<PAGE>
FRANK RUSSELL INVESTMENT
COMPANY
Frank Russell Investment Company
is a "series mutual fund" with 28
different investment portfolios.
These financial statements report
on seven 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
SEMIANNUAL REPORT
JUNE 30, 1998 (UNAUDITED)
TABLE OF CONTENTS
Page
Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . 1
Real Estate Securities Fund . . . . . . . . . . . . . . . . . . 2
Emerging Markets Fund . . . . . . . . . . . . . . . . . . . . . 10
Equity T Fund . . . . . . . . . . . . . . . . . . . . . . . . . 24
Limited Volatility Tax Free Fund. . . . . . . . . . . . . . . . 32
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . 44
U.S. Government Money Market Fund . . . . . . . . . . . . . . . 52
Tax Free Money Market Fund. . . . . . . . . . . . . . . . . . . 58
Notes to Financial Statements . . . . . . . . . . . . . . . . . 71
Manager, Money Managers and Service Providers . . . . . . . . . 80
FRANK RUSSELL INVESTMENT COMPANY - SPECIALTY FUNDS
Copyright -C- Frank Russell Company 1998. 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
We are pleased to present the Frank Russell Investment Company 1998 Semiannual
Report. This report covers information on seven of the Funds and represents the
Funds' first six months of our seventeenth year in operation.
We remain committed to providing our clients with superior investment solutions
through the benefits of multi-manager, multi-style diversification used in
structuring our Funds. The commitment proved worthwhile in the first six months
of 1998, as our Funds, in general, provided solid returns as compared to their
respective benchmarks and attracted many new investors, both creating
significant growth in assets.
Frank Russell Investment Management Company (FRIMCo) continuously evaluates the
Funds we offer our clients. Each of these Funds is carefully monitored by
Russell investment professionals to ensure that the most appropriate investment
advisors and strategies are utilized within each Fund. The advisors are
monitored by FRIMCo, using the expertise and advice of the Investment Policy and
Research group of Frank Russell Company.
Since the close of 1997, we have implemented changes in our Funds' structure
which we believe will benefit current and potential investors. The former Class
C shares of the Russell Funds have been renamed Russell Fund Class E shares, and
their fee structure now aligns with the Russell LifePoints-Registered Trademark-
Funds' Class E shares. Additionally, the Russell LifePoints-Registered
Trademark- Funds' Class D shares were opened for investment in March 1998.
We are also pleased to announce FRIMCo has retained Boston Financial Data
Services (BFDS) to assist in the transfer agent process, effective June 1998. We
anticipate this change will enhance the level of services provided to our
clients.
Thank you for your continued confidence and investment with Frank Russell
Investment Company. We look forward to the remainder of 1998 and continuing to
earn your support.
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 Investment Company Frank Russell Investment Company
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS (B) - 93.1%
APARTMENTS - 14.8%
Apartment Investment &
Management Co. Class A 464,915 $ 18,364
Avalon Bay Communities, Inc. 441,323 16,770
Camden Property Trust 192,779 5,735
Equity Residential Properties Trust 110,000 5,218
Essex Property Trust, Inc. 222,000 6,882
Irvine Apartment Communities, Inc. 171,500 4,963
Merry Land & Investment Company, Inc. 74,900 1,578
Mid-America Apartment Communities, Inc. 42,900 1,129
Post Properties, Inc. 203,096 7,819
Security Capital Atlantic, Inc. 278,574 6,216
Security Capital Pacific Trust 426,400 9,594
Smith (Charles E.) Residential Realty, Inc. 272,000 8,704
Summit Properties, Inc. 175,700 3,327
United Dominion Realty Trust 47,138 654
----------
96,953
----------
HEALTH CARE - 4.2%
American Retirement Corp. (a) 195,700 3,474
Health Care Property Investors, Inc. 23,700 855
Healthcare Realty Trust, Inc. 164,300 4,477
Meditrust Cos. 422,600 11,806
Sunrise Assisted Living, Inc. (a) 197,600 6,793
----------
27,405
----------
HOTELS/LEISURE - 6.8%
Boykin Lodging Company 87,400 1,895
FelCor Suite Hotels, Inc. 115,700 3,630
RFS Hotel Investors, Inc. 88,700 1,685
Starwood Lodging Trust 777,500 37,563
----------
44,773
----------
LEASING - 0.3%
CCA Prison Realty Trust 13,600 417
Entertainment Properties Trust 71,800 1,310
----------
1,727
----------
OFFICE/INDUSTRIAL - 37.4%
AMB Property Corp. 100,100 2,452
Arden Realty Group, Inc. 812,400 21,021
Bedford Property Investors, Inc. 97,600 1,781
Brandywine Realty Trust 224,400 5,021
Cabot Industrial Trust 73,100 1,563
CarrAmerica Realty Corp. 144,950 4,113
CenterPoint Properties Corp. 163,500 5,406
Cornerstone Properties, Inc. 8,100 143
Cousins Properties, Inc. 257,000 7,678
Crescent Operating, Inc. (a) 47,900 805
Crescent Real Estate Equities, Inc. 814,000 27,371
Equity Office Properties Trust 248,448 7,050
First Industrial Realty Trust, Inc. 451,700 14,370
Highwoods Properties, Inc. 703,100 22,719
Kilroy Realty Corp. 164,400 4,110
Liberty Property Trust 199,900 5,110
Mack-Cali Realty Corp. 782,400 26,895
Meridan Industrial Trust, Inc. 116,800 2,686
Pacific Gulf Properties, Inc. 99,000 2,141
Prentiss Properties Trust 163,900 3,985
Reckson Associates Realty Corp. 495,600 11,709
Reckson Services Industries, Inc. (a) 211,296 700
Security Capital Group, Inc.
1998 Warrant (a) 23,808 8
Security Capital Group, Inc. Class B (a) 84,900 2,260
Security Capital Industrial Trust 681,318 17,033
SL Green Realty Corp. 259,600 5,841
Spieker Properties, Inc. 466,800 18,088
St. Joe Co. (The) 242,400 6,636
Tower Realty Trust, Inc. 47,200 1,056
TriNet Corporate Realty Trust, Inc. 269,600 9,166
Trizec Hahn Corp. 124,200 2,662
Weeks Corp. 103,300 3,267
----------
244,846
----------
OUTLET CENTERS - 1.8%
Prime Retail, Inc. 472,500 5,640
Tanger Factory Outlet Centers, Inc. 195,300 6,189
----------
11,829
----------
REGIONAL MALLS - 11.1%
CBL & Associates Properties, Inc. 52,700 1,278
General Growth Properties 523,000 19,547
J.P. Realty, Inc. 216,200 5,094
Macerich Co. (The) 417,800 12,247
Rouse Co. (The) 584,100 18,363
Simon DeBartolo Group, Inc. 341,300 11,092
Taubman Centers, Inc. 290,400 4,138
Urban Shopping Centers, Inc. 28,500 898
----------
72,657
----------
</TABLE>
2 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
SELF STORAGE - 3.3%
Public Storage, Inc. 672,400 $ 18,827
Shurgard Storage Centers, Inc. 114,600 3,180
----------
22,007
----------
SHOPPING CENTERS - 13.4%
Bradley Real Estate, Inc. 210,800 4,453
Developers Diversified Realty Corp. 407,800 15,981
Glimcher Realty Trust 283,000 5,501
Kimco Realty Corp. 382,800 15,695
Kranzco Realty Trust 106,400 1,962
Pan Pacific Retail Properties, Inc. 434,300 8,414
Philips International Realty Corp. 93,100 1,536
Vornado Realty Trust 857,100 34,016
----------
87,558
----------
TOTAL COMMON STOCKS
(cost $ 545,462) 609,755
----------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENT - 4.7%
Frank Russell Investment Company
Money Market Fund,
due on demand (c) $ 30,493 $ 30,493
----------
TOTAL SHORT-TERM INVESTMENT
(cost $30,493 ) 30,493
----------
TOTAL INVESTMENTS
(identified cost $575,955)(d) - 97.8% 640,248
OTHER ASSETS AND LIABILITIES,
NET - 2.2% 14,620
----------
NET ASSETS - 100% $ 654,868
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) All common stocks held are Real Estate Investment Trusts (REIT)
with the exception of the following:
American Retirement Corp.
Crescent Operating, Inc.
Security Capital Group, Inc. Class B
St. Joe Co. (The)
Sunrise Assisted Living, Inc.
Trizec Hahn Corp.
(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 3
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $575,955)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 640,248
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,402
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,706
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,160
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 23,834
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681,350
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 657
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,502
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 436
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 23,834
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,482
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 654,868
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,872
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,489
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 64,293
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569,984
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 654,868
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
Class S ($654,468,853 divided by 22,951,732 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28.52
--------------
--------------
Class E ($398,801 divided by 14,119 shares of $.01 par value
shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 28.25
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4 Real Estate Securities Fund Specialty Funds
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts
in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,441
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,388
EXPENSES (Notes 1, 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,652
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 1
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,958
--------------
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,430
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,678
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . (61,841)
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,163)
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ (34,733)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Real Estate Securities Fund 5
<PAGE>
REAL ESTATE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,430 $ 23,853
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,678 44,736
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (61,841) 27,721
----------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . (34,733) 96,310
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,541) (24,656)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (9)
In excess of net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (9)
Net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,488) (40,156)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (25)
----------------- -----------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . (15,043) (64,855)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 88,773 138,695
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 38,997 170,150
NET ASSETS
Beginning of Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615,871 445,721
----------------- -----------------
End of Period (including undistributed net investment income of
$7,872 and accumulated distributions in excess of net
investment income of $9, respectively). . . . . . . . . . . . . . . . . . . . . $ 654,868 $ 615,871
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6 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 or period and other performance information derived
from the financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998* 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76 $ 21.50
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . 60 1.36 1.39 1.32 1.25 1.05
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . (2.22) 3.93 6.89 1.03 .40 2.68
-------- -------- -------- -------- -------- --------
Total Income From Investment
Operations. . . . . . . . . . . . . . . (1.62) 5.29 8.28 2.35 1.65 3.73
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . (.26) (1.41) (1.34) (1.35) (1.23) (1.04)
Net realized gain on investments. . . . . . (.46) (2.21) (1.26) -- (.45) (1.43)
In excess of net realized gain on
investments . . . . . . . . . . . . . . . -- -- -- -- (.20) --
Tax return of capital . . . . . . . . . . . -- -- -- (.02) -- --
-------- -------- -------- -------- -------- --------
Total Distributions . . . . . . . . . . . (.72) (3.62) (2.60) (1.37) (1.88) (2.47)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD . . . . . . . $ 28.52 $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . (5.35) 18.99 36.81 10.87 7.24 17.42
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted). . 654,469 615,483 445,619 290,990 209,208 145,167
Ratios to average net assets (%)(b):
Operating expenses. . . . . . . . . . . . .94 1.02 1.04 1.04 1.05 1.11
Net investment income . . . . . . . . . . 4.28 4.57 5.64 6.10 5.65 4.52
Portfolio turnover rate (%)(b). . . . . . . 44.73 49.40 51.75 23.49 45.84 58.38
</TABLE>
* For the six months ended June 30, 1998 (unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
Specialty Funds Real Estate Securities Fund 7
<PAGE>
REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS E
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>
YEAR ENDED DECEMBER 31,
-----------------------
1998* 1997 1996**
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . $ 31.02 $ 29.18 $ 26.67
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . .57 1.14 .24
Net realized and unrealized gain (loss) on investments. . . . . . . . . . (2.29) 3.95 3.85
-------- -------- --------
Total Income From Investment Operations . . . . . . . . . . . . . . . . (1.72) 5.09 4.09
-------- -------- --------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . (.59) (1.04) (.32)
Net realized gain on investments. . . . . . . . . . . . . . . . . . . . . (.46) (2.21) (1.26)
-------- -------- --------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (1.05) (3.25) (1.58)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 28.25 $ 31.02 $ 29.18
-------- -------- --------
-------- -------- --------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.65) 18.20 15.75(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted). . . . . . . . . . . . . . . . . 399 388 101
Ratios to average net assets (%)(c):
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50 1.71 1.77
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 3.73 3.94 5.31
Portfolio turnover rate (%)(c). . . . . . . . . . . . . . . . . . . . . . 44.73 49.40 51.75
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period November 4, 1996 (commencement of sale) to December 31,
1996.
(a) Periods less than one year are not annualized.
(b) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.
8 Real Estate Securities Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 80.3%
ARGENTINA - 5.5%
Banco de Galicia y Buenos Aires
Class B New - ADR 75,067 $ 1,361
Cementera Argentina Class B 137,762 831
Central Puerto SA Class B 120,000 281
Cresud SA (a) 211,000 338
Inversiones Y Representaciones 149,781 440
Inversiones Y Representaciones SA - GDR 10,372 302
Molinos Rio Plata 164,068 359
Naviera Perez Companc Class B 341,431 1,714
Nobleza Piccardo 73,900 299
Perez Companc SA Class B - ADR 33,680 338
Quilmes Industrial (Regd)(a) 55,000 484
Siderar SA Series A 211,000 802
Telecom Argentina Class B 170,122 1,004
Telefonica de Argentina Class B 220,000 713
Telefonica de Argentina Class B - ADR 95,500 3,098
Transportadora de Gas del Sur SA
Class B 535,284 1,199
YPF Sociedad Anonima Class D - ADR 185,900 5,588
----------
19,151
----------
AUSTRALIA - 0.5%
Lihir Gold, Ltd. (a) 444,200 549
Orogen Minerals, Ltd. 800,000 1,067
----------
1,616
----------
BANGLADESH - 0.0%
Apex Tannery, Ltd. 600 4
Beximco Infusions 7,500 55
----------
59
----------
BERMUDA - 0.3%
Central European Media Enterprises, Ltd.
Class A (a) 57,600 1,235
----------
1,235
----------
BRAZIL - 6.5%
Bompreco SA Supermercados
do Nordeste - GDR (Regd)(a) 28,500 534
Centrais Eletricas de Santa Catarina
SA - GDR 144A 5,400 444
Centrais Eletricas de Santa Catarina
SA - GDR 700 57
Centrais Geradoras do Sul
do Brasil SA NPV (a) 49,510,000 68
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar (Regd) - GDR 20,500 464
Companhia Cervejaria Brahma - ADR 85,100 1,064
Companhia de Saneamento Basico
do Estado de Sao Paulo 3,507,000 421
Companhia Energetica de Minas
Gerais SA - ADR 19,947 617
Companhia Paranaense
de Energia-Copel - ADR 45,400 349
Copene Petroquimica
do Nordeste SA - ADR 68,500 761
Eletrobras (centrais) NPV 49,510,000 1,455
Forca E Luz (Cia Paul) NPV (a) 15,747,000 1,607
Light - Servicos de Eletricidade
SA NPV 2,810,000 863
Makro Atacadista - GDS (a) 60,000 402
Makro Atacadista SA - GDR 60,800 407
Petroleo Brasileiro Petrobras SA - ADR 78,000 1,450
Souza Cruz NPV 173,620 1,291
Telecomunicacoes Brasileiras - ADR 34,208 3,735
Telecomunicacoes Brasileiras NPV 57,060,000 4,539
Telecomunicacoes Brasileiras
SA 1998 Rights (a) 764,509 12
Telecomunicacoes de Sao Paulo NPV (a) 19,113 3
Telesp Celular SA NPV (a) 19,113 1
Uniao de Bancos Brasileiros SA - GDR 32,100 947
Votorantim Celulose e Papel SA - ADR 39,500 302
White Martins SA - NPV 374,738 348
----------
22,141
----------
CHILE - 4.4%
Administradora de Fondos de Pensiones
Provida SA - ADR 34,370 574
Antofagasta Holdings PLC 308,636 1,288
Banco Santander Chile Series A - ADR 45,600 587
Banco Santiago - ADR 20,000 335
Compania de Telecomunicaciones
de Chile SA - ADR 108,393 2,202
Distribucion y Servicio D&S SA - ADR 80,000 1,200
Embotelladora Andina
SA - ADR Series A 71,600 1,253
Embotelladora Andina SA - ADR
Series B 58,000 906
Enersis SA - ADR 89,255 2,181
Gener SA - ADR 62,397 1,139
Laboratorio Chile SA - ADR 30,000 431
Linea Aerea Nacional Chile SA - ADR 47,100 383
Madeco SA - ADR 17,142 151
Maderas Y Sinteticos Sociedad - ADR 50,000 406
Quinenco SA - ADR 90,100 811
Sociedad Quimica Y Minera
de Chile SA - ADR 23,730 795
Supermercados Unimarc SA - ADR 31,500 240
----------
14,882
----------
</TABLE>
10 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
CHINA - 0.9%
Anhui Conch Cement Co., Ltd. 1,264,000 $ 176
Beijing North Star Co., Ltd. Class H 2,470,000 669
China Telecom (Hong Kong), Ltd. - ADR (a) 30,000 1,037
Huaneng Power International, Inc.
Series N - ADR (a) 70,000 941
Yanzhou Coal Mining Co., Ltd. - ADR (a) 28,000 273
----------
3,096
----------
COLOMBIA - 0.1%
Cementos Diamante SA Class B - ADR 31,200 275
----------
275
----------
CROATIA - 0.1%
Pliva d.d. - GDR 23,200 371
----------
371
----------
CZECH REPUBLIC - 1.4%
Ameriyah Cement Co. 46,100 797
CSEKE Radiokomunikace - GDR (a) 37,200 797
Czechoslovakian Value Fund (Units)(a) 87,000 522
Elektrarny Opatovice AS 2,200 282
Komercni Banka AS - ADR 24,300 301
Tabak AS 3,500 844
Vseobecny Investment Fund (a) 149,775 292
Vynosovy Investment Fund (a) 72,500 507
Zivnostenska Banka 8,200 447
----------
4,789
----------
ECUADOR - 0.2%
La Cement National - GDR (a) 3,700 574
La Cemento Nacional CA - GDR 700 108
----------
682
----------
EGYPT - 1.6%
A1 Ahram Beverage Co. SAE 8,700 556
Al Ahram Beverage Co. SAE - GDR 40,000 1,278
Al Ahram Beverage Co. SAE - GDR (144A) 25,400 795
Commercial International Bank
(Regd) - GDR 42,705 453
MISR International Bank SAE - GDR 52,700 603
Paints & Chemical Industry Co. SAE 5,000 144
Paints & Chemical Industry Co. SAE - GDR 54,600 505
Suez Cement Co. (Regd) - GDR (a) 31,900 571
Torah Portland Cement Co. 34,985 602
----------
5,507
----------
FRANCE - 0.0%
Elf Gabon 1,100 173
----------
173
----------
GHANA - 0.3%
Ashanti Goldfields, Ltd. - ADR 140,000 1,138
----------
1,138
----------
GREECE - 3.0%
Alpha Credit Bank Rights (a) 8,200 14
Athens Medical Center SA (Regd)(a) 56,550 1,115
Credit Bank (Regd) 8,200 665
Ergo Bank (Regd) 35,000 2,995
Hellenic Bottling 22,000 680
Hellenic Petroleum SA (a) 17,400 142
Hellenic Telecommunication
Organization SA 74,387 1,909
Heracles General Cement SA (a) 25,100 586
National Bank of Greece (Regd) 5,880 754
National Mortgage Bank 7,311 461
Silver & Baryte Ores Mining 580 21
STET Hellas Telecommunications
SA - ADR (a) 9,000 371
Titan Cement Co. 7,130 467
----------
10,180
----------
HONG KONG - 1.8%
Chen Hsong Holding 1,900,000 275
China Merchants Holdings
International Co., Ltd. 550,000 335
Citic Pacific, Ltd. 240,000 424
Goldlion Holdings, Ltd. 894,000 100
Guangdong Investment 2,850,000 640
Guangdong Kelon Electric Holdings 141,000 111
Jiangsu Expressway Co., Ltd. Class H 4,590,000 871
New World Infrastructure, Ltd. (a) 1,166,100 1,339
Shanghai Industrial Holdings, Ltd. 330,000 777
Tan Chong International, Ltd. (a) 1,341,000 90
Tingyi (Cayman Island) Holding Co. 7,999,000 491
Yue Yuen Industrial Holdings 312,800 560
----------
6,013
----------
HUNGARY - 2.7%
BorsodChem - GDR 42,000 1,193
BorsodChem Rt. 37,200 1,088
Egis Gyogyszergyar 20,950 738
Magyar Olaj Es Gas 38,000 1,025
Magyar Tavkozlesi Rt. (Regd) 158,076 918
</TABLE>
Specialty Funds Emerging Markets Fund 11
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Mol Magyar Olay-Es Gazipari - GDS (a) 90,000 $ 2,412
Gedeon Richter, Ltd. 2,800 225
Gedeon Richter, Ltd. - GDR (a) 13,868 1,096
Zalakeramia Reszvenytarsasag - GDR 45,400 311
Zalakeramia Rt. 4,300 153
----------
9,159
----------
INDIA - 2.7%
Bajaj Auto Ltd. - GDR (a) 22,050 288
Bajaj Auto, Ltd. - GDR (144A) 27,300 356
BSES Ltd. - GDR 15,000 151
BSES, Ltd. (a) 20,000 201
Genesis India Investment Co. (a) 490,000 3,709
Global Tele-Systems Group, Inc. (a) 787 38
Hindalco Industries, Ltd. - GDR 29,000 392
India Cements, Ltd. - GDS (a) 114,200 114
Indian Hotels Co., Ltd. - GDR 50,500 512
Larsen & Toubro, Ltd. - GDR 42,400 382
Raymond Woolen Mills, Ltd. - GDR (a) 5,100 15
Reliance Industries, Ltd. - GDS (a) 134,300 860
State Bank of India - GDR (144A) 8,000 92
State Bank of India - GDR 30,000 345
Tata Engineering & Locomotive Co. -
GDR (a) 104,400 410
Videsh Sanchar Nigam, Ltd. (a) 144,300 1,472
----------
9,337
----------
INDONESIA - 0.4%
Gulf Indonesia Resources, Ltd. (a) 55,100 634
Ometraco Corporation 2000 Warrants (a) 75,000 5
PT Bank Niaga Tbk (Alien Market)(a) 114,200 2
PT Ometraco Corp. 700,000 93
PT Ramayana Lestari Sentosa 1,000,000 78
PT Unilever Indonesia 19,000 36
Semen Gresik 698,000 401
----------
1,249
----------
ISRAEL - 0.5%
Bank Leumi Le-Israel (a) 182,000 363
Dor Energy 1988, Ltd. - ADR (a) 28,000 202
ECI Telecom, Ltd. 11,300 427
Elbit Medical Imaging, Ltd. 200 2
Elbit Systems, Ltd. 200 3
Elbit, Ltd. 200 1
Formula Systems (1985), Ltd. - ADR (a) 4,200 145
Makhteshim-Agan Industries, Ltd. (a) 106,161 337
Supersol, Ltd. 111,000 365
----------
1,845
----------
JORDAN - 0.1%
Arab Bank Group 1,000 274
----------
274
----------
LEBANON - 0.2%
Solidere - GDR (a) 70,000 854
----------
854
----------
LUXEMBOURG - 0.6%
Millicom International Cellular SA (a) 43,000 1,879
----------
1,879
----------
MALAYSIA - 1.0%
Berjaya Sports 116,000 172
Genting International (CLOB Line)(a) 162,000 17
Golden Hope Plantation 463,000 424
Kuala Lumpur Kepong 314,000 507
Lion Corp. Berhad 6,400 1
London & Pacific Insurance Co. Berhad 1,300 1
Malaysia Mining Corp. 494,800 157
Malaysian Airline System 128,000 42
Malaysian Assurance Alliance Berhad 247,137 214
Malaysian Pacific 304,000 359
Malaysian Tobacco 243,000 98
Nestle Berhad 55,000 249
Nylex Berhad 37,000 9
O.Y.L. Industries Berhad 119,000 247
Perlis Plantations 42,000 36
Powertek Berhad 231,000 245
Shell Refining (Malaysia) 147,000 209
Tan Chong Motor Holdings 447,000 82
Telekom Malaysia 185,000 313
YTL Power International Berhad (a) 313,000 171
----------
3,553
----------
MEXICO - 7.8%
Accel SA de CV Series B NPV (a) 1,503,000 191
Acer Computec Latino America
SA de CV NPV (a) 131,000 77
</TABLE>
12 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Alfa SA de CV Class A NPV 71,200 $ 291
Cemex SA de CV Class B NPV 151,400 666
Cemex SA de CV NPV 418,231 1,571
Compania Cervecerias Unidas SA - ADR 22,700 477
Corporacion GEO SA de CV
Series B (a) 101,000 564
Corporacion Industrial Sanluis
SA de CV (Units) 96,000 374
Corporacion Interamericana de
Entretenimiento SA Series B NPV (a) 157,300 438
Corporacion Interamericana de
Entretenimiento SA Series L NPV (a) 20,973 49
Cydsa SA Series A NPV 114,300 188
Desc SA de CV Series C - ADR 74,000 1,471
Empresa Nacional de Electric - ADR 43,200 616
Empresas ICA Sociedad - ADR (a) 124,628 1,176
Fomento Economico Mexicano SA de CV
Series B - ADR (a) 72,600 2,287
Grupo Carso Series A NPV 64,500 267
Grupo Casa Autrey SA de CV - ADR 18,700 122
Grupo Financiero Banamex AC
Series B NPV (a) 211,000 411
Grupo Financiero Banorte SA de CV
Series B NPV (a) 661,000 736
Grupo Gigante SA Series B NPV (a) 970,000 378
Grupo Iusacell SA de CV - ADR
Series L (a) 27,600 380
Grupo Modelo SA Series C 46,700 397
Grupo Radio Centro SA de CV - ADR 65,600 730
Grupo Television SA de CV - GDR (a) 18,900 711
Herdez Class B NPV 462,000 221
Kimberly-Clark, Mexico Class A NPV 330,000 1,166
Panamerican Beverages, Inc. Class A 71,600 2,251
Ponderosa Industrial SA de CV
Series B NPV (a) 460,000 287
Seguros Comercial America
Series B NPV (a) 87,000 292
Sigma Alimentos SA Series B 162,043 369
Telefonos de Mexico SA Series L - ADR 106,200 5,103
Transportacion Maritima Mexicana
SA de CV Series A - ADR (a) 80,000 464
TV Azteca SA de CV - ADR 159,700 1,726
----------
26,447
----------
MOROCCO - 0.6%
Banque Marocaine Du Commerce
Exterieur - GDR 23,233 548
ONA SA 4,700 568
Wafabank 8,000 961
----------
2,077
----------
NETHERLANDS - 0.4%
Ceteco Holding NV 26,042 1,416
----------
1,416
----------
PAKISTAN - 0.3%
Adamjee Insurance 8,202 8
Fauji Fertilizer 294,600 319
Hub Power Co. - GDR 35,598 248
Pakistan State Oil 230,694 370
Pakistan Telecommunications Corp. (a) 160,000 57
----------
1,002
----------
PANAMA - 0.4%
Banco Latinoamericano de Exportaciones
SA Class E 40,000 1,230
----------
1,230
----------
PAPUA NEW GUINEA - 0.4%
Oil Search, Ltd. (Australia Regd) 800,000 1,212
----------
1,212
----------
PERU - 1.4%
Cementos Norte Pacasmayo SA Series T 285,841 457
Compania de Minas Buenaventura
Series B - ADR 29,400 386
CPT Telefonica del Peru Class B 137,380 283
Credicorp, Ltd. 23,282 342
Enrique Ferreyros 148,701 200
Ferreyros SA - ADR 10,875 291
Telefonica Del Peru SA Class B - ADR 129,500 2,647
----------
4,606
----------
PHILIPPINES - 1.7%
Ayala Land, Inc. 3,103,286 893
Benpres Holdings Corp. - GDR (a) 85,000 213
First Philippine Holdings Class B 925,960 622
Jollibee Foods 2003 Warrants (a) 645,000 197
Manila Electric Co. Class B 107,200 283
Philippine Commercial
International Bank 188,777 688
Philippine Long Distance
Telephone Co. - ADR 123,127 2,786
Pilipino Telephone Corp. (a) 1,700,000 134
----------
5,816
----------
</TABLE>
Specialty Funds Emerging Markets Fund 13
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
POLAND - 1.0%
Bank Handlowy W Warszawie
SA - GDR 50,000 $ 955
Bank Slaski SA 3,400 228
Elektrim SA (Austrian Shares)(a) 67,401 821
Prokom Software SA - GDR (a) 52,000 884
WBK 50,600 392
Zaklady Przemyslu Cukierniczego
Jutrzenka SA (Austrian Shares)(a) 25,900 207
Zywiec (Austrian Shares)(a) 134 16
----------
3,503
----------
PORTUGAL - 5.4%
Banco Espir Santo (Regd) 33,500 1,007
Banco Espirito Santo e Comercial
de Lisboa (a) 10,887 327
Brisa - Auto Estradas de Portugal SA 57,200 2,448
Cimpor Cimentos de Portugal 99,400 3,495
Companhia de Seguros Mundial
Confianca SA (Regd)(a) 32,000 851
Companhia de Seguros Tranquilidade 36,200 980
Electricidade de Portugal SA 73,600 1,712
Portugal Telecom SA 20,000 1,061
Portugal Telecom SA - ADR 35,100 1,858
Sonae Investimentos SA 83,500 4,563
----------
18,302
----------
RUSSIA - 1.7%
AO Tatneft - ADR 103,500 803
Lukoil Oil Co. - ADR 36,700 1,227
Mosenergo - ADR 165,000 784
Russian Depositary Trust (a) 23 460
SFMT, Inc. (a) 3,000 146
Surgutneftegaz - ADR 16,400 66
Torgovy Dom GUM - ADR 46,400 132
Ukraine Enterprise Corp. (a) 31,000 15
Unified Energy Systems - ADR 30,300 391
Unified Energy Systems - GDR 31,000 399
Vimpel-Communications - ADR (a) 31,300 1,400
----------
5,823
----------
SINGAPORE - 0.1%
Star Cruises PLC (a) 162,000 309
----------
309
----------
SLOVAKIA - 0.1%
Slovakofarma AS 2,200 213
----------
213
----------
SOUTH AFRICA - 9.3%
Amalgamated Banks of South Africa 293,200 1,829
Anglo America Coal 2,260 105
Anglo America Corp. SA 27,900 941
Anglo American Industrial Corp. 2,130 36
Angloglold Ltd. (a) 13,100 528
Barlow, Ltd. 414,019 2,182
Billiton PLC 500,560 988
C.G. Smith, Ltd. 329,000 904
Consolidated African Mines, Ltd. (a) 2,875,000 625
De Beers Centenary AG 182,000 3,198
De Beers Consolidated Mines, Ltd. - ADR 5,000 87
Del Monte Royal Food, Ltd. (a) 524,300 239
Edgars Stores, Ltd. 51,100 452
Ellerine Holdings, Ltd. 19,502 107
Engen, Ltd. 258,591 715
Gencor, Ltd. - ADR 10,935 17
Highstone Property 430,000 94
Highveld Steel & Vanadium Corp., Ltd. 202,134 375
Investec Group, Ltd. 27,000 1,047
Iscor 2,750,528 519
JCI, Ltd. 182,487 949
JD Group, Ltd. 64,121 431
Kersaf Investments, Ltd. 94,718 431
Liberty Holdings, Ltd. 9,200 482
Liberty Life Association of Africa 106,065 2,068
Molope Foods, Ltd. (a) 251,700 301
Molpe Foods, Ltd. Series N (a) 128,300 130
Murray & Roberts Holdings, Ltd. 443,000 456
Nasionale Pers Beperk Class N 86,500 569
NBS Boland Group, Ltd. 213,500 277
Orion Selections, Ltd. 760,000 942
PepsiCo International, Inc. (a) 2,000 174
Plate Glass and Shatterprufe Industries, Ltd. 44,466 427
Rembrandt Group, Ltd. 251,952 1,572
Safmarine & Rennie Holdings, Ltd. 168,700 128
Sappi, Ltd. (a) 124,500 467
Sasol NPV 637,994 3,696
South African Breweries 63,100 1,298
Standard Bank Investment
Corporation, Ltd. (a) 230,700 984
Trans Natal Coal Corp., Ltd. 115,600 349
Truworths International, Ltd. (a) 26,400 19
Wooltru, Ltd. 134,000 175
Wooltru, Ltd. Class N 160,000 206
----------
31,519
----------
SOUTH KOREA - 2.9%
Hana Bank - GDR (a) 64,548 223
Hanwha Chemical Corp. (a) 282,391 370
</TABLE>
14 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Housing & Commercial Bank, Korea 41,789 $ 139
Housing & Commercial Bank, Korea -
GDR 84,922 272
Korea Electric Power Corp. 32,700 349
Korea Long-Term Credit Bank (a) 37,196 69
LG Semiconductor Co. (a) 85,810 669
Lucky Co., Ltd. 137,000 758
Pohang Iron & Steel 30,700 1,006
Pohang Iron & Steel - ADR 11,700 140
Pusan City Gas Co., Ltd. 30,000 395
Samsung Electronics Co. - GDR (a) 10,693 169
Samsung Electronics, Ltd. 20,605 638
Samsung Electronics, Ltd. - GDR (a) 87,102 723
Seoul City Gas Co., Ltd. 23,000 343
Shin Han Bank (a) 180,000 598
Sindo Ricoh Co. 25,260 688
SK Telecommunications Co., Ltd. 3,126 1,413
Ssangyong Cement Co., Ltd. 45,570 57
Ssangyong Oil Refining Co., Ltd. 62,620 425
Tae Young Corp. 16,000 136
Youngone Corp. 18,500 363
----------
9,943
----------
SRI LANKA - 0.1%
Aitken Spence & Co. 11,600 17
Ceylon Theatre 13,660 42
Development Finance Corp. 97,221 201
Hayleys 18,240 48
John Keells Holdings, Ltd. 43,535 126
National Development Bank 9,800 19
----------
453
----------
SWITZERLAND - 0.5%
Holderbank Financiere Glarus AG (BR) 1,392 1,774
----------
1,774
----------
TAIWAN - 3.5%
Advanced Semiconductor
Engineering - GDR (a) 9,360 83
Asia Cement Corp. - GDR 78,840 710
China Steel Corp. - GDS (a) 62,383 749
Evergreen Marine Corp. - GDR 70,486 560
Hocheng Group Corp. - GDR 126,565 506
President Enterprises - GDS (a) 60,800 548
ROC Taiwan Fund 156,500 1,056
Siliconware Precision Industries Co. -
GDR (a) 66,864 535
Standard Foods Taiwan Ltd.
(Regd) - GDR (a) 64,400 742
Standard Foods Taiwan, Ltd. -
GDR (144A)(a) 20,000 225
Synnex Technology International Corp. (a) 32,000 538
Synnex Technology International Corp.
(Regd) - GDR (a) 44,000 739
Taiwan Fund, Inc. 52,600 707
Taiwan Semiconductor
Manufacturing Co., Ltd (a) 96,000 1,620
Yageo Corp. - GDR (144A)(a) 53,136 441
Yageo Corp. - GDR (a) 160,123 1,329
Yang Ming Marine Transport - GDR (a) 116,840 701
----------
11,789
----------
THAILAND - 1.2%
Advanced Information Services
(Alien Market) 96,600 412
Ban Pu Coal (Alien Market) 87,900 144
BEC World PLC (Alien Market) 197,200 752
Cogeneration PLC (Alien Market) 685,000 275
Grammy Entertainment PLC
(Alien Market) 42,000 98
Industrial Finance Corp. of Thailand
(Alien Market)(a) 910,000 188
PTT Exploration & Production PLC
(Alien Market)(a) 230,600 1,749
Siam Cement Co. (Alien Market)(a) 85,200 412
----------
4,030
----------
TURKEY - 4.2%
Aksigorta AS 11,740,000 760
Dogan Sirketler GR (a) 8,650,000 528
EGE Biracilik Ve Malt Sanayii 5,400,000 639
Eregli Demir Ve Celik Fabrikalari (a) 3,700,000 577
Ford Otomotiv Sanayi AS 618,000 331
Haci Omer Sabanci Holding AS 23,505,000 1,456
Kazkommertsbank Co. - GDR (a) 4,800 96
Koc Holding 1,935,500 378
Sarkuysan Elektrolitik Bakir 8,490,000 614
T Garanti Bankasi (a) 6,154,657 283
T Sise Cam 30,586,672 1,011
Turkiye Is Bankasi 25,955,500 1,048
Yapi Kredi Bankasi 171,174,320 4,371
Yapi Kredi Bankasi AS (a) 83,877,710 2,141
----------
14,233
----------
</TABLE>
Specialty Funds Emerging Markets Fund 15
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
UNITED KINGDOM - 1.1%
Billiton PLC - ADR 54,678 $ 109
Genesis Smaller Companies (a) 147,886 1,962
Lonrho Africa PLC (a) 225,204 276
Lonrho PLC (a) 225,204 1,057
Reunion Mining PLC (a) 250,000 296
----------
3,700
----------
VENEZUELA - 1.1%
CIA Anon Nacional Telefonos
de Venezuela - ADR 107,446 2,686
Electricidad de Caracas (Regd) 439,733 199
Mavesa SA - ADR 151,875 484
Siderurgica Venezolana Sivensa - ADR 65,833 397
Siderurgica Venezolana Sivensa - GDR 5,984 45
----------
3,811
----------
ZIMBABWE - 0.3%
Delta Corp. 1,338,248 877
----------
877
----------
TOTAL COMMON STOCKS
(cost $335,924) 273,543
----------
PREFERRED STOCKS - 10.6%
ARGENTINA - 0.3%
Quilmes Industrial Quinsa Societe - ADR 104,450 1,018
----------
1,018
----------
BRAZIL - 9.6%
Banco de Credito Nacional 41,000,000 425
Banco do Estado de Sao Paulo NPV 50,049,000 2,316
Banco Itau SA (Regd) 3,411,418 1,947
Brahma (cia Cervej) NPV 1,093,000 680
Brasmotor SA NPV 9,140,000 838
Centrais Electricas de Santa Catrina SA
Series B - ADR 3,600 296
CEMIG SA 89,768,148 2,794
Cia Riograndense Telecom NPV 751,000 819
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar NPV 46,200,000 1,039
Companhia Energetica
de Minas Gerais - ADR 31,357 971
Companhia Energetica
de Sao Paulo NPV 10,225,000 284
Companhia Paranaense
de Energia - Copel 57,640,000 538
Companhia Paranaense de Energia
Copel Class B - ADR 15,800 146
Companhia Paulista de Forca e Luz (a) 41,484 4
Coteminas (Cia Tec) NPV 3,805,105 576
Duratex SA (BR) 3,364,000 131
Industrias Klabin de Papel e
Celulose SA NPV 1,214,928 504
Iochpe Maxion SA - ADR (a) 232,300 266
Itausa Investimentos Itau SA 1,390,000 877
Kepler Weber SA NPV 3,200 8
Lojas Renner SA NPV 6,000,000 176
Marcopolo SA NPV 521,000 892
Odebrecht SA NPV 11,793,000 38
Papel Simao NPV 20,700,000 317
Perdigao SA NPV 225,200,000 282
Petro Ipiranga (cia) NPV 79,100,000 722
Petrobras Distribuidora NPV 34,472,500 477
Petroleo Brasileiro SA NPV 22,498,866 4,182
Telecomunicacoes Brasileiras NPV 23,035,542 2,506
Telecomunicacoes de Minas Gerais
Class B NPV 9,325,489 649
Telecomunicacoes de Sao Paulo
SA NPV 16,247,842 3,821
Telecomunicacoes do Rio de Janeiro
SA NPV 8,900,940 670
Telemig Celular SA Class C NPV (a) 9,325,489 282
Telerj Celular SA Class B NPV (a) 9,800,940 583
Telesp Celular SA Class B NPV (a) 18,547,842 1,540
----------
32,596
----------
COLOMBIA - 0.0%
Gran Cadena de Almacenes Class B - ADR 38,320 159
----------
159
----------
GREECE - 0.0%
Delta Dairy 15,520 179
----------
179
----------
HUNGARY - 0.3%
OTP Bank 19,500 959
----------
959
----------
PORTUGAL - 0.3%
Filmes Lusomundo-SGPS SA 65,000 858
----------
858
----------
</TABLE>
16 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
RUSSIA - 0.2%
Lukoil Holding Oil Co. - ADR 73,200 $ 575
----------
575
----------
TOTAL PREFERRED STOCKS
(cost $38,080) 36,344
----------
PRINCIPAL
AMOUNT
(000)
----------
LONG-TERM INVESTMENTS - 0.6%
BRAZIL - 0.0%
Casa Anglo Series 2
1.000% due 11/01/99 (conv.) $ 3 166
----------
166
----------
INDONESIA - 0.0%
Modernland Realty
6.000% due 01/04/03 (conv.) IDR 30 3
----------
3
----------
POLAND - 0.1%
Elektrim Spolka Akcyjna SA
2.000% due 05/30/04 (conv.) $ 596 396
----------
396
----------
SOUTH KOREA - 0.1%
Shinwon Corp.
0.500% due 12/31/08 (conv.) 520 489
----------
489
----------
TAIWAN - 0.3%
Far Eastern Dept. Stores
3.000% due 07/06/01 (conv.) 981 852
----------
852
----------
TOTAL LONG-TERM INVESTMENTS
(cost $2,241) 1,906
----------
SHORT-TERM INVESTMENTS - 6.9%
UNITED STATES - 6.9%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 23,351 23,351
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $23,351) 23,351
----------
TOTAL INVESTMENTS
(identified cost $399,596)(c) - 98.4% 335,144
OTHER ASSETS AND LIABILITIES,
NET - 1.6% 5,392
----------
NET ASSETS - 100.0% $ 340,536
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
EDR - European 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 Securities Act of 1933.
FOREIGN CURRENCY ABBREVIATIONS:
USD - United States dollar
HKD - Hong Kong dollar
ZAR - South African rand
Specialty Funds Emerging Markets Fund 17
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
MARKET
% OF NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- ------------------------------------------ ---------- ----------
<S> <C> <C>
Auto & Transportation 2.7% $ 9,033
Consumer Discretionary 11.3 38,412
Consumer Staples 7.9 26,825
Financial Services 17.1 58,319
Health Care 1.2 4,246
Integrated Oils 5.0 17,024
Materials & Processing 15.4 52,385
Miscellaneous 2.4 8,147
Other Energy 4.7 16,095
Producer Durables 2.6 9,017
Technology 2.5 8,696
Utilities 18.1 61,688
Short-Term Investments 6.9 23,351
Long-Term Investments 0.6 1,906
---------- ----------
Total Investments 98.4 335,144
Other Assets and Liabilities, Net 1.6 5,392
---------- ----------
NET ASSETS 100.0% $ 340,536
---------- ----------
---------- ----------
<CAPTION>
MARKET
% OF NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- ------------------------------------------ ---------- ----------
Latin America 37.2% $ 126,681
Europe 16.6 56,534
Pacific Basin 14.7 49,970
Africa 11.2 38,202
United Kingdom 1.4 4,913
United States (Short-Term Investments) 6.9 23,351
Middle East 8.1 27,647
Bermuda 0.4 1,235
Other 1.9 6,611
---------- ----------
Total Investments 98.4 335,144
Other Assets and Liabilities, Net 1.6 5,392
---------- ----------
NET ASSETS 100.0% $ 340,536
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY EXCHANGE
SPOT CONTRACTS
UNREALIZED
CONTRACTS TO IN APPRECIATION
DELIVER EXCHANGE FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- -------------- -------------- ---------- --------------
<S> <C> <C> <C>
USD 3 HKD 26 07/03/98 --
USD 12 ZAR 73 07/01/98 --
USD 58 ZAR 334 07/07/98 (1)
HKD 873 USD 113 07/02/98 --
--------------
$ (1)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $399,596)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 335,144
Foreign currency holdings (identified cost $5,873) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,728
Foreign currency exchange spot contracts (cost $186)(Note 2) . . . . . . . . . . . . . . . . . . . . . . 185
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 920
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,194
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 30,681
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,744
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,120
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 373
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Foreign currency exchange spot contracts (cost $186)(Note 2) . . . . . . . . . . . . 186
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 30,681
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,208
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 340,536
--------------
--------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . . . $ (362)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,607)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,452)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429,642
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 340,536
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($340,536,005 divided by 35,442,182 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.61
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Emerging Markets Fund 19
<PAGE>
EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,394
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (336)
------------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,727
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,157
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,899
------------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,828
------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,343)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (688) (11,031)
------------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,558)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 7 (60,551)
------------------ ------------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71,582)
------------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ (68,754)
------------------
------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 Emerging Markets Fund Specialty Funds
<PAGE>
EMERGING MARKETS FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX FOR THE
MONTHS ENDED FISCAL YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,828 $ 3,030
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,031) (4,838)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (60,551) (18,122)
-------------- --------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . (68,754) (19,930)
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,966) (1,176)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (362) (2,439)
-------------- --------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (2,328) (3,615)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund
share transactions (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,566 85,107
-------------- --------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 7,484 61,562
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,052 271,490
-------------- --------------
End of period (including accumulated distributions in excess of net
investment income of $362 and $862, respectively) . . . . . . . . . . . . . . . $ 340,536 $ 333,052
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Emerging Markets Fund 21
<PAGE>
EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year or period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998* 1997 1996 1995 1994 1993**
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD. . . . $ 11.79 $ 12.35 $ 11.16 $ 12.25 $ 13.90 $ 10.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . .09 .14 .10 .11 .15 .07
Net realized and unrealized gain
(loss) on investments. . . . . . . . . . (2.20) (.56) 1.26 (1.12) (1.24) 4.09
--------- --------- --------- --------- --------- ---------
Total Income From Investment Operations (2.11) (.42) 1.36 (1.01) (1.09) 4.16
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . (.06) (.05) (.08) (.03) (.10) (.07)
In excess of net investment income. . . . (.01) (.09) (.09) (.02) (.10) (.01)
Net realized gain on investments. . . . . -- -- -- -- (.31) (.18)
In excess of net realized
gain on investments . . . . . . . . . . -- -- -- (.03) (.05) --
--------- --------- --------- --------- --------- ---------
Total Distributions. . . . . . . . . . (.07) (.14) (.17) (.08) (.56) (.26)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD. . . . . . . $ 9.61 $ 11.79 $ 12.35 $ 11.16 $ 12.25 $ 13.90
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN (%)(a)(c). . . . . . . . . . . (17.96) (3.45) 12.26 (8.21) (5.83) 41.83
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted). 340,536 333,052 271,490 172,673 127,271 65,457
Ratios to average net assets (%)(b)(c):
Operating expenses, net. . . . . . . . 1.60 1.64 1.71 1.75 .80 .80
Operating expenses, gross. . . . . . . 1.60 1.64 1.72 1.80 .83 1.60
Net investment income. . . . . . . . . 1.56 .87 .77 .88 1.10 1.33
Portfolio turnover rate (%)(b). . . . . . 54.55 50.60 34.62 71.16 57.47 89.99
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period January 29, 1993 (commencement of operations) to
December 31, 1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the periods ended June 30, 1998 and 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.
