Brewery Co. 20,000 197
Kissei Pharmaceutical Co. 1,100 22
Kobe Steel (a) 34,000 72
Kokusai Denshin Denwa 1,000 69
Kokusai Electric Co., Ltd. 3,000 44
Kokuyo Co., Ltd. 25,000 617
Komatsu Forklift Co., Ltd. 61,000 500
Komori Corp. 24,000 510
Konica Corp. 3,000 20
Koyo Seiko Co., Ltd. 3,000 25
Kubota Corp. 125,000 603
Kumagai Gumi Co. 84,000 208
Kumagai Gumi Co., Ltd. 1998 Warrants (a) 17,000 7
Kurabo Industries 25,000 71
Kuraray Co., Ltd. 52,000 480
Kurita Water Industries 3,000 61
Kyocera Corp. 65,000 4,052
Kyodo Printing Co. 21,000 169
Kyokuto Boeki 30,000 186
Kyowa Exeo Corp. 2,000 17
Kyowa Hakko Kogyo 8,000 61
Kyudenko Corp. 2,000 21
Kyushu Electric Power 3,100 60
Kyushu Matsushita 3,000 39
Lion Corp. 7,000 35
Long Term Credit Bank Japan 14,000 76
Mabuchi Motor Co. 1,100 55
Maeda Corp. 10,000 74
Maeda Corp. 1997 Warrants (a) 130 6
Maeda Road Construction 4,000 46
Makino Milling 4,000 26
Makita Corp. 35,000 490
Marui Co., Ltd. 54,000 975
Maruichi Steel Tube 1,000 17
Matsushita Communication 6,000 155
Matsushita Electric Industrial Co., Ltd. 245,000 3,998
Matsushita Electric Works 10,000 86
Matsushita-Kotobuki Electric Co., Ltd. 2,000 52
International Fund 67
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Matsuzakaya Co. 66,000 $ 610
Mazda Motor Corp. (a) 48,000 172
Meidensha Corp. 3,000 19
Meiji Milk Product 4,000 20
Minebea Co., Ltd. 24,000 201
Minolta Camera Co. 19,000 115
Mitsubishi Corp. 52,000 539
Mitsubishi Electric Corp. 325,000 1,936
Mitsubishi Heavy Industries 515,000 4,091
Mitsubishi Material 24,000 97
Mitsubishi Motors Corp. 13,000 95
Mitsubishi Oil Co. 22,000 132
Mitsubishi Paper Mills 43,000 168
Mitsubishi Rayon 3,000 11
Mitsubishi Trust & Banking 112,000 1,499
Mitsubishi Warehouse 4,000 52
Mitsuboshi Belting 2,000 9
Mitsui & Co. 262,000 2,127
Mitsui Fudosan Co., Ltd. 93,000 932
Mitsui Mining & Smelting 239,000 815
Mitsui Petrochemical Industry 111,000 575
Mitsui Toatsu Chemical 250,000 762
Mitsui Trust & Banking 70,000 547
Mitsumi Electric Co. 1,000 19
Mizuno Corp. 33,000 250
Mochida Pharmaceutical Co. 3,000 29
Murata Manufacturing Co. 65,000 2,161
Nachi-Fujikoshi Corp. 8,000 27
Nagasakiya Co. (a) 3,000 11
Nagase & Co. 31,000 257
Nagoya Railroad Co., Ltd. 7,000 27
Namco 53,900 1,652
Nankai Electric Railway 450 2
National House Industrial 19,000 253
Navix Line (a) 13,000 25
NCR Japan, Ltd. 3,000 25
NEC Corp. 303,000 3,663
New Oji Paper Co. 125,000 791
NGK Spark Plug Co. 9,000 99
Nichicon Corp. 3,000 35
Nichido Fire & Marine 400 2
Nichiei Co., Ltd. of Kyoto 19,000 42
Nichiei Co., Ltd. of Yokohama 7,000 102
Nichimo Co. (a) 88,000 319
Nihon Cement Co. 16,000 82
Nikon Corp. 47,000 584
Nintendo Co. 10,000 716
Nippon Carbon Co. (a) 21,000 65
Nippon Chemical Industrial 3,000 26
Nippon Comsys Corp. 9,000 103
Nippon Denso Co. 58,000 1,397
Nippon Electric Glass 3,000 46
Nippon Express Co. 81,000 555
Nippon Hodo Co. 17,000 197
Nippon Kayaku Co., Ltd. 7,000 40
Nippon Light Metal Co. 8,000 33
Nippon Meat Packing 3,000 39
Nippon Oil Co. 297,000 1,526
Nippon Paint Co., Ltd. 1,000 4
Nippon Piston Ring 3,000 10
Nippon Shokubai Kagaku Kogyo Co. 5,000 37
Nippon Soda Co. 11,000 80
Nippon Steel Corp. 1,889,000 5,578
Nippon Suisan (a) 213,000 754
Nippon Telegraph & Telephone Corp. 832 6,308
Nippon Yakin Kogyo 8,000 23
Nippon Yusen (a) 3,000 14
Nippon Zeon Co., Ltd. 7,000 27
Nishimatsu Construction 151,000 1,317
Nissan Diesel Motor Co. 88,000 403
Nissan Motor Co., Ltd. (a) 806,000 4,677
Nissei Sangyo Co. 55,000 646
Nisshim Oil Mills 2,000 13
Nisshinbo Industries, Inc. (a) 24,000 187
Nissho Iwai Corp. 32,000 125
Nitsuko, Ltd. 2,000 14
Nitto Boseki Co. (a) 4,000 11
Nitto Denko Corp. 17,000 250
NKK Corp. (a) 565,000 1,273
NOF Corp. 4,000 17
Nomura Securities 329,000 4,943
North Pacific Bank 100,000 535
NSK, Ltd. 181,000 1,097
NTN Corp. 15,000 82
NTT Data Communications Systems Corp. 100 2,927
Obayashi Corp. 178,000 1,202
Odakyu Electric Railway 25,750 155
Okamura Corp. 74,000 489
Oki Electric Industries 36,000 198
Okuma Corp. (a) 7,000 56
Okumura Corp. 13,000 79
Ono Pharmaceutical 37,000 1,102
Onoda Cement Co. 15,000 64
Orix Corp. 3,000 125
Osaka Gas Co. 204,000 558
Penta Ocean Construction 14,000 62
Pioneer Electronics Corp. 124,000 2,366
QP Corp. 2,000 16
Renown, Inc. (a) 63,000 168
Ricoh Co., Ltd. 117,000 1,344
68 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Rinnai Corp. 1,000 $ 20
Rohm Co. 26,000 1,706
Royal Co., Ltd. 8,000 149
Ryobi, Ltd. 84,000 337
Sakura Bank 375,000 2,681
Samsung Electronics, Ltd. - GDR (a) 2,331 43
Sanden Corp. 10,000 80
Sangetsu Co. 6,000 125
Sankyo Aluminum 53,000 209
Sankyo Co. 48,000 1,359
Sankyo Seiko Co. 83,000 459
Sanrio Co. (a) 1,000 8
Sanwa Bank 55,000 750
Sanwa Shutter Corp. 7,000 52
Sanyo Electric Co., Ltd. 6,000 25
Sapporo Breweries 8,000 66
Sato Kogyo Co. 10,000 35
Secom Co. 3,000 182
Sega Enterprises 14,900 502
Seibu Railway Co. 10,000 391
Seiko Corp. 4,000 25
Seino Transportation 3,000 33
Seiyu Stores 3,000 30
Sekisui Chemical Co., Ltd. 158,000 1,596
Sekisui House, Ltd. 71,000 723
Seven-Eleven Japan NPV 10,300 603
Sharp Corp. 360,000 5,129
Shikoku Electric Power 43,300 845
Shimachu Co., Ltd. 1,000 26
Shimadzu Corp. 2,000 10
Shimano, Inc. 1,000 17
Shin-Etsu Chemical Co. 47,400 864
Shionogi & Co. 5,000 36
Shiseido Co., Ltd. 125,000 1,446
Shochiku Co. 6,000 52
Shokusan Jutaku Co. (a) 4,000 9
Showa Denko (a) 27,000 62
Showa Shell Sekiyu 78,000 650
Sintokogio 106,000 774
Skylark Co. 2,000 31
Snow Brand Milk 103,000 583
Sony Corp. 136,200 8,926
Stanley Electric 182,000 1,069
Sumitomo Bakelite Co., Ltd. 110,000 665
Sumitomo Bank 195,000 2,812
Sumitomo Cement Co. 4,000 13
Sumitomo Corp. 203,000 1,600
Sumitomo Electric Industries 110,000 1,539
Sumitomo Forestry 122,000 1,485
Sumitomo Heavy Industry (a) 17,000 52
Sumitomo Metal Industries, Ltd. 636,000 1,565
Sumitomo Realty & Development (a) 753,000 4,746
Sumitomo Rubber Industries 140,000 1,043
Sumitomo Trust & Banking 141,000 1,412
Suzuki Motor Corp. 24,000 220
SXL Corp. 3,000 21
Taisei Corp. 299,000 1,549
Taisho Pharmaceutical Co., Ltd. 6,000 141
Taiyo Yuden Co. 7,000 98
Takara Standard Co. 3,000 25
Takashimaya Co. 76,000 912
Takeda Chemical Industries 14,000 294
Takuma Co. 8,000 88
Tanabe Seiyaku Co. 3,000 23
TDK Corp. 26,000 1,695
Teijin, Ltd. 145,000 634
Teikoku Oil 13,000 71
Tekken Corp. 2,000 10
Terumo Corp. 12,000 163
Toagosei Co., Ltd. 7,000 25
Toda Corp. 74,000 562
Toho Co. 400 58
Tohoku Electric Power 3,600 71
Tokai Bank 99,000 1,034
Tokai Carbon Co., Ltd. 5,000 19
Tokio Marine & Fire 176,000 1,656
Tokyo Broadcasting 82,000 1,253
Tokyo Dome Corp. 4,000 70
Tokyo Electric Co., Ltd. (a) 10,000 38
Tokyo Electric Power 101,200 2,220
Tokyo Electronics 10,000 307
Tokyo Gas Co. 4,000 11
Tokyo Steel Manufacturing 33,000 470
Tokyo Style Co. 2,000 28
Tokyotokeiba Co. 7,000 23
Tokyu Construction 26,000 77
Tokyu Land Corp. (a) 12,000 42
Tonen Corp. 34,000 396
Toppan Printing 54,000 676
Torii Pharmaceutical Co., Ltd. 22,800 443
Toshiba Corp. 71,000 446
Toshiba Tungaloy Co. 3,000 13
Tosoh Corp. (a) 150,000 514
Tostem Corp. 3,000 83
Toto, Ltd. 3,000 34
Toyo Engineering Co. 140,000 626
Toyo Exterior Co. 1,000 15
Toyo Seikan Kaisha, Ltd. 3,000 72
Toyo Suisan Kaisha 2,000 20
Toyo Trust & Banking 100,000 807
International Fund 69
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Toyoda Automatic Loom 3,000 $ 56
Toyota Motor Corp. 229,000 6,585
Tsubakimoto Chain 83,000 444
Tsumura & Co. 7,000 84
UBE Industries 298,000 844
Uni-Charm Corp. 1,000 25
Uniden Corp. 3,000 40
UNY Co., Ltd. 26,000 476
Ushio, Inc. 2,000 22
Victor Co. of Japan 4,000 40
Wacoal Corp. 2,000 22
West Japan Railway Co. 600 1,943
Yakult Honsha Co. 2,000 21
Yamaha Corp. 9,000 153
Yamaha Motor Co. 166,000 1,491
Yamaichi Securities Co. 34,000 151
Yamanouchi Pharmaceutical 8,000 164
Yamato Transport 8,000 83
Yamazaki Baking Co., Ltd. 33,000 527
Yasuda Fire & Marine Insurance Co., Ltd. (The) 186,000 967
Yasuda Trust & Banking (a) 20,000 85
Yodogawa Steel Works, Ltd. 5,000 30
Yokogawa Bridge Works 1,000 9
Yokogawa Electric Co. 10,000 86
Yokohama Rubber Co. 225,000 1,047
Yoshitomi Pharmaceutical 4,000 32
Yurtec Corp. 11,550 157
----------
243,614
----------
MALAYSIA - 2.4%
Affin Holdings Berhad 282,000 776
Aluminium Company of Malaysia 9,000 13
Amalgamated Steel Mills (a) 29,000 22
AMMB Holdings Berhad 17,200 144
Aokam Perdana Berhad 7,000 8
Arab Malaysian Finance (Alien Market) 15,000 84
Berjaya Group Berhad 56,000 48
Berjaya Industrial Berhad 38,000 30
Berjaya Leisure Berhad 32,000 48
Berjaya Sports 134,000 669
Carlsberg Brewery Malaysia Berhad 119,000 881
Cement Industries 12,000 36
Commerce Asset Holdings 98,000 737
Edaran Otomobil 17,300 173
Ekran Berhad 11,000 46
Esso Malaysia Berhad 6,000 17
Genting Berhad 85,000 586
Golden Hope Plantation 5,000 8
Golden Plus Holdings 4,000 7
Guinness Anchor Berhad 9,000 22
Highlands & Lowlands 22,000 37
Hong Leong Industries Berhad 7,200 25
Hong Leong Properties Berhad 32,000 42
Hume Industries Berhad 4,000 25
IJM Corp. Berhad 150,000 353
IND Oxygen, Inc. 596,000 916
Innovest Berhad (a) 6,000 21
Jaya Tiasa Holdings Berhad 7,000 37
Johan Holdings Berhad 12,000 10
Kedah Cement Holdings Berhad 13,000 26
Kelanamas Industries Berhad 7,000 13
Kemayan Corp. Berhad 13,000 18
Kian Joo Can Factory 6,000 33
Kuala Lumpur Kepong 500 1
Kumpulan Guthrie 141,200 251
Land & General Berhad 24,000 58
Landmarks Berhad 17,000 23
Leader Universal Holdings 28,000 59
Magnum CP Berhad 61,000 118
Malayan Cement Berhad 15,000 34
Malayan United Industries 45,000 34
Malayawata Steel 8,000 15
Malaysia Mining Corp. 2,000 2
Malaysian Airline System 31,000 80
Malaysian Helicopter Services (a) 28,000 33
Malaysian International Shipping Corp. (Alien Market) 45,000 134
Malaysian Mosaics 4,000 5
Malaysian Oxygen 4,000 21
Malaysian Pacific 10,000 39
Malaysian Plantations Berhad 5,000 6
Malaysian Residential Corp. 23,000 91
Matsushita Electric Co. Berhad 1,000 9
MBF Capital Berhad 252,000 409
MBF Holdings Berhad 71,000 32
Metroplex Berhad 31,000 38
Mulpha International Berhad (a) 16,000 14
Multi Purpose Holding 322,000 625
Multi Purpose Holding Berhad Rights (a) 348,000 1
Nestle Berhad 5,000 40
New Straits Times 218,000 1,260
O.Y.L. Industries Berhad 6,000 63
Oriental Holdings Berhad 31,400 214
Pan Malaysia Cement Works Berhad 47,000 47
Perlis Plantations 30,500 95
Pernas International Hotels & Properties 27,000 33
Perusahaan Otomobl 52,000 329
Petaling Garden Berhad 9,000 12
70 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Petronas Dagangan 1999 Warrants (a) 428,000 $ 610
Petronas Dagangan Berhad 16,000 41
Petronas Gas Berhad 6,000 25
Pilecon Engineering Berhad 8,000 10
Promet Berhad (a) 15,000 13
Public Bank Berhad (Alien Market) 66,000 140
Renong Berhad 1,135,000 2,013
Resorts World Berhad 588,000 2,678
RJ Reynolds Berhad 5,000 14
Sarawak Enterprise Corp. 55,000 89
Shell Refining (Malaysia) 10,000 29
Sime Darby Berhad (Resident Shares) 480,600 1,894
Sime UEP Properties Berhad 100,000 256
Sistem Televisyen Malaysia Berhad 3,000 6
Sungei Way Holdings Berhad 6,000 18
Sungei Way Holdings Berhad Rights (a) 600 1
Tan Chong Motor Holdings 95,000 161
Tanjong PLC 128,000 512
Technical Resource Industries Berhad (a) 129,000 254
Telekom Malaysia 22,000 196
Tenaga Nasional 413,000 1,979
Time Engineering Berhad 108,000 200
Tractors Malaysia Holdings Berhad 9,000 17
UMW Holdings Berhad 32,000 150
United Engineers Berhad 128,000 1,156
Westmont Industries Berhad 19,000 31
YTL Corporation Berhad 18,000 97
----------
22,726
----------
MEXICO - 0.3%
Cemex SA de CV Class B NPV 39,709 156
Cemex SA de CV NPV 104,790 377
Cifra SA de CV - ADR (a) 229,623 281
Compania Cervecerias Unidas SA - ADR 3,214 52
Empresa Nacional de Electric - ADR 9,929 154
Fomento Economico Mexicano SA de CV Series B NPV 26,557 91
Gruma SA - ADR 3,350 81
Gruma SA Series B NPV (a) 32,263 197
Grupo Financiero Banamex AC Series B NPV (a) 82,052 173
Grupo Financiero Banamex AC Series L NPV (a) 3,655 7
Grupo Industrial Maseca Series B NPV 131,263 166
Grupo Modelo SA Series C 27,752 161
Grupo Television SA de CV - GDR (a) 2,709 70
Kimberly-Clark, Mexico Class A NPV 11,138 220
Panamerican Beverages, Inc. Class A 6,177 290
Telefonos de Mexico SA Series L - ADR 18,479 610
----------
3,086
----------
NETHERLANDS - 4.1%
ABN AMRO Holdings NV 13,012 847
Aegon NV 21,500 1,371
Ahold NV 10,425 652
AKZO Nobel NV 1,729 236
Boskalis Westminster CVA 16,360 332
CSM NV CVA 14,527 808
DSM NV (BR) 9,600 948
Elsevier NV 179,792 3,041
Fortis Amev NV 15,462 542
Hagemeyer NV 3,174 254
ING Groep NV 120,940 4,357
Koninklijke Bijenkorf Beheer 6,300 454
Moeara Enim Petroleum NPV 48 917
Nedlloyd Groep NV 30,000 824
Nutricia Verenigde Bedrijven CVA 2,750 418
Otra NV 3,590 62
Philips Electronics 27,500 1,115
Polygram 36,166 1,843
Royal Dutch Petroleum Co. (BR) 39,949 7,009
Royal PTT Nederland NV 27,771 1,060
Unilever NV CVA 16,260 2,878
Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit 192,442 4,024
Wolters Kluwer CVA 32,726 4,350
----------
38,342
----------
NEW ZEALAND - 0.4%
Air New Zealand Class B 211,114 573
Carter Holt Harvey 35,941 82
Fernz Corp. 21,700 74
Fisher & Paykel 8,396 33
Fletcher Challenge Building (a) 106,649 328
Fletcher Challenge Energy (a) 12,398 36
Fletcher Challenge Paper (a) 253,797 522
Fletcher Challenge, Ltd. (Forests Division) 136,791 229
Lion Nathan, Ltd. 272,400 653
Telecom Corp. of New Zealand 78,000 398
Trans Tasman Properties, Ltd. NPV 303,214 169
Wrightson Limited 300,000 261
----------
3,358
----------
NORWAY - 0.9%
Aker AS Series B 20,200 404
Bergesen DY AS Series A 13,630 330
Dyno Industrier AS 7,700 194
Kvaerner Industries AS Series B 10,000 430
Norsk Hydro AS 67,696 3,625
Nycomed ASA Series B (a) 12,000 183
Olav Thon Eiendomsselskap AS 23,500 562
International Fund 71
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Orkla AS 15,419 $ 1,065
Saga Petroleum AS Series B 8,070 125
Schibsted AS 69,600 1,269
UNI Storebrand AS Series A (a) 109,000 626
Veidekke AS 6,100 194
----------
9,007
----------
PANAMA - 0.0%
Banco Latinoamericano de Exportaciones SA Class E 1,820 92
----------
92
----------
PERU - 0.0%
Telefonica Del Peru SA Class B - ADR 3,012 57
----------
57
----------
PHILIPPINES - 0.0%
Enron Global Power & Pipelines L.L.C. 2,144 58
----------
58
----------
PORTUGAL - 0.1%
Jeronimo Martins SGPS 8,445 436
Jeronimo Martins SGPA (units) 1,407 74
Jeronimo Martins SGPA New 5,630 261
Jeronimo Martins SGPA Rights (a) 8,445 137
----------
908
----------
RUSSIA - 0.0%
Gazprom - ADR (a) 2,780 49
----------
49
----------
SINGAPORE - 2.1%
Chuan HUP Holdings, Ltd. 114,000 76
City Developments 228,000 2,053
DBS Land 147,000 541
Development Bank of Singapore, Ltd. (Alien Market) 193,000 2,607
Far East Levingston 27,000 141
First Capital Corp. 105,000 317
Fraser & Neave 147,000 1,513
Hai Sun Hup Group 207,000 152
Haw Par Brothers International, Ltd.
2001 Warrants (a) 6,210 6
Highlands & Lowlands Berhad 1,000 2
Jardine Matheson Holdings, Ltd. 117,527 776
Jardine Strategic Holdings, Ltd. 683,656 2,475
Jardine Strategic Holdings, Ltd. 1998 Warrants (a) 58,794 24
Keppel Corp. 251,000 1,955
Kuala Lumpur Kepong Berhad 2,000 5
Mandarin Oriental International, Ltd. (a) 371,648 524
Overseas Chinese Banking (Alien Market)(a) 69,666 866
Overseas Union Bank (Alien Market) 85,000 656
Prima, Ltd. 9,000 33
Robinson & Co., Ltd. 22,000 89
Singapore Airlines, Ltd. (Alien Market) 83,000 753
Singapore Land 146,000 809
Singapore Press Holdings (Alien Market) 56,600 1,116
Singapore Telecommunications, Ltd. 202,000 476
Straits Trading Co. 130,000 316
Times Publishing 20,000 45
Total Access Communication, Ltd. 11,000 76
United Industrial Corp., Ltd. 457,000 385
United Overseas Bank, Ltd. (Alien Market) 67,779 756
United Overseas Bank, Ltd. 1997 Warrants (a) 17,618 62
WBL Corp., Ltd. 11,000 26
----------
19,631
----------
SOUTH KOREA - 0.1%
Bank of Seoul (a) 5,000 25
Cho Hung Bank 3,900 30
Hanil Bank 12,100 83
Hanil Securities Co. (a) 8,000 58
Kookmin Bank 8,034 111
Korea Electric Power Corp. 11,600 338
Pohang Iron & Steel 3,800 164
Samsung Electronics Co. - GDR 670 27
Samsung Electronics Co., Ltd. (a) 606 31
Samsung Electronics, Ltd. 3,371 182
Samsung Electronics, Ltd. - GDS 7,736 143
Samsung Electronics, Ltd. - GDR (a) 201 8
Samsung Fire & Marine Insurance 65 24
Shin Han Bank 3,940 54
Yukong, Ltd. 4,887 93
----------
1,371
----------
72 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
SPAIN - 2.7%
Acerinox SA 4,500 $ 650
Argentaria 23,422 1,048
Banco Bilbao Vizcaya (Regd) 21,356 1,153
Banco Central Hispano Americano SA (Regd) 26,900 691
Banco de Santander SA (Regd) 8,228 527
Banco Intercontinental (Regd) 12,000 1,861
Banco Pastor SA 2,600 167
Banco Popular Espanol (Regd) 11,006 2,162
Bodegas y Bebidas Series III (BR) 2,000 52
Ceneral de Aguas D'Barcelona 2,372 99
Centros Comerciales Continente SA 3,610 74
Centros Commerciales Pryca 39,100 828
Corp. Fin. Reunida (a) 200,000 656
Cristale Espanola (BR) 6,134 482
Ebro Agricolas 1,000 18
Empresa Nacional de Electricidad 27,065 1,926
Fom Construction y Contra 1,042 97
Fuerzas Electricat Series A 21,424 211
Gas Natural SDG SA 2,945 685
Hidroelectrica Cantabrico 34,600 1,321
Iberdrola SA 279,633 3,963
Koipe SA 1,145 65
Obrascon SA 7,000 67
Prosegur CIA de Seguridad SA (Regd.) 55,000 508
Repsol SA 39,745 1,525
Sociedad General Azucarera de Espana SA de CV 10,250 537
Tabacalera SA Series A (Regd) 21,883 942
Tableros de Fibras Series B 8,414 87
Telefonica de Espana 105,979 2,461
Viscofan Envoltura 25,500 373
----------
25,236
----------
SWEDEN - 4.1%
Asea AB Series A 3,000 339
Asea AB Series B Free 5,000 566
AssiDoman AB 1,737 48
Astra AB Series A 191,817 9,478
Astra AB Series B 66,660 3,216
Atlas Copco AB Series B 17,190 418
Avesta-Sheffield 57,500 620
Bilspedition Transportation & Log Series B (a) 24,600 85
BT Industries AB 35,000 652
Celsius Industrier AB Series B (a) 4,266 67
Custos AB Series B 1,400 30
Diligentia AB (a) 22,930 361
Electrolux AB Series B 23,410 1,359
Esselte AB Series A Free 3,028 69
Esselte AB Series B 5,670 125
Euroc Industri AB Series A Free 1,418 52
Hennes & Mauritz AB Series B 11,760 1,628
Hoganas AB B Shares 18,300 641
Incentive AB Series A Free 763 55
Industrivarden AB Series A 757 35
Kinnevik Investment Series B 29,300 808
Marieberg Tidnings Series A 4,700 115
Mo Och Domsjo AB Series B 18,500 521
Munksjo AB 50,800 514
Nordbanken AB 15,800 478
OM Gruppen AB 21,200 637
Sandvik AB Series B 17,470 474
Scribona AB Series B Free 4,140 46
Skand Enskilda Barken Series A 293,090 3,008
Skandia Group Foersakerings Free 62,110 1,758
Skanska AB Series B 34,284 1,516
SKF AB Series A Free 39,900 916
SKF AB Series B Free 3,200 76
Sparbanken Sverige AB Series A 11,900 204
SSAB Svenskt Stal AB Series B 2,800 47
Stadshypotek AB Series A 27,200 746
Stena Line AB Series B 10,504 47
Stora Kopparbergs Series A 31,700 437
Stora Kopparbergs Series B 18,300 250
Svedala Industri 577 10
Svenska Celluosa Series B Free 61,200 1,243
Svenska Handelsbank Series A 13,500 388
Svenskt Staal AB Series A 7,600 126
Telefonaktiebolaget Ericsson (LM) Series B 79,920 2,473
Trelleborg AB Series B Free 66,500 882
Trygg Hansa SPP Series B Free 5,251 99
Volvo AB Series B 34,500 761
----------
38,424
----------
SWITZERLAND - 3.6%
Adia SA (a) 2,499 627
Alusuisse Lonza Holdings (Regd) 360 287
Baer Holdings AG (BR) 230 241
BBC Brown Boveri (BR) 966 1,202
Bil GT Gruppe AG 740 379
CS Holdings (Regd) 8,418 865
Fischer (Georg) AG (BR) 1,148 1,192
Helvetia Patria Holding Co. (Regd)(a) 55 23
Holderbank Financiere Glarus AG (BR) 390 279
Lion Corp. 1999 Warrants (a) 700 70
Nestle SA (Regd) 2,886 3,099
International Fund 73
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Novartis AG (Regd)(a) 9,773 $ 11,193
Phoenix Mecano (BR) 800 418
Publicitas Holdings SA (Regd) 2,000 344
Richemont Series A (BR) 300 421
Roche Holdings Genusscheine AG NPV 702 5,462
Sarna Kunststoff Holdings AG (Regd) 250 236
Schweiz Bankverein (Regd) 11,940 2,270
Schweiz Ruckversicher (Regd) 1,320 1,409
SGS Holding (BR) 560 1,377
SMH AG Neuenburg (Regd) 3,900 557
Swissair (Regd)(a) 340 275
Zurich Versicherungsgesellschaft (Regd) 7,200 2,001
----------
34,227
----------
THAILAND - 0.1%
Advanced Information Services (Alien Market) 12,400 104
Bangkok Bank (Alien Market) 23,900 231
Siam Cement Co. (Alien Market) 2,450 77
Siam Commercial Bank PLC (Alien Market) 19,600 142
Thai Farmers Bank (Alien Market) 16,200 101
----------
655
----------
UNITED KINGDOM - 16.6%
3i Group PLC 2,500 21
Abbey National PLC 256,000 3,351
Airtours PLC 65,000 902
Allied Colloids PLC 293,600 606
Allied Colloids Rights (a) 65,599 3
Allied Lyons 209,300 1,642
Amec PLC 43,400 68
Amersham International PLC 31,000 611
Amstrad PLC 28,000 71
Anglian Water PLC 22,300 225
Argos PLC 79,110 1,040
Argyll Group PLC 150,332 1,038
Arjo, Wiggins, Appleton Co. PLC 59,600 183
ASDA-MFI Group PLC 782,120 1,648
Associated British Foods PLC 73,700 610
Associated British Ports PLC 122,000 598
Astec (BSR) PLC 5,700 15
B.A.T. Industries PLC 179,800 1,491
Bank of Scotland Governor & Co. PLC 25,500 135
Barclays Bank PLC 78,620 1,348
Barratt Development PLC 27,620 119
BASS PLC 600 8
BBA Group PLC 11,900 72
Beazer Homes PLC 23,600 78
Berisford PLC 12,100 29
BICC PLC 4,309 20
Blue Circle Industries PLC 38,300 234
BOC Group PLC 18,500 277
Booker PLC 9,860 67
Britannic Assurance PLC 81,000 999
British Aerospace PLC 79,223 1,735
British Airways PLC 85,573 889
British Gas PLC 438,100 1,681
British Land Co. PLC 1,500 13
British Petroleum Co. PLC 829,260 9,945
British Steel PLC 158,600 435
British Telecom PLC 356,307 2,411
BTR PLC 228,566 1,116
Bunzl PLC 24,851 99
Burton Group PLC 224,952 605
Cable & Wireless PLC 115,360 964
Cadbury Schweppes PLC 640,429 5,409
Calor Group PLC 8,400 42
Caradon PLC 155,882 641
Carlton Communications PLC 11,940 105
Charter PLC (Regd) 3,860 49
Christian Salvesen PLC 1,300 6
Chubb Security PLC 116,300 649
Coats Viyella PLC 174,617 401
Compass Group PLC 75,100 798
Cookson Group PLC 32,617 132
Cordiant PLC (a) 8,400 15
Costain Group PLC (a) 8,200 6
Courtaulds PLC 4,500 30
Courtaulds Textile Co. PLC 7,000 27
Cowie Group PLC 149,166 1,035
Dalgety PLC 148,200 922
Dawson International PLC 36,500 37
Delta PLC 2,600 17
Devro International PLC 210,000 968
Dixon Group PLC 15,700 146
E D & F Man Group PLC 140,000 420
East Midlands Electricity PLC 29,080 330
Electrocomponents PLC 50,200 396
English China Clay PLC 32,749 107
Enterprise Oil PLC 19,700 218
Eurotunnel PLC/Euro SA Units (Regd)(a) 92,300 126
First Leisure Corp. PLC 120,000 693
FKI Babcock PLC 16,400 57
FR Group PLC 800 8
General Accident PLC 13,200 173
General Cable PLC (a) 77,900 260
General Electric Co. PLC 314,400 2,063
GKN PLC 9,000 154
74 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Glaxo Wellcome PLC 289,355 $ 4,709
Glynwed International PLC 140,200 807
Granada Group PLC 57,430 849
Grand Metropolitan PLC 250,088 1,962
Great Portland Estates PLC 360 1
Great University Stores PLC 59,390 624
Greenalls Group PLC 40,183 405
Greycoat PLC 3,600 10
Guardian Royal Exchange PLC 291,000 1,388
Guinness PLC 246,280 1,937
Hambros PLC 3,300 13
Hammerson Property PLC 1,870 13
Hanson PLC 160,911 226
Harrison & Crosfield PLC 49,130 111
Hazelwood Foods PLC 15,500 28
Hepworth PLC 1,200 5
Heywood Williams Group PLC 21,666 88
Hillsdown Holdings PLC 456,176 1,563
HSBC Holdings 14,490 316
HSBC Holdings PLC 107,625 2,406
Huntingdon International Holdings PLC - ADR (a) 53,200 386
Hyder PLC 128,333 1,640
Imperial Chemical Industries PLC 5,060 67
Imperial Tobacco Group PLC (a) 16,091 104
Inchcape PLC 82,733 384
Invesco Funding LLC (Units)(a) 54,600 242
Invesco PLC 273,000 1,211
Kingfisher PLC 255,857 2,762
Kwik Save Group PLC 12,940 72
Ladbroke Group, Ltd. PLC 839,361 3,336
Laing (John) PLC 6,000 29
Laing (John) PLC Class A NV 45,800 218
Laporte PLC 700 8
LASMO PLC 131,200 528
Laura Ashley Holdings PLC 9,100 26
Legal & General Group PLC 69,975 447
Lex Service Group, Ltd. PLC 18,600 101
London Clubs International 200,000 1,042
London Electricity PLC 43,274 504
London International Group PLC 26,500 75
Lonrho PLC 241,987 518
Lucas Industries, Ltd. PLC 55,000 210
LucasVarity PLC (a) 414,077 1,582
Manchester United PLC 125,000 1,435
Marley, Ltd. PLC 28,341 61
Meggitt PLC 15,100 26
MEPC PLC 112,000 833
Mercury Asset Management Group PLC 4,700 100
Meyer International PLC 11,100 69
MFI Furniture Group PLC 23,100 73
Mirror Group News PLC 82,000 302
National Grid Group PLC 252,700 844
National Power PLC 124,370 1,040
National Westminster Bank PLC 208,000 2,445
Next PLC 11,000 107
NFC PLC 14,200 45
Norcros PLC (a) 50,600 79
North West Water PLC 42,900 455
Northern Electric PLC 5,000 55
Northern Foods PLC 8,684 30
Ocean Group PLC 5,820 48
Orange PLC (a) 599,745 1,942
Pace Micro Technology PLC 190,000 749
Pen & Orient DFD PLC 84,200 853
Pilkington Brothers PLC 290,369 786
Powell Duffryn PLC 2,300 15
Powergen PLC 22,848 224
Premier Farnell PLC 3,800 49
Provident Financial PLC 105,420 905
Racal Electronics PLC 324,900 1,425
Railtrack Group PLC (Regd) 150,000 992
Rank Group PLC 302,590 2,271
Reckitt & Colman PLC 18,818 233
Redland PLC 23,033 146
Reed International PLC 103,940 1,955
Rentokil Group PLC 56,300 424
Reuter's Holdings PLC 156,000 2,006
Rexam PLC 43,400 269
RMC Group PLC 37,000 634
Rolls-Royce PLC 443,541 1,953
Royal Bank of Scotland Group PLC 140,500 1,353
RTZ Corp. PLC (Regd) 141,800 2,279
Sainsbury (J.) PLC 187,432 1,243
Scottish Hydro-Electric PLC 16,800 94
Scottish Power PLC 251,310 1,511
Sears PLC 1,175,504 1,893
Sevren Trent Water PLC 29,100 334
Shell Transportation & Trading PLC (Regd) 205,390 3,561
Siebe PLC 20,130 374
Signet Group PLC (a) 85,300 44
Simon Engineering PLC 18,656 12
Slough Estates PLC 3,440 16
Smith & Nephew PLC 7,252 23
Smith (David S.) Holdings PLC 77,000 412
SmithKline Beecham PLC 368,893 5,106
Smiths Industries PLC 640 9
South West Water PLC 11,000 114
Southern Electric PLC 3,700 50
Stagecoach Holdings PLC 113,333 1,359
International Fund 75
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Standard Chartered Bank Group PLC 46,875 $ 576
Storehouse PLC 28,297 125
Sun Alliance Group PLC 1,417 11
T & N PLC 406,700 1,212
Tarmac, Ltd. PLC 608,991 1,028
Tate & Lyle, Ltd. PLC 5,200 42
Taylor Woodrow PLC 384,500 1,001
Tesco Store Holdings PLC 287,367 1,743
Thames Water PLC 31,300 328
Thorn EMI PLC 58,000 1,371
Thorn PLC (a) 30,000 130
TI Group PLC 4,800 48
Tomkins PLC 446,510 2,065
Transport Development Group PLC 10,100 33
Trinity Holdings PLC 100,000 483
TSB Group PLC 264,608 1,954
Unigate, Ltd. PLC 4,900 35
Unilever PLC 11,100 269
United Biscuits PLC 63,476 229
United Newspaper, Ltd. PLC 95,300 1,138
Vendome PLC 96,800 881
Vickers, Ltd. PLC 8,300 36
Vodafone Group PLC 1,189,173 5,032
Waste Management International PLC (a) 21,700 90
Wessex Water PLC 18,300 117
Whitbread & Co. PLC 32,810 442
Wilson Connolly Holdings PLC 32,100 92
Wimpey (George), Ltd. PLC 74,646 160
Wolseley PLC 1,348 11
WPP Group PLC 230,000 997
Yorkshire Electricity Group PLC 1,700 23
Yorkshire Water PLC 19,400 234
Zeneca Group PLC 78,340 2,208
----------
156,604
----------
UNITED STATES - 0.0%
Millennium Chemicals, Inc. (a) 98 2
----------
2
----------
VENEZUELA - 0.0%
CIA Anon Nacional Telefonos de
Venezuela - ADR Class D (a) 3,760 106
----------
106
----------
TOTAL COMMON STOCKS
(cost $757,549) 855,444
----------
CONVERTIBLE PREFERRED STOCKS - 0.0%
CANADA - 0.0%
Total Petroleum North America, Ltd. (conv.) 100 1
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $1) 1
----------
PREFERRED STOCKS - 1.5%
AUSTRALIA - 0.4%
News Corp., Ltd. 368,836 1,642
Sydney Harbour Casino Holdings, Ltd. (a) 1,057,262 1,630
----------
3,272
----------
AUSTRIA - 0.0%
Bau Holdings AG 2,200 110
Creditanstalt-Bankverein 2,100 97
EA Generali AG 250 30
Z Landerbank Bank Austria AG 81 3
----------
240
----------
BRAZIL - 0.3%
Banco Bradesco SA NPV 48,456,256 351
Banco Itau SA (Regd) 301,000 130
Brahma (Cia Cervej) NPV 443,989 243
Brasmotor SA NPV 529,000 147
CEMIG SA 4,869,699 166
Cim Port Itau (Cia) 370,920 130
Companhia Energetica de Sao Paulo - ADR (Regd)(a) 4,600 54
Coteminas (Cia Tec) NPV 288,490 92
Lojas Americanas NPV 5,224,000 69
Petroleo Brasileiro SA NPV 1,358,948 216
Telecomunicacoes Brasileiras NPV 3,891,228 299
Telecomunicacoes de Minas Gerais Class B NPV 828,000 102
Telecomunicacoes do Rio de Janeiro SA NPV (a) 780,000 99
TELESP NPV 1,827,460 396
Uniao de Bancos Brasileiros NPV 9,166,000 299
Usiminas Uni Sd Mg NPV 181,000,000 185
----------
2,978
----------
FRANCE - 0.0%
Casino Guichard Perrach 450 17
Ciments Francais Series B 515 16
----------
33
----------
76 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
GERMANY - 0.6%
Bayer Motoren Werk 900 $ 433
Escada AG 400 66
Fielmann AG 2,133 66
GEA AG 840 264
Hornbach Holding AG 2,890 206
Hugo Boss 100 126
Jungheinrich 900 102
Krones AG NV 1,210 439
M.A.N. AG 2,050 411
Porsche AG (a) 25 22
Porsche AG 900 795
RWE AG (a) 35,800 1,210
SAP AG 1,250 175
Volkswagen AG 3,750 1,205
----------
5,520
----------
ITALY - 0.2%
Autostrade Conc. SPA 353,700 695
Instituto Financiaro Industriale SPA 99,800 1,115
----------
1,810
----------
NETHERLANDS - 0.0%
International Nederlanden CVA 2,901 16
----------
16
----------
TOTAL PREFERRED STOCKS
(cost $12,010) 13,869
----------
PRINCIPAL
AMOUNT
(000)
----------
LONG-TERM INVESTMENTS - 0.8%
BELGIUM - 0.0%
Kredietbank (conv.)
5.750% due 12/31/03 BEF 20,000 66
----------
66
----------
FRANCE - 0.0%
Michelin (Cie Gle)(conv.)
2.500% due 01/01/01 FRF 234,500 138
----------
138
----------
ITALY - 0.0%
Danieli & Co.
7.250% due 01/01/00 ITL 25,104 17
Italy, Republic of (conv.)
6.500% due 07/28/01 210,000 141
----------
158
----------
JAPAN - 0.6%
Bank of Tokyo - Cayman Finance, Ltd.
4.250% due 12/31/99 JPY 290,000 3,211
Daido Hoxan, Inc. (conv.)
1.600% due 03/29/02 80,000 687
Hitachi, Ltd. (conv.)
2.700% due 3/31/97 50,000 561
Yamanouchi Pharmaceutical (conv.)
1.250% due 03/31/14 90,000 929
Yamato Transport Co., Ltd. (conv.)
3.900% due 03/30/01 29,000 321
----------
5,709
----------
MALAYSIA - 0.1%
Commerce Asset Holdings (conv.)
1.750% due 09/26/04 USD 545 739
Renong Berhad
4.00% due 05/22/01 MYR 59 25
----------
764
----------
SWITZERLAND - 0.1%
Sandoz Capital (conv.)
1.250% due 10/23/02 CHF 755 839
----------
839
----------
TOTAL LONG-TERM INVESTMENTS
(cost $7,813) 7,674
----------
SHORT-TERM INVESTMENTS - 7.1%
UNITED STATES - 7.1%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 58,821 58,821
United States Treasury Bills
5.040% due 02/06/97 (b)(c)(d) 8,350 8,308
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $67,129) 67,129
----------
International Fund 77
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
MARKET
VALUE
(000)
----------
TOTAL INVESTMENTS
(identified cost $844,502)(e) - 100% $ 944,117
----------
OTHER ASSETS AND LIABILITIES, NET - 0.0% 263
NET ASSETS - 100.0% $ 944,380
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
(d) Rate noted is yield-to-maturity (unaudited).
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
GDS - Global Depositary Share
NPV - No Par Value
NV - Nonvoting
PLC - Public Limited Company
144A - Represents private placement security for qualified buyers according to
rule 144A of the Security Act of 1933.
FOREIGN CURRENCY ABBREVIATIONS:
AUD - Australian dollar
BEF - Belgian franc
CAD - Canadian dollar
CHF - Swiss franc
DEM - German mark
FRF - French franc
GBP - British pound
HKD - Hong Kong dollar
ITL - Italian lira
JPY - Japanese yen
MYR - Malaysian ringgit
NLG - Dutch guilder
NOK - Norwegian krona
NZD - New Zealand dollar
SEK - Swedish krona
SGD - Singapore dollar
USD - U.S. dollar
The accompanying notes are an integral part of the financial statements.
78 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
FTSE - 100 Index
Futures Contracts (UK)
expiration date 03/97 138 $ 735
TOPIX Index
Futures Contracts (Japan)
expiration date 03/97 336 (1,712)
----------
Total Unrealized Appreciation (Depreciation)
on Open Futures Contracts Purchased (#) $ (977)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $8,308 were
held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- ------------------------ ---------- ----------
Basic Industries 8.1% $ 76,294
Capital Goods 8.1 76,875
Consumer Basics 12.0 113,679
Consumer Durable Goods 6.8 64,208
Consumer Non-Durables 6.0 56,959
Consumer Services 2.5 23,925
Energy 6.0 57,051
Finance 14.6 137,521
General Business 5.5 52,239
Miscellaneous 6.9 63,274
Shelter 2.3 21,851
Technology 3.8 35,502
Transportation 1.4 12,813
Utilities 8.2 77,123
Long-Term Investments 0.7 7,674
Short-Term Investments 7.1 67,129
---------- ----------
Total Investments 100.0 944,117
Other Assets and Liabilities, Net 0.0 263
---------- ----------
NET ASSETS 100% $ 944,380
---------- ----------
---------- ----------
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- -------------------------- ---------- ----------
Europe 33.6% $ 317,001
Japan 26.4 249,323
United Kingdom 16.6 156,604
Pacific Basin 12.8 121,471
Latin America 1.2 11,070
United States (Short-Term Investments) 7.1 67,129
Other 2.3 21,519
---------- ----------
Total Investments 100.0 944,117
Other Assets and Liabilities, Net 0.0 263
---------- ----------
NET ASSETS 100% $ 944,380
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statements.
International Fund 79
<PAGE>
INTERNATIONAL FUND
FOREIGN CURRENCY EXCHANGE CONTRACTS (Note 2)
December 31, 1996
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- ------------- ------------- --------------
USD 109 AUD 136 01/07/97 --
USD 434 DEM 675 01/03/97 5
USD 79 MYR 200 01/02/97 --
USD 138 MYR 350 01/03/97 --
USD 386 NLG 674 01/06/97 4
USD 713 SEK 4,903 01/03/97 6
AUD 90 USD 72 01/03/97 --
AUD 300 USD 238 01/03/97 --
CAD 2 USD 1 01/03/97 --
CHF 382 USD 283 01/03/97 (3)
CHF 350 USD 261 01/06/97 --
DEM 235 USD 151 01/03/97 (2)
GBP 8 USD 13 01/03/97 --
GBP 121 USD 205 01/03/97 (3)
ITL 88,034 USD 57 01/03/97 (1)
JPY 6,615 USD 57 01/06/97 --
NLG 946 USD 541 01/03/97 (7)
NOK 349 USD 54 01/03/97 --
NZD 159 USD 113 01/03/97 --
SEK 1,596 USD 232 01/03/97 (2)
SGD 129 USD 92 01/06/97 --
--------------
$ (3)
--------------
--------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- ------------- ------------- --------------
USD 2,982 DEM 4,518 02/07/97 (38)
USD 2,649 GBP 1,694 02/07/97 251
USD 20,025 GBP 12,000 03/27/97 491
USD 35,719 JPY 4,000,000 03/28/97 (752)
USD 153 NOK 984 03/07/97 --
USD 184 NZD 267 02/07/97 4
USD 536 CHF 665 02/07/97 (37)
AUD 758 USD 599 02/07/97 (3)
CHF 4,506 USD 3,460 03/19/97 66
DEM 4,530 USD 3,022 03/03/97 66
DEM 13,494 USD 8,778 03/19/97 (37)
FRF 46,444 USD 8,937 03/19/97 (56)
GBP 850 USD 1,289 02/03/97 (166)
GBP 850 USD 1,286 02/03/97 (169)
HKD 34,841 USD 4,504 03/03/97 (1)
HKD 3,914 USD 506 03/07/97 --
HKD 19,837 USD 2,564 03/07/97 (1)
NOK 1,321 USD 203 02/07/97 (3)
NZD 1,527 USD 1,064 03/07/97 (12)
SEK 14,856 USD 2,249 02/07/97 68
CHF 722 USD 592 02/07/97 50
--------------
$ (279)
--------------
--------------
The accompanying notes are an integral part of the financial statements.
80 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at market (identified cost $844,501,910)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 944,117,328
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,002
Foreign currency holdings (identified cost $7,936,948) . . . . . . . . . . . . . . . . . . . . . . . 7,951,218
Forward foreign currency exchange contracts (cost $101,298,513)(Note 2). . . . . . . . . . . . . . . 101,217,487
Foreign currency exchange spot contracts (cost $4,230,052)(Note 2) . . . . . . . . . . . . . . . . . 4,244,747
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,226,473
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641,494
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,267,588
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849,206
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . 1,025
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,062,652,568
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,556,340
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,762,321
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 668,800
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541,490
Forward foreign currency exchange contracts
(cost $101,298,513)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . 101,496,487
Foreign currency exchange spot contracts
(cost $4,230,052)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 4,247,529
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,272,967
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944,379,601
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . $ (2,011,657)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,596,117
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,615,418
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (977,259)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (258,445)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,547
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 839,162,880
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944,379,601
---------------
---------------
Net asset value, offering and redemption price per share
($944,379,601 divided by 25,254,702 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37.39
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Fund 81
<PAGE>
INTERNATIONAL FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,026,904
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,169,082
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703,988
Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,239,478)
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,660,496
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,569,285
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,984,051
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,713
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,142
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,739
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,941
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,781
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,981
---------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . 9,177,633
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . (60,852)
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,116,781
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,543,715
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,136,028
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,002,447
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . (2,705,409) 36,433,066
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,861,854
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,310,768)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . (424,836) 20,126,250
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,559,316
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 67,103,031
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
82 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,543,715 $ 9,992,340
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,433,066 24,475,971
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 20,126,250 41,596,802
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 67,103,031 76,065,113
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,574,887) (13,261,547)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . -- (1,712,195)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (33,014,374) (19,789,300)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 122,088,460 81,295,220
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 147,602,230 122,597,291
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 796,777,371 674,180,080
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net
investment income of $2,011,657 and $1,712,195, respectively). . . . . . . . . $ 944,379,601 $ 796,777,371
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Fund 83
<PAGE>
INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 36.26 $ 34.28 $ 37.34 $ 28.92 $ 31.96
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .44 .48 .61 .58 .67
Net realized and unrealized gain (loss) on investments . . 2.41 3.16 .65 9.63 (2.62)
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 2.85 3.64 1.26 10.21 (1.95)
-------- -------- -------- -------- --------
DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.35) (.64) (.36) (.57) (.67)
In excess of net investment income . . . . . . . . . . . . -- (.08) -- (.16) --
Net realized gain on investments . . . . . . . . . . . . . (1.37) (.94) (3.73) (1.06) (.42)
In excess of net realized gain on investments. . . . . . . -- -- (.23) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (1.72) (1.66) (4.32) (1.79) (1.09)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 37.39 $ 36.26 $ 34.28 $ 37.34 $ 28.92
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 7.98 10.71 5.38 35.56 (6.11)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (a) . . . . 1.04 .88 .32 .39 .45
Operating expenses, gross, to average net assets (a) . . . 1.05 .89 .34 .41 .46
Net investment income to average net assets (a). . . . . . 1.20 1.41 1.63 1.83 2.46
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 42.69 36.78 71.09 62.04 48.99
Net assets, end of year ($000 omitted) . . . . . . . . . . 944,380 796,777 674,180 562,497 348,869
Per share amount of fees waived ($ omitted)(b) . . . . . . .0025 .0041 .0093 .0091 .0030
Average commission rate paid per share
of security ($ omitted)(c) . . . . . . . . . . . . . . . .0038 N/A N/A N/A N/A
</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.
(b) See Note 4 for current period amounts.
(c) In certain foreign markets the relationship between the translated U.S.
dollar price per share and commission paid per share may vary from
that of domestic markets.
84 International Fund
<PAGE>
FIXED INCOME I FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide effective diversification against equities and a stable
level of cash flow.
INVESTS IN: Fixed-income securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy and employed
three managers with distinct approaches to managing portfolios of
intermediate-maturity, investment-grade fixed income securities.
<TABLE>
<CAPTION>
DATES FIXED I ++ LB AGGREGATE ** LIPPER-C- INTERMEDIATE ++++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $10,149 $10,276 $10,267
1988 $11,038 $11,087 $10,981
1989 $12,511 $12,698 $12,228
1990 $13,587 $13,836 $13,093
1991 $15,763 $16,050 $15,082
1992 $16,907 $17,238 $16,098
1993 $18,675 $18,919 $17,628
1994 $18,120 $18,367 $17,039
1995 $21,387 $21,760 $19,865
1996 $22,190 $22,550 $20,497
- ----------------------------------------------------------------------------------------------------
Total $170,327 $172,781 $162,778
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
FIXED INCOME I FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,375 3.75%
5 Years $ 14,077 7.08%#
10 Years $ 22,190 8.30%#
LEHMAN BROTHERS AGGREGATE BOND INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,363 3.63%
5 Years $ 14,050 7.04%#
10 Years $ 22,550 8.47%#
LIPPER INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,318 3.18%
5 Years $ 13,591 6.33%
10 Years $ 20,497 7.44%
* Assumes initial investment on January 1, 1987.
** 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.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ 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.
86 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Fixed Income I Fund had
a total return of 3.8%, as compared to the Lehman Brothers Aggregate
Bond Index results of 3.6%. The Fund outperformed the Index despite
a slightly above-index duration which detracted from results as interest
rates rose more than 69 basis points on Treasuries with maturities
beyond one year.
PORTFOLIO HIGHLIGHTS
Interest rates rose steadily through most of the year and were extremely
volatile as investors expressed their anxiety towards signs of potentially
inflationary, resurgent economic growth. Despite these fears, domestic
economic growth and inflation appeared to be moderate by most measures.
The Federal Reserve Board chose to leave rates unchanged through the
remainder of the year after lowering the discount rate 25 basis points
in January. The market environment afforded few opportunities to generate
significant returns in the investment grade market.
The Fund generated good returns through security selection, with a
focus on exploiting favorable yield spreads, particularly in mortgage-backed
securities. The strong performance of corporates throughout the year
also added to the Fund's performance. Duration proved to be a negative
as interest rates trended upward through the first half of 1996, fell
slightly in the second half, but still ended the year higher. The
market's fears of inflation and Fed intervention clashed with the
Fund managers' views of economic weakness and minimal pricing power
to fuel inflation.
- -------------------------------------------------------------------
TOP TEN ISSUERS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
United States Treasury 31.1%
Federal National Mortgage Association 12.9
Government National Mortgage Association 12.0
Federal Home Loan Mortgage Corp. 7.9
Government Backed Trust Certificates 2.6
Prudential Home Mortgage Securities Co. 0.7
Time Warner, Inc. 0.7
Resolution Funding Corp. 0.6
Case Equipment Loan Trust 0.6
Green Tree Financial Corp. 0.5
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Weighted Average Quality Diversification AAA
Weighted Average Years-to-Maturity 8.3 Years
Weighted Average Duration 4.9 Years
Current Yield (SEC 30-day standardized) 6.6%
Number of Issues 786
Number of Issuers 484
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Lincoln Capital Management Co. Enhanced Core
Pacific Investment Management Co. Broad Market-Sector
Rotation
Standish, Ayer & Wood, Inc. Broad Market-Sector
Rotation
- -------------------------------------------------------------------
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 87
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
LONG-TERM INVESTMENTS - 101.2%
ASSET-BACKED SECURITIES - 8.3%
Advanta Home Equity Loan Trust
9.000% due 02/25/06 $ 79 $ 81
AFC Home Equity Loan Trust
7.590% due 09/25/27 2,030 2,070
Associates Manufactured Housing
Mortgage Pass-thru Certificate
Series 1996-2 Class A-3
6.350% due 06/15/27 960 947
Capita Equipment Receivables Trust
Series 1996 - 1 Class A-4
6.280% due 06/15/00 3,000 3,004
Case Equipment Loan Trust
Series 1996-B Class A-3
6.650% due 09/15/03 4,410 4,453
Chase Commerical Mortgage Securities Corp.
Series 1996-1 Class A-1
7.600% due 12/18/05 940 967
Chase Manhattan Credit Card Master Trust
Series 1996-4 Class A
6.730% due 02/15/03 1,215 1,232
Chase Manhattan Grantor Trust
Series 1996-B Class A
6.610% due 09/15/02 754 760
Contimortage Home Equity Loan Trust
Mortgage Pass-thru Certificate
Series 1994-4 Class A-6
8.270% due 12/15/24 735 755
Series 1995-1 Class A2-A
8.600% due 06/15/25 333 340
Series 1996-4 Class A-9
6.880% due 01/15/28 1,500 1,479
Daimler-Benz Vehicle Trust
Series 1996-A Class A
5.850% due 12/15/03 1,650 1,663
Discover Card Trust
Series 1992-B Class A
6.800% due 06/16/00 935 941
Federal Housing Authority:
Project Citi 68
7.430% due 06/27/21 1,554 1,534
Fingerhut Master Trust
Series 1996-1 Class A
6.450% due 02/20/02 670 674
Fleetwood Credit Corp. Grantor Trust
Series 1996-A Class A
6.750% due 10/17/11 1,344 1,352
Series 1996-B Class A
6.900% due 03/15/12 1,422 1,432
Green Tree Financial Corp.
Series 1994-7 Class A-2
7.600% due 03/15/20 1,612 1,619
5.960% due 11/15/28 1,250 1,249
Greenwich Capital Acceptance, Inc.
Mortgage Pass-thru Certificate
Series 1993 Class LB-1
7.258% due 04/25/23 (c) 1,023 1,037
Lehman Pass-thru Securities, Inc.
Series 1991-2 Class A-1
8.000% due 03/20/99 134 137
Mortgage Capital Funding, Inc.
Series 1996-MC1 Class A2-B
7.900% due 02/15/06 950 1,007
Oakwood Mortgage Investors, Inc.
Series 1996-B Class A-2
6.800% due 10/15/26 (c) 1,493 1,506
Series 1996-C Class A-3
6.750% due 04/15/27 1,250 1,251
Onyx Acceptance Grantor Trust
Pass-thru Certificate
Series 1996-2 Class A
6.400% due 10/15/01 471 473
Premier Auto Trust
6.400% due 10/06/01 3,470 3,487
Prudential Home Mortgage Securities Co.
Series 1992-38 Class A-8
6.950% due 11/25/22 1,640 1,503
Series 1993-52 Class A-1
8.455% due 11/25/23 (c) 3,586 3,673
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1992-C2 Class A-1
9.000% due 10/25/22 50 50
Series 1994-C1 Class C
8.000% due 06/25/26 1,200 1,230
Series 1994-C2 Class D
8.000% due 04/25/25 284 290
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 400 393
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16
8.316% due 11/25/24 (c) 2,256 2,318
Sears Credit Account Master Trust II
Series 1996-2 Class A
6.500% due 10/15/03 535 539
88 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Sears Mortgage Securities Corp.
Series 1992 Class A
7.587% due 10/25/22 (c) $ 3,030 $ 3,089
Sears Savings Bank Mortgage
Pass-thru Certificate
Series 1992-A Class A
8.679% due 05/25/32 (c) 988 994
The Money Store Home Equity Trust
Series 1994-D Class A-4
8.750% due 01/15/20 150 158
Series 1996-A Class A-5
6.850% due 06/15/19 1,050 1,052
Series 1996-B Class A-5
7.180% due 12/15/14 1,025 1,041
Wal-Mart Stores, Inc.
Series 1994-B3
8.800% due 12/30/14 360 398
World Omni Automobile Lease
Securitization Trust
Series 1995 - A Class A
6.050% due 11/25/01 32 32
Series 1996 - B Class A-2
6.200% due 11/15/02 766 768
Series 1996 - B Class A-3
6.250% due 11/15/02 2,500 2,493
----------
55,471
----------
CORPORATE BONDS AND NOTES - 17.0%
Ahmanson Capital Trust I Series A
8.360% due 12/01/26 525 535
American Brands, Inc.
8.625% due 11/15/21 500 563
7.875% due 01/15/23 100 105
American Express Co.
8.500% due 08/15/01 45 48
American General Finance Corp.
8.250% due 01/15/98 705 720
7.250% due 03/01/98 365 370
8.500% due 08/15/98 375 388
Analog Devices, Inc.
6.625% due 03/01/00 225 222
Appalachian Power Co.
6.800% due 03/01/06 1,250 1,230
Aristar, Inc.
6.300% due 07/15/00 190 188
Associates Corp. North America
Series H (MTN)
7.090% due 04/11/03 400 407
Associates Corp. of North America
6.250% due 03/15/99 1,520 1,521
AT&T Corp.
8.625% due 12/01/31 440 466
Atlantic Richfield Co.
9.125% due 08/01/31 700 848
Australia & New Zealand Banking Group, Ltd.
7.550% due 09/15/06 725 751
AVCO Financial Services, Inc.
7.250% due 07/15/99 415 422
8.500% due 10/15/99 655 688
Baltimore Gas & Electric Co.
6.500% due 02/15/03 550 544
Banc One Corp.
7.250% due 08/01/02 790 809
Bank of New York, Inc.
7.875% due 11/15/02 500 527
Bank One, Columbus, Ohio
7.375% due 12/01/02 195 202
BankAmerica Corp.
6.850% due 03/01/03 425 425
BankAmerica Institutional Capital
Class B
7.700% due 12/31/26 500 485
Barnett Bank, Inc.
6.900% due 09/01/05 415 409
Bell Telephone Co. of Pennsylvania
8.350% due 12/15/30 645 758
BellSouth Telecommunications
7.000% due 12/01/95 295 286
Beneficial Corp.
8.400% due 05/15/08 757 859
Broken Hill Property Finance USA
6.420% due 03/01/26 1,000 990
Carolina Power & Light Co.
6.875% due 08/15/23 250 231
Case Corp.
7.250% due 08/01/05 395 395
7.250% due 01/15/16 150 143
Caterpillar Financial Services (MTN)
9.500% due 02/06/07 80 94
Caterpillar, Inc.
8.000% due 02/15/23 600 640
Central Fidelity Banks, Inc.
8.150% due 11/15/02 280 296
Fixed Income I Fund 89
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Central Power & Light Co. Series FF
6.875% due 02/01/03 $ 550 $ 551
Champion International Corp.
6.400% due 02/15/26 570 544
Chase Manhattan Corp.
9.375% due 07/01/01 950 1,048
Chesapeake & Potomac Telephone Co.
8.375% due 10/01/29 405 467
Chevron Corp.
Profit Sharing Savings Plan Trust Fund
8.110% due 12/01/04 385 409
Chrysler Financial Corp.
9.500% due 12/15/99 445 481
Cincinnati Gas & Electric Co.
7.200% due 10/01/23 250 235
Circus Circus Enterprises, Inc.
6.450% due 02/01/06 700 663
CIT Group Holdings, Inc. (MTN)
6.625% due 06/28/99 1,575 1,583
Citicorp
9.500% due 02/01/02 195 218
7.125% due 06/01/03 75 76
Coca-Cola Enterprises, Inc.
7.000% due 10/01/26 590 602
Commercial Credit Group, Inc.
6.000% due 06/15/00 500 492
5.750% due 07/15/00 255 249
8.700% due 06/15/10 795 907
Commonwealth Edison Co. Series 85
7.375% due 09/15/02 1,120 1,136
Consolidated Natural Gas Co.
8.625% due 12/01/11 291 306
Consolidated Rail Corp.
Pass-thru Certificate Structured Note
Series 1995 Class A
6.760% due 05/25/15 600 590
CoreStates Capital Corp.
5.875% due 10/15/03 750 709
Corporate Property Investors
7.875% due 03/15/16 2,025 2,046
CSFB Finance Co., Ltd.
Series 1995-A Class A
7.542% due 11/15/05 (c) 450 450
Dayton Hudson Corp.
9.750% due 07/01/02 425 480
Discover Credit Corp. (MTN)
8.350% due 04/27/99 465 485
Dole Food Co., Inc.
6.750% due 07/15/00 280 280
Duke Power Co.
7.000% due 07/01/33 1,030 955
Eaton Corp.
7.000% due 04/01/11 545 523
Equitable Life Assurance Society
6.950% due 12/01/05 925 912
7.700% due 12/01/15 975 984
ERAC USA Finance Co. (MTN)
7.500% due 06/15/03 500 514
ERP Operating, L.P.
8.500% due 05/15/99 725 751
Federal Express Corp. Series 1993 Class B-1
6.680% due 01/01/08 725 702
Federal Realty Investment Trust
7.480% due 08/15/26 1,000 1,009
First Bank Systems, Inc.
8.000% due 07/02/04 650 685
First Chicago Corp.
8.875% due 03/15/02 600 654
First Chicago
NBD Institutional Capital Series B
7.750% due 12/01/26 525 508
First Fidelity Bancorp
9.625% due 08/15/99 415 447
First Interstate Bancorp (MTN)
9.375% due 01/23/02 225 246
First Union Corp.
6.550% due 10/15/35 1,950 1,898
First Union National Bank, Newark (MTN)
7.125% due 10/15/06 330 330
First USA Bank Wilmington (MTN)
7.000% due 08/20/01 1,075 1,076
Fleet Capital Trust II
7.920% due 12/11/26 1,000 988
Fleet Financial Group, Inc.
8.125% due 07/01/04 675 718
Ford Motor Credit Co.
8.375% due 01/15/00 675 711
Ford Motor Credit Co. (MTN)
6.000% due 02/27/01 1,450 1,419
6.290% due 03/05/01 865 855
Franchise Finance Corp.
7.000% due 11/30/00 750 750
General Electric Capital Corp.
6.660% due 05/01/18 (c) 1,025 1,031
8.300% due 09/20/09 470 524
General Motors Acceptance Corp.
6.625% due 10/01/02 1,845 1,833
90 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Georgia-Pacific Corp.
7.375% due 12/01/25 $ 460 $ 434
Goldman Sachs Group, L.P.
6.375% due 06/15/00 415 412
6.200% due 12/15/00 725 712
6.875% due 09/15/99 825 833
Grand Metropolitan Investment Corp.
7.450% due 04/15/35 425 452
Green Tree Financial Corp.
7.050% due 09/15/27 1,040 1,053
Hertz Corp.
7.000% due 04/15/01 850 861
9.000% due 11/01/09 390 445
Household Finance Corp.
6.375% due 06/30/00 750 747
Integra Financial Corp.
6.500% due 04/15/00 850 845
International Lease Finance Corp.
5.750% due 01/15/99 685 678
International Paper Co.
9.400% due 06/01/02 600 669
ITT Corp.
7.375% due 11/15/15 420 402
ITT Corp. New
6.250% due 11/15/00 700 689
ITT Financial Corp.
7.400% due 11/15/25 640 626
JPM Capital Trust I
7.540% due 01/15/27 285 278
Kern River Funding Corp. Series B
6.720% due 09/30/01 1,025 1,024
Liberty Mutual
7.875% due 10/15/26 1,025 1,033
Lockheed Martin Corp.
7.750% due 05/01/26 800 831
Martin Marietta Corp.
7.000% due 03/15/11 325 312
Meditrust
7.820% due 09/10/26 2,100 2,176
Mellon Bank, NA
7.625% due 09/15/07 510 529
Merry Land & Investment, Inc.
6.875% due 11/01/03 175 171
7.250% due 06/15/05 800 791
Morgan Stanley Group, Inc.
8.875% due 10/15/01 1,150 1,250
8.100% due 06/24/02 175 185
Morgan Stanley Group, Inc. (MTN)
5.750% due 02/15/01 800 775
Nabisco, Inc.
6.700% due 06/15/02 325 322
NationsBank Corp.
6.625% due 01/15/98 250 252
New England Telephone & Telegraph Co.
7.875% due 11/15/29 430 462
News America Holdings, Inc.
7.700% due 10/30/25 850 805
Northwestern Bell Telephone Co.
7.750% due 05/01/30 330 343
Norwest Financial, Inc.
6.375% due 11/15/01 750 746
6.250% due 11/01/02 425 417
6.375% due 11/15/03 650 640
NYNEX Corp.
9.550% due 05/01/10 620 699
Occidental Petroleum Corp.
10.125% due 11/15/01 255 290
Occidental Petroleum Corp. (MTN)
8.500% due 11/09/01 295 316
Pacific Bell
7.500% due 02/01/33 610 587
Pennsylvania Power & Light Co.
6.875% due 03/01/04 1,200 1,199
Pennzoil Co.
10.125% due 11/15/09 215 262
PepsiCo, Inc.
7.625% due 12/18/98 360 370
Philadelphia Electric Co. Series 1992
7.500% due 01/15/99 200 204
Philip Morris Cos. , Inc.
6.950% due 06/01/06 380 384
7.650% due 07/01/08 395 403
Pitney Bowes Credit Corp.
8.550% due 09/15/09 780 879
Praxair, Inc.
6.850% due 06/15/05 680 673
Ralston Purina Co.
7.875% due 06/15/25 845 865
Republic New York Corp.
9.750% due 12/01/00 130 144
8.250% due 11/01/01 240 256
Residential Accredit Loans, Inc.
Series 1996-QS1 Class AI4
6.900% due 01/25/26 3,000 2,956
RJR Nabisco, Inc.
8.625% due 12/01/02 400 408
Rockwell International Corp.
8.875% due 09/15/99 300 319
Fixed Income I Fund 91
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Seagram Co., Ltd.
8.350% due 01/15/22 $ 740 $ 807
Sears Roebuck Acceptance Corp.
Series II (MTN)
6.690% due 04/30/01 975 978
Security-Connecticut Corp. (MTN)
7.125% due 03/01/03 1,000 981
Shopping Center Associates
6.750% due 01/15/04 750 730
Signet Bank
7.800% due 09/15/06 750 774
Simon Debartolo Group L.P.
6.875% due 11/15/06 500 486
Smith Barney Holdings, Inc.
7.980% due 03/01/00 775 807
Spieker Properties, Inc.
6.900% due 01/15/04 1,000 969
Suntrust Banks, Inc.
7.375% due 07/01/02 400 413
Temple Inland, Inc.
7.250% due 09/15/04 575 583
Tenneco Corp.
10.200% due 03/15/08 525 651
Texaco Capital, Inc.
9.750% due 03/15/20 225 286
8.875% due 09/01/21 440 519
Texas Utilities Electric Co.
9.500% due 08/01/99 1,370 1,469
Time Warner Entertainment Co., L.P.
10.150% due 05/01/12 400 480
8.375% due 03/15/23 925 938
8.375% due 07/15/33 525 527
Time Warner, Inc.
6.460% due 08/15/00 (c) 750 754
7.975% due 08/15/04 450 458
8.110% due 08/15/06 900 923
8.180% due 08/15/07 900 923
Transamerica Capital I
7.800% due 12/01/26 1,025 994
Transamerica Financial Corp.
8.375% due 02/15/98 360 368
Union Carbide Chemicals & Plastics
7.875% due 04/01/23 835 866
Union Oil Co. (MTN)
9.400% due 02/15/11 390 454
Union Pacific Corp.
7.600% due 05/01/05 350 360
Union Pacific Railroad Trust
Pass-thru Certificate Series 1996-A2
7.060% due 05/15/03 450 458
United Technologies Corp.
8.750% due 03/01/21 445 519
US Bancorp Capital I Series A
8.270% due 12/15/26 600 600
Virginia Electric & Power Co.
8.750% due 04/01/21 335 359
Wachovia Corp.
6.800% due 06/01/05 280 278
Washington Real Estate Investment Trust
7.250% due 08/13/06 1,000 992
Wells Fargo & Co.
6.875% due 04/01/06 500 492
Whirlpool Corp.
9.500% due 06/15/00 400 435
Willamette Industries, Inc.
7.850% due 07/01/26 650 679
World Financial Properties Tower
Series 1996 WBF-B
6.910% due 09/01/13 1,324 1,246
----------
112,565
----------
EURODOLLAR BONDS - 0.2%
Skandinaviska Enskilda Banken
8.125% due 09/06/49 (c) 1,000 1,041
----------
1,041
----------
MORTGAGE-BACKED SECURITIES - 34.9%
Federal Home Loan Mortgage Corp.
Pool # D6-0929 8.000% due 06/01/25 884 902
Pool # D6-0991 8.000% due 06/01/25 351 359
Pool # D6-1272 8.000% due 06/01/25 310 317
Pool # D5-9294 9.000% due 03/01/25 782 828
Federal Home Loan Mortgage Corp.
7.000% 15 Year TBA (b) 100 100
8.000% 30 Year TBA (b) 1,790 1,825
7.500% 15 year TBA (b) 35 36
6.000% 15 Year TBA (b) 190 183
Federal Home Loan Mortgage Corp.
Participation Certificate
Group # 14-1607 8.000% due 08/01/18 80 83
Group # 17-0164 9.000% due 05/01/16 149 158
Group # 17-0170 9.000% due 06/01/16 133 141
92 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Group # 17-0171 9.000% due 06/01/16 $ 285 $ 302
Group # 17-0181 9.000% due 08/01/16 70 75
Group # 17-0195 9.000% due 10/01/16 349 370
Group # 17-0196 9.000% due 10/01/16 212 225
Group # 17-0197 9.000% due 10/01/16 440 467
Group # 17-0204 9.000% due 11/01/16 96 102
Group # 17-0208 9.000% due 12/01/16 102 108
Group # 26-0607 12.000% due 06/01/14 215 244
Group # 27-8582 9.000% due 10/01/16 37 39
Group # 28-4634 9.000% due 01/01/17 2 2
Group # 30-0025 12.500% due 04/01/16 362 417
Group # 30-5382 9.000% due 12/01/17 50 52
Group # 84-5481 7.456% due 09/01/23 (c) 827 851
Group # A0-0690 9.000% due 02/01/20 1,812 1,937
Group # C0-0109 8.000% due 04/01/22 1,347 1,383
Group # C0-0335 7.500% due 05/01/24 334 335
Group # C0-0398 9.000% due 05/01/25 460 487
Group # C0-0444 8.000% due 01/01/26 719 733
Group # C0-0475 8.500% due 08/01/26 24 25
Group # C8-0328 7.500% due 07/01/25 346 348
Group # C8-0371 8.000% due 12/01/25 693 707
Group # C8-0385 6.500% due 03/01/26 645 618
Group # C8-0415 8.500% due 07/01/26 503 522
Group # C8-0458 9.000% due 10/01/26 47 50
Group # D2-7264 7.500% due 11/01/22 311 314
Group # D4-7783 6.500% due 01/01/24 137 132
Group # D5-3905 7.500% due 06/01/24 251 252
Group # D5-6375 7.500% due 09/01/24 268 269
Group # D5-6485 7.500% due 09/01/24 593 596
Group # D5-9553 8.500% due 04/01/25 415 431
Group # D5-9609 8.000% due 04/01/25 164 167
Group # D5-9633 9.000% due 04/01/25 235 249
Group # D5-9707 9.000% due 04/01/25 14 15
Group # D5-9816 8.000% due 04/01/25 44 45
Group # D6-0033 8.000% due 05/01/25 62 63
Group # D6-0224 9.000% due 05/01/25 137 144
Group # D6-0678 8.000% due 06/01/25 1,479 1,513
Group # D6-0728 8.000% due 06/01/25 192 196
Group # D6-1528 8.000% due 07/01/25 686 701
Group # D6-1597 8.000% due 07/01/25 81 83
Group # D6-1887 8.000% due 07/01/25 1,677 1,712
Group # D6-2110 8.000% due 07/01/25 1,690 1,730
Group # D6-2616 8.000% due 08/01/25 34 35
Group # D6-2913 8.000% due 08/01/25 943 963
Group # D6-3290 8.000% due 09/01/25 516 527
Group # D6-3713 8.000% due 09/01/25 377 384
Group # D6-3752 8.000% due 09/01/25 500 510
Group # D6-3859 6.500% due 09/01/25 486 465
Group # D6-4128 8.000% due 10/01/25 109 111
Group # D6-4296 8.000% due 10/01/25 393 401
Group # D6-4458 8.000% due 09/01/25 348 355
Group # D6-4826 6.500% due 10/01/25 52 50
Group # D6-4861 8.000% due 10/01/25 714 729
Group # D6-5028 8.000% due 11/01/25 318 324
Group # D6-5188 8.000% due 11/01/25 332 338
Group # D6-5854 8.000% due 11/01/25 28 28
Group # D6-6409 8.000% due 12/01/24 713 728
Group # D6-7251 7.500% due 01/01/25 56 56
Group # D6-8007 6.500% due 02/01/26 171 164
Group # D6-9568 6.500% due 03/01/26 208 199
Group # D6-9743 6.500% due 04/01/26 794 760
Group # D6-9789 6.500% due 04/01/26 258 247
Group # D6-9853 6.500% due 04/01/26 989 946
Group # D7-0051 6.500% due 04/01/26 518 496
Group # D7-0251 6.500% due 04/01/26 982 940
Group # D7-0278 6.500% due 04/01/26 94 90
Group # D7-0339 6.500% due 04/01/26 989 946
Group # D7-0391 6.500% due 04/01/26 726 694
Group # D7-0602 6.500% due 03/01/26 190 182
Group # D7-1077 6.500% due 05/01/26 371 355
Group # D7-1100 6.500% due 05/01/26 187 179
Group # D7-1591 6.500% due 05/01/26 631 603
Group # D7-5017 6.500% due 10/01/26 989 946
Group # E0-0279 6.500% due 02/01/09 174 173
Group # E0-0333 8.000% due 08/01/09 230 237
Group # E0-0454 8.000% due 10/01/11 104 107
Group # E2-0123 7.500% due 08/01/09 285 290
Group # E2-0145 7.500% due 11/01/09 214 217
Group # E2-0153 8.000% due 01/01/10 73 76
Group # E2-0216 6.500% due 01/01/16 599 590
Group # E2-0238 6.500% due 05/01/11 1,931 1,903
Group # E2-0244 6.500% due 06/01/11 418 412
Group # E5-6830 6.500% due 02/01/09 408 403
Group # E5-6953 6.500% due 02/01/09 60 60
Group # E5-9472 7.500% due 08/01/09 117 119
Group # E5-9512 7.500% due 08/01/09 163 166
Group # E5-9554 7.500% due 08/01/09 662 673
Group # E5-9577 7.500% due 09/01/09 438 446
Group # E5-9921 7.500% due 11/01/09 99 100
Group # E5-9923 7.500% due 11/01/09 216 220
Group # E5-9926 7.500% due 11/01/09 129 131
Group # E5-9932 7.500% due 11/01/09 291 296
Group # E6-0172 8.000% due 02/01/10 551 568
Group # E6-0173 8.000% due 02/01/10 277 285
Group # E6-0194 8.000% due 03/01/10 120 124
Group # E6-2966 6.500% due 02/01/11 69 68
Group # E6-3864 6.500% due 04/01/11 189 186
Group # E6-3866 6.500% due 04/01/11 104 103
Group # E6-4226 6.500% due 05/01/11 285 280
Group # E6-4252 6.500% due 05/01/11 326 320
Fixed Income I Fund 93
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Group # E6-4516 6.500% due 06/01/11 $ 607 $ 596
Group # E6-4542 6.500% due 06/01/11 538 528
Group # E6-4951 6.500% due 08/01/11 317 311
Group # E6-5408 7.500% due 09/01/11 103 104
Group # G0-0279 7.500% due 12/01/24 865 869
Group # G0-0289 8.000% due 01/01/25 704 720
Group # G0-0518 6.500% due 08/01/26 1,046 1,001
Group # M1-1773 7.500% due 03/01/97 202 205
Group # M1-3104 7.000% due 03/01/97 86 87
Group # M1-3357 7.500% due 04/01/97 597 605
Group # M1-3486 7.500% due 04/01/97 102 104
Group # M1-4825 7.000% due 08/01/97 18 18
Group # M1-9003 7.000% due 04/01/97 240 242
Group # M1-9073 7.500% due 11/01/97 203 205
Group # M8-0446 7.000% due 10/01/03 25 25
Pool # G00505 6.500% due 12/01/25 1,079 1,033
Pool # E60386 8.000% due 04/01/10 85 88
Pool # E62831 6.500% due 01/01/11 553 545
Federal Home Loan Mortgage Corp.
Series K Class K-5
7.760% due 05/01/12 2,091 2,122
Federal National Mortgage Association
Pool # 040208 8.000% due 01/01/02 2 3
Pool # 040403 8.000% due 01/01/02 3 3
Pool # 040841 8.000% due 01/01/02 72 74
Pool # 041060 8.000% due 02/01/02 133 137
Pool # 042014 8.000% due 03/01/02 7 7
Pool # 042675 8.000% due 02/01/02 7 7
Pool # 043467 8.000% due 03/01/02 8 8
Pool # 046329 8.000% due 04/01/02 5 5
Pool # 047205 8.000% due 05/01/02 49 50
Pool # 047293 8.000% due 05/01/02 13 13
Pool # 047565 8.000% due 07/01/02 80 82
Pool # 047690 8.000% due 05/01/02 7 7
Pool # 048419 8.000% due 06/01/02 61 63
Pool # 048902 8.000% due 06/01/02 82 84
Pool # 049385 8.000% due 06/01/02 11 12
Pool # 049441 8.000% due 06/01/02 4 4
Pool # 050752 7.000% due 05/01/00 460 462
Pool # 050758 7.000% due 06/01/00 140 140
Pool # 050762 6.500% due 07/01/08 479 473
Pool # 050930 7.000% due 11/01/23 232 228
Pool # 050974 6.500% due 01/01/09 1,013 1,002
Pool # 050991 6.500% due 02/01/24 36 35
Pool # 051057 8.000% due 06/01/02 82 84
Pool # 053628 8.000% due 07/01/02 70 72
Pool # 053865 8.000% due 07/01/02 27 28
Pool # 061217 8.000% due 05/01/03 17 17
Pool # 065408 7.875% due 09/01/18 (c) 327 341
Pool # 067922 8.000% due 07/01/03 343 353
Pool # 070424 8.000% due 06/01/02 11 11
Pool # 076261 8.000% due 12/01/03 202 207
Pool # 087274 8.000% due 08/01/04 112 115
Pool # 120778 8.000% due 03/01/17 67 69
Pool # 124542 7.000% due 11/01/99 748 752
Pool # 125335 7.500% due 06/01/24 261 262
Pool # 153690 8.000% due 07/01/02 179 184
Pool # 156065 8.000% due 09/01/02 254 262
Pool # 156799 8.000% due 03/01/05 171 176
Pool # 178066 7.000% due 09/01/99 408 410
Pool # 183514 8.000% due 08/01/22 295 303
Pool # 187852 10.500% due 08/01/10 8 8
Pool # 190251 8.000% due 11/01/23 151 154
Pool # 190506 6.500% due 12/01/08 710 702
Pool # 190924 6.500% due 06/01/09 713 705
Pool # 190962 6.500% due 07/01/09 438 433
Pool # 207010 6.500% due 04/01/09 32 32
Pool # 208101 6.500% due 05/01/00 85 84
Pool # 211454 7.000% due 05/01/00 162 162
Pool # 216515 6.500% due 06/01/08 49 49
Pool # 220817 6.500% due 06/01/08 25 24
Pool # 223595 6.500% due 07/01/08 89 88
Pool # 231502 7.000% due 10/01/23 366 359
Pool # 234968 6.500% due 09/01/08 193 191
Pool # 235710 7.000% due 11/01/23 497 488
Pool # 238372 7.000% due 11/01/23 1,763 1,731
Pool # 239803 7.000% due 11/01/23 280 275
Pool # 244370 7.000% due 11/01/23 933 916
Pool # 246161 7.000% due 11/01/23 91 89
Pool # 246197 7.000% due 11/01/23 539 529
Pool # 247337 7.000% due 11/01/23 890 875
Pool # 248444 6.500% due 05/01/09 184 182
Pool # 250009 6.500% due 04/01/09 824 814
Pool # 250345 7.000% due 09/01/25 1,908 2,523
Pool # 263021 6.500% due 05/01/09 53 53
Pool # 266371 6.500% due 01/01/01 312 310
Pool # 269791 6.500% due 05/01/09 341 337
Pool # 270990 6.500% due 02/01/01 44 44
Pool # 270992 6.500% due 02/01/01 292 290
Pool # 273185 6.500% due 04/01/24 1,039 997
Pool # 274657 6.500% due 04/01/24 1,754 1,682
Pool # 275276 7.500% due 06/01/24 312 312
Pool # 276075 6.500% due 04/01/09 559 552
Pool # 277550 6.500% due 04/01/09 310 306
Pool # 279004 7.000% due 04/01/24 190 186
Pool # 279137 6.500% due 05/01/09 470 464
Pool # 280352 6.500% due 05/01/09 242 239
Pool # 280980 6.500% due 05/01/09 44 43
94 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Pool # 280984 6.500% due 05/01/09 $ 1,539 $ 1,521
Pool # 281297 6.500% due 05/01/09 396 392
Pool # 281298 6.500% due 05/01/09 248 245
Pool # 281439 6.500% due 04/01/09 275 272
Pool # 282305 7.000% due 05/01/24 608 597
Pool # 283040 6.500% due 05/01/09 397 393
Pool # 283486 6.500% due 05/01/09 414 409
Pool # 283947 7.500% due 06/01/24 198 198
Pool # 284279 7.000% due 05/01/24 448 440
Pool # 284451 6.500% due 05/01/09 426 421
Pool # 284577 6.500% due 05/01/09 748 739
Pool # 285147 7.000% due 06/01/24 774 760
Pool # 287464 6.500% due 06/01/09 399 394
Pool # 287716 7.500% due 09/01/24 702 703
Pool # 289234 6.500% due 06/01/09 653 645
Pool # 289660 7.500% due 08/01/24 187 187
Pool # 290876 7.500% due 07/01/24 615 617
Pool # 295187 6.500% due 09/01/09 51 51
Pool # 303555 7.000% due 09/01/25 2,863 2,801
Pool # 309183 7.000% due 12/01/25 2,495 2,441
Pool # 309300 7.000% due 07/01/03 79 79
Pool # 312495 7.000% due 07/01/25 646 632
Pool # 312998 7.000% due 07/01/25 143 140
Pool # 316786 7.000% due 07/01/25 714 699
Pool # 316938 7.000% due 07/01/25 327 320
Pool # 319622 7.000% due 08/01/25 660 646
Pool # 319647 7.000% due 08/01/25 233 228
Pool # 319761 7.000% due 08/01/25 607 594
Pool # 320080 7.000% due 08/01/25 1,871 1,831
Pool # 324205 7.000% due 09/01/25 2,164 2,118
Pool # 325229 7.000% due 10/01/25 1,346 1,317
Pool # 326413 7.000% due 10/01/25 2,610 2,553
Pool # 326641 7.000% due 10/01/25 2,431 2,379
Pool # 326699 7.000% due 11/01/25 2,466 2,412
Pool # 329866 7.000% due 11/01/25 940 920
Pool # 330474 7.000% due 11/01/25 173 170
Pool # 330476 7.000% due 11/01/25 1,469 1,437
Pool # 332456 6.500% due 01/01/26 72 69
Pool # 332461 6.500% due 01/01/26 457 436
Pool # 338414 6.500% due 05/01/26 322 308
Pool # 338417 6.500% due 05/01/26 993 947
Pool # 340281 7.000% due 10/01/03 434 436
Pool # 342072 6.500% due 03/01/26 1,075 1,026
Pool # 345582 6.500% due 05/01/26 574 549
Pool # 346095 7.500% due 05/01/03 429 435
Pool # 346212 7.000% due 04/01/26 252 246
Pool # 346441 8.000% due 10/01/26 26 26
Pool # 348062 7.500% due 07/01/26 1,006 1,006
Pool # 348448 7.500% due 06/01/03 74 75
Pool # 348851 7.500% due 06/01/26 516 516
Pool # 349196 7.500% due 08/01/03 81 82
Pool # 351415 7.500% due 07/01/26 653 652
Pool # 351416 7.500% due 07/01/26 449 448
Pool # 351999 7.500% due 08/01/26 89 89
Pool # 352092 7.000% due 09/01/03 233 234
Pool # 352979 7.500% due 07/01/26 324 324
Pool # 353000 8.000% due 09/01/26 33 33
Pool # 353390 7.500% due 08/01/03 1,265 1,284
Pool # 365304 8.000% due 11/01/26 930 948
Federal National Mortgage Association
REMIC Series 1994-81 Class PJ
8.000% due 07/25/23 1,925 2,024
REMIC Series G92-36 Class A
7.000% due 04/25/15 556 562
Pass-thru Certificates
6.500% 30 Year TBA (b) 5,880 5,608
7.000% 30 Year TBA (b) 8,755 8,561
9.000% 30 Year TBA (b) 2,145 2,262
Principal Only Strip
Zero Coupon due 03/01/20 228 181
Government National Mortgage Association
Pool # 006248 8.500% due 06/15/05 76 79
Pool # 008528 7.000% due 10/20/24 (c) 3,831 3,919
Pool # 139796 9.500% due 03/15/16 125 136
Pool # 146110 9.500% due 05/15/16 27 29
Pool # 148211 9.500% due 02/15/16 89 97
Pool # 148618 8.500% due 08/15/16 21 22
Pool # 152577 9.000% due 10/15/16 76 82
Pool # 152837 9.000% due 10/15/16 43 46
Pool # 154592 9.000% due 04/15/16 275 295
Pool # 156625 9.000% due 09/15/16 438 470
Pool # 157439 9.000% due 05/15/16 186 199
Pool # 157532 8.500% due 07/15/16 51 54
Pool # 161209 9.000% due 08/15/16 164 176
Pool # 161412 9.000% due 05/15/16 49 53
Pool # 161534 9.000% due 10/15/16 467 501
Pool # 161598 9.000% due 06/15/16 106 114
Pool # 163611 9.000% due 05/15/16 233 250
Pool # 164705 9.000% due 09/15/16 421 452
Pool # 165541 8.500% due 07/15/16 118 124
Pool # 168336 9.000% due 08/15/20 17 18
Pool # 168822 9.000% due 08/15/16 226 242
Pool # 173346 9.000% due 10/15/16 118 127
Pool # 173661 8.500% due 08/15/16 321 338
Pool # 174110 8.500% due 11/15/16 353 372
Pool # 174840 9.000% due 10/15/16 201 216
Fixed Income I Fund 95
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Pool # 175753 9.000% due 10/15/16 $ 105 $ 113
Pool # 177139 9.000% due 11/15/16 90 96
Pool # 177163 9.000% due 10/15/16 70 76
Pool # 179721 10.500% due 09/15/20 36 41
Pool # 180669 8.500% due 04/15/17 36 38
Pool # 181250 9.000% due 11/15/16 113 121
Pool # 183409 8.500% due 10/15/16 203 215
Pool # 183690 8.500% due 01/15/17 126 133
Pool # 186094 8.500% due 03/15/17 574 605
Pool # 186658 9.000% due 11/15/16 231 248
Pool # 188014 9.000% due 12/15/16 129 138
Pool # 188459 8.500% due 05/15/17 106 112
Pool # 188531 8.500% due 05/15/17 104 110
Pool # 193313 9.000% due 11/15/16 159 170
Pool # 194421 8.500% due 01/15/17 99 105
Pool # 194842 9.000% due 11/15/16 10 11
Pool # 195538 9.000% due 11/15/16 49 53
Pool # 195910 8.500% due 12/15/16 83 88
Pool # 196521 8.500% due 01/15/17 347 366
Pool # 196528 8.500% due 02/15/17 272 287
Pool # 197003 8.500% due 02/15/17 93 98
Pool # 197387 8.500% due 01/15/17 513 542
Pool # 198202 8.500% due 01/15/17 142 149
Pool # 199668 8.500% due 02/15/17 238 251
Pool # 199686 8.000% due 03/15/17 151 156
Pool # 200712 8.500% due 02/15/17 317 335
Pool # 201206 8.500% due 02/15/17 183 193
Pool # 201789 9.000% due 02/15/17 344 369
Pool # 201795 8.500% due 02/15/17 147 155
Pool # 204153 8.500% due 01/15/17 170 179
Pool # 204268 8.500% due 02/15/17 137 144
Pool # 210896 8.500% due 04/15/17 505 533
Pool # 212049 8.500% due 05/15/17 245 259
Pool # 213264 9.000% due 03/15/17 441 473
Pool # 213265 8.500% due 03/15/17 172 182
Pool # 213365 8.000% due 04/15/17 28 29
Pool # 225968 8.500% due 07/15/17 187 198
Pool # 266892 7.000% due 06/15/23 321 316
Pool # 273024 10.500% due 08/15/20 64 71
Pool # 285402 10.500% due 05/15/20 37 42
Pool # 286050 9.000% due 09/15/20 25 26
Pool # 290338 10.500% due 06/15/20 888 994
Pool # 290680 10.500% due 08/15/20 73 82
Pool # 294919 10.500% due 09/15/20 16 17
Pool # 295408 10.500% due 08/15/20 65 73
Pool # 297998 10.500% due 11/15/20 119 133
Pool # 299159 10.500% due 11/15/20 121 136
Pool # 300795 10.500% due 12/15/20 67 75
Pool # 301683 10.500% due 01/15/21 130 146
Pool # 303754 9.000% due 12/15/21 565 602
Pool # 310003 9.000% due 07/15/21 18 19
Pool # 321967 7.000% due 05/15/23 299 294
Pool # 332559 7.000% due 04/15/23 119 117
Pool # 336092 7.000% due 09/15/23 129 126
Pool # 336136 7.000% due 04/15/23 111 109
Pool # 336166 7.000% due 02/15/23 271 266
Pool # 336917 7.000% due 05/15/23 642 631
Pool # 337344 7.000% due 08/15/23 316 310
Pool # 337419 7.000% due 06/15/23 449 442
Pool # 337470 7.000% due 07/15/23 84 82
Pool # 338364 7.500% due 12/15/22 42 42
Pool # 339059 7.000% due 10/15/23 291 286
Pool # 339637 7.500% due 04/01/23 389 391
Pool # 342398 7.000% due 06/15/23 466 459
Pool # 342805 7.000% due 06/15/23 103 101
Pool # 343557 7.000% due 05/15/23 314 309
Pool # 343608 7.000% due 05/15/23 217 213
Pool # 343620 7.000% due 06/15/23 491 482
Pool # 343632 7.000% due 07/15/23 319 313
Pool # 345984 7.000% due 12/15/23 86 84
Pool # 346058 7.000% due 01/15/24 723 710
Pool # 346836 7.000% due 10/15/23 106 104
Pool # 347706 7.000% due 12/15/23 110 108
Pool # 347901 7.000% due 06/15/23 54 53
Pool # 348875 7.000% due 07/15/23 304 299
Pool # 348895 7.000% due 07/15/23 413 406
Pool # 349383 7.000% due 06/15/23 96 95
Pool # 350138 7.500% due 03/15/23 88 88
Pool # 351270 7.000% due 07/15/23 87 85
Pool # 352023 7.000% due 11/15/23 492 484
Pool # 352050 7.000% due 10/15/23 514 505
Pool # 352114 7.500% due 08/15/23 252 253
Pool # 352510 7.000% due 10/15/23 510 501
Pool # 352789 7.000% due 10/15/23 305 300
Pool # 355230 7.000% due 09/15/23 458 450
Pool # 356127 7.000% due 10/15/23 89 87
Pool # 356693 7.000% due 08/15/23 339 333
Pool # 356952 7.000% due 06/15/23 521 512
Pool # 357351 7.000% due 11/15/23 312 307
Pool # 358427 7.000% due 09/15/23 321 315
Pool # 358519 7.000% due 12/15/23 441 433
Pool # 358542 7.000% due 07/15/23 421 414
Pool # 358565 7.000% due 05/15/23 473 464
Pool # 359935 7.000% due 11/15/23 77 76
Pool # 360181 7.000% due 08/15/23 121 119
Pool # 360418 7.000% due 10/15/23 318 313
96 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Pool # 361056 6.500% due 08/15/08 $ 183 $ 182
Pool # 362703 7.000% due 10/15/23 340 334
Pool # 363166 7.000% due 11/15/23 117 115
Pool # 364136 7.000% due 08/15/23 127 124
Pool # 364600 7.000% due 08/15/23 148 146
Pool # 366219 7.000% due 11/15/23 493 484
Pool # 366793 7.000% due 05/15/24 2,111 2,074
Pool # 366912 9.000% due 11/15/24 240 253
Pool # 368782 7.000% due 10/15/23 394 387
Pool # 368988 6.500% due 03/15/09 225 223
Pool # 370096 7.000% due 11/15/23 459 451
Pool # 370280 7.000% due 11/15/23 295 290
Pool # 370996 7.000% due 12/15/23 501 492
Pool # 371085 7.000% due 10/15/23 68 66
Pool # 372318 6.500% due 02/15/26 2,148 2,048
Pool # 372850 7.000% due 01/15/24 636 624
Pool # 373788 7.000% due 10/15/23 387 381
Pool # 373794 7.000% due 10/15/23 81 79
Pool # 374718 7.000% due 11/15/23 354 348
Pool # 377593 6.500% due 10/15/10 198 196
Pool # 379303 8.000% due 10/15/25 47 48
Pool # 380163 7.000% due 12/15/23 115 113
Pool # 384905 8.000% due 11/15/25 161 164
Pool # 390783 9.000% due 07/15/24 696 737
Pool # 391913 8.000% due 09/15/25 171 175
Pool # 393405 6.500% due 05/15/26 2,241 2,137
Pool # 394904 6.500% due 06/15/09 436 431
Pool # 395148 6.500% due 04/15/09 196 194
Pool # 398254 8.000% due 09/15/25 166 170
Pool # 398956 8.000% due 11/15/26 350 357
Pool # 401433 8.000% due 06/15/25 1,540 1,573
Pool # 404874 9.000% due 12/15/24 20 21
Pool # 405560 8.500% due 01/15/26 444 461
Pool # 405602 6.500% due 04/15/26 2,563 2,445
Pool # 406400 9.000% due 05/15/25 161 170
Pool # 407106 9.000% due 11/15/24 351 371
Pool # 407573 8.000% due 06/15/25 1,226 1,252
Pool # 408425 9.000% due 09/15/26 79 83
Pool # 408764 8.000% due 09/15/25 59 61
Pool # 409053 8.000% due 10/15/26 290 296
Pool # 413007 7.000% due 08/15/25 383 375
Pool # 413415 7.000% due 08/15/25 327 320
Pool # 415018 6.500% due 01/15/26 940 898
Pool # 417294 6.500% due 03/15/26 2,134 2,035
Pool # 421700 6.500% due 03/15/26 2,267 2,162
Pool # 421782 6.500% due 03/15/26 1,978 1,887
Pool # 423447 7.000% due 01/15/11 270 271
Pool # 423517 6.500% due 04/15/26 871 831
Pool # 423605 8.000% due 08/15/26 299 305
Pool # 423607 8.000% due 08/15/26 658 671
Pool # 424023 8.500% due 09/15/26 66 68
Pool # 426033 6.500% due 04/15/26 402 384
Pool # 426395 8.000% due 08/15/26 564 576
Pool # 426906 6.500% due 07/15/26 2,169 2,069
Pool # 427495 6.500% due 03/15/26 2,065 1,969
Pool # 428588 8.500% due 09/15/26 448 464
Pool # 430050 8.000% due 09/15/26 349 356
Pool # 430885 9.000% due 06/15/26 504 530
Pool # 436491 8.500% due 09/15/26 118 122
Pool # 436683 8.000% due 09/15/26 94 96
Pool # 780029 9.000% due 11/15/24 1,041 1,115
Government National Mortgage Association
6.500% 30 Year TBA (b) 3,000 2,861
7.000% 30 Year TBA (b) 2,955 2,890
8.000% 30 Year TBA (b) 10,615 10,827
Guaranteed Export Trust
Series 1996-A
6.550% due 06/15/04 935 940
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class D
7.989% due 06/15/21 (c) 877 900
Mid-St Trust II
Class A-3 CMO
9.350% due 04/01/98 380 388
PNC Mortgage Securities Corp.
Series 1994-3 Class A-1
7.500% due 06/18/10 859 857
United States Department
of Veteran Affairs REMIC
Series 1992-1 Class 2-E
7.750% due 03/15/16 775 790
----------
231,394
----------
NON-US BONDS - 0.8%
Canada, Government of Series A-80
8.000% due 11/01/98 CAD 4,000 3,111
New Zealand Government
6.500% due 02/15/00 NZD 1,700 1,183
8.000% due 02/15/01 1,300 949
----------
5,243
----------
Fixed Income I Fund 97
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
UNITED STATES GOVERNMENT
AGENCIES - 4.5%
Federal Home Loan Bank
5.200% due 10/20/00 (c) $ 1,000 $ 974
Federal National Mortgage Association (MTN)
6.170% due 12/30/03 1,755 1,703
7.640% due 06/16/04 570 576
7.690% due 09/13/06 1,730 1,784
7.190% due 05/29/26 1,715 1,736
7.270% due 07/27/26 605 622
Government Backed Trust Certificates
Class 1-C
9.250% due 11/15/01 11,925 12,765
Series 2E
9.400% due 05/15/02 2,387 2,560
Series T-3
9.625% due 05/15/02 (c) 2,716 2,909
Resolution Funding Corp.
8.875% due 07/15/20 2,275 2,769
8.625% due 01/15/21 1,200 1,425
8.625% due 01/15/30 240 295
----------
30,118
----------
UNITED STATES GOVERNMENT
TREASURIES - 33.5%
United States Treasury Bonds
10.750% due 02/15/03 4,050 4,959
10.750% due 05/15/03 8,270 10,175
11.875% due 11/15/03 945 1,233
10.750% due 08/15/05 9,045 11,604
11.750% due 02/15/10 540 717
12.750% due 11/15/10 3,270 4,629
13.875% due 05/15/11 4,620 6,975
12.000% due 08/15/13 2,245 3,211
13.250% due 05/15/14 3,790 5,879
12.500% due 08/15/14 325 486
7.500% due 11/15/16 1,220 1,321
8.875% due 08/15/17 960 1,186
8.125% due 08/15/19 17,750 20,532
7.875% due 02/15/21 7,405 8,370
8.125% due 08/15/21 50 58
8.000% due 11/15/21 1,090 1,250
7.250% due 08/15/22 1,080 1,142
7.125% due 02/15/23 3,930 4,103
6.250% due 08/15/23 3,365 3,155
6.875% due 08/15/25 1,000 1,020
United States Treasury Notes
6.625% due 03/31/97 65 65
6.500% due 04/30/97 170 171
5.625% due 10/31/97 10,000 10,005
5.375% due 11/30/97 1,000 998
5.250% due 12/31/97 2,280 2,272
5.625% due 01/31/98 1,770 1,769
7.250% due 02/15/98 2,700 2,744
5.125% due 03/31/98 3,165 3,144
6.125% due 05/15/98 585 588
5.375% due 05/31/98 5,440 5,412
6.000% due 05/31/98 3,755 3,767
8.250% due 07/15/98 2,685 2,781
6.250% due 07/31/98 2,845 2,863
9.250% due 08/15/98 60 63
4.750% due 08/31/98 500 491
4.750% due 10/31/98 40 39
5.500% due 11/15/98 1,465 1,455
5.125% due 11/30/98 3,970 3,917
5.875% due 03/31/99 480 479
6.500% due 04/30/99 1,035 1,048
6.750% due 06/30/99 1,000 1,018
8.000% due 08/15/99 3,780 3,960
6.875% due 08/31/99 915 934
7.750% due 11/30/99 12,150 12,695
7.750% due 01/31/00 9,655 10,103
7.125% due 02/29/00 965 993
6.875% due 03/31/00 4,790 4,898
6.125% due 07/31/00 1,545 1,545
6.250% due 08/31/00 11,335 11,377
5.750% due 10/31/00 5,730 5,654
5.625% due 11/30/00 1,500 1,473
6.375% due 03/31/01 975 981
6.625% due 07/31/01 5,550 5,647
6.250% due 10/31/01 3,205 3,208
6.250% due 02/15/03 5,000 4,994
5.750% due 08/15/03 2,355 2,284
7.250% due 05/15/04 3,000 3,157
7.250% due 08/15/04 4,000 4,210
7.875% due 11/15/04 5,000 5,456
United States Treasury
Principal Only Strip
Zero Coupon due 05/15/18 1,500 349
Zero Coupon due 11/15/99 325 274
United States Treasury Security
Stripped Interest Payment
Zero Coupon due 08/15/08 1,575 736
----------
222,022
----------
98 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
YANKEE BONDS - 2.0%
African Development Bank
6.875% due 10/15/15 $ 775 $ 751
8.800% due 09/01/19 535 633
Alberta, Province of
9.250% due 04/01/00 265 288
Asian Development Bank
8.000% due 04/30/01 295 311
8.500% due 05/02/01 295 319
6.250% due 10/24/05 400 390
Finland, Republic of
5.875% due 02/27/06 325 307
Hydro Quebec Series GH
8.250% due 04/15/26 605 647
Inter-American Development Bank
7.000% due 06/15/25 1,770 1,746
6.950% due 08/01/26 220 227
International Bank for
Reconstruction & Development
8.625% due 10/15/16 350 409
Manitoba, Province of
9.250% due 04/01/20 335 409
Metropolitano de Lisboa
7.420% due 10/15/16 1,000 1,018
New Brunswick, Province of
9.750% due 05/15/20 320 405
Newfoundland, Province of
10.000% due 12/01/20 150 189
Noranda Forest, Inc.
6.875% due 11/15/05 350 340
Nordbanken AB
7.250% due 10/30/06 1,025 1,027
Nova Scotia, Province of
9.125% due 05/01/21 585 697
Quebec, Province of
7.125% due 02/09/24 770 739
Saskatchewan, Province of
6.625% due 07/15/03 100 99
8.000% due 07/15/04 1,290 1,383
St. George Bank, Ltd.
7.150% due 10/01/05 975 973
----------
13,307
----------
TOTAL LONG-TERM INVESTMENTS
(cost $663,548) 671,161
----------
NUMBER
OF
SHARES
----------
PREFERRED STOCKS - 0.7%
Australia & New Zealand
Banking Group, Ltd. 13,400 364
Banco Bilbao Vizcaya International - ADR 10,000 286
Credit Lyonnais 100,000 2,480
Credit Lyonnais Capital S.C.A. - ADR 22,600 540
TIG Holdings, Inc. 7,500 789
----------
TOTAL PREFERRED STOCKS
(cost $4,675) 4,459
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 5.9%
Federal Home Loan Mortgage
Discount Notes
5.500% due 01/15/97 (a)(e) 1,000 998
Frank Russell Investment Company
Money Market Fund due on demand (a) 37,987 37,987
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $38,985) 38,985
----------
TOTAL INVESTMENTS
(identified cost $707,208)(d) - 107.8% 714,605
OTHER ASSETS AND LIABILITIES,
NET - (7.8%) (51,706)
----------
NET ASSETS - 100.0% $ 662,899
----------
----------
(a) At cost, which approximates market.
(b) Forward commitment. See Note 2.
(c) Adjustable or floating rate securities.
(d) See Note 2 for federal income tax information.
(e) Rate noted is yield-to-maturity (unaudited).
ABBREVIATIONS:
ADR - American Depositary Receipt
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced Security
FOREIGN CURRENCY ABBREVIATIONS:
CAD - Canadian dollar
NZD - New Zealand dollar
USD - U.S. dollar
The accompanying notes are an integral part of the financial statements.
Fixed Income I Fund 99
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(NOTE 2)
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- ------------- ------------- --------------
USD 756 CAD 1,000 01/21/97 $ (24)
USD 756 CAD 1,000 01/30/97 (24)
CAD 1,000 USD 745 01/21/97 13
CAD 1,000 USD 747 01/30/97 15
CAD 4,321 USD 3,253 03/26/97 81
NZD 1,485 USD 1,045 05/19/97 2
--------------
$ 63
--------------
--------------
The accompanying notes are an integral part of the financial statements.
100 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $707,208,322)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 714,605,215
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742,972
Forward foreign currency exchange contracts (cost $7,301,780)(Note 2). . . . . . . . . . . . . . . . 7,253,167
Receivables:,
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,821,394
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,423,581
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,169,722
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 743,016,051
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . $ 33,447,239
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . 35,328,051
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,802,486
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 214,218
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,164
Forward foreign currency exchange contracts
(cost $7,301,780)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 7,189,642
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,116,800
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 662,899,251
---------------
---------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,343,474
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,139,015)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,396,893
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,276
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,868
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666,918,755
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 662,899,251
---------------
---------------
Net asset value, offering and redemption price per share
($662,899,251 divided by 31,586,817 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.99
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income I Fund 101
<PAGE>
FIXED INCOME I FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,252,604
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,367,809
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497,152
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,117,565
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,977,178
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384,283
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,741
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,115
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,111
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,476
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,742
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,470
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,788,116
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,329,449
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (661,176)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,069
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . 804,320 244,213
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,226,900)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . (208,892) (19,435,792)
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . (19,191,579)
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . $ 24,137,870
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
102 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,329,449 $ 38,033,163
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,213 7,787,839
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . (19,435,792) 45,184,173
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 24,137,870 91,005,175
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,773,275) (38,659,290)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 43,217,643 89,932,896
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 24,582,238 142,278,781
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 638,317,013 496,038,232
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $1,343,474 and $233,747, respectively). . . . . . . . . . . . . . . . . . . $ 662,899,251 $ 638,317,013
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income I Fund 103
<PAGE>
FIXED INCOME I FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 21.59 $ 19.59 $ 21.74 $ 21.61 $ 22.29
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . 1.38 1.42 1.46 1.50 1.63
Net realized and unrealized gain (loss) on investments . . (.62) 2.02 (2.06) .72 (.07)
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . .76 3.44 (.60) 2.22 1.56
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . (1.36) (1.44) (1.44) (1.50) (1.62)
In excess of net investment income . . . . . . . . . . . . -- -- -- (.01) --
Net realized gain on investments . . . . . . . . . . . . . -- -- -- (.58) (.62)
In excess of net realized gain on investments. . . . . . . -- -- (.11) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (1.36) (1.44) (1.55) (2.09) (2.24)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 20.99 $ 21.59 $ 19.59 $ 21.74 21.61
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 3.75 18.03 (2.97) 10.46 7.26
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . .42 .35 .10 .09 .10
Net investment income to average net assets (a). . . . . . 6.57 6.82 7.06 6.71 7.45
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 147.31 138.05 173.97 173.27 211.26
Net assets, end of year ($000 omitted) . . . . . . . . . . 662,899 638,317 496,038 533,696 530,857
</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.
104 Fixed Income I Fund
<PAGE>
FIXED INCOME II FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To preserve capital and generate current income consistent with the
preservation of capital.
INVESTS IN: Fixed-income securities with low-volatility characteristics.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns with moderate risk relative to other short-term bond
investments. The Fund employed the investment management services of three
managers using three approaches to investment in short-term fixed income
securities.
<TABLE>
<CAPTION>
DATES FIXED II ++ ML 1-2.99 ** LIPPER-C- SHORT 1-5 Yr ++++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $10,521 $10,565 $10,509
1988 $11,383 $11,222 $11,230
1989 $12,635 $12,442 $12,367
1990 $13,861 $13,652 $13,367
1991 $15,567 $15,246 $14,955
1992 $15,994 $16,207 $15,808
1993 $17,111 $17,084 $16,781
1994 $17,251 $17,181 $16,719
1995 $18,967 $19,071 $18,516
1996 $19,870 $20,020 $19,342
- ----------------------------------------------------------------------------------------------------
Total $163,160 $162,690 $159,594
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
FIXED INCOME II FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,476 4.76%
5 Years $ 12,764 5.00%#
10 Years $ 19,870 7.11%#
MERRILL LYNCH 1-2.99 YEARS TREASURY INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,498 4.98%
5 Years $ 13,131 5.60%#
10 Years $ 20,020 7.19%#
LIPPER-C- SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,446 4.46%
5 Years $ 12,933 5.28%#
10 Years $ 19,342 6.82%#
* Assumes initial investment on January 1, 1987.
** 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.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ 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.
106 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Fixed Income II Fund had a total
return of 4.8%, as compared to the Merrill Lynch 1-2.99 Years Treasury Index
results of 5%. The Fund modestly underperformed the Index primarily due to a
slightly longer-than-index duration during much of the year that detracted from
returns as interest rates rose.
PORTFOLIO HIGHLIGHTS
Short-maturity bonds outperformed longer alternatives during 1996. Intermediate
bonds, as measured by the Lehman Brothers Aggregate Bond Index, rose only 3.6%
while the Merrill Lynch 1-2.99 Years Treasury Index gained 5%. As in other
segments of the bond market, short-term rates were volatile during the year.
Yields on two- to five-year treasuries rose more the 70 basis points. Hints of
inflation in wages and the producer price index along with robust economic
growth kept investors fearful of Federal Reserve intervention for much of 1996.
The Fixed Income II Fund's managers saw little real evidence of inflationary
threat, or of sustainable strong economic growth. Good issue selection,
particularly in corporates and mortgage- and asset-backed securities,
added value. The Fund's duration was a slight detractor.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
United States Treasury 34.9%
Federal National Mortgage Association 3.0
Federal Home Loan Mortgage Corp. 3.0
Chase Manhattan Auto Owner Trust 2.5
First Chicago Master Trust II 2.0
Olympic Automobile Receivables Trust 2.0
Chase Manhattan Credit Card Master Trust 2.0
Premier Auto Trust 2.0
WSF Financial Owner Trust 2.0
American Express Credit Account Master Trust 1.9
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Weighted Average Quality Diversification AAA
Weighted Average Years-to-Maturity 2.2 Years
Weighted Average Duration 1.6 Years
Current Yield (SEC 30-day standardized) 5.5%
Number of Issues 133
Number of Issuers 104
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
BlackRock Financial Management Mortgage/Asset-Backed
Specialist
STW Fixed Income Management, Inc. Sector Rotation Core
Standish, Ayer & Wood, Inc. Corporate Specialist
- -------------------------------------------------------------------
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 II Fund 107
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
LONG-TERM INVESTMENTS - 85.8%
ASSET-BACKED SECURITIES - 25.8%
Advanta Home Equity Loan Trust
Series 1994-1 Class A-2
6.300% due 07/25/25 $ 52 $ 51
AFC Home Equity Loan Trust
Series 1993-2 Class A
6.000% due 01/20/13 281 275
AFC Mortgage Loan Trust
Series 1996-3 Class 1A-2
7.220% due 02/25/27 350 353
ALPS Pass-thru Trust
Series 1994-1 Class A-2
7.150% due 11/15/97 309 311
American Express Credit
Account Master Trust
Series 1996-1 Class A
6.800% due 12/15/03 4,250 4,317
Associates Manufactured Housing
Mortgage Pass-Thru Certificate
Series 1996-1 Class A-1
6.200% due 03/15/27 488 489
Banc One Auto Grantor Trust
Series 1996-B Class A
6.550% due 02/15/03 334 336
Chase Manhattan Auto Owner Trust
Series 1996-C Class A3
5.950% due 11/15/00 5,735 5,713
Chase Manhattan Credit Card Master Trust
Series 1996-4 Class A
6.730% due 02/15/03 4,500 4,562
Chevy Chase Auto Receivables Trust
Series 1996-2 Class A
5.900% due 07/15/03 1,450 1,445
Daimler-Benz Vehicle Trust
Series 1996-A Class A
5.850% due 12/15/03 2,014 2,008
EQCC Home Equity Loan Trust
Series 1993-4 Class A
5.725% due 12/15/08 56 55
Series 1994-1 Class A
5.800% due 03/15/09 435 427
First Chicago Master Trust II
Series 1994-L Class A
7.150% due 04/15/01 4,500 4,604
First USA Credit Card Master Trust
Series 1994-4 Class A
5.995% due 08/15/03 (c) 1,500 1,513
Ford Credit Auto Lease Trust
Series 1996-1 Class A-2
5.800% due 05/15/99 2,300 2,289
Ford Credit Grantor Trust
Series 1995-B Class A
5.900% due 10/15/00 1,256 1,255
Green Tree Financial Corp.
Series 1994-A Class A
6.900% due 02/15/04 647 646
Series 1995-A Class A
7.250% due 07/15/05 486 486
Honda Auto Receivables Grantor Trust
Series 1995-A Class A
6.200% due 12/15/00 738 740
Merrill Lynch Credit Corp.
Series 1996-B Class A
5.775% due 07/15/21 (c) 931 926
Nationsbank Auto Owner Trust
Series 1996-A Class A-3
6.375% due 07/15/00 2,750 2,764
Nationsbank Credit Card Master Trust
Series 1995-1 Class A
6.450% due 04/15/03 1,600 1,606
Newcourt Receivables Asset Trust
Series 1996-2 Class A
6.870% due 06/20/04 366 368
Olympic Automobile Receivables Trust
Series 1996-D Class CTFS
6.125% due 11/15/04 4,600 4,581
Premier Auto Trust
Series 1996-3 Class A-3
6.500% due 03/06/00 4,500 4,531
Remodelers Home Improvement Loan
Series 1995-3 Class A-2
6.800% due 12/20/07 425 426
Sears Credit Account Master Trust II
Series 1995-4 Class A
6.250% due 01/15/03 4,000 4,016
Security Pacific Home Equity Loan
Series 1991-1 Class B
8.150% due 06/15/20 161 165
The Money Store
Home Equity Loan Trust
Series 1993-D Class A-1
5.675% due 12/15/08 711 693
Series 1996-B Class A-3
6.820% due 02/15/10 575 578
108 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
TLFC IV Equipment Lease Trust
Series 1996 Class A
5.980% due 11/20/02 $ 579 $ 578
WFS Financial Owner Trust
Series 1996-D Class A-3
6.050% due 07/20/01 4,500 4,489
----------
57,596
----------
CORPORATE BONDS AND NOTES - 14.2%
Ahmanson (H.F.)
9.875% due 11/15/99 375 407
Bank of Boston Corp.
9.500% due 08/15/97 995 1,017
Capital One Bank (MTN)
6.844% due 06/13/00 1,150 1,151
Caterpillar Financial Services (MTN)
6.100% due 07/15/99 475 473
Chase Manhattan Corp.
10.125% due 11/01/00 259 290
5.750% due 12/05/09 (c) 200 196
CIT Group Holdings, Inc. (MTN)
6.200% due 04/15/98 450 452
Comdisco, Inc.
6.500% due 06/15/00 425 424
5.750% due 02/15/01 450 436
Connecticut Light & Power Co.
7.625% due 04/01/97 784 785
Enterprise Rent-A-Car USA Finance Co. (MTN)
7.875% due 03/15/98 1,100 1,124
ERP Operating, L.P.
6.250% due 12/22/97 (c) 700 704
8.500% due 05/15/99 450 466
Finova Capital Corp.
6.450% due 06/01/00 400 400
First Union Corp.
6.750% due 01/15/98 750 756
First USA Bank
8.200% due 02/15/98 250 255
5.750% due 01/15/99 875 863
Fleet Financial Group, Inc.
6.000% due 10/26/98 600 599
General Motors Acceptance Corp.
7.137% due 04/01/20 1,000 1,008
General Motors Acceptance Corp. (MTN)
7.500% due 07/22/99 925 950
Goldman Sachs Group, L.P.
6.375% due 06/15/00 325 323
6.200% due 12/15/00 275 271
Greyhound Financial Corp.
9.670% due 07/01/97 750 762
GTE Corp.
10.750% due 09/15/17 1,150 1,239
Heller Financial, Inc. Series G (MTN)
6.880% due 09/13/99 800 810
Hertz Corp.
9.500% due 05/15/98 675 704
6.500% due 04/01/00 450 450
International Lease Finance Corp.
5.750% due 12/15/99 1,000 979
ITT Corp. New
6.250% due 11/15/00 425 418
Lehman Brothers Holdings, Inc.
Series IBC (MTN)
7.000% due 05/13/99 800 807
Merrill Lynch & Co., Inc.
9.000% due 05/01/98 900 932
Midlantic Corp.
9.250% due 09/01/99 375 399
Occidental Petroleum Corp. (MTN)
5.950% due 11/09/98 1,225 1,217
Salomon, Inc.
6.700% due 12/01/98 500 502
7.750% due 05/15/00 500 513
Salomon, Inc. CMT Floater (MTN)
6.292% due 04/05/99 (c) 1,100 1,100
Sears Roebuck & Co. Series 7 (MTN)
5.490% due 09/28/98 450 446
Shawmut Corp.
8.125% due 02/01/97 533 534
Smith Barney Holdings, Inc.
5.500% due 01/15/99 650 641
7.980% due 03/01/00 765 796
Taubman Realty Group, L.P.
8.000% due 06/15/99 350 358
Tennessee Gas Pipeline Co.
9.000% due 01/15/97 450 450
Time Warner, Inc.
9.625% due 05/01/02 800 893
Transamerica Financial Corp.
9.875% due 01/01/98 775 804
Fixed Income II Fund 109
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
UCFC Home Equity Loan Trust
Series 1996-D1 Class A3
6.541% due 11/15/13 $ 675 $ 673
USF&G Corp.
7.000% due 05/15/98 1,150 1,160
WMX Technologies, Inc.
6.250% due 04/01/99 725 725
----------
31,662
----------
MORTGAGE-BACKED SECURITIES - 8.4%
Bear Stearns Mortgage Securities, Inc.
7.000% due 11/25/27 925 925
Federal Home Loan Mortgage Corp.
Participation Certificate
Group # 23-0114 7.375% due 03/01/06 (c) 279 283
Group # 25-1211 6.250% due 06/01/07 170 170
Group # 42-0203 6.088% due 08/01/20 (c) 1,296 1,290
Group # 42-0204 6.095% due 08/01/20 (c) 1,980 1,971
Group # 85-0105 9.000% due 09/01/05 280 290
Group # D2-9159 7.500% due 10/01/07 438 446
Group # D3-2311 8.500% due 12/01/17 747 778
Group # G5-0258 7.500% due 05/01/00 426 432
Group # G5-0259 7.500% due 03/01/02 206 209
Group # G5-0297 7.500% due 10/01/00 149 151
Group # G5-0307 7.500% due 08/01/00 342 347
Federal Home Loan Mortgage Corp.
Participation Certificate
Principal Only Strip
Zero coupon due 12/15/23 412 401
Federal National Mortgage Association
Pool # 040063 8.500% due 12/01/08 140 146
Pool # 124671 7.500% due 04/01/09 766 783
Pool # 303751 8.000% due 10/01/09 1,080 1,125
Pool # 359448 8.500% due 12/01/10 965 1,007
Pool # 364703 7.000% due 06/01/04 1,085 1,093
Federal National Mortgage Association
REMIC Trust Series 1993-108 Class 108B
Zero coupon due 12/25/16 339 328
REMIC Trust Series 1994-39 Class PB
5.750% due 06/25/12 900 896
REMIC Trust Series 1996-T6 Class C
6.200% due 02/26/01 1,486 1,467
Government National Mortgage Association
Pool # 008000 7.125% due 06/20/22 (c) 1,676 1,713
Pool # 174303 9.000% due 11/15/16 364 391
Pool # 393733 9.000% due 03/15/25 214 225
Pool # 780285 9.500% due 11/15/25 706 770
Pool # 780487 7.250% due 12/15/26 752 760
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1992-M3 Class A1
7.750% due 07/25/30 79 79
Series 1995-2 Class C1
7.450% due 05/25/29 (c) 285 285
----------
18,761
----------
UNITED STATES GOVERNMENT AGENCIES - 0.9%
Resolution Funding Corp.
Interest only strips
Zero coupon due 10/15/98 850 766
Tennessee Valley Authority
5.980% due 04/01/36 1,100 1,117
----------
1,883
----------
UNITED STATES GOVERNMENT
TREASURIES - 35.2%
United States Treasury Notes
6.125% due 05/15/98 23,550 23,664
6.250% due 07/31/98 10,900 10,970
6.125% due 08/31/98 12,700 12,755
6.000% due 09/30/98 6,470 6,486
5.875% due 10/31/98 3,555 3,554
5.125% due 11/30/98 9,700 9,571
6.500% due 04/30/99 2,500 2,530
6.375% due 05/15/99 1,050 1,059
6.875% due 08/31/99 875 893
6.000% due 10/15/99 400 400
6.875% due 03/31/00 700 716
6.375% due 03/31/01 1,900 1,913
6.500% due 05/31/01 250 253
6.625% due 06/30/01 2,300 2,337
6.500% due 08/31/01 1,450 1,467
----------
78,568
----------
110 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
YANKEE BONDS - 1.3%
Ford Capital BV
9.000% due 08/15/98 $ 325 $ 339
Household International
5.250% due 10/15/98 1,150 1,128
Ontario, Province of
11.500% due 03/10/13 760 836
Quebec, Province of
13.250% due 09/15/14 450 539
----------
2,842
----------
TOTAL LONG-TERM INVESTMENTS
(cost $191,438) 191,312
----------
NUMBER
OF
SHARES
----------
PREFERRED STOCKS - 0.2%
ConAgra Capital LC Series B (c) 2,000 45
Texaco Capital Series B (c) 15,000 326
----------
TOTAL PREFERRED STOCKS
(cost $425) 371
----------
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
SHORT-TERM INVESTMENTS - 14.9%
Advanta Corp. (MTN)
6.250% due 07/08/97 $ 1,300 $ 1,302
Frank Russell Investment Company
Money Market Fund due on demand (a) 31,972 31,972
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $33,272) $ 33,274
----------
Total Investments
(identified cost $225,135)(b) - 100.9% 224,957
----------
OTHER ASSETS AND LIABILITIES, NET - (0.9%) (1,974)
----------
NET ASSETS - 100.0% $ 222,983
----------
----------
(a) At cost, which approximates market.
(b) See Note 2 for federal income tax information
(c) Adjustable or floating rate securities.
ABBREVIATIONS:
MTN - Medium Term Note
REMIC - Real Estate Mortage Investment Conduit
The accompanying notes are an integral part of the financial statements.
Fixed Income II Fund 111
<PAGE>
FIXED INCOME II FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $225,134,929)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 224,957,165
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,260,458
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,026
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,777
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,797,426
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . $ 878,010
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . 1,015,010
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,732,978
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 115,311
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,446
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,814,755
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,982,671
---------------
---------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 401,752
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,230,702)
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . (177,764)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,477
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,867,908
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,982,671
---------------
---------------
Net asset value, offering and redemption price per share
($222,982,671 divided by 12,147,743 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.36
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
112 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,545,543
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071,954
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,543
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,661,040
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 988,312
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,134
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,008
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,218
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,779
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,661
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,885
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387,997
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,273,043
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,912,406)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,289 (1,911,117)
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,555)
---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . (1,997,672)
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . $ 9,275,371
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income II Fund 113
<PAGE>
FIXED INCOME II FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,273,043 $ 10,359,836
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,911,117) (97,402)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . (86,555) 4,915,646
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 9,275,371 15,178,080
Distributions to shareholders from net investment income . . . . . . . . . . . . (11,258,711) (10,433,057)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 41,388,945 34,801,870
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 39,405,605 39,546,893
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 183,577,066 144,030,173
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $401,752 and $409,452, respectively). . . . . . . . . . . . . . . . . . . . $ 222,982,671 $ 183,577,066
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
114 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from
the financial statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 18.55 $ 17.98 18.99 $ 18.56 $ 19.68
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . 1.04 1.16 1.21 .84 1.35
Net realized and unrealized gain (loss) on investments . . (.19) .59 (1.07) .44 (.83)
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . . .85 1.75 .14 1.28 .52
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (1.04) (1.18) (1.15) (.71) (1.36)
Net realized gain on investments . . . . . . . . . . . . . -- -- -- -- (.28)
Tax return of capital. . . . . . . . . . . . . . . . . . . -- -- -- (.14) --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (1.04) (1.18) (1.15) (.85) (1.64)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 18.36 $ 18.55 $ 17.98 $ 18.99 $ 18.56
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 4.76 9.95 .82 6.98 2.74
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (a) . . . . . . . .70 .58 .19 .16 .19
Net investment income to average net assets (a). . . . . . 5.70 6.41 6.52 6.16 7.21
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 264.40 269.31 233.75 229.07 330.58
Net assets, end of year ($000 omitted) . . . . . . . . . . 222,983 183,577 144,030 138,619 182,735
</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.
Fixed Income II Fund 115
<PAGE>
FIXED INCOME III FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide maximum total return through capital appreciation and by
assuming a higher level of volatility than is ordinarily expected from broad
fixed-income market portfolios.
INVESTS IN: Fixed-income securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns by assuming the additional risk of investment in
non-investment grade U.S. fixed income securities, and foreign bonds including
emerging markets debt in addition to U.S. investment grade fixed income
instruments. The Fund employed the investment management services of three
managers with three separate approaches to bond market investment.
<TABLE>
<CAPTION>
DATES FIXED III ++ LB AGGREGATE ** LIPPER-C- INTERMEDIATE ++++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1993 $11,022 $10,768 $10,506
1994 $10,593 $10,454 $10,155
1995 $12,499 $12,386 $11,839
1996 $13,109 $12,835 $12,216
- -----------------------------------------------------------------------------------------------
Total $57,223 $56,443 $54,716
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
FIXED INCOME III FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,488 4.88%
Inception $ 13,109 7.16%#
LEHMAN BROTHERS AGGREGATE BOND INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,363 3.63%
Inception $ 12,835 6.58%#
LIPPER-C- INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,318 3.18%
Inception $ 12,216 5.48%#
* 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.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ 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. 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.
116 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Fixed Income III Fund had a total
return of 4.9%, as compared to the Lehman Brothers Aggregate Bond Index results
of 3.6%. The Fund outperformed the Index primarily due to the strong performance
of non-investment grade and emerging markets debt holdings, which significantly
improved performance during the year.
PORTFOLIO HIGHLIGHTS
Although 1996 was a difficult year for fixed income investors to generate strong
returns, investors found opportunities in two of the riskier segments of the
bond market--high yield US bonds and emerging markets debt. High yield bonds
rewarded investors willing to accept the underlying credit risks. However, the
performance opportunity was even more significant in emerging markets debt which
produced dramatic gains for the year.
The strategy of the Fixed Income III Fund was well suited to the investment
environment in 1996. There were few opportunities to generate significant
returns in the investment grade market. The Fund managers found better
performing alternatives in other segments of the global bond market. In addition
to generating healthy returns from both high yield and emerging markets
holdings, the Fund managers also found above average return opportunities in
some developed foreign markets, including Canada. Within the investment grade
market, the managers used effective security selection in mortgage-backed
securities to add value. Duration was the only materially negative factor in the
Fund's performance as interest rates rose during the course of the year.
- -------------------------------------------------------------------
TOP TEN ISSUERS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
United States Treasury 19.4%
Federal Home Loan Mortgage Corp. 15.0
Federal National Mortgage Association 8.0
Government National Mortgage Association 7.7
Time Warner, Inc. 1.8
United Mexican States 1.1
EQCC Home Equity Loan Trust 1.0
Government of Canada 1.0
BankAmerica Corp. 0.8
Receivables Capital Corp. 0.8
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Weighted Average Quality Diversification AA
Weighted Average Years-to-Maturity 8.3 Years
Weighted Average Duration 4.9 Years
Current Yield (SEC 30-day standardized) 6.2%
Number of Issues 302
Number of Issuers 237
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
BEA Associates Broad Market-Sector
Rotation
Pacific Investment Management Co. Broad Market-Sector
Rotation
Standish, Ayer & Wood, Inc. Broad Market-Sector
Rotation
- -------------------------------------------------------------------
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 III Fund 117
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
LONG-TERM INVESTMENTS - 93.7%
ASSET-BACKED SECURITIES - 5.5%
American Airlines, Inc.
Series 1990-P
10.600% due 03/04/09 $ 1,013 $ 1,254
Asset Securitization Corp.
Series 1996-MD6 Class A1C
7.040% due 11/13/26 800 811
CIT RV Grantor Trust
Series 1994-A Class A
4.900% due 07/15/09 750 732
Cityscape Home Equity Loan Trust
Pass-thru Certificate
Series 1996-2 Class A2
7.200% due 04/25/11 850 861
EQCC Home Equity Loan Trust
Series 1996-4 Class A1
5.790% due 12/15/02 3,300 3,300
Equicon Home Equity Loan Trust
Series 1993-1 Class A
5.850% due 11/18/12 27 27
Fleetwood Credit Corp. Grantor Trust
Series 1994-B Class A
6.750% due 03/15/10 455 455
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 122 117
Green Tree Financial Corp.
Series 1995-5 Class A3
6.250% due 10/15/25 600 600
Series 1995-6 Class A3
6.650% due 11/15/25 560 564
Series 1995-8 Class A2
6.150% due 12/15/26 (b) 950 952
Greenwich Capital Acceptance, Inc.
Series 1994 Class A-1
8.630% due 11/25/24 (b) 466 476
Merrill Lynch Mortgage Investors, Inc.
Mortage Pass-thru Certificate
Series 1996-C2 Class A2
6.820% due 11/21/28 (b) 340 343
Morgan Stanley Capital I, Inc.
Mortage Pass-thru Certificate
Series 1996 - WF1 Class X
1.423% due 01/15/13 (b) 3,450 276
Prudential Home Mortgage Securities Co.
Mortgage Pass-thru Certificate
Series 189
10.000% due 11/01/19 16 17
Series 1992-51 Class A-8
8.000% due 02/25/23 500 504
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1995-1 Class 2-C
7.500% due 10/25/28 (b) 325 328
Series 1995-C1 Class C
6.900% due 02/25/27 (b) 300 295
Resolution Trust Corp.
Series 1994 - C2 Class G
8.000% due 04/25/25 311 279
Series 1994-1 Class M-2
7.750% due 09/25/29 425 429
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16 Class A
8.316% due 11/25/24 (b) 902 927
Structured Asset Securities Corp.
Mortgage Pass-thru Certificate
Series 1996-CFL Class A1C
5.944% due 02/25/28 470 459
Series 1996-CFL Class C
6.525% due 02/25/28 300 290
The Money Store Home Equity Loan Trust
Series 1996-B Class A5
7.180% due 12/15/14 825 838
The Money Store Trust
Series 1996-A Class A5
6.850% due 06/15/19 800 801
UCFC Home Equity Loan Trust
Series 1994-B Class A-6
7.100% due 06/10/23 194 196
----------
16,131
----------
CORPORATE BONDS AND NOTES - 23.4%
Aames Financial Corp.
9.125% due 11/01/03 475 485
ADT Operations, Inc.
8.250% due 08/01/00 375 397
Advanta National Bank
6.450% due 10/30/00 825 813
AK Steel Corp.
10.750% due 04/01/04 700 765
American Airlines Class A-1
9.710% due 01/02/07 350 392
American Standard, Inc.
10.875% due 05/15/99 375 400
AMR Corp. (MTN)
9.950% due 03/07/01 1,000 1,105
118 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Anchor Bancorp, Inc.
8.937% due 07/09/03 $ 150 $ 150
Armco, Inc.
9.375% due 11/01/00 265 266
AT&T Capital Corp. (MTN)
6.030% due 10/27/97 1,050 1,052
Banesto Delaware, Inc.
8.250% due 07/28/02 1,000 1,060
Bank of Boston Capital Trust I
8.250% due 12/15/26 1,500 1,530
Beaver Valley Funding Corp. II
8.625% due 06/01/07 205 199
BellSouth Capital Funding Corp.
6.040% due 11/15/26 750 741
BellSouth Telecommunications, Inc.
5.850% due 11/15/45 1,100 1,083
Capital One Bank (MTN)
8.125% due 03/01/00 325 338
6.875% due 04/24/00 400 401
Century Communications Corp.
9.500% due 08/15/00 450 462
Chase Manhattan Corp. New
6.250% due 01/15/06 310 294
Chelsea GCA Realty, Inc.
7.750% due 01/26/01 550 557
Chevy Chase Savings Bank
9.250% due 12/01/05 500 510
Citicorp
6.750% due 08/15/05 350 343
7.125% due 09/01/05 440 443
Clark Oil & Refining Corp.
9.500% due 09/15/04 200 203
Cleveland Electric Illum Co.
7.625% due 08/01/02 570 571
9.375% due 03/01/17 1,000 1,026
CMS Energy Corp.
9.500% due 10/01/97 (b) 1,000 1,024
Coast Federal Bank
13.000% due 12/31/02 250 277
Coast Savings Financial, Inc.
10.000% due 03/01/00 275 285
Colonial Realty L.P.
7.500% due 07/15/01 825 835
Comcast Corp.
9.125% due 10/15/06 300 308
10.625% due 07/15/12 275 300
Conseco Financing Trust II
8.700% due 11/15/26 675 679
Contifinancial Corp.
8.375% due 08/15/03 450 464
Continental Airlines, Inc.
9.500% due 12/15/01 710 722
Crown Packaging Enterprises Step Up Bond
Zero Coupon due 08/01/06 300 80
CTC Mansfield Funding Corp.
10.250% due 03/30/03 997 1,012
Delta Air Lines, Inc.
10.375% due 02/01/11 330 404
Dime Bancorp, Inc.
10.500% due 11/15/05 395 435
EnviroSource, Inc.
9.750% due 06/15/03 300 282
ERAC USA Finance Co. (MTN)
6.350% due 01/15/01 800 788
ERP Operating, L.P.
8.500% due 05/15/99 425 440
Exide Corp.
10.750% due 12/15/02 250 261
10.000% due 04/15/05 300 311
Falcon Holdings Group, L.P.
PIK Series B
11.000% due 09/15/03 275 248
Federal Realty Investment Trust
8.875% due 01/15/00 725 763
Ferrellgas Partners LP Series B
9.375% due 06/15/06 425 429
First Nationwide Holdings
12.500% due 04/15/03 1,510 1,691
12.250% due 05/15/01 425 479
First USA Bank
5.850% due 02/22/01 475 456
Forcenergy, Inc.
9.500% due 11/01/06 900 938
Ford Motor Credit Co.
6.850% due 08/15/00 600 606
Fresenius Medical Care Capital Trust
9.000% due 12/01/06 225 229
Gaylord Container Corp. Step Up Bond
12.750% due 05/15/05 (b) 165 182
General Motors Acceptance Corp.
6.900% due 06/06/00 280 284
General Motors Acceptance Corp. (MTN)
8.500% due 01/31/00 600 634
6.625% due 04/24/00 600 603
7.375% due 04/15/99 750 767
Goldman Sachs Group, L.P.
6.375% due 06/15/00 1,050 1,043
Guangdong International Trust & Investment Corp.
8.750% due 10/24/16 800 811
Fixed Income III Fund 119
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Healthsouth Rehabilitation Corp.
9.500% due 04/01/01 $ 775 $ 822
Hills Stores Co. Series B
12.500% due 07/01/03 260 231
Homeside, Inc. Series B
11.250% due 05/15/03 375 418
ISP Holdings, Inc.
9.000% due 10/15/03 450 457
Israel Electric Corp., Ltd.
7.250% due 12/15/06 1,900 1,889
Loewen Group International, Inc.
7.750% due 10/15/01 225 229
8.250% due 10/15/03 650 659
Long Island Lighting Co.
9.000% due 11/01/22 680 716
Mellon Capital I Series A
7.720% due 12/01/26 950 930
Merrill Lynch & Co., Inc.
6.000% due 01/15/01 300 294
MFS Communications, Inc. Step Up Bond
Zero coupon due 01/15/06 500 364
Nabisco, Inc.
8.000% due 01/15/00 2,000 2,077
Niagara Mohawk Power Corp.
5.875% due 09/01/02 490 434
7.375% due 08/01/03 190 178
Noranda, Inc.
8.625% due 07/15/02 775 836
NWA Trust
13.875% due 06/21/08 90 107
NWCG Holdings Corp. Series B
Zero coupon due 06/15/99 1,075 898
Ocwen Federal Bank
12.000% due 06/15/05 325 357
Ocwen Financial Corp.
11.875% due 10/01/03 425 458
PDV America, Inc.
7.875% due 08/01/03 830 831
Peters (JM), Co.
12.750% due 05/01/02 280 266
Prime Succession Acquisition Co.
10.750% due 08/15/04 400 433
Public Service Co., New Hampshire
Series B
9.170% due 05/15/98 1,500 1,534
Riggs Capital Trust
8.625% due 12/31/26 225 221
Riggs National Corp.
9.650% due 06/15/09 875 1,011
Rose Hills Acquisition Corp.
9.500% due 11/15/04 475 485
Safeway, Inc.
10.000% due 12/01/01 400 449
Salomon, Inc.
7.750% due 05/15/00 500 513
7.000% due 05/15/99 250 252
Salomon, Inc. (MTN)
7.125% due 08/01/99 425 430
6.625% due 11/30/00 625 620
Smith Barney Holdings, Inc.
7.980% due 03/01/00 325 338
Specialty Equipment Co, Inc.
11.375% due 12/01/03 100 109
Spieker Properties, LP
6.950% due 12/15/02 500 496
Summit Communications Group, Inc.
10.500% due 04/15/05 595 655
Taubman Realty Group, L.P.
8.000% due 06/15/99 450 460
Time Warner, Inc.
6.460% due 08/15/00 (b) 625 628
7.975% due 08/15/04 375 382
8.110% due 08/15/06 750 769
8.180% due 08/15/07 750 770
9.150% due 02/01/23 675 732
6.850% due 01/15/26 2,080 2,028
Toledo Edison Co.
8.700% due 09/01/02 500 497
Toledo Edison Co. (MTN)
8.000% due 12/31/98 500 501
Transamerica Capital I
7.800% due 12/01/26 365 354
Transco Energy Co.
9.375% due 08/15/01 500 551
Turner Broadcasting Systems, Inc.
8.375% due 07/01/13 575 587
UCC Investors Holding, Inc. Step Up Bond
Zero coupon due 05/01/05 230 198
Union Planters Capital Trust Series A
8.200% due 12/15/26 675 669
United Companies Financial Corp.
9.350% due 11/01/99 375 396
United Technologies Corp.
8.875% due 11/15/19 170 200
USAir, Inc.
10.000% due 07/01/03 460 466
USF&G Corp.
8.375% due 06/15/01 250 266
Viacom, Inc.
7.750% due 06/01/05 1,775 1,747
Wellsford Residential Property Trust
9.375% due 02/01/02 475 517
----------
68,371
----------
120 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
EURODOLLAR BONDS - 4.2%
Argentina, Republic of
5.250% due 03/31/23 (b) $ 250 $ 158
Argentina, Republic of Series L
6.625% due 03/31/05 (b) 1,960 1,703
Auxiliaire Du Credit
5.332% due 09/25/02 (b) 290 278
Brazil, Federal Republic of
6.688% due 01/01/01 (b) 455 441
Cemex SA (MTN)
8.500% due 08/31/00 1,000 989
Columbia, Republic of
7.250% due 02/15/03 270 263
Companhia Petroleo Ipiranga
8.625% due 02/25/02 (b) 650 653
Credit Fonc France
8.000% due 01/14/02 655 693
Credit Lyonnais
6.625% due 09/19/49 (e) 230 226
Fifth Mexican Acceptance Corp. Class A
8.000% due 12/15/98 800 208
Hong Kong & Shanghai Bank
6.000% due 08/29/49 (e) 625 545
Indah Kiat Paper & Pulp
8.875% due 11/01/00 325 323
Mexico (United Mexican States)
11.375% due 09/15/16 800 842
6.375% due 12/31/19 (b) 1,000 861
6.453% due 12/31/19 (b) 2,000 1,723
Midland Bank
6.063% due 12/31/49 (e) 60 53
Poland, Government of
6.500% due 10/27/24 (b) 425 413
Russia Vnesh Interest
12.000% due 12/31/16 800 555
Skandinaviska Enskilda Banken
8.125% due 09/06/49 (e) 475 494
Skandinaviska Enskilda
Series 1 (MTN)
6.625% due 03/29/49 (e) 800 782
----------
12,203
----------
MORTGAGE-BACKED SECURITIES - 35.0%
Asset Securitization Corp.
Mortgage Pass-thru Certificate
Series 1995-MD4 Class A1
7.100% due 08/13/29 965 977
Collateralized Mortgage Securities Corp.
Series J Class J-5 CMO
7.985% due 05/01/17 1,608 1,633
FDIC REMIC Trust Series 1994-C1 Class 2A-2
7.850% due 09/25/25 435 441
Federal Home Loan Mortgage Corp.
7.000% 15 Year TBA (d) 1,740 1,739
6.500% 30 Year TBA (d) 12,000 11,471
7.500% 30 Year TBA (d) 3,750 3,753
8.000% 30 Year TBA (d) 3,700 3,772
Federal Home Loan Mortgage Corp.
Participation Certificate
Group # 17-0214 8.500% due 02/01/17 1,435 1,506
Group # C0-0473 7.500% due 08/01/26 1,109 1,110
Group # D6-3632 7.000% due 09/01/25 1,584 1,554
Group # D6-9873 6.500% due 04/01/26 775 742
Group # D7-1531 7.500% due 05/01/26 189 189
Group # D7-3397 7.500% due 08/01/26 1,179 1,180
Group # D7-4373 7.500% due 09/01/26 988 989
Group # G0-0453 6.500% due 03/01/26 495 474
Group # G0-0613 7.000% due 12/01/25 4,750 4,658
Group # G0-0620 7.000% due 12/01/25 3,850 3,775
Group # G1-0614 6.500% due 01/01/12 4,343 4,264
Federal Home Loan Mortgage Corp.
Participation Certificate
Series 1014 Class E
7.950% due 02/15/20 886 896
Series 1754 Class A
8.500% due 09/15/20 2,688 2,761
Federal Home Loan Mortgage Corp.
Series 1037 Class Z
9.000% due 02/15/21 1,687 1,774
Federal National Mortgage Association
Pool # 124032 10.000% due 02/01/05 369 392
Pool # 250329 7.000% due 08/01/25 281 275
Pool # 250375 6.500% due 09/01/25 1,878 1,793
Pool # 250730 7.000% due 09/01/29 987 965
Pool # 265289 7.000% due 05/01/24 85 84
Pool # 265560 7.941% due 01/01/24 (b) 2,093 2,150
Pool # 275296 7.000% due 07/01/24 443 435
Pool # 280365 7.000% due 05/01/24 688 676
Pool # 303016 6.000% due 10/01/01 1,195 1,167
Pool # 303555 7.000% due 09/01/25 2,075 2,031
Pool # 307564 7.000% due 06/01/25 849 832
Pool # 312494 7.000% due 07/01/25 411 403
Pool # 316651 7.000% due 08/01/25 1,969 1,927
Pool # 316681 7.000% due 07/01/25 875 856
Pool # 317262 7.000% due 07/01/25 322 315
Fixed Income III Fund 121
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Pool # 319580 7.000% due 08/01/25 $ 112 $ 110
Pool # 319640 7.000% due 08/01/25 444 435
Pool # 324205 7.000% due 09/01/25 727 712
Pool # 325918 7.000% due 10/01/25 342 334
Pool # 331928 6.500% due 01/01/26 51 49
Pool # 334652 6.500% due 01/01/26 813 776
Pool # 338417 6.500% due 05/01/26 25 24
Pool # 343084 6.500% due 04/01/26 771 735
Pool # 343809 6.500% due 04/01/26 997 951
Federal National Mortgage Association
7.000% 7 year TBA (d) 2,160 2,169
7.000% 15 Year TBA (d) 2,500 2,497
Federal National Mortgage Association
REMIC Trust Series 1994-79 Class Z
7.000% due 04/25/24 3,011 2,644
Government National Mortgage Association
Pool # 008288 7.125% due 09/20/23 (b) 669 683
Pool # 008302 7.000% due 10/20/23 (b) 1,098 1,119
Pool # 008346 7.000% due 12/20/23 (b) 783 800
Pool # 008528 7.000% due 10/20/24 (b) 2,682 2,743
Pool # 008530 7.000% due 10/20/24 (b) 2,274 2,327
Pool # 146513 9.000% due 05/15/16 498 534
Pool # 147482 9.000% due 04/15/16 269 288
Pool # 159768 9.000% due 07/15/16 438 470
Pool # 159949 9.000% due 09/15/16 447 480
Pool # 183723 9.000% due 12/15/16 85 92
Pool # 297864 9.000% due 10/15/21 97 103
Pool # 330255 7.500% due 07/15/23 76 77
Pool # 342022 7.500% due 05/15/23 84 85
Pool # 345644 7.500% due 03/15/24 75 75
Pool # 346746 7.000% due 09/15/23 544 534
Pool # 348193 7.500% due 07/15/23 509 512
Pool # 352050 7.000% due 10/15/23 438 430
Pool # 352129 9.000% due 08/15/24 510 538
Pool # 361036 7.500% due 07/15/23 110 111
Pool # 373789 7.500% due 10/15/23 142 142
Pool # 380708 9.000% due 01/15/25 143 151
Pool # 380893 7.500% due 03/15/24 362 363
Pool # 385312 9.000% due 11/15/24 484 512
Pool # 389622 9.000% due 10/15/24 328 346
Pool # 393772 9.000% due 04/15/25 758 798
Pool # 403241 9.000% due 02/15/25 412 436
Pool # 403995 9.000% due 11/15/24 48 50
Pool # 417192 7.000% due 01/15/26 2,412 2,361
Pool # 421389 6.500% due 04/15/26 495 472
Pool # 780029 9.000% due 11/15/24 319 342
Government National Mortgage Association
7.000% 30 Year TBA (d) 5,000 4,891
8.000% 30 Year TBA (d) 1,900 1,938
Merrill Lynch Mortgage Investors, Inc.
Mortage Pass-thru Certificate
Series 1995-C2 Class D
7.989% due 06/15/21 (b) 697 715
Paine Webber Mortgage Acceptance Corp. IV
Mortage Pass-thru Certificate
Series 1995-M1 Class A
6.700% due 01/15/07 720 722
Ryland Mortgage Securities Corp. CMO
Series 1993-8 Class A
7.840% due 09/25/23 (b) 607 612
----------
102,247
----------
NON-US BONDS - 1.1%
Canada, Government of
Series A-80
8.000% due 11/01/98 CAD 4,000 3,111
----------
3,111
----------
UNITED STATES GOVERNMENT
AGENCY - 0.5%
Tennessee Valley Authority
5.980% due 04/01/36 $ 1,450 1,472
----------
1,472
----------
UNITED STATES GOVERNMENT
TREASURIES - 21.1%
United States Treasury Bonds
8.125% due 08/15/19 6,085 7,039
8.750% due 08/15/20 1,700 2,094
7.875% due 02/15/21 7,135 8,065
United States Treasury Notes
5.875% due 07/31/97 20,000 20,050
5.625% due 01/31/98 475 475
6.000% due 08/15/99 125 125
7.750% due 11/30/99 280 293
7.125% due 02/29/00 425 438
6.125% due 07/31/00 400 400
6.125% due 09/30/00 5,000 4,997
5.750% due 10/31/00 155 153
5.625% due 11/30/00 400 393
122 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
6.375% due 03/31/01 $ 2,175 $ 2,190
6.250% due 04/30/01 1,300 1,303
6.625% due 06/30/01 7,160 7,275
5.750% due 08/15/03 875 849
6.500% due 08/15/05 725 730
6.875% due 05/15/06 2,400 2,473
United States Treasury Principal Only Strips
Zero Coupon due 11/15/99 650 548
United States Treasury Interest Only Strips
Zero Coupon due 08/15/08 1,750 817
Zero Coupon due 05/15/18 2,025 471
Zero Coupon due 02/15/19 2,050 451
----------
61,629
----------
YANKEE BONDS - 2.9%
Bombril SA
8.000% due 08/26/98 400 390
Doman Industries, Ltd.
8.750% due 03/15/04 500 468
Domtar, Inc.
9.500% due 08/01/16 225 247
Fresh Delmonte Produce Series B
10.000% due 05/01/03 1,440 1,375
Gulf Canada Resources, Ltd.
9.625% due 07/01/05 1,590 1,721
8.350% due 08/01/06 200 209
Kabelmedia Holdings Step Up Bond
Zero Coupon due 08/01/06 800 446
Methanex Corp.
7.750% due 08/15/05 900 925
National Westminster Bank PLC
5.875% due 12/31/99 (b) 290 259
Rogers Cantel, Inc.
9.375% due 06/01/08 675 709
Santander Finnish Issuances
6.525% due 09/30/49 (b) 250 248
St. George Bank, Ltd.
7.150% due 10/01/05 775 774
Tembec Finance Corp.
9.875% due 09/30/05 700 654
Videotron Holdings PLC Step Up Bond
Zero Coupon due 08/15/05 (b) 210 168
----------
8,593
----------
TOTAL LONG-TERM INVESTMENTS
(cost $271,285) 273,757
----------
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
WARRANTS - 0.0%
Capital Pacific Holdings, Inc.
2002 Warrants (a) 2,212 $ 1
----------
TOTAL WARRANTS
(cost $0) 1
----------
PREFERRED STOCKS - 1.0%
American RE Capital 18,100 468
Australia & New Zealand Banking Group, Ltd 7,200 195
California Federal Bank of Los Angeles Series B 4,500 495
Credit Lyonnais Capital S.C.A. - ADR 3,500 84
MCI Capital I Series A 9,100 228
NB Capital Trust I 20,850 516
Newscorp Overseas, Ltd. 10,000 227
Texaco Capital Series B 4,000 87
Time Warner, Inc. Series M Payment-In-Kind Bond 511 547
Wellsford Residential Property Trust Series B 5,600 142
----------
TOTAL PREFERRED STOCKS
(cost $2,933) 2,989
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 15.2%
BankAmerica Corp.
5.470% due 01/15/97 (a)(g) $ 2,500 2,495
Federal Home Loan Mortgage
Discount Notes
5.520% due 01/22/97 (a)(g) 1,600 1,595
Frank Russell Investment Company
Money Market Fund due on demand (a) 37,153 37,153
Receivables Capital Corp.
Discount Notes
5.720% due 01/15/97 (a)(g) 2,500 2,494
United States Treasury Bills (f)(g)
4.975% due 01/23/97 (a) 375 374
4.900% due 03/06/97 130 129
4.950% due 03/13/97 90 89
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $44,329) 44,329
----------
Fixed Income III Fund 123
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
MARKET
VALUE
(000)
----------
TOTAL INVESTMENTS
(identified cost $318,547)(c) - 109.9% $ 321,076
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (9.9%) (28,999)
----------
NET ASSETS - 100.0% $ 292,077
----------
----------
(a) At cost, which approximates market.
(b) Adjustable or floating rate security.
(c) See Note 2 for federal income tax information.
(d) Forward Commitment. See Note 2.
(e) Perpetual floating rate note.
(f) Held as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
(g) Rate noted is yield-to-maturity (unaudited).
ABBREVIATIONS:
ADR - American Depositary Receipt
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
FOREIGN CURRENCY ABBREVIATIONS:
CAD - Canadian dollar
DEM - German mark
USD - U.S. dollar
The accompanying notes are an integral part of the financial statements.
124 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
United States Treasury 10 Year Note
Futures Contracts
expiration date 03/97 246 $ (238)
United States Treasury 30 Year Bond
Futures Contracts
expiration date 03/97 55 (21)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ (259)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $592 were held
as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ----------
PUT OPTIONS WRITTEN
(Notes 2 and 3)
Eurodollar Financial Futures Contracts
strike price 93.00
expiration date 03/97 $ 20,000* $ 1
----------
Total Liability for Put Options Written
(premiums received $8)(#) $ 1
----------
----------
* Represents 20 contracts.
FORWARD FOREING CURRENCY EXCHANGE CONTRACTS
(Note 2)
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------ ------------ ---------- --------------
USD 2,912 DEM 4,317 01/16/97 $ (104)
USD 2,499 DEM 3,742 01/24/97 (63)
USD 758 CAD 1,000 03/06/97 (24)
DEM 4,317 USD 3,017 01/16/97 209
DEM 3,742 USD 2,586 01/24/97 150
CAD 4,314 USD 3,241 02/24/97 79
CAD 1,000 USD 736 03/06/97 2
--------------
$ 249
--------------
--------------
The accompanying notes are an integral part of the financial statements.
Fixed Income III Fund 125
<PAGE>
FIXED INCOME III FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $318,547,130)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 321,076,450
Forward foreign currency exchange contracts (cost $15,748,446)(Note 2) . . . . . . . . . . . . . . . 15,557,091
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,864,883
Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,342,942
Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,922,813
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 802,153
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,521
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,572,853
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . $ 5,699,944
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . 34,749,911
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,220,781
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 167,575
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,240
Daily variation margin on futures contracts (Notes 2 and 3) . . . . . . . . . 260,938
Forward foreign currency exchange contracts
(cost $15,748,446)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . 15,307,631
Options written, at market value
(premiums received $7,892) (Notes 2 and 3) . . . . . . . . . . . . . . . . . . 500
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,495,520
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292,077,333
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . $ (114,184)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,109,188)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,529,320
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (258,750)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,392
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,967
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,295
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,486,481
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292,077,333
---------------
---------------
Net asset value, offering and redemption price per share
($292,077,333 divided by 28,729,493 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.17
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
126 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,494,106
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,407,891
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,012
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,037,009
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,483,876
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,352
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,801
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,522
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,515
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,712
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,673
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . 6,073
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,160
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,978,684
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,058,325
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (738,831)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72,986)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,258
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . 226,269 (496,290)
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,538,381)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (566,352)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,331
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . 263,015 (2,840,387)
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,336,677)
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 13,721,648
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income III Fund 127
<PAGE>
FIXED INCOME III FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,058,325 $ 13,968,646
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . (496,290) 4,237,925
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . (2,840,387) 15,154,245
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 13,721,648 33,360,816
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,125,005) (14,094,063)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . (261,860) --
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 43,277,737 66,578,025
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 39,612,520 85,844,778
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 252,464,813 166,620,035
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net investment income
of $114,184 and undistributed net investment income of
$66,680, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292,077,333 $ 252,464,813
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
128 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993++
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 10.34 $ 9.37 $ 10.44 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .64 .67 .66 .49
Net realized and unrealized gain (loss) on investments . . (.16) .97 (1.07) .52
-------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . .48 1.64 (.41) 1.01
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.64) (.67) (.66) (.48)
In excess of net investment income . . . . . . . . . . . (.01) -- -- --
Net realized gain on investments . . . . . . . . . . . . -- -- -- (.08)
In excess of net realized gain on investments. . . . . . -- -- -- (.01)
-------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . (.65) (.67) (.66) (.57)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 10.17 $ 10.34 $ 9.37 $ 10.44
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN (%)(a)(b) . . . . . . . . . . . . . . . . . . 4.88 17.99 (3.89) 10.22
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c). . .73 .61 .20 .20
Operating expenses, gross, to average net assets (b)(c). .73 .61 .20 .40
Net investment income to average net assets (b)(c) . . . 6.32 6.83 7.02 6.30
Portfolio turnover (c) . . . . . . . . . . . . . . . . . 144.26 141.37 134.11 181.86
Net assets, end of year ($000 omitted) . . . . . . . . . 292,077 252,465 166,620 124,234
Per share amount of fees waived ($ 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) 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.
(c) The ratios for the period ended December 31, 1993 are annualized.
Fixed Income III Fund 129
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YANKEE CERTIFICATES OF DEPOSIT - 14.1%
Bayerische Vereinsbank $ 25,000 5.340% 03/24/97 $ 25,000
Canadian Imperial Bank 15,000 5.420 01/08/97 15,000
Dresdner Bank 5,000 5.850 05/06/97 5,000
Landesbank Hessen Thuringen 25,000 5.350 03/31/97 25,000
----------
TOTAL YANKEE CERTIFICATES OF DEPOSIT (cost $70,000) 70,000
----------
CORPORATE BONDS AND NOTES - 16.3%
Ford Motor Credit Co. 2,450 7.875 01/15/97 2,452
Ford Motor Credit Co. 3,675 9.500 05/30/97 3,727
General Motors Capital Corp. MTN 10,000 7.500 02/28/97 10,025
General Motors Capital Corp. MTN 10,000 7.000 05/19/97 10,033
Goldman Sachs Group L.P. (a) 25,000 4.895 02/25/97 25,000
Merrill Lynch & Co., Inc. (a) 25,000 5.660 04/28/97 24,998
Norwest Corp. MTN 2,000 7.875 01/30/97 2,003
Olympic Automobile Receivables Trust 2,793 5.616 09/15/97 2,793
----------
TOTAL CORPORATE BONDS AND NOTES (cost $81,031) 81,031
----------
DOMESTIC COMMERCIAL PAPER - 25.5%
Associates Corp. of North America 15,587 7.000 01/02/97 15,587
Centric Funding Corp. 7,000 5.320 02/06/97 6,963
Centric Funding Corp. 10,000 5.340 03/03/97 9,910
Corestates Capital Corp. (a) 25,000 5.470 07/29/97 25,000
First Chicago Financial Corp. 15,000 5.320 02/27/97 14,874
First Deposit Master Trust 10,000 5.330 02/12/97 9,938
First Deposit Master Trust 15,000 5.320 02/28/97 14,871
General Electric Capital Corp. (a) 20,000 5.437 02/21/97 20,000
Sigma Finance Corp. 10,000 5.370 03/05/97 9,906
----------
TOTAL DOMESTIC COMMERCIAL PAPER (cost $127,049) 127,049
----------
YANKEE COMMERCIAL PAPER - 3.8%
Bank of Nova Scotia 10,000 5.320 03/06/97 9,905
Societe Generale Montreal 9,000 5.320 02/24/97 8,928
----------
TOTAL YANKEE COMMERCIAL PAPER (cost $18,833) 18,833
----------
EURODOLLAR CERTIFICATES OF DEPOSITS - 10.1%
Bank of Tokyo Mitsubishi 19,000 5.470 02/05/97 19,000
Bank of Tokyo Mitsubishi 7,700 5.520 03/05/97 7,700
Banque Nationale de Paris 10,000 5.435 03/13/97 10,000
Philip Morris 3,523 7.500 04/02/97 3,537
Toronto Dominion Bank 10,000 5.950 06/05/97 10,000
----------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSITS (cost $50,237) 50,237
----------
</TABLE>
130 Money Market Fund
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EURODOLLAR COMMERICAL PAPER - 2.0%
Banco Real SA Grand Cayman $ 10,000 5.315% 04/15/97 $ 9,846
----------
TOTAL EURODOLLAR COMMERICAL PAPER (cost $9,846) 9,846
----------
EURODOLLAR TIME DEPOSITS - 9.3%
Bank of America Toronto 10,000 5.420 03/11/97 10,000
Bank of Nova Scotia 10,000 5.469 03/07/97 10,000
Banque Nationale de Paris 10,000 5.410 02/18/97 10,000
Societe Generale 10,000 5.400 02/20/97 10,000
Societe Generale 6,000 5.520 04/30/97 6,000
----------
TOTAL EURODOLLAR TIME DEPOSITS (cost $46,000) 46,000
----------
UNITED STATES GOVERNMENT AGENCIES - 13.1%
Aid to Chile Guaranteed Note (LIBOR Floater)(a) 13,474 5.813 06/01/05 13,488
Aid to INH Portugal Guaranteed Note (LIBOR Floater)(a) 12,500 5.872 12/01/17 12,723
Federal Farm Credit Bank 3,000 5.350 05/12/97 2,995
Federal Home Loan Bank 5,000 5.657 02/03/97 4,974
Federal Home Loan Bank 8,900 5.250 02/07/97 8,900
Federal National Mortgage Association MTN 10,000 5.640 09/03/97 9,976
Federal National Mortgage Association MTN (a) 12,000 5.270 04/04/97 11,989
----------
TOTAL UNITED STATES GOVERNMENT AGENCIES (cost $65,045) 65,045
----------
UNITED STATES GOVERNMENT TREASURIES - 5.0%
United States Treasury Notes 10,000 6.625 03/31/97 10,024
United States Treasury Notes 15,000 8.500 04/15/97 15,114
----------
TOTAL UNITED STATES GOVERNMENT TREASURIES (cost $25,138) 25,138
----------
TOTAL INVESTMENTS (amortized cost $493,179)(b) - 99.2% 493,179
OTHER ASSETS AND LIABILITIES, NET - 0.8% 3,753
----------
NET ASSETS - 100.0% $ 496,932
----------
----------
</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.
ABBREVIATIONS:
LIBOR - London Interbank Offered Rate
MTN - Medium Term Note
The accompanying notes are an integral part of the financial statements.
Money Market Fund 131
<PAGE>
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . $ 493,179,321
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,339,013
---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499,518,334
LIABILITIES
Payables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,517,800
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,534
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,586,334
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 496,932,000
---------------
---------------
NET ASSETS CONSIST OF:
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,969,320
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491,962,680
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 496,932,000
---------------
---------------
Net asset value, offering and redemption price per share
($496,932,000 divided by 496,932,000 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.00
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
132 Money Market Fund
<PAGE>
MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,843,609
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,437,186
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,523
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,223
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,164
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,627
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,694
---------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . 1,696,417
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . (1,437,186)
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,231
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,584,378
---------------
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . $ 31,584,378
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Money Market Fund 133
<PAGE>
MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income and net increase
in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 31,584,378 $ 29,923,729
Distributions to shareholders from net investment income . . . . . . . . . . . . (31,584,378) (29,923,729)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . (36,710,880) 31,341,062
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . (36,710,880) 31,341,062
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 533,642,880 502,301,818
--------------- ---------------
NET ASSETS AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 496,932,000 $ 533,642,880
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
134 Money Market Fund
<PAGE>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<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. . . . . . . . . . . . . . . . . . . .0549 .0601 .0447 .0342 .0403
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.0549) (.0601) (.0447) (.0342) (.0403)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 5.63 6.19 4.57 3.48 4.11
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily
net assets (a) . . . . . . . . . . . . . . . . . . . . . .05 .06 .05 .07 .08
Operating expenses, gross, to average daily
net assets (a) . . . . . . . . . . . . . . . . . . . . . .30 .26 .05 .07 .08
Net investment income to average daily net assets (a). . . 5.49 6.01 4.49 3.38 4.04
Net assets, end of year ($000 omitted) . . . . . . . . . . 496,932 533,643 502,302 415,998 347,464
Per share amount of fees waived ($ omitted)(b) . . . . . . .0025 .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 money managers. For periods thereafter, they are reported net of
investment advisory fees. See Note 4.
(b) See Note 4 for current period amounts.
Money Market Fund 135
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 23 different investment portfolios, referred to as "Funds".
These financial statements report on nine 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 Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management
estimates. The following is a summary of the significant accounting policies
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/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. Realized gains and losses from securities transactions are
recorded on the basis of identified cost incurred by each money manager
within a particular fund. The Funds may lend portfolio securities but have
not done so in 1996.
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.
136 Notes to Financial Statements
<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. Therefore, no federal income tax
provision was required for the Funds. From November 1, 1996 to December 31,
1996, the Fixed Income II and Money Market Funds incurred net realized
capital losses of $193,749 and $529, respectively. As permitted by tax
regulations, the Fixed Income II and Money Market Funds intend to elect to
defer these losses and treat them as arising in the year ending December 31,
1997.
At December 31, 1996, 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 12/31/04 TOTALS
---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Fixed Income I $ -- $(11,500,516) $ -- $ -- $(11,500,516)
Fixed Income II (948,478) (3,534,633) (698,949) (1,824,408) (7,006,468)
Fixed Income III -- (2,010,657) -- (518,716) (2,529,373)
Money Market -- -- (42,377) (814) (43,191)
</TABLE>
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income
tax purposes as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Equity I $820,493,239 $151,893,605 $(11,925,300) $139,968,305
Equity II 324,610,694 58,195,976 (10,040,431) 48,155,545
Equity III 193,529,711 30,026,198 (1,906,515) 28,119,683
Equity Q 675,612,218 154,597,050 (10,571,477) 144,025,573
International 860,476,634 131,600,268 (47,959,574) 83,640,694
Fixed Income I 709,799,956 7,625,946 (2,820,687) 4,805,259
Fixed Income II 225,133,438 1,308,263 (1,484,536) (176,273)
Fixed Income III 318,713,272 3,963,050 (1,599,872) 2,363,178
</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.
Notes to Financial Statements 137
<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, 1996:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED ADDITIONAL
INCOME GAIN (LOSS) PAID-IN CAPITAL
-------------- ------------ ---------------
<S> <C> <C> <C>
Equity I $ 104,367 $ 169,356 $(273,723)
Equity II (13) (51,693) 51,706
Equity III 14,000 32,200 (46,200)
Equity Q 120,226 219,649 (339,875)
International (2,268,290) 2,409,521 (141,231)
Fixed Income I 553,553 (469,372) (84,181)
Fixed Income II (22,032) (27,406) 49,438
Fixed Income III 147,676 147,517 (295,193)
</TABLE>
EXPENSES: The Funds will pay their own expenses other than those expressly
assumed by the Management Company. Most expenses can be directly attributed
to the individual Funds. Expenses which cannot be directly attributed 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 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) of the underlying securities at Fedwire closing
time 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 period-end, as a
result of changes in the exchange rates.
It is not practical to isolate that portion of the results of operations of
the Funds 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
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.
138 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 their 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, Funds may more effectively achieve the desired portfolio
characteristics that allow them to meet their investment objectives.
Depending on how the derivatives are structured and utilized, 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 forward 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 arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and are generally limited to the amount of unrealized gain on the
contracts, if any, that are recognized in the Statement of Asset and
Liabilities. Realized gains or losses arising from such transactions are
included in net realized gain (or loss) from foreign currency-related
transactions. Open contracts at December 31, 1996, are presented on the
Statement of Net Assets for the applicable Funds.
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," "delayed settlement" or "when
issued" 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 may 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.
Notes to Financial Statements 139
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
3. INVESTMENT TRANSACTIONS
SECURITIES: During the year ended Decemer 31, 1996, 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 $933,176,927 $871,489,354 International $460,546,583 $373,795,797
Equity II 422,239,882 398,318,200 Fixed Income I 161,700,421 136,765,908
Equity III 224,202,511 262,877,381 Fixed Income II 160,082,567 135,386,138
Equity Q 625,372,753 544,583,073 Fixed Income III 86,354,039 68,485,498
</TABLE>
Purchases and sales of U.S. Government and Agency obligations (excluding
short-term investments, options, futures and repurchase agreements) were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Fixed Income I $959,346,185 $913,217,973
Fixed Income II 399,957,301 392,018,345
Fixed Income III 410,382,202 341,301,031
</TABLE>
Money Market purchases, sales and maturities of securities (excluding U.S.