22 Emerging Markets Fund Specialty Funds
<PAGE>
EQUITY T FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 98.1%
AUTO AND TRANSPORTATION - 3.0%
Burlington Northern, Inc. 700 $ 69
Chrysler Corp. 40,700 2,294
CNF Transportation, Inc. 11,500 489
Consolidated Freightways Corp. (a) 250 3
CSX Corp. 6,300 287
Eaton Corp. 2,400 187
FDX Corp. (a) 100 6
Ford Motor Co. 8,600 507
General Motors Corp. 2,800 187
Goodyear Tire & Rubber Co. 8,000 516
Lear Corp. (a) 4,500 231
Norfolk Southern Corp. 4,700 140
Southwest Airlines Co. 8,050 238
Union Pacific Corp. 22,300 984
----------
6,138
----------
CONSUMER DISCRETIONARY - 10.7%
AutoZone Inc. (a) 11,400 364
Best Buy Co. (a) 8,200 296
Black & Decker Corp. 500 31
Circuit City Stores, Inc. 6,000 281
Corporate Express, Inc. (a) 14,100 178
Dayton Hudson Corp. 13,800 669
Dillard's, Inc. Class A 5,500 228
Disney (Walt) Co. 900 95
Donnelley (R.R.) & Sons Co. 4,100 188
Eastman Kodak Co. 13,000 950
Extended Stay America, Inc. (a) 1,700 19
Federated Department Stores, Inc. (a) 19,500 1,049
Fruit of the Loom, Inc. Class A (a) 9,200 305
Gap, Inc. 2,400 148
General Nutrition Companies, Inc. (a) 100 3
Harrah's Entertainment, Inc. (a) 900 21
Hasbro, Inc. 14,300 562
Home Depot, Inc. (The) 8,100 673
International Game Technology 11,100 269
JC Penney & Co., Inc. 800 58
Kmart Corp. (a) 29,600 570
Leggett & Platt, Inc. 14,500 363
Mattel, Inc. 28,000 1,185
McDonald's Corp. 13,700 945
MediaOne Group, Inc. (a) 17,900 786
Mirage Resorts, Inc. (a) 7,600 162
Reebok International, Ltd. (a) 8,700 241
Rubbermaid, Inc. 100 3
Sears Roebuck & Co. 24,500 1,496
Service Corp. International 50,800 2,178
Time Warner, Inc. 30,225 2,582
TJX Cos., Inc. 18,000 434
Toys "R" Us, Inc. (a) 11,700 276
Tricon Global Restaurants, Inc. (a) 860 27
Viacom, Inc. Class B (a) 3,800 221
Wal-Mart Stores, Inc. 22,100 1,343
Waste Management, Inc. 58,600 2,051
Whirlpool Corp. 4,300 296
----------
21,546
----------
CONSUMER STAPLES - 11.3%
Albertson's, Inc. 11,200 580
Anheuser-Busch Cos., Inc. 26,400 1,246
Bestfoods 2,000 116
Campbell Soup Co. 3,200 170
Coca-Cola Co. (The) 33,500 2,864
Colgate-Palmolive Co. 400 35
Corn Products International, Inc. (a) 250 8
Gillette Co. 26,200 1,485
Hannaford Brothers Co. 11,300 497
Heinz (H.J.) Co. 8,300 466
Kellogg Co. 4,800 180
Kroger Co. (a) 20,200 866
PepsiCo, Inc. 39,800 1,639
Philip Morris Cos., Inc. 84,200 3,315
Procter & Gamble Co. 49,400 4,498
Ralston-Purina Group 7,000 818
Safeway, Inc. (a) 10,000 407
Sara Lee Corp. 1,800 101
Seagram Co., Ltd. 33,400 1,367
Unilever NV 28,000 2,211
Vlasic Foods International, Inc. (a) 30 2
----------
22,871
----------
FINANCIAL SERVICES - 17.5%
AEGON NV 5,608 485
Ahmanson (H.F.) & Co. 9,800 696
Allstate Corp. 10,800 989
Ambac Financial Group, Inc. 8,000 468
American Express Co. 12,300 1,402
American General Corp. 200 14
American International Group, Inc. 15,800 2,307
Associates First Capital Corp. Class A 3,053 235
Banc One Corp. 15,634 873
BankAmerica Corp. 20,100 1,737
Bear Stearns Cos., Inc. 1,770 101
</TABLE>
24 Equity T Fund Specialty Funds
<PAGE>
EQUITY T FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Beneficial Corp. 3,800 $ 582
Capital One Financial Corp. 300 37
Charter One Financial, Inc. 3,570 120
Chase Manhattan Corp. 17,900 1,351
Chubb Corp. (The) 200 16
CIGNA Corp. 13,800 952
Citicorp 18,400 2,746
Crestar Financial Corp. 668 36
Dime Bancorp, Inc. 2,600 78
Edwards (A.G.), Inc. 5,700 243
Federal Home Loan Mortgage Corp. 6,500 306
Federal National Mortgage Association 38,800 2,357
Financial Security Assurance
Holdings, Ltd. 3,400 200
First Chicago NBD Corp. 8,300 736
First Data Corp. 9,100 303
First Union Corp. 45,118 2,628
Firstar Corp. 10,500 399
Fleet Financial Group, Inc. 2,300 192
Fremont General Corp. 400 22
General Re Corp. 200 51
Green Tree Financial Corp. 3,500 150
Hartford Financial Services Group, Inc. (The) 900 103
Household International Corp. 8,400 418
Lincoln National Corp. 400 37
Marsh & McLennan Cos., Inc. 20,100 1,215
MBIA, Inc. 4,400 329
Morgan Stanley, Dean Witter,
Discover and Co. 11,840 1,082
NationsBank Corp. 27,838 2,130
Norwest Corp. 7,400 277
Ocwen Financial Corp. (a) 19,800 532
Pacific Century Financial Corp. 4,800 115
PMI Group, Inc. (The) 2,100 154
Provident Financial Group, Inc. 9,700 443
Providian Financial Corp. 6,400 503
Republic New York Corp. 2,000 126
Ryder System, Inc. 5,000 158
SouthTrust Corp. 7,800 339
TCF Financial Corp. 5,800 171
Transamerica Financial Corp. 2,000 230
Travelers Property Casualty Corp. Class A 5,100 219
Travelers, Inc. 32,717 1,983
UNUM Corp. 4,100 228
Washington Federal, Inc. 11,275 311
Washington Mutual, Inc. 18,345 796
Wells Fargo & Co. 1,700 626
----------
35,337
----------
HEALTH CARE - 10.8%
Abbott Laboratories 13,900 568
Aetna, Inc. 1,000 76
ALZA Corp. (a) 22,100 956
American Home Products Corp. 51,400 2,660
Bausch & Lomb, Inc. 7,600 381
Bristol-Myers Squibb Co. 46,800 5,379
Crescendo Pharmaceuticals Corp.
Class A (a) 235 3
Forest Labs, Inc. (a) 28,600 1,030
Health Care & Retirement Corp. (a) 3,400 134
Humana, Inc. (a) 23,200 724
Johnson & Johnson 10,500 774
Lilly (Eli) & Co. 10,600 700
Merck & Co., Inc. 13,800 1,846
Pfizer, Inc. 15,300 1,663
Schering-Plough Corp. 10,100 925
Tenet Healthcare Corp. (a) 28,000 875
United Healthcare Corp. 9,700 616
Warner-Lambert Co. 34,800 2,414
----------
21,724
----------
INTEGRATED OILS - 6.4%
Amoco Corp. 200 8
Ashland, Inc. 100 5
Atlantic Richfield Co. 37,400 2,922
Enron Corp. 15,400 833
Exxon Corp. 77,400 5,520
Mobil Corp. 19,300 1,479
Phillips Petroleum Co. 2,300 111
Royal Dutch Petroleum Co. 25,400 1,392
Tenneco, Inc. 4,800 183
Texaco, Inc. 6,500 387
----------
12,840
----------
MATERIALS AND PROCESSING - 5.8%
Agribrands International, Inc. (a) 700 22
Albemarle Corp. 13,400 296
Allegheny Teldyne, Inc. 81,618 1,867
Crompton & Knowles Corp. 6,300 159
Cytec Industries, Inc. (a) 2,500 111
Dow Chemical Co. 25,800 2,495
du Pont (E.I.) de Nemours & Co. 15,400 1,149
Georgia-Pacific Group 8,200 483
Illinois Tool Works, Inc. 1,600 107
Kimberly-Clark Corp. 11,200 514
Louisiana Pacific Corp. 10,200 186
</TABLE>
Specialty Funds Equity T Funds 25
<PAGE>
EQUITY T FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Mead Corp. 3,300 $ 105
Monsanto Co. 25,900 1,447
Rohm & Haas Co. 1,900 197
Starwood Lodging Trust 734 35
Stone Container Corp. (a) 32,300 505
Temple-Inland, Inc. 7,300 393
Tyco International, Ltd. 23,008 1,450
Unifi, Inc. 7,900 270
----------
11,791
----------
OTHER ENERGY - 1.5%
Cooper Cameron Corp. (a) 400 20
Diamond Offshore Drilling, Inc. 1,800 72
El Paso Natural Gas Co. 7,600 291
R&B Falcon Corp. (a) 15,300 346
Schlumberger, Ltd. 4,200 287
Tosco Corp. 43,200 1,269
Valero Energy Corp. 20,900 695
----------
2,980
----------
PRODUCER DURABLES - 6.8%
AlliedSignal, Inc. 38,100 1,691
Applied Materials, Inc. (a) 19,200 566
Boeing Co. 45,760 2,039
Boston Scientific Corp. (a) 2,200 158
Caterpillar, Inc. 9,500 502
Coltec Industries, Inc. (a) 29,400 584
Emerson Electric Co. 9,700 586
General Electric Co. 38,900 3,540
Grainger (W.W.), Inc. 13,600 677
ITT Industries, Inc. 10,600 396
Johnson Controls, Inc. 10,900 623
Lockheed Martin Corp. 1,000 106
Northrop Grumman Corp. 300 31
Perkin-Elmer Corp. 14,000 871
Raytheon Co. Class A 51 3
Rockwell International Corp. 9,600 461
Xerox Corp. 9,700 987
----------
13,821
----------
TECHNOLOGY - 14.1%
Cisco Systems, Inc. (a) 33,750 3,107
COMPAQ Computer Corp. 24,900 707
CompUSA, Inc. (a) 17,800 322
Computer Associates International, Inc. 19,700 1,095
Cooper Industries, Inc. 9,200 505
Dell Computer Corp. (a) 7,600 705
EMC Corp. (a) 39,900 1,788
General Dynamics Corp. 800 37
Harris Corp. 24,100 1,077
Hewlett-Packard Co. 400 24
Intel Corp. 62,500 4,629
International Business Machines Corp. 33,600 3,858
Lucent Technologies, Inc. 20,200 1,680
Microsoft Corp. (a) 33,900 3,674
Newport News Shipbuilding, Inc. 60 2
Oracle Systems Corp. (a) 94,200 2,308
Sun Microsystems, Inc. (a) 47,500 2,063
Texas Instruments, Inc. 13,700 798
----------
28,379
----------
UTILITIES - 10.2%
Airtouch Communications, Inc. (a) 1,400 82
Ameritech Corp. 5,700 256
AT&T Corp. 21,600 1,234
Bell Atlantic Corp. 12,464 569
BellSouth Corp. 14,400 967
Central & Southwest Corp. 17,500 470
Columbia Gas System, Inc. 23,250 1,293
Comcast Corp. Special Class A 24,900 1,010
Duke Power Co. 7,206 427
Entergy Corp. 6,400 184
GTE Corp. 42,700 2,375
MCI Communications Corp. 15,500 900
New England Electric System 500 22
Northern States Power Co. 24,200 693
Peco Energy Co. 8,500 248
PG&E Corp. 1,717 54
PP&L Resources, Inc. 26,600 603
SBC Communications, Inc. 57,700 2,308
Southern Co. 25,000 692
Sprint Corp. 20,600 1,452
Tele-Communications TCI
Ventures Group Series A (a) 25,128 503
Tele-Communications, Inc. Class A (a) 19,086 732
U.S. West, Inc. (a) 489 23
Unicom Corp. 2,200 77
Wisconsin Energy Corp. 700 21
WorldCom, Inc. (a) 70,010 3,383
----------
20,578
----------
TOTAL COMMON STOCKS
(cost $159,315) 198,005
----------
</TABLE>
26 Equity T Fund Specialty Funds
<PAGE>
EQUITY T FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.4%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 4,559 $ 4,559
United States Treasury Notes
5.250% due 07/31/98 (b)(c) 250 250
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,809) 4,809
----------
TOTAL INVESTMENTS
(identified cost $164,124)(d) - 100.5% 202,814
OTHER ASSETS AND LIABILITIES,
NET - (0.5%) (990)
----------
NET ASSETS - 100.0% $ 201,824
----------
----------
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- ----------
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 09/98 4 $ 41
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 41
----------
----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at $250 were held as
collateral in connection with futures contracts purchased by the Fund.
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures contracts purchased by the
Fund
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
NV - Nonvoting
The accompanying notes are an integral part of the financial statements.
Specialty Funds Equity T Fund 27
<PAGE>
EQUITY T FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $164,124)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 202,814
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 3,792
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,919
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,065
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 135
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 8
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 3,792
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,095
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,824
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 472
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,690
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
--------------
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,023
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,824
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($201,823,607 divided by 12,235,440 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16.50
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28 Equity T Fund Specialty Funds
<PAGE>
EQUITY T FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,216
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,235
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 579
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422 515
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,429
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 24,439
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,954
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 25,426
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Equity T Fund 29
<PAGE>
EQUITY T FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 472 $ 516
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 65
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 24,439 13,594
----------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 25,426 14,175
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) (496)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (78) --
----------------- -----------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (98) (496)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 66,761 76,125
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 92,089 89,804
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,735 19,931
----------------- -----------------
End of period (including undistributed net investment income of
$472 and $20, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,824 $ 109,735
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30 Equity T Funds Specialty Funds
<PAGE>
EQUITY T 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>
YEAR ENDED DECEMBER 31,
---------------------------------
1998* 1997 1996**
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 13.90 $ 10.61 $ 10.00
------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . 04 .08 .03
Net realized and unrealized gain (loss) on investments . . . . 2.57 3.28 .61
------------- ------------- -------------
Total Income From Investment Operations . . . . . . . . . . 2.61 3.36 .64
------------- ------------- -------------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . -- (.07) (.03)
Net realized gain on investments . . . . . . . . . . . . . . . (.01) -- --
------------- ------------- -------------
Total Distributions . . . . . . . . . . . . . . . . . . . . (.01) (.07) (.03)
------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 16.50 $ 13.90 $ 10.61
------------- ------------- -------------
------------- ------------- -------------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . . . . 18.79 31.73 6.10
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . 201,824 109,735 19,931
Ratios to average net assets (%)(b)(c):
Operating expenses, net . . . . . . . . . . . . . . . . . . .98 1.00 1.00
Operating expenses, gross . . . . . . . . . . . . . . . . . .98 1.08 2.83
Net investment income . . . . . . . . . . . . . . . . . . . .61 .92 1.62
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . 32.09 39.23 8.86
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** 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 periods ended June 30, 1998 and 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.
Specialty Funds Equity T Funds 31
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - 101.6%
ALABAMA - 0.8%
Huntsville, Alabama Health Care Authority Revenue, Series A (a) $ 335 4.500% 06/01/01 $ 339
Jefferson County, Alabama Sewer Revenue, Series A (a) 500 5.000 02/01/05 519
----------
858
----------
ALASKA - 3.3%
Alaska State Housing Finance Corp. Revenue, Series A-1 (a) 650 4.550 12/01/02 655
North Slope Borough, Alaska, Zero Coupon,
Series A, General Obligation (a) 500 0.000 06/30/99 481
North Slope Borough, Alaska, Zero Coupon,
Series A, General Obligation (a) 1,385 0.000 06/30/00 1,275
North Slope Borough, Alaska, Zero Coupon,
Series B, General Obligation (a) 375 0.000 06/30/99 361
North Slope Borough, Alaska, Zero Coupon,
Series B, General Obligation (a) 900 0.000 01/01/01 810
----------
3,582
----------
ARIZONA - 1.4%
Arizona State Transportation Board, Special Obligations
Revenue, Series A (pre-refunded 07/01/01) 1,425 6.450 07/01/06 1,543
----------
1,543
----------
ARKANSAS - 0.2%
Arkansas State, Zero Coupon, Series B, General Obligation 300 0.000 06/01/03 242
----------
242
----------
CALIFORNIA - 4.1%
California Health Facilities Financing Authority Revenue, Series B (a) 1,000 5.000 11/15/04 1,042
California State Public Works Board Lease Revenue, Series C 675 5.000 10/01/02 698
California, State of, General Obligation (a) 850 6.100 11/01/01 906
Los Angeles County, California Transportation Participation
Certificate, Tax Revenue, Series B 760 5.900 07/01/00 788
Sacramento, California Municipal Utility
District, Utility Revenue, Series Z (a) 1,000 6.000 07/01/01 1,057
----------
4,491
----------
COLORADO - 1.4%
Colorado Housing Finance Authority Revenue, Series C-2 500 4.500 11/01/05 498
Denver, Colorado Health & Hospital Revenue, Series A (d) 1,000 5.000 12/01/04 1,011
----------
1,509
----------
CONNECTICUT - 2.1%
Bridgeport, Connecticut, Series A, General Obligation (a) 1,150 5.250 09/01/99 1,171
Connecticut State Unemployment Compensation Revenue, Series A (a) 1,125 5.000 11/15/99 1,145
----------
2,316
----------
</TABLE>
32 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA - 1.4%
District of Columbia Revenue (a) $ 1,000 5.250% 10/01/02 $ 1,039
District of Columbia, Series A, General Obligation (a) 500 5.500 04/01/01 518
----------
1,557
----------
FLORIDA - 2.4%
Hillsborough County, Florida, Zero Coupon, Utility
Refunding Revenue, Series A (a) 1,000 0.000 08/01/99 960
Jacksonville, Florida Pollution Control Revenue 1,100 4.100(b) 05/01/29 1,100
Orange County, Florida School Board
Participation Certificate, Series A (a) 575 4.700 08/01/01 587
----------
2,647
----------
GEORGIA - 4.4%
Appling County, Georgia Pollution Control Revenue 1,400 4.100(b) 09/01/29 1,400
Atlanta, Georgia Airport Facilities Revenue (a) 500 5.500 01/01/01 517
Bartow County, Georgia Development Authority Pollution Control Revenue 500 3.900(b) 03/01/24 500
Chatham County, Georgia Hospital Authority Revenue, Series A (a) 500 5.000 01/01/00 508
Fulco, Georgia Hospital Authority Revenue Anticipation Certificates 500 5.000 11/15/02 517
Fulco, Georgia Hospital Authority Revenue Anticipation Certificates 500 4.300 11/15/03 502
Georgia Municipal Electric Authority, General Resolution Revenue,
Series A (a) 850 5.000 01/01/02 874
----------
4,818
----------
HAWAII - 4.1%
Hawaii State, General Obligation (a) 1,000 5.500 04/01/04 1,058
Hawaii State, Housing Financial & Development Corp.,
Single Family Management Purchasing Revenue 1,000 4.450 07/01/03 1,007
Hawaii State, Series CP, General Obligation (a) 600 5.000 10/01/02 619
Honolulu, Hawaii City & County, Series A, General Obligation 650 5.000 11/01/02 672
Honolulu, Hawaii City & County, Series B, General Obligation 1,150 5.000 10/01/02 1,187
----------
4,543
----------
ILLINOIS - 8.6%
Bolingbrook, Illinois Parks District,
Zero Coupon, General Obligation (a) 1,230 0.000 01/01/05 919
Chicago, Illinois Sales Tax Revenue (a) 1,000 5.250 01/01/05 1,048
Chicago, Illinois Series C, General Obligation (a) 1,500 6.250 10/31/01 1,601
Illinois Development Finance Authority Revenue, Series A (a) 1,145 5.500 05/15/05 1,209
Illinois Health Facilities Authority Revenue 1,000 5.250 09/01/04 1,033
Illinois Health Facilities Authority Revenue (a) 500 5.000 08/01/03 517
Illinois Health Facilities Authority Revenue (a) 270 5.250 08/15/03 281
Illinois Health Facilities Authority Revenue (a) 500 5.000 08/15/04 515
Illinois Health Facilities Authority Revenue, Series A (a) 250 4.800 10/01/99 253
Illinois Health Facilities Authority Revenue, Series A (a) 500 5.000 10/01/00 510
Illinois Health Facilities Authority Revenue, Series A (a) 1,000 4.550 07/01/01 1,013
Illinois State General Obligation (a) 500 5.375 05/01/01 518
----------
9,417
----------
</TABLE>
Specialty Funds Limited Volatility Tax Free Fund 33
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
INDIANA - 1.4%
Indiana Health Facilities Financing Authority, Hospital Revenue $ 500 4.500% 02/15/05 $ 499
Indiana Health Facilities Financing
Authority, Hospital Revenue, Series A (a) 500 5.000 11/01/02 515
Monroe County, Industrial Hospital Authority Revenue (a) 500 4.500 05/01/03 504
----------
1,518
----------
KENTUCKY - 0.9%
McCracken County, Kentucky Hospital Revenue, Series A (a) 1,000 5.700 11/01/00 1,038
----------
1,038
----------
LOUISIANA - 2.2%
De Soto Parish, Louisiana Pollution Control Revenue, Series A 650 5.050 12/01/02 671
Louisiana Public Facilities Authority Revenue, Health Care Revenue 500 5.500 10/15/99 511
Louisiana, State of, Series A, General Obligation (a) 500 6.000 08/01/00 520
Shreveport, Louisiana, Zero Coupon, General Obligation (a) 1,000 0.000 01/01/05 747
----------
2,449
----------
MAINE - 0.9%
Maine Health & Higher Educational Facilities
Authority Revenue, Series A 1,000 4.300 07/01/04 997
----------
997
----------
MARYLAND - 1.4%
Maryland State & Local Facilities Loan, Series 3, General Obligation 500 5.000 10/15/02 519
Maryland State Stadium Authority Lease Revenue, Convention
Center Expansion (a) 1,000 5.375 12/15/00 1,033
----------
1,552
----------
MASSACHUSETTS - 1.5%
Massachusetts State Health & Educational Facilities Authority Revenue,
Series B 500 4.550 01/01/21 507
Massachusetts State Health & Educational Facilities Authority Revenue,
Series D (a) 100 3.900(b) 01/01/35 100
Massachusetts State Water Resources Authority Revenue, Series A 1,000 4.500 08/01/03 1,015
----------
1,622
----------
MICHIGAN - 3.5%
Jackson County, Michigan Hospital Financial Authority Revenue (a) 300 4.375 06/01/02 302
Michigan Municipal Bond Authority Revenue, State and Local Appropriations,
Series B (a) 550 6.900 05/01/99 565
Michigan State Building Authority Revenue, Series I 375 5.400 10/01/03 396
Michigan State Hospital Finance Authority Revenue, Series A 500 5.000 07/01/02 515
</TABLE>
34 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
Michigan State Hospital Finance Authority Revenue, Series A $ 500 4.250% 05/15/04 $ 497
Michigan State Hospital Finance Authority Revenue, Series A 1,000 5.500 10/01/04 1,043
Michigan State Hospital Finance Authority Revenue, Series S 500 5.500 08/15/00 515
----------
3,833
----------
MINNESOTA - 1.1%
Minnesota State Revenue, Series A (a) 500 5.000 06/30/99 507
Minnesota, State of, General Obligation 700 5.600 10/01/99 717
----------
1,224
----------
MISSISSIPPI - 0.4%
Jackson County, Mississippi Pollution Control Revenue 400 3.750(b) 06/01/23 400
----------
400
----------
MISSOURI - 0.7%
Kansas City, Missouri Industrial Development Authority
Hospital Revenue (a) 800 3.800 10/15/15 800
----------
800
----------
NEBRASKA - 0.9%
Douglas County, Nebraska Hospital Authority No. 001 Revenue (a) 1,000 4.350 09/01/01 1,008
----------
1,008
----------
NEW JERSEY - 3.3%
Camden County, New Jersey Improvement Authority Revenue 350 4.250 11/15/04 349
New Jersey State, Series E, General Obligation 500 5.500 07/15/02 526
New Jersey State Transportation Corporation Capital
Grant Anticipation Notes, Series A 1,000 5.000 09/01/00 1,017
New Jersey State Transportation Corporation Capital
Grant Anticipation Notes, Series A 670 4.900 09/01/01 685
Ocean County, New Jersey Utilities Authority Waste Water Revenue 1,000 5.000 01/01/01 1,024
----------
3,601
----------
NEW MEXICO - 0.9%
New Mexico Mortgage Finance Authority Revenue, Series A1 950 6.200 01/01/01 982
----------
982
----------
NEW YORK - 13.2%
Metropolitan Transportation Authority, New York, Service Contract
Commuter Facilities, Series 7 1,000 5.300 07/01/05 1,043
Metropolitan Transportation Authority, New York, Transit
Facilities Revenue, Series R 650 5.000 07/01/03 667
</TABLE>
Specialty Funds Limited Volatility Tax Free Fund 35
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
Municipal Assistance Corp., New York, New York Revenue, Series E $ 1,000 4.700% 07/01/02 $ 1,021
Municipal Assistance Corp., New York, New York Revenue, Series L 500 4.500 07/01/02 507
New York City, New York, Series H, General Obligation 750 5.250 08/01/03 779
New York State Dormitory Authority Revenue 500 4.900 05/15/00 508
New York State Dormitory Authority Revenue 1,000 5.500 02/15/03 1,044
New York State Dormitory Authority Revenue 450 5.000 04/01/03 461
New York State Dormitory Authority Revenue 500 5.000 02/01/04 517
New York State Dormitory Authority Revenue, Series A 375 6.000 02/15/03 400
New York State Dormitory Authority Revenue, Series A 375 6.000 08/15/04 406
New York State Dormitory Authority Revenue, Series A (d) 1,000 4.300 08/15/04 997
New York State Dormitory Authority Revenue, Series B 745 4.500 02/15/03 747
New York State Dormitory Authority Revenue, Series 1 500 5.000 07/01/03 513
New York State Housing Finance Agency Service Contract
Obligation Revenue, Zero Coupon, Series C 1,000 0.000 09/15/03 788
New York State Urban Development Corp. Revenue, Series 7 125 5.500 01/01/01 129
New York State General Obligation 765 4.500 10/15/01 775
New York, New York, Series A, General Obligation 500 5.700 08/01/02 526
New York, New York, Series C, General Obligation 500 6.125 08/01/01 528
New York, New York, Series D, General Obligation 250 6.000 02/01/99 253
New York, New York, Series E, General Obligation 500 5.300 08/01/03 521
New York, New York, Series F, General Obligation 500 5.300 08/01/03 521
United Nations Development Corp., New York Revenue, Series B 250 4.450 07/01/01 251
United Nations Development Corp., New York Revenue, Series B 250 4.600 07/01/02 251
Wallkill, New York General Obligation (a) 300 4.500 03/01/01 304
----------
14,457
----------
NORTH CAROLINA - 1.4%
North Carolina Medical Care Community Hospital Revenue 1,000 4.250 06/01/04 994
North Carolina Municipal Power Agency No. 1,
Catawba Electric Revenue, Series A (a) 500 5.000 01/01/01 511
----------
1,505
----------
OHIO - 2.5%
Cleveland, Ohio City School District Revenue Anticipation Notes (a) 555 5.000 06/01/00 566
Cuyahoga County, Ohio Hospital Revenue (a) 1,000 5.000 02/15/00 1,016
Lorain County, Ohio Hospital Revenue 500 4.750 09/01/00 508
Ohio State Building Authority Revenue, State Facilities,
Administration Building Fund, Series A 600 5.250 10/01/03 629
----------
2,719
----------
OKLAHOMA - 0.3%
Stillwater, Oklahoma, Series A, Medical Center Authority Revenue 300 5.550 05/15/01 309
----------
309
----------
</TABLE>
36 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
PENNSYLVANIA - 2.3%
Erie, Pennsylvania Water Authority Water Revenue (a)(d) $ 420 4.300% 12/01/04 $ 417
Harrisburg, Pennsylvania, Zero Coupon,
Series D, General Obligation (a) 815 0.000 03/15/04 636
Pennsylvania, State of, General Obligation 500 5.300 07/01/99 508
Philadelphia, Pennsylvania Hospitals & Higher Education Facilities
Authority Revenue, Series A 500 5.000 05/15/02 513
Philadelphia, Pennsylvania, Zero Coupon, Water & Sewer Revenue (a) 500 0.000 10/01/02 417
----------
2,491
----------
PUERTO RICO - 0.9%
Puerto Rico Electrical Power Authority Power Revenue, Series DD 1,000 5.000 07/01/04 1,041
----------
1,041
----------
RHODE ISLAND - 0.9%
Rhode Island Housing & Mortgage Finance Authority, Series A,
Housing Revenue (a) 1,000 5.150 07/01/01 1,024
----------
1,024
----------
SOUTH CAROLINA - 1.2%
Columbia, South Carolina, Zero Coupon, Waterworks & Sewer
System Revenue 1,000 0.000 02/01/04 789
Spartanburg County, South Carolina Social Health Services, Inc.
Hospital Revenue (a) 500 4.400 04/15/01 504
----------
1,293
----------
TENNESSEE - 1.7%
Metropolitan Government, Nashville & Davidson County, Tennessee
Health & Educational Facilities Bond Revenue, Series A 615 5.250 05/01/01 635
Metropolitan Government, Nashville & Davidson County, Tennessee
Health & Educational Facilities Bond Revenue, Series A (a) 750 4.500 11/01/03 759
White House Utility District, Tennessee, Robertson & Sumner Counties,
Zero Coupon, Waterworks Revenue (a) 650 0.000 01/01/05 487
----------
1,881
----------
TEXAS - 8.4%
Abilene, Texas Health Facilities Development
Corp., Medical Center A, Health Care Revenue (a) 500 5.100 09/01/99 508
Denison, Texas Hospital Authority Revenue 500 5.250 08/15/01 515
Harris County, Texas Health Facilities
Development Corporation, Hospital Revenue 500 5.000 06/01/04 516
Harris County, Texas, Zero Coupon, General Obligation (a) 1,000 0.000 08/15/03 800
Houston, Texas, Series A, General Obligation 650 5.000 03/01/02 669
Houston, Texas, Series C, General Obligation 1,000 5.900 03/01/03 1,057
Irving, Texas Independent School District,
Zero Coupon, General Obligation 650 0.000 02/15/03 531
</TABLE>
Specialty Funds Limited Volatility Tax Free Fund 37
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
San Antonio, Texas Electric & Gas Revenue, Zero Coupon, Series B (a) $ 1,000 0.000% 02/01/04 $ 781
San Antonio, Texas General Obligation 1,000 5.000 08/01/00 1,021
Stephenville, Texas Independent School District, Zero Coupon,
General Obligation 830 0.000 02/15/04 647
Tarrant County, Texas Health Facilities Development Corp.
Systems Revenue, Series A (a) 500 5.000 02/15/01 512
Texas State Public Finance Authority Building Revenue (d) 1,000 5.000 02/01/05 1,035
University of Texas, University Revenues, Series A 605 5.000 08/15/03 628
----------
9,220
----------
UTAH - 4.2%
Intermountain Power Agency, Power Supply Revenue, Series B (a) 500 5.250 07/01/99 508
Intermountain Power Agency, Power Supply Revenue, Series B (a) 500 7.200 07/01/99 511
Intermountain Power Agency, Power Supply Revenue, Series C 1,000 4.700 07/01/02 1,017
Intermountain Power Agency, Power Supply Revenue, Series C (a) 1,250 5.500 07/01/99 1,273
Intermountain Power Agency, Power Supply Revenue, Series E 500 5.250 07/01/01 517
Utah State Board of Regents Revenue 300 5.000 08/01/02 309
Utah State Building Ownership Authority Lease Revenue, Series A 500 5.500 05/15/00 514
----------
4,649
----------
VIRGINIA - 0.5%
Virginia Public Building Authority Revenue, Staff and
Local Appropriation 500 5.100 08/01/99 508
----------
508
----------
WASHINGTON - 9.2%
CDP King County III, Washington, Lease Revenue (a) 1,000 4.600 06/01/03 1,016
Washington State Health Care Facilities Authority Revenue, Series A 250 4.300 08/15/01 251
Washington State Public Power Supply System, Nuclear Project
No. 1 Revenue, Series B 500 5.000 07/01/00 509
Washington State Public Power Supply System, Nuclear Project
No. 2 Revenue, Series A 280 5.000 07/01/00 285
Washington State Public Power Supply System, Nuclear Project
No. 2 Revenue, Series B 1,500 5.450 07/01/00 1,539
Washington State Public Power Supply System, Nuclear Project
No. 2 Revenue, Series C 650 7.200 07/01/99 671
Washington State Public Power Supply System, Nuclear Project
No. 3 Revenue, Series A 1,000 5.000 07/01/04 1,028
Washington State, Series A, General Obligation 1,060 6.500 07/01/04 1,183
Washington State, Series C, General Obligation 1,000 5.000 07/01/02 1,032
Washington State, Series C, General Obligation 2,000 5.500 07/01/99 2,037
Washington State, Series R, General Obligation 500 5.000 07/01/99 507
----------
10,058
----------
</TABLE>
38 Limited Volatility Tax Free Fund Specialty Funds
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE MARKET
AMOUNT OF VALUE
(000) RATE MATURITY (000)
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
WISCONSIN - 1.3%
Chippewa Falls, Wisconsin Area University School
District, General Obligation $ 1,375 5.250% 04/01/05 $ 1,435
----------
1,435
----------
WYOMING - 0.3%
Uinta County, Wyoming Pollution Control Revenue 300 3.750(b) 08/15/20 300
----------
300
----------
TOTAL INVESTMENTS
(identified cost $110,127)(c) - 101.6% 111,437
OTHER ASSETS AND LIABILITIES, NET - (1.6%) (1,710)
----------
NET ASSETS - 100.0% $ 109,727
----------
----------
</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.
(d) Forward commitment. See Note 2.
ABBREVIATIONS:
AMBAC - AMBAC Indemnity Corporation
FGIC - Financial Guaranty Insurance Company
MBIA - Municipal Bond Investors Assurance
QUALITY RATINGS AS A % OF MARKET VALUE
<TABLE>
<CAPTION>
<S> <C>
AAA 60%
AA 22
A 10
BBB 8
----
100%
----
----
</TABLE>
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE
<TABLE>
<CAPTION>
<S> <C>
General Obligation 30%
Utility Revenue 16
State and Community Lease 12
Health Care Revenue 24
Refunded 1
Housing Revenue 4
University Revenue 3
Other 10
--------
100%
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Limited Volatility Tax Free Fund 39
<PAGE>
LIMITED VOLATILITY TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amount in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $110,127)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 111,437
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,732
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,317
LIABILITIES
Payables:
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . $ 3,468
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 44
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
--------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,590
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,727
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 321
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (817)
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 1,310
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,861
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,727
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($109,726,825 divided by 5,160,207 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.26
--------------
--------------
</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 OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,232
EXPENSES (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,904
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . (88)
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33)
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 1,871
--------------
--------------
</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
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,904 $ 2,885
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 113
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . (88) 530
----------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . 1,871 3,528
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,559) (2,885)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . -- (24)
----------------- -----------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (1,559) (2,909)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 26,339 16,113
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 26,651 16,732
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,076 66,344
----------------- -----------------
End of period (including undistributed net investment income of
$321 and accumulated distributions in excess of net investment
income of $24, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,727 $ 83,076
----------------- -----------------
----------------- -----------------
</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
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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998* 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD. . . . $ 21.19 $ 21.02 $ 21.24 $ 20.48 $ 21.45 $ 21.03
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . .40 .84 .85 .81 .86 .94
Net realized and unrealized
gain (loss) on investments . . . . . . .01 .18 (.21) .77 (.97) .42
--------- --------- --------- --------- --------- ---------
Total Income From
Investment Operations. . . . . . . . .41 1.02 .64 1.58 (.11) 1.36
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . (.34) (.84) (.86) (.82) (.86) (.94)
In excess of net investment income. . . -- (.01) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions. . . . . . . . . . (.34) (.85) (.86) (.82) (.86) (.94)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD. . . . . . . $ 21.26 $ 21.19 $ 21.02 $ 21.24 $ 20.48 $ 21.45
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN (%)(a) . . . . . . . . . . . . 4.86 4.92 3.07 7.81 (0.54) 6.58
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
($000 omitted) . . . . . . . . . . . . 109,727 83,076 66,344 63,838 48,975 51,211
Ratios to average net assets (%)(b):
Operating expenses . . . . . . . . . . .67 .71 .75 .74 .72 .75
Net investment income. . . . . . . . . 3.91 3.99 4.02 3.91 4.14 4.40
Portfolio turnover rate (%)(b) . . . . . 92.86 40.79 74.34 73.91 71.71 24.05
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
</TABLE>
Specialty Funds Limited Volatility Tax Free Fund 43
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - 32.6%
Bank of Nova Scotia (MTN) $ 11,500 6.375% 04/14/99 $ 11,543
Bravo Trust (a) 45,000 5.706 10/15/98 45,000
Carolina Medical Plan, Inc. (a) 20,000 5.640 06/01/22 20,000
First USA Bank (a) 2,000 5.882 10/01/98 2,001
General Electric Capital Corp. 15,000 5.520 07/23/98 15,000
Goldman Sachs Group L.P. 30,000 5.570 09/01/98 30,000
Grantor Trust (a) 44,427 5.687 12/01/04 44,427
Household International (MTN) 6,000 5.700 07/03/98 6,000
McDonnell Douglas Finance Corp. (MTN) 5,485 6.500 07/01/98 5,485
Merrill Lynch & Co., Inc. (MTN)(a) 14,000 5.631 10/14/98 14,000
Morgan (J.P.) & Co., Inc. (MTN) 15,000 5.750 03/10/99 15,000
Pacific Life Insurance Co. 25,000 5.747 04/23/99 25,000
Providian Life & Health (a) 25,000 5.806 07/15/99 25,000
Salts III Cayman Island Corp. Series 98-3 31,000 5.850 12/14/98 31,000
Salts III Cayman Island Corp. Series 98-6 8,000 5.816 12/18/98 8,000
Wells Fargo & Co. (a) 10,000 5.727 07/01/98 10,000
Westpac Banking Corp. 15,000 5.690 03/29/99 14,994
----------
TOTAL CORPORATE BONDS AND NOTES
(cost $322,450) 322,450
----------
EURODOLLAR BONDS AND NOTES- 1.4%
Metropolis of Tokyo 5,000 9.250 10/11/98 5,044
Sony Euro-Finance BV (MTN) 8,830 5.750 08/06/98 8,827
----------
TOTAL EURODOLLAR BONDS AND NOTES
(cost $13,871) 13,871
----------
DOMESTIC CERTIFICATES OF DEPOSIT - 3.5%
Corestates Bank NA (a) 15,000 5.630 07/13/98 15,000
Corestates Bank NA (a) 20,000 5.670 08/27/98 20,000
----------
TOTAL DOMESTIC CERTIFICATES OF DEPOSIT
(cost $35,000) 35,000
----------
YANKEE CERTIFICATES OF DEPOSIT - 6.6%
Deutsche Bank 30,000 5.700 03/30/99 29,983
National Westminster Bank PLC 10,000 5.740 04/28/99 9,990
Societe Generale (a) 25,000 5.780 07/01/98 25,000
----------
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(cost $64,973) 64,973
----------
DOMESTIC COMMERCIAL PAPER - 52.7%
Banco Real SA 10,000 5.575 07/02/98 9,998
Banco Real SA Grand Cayman 13,000 5.530 07/27/98 12,948
Banco Rio De La Plata 10,000 5.465 12/08/98 9,757
Bavaria TRR Corp. 25,000 5.550 08/04/98 24,869
BTM Capital Corp. 27,000 5.670 07/08/98 26,970
</TABLE>
44 Money Market Fund Specialty Funds
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
BTM Capital Corp. $ 10,000 5.660% 08/03/98 $ 9,948
Centric Capital Corp. 17,000 5.560 07/20/98 16,950
Centric Capital Corp. 10,000 5.550 07/28/98 9,958
Centric Capital Corp. 3,000 5.550 08/03/98 2,985
Centric Capital Corp. 10,000 5.580 08/03/98 9,949
Centric Capital Corp. 10,000 5.550 08/13/98 9,934
Certain Funding Corp. 30,738 5.540 08/03/98 30,582
China Merchants 18,750 5.553 07/28/98 18,672
China Merchants 28,000 5.560 08/26/98 27,758
Dixie Overseas Ltd. 25,000 5.550 07/09/98 24,969
Gotham Funding Corp. 15,000 5.720 07/22/98 14,950
Gotham Funding Corp. 4,383 5.750 07/22/98 4,368
Hitachi Credit America Corp. 9,000 5.730 09/15/98 8,891
Hitachi Credit America Corp. 14,000 5.680 09/21/98 13,819
Hitachi Credit America Corp. 14,267 5.770 09/24/98 14,073
KZH CNC Corp. 5,036 5.800 08/06/98 5,007
KZH Holding Corp. III 10,000 5.550 08/06/98 9,944
KZH IV Corp. 7,583 5.560 08/03/98 7,544
KZH IV Corp. 14,555 5.600 09/30/98 14,349
KZH-Soleil Corp. 15,195 5.570 08/19/98 15,080
KZH-Soleil Corp. 5,654 5.560 08/20/98 5,610
KZH-Soleil Corp. 11,198 5.510 08/25/98 11,104
KZH-Soleil Corp. 6,739 5.510 09/16/98 6,660
Mitsubishi International 9,000 5.555 07/20/98 8,974
Mitsubishi International 20,023 5.555 07/28/98 19,939
Mitsubishi Motors Credit America 10,000 5.660 07/15/98 9,978
Nomura Holding America Inc. 14,068 6.300 07/01/98 14,068
Pegasus Two Ltd. 11,596 5.570 07/16/98 11,569
Siebe PLC 25,000 5.550 07/23/98 24,915
Special Purpose Accounts Receivable Co. 16,000 5.550 08/10/98 15,901
Tasmanian Public Finance Corp. 13,000 5.550 07/08/98 12,986
Westways Funding I Ltd. 11,014 5.570 07/08/98 11,002
Westways Funding I Ltd. 15,000 5.580 07/31/98 14,930
----------
TOTAL DOMESTIC COMMERCIAL PAPER
(cost $521,908) 521,908
----------
</TABLE>
Specialty Funds Money Market Fund 45
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
EURODOLLAR TIME DEPOSITS - 1.0%
Bank of Tokyo Mitsubishi, Ltd. $ 10,000 5.800% 08/06/98 $ 10,000
----------
TOTAL EURODOLLAR TIME DEPOSITS
(cost $10,000) 10,000
----------
UNITED STATES GOVERNMENT AGENCIES - 2.4%
Aid to Chile Guaranteed Note (LIBOR Floater)(a) 11,739 5.875 06/01/05 11,749
Aid to INH Portugal Guaranteed Note (LIBOR Floater)(a) 12,188 5.950 12/01/17 12,390
----------
TOTAL UNITED STATES GOVERNMENT AGENCIES
(cost $24,139) 24,139
----------
TOTAL INVESTMENTS (amortized cost $992,341)(b) - 100.2% 992,341
OTHER ASSETS AND LIABILITIES, NET - (0.2%) (2,044)
----------
NET ASSETS - 100% $ 990,297
----------
----------
</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.
46 Money Market Fund Specialty Funds
<PAGE>
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILTIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . . . $ 992,341
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,656
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996,997
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,856
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,563
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 105
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,700
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990,297
--------------
--------------
NET ASSETS CONSIST OF:
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,903
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,394
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990,297
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($990,297,001 divided by 990,297,001 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Money Market Fund 47
<PAGE>
MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,761
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,204
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Transfer Agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (722)
--------------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 802
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,959
--------------
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,959
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48 Money Market Fund Specialty Funds
<PAGE>
MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX FOR THE
MONTHS ENDED YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,959 $ 40,768
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,959) (40,768)
FROM FUND SHARE TRANSACTIONS:
Net increase in net assets from Fund share transactions (Note 6) . . . . . . . . . 64,014 429,351
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 64,014 429,351
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926,283 496,932
----------------- -----------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990,297 $ 926,283
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Money Market Fund 49
<PAGE>
MONEY MARKET 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .0277 .0563 .0549 .0601 .0447 .0342
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.0277) (.0563) (.0549) (.0601) (.0447) (.0342)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(b) . . . . . . . . . . . . . . . . . . 2.81 5.79 5.63 6.19 4.57 3.48
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 990,297 926,283 496,932 533,643 502,302 415,998
Ratios to average net assets (%)(b)(c):
Operating expenses, net . . . . . . . . . . . . . . . .17 .08 .05 .06 .05 .07
Operating expenses, gross . . . . . . . . . . . . . . .32 .30 .30 .26 .05 .07
Net investment income . . . . . . . . . . . . . . . . 5.60 5.65 5.49 6.01 4.49 3.38
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(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 advisory fees. See Note 4.
(c) The ratios for the period ended June 30, 1998 are annualized.
50 Money Market Fund Specialty Funds
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY (000)
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT AGENCIES - 63.2%
Aid to Sri Lanka Guaranteed Note (LIBOR Floater)(a) $ 3,500 5.950% 06/15/12 $ 3,534
Aid to Chile Guaranteed Note (LIBOR Floater)(a) 5,516 5.875 06/01/05 5,521
Federal Farm Credit Bank Bonds 2,500 5.650 07/01/98 2,500
Federal Home Loan Mortgage Corp. 2,300 5.500 10/30/98 2,298
Federal Farm Credit Bank Bonds Participation Certificates 1,479 6.000 03/15/99 1,479
Federal Farm Credit Bank Bonds Participation Certificates 1,794 5.500 05/01/99 1,790
Federal Home Loan Mortgage Corp. 10,000 5.550 04/29/99 9,988
Federal National Mortgage Association (MTN) 1,000 5.220 07/10/98 1,000
Federal National Mortgage Association (MTN 1,000 5.240 07/15/98 1,000
Federal National Mortgage Association (MTN) 5,000 5.530 03/11/99 4,995
Federal National Mortgage Association (MTN) 12,460 5.261 06/02/99 12,424
Nebraska Higher Education Loan (c) 9,568 5.510 07/20/98 9,540
Nebraska Higher Education Loan (c) 15,000 5.500 07/23/98 14,950
Student Loan Marketing Association (a) 2,600 5.321 08/20/98 2,599
Student Loan Marketing Association (a) 1,000 5.341 01/13/99 998
Student Loan Marketing Association (MTN)(a) 10,000 5.557 10/06/98 9,998
Student Loan Marketing Association (MTN)(a) 2,000 5.261 07/12/99 1,998
Student Loan Marketing Association Notes 1,000 5.800 12/18/98 1,001
----------
TOTAL UNITED STATES GOVERNMENT AGENCIES 87,613
----------
TOTAL INVESTMENTS (amortized cost $87,613) - 63.2% 87,613
----------
REPURCHASE AGREEMENTS - 36.8%
Agreement with BZW Securities and the Bank of New York (Tri-Party) of $20,080
acquired June 30, 1998 at 6.000% to be repurchased at $20,084 on July 1, 1998, collateralized by:
$20,281 Student Loan Marketing Association, due June 10, 1999, valued at $20,482 20,080
Agreement with HSBC and Chase Bank (Tri-Party) of $31,000
acquired June 30, 1998 at 6.050% to be repurchased at $31,005 on July 1, 1998, collateralized by:
$32,055 United States Treasury Obligations and Government Agencies, valued at $31,622 31,000
----------
TOTAL REPURCHASE AGREEMENTS (identified cost $51,080) 51,080
----------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS (cost $138,693)(b) - 100.0% 138,693
OTHER ASSETS AND LIABILITIES, NET - 0.0% 33
----------
NET ASSETS - 100.0% $ 138,726
----------
----------
</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.
(c) Guaranteed by Student Loan Marketing Association.
ABBREVIATIONS:
LIBOR - London Interbank Offered Rate
MTN - Medium Term Note
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 ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . . . $ 87,613
Repurchase agreements (identified cost $51,080)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . 51,080
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,100
LIABILITIES
Payables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 578
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,374
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,726
--------------
--------------
NET ASSETS CONSIST OF:
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,387
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,339
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,726
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($138,725,961 divided by 138,725,961 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00
--------------
--------------
</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
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,049
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 179
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (105)
--------------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,802
--------------
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,802
--------------
--------------
</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
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX FOR THE
MONTHS ENDED FISCAL YEAR
FEBRUARY 28, 1998 ENDED
(UNAUDITED) AUGUST 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,802 $ 11,788
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,802) (11,788)
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . (48,686) (52,313)
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . (48,686) (52,313)
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,412 239,725
----------------- -----------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,726 $ 187,412
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds U.S. Government Money Market Fund 55
<PAGE>
U.S. GOVERNMENT MONEY MARKET 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . .0264 .0545 .0526 .0580 .0380 .0284
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.0264) (.0545) (.0526) (.0580) (.0380) (.0284)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 2.67 5.59 5.40 5.98 3.87 2.88
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 138,726 187,412 239,725 149,941 112,077 95,410
Ratios to average net assets (%):
Operating expenses, net (b)(c). . . . . . . . . . . . .35 .20 .25 .32 .57 .49
Operating expenses, gross (b)(c). . . . . . . . . . . .49 .41 .50 .51 .57 .49
Net investment income (b) . . . . . . . . . . . . . . 5.32 5.44 5.27 5.82 3.91 2.85
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
(c) See Note 4 for current period amounts.
56 U.S. Government Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ALABAMA - 4.8%
Alabama Housing Financing Authority Revenue Development, Series B,
weekly demand $ 1,605 3.650(2)% 12/01/14 $ 1,605
Alabama Housing Financing Authority Revenue Development, Project A,
weekly demand 4,000 3.600(2) 06/15/26 4,000
Birmingham, Alabama Baptist Medical Center Special Care Facility
Finance Authority, weekly demand 1,500 3.700(2) 09/01/20 1,500
Tuscaloosa, Alabama Industrial Development Revenue, weekly demand 1,100 3.550(2) 12/01/99 1,100
-----------
8,205
-----------
ARIZONA - 2.6%
Apache County, Arizona Industrial Development Authority,
weekly demand 300 3.600(2) 12/01/20 300
Chandler, Arizona Industrial Development Authority Revenue,
monthly demand 2,955 3.700(3) 12/15/09 2,955
Maricopa County, Arizona Industrial Development Authority Revenue,
weekly demand 700 4.000(2) 10/01/04 700
Phoenix, Arizona Street & Highway Revenue, Series 1987,
quarterly demand 500 6.100 07/01/98 500
-----------
4,455
-----------
COLORADO - 3.1%
Adams & Weld Counties, Colorado School District, Series B,
semi-annual demand (a) 410 4.300 12/01/98 410
Colorado Housing Financial Authority, weekly demand 1,150 3.650(2) 06/01/05 1,150
Colorado Housing Financial Authority, weekly demand 600 3.650(2) 05/01/15 600
Colorado Multi-family Housing Financing Authority Series A,
weekly demand 175 3.625(2) 11/01/09 175
Denver, Colorado City & County Multi-family Housing Revenue,
daily demand 100 4.050(1) 12/01/09 100
Smith Creek Metropolitan District, Colorado Revenue, weekly demand 2,700 3.550(2) 10/01/35 2,700
Smith Creek Metropolitan District, Colorado Revenue, weekly demand 200 3.600(2) 10/01/35 200
-----------
5,335
-----------
DELAWARE - 0.4%
Delaware Economic Development Authority Multi-family Housing Revenue,
weekly demand 650 3.650(2) 12/01/15 650
-----------
650
-----------
FLORIDA - 7.5%
Boca Raton, Florida Industrial Development Authority Revenue,
weekly demand 425 3.875(2) 12/01/14 425
Lee County, Florida Industrial Development Authority Revenue,
weekly demand 3,575 3.625(2) 04/01/10 3,575
Orange County, Florida Education Authority Revenue, weekly demand 3,000 3.600(2) 05/01/23 3,000
Orange County, Florida Industrial Development Authority Revenue,
weekly demand 950 3.700(2) 01/01/11 950
Orange County, Florida Industrial Development Authority Revenue,
semi-annual demand 3,145 3.700(5) 10/01/15 3,145
Orange County, Florida Industrial Development Authority Revenue,
weekly demand 800 3.600(2) 11/01/12 800
</TABLE>
58 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Orange County, Florida Industrial Development Authority Revenue,
weekly demand $ 1,000 3.600(2)% 02/01/16 $ 1,000
-----------
12,895
-----------
GEORGIA - 6.1%
DeKalb County, Georgia Housing Authority Multi-family Housing Revenue,
weekly demand 600 3.600(2) 06/01/25 600
Fulton County, Georgia Development Authority Revenue, weekly demand 3,000 3.600(2) 02/01/16 3,000
Gwinnett County, Georgia Development Authority Revenue, weekly demand 200 3.600(2) 03/01/17 200
Marietta, Georgia Housing Finance Authority, annual demand 1,000 3.950(6) 01/15/09 1,001
Marietta, Georgia Housing Finance Authority, weekly demand 2,500 3.625(2) 01/01/08 2,500
Savannah, Georgia Housing Authority Multi-family Housing Revenue,
weekly demand 1,000 3.600(2) 06/15/26 1,000
Smyrna, Georgia Housing Authority Multi-family Housing Revenue,
weekly demand 700 3.600(2) 06/01/25 700
Thomasville, Georgia Hospital Authority Revenue, weekly demand 1,500 3.600(2) 11/01/17 1,500
-----------
10,501
-----------
HAWAII - 0.8%
Hawaii State Department of Budget & Finance Special Purpose
Mortgage Revenue, semi-annual demand 1,275 3.950(5) 12/01/15 1,276
-----------
1,276
-----------
ILLINOIS - 5.3%
Cook County, Illinois Community College Lease Certificates,
Series C, semi-annual demand (a) 250 7.200 12/01/98 254
DeKalb, Illinois Industrial Development Revenue, weekly demand 500 3.700(2) 02/01/01 500
East Peoria, Illinois Multi-family Housing Revenue, weekly demand 1,810 3.750(2) 06/01/08 1,810
Illinois Development Finance Authority Revenue, quarterly demand 700 4.000(4) 08/01/25 700
Illinois Development Finance Authority Revenue, weekly demand 2,068 3.650(2) 09/01/26 2,068
Illinois Health & Educational Facilities Authority Revenue, Series B,
weekly demand 2,000 3.550(2) 08/15/22 2,000
St. Clair County, Illinois Industrial Development Board Revenue,
weekly demand 1,000 3.800(2) 10/01/15 1,000
Troy Grove, Illinois Revenue, weekly demand 750 5.015(2) 05/01/10 750
-----------
9,082
-----------
INDIANA - 8.9%
Baugo, Indiana Community Schools Tax Anticipation Warrants 1,000 4.000 12/31/98 1,001
Benton, Indiana Community Schools Tax Anticipation Warrants 1,000 4.250 12/31/98 1,001
Central High School Building Corporation, Indiana First
Mortgage Revenue (a) 930 4.250 02/01/99 933
Crawfordville, Indiana Community Schools Tax Anticipation Warrants 1,400 4.100 12/31/98 1,401
</TABLE>
Specialty Funds Tax Free Money Market Fund 59
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Crown Point, Indiana Temporary Loan Warrants $ 1,700 3.900% 12/31/98 $ 1,701
Fort Wayne, Indiana Economic Development Revenue, weekly demand 1,000 3.625(2) 12/01/03 1,000
Marion County, Indiana Metropolitan School District, Series 1998,
quarterly demand 1,900 4.250 07/01/98 1,900
Merrillville, Indiana Community School Corp. Tax
Anticipation Warrants 1,900 3.900 12/31/98 1,900
Perry Township, Indiana Metropolitan School District,
quarterly demand 945 3.750 07/01/98 945
Residential Apartments I Portfolio CERT Trust, 1996 Series A,
weekly demand 2,000 3.550(2) 12/01/02 2,000
Westfield-Washington, Indiana Schools Temporary Loan Warrants 1,500 4.100 12/31/98 1,500
-----------
15,282
-----------
IOWA - 1.6%
Carroll, Iowa Finance Authority Revenue, daily demand 1,300 4.050(1) 06/01/28 1,300
Storm Lake, Iowa Private College Revenue, weekly demand 1,400 3.600(2) 12/01/03 1,400
-----------
2,700
-----------
KANSAS - 0.9%
Wamego, Kansas Pollution Control Revenue, weekly demand 1,600 3.250(2) 03/01/26 1,600
-----------
1,600
-----------
KENTUCKY - 4.0%
Calloway County, Kentucky Fire Protection Area Development E1,
District 2, weekly demand 910 3.650(2) 12/01/31 910
Calloway County, Kentucky Fire Protection Area Development E2,
District 2, weekly demand 490 3.650(2) 12/01/31 490
Elsmere, Kentucky Industrial Building Revenue, quarterly demand 560 3.750(4) 02/01/06 560
Elva-New Harmony, Kentucky Fire Protection District Area Development
Series A-1, weekly demand 3,315 3.650(2) 12/01/31 3,315
Hardin County, Kentucky Hospital Revenue, semi-annual demand (a) 400 7.700(5) 10/01/05 418
Jefferson County, Kentucky School District Financing Corp. Revenue,
Series A, annual demand 475 3.800 02/01/99 475
Louisville, Kentucky Industrial Development Revenue, weekly demand 750 3.650(2) 09/01/01 750
-----------
6,918
-----------
LOUISIANA - 1.2%
New Orleans, Louisiana Industrial Development Revenue, weekly demand 2,100 3.600(2) 03/01/07 2,100
-----------
2,100
-----------
MARYLAND - 2.4%
Anne Arundel County, Maryland Industrial Development Revenue,
weekly demand 2,260 3.700(2) 02/01/01 2,260
Montgomery County, Maryland Industrial Development Revenue,
monthly demand (a) 800 3.900(3) 04/01/14 800
</TABLE>
60 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
University of Maryland, University Revenues Revolving
Equipment Loan, weekly demand $ 1,000 3.450(2)% 07/01/15 $ 1,000
-----------
4,060
-----------
MASSACHUSSETTS - 1.8%
Brockton, Massachussetts Bond Anticipation Notes, annual demand 2,000 4.000 05/18/99 2,003
New England Education Loan Marketing Corp., Series C,
quarterly demand 1,000 4.750 07/01/98 1,000
-----------
3,003
-----------
MICHIGAN - 2.9%
Lansing, Michigan Economic Development Corp., semiannual demand 2,000 3.800(5) 05/01/15 2,000
Livonia, Michigan Economic Development Corp., semiannual demand 270 3.800(5) 11/15/04 270
McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand (c) 143 4.100(7) 01/15/09 143
Meridian, Michigan Economic Development, monthly demand 455 3.700(3) 11/15/14 455
Michigan State Job Development Authority Revenue, monthly demand 1,300 3.750(3) 11/01/14 1,300
Northville, Michigan Economic Development Corporation Limited
Obligation Revenue, Series P, weekly demand 500 3.625(2) 05/01/14 500
Oakland County, Michigan Economic Development Corporation
Limited Obligation Revenue, quarterly demand 380 3.600(4) 08/01/15 380
-----------
5,048
-----------
MINNESOTA - 6.1%
Burnsville, Minnesota Industrial Development Revenue, Series C,
weekly demand 350 3.700(2) 02/01/01 350
Capital Realty Investment Tax Exempt Fund, Series 96-1, weekly demand 7,815 3.850(2) 12/01/04 7,815
Mendota Heights, Minnesota Commercial Development, weekly demand 1,580 3.650(2) 12/01/15 1,580
Minneapolis, Minnesota General Obligation, Series A, weekly demand 800 3.550(2) 12/01/05 800
-----------
10,545
-----------
MISSISSIPPI - 0.2%
DeSoto County, Mississippi Industrial Development Revenue,
weekly demand 400 5.015(2) 12/01/08 400
-----------
400
-----------
MISSOURI - 4.8%
Kansas City, Missouri Industrial Development Authority Hospital Revenue,
weekly demand 260 3.550(2) 08/01/18 260
Kansas City, Missouri Industrial Development Authority Multi-family
Housing Revenue, weekly demand 4,000 4.000(2) 10/01/15 4,000
St. Charles County, Missouri Industrial Development Authority Revenue,
weekly demand 2,300 3.630(2) 12/01/27 2,300
St. Louis, Missouri Industrial Development Authority Revenue,
weekly demand 700 3.950(2) 08/30/99 700
St. Louis, Missouri Industrial Development Authority Revenue,
weekly demand 965 3.700(2) 02/01/01 965
-----------
8,225
-----------
</TABLE>
Specialty Funds Tax Free Money Market Fund 61
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NEW MEXICO - 0.5%
Albuquerque, New Mexico General Obligation, Series B,
quarterly demand $ 825 4.700% 07/01/98 $ 825
-----------
825
-----------
NEW YORK - 0.1%
New York State Job Development Authority, 1984 Series E-1 to E-55,
monthly demand 150 3.750 03/01/99 150
-----------
150
-----------
NORTH CAROLINA - 1.3%
Durham, North Carolina General Obligation, annual demand 265 4.800 02/01/99 267
Wayne County, North Carolina Industrial Facility &
Pollution Control Revenue, weekly demand 2,000 3.600(2) 12/01/00 2,000
-----------
2,267
-----------
OHIO - 9.3%
Bellevue, Ohio Hospital Revenue, quarterly demand 340 3.700(4) 03/01/17 340
Buckeye, Ohio Tax-Exempt Mortgage Bond Trust, quarterly demand 320 4.050(4) 02/01/05 320
Cincinnati & Hamilton County, Ohio Port Authority, quarterly demand 405 3.750(4) 09/01/99 405
Citizens Federal Tax-Exempt Mortgage Bond Trust, semiannual demand 460 3.850(5) 09/01/08 460
Clermont County, Ohio Economic Development Revenue,
semiannual demand 405 3.900(5) 12/01/09 405
Clermont County, Ohio Economic Development Revenue,
semiannual demand 205 3.800(5) 05/01/12 205
Columbus, Ohio Electric Systems Revenue, monthly demand 1,300 3.650(3) 09/01/09 1,300
Cuyahoga County, Ohio Industrial Development Revenue,
semiannual demand 160 3.800(5) 06/01/99 160
East Muskingum, Ohio Water Authority Water Revenue Bond
Anticipation Notes, annual demand 2,500 4.320(6) 06/24/99 2,508
Franklin County, Ohio Hospital Revenue, weekly demand 5,000 3.550(2) 12/01/11 5,000
Franklin County, Ohio Industrial Development Revenue,
semiannual demand 595 3.650(5) 04/01/15 595
Franklin County, Ohio Industrial Development Revenue,
semiannual demand 150 3.750(5) 11/01/15 150
Mahoning County, Ohio Industrial Development Revenue, Series A,
weekly demand 5 3.600(2) 10/01/00 5
Mahoning County, Ohio Industrial Development Revenue, Series B,
weekly demand 40 3.600(2) 10/01/00 40
McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand (c) 669 4.100(7) 01/15/09 669
Ohio State Higher Educational Facilities Community College Revenue,
weekly demand 650 3.550(2) 09/01/20 650
Scioto County, Ohio Health Care Facilities, semiannual demand 690 3.800(5) 12/01/15 690
Stark County, Ohio Health Care Facilities, quarterly demand 1,640 3.600(4) 09/15/16 1,640
Trumbull County, Ohio Industrial Development Revenue, weekly demand 470 3.600(2) 04/01/04 470
-----------
16,012
-----------
</TABLE>
62 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
OKLAHOMA - 1.9%
Muskogee, Oklahoma, Industrial Development Authority Revenue,
weekly demand $ 2,090 3.850(2)% 12/01/15 $ 2,090
Tulsa County, Oklahoma Industrial Development Authority Revenue,
semiannual demand 1,250 3.800(5) 12/15/08 1,250
-----------
3,340
----------
OREGON - 1.1%
Hillsboro, Oregon Graduate Institute Revenue, weekly demand 1,950 3.500(2) 08/01/11 1,950
----------
1,950
----------
PENNSYLVANIA - 4.9%
Berks County, Pennsylvania Industrial Development Authority,
weekly demand 2,050 3.625(2) 12/01/04 2,050
Commonwealth Tax-Exempt Mortgage Bond Trust, semiannual demand 420 3.900(5) 11/01/05 420
Erie, Pennsylvania Higher Education Building Authority College
Revenue, Series A, annual demand 1,000 8.500(6) 06/01/15 1,067
McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand (c) 143 4.100(7) 01/15/09 143
Montgomery County, Pennsylvania, Industrial Development
Authority Revenue, weekly demand 500 3.600(2) 04/01/04 500
Norristown, Pennsylvania Tax & Revenue Anticipation Notes 1,000 4.050 12/31/98 1,000
Union County, Pennsylvania Hospital Authority Revenue Bond,
weekly demand 1,400 3.650(2) 04/01/27 1,400
York, Pennsylvania General Authority Pooled Financing Revenue,
weekly demand 1,850 3.600(2) 09/01/26 1,850
-----------
8,430
-----------
RHODE ISLAND - 1.2%
Cranston, Rhode Island Bond Anticipation Notes, annual demand 2,000 4.500 06/28/99 2,013
Rhode Island Housing & Mortgage Finance Corporation, Series A,
quarterly demand (a) 100 4.750 07/01/98 100
-----------
2,113
-----------
SOUTH CAROLINA - 0.3%
South Carolina State Public Service Authority Revenue Series B,
annual demand (a) 205 5.000 01/01/99 206
Spartanburg, South Carolina Sanitation Sewer District, annual demand 300 5.000 03/01/99 302
-----------
508
-----------
SOUTH DAKOTA - 0.9%
Sioux Falls, South Dakota Industrial Development Revenue, weekly demand 1,620 3.650(2) 06/01/06 1,620
-----------
1,620
-----------
</TABLE>
Specialty Funds Tax Free Money Market Fund 63
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
TENNESSEE - 2.5%
Franklin County, Tennessee Health & Educational Facilities Revenue,
monthly demand $ 1,680 3.700(3)% 09/01/10 $ 1,680
Knox County, Tennessee Industrial Development Revenue,
monthly demand (a) 2,700 3.800(3) 12/01/14 2,700
-----------
4,380
-----------
TEXAS - 1.9%
Austin, Texas General Obligation, Series C, quarterly demand 610 6.500 09/01/98 613
Tarrant County, Texas Multi-family Housing Revenue, weekly demand 2,720 3.550(2) 12/01/07 2,720
-----------
3,333
-----------
UTAH - 2.1%
Salt Lake City, Utah Industrial Development Revenue, weekly demand 2,700 3.650(2) 04/01/08 2,700
West Valley Utah Industrial Revenue, daily demand 1,000 4.100(1) 11/01/11 1,000
-----------
3,700
-----------
VIRGINIA - 3.5%
Harrisonburg, Virginia Multi-family Housing Revenue, annual demand 3,495 3.700(6) 02/01/26 3,495
Harrisonburg, Virginia Multi-family Housing Revenue, annual demand 1,000 3.750(6) 02/01/26 1,000
Norfolk, Virginia General Obligation, semi-annual demand 500 6.750(5) 10/01/00 514
Norfolk, Virginia Industrial Development Authority Revenue,
weekly demand 1,075 3.625(2) 03/01/16 1,075
-----------
6,084
-----------
WASHINGTON - 1.2%
Chelan-Douglas, Washington Public Transportation, annual demand (a) 315 3.850 05/01/99 315
Washington State Housing Financial Community Nonprofit Housing Revenue,
daily demand 725 3.600(1) 07/01/11 725
Washington State Housing Financial Community Nonprofit Housing Revenue,
daily demand 1,100 4.000(1) 01/01/21 1,100
-----------
2,140
-----------
WEST VIRGINIA - 0.6%
Marshall County, West Virginia Pollution Control Revenue, weekly demand 1,000 3.650(2) 03/01/26 1,000
-----------
1,000
-----------
WISCONSIN - 1.8%
Clinton, Wisconsin Community School District Tax & Revenue
Anticipation Notes, semiannual demand 775 4.240 08/31/98 775
Lodi, Wisconsin School District Tax & Revenue Anticipation Notes,
semiannual demand 1,000 3.990 10/15/98 1,000
Oregon, Wisconsin School District Tax & Revenue Anticipation Notes,
semiannual demand 1,100 4.220 09/16/98 1,100
</TABLE>
64 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL DATE
AMOUNT OF VALUE
(000) RATE MATURITY* (000)
------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
Wisconsin Housing & Economic Development Authority Housing Revenue,
Series A, semi-annual demand $ 170 4.450% 11/01/98 $ 170
-----------
3,045
-----------
TOTAL INVESTMENTS (amortized cost $173,177)(b) - 100.5% 173,177
OTHER ASSETS AND LIABILITIES, NET - (0.5)% (857)
-----------
NET ASSETS - 100% $ 172,320
-----------
-----------
</TABLE>
(a) Bond is insured by AMBAC, FGIC, or MBIA.
(b) The cost for federal income tax purposes is the same as shown above.
(c) Multi-State bond issue including Michigan, Ohio, and Pennsylvania.
* All securities with a maturity date greater than thirteen months have a
demand feature, or an optional or mandatory put, or are pre-refunded
resulting in an effective maturity of thirteen months or less.
Variable Rate:
(1) Daily
(2) Weekly
(3) Monthly
(4) Quarterly
(5) Semiannual
(6) Annual
(7) Thirteen-month
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
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
QUALITY RATINGS AS A % OF MARKET VALUE ++
<TABLE>
<S> <C>
VMIG1 or SP-1 91%
P1 9
------
100%
------
------
</TABLE>
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE
<TABLE>
<S> <C>
General Obligation 28%
Education Revenue 12
Industrial Revenue Bonds 29
Housing Revenue 21
Healthcare Revenue 8
Pollution Control Revenue 2
------
100%
------
------
</TABLE>
++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."
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 statements.
66 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . . . $ 173,177
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,227
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,443
LIABILITIES
Payables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 480
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 21
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,123
-----------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,320
-----------------
-----------------
NET ASSETS CONSIST OF:
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,723
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,600
-----------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,320
-----------------
-----------------
NET ASSET VALUE, offering and redemption price per share:
($172,319,591 divided by 172,322,826 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Tax Free Money Market Fund 67
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,914
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (78)
-----------------
Expenses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
-----------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,699
-----------------
REALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3)
-----------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3)
-----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 2,696
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
68 Tax Free Money Market Fund Specialty Funds
<PAGE>
TAX FREE MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX FOR THE
MONTHS ENDED FISCAL YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,699 $ 3,793
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) --
----------------- -----------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . 2,696 3,793
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,699) (3,793)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase in net assets from Fund share transactions (Note 6) . . . . . . . . . 41,598 28,518
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 41,595 28,518
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,725 102,207
----------------- -----------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,320 $ 130,725
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Specialty Funds Tax Free Money Market Fund 69
<PAGE>
TAX FREE MONEY MARKET 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998* 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . .0171 .0355 .0329 .0370 .0279 .0251
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . (.0171) (.0355) (.0329) (.0370) (.0279) (.0251)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN (%)(a). . . . . . . . . . . . 1.72 3.61 3.35 3.76 2.83 2.55
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) 172,320 130,725 102,207 78,000 100,819 68,154
Ratios to average net assets (%)(b):
Operating expenses, net (c) . . . . . .27 .28 .42 .48 .40 .43
Operating expenses, gross (c) . . . . .37 .38 .42 .48 .40 .43
Net investment income . . . . . . . . 3.44 3.55 3.28 3.69 2.84 2.52
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
(c) See Note 4 for current period amounts.
70 Tax Free Money Market Fund Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 28 different investment portfolios, referred to as "Funds."
These financial statements report on seven 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.
Effective May 18, 1998, pursuant to approval of the Investment Company's
Board of Trustees, Class C shares were renamed Class E shares. As of July 8,
1996, the Real Estate Securities and Emerging Markets Funds have available
Class S and Class E 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 E shares are charged a shareholder servicing fee of 0.25% of
average daily net assets. Class S shares which are reported herein are
charged no such fees. Prior to May 18, 1998 Class E shares were charged a
12b-1 distribution fee and a shareholder servicing fee of 0.40% and 0.25% of
average net assets, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") 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, 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. All three Funds utilize the amortized cost
valuation method in accordance with Rule 2a-7 of the Investment Company Act
of 1940, as amended. Short-term investments maturing within 60 days of the
valuation date held by Funds other than the Money Market, 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 specific identified cost incurred by each money
manager within a particular fund. The Funds, except Limited Volatility Tax
Free, Tax Free Money Market, U.S. Government Money Market, and Money Market
Funds may lend portfolio securities as approved by the Board of Trustees on
April 27, 1998.
Specialty Funds Notes to Financial Statements 71
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Distributions from Real
Estate Investment Trusts ("REITs") owned by the Real Estate Securities Fund
may have as their components dividend income, capital gains and/or returns
of capital. Distributions that are deemed to be capital gains or returns of
capital by the trusts are treated by the Fund, respectively, as an
adjustment to its realized capital gains or its cost of the investment. The
exact amount to be adjusted can be ascertained only at the end of each
REIT's fiscal year when finally determined and reported by the various
trusts.
AMORTIZATION AND ACCRETION: All premiums and discounts, including original
issue discounts, for the Funds 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, 1997 to December 31,
1997, the Emerging Markets Fund, U.S. Government Money Market Fund and Tax
Free Money Market Fund incurred net realized capital losses of $8,399,434,
$1,427 and $200, respectively. As permitted by tax regulations, the Emerging
Markets Fund, U.S. Government Money Market Fund and Tax Free Money Market
Fund intend to elect to defer these losses and treat them as arising in the
year ending December 31, 1998.
At December 31, 1997, 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>
12/31/98 12/31/99 12/31/02 12/31/03 12/31/04 12/31/05 TOTALS
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets $ -- $ -- $ -- $ 3,235,981 $ -- $ -- $ 3,235,981
Limited Volatility Tax Free 17,292 383,404 345,504 110,634 15,075 -- 871,909
Money Market -- -- -- 42,906 814 -- 43,720
U.S. Government Money Market -- -- 1,309 4,913 3,331 1,570 11,123
Tax Free Money Market -- -- -- -- -- 1,583 1,583
</TABLE>
The aggregate cost of investments and the composition of gross unrealized
appreciation and depreciation of investment securities for federal income tax
purposes for certain Funds as of June 30, 1998 were as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Real Estate Securities $ 576,078,747 $ 79,667,660 $ (15,498,407) $ 64,169,253
Emerging Markets 403,699,670 34,025,755 (102,581,425) (68,555,670)
Equity T 164,123,559 40,264,337 (1,573,896) 38,690,441
Limited Volatility Tax Free 110,126,938 1,351,716 (41,654) 1,310,062
</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 redemption fee 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 Equity T and Emerging Markets Funds. The Money Market, 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.
72 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
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 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.
EXPENSES: The Funds, and when appropriate each Class, will pay their own
expenses other than those expressly assumed by Frank Russell Investment
Management Company ("FRIMCo" or "Manager"). 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 E shares will pay shareholder servicing fees
along with other expenses that may be attributable to that Class. Prior to
May 18, 1998, Class E Shares paid a 12b-1 distribution fee.
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 underlying securities as collateral. 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) Outstanding 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 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.
Specialty Funds Notes to Financial Statements 73
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 June 30, 1998, are presented on the
Statement of Net Assets for the Fund.
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.
FUTURES CONTRACTS: The Equity T Fund utilizes futures to equitize liquidity
reserve balances. The face or contract amounts of these instruments reflect
the extent of the Fund's 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 six months ended June 30, 1998, 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>
Real Estate Securities $ 199,726,886 $ 133,146,982 Equity T $ 95,236,029 $ 24,309,358
Emerging Markets 159,918,953 90,495,699 Limited Volatility 69,549,224 43,706,795
</TABLE>
Money Market purchases, sales and maturities of securities (excluding U.S.
Government and Agency obligations and repurchase agreements) were
$5,315,952,463, $51,261,480 and $5,200,856,948, respectively. Sales of U.S.
Government and Agency obligations (excluding repurchase agreements) were
$5,921,393.
U.S. Government Money Market purchases, sales and maturities of U.S.
Government and Agency obligations (excluding repurchase agreements) were
$184,907,210, $21,844,610 and $246,911,706, respectively.
Tax Free Money Market purchases, sales and maturities of short-term
tax-exempt obligations were $302,812,697, $248,676,643 and $18,629,000,
respectively.
FUTURES CONTRACTS: Fund transactions in futures contract purchases for the
six months ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
EQUITY T FUTURES CONTRACTS
------------------------------
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
------------- -------------
<S> <C> <C>
Outstanding December 31, 1997 10 $ 2,416,750
Opened 40 10,603,904
Closed (46) (11,918,804)
------------- -------------
Outstanding June 30, 1998 4 $ 1,101,850
------------- -------------
------------- -------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each contract
was opened.
74 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SECURITIES LENDING: Effective April 27, 1998, the Investment Company resumed
its securities lending program. This program allows the Real Estate
Securities Fund, the Emerging Markets Fund, and the Equity T Fund to loan
securities with a value up to 33 1/3% of its total assets to certain
brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S.
Government agency obligations as collateral against the loaned securities.
To the extent that a loan is secured by cash collateral, such collateral
shall be invested by Morgan Stanley Trust Company ("MSTC") in short-term
instruments, money market mutual funds, and such other short-term
investments, provided the investments meet certain quality and
diversification requirements. Under the securities-lending arrangement, the
collateral received is recorded on the Fund's statement of assets and
liabilities along with the related obligation to return the collateral. In
those situations where the Company has relinquished control of securities
transferred, it derecognizes the securities and records a receivable from
the counterparty.
Income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs, is divided
between the Fund and MSTC and is included as interest income for the Fund.
To the extent that a loan is secured by non-cash collateral, brokers pay the
Fund negotiated lenders' fees, which are divided between the Fund and MSTC
and are included as interest income for the Fund. All collateral received
will be in an amount at least equal to 102% (for loans of U.S. securities)
or 105% (for non-U.S. securities) of the market value of the loaned
securities at the inception of each loan. This collateral must be
maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. Should the borrower of the
securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Consequently, loans are
made only to borrowers which are deemed to be of good financial standing.
As of June 30, 1998, the value of outstanding securities on loan and the
value of collateral amounted to as follows:
<TABLE>
<CAPTION>
VALUE OF VALUE
SECURITIES ON OF
LOAN COLLATERAL
-------------- --------------
<S> <C> <C>
Real Estate Securities $ 23,002,168 $ 23,833,900
Emerging Markets 26,386,073 30,681,000
</TABLE>
4. RELATED PARTIES
MANAGER: FRIMCo 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. 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 six months ended June 30, 1998, 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 $7,210,570 before waivers.
Such fee is payable monthly and is equal to the annual rate, by Fund, shown
in the table below, of the average daily net assets of the applicable Fund.
<TABLE>
<CAPTION>
ANNUAL RATE ANNUAL RATE
----------- -----------
<S> <C> <C>
Real Estate Securities 0.85% Money Market 0.25%
Emerging Markets 1.20 Tax Free Money Market 0.25
Equity T 0.75 U.S. Government Money Market 0.25
Limited Volatility Tax Free 0.50
</TABLE>
Specialty Funds Notes to Financial Statements 75
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
The Manager has voluntarily agreed to waive a portion of its 0.75%
management fee for the 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. There were
no waivers by the Manager for the six months ended June 30, 1998.
The Manager has voluntarily agreed to waive 0.10% management fee for the Tax
Free Money Market Fund. The amount of such waiver for the six months ended
June 30, 1998 was $78,462.
Prior to June 15, 1998, the Manager voluntarily agreed to waive 0.13% of its
0.25% management fee for the U.S. Government Money Market Fund. Effective
June 15, 1998, the manager has voluntarily agreed to waive its management
fee, up to the full amount of that fee, equal to the amount by which the
Fund's total operating expenses exceed 0.30% of the Fund's average daily net
assets on an annual basis. The amount of such waiver for the six months
ended June 30, 1998 was $104,831.
The Manager has voluntarily agreed to waive 0.15% of its 0.25% management
fee for the Money Market Fund. The amount of such waiver for the six months
ended June 30, 1998 was $722,207.
FRIMCo calculates its management fee based on average daily net assets for
each Fund less any management fee incurred on assets invested in the Money
Market Fund (see Note 5) thereby eliminating any duplication of fees.
ANALYTIC SERVICES: Fees for analytic services provided to the Funds are paid
or accrued to Frank Russell Company, an affiliate of the Investment Company.
Frank Russell Company provides its TruVP System to the Real Estate
Securities, Emerging Markets and Equity T Funds, pursuant to a written
Service Agreement.
TRANSFER AGENT: The Funds have a contract with FRIMCo to provide transfer
agent services to the Investment Company. Total fees for the six months
ended June 30, 1998 were $595,971.
DISTRIBUTOR AND SHAREHOLDER SERVICING: Prior to May 18, 1998, the Investment
Company had a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under
the 1940 Act. Under this Plan, the Investment Company was 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 were primarily intended to result in the sale of the
Class C Shares subject to the Distribution Plan. Effective May 18, 1998,
Class C shares were renamed Class E shares and the 12b-1 fee was eliminated.
The Investment Company has 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 E of
the Investment Company Funds. The Distributor may enter into
sub-distribution agreements with other non-affiliated parties (the
"Selling/Servicing Agents"). , The amounts paid to the Distributor prior to
May 18, 1998 for distribution services relating to Class E are included in
the accompanying Statements of Operations. Currently, the Distributor
receives no compensation from the Investment Company for its services
relating to distributions of the Class S and Class E 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 E Shares of the Funds. The amounts paid to the Distributor for
shareholder services relating to Class E are included in the accompanying
Statements of Operations.
The shareholder servicing payments shall not exceed 0.25% of the average
daily net assets of a Fund's Class E 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.
76 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
ACCRUED FEES PAYABLE TO AFFILIATES AS OF JUNE 30, 1998 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
SHAREHOLDER
SERVICING &
MANAGEMENT ANALYTIC TRANSFER DISTRIBUTION
FEES SERVICE FEES AGENT FEES FEES TOTALS
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Real Estate Securities $ 433,678 $ 1,988 $ -- $ 517 $ 436,183
Emerging Markets 341,209 3,576 28,502 -- 373,287
Equity T 118,794 1,815 13,963 -- 134,572
Limited Volatility Tax Free 43,035 513 -- -- 43,548
U.S. Government Money Market -- -- -- -- --
Tax Free Money Market 20,609 546 233 -- 21,388
Money Market 82,905 1,178 21,013 -- 105,096
------------ ------------ ------------ ------------ ------------
$ 1,040,230 $ 9,616 $ 63,711 $ 517 $ 1,114,074
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</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 $54,794 for the six months ended June
30, 1998, and were allocated to each Fund and Class, where appropriate, on a
pro rata basis, including 21 other affiliated funds not presented herein.
5. MONEY MARKET FUND
The Real Estate Securities, Emerging Markets and Equity T 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 June 30, 1998,
$58,403,000 of the Money Market Fund's net assets represents investments by
these Funds and $688,108,000 represents the investments of other affiliated
Funds not presented herein.
6. FUND SHARE TRANSACTIONS
Share transactions for each Class of shares were as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
--------------------------------------- ---------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
REAL ESTATE SECURITIES
CLASS S
Proceeds from shares sold 4,844,747 7,684,555 $ 142,784,562 $ 230,371,098
Proceeds from reinvestment
of distributions 423,741 1,795,828 12,556,340 53,609,700
Payments for shares redeemed (2,259,539) (4,804,495) (66,620,635) (145,560,311)
------------------- ------------------- ------------------- -------------------
Net increase (decrease) 3,008,949 4,675,888 88,720,267 138,420,487
------------------- ------------------- ------------------- -------------------
CLASS E *
Proceeds form shares sold 6,279 10,282 186,123 312,091
Proceeds from reinvestment
of distributions 1 2 20 56
Payments for shares redeemed (4,685) (1,234) (133,082) (38,088)
------------------- ------------------- ------------------- -------------------
Net increase (decrease) 1,595 9,050 53,061 274,059
------------------- ------------------- ------------------- -------------------
Total net increase (decrease) 3,010,544 4,684,938 $ 88,773,328 $ 138,694,546
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
* Effective May 18, 1998, Class C was renamed Class E.
</TABLE>
Specialty Funds Notes to Financial Statements 77
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
--------------------------------------- ---------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
EMERGING MARKETS*
CLASS S
Proceeds from shares sold 12,046,418 14,335,518 $ 134,058,610 $ 190,158,016
Proceeds from reinvestment
of distributions 172,875 247,790 1,944,839 3,101,136
Payments for shares redeemed (5,031,216) (8,321,103) (57,437,836) (108,152,054)
------------------- ------------------- ------------------- -------------------
Total net increase (decrease) 7,188,077 6,262,205 $ 78,565,613 $ 85,107,098
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
EQUITY T
Proceeds from shares sold 4,944,723 6,151,525 $ 76,405,522 $ 77,850,485
Proceeds from reinvestment
of distributions 4,755 32,047 70,776 433,594
Payments for shares redeemed (610,981) (165,627) (9,715,188) (2,158,852)
------------------- ------------------- ------------------- -------------------
Total net increase (decrease) 4,338,497 6,017,945 $ 66,761,110 $ 76,125,227
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
LIMITED VOLATILITY TAX FREE
Proceeds from shares sold 1,977,751 2,531,242 $ 42,002,257 $ 53,259,367
Proceeds from reinvestment
of distributions 51,716 103,927 1,094,624 2,187,639
Payments for shares redeemed (789,486) (1,870,802) (16,758,133) (39,334,693)
------------------- ------------------- ------------------- -------------------
Total net increase (decrease) 1,239,981 764,367 $ 26,338,748 $ 16,112,313
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
ON A CONSTANT DOLLAR BASIS
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
MONEY MARKET
Proceeds from shares sold 5,151,970,867 8,643,687,722
Proceeds from reinvestment
of distributions 5,968,311 1,300,153
Payments for shares redeemed (5,093,924,743) (8,215,637,307)
------------------- -------------------
Total net increase (decrease) 64,014,435 429,350,568
------------------- -------------------
------------------- -------------------
U.S. GOVERNMENT MONEY MARKET
Proceeds from shares sold 185,670,915 667,733,205
Proceeds from reinvestment
of distributions 3,330,673 9,531,602
Payments for shares redeemed (237,687,924) (729,577,537)
------------------- -------------------
Total net increase (decrease) (48,686,336) (52,312,730)
------------------- -------------------
------------------- -------------------
TAX FREE MONEY MARKET
Proceeds from shares sold 201,011,372 267,746,557
Proceeds from reinvestment
of distributions 1,402,633 1,922,212
Payments for shares redeemed (160,815,765) (241,151,219)
------------------- -------------------
Total net increase (decrease) 41,598,240 28,517,550
------------------- -------------------
------------------- -------------------
</TABLE>
* There was no activity for Class E shares for the Emerging Markets Fund.
Effective May 18, 1998 Class C was renamed Class E.
78 Notes to Financial Statements Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
SPECIALTY FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. DIVIDENDS
On July 2, 1998, the Board of Trustees declared the following dividends from
net investment income payable on July 7, 1998, to shareholders of record on
July 2, 1998:
Limited Volatility Tax Free $ 0.0667
Real Estate Securities - Class S 0.3397
Real Estate Securities - Class E 0.3049
8. BENEFICIAL INTEREST
The following Funds or Class of shares have one or more shareholders with an
interest greater than 10% of the total outstanding shares as of June 30,
1998: Emerging Markets 13.1%, Equity T 11.6% and 15.9%, Tax Free Money
Market 32.4%, 10.7%, and 11.3%, and Real Estate Securities - Class E 28.9%
and 70.9%.
9. SUBSEQUENT EVENTS
On August 10, 1998, Frank Russell Company entered into an agreement with The
Northwestern Mutual Life Insurance Co., an insurance organization, pursuant
to which Northwestern Mutual Life will acquire all of the outstanding common
stock of Frank Russell Company.
Specialty Funds Notes to Financial Statements 79
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A Street, Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 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
Mark E. Swanson, Treasurer and Chief Accounting Officer
Randall P. Lert, Director of Investments
Karl Ege, Secretary and General Counsel
MANAGER AND TRANSFER AGENT
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
MONEY MARKET
Frank Russell Investment Management Co., Tacoma, WA
U.S. GOVERNMENT MONEY MARKET
Frank Russell Investment Management Co., Tacoma, WA
TAX FREE MONEY MARKET
Weiss, Peck & Greer, LLC, New York, NY
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, WA 98402
(800) RUSSEL4
(800) 787-7354
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 - One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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.
80 Manager, Money Managers and Service Providers Specialty Funds
<PAGE>
FRANK RUSSELL INVESTMENT
COMPANY
Frank Russell Investment Company
is a "series mutual fund" with 28
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
INSTITUTIONAL FUNDS
SEMIANNUAL REPORT
JUNE 30, 1998 (UNAUDITED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . . 1
Equity I Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equity II Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Equity III Fund . . . . . . . . . . . . . . . . . . . . . . . . . 28
Equity Q Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 36
International Fund. . . . . . . . . . . . . . . . . . . . . . . . 48
Fixed Income I Fund . . . . . . . . . . . . . . . . . . . . . . . 66
Fixed Income II Fund. . . . . . . . . . . . . . . . . . . . . . . 82
Fixed Income III Fund . . . . . . . . . . . . . . . . . . . . . . 92
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 105
Manager, Money Managers and Service Providers . . . . . . . . . . 115
</TABLE>
FRANK RUSSELL INVESTMENT COMPANY - INSTITUTIONAL FUNDS
Copyright -C- Frank Russell Company 1998. 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
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.
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
We are pleased to present the Frank Russell Investment Company 1998 Semiannual
Report. This report covers information on eight of the Funds and represents the
Funds' first six months of our seventeenth year in operation.
We remain committed to providing our clients with superior investment solutions
through the benefits of multi-manager, multi-style diversification used in
structuring our Funds. The commitment proved worthwhile in the first six months
of 1998, as our Funds, in general, provided solid returns as compared to their
respective benchmarks and attracted many new investors, both creating
significant growth in assets.
Frank Russell Investment Management Company (FRIMCo) continuously evaluates the
Funds we offer our clients. Each of these Funds is carefully monitored by
Russell investment professionals to ensure that the most appropriate investment
advisors and strategies are utilized within each Fund. The advisors are
monitored by FRIMCo, using the expertise and advice of the Investment Policy and
Research group of Frank Russell Company.
Since the close of 1997, we have implemented changes in our Funds' structure
which we believe will benefit current and potential investors. The former Class
C shares of the Russell Funds have been renamed Russell Fund Class E shares, and
their fee structure now aligns with the Russell LifePoints-Registered Trademark-
Funds' Class E shares. Additionally, the Russell LifePoints-Registered
Trademark- Funds' Class D shares were opened for investment in March 1998.
We are also pleased to announce FRIMCo has retained Boston Financial Data
Services (BFDS) to assist in the transfer agent process, effective June 1998. We
anticipate this change will enhance the level of services provided to our
clients.
Thank you for your continued confidence and investment with Frank Russell
Investment Company. We look forward to the remainder of 1998 and continuing to
earn your support.