Government and Agency obligations and repurchase agreements) were
$11,240,766,733, $47,903,143 and $11,280,203,430, respectively. Purchases,
sales and maturities of U.S. Government and Agency obligations (excluding
repurchase agreements) were $125,721,761, $32,053,484 and $54,757,000,
respectively.
OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written put
options and futures contract purchases for the year ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
EQUITY I FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 119 $ 37,102,257
Opened 924 251,945,711
Closed (971) (268,442,643)
---------- -------------
Outstanding December 31, 1996 72 20,605,325
---------- -------------
---------- -------------
140 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<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, 1995 130 $ 77,607 65 $ 7,813,300
Opened 220 150,835 830 150,663,591
Closed (190) (132,176) (765) (133,518,894)
Expired (130) (77,607) -- --
--------- --------- --------- -------------
Outstanding December 31, 1996 30 $ 18,659 130 $ 24,957,997
--------- --------- --------- -------------
--------- --------- --------- -------------
<CAPTION>
EQUITY III FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 7 $ 2,171,375
Opened 259 76,725,418
Closed (243) (72,318,443)
---------- -------------
Outstanding December 31, 1996 23 $ 6,578,350
---------- -------------
---------- -------------
<CAPTION>
EQUITY Q FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 86 $ 26,652,892
Opened 702 180,624,264
Closed (750) (198,681,645)
---------- -------------
Outstanding December 31, 1996 38 $ 8,595,511
---------- -------------
---------- -------------
<CAPTION>
INTERNATIONAL FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 427 $ 50,993,954
Opened 2,100 307,393,674
Closed (2,053) (290,450,807)
---------- -------------
Outstanding December 31, 1996 474 $ 67,936,821
---------- -------------
---------- -------------
<CAPTION>
FIXED INCOME I WRITTEN PUT OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Outstanding December 31, 1995 -- $ --
Opened 63,154 101,069
Expired (63,154) (101,069)
--------- ---------
Outstanding December 31, 1996 -- $ --
--------- ---------
--------- ---------
Notes to Financial Statements 141
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<CAPTION>
FIXED INCOME II WRITTEN PUT OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Outstanding December 31, 1995 -- $ --
Opened 11,000 1,289
Closed (11,000) (1,289)
--------- ---------
Outstanding DECEMBER 31, 1996 -- $ --
--------- ---------
--------- ---------
<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 December 31, 1995 19 $ 6,536 337 $ 38,102,362
Opened 52,856 102,560 1,700 186,378,228
Closed (17,000) (8,500) (1,736) (191,182,715)
Expired (35,855) (92,703) -- --
--------- --------- --------- -------------
Outstanding December 31, 1996 20 $ 7,893 301 $ 33,297,875
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each contract
was opened.
4. RELATED PARTIES
MANAGER: 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 in this 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 Fund.
For the year ended December 31, 1996, the management fee paid to FRIMCo, for
the Funds listed below, in accordance with the Investment Company's
Management Agreement with that firm, amounted to $25,899,010 before waivers
and/or reimbursements. 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.
ANNUAL RATE ANNUAL RATE
----------- -----------
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
The management contract also provides that if any Fund's expenses (exclusive
of interest and taxes) exceed specified limits imposed by the Manager on an
annual basis, such excess will be paid by FRIMCo. Prior to May 1, 1996, the
Management Agreement provided that Fixed Income III Fund expenses (exclusive
of interest and taxes) exceeding 0.75% of the Fund's average daily net
assets, on an annual basis, would be reimbursed by FRIMCo. Effective May 1,
1996, the Manager voluntarily agreed to waive a portion of its 0.55%
management fee, to the extent total fund level expenses for the Fund exceed
0.75% of its average daily net assets on an annual basis. There were no
reimbursements or waivers for the Fixed Income III Fund for the year ended
December 31, 1996.
The Manager has voluntarily agreed to waive its 0.25% management fee for the
Money Market Fund. The amount of such waiver for the year ended December 31,
1996 was $1,437,186.
142 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
BOOKKEEPING SERVICES: 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 database 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, 1996 were $397,073 before waivers. The
Manager voluntarily agreed to waive $60,852 of these fees for the
International Fund. Effective May 1, 1996, the Manager discontinued waiving
these fees for the International Fund. The Service Agreement has been
subsequently terminated.
TAX ACCOUNTING SERVICES: Subsequent to year end the Funds have entered into
a contract with State Street Bank and Trust Company for Internal Revenue
Service tax accounting reports.
TRANSFER AGENT: The Funds have a contract with FRIMCo, for the Funds listed
above, to provide transfer agent services to the Investment Company. Total
fees for the year ended December 31, 1996 were $1,548,745.
DISTRIBUTOR: 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.
ACCRUED FEES PAYABLE TO AFFILIATES AS OF DECEMBER 31, 1996 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
MANAGEMENT BOOKKEEPING TRANSFER
FEES SERVICE FEES AGENT FEES TOTALS
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Equity I $ 497,832 $ 7,149 $ 34,841 $ 539,822
Equity II 229,836 4,371 15,972 250,179
Equity III 114,050 3,346 20,588 137,984
Equity Q 424,974 5,818 30,860 461,652
International 599,666 38,686 30,448 668,800
Fixed Income I 171,642 15,447 27,129 214,218
Fixed Income II 90,380 6,943 17,988 115,311
Fixed Income III 138,146 9,105 20,324 167,575
---------- ------------ ---------- ----------
$2,266,526 $ 90,865 $ 198,150 $2,555,541
---------- ------------ ---------- ----------
---------- ------------ ---------- ----------
</TABLE>
BROKERAGE COMMISSIONS: The Funds paid brokerage commissions to
non-affiliated brokers who provided brokerage and research services to the
Manager. 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% of gross commissions) 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,
1996 were as follows:
Equity I $138,610 Equity III 38,154
Equity II 260 International 159,252
BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not
affiliated with FRIMCo a retainer of $20,000 per year plus out-of-pocket
expenses. Total Trustee expenses were $103,244 for the year ended December
31, 1996, and were allocated to each Fund on a pro rata basis, including 14
affiliated funds not represented herein.
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. As of december 31,
1996, $226,960,000 of the Money Market Fund's net assets represents
investments by these Funds and $269,972,000 represents the investments of
other affiliated Funds not presented herein.
Notes to Financial Statements 143
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. SHARE TRANSACTIONS
Share transactions were as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
EQUITY I 1996 1995 1996 1995
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 8,775,051 8,042,540 $ 259,991,186 $ 218,753,104
Reinvestment of distributions 3,653,485 2,917,909 107,746,730 80,302,078
Shares redeemed (7,566,740) (7,584,655) (228,747,218) (202,526,829)
---------- ----------- ------------- -------------
Net increase (decrease) 4,861,796 3,375,794 $ 138,990,698 $ 96,528,353
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
EQUITY II
Shares sold 3,958,072 3,638,096 $ 119,536,766 $ 101,842,162
Reinvestment of distributions 1,337,201 938,560 38,886,095 26,562,853
Shares redeemed (2,794,591) (3,015,897) (86,009,252) (85,183,881)
---------- ----------- ------------- -------------
Net increase (decrease) 2,500,682 1,560,759 $ 72,413,609 $ 43,221,134
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
EQUITY III
Shares sold 1,683,661 1,995,925 $ 50,258,727 $ 55,610,295
Reinvestment of distributions 1,116,778 841,738 32,500,662 24,119,117
Shares redeemed (2,974,943) (2,546,275) (90,321,893) (70,240,276)
---------- ----------- ------------- -------------
Net increase (decrease) (174,504) 291,388 $ (7,562,504) $ 9,489,136
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
EQUITY Q
Shares sold 7,321,433 6,435,805 $ 234,003,820 $ 185,897,050
Reinvestment of distributions 2,845,096 1,857,979 90,801,198 55,099,559
Shares redeemed (5,729,549) (5,522,121) (186,870,315) (155,146,862)
---------- ----------- ------------- -------------
Net increase (decrease) 4,436,980 2,771,663 137,934,703 $ 85,849,747
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
INTERNATIONAL
Shares sold 7,697,721 7,634,975 $ 288,204,022 $ 268,170,784
Reinvestment of distributions 1,016,218 885,952 37,375,538 31,552,805
Shares redeemed (5,431,548) (6,215,446) (203,491,100) (218,428,369)
---------- ----------- ------------- -------------
Net increase (decrease) 3,282,391 2,305,481 $ 122,088,460 $ 81,295,220
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
FIXED INCOME I
Shares sold 10,114,528 13,120,392 $ 213,565,349 $ 272,492,800
Reinvestment of distributions 1,613,448 1,572,860 33,578,468 32,941,373
Shares redeemed (9,711,571) (10,440,155) (203,926,174) (215,501,277)
---------- ----------- ------------- -------------
Net increase (decrease) 2,016,405 4,253,097 $ 43,217,643 $ 89,932,896
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
144 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<CAPTION>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
FIXED INCOME II 1996 1995 1996 1995
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
SHARES SOLD 4,900,949 5,221,430 $ 90,320,507 $ 96,387,044
REINVESTMENT OF DISTRIBUTIONS 518,160 498,074 9,481,619 9,137,877
SHARES REDEEMED (3,169,389) (3,831,364) (58,413,181) (70,723,051)
---------- ----------- ------------- -------------
Net increase (decrease) 2,249,720 1,888,140 $ 41,388,945 $ 34,801,870
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
FIXED INCOME III
Shares sold 11,479,120 10,309,335 $ 116,457,798 $ 102,755,822
Reinvestment of distributions 1,651,840 1,373,663 16,602,395 13,707,352
Shares redeemed (8,829,297) (5,030,481) (89,782,456) (49,885,149)
---------- ----------- ------------- -------------
Net increase (decrease) 4,301,663 6,652,517 $ 43,277,737 $ 66,578,025
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
ON A CONSTANT DOLLAR BASIS
YEAR ENDED DECEMBER 31,
MONEY MARKET 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 5,832,269,612 4,628,769,576
Reinvestment of distributions 90,874 1,601,278
Shares redeemed (5,869,071,366) (4,599,029,792)
-------------- --------------
Net increase (decrease) (36,710,880) 31,341,062
-------------- --------------
-------------- --------------
</TABLE>
Notes to Financial Statements 145
<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, 1996, 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, 1996, 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, 1996, 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, 1997
/s/ COOPERS & LYBRAND L.L.P.
146 Report of Independent Accountants
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
TAX INFORMATION
December 31, 1996 (Unaudited)
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, 1996:
Equity I $ 70,304,799 Equity Q $ 60,542,596
Equity II 27,842,647 International 29,519,553
Equity III 19,748,208
Tax Information 147
<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 and General Counsel
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
BZW Barclays Global Advisors, N.A., San Francisco, CA
Columbus Circle Investors, Stamford, CT
Equinox Capital Management, Inc., New York, NY
INVESCO Capital Management, Inc., Atlanta, GA
Lincoln Capital Management Company, Chicago, IL
Schneider Capital Management, Wayne, PA
Suffolk Capital Management, Inc., New York, NY
Trinity Investment Management Corporation, Boston, MA
EQUITY II
Delphi Management, Inc., Boston, MA
Fiduciary International, Inc., New York, NY
GlobeFlex Capital, L.P., San Diego, CA
Jacobs Levy Equity Management, Inc., Roseland, NJ
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 Advisors, N.A., 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
STW Fixed Income Management, Hamilton, Bermuda
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.
148 Manager and Money Managers
<PAGE>
[PHOTO]
FRANK RUSSELL INVESTMENT COMPANY
1996 ANNUAL REPORT
DIVERSIFIED EQUITY FUND
SPECIAL GROWTH FUND
EQUITY INCOME FUND
QUANTITATIVE EQUITY FUND
INTERNATIONAL SECURITIES FUND
DIVERSIFIED BOND FUND
VOLATILITY CONSTRAINED BOND FUND
MULTISTRATEGY BOND FUND
December 31, 1996
[LOGO]
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
Frank Russell Investment Company is a
"series mutual fund" with 23 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>
FRANK RUSSELL INVESTMENT COMPANY - INTERNAL FEE FUNDS
ANNUAL REPORT
DECEMBER 31, 1996
TABLE OF CONTENTS
Page
Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . . 1
Diversified Equity Fund . . . . . . . . . . . . . . . . . . . . . 2
Special Growth Fund . . . . . . . . . . . . . . . . . . . . . . . 16
Equity Income Fund. . . . . . . . . . . . . . . . . . . . . . . . 34
Quantitative Equity Fund. . . . . . . . . . . . . . . . . . . . . 46
International Securities Fund . . . . . . . . . . . . . . . . . . 60
Diversified Bond Fund . . . . . . . . . . . . . . . . . . . . . . 88
Volatility Constrained Bond Fund. . . . . . . . . . . . . . . . . 108
Multistrategy Bond Fund . . . . . . . . . . . . . . . . . . . . . 118
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 132
Report of Independent Accountants . . . . . . . . . . . . . . . . 143
Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . 144
Manager and Money Managers. . . . . . . . . . . . . . . . . . . . 145
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 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, or state and local
taxes. Russell Fund Distributors, Inc., is the distributor of Frank Russell
Investment Company.
<PAGE>
TO OUR CLIENTS
Frank Russell Investment Company is pleased to present its 1996 Annual Report.
This report covers information on eight of the Funds and represents the Funds'
fifteenth year of operation.
During the past year we have continued our focus on the benefits of
multi-manager, multi-style diversification in structuring our funds. We remain
committed to providing all of our clients with superior investment solutions
across each of our multiple manager and style funds. These efforts proved
worthwhile in 1996 as our funds, in general, surpassed their respective
benchmarks and attracted many new investors, both creating significant growth in
assets.
Frank Russell Investment Management Company continuously evaluates the funds we
offer our clients. Each of these funds is carefully monitored by Russell's
investment professionals to ensure that the most appropriate investment advisors
and strategies are utilized within each fund. The Advisors are monitored by the
Frank Russell Investment Management Company, using the expertise and advice of
the consulting group of Frank Russell Company.
In response to our client's requests and inquiries, the Frank Russell Investment
Company opened a new fund, Equity T, during the year. The Fund commenced
operations on October 4, 1996. Its investment objective is to provide capital
growth focused on an after-tax basis with strategies that invest principally in
equity securities. It is an attractive alternative for investors seeking to
minimize the impact of taxes on their investment returns. In addition, several
existing funds began offering Class C shares under a multiple-class structure.
This will provide greater flexibility for pricing and distributing our funds in
the market. We believe these new investment solutions along with our other
funds and services, continue to enhance the investment options that we offer to
meet the needs of our clients.
We look forward to having the opportunity to work with you over the upcoming
year and continuing to earn your support by exceeding your expectations. Thank
you for your continued confidence and investment with Frank Russell Investment
Company.
Sincerely,
/s/ George F. Russell, Jr. /s/ Lynn L. Anderson
George F. Russell, Jr. Lynn L. Anderson
Chairman President and Chief Executive Officer
Frank Russell Company Frank Russell Investment Company
<PAGE>
DIVERSIFIED EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide capital growth and income.
INVESTS IN: Primarily U.S. equity securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns with moderate risk. The Fund employed the investment
management services of nine managers with three separate and distinct investment
styles.
<TABLE>
<CAPTION>
DATES DIVERSIFIED EQUITY RUSSELL 1000-Registered Trademark- ** LIPPER-C- GROWTH & INCOME ++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $10,694 $10,294 $10,202
1988 $12,445 $12,068 $11,724
1989 $16,062 $15,739 $14,355
1990 $14,936 $15,084 $13,710
1991 $19,573 $20,066 $17,660
1992 $21,200 $21,879 $19,123
1993 $23,434 $24,100 $21,268
1994 $23,431 $24,192 $21,049
1995 $31,673 $33,328 $27,491
1996 $39,048 $40,810 $33,192
- ----------------------------------------------------------------------------------------------------------------
Total $222,496 $227,560 $199,774
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
DIVERSIFIED EQUITY FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,329 23.29%
5 Years $ 19,950 14.81%#
10 Years $ 39,048 14.59%#
RUSSELL 1000-Registered Trademark- INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,245 22.45%
5 Years $ 20,338 15.26%#
10 Years $ 40,810 15.10%#
LIPPER-C- GROWTH & INCOME FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,074 20.74%
5 Years $ 18,795 13.45%#
10 Years $ 33,192 12.75%#
* Assumes initial investment on January 1, 1987
** Russell 1000-Registered Trademark- Index includes the 1,000 largest
companies in the Russell 3000-Registered Trademark- Index, the smallest of
which is valued at about $1,019 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.
2 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Diversified Equity Fund had a total
return of 23.3% as compared to the Russell-Registered Trademark- 1000 Index
results of 22.5%. The Fund outperformed the Index primarily due to the value
added by stock selection throughout the year. Technology stocks provided the
greatest source of these opportunities as the Fund was overweighted in this
sector for the entire year. The Fund also benefited from an underweighting in
utility stocks. Its underweighting in the largest stocks of the Russell 1000
Index had a measurable negative effect on performance but was more than offset
by other sources of return.
PORTFOLIO HIGHLIGHTS
The strength of the market in 1996 defied most predictions after the big run-up
in 1995. Once again large capitalization stocks dominated with the largest 50
stocks of the Russell 1000 Index up more than 26% for the year while the next
largest 150 stocks gained only 20%. It was a downward progression from there
with small cap stocks in the Russell 2000-Registered Trademark- Index up only
16.5% for the year. Among Russell 1000 Index economic sectors, the "other"
energy sector, which includes oil service, drilling companies, gas distributors
and pipelines, was the strongest performer gaining nearly 40%. Technology stocks
were not far behind at 38%. The US equity market was a bit more volatile in 1996
than in 1995. A strong sell-off at mid-year was tied to rising interest rates
and sparked concerns over the arrival of a seemingly overdue market correction.
Technology stocks and small cap issues were the most severely impacted in the
market's rather rapid 7% decline in late-June/early-July.
The Diversified Equity Fund's balance of investment styles helped lessen its
vulnerability to the market's rotation between sectors during the year. However,
common to all of the managers was their ability to produce significant returns
in the technology sector throughout most of 1996. The Value managers exploited
technology investment opportunities in the aftermath of the June/July sell-off
that left many technology stocks at very attractive valuation levels. The added
value from this opportunity, the larger exposure to financial services and
energy-related stocks, and underweighting to utilities gave the Value group of
managers the performance edge for the year, despite the fact that Value stocks
in general trailed Growth. In terms of individual stocks, significant
contributions were made by the Fund's largest holdings. The biggest position was
in Intel which gained over 130% in 1996. Other significant contributors included
Chase Manhattan Corp., Cisco Systems, and Boeing.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Intel Corp. 2.9%
Philip Morris Cos., Inc. 2.3
Chase Manhattan Corp. 1.6
Boeing Corp. 1.3
Cisco Systems, Inc. 1.3
International Business Machines Corp. 1.2
Columbia/HCA Healthcare Corp. 1.1
Johnson & Johnson 1.0
American International Group, Inc. 1.0
Pfizer, Inc. 0.9
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 19.2x
Portfolio Price/Book Ratio 3.05x
Market Capitalization - $ - Weighted Average 26.76 Bil
Number of Holdings 541
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Alliance Capital Management L.P. Growth
BZW Barclays Global Fund Advisors Market-Oriented
Columbus Circle Investors Growth
Equinox Capital Management, Inc. Value
INVESCO Capital Management, Inc. Market-Oriented
Lincoln Capital Management Co. Growth
Schneider Capital Management Value
Suffolk Capital Management, Inc. Market-Oriented
Trinity Investment Management Corp. Value
- -------------------------------------------------------------------
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 Equity Fund 3
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 93.4%
BASIC INDUSTRIES - 5.6%
Air Products & Chemicals, Inc. 20,900 $ 1,445
Aluminum Co. of America 47,700 3,041
ASARCO, Inc. 9,300 231
Bemis Co., Inc. 1,600 59
Bethlehem Steel Corp. (a) 6,000 54
Cameco Corp. 16,100 203
Cytec Industries, Inc. 3,700 150
Dow Chemical Co. 38,000 2,978
Engelhard Corp. 5,300 101
Goodrich (B.F.) Co. 42,000 1,701
Hanna (M.A.) Co. 1,000 22
Hexcel Corp. (a) 95,000 1,544
Illinois Tool Works, Inc. 27,500 2,197
IMC Global, Inc. 55,700 2,179
Inland Steel Industries, Inc. 30,200 604
International Specialty Products (a) 5,100 62
James River Corp. of Virginia 46,100 1,527
Jefferson Smurfit Corp. (a) 10,200 163
Kimberly-Clark Corp. 12,700 1,210
Lone Star Technologies, Inc. (a) 40,000 670
Lubrizol Corp. 8,500 264
Mark IV Industries, Inc. 200 5
Mead Corp. 14,800 860
Minnesota Mining & Manufacturing Co. 24,475 2,028
Monsanto Co. 124,700 4,848
Morton International, Inc. 1,800 73
Nalco Chemical Co. 12,700 459
Newmont Mining Corp. 1,100 49
Olin Corp. 21,000 790
P.H. Glatfelter Co. 2,300 41
Pechiney S.A. - ADR 35,000 691
Potlatch Corp. 13,700 589
Precision Castparts Corp. 16,400 814
Rhone Poulenc SA - ADR 34,481 1,168
Rohm & Haas Co. 6,700 547
Sealed Air Corp. (a) 1,100 46
Sequa Corp. (a) 31,000 1,217
Sigma Aldrich Corp. 2,000 125
Stone Container Corp. 50,000 744
Temple-Inland, Inc. 15,600 844
Terra Industries, Inc. 6,300 93
USX-U.S. Steel Group 26,300 825
Westvaco Corp. 38,700 1,113
Witco Chemical Corp. 20,000 610
----------
38,984
----------
CAPITAL GOODS - 3.1%
Albany International Corp. Class A 35,000 809
Alcatel Alsthom Compagnie
Generale d'Electricite - ADR 77,903 1,247
American Power Conversion Corp. (a) 14,500 395
Aviall, Inc. (a) 53,700 497
Caterpillar, Inc. 25,800 1,942
Cooper Industries, Inc. 7,100 299
Crane Co. 900 26
Cummins Engine Co., Inc. 7,400 340
Dover Corp. 7,860 395
DSC Communications Corp. (a) 13,100 234
Duracell International, Inc. 800 56
Exide Corp. 30,000 690
Far East Levingston 200,000 1,043
Foster Wheeler Corp. 15,900 590
General Electric Co. 22,325 2,207
Harsco Corp. 4,600 315
Hubbell, Inc. Class B 3,300 143
Ingersoll-Rand Co. 36,600 1,629
Johnson Controls, Inc. 16,000 1,326
Magna International, Inc. Class A 23,000 1,282
Novellus Systems, Inc. (a) 7,600 411
Safeguard Scientifics, Inc. 500 16
SPS Technologies, Inc. (a) 14,200 912
Technip SA - ADR 15,938 743
Timken Co. 14,500 665
Tremont Corp. (a) 22,300 806
Tyco International, Ltd. 12,300 650
USA Waste Services, Inc. (a) 32,300 1,030
Wheelabrator Technologies, Inc. 9,200 150
WMX Technologies, Inc. 24,000 783
----------
21,631
----------
CONSUMER BASICS - 17.9%
Abbott Laboratories 38,300 1,944
ALZA Corp. (a) 6,800 176
American Brands, Inc. 11,200 556
American Home Products Corp. 76,800 4,502
American Stores Co. 31,900 1,304
Amgen, Inc. (a) 31,300 1,702
Archer-Daniels-Midland Co. 69,887 1,538
Astra AB Class A - ADR 32,000 1,568
Baxter International, Inc. 58,800 2,411
Becton, Dickinson & Co. 17,100 742
Bergen Brunswig Corp. Class A 14,400 410
Beverly Enterprises, Inc. (a) 26,900 343
Biogen, Inc. 3,000 115
Biomet, Inc. 3,500 53
Black & Decker Corp. 18,500 557
Bristol-Myers Squibb Co. 53,800 5,851
Campbell Soup Co. 22,600 1,814
Cardinal Health, Inc. 33,000 1,922
Chiquita Brands International, Inc. 43,600 556
4 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
ChiRex, Inc. (a) 22,500 $ 264
Coca-Cola Co. (The) 93,800 4,936
Coca-Cola Enterprises, Inc. 5,800 281
Columbia/HCA Healthcare Corp. 195,100 7,950
CPC International, Inc. 12,600 977
Dimon, Inc. 30,000 694
Dole Food, Inc. 31,600 1,070
Fresenius Medical Care AG - ADR (a) 19,700 554
General Nutrition Companies, Inc. (a) 2,900 49
Giant Food, Inc. Class A 1,400 48
Gillette Co. 35,000 2,721
Great Atlantic & Pacific Tea Co., Inc. 12,500 398
Health Management Associates Class A 30,850 694
HealthCare COMPARE (a) 10,800 458
HEALTHSOUTH Rehabilitation Corp. (a) 6,000 232
Hershey Foods Corp. 1,900 83
Hillenbrand Industries, Inc. 800 29
Hormel (George A.) & Co. 10,600 286
Humana, Inc. (a) 100 2
IBP, Inc. 40,700 987
Integrated Health Services, Inc. 42,000 1,024
International Multifoods Corp. 53,500 970
Interstate Bakeries Corp. 1,600 79
Johnson & Johnson 140,400 6,985
Lilly (Eli) & Co. 13,500 986
Lincare Holdings, Inc. (a) 4,600 189
Medtronic, Inc. 29,800 2,026
Merck & Co., Inc. 77,700 6,158
Mylan Laboratories, Inc. 117,500 1,968
North American Vaccine, Inc. (a) 30,000 728
OrNda Healthcorp (a) 500 15
Owen Healthcare, Inc. (a) 3,300 87
Oxford Health Plans, Inc. 12,100 708
PepsiCo, Inc. 162,800 4,762
Pfizer, Inc. 78,100 6,473
Pharmacia & Upjohn, Inc. 20,900 828
Philip Morris Cos., Inc. 140,875 15,866
Physician Sales & Service, Inc. (a) 2,900 42
Procter & Gamble Co. 39,300 4,225
Quorum Health Group, Inc. (a) 1,500 44
Ralston-Purina Group 9,400 690
RJR Nabisco Holdings Corp. 19,861 675
Rykoff-Sexton, Inc. 50,000 794
Safeway, Inc. 5,800 248
Sara Lee Corp. 29,650 1,104
Schering-Plough Corp. 46,600 3,017
Smithkline Beecham PLC - ADR 55,400 3,767
Standard Commercial Corp. 30,345 614
Tenet Healthcare Corp. (a) 34,000 744
Tupperware Corp. 4,300 231
Tyson Foods, Inc. Class A 11,300 386
U.S. Surgical Corp. 7,500 295
Unilever NV 12,800 2,243
United Healthcare Corp. 10,900 490
Universal Corp. 36,800 1,182
US Bioscience, Inc. 750 9
Vons Cos., Inc. (a) 3,200 192
W. R. Grace & Co. 51,600 2,670
Watson Pharmaceuticals, Inc. (a) 2,100 94
Weis Markets, Inc. 2,000 64
Wellpoint Health Networks, Inc. Class A 14,237 489
----------
124,938
----------
CONSUMER DURABLES - 2.5%
AutoZone Inc. (a) 29,200 803
Chrysler Corp. 171,800 5,669
Cooper Tire & Rubber Co. 90,800 1,793
Dana Corp. 9,600 313
Elsag Bailey Process Automation NV 50,000 938
Fleetwood Enterprises, Inc. 6,000 165
Ford Motor Co. 101,293 3,229
General Motors Corp. 12,000 669
Harley-Davidson, Inc. 600 28
Leggett & Platt, Inc. 4,900 170
Oakwood Homes Corp. 600 14
PACCAR, Inc. 5,800 393
Sunbeam Oster, Inc. 10,800 278
UNC, Inc. (a) 112,200 1,346
Whirlpool Corp. 29,400 1,371
----------
17,179
----------
CONSUMER NON-DURABLES - 7.5%
Anheuser-Busch Cos., Inc. 19,200 768
Avon Products, Inc. 14,200 811
Barry (R.G.) Corp. 60,000 660
Bed Bath & Beyond, Inc. 2,300 56
CompUSA, Inc. 7,600 157
Dayton Hudson Corp. 102,400 4,019
Dollar General Corp. 3,250 104
Eastman Kodak Co. 27,900 2,239
Federated Department Stores, Inc. (a) 80,400 2,744
Gap, Inc. 107,300 3,232
Hasbro, Inc. 20,000 777
Hills Store Co. (a) 17,926 108
Home Depot, Inc. (The) 48,400 2,426
Jones Apparel Group, Inc. 14,100 527
Jostens, Inc. 40,100 847
Kellwood Co. 50,000 1,000
Diversified Equity Fund 5
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Kmart Corp. (a) 126,300 $ 1,310
Kohl's Corp. 22,000 863
Liz Claiborne, Inc. 8,900 344
Lowe's Cos., Inc. 36,800 1,306
Mattel, Inc. 138,541 3,845
May Department Stores Co. 20,000 935
Neiman-Marcus Group, Inc. (a) 10,100 258
NIKE, Inc. Class B 15,300 914
Payless ShoeSource, Inc. (a) 48,400 1,815
Penney (J.C.) Co., Inc. 32,500 1,584
Phar-Mor, Inc. (a) 98,500 536
Polaroid Corp. 18,000 783
PriceCostco, Inc. (a) 48,000 1,206
Revco D.S., Inc. (a) 17,100 633
Russell Corp. 8,900 265
Salant Corp. (a) 156,200 508
Sears Roebuck & Co. 120,000 5,535
SuperValu, Inc. 15,800 448
Tiffany & Co. 3,500 128
TJX Cos., Inc. 35,600 1,687
Toys "R" Us, Inc. (a) 132,000 3,960
Unifi, Inc. 30,000 964
V.F. Corp. 1,800 121
Wal-Mart Stores, Inc. 44,200 1,011
Warnaco Group, Inc. Class A 13,300 394
Woolworth Corp. (a) 7,800 171
Zale Corp. (a) 40,000 765
----------
52,764
----------
CONSUMER SERVICES - 3.1%
America West Airlines, Inc. Class B 53,200 845
AMR Corp. (a) 15,200 1,339
Boston Chicken, Inc. (a) 11,400 408
Brinker International, Inc. (a) 68,100 1,090
Carnival Corp. Class A 74,200 2,449
Choice Hotels International, Inc. (a) 3,000 53
Circus Circus Enterprises, Inc. (a) 4,500 155
Comair Holdings, Inc. 3,400 82
Continental Airlines, Inc. Class B 10,000 282
Disney (Walt) Co. 43,700 3,043
Hilton Hotels Corp. 68,400 1,787
International Game Technology 9,000 164
King World Productions, Inc. (a) 18,800 693
KLM Royal Dutch Airlines (a) 35,272 983
Marriot International, Inc. 16,000 884
McDonald's Corp. 17,400 787
Mirage Resorts, Inc. 12,600 272
Northwest Airlines Corp. Class A (a) 61,600 2,402
UAL Corp. 60,900 3,806
----------
21,524
----------
ENERGY - 6.5%
Amerada Hess Corp. NPV 42,600 2,465
Amoco Corp. 46,050 3,707
Apache Corp. 34,800 1,231
Atlantic Richfield Co. 26,300 3,485
Baker Hughes, Inc. 12,600 435
British Petroleum Co. PLC - ADR 18,600 2,630
Burlington Resources, Inc. 32,300 1,627
Chevron Corp. 7,448 484
Crown Centennial Petroleum Co. Class B (a) 62,000 744
Dresser Industries, Inc. 21,800 676
Enron Oil & Gas Co. 8,600 217
Exxon Corp. 48,300 4,733
Global Marine, Inc. New (a) 4,700 97
Halliburton Co. 1,300 78
Kerr-McGee Corp. 4,300 310
LTV Corp. 700 8
McDermott International, Inc. 45,000 748
Mobil Corp. 8,800 1,076
Murphy Oil Corp. 2,600 145
NGC Corp. 14,000 325
NorAm Energy Corp. 6,600 101
Occidental Petroleum Corp. 68,100 1,592
Oryx Energy Co. (a) 19,900 493
Petroleum Heat & Power, Inc. Class A 144,876 887
Pogo Producing Co. 500 24
Rowan Cos., Inc. (a) 40,000 905
Royal Dutch Petroleum Co. - ADR 12,000 2,049
Schlumberger, Ltd. 23,950 2,392
Smith International, Inc. (a) 3,900 175
Texaco, Inc. 35,800 3,513
Tosco Corp. 20,160 1,595
Transocean Offshore, Inc. 30,100 1,885
Union Texas Petroleum Holdings, Inc. 21,200 474
Unocal Corp. 15,600 634
USX-Marathon Group 149,975 3,581
----------
45,521
----------
FINANCE - 17.1%
Aetna, Inc. 23,100 1,848
AFLAC, Inc. 57,000 2,437
Ahmanson (H.F.) & Co. 56,600 1,840
Allstate Corp. 99,408 5,753
AMBAC, Inc. 9,000 597
American Financial Group, Inc. 45,400 1,714
American General Corp. 44,600 1,823
American International Group, Inc. 61,262 6,632
AmSouth Bancorp 2,000 97
Associates First Capital Corp. Class A 25,300 1,116
6 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Banc One Corp. 129,350 $ 5,562
Bancorp Hawaii, Inc. 11,700 491
Bank of Boston Corp. 1,500 96
BankAmerica Corp. 17,700 1,766
Bankers Life Holding Corp. 3,100 78
Bankers Trust New York Corp. 1,800 155
Barnett Banks, Inc. 24,600 1,012
Bear Stearns Cos., Inc. 14,240 397
Beneficial Corp. 21,500 1,363
Borg-Warner Security Corp. (a) 25,800 277
Charter One Financial, Inc. 6,700 281
Chase Manhattan Corp. 124,508 11,112
Chubb Corp. (The) 62,600 3,365
Citicorp 12,600 1,298
CNA Financial Corp. (a) 1,800 193
Coast Savings Financial, Inc. (a) 24,900 912
Comerica, Inc. 10,100 529
Commerce Bancshares, Inc. 2,150 99
Conseco, Inc. 12,100 771
Corporate Express, Inc. (a) 1,200 35
Countrywide Credit Industries, Inc. 48,100 1,377
Dean Witter, Discover & Co. 24,500 1,623
Dime Bancorp, Inc. New (a) 15,900 235
Edwards (A.G.), Inc. 13,800 464
Equifax, Inc. 4,100 126
Federal Home Loan Mortgage Corp. 11,700 1,288
Federal National Mortgage Association 124,300 4,630
First America Bank Corp. 900 54
First American Corp. 700 40
First Bank System, Inc. 10,500 717
First Chicago NBD Corp. 15,895 854
First Tennessee National Corp. 19,200 718
First Union Corp. 30,400 2,250
Firstar Corp. 25,000 1,312
Fleet Financial Group, Inc. 22,100 1,102
GAN Group 30,000 607
General Re Corp. 20,200 3,187
Golden West Financial Corp. 5,600 354
Great Western Financial Corp. 45,800 1,328
Green Tree Financial Corp. 25,000 966
Greenpoint Financial Corp. 1,100 52
Household International Corp. 33,100 3,053
ITT Hartford Group, Inc. 10,000 675
Jefferson-Pilot Corp. 2,800 159
Lehman Brothers Holdings, Inc. 46,000 1,443
Loews Corp. 9,800 924
MBNA Corp. 103,250 4,285
Mercantile Bankshares Corp. 4,200 133
Mercury General Corp. 2,800 147
Merrill Lynch & Co., Inc. 48,900 3,985
MGIC Investment Corp. 5,800 441
Morgan Stanley Group, Inc. 32,300 1,845
National City Corp. 8,700 390
NationsBank Corp. 51,800 5,063
Northern Trust Corp. 1,600 58
Norwest Corp. 71,000 3,088
Old Republic International Corp. 25,900 693
PaineWebber Group, Inc. 36,100 1,015
Paul Revere Corp. 22,200 827
PMI Group, Inc. (The) 1,400 78
Progressive Corp. 8,500 573
Republic New York Corp. 4,000 326
Robert Half International, Inc. 1,800 62
Salomon, Inc. 29,300 1,381
Schwab (Charles) Corp. 1,900 61
Scor SA - ADR (a) 15,600 536
Southern National Corp. 38,100 1,381
SouthTrust Corp. 5,800 202
Standard Federal Bancorporation 2,400 136
Star Banc Corp. 2,400 220
State Street Boston Corp. 39,500 2,548
Student Loan Marketing Association 1,600 149
SunAmerica, Inc. 2,000 89
SunTrust Banks, Inc. 49,000 2,413
Synovus Financial Corp. 2,100 67
TCF Financial Corp. 13,900 605
Torchmark Corp. 41,400 2,091
Transamerica Financial Corp. 5,700 450
Transatlantic Holdings, Inc. 3,900 314
U.S. Bancorp of Oregon 7,100 319
USLIFE Corp. 7,900 263
Zions Bancorp 500 52
Zurich Reins Centre Holdings, Inc. 3,600 112
----------
119,585
----------
GENERAL BUSINESS - 4.4%
Ascend Communications, Inc. 26,700 1,655
Automatic Data Processing, Inc. 109,250 4,684
Cascade Communications Corp. 14,000 772
Central Newspapers, Inc. Class A 8,100 356
Comdisco, Inc. 8,000 254
Computer Sciences Corp. (a) 32,300 2,653
Comsat Corp. Series 1 8,500 209
Cox Communications, Inc. Class A (a) 36,900 853
CUC International, Inc. 29,000 689
Deluxe Corp. 30,300 992
Ecolab, Inc. 1,000 38
Figgie International Holdings, Inc. Class A (a) 67,000 787
Diversified Equity Fund 7
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
First Data Corp. 53,820 $ 1,965
Gannett Co., Inc. 10,700 801
Gartner Group, Inc. Class A New (a) 1,500 58
GTECH Holdings Corp. (a) 1,700 54
Knight-Ridder, Inc. 17,300 662
Lagardere Groupe (Regd) 20,000 549
Meredith Corp. 5,100 269
MFS Communications, Inc. 8,200 445
New York Times Co. Class A 1,300 49
Nextel Communications, Inc. Class A (a) 7,500 98
Omnicom Group, Inc. 1,800 82
Omnipoint Corp. (a) 1,700 33
PairGain Technologies, Inc. 1,200 37
QUALCOMM, Inc. (a) 35,900 1,427
Quintiles Transnational Corp. (a) 3,100 203
Reuters Holdings PLC Class B - ADR 17,700 1,354
SBC Communications, Inc. 13,800 714
Service Corp. International 97,400 2,727
Staples, Inc. 140,100 2,522
Stewart Enterprises, Inc. Class A 2,900 98
Tele-Communications - TCI, Group A (a) 29,700 386
Tele-Communications Liberty Media, Grade A (a) 32,500 926
Tribune Co. 19,000 1,499
Wallace Computer Services, Inc. 6,400 221
----------
31,121
----------
MISCELLANEOUS - 0.8%
American Real Estate Partners, L.P. 86,626 791
Canadian Pacific, Ltd. 31,700 840
Catellus Development Corp. (a) 80,000 910
Echelon International Corp., Inc. (a) 1,147 18
Home State Holdings, Inc. (a) 21,300 154
Newhall Land & Farming Co. 52,900 893
Providian Corp. 4,400 226
Tenneco, Inc. 40,200 1,814
----------
5,646
----------
SHELTER - 0.4%
Armstrong World Industries, Inc. 16,200 1,126
Centex Corp. 10,400 391
Schuller Corp. 21,500 229
Sherwin-Williams Co. 900 51
St. Lawrence Cement Inc. Class A 58,200 425
Standard Pacific Corp. 35,000 201
USG Corp. (a) 5,200 176
Vulcan Materials Co. 5,900 359
----------
2,958
----------
TECHNOLOGY - 16.0%
3Com Corp. (a) 28,500 2,088
Adaptec, Inc. 28,000 1,120
ADC Telecommunications, Inc. 9,300 288
Altera Corp. (a) 16,800 1,220
American Management Systems, Inc. 2,000 49
Apple Computer, Inc. (a) 45,900 952
Avery Dennison Corp. 9,800 347
Avnet, Inc. 8,400 489
AVX Corp. 6,000 129
BE Aerospace, Inc. (a) 105,000 2,848
Beckman Instruments, Inc. 7,000 269
Boeing Co. 86,900 9,244
Cabletron Systems, Inc. 15,900 529
Cadence Design Systems, Inc. 4,250 169
CAE, Inc. 95,000 718
CDW Computer Centers, Inc. 1,100 65
Cisco Systems, Inc. 145,000 9,226
COMPAQ Computer Corp. (a) 80,400 5,970
Computer Associates International, Inc. 21,505 1,070
Compuware Corp. (a) 2,700 135
Dell Computer Corp. 33,400 1,774
EG&G, Inc. 22,000 443
Electronic Data Systems Corp. 35,400 1,531
Ericsson (LM) Telephone Co. Class B - ADR 24,270 731
Gateway 2000, Inc. (a) 1,100 59
General Dynamics Corp. 5,600 395
Guidant Corp. 10,600 604
Harris Corp. 1,800 124
HBO & Co. 29,700 1,763
Hewlett-Packard Co. 116,400 5,849
Honeywell, Inc. 36,200 2,380
Imation Corp. (a) 30,000 844
Informix Corp. (a) 29,400 599
Intel Corp. 154,800 20,260
International Business Machines Corp. 56,175 8,482
KLA Instruments Corp. (a) 24,900 881
Lexmark International Group, Inc. Class A (a) 6,300 174
Litton Industries, Inc. (a) 800 38
Lockheed Martin Corp. 54,900 5,023
LSI Logic Corp. (a) 24,900 666
McAfee Associates, Inc. 4,800 209
Medic Computer Systems, Inc. 3,100 125
Micron Electronics, Inc. (a) 200 4
Microsoft Corp. (a) 77,100 6,370
Molex, Inc. Class A 9,400 334
Netscape Communications Corp. 41,900 2,378
Northrop Grumman Corp. 10,500 869
Novell, Inc. (a) 3,500 33
Oracle Systems Corp. 37,500 1,561
8 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Parametric Technology Corp. 4,600 $ 236
Picturetel Corp. (a) 1,200 31
Premisys Communications, Inc. (a) 900 30
Raytheon Co. 19,100 919
Read-Rite Corp. (a) 10,000 250
SCI Systems, Inc. (a) 4,900 219
Seagate Technology 27,900 1,102
Storage Technology Corp. (a) 28,400 1,353
Sun Microsystems, Inc. 7,800 200
Symbol Technologies, Inc. (a) 8,300 367
Tandem Computers, Inc. (a) 30,500 419
Thermo Instrument Systems, Inc. 1,100 36
TRW, Inc. 3,200 158
U.S. Robotics Corp. 18,900 1,361
United Technologies Corp. 25,200 1,663
Western Digital Corp. (a) 3,700 211
Xerox Corp. 23,700 1,247
Xilinx, Inc. (a) 20,800 764
----------
111,994
----------
TRANSPORTATION - 1.6%
Alexander & Baldwin, Inc. 6,900 170
BT Shipping, Ltd. - ADR (a) 155,000 465
Conrail, Inc. 4,211 419
Consolidated Freightways Corp. (a) 62,500 555
Consolidated Freightways, Inc. 42,600 948
CSX Corp. 43,050 1,819
Federal Express Corp. 1,500 67
Johnstown America Industries, Inc. (a) 85,000 372
Nordic American Tanker Shipping, Ltd. 1997
Warrants (a) 28,400 128
Norfolk Southern Corp. 23,900 2,091
OMI Corp. (a) 156,500 1,369
Overseas Shipholding Group, Inc. 19,100 325
Ryder System, Inc. 52,700 1,482
Trinity Industries, Inc. 6,300 236
Union Pacific Corp. 14,700 884
----------
11,330
----------
UTILITIES - 6.9%
360 Communications Co. (a) 7,500 173
Airtouch Communications, Inc. (a) 128,400 3,242
Allegheny Power System, Inc. 12,100 367
AT&T Corp. 100,200 4,359
Baltimore Gas & Electric Co. 10,600 284
BCE, Inc. 33,000 1,576
BellSouth Corp. 7,700 311
Boston Edison Co. 19,900 535
Centerior Energy Corp. 36,900 397
Central Maine Power Co. 46,400 539
Century Telephone Enterprises, Inc. 10,700 330
CMS Energy Corp. 4,900 165
Columbia Gas System, Inc. 800 51
Consolidated Natural Gas Co. 10,600 586
DTE Energy Co. 35,500 1,149
Enova Corp. 32,700 744
Enron Corp. 4,100 177
ENSERCH Corp. 21,000 483
Entergy Corp. 88,200 2,448
Equitable Resources, Inc. 13,900 414
Florida Progress Corp. 17,200 555
GPU, Inc. 30,900 1,039
GTE Corp. 33,900 1,542
Idaho Power Co. 8,100 252
IPALCO Enterprises, Inc. 4,400 120
KU Energy Corp. 5,000 150
LG&E Energy Corp. 1,400 34
Long Island Lighting Co. 21,000 465
Lucent Technologies, Inc. 50,500 2,336
MCI Communications Corp. 47,700 1,556
National Fuel & Gas Co. 7,200 297
New England Electric System 12,000 418
Niagara Mohawk Power Corp. (a) 178,500 1,763
NICOR, Inc. 15,700 561
NIPSCO Industries, Inc. 3,100 123
NYNEX Corp. 53,200 2,560
Pacific Enterprises 900 27
Pacific Gas & Electric Co. 30,000 630
Pinnacle West Capital Corp. 15,200 483
Potomac Electric Power Co. 54,200 1,396
PP&L Resources, Inc. 7,700 177
Public Service Co. of Colorado 1,400 54
Public Service Enterprise Group, Inc. 1,500 41
Sonat, Inc. 22,900 1,179
Southern New England Telecommunications Corp. 27,200 1,057
Telefonica de Espana SA - ADR 36,000 2,493
Telefonos de Mexico SA Series L - ADR 61,600 2,033
Telephone & Data Systems, Inc. 2,400 87
Texas Utilities Co. 32,600 1,328
U.S. West Communications Group 20,400 658
Unicom Corp. 44,900 1,218
United States Cellular Corp. (a) 1,100 31
Williams Cos. (The) 9,750 366
WorldCom, Inc. 105,900 2,753
----------
48,112
----------
TOTAL COMMON STOCKS
(cost $529,268) 653,287
----------
Diversified Equity Fund 9
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
CONVERTIBLE PREFERRED STOCKS - 0.7%
Continental Airlines Finance Trust 12,500 $ 830
Elsag Bailey Financing Trust 22,600 859
Glendale Federal Bank Series E 22,100 1,298
Tyco Toys, Inc. Series C 155,900 1,832
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $3,231) 4,819
----------
PREFERRED STOCKS - 0.1%
Cooper Industries, Inc. 40,000 775
Fresenius National Medical Care, Inc. Class D (a) 10,000 1
----------
TOTAL PREFERRED STOCKS
(cost $560) 776
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 5.2%
Frank Russell Investment Company Money
Market Fund, due on demand (b) $ 34,416 34,416
United States Treasury Bills
5.040% due 02/06/97 (b)(c)(d) 2,000 1,990
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $36,406) 36,406
----------
TOTAL INVESTMENTS
(identified cost $569,465)(e) - 99.4% 695,288
OTHER ASSETS AND LIABILITIES, NET - 0.6% 4,403
----------
NET ASSETS - 100.0% $ 699,691
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Rate noted is yield-to-maturity (unaudited).
(d) Held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
NV - Nonvoting
PLC - Public Limited Company
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/97 78 $ (329)
S & P 400 Midcap Index Futures Contracts
expiration date 03/97 51 (9)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ (338)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $1,990 were
held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
10 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $569,464,696)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 695,287,811
Receivables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,303,573
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,459,590
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,399,970
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,172
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704,481,116
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 931,028
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,543,912
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 535,204
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,535
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 563,525
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,790,204
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 699,690,912
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,801,635
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,823,036
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (338,421)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,804
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560,235,858
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 699,690,912
---------------
---------------
Net asset value, offering and redemption price per share
($699,690,912 divided by 16,880,356 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41.45
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Equity Fund 11
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,030,724
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,712,102
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,156
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,843,982
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,728,098
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,140
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373,267
Bookkeeping fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,800
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,009
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,267
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,731
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,664
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,713,976
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,130,006
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,419,263
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,868,873 81,288,136
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,759,517
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (177,983) 40,581,534
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,869,670
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 128,999,676
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,130,006 $ 7,699,338
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,288,136 69,484,687
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 40,581,534 69,767,584
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 128,999,676 146,951,609
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,130,006) (7,795,700)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . (53,638) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . (80,193,229) (53,844,603)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . 127,422,632 31,298,027
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . 169,045,435 116,609,333
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . 530,645,477 414,036,144
--------------- ---------------
NET ASSETS AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 699,690,912 $ 530,645,477
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Equity Fund 13
<PAGE>
DIVERSIFIED EQUITY FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 38.62 $ 32.26 $ 34.88 $ 35.60 $ 36.36
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .48 .60 .58 .56 .60
Net realized and unrealized gain (loss) on investments . . 8.15 10.63 (.49) 3.03 2.30
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 8.63 11.23 .09 3.59 2.90
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.48) (.60) (.58) (.55) (.61)
Net realized gain on investments . . . . . . . . . . . . . (5.32) (4.27) (1.87) (3.76) (3.05)
In excess of net realized gain on investments. . . . . . . -- -- (.26) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (5.80) (4.87) (2.71) (4.31) (3.66)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 41.45 $ 38.62 $ 32.26 $ 34.88 $ 35.60
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . 23.29 35.17 (0.01) 10.53 8.32
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . . .94 .95 .95 .96 .98
Net investment income to average net assets . . . . . . . 1.18 1.56 1.73 1.54 1.69
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 99.90 92.53 57.53 99.80 77.02
Net assets, end of year ($000 omitted) . . . . . . . . . . 699,691 530,645 414,036 388,420 337,549
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . .0465 N/A N/A N/A N/A
</TABLE>
14 Diversified Equity Fund
<PAGE>
SPECIAL GROWTH FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To enhance total return, primarily through capital appreciation and
by assuming a higher level of volatility than is ordinarily expected from the
Diversified Equity Fund.
INVESTS IN: Primarily small capitalization and "emerging growth-type" company
U.S. equity securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns with moderate risk. The Fund employed the investment
management services of six small capitalization stock fund managers with three
separate and distinct investment styles.
<TABLE>
<CAPTION>
DATES SPECIAL GROWTH - CLASS S RUSSELL 2500-TM- ** LIPPER-C- SMALL CO. GROWTH ++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $10,654 $9,532 $9,509
1988 $12,126 $11,699 $11,319
1989 $15,027 $13,972 $13,849
1990 $12,881 $11,893 $12,440
1991 $18,434 $17,447 $18,791
1992 $20,741 $20,271 $21,104
1993 $23,953 $23,623 $24,620
1994 $23,063 $23,374 $24,367
1995 $29,639 $30,784 $31,880
1996 $35,168 $36,642 $38,182
- ----------------------------------------------------------------------------------------------------
Total $211,686 $209,237 $216,061
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL GROWTH FUND - CLASS S
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $11,865 18.65%
5 Years $19,078 13.79%#
10 Years $35,168 13.40%#
SPECIAL GROWTH FUND - CLASS C ++++
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $11,855 18.55%
5 Years $19,061 13.77%#
10 Years $35,137 13.39%#
RUSSELL 2500-TM- INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $11,903 19.03%
5 Years $21,002 16.00%#
10 Years $36,642 13.87%#
LIPPER-C- SMALL CO. GROWTH FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $11,977 19.77%
5 Years $20,319 15.23%#
10 Years $38,182 14.34%#
* The Special Growth Fund - Class S assumes initial investment on
January 1, 1987.
** Russell 2500-TM- 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 $2.6 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.
++++ The Special Growth Fund - Class C - For the period, November 4, 1996
(commencement of sales) to December 31, 1996, shareholder service and
Rule 12b-1 distribution fees were charged. Total return would have been
lower had these fees been in effect during prior reporting periods.
# Annualized.
16 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Special Growth Fund Class S and
Class C shares had total returns of 18.7% and 18.6%, respectively, as
compared to the Russell 2500-TM- Index results of 19%. The Russell 2500 Index
outperformed the Fund primarily due to the Fund's slight underweighting in
medium-sized company stocks. As investors became more defensive towards year
end, the Fund's Growth managers struggled. The Fund was also disadvantaged on
a comparative basis by the lack of real estate investment trust securities
(REITs) representation in the portfolio--a sector that gained over 35% and
represents over 4% of the Russell 2500 Index.
PORTFOLIO HIGHLIGHTS The small capitalization market showed signs of a
rebound at the beginning of 1996, but lost momentum at the end of the second
quarter when investors became worried about slowing economic growth and a
boost in interest rates by the Federal Reserve. Unlike the large cap market,
where Growth stocks captured investors' favor, small Value stocks
dramatically outperformed small Growth stocks. Weakness among two of the
largest small cap growth-oriented sectors, consumer and technology, and a
disproportionate share of strong-performing energy and financial services
issues among Value-oriented stocks favored Value investors during the year.
The Russell 2000-Registered Trademark- Index's "other" energy sector, which
includes oil services, drilling companies, gas distributors and pipelines,
gained over 75% during the year--over two times better than the next best
performing sector, financial services.
After a slow start, the Special Growth Fund was ahead of the Russell 2500 Index
for most of 1996 before stumbling in the fourth quarter. The strength of REITs
and weakness of health care, specialty retailers, business equipment and
services, and computer peripheral companies' stocks were major factors in the
fourth quarter's underperformance. All of the Value-oriented managers generated
very healthy returns. The Growth managers struggled due to weakness in the
consumer and healthcare sectors.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Sunamerica, Inc. 0.7%
Fremont General Corp. 0.7
Compuware Corp. 0.6
Coachmen Industries, Inc. 0.6
ADC Telecommunications, Inc. 0.6
Accustaff, Inc. 0.6
McAfee Associates, Inc. 0.6
Vintage Petroleum, Inc. 0.6
American Bankers Insurance Group, Inc. 0.5
Union Planters Corp. 0.5
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 18.9x
Portfolio Price/Book Ratio 2.55x
Market Capitalization - $ - Weighted Average 1.19 Bil
Number of Holdings 877
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Delphi Management, Inc. Small Cap-Value
Jacobs Levy Equity Management, Inc. Small Cap-Value
Fiduciary International, Inc. Small Cap-Growth
Sirach Capital Management, Inc. Small Cap-Growth
GlobeFlex Capital, L.P. Small Cap-Market
Oriented
Wellington Management Co. Small Cap-Market
Oriented
- -------------------------------------------------------------------
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 17
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 92.4%
BASIC INDUSTRIES - 3.8%
Agrium, Inc. 54,700 $ 752
AK Steel Holding Corp. 8,000 317
Albemarle Corp. 12,400 225
Alumax, Inc. (a) 11,800 394
Amax Gold, Inc. (a) 11,600 74
Amcast Industrial Corp. 2,000 50
Battle Mountain Gold Co. 20,000 138
Bethlehem Steel Corp. (a) 66,200 596
Bio-Rad Laboratories, Inc. Class A 3,000 90
Birmingham Steel Corp. 6,100 116
Bowater, Inc. 4,100 154
Brush Wellman, Inc. 3,100 51
BWay Corp. (a) 7,000 134
Cambrex Corp. 4,000 131
Carbide/Graphite Group, Inc. (The)(a) 6,000 116
Carpenter Technology Corp. 7,500 275
Chaparral Steel Co. 1,300 16
ChemFirst, Inc. 4,000 93
Chesapeake Corp. 4,300 135
Cincinnati Milacron, Inc. 1,200 26
Cleveland-Cliffs, Inc. 4,200 191
Commercial Metals Co. 2,000 60
Commonwealth Aluminum Corp. 7,700 118
Consolidated Papers, Inc. 6,150 302
Dexter Corp. 8,500 271
Dravo Corp. (a) 2,000 28
Easco, Inc. 18,000 131
Ethyl Corp. 18,100 174
Fort Howard Corp. New (a) 20,000 553
Goodrich (B.F.) Co. 7,200 292
Hecla Mining Co. (a) 36,600 206
Inland Steel Industries, Inc. 27,300 546
International Specialty Products (a) 9,700 119
J & L Specialty Steel, Inc. 3,000 34
Lone Star Technologies, Inc. (a) 3,700 62
Lubrizol Corp. 14,400 446
Mark IV Industries, Inc. 6,825 154
Material Sciences Corp. (a) 2,000 36
Mississippi Chemical Corp. 42,836 1,028
Mueller Industries, Inc. (a) 5,800 223
National Steel Corp. Class B (a) 5,800 54
Olin Corp. 20,600 775
Olympic Steel, Inc. (a) 21,700 545
Oregon Metallurgical Corp. 20,100 638
Oregon Steel Mills, Inc. 10,300 173
P.H. Glatfelter Co. 4,000 72
Penwest, Ltd. 6,000 105
Potlatch Corp. 7,700 331
Premark International, Inc. 27,500 612
Quanex Corp. 5,000 137
Reliance Steel & Aluminum Co. 2,200 77
Rouge Steel Co. Class A 1,200 25
Schulman (A.), Inc. 4,800 118
Slater Steel, Inc. 10,000 109
Texas Industries, Inc. 14,200 719
Titanium Metals Corp. (a) 20,000 653
Tredegar Industries, Inc. 1,300 52
Universal Stainless & Alloy Products, Inc. (a) 15,500 135
Webco Industries, Inc. (a) 18,000 94
WHX Corp. (a) 62,400 553
Wolverine Tube, Inc. (a) 3,500 122
----------
14,956
----------
CAPITAL GOODS - 5.0%
ABC Rail Products Corp. (a) 5,000 99
ABT Building Products Corp. (a) 2,700 68
AFC Cable Systems, Inc. (a) 6,000 143
Allwaste, Inc. (a) 9,000 46
American Buildings Co. New (a) 4,000 94
American Power Conversion Corp. (a) 31,800 867
ANTEC Corp. (a) 9,100 81
Aptargroup, Inc. 19,000 670
Avondale Industries, Inc. (a) 3,000 64
Baldor Electric Co. 3,800 94
Barnes Group, Inc. 1,100 66
Bearings, Inc. 1,900 53
Belden, Inc. 8,000 296
BMC West Corp. (a) 8,000 98
Briggs & Stratton Corp. 4,600 202
BWIP Holding, Inc. Class A 5,600 92
Cable Design Technologies Corp. 3,000 92
Central Tractor Farm & Country, Inc. (a) 6,000 83
Charter Power Systems, Inc. 4,000 122
Cohu, Inc. 53,000 1,219
Columbus Mckinnon Corp. 50,000 763
Control Devices, Inc. (a) 6,700 85
Core Industries, Inc. 55,000 908
Culligan Water Technologies, Inc. (a) 15,200 616
Cummins Engine Co. Inc. 12,000 552
Daniel Industries, Inc. 7,000 103
DT Industries, Inc. 1,500 52
Exide Corp. 10,800 248
Farr Co. (a) 7,000 116
Flow International Corp. (a) 10,000 91
Fluke Corp. 2,600 116
FSI International, Inc. (a) 10,500 158
General Signal Corp. 5,300 227
Giant Cement Holding, Inc. (a) 8,000 126
Giddings & Lewis, Inc. 20,000 258
18 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Gleason Corp. 2,600 $ 86
Global Industrial Technologies, Inc. (a) 6,300 139
Greenbrier Companies, Inc. 2,100 22
Harmon Industries, Inc. 7,000 130
Hubbell, Inc. Class B 6,200 268
Hughes Supply, Inc. 5,100 220
Hurco Cos. Inc. 18,000 97
Insituform Technologies, Inc. Class A (a) 5,100 38
Juno Lighting, Inc. 3,200 50
Kennametal, Inc. 11,700 455
Kuhlman Corp. 7,900 153
MagneTek, Inc. (a) 9,700 125
Martin Marietta Materials, Inc. 5,600 130
Measurex Corp. 4,100 98
Mitcham Industries, Inc. (a) 10,000 96
National Service Industries, Inc. 15,400 576
NCI Building Systems, Inc. (a) 25,400 867
OHM Corp. (a) 4,100 35
Park Electrochemical Corp. 7,300 166
Plantronics, Inc. New (a) 3,000 135
Powell Industries, Inc. (a) 10,000 139
Rexel, Inc. (a) 8,900 141
Scotman Industries, Inc. 800 19
Shelter Components Corp. 9,062 111
SIFCO Industries 69,000 716
Silicon Valley Group, Inc. (a) 25,300 506
SPS Technologies, Inc. (a) 800 51
Synalloy Corp. 7,000 110
Tecumseh Products Co. Class A 3,500 200
TETRA Technologies, Inc. New (a) 47,300 921
Timken Co. 11,500 527
U.S. Filter Corp. (a) 58,200 1,847
United Waste Systems, Inc. 47,800 1,636
Zurn Industries, Inc. 5,600 145
----------
19,923
----------
CONSUMER BASICS - 8.5%
ABR Information Services, Inc. 16,100 632
American HomePatient, Inc. 25,500 682
American Medical Response (a) 5,000 163
Apogee, Inc. (a) 16,000 58
ARV Assisted Living, Inc. (a) 6,000 65
Bergen Brunswig Corp. Class A 8,900 254
Bindley Western Industries, Inc. 3,800 74
Biochem Pharma, Inc. (a) 29,000 1,446
Biogen, Inc. 30,000 1,155
Bob Evans Farms, Inc. 5,000 67
Bush Boake Allen, Inc. (a) 2,000 53
Central Sprinkler Corp. (a) 5,700 137
Chemed Corp. 1,500 55
ChiRex, Inc. (a) 30,000 353
Coca-Cola Bottling Co. 23,500 1,122
Coherent, Inc. (a) 22,000 935
Cohr, Inc. (a) 33,000 875
Collagen Corp. 6,000 110
Cross (A.T.) Co. Class A 4,700 55
Curative Technologies, Inc. (a) 42,000 1,150
Dean Foods Co. 5,400 174
Duckwall-ALCO Stores, Inc. New (a) 6,000 84
Dura Pharmaceuticals, Inc. 36,000 1,715
Equity Corp. International 16,000 308
ESC Medical Systems, Ltd. 15,700 400
Gensia, Inc. (a) 10,400 47
GranCare, Inc. (a) 5,000 89
Health Care & Retirement Corp. 27,500 787
Health Management Associates Class A 40,000 900
Healthcare Services Group, Inc. (a) 10,000 100
Healthdyne Technologies, Inc. (a) 10,062 89
Heartland Express, Inc. 30,000 724
Herbalife International, Inc. 36,000 1,170
Home Health Corp. of America, Inc. (a) 12,000 131
Horizon/CMS Healthcare Corp. (a) 26,400 333
Hormel (George A.) & Co. 6,900 186
Hudson Foods, Inc. 5,200 99
Immucor Corp. (a) 10,000 94
International Multifoods Corp. 3,300 60
Lincare Holdings, Inc. (a) 38,000 1,558
Maxxim Medical, Inc. (a) 8,000 100
Medicis Pharmaceutical Corp. Class A. 31,650 1,377
Minntech Corp. 8,000 92
MMI Companies, Inc. 6,200 200
Nature's Sunshine Products, Inc. 5,000 90
NBTY, Inc. (a) 53,500 1,010
Northland Cranberries, Inc. Class A 4,000 90
NovaCare, Inc. (a) 103,900 1,143
Pediatric Services of America, Inc. (a) 7,000 134
Pediatrix Medical Group (a) 7,200 266
PhyCor, Inc. 29,412 827
PhyMatrix Corp. (a) 54,000 770
Physiometrix, Inc. (a) 30,000 105
Prime Hospitality Corp. (a) 6,000 97
Protocol Systems, Inc. (a) 9,000 115
Ralcorp Holdings, Inc. (a) 6,400 135
Renal Treatment Centers, Inc. 30,800 785
Respironics, Inc. (a) 8,000 134
Ruddick Corp. 3,600 50
Safeskin Corp. (a) 19,800 965
Safety 1st, Inc. (a) 12,000 123
Schultz Sav-O Stores, Inc. 51,000 714
Special Growth Fund 19
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Sequus Pharmaceuticals, Inc. (a) 21,800 $ 346
Snap-On Tools Corp. 10,800 385
Sola International, Inc. (a) 25,000 950
Stanhome, Inc. 3,900 103
Starbucks Corp. (a) 21,200 604
Starrett (L.S.) Co. Class A 28,500 809
Strategic Distribution, Inc. (a) 18,250 144
Sun Healthcare Group, Inc. (a) 17,700 238
Sunrise Medical, Inc. (a) 5,400 85
Total Renal Care Holdings, Inc. (a) 37,400 1,355
Transitional Hospitals Corp. (a) 19,200 184
Universal Corp. 7,300 234
----------
33,248
----------
CONSUMER DURABLES - 1.8%
Aftermarket Technology Corp. 18,500 315
Arctic Cat, Inc. 4,100 40
Arvin Industries, Inc. 8,300 205
ASM Lithography Holding NV 20,500 1,020
Bandag, Inc. 4,300 204
Bassett Furniture Industries, Inc. 500 12
Coachmen Industries, Inc. 83,500 2,369
CORT Business Services Corp. (a) 5,000 103
Excel Industries, Inc. 8,000 133
Kimball International, Inc. Class B 1,000 41
Kinetic Concepts, Inc. 5,000 61
La-Z-Boy Chair Co. 1,300 38
Lithia Motors, Inc. Class A 10,000 110
Myers Industries, Inc. 2,300 39
National Presto Industries, Inc. 1,000 37
Outboard Marine Corp. 16,900 279
Pronet, Inc. (a) 27,800 118
Schult Homes Corp. 3,500 82
Smith (A.O.) Corp. 39,900 1,192
Standard Products Co. 2,200 56
TBC Corp. (a) 6,000 45
Thor Industries, Inc. 1,600 40
Titan Wheel International, Inc. 11,800 151
Toro Co. 4,800 176
West, Inc. 1,300 38
----------
6,904
----------
CONSUMER NON-DURABLES - 5.8%
Abercrombie & Fitch Co. Class A (a) 26,300 434
AnnTaylor Stores Corp. (a) 24,100 422
Block Drug Co. Inc. Class A 21,682 997
Brown Group, Inc. 9,100 167
Canandaigua Wine, Inc. Class A (a) 10,900 309
Carson Pirie Scott & Co. (a) 5,900 149
Cash America International, Inc. 11,700 99
Cole National Corp. Class A (a) 5,000 131
CPI Corp. 300 5
Daisytek International Corp. (a) 3,000 123
Designer Holdings, Ltd. (a) 58,400 942
Dress Barn, Inc. (a) 7,400 111
Family Dollar Stores, Inc. 4,735 96
Fieldcrest Cannon, Inc. (a) 6,600 106
Fingerhut Cos. Inc. 15,900 195
Gadzooks, Inc. 40,600 741
Goody's Family Clothing, Inc. (a) 45,400 800
Guilford Mills, Inc. 1,000 27
Handleman Co. (a) 7,200 61
Helen of Troy, Ltd. New (a) 7,000 152
Huffy Corp. 10,100 145
Jean Phillippe Fragrances, Inc. New (a) 12,000 75
Johnston Industries, Inc. 29,950 217
Just For Feet, Inc. 46,900 1,225
Kellwood Co. 8,100 162
Land's End, Inc. (a) 3,800 101
Leslie's Poolmart (a) 8,000 103
MacFrugals Bargains Close Outs, Inc. (a) 7,000 183
Mohawk Industries, Inc. (a) 37,300 825
Morningstar Group, Inc. (a) 42,200 828
Movado Group, Inc. 46,500 1,232
Nautica Enterprises, Inc. 55,100 1,378
Nutramax Products, Inc. New (a) 10,000 108
Paragon Trade Brands, Inc. (a) 39,400 1,182
PeopleSoft, Inc. 24,000 1,149
Quaker Fabric Corp. New (a) 11,000 154
Rayonier, Inc. 6,500 249
Rite Aid Corp. 28,000 1,113
Ross Stores, Inc. 15,300 761
Russ Berrie & Co. Inc. 1,300 23
Russell Corp. 5,200 155
Shopko Stores, Inc. 46,300 695
Sports & Recreation, Inc. (a) 7,200 56
SuperValu, Inc. 5,100 145
Tiffany & Co. 30,000 1,099
TJX Cos. Inc. 22,600 1,071
Value City Department Stores, Inc. (a) 83,600 878
Valuevision International, Inc. Class A (a) 7,000 38
Video Update, Inc. Class A (a) 25,000 94
Waban, Inc. (a) 39,000 1,014
Windmere Corp. 18,300 235
----------
22,760
----------
CONSUMER SERVICES - 2.0%
AAR Corp. 4,400 133
20 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
America West Airlines, Inc. Class B 11,700 $ 186
Atlantic Southeast Airlines, Inc. 15,300 335
Aztar Corp. (a) 38,900 272
CKE Restaurants, Inc. 8,000 288
Equity Inns, Inc. 10,000 130
GC Companies, Inc. (a) 700 24
Harvey's Casino Resorts 2,000 34
Hollywood Entertainment Corp. (a) 35,100 649
Hollywood Park, Inc. (a) 5,300 80
King World Productions, Inc. (a) 17,000 627
Lodgenet Entertainment Corp. (a) 8,000 140
Luby's Cafeterias, Inc. 43,500 865
Marcus Corp. 1,100 23
Max & Erma's Restaurants, Inc. (a) 15,000 98
Mesa Airlines, Inc. (a) 11,600 78
O'Charleys, Inc. (a) 10,000 125
Players International, Inc. (a) 11,800 62
Qantas Airways, Ltd. ADR 41,700 696
Recoton Corp. (a) 9,000 133
Red Roof Inns, Inc. (a) 3,500 54
Rio Hotel & Casino, Inc. (a) 4,600 67
Ruby Tuesday, Inc. 3,000 56
Ryan's Family Steak Houses, Inc. (a) 137,400 945
ShoLodge, Inc. (a) 10,133 129
Showbiz Pizza Time, Inc. 43,800 794
Skywest, Inc. 4,200 58
Speedway Motorsports, Inc. 7,500 158
Studio Plus America, Inc. 7,000 110
Sunstone Hotel Investors, Inc. 21,100 276
Supertel Hospitality, Inc. (a) 14,000 125
----------
7,750
----------
ENERGY - 7.9%
AGL Resources, Inc. 3,500 74
Alamco, Inc. (a) 10,000 113
Apache Corp. 26,000 920
Arch Petroleum, Inc. New (a) 34,800 87
Barrett Resources Corp. (a) 18,000 767
Basin Exploration, Inc. (a) 110,000 674
Belden & Blake Corp. (a) 6,800 173
BJ Services Co. (a) 20,000 1,020
Camco International, Inc. 6,300 291
Coho Energy, Inc. (a) 94,480 673
Cross Timbers Oil Co. 41,000 1,030
Dailey Petroleum Services Corp. (a) 9,000 92
Energen Corp. 1,900 57
Energy Ventures, Inc. (a) 16,400 834
ENSCO International, Inc. (a) 25,450 1,234
Enserch Exploration, Inc. (a) 11,500 135
Evergreen Resources, Inc. (a) 18,000 146
Flores & Rucks, Inc. (a) 16,000 852
Giant Industries, Inc. 53,400 748
Global Industries, Inc. 6,000 110
Harcor Energy, Inc. New (a) 25,000 119
Helmerich & Payne, Inc. 20,800 1,084
Hugoton Energy Corp. (a) 4,300 44
ICO, Inc. 12,800 78
Laclede Gas Co. 1,200 29
LTV Corp. 51,700 614
Marine Drilling Co, Inc. (a) 54,800 1,075
MidAmerican Energy Holdings Co. 12,600 200
Mitchell Energy & Development Corp. 2,200 49
Newfield Exploration Co. 27,000 702
Noble Drilling Corp. (a) 78,200 1,554
Nuevo Energy Co. (a) 13,700 712
NUI Corp. 1,300 29
Oryx Energy Co. (a) 32,100 794
Parallel Petroleum Corp. (a) 21,600 101
Parker & Parsley Petroleum Co. 46,400 1,705
Plains Resources, Inc. (a) 3,600 56
Pool Energy Services Co. (a) 52,500 807
Pride Petroleum Services, Inc. (a) 14,900 343
Production Operators Corp. 4,000 186
Quaker State Oil Refining Corp. 9,900 140
Questar Corp. 8,100 298
Reading & Bates Corp. (a) 20,000 530
Santa Fe Energy Resources, Inc. (a) 77,100 1,070
Snyder Oil Corp. 15,800 275
Stone Energy Corp. (a) 33,000 986
Sun Co. Inc. 6,900 168
Tesoro Petroleum Corp. (a) 11,000 154
Texoil, Inc. (a) 65,000 69
Transocean Offshore, Inc. 15,500 971
Tuboscope Vetco International Corp. (a) 7,000 108
Ultramar Diamond Shamrock Corp. 7,400 234
Union Texas Petroleum Holdings, Inc. 18,100 405
USX-Delhi Group 67,400 1,070
Vastar Resources, Inc. 16,000 608
Veritas DGC, Inc. (a) 34,500 638
Vintage Petroleum, Inc. 63,800 2,201
Wiser Oil Co. 46,400 917
----------
31,153
----------
FINANCE - 19.9%
Acceptance Insurance Companies, Inc. (a) 3,100 61
AlBank Financial Corp. 5,100 160
Allied Group, Inc. 3,900 127
Allmerica Financial Corp. 9,000 302
Special Growth Fund 21
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Allmerica Property & Casualty Cos. 2,000 $ 61
American Bankers Insurance Group, Inc. 40,100 2,040
American Eagle Group, Inc. 24,000 114
American Financial Group, Inc. 6,000 227
American National Insurance Co. 10,500 774
AMRESCO, Inc. (a) 36,900 978
AmSouth Bancorp 14,800 716
AmVestors Financial Corp. 3,400 50
Astoria Financial Corp. 44,200 1,630
AVEMCO Corp. 51,000 797
Bancorp Hawaii, Inc. 7,000 294
Bankatlantic Bancorp, Inc. Class A 59,875 763
Bankers Corp. 6,000 121
BanPonce Corp. 24,600 824
Bay View Capital Corp. 1,800 76
Bear Stearns Cos. Inc. 64,265 1,791
Berkley (W.R.) Corp. 16,500 837
BHC Financial, Inc. 8,000 126
Capmac Holdings, Inc. 2,400 80
Capsure Holdings Corp. 6,500 74
Carolina First Corp. 4,100 79
CCB Financial Corp. 1,000 68
Central Fidelity Banks, Inc. 1,600 41
CFI ProServices, Inc. (a) 5,000 69
Charter One Financial, Inc. 36,965 1,553
CitiFed Bancorp, Inc. 6,000 198
City National Corp. 13,200 285
Cityscape Financial Corp. 23,400 608
CMAC Investment Corp. 600 22
CNB Bancshares, Inc. 735 31
Collective Bancorp, Inc. 26,500 928
Colonial BancGroup, Inc. 31,100 1,244
Commerce Bancorp, Inc. 1,100 36
Commerce Group, Inc. 2,000 51
Commercial Federal Corp. 3,900 187
Community First Bankshares, Inc. 1,800 50
Compass Bancshares, Inc. 2,900 115
Conseco, Inc. 12,600 803
Corporate Express, Inc. (a) 37,200 1,093
CorVel Corp. (a) 4,000 113
Countrywide Credit Industries, Inc. 27,400 784
Cullen Frost Bankers, Inc. 4,000 132
Dauphin Deposit Corp. 1,800 59
Delphi Financial Group, Inc. 27,540 812
Delta Financial Corp. (a) 6,700 121
Deposit Guaranty Corp. 2,000 62
Dime Community Bancorp, Inc. (a) 30,000 435
Donaldson, Lufkin & Jenrette, Inc. 27,600 994
Downey Financial Corp. 1,800 35
Eaton Vance Corp. 23,200 1,105
Enhance Financial Services Group, Inc. 2,500 91
Envoy Corp. New (a) 32,400 1,219
Everest Re Holdings, Inc. 6,200 178
Executive Risk, Inc. 24,000 888
EXEL, Ltd. 21,000 795
Fidelity National Financial 4,730 72
Financial Fed Corp. 7,000 117
First American Corp. 14,000 807
First American Financial Corp. 31,500 1,295
First Bell Bancorp, Inc. 6,900 91
First Commerce Corp. 25,000 966
First Federal Savings Bank of Colorado, Inc. 4,300 73
First Financial Caribbean Corp. 4,000 111
First Financial Corp. 4,000 97
First Hawaiian Creditcorp, Inc. 2,500 88
First Mortgage Corp. (a) 23,200 96
First Republic Bancorp, Inc. (a) 7,000 117
First Security Corp. 7,600 257
First Tennessee National Corp. 14,100 527
First Virginia Banks, Inc. 2,200 105
FirstBank Puerto Rico 1,200 31
FirstFed Financial Corp. (a) 1,200 26
Flushing Financial Corp. 6,300 113
Fremont General Corp. 83,175 2,578
Great Financial Corp. 3,000 87
Greenpoint Financial Corp. 19,600 926
Guarantee Life Companies, Inc. 1,600 30
Guaranty National Corp. 2,900 49
HCC Insurance Holdings, Inc. 12,500 300
Hibernia Corp. 22,500 298
HUBCO, Inc. 1,957 48
Imperial Bancorp 3,120 75
Imperial Credit Industries, Inc. 65,122 1,359
Inter-Regional Financial Group, Inc. 1,800 63
Jefferies Group, Inc. 20,000 808
John Alden Financial Corp. 7,400 137
Keystone Financial, Inc. 2,700 68
Lehman Brothers Holdings, Inc. 43,200 1,355
Leucadia National Corp. 34,800 931
Liberty Corp. 1,100 43
Life USA Holdings, Inc. New (a) 3,500 41
Litchfield Financial Corp. 7,350 103
Long Island Bancorp, Inc. 6,900 241
MAF Bancorp, Inc. 3,411 117
Magna Group, Inc. 5,600 165
Markel Corp. (a) 9,500 846
Mid Ocean, Ltd. 14,000 735
ML Bancorp, Inc. 6,800 95
Money Store, Inc. (The) 58,000 1,602
NAC Reinsurance Corp. 9,400 318
22 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
National Auto Credit, Inc. 3,000 $ 36
New York Bancorp, Inc. 1,100 43
North American Mortgage Co. 6,900 136
North Fork Bancorporation, Inc. 8,700 310
Ocean Financial Corp. (a) 5,000 127
Ohio Casualty Corp. 2,500 89
Old Kent Financial Corp. 17,840 850
Old National Bancorp 1,000 39
Old Republic International Corp. 11,900 318
ONBANCorp 5,900 219
One Valley Bancorp of West Virginia, Inc. 2,500 93
Orion Capital Corp. 4,200 257
Penn Treaty American Corp. (a) 5,000 128
PennCorp Financial Group, Inc. 23,000 828
Peoples Heritage Financial Group 46,640 1,294
PFF Bancorp, Inc. (a) 10,000 146
Price (T. Rowe) & Associates, Inc. 10,900 471
Provident Bankshares Corp. 2,100 82
Quaker City Bancorp, Inc. (a) 9,200 175
Queens County Bancorp 2,666 126
RAC Financial Group, Inc. 32,400 664
Raymond James Financial, Inc. 1,200 36
RCSB Financial, Inc. 28,400 817
Reliance Group Holdings, Inc. 16,400 150
RenaissanceRe Holdings, Ltd. 38,400 1,267
Republic Bancorp, Inc. 2,970 35
Resource Bancshares Mortgage Group 8,607 123
Resource Mortgage Capital Corp. 6,700 197
Riggs National Corp. 9,700 167
Robert Half International, Inc. 22,100 760
Security Capital Corp. 1,000 73
Security Connecticut Corp. 7,300 256
Selective Insurance Group, Inc. 30,700 1,167
Signet Banking Corp. 16,500 507
Sotheby's Holdings Co. Inc. Class A 45,000 838
Southern Pacific Funding Corp. (a) 21,700 675
SouthTrust Corp. 15,800 549
Sovereign Bancorp, Inc. 72,560 943
St. Paul Bancorp, Inc. 2,900 85
Standard Federal Bancorporation 13,700 779
Standard Financial, Inc. 4,300 84
State Auto Financial Corp. 9,000 162
SunAmerica, Inc. 59,600 2,645
Susquehanna Bancshares, Inc. 1,300 45
T R Financial Corp. 3,000 107
TCF Financial Corp. 20,000 870
Titan Holdings, Inc. 8,750 144
Transatlantic Holdings, Inc. 22,000 1,771
Trenwick Group, Inc. 21,000 971
UICI (a) 22,000 707
Union Planters Corp. 50,775 1,980
UnionBanCal Corp. 2,100 111
United Fire & Casualty Co. 32,450 1,144
Unitrin, Inc. 1,500 84
US Facilities Corp. 66,500 1,305
USF&G Corp. 36,800 768
USLIFE Corp. 35,500 1,180
UST Corp. 1,600 33
Valley National Bancorp 2,300 59
Washington Federal, Inc. 5,900 153
Washington Mutual, Inc. 24,100 1,042
Washington National Corp. 4,800 132
Westamerica Bancorporation 1,000 58
Westcorp, Inc. 7,365 161
Western National Corp. 4,900 94
Whitney Holding Corp. 1,000 35
Zenith National Insurance Corp. 1,100 30
----------
78,444
----------
GENERAL BUSINESS - 9.7%
AccuStaff, Inc. 104,500 2,208
American Business Products, Inc. 1,200 30
American Greetings Corp. Class A 59,600 1,691
American Residential Services, Inc. (a) 3,500 95
APAC Teleservices, Inc. 35,700 1,357
Ascend Communications, Inc. 16,000 992
Assisted Living Concepts, Inc. (a) 6,000 92
BISYS Group, Inc. New (a) 26,000 962
Bowne & Co. Inc. 4,900 121
Caribiner International, Inc. (a) 17,000 854
Cascade Communications Corp. 10,000 551
Central Newspapers, Inc. Class A 31,700 1,395
Cognos, Inc. 45,700 1,268
Comarco, Inc. (a) 5,000 90
Comnet Cellular, Inc. (a) 2,000 55
COREStaff, Inc. 28,000 658
Dames & Moore, Inc. 2,800 41
DeVRY, Inc. 30,600 719
Dow Jones & Co. Inc. 23,000 779
DSP Communications, Inc. 39,800 766
Educational Medical, Inc. (a) 9,500 105
Effective Management Systems, Inc. (a) 20,000 115
Ennis Business Forms, Inc. 37,250 419
Franklin Quest Co. (a) 4,600 97
G & K Services, Inc. Class A 17,100 641
General Communication, Inc. Class A (a) 16,000 126
Gibson Greetings, Inc. (a) 3,700 72
Globe Business Resources, Inc. (a) 12,000 114
Golden Books Family Entertainment, Inc. (a) 6,900 75
Special Growth Fund 23
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Grey Advertising 4,400 $ 1,100
Harland (John H.) Co. 23,200 766
Harte Hanks Communications 34,500 957
Houghton Mifflin Co. 16,000 906
Hunt Manufacturing Co. 2,000 36
Iron Mountain, Inc. (a) 5,000 151
Jones Intercable, Inc. Class A (a) 65,000 666
Katz Digital Technologies, Inc. (a) 20,000 63
Kelly Services, Inc. Class A 2,100 57
Kronos, Inc. 4,000 122
Lason Holdings, Inc. (a) 19,800 401
Lee Enterprises, Inc. 44,500 1,035
Logicon, Inc. 3,700 135
McClatchy Newspapers, Inc. Class A 29,500 1,033
Merrill Corp. 1,400 32
META Group, Inc. (a) 40,600 1,056
Metricom, Inc. (a) 5,800 86
MicroAge, Inc. (a) 55,500 1,103
Miller (Herman), Inc. 4,100 231
MSC Industrial Direct Co. Inc. Class A (a) 1,600 59
New England Business Service, Inc. 2,100 45
Ortel Corp. (a) 17,400 409
Outdoor Systems, Inc. 16,350 458
Paychex, Inc. 18,000 925
PC Service Source, Inc. (a) 10,700 79
Pegasus Communications Corp. Class A (a) 10,000 133
Personnel Group of America, Inc. (a) 8,200 198
Quintiles Transnational Corp. (a) 14,000 917
Richey Electronics, Inc. (a) 12,000 137
Saga Communications Class A 5,312 104
SFX Broadcasting, Inc. Class A (a) 4,000 118
Sovran Self Storage, Inc. 27,500 859
Standard Register Co. 3,100 101
Steris Corp. (a) 21,000 914
Thomas Nelson, Inc. 5,500 82
Tranzonic Companies (The) Class A 26,000 465
TRM Copy Centers Corp. (a) 11,000 107
True North Communications, Inc. 3,400 74
United Wisconsin Services, Inc. 2,100 55
Universal Outdoor Holdings, Inc. (a) 34,100 784
US Office Products Co. 52,800 1,782
Viking Office Products, Inc. 20,000 530
Wackenhut Corp. 6,000 103
Washington Post Co. Class B 4,300 1,440
Young Broadcasting Corp. Class A (a) 27,500 803
Zilog, Inc. (a) 6,100 158
----------
38,263
----------
MISCELLANEOUS - 2.3%
Apollo Group, Inc. Class A 18,300 611
Arden Realty Group, Inc. 38,000 1,055
Castle & Cook, Inc. New (a) 10,600 168
Childtime Learning Centers (a) 6,600 62
Chris Craft Industries, Inc. 3,914 164
Citation Corp. (a) 9,000 89
Cornell Corrections, Inc. (a) 7,800 69
FRP Properties, Inc. (a) 6,000 150
Griffon Corp. (a) 96,500 1,182
Gyrodyne Co. of America, Inc. (a) 1,775 20
Ha-Lo Industries, Inc. 35,500 976
Hirsch International Group Class A 6,250 113
Insignia Financial Group, Inc. Class A 42,000 945
Jabil Circuit, Inc. (a) 3,300 132
Landair Services, Inc. (a) 12,000 120
Leather Factory, Inc. (a) 60,000 49
M.D.C. Holdings, Inc. 14,300 123
Mark VII, Inc. (a) 6,000 166
McWhorter Technologies, Inc. (a) 1,800 41
NN Ball & Roller, Inc. 6,000 92
NUMAR Corp. (a) 8,000 107
On Assignment, Inc. (a) 26,000 741
Philip Environmental, Inc. (a) 10,000 145
PXRE Corp. 41,959 1,038
S3, Inc. (a) 31,600 514
Supreme Industries, Inc. Class A (a) 16,000 91
Tracor, Inc. New (a) 6,700 142
Youth Services International, Inc. 10,000 150
----------
9,255
----------
SHELTER - 2.7%
Ameron International Corp. 1,000 52
Cameron Ashley, Inc. (a) 10,000 136
Centex Construction Products, Inc. 10,300 185
Centex Corp. 26,800 1,008
Champion Enterprises, Inc. 37,500 731
Continental Homes Holding Corp. 5,500 117
Crossmann Communities, Inc. (a) 6,000 102
Dayton Superior Corp. Class A (a) 71,700 941
Elcor Chemical Corp. 100 2
Fibreboard Corp. New (a) 2,500 84
Granite Construction, Inc. 27,800 528
Lennar Corp. 49,200 1,341
Lone Star Industries, Inc. 4,000 148
Pacific Greystone Corp. (a) 9,000 99
Plum Creek Timber Co. L P 25,600 666
Ryland Group, Inc. 6,400 88
Schuller Corp. 28,700 305
Smith (Charles E.) Residential Realty, Inc. 37,300 1,091
Southdown, Inc. 46,600 1,450
24 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
St. Joe Corp. 15,000 $ 975
Standard Pacific Corp. 27,100 156
Vulcan Materials Co. 5,600 341
----------
10,546
----------
TECHNOLOGY - 17.6%
Actel Corp. (a) 27,800 660
ACX Technologies, Inc. (a) 10,500 209
ADC Telecommunications, Inc. 71,600 2,220
Advanced Micro Devices, Inc. (a) 8,800 227
American Management Systems, Inc. 16,000 388
Amplicon, Inc. 5,000 99
Astea International, Inc. (a) 12,000 68
Banctec, Inc. (a) 38,000 784
BDM International, Inc. (a) 17,000 910
Bell Industries 47,591 1,017
Berg Electronics Corp. (a) 17,000 499
BI Incorporated Co. New (a) 15,000 105
Boole & Babbage, Inc. 6,000 144
Brooktrout Technology, Inc. 19,600 544
Burr-Brown Corp. (a) 5,000 128
Caere Corp. (a) 7,500 85
California Microwave, Inc. (a) 7,000 102
Cambridge Technology Partners, Inc. 27,000 901
CBT Group PLC - ADR 35,800 1,924
CCC Information Services Group (a) 27,800 424
CDW Computer Centers, Inc. 19,100 1,132
Channell Commercial Corp. (a) 10,000 120
Chips & Technologies, Inc. (a) 12,000 216
Citrix Systems, Inc. 22,100 856
Clarify, Inc. 2,600 124
Coeur d'Alene Mines Corp. 13,400 203
Compuware Corp. (a) 50,200 2,510
Comverse Technology, Inc. New (a) 48,500 1,825
Consilium, Inc. (a) 15,700 86
Cypress Semiconductor Corp. (a) 20,100 284
Data Transmission Network Corp. 6,000 129
Destec Energy, Inc. (a) 2,400 38
DH Technology, Inc. (a) 5,000 115
Documentum, Inc. (a) 4,600 156
DSP Group, Inc. (a) 10,000 85
DST Systems, Inc. (a) 30,000 941
DuPont Photomasks, Inc. (a) 2,000 91
Egghead, Inc. (a) 10,400 53
Electromagnetic Sciences, Inc. (a) 5,000 96
Electronic Arts (a) 40,300 1,204
Electronics For Imaging, Inc. (a) 12,000 978
Encad, Inc. 22,400 913
ESS Technology, Inc. (a) 14,100 395
Esterline Corp. (a) 5,900 154
Etec Systems, Inc. (a) 3,000 113
Evans & Sutherland Computer Corp. (a) 2,400 58
Exar Corp. (a) 8,000 124
FORE Systems 20,000 658
Furon Co. 1,800 38
Gateway 2000, Inc. (a) 12,800 685
Genus, Inc. (a) 10,200 55
Gerber Scientific, Inc. 3,800 57
Global Village Communication (a) 14,000 45
GTI Corp. 9,100 42
Hadco Corp. (a) 32,700 1,590
Harris Corp. 10,600 727
Hello Direct, Inc. (a) 22,000 99
Hutchinson Technology, Inc. (a) 1,800 136
Hyperion Software Corp. (a) 31,500 665
InaCom Corp. (a) 21,200 845
Input/Output, Inc. 3,000 56
Inso Corp. (a) 32,000 1,248
Integrated Circuit Systems, Inc. (a) 10,000 134
Intelligent Electronics, Inc. (a) 11,100 89
Jack Henry & Assocociates, Inc. 25,000 881
Kaman Corp. Class A 3,000 38
Kentek Information Systems, Inc. 20,000 113
KLA Instruments Corp. (a) 37,600 1,330
Kulicke & Soffa Industries, Inc. (a) 5,500 105
KVH Industries, Inc. (a) 10,000 70
Landauer, Inc. 4,300 105
Legato Systems, Inc. 24,000 774
Littlefuse, Inc. (a) 16,000 768
Lo-Jack Corp. (a) 10,000 98
Longview Fibre Co. 6,400 118
Marshall Industries (a) 35,100 1,075
McAfee Associates, Inc. 50,512 2,204
Medic Computer Systems, Inc. 13,900 559
MetaTools, Inc. (a) 8,500 99
Metrologic Instruments, Inc. (a) 7,000 112
Molex, Inc. Class A 20,000 710
National Semiconductor Corp. (a) 29,000 707
Natural Microsystems Corp. 14,400 454
Network Appliance, Inc. (a) 14,100 712
ON Technology Corp. (a) 22,000 118
Orbital Sciences Corp. Class A (a) 14,000 238
Pacific Scientific Co. 4,400 50
Par Technology Corp. (a) 10,000 139
Photronics, Inc. (a) 5,000 136
Pittway Corp. Class A 24,467 1,309
Pure Atria Corp. (a) 18,287 446
RadiSys Corp. (a) 16,100 781
Rational Software Corp. New (a) 31,300 1,229
Special Growth Fund 25
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Read-Rite Corp. (a) 21,900 $ 548
Saville Systems Ireland PLC - ADR (a) 31,100 1,240
Sensormatic Electronics Corp. 30,900 518
Siebel Systems, Inc. 28,400 767
Silicon Storage Technology, Inc. (a) 6,800 33
Software Artistry, Inc. (a) 12,000 83
Software Spectrum, Inc. (a) 4,000 115
SpaceLabs, Inc. (a) 1,100 23
Splash Technology Holdings, Inc. (a) 7,000 151
Standard Microsystems Corp. (a) 10,600 98
Storage Technology Corp. (a) 21,900 1,043
StorMedia, Inc. Class A 3,700 60
Structural Dynamics Research Corp. (a) 85,400 1,676
Sykes Enterprises, Inc. 43,000 1,559
Symantec Corp. (a) 37,600 545
Tandem Computers, Inc. (a) 89,600 1,232
TB Wood's Corporation 12,000 129
Tech-Sym Corp. (a) 31,500 937
Tellabs, Inc. 30,000 1,129
Teradyne, Inc. (a) 53,482 1,304
Thiokol Corp. 6,200 277
Thomas & Betts Corp. 5,000 222
Transaction Systems Architects, Inc. Class A 25,000 819
Trident Microsystems, Inc. (a) 46,000 765
TSX Corp. 13,700 118
ULTRADATA Corp. (a) 26,000 106
Uniphase Corp. 16,500 865
Veritas Software Corp. 35,700 1,757
VideoServer, Inc. (a) 16,400 688
VLSI Technology, Inc. (a) 60,400 1,426
Voice Control Systems, Inc. (a) 15,000 117
Wall Data, Inc. (a) 5,600 82
Watkins-Johnson Co. 8,500 207
Western Digital Corp. (a) 14,100 801
Xircom, Inc. (a) 36,700 798
Zero Corp. 200 5
----------
69,327
----------
TRANSPORTATION - 2.0%
Air Express International Corp. 3,600 115
Alexander & Baldwin, Inc. 3,500 86
American Freightways Corp. (a) 4,200 46
APL, Ltd. 5,700 135
Caliber Systems, Inc. 7,300 141
Consolidated Freightways Corp. (a) 4,150 37
Consolidated Freightways, Inc. 8,300 185
Genesee & Wyoming, Inc. Class A (a) 21,600 707
Hvide Marine, Inc. Class A (a) 6,000 130
Kirby Corp. (a) 4,400 87
Knight Transportation, Inc. (a) 6,000 112
MTL, Inc. (a) 47,000 952
Navistar International Corp. (a) 20,900 191
Offshore Logistics, Inc. (a) 11,800 229
Overseas Shipholding Group, Inc. 36,000 612
Pittston Burlington Group 2,000 40
Roadway Express, Inc. 5,500 105
Rollins Truck Leasing Corp. 4,600 58
Rural/Metro Corp. (a) 16,600 589
Seacor Holdings, Inc. (a) 14,600 920
Transport Corp. of America (a) 12,000 123
Trico Marine Services, Inc. (a) 8,700 418
Trinity Industries, Inc. 6,400 240
Wisconsin Central Transportation Corp. 25,500 1,006
Yellow Corp. (a) 53,500 768
----------
8,032
----------
UTILITIES - 3.4%
Aliant Communications, Inc. 2,200 37
American Water Works, Inc. 7,400 153
Aquarion Co. 1,000 28
Bay State Gas Co. 1,100 31
Black Hills Corp. 1,000 28
Boston Edison Co. 11,500 309
CellStar Corp. (a) 6,400 114
Cellular Communications of
Puerto Rico, Inc. (a) 34,966 682
Centennial Cellular Corp. Class A (a) 63,500 762
Central Hudson Gas & Electric Corp. 3,300 104
Central Louisiana Electric Co. Inc. 2,200 61
Central Maine Power Co. 7,100 83
Citizens Utility Co. Class A 93,483 1,017
Commonwealth Energy System 2,000 47
Connecticut Natural Gas Corp. 600 15
Delmarva Power & Light Co. 2,900 59
E'town Corp. 1,000 32
Eastern Enterprises, Inc. 4,700 166
Empire District Electric Co. 1,300 24
Enova Corp. 11,900 271
Equitable Resources, Inc. 8,700 259
Hawaiian Electric Industries, Inc. 3,600 130
Idaho Power Co. 7,200 224
LG&E Energy Corp. 4,100 100
Long Island Lighting Co. 34,400 761
MDU Resources Group, Inc. 1,000 23
Minnesota Power & Light Co. 3,600 99
Montana Power Co. 13,100 280
National Fuel & Gas Co. 7,000 289
Nevada Power Co. 10,900 223
26 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
New England Electric System 5,600 $ 195
New Jersey Resources Corp. 2,300 67
New York State Electric & Gas Corp. 8,800 190
Niagara Mohawk Power Corp. (a) 45,800 452
Northeast Utilities 35,600 472
Northwest Natural Gas Co. 1,800 43
Northwestern Public Service Co. 6,000 206
ONEOK, Inc. 8,300 249
Orange & Rockland Utilities, Inc. 1,700 61
Peoples Energy Corp. 6,700 227
Piedmont Natural Gas Co. Inc. 4,100 96
Premiere Technologies, Inc. (a) 12,700 318
Primark Corp. (a) 2,600 64
Public Service Co. of New Mexico 14,100 277
Public Service Co. of North Carolina, Inc. 1,700 31
Puget Sound Power & Light Co. 9,700 233
Rochester Gas & Electric Corp. 9,300 178
Sierra Pacific Resources 9,300 267
SIG Corp., Inc. 200 7
Telco Systems, Inc. (a) 4,400 84
TNP Enterprises, Inc. 3,100 85
TresCom International, Inc. (a) 8,700 63
UGI Corp. 5,200 116
United Illuminating Co. 23,600 740
United States Cellular Corp. (a) 27,200 758
UtiliCorp United, Inc. 9,900 267
Washington Water Power Co. 7,900 147
Western Resources, Inc. 28,200 871
WICOR, Inc. 2,900 104
WPL Holdings, Inc. 4,200 118
----------
13,397
----------
TOTAL COMMON STOCKS
(cost $304,816) 363,958
----------
OPTIONS PURCHASED - 0.0%
Russell 2000 Index Mar 320 Call (a) 20* 92
----------
TOTAL OPTIONS PURCHASED
(cost $82) 92
----------
CONVERTIBLE PREFERRED STOCKS - 0.1%
Callon Petroleum Co. Series A 2,500 110
Triathlon Broadcasting Co. 15,000 127
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $237) 237
----------
PREFERRED STOCKS - 0.1%
Finova Finance Trust (conv.) 13,000 683
----------
TOTAL PREFERRED STOCKS
(cost $650) 683
----------
PRINCIPAL
AMOUNT
(000)
---------
SHORT-TERM INVESTMENTS - 8.0%
Frank Russell Investment Company Money
Market Fund, due on demand (b) $ 28,668 28,668
United States Treasury Bills (b)(c)(d)
4.907% due 02/06/97 150 149
5.040% due 02/06/97 2,600 2,587
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $31,404) 31,404
----------
TOTAL INVESTMENTS
(identified cost $337,189)(e) - 100.6% 396,374
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (0.6%) (2,416)
----------
NET ASSETS - 100.0% $ 393,958
----------
----------
(a) Non income-producing security.