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 Investment Company Frank Russell Investment Company
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 96.0%
AUTO AND TRANSPORTATION - 4.2%
AMR Corp. (a) 49,300 $ 4,104
Aviall, Inc. (a) 20,100 275
Bandag, Inc. 1,000 39
BE Aerospace, Inc. (a) 28,300 828
Chrysler Corp. 33,000 1,860
Comair Holdings, Inc. 17,200 530
Continental Airlines, Inc. Class B (a) 51,100 3,111
Cooper Tire & Rubber Co. 158,000 3,259
Dana Corp. 15,600 835
Delta Air Lines, Inc. 24,200 3,128
Eaton Corp. 1,100 85
Echlin, Inc. 4,600 226
Exide Corp. 74,800 1,257
FDX Corp. (a) 16,600 1,042
Ford Motor Co. 161,000 9,499
General Motors Corp. 21,000 1,403
Kansas City Southern Industries, Inc. 7,900 392
KLM Royal Dutch Airlines 65,991 2,701
Meritor Automotive, Inc. 29,675 712
Navistar International Corp. (a) 63,400 1,831
Nordic American Tanker Shipping, Ltd. 195,200 2,940
Norfolk Southern Corp. 129,500 3,861
Northwest Airlines Corp. Class A (a) 111,200 4,288
Overseas Shipholding Group, Inc. 15,000 306
PACCAR, Inc. 11,100 578
Southwest Airlines Co. 900 27
Trinity Industries, Inc. 32,200 1,336
UAL Corp. (a) 72,600 5,663
----------
56,116
----------
CONSUMER DISCRETIONARY - 13.6%
Abercrombie & Fitch Co. Class A (a) 8,169 359
America Online, Inc. 30,600 3,244
Apple South 22,200 289
Avon Products, Inc. 20,500 1,589
Barry (R.G.) Corp. (a) 126,100 2,081
Bed Bath & Beyond, Inc. (a) 30,000 1,554
Belo (A.H.) Corp. Class A 17,600 429
Borders Group, Inc. (a) 5,800 215
Brinker International, Inc. (a) 35,500 683
Browning-Ferris Industries, Inc. 1,300 45
Brunswick Corp. 27,500 681
Carnival Corp. Class A 180,400 7,148
Cendant Corp. (a) 41,200 860
Chancellor Media Corp. (a) 31,000 1,538
Chris Craft Industries, Inc. (a) 2,996 164
Circuit City Stores, Inc. 12,800 600
Clear Channel Communications, Inc. (a) 17,900 1,953
Cognizant Corp. 9,500 599
Costco Companies, Inc. (a) 10,700 675
Cracker Barrel Old Country Store, Inc. 5,600 178
Danka Business Systems - ADR 62,000 732
Darden Restaurants, Inc. 49,600 787
Dayton Hudson Corp. 244,400 11,853
Dillard's, Inc. Class A 15,800 655
Disney (Walt) Co. 115,200 12,103
Dollar Tree Stores, Inc. (a) 5,325 216
Eastman Kodak Co. 35,489 2,593
Estee Lauder Companies Class A 1,100 77
Extended Stay America, Inc. (a) 3,300 37
Federated Department Stores, Inc. (a) 117,815 6,340
Fortune Brands, Inc. 21,900 842
Fruit of the Loom, Inc. Class A (a) 16,700 554
Gannett Co., Inc. 11,600 824
General Nutrition Companies, Inc. (a) 37,600 1,170
Grand Casinos, Inc. (a) 47,400 794
Harland (John H.) Co. 20,000 339
Harrah's Entertainment, Inc. (a) 2,300 53
Hasbro, Inc. 77,300 3,039
Hilton Hotels Corp. 55,800 1,590
Hollinger International, Inc. Class A 11,200 190
Home Depot, Inc. (The) 141,500 11,753
Host Marriott Corp. (a) 38,500 686
International Game Technology 20,000 485
JC Penney & Co., Inc. 45,800 3,312
Jones Apparel Group, Inc. (a) 55,000 2,011
Kellwood Co. 40,300 1,441
King World Productions, Inc. (a) 35,500 905
Kmart Corp. (a) 75,200 1,448
Knight-Ridder, Inc. 5,000 275
Kohl's Corp. (a) 57,500 2,983
Legacy Hotels Real Estate Investment Trust (Units) 8,600 50
Limited, Inc. (The) 174,800 5,790
Liz Claiborne, Inc. 6,500 340
Lowe's Cos., Inc. 57,400 2,328
Mark Bros. Jewelers, Inc. (a) 30,000 574
Marriot International, Inc. Class A 1,000 32
Mattel, Inc. 234,043 9,903
May Department Stores Co. 63,200 4,140
Maytag Corp. 20,000 988
McDonald's Corp. 28,900 1,994
McGraw-Hill, Inc. 1,500 122
MediaOne Group, Inc. (a) 115,700 5,084
Meredith Corp. 14,700 690
</TABLE>
2 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Metromedia International Group, Inc. (a) 176,100 $ 2,102
Neiman-Marcus Group, Inc. (a) 8,800 382
New York Times Co. Class A 62,700 4,969
Newell Co. 2,100 105
Nordstrom, Inc. 31,200 2,408
Office Depot, Inc. (a) 8,500 268
OfficeMax, Inc. (a) 47,100 777
Omnicom Group, Inc. 34,100 1,701
Payless ShoeSource, Inc. (a) 5,200 383
Petroleum Heat & Power, Inc. Class A 391,077 758
Premark International, Inc. 28,400 916
Promus Hotel Corp. New (a) 425 16
Pulitzer Publishing Co. 4,000 357
Rubbermaid, Inc. 52,800 1,752
Sears Roebuck & Co. 92,900 5,673
Service Corp. International 57,200 2,452
Sodexho Marriott Services, Inc. (a) 125 4
Staples, Inc. (a) 5,300 153
Stewart Enterprises, Inc. Class A 33,000 883
Tiffany & Co. 3,600 173
Time Warner, Inc. 57,300 4,896
TJX Cos., Inc. 75,800 1,829
Tribune Co. 44,400 3,055
Tupperware Corp. 13,100 368
Unisource Worldwide, Inc. 139,800 1,512
USA Waste Services, Inc. (a) 59,400 2,933
V.F. Corp. 1,700 87
Valassis Communications, Inc. (a) 3,800 147
Viacom, Inc. Class B (a) 41,700 2,429
Viad Corp. 41,400 1,149
Wal-Mart Stores, Inc. 135,200 8,213
Whirlpool Corp. 46,600 3,204
Young & Rubicam, Inc. (a) 5,000 160
----------
183,220
----------
CONSUMER STAPLES - 7.5%
American Stores Co. 9,300 225
Anheuser-Busch Cos., Inc. 52,900 2,496
Bestfoods 39,900 2,317
Campbell Soup Co. 21,700 1,153
Chiquita Brands International, Inc. 80,600 1,134
Coca-Cola Co. (The) 136,600 11,679
Coca-Cola Enterprises, Inc. 65,100 2,555
Colgate-Palmolive Co. 65,400 5,755
ConAgra, Inc. 80,000 2,535
Corn Products International, Inc. (a) 8,000 271
CVS Corp. 63,900 2,488
Dean Foods Co. 1,200 66
Dial Corp. New 1,700 44
Dole Food, Inc. 26,400 1,312
Gillette Co. 87,600 4,966
Hannaford Brothers Co. 3,200 141
International Multifoods Corp. 68,400 1,881
Interstate Bakeries Corp. 11,000 365
McCormick & Co., Inc. 1,100 39
PepsiCo, Inc. 302,800 12,472
Philip Morris Cos., Inc. 546,050 21,501
Procter & Gamble Co. 120,100 10,937
Quaker Oats Co. 15,800 868
Ralston-Purina Group 2,600 304
Rite Aid Corp. 112,000 4,207
RJR Nabisco Holdings Corp. 104,020 2,470
SuperValu, Inc. 21,800 967
SYSCO Corp. 46,200 1,184
Tyson Foods, Inc. Class A 4,900 106
U.S. Foodservice (a) 2,002 70
Unilever NV 45,900 3,623
Universal Corp. 15,900 594
UST Corp. 10,100 273
Vlasic Foods International, Inc. (a) 1,500 30
Weis Markets, Inc. 2,200 81
Winn-Dixie Stores, Inc. 400 21
Wrigley (Wm.), Jr. Co. 4,800 470
----------
101,600
----------
FINANCIAL SERVICES - 19.6%
ACE, Ltd. 7,600 296
AFLAC, Inc. 196,000 5,941
Ahmanson (H.F.) & Co. 110,500 7,846
Allstate Corp. 99,466 9,107
Ambac Financial Group, Inc. 26,000 1,521
American Express Co. 56,300 6,418
American International Group, Inc. 105,200 15,359
AmSouth Bancorp 55,650 2,188
Associates First Capital Corp. Class A 67,761 5,209
Automatic Data Processing, Inc. 127,100 9,262
Banc One Corp. 79,800 4,454
Bank of New York Co., Inc. 4,000 243
BankAmerica Corp. 86,400 7,468
Bankers Trust New York Corp. 11,600 1,346
Bear Stearns Cos., Inc. 9,968 567
Beneficial Corp. 12,900 1,976
Berkshire Hathaway, Inc. Class A (a) 12 940
Canadian Hotel Income Properties 226,100 1,844
</TABLE>
Equity I Fund 3
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Charter One Financial, Inc. 57,300 $ 1,923
Chase Manhattan Corp. 169,484 12,796
Chubb Corp. (The) 20,000 1,607
Citicorp 54,100 8,074
City National Corp. 2,000 74
CMAC Investment Corp. 3,300 203
Comdisco, Inc. 13,200 251
Comerica, Inc. 40,500 2,683
Commerce Bancshares, Inc. 25,885 1,255
Conseco, Inc. 80,844 3,779
Countrywide Credit Industries, Inc. 8,700 441
Crestar Financial Corp. 19,000 1,037
Danielson Holding Corp. (a) 128,300 946
Dime Bancorp, Inc. 50,500 1,512
Dow Jones & Co., Inc. 14,500 808
DST Systems, Inc. (a) 14,600 818
Dun & Bradstreet Corp. 11,200 405
Edwards (A.G.), Inc. 4,300 184
Equitable Companies, Inc. 15,500 1,162
Everest Reinsurance Holdings, Inc. 14,700 565
Federal Home Loan Mortgage Corp. 64,400 3,031
Federal National Mortgage Association 111,300 6,761
Fifth Third Bancorp 19,200 1,207
FINOVA Group, Inc. 22,400 1,268
First American Corp. 68,600 3,301
First Data Corp. 143,600 4,784
First Security Corp. 51,900 1,109
First Union Corp. 26,900 1,567
Fleet Financial Group, Inc. 52,100 4,350
Fremont General Corp. 13,000 704
GATX Corp. 3,000 132
General Re Corp. 19,300 4,892
Golden West Financial Corp. 9,000 957
Green Tree Financial Corp. 107,800 4,615
Hartford Financial Services Group, Inc. (The) 18,700 2,139
Household International Corp. 91,800 4,567
Jefferson-Pilot Corp. 4,050 235
KeyCorp 30,000 1,069
Lehman Brothers Holdings, Inc. 17,500 1,357
Local Financial Corp. (144A) 157,900 2,053
Loews Corp. 19,800 1,725
M & T Bank Corp. (a) 500 277
Marsh & McLennan Cos., Inc. 22,950 1,387
MBIA, Inc. 28,700 2,149
MBNA Corp. 441,912 14,583
Mercury General Corp. 4,600 296
Merrill Lynch & Co., Inc. 41,700 3,847
MGIC Investment Corp. 30,700 1,752
Morgan (J.P.) & Co., Inc. 2,000 234
Morgan Stanley, Dean Witter, Discover and Co. 135,750 12,404
National City Corp. 28,100 1,995
NationsBank Corp. 113,462 8,680
Nationwide Financial Services, Inc. Class A 3,900 199
North Fork Bancorporation, Inc. 17,700 433
Northern Trust Corp. 19,500 1,486
Norwest Corp. 144,800 5,412
Old Kent Financial Corp. 735 26
Old Republic International Corp. 38,475 1,128
Pacific Century Financial Corp. 28,900 694
PaineWebber Group, Inc. 44,850 1,923
Paychex, Inc. 36,600 1,487
PennCorp Financial Group, Inc. 80,900 1,658
PNC Bank Corp. 47,600 2,561
Progressive Corp. 23,500 3,314
Provident Companies, Inc. 4,000 138
Reinsurance Group of America, Inc. (a) 5,400 277
Reliance Group Holdings, Inc. 30,800 539
Reliastar Financial Corp. 23,300 1,118
Republic New York Corp. 3,600 227
Ryder System, Inc. 84,400 2,664
SLM Holding Corp. 7,200 353
SouthTrust Corp. 40,150 1,747
St. Paul Cos., Inc. 64,300 2,705
Star Banc Corp. 2,200 141
State Street Corp. 11,700 813
TCF Financial Corp. 39,500 1,165
TIG Holdings, Inc. 34,400 791
Transamerica Financial Corp. 14,500 1,669
Transatlantic Holdings, Inc. 1,950 151
Travelers, Inc. 46,475 2,818
United Asset Management Corp. 600 16
Washington Mutual, Inc. 102,840 4,461
Wells Fargo & Co. 2,600 959
Westcorp, Inc. 28,200 388
Zions Bancorp 6,300 335
----------
265,731
----------
HEALTH CARE - 10.3%
Aetna, Inc. 74,500 5,671
Allergan, Inc. 7,200 334
ALZA Corp. (a) 38,500 1,665
American Home Products Corp. 88,200 4,564
Amgen, Inc. (a) 30,500 1,994
</TABLE>
4 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Bard (C.R.), Inc. 1,400 $ 53
Bausch & Lomb, Inc. 5,200 261
Baxter International, Inc. 90,800 4,886
Becton, Dickinson & Co. 1,100 85
Bergen Brunswig Corp. Class A 8,200 380
Beverly Enterprises, Inc. New (a) 35,800 494
Biogen, Inc. (a) 2,300 112
Biomet, Inc. 66,800 2,204
Bristol-Myers Squibb Co. 136,360 15,673
Cardinal Health, Inc. 23,900 2,241
ChromaVision Medical Systems, Inc. (a) 140 1
Columbia/HCA Healthcare Corp. 230,900 6,725
First Health Group Corp. (a) 54,600 1,556
Forest Labs, Inc. (a) 11,100 397
Genesis Health Ventures, Inc. (a) 5,400 135
Genzyme Corp. (a) 17,400 440
HBO & Co. 32,000 1,128
Humana, Inc. (a) 29,900 933
Integrated Health Services, Inc. 50,000 1,875
IVAX Corp. (a) 106,000 981
Johnson & Johnson 84,800 6,254
Lilly (Eli) & Co. 71,900 4,750
Mallinckrodt, Inc. 6,100 181
Medtronic, Inc. 19,500 1,243
Merck & Co., Inc. 141,850 18,973
Mylan Laboratories, Inc. 243,800 7,329
PacifiCare Health Systems, Inc. Class B (a) 30,300 2,676
Pfizer, Inc. 155,400 16,890
Quest Diagnostics, Inc. (a) 98,300 2,150
Quintiles Transnational Corp. (a) 34,800 1,710
Schering-Plough Corp. 111,000 10,170
Stryker Corp. 6,600 253
Tenet Healthcare Corp. (a) 44,700 1,397
Total Renal Care Holdings, Inc. (a) 3,500 121
Trigon Healthcare, Inc. (a) 1,400 51
United Healthcare Corp. 82,500 5,239
US Bioscience, Inc. (a) 81,100 664
Warner-Lambert Co. 56,800 3,941
Wellpoint Health Networks, Inc. Class A (a) 6,406 474
----------
139,254
----------
INTEGRATED OILS - 3.3%
Amerada Hess Corp. NPV 64,000 3,476
Amoco Corp. 82,000 3,413
Ashland, Inc. 46,714 2,412
Atlantic Richfield Co. 21,900 1,711
Coastal Corp. 63,600 4,440
Crown Central Petroleum Co. Class B (a) 98,000 1,237
Exxon Corp. 132,720 9,464
Kerr-McGee Corp. 21,500 1,244
Lyondell Petrochemical Co. 27,000 822
Mobil Corp. 25,000 1,916
Murphy Oil Corp. 1,900 96
Phillips Petroleum Co. 45,300 2,183
Sun Co., Inc. 17,000 660
Tenneco, Inc. 46,900 1,785
Texaco, Inc. 42,600 2,543
Unocal Corp. 69,200 2,474
USX-Marathon Group 142,900 4,903
----------
44,779
----------
MATERIALS AND PROCESSING - 7.5%
Air Products & Chemicals, Inc. 52,200 2,088
Albany International Corp. Class A 11,156 267
Albemarle Corp. 22,300 492
Alumax, Inc. 3,400 158
Aluminum Co. of America 3,800 251
American Real Estate Partners, L.P. (a) 318,062 3,260
Archer-Daniels-Midland Co. 32,500 630
Arco Chemical Co. 7,700 442
Armstrong World Industries, Inc. 26,100 1,758
ASARCO, Inc. 11,700 260
Asia Pulp & Paper Co, - ADR Ltd. 60,000 675
Avery Dennison Corp. 17,000 914
Bethlehem Steel Corp. (a) 31,200 388
Betz Laboratories, Inc. 5,500 228
Boise Cascade Office Products Corp. (a) 10,195 158
Bowater, Inc. 3,600 170
Capital Automotive 17,800 253
Catellus Development Corp. (a) 139,900 2,474
Centex Corp. 16,000 604
Champion International Corp. 28,100 1,382
Commonwealth Industries, Inc. 30,000 296
Consolidated Papers, Inc. 1,800 49
Corning, Inc. 12,700 441
Crown Cork & Seal Co., Inc. 48,500 2,304
Cytec Industries, Inc. (a) 2,300 102
du Pont (E.I.) de Nemours & Co. 47,100 3,515
Eastman Chemical Co. 46,900 2,920
Ecolab, Inc. 300 9
Engelhard Corp. 26,800 543
FMC Corp. (a) 24,200 1,650
Fort James Corp. 52,300 2,327
</TABLE>
Equity I Fund 5
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Gaylord Container Corp. Class A (a) 483,800 $ 3,719
Georgia-Pacific Group 12,400 731
Georgia-Pacific Timber Group 26,100 602
Getty Realty Holding Corp. 40,000 775
Goodrich (B.F.) Co. 15,200 754
Great Lakes Chemical Corp. 77,500 3,056
Harsco Corp. 17,800 816
Hexcel Corp. (a) 95,700 2,165
Homestake Mining Co. 60,300 626
Illinois Tool Works, Inc. 32,300 2,154
International Paper Co. 41,000 1,763
Johns Manville Corp. 6,000 90
Kimberly-Clark Corp. 74,300 3,409
Lafarge Corp. 19,900 782
Longview Fibre Co. 8,000 114
Louisiana Pacific Corp. 41,600 759
LTV Corp. 15,400 147
Lubrizol Corp. 9,200 278
Mead Corp. 46,300 1,470
Mercer International, Inc. 130,300 1,299
Mohawk Industries, Inc. (a) 13,100 415
Monsanto Co. 127,000 7,096
Newhall Land & Farming Co. 38,800 1,096
Olin Corp. 34,200 1,426
Oregon Steel Mills, Inc. 20,000 373
Owens-Illinois, Inc. (a) 1,000 45
Pentair, Inc. 5,100 217
Phelps Dodge Corp. 59,000 3,374
Philip Services Corp. (a) 39,000 161
Potlatch Corp. 10,400 437
Praxair, Inc. 58,300 2,729
Reynolds Metals Co. 28,500 1,594
Rohm & Haas Co. 600 62
Sealed Air Corp. New (a) 25,900 952
Solutia, Inc. 31,700 909
Sonoco Products Co. 11,890 360
Stone Container Corp. (a) 53,500 836
Timken Co. 24,300 749
Tyco International, Ltd. 304,000 19,152
UCAR International, Inc. (a) 12,100 353
USG Corp. 2,300 124
Vulcan Materials Co. 1,200 128
W.R. Grace & Co. New (a) 55,500 947
Witco Corp. 17,900 524
----------
100,576
----------
MISCELLANEOUS - 0.3%
BEC Energy (a) 900 38
FBR Asset Investment Corp. (a) 32,600 603
Legacy Hotels Real Estate Investment Trust (a) 328,500 1,920
Mack-Cali Realty Corp. 14,900 512
SFX Entertainment, Inc. Class A (a) 8,100 371
TeleTech Holdings, Inc. (a) 5,700 70
----------
3,514
----------
OTHER ENERGY - 2.4%
Apache Corp. 62,200 1,959
Baker Hughes, Inc. 94,200 3,256
BJ Services Co. (a) 6,800 198
British Petroleum Co. PLC - ADR 225 20
Burlington Resources, Inc. 6,000 258
Camco International, Inc. 15,100 1,176
Diamond Offshore Drilling, Inc. 4,600 184
Dresser Industries, Inc. 12,500 551
EEX Corp. (a) 40,186 377
Enron Oil & Gas Co. 5,200 105
ENSCO International, Inc. 19,800 344
EVI Weatherford, Inc. (a) 4,295 159
Gulf Canada Resources, Ltd. (a) 27,500 136
Halliburton Co. 71,500 3,186
MarketSpan Corp. (a) 29,880 895
Nabors Industries, Inc. (a) 14,300 283
Noble Affiliates, Inc. 30,900 1,174
Ocean Energy, Inc. New (a) 1,170 23
Octel Corp. (a) 19,375 385
R&B Falcon Corp. (a) 86,000 1,946
Rowan Cos., Inc. (a) 5,000 97
Santa Fe Energy Resources, Inc. (a) 39,200 421
Schlumberger, Ltd. 95,900 6,551
Sempra Energy (a) 2,000 56
Tidewater, Inc. 8,300 274
Tosco Corp. 14,600 429
Transocean Offshore, Inc. 68,300 3,039
TransTexas Gas Corp. (a) 2,300 20
Triton Energy, Ltd. Class A (a) 49,400 1,763
Ultramar Diamond Shamrock Corp. 500 16
UTI Energy Corp. (a) 24,800 319
Valero Energy Corp. 53,900 1,792
Vastar Resources, Inc. 1,900 83
Western Atlas, Inc. (a) 4,000 340
----------
31,815
----------
</TABLE>
6 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
PRODUCER DURABLES - 6.2%
AGCO Corp. 45,800 $ 942
Alcatel Alsthom Compagnie
Generale d'Electricite - ADR 36,449 1,483
AMP, Inc. 14,900 512
Case Corp. 31,800 1,534
Caterpillar, Inc. 86,300 4,563
Clayton Homes, Inc. 8,300 158
Cordant Technologies, Inc. 9,600 443
Crane Co. 40,800 1,981
Credence Systems Corp. (a) 12,100 230
Cummins Engine Co., Inc. 5,600 287
Danaher Corp. 1,000 37
Elsag Bailey Process Automation NV (a) 80,200 1,930
Foster Wheeler Corp. 48,900 1,048
General Electric Co. 157,600 14,342
General Semiconductor, Inc. (a) 151,600 1,497
Gulfstream Aerospace Corp. (a) 17,400 809
Honeywell, Inc. 4,900 409
Ingersoll-Rand Co. 71,200 3,137
ITT Industries, Inc. 5,000 187
Johnson Controls, Inc. 29,500 1,687
Kaiser Ventures, Inc. (a) 65,000 788
Knoll, Inc. (a) 20,400 602
Lexmark International Group, Inc. Class A (a) 23,600 1,440
Litton Industries, Inc. (a) 19,700 1,162
Lockheed Martin Corp. 36,200 3,833
MagneTek, Inc. (a) 48,100 758
Molex, Inc. 3,625 91
National Service Industries, Inc. 800 41
Northern Telecom, Ltd. 93,400 5,300
Northrop Grumman Corp. 14,200 1,464
Parker-Hannifin Corp. 14,650 559
Pitney Bowes, Inc. 6,100 294
Raytheon Co. Class A 1,237 71
Raytheon Co. Class B 13,400 792
Sensormatic Electronics Corp. (a) 108,000 1,512
Sundstrand Corp. 1,000 57
Tecumseh Products Co. Class A 400 21
Tektronix, Inc. 12,800 453
Teradyne, Inc. (a) 22,300 597
Thermo Instrument Systems, Inc. (a) 4,800 125
Thomas & Betts Corp. 4,600 227
U.S. Filter Corp. New (a) 102,800 2,885
United Technologies Corp. 88,400 8,177
Whittaker Corp. New (a) 177,300 2,349
Xerox Corp. 122,200 12,418
----------
83,232
----------
TECHNOLOGY - 12.9%
3Com Corp. (a) 49,000 1,503
ADC Telecommunications, Inc. (a) 14,500 529
Advanced Micro Devices, Inc. (a) 2,800 48
Altera Corp. (a) 3,200 94
Apple Computer, Inc. (a) 51,800 1,486
Ascend Communications, Inc. (a) 44,200 2,188
Autodesk, Inc. 5,700 219
BMC Software, Inc. (a) 63,400 3,293
Cadence Design Systems, Inc. (a) 28,000 875
CDW Computer Centers, Inc. (a) 2,100 105
CIENA Corp. (a) 1,400 97
Cisco Systems, Inc. (a) 254,900 23,467
COMPAQ Computer Corp. 339,600 9,636
CompUSA, Inc. (a) 35,700 645
Computer Associates International, Inc. 18,300 1,017
Computer Sciences Corp. 900 58
Compuware Corp. (a) 28,000 1,430
Cooper Industries, Inc. 23,100 1,269
Cypress Semiconductor Corp. (a) 110,700 920
Dell Computer Corp. (a) 180,900 16,778
Electronic Data Systems Corp. 179,226 7,169
EMC Corp. (a) 55,700 2,496
Ericsson (LM) Telephone Co. Class B - ADR 118,166 3,382
ESS Technology, Inc. (a) 10,000 47
FORE Systems (a) 12,400 328
General Dynamics Corp. 3,400 158
General Motors Corp. Class H (a) 16,800 792
Haemonetics Corp. (a) 10,200 163
Hewlett-Packard Co. 101,400 6,071
Hutchinson Technology, Inc. (a) 15,900 433
Imation Corp. (a) 25,700 426
IMS Health, Inc. (a) 2,800 161
Informix Corp. (a) 27,500 216
Ingram Micro, Inc. Class A (a) 8,500 376
Integrated Device Technology (a) 148,600 1,059
Intel Corp. 131,900 9,769
International Business Machines Corp. 59,200 6,797
Iomega Corp. (a) 76,400 449
Learning Co., Inc. (The) (a) 24,300 720
Lernout & Hauspie Speech Products N.V. (a) 19,700 1,175
Linear Technology Corp. 3,100 187
LSI Logic Corp. (a) 5,500 127
Lucent Technologies, Inc. 105,900 8,809
Micron Technology, Inc. (a) 35,000 868
Microsoft Corp. (a) 202,500 21,946
Motorola, Inc. 38,800 2,039
</TABLE>
Equity I Fund 7
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
NCR Corp. (a) 3,800 $ 124
Nokia Corp. - ADR 178,000 12,916
Novell, Inc. (a) 117,800 1,502
Oracle Systems Corp. (a) 35,000 858
PeopleSoft, Inc. (a) 30,000 1,408
SCI Systems, Inc. (a) 10,000 376
Seagate Technology (a) 2,100 50
Sterling Software, Inc. (a) 18,000 532
Storage Technology Corp. (a) 41,000 1,778
Sun Microsystems, Inc. (a) 21,700 943
Synopsys, Inc. (a) 29,400 1,345
Tandy Corp. 27,400 1,454
Tellabs, Inc. (a) 45,300 3,242
Texas Instruments, Inc. 82,000 4,782
Textron, Inc. 4,300 308
Vishay Intertechnology, Inc. (a) 40,735 731
Vitesse Semiconductor Corp. (a) 4,500 139
Western Digital Corp. (a) 75,900 897
Xilinx, Inc. (a) 500 17
----------
175,222
----------
UTILITIES - 8.2%
360 Communications Co. (a) 11,700 374
Airtouch Communications, Inc. (a) 195,300 11,413
Ameren Corp. 300 12
American Water Works, Inc. 33,900 1,051
Associated Group, Inc. Class B (a) 4,700 183
AT&T Corp. 174,713 9,980
Baltimore Gas & Electric Co. 30,100 935
Bell Atlantic Corp. 160,404 7,318
Carolina Power & Light Co. 300 13
Central & Southwest Corp. 32,600 876
Century Telephone Enterprises, Inc. 32,950 1,511
Citizens Utilities Co. Class B (a) 227,073 2,186
Comcast Corp. Class A 3,300 131
Conectiv, Inc. 1,900 39
Consolidated Edison, Inc. 45,600 2,100
Consolidated Natural Gas Co. 300 18
DTE Energy Co. 193,900 7,829
Duke Power Co. 72,000 4,266
Edison International 137,100 4,053
Energy East Corp. (a) 15,600 649
Entergy Corp. 140,000 4,025
FirstEnergy Corp. 2,635 81
Florida Progress Corp. 7,400 304
FPL Group, Inc. 30,000 1,890
GPU, Inc. 41,200 1,558
GTE Corp. 45,189 2,514
IPALCO Enterprises, Inc. 8,700 387
Kansas City Power & Light Co. 10,300 299
MCI Communications Corp. 41,100 2,386
Montana Power Co. 21,500 747
National Fuel & Gas Co. 5,600 244
Niagara Mohawk Power Corp. (a) 40,200 600
NICOR, Inc. 12,000 482
NIPSCO Industries, Inc. 16,600 465
Northeast Utilities (a) 114,400 1,938
PacifiCorp. 93,600 2,118
Paging Network, Inc. (a) 103,200 1,438
Peco Energy Co. 10,400 304
PG&E Corp. 112,000 3,535
Pinnacle West Capital Corp. 32,200 1,449
Public Service Enterprise Group, Inc. 64,300 2,214
SBC Communications, Inc. 160,000 6,400
Tele-Communications, Inc. Series A (a) 140,200 5,442
Unicom Corp. 163,000 5,715
United States Cellular Corp. (a) 6,300 194
Williams Cos. (The) 46,400 1,566
WorldCom, Inc. (a) 154,200 7,450
----------
110,682
----------
TOTAL COMMON STOCKS
(cost $979,643) 1,295,741
----------
PREFERRED STOCKS - 0.2%
Elsag Bailey Financing Trust (conv.)(a) 18,200 778
Sealed Air Corp. (conv.) 30,200 1,269
----------
TOTAL PREFERRED STOCKS
(cost $10,189) 2,047
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.1%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 51,602 51,602
United States Treasury Notes (b)(c)
5.250% due 07/31/98 4,300 4,300
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $55,902) 55,902
----------
</TABLE>
8 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
----------
<S> <C>
TOTAL INVESTMENTS
(identified cost $1,037,556)(d) - 100.3% $1,353,690
OTHER ASSETS AND LIABILITIES,
NET - (0.3%) (4,048)
----------
NET ASSETS - 100.0% $1,349,642
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures contracts purchased by the
Fund.
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
NV - Nonvoting
PLC - Public Limited Company
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ----------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 09/98 183 $ 1,652
S&P 400 Midcap Index Futures Contracts
expiration date 09/98 5 21
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 1,673
----------
----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at $4,300 were held as
collateral in connection with futures contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
Equity I Fund 9
<PAGE>
EQUITY I FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $1,037,556)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 1,353,690
Cash. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,891
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,977
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 969
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 25,128
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,393,324
LIABILITIES
Payable:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,391
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,888
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 704
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 388
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 25,128
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,682
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349,642
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,667
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,159
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,129
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,673
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958,627
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349,642
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($1,349,642,080 divided by 38,707,640 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34.87
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 Equity I Fund
<PAGE>
EQUITY I FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,188
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,296
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,623
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,783
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,332
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,291
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,880
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,967 97,847
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,092
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244 106,336
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,183
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 209,474
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity I Fund 11
<PAGE>
EQUITY I FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,291 $ 10,379
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,847 250,266
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 106,336 31,174
----------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 209,474 291,819
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,624) (10,379)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (26)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (35,017) (260,727)
----------------- -----------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (37,641) (271,132)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 41,436 153,733
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 213,269 174,420
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136,373 961,953
----------------- -----------------
End of period (including undistributed net investment income of
$2,667 at June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349,642 $ 1,136,373
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 Equity I Fund
<PAGE>
EQUITY I FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each year or period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 30.51 $ 30.34 $ 28.00 $ 23.32 $ 24.91 $ 25.00
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .14 .34 .42 .52 .62 .60
Net realized and unrealized gain (loss) on investments . 5.21 8.89 5.96 7.71 (.41) 2.18
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 5.35 9.23 6.38 8.23 .21 2.78
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . (.07) (.34) (.42) (.52) (.62) (.60)
Net realized gain on investments . . . . . . . . . . . . (.92) (8.72) (3.62) (3.03) (.94) (2.11)
In excess of net realized gain on investments. . . . . . -- -- -- -- (.24) (.16)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.99) (9.06) (4.04) (3.55) (1.80) (2.87)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 34.87 $ 30.51 $ 30.34 $ 28.00 $ 23.32 $ 24.91
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 17.80 32.02 23.58 35.94 0.79 11.61
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 1,349,642 1,136,373 961,953 751,497 547,242 514,356
Ratios to average net assets (%)(b)(c):
Operating expenses. . . . . . . . . . . . . . . . . . .68 .70 .71 .59 .12 .14
Net investment income . . . . . . . . . . . . . . . . .83 .96 1.38 1.91 2.52 2.36
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 98.25 110.75 99.51 92.04 75.02 91.87
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 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 anyinvestment services fees. See
Note 4.
Equity I Fund 13
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 95.0%
AUTO AND TRANSPORTATION - 4.5%
AAR Corp. 87,700 $ 2,593
ABC Rail Products Corp. (a) 7,000 121
Aftermarket Technology Corp. (a) 19,200 360
Airborne Freight Corp. 55,300 1,932
AirNet Systems, Inc. (a) 6,000 97
Alaska Air Group, Inc. (a) 21,400 1,168
Alexander & Baldwin, Inc. 3,000 87
America West Holding Corp. Class B (a) 18,900 540
Arvin Industries, Inc. 8,200 298
ASA Holdings, Inc. 25,000 1,241
Bandag, Inc. 5,900 230
Carey International, Inc. New (a) 8,000 224
Coach USA, Inc. (a) 14,250 650
Coachmen Industries, Inc. 85,400 2,231
Consolidated Freightways Corp. (a) 27,700 384
Control Devices, Inc. 11,666 152
Excel Industries, Inc. 7,000 100
Fleetwood Enterprises, Inc. 43,100 1,724
FRP Properties, Inc. (a) 4,000 128
Hawker Pacific Aerospace (a) 12,000 133
Hertz Corp. Class A 3,800 168
Hunt (JB) Transportation Services, Inc. 14,500 517
Keystone Automotive Industries, Inc. (a) 6,000 138
Landair Services, Inc. (a) 5,000 147
Lear Corp. (a) 7,700 395
M.S. Carriers, Inc. (a) 8,600 232
Mark VII, Inc. (a) 8,000 143
Midwest Express Holdings, Inc. (a) 45,600 1,650
Navistar International Corp. (a) 68,800 1,987
Offshore Logistics, Inc. (a) 51,400 912
Skywest, Inc. 69,600 1,940
Transport Corp. of America (a) 10,000 164
Trinity Industries, Inc. 43,000 1,784
USA Truck, Inc. (a) 11,000 173
USFreightways Corp. 15,500 509
Wynn's International, Inc. 3,750 72
----------
25,324
----------
CONSUMER DISCRETIONARY - 19.4%
Abacus Direct Corp. (a) 20,250 1,052
Abercrombie & Fitch Co. Class A (a) 43,250 1,903
AccuStaff, Inc. (a) 79,600 2,487
ACNielsen Corp. (a) 19,000 480
American Eagle Outfitters, Inc. (a) 38,475 1,481
American Greetings Corp. Class A 52,500 2,674
Anchor Gaming (a) 15,700 1,219
Apollo Group, Inc. Class A (a) 17,500 579
Applied Graphics Technologies, Inc. (a) 17,500 797
ARC International Corp. (a) 20,000 82
Ascent Entertainment Group, Inc. (a) 14,000 156
Aviation Sales Co. (a) 4,400 174
Aztar Corp. (a) 15,600 106
Barnes & Noble, Inc. (a) 41,000 1,535
Belo (A.H.) Corp. Class A 2,000 49
Best Buy Co. (a) 93,100 3,363
BJ's Wholesale Club, Inc. (a) 19,000 772
Bowne & Co., Inc. 35,200 1,584
Brinker International, Inc. (a) 19,500 375
Brylane, Inc. (a) 2,000 92
Buckle, Inc. (The) (a) 56,850 1,677
Cameron Ashley, Inc. (a) 10,000 169
Capstar Broadcasting Corp. Class A (a) 65,000 1,633
Catalytica, Inc. (a) 8,000 157
Central Newspapers, Inc. Class A 19,900 1,388
Choice Hotels International, Inc. (a) 5,900 80
Chris Craft Industries, Inc. (a) 6,200 339
CKE Restaurants, Inc. 49,426 2,039
Claire's Stores, Inc. 53,100 1,089
Coinmach Laundry Corp. (a) 7,000 164
Cole National Corp. Class A (a) 4,000 160
Computer Horizons Corp. (a) 47,950 1,777
Consolidated Graphics, Inc. (a) 13,500 796
Cornell Corrections, Inc. (a) 5,000 105
Daisytek International Corp. (a) 6,000 153
Dan River, Inc. Class A (a) 9,000 153
Darden Restaurants, Inc. 56,700 900
Data Processing Corp. (a) 4,700 146
Department 56, Inc. (a) 36,000 1,278
DeVry, Inc. (a) 80,000 1,755
Dollar Tree Stores, Inc. (a) 27,450 1,112
Dress Barn, Inc. (a) 5,900 147
Equity Corp. International (a) 32,700 785
Footstar, Inc. (a) 8,100 389
Fossil, Inc. (a) 40,925 1,018
Furniture Brands International, Inc. (a) 4,700 132
Gibson Greetings, Inc. (a) 5,300 132
Goody's Family Clothing, Inc. (a) 40,900 2,232
Grand Casinos, Inc. (a) 33,100 554
Grey Advertising 4,070 1,612
Hearst-Argyle Television, Inc. (a) 30,000 1,200
Helen of Troy, Ltd. New (a) 7,000 152
Huffy Corp. 3,000 54
InaCom Corp. (a) 21,900 695
Insurance Auto Auctions, Inc. (a) 15,000 210
Interim Services, Inc. (a) 47,300 1,520
Iron Mountain, Inc. (a) 4,000 176
</TABLE>
14 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
ITT Educational Services, Inc. (a) 20,000 $ 645
Knight-Ridder, Inc. 21,900 1,206
La-Z-Boy Chair Co. 2,400 136
Leather Factory, Inc. (a) 60,000 30
Lee Enterprises, Inc. 39,000 1,194
Legato Systems, Inc. (a) 49,600 1,934
Linens 'N Things, Inc. (a) 13,600 416
Lithia Motors, Inc., Class A (a) 9,100 132
Lo-Jack Corp. (a) 10,000 124
Lodgenet Entertainment Corp. (a) 10,000 99
Maxim Group, Inc. (a) 8,000 159
Maytag Corp. 16,200 800
Mazel Stores, Inc. (a) 10,000 160
McClatchy Newspapers, Inc. Class A 39,000 1,350
McGraw-Hill, Inc. 15,600 1,272
Media General, Inc. Class A 3,600 175
Metzler Group, Inc. (a) 61,000 2,234
NewsEdge Corp. (a) 34,350 339
Nutramax Products, Inc. New (a) 8,000 75
O'Charleys, Inc. (a) 12,000 177
OfficeMax, Inc. (a) 12,300 203
Ogden Corp. 18,800 521
On Assignment, Inc. (a) 43,000 1,502
Orckit Communications, Ltd. (a) 17,000 322
Outdoor Systems, Inc. (a) 28,200 790
Oxford Industries, Inc. 2,400 84
Pacific Sunwear of California (a) 44,600 1,561
Personnel Group of America, Inc. (a) 17,300 346
Petco Animal Supplies, Inc. (a) 9,000 179
Pillowtex Corp. 4,700 189
Polo Ralph Lauren Corp. Class A New (a) 46,950 1,315
Prime Hospitality Corp. (a) 50,700 884
Protection One, Inc. 9,000 98
Pulitzer Publishing Co. 11,000 982
RCM Technologies, Inc. (a) 8,000 162
RDO Equipment Co. Class A (a) 6,000 100
Recoton Corp. (a) 3,700 124
Red Roof Inns, Inc. (a) 11,400 193
Regis Corp. 5,000 147
Rent-Way, Inc. (a) 27,410 833
Reynolds & Reynolds Co. Class A 54,300 988
Richey Electronics, Inc. (a) 12,000 91
Robert Half International, Inc. (a) 25,550 1,428
RockShox, Inc. (a) 11,000 44
Rocky Shoes & Boots, Inc. (a) 9,000 128
Romac International, Inc. (a) 45,000 1,367
Ross Stores, Inc. 78,200 3,363
Rural/Metro Corp. (a) 11,500 149
Russ Berrie & Co., Inc. 4,000 100
Ryan's Family Steak Houses, Inc. (a) 98,000 998
Saga Communications Class A (a) 7,813 125
Schultz Sav-o Stores, Inc. 60,750 957
SCP Pool Corp. (a) 8,000 192
Scripps (E.W.) Co. Class A 23,000 1,261
Select Appointments Holdings PLC - ADR 50,000 1,450
ShoLodge, Inc. (a) 8,000 63
Shopko Stores, Inc. (a) 56,500 1,921
Showbiz Pizza Time, Inc. (a) 50,250 2,016
Spectrian Corp. (a) 6,700 108
Sport Supply Group, Inc. (a) 16,000 130
Sportsman's Guide, Inc. (The) (a) 20,100 87
Springs Industries, Inc. 200 9
StaffMark, Inc. (a) 41,800 1,531
Strategic Distribution, Inc. (a) 35,410 186
Superior Services, Inc. (a) 30,250 909
Talbots, Inc. 9,600 251
Teltrend, Inc. (a) 6,000 103
The Men's Wearhouse, Inc. (a) 78,925 2,605
Tiffany & Co. 20,500 984
TJX Cos., Inc. 97,000 2,340
TRM Copy Centers Corp. (a) 15,000 202
Unifirst Corp. 3,300 83
United Natural Foods, Inc. (a) 6,000 171
United Television, Inc. 11,000 1,260
United Video Satellite Group Class A (a) 4,450 176
Urban Outfitters, Inc. (a) 7,000 128
Valassis Communications, Inc. (a) 66,550 2,566
Video Update, Inc. Class A (a) 60,000 86
Wackenhut Corp. 5,000 113
Wackenhut Corrections Corp. (a) 37,000 865
Washington Post Co. Class B 3,600 2,074
West Marine, Inc. (a) 15,500 279
Wolverine World Wide, Inc. 45,000 976
World Color Press, Inc. (a) 15,100 529
Youth Services International, Inc. (a) 14,000 102
Zale Corp. (a) 10,900 347
----------
108,071
----------
CONSUMER STAPLES - 2.6%
American Italian Pasta Co. Class A (a) 12,650 471
Aurora Foods, Inc. (a) 33,600 710
Beringer Wine Estates Holdings, Inc.
Class B (a) 15,000 660
Block Drug Co., Inc. Class A 18,418 694
Canandaigua Wine International, Inc.
Class A (a) 4,200 206
</TABLE>
Equity II Fund 15
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Coca-Cola Bottling Co. 15,000 $ 992
Earthgrains Co. 35,650 1,992
Fleming Cos., Inc. 23,700 416
Hormel (George A.) & Co. - Hormel Foods Corp. 5,800 201
IBP, Inc. 27,100 491
International Multifoods Corp. 7,300 201
Longs Drug Stores, Inc. 8,800 254
Nature's Sunshine Products, Inc. 5,000 112
Robert Mondavi Corp. Class A (a) 20,000 566
Standard Commercial Corp. (a) 12,000 132
Suiza Foods Corp. (a) 30,000 1,791
SuperValu, Inc. 23,600 1,047
Tootsie Roll Industries, Inc. 23,000 1,765
Universal Foods Corp. 18,600 413
Whole Foods Market, Inc. (a) 26,000 1,573
----------
14,687
----------
FINANCIAL SERVICES - 22.4%
Acceptance Insurance Companies, Inc. (a) 5,200 128
Alleghany Corp. (a) 200 47
Allmerica Financial Corp. 18,000 1,170
AMBAC Financial Group, Inc. 21,900 1,281
AmerUs Life Holdings, Inc. 7,800 253
Amplicon, Inc. 10,000 130
AMRESCO, Inc. (a) 31,200 905
Amwest Insurance Group, Inc. 9,140 134
Arden Realty Group, Inc. 30,000 776
Argonaut Group, Inc. 900 28
ARM Financial Group, Inc. Class A 6,000 133
Astoria Financial Corp. 36,900 1,974
BancorpSouth, Inc. 2,300 48
Bank Plus Corp. (a) 13,000 159
BankAtlantic Bancorp, Inc. 48,000 615
Bankatlantic Bancorp, Inc. Class A 47,140 557
Banknorth Group, Inc. 2,600 96
Bear Stearns Cos., Inc. 53,440 3,039
Berkley (W.R.) Corp. 3,200 128
Billing Information Concepts Corp. (a) 42,500 648
BISYS Group, Inc. New (a) 20,000 820
Capital One Financial Corp. 22,400 2,782
Centris Group, Inc. 107,000 1,324
Centura Banks, Inc. 4,300 269
Charter One Financial, Inc. 53,100 1,782
Chartwell Re Corp. 1,300 38
Chicago Title Corp. (a) 600 28
Chittenden Corp. 100 4
City National Corp. 87,400 3,228
Colonial BancGroup, Inc. 46,400 1,496
Comdisco, Inc. 47,800 908
Commerce Bancshares, Inc. 7,035 341
Commerce Group, Inc. 2,600 101
Commonwealth Bancorp, Inc. 3,400 78
Community Bank System, Inc. 3,000 94
Compass Bancshares, Inc. 11,900 534
Conning Corp. New 3,000 58
CORT Business Services Corp. (a) 28,700 904
Cullen Frost Bankers, Inc. 5,100 277
Data Transmission Network Corp. (a) 6,000 240
Delphi Financial Group, Inc. (a) 2,700 152
Delta Financial Corp. (a) 8,700 160
Dime Bancorp, Inc. 27,900 835
Dime Community Bancorp, Inc. 300 8
Donaldson, Lufkin & Jenrette, Inc. 80,200 4,075
Donegal Group, Inc. 71,288 1,283
Downey Financial Corp. 7,895 258
DST Systems, Inc. (a) 28,500 1,596
Duke Realty Investments, Inc. 41,700 985
Edwards (A.G.), Inc. 42,900 1,831
Enhance Financial Services Group, Inc. 12,400 419
Envoy Corp. New (a) 28,800 1,364
Everest Reinsurance Holdings, Inc. 14,800 569
Executive Risk, Inc. 23,000 1,696
EXEL, Ltd. 17,000 1,323
F&M National Corp. 2,000 58
FBL Financial Group, Inc. Class A 6,500 167
Fidelity National Financial 91,510 3,643
Financial Federal Corp. (a) 6,500 174
Financial Security Assurance Holdings, Ltd. 7,400 435
FINOVA Group, Inc. 14,700 832
First American Corp. 23,900 1,150
First American Financial Corp. 5,850 527
First Hawaiian Creditcorp, Inc. 4,300 156
First Republic Bank (a) 15,100 545
First Savings Bank of Washington Bancorp, Inc. 2,300 58
First Virginia Banks, Inc. 6,900 353
FirstFed Financial Corp. (a) 29,500 1,534
FIRSTPLUS Financial Group, Inc. (a) 19,750 711
Flagstar Bancorp, Inc. 2,200 54
Flushing Financial Corp. 6,200 178
Foremost Corp. of America 2,400 58
Fremont General Corp. 26,350 1,428
GATX Corp. 6,400 281
Hartford Life, Inc. Class A 18,600 1,059
</TABLE>
16 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
HealthCare Financial Partners, Inc. (a) 26,000 $ 1,593
Hibernia Corp. 25,700 519
Horace Mann Educators Corp. 25,000 863
HSB Group, Inc. 4,600 246
IMC Mortgage Co. (a) 76,300 801
Imperial Bancorp (a) 800 24
Imperial Credit Industries, Inc. (a) 55,316 1,279
Imperial Credit Mortgage Holdings 11,850 184
Intercontinental Life Corp. (a) 5,400 136
Jack Henry & Assocociates, Inc. 40,000 1,375
Jefferies Group, Inc. 24,400 1,000
JSB Financial, Inc. 1,100 64
LandAmerica Financial Group, Inc. 37,400 2,141
Legg Mason, Inc. 17,500 1,007
Lehman Brothers Holdings, Inc. 23,300 1,807
Leucadia National Corp. 39,800 1,316
Liberty Financial Cos., Inc. 3,500 121
Life Re Corp. 5,500 451
Life USA Holdings, Inc. New 8,000 103
Litchfield Financial Corp. 6,000 125
MAF Bancorp, Inc. 3,800 138
Markel Corp. (a) 12,500 2,225
Medical Assurance, Inc. (a) 840 23
Mid Ocean, Ltd. 14,500 1,138
Morgan Keegan, Inc. 53,800 1,392
Mutual Risk Management, Ltd. 19,850 723
National Commerce Bancorp 7,500 314
National Data Corp. 31,000 1,356
Nationwide Financial Services, Inc. Class A 21,300 1,086
Ocean Financial Corp. 4,600 88
Ocwen Financial Corp. (a) 50,750 1,364
Ohio Casualty Corp. 6,100 269
Old Kent Financial Corp. 4,400 158
Old Republic International Corp. 41,050 1,203
Orion Capital Corp. 8,900 497
Pacific Century Financial Corp. 29,800 715
Pacific Gulf Properties, Inc. 5,000 108
Paychex, Inc. 39,375 1,600
Penn Treaty American Corp. (a) 4,400 139
Pennsylvania Real Estate Investment Trust 5,000 111
Peoples Heritage Financial Group 65,624 1,550
PMI Group, Inc. (The) 11,500 844
Price (T. Rowe) & Associates, Inc. 35,000 1,313
Profit Recovery Group International, Inc. (The) (a) 50,000 1,397
Protective Life Corp. 1,500 55
Provident Bankshares Corp. 10,798 319
Provident Companies, Inc. 28,500 983
PXRE Corp. 36,786 1,104
Queens County Bancorp 5,998 262
Raymond James Financial, Inc. 58,800 1,760
Reliance Group Holdings, Inc. 34,600 606
RenaissanceRe Holdings, Ltd. 32,500 1,505
Republic Bancorp, Inc. 4,290 81
Resource Bancshares Mortgage Group 86,800 1,606
RLI Corp. 4,750 193
Rollins Truck Leasing Corp. 17,700 219
Roslyn Bancorp, Inc. 23,800 531
Ryder System, Inc. 20,200 638
Saville Systems Ireland PLC - ADR (a) 30,800 1,536
SCPIE Holdings, Inc. 800 27
Selective Insurance Group, Inc. 53,600 1,199
Silicon Valley Bancshares (a) 50,200 1,773
SL Green Realty Corp. REIT 12,000 270
Smith (Charles E.) Residential Realty, Inc. 36,600 1,171
Southern Pacific Funding Corp. (a) 12,000 188
Sovereign Bancorp, Inc. 82,227 1,341
Sovran Self Storage, Inc. 31,100 879
St. Francis Capital Corp. 3,000 116
SunAmerica, Inc. 32,000 1,838
Sunstone Hotel Investors, Inc. 7,400 99
TCF Financial Corp. 48,000 1,416
TR Financial Corp. 4,100 172
Transatlantic Holdings, Inc. 31,800 2,459
Trenwick Group, Inc. 36,000 1,397
UMB Financial Corp. 1,000 50
Union Planters Corp. 22,002 1,294
United Fire & Casualty Co. 25,575 1,002
Unitrin, Inc. 4,900 338
Valley National Bancorp 5,587 162
Washington Federal, Inc. 17,232 476
Webster Financial Corp. 49,200 1,624
Westamerica Bancorporation 45,600 1,465
Whitney Holding Corp. 1,000 51
Wilmington Trust Corp. 1,800 110
----------
124,731
----------
HEALTH CARE - 6.4%
American Dental Partners, Inc. New (a) 25,000 350
AmSurg Corp. Class A (a) 8,500 64
Arterial Vascular Engineering, Inc. (a) 40,200 1,435
ARV Assisted Living, Inc. (a) 10,000 125
Assisted Living Concepts, Inc. (a) 8,000 138
Balanced Care Corp. (a) 16,700 121
</TABLE>
Equity II Fund 17
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Beverly Enterprises, Inc. New (a) 10,000 $ 138
Bindley Western Industries, Inc. 16,800 554
Biogen, Inc. (a) 18,000 880
Biosite Diagnostics, Inc. (a) 10,000 107
CorVel Corp. (a) 4,000 154
Curative Technologies, Inc. (a) 18,700 533
Genset - ADR (a) 20,000 586
Health Care & Retirement Corp. (a) 26,500 1,045
Health Management Associates Class A (a) 52,500 1,755
Healthcare Services Group, Inc. (a) 10,000 159
Hooper Holmes, Inc. 8,000 168
Human Genome Sciences, Inc. (a) 15,500 553
IDEXX Laboratories, Inc. (a) 42,900 1,067
Immucor Corp. (a) 15,000 128
Incyte Pharmaceuticals, Inc. (a) 27,400 935
Integrated Health Services, Inc. 6,100 229
Landauer, Inc. 5,300 158
Lincare Holdings, Inc. (a) 84,400 3,545
Lunar Corp. (a) 9,000 164
Maxxim Medical, Inc. (a) 5,000 145
MedImmune, Inc. (a) 5,400 337
Monarch Dental Corp. New (a) 9,000 141
NBTY, Inc. (a) 68,400 1,248
NCS HealthCare, Inc. Class A (a) 40,000 1,140
NovaCare, Inc. (a) 112,100 1,317
Orthodontic Centers of America, Inc. (a) 40,000 838
Pediatric Services of America, Inc. (a) 7,300 110
Pediatrix Medical Group (a) 30,000 1,116
Physio-Control International Corp. (a) 9,000 237
PMR Corp. (a) 9,600 96
Protocol Systems, Inc. (a) 12,000 104
Quintiles Transnational Corp. (a) 28,500 1,400
Renal Care Group, Inc. (a) 38,600 1,701
Res-Care, Inc. (a) 9,000 165
Respironics, Inc. (a) 36,000 554
Rexall Sundown, Inc. (a) 38,300 1,364
Sola International, Inc. (a) 48,000 1,569
STAAR Surgical Co. New (a) 13,000 201
Steris Corp. (a) 13,600 863
Sun Healthcare Group, Inc. (a) 18,000 263
Theragenics Corp. (a) 19,700 512
Thermo BioAnalysis Corp. (a) 25,000 453
Total Renal Care Holdings, Inc. (a) 55,600 1,918
Trigon Healthcare, Inc. (a) 24,700 894
Twinlab Corp. New (a) 28,400 1,241
U.S. Vision, Inc. New (a) 12,000 144
UroCor, Inc. (a) 18,000 124
Urologix, Inc. (a) 14,000 119
Weider Nutrition International, Inc.