(b) At cost, which approximates market.
(c) Rate noted is yield-to-maturity (unaudited).
(d) Held as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
(e) See Note 2 for federal income tax information.
* Number of contracts.
ABBREVIATIONS:
ADR - American Depositary Receipt
PLC - Public Limited Company
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 27
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
Expiration Date 03/97 21 $ (20)
S&P 400 Midcap Index Futures Contracts
Expiration Date 03/97 95 (6)
Russell 2000-Registered Trademark- Index Futures Contracts
Expiration Date 03/97 51 5
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased ( ) $ (21)
----------
----------
NUMBER MARKET
OF VALUE
CONTRACTS (000)
---------- --------------
PUT OPTIONS WRITTEN
(Notes 2 and 3)
Russell 2000-Registered Trademark- Index
Strike Price 320.00
Expiration Date 03/97 20 $ 8
----------
Total Liability for Put Options Written
(premiums received $12)( ) $ 8
----------
----------
(#) At December 31, 1996, United States Treasury Bills
valued at $2,736 were held as collateral by the
custodian in connection with futures contracts
purchased and options written by the Fund.
The accompanying notes are an integral part of the financial statements.
28 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $337,189,137)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 396,373,510
Receivables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,097
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,246,177
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,994,758
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,925
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403,073,467
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,816,846
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,985
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 382,009
Other accrued expenses and payables. . . . . . . . . . . . . . . . . . . . . . 427,497
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 267,100
Options written, at market value
(premiums received $12,440)(Notes 2 and 3) . . . . . . . . . . . . . . . . . . 7,500
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,115,937
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 393,957,530
---------------
---------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 231,270
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,969,266
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,184,373
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,952)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,940
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,594
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,492,039
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 393,957,530
---------------
---------------
Net asset value, offering and redemption price per share:
Class S ($393,047,548 divided by 9,637,034 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $40.79
---------------
---------------
Class C ($909,982 divided by 22,333 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . $40.75
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 29
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,502,018
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,486,347
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,489
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,124,854
Expenses (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,307,757
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,506
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337,302
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,239
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,857
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,688
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,422
Registration fees
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,506
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Distribution fees - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . 447
Shareholder servicing fees - Class C . . . . . . . . . . . . . . . . . . . . . 279
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,137,092
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987,762
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,876,661
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,515,359
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,450 44,803,470
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,103,897
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,921
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,047) 14,117,771
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . 58,921,241
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . $ 59,909,003
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 987,762 $ 1,346,692
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,803,470 36,043,622
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 14,117,771 30,962,683
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 59,909,003 68,352,997
Distributions to shareholders:
Net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,043,019) (1,514,994)
Net realized gain on investments
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,014,788) (25,900,014)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (87,575) --
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 66,516,242 43,663,052
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 80,279,863 84,601,041
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 313,677,667 229,076,626
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $231,270 and $286,547, respectively). . . . . . . . . . . . . . . . . . . . $ 393,957,530 $ 313,677,667
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 31
<PAGE>
SPECIAL GROWTH FUND
FINANCIAL HIGHLIGHTS - CLASS S
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . 39.17 $ 33.47 $ 35.82 $ 36.63 $ 34.47
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .12 .18 .16 .07 .05
Net realized and unrealized gain (loss) on investments . . 6.87 9.25 (.71) 5.22 4.22
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 6.99 9.43 (.55) 5.29 4.27
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.12) (.21) (.10) (.07) (.06)
Net realized gain on investments . . . . . . . . . . . . (5.25) (3.52) (.85) (6.03) (2.05)
In excess of net realized gain on investments. . . . . . -- -- (.85) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . (5.37) (3.73) (1.80) (6.10) (2.11)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . $ 40.79 $ 39.17 $ 33.47 $ 35.82 36.63
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . 18.65 28.52 (3.71) 15.48 12.52
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . 1.19 1.22 1.20 1.31 1.33
Net investment income to average net assets . . . . . . .28 .49 .50 .19 .14
Portfolio turnover . . . . . . . . . . . . . . . . . . . 118.13 87.56 55.40 91.97 42.20
Net assets, end of year ($000 omitted) . . . . . . . . . 393,048 313,678 229,077 188,891 134,913
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . .0384 N/A N/A N/A N/A
</TABLE>
32 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
FINANCIAL HIGHLIGHTS - CLASS C
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
1996*
----------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 43.48
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . . (.02)
Net realized and unrealized gain (loss) on investments . . . . 1.63
----------
Total Income From Investment Operations. . . . . . . . . . . . 1.61
----------
LESS DISTRIBUTIONS:
Net realized gain on investments . . . . . . . . . . . . . . . (4.34)
----------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . (4.34)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 40.75
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . 4.04
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b) . . . . . . . . . 1.89
Net investment income (loss) to average net assets (b) . . . . (.38)
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . 118.13
Net assets, end of period ($000 omitted) . . . . . . . . . . . 910
Average commission rate paid per share,
of security ($ omitted). . . . . . . . . . . . . . . . . . . .0384
* For the period November 4, 1996 (commencement of sale) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period December 31, 1996 are annualized.
Special Growth Fund 33
<PAGE>
EQUITY INCOME FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To achieve a high level of current income, while maintaining the
potential for capital appreciation.
INVESTS IN: Primarily income-producing U.S. equity securities.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve a
high level of current income and the potential for capital appreciation with
moderate risk. The Fund employed the investment management services of three
managers with three separate approaches to Value-oriented investment.
<TABLE>
<CAPTION>
DATES EQUITY INCOME - CLASS S RUSSELL 1000-Registered Trademark- VALUE ** LIPPER-C- EQUITY INCOME ++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $9,756 $10,050 $9,796
1988 $11,651 $12,377 $11,135
1989 $14,635 $15,495 $13,418
1990 $13,625 $14,242 $12,577
1991 $17,375 $17,747 $15,889
1992 $19,375 $20,198 $17,379
1993 $21,936 $23,858 $19,772
1994 $22,085 $23,384 $19,273
1995 $29,762 $32,351 $25,009
1996 $36,147 $39,352 $29,653
- -------------------------------------------------------------------------------------------------------------------
Total $206,347 $219,054 $183,901
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
EQUITY INCOME FUND - CLASS S
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,145 21.45%
5 Years $ 20,804 15.78%#
10 Years $ 36,147 13.71%#
EQUITY INCOME FUND - CLASS C ++++
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,130 21.30%
5 Years $ 20,778 15.75%#
10 Years $ 36,101 13.70%#
RUSSELL 1000-Registered Trademark- VALUE INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,164 21.64%
5 Years $ 22,174 17.27%#
10 Years $ 39,352 14.68%#
LIPPER-C- EQUITY INCOME FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,857 18.57%
5 Years $ 18,663 13.29%#
10 Years $ 29,653 11.48%#
* The Equity Income Fund - Class S assumes initial investment on
January 1, 1987.
** 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
price-driven managers typically select.
++ Lipper Equity-C- 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.
++++ The Equity Income Fund - Class C - For the period, November 4, 1996
(commencement of sales) to December 31, 1996, shareholder service and
Rule 12b-1 distribution fees were charged. Total return would have been
lower had these fees been in effect during prior reporting periods.
# Annualized.
34 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Equity Income Fund Class S and Class C
shares had a total return of 21.5% and 21.3%, respectively, as compared to the
Russell 1000 -Registered Trademark- Value Index results of 21.6%. The Fund's
slight underperformance relative to the Russell 1000 Value Index was primarily
due to an underweighting in the largest capitalization issues as well as bank
stocks.
PORTFOLIO HIGHLIGHTS
Investors favored Growth stocks over Value- and Yield-oriented alternatives for
most of 1996. However, the fourth quarter proved to be a strong one for Value
stocks as investors sought more defensive investment options. There were two
dominant themes in the performance of Value stocks during the year. Financial
services companies enjoyed a banner year, with the Russell 1000 Index financial
services sector rising more than 34%. Despite the negative overhang of rising
interest rates, bank stocks led the way as they benefited from strong balance
sheets and improving earnings growth. Bank stocks also enjoyed the trend toward
consolidation, as the prospect of mergers and acquisitions became another
catalyst for stock price appreciation. The other strong performers within the
financial services sector were securities brokerage stocks, which continued to
be an obvious beneficiary of the market's strength, not to mention the huge sums
of assets flowing into the market. In contrast to the financial services sector,
utility stocks struggled through 1996. Sweeping deregulation of both the
telecommunications and electrical utilities industries negatively impacted the
stocks within the sector. The utilities sector of the Russell 1000 Index
rose a meager 2.9%.
Given this backdrop, the Equity Income Fund managers faced some major challenges
in 1996. Rising interest rates limited their enthusiasm towards bank stocks and
other financial services stocks in general. The Fund's underweighting to the
sector proved a distinct disadvantage for most of the year. Similarly, its
underweighting in the largest stocks in its Value universe also had some
negative implications. However, good security selection was nearly enough to
overcome these other factors. Strong technology stock selection and the combined
benefit of good defensive selection and an underweighting in the utilities
sector provided significant added value.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Chase Manhattan Corp. 2.2%
International Business Machines Corp. 2.1
NYNEX Corp. 2.0
Texaco, Inc. 1.9
Banc One Corp. 1.8
U.S. West Communications Group 1.5
Atlantic Richfield Co. 1.4
Allstate Corp. 1.4
American General Corp. 1.4
Ford Motor Co. 1.4
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS DECEMBER 31, 1996
Current P/E Ratio 14.8x
Portfolio Price/Book Ratio 2.16x
Market Capitalization - $ - Weighted Average 20.16 Bil
Number of Holdings 195
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Brandywine Asset Management, Inc. Value
Equinox Capital Management, Inc. Value
Trinity Investment Management Corp. Value
- -------------------------------------------------------------------
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 35
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 93.1%
BASIC INDUSTRIES - 7.8%
AK Steel Holding Corp. 12,200 $ 483
Alumax, Inc. (a) 38,900 1,298
Boise Cascade Corp. 18,800 597
Bowater, Inc. 16,500 621
Crown Vantage, Inc. (a) 9,540 80
Dow Chemical Co. 24,600 1,928
Eastman Chemical Co. 4,900 271
FMC Corp. (a) 13,800 968
Goodrich (B.F.) Co. 21,100 855
Great Lakes Chemical Corp. 12,500 584
Hanna (M.A.) Co. 800 18
James River Corp. of Virginia 37,100 1,229
Mead Corp. 17,000 988
Olin Corp. 19,200 722
Phelps Dodge Corp. 11,000 743
Potlatch Corp. 11,400 490
Rohm & Haas Co. 5,700 465
Temple-Inland, Inc. 14,400 779
USX-U.S. Steel Group 33,800 1,060
Westvaco Corp. 33,200 955
----------
15,134
----------
CAPITAL GOODS - 3.8%
AGCO Corp. 19,000 544
Browning-Ferris Industries, Inc. 20,300 533
Caterpillar, Inc. 28,300 2,130
Cummins Engine Co., Inc. 6,700 308
Foster Wheeler Corp. 13,800 512
General Electric Co. 13,900 1,374
Johnson Controls, Inc. 14,400 1,194
Silicon Valley Group, Inc. (a) 13,300 266
Timken Co. 11,800 541
----------
7,402
----------
CONSUMER BASICS - 8.5%
American Brands, Inc. 7,000 347
American Home Products Corp. 14,300 838
Archer-Daniels-Midland Co. 97,707 2,150
Bard (C.R.), Inc. 13,400 375
Baxter International, Inc. 20,700 849
Becton, Dickinson & Co. 8,600 373
Bergen Brunswig Corp. Class A 13,000 371
Beverly Enterprises, Inc. (a) 36,900 471
Bristol-Myers Squibb Co. 16,775 1,824
Columbia/HCA Healthcare Corp. 26,550 1,082
Foundation Health Corp. (a) 18,500 587
IBP, Inc. 56,100 1,360
Philip Morris Cos., Inc. 16,900 1,903
RJR Nabisco Holdings Corp. 30,360 1,032
Sara Lee Corp. 25,500 950
Schering-Plough Corp. 15,900 1,030
Tenet Healthcare Corp. (a) 35,800 783
Transitional Hospitals Corp. (a) 37,100 357
----------
16,682
----------
CONSUMER DURABLES - 3.9%
Chrysler Corp. 68,200 2,251
Dana Corp. 8,500 277
Federal-Mogul Corp. 18,100 398
Ford Motor Co. 82,700 2,636
General Motors Corp. 9,200 513
Maytag Corp. 19,200 379
Whirlpool Corp. 25,600 1,194
----------
7,648
----------
CONSUMER NON-DURABLES - 4.6%
Anheuser-Busch Cos., Inc. 21,400 856
Burlington Coat Factory Warehouse Corp. (a) 26,900 350
Burlington Industries, Inc. (a) 39,200 431
Dayton Hudson Corp. 61,900 2,429
Eastman Kodak Co. 3,100 249
Federated Department Stores, Inc. (a) 27,800 949
Penney (J.C.) Co., Inc. 20,300 990
Russell Corp. 8,000 238
Sears Roebuck & Co. 16,500 761
SuperValu, Inc. 27,400 777
Toys "R" Us, Inc. (a) 29,300 879
----------
8,909
----------
CONSUMER SERVICES - 2.1%
AMR Corp. (a) 25,700 2,265
Brinker International, Inc. (a) 42,100 674
Carnival Corp. Class A 31,800 1,049
----------
3,988
----------
ENERGY - 9.8%
Amerada Hess Corp. NPV 31,200 1,806
Amoco Corp. 17,275 1,391
Atlantic Richfield Co. 20,800 2,756
British Petroleum Co. PLC - ADR 9,444 1,335
Castle Energy Corp. New (a) 9,000 96
Chevron Corp. 4,100 267
Dresser Industries, Inc. 9,400 291
Elf Aquitaine - ADR 14,100 638
36 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Exxon Corp. 24,500 $ 2,401
LTV Corp. 28,300 336
Mobil Corp. 7,700 941
Murphy Oil Corp. 11,000 612
Sun Co., Inc. 17,400 424
Texaco, Inc. 36,600 3,591
Union Texas Petroleum Holdings, Inc. 10,600 237
Unocal Corp. 10,000 406
USX-Marathon Group 43,800 1,046
Valero Energy Corp. 22,000 630
----------
19,204
----------
FINANCE - 24.1%
Aetna, Inc. 12,000 960
Ahmanson (H.F.) & Co. 42,000 1,365
Allstate Corp. 46,520 2,692
AMBAC, Inc. 13,600 903
American General Corp. 65,700 2,685
Banc One Corp. 82,110 3,531
Bank of Boston Corp. 7,600 488
BankAmerica Corp. 15,300 1,526
Barnett Banks, Inc. 18,800 773
Beneficial Corp. 19,100 1,210
Chase Manhattan Corp. 46,888 4,185
Chubb Corp. (The) 36,500 1,962
Countrywide Credit Industries, Inc. 37,900 1,085
Dean Witter, Discover & Co. 25,800 1,709
Everest Re Holdings, Inc. 34,800 1,001
Federal National Mortgage Association 55,600 2,071
FINOVA Group, Inc. 3,400 218
First Bank System, Inc. 11,800 805
First Chicago NBD Corp. 23,242 1,249
First Union Corp. 23,200 1,717
First Virginia Banks, Inc. 9,500 455
Firstar Corp. 10,400 546
Fleet Financial Group, Inc. 8,500 424
Jefferson-Pilot Corp. 2,600 147
John Alden Financial Corp. 12,200 226
Life Re Corp. 8,700 336
Lincoln National Corp. 25,500 1,339
Loews Corp. 16,600 1,565
Mellon Bank Corp. 6,400 454
Mid Ocean, Ltd. 17,900 940
Morgan (J.P.) & Co., Inc. 6,600 644
National City Corp. 15,700 705
NationsBank Corp. 14,900 1,456
Provident Companies, Inc. 9,500 460
Reliance Group Holdings, Inc. 47,900 437
Salomon, Inc. 22,400 1,056
Southern National Corp. 33,300 1,207
TCF Financial Corp. 11,700 509
Transamerica Financial Corp. 4,800 379
U.S. Bancorp of Oregon 36,900 1,656
----------
47,076
----------
GENERAL BUSINESS - 1.8%
Gannett Co., Inc. 9,300 696
Knight-Ridder, Inc. 14,300 547
SBC Communications, Inc. 11,900 616
Tribune Co. 15,800 1,246
Viacom, Inc. Class B (a) 12,900 450
----------
3,555
----------
MISCELLANEOUS - 1.6%
Chelsea GCA Realty, Inc. 6,600 229
Colonial Properties Trust 10,700 325
Geon Co. 23,900 469
Oasis Residential, Inc. 6,900 157
Prentiss Properties Trust 10,000 250
Providian Corp. 6,100 313
South West Property Trust, Inc. 8,800 149
Tenneco, Inc. 22,900 1,033
Town & Country Trust 10,000 146
----------
3,071
----------
SHELTER - 0.3%
Evans Withycombe Residential, Inc. 12,300 258
Vulcan Materials Co. 4,300 262
----------
520
----------
TECHNOLOGY - 7.4%
Advanced Micro Devices, Inc. (a) 700 18
Amdahl Corp. (a) 42,400 514
Avnet, Inc. 14,300 833
Beckman Instruments, Inc. 4,800 184
Boeing Co. 10,000 1,064
Data General Corp. (a) 23,400 339
EG&G, Inc. 20,000 403
Harris Corp. 2,400 165
Hewlett-Packard Co. 13,600 683
Intel Corp. 13,700 1,793
International Business Machines Corp. 27,000 4,077
Lam Research Corp. (a) 10,900 305
Lockheed Martin Corp. 14,100 1,290
MEMC Electronic Materials, Inc. (a) 12,400 279
Equity Income Fund 37
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Northrop Grumman Corp. 5,100 $ 422
Seagate Technology 18,600 735
Tandy Corp. 18,200 801
Teradyne, Inc. (a) 23,100 563
----------
14,468
----------
TRANSPORTATION - 2.6%
Conrail, Inc. 3,709 370
CSX Corp. 39,400 1,665
Federal Express Corp. 16,500 734
Norfolk Southern Corp. 2,300 201
Ryder System, Inc. 24,100 678
Trinity Industries, Inc. 9,600 360
Union Pacific Corp. 17,100 1,028
----------
5,036
----------
UTILITIES - 14.8%
AT&T Corp. 34,700 1,509
Baltimore Gas & Electric Co. 9,300 249
BCE, Inc. 26,900 1,284
Boston Edison Co. 19,800 532
Century Telephone Enterprises, Inc. 4,500 139
CMS Energy Corp. 5,300 178
DTE Energy Co. 30,000 971
Edison International 49,600 986
Enova Corp. 22,200 505
Entergy Corp. 64,000 1,776
Equitable Resources, Inc. 27,900 830
GPU, Inc. 22,300 750
GTE Corp. 32,600 1,483
MCI Communications Corp. 41,366 1,350
Montana Power Co. 1,800 38
New England Electric System 18,500 645
Niagara Mohawk Power Corp. (a) 47,300 467
NYNEX Corp. 79,900 3,845
Pacific Enterprises 24,500 744
Pacific Gas & Electric Co. 25,800 542
Pacific Telesis Group 48,100 1,768
PacifiCorp. 39,700 814
Peco Energy Co. 21,800 551
Potomac Electric Power Co. 40,400 1,040
Southern New England Telecommunications Corp. 25,300 984
Texas Utilities Co. 26,900 1,096
U.S. West Communications Group 88,200 2,845
Unicom Corp. 36,500 990
----------
28,911
----------
TOTAL COMMON STOCKS
(cost $153,736) 181,604
----------
CONVERTIBLE PREFERRED STOCKS - 0.3%
Atlantic Richfield Co. 29,700 639
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $740) 639
----------
PREFERRED STOCKS - 0.6%
RJR Nabisco Holdings Class C 173,500 1,171
----------
TOTAL PREFERRED STOCKS
(cost $1,120) 1,171
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 5.1%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 9,014 9,014
United States Treasury Bills (b)(c)(d)
5.040% due 02/06/97 1,000 995
----------
Total Short-Term Investments
(cost $10,009) 10,009
----------
TOTAL INVESTMENTS
(identified cost $165,605)(e) - 99.1% 193,423
OTHER ASSETS AND LIABILITIES,
NET - 0.9% 1,831
----------
NET ASSETS - 100.0% $ 195,254
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Rate noted is yield-to-maturity (unaudited).
(d) Held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
PLC - Public Limited Company
The accompanying notes are an integral part of the financial statements.
38 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/97 19 $ (53)
S & P Barra Value Futures Contracts
expiration date 03/97 8 35
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ (18)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $995 were held
as collateral by the custodian in connection with futures contracts
purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
Equity Income Fund 39
<PAGE>
EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $165,605,332)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 193,423,008
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,007
Receivables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477,211
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389,286
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,808,839
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,575
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,472,926
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,780
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782,638
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 190,313
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,714
Daily variation margin on futures contracts (Notes 2 and 3) . . . . . . . . . 166,700
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,219,145
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195,253,781
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,872,617
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,817,592
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,000)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,543
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,533,029
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195,253,781
---------------
---------------
Net asset value, offering and redemption price per share:
Class S ($195,131,621 divided by 4,851,298 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $40.22
---------------
---------------
Class C ($122,160 divided by 3,037 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $40.22
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,304,704
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436,515
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,670
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,818,889
Expenses (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,504,154
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,925
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,412
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,057
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,216
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,659
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,729
Registration fees
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,702
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Distribution fees - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . 82
Shareholder servicing fees - Class C . . . . . . . . . . . . . . . . . . . . . 51
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,007,010
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,811,879
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,271,536
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 807,688 25,079,224
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,961,929
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,472 8,000,401
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,079,625
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 36,891,504
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Income Fund 41
<PAGE>
EQUITY INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,811,879 $ 4,097,207
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,079,224 22,119,211
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 8,000,401 22,444,386
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 36,891,504 48,660,804
Distributions to shareholders:
Net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,811,350) (4,229,298)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (529) --
In excess of net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,107) --
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) --
Net realized gain on investments
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,809,734) (16,619,522)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,933) --
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 5,928,119 8,018,497
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 15,137,963 35,830,481
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 180,115,818 144,285,337
--------------- ---------------
NET ASSETS AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195,253,781 $ 180,115,818
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
42 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - CLASS S
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 38.43 $ 32.21 $ 35.90 $ 35.32 $ 36.54
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .82 .94 .90 .83 .99
Net realized and unrealized gain (loss) on investments . . 7.03 10.08 (.70) 3.69 3.08
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 7.85 11.02 .20 4.52 4.07
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.82) (.97) (.89) (.83) (1.00)
In excess of net investment income . . . . . . . . . . . . (.01) -- -- -- --
Net realized gain on investments . . . . . . . . . . . . . (5.23) (3.83) (3.00) (3.11) (4.29)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . (6.06) (4.80) (3.89) (3.94) (5.29)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 40.22 $ 38.43 $ 32.21 $ 35.90 $ 35.32
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . 21.45 34.76 .69 13.23 11.51
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . 1.07 1.06 1.04 1.05 1.08
Net investment income to average net assets. . . . . . . 2.03 2.51 2.56 2.23 2.68
Portfolio turnover . . . . . . . . . . . . . . . . . . . 106.40 92.40 89.91 78.72 95.07
Net assets, end of year ($000 omitted) . . . . . . . . . 195,132 180,116 144,285 149,532 134,365
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . .0441 N/A N/A N/A N/A
</TABLE>
Equity Income Fund 43
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - CLASS C
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
1996*
----------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 41.86
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . .10
Net realized and unrealized gain (loss) on investments . . . . 2.39
----------
Total Income From Investment Operations. . . . . . . . . . . . . 2.49
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . (.18)
Net realized gain on investments . . . . . . . . . . . . . . . (3.95)
----------
TOTAL DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . (4.13)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 40.22
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . 6.23
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b) . . . . . . . . . 1.77
Net investment income to average net assets (b). . . . . . . . 1.50
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . 106.40
Net assets, end of period ($000 omitted) . . . . . . . . . . . 122
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . . . .0441
* For the period November 4, 1996 (commencement of sale) to
December 31, 1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period ended December 31, 1996 are annualized.
44 Equity Income Fund
<PAGE>
QUANTITATIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide total return greater than the total return of the U.S.
Stock Market as measured by the Russell 1000-Registered Trademark- Index over a
market cycle of four to six years, while maintaining volatility and
diversification similar to the Russell 1000 Index.
INVESTS IN: Primarily U.S. equity securities.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns through security selection with sector diversification similar to its
benchmark index. The Fund employed the investment management services of three
managers using three distinctive quantitative approaches to investment.
<TABLE>
<CAPTION>
DATES QUANTITATIVE EQUITY - CLASS S RUSSELL 1000-Registered Trademark- ** LIPPER-C- 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 $16,833 $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
1996 $33,971 $34,236 $27,897
- -----------------------------------------------------------------------------------------------------------------
Total $190,846 $192,513 $169,499
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
QUANTITATIVE EQUITY FUND - CLASS S
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,308 23.08%
5 Years $ 20,768 15.74%#
Inception $ 33,971 13.61%#
QUANTITATIVE EQUITY FUND - CLASS C ++++
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,293 22.93%
5 Years $ 20,742 15.71%#
Inception $ 33,930 13.60%#
RUSSELL 1000-Registered Trademark- INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,245 22.45%
5 Years $ 20,338 15.26%#
Inception $ 34,236 13.70%#
LIPPER-C- GROWTH & INCOME FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 12,074 20.74%
5 Years $ 18,795 13.45%
Inception $ 27,897 11.40%
* Quantitative Equity Fund - Class S assumes initial investment on
June 1, 1987. Lipper Index comparison for the initial investment began
July 1, 1987.
** Russell 1000-Registered Trademark- Index includes the 1,000 largest
companies in the Russell 3000-Registered Trademark- Index, the smallest of
which is valued at about $1,019 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 & 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.
++++ Quantitative Equity Fund - Class C - For the period, November 4, 1996
(commencement of sales) to December 31, 1996, shareholder service and
Rule 12b-1 distribution fees were charged. Total return would have been
lower had these fees been in effect during prior reporting periods.
# Annualized.
46 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Quantitative Equity Fund Class S and
Class C shares had total returns of 23.1% and 22.9%, respectively, as compared
to the Russell-Registered Trademark- 1000 Index results of 22.5%. The Fund
outperformed the Russell 1000 Index on the strength of security selection,
particularly in the consumer discretionary, technology, and financial services
sectors.
PORTFOLIO HIGHLIGHTS
As in 1995, investors in the stock market in 1996 generally favored the large
capitalization stocks of industry leaders. This was most evident in the relative
performance of stocks within sectors. Large performance gaps were obvious
between industry leaders and the next tier companies. Investors seemed to give
valuation little consideration. In many industries, such as semiconductors and
software, companies such as Intel and Microsoft dramatically outperformed the
next tier companies.
This was a market well suited to the strategies employed in the Quantitative
Equity Fund because the market environment greatly favored stock pickers,
particularly those focused on large company stocks. The Fund benefited from
being nearly equally weighted with its underlying index along capitalization and
economic sector dimensions. With its focus on stock selection, it benefited from
the trend in investor sentiment toward industry leaders. Holdings in the
technology and financial services sectors made the largest contribution to the
Fund. Selection was favorable in almost all sectors, with the notable exception
of producer durables.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Intel Corp. 2.2%
Philip Morris Cos., Inc. 2.1
Merck & Co., Inc. 1.8
Exxon Corp. 1.8
BankAmerica Corp. 1.8
General Electric Corp. 1.6
GTE Corp. 1.4
Johnson & Johnson 1.2
Bristol-Myers Squibb Co. 1.2
Caterpillar, Inc. 1.2
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 17.7x
Portfolio Price/Book Ratio 2.95x
Market Capitalization - $ - Weighted Average 32.17 Bil
Number of Holdings 546
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Franklin Portfolio Associates Trust Market-Oriented
J.P. Morgan Investment Management, Inc. Market-Oriented
BZW Barclays Global Fund Advisors Market-Oriented
- -------------------------------------------------------------------
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.
Quantitative Equity Fund 47
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 94.9%
BASIC INDUSTRIES - 4.0%
Air Products & Chemicals, Inc. 5,700 $ 394
Albemarle Corp. 4,100 74
Allegheny Teldyne, Inc. 35,600 819
Aluminum Co. of America 17,400 1,109
ASARCO, Inc. 32,800 816
Bethlehem Steel Corp. (a) 16,700 150
Boise Cascade Corp. 6,100 194
Bowater, Inc. 4,600 173
Cabot Corp. 28,350 712
Champion International Corp. 12,100 523
Chesapeake Corp. 1,500 47
Cincinnati Milacron, Inc. 3,600 79
Crompton & Knowles Corp. 4,300 83
Cytec Industries, Inc. 3,800 154
Dexter Corp. 3,600 115
Dow Chemical Co. 60,900 4,773
du Pont (E.I.) de Nemours & Co. 38,100 3,596
Fort Howard Corp. New (a) 21,300 588
Georgia Gulf Corp. 1,900 51
Illinois Tool Works, Inc. 6,100 487
IMC Global, Inc. 4,800 188
Inco, Ltd. 5,500 175
Inland Steel Industries, Inc. 47,900 958
International Paper Co. 53,100 2,144
International Specialty Products (a) 29,600 363
James River Corp. of Virginia 800 27
Kimberly-Clark Corp. 500 48
Mead Corp. 6,600 384
Nalco Chemical Co. 26,200 946
Nucor Corp. 8,900 454
P.H. Glatfelter Co. 15,600 281
Phelps Dodge Corp. 7,500 506
PPG Industries, Inc. 15,800 887
Praxair, Inc. 16,000 738
Precision Castparts Corp. 800 40
Quanex Corp. 5,900 162
Reynolds Metals Co. 6,600 372
Rohm & Haas Co. 11,700 955
Temple-Inland, Inc. 7,000 379
Terra Industries, Inc. 8,600 127
UCAR International, Inc. (a) 400 15
Union Camp Corp. 400 19
Union Carbide Corp. 9,800 401
USX-U.S. Steel Group 7,500 235
Wellman, Inc. 200 3
Westvaco Corp. 31,500 906
Witco Chemical Corp. 100 2
Worthington Industries, Inc. 2,600 46
----------
26,698
----------
CAPITAL GOODS - 5.2%
American Power Conversion Corp. (a) 18,400 501
Anixter International, Inc. (a) 3,700 60
Browning-Ferris Industries, Inc. 20,100 528
Calgon Carbon Corp. 7,700 94
Caterpillar, Inc. 101,200 7,615
Cooper Industries, Inc. 34,800 1,466
Cummins Engine Co., Inc. 3,800 175
Deere & Co. 53,900 2,190
Dover Corp. 47,300 2,377
Exide Corp. 2,700 62
Foster Wheeler Corp. 3,700 137
General Electric Co. 105,800 10,461
Grainger (W.W.), Inc. 4,900 393
Harsco Corp. 9,000 617
Hubbell, Inc. Class B 3,200 138
Ingersoll-Rand Co. 27,500 1,224
ITT Industries, Inc. 7,900 194
Johnson Controls, Inc. 5,100 423
Martin Marietta Materials, Inc. 6,700 156
Newport News Shipbuilding, Inc. (a) 3,000 45
Parker-Hannifin Corp. 6,600 256
Raychem Corp. 17,200 1,378
Safeguard Scientifics, Inc. 4,200 133
Timken Co. 200 9
TRINOVA Corp. 2,600 95
Tyco International, Ltd. 23,300 1,232
WMX Technologies, Inc. 69,400 2,264
Zurn Industries, Inc. 4,800 124
----------
34,347
----------
CONSUMER BASICS - 20.5%
Abbott Laboratories 44,100 2,238
Albertson's, Inc. 14,500 517
ALZA Corp. (a) 46,600 1,206
American Home Products Corp. 28,900 1,694
Amgen, Inc. (a) 61,300 3,333
Apria Healthcare Group, Inc. (a) 13,400 251
Archer-Daniels-Midland Co. 156,199 3,436
Bausch & Lomb, Inc. 9,400 329
Becton, Dickinson & Co. 44,800 1,943
Beverly Enterprises, Inc. (a) 39,500 504
Biogen, Inc. 39,700 1,528
Black & Decker Corp. 67,100 2,021
Bob Evans Farms, Inc. 3,900 52
Bristol-Myers Squibb Co. 73,700 8,015
Campbell Soup Co. 4,100 329
Cardinal Health, Inc. 30,750 1,791
48 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Church and Dwight Co., Inc. 2,000 $ 46
Coca-Cola Co. (The) 136,400 7,178
Coca-Cola Enterprises, Inc. 4,600 223
Colgate-Palmolive Co. 11,300 1,042
Columbia/HCA Healthcare Corp. 83,200 3,390
ConAgra, Inc. 57,850 2,878
CPC International, Inc. 11,100 860
Dean Foods Co. 1,000 32
Dole Food, Inc. 13,800 467
Eckerd Corp. 8,365 268
FHP International Corp. (a) 700 26
Fleming Cos., Inc. 32,500 561
Food Lion, Inc. Class A 49,700 485
Forest Labs, Inc. (a) 6,800 223
General Mills, Inc. 2,100 133
General Nutrition Companies, Inc. (a) 6,500 110
Genetics Institute, Inc. (a) 6,800 576
Gillette Co. 57,650 4,482
Health Care & Retirement Corp. 27,900 799
Health Management Associates Class A 16,000 360
HealthCare COMPARE (a) 100 4
Hershey Foods Corp. 17,500 766
Hormel (George A.) & Co. 12,200 329
Humana, Inc. (a) 32,000 612
Interstate Bakeries Corp. 11,700 575
Johnson & Johnson 162,300 8,074
Kellogg Co. 17,100 1,122
Manor Care, Inc. 9,600 259
Meditrust 7,600 304
Merck & Co., Inc. 153,370 12,155
Mine Safety Appliances Co. 600 32
Nabisco Holdings Corp. Class A 4,200 163
NovaCare, Inc. (a) 68,000 748
Omnicare, Inc. 9,600 308
PepsiCo, Inc. 187,500 5,484
Pfizer, Inc. 53,800 4,459
Philip Morris Cos., Inc. 120,700 13,594
Physician Reliance Network, Inc. 19,200 146
Pioneer Hi-Bred International, Inc. 2,500 175
Procter & Gamble Co. 56,875 6,114
Ralston-Purina Group 18,500 1,357
RJR Nabisco Holdings Corp. 81,500 2,771
Rubbermaid, Inc. 17,900 407
Safeway, Inc. 81,500 3,484
Sara Lee Corp. 30,800 1,147
Schering-Plough Corp. 57,800 3,743
Stanley Works 23,100 624
Tenet Healthcare Corp. (a) 54,600 1,194
Tootsie Roll Industries, Inc. 100 4
Tyson Foods, Inc. Class A 24,300 829
U.S. Surgical Corp. 21,600 851
Unilever NV 19,000 3,330
United Healthcare Corp. 28,300 1,274
Vivra, Inc. (a) 6,100 169
Vons Cos., Inc. (a) 11,800 707
Warner-Lambert Co. 31,200 2,340
Watson Pharmaceuticals, Inc. (a) 1,200 54
Wellpoint Health Networks, Inc. Class A 96,552 3,320
----------
136,354
----------
CONSUMER DURABLES - 3.4%
AutoZone Inc. (a) 11,200 308
Callaway Golf Co. 12,900 371
Chrysler Corp. 67,800 2,237
Cooper Tire & Rubber Co. 4,200 83
Dana Corp. 23,600 770
Donaldson Co., Inc. 800 27
Eaton Corp. 7,400 516
Ford Motor Co. 209,300 6,671
General Motors Corp. 127,100 7,086
Genuine Parts Co. 100 4
Kimball International, Inc. Class B 16,400 672
Lear Corp. (a) 3,900 133
Leggett & Platt, Inc. 15,600 540
Maytag Corp. 32,000 632
Modine Manufacturing Co. 11,500 299
Oakwood Homes Corp. 17,700 405
PACCAR, Inc. 10,500 711
Sunbeam Oster, Inc. 25,500 657
Talley Industries, Inc. (a) 4,200 31
Whirlpool Corp. 8,900 416
----------
22,569
----------
CONSUMER NON-DURABLES - 5.3%
Alberto Culver Co. Class B 3,500 168
Anheuser-Busch Cos., Inc. 2,300 92
Avon Products, Inc. 900 51
Barnes & Noble, Inc. (a) 2,500 68
Block Drug Co., Inc. Class A 8,912 410
Borders Group, Inc. (a) 15,800 567
Brunswick Corp. 27,100 650
Circuit City Stores, Inc. 7,700 232
Claire's Stores, Inc. 1,250 16
Dayton Hudson Corp. 159,300 6,253
Eastman Kodak Co. 25,000 2,006
Quantitative Equity Fund 49
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Federated Department Stores, Inc. (a) 35,700 $ 1,218
Footstar, Inc. (a) 1,401 35
Fruit of the Loom, Inc. Class A (a) 8,500 322
Gap, Inc. 73,200 2,205
International Flavors & Fragrances, Inc. 8,800 396
Jones Apparel Group, Inc. 19,500 729
Limited, Inc. (The) 36,300 667
Liz Claiborne, Inc. 11,600 448
Longs Drug Stores, Inc. 6,900 339
Lowe's Cos., Inc. 25,000 888
Mattel, Inc. 14,200 394
Mercantile Stores, Inc. 16,600 820
Neiman-Marcus Group, Inc. (a) 900 23
Newell Co. 28,300 891
NIKE, Inc. Class B 5,600 335
Nine West Group, Inc. (a) 2,800 130
Nordstrom, Inc. 6,000 212
Payless ShoeSource, Inc. (a) 20,200 758
Penney (J.C.) Co., Inc. 17,700 863
Revco D.S., Inc. (a) 6,400 237
Ross Stores, Inc. 48,600 2,418
Sears Roebuck & Co. 85,700 3,953
SuperValu, Inc. 6,000 170
Toys "R" Us, Inc. (a) 21,900 657
V.F. Corp. 6,500 439
Valspar Corp. 1,200 68
Waban, Inc. (a) 200 5
Wal-Mart Stores, Inc. 170,200 3,892
Woolworth Corp. (a) 57,900 1,266
----------
35,291
----------
Consumer Services - 2.8%
AMR Corp. (a) 17,900 1,577
Boston Chicken, Inc. (a) 31,500 1,126
Boyd Gaming Corp. (a) 3,500 29
Carnival Corp. Class A 17,500 578
Circus Circus Enterprises, Inc. (a) 10,600 364
Disney (Walt) Co. 63,075 4,392
Extended Stay America, Inc. 3,800 76
Harrah's Entertainment, Inc. (a) 8,000 159
HFS, Inc. 22,600 1,350
Hilton Hotels Corp. 88,700 2,317
International Game Technology 9,400 172
ITT Corp. (a) 17,900 776
King World Productions, Inc. (a) 55,200 2,036
MGM Grand, Inc. (a) 18,000 628
Mirage Resorts, Inc. 13,600 294
Promus Hotel Corp. (a) 32,800 972
Ruby Tuesday, Inc. 41,600 770
Southwest Airlines Co. 8,100 179
UAL Corp. 12,400 775
----------
18,570
----------
ENERGY - 8.2%
Anadarko Petroleum Corp. 5,000 324
Ashland, Inc. 4,300 189
Atlantic Richfield Co. 9,300 1,232
Baker Hughes, Inc. 55,230 1,905
Burlington Resources, Inc. 31,400 1,582
Chevron Corp. 19,900 1,294
Cooper Cameron Corp. (a) 2,300 176
ENSCO International, Inc. (a) 11,400 553
Exxon Corp. 121,522 11,909
Global Marine, Inc. New (a) 10,100 208
Halliburton Co. 9,200 554
Kerr-McGee Corp. 11,700 842
LTV Corp. 6,900 82
Lyondell Petrochemical Co. 5,000 110
Mobil Corp. 46,400 5,672
Occidental Petroleum Corp. 47,400 1,108
Oryx Energy Co. (a) 76,200 1,886
PanEnergy Corp. 20,800 936
Parker & Parsley Petroleum Co. 28,200 1,036
Phillips Petroleum Co. 106,300 4,704
Pogo Producing Co. 1,900 90
Royal Dutch Petroleum Co. - ADR 42,900 7,325
Schlumberger, Ltd. 8,700 869
Seagull Energy Corp. (a) 49,600 1,091
Smith International, Inc. (a) 2,200 99
Tesoro Petroleum Corp. (a) 7,500 105
Texaco, Inc. 62,100 6,094
Tosco Corp. 2,600 206
Ultramar Diamond Shamrock Corp. 2,100 66
Union Pacific Resources Group, Inc. 11,901 348
Union Texas Petroleum Holdings, Inc. 26,000 582
Unocal Corp. 4,300 175
USX-Marathon Group 27,000 645
Vastar Resources, Inc. 3,800 144
----------
54,141
----------
FINANCE - 16.7%
Advanta Corp. Class B 1,800 73
Aetna, Inc. 9,200 736
Ahmanson (H.F.) & Co. 41,100 1,336
50 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Allstate Corp. 42,279 $ 2,447
AMBAC, Inc. 16,600 1,102
American General Corp. 23,700 969
American International Group, Inc. 14,800 1,602
American National Insurance Co. 1,800 133
AmSouth Bancorp 39,000 1,887
Banc One Corp. 86,700 3,728
Bancorp Hawaii, Inc. 5,400 227
Bank of Boston Corp. 13,071 840
BankAmerica Corp. 115,800 11,551
Bankers Life Holding Corp. 8,400 210
Barnett Banks, Inc. 48,200 1,982
Bear Stearns Cos., Inc. 50,520 1,408
Beneficial Corp. 3,800 241
Boatmen's BancShares, Inc. 18,300 1,178
Central Fidelity Banks, Inc. 4,300 111
Charter One Financial, Inc. 23,600 991
Chase Manhattan Corp. 4,100 366
Chubb Corp. (The) 20,200 1,086
CIGNA Corp. 35,300 4,823
Citicorp 18,900 1,947
Citizens Bancorp Maryland 600 37
City National Corp. 43,800 947
CNA Financial Corp. (a) 5,400 578
Comerica, Inc. 49,500 2,593
Commerce Bancshares, Inc. 5,025 232
Conseco, Inc. 10,400 663
ContiFinancial Corp. (a) 3,200 116
CoreStates Financial Corp. 15,900 825
Crestar Financial Corp. 2,500 186
Dean Witter, Discover & Co. 11,700 775
Dime Bancorp, Inc. New (a) 7,600 112
Edwards (A.G.), Inc. 29,900 1,005
Federal Home Loan Mortgage Corp. 1,600 176
Federal National Mortgage Association 134,200 4,999
First America Bank Corp. 2,400 144
First Chicago NBD Corp. 96,052 5,163
First Empire State Corp. 100 29
First Tennessee National Corp. 4,800 179
First Union Corp. 19,900 1,473
First USA, Inc. 8,600 298
First Virginia Banks, Inc. 2,300 110
Firstar Corp. 5,400 284
Fleet Financial Group, Inc. 18,840 940
Golden West Financial Corp. 21,400 1,351
Great Western Financial Corp. 11,100 322
Greenpoint Financial Corp. 3,700 175
Horace Mann Educators Corp. 1,800 73
ITT Hartford Group, Inc. 48,800 3,294
Kansas City Life Insurance Co. 1,300 83
KeyCorp 75,100 3,793
Lehman Brothers Holdings, Inc. 125,300 3,931
Lincoln National Corp. 12,100 635
Loews Corp. 18,480 1,742
Mark Twain Bancshares, Inc. 800 39
MBIA, Inc. 5,000 506
Mercantile Bancorp, Inc. 500 26
Mercantile Bankshares Corp. 7,700 244
Mercury Finance Corp. 12,700 156
Mercury General Corp. 4,200 221
Merrill Lynch & Co., Inc. 20,200 1,646
Money Store, Inc. 4,100 113
Morgan (J.P.) & Co., Inc. 16,900 1,650
Morgan Stanley Group, Inc. 37,800 2,159
National City Corp. 5,400 242
NationsBank Corp. 46,976 4,592
Norwest Corp. 30,900 1,344
Ohio Casualty Corp. 4,200 149
Old Kent Financial Corp. 2,800 133
Old Republic International Corp. 36,850 986
PaineWebber Group, Inc. 6,600 186
PMI Group, Inc. (The) 2,700 150
PNC Bank Corp. 10,805 407
Progressive Corp. 100 7
Regions Financial Corp. 4,300 222
Republic New York Corp. 4,000 327
Robert Half International, Inc. 7,000 241
SAFECO Corp. 4,800 188
Salomon, Inc. 20,700 975
Schwab (Charles) Corp. 14,300 458
Signet Banking Corp. 5,000 154
Sotheby's Holdings Co., Inc. Class A 11,200 209
SouthTrust Corp. 32,700 1,136
St. Paul Cos., Inc. 9,700 569
Standard Federal Bancorporation 9,600 546
Star Banc Corp. 16,300 1,498
Student Loan Marketing Association 11,000 1,024
SunAmerica, Inc. 10,000 444
Synovus Financial Corp. 2,600 84
TCF Financial Corp. 2,500 109
Torchmark Corp. 5,800 293
Transamerica Financial Corp. 7,700 608
Transatlantic Holdings, Inc. 500 40
Travelers, Inc. 155,733 7,065
Union Planters Corp. 2,700 104
Unitrin, Inc. 5,050 281
USLIFE Corp. 18,000 598
Washington Federal, Inc. 3,000 77
Quantitative Equity Fund 51
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Washington Mutual, Inc. 5,200 $ 224
Wilmington Trust Corp. 2,500 98
----------
110,765
----------
GENERAL BUSINESS - 3.1%
America Online, Inc. (a) 17,400 579
Belo (A.H.) Corp. Class A 7,100 248
BHC Communications, Inc. Class A (a) 2,900 294
Central Newspapers, Inc. Class A 2,700 119
Comcast Corp. Special Class A 14,700 261
Comsat Corp. Series 1 7,900 195
Cox Communications, Inc. Class A (a) 3,900 90
Donnelley (R.R.) & Sons Co. 11,000 345
Ecolab, Inc. 5,900 222
First Data Corp. 27,800 1,015
Harcourt General, Inc. 8,200 378
Knight-Ridder, Inc. 25,200 964
Media General, Inc. Class A 6,100 185
MFS Communications, Inc. 21,900 1,188
Moore Corp., Ltd. 98,700 2,011
New York Times Co. Class A 20,800 790
Olsten Corp. 61,100 924
Omnicom Group, Inc. 22,500 1,029
Paging Network, Inc. (a) 7,000 107
PHH Group, Inc. 35,800 1,539
SBC Communications, Inc. 27,000 1,397
Service Corp. International 16,500 462
Staples, Inc. 33,625 605
Stewart Enterprises, Inc. Class A 7,100 240
TCI Satellite Entertainment, Inc., Class A (a) 5,300 52
Tele-Communications, Inc. Class A 52,700 685
Tele-Communications, Inc. Series A New (a) 2,500 71
Time Warner, Inc. 41,600 1,560
Tribune Co. 1,400 110
Viacom, Inc. Class B (a) 27,000 942
Wallace Computer Services, Inc. 17,900 618
Washington Post Co. Class B 3,800 1,273
----------
20,498
----------
MISCELLANEOUS - 0.4%
Chris Craft Industries, Inc. 6,848 287
Providian Corp. 19,500 1,002
Security Capital Pacific Trust 38,800 888
Tenneco, Inc. 15,000 677
----------
2,854
----------
SHELTER - 0.4%
Centex Corp. 32,700 1,230
Louisiana Pacific Corp. 11,800 249
Owens-Corning Fiberglas Corp. 6,200 264
Schuller Corp. 28,500 303
Southdown, Inc. 4,900 153
USG Corp. (a) 9,900 335
Weyerhaeuser Co. 6,800 323
----------
2,857
----------
TECHNOLOGY - 14.0%
ADC Telecommunications, Inc. 50,400 1,562
AlliedSignal, Inc. 40,000 2,680
Altera Corp. (a) 3,000 218
Apple Computer, Inc. (a) 6,500 135
Applied Materials, Inc. (a) 12,400 445
Ascend Communications, Inc. 14,000 868
Autodesk, Inc. 200 6
Avery Dennison Corp. 13,400 474
Avnet, Inc. 27,900 1,625
Bay Networks, Inc. (a) 7,800 163
Boeing Co. 48,700 5,180
Checkpoint Systems, Inc. 19,900 493
Cisco Systems, Inc. 88,400 5,624
Coltec Industries, Inc. (a) 7,300 138
COMPAQ Computer Corp. (a) 43,600 3,237
Computer Associates International, Inc. 12,000 597
Compuware Corp. (a) 2,200 110
Cubic Corp. 2,300 53
Dell Computer Corp. 42,800 2,274
Destec Energy, Inc. (a) 6,700 105
EG&G, Inc. 11,800 237
EMC Corp. (a) 16,000 530
General Dynamics Corp. 28,900 2,037
General Instrument Corp. (a) 10,000 216
General Motors Corp. Class H 40,100 2,256
Guidant Corp. 13,900 792
Harris Corp. 14,600 1,002
HBO & Co. 24,900 1,478
Hewlett-Packard Co. 119,000 5,980
Input/Output, Inc. 38,200 707
Intel Corp. 110,000 14,396
International Business Machines Corp. 43,300 6,538
Lexmark International Group, Inc. Class A (a) 2,000 55
Lockheed Martin Corp. 15,980 1,462
Lucent Technologies, Inc. 28,500 1,318
McDonnell Douglas Corp. 19,300 1,235
Micron Electronics, Inc. (a) 200 4
Micron Technology, Inc. 500 15
Microsoft Corp. 80,400 6,643
Motorola, Inc. 3,200 196
52 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
National Semiconductor Corp. (a) 5,400 $ 132
Netscape Communications Corp. 25,500 1,447
Northrop Grumman Corp. 2,200 182
Oracle Systems Corp. 38,800 1,615
Perkin-Elmer Corp. 8,900 524
Pitney Bowes, Inc. 58,700 3,199
Quantum Corp. (a) 4,300 122
Raytheon Co. 5,700 274
Read-Rite Corp. (a) 32,600 815
SCI Systems, Inc. (a) 8,900 397
Scientific-Atlanta, Inc. 5,800 87
Sensormatic Electronics Corp. 5,200 87
Storage Technology Corp. (a) 36,500 1,738
Sun Microsystems, Inc. 92,800 2,378
Symbol Technologies, Inc. (a) 7,600 336
Tandem Computers, Inc. (a) 56,400 776
Textron, Inc. 12,200 1,150
Thermo Electron Corp. 9,700 400
Thermo Instrument Systems, Inc. 7,500 248
Thomas & Betts Corp. 5,600 249
U.S. Robotics Corp. 5,100 367
VLSI Technology, Inc. (a) 116,100 2,744
Xerox Corp. 10,100 533
----------
92,884
----------
TRANSPORTATION - 1.3%
Alexander & Baldwin, Inc. 3,400 84
Burlington Northern, Inc. 9,100 786
Caliber Systems, Inc. 1,900 37
Consolidated Freightways Corp. (a) 1,400 12
Consolidated Freightways, Inc. 6,100 136
CSX Corp. 43,000 1,817
Federal Express Corp. 2,600 116
GATX Corp. 10,800 524
Norfolk Southern Corp. 26,500 2,319
Offshore Logistics, Inc. (a) 20,300 393
Ryder System, Inc. 4,200 118
Tidewater, Inc. 15,800 715
Trinity Industries, Inc. 8,700 326
Union Pacific Corp. 14,100 848
Yellow Corp. (a) 14,600 209
----------
8,440
----------
UTILITIES - 9.6%
Airtouch Communications, Inc. (a) 41,900 1,058
Allegheny Power System, Inc. 7,200 219
American Electric Power Co., Inc. 6,100 251
American Water Works, Inc. 3,200 66
Ameritech Corp. 117,000 7,093
AT&T Corp. 84,900 3,693
Baltimore Gas & Electric Co. 4,400 118
Bell Atlantic Corp. 74,230 4,806
BellSouth Corp. 88,700 3,581
Black Hills Corp. 1,000 28
Centerior Energy Corp. 59,100 635
CINergy Corp. 32,500 1,085
Coastal Corp. 25,100 1,227
Columbia Gas System, Inc. 11,400 725
Commonwealth Energy System 2,300 54
Consolidated Edison Co. 13,500 395
Consolidated Natural Gas Co. 26,800 1,481
Dominion Resources, Inc. 10,500 404
DTE Energy Co. 3,800 123
Edison International 55,800 1,109
Enron Corp. 20,800 897
Entergy Corp. 131,400 3,646
Frontier Corp. 8,600 195
GPU, Inc. 14,200 477
GTE Corp. 205,465 9,349
Illinova Corp. 4,500 124
IPALCO Enterprises, Inc. 6,900 188
Long Island Lighting Co. 75,600 1,673
MCI Communications Corp. 40,700 1,328
National Fuel & Gas Co. 4,600 190
New England Electric System 3,700 129
New York State Electric & Gas Corp. 31,200 675
Niagara Mohawk Power Corp. (a) 32,500 321
NICOR, Inc. 1,800 64
Northeast Utilities 7,800 103
Northern States Power Co. 7,900 362
NYNEX Corp. 29,000 1,396
Orange & Rockland Utilities, Inc. 2,300 83
Pacific Gas & Electric Co. 25,000 525
PacifiCorp. 33,100 679
Peco Energy Co. 17,200 434
Peoples Energy Corp. 8,100 274
Pinnacle West Capital Corp. 19,400 616
Portland General Electric Co. 6,100 256
PP&L Resources, Inc. 800 18
SIG Corp., Inc. 600 21
Southern Co. 38,700 876
Sprint Corp. 76,600 3,054
Telephone & Data Systems, Inc. 3,000 109
Texas Utilities Co. 11,900 485
TransCanada Pipelines, Ltd. 5,100 89
Quantitative Equity Fund 53
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
U.S. West Communications Group 25,100 $ 809
U.S. West Media Group 45,800 847
Unicom Corp. 87,000 2,360
Union Electric Co. 5,100 196
United States Cellular Corp. (a) 2,000 56
Western Resources, Inc. 54,500 1,683
Williams Cos. (The) 24,150 906
WorldCom, Inc. 3,400 88
----------
63,732
----------
TOTAL COMMON STOCKS
(cost $498,690) 630,000
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 4.2%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 25,953 25,953
United States Treasury Bills (b)(c)(d)
5.040% due 02/06/97 2,100 2,090
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $28,043) 28,043
----------
TOTAL INVESTMENTS
(identified cost $526,733)(e) - 99.1% 658,043
OTHER ASSETS AND LIABILITIES, NET - 0.9% 6,204
----------
NET ASSETS - 100.0% $ 664,247
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Rate noted is yield-to-maturity (unaudited).
(d) Held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NV - Nonvoting
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 500 Index Futures Contracts
expiration date 03/97 57 $ (303)
S & P 400 Midcap Index Futures Contracts
expiration date 03/97 35 (12)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) 92 $ (315)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $2,090 were
held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
54 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $526,732,877)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 658,042,571
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,020
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,398,939
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,595,573
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,978,200
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,305
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669,146,608
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 673,110
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,584
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 513,467
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,944
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 411,325
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,899,430
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 664,247,178
---------------
---------------
Net assets consist of:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,588,332
Unrealized appreciation (depreciation) on:,
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,309,694
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (314,649)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,004
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512,462,797
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 664,247,178
---------------
---------------
Net asset value, offering and redemption price per share:
Class S ($663,925,237 divided by 20,090,650 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $33.05
---------------
---------------
Class C ($321,941 divided by 9,742 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $33.05
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Quantitative Equity Fund 55
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,835,150
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,481,902
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,934
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,420,986
Expenses (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,455,041
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,493
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,404
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,403
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,080
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,725
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,576
Registration fees
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,116
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Distribution fees - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . 212
Shareholder servicing fees - Class C . . . . . . . . . . . . . . . . . . . . . 132
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,312,231
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,108,755
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,519,041
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,637,686 70,156,727
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,591,906
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (259,436) 41,332,470
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,489,197
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 120,597,952
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
56 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,108,755 $ 7,601,625
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,156,727 60,055,423
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 41,332,470 73,049,242
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 120,597,952 140,706,290
Distributions to shareholders:
Net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,110,607) (7,728,318)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (709) --
In excess of net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,517) --
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) --
Net realized gain on investments
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70,285,091) (41,635,634)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,808) --
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 134,202,664 17,013,464
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 175,298,879 108,355,802
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 488,948,299 380,592,497
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $2,561 at December 31, 1995). . . . . . . . . . . . . . . . . . . . . . . . $ 664,247,178 $ 488,948,299
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Quantitative Equity Fund 57
<PAGE>
QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS S
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 30.76 $ 24.84 $ 26.44 $ 25.82 $ 25.88
-------- -------- -------- -------- --------
Income From Investment OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .51 .50 .49 .45 .49
Net realized and unrealized gain (loss) on investments . . 6.24 8.72 (.19) 2.69 1.67
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 6.75 9.22 .30 3.14 2.16
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.51) (.51) (.49) (.45) (.49)
Net realized gain on investments . . . . . . . . . . . . . (3.95) (2.79) (1.41) (2.07) (1.73)
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (4.46) (3.30) (1.90) (2.52) (2.22)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 33.05 $ 30.76 $ 24.84 $ 26.44 $ 25.82
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . 23.08 37.69 .19 12.56 8.67
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . .93 .93 .94 .98 1.02
Net investment income to average net assets . . . . . . 1.59 1.71 1.95 1.68 1.94
Portfolio turnover . . . . . . . . . . . . . . . . . . . 74.33 78.83 45.97 62.48 59.19
Net assets, end of year ($000 omitted) . . . . . . . . . 663,925 488,948 380,592 314,647 244,870
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . .0331 N/A N/A N/A N/A
</TABLE>
58 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS C
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
1996*
----------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 33.81
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . .05
Net realized and unrealized gain (loss) on investments . . . . 1.87
----------
Total Income From Investment Operations. . . . . . . . . . . . . 1.92
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . (.08)
Net realized gain on investments . . . . . . . . . . . . . . . (2.60)
----------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . (2.68)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 33.05
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . 5.91
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b) . . . . . . . . . 1.65
Net investment income to average net assets (b). . . . . . . . .81
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . 74.33
Net assets, end of period ($000 omitted) . . . . . . . . . . . 322
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . . . .0331
* For the period November 4, 1996 (commencement of sale) to
December 31, 1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period ended December 31, 1996 are annualized.
Quantitative Equity Fund 59
<PAGE>
INTERNATIONAL SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide favorable total return and diversification for US
investors.
INVESTS IN: Primarily the equity securities of non-US companies in developed
foreign markets.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns than its benchmark index with moderate risk by employing the investment
management services of five managers with separate and distinct investment
approaches. The Fund's primary source of added value is intended to be stock
selection with only moderate country allocations relative to the index to
capture the diversification benefits of international investment in an asset
allocation context.
<TABLE>
<CAPTION>
DATES INTERNATIONAL SECURITIES - CLASS S MSCI EAFE ** LIPPER-C- INTERNATIONAL ++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $11,589 $12,493 $11,218
1988 $14,144 $16,065 $13,077
1989 $17,289 $17,800 $16,020
1990 $14,638 $13,671 $14,107
1991 $16,393 $15,380 $15,860
1992 $15,254 $13,557 $15,204
1993 $20,362 $18,024 $21,222
1994 $21,352 $19,477 $21,007
1995 $23,531 $21,726 $22,946
1996 $25,324 $23,109 $25,597
- -------------------------------------------------------------------------------------------------------
Total $189,876 $181,302 $186,258
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL SECURITIES FUND - CLASS S
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,763 7.63%
5 Years $ 15,448 9.09%#
10 Years $ 25,324 9.74%#
INTERNATIONAL SECURITIES - CLASS C ++++
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,750 7.50%
5 Years $ 15,431 9.06%#
10 Years $ 25,296 9.73%#
MSCI EAFE Index
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,636 6.36%
5 Years $ 15,025 8.48%#
10 Years $ 23,109 8.74%#
LIPPER-C- INTERNATIONAL FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,155 11.55%
5 Years $ 16,139 10.05%#
10 Years $ 25,597 9.85%#
SALOMON BROTHERS BROAD MARKET INDEX (BMI) EX-US +
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,867 8.67%
5 Years $ 15,000 8.45%#
SEE RELATED NOTES ON PAGE 61.
60 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the International Securities Fund Class S
and Class C shares had a total return of 7.6% and 7.5%, respectively, as
compared to the MSCI EAFE Index results of 6.4%. The Fund outperformed this
benchmark primarily due to good issue selection, and superior returns from
Canadian holdings which are not represented in the EAFE Index.
PORTFOLIO HIGHLIGHTS
While returns from international investments appeared somewhat mediocre overall
when compared to domestic returns, substantial return opportunities were
available on a market-by-market basis. Currency effect had a negative impact on
returns overall, as the dollar strengthened versus most foreign currencies.
Several European markets produced significant returns surpassing even the U.S.
market, due to falling interest rates as they adopted fiscal restraints for
meeting membership requirements into the European Monetary Union. The United
Kingdom (UK) was the more important story during 1996 due to its dominant
weighting (nearly 33% of the region by capitalization). The UK market rose 27.4%
in US dollars but only 15.6% in local currency as the British pound strengthened
for most of 1996. In contrast, the Pacific Basin region was down 8.4% for the
year, entirely due to the 15.4% loss from Japan which accounts for nearly 79% of
the Pacific Basin market capitalization. Other Pacific Basin markets fared
better. The Hong Kong market rose over 33% as investors expressed their optimism
towards China's impending takeover.
Good stock selection, particularly in the European markets, was a strong
positive in the International Securities Fund during 1996. Although modest in
magnitude, country weighting decisions in aggregate had a negative influence on
Fund performance despite a slight underweighting in Japan in the latter half of
the year. The Fund's underweighting in the UK hurt performance the most.
Although local market returns were relatively weak, compared to other European
markets, currency appreciation boosted the UK market return to US investors by
more than 10%.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Novartis AG (Regd)(Switzerland) 1.1%
British Petroleum Co. PLC (UK) 1.0
Astra AB Series A (Sweden) 0.9
Sony Corp. (Japan) 0.8
Royal Dutch Petroleum Co. (Netherlands) 0.7
Eaux (cie Generale)(France) 0.7
Hoechst AG (Germany) 0.7
Hitachi, Ltd. (Japan) 0.7
Nippon Telegraph & Telephone Corp. (Japan) 0.7
Toyota Motor Corp. (Japan) 0.7
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 19.9x
Portfolio Price/Book Ratio 2.05x
Market Capitalization - $ - Weighted Average 15.4 Bil
Number of Holdings 1,453
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Grantham, Mayo, Van Otterloo & Co. Value
J.P. Morgan Investment Management, Inc. Market-Oriented
Marathon Asset Management, Ltd. Value
Oechsle International Advisors Growth
Rowe Price-Fleming International, Inc. Market-Oriented
- -------------------------------------------------------------------
NOTES: THE FOLLOWING NOTES RELATE TO THE GROWTH OF $10,000 GRAPH AND TABLE ON
THE PRECEDING PAGE.
* International Securities Fund - Class S assumes initial investment on
January 1, 1987.
** 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 approximately 1,600 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 - Class C - For the period, November 4, 1996
(commencement of sales) to December 31, 1996, shareholder service and
Rule 12b-1 distribution fees were charged. Total return would have been
lower had these fees been in effect during prior reporting periods.
+ Salomon Brothers BMI Index ex-US is a comprehensive float-weighted equity
index consisting of every company with an investable market capitalization
of over $100 million in 22 countries. This Index has broader representation
than the MSCI EAFE benchmark. However, 10 years of historical performance
information is not available because the BMI Index was constructed on
June 30, 1989.