Class A 9,500 162
----------
35,567
----------
INTEGRATED OILS - 0.9%
Cross Timbers Oil Co. 89,925 1,714
Equitable Resources, Inc. 11,700 357
Giant Industries, Inc. 38,900 676
Houston Exploration Co. (The) (a) 5,700 131
Murphy Oil Corp. 14,000 710
Sun Co., Inc. 26,100 1,013
Tesoro Petroleum Corp. (a) 12,300 195
----------
4,796
----------
MATERIALS AND PROCESSING - 8.6%
ACX Technologies, Inc. (a) 1,100 24
Advanced Energy Industries, Inc. (a) 12,200 142
Agrium, Inc. 76,500 966
AK Steel Holding Corp. 23,100 413
Albany International Corp. Class A 6,100 146
Albemarle Corp. 12,300 271
American Buildings Co. New (a) 5,000 146
Applied Extrusion Technologies, Inc. (a) 18,000 128
AptarGroup, Inc. 26,800 1,667
Atchison Casting Corp. (a) 6,000 107
Ball Corp. 7,600 305
Banta Corp. 26,400 804
Bethlehem Steel Corp. (a) 38,400 478
Bowater, Inc. 12,200 576
Brush Wellman, Inc. 300 6
Building Materials Holding Corp. (a) 12,000 164
Burlington Industries, Inc. (a) 18,900 266
BWay Corp. (a) 7,000 151
CalMat Co. 6,900 152
Cambrex Corp. 5,500 144
Carbide/Graphite Group, Inc. (The) (a) 4,000 111
Centex Construction Products, Inc. 42,400 1,632
Centex Corp. 49,900 1,884
Channell Commercial Corp. (a) 8,000 85
Chemed Corp. 3,500 119
Chesapeake Corp. 8,500 331
Citation Corp. (a) 9,000 179
Cleveland-Cliffs, Inc. 6,800 365
Comfort Systems USA, Inc. (a) 38,450 899
</TABLE>
18 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Commercial Metals Co. 2,900 $ 89
Consolidated Papers, Inc. 24,000 654
Correctional Properties Trust New (a) 2,500 51
Crompton & Knowles Corp. 34,650 873
Culp, Inc. 1,600 18
CUNO, Inc. (a) 6,000 130
Cyprus Amax Minerals Co. 27,900 370
Dayton Superior Corp. Class A (a) 4,400 79
Dexter Corp. 10,900 347
Easco, Inc. 11,000 111
Engle Homes, Inc. 8,300 127
Ennis Business Forms, Inc. 47,450 552
Finish Line (The), Inc. Class A (a) 36,800 1,030
Giant Cement Holding, Inc. (a) 4,000 114
Goodrich (B.F.) Co. 22,500 1,117
Granite Construction, Inc. 4,100 126
Guilford Mills, Inc. 7,400 148
Hughes Supply, Inc. 28,200 1,033
IMCO Recycling, Inc. 9,000 167
International Specialty Products (a) 7,000 130
Kaydon Corp. 16,800 593
Lafarge Corp. 13,900 546
Lesco, Inc. 8,000 148
Lone Star Industries, Inc. 25,500 1,965
LTV Corp. 36,600 350
Millennium Chemicals, Inc. 33,300 1,128
Minerals Technologies, Inc. 26,800 1,363
Mohawk Industries, Inc. (a) 18,000 570
NCI Building Systems, Inc. (a) 26,800 1,544
NN Ball & Roller, Inc. 8,000 95
Northland Cranberries, Inc. Class A 7,000 108
Olin Corp. 21,700 905
OM Group 17,500 722
P.H. Glatfelter Co. 5,100 81
Pan Pacific Retail Properties, Inc. 7,000 136
Penford Corp. 4,000 120
Plum Creek Timber Co. L.P. 29,000 872
Potlatch Corp. 11,500 483
Quaker Fabric Corp. New (a) 9,000 129
Quanex Corp. 4,700 142
Rayonier, Inc. 11,800 543
Reliance Steel & Aluminum Co. 1,900 73
RMI Titanium Co. (a) 4,500 102
Rock of Ages Corp. Class A (a) 8,000 124
RPM, Inc. (Ohio) 20,600 350
Schulman (A.), Inc. 2,750 53
Scotts Co. (The) Class A (a) 7,600 283
SIFCO Industries 55,900 1,181
Southdown, Inc. 20,000 1,428
SPS Technologies, Inc. (a) 2,400 140
St. Joe Corp. 41,200 1,128
Stone & Webster, Inc. 3,000 119
Synalloy Corp. 7,000 94
Texas Industries, Inc. 62,500 3,313
Thomas Industries, Inc. 700 17
Timken Co. 21,100 650
TJ International, Inc. 19,100 573
Tractor Supply Co. (a) 6,000 149
Universal Stainless &
Alloy Products, Inc. (a) 9,000 82
USG Corp. 42,400 2,295
USX-U.S. Steel Group 31,100 1,026
Valley National Gases, Inc. (a) 12,000 132
Webb (Del E.) Corp. 46,200 1,198
Wellman, Inc. 18,200 413
Wellsford Real Properties, Inc. 10,000 141
Wolverine Tube, Inc. (a) 4,000 152
Zero Corp. 5,000 142
----------
47,828
----------
MISCELLANEOUS - 1.0%
BEC Energy (a) 15,600 647
ChoicePoint, Inc. (a) 14,000 709
Griffon Corp. (a) 79,500 1,019
Kaynar Technologies, Inc. (a) 5,000 114
LNR Property Corp. 50,000 1,281
MAXIMUS, Inc. (a) 47,500 1,366
Pameco Corp. (a) 7,000 140
Stolt Comex Seaway, S. A. -
ADR Class A (a) 12,700 219
----------
5,495
----------
OTHER ENERGY - 4.3%
Atwood Oceanics, Inc. (a) 14,200 565
Bayard Drilling Technologies, Inc. (a) 15,000 122
BJ Services Co. (a) 35,000 1,017
Chesapeake Energy Corp. 19,500 78
Coho Energy, Inc. (a) 13,181 89
Costilla Energy, Inc. (a) 10,000 87
Dailey International Inc. (a) 17,800 107
Eastern Enterprises, Inc. 8,100 347
Evergreen Resources, Inc. (a) 8,000 150
Global Industries, Inc. (a) 39,350 662
HS Resources, Inc. (a) 4,800 70
</TABLE>
Equity II Fund 19
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Input/Output, Inc. (a) 40,800 $ 727
Mallon Resources Corp. New (a) 20,000 237
Marine Drilling Co, Inc. (a) 38,300 610
MarketSpan Corp. (a) 44,988 1,347
Mitcham Industries, Inc. (a) 15,000 173
Noble Drilling Corp. (a) 34,000 818
OMNI Energy Services Corp. New (a) 15,400 208
ONEOK, Inc. New 14,200 566
Pool Energy Services Co. (a) 64,600 953
Rowan Cos., Inc. (a) 40,400 785
Santa Fe International Corp. 31,800 962
Seacor Holdings, Inc. (a) 36,300 2,226
Sempra Energy (a) 21,400 594
Stolt Comex Seaway SA (a) 30,650 590
Supreme Industries, Inc. Class A (a) 12,363 151
Transocean Offshore, Inc. 24,000 1,068
Tuboscope Vetco International Corp. (a) 17,000 336
Ultramar Diamond Shamrock Corp. 32,300 1,019
Unit Corp. (a) 18,000 109
Valero Energy Corp. 8,600 286
Varco International, Inc. (a) 93,850 1,859
Veritas DGC, Inc. (a) 54,200 2,707
Vintage Petroleum, Inc. 62,650 1,183
Willbros Group, Inc. (a) 6,000 94
Wiser Oil Co. 85,200 943
----------
23,845
----------
PRODUCER DURABLES - 6.8%
AFC Cable Systems, Inc. (a) 7,200 256
Ag-Chem Equipment Co., Inc. (a) 10,000 221
AgriBiotech, Inc. New (a) 11,900 329
Allied Waste Industries, Inc. (a) 35,150 841
AMETEK, Inc. 4,400 129
ANTEC Corp. (a) 4,000 93
Bell Industries (a) 68,129 775
C&D Technologies, Inc. 2,400 139
Cascade Corp. 6,300 115
CFM Technologies, Inc. (a) 8,000 115
Champion Enterprises, Inc. (a) 47,700 1,401
Chart Industries, Inc. 39,700 948
Cincinnati Milacron, Inc. 10,700 260
Cohu, Inc. 32,400 788
Columbus McKinnon Corp. 39,000 1,033
Commercial Intertech Corp. 2,900 53
D.R. Horton, Inc. 59,300 1,238
Daniel Industries, Inc. 4,200 80
DeCrane Aircraft Holdings, Inc. (a) 5,700 97
Detroit Diesel Corp. (a) 3,600 78
EG&G, Inc. 15,700 471
FARO Technologies, Inc. (a) 10,000 106
Farr Co. (a) 13,500 159
FLIR Systems, Inc. (a) 6,000 103
Flow International Corp. (a) 10,000 115
Franklin Electric Co., Inc. 1,900 127
Gemstar International Group, Ltd. (a) 45,250 1,686
GenCorp, Inc. 500 13
General Cable Corp. 22,650 654
Gleason Corp. 4,500 127
Graco, Inc. 4,000 139
Gradall Industries, Inc. (a) 10,000 145
Helix Technology Corp. 8,000 120
Holophane Corp. (a) 6,000 151
Innovative Valve Technologies, Inc. (a) 20,000 145
JLK Direct Distribution, Inc. Class A (a) 1,600 35
Kaman Corp. Class A 5,900 112
Kaufman & Broad Home Corp. 10,500 333
Kellstrom Industries, Inc. (a) 22,450 657
Kennametal, Inc. 11,600 484
KLA Instruments Corp. (a) 25,500 706
Knoll, Inc. (a) 16,700 493
Lennar Corp. 81,600 2,407
Lexmark International Group, Inc. Class A (a) 28,600 1,745
Litton Industries, Inc. (a) 17,900 1,056
Middleby Corp. (The) (a) 21,600 130
Molex, Inc. Class A 25,100 587
NACCO Industries, Inc. Class A 3,600 465
National-Oilwell, Inc. (a) 45,600 1,223
Newmark Homes Corp. (a) 15,000 150
Novellus Systems, Inc. (a) 15,000 535
NVR, Inc. (a) 3,100 127
OYO Geospace Corp. (a) 8,000 216
Perceptron, Inc. (a) 4,300 51
Pittway Corp. Class A 19,561 1,445
Powell Industries, Inc. (a) 8,000 97
Pulte Corp. 19,200 574
Ryland Group, Inc. 27,100 711
Scotman Industries, Inc. 2,300 64
Snap-On Tools Corp. 5,600 203
Standard Pacific Corp. 74,600 1,539
Starrett (L.S.) Co. Class A 24,500 968
STM Wireless, Inc. Class A (a) 12,000 109
Superior TeleCom, Inc. 5,600 233
TB Wood's Corporation 8,000 168
Tecumseh Products Co. Class A 3,700 195
</TABLE>
20 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Teradyne, Inc. (a) 30,800 $ 824
Terex Corp. (a) 55,600 1,585
Thomas & Betts Corp. 11,400 560
Toll Brothers, Inc. (a) 36,100 1,036
TransTechnology Corp. 4,300 110
TriStar Aerospace Co. (a) 55,000 852
U.S. Home Corp. (a) 5,400 223
Uniphase Corp. (a) 26,300 1,650
Worldtex, Inc. (a) 15,000 87
----------
37,995
----------
TECHNOLOGY - 12.6%
ADC Telecommunications, Inc. (a) 12,000 438
Allen Telecom, Inc. (a) 13,000 151
American Xtal Technology, Inc. (a) 4,500 65
Anixter International, Inc. (a) 23,500 448
Aspen Technology, Inc. (a) 40,000 2,020
Autodesk, Inc. 27,200 1,046
Avid Technology, Inc. (a) 36,400 1,217
Avnet, Inc. 20,900 1,143
Bel Fuse, Inc. (a) 4,000 89
Berg Electronics Corp. (a) 42,000 822
Boole & Babbage, Inc. (a) 5,250 125
BTG, Inc. (a) 10,000 90
Business Objects SA - ADR (a) 28,400 479
Cable Design Technologies Corp. (a) 63,500 1,310
CACI International, Inc. Class A (a) 7,000 147
Cambridge Technology Partners, Inc. (a) 44,000 2,403
CBT Group Public, Ltd. - ADR (a) 47,550 2,544
Celeritek, Inc. (a) 20,200 125
CFI ProServices, Inc. (a) 10,000 170
CHS Electronics, Inc. (a) 46,300 822
Ciber, Inc. (a) 82,500 3,135
Citrix Systems, Inc. (a) 23,500 1,607
Comarco, Inc. (a) 5,000 105
Compuware Corp. (a) 77,850 3,975
Cotelligent Group, Inc. (a) 5,000 117
Diamond Multimedia Systems, Inc. (a) 1,400 10
Digi International, Inc. (a) 55,900 1,128
DSP Communications, Inc. (a) 65,900 906
Electronics For Imaging, Inc. (a) 18,800 396
Esterline Corp. (a) 11,600 242
Exar Corp. (a) 8,000 167
Fairchild Corp. (The) Class A (a) 6,500 131
FORE Systems (a) 31,200 825
Harmon Industries, Inc. 7,500 178
HNC Software, Inc. (a) 45,000 1,837
Hyperion Software Corp. (a) 33,450 953
IDX Systems Corp. (a) 60,400 2,786
Industri-Matematik International Corp. (a) 4,800 52
Information Management Resources, Inc. (a) 55,200 1,866
Integrated Circuit Systems, Inc. (a) 5,000 83
Integrated Silicon Solution, Inc. (a) 106,000 735
Intersolv, Inc. (a) 1,300 21
Keane, Inc. (a) 24,150 1,352
Kronos, Inc. (a) 5,300 194
Lernout & Hauspie Speech Products NV (a) 10,000 596
LSI Logic Corp. (a) 52,000 1,199
Macromedia, Inc. (a) 39,700 742
Manhattan Associates, Inc. (a) 20,000 415
Mercury Interactive Corp. (a) 39,200 1,744
MicroStrategy, Inc. (a) 12,800 362
Network Associates, Inc. (a) 27,975 1,338
Open Market, Inc. (a) 50,000 937
Optek Technology, Inc. (a) 7,000 130
ORBIT/FR, Inc. (a) 9,000 60
OSI Systems, Inc. New (a) 13,000 129
Par Technology Corp. (a) 15,000 91
PeopleSoft, Inc. (a) 30,500 1,432
Pericom Semiconductor Corp. New (a) 14,000 94
Photronics, Inc. (a) 4,000 88
PMC - Sierra, Inc. (a) 30,400 1,421
PSINET, Inc. (a) 50,000 644
QuadraMed Corp. New (a) 98,550 2,692
Safeguard Scientifics, Inc. (a) 21,300 888
Sandisk Corp. (a) 3,000 41
ScanSource, Inc. (a) 6,000 115
SeaChange International, Inc. (a) 18,000 222
Seagate Technology (a) 17,500 417
SpecTran Corp. (a) 12,000 95
Sterling Software, Inc. (a) 44,800 1,324
Storage Technology Corp. (a) 47,200 2,047
Symantec Corp. (a) 49,500 1,287
Systems & Computer Technology Corp. (a) 23,500 632
Tech-Sym Corp. (a) 35,200 979
Tekelec, Inc. (a) 14,500 649
Tellabs, Inc. (a) 14,500 1,038
Transaction Systems Architects, Inc. Class A (a) 40,000 1,540
USCS International, Inc. (a) 30,000 621
</TABLE>
Equity II Fund 21
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Verilink Corp. (a) 18,000 $ 144
Veritas Software Corp. (a) 55,564 2,295
Vitesse Semiconductor Corp. (a) 50,100 1,547
World Access, Inc. (a) 1,000 30
Xylan Corp. (a) 50,150 1,492
----------
69,972
----------
UTILITIES - 5.5%
AGL Resources, Inc. 12,500 248
Aquarion Co. 1,000 34
Atmos Energy Corp. 4,100 125
California Water Service Group 1,800 45
Centennial Cellular Corp. Class A (a) 42,500 1,586
Central Hudson Gas & Electric Corp. 5,500 252
Central Maine Power Co. 74,800 1,459
Century Telephone Enterprises, Inc. 23,300 1,069
CILCORP, Inc. 1,500 72
Citizens Utilities Co. Class B (a) 63,463 611
Cleco Corp. 4,600 137
Colonial Gas Co. 800 23
Commonwealth Energy System 3,600 136
Conectiv, Inc. 22,600 463
Connecticut Energy Corp. 1,700 47
CoreComm, Inc. (a) 59,000 1,534
DPL, Inc. 35,400 642
E'town Corp. 300 11
Eastern Utilities Associates 10,900 286
Energen Corp. 6,200 125
Energy East Corp. (a) 23,400 974
Florida Progress Corp. 27,100 1,114
General Communication, Inc. Class A (a) 16,000 95
Hawaiian Electric Industries, Inc. 6,900 274
Idaho Power Co. 7,000 242
Interstate Energy Corp. 17,400 566
IXC Communications, Inc. (a) 28,200 1,361
Jones Intercable, Inc. Class A (a) 60,900 1,523
K N Energy, Inc. 14,900 807
MCN Corp. 33,900 843
MDU Resources Group, Inc. 6,300 225
Metrocall, Inc. (a) 24,000 146
MidAmerican Energy Holdings Co. 18,000 389
Minnesota Power & Light Co. 7,800 310
Montana Power Co. 27,600 959
National Fuel & Gas Co. 9,500 414
Nevada Power Co. 19,800 510
New Century Energies, Inc. 23,700 1,077
New England Electric System 20,100 869
New Jersey Resources Corp. 2,600 93
NICOR, Inc. 10,000 401
NUI Corp. 3,100 79
Piedmont Natural Gas Co., Inc. 4,005 135
Pinnacle West Capital Corp. 2,600 117
Public Service Co. of New Mexico 20,600 467
Puget Sound Power & Light Co. 27,300 732
Rochester Gas & Electric Corp. 16,600 530
SCANA Corp. 21,200 632
SIG Corp., Inc. 2,500 80
Southwest Gas Corp. 16,400 401
St. Joseph Light & Power Co. 7,000 130
TNP Enterprises, Inc. 7,900 244
UGI Corp. 6,800 169
United Illuminating Co. 5,800 294
United States Cellular Corp. (a) 38,000 1,168
UtiliCorp United, Inc. 20,600 776
Washington Gas & Light Co. 10,600 284
Washington Water Power Co. 9,300 209
Western Resources, Inc. 23,200 900
WICOR, Inc. 7,600 176
Wisconsin Energy Corp. 25,500 775
WPS Resources Corp. 5,400 177
----------
30,572
----------
TOTAL COMMON STOCKS
(cost $409,278) 528,883
----------
PREFERRED STOCKS - 0.2%
Callon Petroleum Co. Series A (conv.) 2,000 66
Finova Finance Trust 13,000 1,021
Golden Books Financial Trust (conv.) (a) 2,500 59
----------
TOTAL PREFERRED STOCKS
(cost $848) 1,146
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.2%
American Residential
Services, Inc. (conv.)
7.250% due 04/15/04 $ 200 142
Aviron (conv.)
5.750% due 04/01/05 320 352
</TABLE>
22 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Getty Images, Inc. (conv.)
4.750% due 06/01/03 $ 700 $ 663
Titan Corp. (conv.)
8.250% due 11/01/03 45 82
----------
TOTAL LONG-TERM INVESTMENTS
(cost $1,233) 1,239
----------
SHORT-TERM INVESTMENTS - 4.6%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) 23,998 23,998
United States Treasury Notes (b)(c)
5.250% due 07/31/98 1,550 1,550
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $25,548) 25,548
----------
TOTAL INVESTMENTS - 100.0%
(identified cost $436,907)(d) 556,816
OTHER ASSETS AND LIABILITIES,
NET - 0.0% 233
----------
NET ASSETS - 100.0% $ 557,049
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures
contracts purchased by the Fund.
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
PLC - Public Limited Company
REIT - Real Estate Investment Trust
NV - Nonvoting
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 400 Midcap Index Futures Contracts
expiration date 09/98 104 $ 150
S&P 500 Index Futures Contracts
expiration date 09/98 32 300
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 450
----------
----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at
$1,550 were held as collateral in connection with futures
contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
Equity II Fund 23
<PAGE>
EQUITY II FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $436,907)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 556,816
Cash. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,862
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 44,629
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612,733
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,953
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,545
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 363
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 84
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 44,629
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,684
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 557,049
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,835
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,909
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,407
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 557,049
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($557,049,376 divided by 15,575,632 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35.76
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24 Equity II Fund
<PAGE>
EQUITY II FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,995
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,842
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,953
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,312
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,847
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,185 31,032
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,431
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 19,676
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,708
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 51,238
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity II Fund 25
<PAGE>
EQUITY II FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 530 $ 1,520
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,032 61,756
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 19,676 48,513
-------------- --------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 51,238 111,789
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (468) (1,485)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (8,471) (65,718)
-------------- --------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (8,939) (67,203)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 32,591 71,618
-------------- --------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 74,890 116,204
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482,159 365,955
-------------- --------------
End of period (including undistributed net investment income of
$292 and $230, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 557,049 $ 482,159
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26 Equity II Fund
<PAGE>
EQUITY II 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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 32.96 $ 30.05 $ 28.88 $ 25.00 $ 26.58 $ 27.71
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .03 .11 .16 .27 .36 .32
Net realized and unrealized gain (loss) on investments . 3.37 8.11 4.96 6.80 (.86) 3.97
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 3.40 8.22 5.12 7.07 (.50) 4.29
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.03) (.11) (.16) (.29) (.31) (.31)
Net realized gain on investments . . . . . . . . . . . . (.57) (5.20) (3.79) (2.90) (.21) (4.72)
In excess of net realized gain on investments. . . . . . -- -- -- -- (.56) (.39)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.60) (5.31) (3.95) (3.19) (1.08) (5.42)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 35.76 $ 32.96 $ 30.05 $ 28.88 $ 25.00 $ 26.58
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 10.42 28.66 18.51 28.67 (2.60) 16.70
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 557,049 482,159 365,955 279,566 202,977 171,421
Ratios to average net assets (%)(b)(c):
Operating expenses. . . . . . . . . . . . . . . . . . .88 .92 .95 .83 .23 .34
Net investment income . . . . . . . . . . . . . . . . .20 .35 .52 .97 1.46 1.14
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 91.95 103.00 120.78 89.31 58.04 87.25
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 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.
Equity II Fund 27
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 97.7%
AUTO AND TRANSPORTATION - 6.0%
Airborne Freight Corp. 28,100 $ 982
AMR Corp. (a) 29,300 2,439
Chrysler Corp. 56,700 3,197
CSX Corp. 11,200 510
Delta Air Lines, Inc. 12,200 1,577
Ford Motor Co. 57,900 3,416
General Motors Corp. 9,700 648
Navistar International Corp. (a) 23,600 681
Trinity Industries, Inc. 14,900 618
UAL Corp. (a) 14,800 1,154
Union Pacific Corp. 5,700 252
----------
15,474
----------
CONSUMER DISCRETIONARY - 10.4%
Carnival Corp. Class A 40,400 1,601
De Beers Consolidated Mines, Ltd. - ADR 29,800 518
Deluxe Corp. 15,800 566
Eastman Kodak Co. 19,493 1,424
Federated Department Stores, Inc. (a) 36,004 1,937
Fortune Brands, Inc. 22,000 846
Harrah's Entertainment, Inc. (a) 4,700 109
Hasbro, Inc. 25,000 983
JC Penney & Co., Inc. 24,500 1,772
King World Productions, Inc. (a) 27,500 701
Kmart Corp. (a) 36,400 701
Limited, Inc. (The) 11,400 377
MediaOne Group, Inc. (a) 63,200 2,777
Office Depot, Inc. (a) 26,300 830
Promus Hotel Corp. New (a) 8,200 316
Sears Roebuck & Co. 34,700 2,119
Time Warner, Inc. 14,500 1,239
Toys "R" Us, Inc. (a) 46,900 1,105
Tribune Co. 23,300 1,603
Viacom, Inc. Class B (a) 47,400 2,761
Whirlpool Corp. 36,000 2,475
----------
26,760
----------
CONSUMER STAPLES - 2.7%
Anheuser-Busch Cos., Inc. 29,000 1,368
ConAgra, Inc. 43,100 1,366
IBP, Inc. 28,500 516
PepsiCo, Inc. 35,200 1,450
RJR Nabisco Holdings Corp. 60,580 1,439
SuperValu, Inc. 10,200 453
UST Corp. 15,800 426
----------
7,018
----------
FINANCIAL SERVICES - 29.7%
Ahmanson (H.F.) & Co. 20,800 1,477
Allstate Corp. 60,331 5,524
AMBAC Financial Group, Inc. 27,700 1,620
American General Corp. 10,000 712
Associates First Capital Corp. Class A 11,324 871
Banc One Corp. 54,800 3,059
Bank of New York Co., Inc. 50,700 3,077
BankAmerica Corp. 26,400 2,282
Bankers Trust New York Corp. 16,300 1,892
Camden Property Trust 11,080 330
Chase Manhattan Corp. 73,476 5,547
Chelsea GCA Realty, Inc. 10,000 400
CIGNA Corp. 10,900 752
CIT Group, Inc. (The) Class A 26,700 1,001
Colonial Properties Trust 15,200 471
Comdisco, Inc. 41,700 792
Countrywide Credit Industries, Inc. 14,300 726
Dime Bancorp, Inc. 43,600 1,305
Dow Jones & Co., Inc. 18,800 1,048
Federal National Mortgage Association 30,700 1,865
First American Corp. 27,400 1,319
First Chicago NBD Corp. 12,600 1,117
First Union Corp. 73,600 4,287
Fleet Financial Group, Inc. 37,100 3,098
Hartford Financial Services Group, Inc. (The) 16,700 1,910
Kilroy Realty Corp. 16,700 417
MBIA, Inc. 28,600 2,141
Morgan Stanley, Dean Witter, Discover and Co. 50,100 4,578
National City Corp. 39,500 2,805
NationsBank Corp. 31,550 2,414
Norwest Corp. 80,500 3,009
PaineWebber Group, Inc. 2,600 111
PMI Group, Inc. (The) 14,400 1,057
PNC Bank Corp. 20,600 1,109
Prentiss Properties Trust 13,700 333
Provident Companies, Inc. 30,600 1,056
Public Storage, Inc. 33,000 924
Reliance Group Holdings, Inc. 37,800 661
Reliastar Financial Corp. 7,200 346
Ryder System, Inc. 38,500 1,215
Spieker Properties, Inc. 28,900 1,120
TIG Holdings, Inc. 45,300 1,042
Transamerica Financial Corp. 7,900 909
Travelers, Inc. 21,096 1,279
Union Planters Corp. 13,500 794
Washington Mutual, Inc. 57,450 2,491
----------
76,293
----------
</TABLE>
28 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
HEALTH CARE - 4.1%
Aetna, Inc. 22,500 $ 1,713
Baxter International, Inc. 22,100 1,189
Bergen Brunswig Corp. Class A 16,300 756
Bristol-Myers Squibb Co. 12,900 1,483
Columbia/HCA Healthcare Corp. 72,700 2,117
Genzyme Corp. (a) 16,300 412
Schering-Plough Corp. 17,700 1,622
Tenet Healthcare Corp. (a) 40,800 1,275
----------
10,567
----------
INTEGRATED OILS - 9.2%
Amerada Hess Corp. NPV 24,100 1,309
Amoco Corp. 25,300 1,053
Ashland, Inc. 29,000 1,497
Atlantic Richfield Co. 26,300 2,055
Coastal Corp. 33,400 2,332
Equitable Resources, Inc. 26,100 796
Exxon Corp. 48,400 3,452
Kerr-McGee Corp. 21,900 1,268
Mobil Corp. 13,500 1,034
Phillips Petroleum Co. 21,700 1,046
Sun Co., Inc. 14,000 543
Tenneco, Inc. 38,100 1,450
Texaco, Inc. 40,600 2,423
USX-Marathon Group 93,700 3,215
----------
23,473
----------
MATERIALS AND PROCESSING - 6.4%
Aluminum Co. of America 18,900 1,246
Armstrong World Industries, Inc. 7,400 498
Bowater, Inc. 9,900 468
Dow Chemical Co. 6,700 648
Eastman Chemical Co. 36,300 2,260
FMC Corp. (a) 11,800 805
Freeport McMoRan Copper & Gold, Inc. Class B 53,000 805
Great Lakes Chemical Corp. 10,300 406
Harsco Corp. 20,300 930
IMC Global, Inc. 23,000 693
International Paper Co. 22,500 967
Lafarge Corp. 16,800 660
LTV Corp. 31,500 301
Lubrizol Corp. 20,100 608
Mead Corp. 41,200 1,308
Nucor Corp. 11,300 520
Olin Corp. 6,200 258
Reynolds Metals Co. 15,600 873
Sonoco Products Co. 11,000 333
Temple-Inland, Inc. 11,300 609
Timken Co. 21,000 647
Westvaco Corp. 18,400 520
----------
16,363
----------
OTHER ENERGY - 2.2%
Apache Corp. 17,600 554
BJ Services Co. (a) 19,200 558
Global Marine, Inc. (a) 20,900 390
Helmerich & Payne, Inc. 14,100 314
Occidental Petroleum Corp. 23,103 624
Santa Fe Energy Resources, Inc. (a) 57,900 622
Transocean Offshore, Inc. 10,600 472
Ultramar Diamond Shamrock Corp. 42,700 1,348
Valero Energy Corp. 24,300 808
----------
5,690
----------
PRODUCER DURABLES - 4.8%
AGCO Corp. 17,600 362
AMP, Inc. 17,900 615
Case Corp. 20,700 999
Caterpillar, Inc. 20,200 1,068
Deere & Co. 4,300 227
Diebold, Inc. 7,600 219
Foster Wheeler Corp. 26,800 575
General Electric Co. 17,100 1,556
Harnischfeger Industries, Inc. 19,100 541
Hitachi, Ltd. ADR 4,700 303
Johnson Controls, Inc. 30,500 1,744
Matsushita Electric Industrial Co., Ltd. - ADR 3,200 514
Northrop Grumman Corp. 11,200 1,155
Tektronix, Inc. 11,700 414
Xerox Corp. 20,000 2,033
----------
12,325
----------
TECHNOLOGY - 5.4%
COMPAQ Computer Corp. 38,100 1,081
Data General Corp. (a) 29,400 439
Electronic Data Systems Corp. 46,667 1,867
Hewlett-Packard Co. 13,100 784
International Business Machines Corp. 42,700 4,903
MEMC Electronic Materials, Inc. (a) 14,400 149
National Semiconductor Corp. (a) 15,500 205
Seagate Technology (a) 31,800 757
Storage Technology Corp. (a) 37,400 1,622
Tandy Corp. 26,700 1,417
VLSI Technology, Inc. (a) 37,600 630
----------
13,854
----------
</TABLE>
Equity III Fund 29
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
UTILITIES - 16.8%
AT&T Corp. 85,300 $ 4,873
Baltimore Gas & Electric Co. 21,100 655
BCE, Inc. 29,006 1,238
Bell Atlantic Corp. 126,054 5,751
BellSouth Corp. 6,600 443
Columbia Gas System, Inc. 12,550 698
Consolidated Edison, Inc. 24,900 1,147
DTE Energy Co. 50,300 2,031
Edison International 26,800 792
Entergy Corp. 42,500 1,222
FPL Group, Inc. 14,700 926
GPU, Inc. 39,600 1,497
GTE Corp. 68,773 3,826
Illinova Corp. 22,300 669
Niagara Mohawk Power Corp. (a) 44,200 660
PacifiCorp. 90,000 2,036
Peco Energy Co. 25,500 744
PG&E Corp. 90,859 2,868
Public Service Enterprise Group, Inc. 13,500 465
SBC Communications, Inc. 127,700 5,108
Southern Co. 18,300 507
Texas Utilities Co. 34,400 1,432
U S West, Inc. (a) 23,801 1,119
WorldCom, Inc. (a) 50,600 2,445
----------
43,152
----------
TOTAL COMMON STOCKS
(cost $208,680) 250,969
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.3%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 4,853 $ 4,853
United States Treasury Notes (b)(c)
5.250% due 07/31/98 1,000 1,000
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,853) 5,853
----------
TOTAL INVESTMENTS
(identified cost $214,533)(d) - 100.0% 256,822
OTHER ASSETS AND LIABILITIES,
NET - 0.0% 92
----------
NET ASSETS - 100.0% $ 256,914
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures
contracts purchased by the Fund.
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
The accompanying notes are an integral part of the financial statements.
30 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 09/98 8 $ 26
S&P Barra Value Futures Contracts
expiration date 09/98 22 19
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 45
----------
----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at
$1,000 were held as collateral in connection with futures
contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
Equity III Fund 31
<PAGE>
EQUITY III FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $214,533)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 256,822
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,514
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 7,538
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266,563
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,720
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 142
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 30
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 7,538
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,649
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256,914
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 864
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,825
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,289
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,811
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256,914
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($256,913,610 divided by 8,015,025 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.05
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32 Equity III Fund
<PAGE>
EQUITY III FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,586
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 762
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,830
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,339
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733 25,072
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,597
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) 1,586
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,658
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 28,488
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity III Fund 33
<PAGE>
EQUITY III FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,830 $ 4,089
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,072 52,299
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 1,586 8,826
-------------- --------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 28,488 65,214
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (966) (4,089)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (43)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (8,655) (58,222)
-------------- --------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (9,621) (62,354)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . (4,065) 17,474
-------------- --------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 14,802 20,334
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,112 221,778
-------------- --------------
End of period (including undistributed net investment income of $864 at
June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256,914 $ 242,112
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34 Equity III Fund
<PAGE>
EQUITY III 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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 29.80 $ 29.68 $ 29.11 $ 24.18 $ 27.05 $ 26.75
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .22 .60 .70 .82 .93 .89
Net realized and unrealized gain (loss) on investments . 3.21 8.69 5.10 7.73 (.85) 2.99
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 3.43 9.29 5.80 8.55 .08 3.88
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.12) (.60) (.71) (.83) (.91) (.90)
In excess of net investment income . . . . . . . . . . . -- (.01) -- -- -- --
Net realized gain on investments . . . . . . . . . . . . (1.06) (8.56) (4.52) (2.79) (1.94) (2.68)
In excess of net realized gain on investments. . . . . . -- -- -- -- (.10) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (1.18) (9.17) (5.23) (3.62) (2.95) (3.58)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 32.05 $ 29.80 $ 29.68 $ 29.11 $ 24.18 $ 27.05
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 11.73 33.13 20.90 35.96 1.16 14.95
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 256,914 242,112 221,778 222,541 177,807 181,630
Ratios to average net assets (%)(b)(c):
Operating expenses. . . . . . . . . . . . . . . . . . .74 .78 .79 .65 .17 .16
Net investment income . . . . . . . . . . . . . . . . 1.44 1.77 2.23 2.90 3.39 3.09
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 116.66 128.86 100.78 103.40 85.92 76.77
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 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.
Equity III Fund 35
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 98.9%
AUTO AND TRANSPORTATION - 3.8%
AirTran Holdings, Inc. (a) 7,600 $ 57
AMR Corp. (a) 94,300 7,850
Bandag, Inc. 5,800 226
Burlington Northern, Inc. 7,500 736
Chrysler Corp. 66,700 3,760
CNF Transportation, Inc. 4,000 170
Consolidated Freightways Corp. (a) 1,300 18
Cooper Tire & Rubber Co. 13,600 281
CSX Corp. 19,300 878
Dana Corp. 29,400 1,573
Eaton Corp. 28,900 2,247
Echlin, Inc. 32,600 1,599
Exide Corp. 1,900 32
FDX Corp. (a) 2,200 138
Ford Motor Co. 142,700 8,419
General Motors Corp. 63,800 4,263
Genuine Parts Co. 19,900 688
Goodyear Tire & Rubber Co. 18,200 1,173
Hertz Corp. Class A 15,100 669
Kansas City Southern Industries, Inc. 90,300 4,481
Lear Corp. (a) 15,100 775
Meritor Automotive, Inc. 2,800 67
Modine Manufacturing Co. 3,200 111
Navistar International Corp. (a) 58,900 1,701
Norfolk Southern Corp. 33,800 1,008
Offshore Logistics, Inc. (a) 3,000 53
PACCAR, Inc. 4,400 229
Southwest Airlines Co. 600 18
Union Pacific Corp. 22,100 975
Wisconsin Central Transportation Corp. (a) 3,500 77
----------
44,272
----------
CONSUMER DISCRETIONARY - 11.0%
ACNielsen Corp. (a) 13,400 338
AnnTaylor Stores Corp. (a) 21,400 453
AutoZone Inc. (a) 26,500 846
Avon Products, Inc. 2,700 209
Belo (A.H.) Corp. Class A 5,200 127
Best Buy Co. (a) 19,300 697
BHC Communications, Inc. Class A 2,000 281
Black & Decker Corp. 6,600 403
Buffets, Inc. (a) 15,000 235
Burlington Coat Factory Warehouse Corp. 20,700 466
Chris Craft Industries, Inc. (a) 745 41
Circuit City Stores, Inc. 17,300 811
Circus Circus Enterprises, Inc. (a) 15,500 263
Corporate Express, Inc. (a) 18,300 231
Darden Restaurants, Inc. 51,600 819
Dayton Hudson Corp. 317,300 15,389
Deluxe Corp. 17,400 623
Department 56, Inc. (a) 18,900 671
Dillard's, Inc. Class A 16,500 684
Disney (Walt) Co. 59,600 6,262
Donnelley (R.R.) & Sons Co. 11,500 526
Eastman Kodak Co. 26,500 1,936
EKCO Group, Inc. (a) 4,100 32
Enesco Group, Inc. 12,000 369
Extended Stay America, Inc. (a) 13,300 150
Federated Department Stores, Inc. (a) 37,400 2,013
Fingerhut Cos., Inc. 27,400 904
Fortune Brands, Inc. 7,600 292
Fruit of the Loom, Inc. Class A (a) 99,900 3,315
Furniture Brands International, Inc. (a) 9,000 253
Gannett Co., Inc. 79,800 5,671
General Nutrition Companies, Inc. (a) 14,500 451
Genesco, Inc. (a) 4,500 73
Hasbro, Inc. 29,900 1,175
Home Depot, Inc. (The) 125,950 10,462
Host Marriott Corp. (a) 68,300 1,217
Huffy Corp. 10,500 190
International Game Technology 19,100 463
JC Penney & Co., Inc. 300 22
Kmart Corp. (a) 295,500 5,688
Knight-Ridder, Inc. 37,400 2,059
La-Z-Boy Chair Co. 7,200 407
Leggett & Platt, Inc. 35,200 880
Mattel, Inc. 51,300 2,171
May Department Stores Co. 10,400 681
McClatchy Newspapers, Inc. Class A 2,700 93
McDonald's Corp. 20,200 1,394
McGraw-Hill, Inc. 29,800 2,431
MGM Grand, Inc. (a) 9,400 297
Mirage Resorts, Inc. (a) 26,800 571
Nine West Group, Inc. (a) 3,200 86
Premark International, Inc. 18,300 590
Promus Hotel Corp. New (a) 40,825 1,572
QUALCOMM, Inc. (a) 11,300 635
Reebok International, Ltd. (a) 10,300 285
Rubbermaid, Inc. 21,600 717
Sears Roebuck & Co. 66,500 4,061
Service Corp. International 41,600 1,784
Shaw Industries, Inc. 24,900 439
Snyder Communications, Inc. (a) 16,300 717
Spelling Entertainment Group, Inc. (a) 700 7
Sunglass Hut International, Inc. (a) 43,000 473
Talbots, Inc. 2,600 68
</TABLE>
36 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Time Warner, Inc. 86,900 $ 7,425
Times Mirror Co. Series A 6,800 428
TJX Cos., Inc. 57,400 1,385
Toys "R" Us, Inc. (a) 47,900 1,129
Tribune Co. 38,600 2,656
Tricon Global Restaurants, Inc. (a) 34,900 1,106
Tupperware Corp. 30,000 844
V.F. Corp. 24,800 1,277
Venator Group, Inc. (a) 1,600 31
Viacom, Inc. Class B (a) 122,200 7,118
Viad Corp. 85,400 2,370
Wal-Mart Stores, Inc. 110,300 6,701
Warnaco Group, Inc. Class A 24,700 1,047
Washington Post Co. Class B 1,200 690
Waste Management, Inc. 94,900 3,321
Whirlpool Corp. 32,000 2,200
----------
127,197
----------
CONSUMER STAPLES - 8.1%
Albertson's, Inc. 88,500 4,585
American Stores Co. 6,500 157
Anheuser-Busch Cos., Inc. 55,000 2,595
Block Drug Co., Inc. Class A 7,972 300
Coca-Cola Co. (The) 99,600 8,516
Dean Foods Co. 15,000 824
Fleming Cos., Inc. 28,000 492
Flowers Industries, Inc. 32,500 664
General Mills, Inc. 600 41
Gillette Co. 113,600 6,440
Hannaford Brothers Co. 7,700 339
Heinz (H.J.) Co. 13,600 763
Interstate Bakeries Corp. 20,200 670
Kellogg Co. 19,600 736
Kroger Co. (a) 46,300 1,985
Nabisco Holdings Corp. Class A 4,200 151
PepsiCo, Inc. 118,500 4,881
Philip Morris Cos., Inc. 248,400 9,781
Procter & Gamble Co. 128,400 11,692
Quaker Oats Co. 122,300 6,719
Ralston-Purina Group 13,300 1,554
RJR Nabisco Holdings Corp. 141,400 3,358
Safeway, Inc. (a) 245,250 9,979
Sara Lee Corp. 9,800 548
Seagram Co., Ltd. 56,200 2,301
SuperValu, Inc. 6,700 297
Unilever NV 147,400 11,635
Universal Corp. 38,100 1,425
Whitman Corp. 5,600 129
----------
93,557
----------
FINANCIAL SERVICES - 20.0%
Ahmanson (H.F.) & Co. 43,500 3,089
Allstate Corp. 85,414 7,821
Ambac Financial Group, Inc. 34,400 2,012
American Express Co. 16,600 1,892
American International Group, Inc. 186,450 27,222
American National Insurance Co. 5,000 523
AmSouth Bancorp 48,450 1,905
Associated Banc-Corp. 4,000 151
Associates First Capital Corp. Class A 57,697 4,435
BankAmerica Corp. 232,900 20,131
Bankers Trust New York Corp. 41,200 4,782
Bear Stearns Cos., Inc. 71,868 4,087
Beneficial Corp. 5,800 888
Block (H&R) Co., Inc. 14,000 590
Capital One Financial Corp. 4,500 559
Charter One Financial, Inc. 9,100 305
Chase Manhattan Corp. 9,200 695
CIGNA Corp. 44,400 3,064
Citicorp 41,200 6,149
City National Corp. 23,600 872
Colonial BancGroup, Inc. 2,400 77
Comdisco, Inc. 61,400 1,167
Comerica, Inc. 51,300 3,399
Conseco, Inc. 31,600 1,477
ContiFinancial Corp. (a) 4,300 99
Credit Acceptance Corp. (a) 2,500 21
Crescent Real Estate Equities, Inc. 18,900 636
Dime Bancorp, Inc. 54,700 1,638
Dow Jones & Co., Inc. 5,600 312
DST Systems, Inc. (a) 6,200 347
Dun & Bradstreet Corp. 77,600 2,803
Edwards (A.G.), Inc. 35,100 1,498
Equifax, Inc. 24,100 875
Equitable Companies, Inc. 64,700 4,848
Everest Reinsurance Holdings, Inc. 1,400 54
Federal Home Loan Mortgage Corp. 193,600 9,111
Federal National Mortgage Association 158,100 9,605
Financial Security Assurance Holdings, Ltd. 2,500 147
FINOVA Group, Inc. 5,000 283
First Chicago NBD Corp. 35,581 3,153
First Data Corp. 57,000 1,899
</TABLE>
Equity Q Fund 37
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
First Tennessee National Corp. 9,200 $ 290
First Union Corp. 78,900 4,596
Firstar Corp. 10,200 388
Fleet Financial Group, Inc. 119 10
Fremont General Corp. 3,400 184
GATX Corp. 4,800 211
Golden West Financial Corp. 23,600 2,509
Greenpoint Financial Corp. 6,000 226
HRPT Properties Trust 29,100 547
Huntington Bancshares, Inc. 13,200 441
KeyCorp 33,700 1,201
Lehman Brothers Holdings, Inc. 75,200 5,833
Lincoln National Corp. 33,100 3,025
Long Island Bancorp, Inc. 4,800 291
M & T Bank Corp. (a) 500 277
Marsh & McLennan Cos., Inc. 114,750 6,935
Marshall & Ilsley Corp. 2,100 107
MBIA, Inc. 20,100 1,505
Merrill Lynch & Co., Inc. 16,100 1,485
Money Store, Inc. 4,000 136
Morgan (J.P.) & Co., Inc. 9,200 1,078
Morgan Stanley, Dean Witter,
Discover and Co. 132,140 12,074
National City Corp. 38,100 2,705
National Commerce Bancorp 2,900 121
NationsBank Corp. 178,007 13,618
North Fork Bancorporation, Inc. 38,700 946
Norwest Corp. 6,100 228
Ocwen Financial Corp. (a) 4,600 124
Ohio Casualty Corp. 1,200 53
Old Republic International Corp. 50,700 1,486
Pacific Century Financial Corp. 7,800 187
PaineWebber Group, Inc. 6,800 292
Peoples Heritage Financial Group 5,700 135
PMI Group, Inc. (The) 1,500 110
PNC Bank Corp. 4,350 234
Provident Financial Group, Inc. 3,200 146
Republic New York Corp. 5,200 327
Riggs National Corp. 2,400 70
Ryder System, Inc. 6,400 202
SAFECO Corp. 13,500 613
SouthTrust Corp. 70,550 3,069
Sovereign Bancorp, Inc. 11,500 188
St. Paul Cos., Inc. 11,100 467
Star Banc Corp. 100 6
Starwood Financial Trust Class A (a) 100 6
SunTrust Banks, Inc. 40,200 3,269
TCF Financial Corp. 5,900 174
Trans Financial, Inc. 5,600 321
Travelers Property Casualty Corp. Class A 75,700 3,246
Travelers, Inc. 245,650 14,893
UNUM Corp. 13,200 733
Washington Federal, Inc. 4,900 135
Washington Mutual, Inc. 37,700 1,634
Wells Fargo & Co. 8,800 3,246
Zions Bancorp 13,800 732
----------
231,686
----------
HEALTH CARE - 11.5%
Abbott Laboratories 14,200 580
Aetna, Inc. 1,800 137
Allergan, Inc. 2,700 125
ALZA Corp. (a) 14,700 636
American Home Products Corp. 186,500 9,651
Amgen, Inc. (a) 1,400 92
Bausch & Lomb, Inc. 8,600 431
Baxter International, Inc. 13,200 710
Bergen Brunswig Corp. Class A 20,700 960
Beverly Enterprises, Inc. New (a) 64,900 896
Boston Scientific Corp. (a) 27,400 1,963
Bristol-Myers Squibb Co. 182,980 21,031
Cardinal Health, Inc. 49,900 4,678
Chiron Corp. (a) 14,200 223
Columbia/HCA Healthcare Corp. 64,600 1,881
Forest Labs, Inc. (a) 20,200 727
Genesis Health Ventures, Inc. (a) 24,900 623
HBO & Co. 118,400 4,174
Health Care & Retirement Corp. (a) 16,100 635
HEALTHSOUTH Corp. (a) 81,200 2,167
Humana, Inc. (a) 68,700 2,143
Immune Response Corp. (a) 36,500 545
Integrated Health Services, Inc. 17,000 638
IVAX Corp. (a) 19,000 176
Johnson & Johnson 128,400 9,470
Lilly (Eli) & Co. 2,500 165
McKesson Corp. 32,400 2,633
Merck & Co., Inc. 172,107 23,019
Mylan Laboratories, Inc. 182,400 5,483
NovaCare, Inc. (a) 22,500 264
Olsten Corp. 4,800 54
Omnicare, Inc. 23,000 877
PacifiCare Health Systems, Inc. Class B (a) 42,500 3,753
Pfizer, Inc. 11,100 1,206
Schering-Plough Corp. 113,000 10,354
Shared Medical Systems 4,900 360
</TABLE>
38 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Tenet Healthcare Corp. (a) 105,300 $ 3,291
United Healthcare Corp. 93,200 5,918
Warner-Lambert Co. 130,200 9,033
Watson Pharmaceuticals, Inc. (a) 6,400 299
Wellpoint Health Networks, Inc. Class A (a) 19,200 1,420
----------
133,421
----------
INTEGRATED OILS - 5.0%
Amoco Corp. 13,400 558
Ashland, Inc. 39,500 2,039
Atlantic Richfield Co. 41,000 3,203
Coastal Corp. 22,500 1,571
Enron Corp. 15,800 854
Exxon Corp. 393,000 28,026
Lyondell Petrochemical Co. 7,600 231
Mobil Corp. 135,700 10,398
Pennzoil Co. 17,100 866
Phillips Petroleum Co. 111,400 5,368
Royal Dutch Petroleum Co. 17,400 954
Sun Co., Inc. 6,000 233
Tenneco, Inc. 82,700 3,148
Texaco, Inc. 11,700 698
Unocal Corp. 4,900 175
----------
58,322
----------
MATERIALS AND PROCESSING - 5.4%
Albemarle Corp. 4,700 104
Alcan Aluminum, Ltd. 30,100 832
Allegheny Teldyne, Inc. 26,800 613
Aluminum Co. of America 22,300 1,470
Arco Chemical Co. 2,600 149
Avery Dennison Corp. 3,100 167
Bethlehem Steel Corp. (a) 94,000 1,169
Boise Cascade Corp. 3,800 124
Burlington Industries, Inc. (a) 9,500 134
Catellus Development Corp. (a) 24,200 428
Champion International Corp. 5,500 271
Cleveland-Cliffs, Inc. 1,200 64
Consolidated Papers, Inc. 10,800 294
Crompton & Knowles Corp. 62,800 1,582
Cytec Industries, Inc. (a) 3,000 133
Dow Chemical Co. 144,500 13,971
du Pont (E.I.) de Nemours & Co. 67,500 5,037
Ecolab, Inc. 6,900 214
Engelhard Corp. 56,500 1,144
Fluor Corp. 35,400 1,805
Fort James Corp. 19,500 868
Freeport-McMoRan Copper & Gold, Inc. Class B 14,300 217
Georgia Gulf Corp. 2,400 55
Georgia-Pacific Group 42,400 2,499
Georgia-Pacific Timber Group 30,100 694
Goodrich (B.F.) Co. 50,580 2,510
Harsco Corp. 20,500 939
International Paper Co. 7,700 331
Kimberly-Clark Corp. 50,900 2,335
Lafarge Corp. 16,800 660
Louisiana Pacific Corp. 14,700 268
Masco Corp. 30,700 1,857
Mead Corp. 19,000 603
Millennium Chemicals, Inc. 39,300 1,331
Monsanto Co. 80,700 4,509
NL Industries, Inc. 1,500 30
Nucor Corp. 18,800 865
Owens-Corning Fiberglas Corp. 12,000 490
Pentair, Inc. 7,400 315
Reynolds Metals Co. 9,100 509
Rohm & Haas Co. 5,800 603
Rouse Co. (The) 2,400 75
Sherwin-Williams Co. 1,000 33
Sigma Aldrich Corp. 15,300 537
Solutia, Inc. 39,100 1,122
Stone Container Corp. (a) 28,300 442
Temple-Inland, Inc. 10,200 550
Tyco International, Ltd. 75,400 4,750
UCAR International, Inc. (a) 7,300 213
Unifi, Inc. 10,800 370
Union Camp Corp. 26,400 1,310
Union Carbide Corp. 9,000 480
USX-U.S. Steel Group 13,300 439
Vulcan Materials Co. 1,000 107
Wellman, Inc. 8,000 182
Witco Corp. 1,200 36
----------
62,839
----------
MISCELLANEOUS - 0.0%
LNR Property Corp. 900 23
TeleTech Holdings, Inc. (a) 6,500 80
Ventas, Inc. (a) 8,800 122
----------
225
----------
</TABLE>
Equity Q Fund 39
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
OTHER ENERGY - 1.9%
AES Corp. (a) 24,700 $ 1,298
Apache Corp. 29,100 917
Baker Hughes, Inc. 66,300 2,291
Camco International, Inc. 7,600 592
Cooper Cameron Corp. (a) 6,700 342
Diamond Offshore Drilling, Inc. 8,900 356
El Paso Natural Gas Co. 12,400 474
Enron Oil & Gas Co. 7,600 154
ENSCO International, Inc. 45,500 791
Halliburton Co. 36,900 1,644
Helmerich & Payne, Inc. 43,800 975
Input/Output, Inc. (a) 2,800 50
MarketSpan Corp. (a) 104,672 3,134
McDermott International, Inc. 34,900 1,202
Octel Corp. (a) 1,775 35
ONEOK, Inc. 18,700 746
R&B Falcon Corp. (a) 18,100 410
Schlumberger, Ltd. 33,400 2,282
Sempra Energy (a) 33,500 930
Tosco Corp. 38,400 1,128
Transocean Offshore, Inc. 14,500 645
Ultramar Diamond Shamrock Corp. 4,000 126
Union Pacific Resources Group, Inc. 32,000 562
Valero Energy Corp. 15,200 504
----------
21,588
----------
PRODUCER DURABLES - 8.6%
AGCO Corp. 28,500 586
AlliedSignal, Inc. 106,000 4,704
Applied Materials, Inc. (a) 34,100 1,006
Boeing Co. 164,000 7,308
Case Corp. 11,200 540
Caterpillar, Inc. 205,700 10,876
Cincinnati Milacron, Inc. 4,200 102
Coltec Industries, Inc. (a) 25,400 505
Cummins Engine Co., Inc. 6,900 354
Deere & Co. 115,600 6,112
Dover Corp. 58,400 2,000
EG&G, Inc. 11,400 342
Emerson Electric Co. 30,200 1,823
Foster Wheeler Corp. 5,900 126
General Electric Co. 230,400 20,966
Grainger (W.W.), Inc. 27,400 1,365
Gulfstream Aerospace Corp. (a) 36,300 1,688
Honeywell, Inc. 18,400 1,538
Ingersoll-Rand Co. 75,900 3,344
ITT Industries, Inc. 47,600 1,779
Johnson Controls, Inc. 14,800 846
Kaufman & Broad Home Corp. 3,000 95
Lexmark International Group, Inc.