# Annualized.
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 Securities Fund 61
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 89.7%
ARGENTINA - 0.1%
Banco de Galicia y Buenos Aires Class B - ADR 3,410 $ 82
Banco Frances del Rio la Plata - ADR 5,555 153
Comercial de Plata (a) 20,590 53
Naviera Perez Companc Class B 36,012 253
Sociedad Comercial del Plata - ADR (a) 1,556 40
Telecom Argentina SA Class B - ADR 1,280 52
Telefonica de Argentina Class B - ADR 9,510 246
Transportadora de Gas Del Sur Class B - ADR 4,760 58
YPF Sociedad Anonima Class D - ADR 5,958 150
----------
1,087
----------
AUSTRALIA - 3.2%
Amalgamated Holdings, Ltd. 2,000 10
Amcor, Ltd. 30,300 195
Australia & New Zealand Bank Group, Ltd. 260,199 1,640
Australian Gas & Light Co. 55,179 314
Australian National Industries, Ltd. 176,270 175
Boral, Ltd. 84,543 241
Brambles Industries, Ltd. 2,700 53
Broken Hill Proprietary Co. 259,164 3,691
Burswood Property Trust (Units) 7,844 10
Caltex Australia 185,900 686
Capral Aluminum, Ltd. 4,100 13
Coca-Cola Amatil, Ltd. 4,857 52
Coles Myer, Ltd. 128,264 528
Commonwealth Bank of Australia 2,006 19
Commonwealth Installment Receipt Trustee, Ltd. 22,000 137
Cortecs International, Ltd. (a) 2,635 8
CRA, Ltd. 3,100 49
CSL, Ltd. 2,100 10
CSR, Ltd. 268,368 939
Eastern Aluminum 272,000 266
Elders Australia, Ltd. 307,594 516
Eltin, Ltd. 195,383 449
Eltin, Ltd. New 38,302 85
F.H. Faulding & Co., Ltd. 1,900 13
Foodland Associated, Ltd. 4,045 20
Foster's Brewing Group, Ltd. 10,500 21
G.E. Crane Holdings, Ltd. 1,700 15
GIO Australia Holdings 244,217 625
Goodman Fielder Wattie 9,900 12
Hardie (James) Industries, Ltd. 5,100 16
HIH Winterthur International Holdings, Ltd. 200 1
Leighton Holdings, Ltd. Class A 3,584 15
Lend Lease Corp. 7,185 139
Mayne Nickless, Ltd. 3,800 26
National Australia Bank, Ltd. 95,850 1,128
National Mutual Holdings, Ltd. (a) 48,000 72
News Corp. 381,584 2,014
Normandy Poseidon 4,808 7
North Broken Hill Peko 7,470 22
Pacific Dunlop, Ltd. 261,600 665
Pasminco, Ltd. 286,500 451
Pioneer International, Ltd. 157,700 470
Publishing Broadcasting, Ltd. 37,960 185
QNI, Ltd. 242,436 487
RGC Limited 139,573 620
Rothmans Holdings 6,571 42
Santos, Ltd. 213,800 867
Simsmetal, Ltd. 3,055 17
Smith (Howard), Ltd. 13,166 108
Soul Pattinson & Co., Ltd. 400 18
Southcorp Holdings, Ltd. 145,400 462
Tabcorp. Holdings, Ltd. 43,800 209
Village Roadshow, Ltd. 2,800 11
Walker Corp., Ltd. 12,846 9
Wesfarmers 63,279 443
Western Mining Corp. 597,307 3,765
Westfield Holdings 700 11
Westpac Banking Corp. 133,514 760
Wills (W.D. & H.O.)(a) 10,400 17
Woodside Petroleum, Ltd. 31,200 228
----------
24,077
----------
AUSTRIA - 0.3%
Bank Austria AG 2,400 177
Boehler-Uddeholm AG 1,500 107
Brau-Union Goess AG 1,346 83
Creditanstalt-Bankverein 5,264 356
EVN Energ-Versorg 698 105
Flughafen Wien AG 1,323 67
Interunfall Vericherungs AG 900 125
Oester Brau Beteil 1,200 82
Oester Elektrizita Class A 5,680 425
OMV AG 1,231 139
VA Technologie AG (BR) 2,000 314
Wiener Allianz Verscherung 700 97
Z Landerbank Bank Austria AG 12,210 395
----------
2,472
----------
BELGIUM - 0.6%
Arbed SA NPV 2,915 317
62 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Banque Bruxelles Lambert NPV 134 $ 29
Barco NV NPV 702 121
Credit Communal Holding Dexia NPV (a) 756 69
Electrabel NPV 3,428 811
Fortis AG 3,000 481
Generale de Banque NPV 2,068 741
Groupe Bruxelles Lambert NPV 200 26
Kredietbank NPV 2,251 738
Petrofina SA NPV 1,130 360
Societe Generale de Belgique NPV 256 20
Solvay SA NPV 680 416
UCB Capital NV 79 206
----------
4,335
----------
BRAZIL - 0.3%
CEMIG SA - ADR 6,892 236
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar (Regd) - GDR 4,750 85
Eletrobras (centrais) NPV 655,618 235
Sider Nacional cia NPV 3,980,000 113
Telecomunicacoes Brasileiras - ADR 15,269 1,176
Telecomunicacoes Brasileiras - ADR (144A) 355 27
Telecomunicacoes Brasileiras NPV 3,421,000 245
TELESP Telec San Paulo NPV (a) 37,771 8
Usinas Siderurgicas de Minas - ADR 19,363 198
White Martins SA NPV 47,400,000 68
----------
2,391
----------
CANADA - 2.0%
Abitibi-Price, Inc. 13,000 206
Air Canada, Inc. (a) 59,000 267
Alcan Aluminum, Ltd. 9,140 309
Anderson Exploration, Ltd. (a) 2,800 36
Avenor, Inc. (a) 1,200 18
Bank of Nova Scotia Halifax 76 3
Barrick Gold Corp. 24,300 699
BC Telecom, Inc. (a) 3,700 80
BCE Mobile Communications, Inc. (a) 900 27
BCE, Inc. NPV 9,400 448
Bombardier, Inc. Class A 600 11
Bombardier, Inc. Class B 8,000 147
Brascan, Ltd. Class A 15,000 334
CAE, Inc. 40,500 306
Canadian Natural Resources, Ltd. (a) 400 11
Canadian Pacific, Ltd. 34,700 919
Canadian Tire Corp. Class A (a) 5,400 90
Canfor Corp. 700 7
CCL Industries, Inc. Class B 19,000 208
Co-Steel, Inc. 1,900 34
Cominco, Ltd. 22,900 570
Corel Corp. (a) 2,200 16
Cott Corp. 4,100 29
Dofasco, Inc. NPV 4,800 91
Dominion Textile, Inc. 1,700 9
Domtar, Inc. NPV 39,000 329
Donohue, Inc. Class A 2,600 47
Echo Bay Mines, Ltd. 3,700 25
Falconbridge, Ltd. 500 11
Fletcher Challenge Canada, Ltd. Class A 1,000 16
George Weston, Ltd. 700 34
Hudson's Bay Co. 28,700 478
Imasco, Ltd. 10,700 262
Imperial Oil, Ltd. 15,300 721
Inco, Ltd. (Canadian listed) 2,700 87
Inco, Ltd. (U.S. listed) 59,587 1,899
Inmet Mining Corp. (a) 2,500 12
International Forest Products, Ltd. Class A (a) 2,100 16
IPSCO, Inc. 1,000 28
Laidlaw, Inc. Class A 2,300 27
Laidlaw, Inc. Class B 5,800 68
MacMillan Bloedel, Ltd. 4,900 64
Magna International, Inc. Class A 1,500 84
Methanex Corp. (a) 7,100 65
Molson Companies, Ltd. Class A 2,700 42
Moore Corp., Ltd. 3,500 73
Newbridge Networks Corp. 8,400 238
Noranda, Inc. 14,100 315
Noranda Forest, Inc. 1,600 11
NOVA Corp. 33,500 297
Nova Scotia Power, Inc. 6,200 65
Numac Energy, Inc. (a) 500 2
Oshawa Group, Ltd. Class A 2,200 32
Placer Dome, Inc. 27,000 587
Potash Corporation of Saskatchewan, Inc. 200 17
Quebecor, Inc. Class B 2,900 48
Repap Enterprises, Inc. (a) 3,800 11
Rio Algom, Ltd. (a) 900 20
Rogers Cantel Mobile Communications, Inc. Class B 3,300 65
Rogers Communications, Inc. Class A 1,500 11
Rogers Communications, Inc. Class B (a) 47,000 343
Royal Bank of Canada 4,000 141
Royal Oak Mines, Inc. (a) 4,100 13
Sears Canada, Inc. 2,300 17
Semi-Tech Corp. Class B 4,200 16
Shell Canada, Ltd. Class A 600 23
Slocan Forest Products, Ltd. 1,300 15
International Securities Fund 63
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Southam, Inc. 2,200 $ 31
Stelco, Inc. Series A (a) 56,700 348
Suncor, Inc. 1,300 41
Teck Corp. Class B 30,100 698
TELUS Corp. 8,800 128
The Seagram Co., Ltd. 10,900 438
Thomson Corp. (a) 6,300 138
Torstar Corp. Class B 1,000 24
Total Petroleum North America, Ltd. 100 1
Transalta Corp. 56,400 710
TransCanada Pipelines, Ltd. 13,900 244
United Dominion Industries, Ltd. 11,600 273
Westcoast Energy, Inc. 7,900 132
----------
14,756
----------
CHILE - 0.1%
Administradora de Fondos
de Pensiones Provida SA - ADR 1,208 23
Chile Fund, Inc. 7,134 149
Chilectra SA - ADR 2,570 133
Chilgener SA - ADR 4,052 84
Compania de Telefonos (Chile) SA - ADR 704 71
Enersis SA - ADR 4,419 123
----------
583
----------
CHINA - 0.1%
Huaneng Power International, Inc. -
ADR Series N (a) 24,100 542
Yizheng Chemical Fibre Class H 599,000 146
----------
688
----------
DENMARK - 0.7%
Bang & Olufsen Holding Series B 10,000 485
Carlsberg AS Series B 5,000 338
Coloplast AS Class B (Regd) 3,500 398
Den Danske Bank 2,225 179
Jyske Bank AS (Regd) 3,300 248
Novo Nordisk AS Class B 11,583 2,183
Sophus Berendsen Class B 3,300 425
Tele Danmark AS Series B 7,600 419
Unidanmark Class A (Regd) 2,600 135
----------
4,810
----------
FINLAND - 0.5%
America Group Class A 2,300 47
Cultor OY Series I 1,000 54
Enso OY Series A (a) 13,000 104
Huhtamaki OY Series I Free 300 14
Instrumentarium (a) 500 18
Instrumentarium Series A 1,300 48
Kesko 700 10
Kymmene OY (a) 35,400 743
Metra AB Series A 1,200 68
Metra AB Series B 200 11
Nokia AB Series K 10,100 584
Outokumpu OY Class A 37,200 635
Partek AB OY 3,100 48
Rautaruukki OY 55,815 516
Stockmann OY AB Series B 200 12
Valmet Corp. Series A 45,900 808
----------
3,720
----------
FRANCE - 6.7%
Accor SA 2,350 298
Alcatel Alsthom 25,716 2,066
Assurances Generales de France 17,147 554
AXA 8,208 522
Banque Nationale Paris 15,942 617
Bertrand Faure SA 700 27
BIC 90 14
Boiron 1,700 199
Bongrain SA 15 6
Bouygues 4,311 447
Canal Plus 4,672 1,032
Cap Gemini Sogeti (a) 200 10
Carrefour SA 3,374 2,195
Casino Guich-Perr 1,000 47
Castorama Dubois 2,479 427
Cerus Co. (a) 3,200 82
Cetelem 200 23
CGIP 360 99
Chargeurs International SA (a) 1,039 51
Christian Dior 8,750 1,412
Cie de St. Gobain 9,200 1,302
Cie de Suez 5,543 236
Cie Finance Paribas Class A (BR) 24,089 1,629
Ciments Francais 108 3
Clarins 2,998 440
Club Mediterranee SA 220 14
Compagnie Bancaire SA 3,468 410
Credit Commercial de France 10,590 490
Credit Local de France 8,407 732
64 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Credit Lyonnais Cert d'Invest. (a) 2,250 $ 58
Credit National 638 37
D.M.C. Dollfuss-Mieg 5,330 129
Eaux (cie Generale) 43,044 5,334
Elf Gabon 60 15
Erid Beghin-Say 905 146
Essilor Internationale 60 18
Esso (Francaise) 70 7
Eurafrance 400 173
Euro Disney SCA (BR)(a) 19,200 38
Eurotunnel/Euro SA Units (a) 35,200 46
Finextel (Soc. Fin.) 2,082 32
GAN Group 2,365 48
Gaz et Eaux 42 17
Groupe Danone 3,681 513
GTM - Entrepose 1,900 88
Guilbert SA 1,535 300
Havas 1,450 102
Ingenico 1,600 27
L'Air Liquide 3,164 494
L'Oreal (Societe) 611 230
Labinal 90 17
Lafarge Corp. SA (BR) 5,321 319
Lagardere Groupe (Regd) 23,841 654
Lapeyre (BR) 3,750 215
Legrand 1,209 206
Legris Industries SA 100 4
LVMH Moet-Hennessy 3,352 936
Lyonnais Eaux Dumez 805 75
Michelin (Cie Gen) Class B (Regd) 4,390 237
Nord-Est 11,860 295
Pathe SA (a) 1,959 472
Pechiney International Class A 24,081 1,009
Peugeot SA 6,015 677
Pinault-Printemps Redoute SA 2,639 1,047
Primagaz Cie 1,761 207
Primagaz Cie 1998 Warrants (a) 190 5
Promodes 2,250 635
Remy Cointreau SA 400 11
Renault 3,710 80
Rexel SA 770 234
Rhone-Poulenc SA Class A - ADR 18,527 632
S.G.E. (a) 1,213 26
Saint Louis 225 56
Salomon SA 340 29
Sanofi SA 12,858 1,279
Schneider SA 28,331 1,310
Scor SA 12,000 422
SEITA 310 13
SGS Thomson Microelectronics (a) 6,020 426
Sidel SA 15,717 1,081
Skis Rossignol SA 6,180 171
Societe Generale 25,573 2,765
Societe Nationale Elf d'Aquitaine 22,175 2,019
Sodexho 1,350 752
Sommer Allibert 2,560 76
Strafor-Facom SA 100 7
Synthelabo 8,060 871
Technip 240 23
Thomson-CSF 3,499 114
Total Co. SA Class B 37,886 3,081
TV Francaise (TFI) 4,262 407
Union des Assurances Federales 6,000 740
Union des Assurances Paris 11,264 281
Union Financiere de France Banque SA 1,500 162
Usinor Sacilor 67,000 975
Valeo 18,460 1,139
Vallourec (Usin) 370 20
Worms & Cie (Regd) 1,020 62
----------
49,510
----------
GERMANY - 5.0%
Adidas AG 5,450 471
AGIV AG fuer Industrie und Verkehrswesen (a) 3,243 47
Allianz AG 1998 Warrants (a) 6,060 317
Allianz AG Holdings 241 438
Altana AG 115 89
AVA ALG Handels VB (a) 2,270 653
Bankgesellschaft Berlin AG 1,600 29
BASF AG 50,220 1,935
Bayer AG 84,469 3,447
Bayer Motoren Werk 450 314
Bayerische Hypotheken-und Wechsel Bank AG 21,309 645
BHF - Bank AG 5,000 115
Bilfinger & Berger BAU AG 16,610 610
Buderus AG 1,143 564
Continental AG 5,591 101
Daimler-Benz AG (a) 70,388 4,849
Degussa AG 50 23
Deutsche Bank AG 2,896 135
Deutsche Pfandbrief & Hypothekenbank AG 9,700 438
Deutsche Telekom AG (a) 71,540 1,509
Douglas Holding AG 400 16
Dresdner Bank AG 33,900 1,016
DT Babcock & Wilcox (a) 550 15
International Securities Fund 65
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Fag Kugelfischer Georg Schaefer
Kommanditgessellschaftauf Aktien 1,787 $ 24
Fresenius Medical Care AG - ADR (a) 20,240 569
Fried, Krupp AG Hoesch 4,700 760
Gehe AG 15,025 962
Gerresheimer Glas AG 8,050 175
Heidelberg Zement AG (a) 550 44
Henkel KGAA (a) 9,900 475
Hoechst AG 106,894 5,050
Hornback Baumarkt AG 1,135 36
Klockner Humb Deut (a) 3,700 17
Klockner-Werke AG (a) 87 4
Kolbenschmidt AG (a) 6,234 86
Leifheit AG 200 8
M.A.N. AG 50 12
Mannesmann AG 9,133 3,959
Metallgesellschaft AG (a) 7,759 159
Muenchener Rueckversicherungs 501 1,252
Pfaff (GM) AG (a) 100 2
Phoenix AG 14,250 174
Praktiker Bau und Heimwerkemaerkte AG (a) 2,084 42
Preussag AG 100 23
Puma AG Rudolph Dassler Sport (a) 600 20
Rheinmetall Berlin 100 16
Rhoen - Klinikum AG 2,764 289
SAP AG 980 133
Schering AG 6,012 507
Schmalbach Lubeca AG (a) 50 12
SGL Carbon AG 250 32
Siemens AG 21,950 1,034
SKW Trostberg AG (a) 3,700 101
Suddeutsche Zucker AG (a) 50 24
Thyssen AG (a) 250 44
Veba AG 28,520 1,650
Veba International Finance 1998 Warrants (a) 3,086 989
Viag AG 150 59
Volkswagen International AG 328 136
Volkswagen International AG 1998 Warrants (a) 1,100 164
----------
36,819
----------
HONG KONG - 4.0%
Allied Properties, Ltd. 384,000 63
Amoy Properties, Ltd. 128,500 185
ASM Pacific Technology 14,000 11
Bank of East Asia, Ltd. 74,000 329
Cathay Pacific Airways 484,000 763
Champion Technology Holdings 80,000 15
Cheung Kong Holdings, Ltd. 253,000 2,249
China Overseas Land & Investment 124,000 63
Consolidated Electric Power Asia, Ltd. 8,983 21
Dao Heng Bank Group, Ltd. 100,000 480
Dickson Concepts International, Ltd. 5,666 21
Electric & Eltek International Holdings Ltd. 38,000 8
First Pacific Co. 318,615 414
FPB Bank Holding Co., Ltd. 25,000 11
Furama Hotel Entertainment 10,000 17
Gold Peak Industries, Ltd. 19,000 13
Goldlion Holdings, Ltd. 12,000 10
Great Eagle Holdings 45,470 188
Guangdong Investment 296,000 285
Guangshen Railway Co., Ltd. (a) 874,000 379
Guangzhou Investment 682,000 326
Guoco Group, Ltd. 113,000 633
Hang Lung Development Co. (a) 163,000 358
Hang Seng Bank (a) 150,200 1,825
Henderson Investment, Ltd. 223,000 267
Henderson Land Development Co., Ltd. 92,000 928
HKR International, Ltd. 29,680 50
Hon Kwok Land Investment, Ltd. 26,000 10
Hong Kong & China Gas Co., Ltd. 246,000 476
Hong Kong & China Gas Co., Ltd. 1997 Warrants (a) 20,500 11
Hong Kong & Shanghai Hotel 6,000 11
Hong Kong Aircraft Engineering 18,400 57
Hong Kong Electric 301,500 1,002
Hong Kong Ferry 22,000 43
Hong Kong Land Holdings, Ltd. 510,545 1,419
Hong Kong Telecommunications 632,200 1,018
Hopewell Holdings, Ltd. 667,000 431
HSBC Holdings (UK Regd) PLC 43,600 933
Hutchison Whampoa, Ltd. (a) 455,000 3,574
Hysan Development 44,800 178
Kumagai Gumi Hong Kong 44,000 51
Lai Sun Development Co., Ltd. 44,000 67
Lai Sun Garment International 18,000 29
Liu Chong Hing Bank, Ltd. 8,000 13
Liu Chong Hing Investment, Ltd. 30,000 37
New Asia Realty & Trust Class A 16,000 59
New World Development Co., Ltd. 454,156 3,068
Oriental Press Group 85,000 38
Paul Y - ITC Construction Holding Co. 18,000 4
Peregrine Investment Holdings, Ltd. 11,000 19
Pokphand (CP) Co. (HK Regd) 28,000 11
Regal Hotels International 430,906 150
Shanghai Petrochemical Class H 680,000 207
Shaw Bros. (H.K.), Ltd. 20,000 24
66 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Shell Electric Manufacturing Co., Ltd. 18,000 $ 11
Shun Tak Holdings, Ltd. 106,000 71
Sing Tao 546,000 238
South China Morning Post 127,491 105
Sun Hung Kai & Co. 38,000 10
Sun Hung Kai Properties, Ltd. (a) 197,000 2,413
Swire Pacific, Ltd. Class A 154,000 1,468
Swire Pacific, Ltd. Class B 62,500 95
Tai Cheung Holdings 78,000 74
Television Broadcast 250,000 999
Top Glory International Holdings, Ltd. 98,000 15
Wharf Holdings 201,000 1,003
Wheelock & Co. 108,000 308
Wing Lung Bank 4,200 29
Winsor Property Holdings, Ltd. (a) 19,500 31
Yue Yuen Industrial 44,000 17
----------
29,739
----------
IRELAND - 0.2%
Allied Irish Banks 112,000 752
Independent Newspapers PLC 90,000 465
Waterford Wedgwood (Units) 275,000 355
----------
1,572
----------
ITALY - 3.1%
Alitalia-Linee Aeree (a) 60,800 23
Ansaldo Trasporti SPA (a) 6,500 7
Assicurazioni Generali SPA 32,000 606
Banca NAZ Agricolt 11,000 7
Banca Pop di Bergamo CV 15,000 247
Banca Pop di Milano 105,000 533
Banco di Napoli (a) 15,894 8
Banco Fideuram SPA 220,420 485
Burgo (Cartiere) SPA 26,800 124
Cementir SPA 12,500 8
Ciga Hotels (a) 80,100 35
CIR Compagnie Industriali di Risp 20,500 7
CIR Compagnie Industriali Riunite 152,000 94
Cofide NC Risp (a) 10,000 2
Cofide SPA (a) 37,000 17
Cogefar Inpresit (a) 63,810 50
Compart SPA (a) 252,500 100
Credito Italiano di Risp NC 20,500 19
Dalmine SPA (a) 90,600 20
Danieli & Co. 3,000 25
Edison 4,000 25
Editor L'Espresso (a) 1,000 3
Editoriale La Repubblica SPA (a) 85,000 118
Ente Nazionale Idrocarburi SPA (Regd) 418,115 2,146
Falck, Acciaierie Fer Lombarde 9,600 38
Fiat SPA 547,927 1,658
Fiat SPA di Risp 341,000 598
Finanziaria Autogrill SPA (a) 25,612 25
Finmeccanica SPA (a) 5,000 2
Gemina SPA (a) 69,100 34
Gewiss SPA 10,000 132
Gucci Group NV (a) 982 63
I.F.I.L. (a) 18,100 55
I.F.I.L. Risp NC 17,700 34
Industrie Natuzzi SPA - ADR 27,412 630
Istituto Mobiliane Italiano 49,430 424
Istituto Nazionale Delle Assicurazioni 1,642,786 2,140
Italcementi 6,250 35
Italcementi di Risp NC 4,500 11
Italgas (Soc. Ital.) 67,300 281
Luxottica Group SPA - ADR 2,100 109
Mediolanum SPA (a) 12,550 119
Mondadori (Arnoldo) Editore 63,400 516
Montedison SPA (Ferruzzi Agricola)(a) 655,698 447
Montedison SPA di Risp (Ferruzzi Agricola) NC (a) 30,000 19
Olivetti & Cie SPA (a) 4,231,194 1,492
Parmalat Finanziaria SPA (a) 453,414 693
Pirelli & Co. 20,950 28
Pirelli & Co. di Risp 1,700 2
Pirelli NC di Risp 5,800 8
Rinascente (LA) 13,100 76
Rinascente (LA) di Risp NC 3,800 10
Safilo SPA 200 3
Sasib SPA di Risp NC 83,278 156
Simint SPA (a) 100,000 372
Sirti SPA 31,000 188
Sta Metallurgica Italiana SPA (a) 44,880 21
Stefanel SPA (a) 21,650 17
Stet 753,865 3,429
Stet di Risp 367,600 1,242
Telecom Italia di Risp 64,100 125
Telecom Italia Mobile SPA 346,034 875
Telecom Italia Mobile SPA di Risp 291,180 416
Telecom Italia SPA 735,929 1,911
Unicem di Risp (a) 6,960 45
----------
23,188
----------
JAPAN - 25.6%
Advantest 12,200 572
International Securities Fund 67
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Aisin Seiki Co., Ltd. 4,000 $ 63
Aiwa Co. 1,000 17
Ajinomoto Co., Inc. 3,000 30
All Nippon Airways Co., Ltd. 13,000 98
Alps Electric Co. 23,000 250
Amada Co., Ltd. 67,000 521
Amano Corp. 1,000 11
Anritsu Corp. 3,000 32
Aoki Corp. (a) 67,000 139
Aoki International 1,000 16
Aoyama Trading Co. (a) 3,000 80
Apic Yamada Corp. 14,300 272
Arabian Oil Co. 1,800 67
Asahi Bank (a) 135,000 1,201
Asahi Breweries 7,000 72
Asahi Chemical Industrial (a) 15,000 85
Asahi Glass Co. 50,000 471
Ashikaga Bank 14,000 68
Autobacs Seven Co. 1,000 71
Bandai Co., Ltd. 1,000 26
Bank of Yokohama 18,000 117
Banyu Pharmaceutical 3,000 42
Brother Industries 166,000 717
Canon Sales Co., Inc. 13,200 294
Canon Sales Co., Inc. 1997 Warrants (a) 330 32
Canon, Inc. 78,000 1,724
Casio Computer Co. 6,000 46
Chiba Bank, Ltd. 4,000 27
Chiyoda Corp. 3,000 19
Chubu Electric Power Co., Inc. 3,500 69
Chugai Pharmaceutical Co. 10,000 84
Chugoku Electric Power 1,200 23
Chuo Trust & Banking 70,000 598
Citizen Watch Co., Ltd. (a) 31,000 222
Cosmo Oil Co. 176,000 846
Credit Saison Co. 4,000 89
CSK Corp., Ltd. 10,500 276
Dai Ichi Kangyo Bank 45,000 649
Dai Ichi Pharmaceutical Co. 99,000 1,590
Dai Nippon Printing, Ltd. 15,000 263
Dai Nippon Screen Manufacturing Co. 57,000 421
Daicel Chemical Industries 53,000 248
Daido Steel Co. 90,000 334
Daiei, Inc. 205,000 1,567
Daifuku Machinery Co. 13,000 164
Daiken Corp. 65,000 452
Daikin Industries 86,000 765
Daimaru, Inc. 2,000 11
Dainippon Pharmaceutical Co., Ltd. 7,000 59
Daishinku Corp. 50,000 393
Daishowa Paper Manufacturers (a) 6,000 26
Daito Trust Construction 1,950 22
Daiwa Bank (a) 236,000 1,233
Daiwa Danchi Co., Ltd. (a) 65,000 305
Daiwa House Industries Co. 44,000 566
Daiwa Kosho Lease Co.. Ltd. 35,000 269
Daiwa Securities 243,000 2,161
DDI Corp. 421 2,785
Dowa Mining Co. Series 5 1997 Warrants (a) 94 37
East Japan Railway 302 1,359
Ebara Corp. 66,000 861
Eisai Co. 34,050 670
Familymart, Co. 20,000 800
Fanuc Co. 13,600 436
Fuji Denki Reiki 32,000 301
Fuji Electric Co. 163,000 684
Fuji Heavy Industries 27,000 109
Fuji Oil Co. 100,000 713
Fuji Photo Film Co. 13,000 429
Fujikura 84,000 673
Fujisawa Pharmaceutical 32,000 287
Fujita Kanko, Inc. 3,000 56
Fujitec Co., Ltd. 3,000 30
Fujitsu, Ltd. 148,000 1,380
Fukui Bank 110,000 480
Fukuoka Bank 6,450 45
Furukawa Electric Co. 237,000 1,123
Futaba Industrial 10,000 167
Gakken Co. 212,000 1,199
General Sekiyu KK 12,000 85
Green Cross Corp. (a) 11,000 55
Gunma Bank 3,000 26
Gunze, Ltd. 122,000 633
Hankyu Corp. (a) 22,000 109
Haseko Corp. (a) 49,000 131
Heiwa Corp. 22,000 346
Heiwa Real Estate 50,000 290
Higo Bank 2,000 13
Hirose Electric 1,000 58
Hitachi Cable 3,000 20
Hitachi Maxell 2,000 44
Hitachi Metals 27,000 215
Hitachi Zosen Corp. 62,000 241
Hitachi, Ltd. 525,000 4,896
Hokkaido Electric 900 18
Hokkaido Takushoku Bank, Ltd. 250,000 486
Hokuetsu Bank 53,000 229
68 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Hokuriku Bank 112,000 $ 549
Hokuriku Electric Power 1,200 23
Honda Motor Co., Ltd. 31,000 886
Hosiden Electronics (a) 1,000 7
House Food Industry 1,000 16
Hoya Corp. 2,000 79
Hyakugo Bank 70,000 423
Inax Corp. 37,000 274
Industrial Bank of Japan 33,000 573
Intec, Inc. 49,000 690
Isetan Co. 40,000 518
Ishihara Sangyo (a) 34,000 82
Ishikawajima-Harima Heavy Industries 323,000 1,436
Isuzu Motors, Ltd. 26,000 116
Ito-Yokado Co., Ltd. 58,000 2,524
Itoham Foods, Inc. 72,000 446
Izumi Co. 26,000 364
Izumiya Co. 49,000 694
Japan Air Lines Co. (a) 73,000 388
Japan Airport Terminal 4,000 49
Japan Aviation Electronics (a) 5,000 30
Japan Metals & Chemicals (a) 5,000 17
Japan Radio Co. 6,000 64
Japan Synthetic Rubber 30,000 197
Japan Tobacco, Inc. 203 1,376
Japan Wool Textile Co. 2,000 17
Jeol (a) 2,000 12
JGC Corp. 5,000 37
Joshin Denki Co. 5,000 52
Joyo Bank 4,000 24
Jusco Co. 1,000 34
Kaken Pharmaceutical 2,000 12
Kamei Corp. 61,000 606
Kamigumi Co. 5,000 33
Kandenko Co., Ltd. 2,000 19
Kanebo (a) 15,000 31
Kaneka Corp. 4,000 20
Kansai Electric Power 5,600 116
Kao Corp. 115,000 1,341
Kashiyama Onward 3,000 42
Kawasaki Heavy Industries 315,000 1,303
Kawasaki Kisen (a) 144,000 328
Kawasho Corp. (a) 122,000 430
Keihin Electric Express 12,360 57
Kenwood Corp. (a) 10,000 48
Kikkoman Corp. 5,000 30
Kinden Corp. 3,000 38
Kinki Nippon Railway 40,170 251
Kirin Beverage Corp. 14,000 189
Kirin Brewery Co. 16,000 157
Kissei Pharmaceutical Co. 1,000 20
Kobe Steel (a) 27,000 57
Kokusai Electric Co., Ltd. 3,000 44
Kokuyo Co., Ltd. 20,000 494
Komatsu Forklift Co., Ltd. 52,000 427
Komori Corp. 17,000 361
Konica Corp. 3,000 20
Koyo Seiko Co., Ltd. 2,000 17
Kubota Corp. 164,000 792
Kumagai Gumi Co. 72,000 178
Kurabo Industries 27,000 77
Kuraray Co., Ltd. 40,000 370
Kurita Water Industries 2,000 40
Kyocera Corp. 48,000 2,992
Kyodo Printing Co. 24,000 193
Kyokuto Boeki 35,000 218
Kyowa Hakko Kogyo 30,000 229
Kyudenko Corp. 1,000 10
Kyushu Electric Power 2,500 49
Kyushu Matsushita 2,000 26
Lion Corp. 6,000 30
Long Term Credit Bank Japan 11,000 60
Mabuchi Motor Co. 700 35
Maeda Corp. 9,000 67
Maeda Corp. 1997 Warrants (a) 105 5
Maeda Road Construction 3,000 35
Makino Milling 3,000 19
Makita Corp. 30,000 420
Maruetsu, Inc. 25,000 171
Marui Co., Ltd. 65,000 1,173
Maruichi Steel Tube 1,000 17
Matsushita Communication 4,000 104
Matsushita Electric Industrial Co., Ltd. 199,000 3,248
Matsushita Electric Works 7,000 60
Matsushita-Kotobuki Electric Co., Ltd. 2,000 52
Matsuzakaya Co. 51,000 471
Mazda Motor Corp. (a) 39,000 139
Meidensha Corp. 2,000 12
Meiji Milk Product 3,000 15
Minebea Co., Ltd. 19,000 159
Minolta Camera Co. 15,000 91
Mitsubishi Corp. 86,000 891
Mitsubishi Electric Corp. 251,000 1,495
Mitsubishi Gas & Chemical 39,000 140
Mitsubishi Heavy Industries 410,000 3,257
Mitsubishi Material 101,000 408
Mitsubishi Motors Corp. 11,000 80
Mitsubishi Oil Co. 22,000 132
International Securities Fund 69
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Mitsubishi Paper Mills 37,000 $ 145
Mitsubishi Rayon 3,000 11
Mitsubishi Trust & Banking 79,000 1,057
Mitsubishi Warehouse 3,000 39
Mitsui & Co. 206,000 1,672
Mitsui Fudosan Co., Ltd. 74,000 741
Mitsui Mining & Smelting 200,000 682
Mitsui Petrochemical Industry 66,000 342
Mitsui Toatsu Chemical 250,000 762
Mitsui Trust & Banking 54,000 422
Mitsumi Electric Co. 1,000 19
Mizuno Corp. 26,000 197
Mochida Pharmaceutical Co. 2,000 19
Murata Manufacturing Co. 46,000 1,529
Nachi-Fujikoshi Corp. 7,000 23
Nagasakiya Co. (a) 3,000 11
Nagase & Co. 25,000 207
Nagoya Railroad Co., Ltd. 6,000 23
Namco 38,500 1,180
National House Industrial 16,000 213
Navix Line (a) 11,000 21
NCR Japan, Ltd. 2,000 17
NEC Corp. 238,000 2,877
New Oji Paper Co. 94,000 595
NGK Insulators 2,000 19
NGK Spark Plug Co. 7,000 77
Nichicon Corp. 3,000 35
Nichido Fire & Marine 450 3
Nichiei Co., Ltd. of Kyoto 15,000 33
Nichiei Co., Ltd. of Yokohama 5,000 72
Nichimo Co. (a) 78,000 283
Nihon Cement Co. 13,000 66
Nikon Corp. 37,000 460
Nintendo Co. 8,000 573
Nippon Carbon Co. (a) 20,000 62
Nippon Chemical Industrial 2,000 17
Nippon Comsys Corp. 7,000 80
Nippon Denso Co. 46,000 1,108
Nippon Electric Glass 2,000 31
Nippon Express Co. 63,000 432
Nippon Hodo Co. 14,000 162
Nippon Kayaku Co., Ltd. 5,000 28
Nippon Light Metal Co. 7,000 29
Nippon Meat Packing 2,000 26
Nippon Oil Co. 275,000 1,413
Nippon Paint Co., Ltd. 1,000 4
Nippon Piston Ring 3,000 10
Nippon Shokubai Kagaku Kogyo Co. 4,000 30
Nippon Soda Co. 9,000 65
Nippon Steel Corp. 1,468,000 4,335
Nippon Suisan (a) 165,000 584
Nippon Telegraph & Telephone Corp. 645 4,890
Nippon Yakin Kogyo 6,000 17
Nippon Zeon Co., Ltd. 5,000 19
Nishi Nippon Bank 354 2
Nishimatsu Construction 129,000 1,125
Nissan Diesel Motor Co. 70,000 321
Nissan Motor Co., Ltd. (a) 607,000 3,522
Nissei Sangyo Co. 45,000 528
Nisshim Oil Mills 2,000 13
Nisshinbo Industries, Inc. (a) 22,000 171
Nissho Iwai Corp. 25,000 98
Nitsuko, Ltd. 1,000 7
Nitto Denko Corp. 15,000 220
NKK Corp. (a) 416,000 938
NOF Corp. 3,000 13
Nomura Securities 229,000 3,441
NSK, Ltd. 117,000 709
NTN Corp. 12,000 65
NTT Data Communications Systems Corp. 74 2,166
Obayashi Corp. 132,000 891
Odakyu Electric Railway 18,540 111
Okamura Corp. 60,000 397
Oki Electric Industries 29,000 160
Okuma Corp. (a) 6,000 48
Okumura Corp. 10,000 61
Ono Pharmaceutical 29,000 864
Onoda Cement Co. 12,000 51
Orix Corp. 2,000 83
Osaka Gas Co. 165,000 452
Penta Ocean Construction 11,000 49
Pioneer Electronics Corp. 92,000 1,756
QP Corp. 2,000 16
Renown, Inc. (a) 56,000 149
Ricoh Co., Ltd. 39,000 448
Rinnai Corp. 1,000 20
Rohm Co. 20,000 1,312
Royal Co., Ltd. 1,000 19
Ryobi, Ltd. 65,000 261
Sakura Bank 291,000 2,081
Samsung Electronics, Ltd. - GDR (a) 2,115 39
Sanden Corp. 8,000 64
Sangetsu Co. 6,000 125
Sankyo Aluminum 36,000 142
Sankyo Co. 39,000 1,105
Sankyo Seiko Co. 96,000 531
Sanrio Co. (a) 1,000 8
Sanwa Bank 15,000 205
70 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Sanwa Shutter Corp. 5,000 $ 37
Sapporo Breweries 5,000 41
Sato Kogyo Co. 5,000 17
Secom Co. 2,000 121
Sega Enterprises 12,100 407
Seiko Corp. 3,000 18
Seino Transportation 3,000 33
Seiyu Stores 2,000 20
Sekisui Chemical Co., Ltd. 111,000 1,121
Sekisui House, Ltd. 90,000 917
Seven-Eleven Japan NPV 10,200 597
Sharp Corp. 274,000 3,904
Shikoku Electric Power 37,400 730
Shimachu Co., Ltd. 1,000 26
Shimano, Inc. 1,000 17
Shin-Etsu Chemical Co. 38,050 693
Shionogi & Co. 5,000 36
Shiseido Co., Ltd. 107,000 1,238
Shokusan Jutaku Co. (a) 3,000 7
Showa Aircraft Industry 8,000 64
Showa Denko (a) 21,000 48
Showa Shell Sekiyu 66,300 552
Sintokogio 82,000 599
Skylark Co. 2,000 31
Snow Brand Milk 75,000 424
Sony Corp. 104,200 6,829
Stanley Electric 130,000 763
Sumitomo Bakelite Co., Ltd. 90,000 544
Sumitomo Bank 142,000 2,048
Sumitomo Cement Co. 3,000 10
Sumitomo Corp. 174,000 1,372
Sumitomo Electric Industries 96,000 1,343
Sumitomo Forestry 87,000 1,059
Sumitomo Heavy Industry (a) 14,000 43
Sumitomo Metal Industries, Ltd. 492,000 1,211
Sumitomo Realty & Development (a) 560,000 3,530
Sumitomo Rubber Industries 108,000 805
Sumitomo Trust & Banking 120,000 1,202
Suzuki Motor Corp. 21,000 192
SXL Corp. 2,000 14
Taisei Corp. 226,000 1,171
Taisho Pharmaceutical Co., Ltd. 5,000 118
Taiyo Yuden Co. 5,000 70
Takara Standard Co. 2,000 17
Takashimaya Co. 58,000 696
Takeda Chemical Industries 15,000 315
Takuma Co. 6,000 66
Tanabe Seiyaku Co. 2,000 16
TDK Corp. 22,000 1,434
Teijin, Ltd. 157,000 686
Teikoku Oil 13,000 71
Tekken Corp. 2,000 10
Terumo Corp. 10,000 136
Toagosei Co., Ltd. 5,000 18
Toda Corp. 54,000 410
Toho Co. 300 43
Tohoku Electric Power 3,200 64
Tokai Bank 77,000 805
Tokai Carbon Co., Ltd. 4,000 16
Tokio Marine & Fire 142,000 1,336
Tokyo Broadcasting 64,000 978
Tokyo Dome Corp. 3,000 52
Tokyo Electric Co., Ltd. (a) 8,000 30
Tokyo Electric Power 79,100 1,735
Tokyo Electronics 8,000 245
Tokyo Gas Co. 3,000 8
Tokyo Steel Manufacturing 25,000 356
Tokyo Style Co. 2,000 28
Tokyotokeiba Co. 6,000 19
Tokyu Construction 28,000 83
Tokyu Land Corp. (a) 10,000 35
Tonen Corp. 2,000 23
Toppan Printing 49,000 614
Torii Pharmaceutical Co., Ltd. 12,200 237
Toshiba Corp. 57,000 358
Toshiba Tungaloy Co. 2,000 9
Tosoh Corp. (a) 90,000 309
Tostem Corp. 2,000 55
Toto, Ltd. 3,000 34
Toyo Engineering Co. 70,000 313
Toyo Exterior Co. 1,000 15
Toyo Seikan Kaisha, Ltd. 2,000 48
Toyo Suisan Kaisha 2,000 20
Toyo Trust & Banking 50,000 404
Toyoda Automatic Loom 2,000 37
Toyota Motor Corp. 169,000 4,859
Tsubakimoto Chain 64,000 343
Tsumura & Co. 5,000 60
UBE Industries 225,000 637
Uni-Charm Corp. 1,000 25
Uniden Corp. 2,000 26
UNY Co., Ltd. 20,000 366
Ushio, Inc. 1,000 11
Victor Co. of Japan 23,000 228
Wacoal Corp. 1,000 11
West Japan Railway Co. 480 1,554
Yakult Honsha Co. 2,000 21
Yamaha Corp. 8,000 136
International Securities Fund 71
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Yamaha Motor Co. 88,000 $ 790
Yamaichi Securities Co. 61,000 271
Yamanouchi Pharmaceutical 7,000 144
Yamato Transport 7,000 73
Yamazaki Baking Co., Ltd. 27,000 431
Yasuda Fire & Marine
Insurance Co., Ltd. (The) 150,000 780
Yasuda Trust & Banking (a) 16,000 68
Yodogawa Steel Works, Ltd. 4,000 24
Yokogawa Bridge Works 1,000 9
Yokogawa Electric Co. 8,000 69
Yokohama Rubber Co. 175,000 814
Yoshitomi Pharmaceutical 2,000 16
Yurtec Corp. 11,550 157
----------
190,535
----------
MALAYSIA - 2.2%
Affin Holdings Berhad 222,000 611
Amalgamated Steel Mills (a) 8,000 6
AMMB Holdings Berhad 11,800 99
Aokam Perdana Berhad 8,000 9
Arab Malaysian Finance (Alien Market) 9,000 50
Berjaya Group Berhad 33,000 28
Berjaya Industrial Berhad 32,000 25
Berjaya Leisure Berhad 19,000 29
Berjaya Sports 112,000 559
Carlsberg Brewery Malaysia Berhad 83,000 615
Cement Industries 5,000 15
Commerce Asset Holdings 43,333 326
Edaran Otomobil 10,400 104
Ekran Berhad 6,000 25
Esso Malaysia Berhad 4,000 11
Genting Berhad 60,000 413
Golden Hope Plantation 4,000 6
Golden Hope Plantation Berhad 11,000 19
Golden Plus Holdings 11,000 20
Guinness Anchor Berhad 4,000 10
Highlands & Lowlands 16,000 27
Hong Leong Industries Berhad 4,000 14
Hong Leong Properties Berhad 23,000 30
Hume Industries Berhad 2,000 13
IJM Corp. Berhad 109,000 257
IND Oxygen, Inc. 444,000 682
Innovest Berhad (a) 4,000 14
Jaya Tiasa Holdings Berhad 5,000 26
Kedah Cement Holdings Berhad 9,000 18
Kemayan Corp. Berhad 8,000 11
Kian Joo Can Factory 2,000 11
Kuala Lumpur Kepong 10,000 25
Kumpulan Guthrie 102,800 182
Land & General Berhad 11,000 26
Landmarks Berhad 5,000 7
Leader Universal Holdings 17,000 36
Magnum CP Berhad 37,000 72
Malayan Cement Berhad 9,000 21
Malayan United Industries 27,000 20
Malaysia Mining Corp. 12,000 14
Malaysian Airline System 19,000 49
Malaysian Helicopter Services (a) 11,000 13
Malaysian International Shipping Corp.
(Alien Market) 27,000 80
Malaysian Oxygen 2,000 10
Malaysian Pacific 7,000 27
Malaysian Residential Corp. 13,000 51
MBF Capital Berhad 201,000 326
MBF Holdings Berhad 42,000 19
Metroplex Berhad 19,000 23
Mulpha International Berhad (a) 10,000 9
Multi Purpose Holding 267,000 518
Multi Purpose Holding Berhad Rights (a) 258,000 1
Nestle Berhad 3,000 24
New Straits Times 175,000 1,012
O.Y.L. Industries Berhad 3,000 31
Oriental Holdings Berhad 19,000 129
Pan Malaysia Cement Works Berhad 33,000 33
Perlis Plantations 18,000 56
Pernas International Hotels & Properties 13,000 16
Perusahaan Otomobl 32,000 203
Petronas Dagangan 1999 Warrants (a) 275,000 392
Petronas Dagangan Berhad 28,000 72
Petronas Gas Berhad 4,000 17
Pilecon Engineering Berhad 11,000 13
Promet Berhad (a) 9,000 8
Public Bank Berhad (Alien Market) 39,666 84
Renong Berhad 842,000 1,494
Resorts World Berhad 437,000 1,990
RJ Reynolds Berhad 4,000 11
Sarawak Enterprise Corp. 30,000 49
Shell Refining (Malaysia) 5,000 15
Sime Darby Berhad (Resident Shares) 359,800 1,418
Sime UEP Properties Berhad 80,000 205
Sungei Way Holdings Berhad 4,000 12
TA Enterprise Berhad 3,000 4
Tan Chong Motor Holdings 57,000 97
Tanjong PLC 102,000 408
Technical Resource Industries Berhad (a) 99,000 195
Telekom Malaysia 14,000 125
72 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Tenaga Nasional 350,000 $ 1,677
Time Engineering Berhad 82,000 152
Tractors Malaysia Holdings Berhad 9,000 17
UMW Holdings Berhad 19,000 89
United Engineers Berhad 101,000 912
Westmont Industries Berhad 6,000 10
YTL Corporation Berhad 11,000 59
----------
16,641
----------
MEXICO - 0.3%
Cemex SA de CV Class B NPV 33,360 131
Cemex SA de CV NPV 67,657 244
Cifra SA de CV - ADR (a) 182,757 223
Compania Cervecerias Unidas SA - ADR 2,702 43
Empresa Nacional de Electric - ADR 7,939 123
Fomento Economico Mexicano SA de CV Series B NPV 21,157 73
Gruma SA - ADR 2,230 54
Gruma SA Series B NPV (a) 27,127 166
Grupo Financiero Banamex AC Series B NPV (a) 76,168 161
Grupo Financiero Banamex AC Series L NPV (a) 3,238 6
Grupo Financiero Bancomer SA - ADR Class B (a) 520 4
Grupo Industrial Maseca Series B NPV 148,656 189
Grupo Modelo SA Series C 22,110 128
Grupo Television SA de CV - GDR (a) 2,156 55
Kimberly-Clark, Mexico Class A NPV 8,490 168
Panamerican Beverages, Inc. Class A 4,754 223
Telefonos de Mexico SA Series L - ADR 13,675 451
----------
2,442
----------
NETHERLANDS - 4.3%
ABN AMRO Holdings NV 10,310 671
Aegon NV 17,000 1,084
Ahold NV 8,733 546
AKZO Nobel NV 1,315 180
Bols Wessanen CVA 3,100 57
Boskalis Westminster CVA 14,380 291
Cap Gemini NV 200 6
CSM NV CVA 11,452 637
DSM NV (BR) 6,770 668
Elsevier NV 175,064 2,961
Fortis Amev NV 16,547 580
Getronics NV 2,500 68
Gist-Brocades NV CVA 800 25
Hagemeyer NV 2,708 217
ING Groep NV 109,166 3,933
Internatio-Muller NV 500 13
KLM 1,800 51
KNP BT (Kon) NV 2,250 49
Koninklijke Bijenkorf Beheer 5,000 361
Moeara Enim Petroleum NPV 37 707
N.V. Holdingmaatschappij De Telegraaf 1,400 29
Nedlloyd Groep NV 24,300 667
Nutricia Verenigde Bedrijven CVA 2,354 358
Otra NV 2,860 49
Pakhoed Kon NV CVA (a) 500 16
Philips Electronics 25,660 1,040
Pirelli Tyre Holding NV (a) 1,100 11
Polygram 27,003 1,376
Royal Dutch Petroleum Co. (BR) 32,007 5,615
Royal PTT Nederland NV 21,427 818
Unilever NV CVA 13,100 2,319
Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit 150,772 3,152
Volmac Software Groep 400 12
Wolters Kluwer CVA 26,360 3,504
----------
32,071
----------
NEW ZEALAND - 0.3%
Air New Zealand Class B 105,142 285
Carter Holt Harvey 28,355 64
DB Group, Ltd. 54,000 37
Fernz Corp. 16,900 58
Fletcher Challenge Building (a) 69,309 213
Fletcher Challenge Energy (a) 11,309 33
Fletcher Challenge Paper (a) 133,619 275
Fletcher Challenge, Ltd. (Forests Division) 107,307 180
Lion Nathan, Ltd. 188,956 453
Telecom Corp. of New Zealand 70,600 360
Trans Tasman Properties, Ltd. NPV 123,236 69
Wrightson Limited 150,000 131
----------
2,158
----------
NORWAY - 0.9%
Bergesen DY AS Series A 3,510 85
Den Norske Creditbank AS 60,000 227
Kvaerner Industries AS Series B 7,200 310
Norsk Hydro AS 60,254 3,226
Nycomed ASA Series B (a) 8,000 122
Olav Thon Eiendomsselskap AS 18,300 437
Orkla AS 12,511 864
International Securities Fund 73
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Saga Petroleum AS Series B 6,610 $ 103
Schibsted AS 31,100 567
UNI Storebrand AS Series A (a) 76,000 436
Veidekke AS 8,100 258
----------
6,635
----------
PANAMA - 0.0%
Banco Latinoamericano de Exportaciones SA Class E 1,435 73
----------
73
----------
PERU - 0.0%
Telefonica Del Peru SA Class B - ADR 2,398 45
----------
45
----------
PHILIPPINES - 0.0%
Enron Global Power & Pipelines L.L.C. 1,849 50
----------
50
----------
PORTUGAL - 0.1%
Jeronimo Martins SGPS 6,796 351
Jeronimo Martins SGPA (units) 1,132 60
Jeronimo Martins SGPA New (a) 4,530 210
Jeronimo Martins SGPA Rights (a) 6,796 110
----------
731
----------
RUSSIA - 0.0%
Gazprom - ADR (a) 1,140 20
----------
20
----------
SINGAPORE - 1.9%
City Developments 171,000 1,540
DBS Land 69,000 254
Development Bank of Singapore, Ltd. (Alien Market) 145,000 1,959
Far East Levingston 16,000 83
Fraser & Neave 109,400 1,126
Haw Par Brothers International, Ltd.
2001 Warrants (a) 10,530 10
Jardine Matheson Holdings, Ltd. 96,604 638
Jardine Strategic Holdings, Ltd. 399,361 1,446
Jardine Strategic Holdings, Ltd. 1998 Warrants (a) 17,817 7
Keppel Corp. 188,000 1,464
Lum Chang Holdings 800 1
Mandarin Oriental International, Ltd. (a) 402,882 568
Overseas Chinese Banking (Alien Market)(a) 51,500 640
Overseas Union Bank (Alien Market) 71,000 548
Singapore Airlines, Ltd. (Alien Market) 64,000 581
Singapore Land 97,000 537
Singapore Press Holdings (Alien Market) 47,760 942
Singapore Telecommunications, Ltd. 146,000 344
Straits Trading Co. 125,000 304
Total Access Communication, Ltd. 7,000 48
United Industrial Corp., Ltd. 641,000 541
United Overseas Bank, Ltd. (Alien Market) 57,866 645
United Overseas Bank, Ltd. 1997 Warrants (a) 15,866 56
United Overseas Land 2001 Warrants (a) 900 1
----------
14,283
----------
SOUTH KOREA - 0.2%
Bank of Seoul (a) 4,000 20
Cho Hung Bank 15,900 124
Hanil Bank 11,000 76
Hanil Securities Co. (a) 6,600 48
Kookmin Bank 7,994 111
Korea Electric Power Corp. 8,800 256
Pohang Iron & Steel 4,810 208
Samsung Electronics Co. - GDR 566 23
Samsung Electronics Co., Ltd. (a) 600 31
Samsung Electronics, Ltd. 2,603 140
Samsung Electronics, Ltd. - GDS 7,020 130
Samsung Electronics, Ltd. - GDR (a) 170 7
Samsung Fire & Marine Insurance 45 17
Shin Han Bank 3,330 45
Yukong, Ltd. 4,511 85
----------
1,321
----------
SPAIN - 2.5%
Acerinox SA 3,500 506
Argentaria 4,439 199
Banco Bilbao Vizcaya (Regd) 18,436 996
Banco Central Hispano Americano SA (Regd) 46,700 1,200
Banco de Santander SA (Regd) 7,859 503
Banco Intercontinental (Regd) 4,955 768
Banco Pastor SA 3,000 192
Banco Popular Espanol (Regd) 8,629 1,695
Bodegas y Bebidas Series III (BR) 2,075 54
74 International Securities Fund
<PAGE>
International Securities Fund
Statement of Net Assets, continued
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Ceneral de Aguas D'Barcelona 1,890 $ 79
Centros Comerciales Continente SA 2,930 60
Centros Commerciales Pryca 23,116 490
Corp. Fin. Reunida (a) 150,000 492
Ebro Agricolas 1,200 21
Empresa Nacional de Electricidad 20,842 1,483
Fom Construction y Contra 793 74
Fuerzas Electricat Series A 15,180 150
Gas Natural SDG SA 2,339 544
Hidroelectrica Cantabrico 26,500 1,011
Iberdrola SA 239,913 3,400
Koipe SA 1,212 68
Obrascon SA 8,000 77
Prosegur CIA de Seguridad SA (Regd) 40,000 370
Repsol SA 34,459 1,322
Sociedad General Azucarera de Espana SA de CV 5,471 287
Tabacalera SA Series A (Regd) 14,300 616
Tableros de Fibras Series B 12,534 129
Telefonica de Espana 78,691 1,827
Viscofan Envoltura 20,000 293
----------
18,906
----------
SWEDEN - 3.8%
Asea AB Series A 2,560 289
AssiDoman AB 1,338 37
Astra AB Series A 141,544 6,994
Astra AB Series B 51,270 2,473
Atlas Copco AB Series B 14,740 359
Avesta-Sheffield 25,500 275
Bilspedition Transportation & Log Series B (a) 16,900 58
BT Industries AB 30,000 559
Celsius Industrier AB Series B (a) 2,982 47
Custos AB Series B 600 13
Diligentia AB (a) 18,370 290
Electrolux AB Series B 18,140 1,053
Esselte AB Series A Free 1,928 44
Esselte AB Series B 4,590 102
Euroc Industri AB Series A Free 1,218 45
Hennes & Mauritz AB Series B 6,400 886
Hoganas AB B Shares 14,000 491
Incentive AB Series A Free 545 40
Industrivarden AB Series A 561 26
Kinnevik Investment Series B 22,800 629
Marieberg Tidnings Series A 3,300 81
Mo Och Domsjo AB Series B 13,300 374
Munksjo AB 40,900 414
Nordbanken AB 11,400 345
OM Gruppen AB 21,000 631
Sandvik AB Series B 15,050 408
Scribona AB Series B Free 3,060 34
Skand Enskilda Barken Series A 217,080 2,228
Skandia Group Foersakerings Free 46,410 1,313
Skanska AB Series B 25,152 1,112
SKF AB Series A Free 29,800 684
SKF AB Series B Free 2,400 57
Sparbanken Sverige AB Series A 8,300 142
SSAB Svenskt Stal AB Series B 2,600 43
Stadshypotek AB Series A 21,200 581
Stena Line AB Series B 4,523 20
Stora Kopparbergs Series A 22,650 312
Stora Kopparbergs Series B 16,400 224
Svenska Celluosa Series B Free 48,700 989
Svenska Handelsbank Series A 9,700 279
Svenskt Staal AB Series A 6,500 108
Telefonaktiebolaget Ericsson (LM) Series B 65,560 2,028
Trelleborg AB Series B Free 41,600 552
Trygg Hansa SPP Series B Free 4,349 82
Volvo AB Series B 31,900 704
----------
28,455
----------
SWITZERLAND - 4.0%
Adia SA (a) 2,052 515
Alusuisse Lonza Holdings (Regd) 280 223
Baer Holdings AG (BR) 210 220
Baloise Holdings (Regd) 95 191
BBC Brown Boveri (BR) 759 944
Bil GT Gruppe AG 580 297
CS Holdings (Regd) 15,570 1,599
Fischer (Georg) AG (BR) 1,083 1,125
Helvetia Patria Holding Co. (Regd)(a) 200 82
Hilti AG 175 112
Holderbank Financiere Glarus AG (BR) 340 243
Lion Corp. 1999 Warrants (a) 500 50
Nestle SA (Regd) 2,345 2,518
Novartis AG (Regd)(a) 7,360 8,429
Phoenix Mecano (BR) 500 261
Publicitas Holdings SA - (Regd) 1,000 172
Richemont Series A (BR) 200 281
Roche Holdings Genusscheine AG NPV 563 4,381
Sarna Kunststoff Holdings AG (Regd) 200 189
Schweiz Bankgesellsch (BR) 840 736
Schweiz Bankverein (Regd) 12,673 2,410
Schweiz Ruckversicher (Regd) 1,757 1,876
SGS Holding (BR) 450 1,106
International Securities Fund 75
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
SGS Holding (Regd) 20 $ 9
SMH AG Neuenburg (BR) 196 121
SMH AG Neuenburg (Regd) 3,300 471
Winterthur (Regd) 560 324
Zurich Versicherungsgesellschaft (Regd) 3,325 924
----------
29,809
----------
THAILAND - 0.1%
Advanced Information Services (Alien Market) 9,600 80
Bangkok Bank (Alien Market) 19,200 186
Siam Cement Co. (Alien Market) 2,100 66
Siam Commercial Bank PLC (Alien Market) 14,800 107
Thai Farmers Bank (Alien Market) 13,900 87
----------
526
----------
UNITED KINGDOM - 16.6%
3i Group PLC 2,000 17
Abbey National PLC 226,600 2,966
Airtours PLC 60,000 833
Allied Colloids PLC 232,700 480
Allied Colloids Rights (a) 52,485 2
Allied Lyons 168,300 1,321
Amec PLC 39,700 63
Amersham International PLC 24,050 474
Amstrad PLC 18,200 46
Anglian Water PLC 9,900 100
Argos PLC 54,133 711
Argyll Group PLC 125,737 868
Arjo, Wiggins, Appleton Co. PLC 18,200 56
ASDA-MFI Group PLC 643,400 1,356
Associated British Foods PLC 5,700 47
Associated British Ports PLC 95,000 465
Astec (BSR) PLC 4,600 12
B.A.T. Industries PLC 140,000 1,161
Bank of Scotland Governor & Co. PLC 20,500 108
Barclays Bank PLC 61,810 1,059
Barratt Development PLC 22,260 96
BASS PLC 490 7
BBA Group PLC 9,600 58
Beazer Homes PLC 19,000 63
Berisford PLC 400,000 973
BICC PLC 3,663 17
Blue Circle Industries PLC 30,700 188
BOC Group PLC 14,000 210
Booker PLC 7,900 54
Britannic Assurance PLC 70,000 863
British Aerospace PLC 61,805 1,353
British Airways PLC 82,358 856
British Gas PLC 525,600 2,017
British Land Co. PLC 1,200 11
British Petroleum Co. PLC 632,527 7,586
British Steel PLC 96,900 266
British Telecom PLC 175,060 1,185
BTR PLC 179,000 874
Bunzl PLC 22,224 89
Burton Group PLC 180,893 487
Cable & Wireless PLC 89,000 744
Cadbury Schweppes PLC 488,865 4,129
Calor Group PLC 6,700 34
Caradon PLC 134,416 553
Carlton Communications PLC 9,600 84
Charter PLC (Regd) 3,116 40
Christian Salvesen PLC 1,000 5
Chubb Security PLC 96,100 536
Coats Viyella PLC 126,558 290
Compass Group PLC 62,000 659
Cookson Group PLC 26,100 106
Cordiant PLC (a) 7,000 12
Costain Group PLC (a) 6,800 5
Courtaulds PLC 3,700 25
Courtaulds Textile Co. PLC 9,900 38
Cowie Group PLC 130,416 905
Dalgety PLC 116,500 724
Dawson International PLC 34,000 34
Delta PLC 1,900 12
Devro International PLC 85,000 392
Dixon Group PLC 12,800 119
E D & F Man Group PLC 110,000 330
East Midlands Electricity PLC 24,380 277
Electrocomponents PLC 40,100 317
English China Clay PLC 35,229 115
Enterprise Oil PLC 15,900 176
Eurotunnel PLC/Euro SA Units (Regd)(a) 98,900 136
First Leisure Corp. PLC 85,000 491
FKI Babcock PLC 13,200 46
FR Group PLC 1,300 14
General Accident PLC 8,100 106
General Cable PLC (a) 60,800 203
General Electric Co. PLC 251,400 1,650
GKN PLC 9,000 154
Glaxo Wellcome PLC 228,528 3,719
Glynwed International PLC 119,700 689
Granada Group PLC 56,340 833
Grand Metropolitan PLC 200,071 1,570
Great Portland Estates PLC 320 1
Great University Stores PLC 46,930 493
76 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Greenalls Group PLC 34,330 $ 346
Greycoat PLC 3,000 8
Guardian Royal Exchange PLC 203,600 971
Guinness PLC 186,000 1,463
Hambros PLC 2,100 8
Hammerson Property PLC 2,019 14
Hanson PLC 131,691 185
Harrison & Crosfield PLC 26,370 60
Hazelwood Foods PLC 12,900 24
Heywood Williams Group PLC 21,041 86
Hillsdown Holdings PLC 372,051 1,275
HSBC Holdings 11,660 254
HSBC Holdings PLC 82,500 1,844
Huntingdon International Holdings PLC - ADR (a) 41,600 302
Hyder PLC 134,450 1,718
Imperial Chemical Industries PLC 1,340 18
Imperial Tobacco Group PLC (a) 13,169 85
Inchcape PLC 30,827 143
Invesco Funding LLC (Units)(a) 43,800 194
Invesco PLC 219,000 972
Kingfisher PLC 208,842 2,254
Kwik Save Group PLC 3,240 18
Ladbroke Group, Ltd. PLC 672,825 2,674
Laing (John) PLC 4,900 23
Laing (John) PLC Class A NV 43,000 205
Laporte PLC 600 7
LASMO PLC 162,600 655
Laura Ashley Holdings PLC 7,300 21
Legal & General Group PLC 56,300 359
Lex Service Group, Ltd. PLC 13,500 73
London Clubs International 110,000 573
London Electricity PLC 36,942 431
London International Group PLC 21,400 60
Lonrho PLC 210,805 451
LucasVarity PLC (a) 353,464 1,350
Manchester United PLC 60,000 689
Marley, Ltd. PLC 36,016 77
Meggitt PLC 12,700 22
MEPC PLC 86,800 645
Mercury Asset Management Group PLC 3,780 80
Meyer International PLC 10,800 67
MFI Furniture Group PLC 18,600 59
Mirror Group News PLC 66,500 245
National Grid Group PLC 198,700 664
National Power PLC 86,800 726
National Westminster Bank PLC 171,000 2,010
Next PLC 15,400 150
NFC PLC 11,400 36
Norcros PLC (a) 45,100 70
North West Water PLC 48,200 511
Northern Electric PLC 4,200 47
Northern Foods PLC 7,000 24
Ocean Group PLC 4,810 40
Orange PLC (a) 442,503 1,433
Pen & Orient DFD PLC 97,900 991
Pilkington Brothers PLC 243,671 660
Powell Duffryn PLC 1,800 12
Powergen PLC 16,222 159
Premier Farnell PLC 3,200 41
Provident Financial PLC 73,140 628
Racal Electronics PLC 235,300 1,032
Railtrack Group PLC (Regd) 100,000 661
Rank Group PLC 201,500 1,512
Reckitt & Colman PLC 15,068 187
Redland PLC 17,527 111
Reed International PLC 80,940 1,523
Rentokil Group PLC 45,300 341
Reuter's Holdings PLC 123,500 1,588
Rexam PLC 35,000 217
RMC Group PLC 29,000 497
Rolls-Royce PLC 362,838 1,598
Royal Bank of Scotland Group PLC 109,200 1,051
RTZ Corp. PLC (Regd) 113,300 1,821
Sainsbury (J.) PLC 122,895 815
Schroders, Ltd. PLC 170 4
Scottish Hydro-Electric PLC 3,700 21
Scottish Power PLC 194,176 1,168
Sears PLC 1,007,000 1,622
Sevren Trent Water PLC 15,000 172
Shell Transportation & Trading PLC (Regd) 161,160 2,794
Siebe PLC 16,190 301
Signet Group PLC (a) 69,000 35
Simon Engineering PLC 34,929 23
Slough Estates PLC 5,090 24
Smith & Nephew PLC 5,824 18
Smith (David S.) Holdings PLC 65,500 350
Smith (WH) Group PLC Class A 2,300 17
SmithKline Beecham PLC 295,870 4,096
Smiths Industries PLC 2,710 37
South West Water PLC 3,300 34
Southern Electric PLC 3,000 41
Stagecoach Holdings PLC 89,166 1,069
Standard Chartered Bank Group PLC 38,890 478
Storehouse PLC 22,764 101
Sun Alliance Group PLC 1,156 9
T & N PLC 339,148 1,011
Tarmac, Ltd. PLC 540,690 912
International Securities Fund 77
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Tate & Lyle, Ltd. PLC 4,200 $ 34
Taylor Woodrow PLC 301,600 785
Tesco Store Holdings PLC 208,600 1,265
Thames Water PLC 5,100 53
Thorn EMI PLC 52,000 1,229
Thorn PLC (a) 100,000 433
TI Group PLC 3,900 39
Tomkins PLC 363,770 1,683
Transport Development Group PLC 8,600 28
Trinity Holdings PLC 80,000 386
TSB Group PLC 205,820 1,520
Unigate, Ltd. PLC 3,900 28
Unilever PLC 8,920 216
United Biscuits PLC 51,061 185
United Newspaper, Ltd. PLC 81,200 970
Vendome PLC 61,100 556
Vickers, Ltd. PLC 6,700 29
Vodafone Group PLC 864,006 3,656
Waste Management International PLC (a) 20,700 85
Wessex Water PLC 6,900 44
Whitbread & Co. PLC 53,460 721
Willis Corroon Group PLC 4,800 12
Wilson Connolly Holdings PLC 22,700 65
Wimpey (George), Ltd. PLC 85,647 183
Wolseley PLC 1,186 9
WPP Group PLC 170,000 737
Yorkshire Electricity Group PLC 1,400 19
Yorkshire Water PLC 2,900 35
Zeneca Group PLC 61,750 1,739
----------
123,409
----------
UNITED STATES - 0.0%
Millennium Chemicals, Inc. (a) 81 1
----------
1
----------
VENEZUELA - 0.0%
CIA Anon Nacional Telefonos
de Venezuela - ADR Class D (a) 2,960 83
----------
83
----------
TOTAL COMMON STOCKS
(cost $590,990) 667,941
----------
Preferred Stocks - 1.4%
Australia - 0.3%
News Corp., Ltd. 205,500 914
Sydney Harbour Casino Holdings, Ltd. (a) 789,053 1,217
----------
2,131
----------
AUSTRIA - 0.0%
Bau Holdings AG 1,500 75
Z Landerbank Bank Austria AG 169 6
----------
81
----------
Brazil - 0.3%
Banco Bradesco SA NPV 41,426,228 300
Banco Itau SA (Regd) 253,000 110
Brahma (Cia Cervej) NPV 379,465 207
Brasmotor SA NPV 445,000 124
CEMIG SA 4,668,942 159
Cim Port Itau (Cia) 313,600 110
Companhia Energetica de Sao Paulo - ADR (Regd)(a) 3,600 42
Coteminas (Cia Tec) NPV 312,000 100
Lojas Americanas NPV 4,389,000 58
Petroleo Brasileiro SA NPV 1,081,486 172
Telecomunicacoes Brasileiras NPV 3,876,068 298
Telecomunicacoes de Minas Gerais Class B NPV 660,000 82
Telecomunicacoes do Rio de Janeiro SA NPV (a) 621,000 79
TELESP NPV 1,441,094 312
Uniao de Bancos Brasileiros NPV 6,974,000 227
Usiminas Uni Sd Mg NPV 154,000,000 157
----------
2,537
----------
Finland - 0.1%
Nokia AB Series A 11,244 652
----------
652
----------
FRANCE - 0.0%
Casino Guichard Perrach 400 15
Ciments Francais Series B 420 13
----------
28
----------
GERMANY - 0.6%
Bayer Motoren Werk 600 288
Fielmann AG 2,271 71
Fresenius AG 50 10
78 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
GEA AG 460 $ 145
Henkel KGAA 1,150 58
Hornbach Holding AG 2,150 154
Jungheinrich 900 102
Krones AG NV 1,147 416
M.A.N. AG 1,650 331
Porsche AG (a) 700 619
RWE AG (a) 20,800 703
SAP AG 4,395 614
Volkswagen AG 2,930 941
----------
4,452
----------
ITALY - 0.1%
Autostrade Conc. SPA 86,600 170
Instituto Financiaro Industriale SPA 40,600 454
----------
624
----------
NETHERLANDS - 0.0%
International Nederlanden CVA 2,274 12
----------
12
----------
TOTAL PREFERRED STOCKS
(cost $9,230) 10,517
----------
PRINCIPAL
AMOUNT
(000)
----------
LONG-TERM INVESTMENTS - 0.9%
BELGIUM - 0.0%
Kredietbank (conv.)
5.750% due 12/31/03 BEF 15 49
----------
49
----------
FRANCE - 0.0%
Michelin (Cie Gle)(conv.)
2.500% due 01/01/01 FRF 191 112
----------
112
----------
ITALY - 0.0%
Danieli & Co.
7.250% due 01/01/00 ITL 16,752 11
Italy, Republic of (conv.)
6.500% due 06/28/01 165,000 111
----------
122
----------
JAPAN - 0.7%
Bank of Tokyo - Cayman Finance, Ltd.
4.250% due 03/31/49 JPY 230,000 2,547
Daido Hoxan, Inc. (conv.)
1.600% due 03/29/02 60,000 515
Hitachi, Ltd. (conv.)
2.700% due 03/31/97 40,000 449
Ricoh Co., Ltd. (conv.)
1.500% due 03/29/02 33,000 381
Yamanouchi Pharmaceutical (conv.)
1.250% due 03/31/14 60,000 619
Yamato Transport Co., Ltd. (conv.)
3.900% due 03/30/01 21,000 232
----------
4,743
----------
MALAYSIA - 0.1%
Commerce Asset Holdings (conv.)
1.750% due 09/26/04 USD 470 637
Renong Berhad
4.000% due 05/22/01 MYR 45 19
----------
656
----------
SWITZERLAND - 0.1%
Sandoz Capital (conv.)
1.250% due 10/23/02 CHF 650 723
----------
723
----------
TOTAL LONG-TERM INVESTMENTS
(cost $6,467) 6,405
----------
International Securities Fund 79
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
SHORT-TERM INVESTMENTS - 6.2%
UNITED STATES - 6.2%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 38,910 $ 38,910
United States Treasury Bills (b)(c)(d)
4.750% due 02/06/97 1,000 995
5.060% due 02/06/97 6,150 6,119
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $46,024) 46,024
----------
TOTAL INVESTMENTS
(identified cost $652,711)(e) - 98.2% 730,887
OTHER ASSETS AND LIABILITIES, NET - 1.8% 13,351
----------
NET ASSETS - 100.0% $ 744,238
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral by the custodian in connection with futures purchased by
the Fund.
(d) Rate noted is yield-to-maturity (unaudited).
(e) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
GDS - Global Depositary Share
NPV - No Par Value
NV - Nonvoting
PLC - Public Limited Company
144A - Represents private placement security for qualified buyers according to
rule 144A of the Securities Act of 1933.
FOREIGN CURRENCY ABBREVIATIONS:
AUD - Australian dollar ITL - Italian lira
BEF - Belgian franc JPY - Japanese yen
CAD - Canadian dollar MYR - Malaysian ringgit
CHF - Swiss franc NLG - Dutch guilder
DEM - German mark NZD - New Zealand dollar
FRF - French franc SEK - Swedish krona
GBP - British pound SGD - Singapore dollar
HKD - Hong Kong dollar USD - U.S. dollar
The accompanying notes are an integral part of the financial statements.
80 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
FTSE - 100 Index
Futures Contracts (UK)
expiration date 03/97 94 $ 564
TOPIX Index
Futures Contracts (Japan)
expiration date 03/97 189 (1,097)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $(533)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $7,114 were
held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- ------------------------ ---------- ----------
Basic Industries 8.3% $ 61,922
Capital Goods 8.1 60,226
Consumer Basics 11.8 87,780
Consumer Durable Goods 6.8 50,753
Consumer Non-Durables 6.0 44,331
Consumer Services 2.4 18,041
Energy 5.8 43,129
Finance 14.8 109,758
General Business 5.5 41,071
Miscellaneous 6.2 46,970
Shelter 2.4 17,643
Technology 3.5 26,405
Transportation 1.3 9,712
Utilities 8.2 60,717
Long-Term Investments 0.9 6,405
Short-Term Investments 6.2 46,024
---------- ----------
Total Investments 98.2 730,887
Other Assets and Liabilities, Net 1.8 13,351
---------- ----------
NET ASSETS 100.0% $ 744,238
---------- ----------
---------- ----------
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- -------------------------- ---------- -----------
Europe 33.6% $ 249,888
Japan 26.2 195,278
United Kingdom 16.6 123,409
Pacific Basin 12.4 92,270
Latin America 1.2 9,241
United States (Short-Term Investments) 6.2 46,024
Other 2.0 14,777
---------- ----------
Total Investments 98.2 730,887
Other Assets and Liabilities, Net 1.8 13,351
---------- ----------
NET ASSETS 100.0% $ 744,238
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statments.
International Securities Fund 81
<PAGE>
INTERNATIONAL SECURITIES FUND
FOREIGN CURRENCY EXCHANGE CONTRACTS (NOTE 2)
December 31, 1996
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- ------------- ------------- --------------
USD 84 AUD 106 01/07/97 $ --
USD 310 DEM 483 01/03/97 3
USD 282 NLG 492 01/06/97 3
USD 549 SEK 3,771 01/03/97 4
AUD 54 USD 43 01/03/97 --
CAD 2 USD 1 01/03/97 --
DEM 143 USD 92 01/03/97 (1)
ITL 300,000 USD 198 01/03/97 --
JPY 9,050 USD 78 01/06/97 --
JPY 827 USD 7 01/06/97 --
NLG 896 USD 512 01/02/97 (6)
NLG 228 USD 131 01/03/97 (1)
NZD 67 USD 47 01/03/97 --
--------------
$ 2
--------------
--------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- ------------- ------------- --------------
USD 174 FRF 897 02/07/97 $ (1)
USD 15,018 GBP 9,000 03/27/97 369
USD 26,789 JPY 3,000,000 03/28/97 (563)
USD 150 NZD 219 02/07/97 5
USD 225 SGD 357 02/06/97 31
USD 331 AUD 418 03/07/97 (1)
USD 2,274 GBP 1,500 02/03/97 294
USD 2,327 GBP 1,500 02/03/97 241
USD 234 NZD 339 03/07/97 4
USD 86 SGD 120 03/07/97 --
AUD 253 USD 200 02/07/97 (1)
BEF 4,783 USD 155 02/07/97 4
CHF 3,438 USD 2,640 03/19/97 50
DEM 10,310 USD 6,706 03/19/97 (28)
FRF 34,688 USD 6,675 03/19/97 (42)
GBP 111 USD 174 02/07/97 (17)
HKD 34,841 USD 4,504 03/03/97 (1)
HKD 4,456 USD 576 03/07/97 --
NZD 948 USD 660 03/07/97 (7)
SGD 524 USD 372 03/07/97 (4)
AUD 440 USD 347 03/07/97 (2)
GBP 1,500 USD 2,243 02/03/97 (325)
GBP 1,500 USD 2,242 02/03/97 (325)
--------------
$ (319)
--------------
--------------
The accompanying notes are an integral part of the financial statements.
82 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $652,710,617)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 730,887,423
Foreign currency holdings (identified cost $10,210,649). . . . . . . . . . . . . . . . . . . . . . . 10,168,860
Forward foreign currency exchange contracts (cost $75,102,327)(Note 2) . . . . . . . . . . . . . . . 75,481,583
Foreign currency exchange spot contracts (cost $2,334,830)(Note 2) . . . . . . . . . . . . . . . . . 2,345,573
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 965,714
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595,252
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,143,079
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723,744
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . 4,486
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,087
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826,346,801
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,395,055
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368,143
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 698,813
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502,063
Forward foreign currency exchange contracts
(cost $75,102,327)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . 75,800,826
Foreign currency exchange spot contracts
(Cost $2,334,830)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 2,343,717
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,108,617
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 744,238,184
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . $ (2,203,735)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,621,647
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,176,806
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (532,882)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (361,701)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,275
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663,410,774
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 744,238,184
---------------
---------------
Net asset value, offering and redemption price per share:
Class S ($743,615,450 divided by 12,716,807 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $58.48
---------------
---------------
Class C ($622,734 divided by 10,651 shares of $.01 par value ,
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $58.47
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Securities Fund 83
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,247,570
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,110,565
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,537
Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,790,188)
---------------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,088,484
Expenses (notes 12 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,497,848
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,719,499
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401,201
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,901
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,522
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,746
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,053
Registration fees
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,767
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Distribution fees - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . 326
Shareholder servicing fees - Class C . . . . . . . . . . . . . . . . . . . . . 204
---------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . 8,952,116
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . (58,461)
---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,893,655
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,194,829
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,576,000
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,670
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . (524,083) 23,176,587
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,138,352
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (964,713)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . (865,138) 20,308,501
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,485,088
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 49,679,917
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
84 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,194,829 $ 5,814,393
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,176,587 24,329,612
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 20,308,501 30,541,855
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 49,679,917 60,685,860
Distributions to shareholders:
Net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,796,781) (9,375,452)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,800) --
In excess of net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,153,022) (2,395,248)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,587) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . .
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,765,787) (18,007,535)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,397) --
Increase (decrease) in net assets from fund share transactions (Note 6). . . . . 99,903,098 29,147,560
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 120,849,641 60,055,185
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 623,388,543 563,333,358
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net investment income of
$2,203,735 and $2,395,248, respectively) . . . . . . . . . . . . . . . . . . . $ 744,238,184 $ 623,388,543
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Securities Fund 85
<PAGE>
INTERNATIONAL SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS S
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 56.61 $ 53.96 $ 57.95 $ 44.75 $ 49.15
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .53 .56 .44 .40 .61
Net realized and unrealized gain (loss) on
investments (b). . . . . . . . . . . . . . . . . . . . . 3.72 4.89 1.23 14.53 (4.02)
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 4.25 5.45 1.67 14.93 (3.41)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.31) (.88) (.04) (.38) (.68)
In excess of net investment income . . . . . . . . . . . . (.17) (.23) (.02) (.23) --
Net realized gain on investments . . . . . . . . . . . . . (1.90) (1.69) (5.60) (1.12) (.31)
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (2.38) (2.80) (5.66) (1.73) (.99)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 58.48 $ 56.61 $ 53.96 $ 57.95 $ 44.75
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . 7.63 10.20 4.86 33.48 (6.94)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets . . . . . . 1.30 1.30 1.30 1.38 1.45
Operating expenses, gross, to average net assets . . . . . 1.31 1.31 1.33 1.42 1.47
Net investment income to average net assets . . . . . . . .91 .97 .70 .82 1.37
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 42.43 42.96 72.23 60.22 48.93
Net assets, end of year ($000 omitted) . . . . . . . . . . 743,615 623,389 563,333 454,482 262,886
Per share amount of fees waived ($ omitted)(a) . . . . . . .0050 .0080 .0178 .0161 .0054
Average commission rate paid per share
of security ($ omitted)(b) . . . . . . . . . . . . . . . .0039 N/A N/A N/A N/A
</TABLE>
(a) See Note 4 for current period amounts.
(b) In certain foreign markets the relationship between the translated U.S.
dollar price per share and commission paid per share may vary from that of
domestic markets.
86 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS C
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
1996*
----------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 58.56
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . . (0.03)
Net realized and unrealized gain (loss) on investments . . . . 1.68
----------
Total Income From Investment Operations. . . . . . . . . . . . 1.65
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . (0.27)
In excess of net investment income . . . . . . . . . . . . . . (0.16)
Net realized gain on investments . . . . . . . . . . . . . . . (1.31)
----------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . (1.74)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 58.47
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . 2.86
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b) . . . . . . . . . 2.00
Net investment income (loss) to average net assets (b) . . . . (0.61)
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . 42.43
Net assets, end of year ($000 omitted) . . . . . . . . . . . . 623
Average commission rate paid per share
of security ($ omitted)(c) . . . . . . . . . . . . . . . . . .0039
* For the period November 4, 1996 (commencement of sale) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period ended December 31, 1996 are annualized.
(c) In certain foreign markets the relationship between the translated U.S.
dollar price per share and commission paid per share may vary from that of
domestic markets.
International Securities Fund 87
<PAGE>
DIVERSIFIED BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide effective diversification against equities and a stable
level of cash flow.
INVESTS IN: Fixed-income securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy and employed
three managers with distinct approaches to managing portfolios of
intermediate-maturity, investment-grade fixed income securities.
<TABLE>
<CAPTION>
DATES DIVERSIFIED BOND - CLASS S LB AGGREGATE ** LIPPER-C- INTERMEDIATE ++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $10,125 $10,276 $10,267
1988 $10,901 $11,087 $10,981
1989 $12,267 $12,698 $12,228
1990 $13,198 $13,836 $13,093
1991 $15,216 $16,050 $15,082
1992 $16,215 $17,238 $16,098
1993 $17,839 $18,919 $17,628
1994 $17,259 $18,367 $17,039
1995 $20,324 $21,760 $19,865
1996 $21,021 $22,550 $20,497
- -------------------------------------------------------------------------------------
Total $164,365 $172,781 $162,778
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
DIVERSIFIED BOND FUND - CLASS S
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,343 3.43%
5 Years $ 13,815 6.68%#
10 Years $ 21,021 7.71%#
DIVERSIFIED BOND FUND - CLASS C ++++
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,332 3.32%
5 Years $ 13,801 6.66%#
10 Years $ 20,999 7.70%#
LEHMAN BROTHERS AGGREGATE BOND INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,363 3.63%
5 Years $ 14,050 7.04%#
10 Years $ 22,550 8.47%#
LIPPER-C- INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,318 3.18%
5 Years $ 13,591 6.33%#
10 Years $ 20,497 7.44%#
* The Diversified Bond Fund - Class S assumes initial investment on
January 1, 1987.
** 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.
++++ The Diversified Bond Fund - Class C - For the period, November 4, 1996
(commencement of sales) to December 31, 1996, shareholder service and Rule
12b-1 distribution fees were charged. Total return would have been lower
had these fees been in effect during prior reporting periods.
# Annualized.
88 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Diversified Bond Fund Class S and
Class C shares had a total return of 3.4% and 3.3%, respectively, as compared to
the Lehman Brothers Aggregate Bond Index results of 3.6%. The Index outperformed
the Fund primarily due to the Fund's slightly above-index duration which
detracted from results as interest rates rose more than 69 basis points on
Treasuries with maturities beyond one year.
PORTFOLIO HIGHLIGHTS
Interest rates rose steadily through most of the year and were extremely
volatile as investors expressed their anxiety towards signs of potentially
inflationary, resurgent economic growth. Despite these fears, domestic economic
growth and inflation appeared to be moderate by most measures. The Federal
Reserve Board chose to leave rates unchanged through the remainder of the year
after lowering the discount rate 25 basis points in January. The market
environment afforded few opportunities to generate significant returns in the
investment grade market.
The Fund generated good returns through security selection, with a focus on
exploiting favorable yield spreads, particularly in mortgage-backed securities.
The strong performance of corporates throughout the year also added to the
Fund's performance. Duration proved to be a negative as interest rates trended
upward through the first half of 1996, fell slightly in the second half, but
still ended the year higher. The market's fears of inflation and Fed
intervention clashed with the Fund managers' views of economic weakness and
minimal pricing power to fuel inflation.
- -------------------------------------------------------------------
TOP TEN ISSUERS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
United States Treasury 30.6%
Government National Mortgage Association 11.4
Federal National Mortgage Association 11.4
Federal Home Loan Mortgage Corp. 9.1
Government Backed Trust Certificates 2.5
New Zealand Government 0.9
Time Warner, Inc. 0.9
Resolution Funding Corp. 0.8
Case Equipment Loan Trust 0.6
Daimler-Benz Vehicle 0.6
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Weighted Average Quality Diversification AAA
Weighted Average Years-to-Maturity 8.1 Years
Weighted Average Duration 4.7 Years
Current Yield (SEC 30-day standardized)
Class S 6.3%
Class C 5.6%
Number of Issues 725
Number of Issuers 475
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Lincoln Capital Management Co. Enhanced Core
Pacific Investment Management Co. Broad Market-Sector
Rotation
Standish, Ayer & Wood, Inc. Broad Market-Sector
Rotation
- -------------------------------------------------------------------
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>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
LONG-TERM INVESTMENTS - 94.0%
ASSET-BACKED SECURITIES - 5.9%
Advanta Home Equity Loan Trust
9.000% due 02/25/06 $ 79 $ 81
AFC Home Equity Loan Trust
7.590% due 09/25/27 1,315 1,341
Associates Manufactured Housing Mortgage
Pass-thru Certificate
Series 1996-2 Class A-3
6.350% due 06/15/27 850 839
Capita Equipment Receivables Trust
Series 1996-1 Class A-4
6.280% due 06/15/00 2,500 2,503
Case Equipment Loan Trust
Series 1996-B Class A-3
6.650% due 09/15/03 3,460 3,494
Chase Commerical Mortgage Securities Corp.
Series 1996-1 Class A-1
7.600% due 12/18/05 767 788
Chase Manhattan Credit Card Master Trust
Series 1996-4 Class A
6.730% due 02/15/03 1,685 1,708
Chase Manhattan Grantor Trust
Series 1996-B Class A
6.610% due 09/15/02 325 327
Contimortgage Home Equity Loan Trust
Mortgage Pass-thru Certificate
Series 1994-3 Class A-4
7.850% due 06/01/24 514 526
Series 1994-4 Class A-6
8.270% due 12/15/24 380 391
Series 1995-1 Class A2-A
8.600% due 06/15/25 186 191
Series 1996-4 Class A-9
6.880% due 01/15/28 825 814
Daimler-Benz Vehicle Trust
Series 1996-A Class A
5.850% due 12/15/03 3,328 3,355
Discover Card Trust
Series 1992-B Class A
6.800% due 06/16/00 145 146
Fingerhut Master Trust
Series 1996-1 Class A
6.450% due 02/20/02 680 684
Fleetwood Credit Corp. Grantor Trust
Series 1996-A Class A
6.750% due 10/17/11 895 900
Series 1996-B Class A
6.900% due 03/15/12 948 955
Green Tree Financial Corp.
5.960% due 11/15/28 1,250 1,249
Lehman Pass-thru Securities, Inc.
Series 1991-2 Class A-1
8.000% due 03/20/99 70 71
Mortgage Capital Funding, Inc.
Series 1996-MC1 Class A2B
7.900% due 02/15/06 775 822
Oakwood Mortgage Investors, Inc.
Series 1996-B Class A-2
6.800% due 10/15/26 (c) 996 1,005
Series 1996-C Class A-3
6.750% due 04/15/27 680 681
Onyx Acceptance Grantor Trust
Pass-thru Certificate
Series 1996-2 Class A
6.400% due 10/15/01 204 205
Premier Auto Trust
6.400% due 10/06/01 935 940
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1992 Class A-3
10.700% due 05/25/24 (c) 574 582
Series 1994-C1 Class C
8.000% due 06/25/26 975 999
Series 1994-C2 Class D
8.000% due 04/25/25 379 386
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 350 344
Sears Credit Account Master Trust II
Series 1996-2 Class A
6.500% due 10/15/03 740 746
Sears Savings Bank
Mortgage Pass-thru Certificate
Series 1992-A Class A
8.679% due 05/25/32 (c) 988 994
Structured Asset Securities Corp.
Mortgage Pass-thru Certificate
Series 1996-CFL Class C
6.525% due 02/25/28 300 290
The Money Store Home Equity Loan Trust
Series 1994-D Class A-4
8.750% due 01/15/20 700 736
Series 1996-B Class A-5
7.180% due 12/15/14 775 787
Wal-Mart Stores, Inc.
Series 1994-B3
8.800% due 12/30/14 315 348
90 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
World Omni Automobile Lease
Securitization Trust
Series 1995-A Class A
6.050% due 11/25/01 $ 32 $ 32
Series 1996-B Class A-2
6.200% due 11/15/02 775 777
Series 1996-B Class A-3
6.250% due 11/15/02 1,750 1,745
----------
32,782
----------
CORPORATE BONDS AND NOTES - 15.1%
Ahmanson Capital Trust I Series A
8.360% due 12/01/26 400 408
American Brands, Inc.
8.625% due 11/15/21 420 473
7.875% due 01/15/23 80 84
American Express Co.
8.500% due 08/15/01 255 274
American General Finance Corp.
8.250% due 01/15/98 500 511
7.250% due 03/01/98 455 461
8.500% due 08/15/98 260 269
Analog Devices, Inc.
6.625% due 03/01/00 125 123
Aristar, Inc.
6.300% due 07/15/00 1,020 1,010
Associates Corp. of North America
6.250% due 03/15/99 1,010 1,011
Associates Corp. of North America
Series H (MTN)
7.090% due 04/11/03 400 407
AT&T Corp.
8.625% due 12/01/31 220 233
Atlantic Richfield Co.
9.125% due 08/01/31 550 666
Australia & New Zealand
Banking Group, Ltd.
7.550% due 09/15/06 175 181
AVCO Financial Services, Inc.
7.250% due 07/15/99 275 280
8.500% due 10/15/99 405 426
Baltimore Gas & Electric Co.
6.500% due 02/15/03 840 831
Bank of New York, Inc.
7.875% due 11/15/02 350 369
Bank One, Columbus, Ohio
7.375% due 12/01/02 120 124
BankAmerica Corp.
6.850% due 03/01/03 425 425
BankAmerica Institutional Capital
Class B
7.700% due 12/31/26 400 388
Barnett Bank, Inc.
6.900% due 09/01/05 105 103
Bell Telephone Co. of Pennsylvania
8.350% due 12/15/30 355 417
BellSouth Telecommunications
7.000% due 12/01/2095 385 374
Beneficial Corp.
8.400% due 05/15/08 1,235 1,402
Boeing Co.
8.750% due 08/15/21 500 588
Broken Hill Property Finance USA
6.420% due 03/01/26 800 792
Carolina Power & Light Co.
6.875% due 08/15/23 410 378
Case Corp.
7.250% due 08/01/05 330 330
7.250% due 01/15/16 120 115
Caterpillar Financial Services (MTN)
9.500% due 02/06/07 420 494
Central Fidelity Banks, Inc.
8.150% due 11/15/02 170 180
Central Power & Light Co. Series FF
6.875% due 02/01/03 600 602
Champion International Corp.
6.400% due 02/15/26 460 439
Chase Manhattan Corp.
9.375% due 07/01/01 775 855
Chesapeake & Potomac Telephone Co.
8.375% due 10/01/29 230 265
Chrysler Financial Corp.
9.500% due 12/15/99 275 297
Cincinnati Gas & Electric Co.
7.200% due 10/01/23 410 385
CIT Group Holdings, Inc. (MTN)
6.625% due 06/28/99 1,200 1,206
Citicorp
9.500% due 02/01/02 120 134
7.125% due 06/01/03 390 396
Coca-Cola Enterprises, Inc.
7.000% due 10/01/26 675 688
Diversified Bond Fund 91
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
DECEMBER 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Commercial Credit Group, Inc.
5.750% due 07/15/00 $ 295 $ 289
8.700% due 06/15/10 380 434
Commonwealth Edison Co. Series 85
7.375% due 09/15/02 945 959
Consolidated Natural Gas Co.
8.625% due 12/01/11 169 178
Consolidated Rail Corp.
Pass-thru Certificate Structured Note
Series 1995 Class A
6.760% due 05/25/15 488 480
CoreStates Capital Corp.
5.875% due 10/15/03 400 378
Corporate Property Investors
7.875% due 03/15/16 1,575 1,592
CSFB Finance Co., Ltd.
Series 1995-A Class A
7.542% due 11/15/05 (c) 450 450
Dayton Hudson Corp.
9.750% due 07/01/02 300 339
Discover Credit Corp. (MTN)
8.350% due 04/27/99 360 376
Dole Food Co., Inc.
6.750% due 07/15/00 170 170
Duke Power Co.
7.000% due 07/01/33 695 644
Eaton Corp.
7.000% due 04/01/11 315 302
Equitable Life Assurance Society
7.700% due 12/01/15 1,575 1,590
ERP Operating, L.P.
8.500% due 05/15/99 425 440
Federal Express Corp.
Series 1993 Class B-1
6.680% due 01/01/08 587 568
Federal Realty Investment Trust
7.480% due 08/15/26 750 757
First Chicago Corp.
8.875% due 03/15/02 505 551
First Chicago NBD Institutional Capital
Series B
7.750% due 12/01/26 400 387
First Fidelity Bancorp
9.625% due 08/15/99 255 275
First Interstate Bancorp (MTN)
9.375% due 01/23/02 135 148
First Union Corp.
6.550% due 10/15/35 1,550 1,508
First Union National Bank, Newark (MTN)
7.125% due 10/15/06 85 85
First USA Bank Wilmington (MTN)
7.000% due 08/20/01 1,525 1,526
Fleet Capital Trust II
7.920% due 12/11/26 800 791
Fleet Financial Group, Inc.
8.125% due 07/01/04 525 558
Ford Motor Credit Co. (MTN)
6.000% due 02/27/01 1,170 1,145
6.290% due 03/05/01 580 574
General Electric Capital Corp.
8.300% due 09/20/09 235 262
6.660% due 05/01/18 (c) 775 780
General Motors Acceptance Corp.
6.625% due 10/01/02 1,550 1,540
Georgia-Pacific Corp.
7.375% due 12/01/25 350 330
Goldman Sachs Group, L.P.
6.875% due 09/15/99 675 682
6.375% due 06/15/00 465 462
Grand Metropolitan Investment Corp.
7.450% due 04/15/35 300 319
Green Tree Financial Corp.
7.050% due 09/15/27 925 936
Hertz Corp.
7.000% due 04/15/01 790 800
9.000% due 11/01/09 230 263
Household Finance Corp.
6.375% due 06/30/00 1,200 1,195
International Lease Finance Corp.
5.750% due 01/15/99 455 450
ITT Corporations
7.375% due 11/15/15 340 325
ITT Financial Corp.
7.400% due 11/15/25 505 494
JPM Capital Trust I
7.540% due 01/15/27 225 220
Kansas Gas & Electric, Co.
7.600% due 12/15/03 200 208
Liberty Mutual Insurance Co.
8.500% due 05/15/25 500 536
7.875% due 10/15/26 500 504
Lockheed Martin Corp.
7.750% due 05/01/26 600 623
May Department Stores Co.
6.875% due 11/01/05 480 478
Meditrust
7.820% due 09/10/26 1,450 1,502
92 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Mellon Bank, NA
7.625% due 09/15/07 $ 355 $ 368
Merry Land & Investment, Inc.
7.250% due 06/15/05 750 742
Morgan Stanley Group, Inc.
8.100% due 06/24/02 125 132
Morgan Stanley Group, Inc. (MTN)
5.750% due 02/15/01 650 630
Motorola, Inc.
7.500% due 05/15/25 100 103
Nabisco, Inc.
6.700% due 06/15/02 260 257
NationsBank Corp.
6.625% due 01/15/98 170 171
New England Telephone & Telegraph Co.
7.875% due 11/15/29 235 252
News America Holdings, Inc.
7.700% due 10/30/25 725 686
Northwestern Bell Telephone Co.
7.750% due 05/01/30 630 654
Norwest Financial, Inc.
6.250% due 11/01/02 525 515
6.375% due 11/15/03 575 566
NYNEX Corp.
9.550% due 05/01/10 399 450
Occidental Petroleum Corp.
10.125% due 11/15/01 210 239
Occidental Petroleum Corp. (MTN)
8.500% due 11/09/01 245 262
Pacific Bell
7.500% due 02/01/33 785 755
Pennsylvania Power & Light Co.
6.875% due 03/01/04 1,000 999
Pennzoil Co.
10.125% due 11/15/09 85 103
PepsiCo, Inc.
7.625% due 12/18/98 285 293
Philip Morris Cos. , Inc.
6.950% due 06/01/06 295 298
7.650% due 07/01/08 310 317
Pitney Bowes Credit Corp.
8.550% due 09/15/09 460 518
Praxair, Inc.
6.850% due 06/15/05 550 544
Procter & Gamble Co.
Sharing ESOP Series A
9.360% due 01/01/21 90 109
Ralston Purina Co.
7.875% due 06/15/25 565 578
Republic New York Corp.
9.750% due 12/01/00 190 210
8.250% due 11/01/01 150 160
RJR Nabisco, Inc.
8.625% due 12/01/02 325 332
Rockwell International Corp.
8.875% due 09/15/99 255 271
Seagram Co., Ltd.
8.350% due 01/15/22 220 240
Sears Roebuck Acceptance Corp.
Series II (MTN)
6.690% due 04/30/01 675 677
Security-Connecticut Corp. (MTN)
7.125% due 03/01/03 800 785
Shopping Center Associates
6.750% due 01/15/04 750 730
Signet Bank
7.800% due 09/15/06 750 774
Simon Debartolo Group L.P.
6.875% due 11/15/06 800 778
Smith Barney Holdings, Inc.
7.980% due 03/01/00 925 963
Southern California Edison Co.
Series 1993-E
5.450% due 06/15/98 600 594
Spieker Properties, Inc.
6.900% due 01/15/04 800 775
Suntrust Banks, Inc.
7.375% due 07/01/02 300 310
Tenneco Corp.
10.200% due 03/15/08 415 514
Texaco Capital, Inc.
9.750% due 03/15/20 340 433
8.875% due 09/01/21 220 260
Texas Utilities Electric Co.
9.500% due 08/01/99 805 863
Time Warner Entertainment Co., L.P.
10.150% due 05/01/12 350 420
8.375% due 03/15/23 1,075 1,090
8.375% due 07/15/33 1,000 1,004
Time Warner, Inc.
6.460% due 08/15/00 (c) 500 503
7.975% due 08/15/04 300 305
8.110% due 08/15/06 600 615
8.180% due 08/15/07 600 616
Transamerica Financial Corp.
8.375% due 02/15/98 210 215
Transamerica Financial Corp. (MTN)
9.250% due 02/16/98 500 517
Diversified Bond Fund 93
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Union Carbide Chemicals & Plastics
7.875% due 04/01/23 $ 590 $ 612
Union Oil Co. (MTN)
9.400% due 02/15/11 470 547
Union Pacific Railroad Trust
Pass-thru Certificate
Series 1996-A2
7.060% due 05/15/03 500 509
United Technologies Corp.
8.750% due 03/01/21 380 443
Virginia Electric & Power Co.
8.750% due 04/01/21 200 214
Wachovia Corp.
6.800% due 06/01/05 305 303
Washington Real Estate Investment Trust
7.250% due 08/13/06 750 744
Wells Fargo & Co.
6.875% due 04/01/06 500 492
Wellsford Residential Property Trust
9.375% due 02/01/02 750 818
Whirlpool Corp.
9.500% due 06/15/00 250 272
Willamette Industries, Inc.
7.850% due 07/01/26 520 544
Wilmington Trust
10.370% due 01/02/07 1,775 1,983
World Financial Properties Tower
Series 1996 WBF-B
6.910% due 09/01/13 1,199 1,128
----------
83,901
----------
EURODOLLAR BONDS - 0.4%
Euratom
7.750% due 01/15/97 1,200 1,201
Skandinaviska Enskilda Banken
8.125% due 09/06/49 (c) 800 833
----------
2,034
----------
MORTGAGE-BACKED SECURITIES - 33.3%
American Southwest Financial Corp.
Series G Class G-4 CMO
12.250% due 11/01/14 279 317
Citicorp Mortgage Securities, Inc.
Series 1992-1 Class A-5
8.000% due 04/25/21 1,618 1,628
Collateralized Mortgage Obligation Trust 56
Class B CMO
9.985% due 12/01/18 276 299
DLJ Mortgage Acceptance Corp.
Series 1993 Class A-2 CMO
7.650% due 09/18/03 2,500 2,542
FDIC REMIC Trust
Series 1994-C1 Class 2A-2
7.850% due 09/25/25 740 750
Federal Home Loan Mortgage Corp.
6.000% 15 Year TBA (b) 215 207
7.000% 15 Year TBA (b) 100 100
7.500% 15 Year TBA (b) 35 36
6.500% 30 Year TBA (b) 4,000 3,824
8.000% 30 Tear TBA (b) 550 561
Federal Home Loan Mortgage Corp.
Participation Certificate
Group # 17-0171 9.000% due 06/01/16 337 358
Group # 17-0195 9.000% due 10/01/16 116 124
Group # 17-0197 9.000% due 10/01/16 15 15
Group # 17-0202 9.000% due 11/01/16 305 324
Group # 17-0203 9.000% due 11/01/16 159 169
Group # 18-1338 8.000% due 05/01/08 149 153
Group # 18-2098 8.000% due 11/01/08 25 26
Group # 18-2161 6.750% due 08/01/07 455 451
Group # 18-6664 8.500% due 02/01/08 208 216
Group # 21-7242 7.000% due 05/01/02 96 97
Group # 26-0607 12.000% due 06/01/14 107 122
Group # 28-4634 9.000% due 01/01/17 11 11
Group # 30-0025 12.500% due 04/01/16 182 210
Group # 30-8522 12.000% due 12/01/15 84 96
Group # 50-1051 7.000% due 06/01/03 395 400
Group # 84-5481 7.456% due 09/01/23 (c) 2,067 2,126
Group # A0-0690 9.000% due 02/01/20 909 972
Group # C0-0140 9.000% due 07/01/22 323 344
Group # C0-0335 7.500% due 05/01/24 377 378
Group # C0-0404 8.500% due 06/01/25 430 447
Group # C0-0475 8.500% due 08/01/26 24 25
Group # C8-0394 8.000% due 03/01/26 753 769
Group # C8-0398 6.500% due 05/01/26 687 657
Group # C8-0458 9.000% due 10/01/26 47 50
Group # D2-3334 8.500% due 09/01/22 143 149
Group # D2-3590 8.500% due 09/01/22 43 45
Group # D4-7783 6.500% due 01/01/24 137 132
Group # D5-2665 7.500% due 05/01/24 64 64
Group # D5-3691 7.500% due 06/01/24 109 109
Group # D5-5057 7.500% due 07/01/24 510 511
Group # D5-7163 9.000% due 10/01/24 209 221
Group # D5-8304 7.500% due 01/01/25 605 607
Group # D5-8320 8.500% due 01/01/25 143 148
Group # D5-8727 8.500% due 02/01/25 72 75
Group # D5-9437 9.000% due 03/01/25 132 139
94 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Group # D5-9709 8.500% due 04/01/25 $ 467 $ 485
Group # D5-9816 8.000% due 04/01/25 24 25
Group # D6-0132 7.500% due 05/01/25 125 125
Group # D6-0367 8.500% due 05/01/25 198 206
Group # D6-0678 8.000% due 06/01/25 105 107
Group # D6-0685 9.000% due 06/01/25 787 832
Group # D6-1551 8.000% due 07/01/25 29 30
Group # D6-2015 8.000% due 07/01/25 1,375 1,405
Group # D6-2748 8.000% due 08/01/25 265 271
Group # D6-2849 6.500% due 08/01/25 414 397
Group # D6-4698 8.500% due 10/01/25 271 281
Group # D6-6777 6.500% due 01/01/26 791 757
Group # D6-6779 7.500% due 01/01/26 100 100
Group # D6-7032 7.500% due 01/01/26 94 95
Group # D6-7251 7.500% due 01/01/25 919 923
Group # D6-7508 7.500% due 01/01/26 808 811
Group # D6-7637 7.500% due 11/01/24 1,080 1,084
Group # D6-7847 6.500% due 02/01/26 751 719
Group # D6-8132 6.500% due 02/01/26 199 190
Group # D6-8778 8.000% due 02/01/26 449 458
Group # D6-8982 6.500% due 03/01/26 300 287
Group # D6-9283 6.500% due 03/01/26 489 468
Group # D6-9433 6.500% due 03/01/26 681 651
Group # D6-9765 6.500% due 04/01/26 737 708
Group # D6-9923 6.500% due 03/01/26 989 947
Group # D7-0042 6.500% due 04/01/26 249 238
Group # D7-0441 6.500% due 04/01/26 671 642
Group # D7-0498 6.500% due 04/01/26 320 306
Group # D7-0522 6.500% due 04/01/26 102 98
Group # D7-0557 6.500% due 04/01/26 182 174
Group # D7-0890 6.500% due 04/01/26 877 840
Group # D7-1161 6.500% due 05/01/26 500 479
Group # D7-2264 6.500% due 06/01/26 410 392
Group # D7-3669 6.500% due 07/01/26 989 945
Group # D7-4319 7.500% due 09/01/26 688 689
Group # D7-4691 7.500% due 09/01/26 445 445
Group # E0-0279 6.500% due 02/01/09 174 173
Group # E0-0318 7.500% due 06/01/09 315 320
Group # E0-0332 7.500% due 08/01/09 193 196
Group # E0-0339 7.500% due 09/01/09 341 347
Group # E0-0344 7.500% due 10/01/09 226 230
Group # E2-0145 7.500% due 11/01/09 178 181
Group # E2-0153 8.000% due 01/01/10 66 68
Group # E2-0244 6.500% due 06/01/11 1,331 1,312
Group # E2-0269 6.500% due 10/01/11 203 199
Group # E2-0270 8.000% due 10/01/11 609 626
Group # E5-6296 6.500% due 01/01/09 353 350
Group # E5-6562 6.500% due 02/01/09 1,006 994
Group # E5-6737 6.500% due 02/01/09 211 208
Group # E5-6830 6.500% due 02/01/09 103 102
Group # E5-6953 6.500% due 02/01/09 112 111
Group # E5-9461 7.500% due 08/01/09 226 230
Group # E5-9610 7.500% due 08/01/09 219 223
Group # E5-9853 8.000% due 10/01/09 357 368
Group # E6-2968 6.500% due 02/01/11 277 273
Group # E6-3012 6.500% due 02/01/11 400 394
Group # E6-3595 6.500% due 04/01/11 284 279
Group # E6-3663 6.500% due 03/01/11 24 24
Group # E6-3877 6.500% due 04/01/11 45 44
Group # E6-4277 6.500% due 05/01/11 97 95
Group # E6-4400 6.500% due 05/01/11 551 541
Group # E6-4511 6.500% due 06/01/11 157 154
Group # E6-4516 6.500% due 06/01/11 965 947
Group # E6-5408 7.500% due 09/01/11 25 25
Group # E6-5462 7.500% due 10/01/11 536 544
Group # G0-0311 8.000% due 03/01/25 246 252
Group # G0-0518 6.500% due 08/01/26 804 770
Group # G1-0329 7.500% due 02/01/10 70 71
Group # L7-0277 7.000% due 08/01/98 30 30
Group # M1-1780 7.000% due 04/01/97 125 126
Group # M1-3072 7.000% due 03/01/97 445 448
Group # M1-3104 7.000% due 03/01/97 147 148
Group # M1-4743 7.000% due 08/01/97 22 22
Group # M8-0325 7.500% due 05/01/01 254 258
Group # M8-0446 7.000% due 10/01/03 25 25
Pool # D5-9208 8.000% due 03/01/25 72 73
Pool # D6-1022 8.000% due 06/01/25 858 876
Pool # D6-7561 7.56.500% due 01/01/26 1,776 1,780
Pool # G00505 6.500% due 12/01/25 853 817
Federal Home Loan Mortgage Corp.
Participation Certificate
Series 1053 Class G
7.000% due 03/15/21 2,000 1,986
Federal National Mortgage Association
Pool # 030891 9.500% due 06/01/01 48 51
Pool # 038842 8.000% due 07/01/10 38 39
Pool # 042678 8.000% due 03/01/17 151 156
Pool # 046939 8.000% due 05/01/17 56 58
Pool # 047728 8.000% due 05/01/02 78 80
Pool # 050377 9.500% due 12/01/05 50 53
Pool # 050389 9.500% due 01/01/06 172 181
Pool # 050621 7.000% due 08/01/99 5 5
Pool # 050725 7.000% due 04/01/23 539 530
Pool # 050752 7.000% due 05/01/00 90 90
Pool # 050758 7.000% due 06/01/00 74 74
Pool # 050765 7.000% due 07/01/23 88 87
Pool # 050795 7.000% due 09/01/23 811 797
Pool # 050989 7.000% due 02/01/09 119 120
Diversified Bond Fund 95
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Pool # 050991 6.500% due 02/01/24 $ 145 $ 139
Pool # 052078 8.000% due 07/01/02 103 106
Pool # 053718 8.000% due 08/01/17 102 105
Pool # 054738 8.000% due 09/01/02 48 50
Pool # 055397 8.000% due 07/01/17 304 314
Pool # 057194 8.000% due 10/01/17 97 100
Pool # 061217 8.000% due 05/01/03 3 3
Pool # 061354 8.000% due 05/01/03 107 110
Pool # 062502 8.000% due 06/01/03 47 48
Pool # 063743 9.500% due 07/01/03 123 129
Pool # 064518 9.500% due 08/01/02 161 169
Pool # 070607 8.000% due 07/01/02 347 357
Pool # 070694 9.500% due 12/01/05 78 82
Pool # 087274 8.000% due 08/01/04 289 297
Pool # 103914 9.500% due 09/01/05 53 55
Pool # 110503 8.000% due 01/01/17 170 175
Pool # 120778 8.000% due 03/01/17 47 49
Pool # 124542 7.000% due 11/01/99 389 390
Pool # 124721 7.000% due 02/01/23 877 864
Pool # 124748 6.500% due 03/01/00 67 66
Pool # 125350 6.500% due 06/01/09 1,694 1,674
Pool # 127926 8.000% due 05/01/20 42 44
Pool # 145536 8.000% due 06/01/03 35 36
Pool # 157517 7.000% due 04/01/07 202 203
Pool # 183514 8.000% due 08/01/22 51 52
Pool # 187852 10.500% due 08/01/10 42 46
Pool # 190251 8.000% due 11/01/23 151 154
Pool # 190506 6.500% due 12/01/08 279 276
Pool # 190560 6.500% due 01/01/09 313 309
Pool # 190924 6.500% due 06/01/09 237 234
Pool # 204951 8.000% due 05/01/22 328 338
Pool # 208747 7.000% due 05/01/00 227 228
Pool # 210307 7.000% due 04/01/00 364 366
Pool # 217364 8.000% due 01/01/22 571 588
Pool # 226836 7.000% due 09/01/08 216 217
Pool # 232574 6.500% due 08/01/08 431 426
Pool # 233079 7.000% due 09/01/08 92 92
Pool # 235711 7.000% due 11/01/23 159 156
Pool # 236344 7.000% due 09/01/08 197 198
Pool # 237598 7.500% due 05/01/24 197 197
Pool # 238739 7.000% due 10/01/23 409 402
Pool # 239057 7.000% due 09/01/23 275 270
Pool # 240738 6.500% due 10/01/08 176 174
Pool # 244550 7.000% due 11/01/23 429 422
Pool # 244970 7.000% due 11/01/23 451 443
Pool # 245865 6.500% due 02/01/09 281 278
Pool # 246599 7.000% due 11/01/23 151 148
Pool # 248089 7.000% due 11/01/23 401 394
Pool # 250035 6.500% due 05/01/09 50 50
Pool # 250576 7.000% due 05/01/26 993 971
Pool # 263037 6.500% due 05/01/09 367 363
Pool # 265657 6.500% due 02/01/24 479 459
Pool # 265868 6.500% due 01/01/24 144 138
Pool # 268936 6.500% due 01/01/24 2,055 1,971
Pool # 270164 6.500% due 02/01/09 632 625
Pool # 271114 6.500% due 02/01/24 433 415
Pool # 273718 6.500% due 02/01/24 411 394
Pool # 279123 6.500% due 04/01/09 304 301
Pool # 280810 6.500% due 05/01/09 198 196
Pool # 281940 6.500% due 05/01/09 365 360
Pool # 282125 6.500% due 05/01/09 84 83
Pool # 282300 6.500% due 04/01/09 673 666
Pool # 282424 6.500% due 05/01/09 402 397
Pool # 282833 7.000% due 06/01/09 158 159
Pool # 284192 6.500% due 05/01/09 102 100
Pool # 284451 6.500% due 05/01/09 52 52
Pool # 284659 7.000% due 05/01/09 254 254
Pool # 284690 7.000% due 06/01/09 277 278
Pool # 286570 7.000% due 06/01/24 762 748
Pool # 286829 7.000% due 06/01/24 316 311
Pool # 287464 6.500% due 06/01/09 121 120
Pool # 290876 7.500% due 07/01/24 41 41
Pool # 295473 7.500% due 09/01/24 139 139
Pool # 296279 7.500% due 10/01/24 492 493
Pool # 303555 7.000% due 09/01/25 1,423 1,393
Pool # 307029 7.000% due 07/01/25 780 763
Pool # 309300 7.000% due 07/01/03 434 435
Pool # 312052 7.000% due 11/01/25 1,286 1,258
Pool # 316681 7.000% due 07/01/25 705 690
Pool # 316938 7.000% due 07/01/25 280 274
Pool # 318203 7.000% due 08/01/25 730 715
Pool # 318949 7.000% due 08/01/25 759 743
Pool # 319141 7.000% due 08/01/25 54 53
Pool # 319622 7.000% due 08/01/25 633 619
Pool # 319647 7.000% due 08/01/25 671 657
Pool # 320080 7.000% due 08/01/25 290 283
Pool # 320105 7.000% due 10/01/25 2,435 2,383
Pool # 320320 7.000% due 08/01/25 905 886
Pool # 320333 7.000% due 08/01/25 121 118
Pool # 329866 7.000% due 11/01/25 1,354 1,325
Pool # 330476 7.000% due 11/01/25 988 967
Pool # 331614 6.500% due 01/01/26 495 473
Pool # 333057 7.500% due 01/01/26 118 118
Pool # 336257 6.500% due 02/01/26 46 44
Pool # 336376 6.500% due 02/01/26 162 154
Pool # 338416 6.500% due 05/01/26 976 931
96 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Pool # 342105 7.000% due 04/01/26 $ 653 $ 639
Pool # 343090 6.500% due 04/01/26 765 730
Pool # 344394 7.500% due 05/01/03 271 275
Pool # 344571 7.000% due 04/01/26 1,836 1,795
Pool # 346055 7.500% due 06/01/26 474 474
Pool # 346095 7.500% due 05/01/03 245 249
Pool # 346213 7.000% due 05/01/26 1,500 1,466
Pool # 346321 7.000% due 04/01/26 584 571
Pool # 347236 7.500% due 06/01/26 279 279
Pool # 347572 7.500% due 05/01/03 677 687
Pool # 348452 7.500% due 07/01/26 227 227
Pool # 349818 7.000% due 06/01/03 413 415
Pool # 352112 8.000% due 09/01/26 64 66
Pool # 364398 8.000% due 11/01/26 529 539
Federal National Mortgage Association
REMIC Series 1994-81 Class PJ
8.000% due 07/25/23 1,550 1,629
REMIC Series G92-36 Class A
7.000% due 04/25/15 417 422
Pass-thru Certificate
6.500% 30 Year TBA (b) 5,585 5,327
7.000% 30 Year TBA (b) 2,620 2,562
9.000% 30 year TBA (b) 1,460 1,539
Federal National Mortgage Association
Principal Only Strip
Zero Coupon due 03/01/20 185 147
Interest Only Inverse Floater
Series 1993-208 Class SA
0.169% due 02/25/23 (c) 45,615 492
Government National Mortgage Association
Pool # 008148 6.500% due 02/20/23 (c) 4,125 4,213
Pool # 008303 7.000% due 10/20/23 (c) 4,860 4,965
Pool # 008482 7.125% due 08/20/24 (c) 1,512 1,545
Pool # 008503 7.125% due 09/20/24 (c) 2,219 2,268
Pool # 146110 9.500% due 05/15/16 24 26
Pool # 147480 9.500% due 03/15/16 42 46
Pool # 147482 9.000% due 04/15/16 269 288
Pool # 149590 9.000% due 05/15/16 90 97
Pool # 153267 9.500% due 04/15/16 13 14
Pool # 153617 8.500% due 03/15/17 307 324
Pool # 154050 9.500% due 05/15/16 24 26
Pool # 155749 8.500% due 06/15/16 33 35
Pool # 156576 8.500% due 01/15/17 182 192
Pool # 159956 9.000% due 06/15/16 317 340
Pool # 161534 9.000% due 10/15/16 701 751
Pool # 161666 9.000% due 08/15/16 27 29
Pool # 166178 8.500% due 07/15/16 195 206
Pool # 168336 9.000% due 08/15/20 92 98
Pool # 169642 9.000% due 07/15/16 416 446
Pool # 169824 9.000% due 11/15/16 44 47
Pool # 170662 8.500% due 08/15/16 228 241
Pool # 171553 9.000% due 07/15/16 456 489
Pool # 171772 9.000% due 10/15/16 634 680
Pool # 171776 9.000% due 11/15/16 146 157
Pool # 172035 9.000% due 08/15/16 100 107
Pool # 172723 8.500% due 07/15/16 69 73
Pool # 172908 9.000% due 09/15/16 35 38
Pool # 173049 9.000% due 07/15/16 293 314
Pool # 174840 9.000% due 10/15/16 59 63
Pool # 176375 9.000% due 08/15/16 298 320
Pool # 178046 8.500% due 05/15/17 315 332
Pool # 180290 8.500% due 11/15/16 592 625
Pool # 180303 9.000% due 10/15/16 70 75
Pool # 182526 8.500% due 02/15/17 274 289
Pool # 182616 9.000% due 06/15/17 37 39
Pool # 182643 9.000% due 10/15/16 7 8
Pool # 187956 9.000% due 11/15/16 22 24
Pool # 188448 8.500% due 03/15/17 285 300
Pool # 190486 8.000% due 03/15/17 116 120
Pool # 192748 8.500% due 08/15/17 60 64
Pool # 192883 8.500% due 01/15/17 127 134
Pool # 193242 8.500% due 01/15/17 106 112
Pool # 193800 9.000% due 10/15/16 125 134
Pool # 194001 8.500% due 02/15/17 290 306
Pool # 196932 8.500% due 04/15/17 30 31
Pool # 197268 8.500% due 05/15/17 144 152
Pool # 197400 8.500% due 01/15/17 80 84
Pool # 199031 8.500% due 01/15/17 110 117
Pool # 199531 8.500% due 02/15/17 306 323
Pool # 200712 8.500% due 02/15/17 893 942
Pool # 202144 8.500% due 02/15/17 411 434
Pool # 202883 8.500% due 03/15/17 156 165
Pool # 204828 8.500% due 02/15/17 7 7
Pool # 205426 8.500% due 02/15/17 132 140
Pool # 208209 8.000% due 05/15/17 27 28
Pool # 209198 8.500% due 03/15/17 233 246
Pool # 209432 9.000% due 05/15/17 121 129
Pool # 211127 8.500% due 03/15/17 291 307
Pool # 211129 8.500% due 06/15/17 51 54
Pool # 213365 8.000% due 04/15/17 25 26
Pool # 216928 8.500% due 05/15/17 264 279
Pool # 217536 8.500% due 05/15/17 89 94
Pool # 220383 8.500% due 07/15/17 253 267
Pool # 224505 9.000% due 07/15/17 36 39
Pool # 225968 8.500% due 07/15/17 50 53
Pool # 246616 9.000% due 04/15/18 19 20
Pool # 290338 10.500% due 06/15/20 72 80
Pool # 291365 10.500% due 07/15/20 29 33
Diversified Bond Fund 97
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Pool # 295123 10.500% due 10/15/20 $ 70 $ 79
Pool # 297999 10.500% due 12/15/20 122 136
Pool # 299159 10.500% due 11/15/20 335 376
Pool # 299881 9.000% due 04/15/21 20 21
Pool # 301982 10.500% due 01/15/21 56 63
Pool # 305463 9.000% due 04/15/21 10 11
Pool # 330230 7.000% due 06/15/23 74 73
Pool # 330867 7.000% due 11/15/22 293 288
Pool # 335301 6.500% due 03/15/09 177 175
Pool # 338250 7.000% due 11/15/22 486 478
Pool # 340165 6.500% due 03/15/09 25 24
Pool # 340376 7.000% due 05/15/23 459 451
Pool # 342826 8.000% due 07/15/26 343 350
Pool # 343370 7.000% due 07/15/23 479 471
Pool # 344510 7.000% due 09/15/23 319 314
Pool # 345170 7.000% due 08/15/23 458 451
Pool # 347721 6.500% due 06/15/09 221 218
Pool # 347901 7.000% due 06/15/23 54 53
Pool # 350386 7.000% due 05/15/23 296 291
Pool # 350934 7.000% due 08/15/23 88 87
Pool # 351129 6.500% due 07/15/08 221 219
Pool # 351553 7.000% due 10/15/23 417 409
Pool # 351711 7.000% due 10/15/23 426 419
Pool # 352163 7.000% due 06/15/23 446 438
Pool # 352474 7.000% due 06/15/23 490 482
Pool # 354191 7.000% due 06/15/23 347 341
Pool # 355247 7.500% due 08/15/23 255 257
Pool # 355637 7.000% due 07/15/23 312 307
Pool # 356469 7.000% due 07/15/23 329 323
Pool # 356697 7.000% due 08/15/23 336 330
Pool # 356952 7.000% due 06/15/23 1,503 1,477
Pool # 357959 7.000% due 07/15/23 448 440
Pool # 358499 7.000% due 07/15/23 38 37
Pool # 358674 7.000% due 06/15/23 76 74
Pool # 358801 7.500% due 06/15/23 752 755
Pool # 359897 7.000% due 10/15/23 62 61
Pool # 361279 7.000% due 12/15/23 35 34
Pool # 363681 7.000% due 11/15/23 71 72
Pool # 363760 7.000% due 11/15/23 67 66
Pool # 364318 7.000% due 08/15/23 492 484
Pool # 364457 7.000% due 09/15/23 533 524
Pool # 366328 7.000% due 09/15/23 71 70
Pool # 366437 7.000% due 09/15/23 34 33
Pool # 366793 7.000% due 05/15/24 2,577 2,532
Pool # 367124 7.000% due 10/15/23 433 425
Pool # 367861 7.000% due 10/15/23 116 114
Pool # 368988 6.500% due 03/15/09 211 209
Pool # 370426 7.000% due 09/15/23 492 483
Pool # 370890 7.000% due 11/15/23 272 267
Pool # 370931 7.000% due 11/15/23 312 307
Pool # 371539 7.000% due 10/15/23 279 274
Pool # 371828 6.500% due 06/15/09 536 531
Pool # 372782 6.500% due 01/15/09 535 529
Pool # 373788 7.000% due 10/15/23 92 91
Pool # 374508 7.000% due 10/15/23 61 60
Pool # 376293 7.000% due 11/15/23 63 62
Pool # 376535 9.000% due 06/15/24 256 271
Pool # 380023 9.000% due 01/15/25 99 105
Pool # 381495 7.000% due 12/15/23 71 69
Pool # 385326 9.000% due 01/15/25 562 593
Pool # 386652 9.000% due 01/15/25 127 134
Pool # 387166 8.000% due 10/15/25 241 246
Pool # 389814 6.500% due 05/15/09 124 123
Pool # 390393 6.500% due 03/15/09 179 177
Pool # 393772 9.000% due 04/15/25 489 515
Pool # 398654 7.000% due 05/15/11 25 25
Pool # 403980 9.000% due 10/15/24 583 616
Pool # 404014 9.000% due 12/15/24 490 518
Pool # 405801 9.000% due 11/15/24 596 629
Pool # 408425 9.000% due 09/15/26 79 83
Pool # 408671 8.000% due 09/15/25 266 271
Pool # 409743 8.000% due 05/15/25 306 312
Pool # 410123 8.000% due 10/15/25 797 813
Pool # 411189 9.000% due 05/15/25 498 526
Pool # 411496 8.000% due 10/15/25 455 465
Pool # 412287 8.000% due 11/15/26 346 353
Pool # 412487 7.000% due 09/15/25 412 403
Pool # 412531 7.000% due 12/15/25 970 949
Pool # 412939 8.000% due 07/15/25 65 67
Pool # 413041 8.000% due 06/15/25 280 286
Pool # 413279 8.000% due 08/15/25 115 118
Pool # 419635 8.500% due 08/15/26 92 95
Pool # 419934 8.000% due 03/15/26 363 371
Pool # 421512 8.000% due 10/15/26 300 306
Pool # 423498 6.500% due 02/15/26 65 62
Pool # 423622 8.000% due 09/15/26 247 252
Pool # 423905 8.000% due 07/15/26 358 365
Pool # 426373 6.500% due 02/15/26 922 879
Pool # 428362 9.000% due 07/15/26 249 262
Pool # 428374 8.000% due 02/15/26 814 831
Pool # 429420 6.500% due 04/15/26 971 926
Pool # 433119 9.000% due 07/15/26 38 40
Pool # 435629 8.500% due 07/15/26 537 557
Pool # 818263 6.000% due 05/20/24 (c) 2,472 2,500
Government National Mortgage Association
6.500% 30 Year TBA (b) 3,000 2,861
7.000% 30 Year TBA (b) 1,605 1,570
8.000% 30 Year TBA (b) 1,750 1,785
98 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Mid-St Trust II Class A-3 CMO
9.350% due 04/01/98 $ 344 $ 351
PNC Mortgage Securities Corp.
Series 1994-3 Class A-1
7.500% due 06/18/10 429 429
Ryland Acceptance Corp. Four
Series 88 Class E CMO
7.950% due 01/01/19 2,172 2,196
United States Department
of Veteran Affairs REMIC
Series 1992-1 Class 2-E
7.750% due 03/15/16 550 560
----------
184,905
----------
NON-US BONDS - 1.4%
Canada, Government of
Series A-80
8.000% due 11/01/98 CAD 3,000 2,334
New Zealand Government
6.500% due 02/15/00 NZD 4,300 2,993
8.000% due 02/15/01 3,300 2,409
----------
7,736
----------
UNITED STATES GOVERNMENT
AGENCIES - 4.7%
Federal Home Loan Bank
5.200% due 10/20/00 (c) $ 775 755
Federal Home Loan Mortgage Corp.
6.785% due 03/01/06 875 853
Federal National Mortgage Association (MTN)
7.640% due 06/16/04 1,480 1,495
7.690% due 09/13/06 1,190 1,227
7.650% due 10/06/06 750 760
7.190% due 05/29/26 1,180 1,194
7.270% due 07/27/26 415 427
Government Backed Trust Certificates
Class 1-C
9.250% due 11/15/01 7,722 8,266
Series 2E
9.400% due 05/15/02 1,122 1,203
Series T-3
9.625% due 05/15/02 (c) 4,713 5,050
Resolution Funding Corp.
8.875% due 07/15/20 3,155 3,840
8.625% due 01/15/21 880 1,045
8.625% due 01/15/30 390 479
----------
26,594
----------
UNITED STATES GOVERNMENT
TREASURIES - 31.2%
United States Treasury Bonds
10.750% due 02/15/03 6,280 7,689
10.750% due 05/15/03 12,550 15,440
11.875% due 11/15/03 900 1,174
10.750% due 08/15/05 6,460 8,288
11.750% due 02/15/10 1,455 1,932
12.750% due 11/15/10 4,780 6,766
13.875% due 05/15/11 2,280 3,442
12.000% due 08/15/13 1,265 1,809
13.250% due 05/15/14 725 1,125
12.500% due 08/15/14 245 366
7.500% due 11/15/16 6,670 7,220
8.750% due 05/15/17 1,500 1,830
8.875% due 08/15/17 615 760
8.125% due 08/15/19 9,965 11,527
7.875% due 02/15/21 3,215 3,634
8.125% due 08/15/21 1,635 1,898
8.000% due 11/15/21 975 1,118
7.250% due 08/15/22 3,945 4,173
7.125% due 02/15/23 2,275 2,375
6.250% due 08/15/23 2,275 2,133
6.875% due 08/15/25 2,250 2,294
United States Treasury Notes
5.250% due 12/31/97 2,965 2,955
5.625% due 01/31/98 1,560 1,559
7.250% due 02/15/98 40 41
5.125% due 03/31/98 720 715
6.125% due 05/15/98 440 442
5.375% due 05/31/98 865 860
6.000% due 05/31/98 3,720 3,732
8.250% due 07/15/98 4,090 4,236
6.250% due 07/31/98 1,390 1,399
4.750% due 08/31/98 2,940 2,890
6.125% due 08/31/98 4,725 4,746
6.000% due 09/30/98 3,215 3,223
4.750% due 10/31/98 40 39
5.500% due 11/15/98 1,060 1,053
5.875% due 03/31/99 2,595 2,593
6.750% due 05/31/99 200 203
6.750% due 06/30/99 1,000 1,018
Diversified Bond Fund 99
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
6.875% due 07/31/99 $ 425 $ 434
8.000% due 08/15/99 1,230 1,288
6.875% due 08/31/99 245 250
7.750% due 11/30/99 3,460 3,615
7.750% due 01/31/00 13,660 14,294
7.125% due 02/29/00 2,050 2,110
6.125% due 07/31/00 5,460 5,460
8.750% due 08/15/00 795 862
6.250% due 08/31/00 3,965 3,980
5.750% due 10/31/00 1,980 1,954
5.625% due 11/30/00 1,500 1,473
6.375% due 03/31/01 490 493
6.625% due 06/30/01 1,550 1,575
6.625% due 07/31/01 2,465 2,508
6.250% due 10/31/01 200 200
6.250% due 02/15/03 3,000 2,996
5.750% due 08/15/03 1,980 1,921
7.875% due 11/15/04 3,000 3,274
6.875% due 05/15/06 5,000 5,152
United States Treasury
Principal Only Strip
Zero Coupon due 11/15/99 200 169
Stripped Interest Payment
Zero Coupon due 08/15/08 1,700 795
----------
173,500
----------
YANKEE BONDS - 2.0%
African Development Bank
6.875% due 10/15/15 745 722
8.800% due 09/01/19 295 349
Alberta, Province of
9.250% due 04/01/00 160 174
Asian Development Bank
8.000% due 04/30/01 175 184
8.500% due 05/02/01 180 194
6.250% due 10/24/05 315 307
Finland, Republic of
5.875% due 02/27/06 475 448
Hydro Quebec Series GH
8.250% due 04/15/26 505 540
Hydro, Quebec
9.710% due 12/24/97 1,000 1,037
International American Development Bank
7.000% due 06/15/25 1,400 1,381
6.950% due 08/01/26 155 160
International Bank for
Reconstruction & Development
8.625% due 10/15/16 270 315
Manitoba, Province of
9.250% due 04/01/20 200 244
Metropolitano de Lisboa
7.420% due 10/15/16 750 764
New Brunswick, Province of
9.750% due 05/15/20 190 240
Newfoundland, Province of
10.000% due 12/01/20 90 114
Noranda Forest, Inc.
6.875% due 11/15/05 250 243
Nordbanken AB
7.250% due 10/30/06 775 776
Nova Scotia, Province of
9.125% due 05/01/21 640 762
Quebec, Province of
7.125% due 02/09/24 635 610
Saskatchewan, Province of
8.000% due 07/15/04 1,045 1,121
St. George Bank, Ltd.
7.150% due 10/01/05 425 424
----------
11,109
----------
TOTAL LONG-TERM INVESTMENTS
(cost $516,329) 522,561
----------
NUMBER
OF
SHARES
----------
OPTIONS PURCHASED - 0.2%
United States Treasury Notes
Jan 91.94 Call (e) 15,000* 1,104
----------
TOTAL OPTIONS PURCHASED
(cost $1,032) 1,104
----------
PREFERRED STOCKS - 0.4%
Australia & New Zealand Banking Group, 23,500 637
Credit Lyonnais Capital S.C.A. - ADR 15,700 375
Texaco Capital Series B 7,800 170
TIG Holdings, Inc. 7,200 758
----------
TOTAL PREFERRED STOCKS
(cost $1,899) 1,940
----------
100 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Short-Term Investments - 8.2%
Federal Home Loan Mortgage
Discount Notes
5.500% due 01/15/97 (a) $ 1,000 $ 998
Frank Russell Investment Company
Money Market Fund due on demand (a) 44,450 44,450
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $45,448) 45,448
----------
TOTAL INVESTMENTS
(identified cost $564,708)(d) - 102.8% 571,053
OTHER ASSETS AND LIABILITIES, NET - (2.8%) (15,288)
----------
NET ASSETS - 100.0% $ 555,765
----------
----------
(a) At cost, which approximates market.
(b) Forward commitment. See Note 2.
(c) Adjustable or floating rate securities.
(d) See Note 2 for federal income tax information.
(e) Nonincome-producing security.
* Represents 1 over-the-counter contract.
ABBREVIATIONS:
ADR - American Depositary Receipt
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced Security
FOREIGN CURRENCY ABBREVIATIONS:
CAD - Canadian dollar
NZD - New Zealand dollar
USD - U.S. dollar
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(Note 2)
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- -------------- -------------- -------------- --------------
USD 756 CAD 1,000 01/21/97 $ (24)
USD 756 CAD 1,000 01/27/97 (24)
CAD 1,000 USD 745 01/21/97 13
CAD 1,000 USD 748 01/27/97 16
CAD 3,235 USD 2,430 02/24/97 60
NZD 3,763 USD 2,648 05/19/97 7
--------------
$ 48
--------------
--------------
The accompanying notes are an integral part of the financial statements.
Diversified Bond Fund 101
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $564,708,031)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 571,052,865
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752,075
Forward foreign currency exchange contracts (cost $8,082,554)(Note 2). . . . . . . . . . . . . . . . 8,033,939
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,489,570
Investments sold (regular settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 9,883,264
Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 3,845,625
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,692,627
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,662
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,778,627
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . $ 14,935,920
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . 24,371,266
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,293,174
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 290,686
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,114
Forward foreign currency exchange contracts
(cost $8,082,554)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 7,986,104
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,013,264
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 555,765,363
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . $ (62,116)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,942,950)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,344,834
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,173
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,930
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559,135,492
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 555,765,363
---------------
---------------
Net asset value, offering and redemption price per share:
Class S ($554,803,554 divided by 24,151,160 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $22.97
---------------
---------------
Class C ($961,809 divided by 41,851 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22.98
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
102 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,362,387
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,454,283
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,229
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,041,899
Expenses (Notes 1, 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,360,392
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343,742
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303,734
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,260
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,006
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,716
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,537
Registration fees
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,081
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Distribution fees - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . 555
Shareholder servicing fees - Class C . . . . . . . . . . . . . . . . . . . . . 347
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,181,455
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,860,444
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,185
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,737
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . 288,392 445,314
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,844,879)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . (67,729) (15,912,608)
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,467,294)
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 18,393,150
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Bond Fund 103
<PAGE>
DIVERSIFIED BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,860,444 $ 34,316,604
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,314 5,039,195
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . (15,912,608) 44,791,172
--------------- ---------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 18,393,150 84,146,971
Distributions to shareholders:
Net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,897,529) (34,786,410)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,435) --
In excess of net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,687) --
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) --
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 57,559,521 (60,866,783)
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 41,956,991 (11,506,222)
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 513,808,372 525,314,594
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net investment income
of $62,116 and undistributed net investment income
of $48,520, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 555,765,363 $ 513,808,372
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
104 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS S
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 23.69 $ 21.53 $ 23.73 $ 23.49 $ 24.29
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . 1.47 1.54 1.46 1.48 1.62
Net realized and unrealized gain (loss) on investments . . (.71) 2.18 (2.22) .83 (.10)
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . .76 3.72 (.76) 2.31 1.52
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (1.48) (1.56) (1.42) (1.48) (1.63)
In excess of net investment income . . . . . . . . . . . . -- -- -- (.01) --
Net realized gain on investments . . . . . . . . . . . . . -- -- -- (.58) (.69)
In excess of net realized gain on investments. . . . . . . -- -- (.02) -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (1.48) (1.56) (1.44) (2.07) (2.32)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 22.97 $ 23.69 $ 21.53 $ 23.73 $ 23.49
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . 3.43 17.76 (3.25) 10.02 6.57
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets . . . . . .61 .59 .56 .58 .62
Operating expenses, gross, to average net assets . . . . .61 .59 .56 .58 .67
Net investment income to average net assets . . . . . . 6.46 6.69 6.57 6.13 6.79
Portfolio turnover . . . . . . . . . . . . . . . . . . . 138.98 135.85 153.21 177.74 228.37
Net assets, end of year ($000 omitted) . . . . . . . . . 554,804 513,808 525,315 477,341 412,394
Per share amount of fees waived ($ omitted). . . . . . . -- -- -- -- .0115
</TABLE>
Diversified Bond Fund 105
<PAGE>
DIVERSIFIED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS C
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
1996*
----------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 23.16
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . .25
Net realized and unrealized gain (loss) on investments . . . . (.09)
----------
Total Income From Investment Operations. . . . . . . . . . . . .16
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . (.34)
----------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . (.34)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 22.98
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . 0.67
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b) . . . . . . . . 1.31
Net investment income to average net assets (b). . . . . . . 5.75
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . 138.98
Net assets, end of period ($000 omitted) . . . . . . . . . . 962
* For the period November 4, 1996 (commencement of sale) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period ended December 31, 1996 are annualized.
106 Diversified Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To preserve capital and generate current income consistent with the
preservation of capital.
INVESTS IN: Fixed-income securities with low-volatility characteristics.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns with moderate risk relative to other short-term bond investments. The
Fund employed the investment management services of three managers using three
approaches to investment in short-term fixed income securities.
<TABLE>
<CAPTION>
DATES VOLATILITY CONSTRAINED ML 1-2.99 ** LIPPER-C- SHORT 1-5 YR ++
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1987 $10,427 $10,565 $10,509
1988 $11,237 $11,222 $11,230
1989 $12,432 $12,442 $12,367
1990 $13,541 $13,652 $13,367
1991 $15,166 $15,246 $14,955
1992 $15,513 $16,207 $15,808
1993 $16,547 $17,084 $16,781
1994 $16,545 $17,181 $16,719
1995 $18,180 $19,071 $18,516
1996 $19,028 $20,020 $19,342
- ----------------------------------------------------------------------------------------------------
Total $158,616 $162,690 $159,594
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
VOLATILITY CONSTRAINED BOND FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,466 4.66%
5 Years $ 12,547 4.64%#
10 Years $ 19,028 6.64%#
MERRILL LYNCH 1-2.99 YEARS TREASURY INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,498 4.98%
5 Years $ 13,131 5.60%#
10 Years $ 20,020 7.19%#
LIPPER-C- SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,446 4.46%
5 Years $ 12,933 5.28%#
10 Years $ 19,342 6.82%#
* Assumes initial investment on January 1, 1987.
** 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.
108 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Volatility Constrained Bond
Fund had a total return of 4.7%, as compared to the Merrill Lynch
1-2.99 Years Treasury Index results of 5%. The Fund modestly underperformed
the Index primarily due to a slightly longer-than-index duration during
much of the year that detracted from returns as interest rates rose.
PORTFOLIO HIGHLIGHTS
Short-maturity bonds outperformed longer alternatives during 1996.
Intermediate bonds, as measured by the Lehman Brothers Aggregate Bond
Index, rose only 3.6% while the Merrill Lynch 1-2.99 Years Treasury
Index gained 5%. As in other segments of the bond market, short-term
rates were volatile during the year. Yields on two- to five-year treasuries
rose more the 70 basis points. Hints of inflation in wages and the
producer price index along with robust economic growth kept investors
fearful of Federal Reserve intervention for much of 1996.
The Volatility Constrained Bond Fund's managers saw little real evidence
of inflationary threat, or of sustainable strong economic growth.
Good issue selection, particularly in corporates and mortgage- and
asset-backed securities, added value. The Fund's duration was a slight
detractor.
- -------------------------------------------------------------------
TOP TEN ISSUERS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
United States Treasury 35.2%
Federal Home Loan Mortgage Corp. 3.9
Government National Mortgage Association 3.5
Chase Manhattan Auto Owner Trust 3.0
Federal National Mortgage Association 2.9
Chase Manhattan Credit Card Master Trust 2.4
Sears Credit Account Trust 2.2
WSF Financial Owner Trust 2.2
Olympic Automobile Receivables Trust 2.2
Premier Auto Trust 2.1
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Weighted Average Quality Diversification AAA
Weighted Average Years-to-Maturity 2.5 Years
Weighted Average Duration 1.7 Years
Current Yield (SEC 30-day standardized) 5.5%
Number of Issues 123
Number of Issuers 98
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
Blackrock Financial Management Mortgage/Asset-Backed
Specialist
STW Fixed Income Management, Inc. Sector Rotation Core
Standish, Ayer & Wood, Inc. Corporate Specialist
- -------------------------------------------------------------------
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 109
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
LONG-TERM INVESTMENTS - 93.4%
ASSET-BACKED SECURITIES - 28.1%
AFC Home Equity Loan Trust
Series 1993 - 2 Class A
6.000% due 01/20/13 $ 218 $ 213
AFC Mortgage Loan Trust
Series 1996 - 3 Class 1A2
7.220% due 02/25/27 125 126
ALPS Pass-thru Trust
Series 1994-1 Class A-2
7.150% due 09/15/04 (c) 387 389
American Express Credit Account Master Trust
Series 1996-1 Class A
6.800% due 12/15/03 3,000 3,047
Associates Manufactured Housing
Mortgage Pass-Thru Certificate
Series 1996 - 1 Class A1
6.200% due 03/15/27 399 400
Banc One Auto Grantor Trust
Series 1996-A Class A
6.100% due 10/15/02 545 546
Series 1996-B Class A
6.550% due 02/15/03 334 336
Chase Manhattan Auto Owner Trust
Series 1996-C Class A3
5.950% due 11/15/00 4,820 4,802
Chase Manhattan Credit Card Master Trust
Series 1996-4 Class A
6.730% due 02/15/03 3,900 3,954
Chevy Chase Auto Receivables Trust
Series 1996-2 Class A
5.900% due 07/15/03 1,200 1,196
Daimler-Benz Vehicle Trust
Series 1996-A Class A
5.850% due 12/15/03 1,630 1,625
EQCC Home Equity Loan Trust
Series 1993-4 Class A
5.725% due 12/15/08 71 69
Series 1994-1 Class A
5.800% due 03/15/09 358 352
First Chicago Master Trust II
Credit Card Certificates Series 1994-L
7.150% due 04/15/01 3,200 3,274
First USA Credit Card Master Trust
Series 1994-4 Class A
5.995% due 08/15/03 (c) 1,000 1,009
Ford Credit Auto Lease Trust
Series 1996-1 Class A2
5.800% due 05/15/99 1,900 1,890
Ford Credit Grantor Trust
Series 1995-B Class A
5.900% due 10/15/00 1,256 1,255
Green Tree Financial Corp.
Series 1994-A Class A
6.900% due 02/15/04 539 538
Series 1995-A Class A
7.250% due 07/15/05 417 416
Series 1992-2 Class A-2
7.050% due 01/15/18 3 3
Honda Auto Receivables Grantor Trust
Series 1995-A Class A
6.200% due 12/15/00 738 740
Merrill Lynch Credit Corp.
5.775% due 07/15/21 (c) 931 926
Nationsbank Auto Owner Trust
Series 1996-A Class A3
6.375% due 07/15/00 2,500 2,512
Newcourt Receivables Asset Trust
Series 1996 - 2 Class A
6.870% due 06/20/04 275 276
Olympic Automobile Receivables Trust
Series 1996-D Class CTFS
6.125% due 11/15/04 3,500 3,486
Premier Auto Trust
Series 1996-3 Class A3
6.500% due 03/06/00 3,400 3,423
Remodelers Home Improvement Loan
Series 1995-3 Class A2
6.800% due 12/20/07 550 551
Sears Credit Account Master Trust II
Series 1995-4 Class A
6.250% due 01/15/03 3,500 3,514
SPNB Home Equity Loan
Series 1991-1 Class B
8.150% due 06/15/20 267 274
The Money Store Home Equity Loan Trust
Series 1996-B Class A3
6.820% due 02/15/10 600 603
TLFC IV Equipment Lease Trust
Series 1996 Class A
5.980% due 11/20/02 531 530
101 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
UCFC Home Equity Loan Trust
Series 1993-B1 Class A-1
6.075% due 07/25/14 $ 146 $ 144
WFS Financial Owner Trust
Series 1996-D Class A3
6.050% due 07/20/01 (c) 3,500 3,491
----------
45,910
----------
CORPORATE BONDS AND NOTES - 16.1%
Ahmanson (H.F.)
9.875% due 11/15/99 400 435
Bank of Boston Corp.
9.500% due 08/15/97 850 868
Capital One Bank (MTN)
6.844% due 06/13/00 900 901
Caterpillar Financial Services (MTN)
6.100% due 07/15/99 500 498
Chase Manhattan Corp.
5.750% due 12/05/09 (c) 800 783
CIT Group Holdings, Inc. (MTN)
6.200% due 04/15/98 725 728
Comdisco, Inc.
6.500% due 06/15/00 610 609
Connecticut Light & Power Co.
7.625% due 04/01/97 784 785
ERP Operating, L.P.
6.250% due 12/22/97 (c) 875 881
8.500% due 05/15/99 225 233
Finova Capital Corp.
6.450% due 06/01/00 625 625
First Union Corp.
6.750% due 01/15/98 410 413
First USA Bank
5.750% due 01/15/99 875 863
Fleet Financial Group, Inc.
6.000% due 10/26/98 150 150
Fleet/Norstar Financial Group, Inc.
7.650% due 03/01/97 875 877
General Motors Acceptance Corp.
7.137% due 04/01/20 1,000 1,008
General Motors Acceptance Corp. (MTN)
7.500% due 07/22/99 850 873
Greyhound Financial Corp.
8.500% due 02/15/99 775 807
GTE Corp.
10.750% due 09/15/17 1,200 1,293
Heller Financial, Inc. Series G (MTN)
6.880% due 09/13/99 675 683
Hertz Corp.
6.625% due 07/15/00 650 649
International Lease Finance Corp.
5.750% due 12/15/99 850 832
ITT Corp. New
6.250% due 11/15/00 450 443
Lehman Brothers Holdings, Inc.
Series IBC (MTN)
7.000% due 05/13/99 700 706
Merrill Lynch & Co., Inc.
9.000% due 05/01/98 765 793
Midlantic Corp.
9.250% due 09/01/99 450 479
Occidental Petroleum Corp. (MTN)
5.950% due 11/09/98 1,000 994
5.960% due 11/09/98 150 149
Salomon, Inc.
6.700% due 12/01/98 500 502
Salomon, Inc. CMT Floater (MTN)
6.292% due 04/05/99 (c) 1,000 1,000
Sears Roebuck & Co. Series 7 (MTN)
5.490% due 09/28/98 450 446
Taubman Realty Group, L.P.
8.000% due 06/15/99 475 485
Tennessee Gas Pipeline Co.
9.000% due 01/15/97 750 750
Time Warner, Inc.
9.625% due 05/01/02 825 920
Transamerica Financial Corp.
9.875% due 01/01/98 500 519
UCFC Home Equity Loan Trust
Series 1996-D1 Class A3
6.541% due 11/15/13 500 499
USF&G Corp.
7.000% due 05/15/98 1,000 1,009
WMX Technologies, Inc.
6.250% due 04/01/99 750 750
----------
26,238
----------
MORTGAGE-BACKED SECURITIES - 10.9%
Bear Stearns Mortgage Securities, Inc.
7.000% due 11/25/27 750 750
Federal Home Loan Mortgage Corp.
Participation Certificate
Group # 23-0114 7.375% due 03/01/06 (c) 418 425
Group # 42-0203 6.088% due 08/01/20 (c) 1,111 1,106
Group # 42-0204 6.095% due 08/01/20 (c) 1,663 1,655
Group # 85-0105 9.000% due 09/01/05 373 387
Volatility Constrained Bond Fund 111
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Group # A0-1600 8.000% due 09/01/18 $ 961 $ 998
Group # A0-1607 8.500% due 06/01/11 202 211
Group # D2-9159 7.500% due 10/01/07 584 595
Group # G5-0258 7.500% due 05/01/00 307 311
Group # G5-0259 7.500% due 03/01/02 275 279
Federal Home Loan Mortgage Corp.
Participation Certificate
Principal Only Strip
Zero Coupon due 12/15/23 329 321
Federal National Mortgage Association
Pool # 013957 8.500% due 11/01/01 188 193
Pool # 019455 8.750% due 03/01/04 68 70
Pool # 124671 7.500% due 04/01/09 613 626
Pool # 303749 7.000% due 11/01/08 447 452
Pool # 359448 8.500% due 12/01/10 868 906
Pool # 364703 7.000% due 06/01/04 987 994
Federal National Mortgage Association
REMIC Trust Series 1993-108 Class 108B
Zero Coupon due 12/25/16 278 269
REMIC Trust Series 1996 - T6 Class C
6.200% due 02/26/01 1,188 1,174
Government National Mortgage Association
Pool # 008000 7.125% due 06/20/22 (c) 2,235 2,284
Pool # 164674 9.000% due 05/15/16 432 463
Pool # 177711 9.000% due 09/15/16 191 205
Pool # 404594 9.000% due 01/15/25 379 400
Pool # 780285 9.500% due 11/15/25 863 941
Pool # 780487 7.250% due 12/15/26 1,294 1,309
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1992-M3 Class A-1
7.750% due 07/25/30 131 132
Series 1995-2 Class C1
7.450% due 05/25/29 (c) 346 345
----------
17,801
----------
UNITED STATES GOVERNMENT
AGENCIES - 1.1%
Resolution Funding Corp. Interest only strips
Zero Coupon due 10/15/98 950 856
Tennessee Valley Authority
5.980% due 04/01/36 900 914
----------
1,770
----------
UNITED STATES GOVERNMENT
TREASURIES - 34.9%
United States Treasury Notes
6.125% due 05/15/98 14,200 14,269
6.250% due 07/31/98 10,400 10,467
6.125% due 08/31/98 13,450 13,509
6.000% due 09/30/98 2,180 2,185
5.875% due 10/31/98 1,505 1,505
5.125% due 11/30/98 7,000 6,907
6.500% due 04/30/99 2,000 2,024
6.375% due 05/15/99 475 479
6.000% due 10/15/99 600 600
6.875% due 03/31/00 350 358
6.500% due 05/31/01 150 152
6.625% due 06/30/01 625 635
6.500% due 08/31/01 1,125 1,137
7.500% due 11/15/01 2,200 2,316
6.125% due 12/31/01 400 398
----------
56,941
----------
YANKEE BONDS - 2.3%
Household International
5.250% due 10/15/98 1,350 1,324
Noranda Forest, Inc.
8.875% due 10/15/99 450 473
Ontario, Province of
11.500% due 03/10/13 1,240 1,364
Quebec, Province of
13.250% due 09/15/14 450 540
----------
3,701
----------
TOTAL LONG-TERM INVESTMENTS
(cost $152,649) 152,361
----------
NUMBER
OF
SHARES
----------
PREFERRED STOCKS - 0.3%
ConAgra Capital LC Series (c) 3,400 76
Texaco Capital Series (c) 22,000 478
----------
Total Preferred Stocks
(cost $635) 554
----------
112 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
SHORT-TERM INVESTMENTS - 5.4%
Advanta Corp. (MTN)
6.250% due 07/08/97 $ 300 $ 300
Frank Russell Investment Company
Money Market Fund due on demand (a) 8,557 8,557
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $8,857) 8,857
----------
TOTAL INVESTMENTS
(identified cost $162,141)(b) - 99.1% 161,772
OTHER ASSETS AND LIABILITIES,
NET - 0.9% 1,425
----------
NET ASSETS - 100.0% $ 163,197
----------
----------
(a) At cost, which approximates market.
(b) See Note 2 for federal income tax information.
(c) Adjustable of floating rate securities.
ABBREVIATIONS:
MTN - Medium Term Note
REMIC - Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
Volatility Constrained Bond Fund 113
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $162,140,914)(Note 2) . . . . . . . . . . . . . . . . . . . $ 161,772,129
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,745,932
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,009,704
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,216,432
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,421
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,768,618
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . $ 867,152
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . 1,015,010
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504,379
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 122,941
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,121
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,571,603
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 163,197,015
---------------
---------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 763,277
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,796,230)
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . (368,785)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,584
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,513,169
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 163,197,015
---------------
---------------
Net asset value, offering and redemption price per share
($163,197,015 divided by 8,558,440 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19.07
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
114 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,942,761
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775,618
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,238
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,783,617
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 836,818
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,475
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,676
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,167
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,852
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,738
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,654
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,282
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,267,662
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,515,955
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,356,862)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172 (2,355,690)
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,385 275,385
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . (2,080,305)
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . $ 7,435,650
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Volatility Constrained Bond Fund 115
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,515,955 $ 12,472,159
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,355,690) (909,727)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 275,385 6,895,465
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 7,435,650 18,457,897
Distributions to shareholders from net investment income . . . . . . . . . . . . (8,805,390) (12,574,744)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . (17,314,716) (19,008,806)
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . (18,684,456) (13,125,653)
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 181,881,471 195,007,124
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $763,277 and $55,112 respectively). . . . . . . . . . . . . . . . . . . . . $ 163,197,015 $ 181,881,471
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
116 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 19.21 $ 18.64 $ 19.78 $ 19.51 20.33
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . 1.09 1.21 1.15 .82 1.34
Net realized and unrealized gain (loss) on investments . . (.22) .58 (1.16) .45 (.88)
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . .87 1.79 (.01) 1.27 .46
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (1.01) (1.22) (1.13) (.71) (1.28)
Tax return of capital. . . . . . . . . . . . . . . . . . . -- -- -- (.29) --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (1.01) (1.22) (1.13) (1.00) (1.28)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 19.07 $ 19.21 $ 18.64 $ 19.78 19.51
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . 4.66 9.89 (.02) 6.67 2.29
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . . .76 .71 .67 .66 .68
Net investment income to average net assets . . . . . . . 5.69 6.33 5.97 5.79 6.74
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 311.51 256.72 182.65 220.77 312.05
Net assets, end of year ($000 omitted) . . . . . . . . . . 163,197 181,881 195,007 225,672 292,909
</TABLE>
Volatility Constrained Bond Fund 117
<PAGE>
MULTISTRATEGY BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide maximum total return through capital appreciation and by
assuming a higher level of volatility than is ordinarily expected from broad
fixed-income market portfolios.
INVESTS IN: Fixed-income securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns by assuming the additional risk of investment in
non-investment grade U.S. fixed income securities, and foreign bonds including
emerging markets debt in addition to U.S. investment grade fixed income
instruments. The Fund employed the investment management services of three
managers with three separate approaches to bond market investment.
<TABLE>
<CAPTION>
DATES 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
1996 $12,875 $12,835 $12,216
- ---------------------------------------------------------------------------------------
Total $56,415 $56,443 $54,716
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
MULTISTRATEGY BOND FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,497 4.97%
Inception $ 12,875 6.66%#
LEHMAN BROTHERS AGGREGATE BOND INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,363 3.63%
Inception $ 12,835 6.58%#
LIPPER-C- INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,318 3.18%
Inception $ 12,216 5.48%#
* 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 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. 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.
118 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Multistrategy Bond Fund had a total
return of 5% as compared to the Lehman Brothers Aggregate Bond Index results of
3.6%. The Fund outperformed the index primarily due to the strong performance of
non-investment grade and emerging markets debt holdings, which significantly
improved performance during the year.
PORTFOLIO HIGHLIGHTS
Although 1996 provided very few opportunities for fixed income investors to
generate strong returns, investors found opportunities in two of the riskier
segments of the bond market--high yield US bonds and emerging markets debt. High
yield bonds rewarded investors willing to accept the underlying credits risks.
However, the performance opportunity was even more significant in emerging
markets debt which produced dramatic gains for the year.
The strategy of the Multistrategy Bond Fund was well suited to the investment
environment in 1996. There were few opportunities to generate significant
returns in the investment grade market. The Fund managers did find better
performing alternatives in other segments of the global bond market. In addition
to generating healthy returns from both high yield and emerging markets
holdings, the Fund managers found return opportunities in some developed foreign
markets, including Canada. Within the investment grade market, the managers used
effective security selection in mortgage-backed securities to add value.
Duration was the only materially negative factor in the Fund's performance as
interest rates during the course of the year.
- -------------------------------------------------------------------
TOP TEN ISSUERS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
United States Treasury 20.0%
Federal National Mortgage Association 11.0
Federal Home Loan Mortgage Corp. 9.7
Government National Mortgage Association 8.9
Time Warner, Inc. 1.4
United Mexican States 1.1
Government of Canada 1.0
EQCC Home Equity Loan Trust 0.9
Receivables Capital Corp. 0.8
Green Tree Financial Corp. 0.8
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Weighted Average Quality Diversification AA
Weighted Average Years-to-Maturity 8.3 Years
Weighted Average Duration 4.8 Years
Current Yield (SEC 30-day standardized) 6.0%
Number of Issues 305
Number of Issuers 240
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS STYLES
BEA Associates Broad Market-Sector
Rotation
Pacific Investment Management Co. Broad Market-Sector
Rotation
Standish Ayer & Wood, Inc. Broad Market-Sector
Rotation
- -------------------------------------------------------------------
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.
Multistrategy Bond Fund 119
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
LONG-TERM INVESTMENTS - 88.4%
ASSET-BACKED SECURITIES - 5.4%
American Airlines, Inc.
Series 1990-H
9.800% due 01/02/08 $ 1,190 $ 1,385
Asset Securitization Corp.
Series 1996-MD6 Class A1C
7.040% due 11/13/26 800 811
CIT RV Grantor Trust
Series 1994-A Class A
4.900% due 07/15/09 586 572
Cityscape Home Equity Loan Trust
Pass-thru Certificate
Series 1996-2 Class A2
7.200% due 04/25/11 900 911
EQCC Home Equity Loan Trust
Series 1996-4 Class A1
5.790% due 12/15/02 3,000 3,000
Fleetwood Credit Corp. Grantor Trust
Series 1994-B Class A
6.750% due 03/15/10 455 455
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 152 146
GMAC Commercial Mortgage Securities, Inc.
Series 1996-C1 Class F
7.860% due 11/15/06 500 433
Green Tree Financial Corp.
Series 1995-5 Class A3
6.250% due 10/15/25 600 600
Series 1995-6 Class A3
6.650% due 11/15/25 900 906
Series 1995-8 Class A2
6.150% due 12/15/26 (c) 950 952
Greenwich Capital Acceptance, Inc.
Series 1994 Class A-1
8.630% due 11/25/24 (c) 466 476
Merrill Lynch Mortgage Investors, Inc.
Mortgage Pass-thru Certificate
Series 1996-C2 Class A2
6.820% due 11/21/28 (c) 340 343
Morgan Stanley Capital I, Inc.
Mortgage Pass-thru Certificate
Series 1996-WF1 Class X
1.423% due 01/15/13 (c) 3,450 276
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1994-1 Class M-2
7.750% due 09/25/29 425 429
Series 1994-C2 Class G
8.000% due 04/25/25 291 261
Resolution Trust Corp.
Series 1995-1 Class 2-C
7.500% due 10/25/28 (c) 325 328
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 300 295
Salomon Brothers Mortgage
Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16
8.316% due 11/25/24 (c) 1,354 1,391
Structured Asset Securities Corp.
Mortgage Pass-thru Certificate
Series 1996-CFL Class A1C
5.944% due 02/25/28 360 352
Structured Asset Securities Corp.
Series 1996-CFL Class C
6.525% due 02/25/28 250 242
The Money Store Home Equity Loan Trust
Series 1996-B Class A5
7.180% due 12/15/14 750 761
The Money Store Trust
Series 1996-A Class A5
6.850% due 06/15/19 700 701
TMS Home Equity Loan Trust
Series 1992-B Class A
6.900% due 07/15/07 281 280
UCFC Home Equity Loan Trust
Series 1994-B Class A-6
7.100% due 06/10/23 339 345
----------
16,651
----------
CORPORATE BONDS AND NOTES - 21.3%
Aames Financial Corp.
9.125% due 11/01/03 475 485
ADT Operations, Inc.
8.250% due 08/01/00 400 423
120 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Advanta National Bank
6.450% due 10/30/00 $ 700 $ 690
AK Steel Corp.
10.750% due 04/01/04 625 683
American Airlines Class A-1
9.710% due 01/02/07 350 393
American Standard, Inc.
10.875% due 05/15/99 350 374
American Standard, Inc. Step Up Bond
Zero coupon due 06/01/05 500 465
AMR Corp. (MTN)
9.950% due 03/07/01 1,000 1,105
Anchor Bancorp, Inc.
8.937% due 07/09/03 375 376
Armco, Inc.
9.375% due 11/01/00 265 266
AT&T Capital Corp. (MTN)
6.030% due 10/27/97 1,100 1,103
Banesto Delaware, Inc.
8.250% due 07/28/02 500 530
Bank of Boston Capital Trust I
8.250% due 12/15/26 1,500 1,530
Bank United Corp.
8.050% due 05/15/98 200 196
Beaver Valley Funding Corp. II
8.625% due 06/01/07 205 199
BellSouth Capital Funding Corp.
6.040% due 11/15/26 800 791
BellSouth Telecommunications, Inc.
5.850% due 11/15/45 1,100 1,083
Capital One Bank (MTN)
8.125% due 03/01/00 325 338
6.875% due 04/24/00 375 376
Century Communications Corp.
9.500% due 08/15/00 425 437
Chase Manhattan Corp. New
6.250% due 01/15/06 310 294
Chelsea GCA Realty, Inc.
7.750% due 01/26/01 440 446
Chevy Chase Savings Bank
9.250% due 12/01/05 500 510
Citicorp
6.750% due 08/15/05 350 343
7.125% due 09/01/05 450 454
Clark Oil & Refining Corp.
10.500% due 12/01/01 75 78
9.500% due 09/15/04 150 152
Cleveland Electric Illum Co.
7.625% due 08/01/02 570 571
9.375% due 03/01/17 1,000 1,026
CMS Energy Corp.
9.500% due 10/01/97 (c) 1,000 1,024
Coast Federal Bank
13.000% due 12/31/02 375 415
Coast Savings Financial, Inc.
10.000% due 03/01/00 175 181
Coastal Corp.
10.375% due 10/01/00 500 561
Colonial Realty L.P.
7.500% due 07/15/01 775 785
Comcast Corp.
9.125% due 10/15/06 275 282
10.625% due 07/15/12 300 327
Commercial Federal Corp.
7.950% due 12/01/06 100 100
Conseco Financing Trust II
8.700% due 11/15/26 700 704
Contifinancial Corp.
8.375% due 08/15/03 400 412
Continental Airlines, Inc.
9.500% due 12/15/01 710 722
CP Limited Partnership
8.750% due 03/02/00 500 509
Crown Packaging Enterprises Step Up Bond
Zero Coupon due 08/01/06 300 80
CTC Mansfield Funding Corp.
10.250% due 03/30/03 498 505
Delta Air Lines, Inc.
10.375% due 02/01/11 340 417
Dime Bancorp, Inc.
10.500% due 11/15/05 320 352
EnviroSource, Inc.
9.750% due 06/15/03 310 292
ERAC USA Finance Co. (MTN)
6.350% due 01/15/01 725 714
ERP Operating, L.P.
8.500% due 05/15/99 350 362
Exide Corp.
10.750% due 12/15/02 250 261
10.000% due 04/15/05 250 259
Falcon Holdings Group, L.P.
PIK Series B
11.000% due 09/15/03 275 248
Federal Realty Investment Trust
8.875% due 01/15/00 650 685
Multistrategy Bond Fund 121
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Ferrellgas Partners LP Series B
9.375% due 06/15/06 $ 450 $ 455
First Nationwide Holdings, Inc.
12.250% due 05/15/01 425 479
12.500% due 04/15/03 1,370 1,534
First USA Bank
5.850% due 02/22/01 500 480
Forcenergy, Inc.
9.500% due 11/01/06 900 938
Ford Motor Credit Co.
6.850% due 08/15/00 475 479
Fresenius Medical Care Capital Trust
9.000% due 12/01/06 255 229
Gaylord Container Corp. Step Up Bond
12.750% due 05/15/05 (c) 165 182
General Motors Acceptance Corp. (MTN)
7.375% due 04/15/99 940 961
8.500% due 01/31/00 600 634
6.625% due 04/24/00 550 553
6.900% due 07/05/00 180 182
Goldman Sachs Group, L.P.
6.375% due 06/15/00 400 397
6.200% due 02/15/01 300 295
Guangdong International
Trust & Investment Corp.
8.750% due 10/24/16 800 811
Healthsouth Rehabilitation Corp.
9.500% due 04/01/01 750 795
Hills Stores Co., Series B
12.500% due 07/01/03 250 222
Homeside, Inc. Series B
11.250% due 05/15/03 350 390
ISP Holdings, Inc.
9.000% due 10/15/03 450 457
Israel Electric Corp., Ltd.
7.250% due 12/15/06 1,900 1,889
Loewen Group International, Inc.
7.750% due 10/15/01 200 204
8.250% due 10/15/03 700 709
Long Island Lighting Co.
9.000% due 11/01/22 530 558
Mellon Capital I Series A
7.720% due 12/01/26 975 955
Merrill Lynch & Co., Inc.
6.500% due 04/01/01 300 299
MFS Communications, Inc. Step Up Bond
Zero Coupon due 01/15/06 525 382
Nabisco, Inc.
8.000% due 01/15/00 2,000 2,077
Niagara Mohawk Power Corp.
5.875% due 09/01/02 480 425
7.375% due 08/01/03 190 178
Noranda, Inc.
8.625% due 07/15/02 400 432
NWA Trust
13.875% due 06/21/08 90 107
NWCG Holdings Corp. Series B
Zero coupon due 06/15/99 1,175 981
Ocwen Federal Bank
12.000% due 06/15/05 300 329
Ocwen Financial Corp.
11.875% due 10/01/03 425 458
PDV America, Inc.
7.875% due 08/01/03 750 751
Peters (JM), Co.
12.750% due 05/01/02 230 219
Prime Succession Acquisition Co.
10.750% due 08/15/04 400 433
Public Service Co., New Hampshire
Series B
9.170% due 05/15/98 1,500 1,534
Riggs Capital Trust
8.625% due 12/31/26 225 221
Riggs National Corp.
9.650% due 06/15/09 250 289
Rose Hills Acquisition Corp.
9.500% due 11/15/04 500 510
Safeway, Inc.
10.000% due 12/01/01 450 505
Salomon, Inc.
7.000% due 05/15/99 275 277
7.750% due 05/15/00 550 565
Salomon, Inc. (MTN)
7.125% due 08/01/99 275 278
6.625% due 11/30/00 750 744
Smith Barney Holdings, Inc.
7.980% due 03/01/00 400 416
Specialty Equipment Co, Inc.
11.375% due 12/01/03 100 109
Spieker Properties, LP
6.950% due 12/15/02 500 496
Summit Communications Group, Inc.
10.500% due 04/15/05 610 671
Taubman Realty Group, L.P.
8.000% due 06/15/99 450 460
122 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Time Warner, Inc.
6.460% due 08/15/00 (c) $ 375 $ 377
7.975% due 08/15/04 225 229
8.110% due 08/15/06 450 461
8.180% due 08/15/07 450 462
9.150% due 02/01/23 125 135
6.850% due 01/15/26 2,410 2,350
Toledo Edison Co.
8.700% due 09/01/02 500 497
Toledo Edison Co. (MTN)
8.000% due 12/31/98 500 501
Transamerica Capital I
7.800% due 12/01/26 365 354
Turner Broadcasting Systems, Inc.
8.375% due 07/01/13 850 868
UCC Investors Holding, Inc. Step Up Bond
Zero coupon due 05/01/05 220 189
Union Planters Capital Trust Series A
8.200% due 12/15/26 675 669
United Companies Financial Corp.
9.350% due 11/01/99 375 396
USAir, Inc.
10.000% due 07/01/03 460 466
Viacom, Inc.
7.750% due 06/01/05 1,775 1,748
Wellsford Residential Property Trust
9.375% due 02/01/02 475 518
----------
65,068
----------
EURODOLLAR BONDS - 3.7%
Argentina, Republic of
5.250% due 03/31/23 (c) 250 158
Argentina, Republic of, Series L
6.625% due 03/31/05 (c) 1,960 1,703
Auxiliaire Du Credit
5.727% due 09/25/02 (c) 300 288
Brazil, Federal Republic of
6.688% due 01/01/01 (c) 455 441
Columbia, Republic of
7.250% due 02/15/03 210 205
Companhia Petroleo Ipiranga
8.625% due 02/25/02 (c) 600 603
Credit Fonc France
8.000% due 01/14/02 685 725
Credit Lyonnais
6.625% due 09/19/49 (f) 230 226
Fifth Mexican Acceptance Corp. Class A
8.000% due 12/15/98 550 143
Hong Kong & Shanghai Bank
6.000% due 08/29/49 (f) 535 466
Indah Kiat Paper & Pulp
8.875% due 11/01/00 425 422
Mexico (United Mexican States)
11.375% due 09/15/16 800 842
6.352% due 12/31/18 (c) 1,000 861
6.453% due 12/31/19 (c) 2,000 1,723
Midland Bank
6.063% due 12/31/49 (f) 130 115
Poland, Government of
6.500% due 10/27/24 (c) 420 408
Russia Vnesh Interest
12.000% due 12/31/16 800 555
Skandinaviska Enskilda Banken
8.125% due 09/06/49 (f) 475 494
Skandinaviska Enskilda Series 1 (MTN)
6.625% due 03/29/49 (f) 800 782
----------
11,160
----------
MORTGAGE-BACKED SECURITIES - 32.9%
Asset Securitization Corp.
Series 1995-MD4 Class A1
7.100% due 08/13/29 985 996
Collateralized Mortgage Securities Corp.
Series J Class J-5 CMO
7.985% due 05/01/17 2,144 2,177
FDIC REMIC Trust
Series 1994-C1 Class 2A-2
7.85% due 09/25/25 435 441
Federal Home Loan Mortgage Corp.
7.000% 15 Year TBA (e) 1,750 1,749
6.500% 30 year TBA (e) 4,300 4,110
8.000% 30 year TBA (e) 3,650 3,721
Federal Home Loan Mortgage Corp.
Participation Certificate
Group # C0-0477 7.500% due 09/01/26 605 605
Group # D6-9409 6.500% due 03/01/26 608 582
Group # D7-1567 6.500% due 05/01/26 449 429
Group # D7-3397 7.500% due 08/01/26 1,752 1,753
Group # D7-4373 7.500% due 09/01/26 1,975 1,977
Group # G0-0613 7.000% due 12/01/25 4,750 4,658
Multistrategy Bond Fund 123
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
Group # G0-0620 7.000% due 12/01/25 $ 3,850 $ 3,775
Group # G1-0614 6.500% due 01/01/12 4,343 4,264
Federal Home Loan Mortgage Corp.