Class A (a) 85,700 5,228
Litton Industries, Inc. (a) 6,300 372
Lockheed Martin Corp. 8,900 942
Manitowoc Co., Inc. 2,800 113
Molex, Inc. 1,500 38
National Service Industries, Inc. 16,500 839
Northern Telecom, Ltd. 18,000 1,022
Parker-Hannifin Corp. 37,900 1,445
Perkin-Elmer Corp. 11,100 690
Picturetel Corp. (a) 3,800 35
Pitney Bowes, Inc. 118,200 5,688
Pulte Corp. 16,300 487
Raychem Corp. 37,900 1,120
Republic Industries, Inc. (a) 107,900 2,698
Rockwell International Corp. 4,500 216
Sensormatic Electronics Corp. (a) 16,700 234
Snap-On Tools Corp. 33,400 1,211
Solectron Corp. (a) 9,100 383
Sundstrand Corp. 6,900 395
Tektronix, Inc. 1,100 39
Thermo Electron Corp. (a) 55,700 1,904
Thermo Instrument Systems, Inc. (a) 9,300 244
Thomas & Betts Corp. 23,000 1,133
United Technologies Corp. 31,700 2,932
Xerox Corp. 19,500 1,983
----------
99,396
----------
TECHNOLOGY - 11.2%
3Com Corp. (a) 3,500 107
Andrew Corp. (a) 6,700 121
Anixter International, Inc. (a) 35,900 684
Apple Computer, Inc. (a) 268,900 7,714
Autodesk, Inc. 18,100 696
AVX Corp. 14,100 226
Bay Networks, Inc. (a) 35,300 1,138
C-Cube Microsystems, Inc. (a) 43,800 810
Cabletron Systems, Inc. (a) 3,200 43
Cisco Systems, Inc. (a) 106,700 9,823
COMPAQ Computer Corp. 132,037 3,747
CompUSA, Inc. (a) 14,700 266
Computer Associates International, Inc. 50,300 2,795
Computer Sciences Corp. 18,800 1,203
Comverse Technology, Inc. (a) 47,300 2,454
Cooper Industries, Inc. 57,500 3,159
</TABLE>
40 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Dell Computer Corp. (a) 11,000 $ 1,020
Electronic Data Systems Corp. 81,500 3,260
EMC Corp. (a) 106,500 4,773
General Dynamics Corp. 100,100 4,655
Gerber Scientific, Inc. 1,100 25
Harris Corp. 18,800 840
Informix Corp. (a) 231,100 1,820
Ingram Micro, Inc. Class A (a) 20,600 912
Inprise Corp. (a) 5,400 39
Intel Corp. 187,800 13,909
International Business Machines Corp. 88,400 10,149
LSI Logic Corp. (a) 31,200 720
Lucent Technologies, Inc. 85,700 7,129
Microsoft Corp. (a) 184,900 20,039
Motorola, Inc. 39,800 2,092
Novell, Inc. (a) 397,400 5,067
Oracle Systems Corp. (a) 130,200 3,190
Quantum Corp. (a) 17,900 370
Read-Rite Corp. (a) 7,900 71
SCI Systems, Inc. (a) 42,900 1,614
Standard Microsystems Corp. (a) 1,000 9
Sterling Software, Inc. (a) 56,600 1,673
Storage Technology Corp. (a) 34,800 1,509
Sun Microsystems, Inc. (a) 106,700 4,635
Symbol Technologies, Inc. 29,300 1,106
Tech Data Corp. (a) 23,000 986
Texas Instruments, Inc. 36,300 2,117
Textron, Inc. 1,400 100
Vishay Intertechnology, Inc. (a) 36,360 652
Xilinx, Inc. (a) 6,800 231
----------
129,698
----------
UTILITIES - 12.4%
Airtouch Communications, Inc. (a) 45,200 2,641
Allegheny Energy, Inc. 12,600 380
Ameren Corp. 34,300 1,363
American Electric Power Co., Inc. 21,800 989
American Water Works, Inc. 30,200 936
Ameritech Corp. 155,200 6,965
AT&T Corp. 340,500 19,451
Baltimore Gas & Electric Co. 36,400 1,131
Bell Atlantic Corp. 192,806 8,797
BellSouth Corp. 166,550 11,180
Carolina Power & Light Co. 44,900 1,948
Central & Southwest Corp. 62,000 1,666
Cincinnati Bell, Inc. 5,300 152
CINergy Corp. 17,100 599
CMS Energy Corp. 10,500 462
Columbia Gas System, Inc. 33,200 1,847
Comcast Corp. Special Class A 56,800 2,304
Comsat Corp. Series 1 64,400 1,823
Consolidated Natural Gas Co. 7,600 447
Dominion Resources, Inc. 18,700 762
DTE Energy Co. 46,800 1,890
Energy East Corp. (a) 61,100 2,543
Entergy Corp. 23,500 676
FirstEnergy Corp. 600 18
Florida Progress Corp. 4,400 181
FPL Group, Inc. 70,400 4,435
Frontier Corp. 17,100 539
GPU, Inc. 29,500 1,115
GTE Corp. 112,300 6,247
Houston Industries, Inc. 72,000 2,223
K N Energy, Inc. 22,800 1,235
MCI Communications Corp. 36,500 2,119
New Century Energies, Inc. 12,300 559
New England Electric System 7,000 303
Northern States Power Co. 16,400 469
OGE Energy Corp. 17,500 473
Paging Network, Inc. (a) 47,300 659
Peco Energy Co. 23,400 683
PG&E Corp. 184,900 5,836
Pinnacle West Capital Corp. 47,500 2,138
PP&L Resources, Inc. 21,400 486
Public Service Enterprise Group, Inc. 46,500 1,601
SBC Communications, Inc. 370,528 14,821
Southern Co. 33,000 914
Southwest Gas Corp. 13,400 327
Sprint Corp. 29,000 2,045
Tele-Communications International, Inc.
Series A (a) 800 16
Tele-Communications TCI Ventures Group
Series A (a) 69,601 1,392
Tele-Communications, Inc. Class A (a) 37,400 1,435
Tele-Communications, Inc.
Series A (a) 76,000 2,950
Texas Utilities Co. 77,000 3,205
U.S. West, Inc. (a) 11,100 522
UtiliCorp United, Inc. 23,700 893
Western Resources, Inc. 6,400 248
Wisconsin Energy Corp. 12,000 365
WorldCom, Inc. (a) 251,800 12,164
----------
143,568
----------
TOTAL COMMON STOCKS
(cost $823,061) 1,145,769
----------
</TABLE>
Equity Q Fund 41
<PAGE>
EQUITY Q FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 1.4%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 14,976 $ 14,976
United States Treasury Note (b)(c)
5.250% due 07/31/98 1,550 1,550
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $16,526) 16,526
----------
TOTAL INVESTMENTS
(identified cost $839,587)(d) - 100.3% 1,162,295
OTHER ASSETS AND LIABILITIES,
NET - (0.3%) (3,734)
----------
NET ASSETS - 100.0% $1,158,561
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures
contracts purchased by the Fund.
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
NV - Nonvoting
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 400 Midcap Index Futures Contracts
expiration date 09/98 17 $ 26
S&P 500 Index Futures Contracts
expiration date 09/98 51 517
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 543
----------
----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at
$1,550 were held as collateral in connection with futures
contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
42 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $839,587)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,162,295
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,437
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,378
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 23,939
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,196,766
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,835
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,820
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 601
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 109
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 23,939
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,205
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,158,561
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,284
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,306
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,708
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755,433
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,158,561
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($1,158,560,851 divided by 28,701,526 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.37
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Q Fund 43
<PAGE>
EQUITY Q FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,043
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,511
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,247
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,781
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,730
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,496
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 93,996
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,626
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 65,773
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,769
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 164,499
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44 Equity Q Fund
<PAGE>
EQUITY Q FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,730 $ 11,846
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,996 180,923
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 65,773 93,779
-------------- --------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 164,499 286,548
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,495) (11,797)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (34,796) (185,330)
-------------- --------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (37,291) (197,127)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 43,593 80,058
-------------- --------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 170,801 169,479
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987,760 818,281
-------------- --------------
End of period (including undistributed net investment income of
$2,284 and $49, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,158,561 $ 987,760
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Q Fund 45
<PAGE>
EQUITY Q 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 35.90 $ 32.94 $ 30.40 $ 24.43 $ 26.03 $ 25.23
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .17 .44 .58 .59 .69 .66
Net realized and unrealized gain (loss) on investments . 5.63 10.01 6.33 8.52 (.41) 2.71
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 5.80 10.45 6.91 9.11 0.28 3.37
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.09) (.44) (.58) (.61) (.69) (.66)
In excess of net investment income . . . . . . . . . . . -- -- (.01) -- -- --
Net realized gain on investments . . . . . . . . . . . . (1.24) (7.05) (3.78) (2.53) (.97) (1.85)
In excess of net realized gain on investments . . . . . -- -- -- -- (.22) (.06)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (1.33) (7.49) (4.37) (3.14) (1.88) (2.57)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 40.37 $ 35.90 $ 32.94 $ 30.40 $ 24.43 $ 26.03
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 16.51 33.07 23.67 37.91 .99 13.80
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period ($000 omitted) . . . . . . . . 1,158,561 987,760 818,281 620,259 430,661 382,939
Ratios to average net assets (%)(b)(c):
Operating expenses. . . . . . . . . . . . . . . . . . .70 .68 .71 .58 .11 .15
Net investment income . . . . . . . . . . . . . . . . .87 1.17 1.80 2.07 2.74 2.50
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 78.88 94.89 74.59 74.00 45.87 54.69
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 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.
46 Equity Q Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 91.9%
ARGENTINA - 0.1%
Banco de Galicia y Buenos Aires Class B - ADR 5,328 $ 97
Banco Frances del Rio la Plata - ADR 3,653 84
Naviera Perez Companc Class B 23,952 120
Sociedad Comercial del Plata - ADR 1,606 18
Telefonica de Argentina Class B - ADR 6,220 202
YPF Sociedad Anonima Class D - ADR 13,018 390
----------
911
----------
AUSTRALIA - 2.3%
Amcor, Ltd. 232,800 1,022
AMP, Ltd. (a) 22,040 259
Australia & New Zealand Bank Group, Ltd. 823,994 5,698
Australian Gas & Light Co. 28,773 180
Boral, Ltd. 671,027 1,262
Brambles Industries, Ltd. 9,000 177
Broken Hill Proprietary Co. 165,047 1,398
Caltex Australia 100,000 239
Colonial, Ltd (a) 35,000 106
Commonwealth Bank of Australia 18,297 214
CSR, Ltd. 162,000 469
Eastern Aluminum 236,000 176
Eltin, Ltd. 272,754 222
Fairfax (John) 96,000 167
Foster's Brewing Group, Ltd. 244,300 576
GIO Australia Holdings 294,251 757
Goodman Fielder Wattie 111,000 162
Lend Lease Corp. 7,489 152
Mayne Nickless, Ltd. 80,285 426
National Australia Bank, Ltd. 34,092 451
News Corp. 348,785 2,854
Orica, Ltd. 39,233 233
Pacific Dunlop, Ltd. 516,095 836
Pasminco, Ltd. 65,000 50
Pioneer International, Ltd. 174,800 418
PMP Communications, Ltd. 196,000 319
Publishing Broadcasting, Ltd. 41,030 177
RGC, Ltd. 179,077 178
Santos, Ltd. 327,000 1,015
Tabcorp. Holdings, Ltd. 25,000 128
Telstra Corp., Ltd. 58,515 150
Western Mining Corp., Ltd. 518,658 1,565
Westfield Trust (Units) 588,000 1,132
Westfield Trust (Units)(New)(a) 19,375 37
Westpac Banking Corp. 205,699 1,257
Woodside Petroleum, Ltd. 22,000 109
Woolworth's, Ltd. 133,377 434
----------
25,005
----------
AUSTRIA - 0.1%
Bank Austria AG 3,100 252
Brau-Union Goess-Reininghaus-Osterreichische Brau 2,528 149
Oester Brau Beteil 1,562 92
Voest-Alpine Stahl AG 13,000 522
Wienerberger Baustoff 1,600 388
----------
1,403
----------
BELGIUM - 0.7%
Credit Communal Holding/ Dexia NPV 1,592 240
Generale de Banque NPV 709 527
KBC Bancassurance Holding (a) 17,500 1,567
Kredietbank NPV 2,500 224
PetroFina SA NPV 1,220 501
Tractebel Investments International NPV 25,621 3,755
UCB Capital NV 49 254
Virgin Express Holdings PLC - ADR (a) 31,950 407
----------
7,475
----------
BRAZIL - 0.2%
Centrais Eletricas Brasileiras Electrobras
SA - ADR 2,000 29
Centrais Geradoras do Sul do Brasil SA NPV (a) 3,851,300 5
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar (Regd) - GDR 6,240 141
Companhia Energetica de Minas
Gerais SA - ADR 3,480 110
Eletrobras (centrais) NPV 3,851,300 113
Telecomunicacoes Brasileiras - ADR 13,460 1,470
Telecomunicacoes de Sao Paulo NPV (a) 61,873 9
Telecomunicacoes Brasileiras SA 1998 Rights (a) 51,022 1
Telesp Celular SA NPV (a) 61,873 3
Uniao de Bancos Brasileiros SA - GDR 4,166 123
----------
2,004
----------
</TABLE>
48 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
CANADA - 3.9%
Abitibi-Consolidated, Inc. 76,000 $ 979
Air Canada, Inc. (a) 120,000 1,072
Alcan Aluminum, Ltd. 5,200 143
ATI Technologies, Inc. (a) 85,200 1,120
Barrick Gold Corp. (US Regd) 31,700 608
BCE, Inc. 99,600 4,271
Bombardier, Inc. Class B 84,700 2,308
Canadian Airlines Corp. (a) 59,000 167
Canadian Imperial Bank of Commerce 25,612 823
Canadian Pacific, Ltd. 219,200 6,167
CGI Group, Inc. (a) 96,500 2,053
Dofasco, Inc. NPV 32,701 532
Donohue, Inc. Class A 29,000 655
EdperBrascan Corp. Class A 22,000 369
Geac Computer Corp., Ltd. (a) 32,550 1,084
Hudson's Bay Co. 50,000 1,145
Imasco, Ltd. IF 91,774 1,693
Imperial Oil, Ltd. 76,270 1,332
Inco, Ltd. 77,731 1,059
Moore Corp., Ltd. 139,300 1,846
National Bank of Canada 78,700 1,538
Noranda, Inc. 116,800 2,016
Nova Scotia Power, Inc. 20,200 266
Potash Corp. of Saskatchewan, Inc. 24,800 1,867
Rogers Communications, Inc. Class B (a) 80,000 712
Royal Bank of Canada 40,230 2,419
Stelco, Inc. Series A 65,000 464
Suncor, Inc. NPV 5,717 194
The Seagram Co., Ltd. 59,500 2,424
Torstar Corp. Class B 18,400 589
Westcoast Energy, Inc. 24,000 535
42,450
----------
CHILE - 0.0%
Chilectra SA - ADR 6,335 136
Enersis SA - ADR 3,196 78
----------
214
----------
CHINA - 0.0%
Huaneng Power International, Inc. Series N - ADR (a) 13,400 180
----------
180
----------
CZECH REPUBLIC - 0.0%
SPT Telecom AS (a) 6,900 95
----------
95
----------
DENMARK - 0.6%
Bang & Olufsen Holding Series B 11,000 793
Coloplast AS Class B (Regd) 5,850 575
Danisco 17,200 1,157
Den Danske Bank 1,440 173
GN Store Nord A/S 30,300 926
Jyske Bank AS (Regd) 9,241 1,091
Tele Danmark AS Series B 1,000 96
Tele Danmark Class B - ADR 42,600 2,008
Unidanmark Class A (Regd) 1,260 113
----------
6,932
----------
FINLAND - 1.1%
Enso OY Series A 71,000 768
Huhtamaki Series I Free 3,000 172
Kesko Oyj 80,600 1,272
Kymmene OY 67,200 1,851
Metsa-Serla Oyj Series B 90,000 870
Nokia Oyj Series A 29,136 2,145
Orion-yhtyma OY Series B 21,390 660
Outokumpu OY Class A 47,500 607
OY Tamro AB 41,300 267
Pohjola Series B 11,300 563
Rauma Group (The) 11,500 236
Rautaruukki OY 123,200 944
Sampo Insurance Co., Ltd. Series A 16,400 778
Valmet Corp. Series A 76,700 1,324
----------
12,457
----------
FRANCE - 11.9%
Accor SA 24,076 6,738
Alcatel Alsthom 8,898 1,812
Alstom - ADR New (a) 38,530 1,255
AXA - UAP 16,104 1,811
Banque Nationale Paris 35,900 2,933
Banque Paribas (a) 42,721 4,572
Boiron 3,000 240
Bongrain SA 1,567 787
Bull SA (a) 210,000 3,421
Canal Plus 1,510 282
Carrefour SA 3,131 1,981
Chargeurs International SA 28,151 2,326
Christian Dior 6,755 850
Cie de St. Gobain 10,862 2,014
Clarins 3,460 320
Credit Commercial de France 4,320 364
Dexia France 9,927 1,337
Dexia France (Regd) 2,955 398
</TABLE>
International Fund 49
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Elf Aquitaine - ADR 35,800 $ 2,542
Elf Aquitaine SA 19,640 2,761
Eridania Beghin-Say 24,943 5,508
Euro RSCG 7,100 1,435
Galeries Lafayette 3,800 3,790
Groupe Andre SA (a) 5,655 665
Groupe Danone 29,381 8,101
GTM - Entrepose 21,740 2,258
Guyenne et Gascogne 3,046 1,242
Havas Advertising SA 1998 Warrants (a) 2,100 12
L'Air Liquide 13,780 2,279
L'Oreal (Societe) 358 199
Lafarge Corp. SA (BR) 11,076 1,145
Lagardere Groupe (Regd) 28,900 1,203
Lapeyre (BR) 1,820 169
Legrand 829 219
Legris Industries SA 4,600 215
LVMH Moet-Hennessy 14,722 2,946
Lyonnais Eaux Dumez 32,514 5,351
M6 Metropole Television 3,300 552
Michelin (Cie Gen) Class B (Regd) 42,236 2,438
Nord-Est 15,000 330
Omnicom SA (a) 10,000 1,168
Pathe SA 836 164
Pechiney International Class A 51,953 2,092
Peugeot SA 6,976 1,500
Pinault-Printemps Redoute SA 1,671 1,399
Primagaz CIE 125 11
Renault (a) 108,150 6,152
Rhodia SA (a) 48,307 1,347
Sanofi SA 13,851 1,629
Schneider SA 52,384 4,177
Scor SA 18,000 1,142
Sefimeg (Regd) 2,100 152
SGS Thomson Microelectronics (a) 16,657 1,181
Simco (Regd)(p) 3,900 320
Societe Generale 25,039 5,206
Sodexho 3,460 654
Strafor-Facom SA 22,400 2,190
Sylea 2,800 259
Thomson-CSF 31,718 1,207
Total Co. SA Class B 19,950 2,594
TV Francaise (TFI) 9,883 1,532
Union des Assurances Federales 5,404 852
Usinor Sacilor 165,153 2,551
Valeo 41,311 4,223
Vallourec (Usin) 460 37
Vivendi 32,936 7,034
----------
129,574
----------
GERMANY - 8.6%
Adidas AG 12,200 2,128
AGIV AG fuer Industrie und Verkehrswesen (a) 27,900 774
Allianz AG (Regd) 4,660 1,554
BASF AG 14,874 707
Bayer AG 99,731 5,165
Bayerische Hypotheken-und Wechsel Bank AG 7,139 453
Bayerische Motoren Werk AG 472 478
Bayerische Motoren Werke AG (New)(a) 94 78
Bayerische Vereinsbank AG 5,335 453
Bilfinger & Berger BAU AG 16,050 550
Buderus AG 1,447 722
Commerzbank AG 45,430 1,731
Continental AG 37,280 1,172
Daimler-Benz AG 50,291 4,950
Deutsche Bank AG 45,219 3,826
Deutsche Lufthansa AG 98,790 2,490
Deutsche Telekom AG 31,633 866
Dresdner Bank AG 44,830 2,424
Fresenius Medical Care AG - ADR 55,360 1,142
GEA AG 3,797 1,484
Gehe AG 13,610 730
Gerresheimer Glas AG 11,350 169
Hannover Rueckversicherungs AG 7,400 853
Hoechst AG 53,520 2,693
Holzmann (Philipp)(a) 2,300 548
Hornback Baumarkt AG 1,949 96
IKB Deutsche Industriebank AG (p) 2,250 46
Karstadt AG 2,200 1,070
Kiekert AG 26,225 1,483
KM Europa Metal AG 3,900 493
KSB AG (a) 3,600 858
M.A.N. AG 5,850 2,284
Mannesmann AG NPV (a) 92,600 9,525
Merck KGAA 40,400 1,812
Metro AG 12,720 769
Muenchener Rueckversicherungs-Gesellschaft AG 4,360 2,166
Preussag AG 10,080 3,611
</TABLE>
50 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
ProSieben Media AG - ADR (a) 1,410 $ 37
Rhoen - Klinikum AG 1,762 174
RWE AG 19,700 1,167
RWE AG 1998 Warrants (a) 13,000 227
SAP AG 4,120 2,502
Schering AG 9,800 1,155
Schmalbach Lubeca AG 6,825 1,722
SGL Carbon AG 4,614 538
Siemens AG 77,361 4,725
SKW Trostberg AG 24,600 887
Suedzucker AG 3,840 2,336
Tarkett AG 22,184 738
Veba AG 87,976 5,920
Viag AG 3,700 2,548
Volkswagen International AG 6,995 6,761
Wella Aktiengesellschaft 350 346
----------
94,136
----------
HONG KONG - 1.6%
Cathay Pacific Airways 392,000 276
CLP Holdings, Ltd. 157,500 718
First Pacific Co. 500,000 210
Great Eagle Holdings 626,849 550
Guangshen Railway Co., Ltd. 2,058,000 274
Guoco Group, Ltd. 207,000 218
Hang Lung Development Co. 250,000 248
Hang Seng Bank 96,000 543
Henderson Investment, Ltd. 1,863,000 968
Henderson Land Development Co., Ltd. 52,000 171
Hong Kong & China Gas Co., Ltd. 1999 Warrants (a) 22,591 2
Hong Kong & China Gas Co., Ltd. 668,206 759
Hong Kong Electric Holding, Ltd. 1,076,000 3,333
Hong Kong Telecommunications, Ltd. 97,200 183
HSBC Holdings (UK Regd) PLC 79,399 1,942
Hutchison Whampoa, Ltd. 583,000 3,078
Hysan Development 235,000 194
National Mutual Asia 681,000 435
New World Development Co., Ltd. 380,000 736
Orient Overseas International, Ltd. 188,000 69
QPL International Holdings, Ltd. 640,000 124
Sun Hung Kai Properties, Ltd. 211,200 897
Swire Pacific, Ltd. Class B 489,000 293
Tai Cheung Holdings 73,000 17
Television Broadcast 344,000 909
Vitasoy International Holdings, Ltd. 400,000 131
----------
17,278
----------
IRELAND - 0.3%
Greencore Group PLC 124,400 678
Independent Newspapers PLC 160,000 860
Smurfit (Jefferson) 239,100 711
Waterford Wedgwood (Units) 465,000 605
----------
2,854
----------
ISRAEL - 0.3%
ECI Telecom, Ltd. 73,100 2,760
----------
2,760
----------
ITALY - 3.8%
Assicurazioni Generali SPA 40,360 1,313
Banca Commerciale Italiana 307,000 1,837
Banca Pop di Bergamo CV 3,500 72
Banca Pop di Milano 171,343 1,365
Banco di Roma (a) 1,738,457 3,620
Credito Italiano 714,581 3,742
ENI SPA - ADR 34,000 2,210
Ente Nazionale Idrocarburi SPA (Regd) 579,973 3,803
Fiat SPA di Risp 264,358 655
Fila Holdings SPA - ADR 12,400 186
Finmeccanica SPA (a) 285,003 224
First Banco S. Paolo 65,000 938
Gucci Group NV 4,709 250
Industrie Natuzzi SPA - ADR 36,372 946
Istituto Mobiliare Italiano SPA - ADR 14,000 668
Istituto Mobiliare Italiano SPA 80,668 1,271
Istituto Nazionale Delle Assicurazioni 83,000 236
Italgas (Soc. Ital.) 24,591 100
Luxottica Group SPA - ADR 57,000 884
Magneti Marelli SPA 73,500 161
Mediaset SPA 406,676 2,597
Mediolanum SPA 37,381 1,187
Montefibre di Risp (a) 90,000 79
Pirelli SPA 483,161 1,509
Rinascente (LA) 15,500 154
Telecom Italia Mobile SPA 156,246 956
Telecom Italia SPA 960,337 4,650
Telecom Italia SPA di Risp 783,801 5,772
----------
41,385
----------
</TABLE>
International Fund 51
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
JAPAN - 15.7%
Advantest 2,930 $ 158
Alps Electric Co. 25,000 298
Amada Co., Ltd. 49,000 239
Aoki International 27,000 179
Aoyama Trading Co. 61,000 1,509
Apic Yamada Corp. 25,200 146
Asahi Bank, Ltd. 232,000 1,024
Bank of Kyoto, Ltd. 138,000 648
Bank of Yokohama 206,000 507
Bridgestone Tire Corp. 71,000 1,684
Brother Industries 122,000 457
Canon Chemicals, Inc. 8,000 84
Canon, Inc. 258,000 5,878
Chugai Pharmaceutical Co. 110,000 722
Citizen Watch Co., Ltd. 22,000 182
Credit Saison Co. 85,000 1,691
CSK Corp., Ltd. 18,000 359
Dai Ichi Kangyo Bank 198,000 1,167
Dai Ichi Pharmaceutical Co. 108,000 1,429
Dai Nippon Ink & Chemical Corp. 183,000 562
Dai Nippon Screen Manufacturing Co. 41,000 168
Dai-Tokyo Fire & Marine 418,000 1,460
Daifuku Machinery Co. 11,000 41
Daito Trust Construction 59,990 456
Daiwa House Industries Co. 25,000 221
Daiwa Kosho Lease Co., Ltd. 104,000 439
Daiwa Securities 100,000 432
DDI Corp. 493 1,722
Deodeo Corp. 18,000 105
East Japan Railway 508 2,395
Ebara Corp. 52,000 464
Eisai Co. 58,100 794
Ezaki Glico Co. 76,000 433
Fanuc Co. 21,400 743
Fuji Machine Manufacturing Co. 71,000 1,890
Fuji Oil Co. 78,000 344
Fujitsu, Ltd. 233,000 2,460
Fujitsu, Ltd. 1999 Warrants Series 2 (a) 29 59
Furukawa Electric Co. 152,000 513
Gakken Co. (a) 53,000 89
General Sekiyu KK 32,000 124
Heiwa Corp. 36,000 323
Hitachi Koki Co. 84,000 346
Hitachi, Ltd. 679,000 4,444
Hokkaido Electric 24,400 343
Honda Motor Co., Ltd. 67,000 2,394
Inax Corp. 25,000 86
Intec, Inc. 52,000 411
Ishihara Sangyo (a) 140,000 194
Ishikawajima-Harima Heavy Industries 298,000 545
Ito-Yokado Co., Ltd. 133,000 6,281
Itochu Corp. 200,000 434
Japan Tobacco, Inc. 163 1,107
Jeol 50,000 229
Kandenko Co., Ltd. 10,000 62
Kao Corp. 228,000 3,529
Kawasaki Steel Corp. 476,000 861
Kawasho Corp. 52,000 64
Kinki Coca-Cola Bottling 32,000 389
Kirin Beverage Corp. 28,000 528
Kirin Brewery Co. 80,000 758
Kissei Pharmaceutical Co. 35,000 519
Koa Fire & Marine 97,000 375
Kokuyo Co., Ltd. 13,000 221
Komatsu Forklift Co., Ltd. 43,000 210
Komori Corp. 11,000 210
Kuraray Co., Ltd. 29,000 247
Kurimoto Iron Works 97,000 358
Kyocera Corp. 10,000 490
Kyushu Electric Power 13,100 205
Laox 12,000 74
Mabuchi Motor Co. 37,300 2,374
Makita Corp. 124,000 1,434
Marubeni Corp. 787,000 1,577
Marui Co., Ltd. 30,000 449
Maruichi Steel Tube 51,000 706
Matsumotokiyoshi 32,000 1,129
Matsushita Electric Industrial Co., Ltd. 321,000 5,177
Mikuni Coca-Cola Bottling 29,000 499
Minebea Co., Ltd. 197,000 1,968
Ministop Co., Ltd. 900 17
Mitsubishi Chemical 441,000 801
Mitsubishi Corp. 161,000 1,001
Mitsubishi Electric Corp. 215,000 496
Mitsubishi Estate Co., Ltd. 119,000 1,050
Mitsubishi Heavy Industries 502,000 1,902
Mitsui Fudosan Co., Ltd. 197,000 1,562
Mitsui Marine & Fire Insurance Co., Ltd. 37,000 187
Mitsui Mining & Smelting Co., Ltd. 109,000 454
Mitsui O.S.K. Lines 156,000 266
Mitsui Trust & Banking 390,000 922
Murata Manufacturing Co., Ltd. 116,000 3,775
Namco 56,000 1,312
NEC Corp. 80,000 748
Nichido Fire & Marine 400 2
Nichiei Co., Ltd. 34,700 2,369
</TABLE>
52 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Nikko Securities Co., Ltd. 130,000 $ 541
Nintendo Co. 9,000 836
Nippon Denso Co. 179,000 2,978
Nippon Fire & Marine 113,000 463
Nippon Oil Co. 166,000 538
Nippon Telegraph & Telephone Corp. 911 7,577
Nippon Yusen 344,000 1,169
Nishimatsu Construction 332,000 1,633
Nisshin Flour Milling Co., Ltd. 58,000 383
Nissho Iwai Corp. 210,000 363
Nomura Securities 254,000 2,967
Noritake Co. 74,000 348
North Pacific Bank 100,000 341
Oki Electric Industries 120,000 289
Osaka Gas Co. 178,000 458
Pioneer Electronics Corp. 266,000 5,098
Ricoh Co., Ltd. 94,000 993
Rinnai Corp. 78,000 1,185
Rohm Co. 33,000 3,401
Roland Corp. 7,000 115
Sakura Bank, Ltd. 817,000 2,127
Sangetsu Co. 6,000 78
Sankyo Co., Ltd. 29,000 663
Sankyo Co., Ltd. GUNMA 53,000 862
Sankyo Seiko Co. 100,000 242
Sanwa Bank 126,000 1,131
Sega Enterprises 8,300 144
Sekisui Chemical Co., Ltd. 336,000 1,725
Sekisui House, Ltd. 113,000 879
Seven-Eleven Japan NPV 3,300 197
Sharp Corp. 81,000 658
Shin-Etsu Chemical Co. 80,400 1,396
Shiseido Co., Ltd. 104,000 1,185
Shohkoh Fund & Co., Ltd. 900 222
Showa Shell Sekiyu 60,000 269
Sony Corp. 115,700 9,999
Stanley Electric 116,000 426
Sumitomo Corp. 50,000 241
Sumitomo Electric Industries 62,000 629
Sumitomo Forestry 136,000 766
Sumitomo Realty & Development 281,000 1,244
Sumitomo Rubber Industries 38,000 206
Sumitomo Trust & Banking 277,000 1,242
Tadano 45,000 130
Takeda Chemical Industries 40,000 1,067
Takefuji Corp. 13,200 611
TDK Corp. 10,000 741
Toc Co. 50,000 430
Toda Corp. 70,000 281
Toho Bank 100,000 403
Tohoku Electric Power 19,700 291
Tokio Marine & Fire Insurance Co. 20,000 206
Tokyo Broadcasting 50,000 560
Tokyo Electric Power 80,000 1,574
Tokyo Electronics 5,900 181
Tokyo Gas Co. 762,000 1,703
Tokyo Steel Manufacturing 25,000 129
Toppan Printing 41,000 440
Torii Pharmaceutical Co., Ltd. 22,800 416
Toshiba Corp. 501,000 2,054
Tostem Corp. 42,000 546
Toyota Motor Corp. 124,000 3,219
Tsubakimoto Chain Co. 74,000 249
Uniden Corp. 54,000 592
UNY Co., Ltd. 13,000 212
West Japan Railway Co. 100 364
Yamaha Motor Co. 56,000 352
Yamanouchi Pharmaceutical 75,000 1,568
Yamato Kogyo Co. 42,000 310
Yamato Transport 87,000 978
Yasuda Fire & Marine
Insurance Co., Ltd. (The) 88,000 375
Yodogawa Steel Works, Ltd. 71,000 334
Yurtec Corp. 4,550 28
----------
171,240
----------
MALAYSIA - 0.2%
Berjaya Leisure Berhad 60,000 33
Carlsberg Brewery Malaysia Berhad 170,000 516
Commerce Asset Holdings 180,000 67
Golden Hope Plantation 50,000 46
Kumpulan Guthrie 392,000 227
Malayan Banking Berhad 140,000 141
Malayan Banking Berhad Class A (a) 140,000 141
Malaysian Airline System 50,000 17
Oriental Holdings Berhad 30,000 50
Perlis Plantations 216,000 187
Resorts World Berhad 543,000 597
Technical Resource Industries Berhad 396,000 271
----------
2,293
----------
MEXICO - 0.3%
Cemex SA de CV - ADR 19,000 142
Cemex SA de CV Class B NPV 24,709 109
</TABLE>
International Fund 53
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Cemex SA de CV NPV 741 $ 3
Cifra SA de CV - ADR (a) 2,869 52
Compania Cervecerias Unidas SA - ADR 3,214 67
Fomento Economico Mexicano SA de CV (a) 4,511 141
Gruma SA - ADR (a) 10,526 93
Gruma SA Series B NPV (a) 45,900 100
Grupo Financiero Banamex AC
Series B NPV (a) 58,052 113
Grupo Financiero Banamex AC
Series L NPV (a) 3,655 6
Grupo Industrial Maseca Series B NPV 131,263 96
Grupo Modelo SA Series C 14,752 125
Grupo Radio Centro SA de CV - ADR 37,200 414
Grupo Television SA de CV - GDR (a) 8,409 316
Kimberly-Clark, Mexico Class A NPV 38,044 134
Panamerican Beverages, Inc. Class A 7,354 231
Telefonos de Mexico SA Series L - ADR 11,479 552
TV Azteca SA de CV - ADR 5,900 64
----------
2,758
----------
NETHERLANDS - 6.4%
ABN Amro Holdings NV 108,133 2,532
AKZO Nobel NV 649 144
AKZO Nobel NV - ADR 13,800 1,532
Apothekers Cooperatie OPG 15,600 526
ASM Lithography Holding NV (a) 12,840 380
Baan Co. NV (a) 4,170 149
Benckiser NV Class B (a) 18,000 1,108
Boskalis Westminster CVA 23,905 355
CSM NV CVA 8,507 409
DOCdata NV (a) 42,500 1,219
Elsevier NV 64,808 979
European Vinyls Corp. International NV 7,200 126
Fortis Amev NV 10,292 603
Heineken Holding NV Class A (a) 15,624 515
Hollandsche Beton Groep NV 51,580 1,076
Hunter Douglas NV 38,887 2,114
ING Groep NV 66,813 4,378
KNP BT (Kon) NV 60,442 1,561
Koninklijke Ahold NV 9,186 295
Koninklijke Emballage Industrie Van Leer 34,300 796
Koninklijke KPN NV (a) 129,427 4,985
Koninklijke Numico NV 6,060 190
Nedlloyd Groep NV 45,000 914
Nutreco Holding NV 57,000 1,997
Pakhoed Kon NV CVA 12,000 390
Philips Electronics 95,968 8,073
Philips Electronics NV - ADR 33,200 2,818
Polygram 20,276 1,035
Royal Dutch Petroleum Co. 143,437 7,960
Royal PTT Nederland NV 22,252 1,416
Stork NV 22,315 711
TNT Post Group NV (a) 129,427 3,311
Unilever NV 32,080 2,547
Vedior 32,135 909
Vendex NV (a) 32,565 1,226
Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit 202,357 7,357
Wereldhave NV 8,338 479
Wolters Kluwer CVA 21,795 2,993
----------
70,108
----------
NEW ZEALAND - 0.4%
Air New Zealand Class B 203,400 219
Fletcher Challenge Building 21,702 27
Fletcher Challenge Energy 583,101 1,396
Fletcher Challenge Paper 135,150 150
Lion Nathan, Ltd. 66,600 148
Telecom Corp. of New Zealand, Ltd. 786,133 1,685
Telecom Corp. of New Zealand, Ltd. NPV 219,549 907
Wrightson, Ltd. 300,000 59
----------
4,591
----------
NORWAY - 0.5%
Bergesen DY AS Series A 4,130 79
Fred. Olsen Energy ASA (a) 44,750 596
Kvaerner Industries AS Series B 10,000 309
Norsk Hydro AS 26,306 1,158
Orkla ASA Class A (a) 40,396 941
Orkla ASA Class B (a) 29,732 626
P4 Radio Hele Norge ASA 102,000 466
Rieber & Son ASA Series B 44,000 431
Saga Petroleum AS Series B 8,070 114
Schibsted AS 51,600 868
----------
5,588
----------
PANAMA - 0.0%
Banco Latinoamericano de
Exportaciones SA Class E 1,820 56
----------
56
----------
</TABLE>
54 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
PERU - 0.0%
Credicorp, Ltd. 4,092 $ 60
Telefonica Del Peru SA Class B - ADR 3,440 70
----------
130
----------
PORTUGAL - 0.4%
Banco Totta e Acores (Regd) 16,000 485
Jeronimo Martins SGPS 10,580 509
Portugal Telecom SA 52,194 2,768
Telecel-Comunicacaoes Pessoaissa 4,600 817
----------
4,579
----------
RUSSIA - 0.0%
Gazprom - ADR 7,390 79
Lukoil Oil Co. - ADR 1,400 47
----------
126
----------
SINGAPORE - 0.5%
Creative Technology, Ltd. (a) 5,000 62
Development Bank of Singapore, Ltd. (Alien Market) 287,200 1,594
Fraser & Neave 135,000 364
Jardine Strategic Holdings, Ltd. (a) 541,437 1,029
Jurong Shipyard 100,000 484
Mandarin Oriental International, Ltd. (a) 542,878 309
Overseas Union Enterprises 166,000 245
Singapore Airlines, Ltd. (Alien Market) 74,000 347
Singapore Land 46,000 97
Singapore Press Holdings, Ltd. (Alien Market) 80,045 537
Singapore Telecommunications, Ltd. 87,000 124
Straits Steamship Land, Ltd. 110,000 101
United Overseas Bank, Ltd. (Alien Market) 103,000 320
----------
5,613
----------
SOUTH AFRICA - 0.2%
Sappi, Ltd. (a) 244,300 917
South African Breweries 55,100 1,133
----------
2,050
----------
SOUTH KOREA - 0.0%
Samsung Electronics, Ltd. 4,379 136
----------
136
----------
SPAIN - 3.7%
Acerinox SA 6,500 866
Adolfo Dominguez SA (a) 25,800 875
Banco Bilbao Vizcaya SA 29,630 1,521
Banco Popular Espanol SA 18,940 1,615
Banco Santander SA (Regd)(a) 106,472 2,725
Baron de Ley SA (a) 16,286 541
Campofrio Alimentacion SA (a) 8,500 701
Centros Commerciales Pryca 30,800 570
Corp. Fin. Reunida (a) 32,000 483
Corporacion Bancaria de Espana SA 50,600 2,283
Corporacion Bancaria de Espana SA (Regd)(a) 49,448 1,109
Dragados y Construcciones SA 6,600 211
Endesa SA 92,986 2,034
Fuerzas Electricat Series A 73,300 655
Gas Natural SDG SA 3,102 224
Gas Y Electricidad SA Series 2 19,741 1,502
Grupo Acciona SA 4,750 1,130
Hidroelectrica del Cantabrico SA 12,490 570
Iberdrola SA 110,483 1,794
Prosegur CIA de Seguridad SA (Regd) 55,000 655
Repsol SA 67,653 3,728
Repsol SA - ADR 52,800 2,904
Tabacalera SA Class A (Regd) 191,092 3,913
Telefonica de Espana 126,974 5,871
Union Electrica Fenosa 13,000 167
Viscofan Envoltura 25,500 1,188
----------
39,835
----------
SWEDEN - 2.9%
ABB AB Series A 19,610 278
ABB AB Series B 67,000 932
Asticus AB (a) 11,465 126
Astra AB Series A 161,081 3,292
Astra AB Series B 54,604 1,089
Atlas Copco AB Series B 11,030 301
Autoliv, Inc. 106,930 3,419
Avesta-Sheffield 54,500 270
BT Industries AB 22,000 444
Diligentia AB 22,930 198
Electrolux AB Series B (a) 178,820 3,072
Esselte AB Series B 3,570 83
Fastighetspartner NF AB (Units)(a) 19,000 19
Gambro AB Series B (a) 53,500 979
Granges AB 5,155 94
Hennes and Mauritz AB Series B 32,070 2,047
</TABLE>
International Fund 55
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Hoganas AB B Shares 27,450 $ 613
Munksjo AB 50,800 497
Nordbanken Holding AB 159,298 1,168
Om Gruppen AB (a) 52,600 1,095
Pharmacia & Upjohn, Inc. 48,300 2,228
Sandvik AB Series A 3,360 93
Sandvik AB Series B 9,820 270
Scandic Hotels AB 28,210 1,026
Scania AB Series A 39,200 953
Scania AB Series B 6,200 150
Scribona AB Series B Free 4,140 50
Stora Kopparbergs Bergslags Aktiebolag Series A 131,000 2,061
Svenska Celluosa Series B Free 19,000 492
Svenska Handelsbank Series A 37,700 1,749
Telefonaktiebolaget Ericsson (LM) Series B 42,840 1,251
Tornet Fastighets AB 52,000 834
----------
31,173
----------
SWITZERLAND - 5.7%
ABB AG 946 1,399
Adecco SA 3,879 1,752
Baloise Holding, Ltd. 425 349
Baloise Holding, Ltd. 1998 Rights (a) 850 697
Barry Callebaut AG (Regd)(a) 3,415 737
Bobst AG (BR) 300 553
Ciba Specialty Chemicals AG 3,672 472
Credit Suisse Group (Regd) 5,495 1,225
Fischer (Georg) AG (Regd) 1,600 623
Forbo Holding AG (Regd) 2,880 1,468
Generali (Schweiz) Holding 11,195 3,379
Hero (BR) 1,595 1,085
Holderbank Financiere Glarus AG (BR) 700 892
Jelmoli Holding AG 925 1,176
Lindt & Spruengli AG 160 413
Lindt & Spruengli AG (Regd) 10 261
Nestle SA (Regd) 6,159 13,202
Novartis AG (Regd) 1,668 2,780
Phoenix Mecano (BR) 800 518
Publicitas Holdings SA - (Regd) 2,000 621
Roche Holdings Genusscheine AG NPV 627 6,167
Sarna Kunststoff Holdings AG (Regd) 250 437
SGS Holding (BR) 450 764
Siegfried AG Series R 1,013 1,284
SMH AG Neuenburg (Regd) 8,900 1,487
Sulzer AG (Regd) 1,650 1,304
Sulzer Medica AG (Regd) 7,475 1,965
Swisslog Holding AG 9,558 1,105
UBS AG (a) 32,846 12,233
Zurich Versicherungsgesellschaft (Regd) 3,100 1,982
----------
62,330
----------
THAILAND - 0.0%
Thai Farmers Bank (Alien Market) 135,000 119
----------
119
----------
UNITED KINGDOM - 19.5%
Abbey National PLC 36,000 640
Airtours PLC 132,000 990
Anglian Water PLC 127,400 1,787
ASDA-MFI Group PLC 988,849 3,397
B.A.T. Industries PLC 319,500 3,201
Barclays Bank PLC 94,200 2,718
Barratt Development PLC 68,300 301
BASS PLC 48,214 904
Berisford PLC 231,000 883
BG PLC 36,441 211
Billiton PLC 327,300 664
BOC Group PLC 201,574 2,748
British Aerospace PLC (a) 631,480 4,840
British Airways PLC 145,580 1,576
British Airways PLC - ADR 8,270 890
British Petroleum Co. PLC 442,906 6,463
British Sky Broadcasting Group PLC 91,900 661
British Steel PLC 343,600 756
British Telecom PLC 195,007 2,409
BTR PLC (a) 1,016,003 2,884
Bunzl PLC 395,500 1,862
Burmah Castrol PLC 39,000 695
Cable & Wireless Communications PLC (a) 307,000 3,111
Cable & Wireless PLC 226,360 2,751
Cadbury Schweppes PLC 104,228 1,614
Caradon PLC 87,423 269
Centrica PLC (a) 68,500 116
Coats Viyella PLC 290,000 356
Commercial Union Assurance Co. PLC 148,000 2,763
Compass Group PLC (a) 111,200 1,279
Courtaulds Textile Co. PLC 130,000 629
Cowie Group PLC 149,166 872
Devro International PLC 210,000 1,765
Diageo PLC 885,933 10,503
ED&F Man Group PLC 140,000 725
</TABLE>
56 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Electrocomponents PLC 27,000 $ 212
EMI Group PLC 99,000 866
First Leisure Corp. PLC 165,000 959
Flextech PLC (a) 80,000 740
Gallaher Group PLC 92,900 514
General Accident PLC 61,500 1,386
GKN PLC (a) 10,000 127
Glaxo Wellcome PLC 273,463 8,214
Glynwed International PLC 185,200 762
Granada Group PLC 57,000 1,049
Great University Stores PLC 80,000 1,055
Guardian Royal Exchange PLC (a) 353,333 2,071
Hanson PLC 87,375 531
Heywood Williams Group PLC 21,666 94
Hickson International PLC 694,500 858
Hillsdown Holdings PLC 369,876 1,007
HSBC Holdings PLC 46,000 1,168
Hyder PLC 70,333 1,106
Imperial Chemical Industries PLC 182,985 2,939
Imperial Tobacco Group PLC 119,000 878
Independent Newspapers PLC 292,300 1,537
Kingfisher PLC 126,657 2,041
Ladbroke Group, Ltd. PLC 531,013 2,917
Laing (John) PLC Class A NV 18,800 124
Laird Group PLC 212,830 995
Lloyds TSB Group PLC 321,408 4,500
London Clubs International 200,000 528
LucasVarity PLC 1,722,137 6,844
Manchester United PLC 500,000 1,317
Medeva PLC 293,000 832
MEPC PLC 34,000 299
MFI Furniture Group PLC 409,641 434
Mirror Group News PLC 805,000 3,038
National Power PLC 78,000 735
National Westminster Bank PLC 140,000 2,504
Northern Rock PLC 50,600 448
Nycomed Amersham PLC (a) 52,217 389
Pace Micro Technology PLC 190,000 241
PIC International Group PLC (a) 300,000 1,077
Pilkington Brothers PLC 221,000 408
Powell Duffryn PLC 68,000 621
Powergen PLC 190,231 2,630
Premier Consolidated Oil PLC 605,000 427
Premier Farnell PLC 73,000 372
Provident Financial PLC 76,228 1,196
Prudential Corp. PLC 137,000 1,806
Racal Electronics PLC 316,800 1,796
Railtrack Group PLC 278,150 6,822
Rank Group PLC 132,750 729
Redland PLC 23,033 132
Reed International 191,080 1,729
Rio Tinto Corp. PLC (Regd) 262,953 2,964
Rolls-Royce PLC 37,370 154
Royal & Sun Alliance Insurance Group PLC 435,732 4,507
Royal Bank of Scotland Group PLC 104,500 1,815
Safeway PLC 393,541 2,579
Sainsbury (J.) PLC 218,432 1,948
Shell Transportation & Trading PLC (Regd) 901,000 6,349
Smith & Nephew PLC 757,000 1,893
Smith (David S.) Holdings PLC 43,000 139
SmithKline Beecham PLC 296,380 3,620
Somerfield PLC 795,058 5,084
South West Water PLC 93,100 1,544
Stagecoach Holdings PLC 79,160 1,685
Stakis PLC 595,442 1,213
Standard Chartered Bank Group PLC 141,000 1,603
Storehouse PLC 461,000 1,917
Tarmac, Ltd. PLC 1,020,699 1,824
Taylor Woodrow PLC 558,300 1,864
Tesco Store Holdings PLC 56,463 552
Thames Water PLC 33,000 601
Thorn PLC 261,428 1,056
Tomkins PLC 725,236 3,939
Transport Development Group PLC (a) 104,760 520
Unilever PLC 127,640 1,360
United Newspaper, Ltd. PLC 52,200 730
Vickers, Ltd. PLC 208,700 763
Vodafone Group PLC 595,680 7,564
W.H. Smith Group PLC (a) 396,720 3,524
Wessex Water PLC 147,000 1,119
WPP Group PLC 230,000 1,508
Zeneca Group PLC 39,000 1,674
----------
211,849
----------
VENEZUELA - 0.0%
CIA Anon Nacional Telefonos de Venezuela - ADR 5,282 132
----------
132
----------
TOTAL COMMON STOCKS
(cost $860,010) 1,001,819
----------
</TABLE>
International Fund 57
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
PREFERRED STOCKS - 1.6%
AUSTRALIA - 0.2%
News Corp., Ltd. 189,897 $ 1,349
Sydney Harbour Casino Holdings, Ltd. (a) 1,058,762 617
----------
1,966
----------
AUSTRIA - 0.3%
Z Landerbank Bank Austria AG 39,141 3,181
----------
3,181
----------
BRAZIL - 0.1%
Banco Bradesco SA NPV 22,758,054 190
Banco Itau SA (Regd) 169,000 96
Brahma (cia Cervej) NPV 186,724 116
Brasmotor SA NPV 529,000 48
CEMIG SA 3,340,523 104
Cim Port Itau (Cia) 370,920 66
Empresa Nacional Com Redito NPV 288,490 1
Petroleo Brasileiro SA NPV 1,849,080 344
Telecomunicacoes de Minas Gerais Class B NPV 838,270 58
Telecomunicacoes de Sao Paulo SA - NPV 1,023,792 241
Telecomunicacoes do Rio de Janeiro SA NPV 872,476 66
Telemig Celular SA Class C NPV (a) 838,270 25
Telerj Celular SA Class B NPV (a) 872,476 52
Telesp Celular SA Class B NPV (a) 1,023,792 85
Usiminas Uni Sd Mg NPV 7,598 39
----------
1,531
----------
GERMANY - 0.7%
Bayer Motoren Werk 900 564
Bayerische Motoren Werke AG (a) 180 109
Draegerwerk AG 750 18
Dyckerhoff AG 250 98
Fielmann AG 2,133 75
Fresenius AG 1,010 192
Hornbach Holding AG 2,060 188
Hugo Boss 300 662
Jungheinrich 7,150 1,328
M.A.N. AG 250 68
Porsche AG 425 1,225
ProSieben Media AG NV (a) 11,555 599
Rheinmetall AG (a) 26,500 757
RWE AG 13,000 556
SAP AG 1,157 786
Volkswagen AG 500 345
Wella AG 100 111
----------
7,681
----------
ITALY - 0.0%
Fiat SPA 171,397 427
----------
427
----------
JAPAN - 0.2%
Sanwa International Financial
Bermuda Trust (conv.) 216,000,000 1,593
----------
1,593
----------
NETHERLANDS - 0.0%
Internationale Nederlanden Groep NV 2,901 13
----------
13
----------
UNITED STATES - 0.1%
WBK STRYPES Trust (conv.) 18,900 571
----------
571
----------
TOTAL PREFERRED STOCKS
(cost $12,653) 16,963
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.1%
JAPAN - 0.1%
Sumitomo Wiring Systems
0.900% due 09/30/98 JPY 45,000 268
Yamanouchi Pharmaceutical (conv.)
1.250% due 03/31/14 90,000 924
----------
TOTAL LONG-TERM INVESTMENTS
(cost $1,357) 1,192
----------
</TABLE>
58 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.3%
UNITED STATES - 4.3%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 38,492 $ 38,492
United States Treasury Notes
5.2505 due 07/31/98 (b)(c) 8,850 8,850
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $47,342) 47,342
----------
TOTAL INVESTMENTS
(identified cost $921,362)(d) - 97.9% 1,067,316
OTHER ASSETS AND LIABILITIES,
NET - 2.1% 22,553
----------
NET ASSETS - 100.0% $1,089,869
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures
contracts purchased by the Fund.
(d) 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
FOREIGN CURRENCY ABBREVIATIONS:
AUD - Australian dollar
CAD - Canadian dollar
CHF - Swiss franc
DEM - German mark
ESP - Spanish peseta
FIM - Finnish markka
FRF - French franc
GBP - British pound
ITL - Italian lira
JPY - Japanese yen
MXN - Mexican peso
MYR - Malaysian ringgit
NLG - Dutch guilder
NZD - New Zealand dollar
PTE - Portuguese escudo
SEK - Swedish krone
SGD - Singapore dollar
USD - U.S. dollar
The accompanying notes are an integral part of the financial statements.
International Fund 59
<PAGE>
INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
FTSE - 100 Index
Futures Contracts (UK)
expiration date 09/98 309 $ 524
TOPIX Index
Futures Contracts (Japan)
expiration date 09/98 256 521
--------- -----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 1,045
-----------
-----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at $8,850 were held
as collateral in connection with futures contracts purchased by the Fund.
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- ------------------------------------------------- ---------- -----------
<S> <C> <C>
Auto & Transportation 8.0% $ 87,217
Consumer Discretionary 17.6 192,011
Consumer Staples 8.6 93,916
Financial Services 15.9 172,674
Health Care 5.1 55,011
Integrated Oils 2.0 21,833
Material & Processing 11.9 129,813
Miscellaneous 1.4 15,503
Other Energy 3.0 33,106
Producer Durables 8.3 90,714
Technology 3.9 42,042
Utilities 7.8 84,942
Long-Term Investments 0.1 1,192
Short-Term Investments 4.3 47,342
---------- -----------
Total Investments 97.9 1,067,316
Other Assets and Liabilities, Net 2.1 22,553
---------- -----------
NET ASSETS 100% $ 1,089,869
---------- -----------
---------- -----------
</TABLE>
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- ------------------------------------------------- ---------- -----------
<S> <C> <C>
Europe 47.8% $ 521,226
Japan 16.0 174,025
United Kingdom 19.4 211,849
Pacific Basin 5.3 57,182
Latin America 0.7 7,736
United States (Short-Term Investments) 4.3 47,342
United States 0.1 571
Other 4.3 47,385
---------- -----------
Total Investments 97.9 1,067,316
Other Assets and Liabilities, Net 2.1 22,553
---------- -----------
NET ASSETS 100% $ 1,089,869
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
60 International Fund
<PAGE>
INTERNATIONAL FUND
FOREIGN CURRENCY EXCHANGE CONTRACTS (Note 2)
June 30, 1998 (Unaudited)
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
GBP 2 AUD 4 07/02/98 $ --
USD 550 CHF 834 07/03/98 1
USD 114 DEM 205 07/02/98 --
USD 197 FRF 1,188 07/31/98 (1)
USD 1,002 GBP 602 07/02/98 3
USD 926 GBP 556 07/07/98 2
USD 161 ITL 285,750 07/07/98 --
USD 127 JPY 17,663 07/02/98 --
USD 737 JPY 102,264 07/03/98 3
MYR 541 NLG 1,105 07/01/98 3
USD 265 NLG 540 07/02/98 --
USD 76 NZD 146 07/02/98 --
USD 135 SEK 1,078 07/02/98 --
AUD 212 USD 128 07/01/98 (4)
AUD 125 USD 75 07/02/98 (2)
AUD 222 USD 135 07/06/98 (3)
AUD 33 USD 21 07/02/98 --
CAD 2 USD 2 07/02/98 --
DEM 883 USD 490 07/03/98 1
DEM 163 USD 90 07/02/98 --
ESP 1,013 USD 7 07/02/98 --
FIM 1,160 USD 211 07/01/98 (1)
FRF 3,178 USD 524 07/31/98 (1)
FRF 686 USD 113 07/31/98 --
FRF 2,335 USD 384 07/31/98 (2)
FRF 2,178 USD 360 07/31/98 --
FRF 8,218 USD 1,359 07/02/98 --
GBP 1 AUD 2 07/02/98 --
GBP 567 USD 944 07/01/98 (2)
GBP 367 USD 613 07/02/98 --
GBP 807 USD 1,340 07/03/98 (7)
ITL 216 USD - 07/02/98 --
JPY 25,175 USD 177 07/03/98 (5)
JPY 8,826 USD 62 07/06/98 (2)
MXN 9,706 USD 1,080 07/02/98 1
MYR 2,276 NLG 541 07/01/98 (7)
NLG 4,096 USD 2,005 07/01/98 (10)
NZD 96 USD 50 07/02/98 --
PTE 1,139 USD 6 07/02/98 --
SEK 40 USD 5 07/02/98 --
SGD 3 USD 2 07/02/98 --
------------
$ (33)
------------
------------
<CAPTION>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
USD 1,626 GBP 1,000 09/18/98 $ 36
USD 809 GBP 500 09/18/98 22
USD 6,067 GBP 3,650 09/18/98 1
USD 23,448 GBP 14,100 09/18/98 (9)
USD 528 JPY 75,000 09/18/98 20
USD 701 JPY 100,000 09/18/98 30
USD 1,483 JPY 200,000 09/18/98 (20)
USD 1,806 JPY 250,000 09/18/98 23
USD 181 JPY 25,000 09/18/98 2
USD 1,079 JPY 150,000 09/18/98 18
USD 711 JPY 100,000 09/18/98 21
USD 15,907 JPY 2,200,000 09/18/98 189
USD 3,774 NZD 7,289,000 07/01/98 19
JPY 2,470,000 USD 18,147 08/27/98 133
JPY 100,000 USD 730 09/18/98 (2)
NZD 1,153 USD 632 07/01/98 32
NZD 1,524 USD 829 07/01/98 36
NZD 3,272 USD 1,822 07/01/98 119
NZD 1,340 USD 732 07/01/98 34
NZD 4,074 USD 2,099 09/03/98 (21)
------------
$ 683
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Fund 61
<PAGE>
INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $921,362)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,067,316
Foreign currency holdings (identified cost $17,163). . . . . . . . . . . . . . . . . . . . . . . . . . . 17,118
Forward foreign currency exchange contracts (cost $83,113)(Note 2) . . . . . . . . . . . . . . . . . . . 83,464
Foreign currency exchange spot contracts (cost $15,560)(Note 2). . . . . . . . . . . . . . . . . . . . . 15,573
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,641
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,222
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,215
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,574
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . 147
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 95,609
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,299,879
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 765
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,549
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,584
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 694
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
Forward foreign currency exchange contracts (cost $83,113)(Note 2) . . . . . . . . . 82,781
Foreign currency exchange spot contracts (cost $15,560)(Note 2). . . . . . . . . . . 15,606
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 95,609
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,010
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,089,869
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,851
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,883
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,954
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,045
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 909,242
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,089,869
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($1,089,868,826 divided by 27,393,963 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39.79
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
62 International Fund
<PAGE>
INTERNATIONAL FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,041
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,786)
----------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,661
EXPENSES (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,948
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,953
----------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,708
----------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,395
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,663
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (291) 48,767
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,147
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,066
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 814 96,027
-------------- ----------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,794
----------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 155,502
----------------
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Fund 63
<PAGE>
INTERNATIONAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,708 $ 11,499
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,767 41,977
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 96,027 (46,787)
------------ -----------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 155,502 6,689
------------ -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (614) (9,488)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (4,696)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (9,225) (50,573)
In excess of net realized gain on investments. . . . . . . . . . . . . . . . . . . -- (12,206)
------------ -----------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (9,839) (76,963)
------------ -----------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . (28,529) 98,629
------------ -----------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 117,134 28,355
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 972,735 944,380
------------ -----------
End of period (including undistributed net investment income of
$3,851 and accumulated distributions in excess of net investment
income of $6,243, respectively) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,089,869 $ 972,735
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
64 International Fund
<PAGE>
INTERNATIONAL 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>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $ 34.60 $ 37.39 $ 36.26 $ 34.28 $ 37.34 $ 28.92
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . .39 .46 .44 .48 .61 .58
Net realized and unrealized gain
(loss) on investments . . . . . . . . . . . . . . 5.15 (.28) 2.41 3.16 .65 9.63
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . 5.54 .18 2.85 3.64 1.26 10.21
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . (.02) (.37) (.35) (.64) (.36) (.57)
In excess of net investment income . . . . . . . . . -- (.18) -- (.08) -- (.16)
Net realized gain on investments . . . . . . . . . . (.33) (1.95) (1.37) (.94) (3.73) (1.06)
In excess of net realized gain on investments. . . . -- (.47) -- -- (.23) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . (.35) (2.97) (1.72) (1.66) (4.32) (1.79)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $ 39.79 $ 34.60 $ 37.39 $ 36.26 $ 34.28 $ 37.34
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . 16.10 .58 7.98 10.71 5.38 35.56
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . 1,089,869 972,735 944,380 796,777 674,180 562,497
Ratios to average net assets (%)(b)(c):
Operating expenses, net . . . . . . . . . . . . . .94 1.00 1.04 .88 .32 .39
Operating expenses, gross . . . . . . . . . . . . .94 1.00 1.05 .89 .34 .41
Net investment income . . . . . . . . . . . . . . 2.02 1.14 1.20 1.41 1.63 1.83
Portfolio turnover rate (%)(b) . . . . . . . . . . . 72.00 79.45 42.69 36.78 71.09 62.04
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 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.
International Fund 65
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 97.7%
ASSET-BACKED SECURITIES - 9.9%
Advanta Home Equity Loan Trust
Series 1991-1 Class A
9.000% due 02/25/06 $ 44 $ 45
AFC Home Equity Loan Trust
Series 1996-2 Class 1 A3
7.590% due 09/25/27 2,030 2,049
Arcadia Automobile Receivables Trust
Series 1998-A Class A4
6.000% due 11/17/03 395 395
Series 1998-B Class A3
5.950% due 11/15/02 765 766
Associates Manufactured Housing
Pass-Thru Certificates
Series 1997-2 Class A3
6.250% due 03/15/28 2,000 2,016
BankAmerica Manufactured
Housing Contract
Series 1997-1 Class A4
6.200% due 06/10/10(c) 1,000 1,008
Case Equipment Loan Trust
Series 1998-A Class A4
5.830% due 02/15/05 2,400 2,401
Chase Credit Card Master Trust
Series 1997-3 Class A
6.777% due 05/15/07 1,200 1,247
Series 1997-5 Class A
6.194% due 08/15/05 3,500 3,556
Circuit City Credit Card Master Trust
8.000% due 11/15/03 2,340 2,407
Citibank Credit Card Master Trust I
Series 1997-3 Class A
6.839% due 02/10/04(c) 1,100 1,114
Series 1998-6 Class A
5.850% due 04/10/03 7,900 7,925
Contimortgage Home Equity Loan Trust
Mortgage Pass-thru Certificate
Series 1994-4 Class A6
8.270% due 12/15/24 448 464
Series 1996-4 Class A9
6.880% due 01/15/28 1,500 1,525
Series 1997-2 Class A6
7.120% due 03/15/16 825 851
Fleetwood Credit Corporation Grantor Trust
Series 1997-B Class A
6.400% due 05/15/13(c) 4,041 4,086
Green Tree Financial Corp.
Series 1997-1 Class M1
7.220% due 03/15/28(c) 1,300 1,340
Series 1997-7 Class A5
6.540% due 07/15/19 2,300 2,341
Green Tree Recreational, Equipment &
Consumer Loan Trust
Series 1997-3 Class A1
6.550% due 07/15/28 3,161 3,186
Series 1998-A Class A1C
6.180% due 06/15/19 631 633
IMC Home Equity Loan Trust
Series 1997-5 Class M1
7.080% due 11/20/28(c) 1,500 1,546
Metris Master Trust
Series 1996-1 Class A
6.450% due 02/20/02 3,290 3,308
Series 1997-1 Class A
6.870% due 10/20/05 3,350 3,466
Oakwood Mortgage Investors, Inc.
Series 1997-D Class A3
6.500% due 02/15/28 1,110 1,127
Series 1998-A Class A2
6.100% due 05/15/28 1,070 1,071
Onyx Acceptance Grantor Trust
Series 1997-1 Class A
6.550% due 09/15/03(c) 1,407 1,419
Series 1998-1 Class A
5.950% due 07/15/04 2,728 2,730
Series 1998-A Class A3
5.850% due 08/15/02 2,280 2,280
Pacificamerica Home Equity Loan
Series 1998-2 Class AF
6.590% due 06/26/28 1,850 1,849
Preferred Credit Corp.
Series 1997-1 Class A6
7.590% due 07/25/26 1,050 1,106
Premier Auto Trust
Series 1997-2 Class A5
6.320% due 03/06/02 3,380 3,422
Series 1998-3 Class A4
5.960% due 10/08/02 4,665 4,668
Providian Master Trust
6.250% due 06/15/07 2,330 2,357
</TABLE>
66 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Saxon Asset Securities Trust Co.
Series 1997-1 Class AF2
7.085% due 07/25/20 $ 2,500 $ 2,526
Sears Credit Account Master Trust
Series 1997-1 Class A
6.200% due 07/16/07 2,170 2,182
Series 1998-1 Class A
5.800% due 08/15/05 1,070 1,067
Student Loan Marketing Association
Series 1997-4 Class A1
5.976% due 01/25/03(c) 4,725 4,729
Team Fleet Financing Corp.
Series 1997-1 Class A
7.350% due 05/15/03 1,975 2,046
The Money Store Home Equity Loan Trust
Series 1996-A Class A5
6.850% due 06/15/19 1,050 1,066
Union Acceptance Corp.
Series 1998-B Class A4
5.900% due 02/09/04 1,670 1,670
Wal-Mart Stores, Inc.
Series 1994-B3
8.800% due 12/30/14 360 441
World Omni Automobile Lease
Securitization Trust
Series 1996-B Class A2
6.200% due 11/15/02 771 773
Series 1997- Class A2
6.750% due 06/25/03(c) 1,999 2,015
Series 1997-A Class B
7.300% due 06/25/03 (c) 850 865
Series 1997-B Class A3
6.180% due 11/25/03 1,830 1,838
----------
90,922
----------
BANKERS ACCEPTANCE NOTES - 0.1%
Mellon Bank, NA
7.625% due 09/15/07 510 558
----------
558
----------
CORPORATE BONDS AND NOTES - 18.9%
Air Products & Chemicals, Inc
8.750% due 04/15/21 300 379
Allegiance Corp.
7.300% due 10/15/06 900 952
7.000% due 10/15/26 100 102
America West Airlines, Series A
6.850% due 07/02/09 584 593
American Express Co.
8.500% due 08/15/01 45 48
American General Finance Corp.
8.500% due 06/15/99 800 819
American Health Properties
7.050% due 01/15/02 650 664
American Stores Co.
8.000% due 06/01/26 875 997
Analog Devices, Inc.
6.625% due 03/01/00 225 227
Appalachian Power Co.
6.800% due 03/01/06 1,250 1,296
Aristar, Inc.
6.300% due 07/15/00 1,040 1,045
7.750% due 06/15/01 600 625
Associates Corp. of North America
Series H (MTN)
6.250% due 03/15/99 1,520 1,524
6.500% due 10/15/02 400 405
7.090% due 04/11/03 400 419
AT&T Capital Corp.
5.950% due 02/16/99 (MTN) 2,000 1,999
6.050% due 04/01/99 (c) 1,000 1,000
AT&T Corp.
8.625% due 12/01/31 440 495
Atlantic Richfield Co.
9.125% due 08/01/31 700 946
Avco Financial Services, Inc.
5.750% due 01/23/01 (MTN) 2,270 2,255
6.000% due 08/15/02 400 398
Baltimore Gas & Electric Co.
6.500% due 02/15/03 550 559
Banc One Corp.
7.250% due 08/01/02 790 820
Banco De Latinoamerica
6.500% due 04/02/01 1,400 1,418
Bank of New York, Inc.
7.875% due 11/15/02 500 535
Bank One, Columbus, Ohio
7.375% due 12/01/02 195 204
BankAmerica Corp.
6.850% due 03/01/03 425 436
Bankboston NA
6.375% due 04/15/08 2,000 1,996
Barnett Bank, Inc.
6.900% due 09/01/05 665 691
</TABLE>
Fixed Income I Fund 67
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Baxter International Inc.
6.625% due 02/15/28 $ 800 $ 796
Bear Stearns Co Inc. (MTN)(c)
5.856% due 02/16/01 2,000 2,008
Bell Telephone Co. of Pennsylvania
8.350% due 12/15/30 645 813
BellSouth Telecommunications
7.000% due 12/01/95 295 314
Beneficial Corp.
8.400% due 05/15/08 757 890
Boston Scientific
6.625% due 03/15/05 400 404
Campbell Soup Co.
8.875% due 05/01/21 500 651
Carolina Power & Light Co.
6.875% due 08/15/23 250 256
Case Corp.
7.250% due 01/15/16 400 432
7.250% due 08/01/05 395 417
Caterpillar Financial Services (MTN)(c)
9.500% due 02/06/07 80 98
Caterpillar, Inc.
8.000% due 02/15/23 750 880
Central Fidelity Banks, Inc.
8.150% due 11/15/02 280 302
Central Power & Light Co.
Series FF
6.875% due 02/01/03 550 570
Champion International Corp.
6.400% due 02/15/26 570 589
Chesapeake & Potomac Telephone Co.
8.375% due 10/01/29 405 507
Chevron Corp.
Profit Sharing Savings Plan Trust Fund
8.110% due 12/01/04 354 378
Choice Hotels International Inc.
7.125% due 05/01/08 1,250 1,270
Chrysler Corp.
7.450% due 03/01/27 900 999
Chrysler Financial Corp.
6.080% due 03/12/01 (MTN) 1,550 1,558
5.686% due 06/11/01 3,000 2,998
Cincinnati Gas & Electric Co.
7.200% due 10/01/23 250 256
CIT Group Holdings, Inc.(MTN)
6.625% due 06/28/99 1,575 1,586
6.700% due 05/02/00 500 507
6.700% due 06/02/00 300 304
6.150% due 12/15/02 300 301
Citicorp
5.799% due 05/24/01 (MTN)(c) 2,000 2,001
5.824% due 05/24/01 (MTN)(c) 3,000 3,000
9.500% due 02/01/02 195 215
7.125% due 06/01/03 485 504
City National Bank
6.375% due 01/15/08 875 878
Coca Cola Enterprises, Inc.
7.000% due 10/01/26 665 717
Colonial Realty LP (MTN)
6.980% due 09/26/05 500 515
Commercial Credit Co.
Series 85
6.000% due 06/15/00 500 500
5.750% due 07/15/00 255 254
7.875% due 07/15/04 500 538
6.500% due 06/01/05 300 305
8.700% due 06/15/10 795 950
Commonwealth Edison Co.
Series 85
7.375% due 09/15/02 1,120 1,166
Conagra, Inc. (MTN)
8.100% due 05/20/02 300 321
Consolidated Natural Gas Co.
8.625% due 12/01/11 54 57
Consolidated Rail Corp.
Pass-thru Certificate Structured Note
Series 1995 Class A
6.760% due 05/25/15 564 580
Constitution Capital Trust I
9.150% due 04/15/27 700 788
CoreStates Capital Corp.
5.875% due 10/15/03 750 740
Cox Communications Inc.
6.500% due 11/15/02 600 608
6.690% due 09/20/04 (MTN) 500 512
Crown Cork & Seal Finance PLC
7.000% due 12/15/06 850 880
Dayton Hudson Co.
6.400% due 02/15/03 415 416
Discover Credit Corp. (MTN)
8.350% due 04/27/99 465 473
Dole Food Co., Inc.
6.750% due 07/15/00 280 282
Duke Energy Corp.
6.875% due 08/01/23 600 599
Duke Power Co.
7.000% due 07/01/33 1,030 1,043
</TABLE>
68 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Excel Realty Trust, Inc.
6.875% due 10/15/04 $ 925 $ 936
Federal Express Corp.
7.600% due 07/01/97 400 430
Finova Capital Corp.
7.125% due 05/01/02 1,100 1,134
First Bank Systems, Inc.
8.000% due 07/02/04 1,050 1,139
First Chicago Corp.
5.791% due 11/14/01 (MTN)(c) 3,000 3,003
8.875% due 03/15/02 600 651
First Interstate Bancorp (MTN)
9.375% due 01/23/02 225 246
First Union Institutional Capital Trust I
8.040% due 12/01/26 100 107
First Union National Bank, Newark (MTN)
7.125% due 10/15/06 555 587
Fleet Financial Group, Inc.
6.875% due 03/01/03 350 359
8.125% due 07/01/04 675 736
Florida Residential Property &
Casualty Insurance Co., Series A
7.250% due 07/01/02 2,100 2,173
Ford Motor Credit Co.
8.375% due 01/15/00 425 440
6.125% due 04/28/03 2,380 2,380
6.750% due 05/15/05 425 437
Fort James Corp.
6.625% due 09/15/04 1,075 1,091
Fortune Brands, Inc.
7.875% due 01/15/23 400 459
General Electric Capital Corp.
8.300% due 09/20/09 470 554
6.660% due 05/01/18 (c) 1,025 1,038
General Motors Acceptance Corp.
6.625% due 10/01/02 2,270 2,296
Goldman Sachs Group
5.836% due 01/16/01(c) 4,000 4,011
Grand Metropolitan Investment Corp.
7.450% due 04/15/35 425 481
GTE California Inc.
6.750% due 05/15/27 600 603
Heller Financial Inc.
6.440% due 10/06/02 1,100 1,102
Heller Financial Inc.
Series G (MTN)
5.829% due 08/25/00 3,400 3,403
Hertz Corp.
7.625% due 08/01/02 450 470
9.000% due 11/01/09 390 467
Household Finance Corp.
6.375% due 06/30/00 750 755
ICI Wilmington, Inc.
6.950% due 09/15/04 725 752
International Lease Finance Corp.
5.750% due 01/15/99 685 685
6.375% due 08/01/01 300 302
6.375% due 02/15/02 1,200 1,209
8.375% due 12/15/04 900 1,008
International Paper Co.
9.400% due 06/01/02 600 663
IRT Property Co.
7.250% due 08/15/07 1,325 1,379
ITT Financial Corp.
7.400% due 11/15/25 865 921
Jackson National Life Insurance Co.
8.150% due 03/15/27 1,150 1,343
JPM Capital Trust I
7.540% due 01/15/27 285 296
Kansas Gas & Electric Co.
6.500% due 08/01/05 200 203
Kern River Funding Corp., Series B
6.720% due 09/30/01 1,025 1,046
Key Bank Corp.
8.000% due 07/01/04 200 218
7.500% due 06/15/06 875 943
6.500% due 04/15/08 650 655
Lehman Brothers Holdings, Inc.
6.150% due 03/15/00 (MTN) 835 836
6.250% due 04/01/03 450 451
Liberty Mutual Insurance Co.
7.697% due 10/15/97 850 928
7.875% due 10/15/26 1,000 1,125
Lincoln National Corp.
7.250% due 05/15/05 450 474
Lockheed Martin Corp.
7.750% due 05/01/26 800 912
Martin Marietta Corp.
7.000% due 03/15/11 325 324
Masco Corp.
6.625% due 04/15/18 500 504
MCI Communications Corp.
6.125% due 04/15/02 600 598
</TABLE>
Fixed Income I Fund 69
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Mellon Capital II
Series B
7.995% due 01/15/27 $ 370 $ 402
Mirage Resorts Inc
6.625% due 02/01/05 1,070 1,052
Motorola, Inc.
7.500% due 05/15/25 480 532
Nabisco, Inc.
6.375% due 02/01/35 1,000 994
Natexis Ambs Co. LLC
8.440% due 12/29/49 2,000 2,000
Nationsbank Corp.
6.375% due 02/15/08 275 276
New England Telephone & Telegraph Co.
7.875% due 11/15/29 430 508
News America Holdings, Inc.
7.750% due 01/20/24 400 430
Northwestern Bell Telephone Co.
7.750% due 05/01/30 455 529
Norwest Corp. Series H (MTN)
6.750% due 06/15/07 150 155
Norwest Financial, Inc.
6.375% due 11/15/01 750 758
6.250% due 11/01/02 425 427
6.375% due 11/15/03 650 659
NYNEX Corp.
9.550% due 05/01/10 542 626
Occidental Petroleum Corp.
8.500% due 11/09/01 (MTN) 295 317
10.125% due 11/15/01 255 284
Pacific Bell
7.500% due 02/01/33 660 691
Pennsylvania Power & Light Co.
6.875% due 03/01/04 1,200 1,240
Pennzoil Co.
10.125% due 11/15/09 215 268
PepsiCo, Inc.
7.625% due 12/18/98 360 363
Philadelphia Electric Co., Series 1992
7.500% due 01/15/99 5,200 5,241
Philip Morris Cos., Inc.
6.150% due 03/15/00 2,900 2,900
6.950% due 06/01/06 380 394
7.200% due 02/01/07 2,000 2,066
7.650% due 07/01/08 395 422
Pitney Bowes Credit Corp.
8.550% due 09/15/09 780 927
PNC Funding Corp.
6.875% due 07/15/07 800 834
Praxair, Inc.
6.850% due 06/15/05 880 914
Ralston Purina Co.
7.875% due 06/15/25 845 965
Raytheon Co.
6.300% due 03/15/05 1,020 1,025
Realty Income Corp.
7.750% due 05/06/07 1,500 1,574
Republic of New York Corp.
9.750% due 12/01/00 130 141
8.250% due 11/01/01 240 255
7.875% due 12/12/01 300 317
Rite Aid Corp.
6.700% due 12/15/01 1,100 1,119
Rockwell International Corp.
8.875% due 09/15/99 300 310
Safeco Capital Trust I
8.072% due 07/15/37 300 321
Salomon Smith Barney Holdings, Inc.
6.750% due 02/15/03 550 561
6.250% due 06/15/05 500 497
Seagram Co., Ltd.
8.350% due 01/15/22 740 862
Sears Roebuck Acceptance Corp.
6.750% due 01/15/28 950 950
Sears Roebuck Acceptance Corp.
Series II (MTN)
6.690% due 04/30/01 975 992
Service Corp. International
6.750% due 06/01/01 400 406
7.375% due 04/15/04 550 578
Shopping Center Associates
6.750% due 01/15/04 750 759
Socgen Real Estate Co. LLC
7.640% due 12/29/49 (g) 540 550
Spieker Properties (MTN)
8.000% due 07/19/05 800 857
Summit Properties Inc.
7.200% due 08/15/07 550 557
Suntrust Banks, Inc.
7.375% due 07/01/02 575 600
TCI Communciations Inc.
8.650% due 09/15/04 500 559
Temple Inland, Inc.
7.250% due 09/15/04 575 602
Tenneco Corp.
10.200% due 03/15/08 725 907
</TABLE>
70 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Texaco Capital, Inc.
9.750% due 03/15/20 $ 225 $ 312
8.875% due 09/01/21 440 570
Texas Utilities Electric Co.
9.500% due 08/01/99 1,370 1,418
TIG Capital Trust I
8.597% due 01/15/27 1,225 1,374
Time Warner, Inc
7.975% due 08/15/04 450 485
8.110% due 08/15/06 900 992
8.180% due 08/15/07 900 1,003
6.875% due 06/15/18 1,050 1,054
Union Carbide Chemicals & Plastics
7.875% due 04/01/23 835 902
Union Oil Co. (MTN)
9.400% due 02/15/11 390 492
Union Pacific Corp.
7.600% due 05/01/05 350 371
Union Pacific Railroad Trust
Pass-thru Certificate
Series 1996-A2
7.060% due 05/15/03 450 468
Union Planters Bank
6.500% due 03/15/18 700 696
United Technologies Corp.
8.750% due 03/01/21 445 561
US Bank National - Minnesota
5.762% due 12/19/01 (c) 3,000 2,997
USA Waste Services, Inc.
6.500% due 12/15/02 475 477
USX Marathon Group
8.500% due 03/01/23 930 1,089
Virginia Electric & Power Co.
8.750% due 04/01/21 335 358
Wachovia Corp. New
6.800% due 06/01/05 280 289
Wells Fargo & Co.
6.875% due 04/01/06 500 514
Whirlpool Corp.
9.500% due 06/15/00 400 423
Willamette Industries, Inc.
7.850% due 07/01/26 750 846
Wisconsin Central Transportation Corp.
6.625% due 04/15/08 1,190 1,188
World Financial Properties Tower
Series 1996 WBF-B
6.910% due 09/01/13 1,305 1,357
----------
174,745
----------
EURODOLLAR BONDS - 2.7%
Abbey National PLC
6.700% due 06/29/49 (g) 1,000 1,004
Australian Gas Light Co.
6.400% due 04/15/08 1,300 1,318
Bear Stearns Companies Inc.
6.063% due 03/18/05 (MTN)(c) 2,000 2,000
Caterpillar Financial Services Corp.
5.778% due 02/12/01 (MTN)(c) 5,000 5,005
Finland, Republic of
5.875% due 02/27/06 325 325
Hutchison Whampoa Finance, Ltd.
7.450% due 08/01/17 1,625 1,289
Merrill Lynch & Co.
5.841% due 10/01/03 (MTN)(c) 5,250 5,248
Nationsbank Corp.
5.838% due 06/17/02 (MTN)(c) 3,000 3,002
Ontario, Province of
7.375% due 01/27/03 450 475
Skandinaviska Enskilda Banken
8.125% due 09/06/49 (g) 1,000 1,085
Societe Generale
7.850% due 04/29/49 (g) 1,825 1,950
Svenska Handelsbanken
7.125% due 03/29/49 (g) 1,000 1,029
Videotron Holdings PLC Step Up Bond
Zero Coupon due 07/01/04 1,100 1,081
----------
24,811
----------
MORTGAGE-BACKED SECURITIES - 34.9%
ACLC Franchise Loan Receivables
1997 Pass-thru Class A1
7.120% due 03/15/12 957 995
BKB Commercial Mortgage Trust
Series 1997-C1 Class B
7.218% due 04/25/00 (c) 1,199 1,196
Capita Equipment Receivables Trust
Series 1996-1 Class A4
6.280% due 06/15/00 1,030 1,035
Chase Commercial
Mortgage Securities Corp.
Series 1997-1 Class E
7.370% due 12/19/07 (c) 1,000 1,008
Commercial Mortgage Acceptance Corp.
Series 1997-ML1 Class A1
6.500% due 11/15/04 1,366 1,390
CSFB Finance Co., Ltd.
Series 1995-A Class A
7.090% due 11/15/05 (c) 450 444
</TABLE>
Fixed Income I Fund 71
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Delta Funding Home Equity Loan Trust
Series 1997-3 Class M1F
7.080% due 10/25/28 $ 1,200 $ 1,215
DLJ Commercial Mortgage Corp.
Series 1998-CG1 Class A1A
6.110% due 12/10/07 1,350 1,348
Federal Home Loan Mortgage Corp. (b)
6.500% 15 Year TBA 6,115 6,157
6.500% 15 Year TBA 2,950 3,005
7.000% 30 Year TBA 1,775 1,802
6.500% 30 Year TBA 23,420 23,354
8.000% 30 Year TBA 2,225 2,301
8.500% 30 Year TBA 2,435 2,541
6.000% 30 Year TBA Gold 1,230 1,199
Federal Home Loan Mortgage Corp.
Participation Certificate
7.000% due 2003 18 18
7.000% due 2008 66 67
6.500% due 2009 450 455
7.500% due 2009 1,785 1,839
8.000% due 2009 148 152
6.000% due 2010 251 251
8.000% due 2010 758 782
6.000% due 2011 5,291 5,268
6.500% due 2011 2,590 2,623
7.500% due 2011 64 66
7.500% due 2012 1,904 1,958
6.000% due 2013 1,200 1,188
6.500% due 2013 562 566
12.000% due 2014 188 214
6.500% due 2016 477 483
9.000% due 2016 1,267 1,349
12.500% due 2016 153 176
9.000% due 2017 33 35
9.000% due 2018 1,971 2,106
9.000% due 2020 1,227 1,310
7.500% due 2022 218 224
6.500% due 2024 4,740 4,749
7.500% due 2024 1,875 1,921
8.000% due 2025 9,429 9,849
8.500% due 2025 1,022 1,067
9.000% due 2025 849 898
8.500% due 2026 478 499
9.000% due 2026 22 23
6.500% due 2027 570 569
7.500% due 2027 178 183
8.500% due 2027 4,477 4,694
6.500% due 2028 1,581 1,577
7.500% due 2028 3,638 3,727
Federal Home Loan Mortgage Corp.
Series K Class 5
7.760% due 05/01/12 1,451 1,537
Series 1552 Class D
5.500% due 02/15/14 219 218
Federal Housing Authority: Project 68
7.430% due 06/27/21 1,330 1,365
Federal National Mortgage Association
7.000% due 1999 702 707
7.500% due 1999 (c)(f) 6,396 6,560
7.000% due 2000 541 545
8.000% due 2002 725 736
7.000% due 2003 481 487
7.500% due 2003 978 993
8.000% due 2003 324 330
6.500% due 2004 280 282
8.000% due 2004 64 65
8.000% due 2005 48 49
6.500% due 2008 1,185 1,195
6.500% due 2009 8,505 8,580
10.500% due 2010 5 6
6.000% due 2011 1,758 1,740
7.000% due 2011 448 457
8.000% due 2011 203 210
6.000% due 2012 759 751
7.000% due 2012 42 43
7.500% due 2012 461 474
6.000% due 2013 95 94
8.000% due 2017 43 44
9.000% due 2017 502 534
8.000% due 2022 219 229
8.000% due 2023 613 636
6.500% due 2024 4,398 4,401
7.000% due 2024 (f) 1,716 1,741
7.500% due 2024 1,790 1,836
7.000% due 2025 (f) 5,133 5,207
8.500% due 2025 1,396 1,457
8.500% due 2026 2,546 2,657
6.500% due 2027 2,617 2,606
9.000% due 2027 31 32
6.500% due 2028 6,783 6,755
Federal National Mortgage Association
(REMIC)
Series 1992-158 Class ZZ
7.750% due 08/25/22 462 501
Series 1994-81 Class PJ
8.000% due 07/25/23 1,925 2,087
Series G92-36 Class A
7.000% due 04/25/15 114 113
</TABLE>
72 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Federal National Mortgage Association (b)
6.500% 15 Year TBA $ 1,490 $ 1,498
6.000% 30 Year TBA 5,945 5,787
6.500% 30 Year TBA 23,505 23,409
7.000% 30 Year TBA 4,160 4,218
7.500% 30 Year TBA 7,845 8,046
Federal National Mortgage Association Aces
Series 1998 - M1 Class A2
6.250% due 01/25/08 1,250 1,253
Federal National Mortgage Association
Principal Only Strip
Zero Coupon due 03/25/20 155 128
First Union Lehman Brothers Commercial Trust
Series 1997 - C1 Class C
7.440% due 04/18/07 950 1,006
Government National Mortgage Association
8.500% due 2005 51 53
6.500% due 2008 118 119
6.500% due 2009 737 746
6.500% due 2010 171 174
7.000% due 2011 204 209
9.000% due 2016 1,776 1,910
9.500% due 2016 175 190
8.000% due 2017 135 142
9.000% due 2020 11 12
10.500% due 2020 908 1,009
10.500% due 2021 105 117
8.500% due 2022 59 63
6.500% due 2023 899 900
7.000% due 2023 3,373 3,432
7.000% due 2023 (c) 2,672 2,734
7.500% due 2023 1,266 1,303
7.000% due 2024 (c) 2,711 2,773
7.000% due 2024 8,434 8,576
7.500% due 2024 3,165 3,254
7.500% due 2025 951 978
8.000% due 2025 3,725 3,860
6.500% due 2026 3,790 3,786
7.500% due 2026 288 296
8.000% due 2026 5,819 6,030
6.500% due 2027 4,583 4,680
7.000% due 2027 3,837 3,898
7.500% due 2027 1,902 1,955
8.000% due 2027 1,524 1,580
8.500% due 2027 723 761
6.500% due 2028 6,597 6,583
7.000% due 2028 1,017 1,034
7.500% due 2028 2,564 2,635
Government National Mortgage
Association (b)
6.500% 30 Year TBA 3,620 3,612
7.500% 30 Year TBA 8,615 8,855
8.000% 30 Year TBA 7,085 7,342
Greenwich Capital Acceptance, Inc.
Mortgage Pass-thru Certificate
Series 1993 Class LB-1
7.320% due 04/25/23 (c) 582 588
GS Mortgage Securities Corp. II
Series 1997-GL Class A2A
6.940% due 07/13/30 411 419
Series 1998-GLII Class A1
6.312% due 04/13/31 1,093 1,103
Guaranteed Export Trust
Series 1996-A
6.550% due 06/15/04 780 801
Housing Securities, Inc.
Series 1994-2 Class A1
6.500% due 07/25/09 1,004 1,009
Lehman Brothers Mortgage Trust, Inc.
Series 1991-2 Class A-1
8.000% due 03/20/99 45 45
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class D
8.160% due 06/15/21 (c) 656 674
Series 1996-C2 Class A1
6.690% due 11/21/28 560 571
Series 1996-C2 Class A2
6.820% due 11/21/28 3,200 3,307
Series1997-C1 Class A1
6.950% due 06/18/29 (c) 1,478 1,525
Mortgage Capital Funding, Inc.
Series 1996-MC1 Class A2B
7.900% due 02/15/06 950 1,019
Norwest Asset Securities Corp.
Series 1997-9 Class A5
7.000% due 06/25/12 1,105 1,130
Series 1998-7 Class B4
6.500% due 04/25/13 2,473 2,486
Prudential Home Mortgage Securities Co.
Series 1992-38 Class A8
6.950% due 11/25/22 1,640 1,612
Series 1993-52 Class A1
8.210% due 11/25/23 (c) 1,514 1,559
Railcar Leasing, L.L.C
Series 1 Class A1
6.750% due 07/15/06 1,953 1,997
</TABLE>
Fixed Income I Fund 73
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Residential Accredited Loans, Inc.
Series 1996-QS1 Class AI4
6.900% due 01/25/26 $ 3,000 $ 3,067
Residential Funding Mortgage Securities I
Series 1997-S4 Class A5
7.000% due 03/25/12 1,330 1,358
Series 1997-S10 Class A5
7.000% due 07/25/12 965 986
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1994-C2 Class D
8.000% due 04/25/25 276 283
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 400 406
Resolution Trust Corp.
Series 1994-C1 Class C
8.000% due 06/25/26 1,200 1,264
Series 1995 - C1 Class D
6.900% due 02/25/27 900 900
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16
8.286% due 11/25/24 (c) 1,084 1,127
Sears Mortgage Securities Corp.
Series 1992 Class A
7.587% due 10/25/22 (c) 1,755 1,790
United States Department
of Veteran Affairs REMIC
Series 1992-1 Class 2-E
7.750% due 03/15/16 775 794
WFS Financial Owner Trust
Series 1998-A Class A4
5.950% due 05/20/03 2,350 2,352
----------
323,254
----------
UNITED STATES GOVERNMENT
AGENCIES - 4.1%
Federal Home Loan Bank
6.450% due 03/13/02 2,625 2,656
Federal National Mortgage Association
5.790% due 10/12/99 (MTN) 3,000 3,006
6.100% due 10/06/00 (MTN) 1,910 1,916
6.250% due 11/20/02 (MTN) 1,955 1,968
6.170% due 12/30/03 (MTN) 1,755 1,742
7.780% due 09/29/06 (MTN) 255 261
6.940% due 03/19/07 (MTN) 1,550 1,596
6.900% due 08/21/07 (MTN) 3,650 3,763
6.000% due 05/15/08 3,200 3,244
Government Backed Trust Certificates
Class 1-C
9.250% due 11/15/01 3,981 4,222
Series 2E
9.400% due 05/15/02 1,708 1,805
Series T-3
9.625% due 05/15/02 (c) 1,781 1,884
Resolution Funding Corp.
8.875% due 07/15/20 2,275 3,127
8.625% due 01/15/21 1,700 2,272
8.625% due 01/15/30 240 336
Tennessee Valley Authority
Series E
6.250% due 12/15/17 640 661
6.750% due 11/01/25 3,320 3,672
----------
38,131
----------
UNITED STATES GOVERNMENT
TREASURIES - 25.1%
United States Treasury Bonds
10.750% due 08/15/05 12,595 16,387
8.750% due 11/15/08 2,650 3,025
10.375% due 11/15/09 2,275 2,843
11.750% due 02/15/10 2,425 3,235
12.750% due 11/15/10 14,490 20,637
13.875% due 05/15/11 3,365 5,106
14.000% due 11/15/11 1,590 2,467
10.375% due 11/15/12 565 757
12.000% due 08/15/13 990 1,468
13.250% due 05/15/14 365 587
12.500% due 08/15/14 415 646
11.750% due 11/15/14 50 75
9.875% due 11/15/15 45 66
9.250% due 02/15/16 3,590 4,993
7.250% due 05/15/16 1,785 2,091
7.500% due 11/15/16 11,030 13,241
8.875% due 08/15/17 9,980 13,606
8.125% due 08/15/19 82 90
8.125% due 08/15/19 (f) 9,563 12,358
8.000% due 11/15/21 22,470 28,965
7.625% due 11/15/22 5,150 6,418
6.875% due 08/15/25 260 301
6.750% due 08/15/26 10,250 11,735
6.500% due 11/15/26 13,000 14,436
6.625% due 02/15/27 5,275 5,957
</TABLE>
74 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
United States Treasury Notes
5.875% due 08/31/99 $ 145 $ 146
6.875% due 08/31/99 2,835 2,878
5.875% due 10/31/99 2,375 2,378
5.875% due 11/15/99 4,215 4,234
7.750% due 11/30/99 5,940 6,117
7.750% due 01/31/00 280 289
7.125% due 02/29/00 555 569
6.875% due 03/31/00 1,630 1,666
6.000% due 08/15/00 18,095 18,267
5.250% due 01/31/01 75 75
5.625% due 02/28/01 2,890 2,897
7.875% due 08/15/01 460 490
6.250% due 10/31/01 (f) 2,670 2,725
5.875% due 11/30/01 125 126
6.250% due 02/28/02 16,085 16,454
6.500% due 10/15/06 1,620 1,721
----------
232,522
----------
YANKEE BONDS - 2.0%
Abitibi-Consolidated Inc.
6.950% due 04/01/08 800 801
7.500% due 04/01/28 (f) 1,325 1,349
African Development Bank
9.750% due 12/15/03 425 499
6.750% due 10/01/04 400 415
6.875% due 10/15/15 775 824
8.800% due 09/01/19 535 694
Alberta, Province of
9.250% due 04/01/00 265 279
Asian Development Bank
8.000% due 04/30/01 295 311
8.500% due 05/02/01 295 314
6.250% due 10/24/05 400 406
Canadian Occidental Petroleum Ltd.
7.400% due 05/01/28 1,050 1,070
Carter Holt Harvey Ltd.
8.875% due 12/01/04 350 391
Hydro Quebec
Series GH
8.250% due 04/15/26 605 733
International American Development Bank
7.000% due 06/15/25 1,770 1,986
6.950% due 08/01/26 220 244
International Bank for Reconstruction &
Development
8.625% due 10/15/16 350 451
Manitoba, Province of
Series CD
9.250% due 04/01/20 335 455
New Brunswick, Province of
7.125% due 10/01/02 500 520
9.750% due 05/15/20 320 454
Newfoundland, Province of
10.000% due 12/01/20 150 213
Noranda Forest, Inc.
6.875% due 11/15/05 350 354
Nova Scotia, Province of
9.125% due 05/01/21 685 910
Quebec, Province of
7.125% due 02/09/24 1,145 1,225
Royal Caribbean Cruises Ltd.
7.250% due 03/15/18 500 513
Saskatchewan, Province of
6.625% due 07/15/03 100 103
8.000% due 07/15/04 1,290 1,420
Tyco International Group SA
6.375% due 06/15/05 1,100 1,103
Wharf International Finance, Ltd.
7.625% due 03/13/07 1,050 828
----------
18,865
----------
TOTAL LONG-TERM INVESTMENTS
(cost $882,219) 903,808
----------
NOTIONAL
AMOUNT
(000)
---------
OPTIONS PURCHASED - 0.0%
United States Treasury 30 Year Bonds (e)
Jul 99.98 Call ** 10,400 10
Aug 100.65 Call ** 200 2
Sept 100.47 Call ** 1,100 16
Sept 101.61 Call * 868 7
United States Treasury 10 Year Notes (e)
Nov 109.52 Call ** 2,700 36
----------
TOTAL OPTIONS PURCHASED
(cost $61) 71
----------
</TABLE>
Fixed Income I Fund 75
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
PREFERRED STOCKS - 0.5%
Banco Bilbao Vizcaya International - ADR 10,000 $ 276
Credit Lyonnais Capital 100,000 2,500
Equity Office Properties Trust 27,800 1,209
TIG Holdings, Inc. 7,500 796
----------
TOTAL PREFERRED STOCKS
(cost $5,150) 4,781
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 12.4%
Federal Agriculture Mortgage Corp.