Participation Certificate
Series 1014 Class E
7.950% due 02/15/20 833 842
Series 1037 Class Z
9.000% due 02/15/21 1,675 1,761
Federal National Mortgage Association
Pool # 124032 10.000% due 02/01/05 369 392
Pool # 190504 7.794% due 11/01/23 (c) 1,496 1,551
Pool # 209541 6.500% due 02/01/26 67 64
Pool # 250359 7.000% due 10/01/25 1,217 1,191
Pool # 250375 6.500% due 09/01/25 1,926 1,839
Pool # 276234 7.000% due 05/01/24 509 500
Pool # 286017 7.000% due 06/01/24 711 698
Pool # 303016 6.000% due 10/01/01 1,080 1,054
Pool # 303555 7.000% due 09/01/25 1,956 1,914
Pool # 312494 7.000% due 07/01/25 433 424
Pool # 316651 7.000% due 08/01/25 288 282
Pool # 316681 7.000% due 07/01/25 1,290 1,262
Pool # 317262 7.000% due 07/01/25 368 360
Pool # 318863 7.000% due 08/01/25 754 737
Pool # 319580 7.000% due 08/01/25 834 816
Pool # 324193 7.000% due 09/01/25 276 270
Pool # 324205 7.000% due 09/01/25 941 921
Pool # 331372 6.500% due 11/01/25 7,725 7,399
Pool # 331614 6.500% due 01/01/26 445 425
Pool # 334653 7.000% due 01/01/26 207 203
Pool # 336399 7.000% due 02/01/26 793 776
Pool # 338417 6.500% due 05/01/26 894 852
Pool # 339682 6.500% due 03/01/26 720 688
Pool # 342072 6.500% due 03/01/26 658 628
Federal National Mortgage Association
7.000% 7 year TBA (e) 2,135 2,144
7.000% 15 Year TBA (e) 2,450 2,447
7.500% 30 Year TBA (e) 3,750 3,748
Federal National Mortgage Association
REMIC Trust Series 1994-79 Class Z
7.000% due 04/25/24 2,409 2,116
Government National Mortgage Association
Pool # 008163 6.500% due 03/20/23 (c) 2,132 2,177
Pool # 008288 7.125% due 09/20/23 (c) 669 683
Pool # 008302 7.000% due 10/20/23 (c) 1,098 1,119
Pool # 008528 7.000% due 10/20/24 (c) 2,682 2,743
Pool # 008530 7.000% due 10/20/24 (c) 2,274 2,327
Pool # 144900 9.000% due 04/15/16 228 245
Pool # 152041 9.000% due 04/15/16 365 392
Pool # 156811 9.000% due 04/15/16 273 293
Pool # 157764 9.000% due 04/15/16 137 147
Pool # 159768 9.000% due 07/15/16 460 493
Pool # 160543 9.000% due 05/15/16 468 501
Pool # 165612 9.000% due 06/15/16 251 269
Pool # 171776 9.000% due 11/15/16 390 418
Pool # 176634 9.000% due 08/15/16 386 413
Pool # 182919 9.000% due 02/15/17 474 509
Pool # 321855 7.500% due 06/15/23 196 197
Pool # 348193 7.500% due 07/15/23 314 316
Pool # 348888 7.000% due 07/15/23 1,456 1,430
Pool # 352050 7.000% due 10/15/23 963 947
Pool # 352129 9.000% due 08/15/24 504 532
Pool # 353132 7.500% due 07/15/23 115 115
Pool # 359600 7.500% due 07/15/23 82 82
Pool # 366793 7.000% due 05/15/24 843 829
Pool # 379791 9.000% due 04/15/25 191 202
Pool # 385312 9.000% due 11/15/24 474 501
Pool # 389622 9.000% due 10/15/24 328 346
Pool # 393772 9.000% due 04/15/25 489 515
Pool # 401237 9.000% due 01/15/25 206 218
Pool # 404014 9.000% due 12/15/24 190 200
Pool # 405334 9.000% due 10/15/24 122 129
Pool # 405602 6.500% due 04/15/26 803 765
Pool # 417388 6.500% due 05/15/26 63 60
Pool # 426400 7.000% due 01/15/26 978 957
Pool # 780029 9.000% due 11/15/24 319 342
Government National Mortgage Association
7.000% 30 Year TBA (e) 5,000 4,891
8.000% 30 Year TBA (e) 2,275 2,321
Paine Webber Mortgage Acceptance Corp. IV
Series 1995-M1 Class A
6.700% due 01/15/07 720 723
Ryland Acceptance Corp.
Series 83 Class 83-E CMO
8.150% due 10/01/17 40 40
Ryland Mortgage Securities Corp.
Series 1993-8 Class A CMO
7.840% due 09/25/23 (c) 1,572 1,588
----------
100,516
----------
NON-US BONDS - 1.0%
Canada, Government of
8.000% due 11/01/98 CAD 4,000 3,111
----------
3,111
----------
124 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
UNITED STATES GOVERNMENT
AGENCY - 0.5%
Tennessee Valley Authority
5.980% due 04/01/36 $ 1,450 $ 1,473
----------
1,473
----------
UNITED STATES GOVERNMENT
TREASURIES - 20.9%
United States Treasury Bonds
7.500% due 11/15/16 50 54
8.125% due 08/15/19 6,200 7,172
8.750% due 08/15/20 2,425 2,988
7.875% due 02/15/21 8,090 9,144
United States Treasury Notes
5.875% due 07/31/97 25,000 25,062
5.375% due 11/30/97 325 324
5.625% due 01/31/98 525 525
7.750% due 11/30/99 450 470
5.750% due 10/31/00 130 128
7.125% due 02/29/00 300 309
5.625% due 11/30/00 350 344
6.375% due 03/31/01 2,025 2,039
6.250% due 04/30/01 1,575 1,578
6.625% due 06/30/01 6,700 6,808
6.250% due 02/15/03 225 225
5.750% due 08/15/03 225 218
7.500% due 02/15/05 500 535
6.500% due 08/15/05 825 830
6.875% due 05/15/06 3,325 3,426
United States Treasury
Principal Only Strip
Zero Coupon due 11/15/99 465 392
United States Treasury
Interest Only Strips
Zero Coupon due 08/15/08 1,550 725
Zero Coupon due 05/15/18 950 221
Zero Coupon due 02/15/19 1,775 391
----------
63,908
----------
YANKEE BONDS - 2.7%
Bombril SA
8.000% due 08/26/98 400 390
Doman Industries, Ltd.
8.750% due 03/15/04 420 393
Domtar, Inc.
9.500% due 08/01/16 225 247
Fresh Delmonte Produce Series B
10.000% due 05/01/03 1,430 1,365
Gulf Canada Resources, Ltd.
9.625% due 07/01/05 1,535 1,662
8.350% due 08/01/06 200 208
Kabelmedia Holdings Step Up Bond
Zero Coupon due 08/01/06 800 446
Methanex Corp.
7.750% due 08/15/05 775 796
National Westminster Bank PLC
5.875% due 12/31/99 (c) 290 259
Rogers Cantel, Inc.
9.375% due 06/01/08 675 709
Santander Finnish Issuances
6.525% due 09/30/49 (c) 250 248
St. George Bank, Ltd.
7.150% due 10/01/05 700 699
Tembec Finance Corp.
9.875% due 09/30/05 600 561
Videotron Holdings PLC Step Up Bond
Zero Coupon due 08/01/06 200 161
----------
8,144
----------
TOTAL LONG-TERM INVESTMENTS
(cost $267,389) 270,031
----------
NUMBER
OF
SHARES
--------
WARRANTS - 0.0%
Capital Pacific Holdings, Inc.
2002 Warrants (a) 1,817 1
----------
TOTAL WARRANTS
(cost $0) 1
----------
PREFERRED STOCKS - 0.9%
American RE Capital 18,100 468
Australia & New Zealand
Banking Group, Ltd. 5,300 144
California Federal Bank of Los Angeles
Series B 4,475 492
Multistrategy Bond Fund 125
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Credit Lyonnais Capital S.C.A. - ADR 6,400 $ 153
MCI Capital I Series A 9,000 225
NB Capital Trust I 20,850 516
Newscorp Overseas, Ltd. 8,000 182
Texaco Capital Series B 2,100 46
Time Warner, Inc. Series M
Payment-In-Kind Bond 460 492
Wellsford Residential Property Trust
Series B 5,000 127
----------
TOTAL PREFERRED STOCKS
(cost $2,764) 2,845
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 16.5%
Federal Farm Credit Bank Consolidated
Discount Notes
5.530% due 01/14/97 (a)(b) $ 515 514
Federal Home Loan Mortgage
Discount Notes
5.520% due 01/22/97 (a)(b) 1,000 997
Frank Russell Investment Company
Money Market Fund due on demand (b) 45,714 45,714
Receivables Capital Corp.
Discount Notes
5.720% due 01/15/97 (a)(b) 2,500 2,494
United States Treasury Bills (a)(g)
4.975% due 01/23/97 (b) 350 349
4.900% due 03/06/97 150 149
4.950% due 03/13/97 160 158
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $50,375) 50,375
----------
TOTAL INVESTMENTS
(identified cost $320,528)(d) - 105.8% 323,252
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (5.8%) (17,824)
----------
NET ASSETS - 100.0% $ 305,428
----------
----------
(a) Rate noted is yield-to-maturity (unaudited).
(b) At cost, which approximates market.
(c) Adjustable or floating rate security.
(d) See Note 2 for federal income tax information.
(e) Forward commitment. See Note 2.
(f) Perpetual floating rate note.
(g) Held as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
ABBREVIATIONS:
ADR - American Depositary Receipt
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
FOREIGN CURRENCY ABBREVIATIONS:
CAD - Canadian dollar
USD - U.S. dollar
The accompanying notes are an integral part of the financial statements.
126 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
FUTURES CONTRACTS
(Notes 2 and 3)
United States Treasury 5 Year Note
Futures Contracts
expiration date 03/97 10 $ (5)
United States Treasury 10 Year Note
Futures Contracts
expiration date 03/97 254 (290)
United States Treasury 30 Year Bond
Futures Contracts
expiration date 03/97 75 (28)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ (323)
----------
----------
(#) At December 31, 1996, United States Treasury Bills valued at $656 were held
as collateral by the custodian in connection with futures contracts
purchased and options written by the Fund.
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
PUT OPTIONS WRITTEN
(Notes 2 and 3)
Eurodollar Financial Futures Contract
strike price 93.00
expiration date 03/97 $ 19,000* $ 0.5
----------
Total Liability for Put Options Written
(premiums received $7)(#) $ 0.5
----------
----------
* Represents 19 contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(Note 2)
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- -------------- -------------- -------------- --------------
USD 2,912 DEM 4,317 01/16/97 $ (104)
USD 2,499 DEM 3,742 01/24/97 (63)
USD 758 CAD 1,000 03/06/97 (24)
DEM 4,317 USD 3,017 01/16/97 209
DEM 3,742 USD 2,586 01/24/97 150
CAD 4,314 USD 3,241 02/24/97 79
CAD 1,000 USD 736 03/06/97 2
--------------
$ 249
--------------
--------------
The accompanying notes are an integral part of the financial statements.
Multistrategy Bond Fund 127
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $320,528,004)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 323,252,067
Forward foreign currency exchange contracts (cost $15,748,446)(Note 2) . . . . . . . . . . . . . . . 15,557,091
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,942,712
Investments sold (regular settlement) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,811,498
Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,922,813
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,239,594
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,669
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,310
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,758,754
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . $ 5,464,803
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . 27,667,148
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,236
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 214,715
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,889
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . 296,875
Forward foreign currency exchange contracts
(cost $15,748,446)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . 15,307,631
Options written, at market value
(premiums received $7,498)(Notes 2 and 3). . . . . . . . . . . . . . . . . . . 475
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,330,772
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 305,427,982
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . $ (85,243)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (128,921)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,724,063
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (323,375)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,023
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,976
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301,983
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,683,476
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 305,427,982
---------------
---------------
Net asset value, offering and redemption price per share
($305,427,982 divided by 30,198,317 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.11
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
128 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,385,556
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,514,370
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,772
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,025,698
Expenses (Notes 2 and 4):
Management Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,673,473
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,277
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,140
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,185
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,536
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,972
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,670
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . 6,807
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,452
---------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . 2,255,512
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . (157,752)
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,097,760
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,927,938
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,686
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,770
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,953
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . 225,871 534,280
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,011,345)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (609,594)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . 263,020 (2,356,957)
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,822,677)
---------------
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 14,105,261
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Multistrategy Bond Fund 129
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,927,938 $ 12,917,252
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 534,280 5,321,847
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . (2,356,957) 13,815,088
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 14,105,261 32,054,187
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,941,675) (13,104,794)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . (282,684) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (87,470) --
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 88,869,057 26,780,829
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 86,662,489 45,730,222
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 218,765,493 173,035,271
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net investment income
of $85,243 and undistributed net investment income
of $13,737, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 305,427,982 $ 218,765,493
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
130 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993++
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 10.25 $ 9.29 $ 10.31 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .61 .65 .58 .46
Net realized and unrealized gain (loss) on investments . . (.12) .97 (1.03) .40
-------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . .49 1.62 (.45) .86
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.61) (.66) (.57) (.46)
In excess of net investment income . . . . . . . . . . . . (.01) -- -- --
Net realized gain on investments . . . . . . . . . . . . . (.01) -- -- (.08)
In excess of net realized gain on investments. . . . . . . -- -- -- (.01)
-------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (.63) (.66) (.57) (.55)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 10.11 $ 10.25 $ 9.29 $ 10.31
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . 4.97 17.92 (4.35) 8.74
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b) . . . . .81 .85 .85 .85
Operating expenses, gross, to average net assets (b) . . . .88 .89 .90 1.20
Net investment income to average net assets (b). . . . . . 6.19 6.61 6.26 5.60
Portfolio turnover (b) . . . . . . . . . . . . . . . . . . 145.38 142.26 136.39 188.95
Net assets, end of year ($000 omitted) . . . . . . . . . . 305,428 218,765 173,035 98,374
Per share amount of fees waived ($ omitted)(c) . . . . . . .0055 -- -- .0002
Per share amount of fees reimbursed ($ omitted)(c) . . . . .0005 .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 for current period amounts.
Multistrategy Bond Fund 131
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 23 different investment portfolios, referred to as "Funds".
These financial statements report on eight 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. As of July 8, 1996, the eight
Funds that are reported in these financial statements have available Class S
and Class C shares. Each Class has equal rights as to assets and voting
privileges. Investment income, realized and unrealized gains and losses and
fund level expenses of a Fund are allocated on a pro rata basis to each
Class, based on relative net assets of each Class to the total net assets of
a Fund. Certain expenses may also be charged to an individual Class for
services or fees that relate specifically to that particular Class. Class C
shares are charged a 12b-1 distribution fee and a shareholder servicing fee
of 0.40% and 0.25% of average net assets, respectively. Class S shares which
are reported herein are charged no such fees.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management
estimates. The following is a summary of the significant accounting policies
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 are 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. Realized gains and losses from securities transactions are
recorded on the basis of identified cost incurred by each money manager
within a particular fund. The Funds may lend portfolio securities but have
not done so in 1996.
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.
132 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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. Therefore, no federal income tax
provision was required for the Funds. From November 1, 1996 to December 31,
1996, the Volatility Constrained Bond Fund incurred net realized capital
losses of $260,466. As permitted by tax regulations, the Fund intends to
elect to defer these losses and treat them as arising in the year ending
December 31, 1997.
At December 31, 1996, 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>
12/31/02 12/31/03 12/31/04 TOTALS
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Diversified Bond $(4,997,596) $ -- $ -- $(4,997,596)
Volatility Constrained Bond (5,583,410) (1,871,605) (2,088,774) (9,543,789)
</TABLE>
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income
tax purposes as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Diversified Equity $598,119,888 $105,854,735 $ (8,686,812) $ 97,167,923
Special Growth 341,328,827 65,629,776 (10,585,093) 55,044,683
Equity Income 168,613,022 26,261,370 (1,451,384) 24,809,986
Quantitative Equity 541,382,756 124,487,689 (7,827,874) 116,659,815
International Securities 665,336,863 104,520,368 (38,969,808) 65,550,560
Diversified Bond 564,978,224 9,574,849 (3,500,208) 6,074,641
Volatility Constrained Bond 162,131,410 908,550 (1,267,831) (359,281)
Multistrategy Bond 321,346,730 2,907,735 (1,002,398) 1,905,337
</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.
Notes to Financial Statements 133
<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, 1996:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED ADDITIONAL
INCOME GAIN (LOSS) PAID-IN CAPITAL
-------------- ------------ ---------------
<S> <C> <C> <C>
Diversified Equity $ 53,638 $ (8,083) $ (45,555)
Special Growth (20) (2,800) 2,820
Equity Income 48,114 (79,510) 31,396
Quantitative Equity 80,523 (1,567) (78,956)
International Securities (49,126) 465,474 (416,348)
Diversified Bond 24,600 152,730 (177,330)
Volatility Constrained Bond (2,400) 2,997,386 (2,994,986)
Multistrategy Bond 197,441 38,646 (236,087)
</TABLE>
EXPENSES: The Funds, and when appropriate each Class, will pay their own
expenses other than those expressly assumed by the Management Company. Most
expenses can be directly attributed to the individual Funds. Expenses which
cannot be directly attributed are allocated among all funds principally
based on their relative net assets. In addition, Class C shares will pay
12b-1 and shareholder servicing fees along with other expenses that may be
attributable to that class.
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.
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) of the underlying securities at Fedwire closing
time 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 period-end, as a
result of changes in the exchange rates.
It is not practical to isolate that portion of the results of operations of
the Funds 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
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.
134 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 their 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, Funds may more effectively achieve the desired portfolio
characteristics that assist them in meeting their investment objectives.
Depending on how the derivatives are structured and utilized, 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 forward 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 and are
generally limited to the amount of unrealized gain on the contracts, if any,
that are recognized in the Statement of Assets and Liabilities. Realized
gains or losses arising from such transactions are included in net realized
gain (or loss) from foreign currency-related transactions. Open contracts at
December 31, 1996, are presented on the Statement of Net Assets for the
applicable Funds.
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", "delayed settlement" or "when
issued" 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 may 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.
Notes to Financial Statements 135
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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, 1996, 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>
Diversified Equity $642,997,134 $606,082,389 International Securities $340,842,055 $290,195,252
Special Growth 439,459,575 414,195,840 Diversified Bond 117,854,027 108,498,997
Equity Income 198,757,466 214,307,665 Volatility Constrained Bond 145,253,146 145,495,896
Quantitative Equity 486,202,834 423,239,219 Multistrategy Bond 82,937,923 64,932,885
</TABLE>
Purchases and sales of U.S. Government and Agency obligations (excluding
short-term investments, options, futures and repurchase agreements) were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Diversified Bond $687,365,616 $661,082,698
Volatility Constrained Bond 373,095,467 389,675,309
Multistrategy Bond 399,986,743 328,322,133
</TABLE>
OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written put
options and futures contract purchases for the year ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 60 $ 18,713,938
Opened 712 190,661,800
Closed (643) (173,458,517)
---------- -------------
Outstanding December 31, 1996 129 $ 35,917,221
---------- -------------
---------- -------------
(1) The aggregate face value of contracts is computed on the date each
contract was opened.
136 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<CAPTION>
SPECIAL GROWTH 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, 1995 170 $ 101,487 150 $ 20,217,423
Opened 230 150,305 972 177,456,942
Closed (230) (149,805) (955) (168,397,538)
Expired (150) (89,547) -- --
--------- --------- --------- -------------
Outstanding December 31, 1996 20 $ 12,440 167 $ 29,276,827
--------- --------- --------- -------------
--------- --------- --------- -------------
<CAPTION>
EQUITY INCOME FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 32 $ 9,951,672
Opened 196 56,842,953
Closed (201) (58,151,875)
---------- -------------
Outstanding December 31, 1996 27 $ 8,642,750
---------- -------------
---------- -------------
<CAPTION>
QUANTITATIVE EQUITY FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 60 $ 18,608,713
Opened 671 176,475,467
Closed (639) (169,060,780)
---------- -------------
Outstanding December 31, 1996 92 $ 26,023,400
---------- -------------
---------- -------------
<CAPTION>
INTERNATIONAL SECURITIES FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
---------- -------------
<S> <C> <C>
Outstanding December 31, 1995 156 $ 19,363,930
Opened 1,500 218,077,093
Closed (1,373) (196,354,264)
---------- -------------
Outstanding December 31, 1996 283 $ 41,086,759
---------- -------------
---------- -------------
<CAPTION>
DIVERSIFIED BOND WRITTEN PUT OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Outstanding December 31, 1995 -- $ --
Opened 49,680 88,738
Expired (49,680) (88,738)
--------- ---------
Outstanding December 31, 1996 -- $ --
--------- ---------
--------- ---------
(1) The aggregate face value of contracts is computed on the date
each contract was opened.
Notes to Financial Statements 137
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<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, 1995 19 $ 6,536 285 $ 31,832,416
Opened 48,743 92,978 1,682 184,281,260
Closed -- -- (1,628) (178,559,738)
Exercised (48,743) (92,016) -- --
--------- --------- --------- -------------
Outstanding December 31, 1996 19 $ 7,498 339 $ 37,553,938
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date
each contract was opened.
4. RELATED PARTIES
MANAGER: Frank Russell Investment Management Company ("FRIMCo" or "Manager")
operates and administers all of 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 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 Fund.
For the year ended December 31, 1996, the management fee paid to FRIMCo, for
the Funds listed below, in accordance with the Investment Company's
Management Agreement with that firm, amounted to $25,363,582 before waivers
and/or reimbursements. 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.
ANNUAL RATE ANNUAL RATE
----------- -----------
Diversified Equity 0.78% International Securities 0.95%
Special Growth 0.95 Diversified Bond 0.45
Equity Income 0.80 Volatility Constrained Bond 0.50
Quantitative Equity 0.78 Multistrategy Bond 0.65
The management contract also provides that if any Fund's expenses (exclusive
of interest and taxes) exceed specified limits imposed by the Manager on an
annual basis, such excess will be paid by FRIMCo. Prior to May 1, 1996, the
Management Agreement provided that Multistrategy Bond Fund expenses
(exclusive of interest and taxes) exceeding 0.85% of the Fund's average
daily net assets, on an annual basis, would be reimbursed by FRIMCo. The
amount of such reimbursement for the four months ended April 30, 1996 was
$13,682. Effective May 1, 1996, the Manager voluntarily agreed to waive a
portion of its management fee, to the extent that total fund level expenses
for this Fund exceed 0.80% of its average daily net assets on an annual
basis. The total amount of such waivers for the year ended December 31, 1996
was $144,070.
BOOKKEEPING SERVICES: 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 database 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, 1996 were $381,833 before waivers. The Manager voluntarily
agreed to waive $58,461 of these fees for the International Securities Fund.
Effective May 1, 1996, the Manager discontinued waiving these fees for the
International Securities Fund. The Service Agreement has been subsequently
terminated.
TAX ACCOUNTING SERVICES: Subsequent to year end, the Investment Company has
entered into a contract with State Street Bank and Trust Company for
Internal Revenue Service tax accounting reports.
TRANSFER AGENT: The Funds have a contract with FRIMCo, for the Funds listed
above, to provide transfer agent services to the Investment Company. Total
fees for the year ended December 31, 1996 were $2,415,136.
138 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DISTRIBUTOR AND SHAREHOLDER SERVICING: The Investment Company adopted in
1996, a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940
Act. Under this Plan, the Investment Company is authorized to make payments
to the Distributor, or any Selling Agents, as defined in the Plan, an amount
(the "12b-1 Fee") for sales support services provided, and related expenses
incurred which are primarily intended to result in the sale of the Class C
Shares subject to the Distribution Plan.
During the year ended December 31 1996, the Investment Company entered into
a Distribution Agreement with Russell Fund Distributors (the "Distributor")
which is a wholly-owned subsidiary of FRIMCo to promote and offer shares of
Class S and Class C of the Investment Company. The Distributor may enter
into sub-distribution agreements with other non-affiliated parties (the
"Selling/Servicing Agents"). The amounts paid to the Distributor for
distribution services relating to Class C are included in the accompanying
Statements of Operations. The Distributor receives no compensation from the
Investment Company for its services relating to distributing the Class S
Shares.
In addition, the Investment Company has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments to the Distributor or
any Servicing Agent for any activities or expenses primarily intended to
assist, support or service the Servicing Agents' clients who beneficially
own Class C Shares of the Funds. The amounts paid to the Distributor for
shareholder services relating to Class C are included in the accompanying
Statements of Operations.
The 12b-1 Fee payments shall not exceed .75% of the average daily net assets
of a Fund's Class C Shares on an annual basis. Currently the Board of
Trustees has determined to assess a 12b-1 Fee equal to .40% of the average
daily net assets. The shareholder servicing payments shall not exceed .25%
of the average daily net assets of a Fund's Class C Shares on an annual
basis. The Investment Company does not pay for unreimbursed expenses of the
Distributor including amounts expended by the Distributor in excess of
amounts received by it from the Investment Company, interest, carrying or
other financial charges in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able to
recover such amount or more from future payments made by the Investment
Company under the Distribution plan.
ACCRUED FEES PAYABLE TO AFFILIATES AS OF DECEMBER 31, 1996 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
MANAGEMENT BOOKKEEPING TRANSFER DISTRIBUTION SHAREHOLDER
FEES SERVICE FEES AGENT FEES FEES SERVICING FEES TOTALS
---------- ------------ ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Diversified Equity $ 490,330 $ 6,501 $ 38,373 $ -- $ -- $ 535,204
Special Growth 337,916 5,772 37,595 447 279 382,009
Equity Income 161,265 3,216 25,698 82 52 190,313
Quantitative Equity 466,896 5,830 40,398 211 132 513,467
International Securities 616,551 39,472 42,261 326 204 698,814
Diversified Bond 239,005 13,737 37,042 555 347 290,686
Volatility Constrained Bond 95,823 6,537 20,581 -- -- 122,941
Multistrategy Bond 179,356 8,566 26,793 -- -- 214,715
---------- ------------ ---------- ------------ -------------- ----------
$2,587,142 $ 89,631 $ 268,741 $ 1,621 $ 1,014 $2,948,149
---------- ------------ ---------- ------------ -------------- ----------
---------- ------------ ---------- ------------ -------------- ----------
</TABLE>
BROKERAGE COMMISSIONS: The Funds paid brokerage commissions to
non-affiliated brokers who provided brokerage and research related services
to the Manager. 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% of gross commissions) 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, 1996 were as follows:
Diversified Equity $ 81,398 Equity Income $ 31,731
Special Growth 503 International Securities 141,713
Notes to Financial Statements 139
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not
affiliated with FRIMCo a retainer of $20,000 per year plus out-of-pocket
expenses. Total Trustee expenses were $103,244 for the year ended December
31, 1996, and were allocated to each Fund and Class, where appropriate, on a
pro rata basis, including 15 affiliated funds not presented herein.
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 herein). As of December 31, 1996,
$235,682,000 of the Money Market Fund's net assets represents investments by
these Funds and $261,250,000 represents the investments of other affiliated
funds not presented herein.
6. SHARE TRANSACTIONS
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
DIVERSIFIED EQUITY
CLASS S
Shares sold 5,614,599 4,083,541 $ 230,097,300 $ 150,019,014
Reinvestment of distributions 1,642,850 1,155,887 66,106,841 44,249,578
Shares redeemed (4,119,044) (4,330,675) (168,781,509) (162,970,565)
---------- ----------- ------------- -------------
Net increase (decrease) 3,138,405 908,753 $ 127,422,632 $ 31,298,027
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
SPECIAL GROWTH
CLASS S
Shares sold 3,804,912 3,140,651 $ 156,927,623 $ 117,908,654
Reinvestment of distributions 820,671 483,880 32,324,567 18,530,761
Shares redeemed (2,997,309) (2,460,757) (123,713,625) (92,776,363)
---------- ----------- ------------- -------------
Net increase (decrease) 1,628,274 1,163,774 $ 65,538,565 $ 43,663,052
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
CLASS C*
Shares sold 22,414 -- $ 980,934 $ --
Reinvestment of distributions 1 -- 43 --
Shares redeemed (82) -- (3,301) --
---------- ----------- ------------- -------------
Net increase (decrease) 22,333 -- $ 977,676 $ --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
EQUITY INCOME
CLASS S
Shares sold 1,393,790 1,419,456 $ 55,293,883 $ 52,652,979
Reinvestment of distributions 446,910 338,403 17,486,574 12,788,889
Shares redeemed (1,675,865) (1,551,581) (66,979,445) (57,423,371)
---------- ----------- ------------- -------------
Net increase (decrease) 164,835 206,278 $ 5,801,012 $ 8,018,497
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
CLASS C*
Shares sold 3,036 -- $ 127,066 $ --
Reinvestment of distributions 1 -- 41 --
Shares redeemed -- -- -- --
---------- ----------- ------------- -------------
Net increase (decrease) 3,037 -- $ 127,107 $ --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
</TABLE>
* Share transactions for Class C are for the period November 4, 1996
(commencement of sale of shares) to December 31, 1996.
140 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
QUANTITATIVE EQUITY
CLASS S
Shares sold 6,980,352 4,324,277 $ 225,170,427 $ 124,379,767
Reinvestment of distributions 1,823,635 1,137,910 58,110,154 34,236,981
Shares redeemed (4,608,884) (4,885,755) (149,407,184) (141,603,284)
---------- ----------- ------------- -------------
Net increase (decrease) 4,195,103 576,432 $ 133,873,397 $ 17,013,464
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
CLASS C*
Shares sold 9,741 -- $ 329,240 $ --
Reinvestment of distributions 1 -- 27 --
Shares redeemed -- -- -- --
---------- ----------- ------------- -------------
Net increase (decrease) 9,742 -- $ 329,267 $ --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
INTERNATIONAL SECURITIES
CLASS S
Shares sold 4,161,163 3,789,941 $ 242,904,319 $ 207,530,515
Reinvestment of distributions 365,866 370,011 21,034,288 20,569,490
Shares redeemed (2,822,528) (3,586,875) (164,668,819) (198,952,445)
---------- ----------- ------------- -------------
Net increase (decrease) 1,704,501 573,077 $ 99,269,788 $ 29,147,560
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
CLASS C*
Shares sold 10,652 -- $ 633,353 $ --
Reinvestment of distributions 1 -- 17 --
Shares redeemed (2) -- (62) --
---------- ----------- ------------- -------------
Net increase (decrease) 10,651 -- $ 633,308 $ --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
DIVERSIFIED BOND
CLASS S
Shares sold 9,067,853 7,173,629 $ 208,139,587 $ 163,517,029
Reinvestment of distributions 790,678 841,387 18,102,789 19,186,853
Shares redeemed (7,398,945) (10,716,980) (169,652,552) (243,570,665)
---------- ----------- ------------- -------------
Net increase (decrease) 2,459,586 (2,701,964) $ 56,589,824 $ (60,866,783)
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
CLASS C*
Shares sold 42,495 -- $ 984,717 $ --
Reinvestment of distributions 1 -- 2 --
Shares redeemed, (645) -- (15,022) --
---------- ----------- ------------- -------------
Net increase (decrease) 41,851 -- $ 969,697 $ --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
</TABLE>
* Share transactions for Class C are for the period November 4, 1996
(commencement of sale of shares) to December 31, 1996.
Notes to Financial Statements 141
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
VOLATILITY CONSTRAINED BOND
CLASS S
Shares sold 3,498,329 4,380,834 $ 66,587,891 $ 83,390,317
Reinvestment of distributions 296,985 400,321 5,642,187 7,621,504
Shares redeemed (4,705,618) (5,771,882) (89,544,794) (110,020,627)
---------- ----------- ------------- -------------
Net increase (decrease) (910,304) (990,727) $ (17,314,716) $ (19,008,806)
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
MULTISTRATEGY BOND
Shares sold 14,210,027 9,709,055 $ 142,635,388 $ 94,838,687
Reinvestment of distributions 1,325,784 1,058,466 13,293,418 10,420,168
Shares redeemed (6,685,533) (8,041,858) (67,059,749) (78,478,026)
---------- ----------- ------------- -------------
Net increase (decrease) 8,850,278 2,725,663 $ 88,869,057 $ 26,780,829
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
</TABLE>
There was no activity in Class C shares for Diversified Equity, Volatility
Constrained Bond and Multistrategy Bond Funds.
7. DIVIDENDS
On February 3, 1997, the Board of Trustees declared the following dividends
from net investment income payable on February 11, 1997, to shareholders of
record on February 4, 1997:
<TABLE>
<S> <C> <C> <C>
Diversified Bond - Class S $ 0.1237 Volatility Constrained Bond $ 0.0923
Diversified Bond - Class C 0.1103 Multistrategy Bond 0.0511
</TABLE>
142 Notes to Financial Statements
<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, 1996, 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, 1996, 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, 1996, 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, 1997
/s/ COOPERS & LYBRAND L.L.P.
Report of Independent Accountants 143
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
TAX INFORMATION
December 31, 1996 (Unaudited)
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, 1996:
Diversified Equity $ 54,753,193 Quantitative Equity $ 50,490,300
Special Growth 31,693,274 International Securities 22,161,281
Equity Income 12,636,725 Multistrategy Bond 89,470
144 Tax 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 and General Counsel
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
BZW Barclays Global Advisors, N.A., San Francisco, CA
Columbus Circle Investors, Stamford, CT
Equinox Capital Management, Inc., New York, NY
INVESCO Capital Management, Inc. Atlanta, GA
Lincoln Capital Management Company, Chicago, IL
Schneider Capital Management, Wayne, PA
Suffolk Capital Management, Inc., New York, NY
Trinity Investment Management Corporation, Boston, MA
SPECIAL GROWTH
Delphi Management, Inc., Boston, MA
Fiduciary International, Inc., New York, NY
GlobeFlex Capital, L.P., San Diego, CA
Jacobs Levy Equity Management, Inc., Roseland, NJ
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 Advisors, N.A., 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
STW Fixed Income Management, Hamilton, Bermuda
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 145
<PAGE>
[PHOTO]
FRANK RUSSELL INVESTMENT COMPANY
1996 ANNUAL REPORT
SPECIALTY FUNDS
REAL ESTATE SECURITIES FUND
EMERGING MARKETS FUND
EQUITY T FUND
LIMITED VOLATILITY TAX FREE FUND
U.S. GOVERNMENT MONEY MARKET FUND
TAX FREE MONEY MARKET FUND
December 31, 1996
[LOGO]
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
Frank Russell Investment Company is a
"series mutual fund" with 23 different
investment portfolios. These financial
statements report on six 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>
FRANK RUSSELL INVESTMENT COMPANY - SPECIALTY FUNDS
ANNUAL REPORT
DECEMBER 31, 1996
TABLE OF CONTENTS
Page
Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . . 1
Real Estate Securities Fund . . . . . . . . . . . . . . . . . . . 2
Emerging Markets Fund . . . . . . . . . . . . . . . . . . . . . . 12
Equity T Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Limited Volatility Tax Free Fund. . . . . . . . . . . . . . . . . 38
U.S. Government Money Market Fund . . . . . . . . . . . . . . . . 50
Tax Free Money Market Fund. . . . . . . . . . . . . . . . . . . . 56
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 68
Report of Independent Accountants . . . . . . . . . . . . . . . . 76
Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . 77
Manager and Money Managers. . . . . . . . . . . . . . . . . . . . 78
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 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. Income from
tax-free funds may be subject to an alternative minimum tax, or state and local
taxes. Russell Fund Distributors, Inc., is the distributor of Frank Russell
Investment Company.
<PAGE>
TO OUR CLIENTS
Frank Russell Investment Company is pleased to present its 1996 Annual Report.
This report covers information on six of the Funds and represents the Funds'
fifteenth year of operation.
During the past year we have continued our focus on the benefits of
multi-manager, multi-style diversification in structuring our funds. We remain
committed to providing all of our clients with superior investment solutions
across each of our multiple manager and style funds. These efforts proved
worthwhile in 1996 as our funds, in general, surpassed their respective
benchmarks and attracted many new investors, both creating significant growth in
assets.
Frank Russell Investment Management Company continuously evaluates the funds we
offer our clients. Each of these funds is carefully monitored by Russell's
investment professionals to ensure that the most appropriate investment advisors
and strategies are utilized within each fund. The Advisors are monitored by the
Frank Russell Investment Management Company, using the expertise and advice of
the consulting group of Frank Russell Company.
In response to our client's requests and inquiries, the Frank Russell Investment
Company opened a new fund, Equity T, during the year. The Fund commenced
operations on October 4, 1996. Its investment objective is to provide capital
growth focused on an after-tax basis with strategies that invest principally in
equity securities. It is an attractive alternative for investors seeking to
minimize the impact of taxes on their investment returns. In addition, several
existing funds began offering Class C shares under a multiple-class structure.
This will provide greater flexibility for pricing and distributing our funds in
the market. We believe these new investment solutions along with our other
funds and services, continue to enhance the investment options that we offer to
meet the needs of our clients.
We look forward to having the opportunity to work with you over the upcoming
year and continuing to earn your support by exceeding your expectations. Thank
you for your continued confidence and investment with Frank Russell Investment
Company.
Sincerely,
/s/ George F. Russell, Jr. /s/ Lynn L. Anderson
George F. Russell, Jr. Lynn L. Anderson
Chairman President and Chief Executive Officer
Frank Russell Company Frank Russell Investment Company
<PAGE>
REAL ESTATE SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To achieve a high level of total return generated through
above-average current income, while maintaining the potential for capital
appreciation.
INVESTS IN: Equity securities of companies in the real estate industry.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns with moderate risk. The Fund employed the investment management services
of two managers with distinct approaches to investing in real estate equity
securities.
<TABLE>
<CAPTION>
DATES REAL ESTATE SECURITIES - CLASS S 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 $11,118 $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
1996 $25,414 $24,507 $21,656
- ---------------------------------------------------------------------------------------------------
Total $129,139 $125,328 $118,299
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
REAL ESTATE SECURITIES FUND - CLASS S
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 13,681 36.81%
5 Years $ 22,401 17.50%#
Inception $ 25,414 13.40%#
REAL ESTATE SECURITIES FUND - CLASS C ++++
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 13,661 36.61%
5 Years $ 22,368 17.47%#
Inception $ 25,377 13.38%#
NAREIT EQUITY REIT INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 13,526 35.26%
5 Years $ 22,043 17.13%#
Inception $ 24,507 12.85%#
LIPPER-C- REAL ESTATE BENCHMARK
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 13,102 31.02%
5 Years $ 20,216 15.12%#
Inception $ 21,656 11.25%#
* Real Estate Securities Fund - Class S 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.
++++ Real Estate Securities Fund - Class C - For the period, November 4, 1996
(commencement of sales) to December 31, 1996, shareholder service and
Rule 12b-1 distribution fees were charged. Total return would have been
lower had these fees been in effect during prior reporting periods.
# Annualized.
2 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year end December 31, 1996, the Real Estate Securities Fund Class S and
Class C shares had a total return of 36.8% and 36.6%, respectively, as compared
to the NAREIT Equity REIT Index results of 35.3%. The Fund outperformed the
Index primarily due to a heavier weighting in two of the best performing
sectors--offices and regional malls.
PORTFOLIO HIGHLIGHTS
It was a stellar year for equity REIT investments. REITs benefited from an
ongoing recovery in the U.S. real estate market, improving sentiment toward real
estate in general and REITS as a more liquid alternative to direct investment.
They also benefited from investors' anxiety towards traditional stock
investments. With dividend yields above 7%, at the beginning of 1996, REITs also
represented an attractive option for yield-oriented investors who were facing
historically low dividend yields in the stock market. Offices, hotels, and
self-storage REITs were the strongest sectors of the market, each posting
returns in excess of 45%. Even the worst-performing sector, factory outlets,
gained a reasonably impressive 17%.
The Real Estate Securities Fund benefited from being overweighted in a number of
key sectors, including offices and regional malls. Good security selection also
added value. The addition of Aldrich, Eastman & Waltch, L.P. as a money manager
in early September had a modest negative impact on Fund performance but was
implemented in a very satisfactory manner. The addition of the manager was
undertaken to diversify the investment style of the Fund as well as to reduce
the risks we believe are inherent in a single manager fund structure.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
CarrAmerica Realty Corp. 3.4%
Crescent Real Estate Equities, Inc. 3.3
Spieker Properties., Inc. 3.2
Rouse Co. (The) 3.1
Highwoods Properties, Inc. 3.1
Vornado Realty Trust 3.0
Cali Realty Corp. 3.0
Simon DeBartolo Group, Inc. 2.9
Public Storage, Inc. 2.8
Cousins Properties, Inc. 2.5
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 23.6x
Portfolio Price/Book Ratio 2.52x
Market Capitalization - $ - Weighted Average 0.87 Bil
Number of Holdings 82
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS
Aldrich, Eastman & Waltch, L.P.
Cohen & Steers Capital Management
- -------------------------------------------------------------------
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 3
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS (b) - 97.4%
APARTMENT - 18.3%
Ambassador Apartments, Inc. 149,600 $ 3,534
Avalon Properties, Inc. 326,200 9,378
Bay Apartment Communities, Inc 93,200 3,355
Camden Property Trust 294,600 8,433
Colonial Properties Trust 284,600 8,645
Columbus Realty Trust 299,200 6,807
Evans Withycombe Residential, Inc. 119,600 2,512
Irvine Apartment Communities, Inc. 193,700 4,843
Merry Land & Investment Co., Inc. 72,100 1,550
Mid-America Apartment Communities, Inc. 50,000 1,444
Oasis Residential, Inc. 181,000 4,118
Post Properties, Inc. 220,100 8,859
Security Capital Atlantic, Inc. 84,100 2,060
Security Capital Pacific Trust 27,500 629
South West Property Trust 92,900 1,568
Smith (Charles E.) Residential Realty, Inc. 256,900 7,514
Summit Properties, Inc. 255,100 5,644
Wellsford Residential Property Trust 22,500 545
----------
81,438
----------
HEALTH CARE - 4.2%
Health Care Property Investors, Inc. 113,300 3,966
Health Care, Inc. 127,400 3,121
Nationwide Health Properties, Inc. 197,500 4,789
Sunrise Assisted Living, Inc. (a) 240,800 6,622
----------
18,498
----------
HOTELS - 4.7%
Boykin Lodging Co. 55,000 1,320
Bristol Hotel Co. (a) 130,500 4,143
Homestead Village Properties, Inc. (a) 9,276 167
Homestead Village Properties, Inc.
1997 Warrants (a) 6,224 51
Hospitality Properties Trust 25,000 725
Interstate Hotels Co. (a) 34,000 961
FelCor Suite Hotels, Inc. 44,500 1,574
Patriot American Hospitality, Inc. 124,300 5,360
RFS Hotel Investors, Inc. 117,000 2,311
Starwood Lodging Trust 60,400 3,330
Studio Plus Hotels, Inc. 66,500 1,047
----------
20,989
----------
MANUFACTURED HOMES - 0.8%
Chateau Properties, Inc. 10,000 265
Sun Communities, Inc. 93,600 3,229
----------
3,494
----------
OFFICE/INDUSTRIAL - 32.1%
Arden Realty Group, Inc. 104,800 2,908
Beacon Properties Corp. 273,900 10,032
Brandywine Realty Trust 31,500 614
Cali Realty Corp. 424,700 13,113
CarrAmerica Realty Corp. 520,550 15,226
CenterPoint Properties Corp. 183,500 6,010
Cousins Properties, Inc. 401,900 11,303
Crescent Real Estate Equities, Inc. 274,800 14,496
Duke Realty Investments, Inc. 91,900 3,538
Highwoods Properties, Inc. 408,600 13,790
Liberty Property Trust 190,600 4,908
Meridian Industrial Trust, Inc. 99,200 2,083
Pacific Gulf Properties, Inc. 75,600 1,474
Prentiss Properties Trust 398,700 9,968
Reckson Associates Realty Corp. 159,900 6,756
Security Capital Industrial Trust 278,700 5,957
Spieker Properties, Inc. 397,100 14,296
Weeks Corp. 201,300 6,693
----------
143,165
----------
OUTLET CENTERS - 4.3%
Chelsea GCA Realty, Inc. 179,100 6,201
Horizon Group, Inc. 154,300 3,067
Prime Retail, Inc. 341,800 4,144
Tanger Factory Outlet Centers, Inc. 207,300 5,623
----------
19,035
----------
REGIONAL MALLS - 15.3%
CBL & Associates Properties, Inc. 240,900 6,233
DeBartolo Realty Corp. 419,700 13,011
General Growth Properties 84,100 2,712
J.P. Realty, Inc. 277,200 7,173
Macerich Co. (The) 331,300 8,655
Mills Corp. 283,400 6,766
Rouse Co. (The) 435,700 13,833
Taubman Centers, Inc. 597,500 7,693
Urban Shopping Centers, Inc. 76,500 2,219
----------
68,295
----------
SELF STORAGE - 3.6%
Public Storage, Inc. 395,600 12,264
Shurgard Storage Centers, Inc. Class A 35,900 1,064
Storage Trust Realty 39,000 1,053
Storage USA, Inc. 42,200 1,587
----------
15,968
----------
4 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
SHOPPING CENTER - 14.1%
Bradley Real Estate, Inc. 122,200 $ 2,200
Commercial Net Lease Realty 65,000 1,032
Developers Diversified Realty Corp. 261,700 9,716
Federal Realty Investment Trust 318,000 8,626
Glimcher Realty Trust 352,800 7,762
Kimco Realty Corp. 298,600 10,414
Kranzco Realty Trust 161,800 2,730
Malan Realty Investors, Inc. 83,000 1,349
New Plan Realty Trust 25,000 634
Regency Realty Corp. 30,900 811
Saul Centers, Inc. 55,500 881
Vornado Realty Trust 255,000 13,387
Weingarten Realty Investors, Inc. 86,400 3,509
----------
63,051
----------
TOTAL COMMON STOCKS
(cost $335,520) 433,933
----------
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
SHORT-TERM INVESTMENTS - 2.1%
Frank Russell Investment Company
Money Market Fund, due on demand (c) $ 9,351 $ 9,351
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $9,351) 9,351
----------
TOTAL INVESTMENTS
(identified cost $344,871)(d) - 99.5% 443,284
OTHER ASSETS AND LIABILITIES, NET - 0.5% 2,437
----------
NET ASSETS - 100.0% $ 445,721
----------
----------
(a) Nonincome-producing security.
(b) All common stocks held are Real Estate Investment Trusts with the exception
of the following:
Bristol Hotel Co.
Homestead Village Properties, Inc.
Homestead Village Properties, Inc. 1997 Warrants
Interstate Hotels Co.
Rouse Co. (The)
Studio Plus Hotels, Inc.
Sunrise Assisted Living, Inc.
(c) At cost, which approximates market.
(d) See Note 2 for federal income tax information.
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 ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $344,871,437)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 443,284,401
Receivables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,811
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,090,547
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,917,596
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,794
---------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448,519,149
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 179,063
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,140,882
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 391,715
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,970
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,798,630
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 445,720,519
---------------
---------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 811,787
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750,017
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . 98,412,964
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,704
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,593,047
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 445,720,519
---------------
---------------
Net asset value, offering and redemption price per share:
Class S ($445,619,125 divided by 15,266,896 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $29.19
---------------
---------------
Class C ($101,394 divided by 3,475 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $29.18
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,113,981
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006,364
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,120,345
Expenses (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,943,293
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,280
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,231
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,570
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,531
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,685
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,835
Registration fees
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,023
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Distribution fees - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . 60
Shareholder servicing fees - Class C . . . . . . . . . . . . . . . . . . . . . 37
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,602,557
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,517,788
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,667,447
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . 75,950,556
---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,618,003
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 120,135,791
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Real Estate Securities Fund 7
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,517,788 $ 14,826,585
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,667,447 (947,446)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 75,950,556 14,217,578
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 120,135,791 28,096,717
Distributions to shareholders:
Net investment income
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,704,915) (15,134,155)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,086) --
Net realized gain on investments
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,473,521) --
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,279) --
Tax return of capital
Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (207,871)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 71,778,593 69,027,371
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 154,730,583 81,782,062
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 290,989,936 209,207,874
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $811,787 at December 31, 1996). . . . . . . . . . . . . . . . . . . . . . . $ 445,720,519 $ 290,989,936
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS S
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 23.51 $ 22.53 $ 22.76 $ 21.50 $ 19.33
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . 1.39 1.32 1.25 1.05 1.08
Net realized and unrealized gain (loss) on investments . . 6.89 1.03 .40 2.68 2.16
-------- -------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 8.28 2.35 1.65 3.73 3.24
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (1.34) (1.35) (1.23) (1.04) (1.07)
Net realized gain on investments . . . . . . . . . . . . . (1.26) -- (.45) (1.43) --
In excess of net realized gain on investments. . . . . . . -- -- (.20) -- --
Tax return of capital. . . . . . . . . . . . . . . . . . . -- (.02) -- -- --
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (2.60) (1.37) (1.88) (2.47) (1.07)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 29.19 $ 23.51 $ 22.53 $ 22.76 $ 21.50
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . 36.81 10.87 7.24 17.42 17.29
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . . 1.04 1.04 1.05 1.11 1.20
Net investment income to average net assets. . . . . . . . 5.64 6.10 5.65 4.52 5.60
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 51.75 23.49 45.84 58.38 19.72
Net assets, end of year ($000 omitted) . . . . . . . . . . 445,619 290,990 209,208 145,167 75,902
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . .0631 N/A N/A N/A N/A
</TABLE>
Specialty Funds Real Estate Securities Fund 9
<PAGE>
REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS C
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
1996*
----------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 26.67
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . .24
Net realized and unrealized gain (loss) on investments . . . . 3.85
----------
Total Income From Investment Operations. . . . . . . . . . . . 4.09
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . (.32)
Net realized gain on investments . . . . . . . . . . . . . . . (1.26)
----------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . (1.58)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 29.18
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . 15.75
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b) . . . . . . . . . 1.77
Net investment income to average net assets (b). . . . . . . . 5.31
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . 51.75
Net assets, end of period ($000 omitted) . . . . . . . . . . . 101
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . . . 0.0631
* For the period November 4, 1996 (commencement of sale) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period ended December 31, 1996 are annualized.
10 Real Estate Securities Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide high total return, primarily through capital
appreciation, by assuming the higher level of volatility typically expected from
investment in underdeveloped markets.
INVESTS IN: Primarily emerging market equity securities.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns with moderate risk when compared to either single country or region
emerging markets investments. The Fund employed the investment management
services of three managers with three separate approaches to global emerging
markets investment.
<TABLE>
<CAPTION>
DATES EMERGING MARKETS ++ EXTENDED BARINGS EM ++++ IFC INVESTABLE COMPOSITE **
<S> <C> <C> <C>
Inception * $10,000 $10,000 $10,000
1993 $14,183 $17,628 $16,864
1994 $13,356 $16,793 $16,775
1995 $12,260 $15,956 $14,708
1996 $13,763 $17,288 $15,868
- ----------------------------------------------------------------------------------------------------------
Total $63,562 $77,665 $74,215
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
EMERGING MARKETS FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 11,226 12.26%
Inception $ 13,763 8.50%#
IFC INVESTABLE COMPOSITE INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,789 7.89%
Inception $ 15,868 12.51%#
EXTENDED BARINGS EMERGING MARKETS INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,835 8.35%
Inception 17,288 15.00%#
* 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.
++ Prior to April 1, 1995, fund performance results are reported gross of
investment management fees. For the period following April 1, 1995, fund
performance results are reported net of investment management fees but
gross of any investment services fees. Information concerning these fees
can be obtained from the fund's managers upon request.
++++ Extended Barings Emerging Markets Index is a market capitalization-weighted
index of companies' performance within 20 countries in Africa, Asia, Europe
and Latin America.
# Annualized.
12 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996, the Emerging Markets Fund had a total
return of 12.3%, as compared to the Extended Barings Emerging Markets Index
(BEMI) results of 8.4%. The Fund outperformed the Extended BEMI primarily due to
favorable country allocation decisions by underweighting some of the poorest
performing markets.
PORTFOLIO HIGHLIGHTS
The performance of the emerging markets during the course of 1996 was
dramatically different between the first and second halves of the year. The
first half produced almost all of the index's gain for the year. The second half
of the year was difficult for investors. A flight to quality after the US
market's sell-off at the end of the second quarter of 1996 was quite damaging to
investor attitudes towards these foreign capital-dependent, risky markets. The
Extended Barings Emerging Markets Index fell over 3% in the last six months of
1996, but still managed an 8.4% gain for the year. Latin American markets rose
18.9% for 1996, led by Brazil's 42% gain. Although a relatively small market,
Venezuela's nearly 129% rise was particularly impressive. Asian markets managed
to gain 7% for the year, largely due to a 24% gain from Malaysia and a 39.4%
return from Taiwan. Chinese stocks also fared well, but Korea and Thailand
plummeted over 40% and 38%, respectively. Although less volatile, the
Europe/African region was the weakest for the year, down 4.2%. This was largely
due to the 17% loss produced by South Africa which represents nearly 12% of the
Extended BEMI and 60% of the Europe/African region.
The Emerging Markets Fund had a good year given the investment environment. The
Fund gained 12.3%, beating the Index by an impressive 390 basis points. All
three of the Fund's managers exceeded the Index return for the year. Good
country selection accounted for much of the Fund's added value with an
underweighting in South Africa having the most significant impact, while good
stock selection also added to returns. Investment in a number of non-index
markets, including Russia and Hungary, also increased returns.
- -------------------------------------------------------------------
TOP TEN ISSUES
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Telecomucicacoes Brasileiras NPV (Brazil) 1.7%
Telefonos de Mexico SA Series L - ADR 1.4
Electrobras Series B NPV (Brazil) 1.3
Arab Malaysian Corp. Berhad (Malaysia) 1.2
Banco Bradesco SA NPV (Brazil) 1.2
Sasol NPV (South Africa) 1.1
Compania de Telefonos (Chile) SA - ADR 1.0
CIA Anon Nacional Telefonos de Venezuela 1.0
Telecomunicacoes Brasileiras - ADR (Brazil) 0.9
Iscor (South Africa) 0.9
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 14.1x
Portfolio Price/Book Ratio 1.56x
Market Capitalization - $ - Weighted Average 5.6 Bil
Number of Holdings 425
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS
Genesis Asset Managers, Ltd.
Montgomery Asset Management L.P.
J.P. Morgan Investment Management, Inc.
- -------------------------------------------------------------------
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 13
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 78.7%
ARGENTINA - 5.0%
Astra cia Argentina de Petro 601,160 $ 1,148
Banco Frances del Rio la Plata - ADR 37,963 1,044
Capex SA Series A 49,200 406
Cementera Argentina Class B (a) 70,600 346
Central Puerto SA Class B 120,000 342
Comercial de Plata (a) 231,100 592
Cresud SA (a) 349,500 619
Inversiones Y Representaciones 98,829 317
Inversiones Y Representaciones SA - GDR 6,224 198
Molinos Rio Plata 101,050 360
Naviera Perez Companc Class B 158,200 1,112
Perez Companc SA Class B - ADR (a) 30,200 423
Siderar SA Series A (a) 337,700 973
Telecom Argentina Class B 87,122 359
Telefonica de Argentina Class B 150,000 393
Telefonica de Argentina Class B - ADR 81,300 2,104
Transportadora de Gas del Sur SA Class B 280,000 689
YPF Sociedad Anonima Class D - ADR 86,900 2,194
----------
13,619
----------
AUSTRALIA - 0.3%
Lihir Gold, Ltd. (a) 444,200 847
----------
847
----------
AUSTRIA - 0.5%
Julius Meinl International 5,626 161
Nafta (a) 4,090 204
Tabak AS (a) 3,500 882
----------
1,247
----------
BANGLADESH - 0.1%
Apex Tannery, Ltd. 4,600 127
Beximco Infusions 7,500 110
----------
237
----------
BERMUDA - 0.6%
Central European Media Enterprises, Ltd.
Class A (a) 54,300 1,697
----------
1,697
----------
BRAZIL - 4.0%
CELESC SA - GDR 700 65
CEMIG SA - ADR 25,500 873
Companhia Vale Do Rio Doce - ADR 11,400 221
Forca E Luz (Cia Paul) NPV (a) 14,187,000 1,679
Forca Luz Cataguazes Leo Rights (a) 82,440 3
Makro Atacadista - GDS (a) 60,000 405
Makro Atacadista SA - GDR (a) 44,300 299
Multicanal Participacoes SA - ADR (a) 12,600 161
Rhodia Ster SA NPV 129,820 38
Souza Cruz NPV 15,920 105
Telecomunicacoes Brasileiras - ADR 33,520 2,564
Telecomunicacoes Brasileiras - ADR (144A) 88 7
Telecomunicacoes Brasileiras NPV 46,223,900 3,314
Telecomunicacoes de Minas Gerais SA NPV 36,463 5
TELESP Telec San Paulo NPV (a) 19,113 4
White Martins SA NPV 719,259,392 1,038
----------
10,781
----------
CHILE - 3.5%
Administradora de Fondos de Pensiones
Provida SA - ADR 15,870 297
Antofagasta Holdings PLC 240,000 1,398
Banco O'Higgins - ADR 20,000 462
Banco Santander Chile Series A - ADR (a) 27,600 414
Chilgener SA - ADR 30,000 626
Compania de Telefonos (Chile) SA - ADR 28,022 2,834
Embotelladora Andina - ADR 26,000 793
Enersis SA - ADR 48,755 1,353
Laboratorio Chile SA - ADR 30,000 495
Madeco SA - ADR 7,942 193
Maderas Y Sinteticos Sociedad - ADR 25,400 356
Sociedad Quimica Y Minera de Chile SA - ADR 6,630 359
----------
9,580
----------
CHINA - 0.2%
China Steel Corp. - ADR 14,820 297
Luoyang Glasswork Class H 38,000 12
Yizheng Chemical Fibre Class H 800,000 194
----------
503
----------
COLOMBIA - 0.2%
Banco de Colombia New - GDR 30,400 224
Banco Industrial Colombiano SA - ADR 3,800 79
Cementos Diamante SA
Class B - ADR 21,100 264
----------
567
----------
14 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
CROATIA - 0.4%
Pliva D. D. - GDR (a) 18,100 $ 959
----------
959
----------
CZECH REPUBLIC - 1.7%
Ameriyah Cement Co. (a) 15,000 283
Cokoladovny AS (a) 4,053 516
Cokoladovny AS (a) 2,189 279
Czechoslovakian Value Fund (Units) 37,000 305
Czechoslovakian Value Fund 1998 Warrants 1,800 2
Elektrarny Opatovice AS 2,200 355
Komercni Banka AS - GDR (a) 14,100 375
Komercni Banka IF 29,900 756
Privat Fonds 27,400 349
SPT Telecom AS (a) 7,800 971
Vseobecny Investment Fund (a) 59,775 175
Vynosovy Investment Fund (a) 42,800 268
----------
4,634
----------
ECUADOR - 0.4%
La Cement National - GDR (a) 3,700 836
La Cemento Nacional CA - GDR 700 158
----------
994
----------
EGYPT - 0.2%
Commercial International Bank
(Regd) - GDR (a) 30,050 424
Torah Portland Cement Co. (a) 8,100 163
----------
587
----------
FRANCE - 0.1%
Elf Gabon 876 224
----------
224
----------
GHANA - 0.2%
Ashanti Goldfields, Ltd. - ADR 34,000 421
----------
421
----------
GREECE - 1.3%
Aegek SA 51,270 189
Athens Medical Center SA (Regd) 37,700 264
Credit Bank (Regd) 3,360 214
Ergo Bank (Regd) 34,600 1,754
Hellenic Bottling 11,002 353
Hellenic Telecommunication Organization SA (a) 20,000 342
Titan Cement Co. 8,100 440
----------
3,556
----------
HONG KONG - 3.5%
Alco Holdings 1,000,000 110
Alco Holdings, Ltd. 1998 Warrants (a) 100,000 1
Chen Hsong Holding 1,550,000 942
Cheung Kong Holdings, Ltd. 60,000 533
China Light & Power 72,000 320
China Resources Enterprise, Ltd. 172,000 387
Concord Land Development Co., Ltd. (a) 316,240 137
Guangdong Investment 582,000 561
Guoco Group, Ltd. 91,000 509
Henderson Land Development Co., Ltd. 30,000 303
HSBC Holdings (UK Regd) PLC 29,600 633
Hutchison Whampoa, Ltd. (a) 118,000 927
New World Development Co., Ltd. 141,000 953
Pacific Concord Holdings 1,912,000 492
Shanghai Industrial Holdings, Ltd. (a) 40,000 146
Shangri-La Asia, Ltd. 240,000 355
Star Telecom International Holdings, Ltd. (a) 892,000 288
Sun Hung Kai Properties, Ltd. (a) 42,000 514
Swire Pacific, Ltd. Class A 32,000 305
Wheelock & Co. 148,000 422
Yue Yuen Industrial 1,564,000 597
----------
9,435
----------
HUNGARY - 1.7%
Borsodchem - GDR 42,000 1,056
Borsodchem Rt. - GDR (144A) 7,700 194
Egis Gyogyszergyar (a) 16,000 934
Mol Magyar Olay-Es Gazipari - GDS (a) 80,000 1,012
Richter Gedeon , Ltd. - GDR 24,152 1,401
----------
4,597
----------
INDIA - 2.3%
Bajaj Auto, Ltd. - GDR 22,300 758
Bajaj Auto, Ltd. - GDR (144A) 9,800 333
East India Hotels, Ltd.-GDR (a) 6,300 151
EIH, Ltd. - GDR 8,900 214
Genesis India Investment Co. 175,000 1,416
Global Tele-Systems Group, Inc. (a) 525 10
Gujarat Ambuja Cements, Ltd. - GDR 24,000 206
Specialty Funds Emerging Markets Fund 15
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Hindalco Industries, Ltd. - GDR (a) 18,300 $ 451
I.T.C., Ltd.- GDR (a) 38,800 398
Indian Hotels Co., Ltd. - GDR (a) 7,000 177
Indian Hotels Co., Ltd. - GDS (a) 19,600 496
Indian Petrochemicals Corp., Ltd. - GDR 16,500 190
Indo Gulf Fertilizers & Chemicals - GDR 158,200 142
Larsen & Toubro - GDS 10,400 152
Perusahaan Persero Telekom - ADR 19,000 655
Raymond Woolen Mills, Ltd. - GDR (a) 15,300 92
Tata Engineering & Locomotive Co., Ltd. (a) 13,800 147
Tata Engineering &
Locomotive Co., Ltd. - GDR (144A) 14,000 149
Tube Investments of India - GDR 123,080 154
Videocon International - GDS 20,225 16
----------
6,307
----------
INDONESIA - 2.4%
Bimantara Citra (Alien Market) 199,500 266
Indosat (Alien Market) 140,000 385
Inti Indorayon Utama (Alien Market) 275,000 198
London Sumatra (Alien Market)(a) 32,500 84
Matahari Putra Prima (Alien Market) 333,000 388
Modern Photo Film Co. (Alien Market) 35,000 111
Mulia Industrindo (Alien Market) 366,000 380
Ometraco Corporation 2000 Warrants (a) 75,000 32
Ometraco Finance (Alien Market) 700,000 778
Pabrik Kertas Tjiwi Kimia (Alien Market) 35,081 35
Pakuwon Jati (Alien Market) 402,000 157
PT Aneka Kimia Raya (Alien Market) 137,000 81
PT Ciputra Development (Alien Market) 160,000 166
PT Hanjaya Mandala Sampoerna (Alien Market) 83,000 443
PT Indorama Synthetics (Alien Market)(a) 1,440 1
PT Kalbe Farma (Alien Market) 202,000 231
Ramayana Lestari (Alien Market)(a) 500,000 1,079
Semen Cibinong (Alien Market) 416,600 1,173
Semen Gresik (Alien Market) 60,500 195
Tambang Timah - GDR 5,300 96
Unilever Indonesia (Alien Market) 19,000 326
----------
6,605
----------
ISRAEL - 0.3%
Elbit Medical Imaging, Ltd. (a) 200 1
Elbit Systems, Ltd. (a) 200 2
Koor Industries, Ltd. - ADR 7,200 122
Osem Investment, Ltd. (a) 28,400 160
Supersol, Ltd. (a) 4,300 105
Teva Pharmaceutical Industries, Ltd. 722 362
----------
752
----------
LEBANON - 0.2%
Solidere - GDR (a) 55,000 633
----------
633
----------
LUXEMBOURG - 0.5%
Millicom International Cellular SA (a) 37,000 1,179
Tata Engineering & Locomotive Co. - GDR 21,800 232
----------
1,411
----------
MALAYSIA - 9.7%
Arab Malaysian Corp. Berhad 653,000 3,258
Arab Malaysian Finance (Alien Market) 170,000 949
DCB Holdings Berhad 216,000 740
DCB Holdings Berhad 1999 Warrants (a) 82,000 123
Genting Berhad 134,000 923
Genting International (CLOB Line) 162,000 389
Golden Hope Plantation 378,000 644
Guinness Anchor Berhad 104,000 255
Hong Leong Bank Berhad 51,000 178
Hong Leong Industries Berhad(a) 120,400 410
IJM Corp. Berhad 769,000 1,812
IND Oxygen, Inc. 962,000 1,478
Innovest Berhad (a) 100,000 356
Kian Joo Can Factory 68,000 377
Kuala Lumpur Kepong 215,000 545
Land & General Berhad 138,000 331
Leader Universal Holdings 165,000 346
Lingkaran Trans Kota Holdings Berhad (a) 45,000 93
Lion Corp. Berhad 32,000 63
London & Pacific Insurance Co. Berhad 1,600 10
Malaysia Mining Corp. 370,800 429
Malaysian Assurance Alliance Berhad 150,125 731
Malaysian International Shipping Corp.
(Alien Market) 87,000 258
Malaysian Tobacco 135,000 209
Matsushita Electric Co. Berhad 17,000 159
Metacorp Berhad 198,000 506
Nestle Berhad 55,000 442
New Straits Times 224,000 1,295
Nylex Berhad 124,500 281
O.Y.L. Industries Berhad 99,000 1,039
Oriental Holdings Berhad 152,000 1,035
Phileo Allied Berhad 412,500 722
Phileo Allied Berhad Rights (a) 275,000 163
Public Bank Berhad (Alien Market) 311,000 659
Public Finance Berhad (Alien Market) 495,000 862
16 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
Renong Berhad 242,000 $ 429
Resorts World Berhad 174,000 792
Sistem Televisyen Malaysia Berhad 130,000 260
Sistem Televisyen Malaysia Berhad Series A (a) 130,000 241
Tanjong PLC 161,000 644
Telekom Malaysia 61,000 544
UMW Holdings Berhad 103,000 481
United Engineers Berhad 106,000 957
----------
26,418
----------
MEXICO - 6.7%
Alfa SA de CV Class A NPV 268,692 1,253
Carso Global Telecom Series A1 NPV (a) 52,950 126
Cemex SA de CV Class B NPV 268,400 1,057
Cemex SA de CV NPV 220,640 795
Cifra SA de CV Class B NPV (a) 170,000 208
Cifra SA de CV Class C NPV (a) 97,960 119
Compania Cervecerias Unidas SA - ADR 22,700 363
Corporacion Industrial Sanluis
SA de CV - CPO (Units) 36,000 229
Cydsa SA Series A NPV (a) 114,300 208
Desc SA de CV NPV (a) 1,150 6
Desc Sociedad de Fomento Industrial
SA de CV Series B NPV (a) 55,200 302
Empresa Nacional de Electric - ADR 16,700 259
Empresas ICA Sociedad - ADR (a) 79,600 1,164
Empresas la Moderna SA de CV - ADR 17,186 339
Empresas La Moderna SA de CV Class A NPV 59,000 292
Fomento Economico Mexicano SA de CV Series B NPV 381,000 1,307
Grupo Carso Series A NPV (a) 82,500 437
Grupo Casa Autrey SA de CV - ADR 11,000 214
Grupo Financiero Banamex AC Series B NPV (a) 82,000 173
Grupo Financiero Banamex AC Series L NPV (a) 1,350 3
Grupo Financiero Bancomer Series B NPV (a) 330,000 132
Grupo Modelo SA Series C 87,700 509
Grupo Radio Centro SA de CV - ADR (a) 26,400 181
Herdez Class B NPV 300,000 82
Industrias Penoles NPV 103,700 368
Kimberly-Clark, Mexico Class A NPV 94,000 1,857
Panamerican Beverages, Inc. Class A 29,000 1,359
Ponderosa Industrial SA de CV Series B NPV (a) 54,600 34
Sears Roebuck de Mexico Series B - GDS (a) 21,000 60
Seguros Comercial America NPV Series B (a) 870,000 260
Sigma Alimentos, SA Series B 35,000 313
Telefonos de Mexico SA Series L - ADR 111,750 3,688
Transportacion Maritima Mexicana
SA de CV - ADR Series A 80,000 370
Transportacion Maritima Mexicana
SA de CV - ADR Series L 25,990 136
----------
18,203
----------
MOROCCO - 0.4%
Banque Marocaine Du Commerce
Exterieur - GDR (144A) 5,300 242
Banque Marocaine Du Commerce
Exterieur - GDR 53,835 828
----------
1,070
----------
NETHERLANDS - 0.5%
Ceteco Holding NV CVA 25,618 1,476
----------
1,476
----------
PAKISTAN - 0.7%
Adamjee Insurance 5,250 12
Dewan Salmon Fibre 12,360 10
DG Kahn Cement (a) 28,314 7
Engro Chemical (a) 9,600 32
Fauji Fertilizer (a) 153,300 258
Hub Power Co. (a) 38,800 766
Pakistan State Oil (a) 102,188 660
Pakistan Telecommunications Corp. (a) 160,000 100
Pakistan Telecommunications Corp. - GDS (a) 1,200 72
----------
1,917
----------
PANAMA - 0.3%
Banco Latinoamericano de Exportaciones SA Class E 14,000 711
----------
711
----------
PAPUA NEW GUINEA - 0.5%
Oil Search, Ltd. (Australia Regd) 700,000 1,363
----------
1,363
----------
Specialty Funds Emerging Markets Fund 17
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
PERU - 1.7%
Cementos Norte Pacasmayo SA Class T 241,126 $ 340
Compania de Minas Buenaventura
Series B - ADR (a) 34,100 584
CPT Telefonica del Peru Class B 526,098 979
Credicorp, Ltd. 62,047 1,148
Minas Buenaventura 31,166 227
Minas Buenaventura Series B (a) 10,401 86
Minsur SA (a) 48,612 168
Telefonica Del Peru SA Class B - ADR 54,800 1,034
----------
4,566
----------
PHILIPPINES - 3.1%
Aboitiz Equity Ventures (a) 523,748 53
Ayala Land, Inc. Class B 345,018 394
Bacnotan Consolidated 141,867 464
DMCI Holdings, Inc. (a) 632,000 415
Enron Global Power & Pipelines L.L.C. 35,000 945
Far East Bank & Trust Co. 200,000 798
First Philippine Holdings Class B 203,814 465
JG Summit Holdings, Inc. Series B 868,000 244
Manila Electric Co. Class B 160,890 1,315
Manila Mining Corp. Class B (a) 90,230,256 82
Metro Pacific Corp. Class A 1,399,568 346
Music Semiconductors Corp. (a) 190,000 94
PCI Leasing & Finance, Inc. (a) 225,000 61
Petron Corp. 1,220,000 413
Philippine Long Distance Telephone Co. 1,700 93
Philippine Long Distance Telephone Co. - ADR 28,900 1,474
Philippine Long Distance Telephone Co. - GDS 700 36
Philippine National Bank (a) 21,700 258
Republic Glass Holdings Corp. 476,000 92
San Miguel Corp. Class B 82,500 364
Uniwide Holdings, Inc. (a) 273,000 54
----------
8,460
----------
POLAND - 0.4%
Bank Slaski SA 3,400 346
Banka Przemysl Handl (a) 1,751 113
E. Wedel SA (a) 6,347 312
Polifarb-Cieszyn SA 52,377 291
Wielkopolski Bank Kredytowy SA 4,833 33
----------
1,095
----------
PORTUGAL - 2.4%
Banco Totta e Acores (Regd) 23,000 434
Capital Portugal 6,360 734
Cel Cat (Cond Electric) 7,200 123
Cimpor Cimentos de Portugal 20,500 441
Corp. Ind. Norte 6,300 246
EFACEC SA - New (a) 9,000 75
Estabelecimentos Jeronimo Martins &
Filho SGPA SA (units) 1,036 55
Estabelecimentos Jeronimo Martins &
Filho SGPA SA Rights 3,660 59
Estabelecimentos Jeronimo Martins &
Filho SGPA SA Rights New 6,220 105
Jeronimo And Martins 3,660 189
Jeronimo Martins SGPS 6,220 321
Portucel Industrial SA (a) 101,400 589
Portugal Telecom SA (a) 11,844 338
Portugal Telecom SA - ADR 13,100 370
Sonae Investimento 64,056 2,028
Telecel-Comunicacaoes Pessoaissa (a) 3,000 192
Unicer-Uniao Cervj (Regd) 9,000 157
----------
6,456
----------
RUSSIA - 1.5%
AO Mosenergo - ADR (a) 5,600 170
Irkutskenergo - RDC (a) 35 997
Lukoil Holding - RDC (a) 5 291
Lukoil Oil Co. - ADR 27,400 1,274
SFMT, Inc. (a) 2,000 39
Tatneft - ADR (a) 4,600 221
Tatneft - ADR (144A) 11,300 542
Trade House GUM - ADR (a) 6,200 353
Ukraine Enterprise Corp. (a) 31,000 68
----------
3,955
----------
SINGAPORE - 0.3%
Far East Levingston 98,000 511
Keppel Corp. 54,000 421
----------
932
----------
SLOVAKIA - 0.1%
Vseobecna Uverova Bianca AS (a) 10,050 188
----------
188
----------
18 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
SOUTH AFRICA - 6.7%
Amalgamated Banks of South Africa 105,100 $ 539
Anglo America Coal 2,183 166
Anglo America Corp. SA 10,500 578
Anglo American Gold Investment Co., Ltd. 7,000 533
Anglo American Industrial Corp. 2,110 76
Anglovaal Holdings, Ltd. 24,600 726
Barlow, Ltd. 23,600 209
Clinic Holdings, Ltd. 179,100 188
De Beers Centenary AG 25,926 742
De Beers Consolidated Mines, Ltd. - ADR 4,957 140
Del Monte Royal Food, Ltd. 319,600 321
Engen, Ltd. 39,891 213
Gencor, Ltd. 76,060 276
Gencor, Ltd. - ADR 54,679 199
Highstone Property 630,000 170
Iscor 3,295,710 2,353
JD Group, Ltd. 63,700 299
Kersaf Investments, Ltd. 47,800 437
Lonrho PLC 417,712 887
Malbak, Ltd. NPV (a) 294,800 1,292
Nampak, Ltd. - ADR 19,260 75
Pepkor, Ltd. (a) 94,100 289
PepsiCo International, Inc. (a) 2,000 169
Premier Group Holdings, Ltd. 111,905 146
Randgold & Exploration Co., Ltd. (a) 64,000 434
Rembrandt Group, Ltd. 125,752 1,122
Safmarine & Rennie Holdings, Ltd. 168,700 379
Sappi, Ltd. 150,964 1,355
Sasol NPV 246,494 2,924
Trans Natal Coal Corp., Ltd. 83,000 614
Waltons Stationery Co., Ltd. NPV (a) 192,000 269
Zambia Cons Copper Series B (UK Regd)(a) 43,846 106
Zambia Copper Investments, Ltd. 38,823 46
----------
18,272
----------
SOUTH KOREA - 2.9%
Daewoo Securities (a) 4,457 57
Dong-Ah Construction - EDR (a) 11,800 126
Dong-Ah Construction Industrial Co. 6,500 138
Dong-Ah Construction Industrial Co. (Regd) 1,038 11
Han Kook Tire Manufacturing Co. New (a) 17 1
Housing & Commercial Bank, Korea (a) 6,950 97
Housing & Commercial Bank, Korea New (a) 26,290 367
Hyundai Engineering & Construction (a) 25 1
Hyundai Motor Co. - GDR (a) 27,700 201
Korea Electric Power Corp. 31,430 915
Korea Mobile Telecommunications Corp. 560 302
Pohang Iron & Steel 13,790 596
Pohang Iron & Steel - ADR 7,800 158
Samsung Co. 15,287 181
Samsung Electronics Co. - GDR 7,561 308
Samsung Electronics Co., Ltd. New (a) 1,511 78
Samsung Electronics, Ltd. 1,919 103
Samsung Electronics, Ltd. - GDR (a) 2,296 95
Samsung Electronics, Ltd. - GDR (144A)(a) 4,701 87
Samsung Electronics, Ltd. - GDS 30,601 565
Shin Han Bank 69,730 949
Ssangyong Cement Co., Ltd. 18,800 265
Ssangyong Oil Refining Co., Ltd. 62,620 1,371
Tae Young Corp. 11,000 724
Yukong, Ltd. 7,891 149
----------
7,845
----------
SPAIN - 0.2%
Quilmes Industrial (Regd) 63,100 505
----------
505
----------
SRI LANKA - 0.2%
Aitken Spence & Co. (a) 15,865 25
Ceylon Theatre 6,830 42
Development Finance Corp. 94,999 419
Hayleys (a) 16,720 53
John Keells Holdings, Ltd. (a) 30,475 105
National Development Bank (a) 9,800 34
----------
678
----------
SWITZERLAND - 0.4%
Holderbank Financiere Glarus AG (BR) 1,392 994
----------
994
----------
TAIWAN - 3.7%
Advanced Semiconductor Engineering - GDR (a) 42,770 416
Asia Cement Corp. - GDR 60,285 1,106
China Steel Corp. - GDS 56,683 1,137
Hocheng Group Corp. - GDR (a) 120,540 1,025
Macronix International Co., Ltd. - ADR (a) 30,000 398
Microelectronics - GDS 42,707 241
President Enterprises - GDS 83,900 1,468
Specialty Funds Emerging Markets Fund 19
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
ROC Taiwan Fund (a) 88,800 $ 910
Siliconware Precision Industries Co. - GDR (a) 141,000 1,565
Yageo Corp. - GDR (a) 145,151 1,415
Yageo Corp. - GDR (144A)(a) 45,378 443
----------
10,124
----------
THAILAND - 3.1%
Advanced Information Services (Alien Market) 25,000 209
Ban Pu Coal (Alien Market) 14,922 277
Bangkok Bank (Alien Market) 61,200 592
Bangkok Bank 2006 Warrants - SEC (a) 90,400 673
Bangkok Insurance PLC (Alien Market) 5,900 84
Central Pattana Public Co., Ltd. 12,200 42
Central Pattana Public Co., Ltd. (Alien Market) 70,500 319
Ch Karnchang Public Co., Ltd. (Alien Market) 42,300 214
Electricity General Public Co., Ltd. (a) 12,210 33
Electricity Generating Public Co., Ltd.
(Alien Market) 161,200 440
Industrial Finance Corp. of Thailand (Alien Market) 454,000 1,230
International Cosmetics PLC (Alien Market) 29,000 132
Krung Thai Bank PLC (Alien Market) 56,500 109
Land & House (Alien Market) 28,000 204
Lanna Lignite Public Co. (Alien Market) 36,500 325
Phatra Thanakit Co. (Alien Market) 58,300 166
Precious Shipping (Alien Market) 137,000 264
PTT Exploration & Production
Public Co., Ltd. (Alien Market) 31,500 454
Regional Container Line (Alien Market) 22,300 216
Sahaviriya Steel Industries Public Co., Ltd.
(Alien Market)(a) 491,300 163
Siam Cement Co. (Alien Market) 19,200 602
Siam Cement Co. 1998 Warrants - SEC 10,600 334
Siam Commercial Bank PLC (Alien Market) 47,000 341
Swedish Motor Public Co., Ltd. (Alien Market) 164,900 246
TelecomAsia (Alien Market)(a) 126,100 263
Thai Farmers Bank (Alien Market) 39,000 243
Thai Farmers Bank PLC 2002 Warrants (Alien Market) 4,875 5
Thai Plastic & Chemical Co., Ltd. (Alien Market) 31,000 105
----------
8,285
----------
TURKEY - 1.0%
Efes Sinai Yatirim (a) 615,138 27
EGE Biracilik Ve Malt Sanayii 2,700,000 579
Erciyas Biracilik Ve Malt Sanayii - ADR 65,600 143
Eregli Demir Ve Celik Fabrikalari 2,413,000 289
Koc Holding 1,709,000 299
Migros 636,000 777
T Garanti Bankasi 3,121,919 141
T Sise Cam 2,853,000 303
Tat Konserve Sanayii 212,728 32
Trakya Cam Sanayii AS 1,144,234 58
Yapi Kredi Bankasi 6,272,500 156
----------
2,804
----------
UNITED KINGDOM - 0.2%
Lonrho PLC 301,830 646
----------
646
----------
VENEZUELA - 1.8%
CIA Anon Nacional Telefonos
de Venezuela - ADR Class D (a) 93,146 2,620
Electricidad de Caracas (Regd) 225,411 229
Mavesa SA - ADR 76,875 490
Siderurgica Venezolana Sivensa - ADR 395,000 1,413
Siderurgica Venezolana Sivensa - GDR (144A) 35,909 129
----------
4,881
----------
ZIMBABWE - 0.6%
Delta Corp. (a) 401,378 1,406
Reunion Mining PLC (a) 250,000 312
----------
1,718
----------
TOTAL COMMON STOCKS
(cost $203,126) 213,755
----------
20 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
CONVERTIBLE PREFERRED STOCKS - 0.0%
PHILIPPINES - 0.0%
Philippine Long Distance - GDS 2,800 $ 86
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $104) 86
----------
PREFERRED STOCKS - 9.5%
ARGENTINA - 0.3%
Quilmes Industrial Quinsa Societe - ADR 92,950 848
----------
848
----------
BRAZIL - 8.8%
Acos Especitabira NPV 113,311,200 267
Banco Bradesco SA NPV 439,461,216 3,185
Banco Itau SA (Regd) 809,000 350
Brahma (cia Cervej) NPV 1,030,000 563
Brasmotor SA NPV 4,575,000 1,270
Casa Anglo Bras SA NPV 2,524,000 77
CEMIG - ADR 25,623 858
CEMIG SA 44,753,776 1,525
Ceval Alimentos SA - ADR 10,700 95
Ceval Alimentos SA NPV 15,847,000 139
Companhia de Acos Especiais Itabria - ADR 20,580 85
Companhia Energetica
de Sao Paulo - ADR (Regd)(a) 10,600 124
Companhia Energetica de Sao Paulo NPV (a) 1,225,000 48
Coteminas (Cia Tec) NPV 2,305,105 736
Duratex SA (BR) 3,364,000 126
Electrobras Series B NPV 9,454,439 3,512
Eletropaulo-Eletricidade de Sao Paulo
SA Class B (a) 396,000 59
Industrias Klabin de Papel e Celulose SA NPV 704,928 651
Industrias Romi SA NPV 3,310,700 47
Iochpe Maxion SA - ADR (a) 50,100 56
Kepler Weber SA NPV (a) 3,200 15
Lojas Americanas NPV 30,900,000 407
Lojas Renner SA NPV 6,000,000 277
Marcopolo SA NPV (a) 800,000 134
Metalurgica Schulz NPV 850,000 14
Petro Ipiranga (cia) NPV 79,100,000 1,149
Petrobras Distribuidora NPV 7,372,500 117
Petroleo Brasileiro SA NPV 9,118,866 1,452
Refrigeracao Parana SA NPV (a) 285,893,440 647
Telecomunicacoes Brasileiras NPV 27,535,542 2,120
Telecomunicacoes de Minas Gerais
Class B NPV 2,700,000 334
Telecomunicacoes do Rio de Janeiro
SA NPV (a) 4,997,448 632
TELESP NPV 1,726,000 374
Uniao de Bancos Brasileiros NPV 32,520,000 1,061
Usiminas Uni Sd Mg NPV 622,000,000 635
Vale Rio Doce (cia) NPV 27,267 525
Weg SA 630,000 297
----------
23,963
----------
COLOMBIA - 0.1%
Gran Cadena de Almacenes Class B - ADR (a) 21,400 209
----------
209
----------
GREECE - 0.1%
Delta Dairy 31,800 264
----------
264
----------
RUSSIA - 0.2%
Fleming Russia Securities Fund 53,458 575
----------
575
----------
TOTAL PREFERRED STOCKS
(cost $22,065) 25,859
----------
PRINCIPAL
AMOUNT
(000)
----------
LONG-TERM INVESTMENTS - 2.0%
AUSTRIA - 0.1%
Metro Pacific Capital (conv.)
2.500% due 04/11/03 $ 260 276
----------
276
----------
HONG KONG - 0.4%
Bangkok Bank Public Co. (conv.)
3.250% due 03/03/04 1,150 1,121
----------
1,121
----------
INDONESIA - 0.0%
Modernland Realty (conv.)
6.700% due 04/01/03 IDR 30 31
----------
31
----------
Specialty Funds Emerging Markets Fund 21
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
MALAYSIA - 0.3%
Telekom Malaysia Berhad (conv.)
4.000% due 10/30/04 $ 720 $ 741
----------
741
----------
PHILIPPINES - 0.0%
Ayala Corp. (conv.)
Zero Coupon due 12/08/00 105 92
----------
92
----------
SOUTH KOREA - 0.2%
Shinwon Corp. (conv.)
0.500% due 12/31/08 520 525
----------
525
----------
TAIWAN - 0.8%
Far Eastern Dept. Stores
3.000% due 07/06/01 301 317
Nan Ya Plastics Corp. (conv.)(144A)
1.750% due 07/06/01 915 1,039
United Microelectronics Corp., Ltd. (144A)
1.250% due 06/08/04 420 580
----------
1,936
----------
THAILAND - 0.1%
Yang Ming Marine Transport (conv.)
2.000% due 10/06/01 310 353
----------
353
----------
UNITED KINGDOM - 0.1%
Barlow International Investments (conv.)
7.000% due 09/20/04 245 257
----------
257
----------
TOTAL LONG-TERM INVESTMENTS
(cost $5,518) 5,332
----------
SHORT-TERM INVESTMENTS - 8.6%
UNITED STATES - 8.6%
Frank Russell Investment Company
Money Market Fund, due on demand (b) 23,182 23,182
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $23,182) 23,182
----------
TOTAL INVESTMENTS
(identified cost $253,995)(c) - 98.8% 268,214
OTHER ASSETS AND LIABILITIES, NET - 1.2% 3,276
----------
NET ASSETS - 100.0% $ 271,490
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
GDS - Global Depositary Share
NPV - No Par Value
NV - Nonvoting
PLC - Public Limited Company
SEC - Shareholders Equity Certificates
144A - Represents private placement security for qualified buyers according to
rule 144A of the Security Act of 1933.
FOREIGN CURRENCY ABBREVIATIONS:
ARS - Argentine peso
GRD - Greek drachma
HKD - Hong Kong dollar
IDR - Indonesian rupiah
ILS - Israeli shekel
MXN - Mexican peso
MYR - Malaysian ringgit
PHP - Phillipine peso
PTE - Portuguese escudo
THB - Thailand baht
The accompanying notes are an integral part of the financial statements.
22 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- ------------------------ ---------- ----------
Basic Industries 10.9% $ 29,550
Capital Goods 6.6 18,074
Consumer Basics 7.3 19,973
Consumer Durable Goods 5.1 13,768
Consumer Non-Durables 3.3 9,114
Consumer Services 1.4 3,977
Energy 7.4 20,107
Finance 14.2 38,462
General Business 6.2 16,790
Miscellaneous 7.8 21,177
Shelter 2.3 6,135
Technology 2.2 5,918
Transportation 0.2 627
Utilities 13.3 36,028
Long-Term Investments 2.0 5,332
Short-Term Investments 8.6 23,182
---------- ----------
Total Investments 98.8 268,214
Other Assets and Liabilities, Net 1.2 3,276
---------- ----------
NET ASSETS 100.0% $ 271,490
---------- ----------
---------- ----------
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- -------------------------- ---------- ----------
Latin America 33.4% $ 90,619
Pacific Basin 31.5 85,702
Eurasia 17.7 47,963
Africa 7.6 20,748
United States (Short-Term Investments) 8.6 23,182
---------- ----------
Total Investments 98.8 268,214
Other Assets and Liabilities, Net 1.2 3,276
---------- ----------
NET ASSETS 100.0% $ 271,490
---------- ----------
---------- ----------
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
(Note 2)
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- ------------- ------------- --------------
USD 33 GRD 8,126 01/02/97 --
USD 513 HKD 3,964 01/03/97 --
USD 5 MXN 36 01/02/97 --
USD 116 MYR 292 01/03/97 --
USD 78 MYR 198 01/08/97 --
USD 62 PHP 1,612 01/06/97 --
USD 96 PTE 14,899 01/03/97 --
ILS 391 USD 119 01/06/97 (2)
ILS 343 USD 104 01/06/97 (1)
MYR 672 USD 266 01/02/97 --
PTE 14,131 USD 91 01/02/97 --
THB 27 USD 1 01/02/97 --
--------------
$ (3)
--------------
--------------
The accompanying notes are an integral part of the financial statements.
Specialty Funds Emerging Markets Fund 23
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $253,995,488)(Note 2) . . . . . . . . . . . . . . . . . . . . $ 268,213,587
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387,377
Foreign currency holdings (identified cost $3,480,256) . . . . . . . . . . . . . . . . . . . . . . . 3,463,711
Foreign currency exchange spot contracts (cost $1,483,008)(Note 2) . . . . . . . . . . . . . . . . . 1,479,272
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571,127
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571,326
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,957,551
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,498
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,611
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,011
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,686,071
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,835,706
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333,790
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 340,020
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,469
Foreign currency exchange spot contracts (cost $1,483,008)(Note 2) . . . . . . . 1,483,008
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,195,993
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 271,490,078
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . $ (1,853,711)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,160,611)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,218,099
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,049)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,919
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266,103,431
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 271,490,078
---------------
---------------
Net asset value, offering and redemption price per share
($271,490,078 divided by 21,991,900 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.35
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,484,048
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,474,973
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,438
Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (380,666)
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,723,793
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,773,817
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652,456
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,248
Bookkeeping service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,825
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,924
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,815
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,668
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . 7,463
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,470
---------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . 3,964,686
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . (10,380)
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,954,306
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,769,487
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,364,967
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . (534,002) 830,965
---------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,263,634
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . 31,781 20,295,415
--------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,126,380
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 22,895,867
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Emerging Markets Fund 25
<PAGE>
EMERGING MARKETS FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,769,487 $ 1,276,932
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 830,965 (7,309,956)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . 20,295,415 (5,132,570)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 22,895,867 (11,165,594)
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,543,343) (461,248)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . (1,917,863) (226,144)
In excess of net realized gain on investments. . . . . . . . . . . . . . . . . -- (400,869)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 79,382,368 57,655,780
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 98,817,029 45,401,925
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 172,673,049 127,271,124
--------------- ---------------
NET ASSETS AT END OF YEAR
(including accumulated distributions in excess of net investment,
income of $1,853,711 and $226,144, respectively) . . . . . . . . . . . . . . . $ 271,490,078 $ 172,673,049
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year or period and other performance information derived
from the financial statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993++
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $ 11.16 $ 12.25 $ 13.90 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . .10 .11 .15 .07
Net realized and unrealized gain (loss) on investments . . 1.26 (1.12) (1.24) 4.09
-------- -------- -------- --------
Total Income From Investment Operations. . . . . . . . . . 1.36 (1.01) (1.09) 4.16
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.08) (.03) (.10) (.07)
In excess of net investment income . . . . . . . . . . . . (.09) (.02) (.10) (.01)
Net realized gain on investments . . . . . . . . . . . . . -- -- (.31) (.18)
In excess of net realized gain on investments. . . . . . . -- (.03) (.05) --
-------- -------- -------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . (.17) (.08) (.56) (.26)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 12.35 $ 11.16 $ 12.25 $ 13.90
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . . 12.26 (8.21) (5.83) 41.83
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c). . . 1.71 1.75 .80 .80
Operating expenses, gross, to average net assets (b)(c). . 1.72 1.80 .83 1.60
Net investment income to average net assets (b)(c) . . . . .77 .88 1.10 1.33
Portfolio turnover (b) . . . . . . . . . . . . . . . . . . 34.62 71.16 57.47 89.99
Net assets, end of year ($000 omitted) . . . . . . . . . . 271,490 172,673 127,271 65,457
Per share amount of fees waived ($ omitted)(d) . . . . . . .0006 .0022 .0044 .0016
Per share amount of fees reimbursed ($ omitted). . . . . . -- .0032 .0017 .0420
Average commission rate paid per share
of security ($ omitted)(e) . . . . . . . . . . . . . . . .0007 N/A N/A N/A
</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) 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 for current period amounts.
(e) In certain foreign markets the relationship between the translated U.S.
dollar price per share and commission paid per share may vary from that of
domestic markets.
Specialty Funds Emerging Markets Fund 27
<PAGE>
EQUITY T FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide capital growth while minimizing the impact of taxes on
investment returns.
INVESTS IN: U.S. Equity Securities.
STRATEGY: The Fund focuses on generating superior stock selection in a
risk-controlled portfolio while minimizing the impact of taxes by explicitly
integrating the tax implications of portfolio activities on after-tax returns.
DATES EQUITY T S&P 500-Registered Trademark- **
Inception* $10,000 $10,000
1996 $10,610 $10,551
- -------------------------------------------------------------------
Total $20,610 $20,551
- -------------------------------------------------------------------
- -------------------------------------------------------------------
EQUITY T FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
Inception $ 10,610 6.10%
STANDARD & POOR'S-Registered Trademark- 500 COMPOSITE STOCK PRICE INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
Inception $ 10,551 5.51%
* The Fund commenced operations on October 7, 1996. Index comparison began
November 1, 1996.
** The Standard & Poor's-Registered Trademark- 500 Composite Stock Index
is composed of 500 common stocks which are chosen by Standard and Poor's
Corporation to best capture the price performance of a large cross-section
of the US publicly traded stock market. The Index is structured to
approximate the general distribution of industries in the US economy.
28 Equity T Fund Specialty Funds
<PAGE>
EQUITY T FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
From the Index comparison date starting November 1, 1996 through December 31,
1996, the Equity T Fund had a total return of 6.1% as compared to the S&P 500
Index results of 5.1%. The Fund outperformed the Index with superior stock
selection.
PORTFOLIO HIGHLIGHTS
The strength of the market in 1996 defied most predictions after the big run-up
in 1995. Once again, large capitalization stocks dominated, with the Dow Jones
Industrial Average up almost 29% for the year. The S&P 500 Index lagged with a
gain of 23.3%, partly reflective of the strength of the largest cap issues.
Growth stocks outperformed Value stocks for the majority of the year, but the
fourth quarter favored Value as investors sought more defensive investment
options.
The Equity T Fund's slight Value bias helped bolster its return during the
fourth quarter. Good stock selection also contributed. Some performance drag was
expected from cash holdings during the Fund's startup.
- -------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Philip Morris Cos., Inc. 2.9%
Exxon Corp. 2.7
Intel Corp. 2.2
Royal Dutch Petroleum Co. - ADR 2.1
Procter & Gamble Co. 2.0
PepsiCo, Inc. 1.6
du Pont (E.I) de Nemours & Co. 1.6
PanEnergy Corp. 1.6
Boatmen's BancShares, Inc. 1.5
Unilever NV 1.5
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Current P/E Ratio 18.4x
Portfolio Price/Book Ratio 3.14x
Market Capitalization - $ - Weighted Average 30.80 Bil
Number of Holdings 210
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGER STYLE
J.P. Morgan Investment Management, Inc. Market-Oriented
- -------------------------------------------------------------------
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 Equity T Fund 29
<PAGE>
EQUITY T FUND
STATEMENT OF NET ASSETS
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
COMMON STOCKS - 91.1%
BASIC INDUSTRIES - 5.7%
Allegheny Teldyne, Inc. 4,500 $ 104
Aluminum Co. of America 2,300 147
Crompton & Knowles Corp. 2,900 56
Crown Cork & Seal Co., Inc. 100 5
Cytec Industries, Inc. 200 8
Dow Chemical Co. 1,400 110
du Pont (E.I.) de Nemours & Co. 3,400 321
Freeport McMoRan Copper & Gold, Inc.
Class A 800 23
Class B 300 9
Inco, Ltd. 300 10
James River Corp. of Virginia 600 20
Mead Corp. 1,400 81
Precision Castparts Corp. 200 10
Temple-Inland, Inc. 900 48
Union Carbide Corp. 4,500 183
----------
1,135
----------
CAPITAL GOODS - 4.7%
Caterpillar, Inc. 300 23
Cooper Industries, Inc. 2,500 105
Foster Wheeler Corp. 1,300 48
General Electric Co. 800 79
Grainger (W.W.), Inc. 800 64
ITT Industries, Inc. 1,900 47
Johnson Controls, Inc. 2,100 174
National Service Industries, Inc. 100 4
Newport News Shipbuilding, Inc. (a) 60 1
Raychem Corp. 300 24
Tyco International, Ltd. 2,700 143
WMX Technologies, Inc. 7,000 228
----------
940
----------
CONSUMER BASICS - 19.5%
Albertson's, Inc. 300 11
ALZA Corp. (a) 4,300 111
American Home Products Corp. 4,500 264
Apria Healthcare Group, Inc. (a) 500 9
Bausch & Lomb, Inc. 600 21
Black & Decker Corp. 500 15
Bristol-Myers Squibb Co. 2,500 272
Coca-Cola Co. (The) 900 47
Colgate-Palmolive Co. 400 37
Columbia/HCA Healthcare Corp. 3,400 139
CPC International, Inc. 600 47
Forest Labs, Inc. (a) 2,800 92
General Mills, Inc. 900 57
General Nutrition Companies, Inc. (a) 200 3
Health Management Associates Class A 200 5
Humana, Inc. (a) 1,500 29
Kellogg Co. 2,200 144
Manor Care, Inc. 500 14
Merck & Co., Inc. 100 8
Nabisco Holdings Corp. Class A 200 8
PepsiCo, Inc. 11,200 328
Pfizer, Inc. 2,900 240
Pharmacia & Upjohn, Inc. 100 4
Philip Morris Cos., Inc. 5,100 574
Procter & Gamble Co. 3,700 398
Ralston-Purina Group 1,600 117
Sara Lee Corp. 900 34
Schering-Plough Corp. 2,700 175
Tenet Healthcare Corp. (a) 1,800 39
Unilever NV 1,700 298
United Healthcare Corp. 4,000 180
Vivra, Inc. (a) 2,800 76
Warner-Lambert Co. 1,300 97
----------
3,893
----------
CONSUMER DURABLES - 2.1%
Eaton Corp. 200 14
Ford Motor Co. 5,200 166
General Motors Corp. 2,300 128
Goodyear Tire & Rubber Co. 200 10
Lear Corp. (a) 200 7
PACCAR, Inc. 100 7
Whirlpool Corp. 2,000 93
----------
425
----------
CONSUMER NON-DURABLES - 4.1%
Anheuser-Busch Cos., Inc. 1,100 44
Avon Products, Inc. 300 17
Circuit City Stores, Inc. 500 15
Dayton Hudson Corp. 200 8
Federated Department Stores, Inc. (a) 200 7
Fruit of the Loom, Inc. Class A (a) 1,100 42
Gap, Inc. 100 3
International Flavors & Fragrances, Inc. 600 27
Mattel, Inc. 400 11
Penney (J.C.) Co., Inc. 2,000 98
Seagram Co., Ltd. 300 12
Sears Roebuck & Co. 4,400 203
Toys "R" Us, Inc. (a) 1,500 44
Wal-Mart Stores, Inc. 12,600 288
----------
819
----------
30 Equity T Fund Specialty Funds
<PAGE>
EQUITY T FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
CONSUMER SERVICES - 1.3%
AMR Corp. (a) 100 $ 9
Choice Hotels International, Inc. (a) 300 5
Circus Circus Enterprises, Inc. (a) 500 17
Disney (Walt) Co. 600 42
Harrah's Entertainment, Inc. (a) 2,100 42
International Game Technology 800 15
ITT Corp. (a) 700 30
McDonald's Corp. 500 23
Mirage Resorts, Inc. 2,700 58
Southwest Airlines Co. 1,100 24
----------
265
----------
ENERGY - 10.1%
Amoco Corp. 100 8
Anadarko Petroleum Corp. 1,100 71
Ashland, Inc. 1,400 61
Baker Hughes, Inc. 100 3
Chevron Corp. 1,400 91
Cooper Cameron Corp. (a) 700 54
Exxon Corp. 5,400 529
Global Marine, Inc. New (a) 600 12
Mobil Corp. 700 86
Noble Drilling Corp. (a) 100 2
PanEnergy Corp. 7,100 320
Pogo Producing Co. 400 19
Royal Dutch Petroleum Co. - ADR 2,400 410
Schlumberger, Ltd. 1,200 120
Smith International, Inc. (a) 1,000 45
Texaco, Inc. 900 88
Tosco Corp. 1,100 87
Union Pacific Resources Group, Inc. 400 12
----------
2,018
----------
FINANCE - 14.0%
Advanta Corp. Class B 1,000 41
American General Corp. 700 29
Banc One Corp. 300 13
Bancorp Hawaii, Inc. 400 17
BankAmerica Corp. 900 90
Bear Stearns Cos., Inc. 1,400 39
Beneficial Corp. 1,100 70
Boatmen's BancShares, Inc. 4,700 303
Chubb Corp. (The) 1,500 81
CIGNA Corp. 1,400 191
Citicorp 600 62
Citizens Bancorp Maryland 500 31
ContiFinancial Corp. (a) 200 7
CoreStates Financial Corp. 1,600 83
Dean Witter, Discover & Co. 1,700 113
Dime Bancorp, Inc. New (a) 100 1
Edwards (A.G.), Inc. 1,100 37
Federal National Mortgage Association 3,900 145
First Chicago NBD Corp. 2,600 140
First Tennessee National Corp. 1,900 71
First Union Corp. 100 7
First USA, Inc. 700 24
Firstar Corp. 1,600 84
Fleet Financial Group, Inc. 2,300 115
General Re Corp. 300 47
Great Western Financial Corp. 800 23
ITT Hartford Group, Inc. 1,200 81
Lincoln National Corp. 700 37
MBIA, Inc. 800 81
Mercury Finance Corp. 15,400 189
Regions Financial Corp. 1,200 62
Republic New York Corp. 900 73
Salomon, Inc. 2,700 127
SouthTrust Corp. 1,300 45
TCF Financial Corp. 300 13
Transamerica Financial Corp. 1,900 150
Washington Federal, Inc. 1,800 47
Washington Mutual, Inc. 400 16
----------
2,785
----------
GENERAL BUSINESS - 5.0%
Comcast Corp. Special Class A 1,300 23
Donnelley (R.R.) & Sons Co. 200 6
First Data Corp. 6,100 223
MFS Communications, Inc. 4,100 222
Paging Network, Inc. (a) 1,400 21
Service Corp. International 1,400 39
TCI Satellite Entertainment, Inc., Class A (a) 1,340 13
Tele-Communications, Inc. Class A 13,400 174
Time Warner, Inc. 6,125 230
Viacom, Inc. Class B (a) 1,400 50
----------
1,001
----------
MISCELLANEOUS - 0.8%
Providian Corp. 2,600 134
Tenneco, Inc. 300 13
----------
147
----------
Specialty Funds Equity T Fund 31
<PAGE>
EQUITY T FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
SHELTER - 0.1%
Owens-Corning Fiberglas Corp. 300 $ 13
----------
13
----------
TECHNOLOGY - 14.2%
AlliedSignal, Inc. 3,500 235
Applied Materials, Inc. (a) 600 22
Boeing Co. 2,300 245
Cisco Systems, Inc. 4,000 255
Coltec Industries, Inc. (a) 400 8
COMPAQ Computer Corp. (a) 1,700 126
Computer Associates International, Inc. 1,200 60
EMC Corp. (a) 1,600 53
General Dynamics Corp. 200 14
General Motors Corp. Class H 2,000 113
Harris Corp. 2,400 165
Hewlett-Packard Co. 1,700 85
Intel Corp. 3,400 445
International Business Machines Corp. 1,800 272
Lockheed Martin Corp. 600 55
McDonnell Douglas Corp. 1,600 102
Microsoft Corp. 400 33
Motorola, Inc. 400 25
Northrop Grumman Corp. 200 17
Oracle Systems Corp. 3,300 137
Perkin-Elmer Corp. 1,800 105
Raytheon Co. 800 38
Sensormatic Electronics Corp. 1,800 30
Sun Microsystems, Inc. 4,000 102
Xerox Corp. 1,600 83
----------
2,825
----------
TRANSPORTATION - 1.7%
Burlington Northern, Inc. 400 35
Consolidated Freightways Corp. (a) 250 2
Consolidated Freightways, Inc. 500 11
Union Pacific Corp. 4,900 295
----------
343
----------
UTILITIES - 7.8%
Airtouch Communications, Inc. (a) 1,100 28
Allegheny Power System, Inc. 1,800 55
American Water Works, Inc. 300 6
AT&T Corp. 1,000 44
CINergy Corp. 2,200 73
Consolidated Edison Co. 100 3
Dominion Resources, Inc. 1,500 58
Edison International 6,200 123
El Paso Natural Gas Co. 28 1
GTE Corp. 3,300 150
Lucent Technologies, Inc. 1,700 79
MCI Communications Corp. 6,100 199
New England Electric System 900 31
Northern States Power Co. 1,600 73
NYNEX Corp. 100 5
Pacific Gas & Electric Co. 7,500 158
Portland General Electric Co. 5,700 239
Southern Co. 4,300 97
Sprint Corp. 1,000 40
U.S. West Communications Group 1,300 42
U.S. West Media Group 2,500 47
----------
1,551
----------
TOTAL COMMON STOCKS
(cost $17,462) 18,160
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 8.8%
Frank Russell Investment Company Money
Market Fund, due on demand (b) $ 1,757 1,757
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,757) 1,757
----------
TOTAL INVESTMENTS
(identified cost $19,219)(c) - 99.9% 19,917
OTHER ASSETS AND LIABILITIES, NET - 0.1% 14
----------
NET ASSETS - 100.0% $ 19,931
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NV - Nonvoting
The accompanying notes are an integral part of the financial statements.
32 Equity T Fund Specialty Funds
<PAGE>
EQUITY T FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $19,219,147)(Note 2). . . . . . . . . . . . . . . . . . . . . $ 19,916,598
Receivables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,364
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003,938
From Manager (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,139
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,234
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,292
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,037,565
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,002,390
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 59,107
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,679
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,106,176
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,931,389
---------------
---------------
Net assets consist of:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (25,924)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697,451
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,790
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,241,072
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,931,389
---------------
---------------
Net asset value, offering and redemption (Note 2) price per share
($19,931,389 divided by 1,878,997 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.61
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Equity T Fund 33
<PAGE>
EQUITY T FUND
STATEMENT OF OPERATIONS
For the Period October 7, 1996 (Commencement of Operations)
to December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,875
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,010
---------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,885
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,443
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,239
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,903
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,087
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,074
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . 1,137
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,990
---------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . 80,873
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . (52,282)
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,591
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,294
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,924)
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . 697,451
---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671,527
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 717,821
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34 Equity T Fund Specialty Funds
<PAGE>
EQUITY T Fund
STATEMENT OF CHANGES IN NET ASSETS
For the Period October 7, 1996 (Commencement of Operations)
to December 31, 1996
<TABLE>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,294
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,924)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . . . . . . . . . 697,451
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . 717,821
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,294)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,336)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . . . . . . . . . . . 19,262,198
---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,931,389
Net assets at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
---------------
NET ASSETS AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,931,389
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Equity T Fund 35
<PAGE>
EQUITY T FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
1996*
----------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . .03
Net realized and unrealized gain (loss) on investments . . . . .61
----------
Total Income From Investment Operations. . . . . . . . . . . . .64
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . (.03)
----------
Total distributions. . . . . . . . . . . . . . . . . . . . . . (.03)
----------
PLUS REDEMPTION FEES: (Notes 2 and 6). . . . . . . . . . . . . . .00
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $10.61
----------
----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . . . . 6.10
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c). . . . . 1.00
Operating expenses, gross, to average net assets (b)(c). . . . 2.83
Net investment income to average net assets (b)(c) . . . . . . 1.62
Portfolio turnover (b) . . . . . . . . . . . . . . . . . . . . 8.86
Net assets, end of period ($000 omitted) . . . . . . . . . . . 19,931
Average commission rate paid per share
of security ($ omitted). . . . . . . . . . . . . . . . . . . .0301
Per share amount of fees waived ($ omitted)(d) . . . . . . . . .0143
Per share amount of fees reimbursed ($ omitted)(d) . . . . . . .0194
* For the period October 7, 1996 (commencement of operations)
to December 31, 1996.
(a) Periods less than one year are not annualized.
(b) The ratios for the period October 7, 1996 (commencement of operations) to
December 31, 1996 are annualized.
(c) Fund performance, operating expenses, and net investment income are
reported net of investment management fees paid to the Manager or money
managers, but gross of any investment services fees. See Note 4.
(d) See Note 4 for current period amounts.
36 Equity T Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
OBJECTIVE: To provide a high level of federal tax-exempt income consistent
with the preservation of capital.
INVESTS IN: Municipal obligations maturing in seven years or less from the date
of acquisition.
STRATEGY: The Fund concentrates on investment opportunities in the tax-free,
investment grade municipal debt securities market.
<TABLE>
<CAPTION>
DATES LIMITED VOLATILITY TAX FREE SB 3-MONTH T-BILL ** LIPPER-C- SHORT MUNI DEBT ++
<S> <C> <C> <C>
* $ 10,000 $ 10,000 $ 10,000
1987 $ 10,284 $ 10,590 $ 10,330
1988 $ 10,821 $ 11,306 $ 10,949
1989 $ 11,574 $ 12,284 $ 11,724
1990 $ 12,282 $ 13,254 $ 12,473
1991 $ 13,220 $ 14,016 $ 13,481
1992 $ 13,994 $ 14,522 $ 14,344
1993 $ 14,914 $ 14,968 $ 15,233
1994 $ 14,834 $ 15,600 $ 15,202
1995 $ 15,993 $ 16,494 $ 16,320
1996 $ 16,484 $ 17,361 $ 16,928
- ---------------------------------------------------------------------------------------------------
Total $144,400 $150,395 $146,984
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
LIMITED VOLATILITY TAX FREE FUND
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,307 3.07%
5 Years $ 12,468 4.51%#
10 Years $ 16,484 5.12%#
SALOMON BROTHERS 3-MONTH TREASURY BILL INDEX
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,525 5.25%
5 Years $ 12,386 4.37%#
10 Years $ 17,361 5.67%#
LIPPER-C- SHORT MUNICIPAL DEBT FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/96 $10,000 RETURN
- ------------- --------- ------
1 Year $ 10,373 3.73%
5 Years $ 12,557 4.66%#
10 Years $ 16,928 5.40%#
* Assumes initial investment on January 1, 1987.
** 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 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.
38 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1996 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1996 the Limited Volatility Tax Free Fund had a
total return of 3.1%, as compared to the Lipper-C- Short Municipal Debt Funds
Benchmark results of 3.7%. The Fund underperformed the benchmark primarily due
to duration-related factors. Its longer-than-index duration during the first
quarter detracted from returns as interest rates rose. Conversely, duration was
shorter than the benchmark during the second quarter as rates recovered. This
led to some mismatch in the maturity structure of the Fund versus the two
benchmarks, which makes performance comparison difficult.
PORTFOLIO HIGHLIGHTS
Fixed income markets were extremely volatile during 1996. Interest rates rose as
signs of robust economic growth sparked fears of inflation and Federal Reserve
intervention. Municipal bonds were not immune to these factors, but fared
slightly better than their taxable counterparts as technical factors and
diminished fears of a "flat tax" structure. While Treasury bond yields rose
65-80 basis points during the year, municipal bonds finished 1996 only 20-25
basis points higher. The healthy economy and improving credit quality of many
major municipal bond issuers also contributed to their relative outperformance.
- -------------------------------------------------------------------
TOP TEN ISSUING STATES
(AS A PERCENT OF TOTAL INVESTMENTS) DECEMBER 31, 1996
Washington 9.8%
New York 8.8
Texas 8.3
Illinois 8.1
California 6.8
Michigan 6.5
Utah 5.3
Minnesota 4.9
Pennsylvania 3.6
Connecticut 3.5
- -------------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
DECEMBER 31, 1996
Weighted Average Quality Diversification AAA
Weighted Average Years-to-Maturity 2.9 Years
Weighted Average Duration 2.6 Years
Current Yield (SEC 30-day standardized) 3.6%
Number of Issues 90
Number of Issuers 77
- -------------------------------------------------------------------
- -------------------------------------------------------------------
MONEY MANAGERS
MFS Asset Management, Inc.
- -------------------------------------------------------------------
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 Limited Volatility Tax Free Fund 39
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - 100.6%
ALASKA - 3.5%
Anchorage, Alaska, Electric Utilities
Revenue Series B (a) $ 355 4.750% 02/01/00 $ 358
North Slope Borough, Alaska, Zero Coupon,
Series A, General Obligation (a) 500 0.000 06/30/99 448
North Slope Borough, Alaska, Zero Coupon,
Series A, General Obligation (a) 1,385 0.000 06/30/00 1,180
North Slope Borough, Alaska, Zero Coupon,
Series B, General Obligation (a) 375 0.000 06/30/99 336
----------
2,322
----------
ARIZONA - 2.4%
Arizona State Transportation Board, Series A,
Special Obligations Revenue (pre-refunded 07/01/01) 1,425 6.450 07/01/06 1,562
----------
1,562
----------
CALIFORNIA - 6.9%
California Health Facilities Financing,
Series D, Health Care Revenue (a) 665 5.750 07/01/98 682
California State Public Works Lease,
Series A, State and Local Appropriation (a) 500 5.100 12/01/98 510
California State Public Works Lease,
State and Local Appropriation (a) 600 5.250 12/01/98 614
California, State of, General Obligation (a) 850 6.100 11/01/01 913
Los Angeles County, California, California Transporation
Participation Certification, Series B, Tax Revenue 760 5.900 07/01/00 787
Sacramento, California Municipal Utility District,
Series Z, Utility Revenue (a) 1,000 6.000 07/01/01 1,067
----------
4,573
----------
COLORADO - 0.8%
Denver, Colorado, City and County, General Obligation 500 5.950 08/01/97 507
----------
507
----------
CONNECTICUT - 3.5%
Bridgeport, Connecticut, Series A, General Obligation (a) 1,150 5.250 09/01/99 1,179
Connecticut State Unemployment,
Series A, Compensation Revenue (a) 1,125 5.000 11/15/99 1,151
----------
2,330
----------
DISTRICT OF COLUMBIA - 0.8%
District of Columbia, Series A, General Obligation (a) 500 7.250 06/01/98 522
----------
522
----------
FLORIDA - 1.3%
Hillsborough County, Florida, Zero Coupon,
Series A, Utility Refunding Revenue (a) 1,000 0.000 08/01/99 895
----------
895
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GEORGIA - 2.3%
Atlanta, Georgia, Airport Facilities Revenue (a) $ 500 5.500% 01/01/01 $ 520
Chatham County, Georgia,
Series A, Hospital Authority Revenue (a) 500 5.000 01/01/00 509
Clarke County, Georgia, Hospital Authority Revenue (a) 500 5.000 01/01/01 509
----------
1,538
----------
GUAM - 0.8%
Guam Government, Series A, General Obligation 500 5.750 08/15/99 510
----------
510
----------
ILLINOIS - 8.2%
Chicago, Illinois School Financial Authority, Series A,
State and Local Appropriation (a) 1,000 5.400 06/01/97 1,007
Chicago, Illinois, Series C, General Obligation (a) 1,500 6.250 10/31/01 1,605
Illinois Educational Facilities Authority Revenue 500 4.750 12/01/00 507
Illinois Health Facilities Authority Revenue, Series A 500 4.700 08/15/00 499
Illinois Health Facilities Authority, Series C,
Special Obligation Revenue (pre-refunded 04/01/99) 500 7.500 04/01/18 544
Illinois State Sales Tax Revenue, Series S 600 6.000 06/15/03 642
Illinois, State of, General Obligation (pre-refunded 06/01/98) 625 5.800 06/01/98 643
----------
5,447
----------
IOWA - 1.5%
Iowa Student Loan Liquidity Corp.,
Series A, Student Loan Revenue 1,000 6.000 03/01/98 1,022
----------
1,022
----------
KENTUCKY - 1.6%
McCracken County, Kentucky Hospital Revenue,
Series A, Health Care Revenue (a) 1,000 5.700 11/01/00 1,045
----------
1,045
----------
LOUISIANA - 2.3%
Lafayette, Louisiania, Public Power
Authority Electric Revenue (a) 500 4.500 11/01/99 505
Louisiana Public Facilities
Authority Revenue, Health Care Revenue 500 5.500 10/15/99 517
Louisiana, State of, Series A, General Obligation (a) 500 6.000 08/01/00 526
----------
1,548
----------
MICHIGAN - 6.6%
Michigan Municipal Bond Authority Revenue, Series B,
State and Local Appropriation (a) 550 6.900 05/01/99 583
Michigan State Hospital Finance Authority Revenue,
Series Q (a) 405 4.500 08/15/01 404
Michigan State Trunk Line, Series A,
Special Obligation Revenue (pre-refunded 08/15/99) 400 7.000 08/15/17 435
Michigan State Underground Storage Tank
Assurance Authority, Series I (a) 2,900 5.000 05/01/99 2,958
----------
4,380
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Limited Volatility Tax Free Fund 41
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
MINNESOTA - 5.0%
Minneapolis St. Paul, Minnesota Metropolitan Council,
Series D, General Obligation $ 535 5.900% 09/01/97 $ 544
Minnesota State Revenue, Series A 1,500 5.000 06/30/99 1,530
Minnesota, State of, General Obligation 500 6.400 08/01/98 520
Minnesota, State of, General Obligation 700 5.600 10/01/99 727
----------
3,321
----------
MISSISSIPPI - 1.8%
Perry County, Mississippi Pollution Control Revenue 1,200 5.000 (b) 03/01/02 1,200
----------
1,200
----------
NEW MEXICO - 2.0%
New Mexico, Mortgage Finance Authority
Revenue, Series A1 1,290 6.200 01/01/01 1,340
----------
1,340
----------
NEW YORK - 9.0%
New York City Municipal Water Finance Authority 900 5.000 (b) 06/15/24 900
New York State Dormitory Authority Revenue 1,000 4.700 05/15/99 1,003
New York State Dormitory Authority Revenue 500 4.900 05/15/00 501
New York State Dormitory Authority Revenue 500 5.000 07/01/00 502
New York State Dormitory Authority Revenue, Series E 500 7.300 07/01/99 529
New York State Urban Development Corp. Revenue, Series 7 125 5.500 01/01/01 128
New York, New York, Series A, General Obligation 500 5.700 08/01/02 512
New York, New York, Series C, General Obligation 500 6.125 08/01/01 522
New York, New York, Series D, General Obligation 350 6.000 02/01/99 360
New York, New York, Series E, General Obligation 500 5.300 08/01/03 501
New York, New York, Series F, General Obligation 500 5.300 08/01/03 502
----------
5,960
----------
NORTH CAROLINA - 1.1%
North Carolina Eastern Municipal Power Agency
Revenue, Series A 750 5.000 01/01/99 756
----------
756
----------
OHIO - 1.0%
Cleveland, Ohio, General Obligation (a) 650 5.000 09/01/00 665
----------
665
----------
OKLAHOMA - 2.3%
Norman, Oklahoma Regional Hospital
Authority Revenue, Series A (a) 400 4.400 09/01/99 401
Norman, Oklahoma Regional Hospital
Authority Revenue, Series A (a) 590 4.600 09/01/00 593
Tulsa County, Oklahoma Independent
School District, General Obligation 500 5.000 02/01/01 508
----------
1,502
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
42 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PENNSYLVANIA - 3.7%
Allegheny County, Pennsylvania Hospital Development
Authority Revenue, Series A $ 100 3.900% (b) 03/01/20 $ 100
Lehigh County, Pennsylvania, Special Obligation Revenue
(pre-refunded 08/01/00)(a) 500 6.900 08/01/11 551
Pennsylvania State First Series (a) 500 5.250 05/15/99 513
Pennsylvania, State of, General Obligation 500 5.300 07/01/99 514
Philadelphia, Pennsylvania, Zero Coupon,
Water & Sewer Revenue (a) 1,000 0.000 10/01/02 764
----------
2,442
----------
RHODE ISLAND - 2.3%
Rhode Island Housing & Mortgage Finance
Authority, Series A, Housing Revenue (a) 1,000 5.150 07/01/01 1,015
Rhode Island State Consolidated Capital
Development, Series B, General Obligation 500 6.000 05/15/97 505
----------
1,520
----------
SOUTH CAROLINA - 1.5%
Piedmont, South Carolina, Municipal Power
Agency Service, Series A, Utility Revenue (a) 500 5.700 01/01/98 510
South Carolina Public Service Authority
Revenue, Series B, Utility Revenue (a) 500 5.000 01/01/99 509
----------
1,019
----------
SOUTH DAKOTA - 1.0%
South Dakota State Lease Revenue,
Series B, State and Local Appropriation 650 5.700 09/01/97 659
----------
659
----------
TEXAS - 8.0%
Abilene, Texas, Health Facilities Development Corp.,
Medical Center A, Health Care Revenue (a) 500 5.100 09/01/99 511
Arlington, Texas Independant School
District, General Obligation 600 5.150 02/15/99 613
Austin, Texas, Zero Coupon, General Obligation (a) 645 0.000 09/01/97 629
Austin, Texas, Zero Coupon, General Obligation
(Pre-refunded 09/01/97)(a) 30 0.000 09/01/97 29
Harris County, Texas, Health Facilties
Development Corp. Hospital Revenue 500 5.000 (b) 12/01/25 500
San Antonio, Texas, General Obligation 1,000 5.000 08/01/00 994
Texas State Department of Housing & Community Affairs
Single Family Revenue (a) 500 4.650 09/01/00 504
Texas, State of, Series C, General Obligation 1,500 5.000 04/01/99 1,529
----------
5,309
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Limited Volatility Tax Free Fund 43
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
UTAH - 5.4%
Intermountain Power Agency,
Series B, Utility Revenue (a) $ 500 5.250% 07/01/99 $ 508
Intermountain Power Agency, Series B, Utility Revenue 500 7.200 07/01/99 531
Intermountain Power Agency, Series C, Utility Revenue (a) 1,500 5.500 07/01/99 1,545
Intermountain Power Agency, Series E, Utility Revenue 500 5.250 07/01/01 515
Utah State, Building Ownership Authority,
Series A, Lease Revenue, 500 5.500 05/15/00 516
----------
3,615
----------
VIRGINIA - 2.7%
Fredericksburg, Virginia Industrial Development
Authority Hospital Facilities Revenue (a) 500 4.300 06/15/00 498
Virginia Public Building Authority Revenue,
State and Local Appropriation 500 5.100 08/01/99 511
Virginia, State of, General Obligation 740 5.375 06/01/99 764
----------
1,773
----------
WASHINGTON - 10.0%
Clark County, Washington Public Utility
District Number 1, Utility Revenue (a) 500 5.000 01/01/99 508
Washington State Public Power Supply System,
Series A, Utility Revenue 280 5.000 07/01/00 283
Washington State Public Power Supply System,
Series A, Utility Revenue 1,500 5.450 07/01/00 1,538
Washington State Public Power Supply System,
Series B, Utility Revenue 650 7.200 07/01/99 692
Washington State Public Power Supply System,
Series B, Utility Revenue 500 5.000 07/01/00 506
Washington State Series R 500 5.000 07/01/99 510
Washington, State of, Series C, General Obligation 2,000 5.500 07/01/99 2,063
Washington, State of, Series R-92 B, General Obligation 500 5.750 09/01/97 507
----------
6,607
----------
WISCONSIN - 0.7%
Wisconsin State Health & Educational
Facilities Revenue (a) 435 4.500 08/15/99 438
----------
438
----------
WYOMING - 0.6%
Lincoln County, Wyoming Pollution Control
Revenue, Project B 100 5.000 (b) 11/01/14 100
Lincoln County, Wyoming Pollution Control
Revenue, Project C 100 5.000 (b) 11/01/14 100
Lincoln County, Wyoming Pollution Control
Revenue, Project D 200 5.000 (b) 11/01/14 200
----------
400
----------
Total Municipal Bonds (cost $65,859) 66,727
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44 Limited Volatility Tax Free Fund Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) COUPON MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT OBLIGATIONS - 1.3%
Harris County, Texas, Industrial Development
Corp., Series B, daily demand $ 300 5.000% (b) 03/01/24 $ 300
Uinta County, Wyoming Pollution Control
Revenue, daily demand 600 5.000 (b) 08/15/20 600
----------
TOTAL SHORT-TERM TAX-EXEMPT OBLIGATIONS (cost $900) 900
----------
TOTAL INVESTMENTS (identified cost $66,759)(c) - 101.9% 67,627
OTHER ASSETS AND LIABILITIES, NET - (1.9)% (1,283)
----------
NET ASSETS - 100.0% $ 66,344
----------
----------
</TABLE>
(a) Bond is insured by AMBAC, FGIC, or MBIA.
(b) Adjustable or floating rate security.
(c) See Note 2 for federal income tax information.
QUALITY RATINGS AS A % OF MARKET VALUE (UNAUDITED)
AAA 63%
AA 25
A 1
BBB 10
Cash Equivalents 1
----------
100%
----------
----------
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE (UNAUDITED)
General Obligation 35%
Utility Revenue 18
State and Community Lease 11
Health Care Revenue 10
Refunded 6
Housing Revenue 4
Student Loan Revenue 2
Other 13
Cash Equivalents 1
----------
100%
----------
----------
The accompanying notes are an integral part of the financial statements.
Specialty Funds Limited Volatility Tax Free Fund 45
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $66,759,452)(Note 2). . . . . . . . . . . . . . . . . . . . . $ 67,627,051
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,138,771
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301,321
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,067,143
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,590,099
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,290
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 33,816
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,046
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,723,251
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,343,892
---------------
---------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (984,504)
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . 867,599
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,559
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,429,238
---------------
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,343,892
---------------
---------------
Net asset value, offering and redemption price per share
($66,343,892 divided by 3,155,859 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21.02
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
46 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,989,913
Expenses (Notes 2 and 4):
Management Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 312,456
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,766
Transfer Agent Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,210
Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,935
Registration Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,767
Trustees' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,636
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,746
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471,516
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,518,397
---------------
REALIZED AND UNREALIZED ,
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3),
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,075)
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . (626,288)
---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (641,363)
---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 1,877,034
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Limited Volatility Tax Free Fund 47
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,518,397 $ 2,296,364
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . (15,075) 20,010
Net change in unrealized appreciation or depreciation of investments . . . . . (626,288) 2,069,894
--------------- ---------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 1,877,034 4,386,268
Distributions to shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,536,346) (2,311,453)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . (2,822) --
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 3,168,459 12,787,880
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 2,506,325 14,862,695
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 63,837,567 48,974,872
--------------- ---------------
NET ASSETS AT END OF YEAR
(including undistributed net investment income
of $17,949 at December 31, 1995) . . . . . . . . . . . . . . . . . . . . . . . $ 66,343,892 $ 63,837,567
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . $ 21.24 $ 20.48 $ 21.45 $ 21.03 $ 20.85
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .85 .81 .86 .94 1.01
Net realized and unrealized gain (loss) on investments . (.21) .77 (.97) .42 .18
-------- -------- -------- -------- --------
Total income from investment operations. . . . . . . . . .64 1.58 (.11) 1.36 1.19
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.86) (.82) (.86) (.94) (1.01)
-------- -------- -------- -------- --------
Total distributions. . . . . . . . . . . . . . . . . . . (.86) (.82) (.86) (.94) (1.01)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . $ 21.02 $ 21.24 $ 20.48 $ 21.45 $ 21.03
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . 3.07 7.81 (0.54) 6.58 5.85
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets . . . . . . . . .75 .74 .72 .75 .80
Net investment income to average net assets . . . . . . 4.02 3.91 4.14 4.40 4.89
Portfolio turnover . . . . . . . . . . . . . . . . . . . 74.34 73.91 71.71 24.05 18.21
Net assets, end of year ($000 omitted) . . . . . . . . . 66,344 63,838 48,975 51,211 38,399
</TABLE>
Specialty Funds Limited Volatility Tax Free Fund 49
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT AGENCIES - 86.1%
Aid Sri Lanka Guaranteed Note (LIBOR Floater)(a) $ 3,875 5.872% 06/15/12 $ 3,916
Aid to Chile Guaranteed Note (LIBOR Floater)(a) 6,331 5.813 06/01/05 6,337
Downey Savings & Loan Association 10,000 5.280 02/03/97 9,952
Federal Farm Credit Bank 1,000 4.550 02/03/97 999
Federal Farm Credit Bank 3,000 4.950 03/03/97 2,998
Federal Farm Credit Bank 1,000 4.250 03/10/97 997
Federal Farm Credit Bank 1,000 7.000 03/10/97 1,002
Federal Farm Credit Bank 2,000 5.350 05/12/97 1,997
Federal Home Loan Bank 1,000 5.370 01/17/97 1,000
Federal Home Loan Bank 5,000 5.820 02/03/97 4,974
Federal Home Loan Bank 6,000 5.250 02/07/97 6,000
Federal Home Loan Bank 1,000 6.850 02/25/97 1,002
Federal Home Loan Bank 2,600 5.035 03/06/97 2,598
Federal Home Loan Bank 5,000 5.265 03/13/97 5,000
Federal Home Loan Bank 4,000 5.350 03/14/97 3,998
Federal Home Loan Bank 2,000 4.250 06/30/97 1,983
Federal Home Loan Bank 3,000 6.000 07/02/97 2,997
Federal Home Loan Bank 3,700 6.000 08/01/97 3,700
Federal Home Loan Bank 5,000 6.000 08/12/97 5,002
Federal Home Loan Bank 2,595 5.640 08/19/97 2,590
Federal National Mortgage Association 3,000 6.770 04/14/97 3,010
Federal National Mortgage Association 3,550 6.750 04/22/97 3,560
Federal National Mortgage Association 3,000 5.640 09/03/97 2,991
Federal National Mortgage Association 2,300 9.550 09/10/97 2,352
Federal National Mortgage Association Discount Notes 1,865 5.350 03/24/97 1,842
Federal National Mortgage Association Discount Notes 7,000 5.380 03/27/97 6,911
Federal National Mortgage Association (MTN) 9,900 5.875 01/03/97 9,900
Federal National Mortgage Association (MTN) 3,000 4.380 01/21/97 2,998
Federal National Mortgage Association (MTN) 5,190 5.050 03/14/97 5,183
Federal National Mortgage Association (MTN) 1,000 6.200 06/17/97 1,000
Federal National Mortgage Association (MTN)(a) 10,000 5.270 04/04/97 9,991
Federal National Mortgage Association (MTN)(a) 5,250 5.050 07/28/97 5,235
Federal National Mortgage Association (MTN)(a) 3,460 5.320 06/02/99 3,433
Federal Home Loan Mortgage Corp. 1,000 7.860 01/21/97 1,001
Federal Home Loan Mortgage Corp. 1,000 4.780 02/10/97 1,000
Federal Home Loan Mortgage Corp. Discount Notes 2,350 5.600 01/24/97 2,341
Federal Home Loan Mortgage Corp. Discount Notes 1,872 5.420 01/31/97 1,864
Federal Home Loan Mortgage Corp. Discount Notes 5,000 5.380 02/24/97 4,960
Federal Home Loan Mortgage Corp. Discount Notes 4,950 5.450 02/24/97 4,910
Federal Home Loan Mortgage Corp. Discount Notes 5,000 5.370 03/19/97 4,943
Federal Home Loan Mortgage Corp. Discount Notes 5,000 5.325 03/21/97 4,942
New Hampshire Higher Education Loan Corp. 4,510 5.300 01/15/97 4,501
New Hampshire Higher Education Loan Corp. 5,858 5.280 01/16/97 5,845
New Hampshire Higher Education Loan Corp. 5,000 5.280 01/21/97 4,985
Secondary Market Services 5,169 5.280 01/08/97 5,164
Secondary Market Services 5,000 5.300 01/17/97 4,988
Secondary Market Services 5,564 5.290 02/06/97 5,535
Secondary Market Services 6,000 5.310 02/10/97 5,965
</TABLE>
50 U.S. Government Money Market Fund Specialty Funds
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Secondary Market Services $ 5,000 5.270% 02/25/97 $ 4,960
Secondary Market Services 7,298 5.300 03/13/97 7,222
Student Loan Marketing Association 1,000 5.870 06/30/97 1,000
Tennessee Valley Authority 3,000 6.000 01/15/97 3,000
----------
TOTAL UNITED STATES GOVERNMENT AGENCIES
(cost $206,574) 206,574
----------
UNITED STATES GOVERNMENT TREASURIES - 3.8%
United States Treasury Notes 6,000 6.625 03/31/97 6,015
United States Treasury Notes 3,000 6.500 04/30/97 3,006
----------
TOTAL UNITED STATES GOVERNMENT TREASURIES
(cost $9,021) 9,021
----------
TOTAL INVESTMENTS
(amortized cost $215,595) - 89.9% 215,595
----------
REPURCHASE AGREEMENTS - 10.9%
Agreement with HSBC and Chase Bank (Tri-Party) of $26,126
acquired December 31, 1996 at 6.25% to be repurchased
at $26,135 on January 2, 1997, collateralized by:
$4,560 Federal Farm Credit Discount Notes, due 01/02/97
to 04/22/97, valued at $4,542; and
$17,845 Federal Home Loan Bank Discount Notes, due 01/02/97,
valued at $17,836; and $4,085 Federal National Mortgage
Association, due 01/10/97 to 07/25/97, valued at $4,275. 26,126
----------
TOTAL REPURCHASE AGREEMENTS
(identified cost $26,126) 26,126
----------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS
(cost $241,721)(b) - 100.8% 241,721
OTHER ASSETS AND LIABILITIES, NET - (0.8)% (1,996)
----------
NET ASSETS - 100.0% $ 239,725
----------
----------
</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.
ABBREVIATIONS:
LIBOR - London Interbank Offered Rate
MTN - Medium Term Note
The accompanying notes are an integral part of the financial statements.
Specialty Funds U.S. Government Money Market Fund 51
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . $ 215,594,838
Repurchase agreements (identified cost $26,126,173)(Note 2). . . . . . . . . . . . . . . . . . . . . 26,126,173
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,321,845
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,042,856
LIABILITIES
Payables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,124,215
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,054,385
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 63,249
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,981
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,317,830
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 239,725,026
---------------
---------------
NET ASSETS CONSIST OF:
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,397,250
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,327,776
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 239,725,026
---------------
---------------
Net asset value, offering and redemption price per share
($239,725,026 divided by 239,725,026 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.00
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52 U.S. Government Money Market Fund Specialty Funds
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,634,186
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 481,642
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,378
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296,260
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,903
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,759
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,658
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,919
---------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . 970,519
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . (481,642)
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,877
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,145,309
---------------
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . $ 10,145,309
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds U.S. Government Money Market Fund 53
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income and net increase
in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 10,145,309 $ 7,880,740
Distributions to shareholders from net investment income . . . . . . . . . . . . (10,145,309) (7,880,740)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 89,783,626 37,864,438
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 89,783,626 37,864,438
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 149,941,400 112,076,962
--------------- ---------------
NET ASSETS AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 239,725,026 $ 149,941,400
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
54 U.S. Government Money Market Fund Specialty Funds
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<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. . . . . . . . . . . . . . . . . . . .0526 .0580 .0380 .0284 .0347
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . (.0526) (.0580) (.0380) (.0284) (.0347)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . 5.40 5.98 3.87 2.88 3.53
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net assets . . . .25 .32 .57 .49 .41
Operating expenses, gross, to average daily net assets . . .50 .51 .57 .49 .41
Net investment income to average daily net assets . . . . 5.27 5.82 3.91 2.85 3.47
Net assets, end of year ($000 omitted) . . . . . . . . . . 239,725 149,941 112,077 95,410 153,976
Per share amount of fees waived ($ omitted)(a) . . . . . . .0025 .0019 -- -- --
</TABLE>
(a) See Note 4 for current period amounts.
Specialty Funds U.S. Government Money Market Fund 55
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALABAMA - 1.1%
Mobile, Alabama Industrial Development Revenue, weekly demand $ 1,150 4.250%(2) 12/01/97 $ 1,150
----------
1,150
----------
ARIZONA - 1.8%
Maricopa County, Arizona Industrial Development Authority Revenue,
weekly demand 800 4.500(2) 10/01/04 800
Pinal County, Arizona Pollution Control Revenue, daily demand 1,000 5.000(1) 12/01/09 1,000
----------
1,800
----------
ARKANSAS - 1.7%
Arkansas State College Savings General Obligation, Series C 830 3.750 06/01/97 830
Little Rock, Arkansas Health Facility Board Hospital Revenue, weekly demand 925 4.050(2) 10/01/18 925
----------
1,755
----------
CALIFORNIA - 1.1%
Livermore, California Housing Authority Multi-family Revenue,
Series A, weekly demand 600 4.200(2) 12/01/22 600
Ravenswood, California City School District 500 4.500 07/08/97 501
----------
1,101
----------
COLORADO - 0.2%
Colorado Multi-family Housing Financing Authority, Series A,
weekly demand 175 4.125(2) 11/01/09 175
----------
175
----------
CONNECTICUT - 1.0%
Waterbury, Connecticut Tax Anticipation Notes 1,000 4.000 02/05/97 1,000
----------
1,000
----------
DELAWARE - 0.6%
Delaware Economic Development Authority Multi-family Revenue,
weekly demand 650 4.600(2) 12/01/15 650
----------
650
----------
FLORIDA - 5.6%
Boca Raton, Florida Industrial Development Authority Revenue,
weekly demand 425 4.375(2) 12/01/14 425
Broward County, Florida Multi-family Housing Revenue,
weekly demand 1,875 4.250(2) 12/01/10 1,875
Sarasota, Florida Multi-family Revenue, Series C, weekly demand 3,405 4.250(2) 08/01/06 3,405
----------
5,705
----------
</TABLE>
56 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GEORGIA - 3.9%
Atlanta, Georgia, Urban Residential Multi-family
Mortgage Revenue, weekly demand $ 1,400 4.600%(2) 12/01/08 $ 1,400
DeKalb County, Georgia Housing Authority Multi-family
Housing Revenue, weekly demand 950 4.050(2) 12/15/15 950
Residential Apartments I Portfolio CERT Trust, 1996 Series A,
weekly demand 573 4.500(2) 12/01/02 573
Walton County, Georgia Industrial Building Authority Revenue,
Series B, weekly demand 1,050 4.200(2) 10/01/00 1,050
----------
3,973
----------
HAWAII - 0.5%
State of Hawaii General Obligation, Series BO 500 6.250 08/01/97 506
----------
506
----------
ILLINOIS - 12.0%
Chicago, Illinois Multi-family Housing Revenue, Project A, weekly demand 650 4.200(2) 11/01/10 650
Chicago, Illinois Multi-family Housing Revenue, Project B, weekly demand 1,150 4.200(2) 11/01/10 1,150
East Peoria, Illinois Multi-family Housing Authority, weekly demand 1,915 4.250(2) 06/01/08 1,915
Illinois Development Finance Authority Pollution Control Revenue,
daily demand 1,000 5.100(1) 12/01/08 1,000
Illinois Development Finance Authority Revenue, weekly demand 1,250 4.300(2) 09/01/26 1,250
Illinois Development Finance Authority, quarterly demand 700 3.900(4) 08/01/25 700
Illinois Development Finance Authority Pollution Control Revenue,
Series A, weekly demand (a) 700 4.200(2) 12/01/06 700
Illinois Industrial Development Revenue, weekly demand 3,000 4.500(2) 12/01/05 3,000
Sauget, Illinois Regional Wastewater Treatment Revenue 150 4.200 05/01/97 150
St. Clair County, Illinois Industrial Development Board Revenue,
weekly demand 1,000 4.500(2) 10/01/15 1,000
Troy Grove, Illinois Revenue, weekly demand 750 4.867(2) 05/01/10 750
----------
12,265
----------
INDIANA - 4.6%
Princeton, Indiana Pollution Control Revenue, daily demand 3,700 5.100(1) 03/01/19 3,700
Residential Apartments I Portfolio CERT Trust, 1996 Series A,
weekly demand 969 4.500(2) 12/01/02 969
----------
4,669
----------
IOWA - 1.5%
Des Moines, Iowa Private College Revenue, Series B
(pre-refunded 12/01/97)(b) 715 6.800 12/01/09 748
Des Moines, Iowa Private College Revenue, Series B
(pre-refunded 12/01/97)(b) 370 6.700 12/01/99 387
Residential Apartments I Portfolio CERT Trust, 1996 Series A,
weekly demand 458 4.500(2) 12/01/02 458
----------
1,593
----------
</TABLE>
Specialty Funds Tax Free Money Market Fund 57
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
KENTUCKY - 2.3%
Elsmere, Kentucky Industrial Building Revenue, semiannual demand $ 485 3.850%(5) 02/01/06 $ 485
Kentucky Development Finance Authority, Health Care Revenue,
weekly demand 1,900 4.250(2) 09/01/06 1,900
----------
2,385
----------
LOUISIANA - 1.0%
East Baton Rouge, Louisiana Single Family Revenue, monthly demand 1,010 3.850(5) 10/01/26 1,010
----------
1,010
----------
MARYLAND - 2.9%
Baltimore County, Maryland, Pollution Control Revenue 1,500 3.650 01/30/97 1,500
Montgomery County, Maryland Industrial Development Revenue, monthly demand 800 3.850(3) 04/01/14 800
Prince George's County, Maryland, Housing Authority Mortgage Revenue,
weekly demand 450 4.125(2) 10/01/07 450
Washington Suburban Sanitation District Maryland General Obligation
(pre-refunded 01/01/97)(b) 200 7.250 01/01/03 204
----------
2,954
----------
MICHIGAN - 6.0%
Lansing, Michigan Economic Development Corp., semiannual demand 2,000 3.700(5) 05/01/15 2,000
Livonia, Michigan Economic Development Corp., semiannual demand 280 3.800(5) 11/15/04 280
McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand 174 4.250(7) 01/15/09 174
Michigan State Job Development Authority Revenue, weekly demand 225 4.250(2) 10/01/08 225
Michigan State Job Development Authority Revenue, monthly demand 1,100 3.600(3) 11/01/14 1,100
Michigan State Strategic Fund Industrial Development Revenue,
weekly demand 2,370 4.249(2) 11/01/01 2,370
----------
6,149
----------
MINNESOTA - 2.5%
Mendota Heights, Minnesota Commercial Development, weekly demand 1,605 4.300(2) 12/01/15 1,605
Minneapolis, Minnesota General Obligation, Series A, weekly demand 1,000 4.200(2) 12/01/05 1,000
----------
2,605
----------
MISSISSIPPI - 0.4%
DeSoto County, Mississippi Industrial Development Revenue, weekly demand 400 4.867(2) 12/01/08 400
----------
400
----------
MISSOURI - 0.7%
St. Louis, Missouri Industrial Development Authority Revenue, weekly demand 700 4.550(2) 08/30/97 700
----------
700
----------
</TABLE>
58 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NEBRASKA - 0.7%
Douglas County, Nebraska School District 17 $ 715 4.000% 01/15/97 $ 715
----------
715
----------
NEVADA - 1.5%
Henderson, Nevada, Public Improvement Trust Housing Revenue,
Series II-B, weekly demand 1,550 4.100(2) 08/01/26 1,550
----------
1,550
----------
NEW York - 2.4%
Campbel-Savona, New York Central School District Bond Anticipation Notes
General Obligation 2,000 4.375 06/27/97 2,003
Chemung County, New York Industrial Development Agency,
Series A, weekly demand 200 4.100(2) 03/01/19 200
New York State Power Authority Revenue, Series T 200 6.900 01/01/97 200
----------
2,403
----------
OHIO - 10.1%
Buckeye, Ohio Tax-Exempt Mortgage Bond Trust, semiannual demand 390 4.500(5) 02/01/05 390
Canal Winchester, Ohio Bond Anticipation Notes 900 4.500 08/13/97 902
Cincinnati & Hamilton County, Ohio Port Authority Revenue, quarterly demand 285 3.600(4) 09/01/99 285
Citizens Federal Tax-Exempt Mortgage Bond Trust, semiannual demand 75 3.800(5) 09/01/08 75
Clermont County, Ohio Economic Development Revenue, semiannual demand 215 3.800(5) 05/01/12 215
Cuyahoga County, Ohio Industrial Development Revenue, semiannual demand 230 3.650(5) 06/01/99 230
Franklin County, Ohio Industrial Development Revenue, annual 325 3.850(5) 04/01/15 325
Franklin County, Ohio Industrial Development Revenue, semiannual demand 160 3.700(5) 11/01/15 160
Mahoning County, Ohio Industrial Development Revenue, Series A,
weekly demand 10 4.300(2) 10/01/00 10
Mahoning County, Ohio Industrial Development Revenue, Series B,
weekly demand 60 4.300(2) 10/01/00 60
McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand 812 4.250(7) 01/15/09 812
Montgomery County, Ohio Economic Development Authority Revenue,
semiannual demand 410 3.800(5) 12/15/04 410
Ohio State Economic Development Revenue, weekly demand 1,000 4.100(2) 10/01/98 1,000
Ohio State Economic Development Revenue, semiannual demand 830 3.800(5) 03/01/98 830
Ohio State Higher Educational Facilities Community College Revenue,
weekly demand 670 4.250(2) 09/01/20 670
Scioto County, Ohio Health Care Facilities, semiannual demand 710 3.650(5) 12/01/15 710
Stark County, Ohio Health Care Facilities, semiannual demand 1,675 3.750(5) 09/15/16 1,675
Trumbull County, Ohio Correctional Facility, General Obligation 1,000 4.070 04/10/97 1,001
Trumbull County, Ohio Industrial Development Revenue, weekly demand 540 4.300(2) 04/01/04 540
----------
10,300
----------
</TABLE>
Specialty Funds Tax Free Money Market Fund 59
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OKLAHOMA - 3.8%
Creek County, Oklahoma Industrial Development Authority Revenue,
semiannual demand $ 1,290 3.650%(5) 12/01/05 $ 1,290
Muskogee, Oklahoma, Industrial Development Revenue, weekly demand 1,090 4.400(2) 12/01/15 1,090
Oklahoma State Water Resource Board Student Loan Revenue,
semiannual demand 1,000 3.700(5) 09/01/24 1,000
Tulsa County, Oklahoma Industrial Development Authority Revenue,
semiannual demand 500 3.650(5) 12/15/08 500
----------
3,880
----------
OREGON - 3.0%
Port of Portland, Oregon Public Grain Elevator Revenue, weekly demand 3,075 4.250(2) 12/01/14 3,075
----------
3,075
----------
PENNSYLVANIA - 9.1%
Commonwealth Tax-Exempt Mortgage Bond Trust, semiannual demand 700 3.950(5) 11/01/05 700
Delaware Valley, Pennsylvania, Finance Authority Local Government
Revenue, Series C, weekly demand 600 4.150(2) 12/01/20 600
Geisinger, Pennsylvania Health Systems Authority Revenue, Series B,
daily demand 1,000 5.000(1) 07/01/22 1,000
McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand 174 4.250(7) 01/15/09 174
Montgomery County, Pennsylvania Higher Education & Health Authority
Revenue, Series 1996 A, weekly demand 2,000 4.300(2) 06/01/21 2,000
Philadelphia, Pennsylvania School District 1,750 4.500 06/30/97 1,754
Quakertown, Pennsylvania General Authority Revenue, Series A,
weekly demand 2,000 3.150(2) 07/01/26 2,000
York County, Pennsylvania, Industrial Development Authority Revenue,
weekly demand 1,100 4.000(2) 07/01/09 1,100
----------
9,328
----------
SOUTH DAKOTA - 1.8%
Sioux Falls, South Dakota Industrial Development Revenue, weekly demand 1,835 4.100(2) 06/01/06 1,835
----------
1,835
----------
TENNESSEE - 1.4%
Franklin County, Tennessee Health and Educational Facilities Revenue,
monthly demand 1,400 3.700(3) 09/01/10 1,400
----------
1,400
----------
</TABLE>
60 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
TEXAS - 10.3%
Alice, Texas Independent School District General Obligation $ 275 4.900% 08/15/97 $ 277
Austin, Texas Utilities System Revenue, Series A 1,500 4.300 05/15/97 1,503
Bexar County, Texas Health Facilities Development Revenue,
Series B, weekly 1,700 4.000(2) 07/01/11 1,700
Coldspring-Oakhurst, Texas Consolidated Independent School District,
General Obligation 150 6.750 02/15/97 151
Cypress-Fairbanks, Texas Independent School District General Obligation 315 3.700 02/01/97 315
Gulf Coast, Texas Waste Disposal Authority Revenue, daily demand 2,000 5.100(1) 10/01/17 2,000
Harris County, Texas Health Facilities Development Revenue, weekly demand 1,500 4.125(2) 08/15/26 1,500
Houston, Texas General Obligation Series C 1,000 5.500 04/01/97 1,004
Houston, Texas Public Improvement General Obligation 500 6.700 03/01/97 502
Richardson, Texas Public Property Financial Contractual,
General Obligation 300 4.300 02/15/97 300
Sabine River Authority Texas Pollution Control Revenue, daily demand (a) 1,000 5.100(1) 03/01/26 1,000
Tarrant County, Texas General Obligation (pre-refunded 01/15/97)(b) 230 5.250 01/15/01 230
----------
10,482
----------
UTAH - 0.3%
Salt Lake City, Utah, Industrial Development Revenue, weekly demand 350 4.250(2) 12/01/14 350
----------
350
----------
VIRGINIA - 1.4%
Norfolk, Virginia, Industrial Development Authority Revenue, weekly demand 1,075 4.125(2) 03/01/16 1,075
Virginia State Housing Development Authority Revenue, weekly demand 400 4.150(2) 09/01/17 400
----------
1,475
----------
WASHINGTON - 0.7%
Washington State Student Loan Finance Association, weekly demand 200 4.250(2) 01/01/01 200
Washington State Nonprofit Housing Revenue, daily demand 555 5.250(1) 07/01/11 555
----------
755
----------
WEST VIRGINIA - 1.0%
Marshall County, West Virginia Pollution Control Revenue, weekly demand 1,000 4.350(2) 03/01/26 1,000
----------
1,000
----------
WISCONSIN - 4.4%
Janesville, Wisconsin School District Tax and Revenue Anticipation Notes 500 3.910 09/25/97 500
Kettle Moraine School District, Wisconsin Tax and Revenue
Anticipation Notes 500 4.010 08/22/97 500
Lodi, Wisconsin, School District Tax and Revenue Anticipation Notes 1,750 4.000 10/17/97 1,751
Maple Dale Indian Hill, Wisconsin School District Tax and Revenue
Anticipation Notes 700 4.190 08/20/97 700
Tomah, Wisconsin Area School District Tax and Revenue Anticipation Notes 1,000 4.190 09/17/97 1,000
----------
4,451
----------
</TABLE>
Specialty Funds Tax Free Money Market Fund 61
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
VALUE
(000)
----------
TOTAL INVESTMENTS (amortized cost $105,544)(c) - 103.3% $ 105,544
OTHER ASSETS AND LIABILITIES, NET - (3.3)% (3,337)
----------
NET ASSETS - 100.0% $ 102,207
----------
----------
(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) Eight-month
(7) Thirteen-month
(8) Annual
The accompanying notes are an integral part of the financial statements.
62 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1996
QUALITY RATINGS AS A % OF MARKET VALUE (UNAUDITED) ++
VMIG1 OR SP-1 91%
P1 8
VMIG2 1
----------
100%
----------
----------
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE (UNAUDITED)
Housing Revenue 20%
Industrial Revenue Bonds 20
Pollution Control Revenue 20
General Obligation 19
Healthcare Revenue 12
Education Revenue 6
Utility Revenue 3
----------
100%
----------
----------
++ VMIG1: The highest short-term municipal note credit rating given by Moody's
Investors Services to notes with a demand feature which are of the
"best quality."
VMIG2: The highest short-term municipal note credit rating given by Moody's
Investors Services to notes with a demand feature which are of "high
quality."
SP-1: The highest short-term municipal note credit rating given by
Standard & Poor's Corporation to notes with a "very strong or strong
capacity to pay principal and interest."
P1: The highest tax-exempt commercial paper rating given by Moody's
Investors Services to commercial paper with a "superior capacity for
repayment."
The accompanying notes are an integral part of the financial statments.
Specialty Funds Tax Free Money Market Fund 63
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . $ 105,544,022
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754,289
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,298,311
LIABILITIES
Payables:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313,026
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,710,379
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . 33,227
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,644
---------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,091,276
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,207,035
---------------
---------------
NET ASSETS CONSIST OF:
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,022,070
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,184,965
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,207,035
---------------
---------------
Net asset value, offering and redemption price per share
($102,207,035 divided by 102,207,035 shares $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.00
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
64 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,478,655
Expenses (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $234,929
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,354
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,811
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,046
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,893
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,642
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,509
---------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,184
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,086,471
---------------
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . $ 3,086,471
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Tax Free Money Market Fund 65
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income and net increase
in net assets resulting from operations. . . . . . . . . . . . . . . . . . . $ 3,086,471 $ 3,173,244
Distributions to shareholders from net investment income . . . . . . . . . . . . (3,086,471) (3,173,244)
Increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 24,207,377 (22,819,224)
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . 24,207,377 (22,819,224)
Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . 77,999,658 100,818,882
--------------- ---------------
NET ASSETS AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,207,035 $ 77,999,658
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
66 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<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. . . . . . . . . . . . . . . . . . . .0329 .0370 .0279 .0251 .0304
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . (.0329) (.0370) (.0279) (.0251) (.0304)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . 3.35 3.76 2.83 2.55 3.09
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average daily net assets . . . . . .42 .48 .40 .43 .45
Net investment income to average daily net assets . . . . 3.28 3.69 2.84 2.52 3.03
Net assets, end of year ($000 omitted) . . . . . . . . . 102,207 78,000 100,819 68,154 73,203
</TABLE>
Specialty Funds Tax Free Money Market Fund 67
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 23 different investment portfolios, referred to as "Funds".
These financial statements report on six 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. As of July 8, 1996, the Real
Estate Securities and Emerging Markets Funds have available Class S and
Class C shares. Each Class has equal rights as to assets and voting
privileges. Investment income, realized and unrealized gains and losses and
fund level expenses of a Fund are allocated on a pro rata basis to each
Class, based on relative net assets of each Class to the total net assets of
a Fund. Certain expenses may also be charged to an individual Class for
services or fees that relate specifically to that particular Class. Class C
shares are charged a 12b-1 distribution fee and a shareholder servicing fee
of 0.40% and 0.25% of average daily net assets, respectively. Class S shares
which are reported herein are charged no such fees.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management
estimates. The following is a summary of the significant accounting policies
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/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. Realized gains and losses from securities transactions are
recorded on the basis of identified cost incurred by each money manager
within a particular fund. The Funds, except Limited Volatility Tax Free and
Tax Free Money Market Funds, may lend portfolio securities but have not done
so in 1996.
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
68 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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: Premiums and discounts 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. Therefore, no federal income tax
provision was required for the Funds. From November 1, 1996 to December 31,
1996, the Equity T and U.S. Government Money Market Funds incurred net
realized capital losses of $25,924 and $1,594, respectively. As permitted by
tax regulations, the Equity T and U.S. Government Money Market Funds intend
to elect to defer these losses and treat them as arising in the year ending
December 31, 1997.
At December 31, 1996, 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>
12/31/97 12/31/98 12/31/99 12/31/02 12/31/03 12/31/04 TOTALS
----------- ----------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets $ -- $ -- $ -- $ $(5,407,487) $ -- $(5,407,487)
Limited Volatility
Tax Free (103,283) (26,604) (383,404) (345,504) (110,634) (15,075) (984,504)
U.S. Government
Money Market -- -- -- (1,309) (4,913) (3,331) (9,553)
</TABLE>
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal
income tax purposes as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Real Estate Securities $346,046,302 $ 97,529,813 $ (291,714) $ 97,238,099
Emerging Markets 258,487,419 25,407,669 (15,681,501) 9,726,168
Equity T 19,219,147 923,704 (226,253) 697,451
Limited Volatility Tax Free 66,759,451 894,409 (26,809) 867,600
</TABLE>
REDEMPTION FEES: In general, shares of the Equity T Fund may be redeemed at
net asset value. However, upon the redemption or exchange of shares held by
shareholders of the Fund a fee redemption of 1% of the current net asset
value of the shares will be assessed and retained by the Fund for the
benefit of the remaining shareholders. The redemption fee is included in
additional paid-in capital in the accompanying Statement of Assets and
Liabilities.
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.
Special Funds Notes to Financial Statements 69
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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, 1996:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED ADDITIONAL
INCOME GAIN (LOSS) PAID-IN CAPITAL
-------------- ------------ ---------------
<S> <C> <C> <C>
Real Estate Securities $ -- $ 113 $ (113)
Emerging Markets 64,152 (73,158) 9,006
Equity T 2,336 -- (2,336)
Limited Volatility Tax Free 2,822 401,757 (404,579)
</TABLE>
EXPENSES: The Funds, and when appropriate each Class, will pay their own
expenses other than those expressly assumed by the Management Company. Most
expenses can be directly attributed to the individual Funds. Expenses which
cannot be directly attributed are allocated among all funds principally
based on their relative net assets. In addition, Class C shares will pay
12b-1 and shareholder servicing fees along with other expenses that may be
attributable to that Class.
DEFERRED ORGANIZATION EXPENSES: Organization and initial registration costs
of the Emerging Markets and Equity T Funds 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) of the underlying securities at Fedwire closing
time 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 period-end, as a
result of 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
70 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 their 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,
Funds may more effectively achieve the desired portfolio characteristics
that assist them in meeting their investment objectives. Depending on how
the derivatives are structured and utilized, 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 and are generally limited to the amount of unrealized
gain on the contracts, if any, that are recognized in the Statement of
Assets and Liabilities. Realized gains or losses arising from such
transactions are included in net realized gain (or loss) from foreign
currency-related transactions. Open contracts at December 31, 1996, are
presented on the Statement of Net Assets.
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,
high rates of inflation, repatriation, restrictions on income and capital,
and future adverse political and economic developments. Moreover, securities
issued in these markets may be less liquid, subject to government ownership
controls, delayed settlements, and their prices more volatile than those of
comparable securities in the United States.
3. INVESTMENT TRANSACTIONS
SECURITIES: During the year ended December 31, 1996, 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> <C> <C> <C>
Real Estate Securities $247,434,283 $180,743,140 Equity T $ 17,794,360 $ 306,289
Emerging Markets 162,880,329 80,170,403 Limited Volatility 48,588,788 46,595,959
</TABLE>
U.S. Government Money Market purchases and maturities of U.S. Government and
Agency obligations (excluding repurchase agreements) were $1,339,083,003 and
$1,235,002,565, respectively. There were no sales for the year ended
December 31, 1996.
Tax Free Money Market purchases, sales and maturities of short-term tax
exempt obligations were $287,317,650, $224,680,000 and $35,477,750,
respectively.
4. RELATED PARTIES
MANAGER: Frank Russell Investment Management Company ("FRIMCo" or "Manager")
operates and administers all of 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 in this 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 Fund.
Specialty Funds Notes to Financial Statements 71
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
For the year ended December 31, 1996, the management fee paid to the FRIMCo,
for the Funds listed below, in accordance with the Investment Company's
Management Agreement with that firm, amounted to $6,767,580 before waivers
and/or reimbursements. 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.
ANNUAL RATE ANNUAL RATE
----------- -----------
Real Estate Securities 0.85% Limited Volatility Tax Free 0.50%
Emerging Markets 1.20 U.S. Government Money Market 0.25
Equity T 0.75 Tax Free Money Market 0.25
The management contract also provides that if any Fund's expenses (exclusive
of interest and taxes) exceed specified limits imposed by the Manager on an
annual basis, such excess will be paid by FRIMCo. Prior to May 1, 1996, the
Management Agreement provided that Emerging Markets Fund expenses (exclusive
of interest and taxes) exceeding 2.00% of its average daily net assets, on
an annual basis, would be reimbursed by FRIMCo. Effective May 1, 1996, the
Manager voluntarily agreed to waive a portion of its 1.20% management fee,
to the extent total fund level expenses for the Fund exceed 1.95% of its
average daily net assets on an annual basis. There were no reimbursements or
waivers by the Manager for the year ended December 31, 1996.
The Manager has voluntarily agreed to waive a portion of its 0.75%
management fee for Equity T Fund, up to the full amount of that fee, equal
to the amount by which the Fund's total operating expenses exceed 1.00% of
the Fund's average daily net assets on an annual basis and to reimburse the
Fund for any remaining Fund operating expenses after the Manager and
Custodian waivers which exceed 1.00% of the Fund's average daily net assets
on an annual basis. The amount of such waiver and reimbursement for the
period ended December 31, 1996 were $21,443 and $30,139, respectively. The
Custodian has voluntarily agreed to waive a portion of its fees for the
first three months after the Fund becomes operational. The amount of such
waiver for the period ended December 31, 1996 was $700.
Effective January 1, 1997, the Manager has voluntarily agreed to waive 0.10%
management fee for the Tax Free Money Market Fund.
BOOKKEEPING SERVICES: 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 database 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, 1996
for the Real Estate Securities and Emerging Markets Funds were $77,356
before waivers. The Manager voluntarily agreed to waive $10,380 of these
fees for the Emerging Markets Fund. Effective May 1, 1996, the Manager
discontinued waiving these fees for the Emerging Markets Fund. The Service
Agreement has been subsequently terminated.
TAX ACCOUNTING SERVICES: Subsequent to year end the Investment Company has
entered into a contract with State Street Bank and Trust Company for
Internal Revenue Service tax accounting reports.
TRANSFER AGENT: The Funds have a contract with FRIMCo, for the Funds listed
above, to provide transfer agent services to the Investment Company. Total
fees for the year ended December 31, 1996 were $1,113,663.
DISTRIBUTOR AND SHAREHOLDER SERVICING: The Investment Company in 1996,
adopted a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the
1940 Act. Under this Plan, the Investment Company is authorized to make
payments to the Distributor, or any Selling Agents, as defined in the Plan,
an amount (the "12b-1 Fee") for sales support services provided, and related
expenses incurred which are primarily intended to result in the sale of the
Class C Shares subject to the Distribution Plan.
During the year ended December 31, 1996, the Investment Company entered into
a Distribution Agreement with Russell Fund Distributors (the "Distributor")
which is a wholly-owned subsidiary of FRIMCo to promote and offer shares of
Class S and
72 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Class C of the Investment Company. The Distributor may enter into
sub-distribution agreements with other non-affiliated parties (the
"Selling/Servicing Agents"). The amounts paid to the Distributor for
distribution services relating to Class C are included in the accompanying
Statements of Operations. The Distributor receives no compensation from the
Investment Company for its services relating to distributions of the Class S
Shares.
In addition, the Investment Company has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments to the Distributor or
any Servicing Agent for any activities or expenses primarily intended to
assist, support or service the Servicing Agents' clients who beneficially
own Class C Shares of the Funds. The amounts paid to the Distributor for
shareholder services relating to Class C are included in the accompanying
Statements of Operations.
The 12b-1 Fee payments shall not exceed .75% of the average daily net assets
of a Fund's Class C Shares on an annual basis. Currently the Board of
Trustees has determined to assess a 12b-1 Fee equal to .40% of the average
daily net assets. The shareholder servicing payments shall not exceed .25%
of the average daily net assets of a Fund's Class C Shares on an annual
basis. The Investment Company does not pay for unreimbursed expenses of the
Distributor including amounts expended by the Distributor in excess of
amounts received by it from the Investment Company interest, carrying or
other financing charges in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able to
recover such amount or more from future payments made by the Investment
Company under the Distribution plan.
ACCRUED FEES PAYABLE TO AFFILIATES AS OF DECEMBER 31, 1996 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
MANAGEMENT BOOKKEEPING TRANSFER DISTRIBUTION SHAREHOLDER
FEES SERVICE FEES AGENT FEES FEES SERVICING FEES TOTALS
---------- ------------ ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE SECURITIES $ 333,105 $ 1,952 $ 56,560 $ 60 $ 38 $ 391,715
EMERGING MARKETS 296,387 16,949 26,684 -- -- 340,020
EQUITY T 57,743 -- 1,364 -- -- 59,107
LIMITED VOLATILITY TAX FREE 27,607 -- 6,209 -- -- 33,816
U.S. GOVERNMENT MONEY MARKET -- -- 63,249 -- -- 63,249
TAX FREE MONEY MARKET 23,508 -- 9,719 -- -- 33,227
---------- ------------ ---------- ------------ -------------- ----------
$ 738,350 $ 18,901 $ 163,785 $ 60 $ 38 $ 921,134
---------- ------------ ---------- ------------ -------------- ----------
---------- ------------ ---------- ------------ -------------- ----------
</TABLE>
BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not
affiliated with FRIMCo a retainer of $20,000 per year plus out-of-pocket
expenses. Total Trustee expenses were $103,244 for the year ended December
31, 1996, and were allocated to each Fund and Class, where appropriate, on a
pro rata basis, including 17 other affiliated funds not represented herein.
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 herein). As of December 31, 1996, $34,290,000 of the
Money Market Fund's net assets represents investments by these Funds and
$462,642,000 represents the investments of other affiliated Funds not
presented herein.
Specialty Funds Notes to Financial Statements 73
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. SHARE TRANSACTIONS
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
REAL ESTATE SECURITIES
CLASS S
Shares sold 5,017,237 4,842,544 $ 125,244,724 $ 108,140,650
Reinvestment of distributions 1,176,858 548,366 30,943,033 12,360,832
Shares redeemed (3,303,765) (2,298,035) (84,501,911) (51,474,111)
---------- ----------- ------------- -------------
Net increase (decrease) 2,890,330 3,092,875 $ 71,685,846 $ 69,027,371
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
CLASS C*
Shares sold 3,474 -- $ 92,731 $ --
Reinvestment of distributions 1 -- 16 --
Shares redeemed -- -- -- --
---------- ----------- ------------- -------------
Net increase (decrease) 3,475 -- $ 92,747 $ --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
EMERGING MARKETS
CLASS S
Shares sold 10,179,422 8,376,850 $ 124,450,513 $ 94,656,077
Reinvestment of distributions 256,419 90,071 3,073,769 985,053
Shares redeemed (3,913,806) (3,386,748) (48,141,914) (37,985,350)
---------- ----------- ------------- -------------
Net increase (decrease) 6,522,035 5,080,173 $ 79,382,368 $ 57,655,780
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
EQUITY T
Shares sold 1,875,109 -- $ 19,221,884 $ --
Reinvestment of distributions 4,338 -- 44,985 --
Shares redeemed (450) -- (4,671) --
---------- ----------- ------------- -------------
Net increase (decrease) 1,878,997 -- $ 19,262,198 $ --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
LIMITED VOLATILITY TAX FREE
Shares sold 1,424,169 1,982,132 $ 30,027,835 $ 41,531,111
Reinvestment of distributions 84,366 76,958 1,775,094 1,614,988
Shares redeemed, (1,357,561) (1,445,790) (28,634,470) (30,358,219)
---------- ----------- ------------- -------------
Net increase (decrease) 150,974 613,300 $ 3,168,459 $ 12,787,880
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
</TABLE>
* Share transactions for Class C are for the period November 4, 1996
(commencement of sale of shares) to December 31, 1996.
74 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
ON A CONSTANT DOLLAR BASIS
YEAR ENDED DECEMBER 31,
U.S. GOVERNMENT MONEY MARKET 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 695,162,232 474,116,728
Reinvestment of distributions 7,499,618 5,695,155
Shares redeemed (612,878,224) (441,947,445)
-------------- --------------
Net increase (decrease) 89,783,626 37,864,438
-------------- --------------
-------------- --------------
TAX FREE MONEY MARKET
Shares sold 214,968,815 133,513,901
Reinvestment of distributions 1,064,604 868,416
Shares redeemed (191,826,042) (157,201,541)
-------------- --------------
Net increase (decrease) 24,207,377 (22,819,224)
-------------- --------------
-------------- --------------
</TABLE>
There was no activity for Class C shares for Emerging Markets Fund.
7. DIVIDENDS
On February 3, 1997, the Board of Trustees declared the following dividend
from net investment income payable on February 11, 1997, to shareholders of
record on February 4, 1997:
Limited Volatility Tax Free $ 0.0923
Specialty Funds Notes to Financial Statements 75
<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, Emerging Markets,
Equity T, Limited Volatility Tax Free, U.S. Government Money Market, and Tax
Free Money Market (the "Funds")), as of December 31, 1996, 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, 1996, 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, 1996, 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, 1997
/s/ COOPERS & LYBRAND L.L.P.
76 Report of Independent Accountants Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
TAX INFORMATION
December 31, 1996 (Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
the following amount as capital gain dividends for its taxable year
ended December 31, 1996:
Real Estate Securities $ 18,477,800
Specialty Funds Tax Information 77
<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 and General Counsel
MANAGER
Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
CONSULTANT
Frank Russell Company
909 A Street
Tacoma, WA 98402
MONEY MANAGERS
REAL ESTATE SECURITIES
AEW Capital Management, L.P., Boston, MA
Cohen & Steers Capital Management, New York, NY
EMERGING MARKETS
Genesis Asset Managers Limited, London, England
J.P. Morgan Investment Management, Inc., New York, NY
Montgomery Asset Management, L.P., San Francisco, CA
EQUITY T FUND
J.P. Morgan Investment Management, Inc., New York, NY
LIMITED VOLATILITY TAX FREE
MFS Institutional Advisors, Inc., 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, L.L.C., New York, NY
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
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.
78 Manager and Money Managers Specialty Funds