Discount Notes (a)(g)
5.400% due 07/20/98 $ 1,355 1,351
Federal Home Loan Mortgage
Discount Notes
5.400% due 08/20/98 (a)(g) 1,000 992
5.400% due 09/08/98 (g) 2,500 2,474
Federal National Mortgage Association
Discount Notes
5.370% due 09/23/98 (g) 1,000 987
Frank Russell Investment Company
Money Market Fund,
due on demand (a) 108,157 108,158
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $113,962) 113,962
----------
<CAPTION>
MARKET
VALUE
(000)
----------
<S> <C>
TOTAL INVESTMENTS
(identified cost $1,001,392)(d) - 110.6% $1,022,622
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (10.6%) (97,670)
----------
NET ASSETS - 100.0% $ 924,952
----------
----------
</TABLE>
(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.
(f) Held as collateral in connection with options written by the Fund.
(g) Rate noted is yield-to-maturity
* Represents 1 OTC contract.
** $100,000 notional amount represents 1 contract.
ABBREVIATIONS:
ADR - American Depository Receipt
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced Security
The accompanying notes are an integral part of the financial statements.
76 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NOTIONAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
OPTIONS WRITTEN
(Notes 2 and 3)
ABITIBI Consolidated, Inc.*
Aug 138.00 Call $ 1,325 $ --
Federal National Mortgage Association*
Aug 102.84 Call 7,916 --
Sept 101.29 Call 2,112 8
Sept 101.30 Call 2,112 8
United States Treasury 10 Year Notes**
Jul 99.75 Call 4,000 12
Jul 112.19 Call 2,200 --
Nov 109.00 Call 2,500 2
Nov 95.27 Put 2,500 --
United States Treasury 30 Year Bonds**
Nov 94.28 Put 2,700 1
----------
Total Liability for Options Written
(premiums received $92)(#) $ 31
----------
----------
</TABLE>
(#) June 30, 1998 United States Government Securities valued at $23,958 were
held as collateral in connection with options written by the Fund.
* Represents 1 OTC contract.
** $100,000 notional amount represents 1 contract.
The accompanying notes are an integral part of the financial statements.
Fixed Income I Fund 77
<PAGE>
FIXED INCOME I FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $1,001,392)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 1,022,622
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,411
Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,788
Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,372
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,872
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,049,065
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 6,567
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 115,390
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,674
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 266
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Options written, at market value (premiums received $92)(Notes 2 and 3). . . . . . . 31
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,113
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 924,952
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,620
Accumulated net realized (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,873)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,230
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 891,493
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 924,952
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($924,952,490 divided by 42,066,992 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.99
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
78 Fixed Income I Fund
<PAGE>
FIXED INCOME I FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,955
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,897
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,028
EXPENSES (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,229
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,634
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,394
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,390
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (4) 6,585
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (258)
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (7) (273)
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,312
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 32,706
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income I Fund 79
<PAGE>
FIXED INCOME I FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,394 $ 47,275
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,585 5,135
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (273) 14,104
-------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 32,706 66,514
-------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,915) (47,931)
-------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 107,909 116,770
-------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 126,700 135,353
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798,252 662,899
-------------- -----------------
End of period (including undistributed net investment income of
$13,620 and $1,141, respectively) . . . . . . . . . . . . . . . . . . . . . . . $ 924,952 $ 798,252
-------------- -----------------
-------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
80 Fixed Income I Fund
<PAGE>
FIXED INCOME I 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 21.51 $ 20.99 $ 21.59 $ 19.59 $ 21.74 $ 21.61
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .64 1.37 1.38 1.42 1.46 1.50
Net realized and unrealized gain (loss) on investments . .19 .54 (.62) 2.02 (2.06) .72
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . .83 1.91 .76 3.44 (.60) 2.22
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.35) (1.39) (1.36) (1.44) (1.44) (1.50)
In excess of net investment income . . . . . . . . . . . -- -- -- -- -- (.01)
Net realized gain on investments . . . . . . . . . . . . -- -- -- -- -- (.58)
In excess of net realized gain on investments. . . . . . -- -- -- -- (.11) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.35) (1.39) (1.36) (1.44) (1.55) (2.09)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 21.99 $ 21.51 $ 20.99 $ 21.59 $ 19.59 $ 21.74
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 3.88 9.42 3.75 18.03 (2.97) 10.46
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 924,952 798,252 662,899 638,317 496,038 533,696
Ratios to average net assets (%)(b)(c):
Operating expenses. . . . . . . . . . . . . . . . . . .38 .42 .42 .35 .10 .09
Net investment income . . . . . . . . . . . . . . . . 6.18 6.54 6.57 6.82 7.06 6.71
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 186.35 165.81 147.31 138.05 173.97 173.27
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
(c) For periods prior to April 1, 1995, Fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net
of investment management fees but gross of any investment services fees.
See Note 4.
Fixed Income I Fund 81
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 95.9%
ASSET-BACKED SECURITIES - 33.4%
ABFS Equipment Contract Trust
6.100% due 10/15/05 $ 500 $ 502
Advanta Home Equity Loan Trust
Series 1994-1 Class A-2
6.300% due 07/25/25 32 32
AFC Home Equity Loan Trust
Series 1993-2 Class A
6.000% due 01/20/13 317 314
AFC Mortgage Loan Trust
Series 1996-3 Class 1A2
7.220% due 02/25/27 344 343
Arcadia Automobile Receivables Trust
Series 1998-B Class A3
5.950% due 11/15/02 1,000 1,000
Banc One Auto Grantor Trust
Series 1997-A Class A
6.270% due 11/20/03 2,917 2,935
Barnett Auto Trust
Series 1997-A Class A3
6.030% due 11/15/01 7,500 7,517
Chase Credit Card Master Trust
Series 1997-2 Class A
6.300% due 04/15/03 4,500 4,551
Series 1997-5 Class A
6.194% due 08/15/05 1,000 1,016
Series 1996-B Class A
6.610% due 09/15/02 508 512
Chemical Master Credit Card Trust I
Series 1996-1 Class A
5.550% due 09/15/03 4,000 3,961
Chevy Chase Auto Receivables Trust
Series 1996-2 Class A
5.900% due 07/15/03 748 748
Series 1997-1 Class A
6.500% due 10/15/03 1,162 1,168
Series 1997-2 Class A
6.350% due 01/15/04 660 664
Series 1997-3 Class A
6.200% due 03/20/04 (c) 526 528
Contimortgage Home Equity Loan Trust
Pass-thru Certificate
Series 1997-4 Class A2
6.270% due 02/15/12 500 500
Delta Funding Home Equity Loan Trust
Series 1998-1 Class A2A
5.858% due 05/25/30 (c) 470 470
EQCC Home Equity Loan Trust
Series 1993-4 Class A
5.725% due 12/15/08 33 33
Equivantage Home Equity Loan Trust
Series 1996-1 Class A
6.550% due 10/25/25 23 23
Fingerhut Master Trust
Series 1998-1 Class A
6.070% due 02/15/05 325 325
First Chicago Master Trust II
Credit Card Certificates
Series 1994-L
7.150% due 04/15/01 4,500 4,569
First Security Auto Grantor Trust
Series 1997-A Class A
6.300% due 08/15/03 716 718
Green Tree Financial Corp.
Series 1998-1 Class A3
5.950% due 04/01/13 750 751
Series 1997 - 3 Class A2
6.490% due 07/15/28 556 558
Green Tree Home Improvement Loan Trust
Series 1997-A Class HIA3
7.050% due 08/15/23 600 611
Honda Auto Receivables Grantor Trust
Series 1995-A Class A
6.200% due 12/15/00 209 210
Series 1997-A Class A
5.850% due 02/15/03 379 379
IMC Home Equity Loan Trust
Series 1997-5 Class A1
6.510% due 02/20/06 (c) 568 568
Series 1998-1 Class A3
6.410% due 04/20/18 (c) 700 702
Nationsbank Credit Card Master Trust
Series 1995-1 Class A
6.450% due 04/15/03 5,650 5,714
New Century Home Equity Loan Trust
Series 1998-NC3 Class A1
6.000% due 06/26/28 1,000 996
Nissan Auto Receivables Grantor Trust
Series 1997-1 Class A
6.150% due 02/15/03 281 282
NPF VI Inc.
Series 1998-1A Class A
6.220% due 06/01/02 600 601
</TABLE>
82 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Olympic Automobile Receivables Trust
Series 1996-B Class A4
6.700% due 03/15/02 $ 1,000 $ 1,010
Series 1996-D Class CTFS
6.125% due 04/15/02 3,043 3,043
PBG Equipment Trust
Series 1A Class A
6.270% due 01/20/12 900 901
PNC Student Loan Trust I
Series 1997-2 Class A3
6.314% due 01/25/01 5,000 5,057
Premier Auto Trust
Series 1997-3 Class A4
6.200% due 01/06/01 5,000 5,020
Prime Credit Card Master Trust
Series 1992-2 Class A2
7.450% due 11/15/02 1,000 1,022
Remodelers Home Improvement Loan
Series 1995-3 Class A2
6.800% due 12/20/07 260 260
Rental Car Finance Corp.
Series 1997-1 Class A1
6.250% due 06/25/03 400 401
Ryder Vehicle Lease Trust
Series 1998-A Class A
6.100% due 09/15/08 (c) 500 500
Sears Credit Account Master Trust
Series 1995-2 Class A
8.100% due 06/15/04 4,300 4,420
Series 1995-3 Class A
7.000% due 10/15/04 900 918
Series 1997-1 Class A
6.200% due 07/16/07 500 503
Series 1998-1 Class A
5.800% due 08/15/05 2,800 2,793
SPNB Home Equity Loan
Series 1991-1 Class B
8.150% due 06/15/20 87 89
Standard Credit Card Master Trust
Series 1994-4 Class A
8.250% due 11/07/03 1,200 1,279
The Money Store Auto Grantor Trust
Series 1997-4 Class A2
6.350% due 03/20/04 600 604
The Money Store Small Business
Administration Loan Trust
Series 1997-1 Class A
6.241% due 01/15/25 (c) 965 967
Series 1997-1 Class B
6.720% due 01/15/25 (c) 483 486
WFS Financial Owner Trust
Series 1996-D Class A3
6.050% due 07/20/01 (c) 3,789 3,800
World Omni Automobile Lease
Securitization Trust
Series 1996-B Class A3
6.250% due 11/15/02 1,094 1,101
Series 1996-B Class B
6.850% due 11/15/02 (c) 349 349
Series 1997-Class A2
6.750% due 06/25/03 (c) 5,497 5,539
Series 1997-A Class A4
6.900% due 06/25/03 500 508
----------
84,371
----------
CORPORATE BONDS AND NOTES - 28.7%
Ahmanson (H.F.)
9.875% due 11/15/99 875 917
Aristar Inc.
6.125% due 12/01/00 725 727
Associates Corp. of North America
6.375% due 08/15/00 5,500 5,546
Banco De Latinoamerica
6.500% due 04/02/01 (c) 1,200 1,216
Bankamerica Corp.
9.500% due 04/01/01 1,250 1,354
Banponce Corp. (MTN)
Series 2
5.750% due 03/01/99 2,075 2,071
Bear Stearns Co., Inc.
7.625% due 09/15/99 1,125 1,146
Chase Manhattan Corp.
10.125% due 11/01/00 1,259 1,371
5.813% due 12/05/09 (c) 200 197
Chrysler Financial Corp. (MTN)
6.610% due 06/16/00 1,150 1,164
CIT Group Holdings, Inc. (MTN)
6.125% due 12/15/00 5,000 5,018
Coca-Cola Put Asset Trust
6.000% due 03/15/01 1,000 1,001
</TABLE>
Fixed Income II Fund 83
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Comdisco Inc. (MTN)
6.070% due 05/08/00 $ 1,000 $ 1,003
Conseco Inc.
6.400% due 06/15/01 (c) 1,000 999
Cox Enterprises, Inc.
6.250% due 08/26/99 1,400 1,403
Crescent Real Estate Equities
6.625% due 09/15/02 750 740
ERAC USA Finance Co.
6.375% due 05/15/03 1,075 1,077
ERP Operating, L.P.
8.500% due 05/15/99 1,050 1,070
Finova Capital Corp.
6.450% due 06/01/00 400 403
First Chicago Corp.
9.000% due 06/15/99 500 514
First Industrial L.P.
6.500% due 04/05/01 (c) 1,375 1,378
First Union Corp.
6.600% due 06/15/00 1,000 1,012
Fleet Financial Group Inc.
6.875% due 03/01/03 700 718
Franchise Finance Corp.
7.000% due 11/30/00 1,000 1,015
General Electric Capital Corp. (MTN)
6.120% due 08/15/00 5,500 5,535
General Motors Acceptance Corp. (MTN)
7.500% due 07/22/99 925 940
7.465% due 07/25/19 1,383 1,386
7.012% due 04/01/20 (c) 979 991
Heller Financial, Inc. (MTN)
5.738% due 03/01/99 (c) 1,000 1,001
Hertz Corp.
6.500% due 04/01/00 450 452
Homeside Lending Inc. (MTN)
6.875% due 05/15/00 1,200 1,220
6.875% due 06/30/02 2,000 2,046
JC Penney & Co., Inc. (MTN)
6.375% due 09/15/00 1,125 1,137
KeyCorp
8.400% due 04/01/99 1,000 1,017
Lehman Brothers Holdings, Inc. (MTN)
6.000% due 02/26/01 1,250 1,248
Series IBC
7.000% due 05/13/99 800 807
Liberty Property L.P. (MTN)
6.600% due 06/05/02 600 608
MBNA Corp. (MTN)
Series B
6.500% due 09/15/00 1,000 1,004
MCI Communications Corp.
6.125% due 04/15/02 (c) 1,500 1,502
Merrill Lynch & Co., Inc. (MTN)
7.260% due 03/25/02 1,425 1,463
Midlantic Corp.
9.250% due 09/01/99 375 388
Norwest Financial, Inc.
6.375% due 09/15/02 500 505
Occidental Petroleum Corp. (MTN)
5.950% due 11/09/98 950 949
Procter & Gamble
9.625% due 01/14/01 3,020 3,261
Salomon, Inc.
7.750% due 05/15/00 1,000 1,030
6.700% due 07/05/00 500 507
Salomon, Inc. CMT Floater (MTN)
5.382% due 04/05/99 (c) 1,100 1,100
Sears Roebuck Acceptance Corp. (MTN)
6.160% due 09/20/00 5,500 5,523
Sears Roebuck Acceptance Corp. (MTN)
Series II
6.690% due 04/30/01 1,050 1,069
Sovereign Bancorp, Inc. (Regd)
6.750% due 07/01/00 1,250 1,261
Taubman Realty Group, L.P.
8.000% due 06/15/99 250 254
Wellsford Residential Property Trust (MTN)
6.019% due 11/24/99 (c) 1,300 1,302
----------
72,566
----------
EURODOLLAR BONDS - 0.6%
ALPS Pass-thru Trust
Series 1994-1 Class A-2
7.150% due 09/15/04 (c) 210 210
Videotron Holdings PLC Step Up Bond
Zero Coupon due 07/01/04 1,375 1,351
----------
1,561
----------
MORTGAGE-BACKED SECURITIES - 10.4%
Bayview Financial Acquisition Trust
Series 1998-1 Class A1
7.010% due 05/25/29 800 812
</TABLE>
84 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Bear Stearns Mortgage Securities, Inc.
Series 1996-6 Class A2
7.000% due 11/25/27 $ 821 $ 820
BKD Commercial Mortgage Trust
Series 1997-C1 Class B
7.218% due 04/25/00 (c) 538 536
Chase Mortgage Finance Corp.
Series 1998-S2 Class A1
6.500% due 07/25/28 700 703
Citicorp Mortgage Securities, Inc.
REMIC Series 1997-5 Class A1
6.500% due 11/25/27 650 652
Credit Suisse First Boston Mortgage
7.000% due 12/25/37 600 600
Federal Home Loan Mortgage Corp.
Partcipation Certificate
Series 1540 Class C
6.050% due 02/15/11 866 866
Federal Home Loan Mortgage Corp. Groups
Participation Certificate
7.500% due 2000 481 484
9.000% due 2005 153 157
7.375% due 2006 126 128
6.250% due 2007 78 78
Federal Home Loan Mortgage Corp.
Series 2061 Class PH
6.000% due 05/15/16 600 600
Federal National Mortgage
Association Pools
7.000% due 2004 683 692
8.000% due 2009 790 817
8.500% due 2010 680 709
6.250% due 2013 1,900 1,922
Federal National Mortgage Association
Grantor Trust
REMIC Series 1996-T6 Class C
6.200% due 02/26/01 1,235 1,236
GE Capital Mortgage Services, Inc.
Series 1998-10 Class 2A1
6.500% due 05/25/13 600 602
GE Capital Mortgage Services, Inc.
REMIC Series 1997-9 Class 1A2
6.750% due 10/25/27 225 227
Government National Mortgage
Association Pools
9.500% due 2025 488 529
7.250% due 2026 1,165 1,200
5.000% due 2027 1,414 1,432
Merit Securities Corp.
Series II Class 1A1
6.580% due 07/28/22 1,400 1,400
Norwest Integrated Structured Assets, Inc.
Series 1998-1 Class 2A1
7.000% due 06/25/28 600 604
Prudential Home Mortgage Securities Co.
Series 1993-S7 Class A4
5.900% due 12/25/23 1,150 1,140
Series 1994-19 Class A2
7.050% due 05/25/24 509 513
Residential Accredited Loans, Inc.
Series 1997-QS7 Class A1
7.500% due 07/25/27 362 366
Residential Asset Secruitization Trust
Mortgage Pass-thru Certificates
Series 1996-A8 Class A1
8.000% due 12/25/26 30 31
Series 1997-A5 Class A3
7.125% due 07/25/27 75 75
Series 1998-A2 Class A1
6.750% due 04/25/28 555 557
Series 1998-A5 Class A1
6.750% due 05/25/28 582 583
Residential Funding Mortgage Securities I
Series 1997-S12 Class A10
6.700% due 08/25/27 1,500 1,505
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1994-C1 Class D
8.000% due 06/25/26 (c) 863 876
Series 1995-2 Class C1
7.450% due 05/25/29 (c) 217 220
SASCO LLC
Series 1997-N1 Class D
6.178% due 09/25/28 (c) 800 800
Structured Asset Securities Corp.
Series 1998-C2A Class A
6.145% due 01/25/13 (c) 300 300
Union Planters Mortgage Finance Corp.
Series 1998-A Class A1
6.350% due 01/25/28 625 626
Wilshire Funding Corporation
Series 1997-WFC1 Class AI
7.250% due 08/25/27 790 797
----------
26,195
----------
</TABLE>
Fixed Income II Fund 85
<PAGE>
FIXED INCOME II FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
MUNICIPAL BONDS - 0.3%
Philadelphia, Pennsylvania, Authority
for Industrial Development Class A
6.480% due 06/15/04 $ 836 $ 863
----------
863
----------
UNITED STATES GOVERNMENT
AGENCIES - 0.2%
Federal Home Loan Bank
6.070% due 01/17/01 500 499
----------
499
----------
UNITED STATES GOVERNMENT
TREASURIES - 20.4%
United States Treasury Notes
6.000% due 06/30/99 500 502
5.875% due 11/15/99 100 100
5.375% due 02/01/00 1,030 1,028
6.875% due 03/31/00 175 179
5.625% due 11/30/00 1,450 1,453
5.375% due 02/15/01 25,800 25,711
5.625% due 05/15/01 275 276
6.500% due 08/31/01 2,625 2,696
6.250% due 02/28/02 360 368
3.625% due 07/15/02 13,764 13,614
5.750% due 10/31/02 700 706
5.750% due 11/30/02 4,445 4,482
5.500% due 05/31/03 300 300
----------
51,415
----------
YANKEE BONDS - 1.9%
Brascan, Ltd
7.375% due 10/01/02 1,000 1,028
Household International
5.250% due 10/15/98 1,150 1,149
Quebec, Province of
13.250% due 09/15/14 450 505
Tyco International Group SA
6.125% due 06/15/01 1,000 1,003
Westpac Banking, Ltd.
7.875% due 10/15/02 1,000 1,060
----------
4,745
----------
TOTAL LONG-TERM INVESTMENTS
(cost $241,609) 242,215
----------
SHORT-TERM INVESTMENTS - 4.2%
Frank Russell Investment Company
Money Market Fund,
due on demand (a) 10,103 10,103
Goldman Sachs Group L.P.
5.750% due 07/10/98 (a)(b) 500 499
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $10,602) 10,602
----------
TOTAL INVESTMENTS
(identified cost $252,211)(b) - 100.1% 252,817
OTHER ASSETS AND LIABILITIES,
NET - (0.1%) (342)
----------
NET ASSETS - 100.0% $ 252,475
----------
----------
</TABLE>
(a) At cost, which approximates market.
(b) See Note 2 for federal income tax information.
(c) Adjustable or floating rate security.
ABBREVIATIONS:
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortage Investment Conduit
The accompanying notes are an integral part of the financial statements.
86 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $252,211)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 252,817
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,757
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 9,326
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,329
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 2,715
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 126
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 9,326
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,854
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252,475
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,361
Accumulated net realized loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,934)
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 606
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,306
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252,475
--------------
--------------
Net Asset Value, offering and redemption price per share:
($252,475,463 divided by 13,600,839 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18.56
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income II Fund 87
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,984
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,345
EXPENSES (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 589
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,552
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (229)
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 296
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 6,619
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
88 Fixed Income II Fund
<PAGE>
FIXED INCOME II FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,552 $ 13,527
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (229) (118)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 296 487
-------------- --------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 6,619 13,896
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,800) (13,676)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 20,186 6,267
-------------- --------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 23,005 6,487
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,470 222,983
-------------- --------------
End of period (including undistributed net investment income of
$3,361 and $609, respectively). . . . . . . . . . . . . . . . . . . . . . . . . $ 252,475 $ 229,470
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income II Fund 89
<PAGE>
FIXED INCOME II 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99 $ 18.56
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .49 1.08 1.04 1.16 1.21 .84
Net realized and unrealized gain (loss) on investments . .01 -- (.19) .59 (1.07) .44
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . .50 1.08 .85 1.75 .14 1.28
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.29) (1.09) (1.04) (1.18) (1.15) (.71)
Tax return of capital. . . . . . . . . . . . . . . . . . -- -- -- -- -- (.14)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.29) (1.09) (1.04) (1.18) (1.15) (.85)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 18.56 $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 2.77 6.02 4.76 9.95 .82 6.98
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . 252,475 229,470 222,983 183,577 144,030 138,619
Ratios to average net assets (%)(b)(c):
Operating expenses . . . . . . . . . . . . . . . . . . . . .67 .66 .70 .58 .19 .16
Net investment income. . . . . . . . . . . . . . . . . . . 5.51 5.70 5.70 6.41 6.52 6.16
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . 136.41 213.14 264.40 269.31 233.75 229.07
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 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.
90 Fixed Income II Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 97.5%
ASSET-BACKED SECURITIES - 3.8%
American Airlines, Inc. Class A-1
9.710% due 01/02/07 $ 333 $ 383
Cityscape Home Equity Loan Trust
Pass-thru Certificate
Series 1996-2 Class A2
7.200% due 04/25/11 780 790
Contimortgage Home Equity Loan Trust
6.430% due 04/15/16 740 745
7.220% due 01/15/28 315 323
Fleetwood Credit Corp. Grantor Trust
Series 1994-B Class A
6.750% due 03/15/10 308 310
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 66 64
Green Tree Financial Corp.
Series 1995-5 Class A3
6.250% due 10/15/25 880 882
Series 1995-6 Class A3
6.650% due 11/15/25 560 563
Series 1995-8 Class A2
6.150% due 12/15/26 (b) 176 176
Series 1998-4 Class A3
5.980% due 08/01/08 1,600 1,600
Green Tree Home Equity Loan Trust
Series 1998-C Class A2
6.030% due 07/15/29 1,100 1,102
Green Tree Recreational Equipment
6.100% due 11/15/10 750 750
Greenwich Capital Acceptance, Inc.
Series 1994 Class A-1
8.725% due 11/25/24 (b) 110 116
IMC Home Equity Loan Trust
Series 1998-3 Class A3
6.160% due 05/20/14 430 430
MBNA Master Credit Card Trust
Series 1994-B Class A
5.591% due 01/15/02 (b) 2,000 1,999
New Century Home Equity Loan Trust
Series 1997-NC6 Class A4
6.730% due 07/25/22 260 264
Residential Funding Mortgage Securities II
Series 1997-HS5 Class M1
7.010% due 05/25/27 1,368 1,393
Salomon Brothers Mortgage Securities VII, Inc.
Series 1997 Class A2
7.174% due 03/25/25 790 826
Southern Pacific Secured Assets Corp.
Series 1998-1 Class A2
6.270% due 02/25/18 850 851
Student Loan Marketing Association
Series 1997-3 Class A1
5.787% due 04/25/06 (b) 2,721 2,716
The Money Store Home Equity Loan Trust
Series 1996-A Class A5
6.850% due 06/15/19 800 812
UCFC Home Equity Loan Trust
Series 1996-B1 Class A7
8.200% due 09/15/27 270 293
----------
17,388
----------
CORPORATE BONDS AND NOTES - 33.2%
A.H. BELO CORP.
6.875% due 06/01/02 850 867
Aames Financial Corp.
9.125% due 11/01/03 475 471
Advanta National Bank
6.450% due 10/30/00 825 824
Albank Capital Trust
9.270% due 06/06/27 600 700
American Airlines, Inc.
Series 1990-P
10.600% due 03/04/09 1,013 1,324
American General Institutional Capital
Series B
8.125% due 03/15/46 970 1,102
American Standard Co.
7.375% due 04/15/05 1,550 1,545
Amerus Capital I Series A
8.850% due 02/01/27 475 537
AMR Corp. (MTN)
9.950% due 03/07/01 1,000 1,094
Amresco, Inc.
9.875% due 03/15/05 575 581
AT&T Capital Corp.
6.050% due 04/01/99 (b) 2,000 1,999
6.920% due 04/29/99 (MTN) 105 106
6.410% due 08/13/99 (MTN) 290 291
6.470% due 12/03/99 (MTN) 400 400
6.480% due 12/03/99 (MTN) 1,050 1,060
Banesto Delaware, Inc.
8.250% due 07/28/02 1,000 1,064
Bank United Corp.
8.875% due 05/01/07 1,050 1,156
Bankamerica Corp. (MTN)
5.708% due 03/05/01 (b) 5,000 4,999
Banponce Trust I
Series A
8.327% due 02/01/27 450 489
Banque Paribas-NY
6.875% due 03/01/09 595 598
</TABLE>
92 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Beaver Valley Funding Corp.
9.000% due 06/01/17 $ 1,295 $ 1,491
BellSouth Capital Funding Corp.
6.040% due 11/15/26 1,680 1,703
BellSouth Telecommunications, Inc.
5.850% due 11/15/45 670 669
Beneficial Corp. (MTN)
5.901% due 04/02/02 (b) 2,000 1,998
Building Materials Corp.
8.000% due 10/15/07 1,325 1,325
California Energy Co., Inc.
10.250% due 01/15/04 1,500 1,598
CBS, Inc.
7.125% due 11/01/23 675 645
Chase Manhattan Corp.
6.375% due 04/01/08 800 802
Citicorp (MTN)
5.738% due 06/27/02 (b) 3,000 2,995
5.778% due 08/13/02 (b) 2,000 2,001
Cleveland Electric Illumination Co.
7.430% due 11/01/09 240 252
Cliffs Drilling Co.
Series B
10.250% due 05/15/03 395 423
Colonial Realty LP
7.500% due 07/15/01 825 846
Columbia/HCA Healthcare Corp.
8.020% due 08/05/02 (MTN) 2,000 2,040
8.360% due 04/15/24 600 632
Conmed Corp.
9.000% due 03/15/08 300 299
Connecticut Light & Power Co.
7.750% due 06/01/02 175 179
7.875% due 10/01/24 855 872
Conseco Finance Trust II
8.700% due 11/15/26 800 899
Conseco Finance Trust III
8.796% due 04/01/27 675 770
Contifinancial Corp.
8.375% due 08/15/03 1,050 1,093
Continental Airlines, Inc.
9.500% due 12/15/01 1,295 1,378
Crescent Real Estate Equities
6.625% due 09/15/02 850 842
7.125% due 09/15/07 925 933
CS Wireless System, Inc. Step Up Bond
Zero Coupon due 03/01/06 340 78
CSC Holdings, Inc.
7.875% due 12/15/07 500 526
Dime Capital Trust I
Series A
9.330% due 05/06/27 300 351
Dresser Industries, Inc.
7.600% due 08/15/96 780 898
EOP Operating LP
6.376% due 02/15/02 1,425 1,420
ERAC USA Finance Co. (MTN)
6.350% due 01/15/01 800 805
ERP Operating, LP
8.500% due 05/15/99 425 433
Felcor Suites LP
7.625% due 10/01/07 500 498
First Nationwide Holdings, Inc.
12.500% due 04/15/03 1,250 1,419
10.625% due 10/01/03 825 932
First Republic Bancorp
7.750% due 09/15/12 700 731
Ford Motor Credit Co.
5.908% due 03/05/01 (MTN)(b) 5,000 5,005
5.813% due 02/13/03 (b) 2,000 1,997
Fox/Liberty Networks LLC
8.875% due 08/15/07 845 862
Fox/Liberty Networks LLC Step Up Bond
Zero Coupon due 08/15/07 280 195
Fugi JGB Investment LLC
9.870% due 12/31/49 (e) 1,990 1,749
General Motors Acceptance Corp.
6.625% due 04/24/00 (MTN) 600 607
5.800% due 02/23/01 (MTN) 1,350 1,343
6.375% due 12/01/01 700 705
Global Crossing Holdings Ltd.
9.625% due 05/15/08 750 782
Goldman Sachs Group, LP (MTN)
5.925% due 02/22/02 (b) 5,000 4,994
Great Atlantic & Pacific Tea, Inc.
7.750% due 04/15/07 625 627
Grove Worldwide LLC
9.250% due 05/01/08 400 392
GTE Corp.
6.840% due 04/15/18 600 602
6.940% due 04/15/28 1,105 1,114
Haven Capital Trust I
10.460% due 02/01/27 350 395
Health Care Reit, Inc.
7.625% due 03/15/08 725 731
Homeside, Inc.
11.250% due 05/15/03 241 286
Household Bank Nevada N.A. (MTN)
5.876% due 10/22/03 (b) 4,000 3,988
Imperial Capital Trust I
Series B
9.980% due 12/31/26 250 294
</TABLE>
Fixed Income III Fund 93
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Imperial Credit Industries, Inc.
Series B
9.875% due 01/15/07 $ 700 $ 697
Interpool Capital Trust
Series B
9.875% due 02/15/27 500 580
K Mart Corp.
7.820% due 01/02/02 (MTN) 700 708
7.840% due 01/02/02 (MTN) 800 809
7.770% due 07/02/02 (MTN) 700 707
7.470% due 07/31/02 (MTN) 400 400
9.780% due 01/05/20 800 905
Kaufman and Broad Home Corp.
7.750% due 10/15/04 925 923
Lehman Brothers Holdings, Inc.
5.902% due 01/18/00 (MTN)(b) 3,000 3,009
6.250% due 04/01/03 1,000 1,001
Long Island Lighting Co.
9.000% due 11/01/22 3,935 4,497
Markel Capital Trust I
Series B
8.710% due 01/01/46 325 357
MCI Communications Corp.
6.125% due 04/15/02 550 548
McLeodusa, Inc.
8.375% due 03/15/08 750 752
Merck and Co. Series B (MTN)
5.760% due 05/03/37 2,410 2,497
Merita Bank, Ltd.
7.150% due 12/29/49 (b) 1,200 1,224
Merrill Lynch & Co., Inc.
6.000% due 01/15/01 300 300
MMI Capital Trust I
Series B
7.625% due 12/15/27 1,300 1,336
Morgan Stanley Dean Witter (MTN)
5.875% due 03/11/03 (b) 2,000 2,001
Natexis Ambs Co. LLC
8.440% due 12/29/49 400 400
Nextel Communications, Inc. Step Up Bond
Zero Coupon due 01/15/04 140 138
Zero Coupon due 09/15/07 1,600 1,080
Zero Coupon due 10/31/07 405 264
Zero Coupon due 02/15/08 595 379
Niagara Mohawk Power Corp.
7.000% due 10/01/00 3,000 3,008
8.750% due 04/01/22 610 671
Norfolk Southern Corp.
7.800% due 05/15/27 200 230
7.050% due 05/01/37 795 844
North Atlantic Energy Corp.
Series A
9.050% due 06/01/02 634 652
Northwest Airlines, Inc.
7.625% due 03/15/05 2,080 2,070
Ocwen Federal Bank
12.000% due 06/15/05 325 355
Ocwen Financial Corp.
11.875% due 10/01/03 650 730
Onbank Capital Trust I
9.250% due 02/01/27 450 550
Optel, Inc.
11.500% due 07/01/08 750 750
Paxson Communications Corp.
11.625% due 10/01/02 450 483
Premier Parks, Inc. Step Up Bond
Zero Coupon due 04/01/08 350 232
Prime Succession Acquisition Co.
10.750% due 08/15/04 400 438
Providian Capital I
Series A
9.525% due 02/01/27 500 571
Prudential Insurance Co. of America
6.875% due 04/15/03 700 715
PX Escrow Company Step Up Bond
Zero Coupon due 02/01/06 (b) 1,225 882
Revlon Worldwide
Zero Coupon due 03/15/01 1,600 1,244
Rose Hills Corp.
9.500% due 11/15/04 475 496
Salomon Smith Barney Holdings
7.980% due 03/01/00 325 336
Salomon, Inc.
7.125% due 08/01/99 425 430
7.750% due 05/15/00 500 515
6.625% due 11/30/00 (MTN) 625 633
SB Treasury Company LLC
9.400% due 12/29/49 (b) 675 667
Seagate Technology, Inc.
7.450% due 03/01/37 965 948
Simon Debartolo Group LP
6.750% due 07/15/04 875 874
Sinclair Broadcast Group, Inc.
8.750% due 12/15/07 400 408
Sovereign Capital Trust I
9.000% due 04/01/27 975 1,101
Spieker Properties, LP
6.950% due 12/15/02 500 508
</TABLE>
94 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Summit Properties, Inc.
7.200% due 08/15/07 $ 575 $ 583
Sun Healthcare Group, Inc.
9.500% due 07/01/07 300 305
TCI Communications, Inc.
5.975% due 09/11/00 (MTN)(b) 2,000 1,989
9.650% due 03/31/27 385 472
Tele-Communications, Inc.
6.340% due 02/01/02 495 493
Teleport Communications Group
Step Up Bond
Zero Coupon due 07/01/07 1,360 1,170
Tenet Healthcare Corp.
8.000% due 01/15/05 1,275 1,322
8.125% due 12/01/08 1,550 1,554
Time Warner, Inc.
7.975% due 08/15/04 375 404
8.110% due 08/15/06 750 827
8.180% due 08/15/07 750 836
8.050% due 01/15/16 1,150 1,293
6.850% due 01/15/26 2,390 2,457
Tokai Preferred Capital Co. LLC
9.980% due 12/29/49 (b) 2,500 2,313
Toledo Edison Co.
8.000% due 12/31/98 (MTN) 500 503
8.700% due 09/01/02 500 527
Toll Brothers Corp.
7.750% due 09/15/07 1,200 1,182
Trenwick Capital Trust I
8.820% due 02/01/37 575 637
Tricon Global Restaurants, Inc.
7.450% due 05/15/05 775 774
TU Electrical Capital V
8.175% due 01/30/37 710 743
United Companies Financial Corp.
8.375% due 07/01/05 575 571
United Technologies Corp.
8.875% due 11/15/19 170 214
US Air, Inc.
9.625% due 02/01/01 460 478
USF&G Corp.
8.375% due 06/15/01 250 264
Valero Energy
6.750% due 12/15/02 535 541
Webster Capital Trust I
9.360% due 01/29/27 225 257
Wellsford Residential Property Trust
9.375% due 02/01/02 475 519
Wireless One, Inc. Step Up Bond
Zero Coupon due 08/01/06 (b) 200 29
----------
152,761
----------
EURODOLLAR BONDS - 6.4%
Amvescap PLC
6.600% due 05/15/05 1,550 1,567
Argentina, Republic of
Series 10
5.688% due 04/01/00 (b) 289 238
Series L
6.625% due 03/31/05 (b) 1,900 1,677
Arisco Productos Alimenticios
10.750% due 05/22/05 100 94
Auxiliaire Credit Foncier
5.688% due 09/25/02 (b) 915 893
Brazil, Republic of
9.375% due 04/07/08 330 291
Bulgaria, Republic of, Series A
6.563% due 07/28/24 (b) 970 741
Cemex SA (MTN)
8.500% due 08/31/00 1,000 1,013
Colombia, Republic of
8.625% due 04/01/08 1,600 1,518
Credit Fonc France
8.000% due 01/14/02 560 590
Credit Lyonnais
7.125% due 09/19/49 (e) 1,040 1,015
Fifth Mexican Acceptance Corp. Class A
8.000% due 12/15/98 800 227
Ford Motor Credit
5.813% due 01/17/02 1,500 1,499
ForeningsSparbanken AB
7.500% due 11/29/49 430 445
Globo Communicacoes e Participacoes S.A.
10.625% due 12/05/08 680 605
Hutchison Whampoa Finance, Ltd.
7.450% due 08/01/17 525 417
Korea, Republic of
8.188% due 04/08/00 3,000 2,855
8.750% due 04/15/03 740 718
8.875% due 04/15/08 550 499
Nacional Financiera SNC
8.000% due 06/19/00 420 424
Okobank
7.114% due 10/29/49 (b) 50 51
Okobank Series E (MTN)
6.188% due 09/29/49 (b) 700 693
</TABLE>
Fixed Income III Fund 95
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Panama, Republic of
8.875% due 09/30/27 $ 1,325 $ 1,252
Poland, Republic of, Step Up Bond
4.000% due 10/27/14 (b) 3,705 3,312
Sibneft
9.691% due 08/15/00 540 513
Skandinaviska Enskilda Banken (e)
7.500% due 03/29/49 1,410 1,456
8.125% due 09/06/49 475 515
6.500% due 12/29/49 1,050 1,052
Skandinaviska Enskilda Banken
Series 1 (MTN)
6.625% due 03/29/49 (e) 490 491
Tata Electric Co.
8.500% due 08/19/17 600 504
Telefonica De Argentina SA
9.125% due 05/07/08 650 613
TFM SA de CV Step Up Bond
Zero Coupon due 06/15/09 320 191
Zero Coupon due 06/15/09 (144A) 1,090 692
Videotron Holdings PLC Step Up Bond
Zero Coupon due 07/01/04 650 638
----------
29,299
----------
MORTGAGE-BACKED SECURITIES - 40.6%
Asset Securitization Corp.
Series 1997-D5 Class A1C
6.750% due 02/14/41 440 457
Series 1997-D5 Class A10
6.850% due 02/14/41 850 894
Bear Stearns Mortgage Securities, Inc.
6.750% due 04/30/30 (b) 1,594 1,595
Chase Commercial Mortgage Securities Corp.
6.600% due 12/19/07 1,325 1,300
Collateralized Mortgage Securities Corp.
Series J Class J-5 CMO
7.985% due 05/01/17 1,331 1,338
Federal Home Loan Mortgage Corp. (d)
6.500% 15 Year TBA 6,780 6,827
6.500% 30 Year TBA 25,000 24,930
Federal Home Loan Mortgage Corp.
Participation Certificate Groups
7.000% due 2009 426 437
6.000% due 2011 2,646 2,634
6.000% due 2012 1,332 1,322
8.500% due 2017 955 1,008
7.950% due 2020 461 470
8.500% due 2020 643 645
7.000% due 2025 1,382 1,403
8.500% due 2025 682 712
7.500% due 2026 1 1
8.500% due 2026 679 708
8.500% due 2027 3,589 3,768
6.500% due 2028 1,977 1,971
Federal Home Loan Mortgage Corp.
Series 1037 Class Z
9.000% due 02/15/21 1,291 1,363
Series 1934 Class AB
6.000% due 08/15/07 1,350 1,347
Federal National Mortgage Association Pools
7.500% due 1999 (f) 1,172 1,202
6.000% due 2003 271 270
10.000% due 2005 224 236
6.000% due 2012 1,851 1,831
6.500% due 2013 2,577 2,592
7.000% due 2024 (f) 1,055 1,071
7.716% due 2024 (b) 1,218 1,243
7.000% due 2025 (f) 6,515 6,609
7.718% due 2026 (b) 5,055 5,194
6.500% due 2027 1,706 1,699
6.500% due 2028 3,580 3,565
7.000% due 2028 (f) 2,257 2,289
Federal National Mortgage Association
(REMIC) Series 1992-10 Class ZD
8.000% due 11/25/21 1,646 1,801
(REMIC) Series 1997-16 Class M
Zero Coupon due 02/25/23 850 589
Federal National Mortgage Association (d)
6.000% 15 Year TBA 3,460 3,422
6.500% 15 Year TBA 8,375 8,340
7.000% 15 Year TBA 575 585
6.000% 30 Year TBA 2,985 2,906
6.500% 30 Year TBA 15,850 15,785
7.000% 30 Year TBA 3,000 3,042
8.000% 30 Year TBA 3,650 3,778
GMAC Commercial Mortgage Securities, Inc.
6.853% due 09/15/06 (b) 200 208
Government National Mortgage Association
Pools
7.000% due 2023 (b) 2,699 2,756
7.000% due 2024 (b) 6,858 7,023
7.500% due 2024 405 417
7.500% due 2025 1,670 1,717
8.000% due 2025 936 970
7.000% due 2026 (b) 4,707 4,803
7.500% due 2026 1,947 2,001
</TABLE>
96 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
8.000% due 2026 $ 1,233 $ 1,278
6.875% due 2027 (b) 3,952 4,038
7.500% due 2027 1,561 1,604
8.000% due 2027 4,027 4,173
Government National Mortgage Association (d)
6.500% 30 Year TBA 10,470 10,447
7.000% 30 Year TBA 3,100 3,149
7.500% 30 Year TBA 5,950 6,115
8.000% 30 Year TBA 4,500 4,663
Kidder Peabody Acceptance Corp.
Series 1994-C1 Class B
6.850% due 02/01/06 1,050 1,066
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class D
8.164% due 06/15/21 (b) 1,881 1,931
Paine Webber Mortgage Acceptance Corp. IV
Series 1995-M1 Class A
6.700% due 01/15/07 720 726
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1995-1 Class 2-C
7.500% due 10/25/28 (b) 325 327
Series 1995-C1 Class C
6.900% due 02/25/27 (b) 300 304
Resolution Trust Corp.
Series 1994-C2 Class G
8.000% due 04/25/25 276 278
Series 1994-1 Class M-2
7.750% due 09/25/29 397 407
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16
8.286% due 11/25/24 (b) 434 451
Structured Asset Securities Corp.
Mortgage Pass-thru Certificate
Series 1996-CFL Class A1C
5.944% due 02/25/28 263 261
Series 1996-CFL Class C
6.525% due 02/25/28 300 300
Series 1998-C2A Class A
6.145% due 01/25/13 (b) 1,919 1,919
----------
186,511
----------
MUNICIPAL BONDS - 1.3%
California, State of
5.000% due 02/01/23 280 273
Jacksonville, Florida
Electric Authority Revenue
5.000% due 10/01/23 615 595
Massachusetts Bay
Transportation Authority
4.750% due 03/01/21 380 357
Massachusetts State
Water Reserve Authority
4.750% due 08/01/27 240 223
Municipal Electric Authority of Georgia
5.000% due 01/01/26 1,200 1,167
Nevada State General Obligation
4.750% due 05/15/26 890 833
New Jersey Economic Development Authority
Series A
7.425% due 02/15/29 1,185 1,347
Series B
Zero Coupon due 02/15/08 540 300
New York Metropolitan
Transportation Authority
4.750% due 04/01/28 330 308
New York City, New York
Municipal Water Finance Authority
Water and Sewer System Revenue
4.750% due 06/15/25 500 471
South Carolina State
Public Service Authority Revenue
5.000% due 01/01/29 280 270
----------
6,144
----------
NON-US BONDS - 0.4%
Australian Government
10.000% due 10/15/07 AUD 2,000 1,633
----------
1,633
----------
UNITED STATES GOVERNMENT
AGENCIES - 0.2%
Tennessee Valley Authority
5.880% due 04/01/36 $ 875 910
----------
910
----------
</TABLE>
Fixed Income III Fund 97
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
UNITED STATES GOVERNMENT
TREASURIES - 8.7%
United States Treasury Bonds
8.125% due 08/15/19 (f) $ 5,400 $ 6,969
6.625% due 02/15/27 4,625 5,223
United States Treasury Notes
5.125% due 11/30/98 (f) 2,150 2,148
5.750% due 12/31/98 (f) 1,350 1,353
6.000% due 06/30/99 (f) 1,525 1,532
5.875% due 11/15/99 3,300 3,315
7.750% due 11/30/99 6,150 6,334
5.625% due 11/30/00 (f) 400 401
6.375% due 03/31/01 (f) 650 664
6.625% due 06/30/01 5,175 5,326
6.250% due 10/31/01 5,675 5,793
7.875% due 11/15/04 400 449
United States Treasury
Interest Only Strip
Zero Coupon due 02/15/19 2,050 630
----------
40,137
----------
YANKEE BONDS - 2.9%
Argentina, Republic of
9.150% due 11/30/02 (b) 2,290 2,296
5.500% due 03/31/23 (b) 290 219
Brazil Media Trust
6.688% due 09/15/07 (b) 994 802
Credit Lyonnais
5.688% due 07/10/00 (b) 4,000 3,959
Crown Packaging Enterprise, Ltd.
Step Up Bond
Zero Coupon due 08/01/06 300 15
Diamond Cable Communication PLC
Step Up Bond
Zero Coupon due 02/15/07 275 204
Petroleos Mexicanos
9.500% due 09/15/27 800 753
Petroleum Geo-Services
7.125% due 03/30/28 700 708
Royal Caribbean Cruises
7.500% due 10/15/27 1,325 1,386
Santander Finnish Issuances
6.588% due 09/30/49 (e) 500 490
Societe Generale
7.850% due 04/29/49 (e) 300 321
St. George Bank, Ltd.
7.150% due 10/01/05 775 804
Tata Engineering & Locomotive, Ltd.
7.875% due 07/15/07 575 489
TV Azteca SA De CV
10.125% due 02/15/04 900 896
----------
13,342
----------
TOTAL LONG-TERM INVESTMENTS
(cost $442,865) 448,125
----------
<CAPTION>
NOTIONAL
AMOUNT
(000)
----------
<S> <C> <C>
OPTIONS PURCHASED - 0.0%
United States Treasury Bonds (h)
Jul 99.98 Call * 12,200 11
Aug 100.65 Call * 300 3
Nov 109.52 Call * 3,100 42
Sept 100.47 Call * 1,300 19
Sept 100.55 Call ** 1,326 19
Sept 101.61 Call ** 1,346 11
----------
TOTAL OPTIONS PURCHASED
(cost $86) 105
----------
<CAPTION>
NUMBER
OF
SHARES
----------
<S> <C> <C>
PREFERRED STOCKS - 1.4%
American RE Capital 18,100 468
Australia & New Zealand
Banking Group, Ltd. 7,200 196
California Federal Preferred Capital Corp.
Series A 64,150 1,752
Credit Lyonnais Capital S.C.A. - ADR 3,500 88
El Paso Electric Co. Series A
Payment in Kind Preferred Stock 4,603 505
Equity Office Properties Trust 15,000 653
NB Capital Corp. 600 625
Pinto Totta International Finance, Ltd. 1,175 1,203
Primedia, Inc. 4,000 396
Travelers Group, Inc. 9,050 499
----------
TOTAL PREFERRED STOCKS
(cost $6,292) 6,385
----------
</TABLE>
98 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
WARRANTS - 0.0%
Capital Pacific Holdings, Inc.
2002 Warrants (h) 2,212 $ 2
EOP Operating LP 1999 Warrants (h) 1,200 10
----------
TOTAL WARRANTS
(cost $10) 12
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 21.0%
AT&T Capital Corp. (MTN)
5.936% due 01/15/99 (b) $ 2,000 2,008
Bankers Trust Company
5.900% due 07/07/98 (a) 3,000 2,999
Federal National Mortgage Association
Discount Notes
5.400% due 09/25/98 (g) 4,425 4,368
Frank Russell Investment Company
Money Market Fund
due on demand (a) 79,766 79,766
Imperial Chemical Industrial PLC
5.750% due 09/05/98 (b) 2,000 1,999
MBNA Corp.
5.838% due 09/14/98 (b) 875 875
Salomon, Inc.
5.728% due 10/20/98 (b) 2,000 2,000
Texaco, Inc.
5.500% due 08/10/98 (a) 2,000 1,988
United States Treasury Bills (f)(g)
4.955% due 07/23/98 (a) 155 155
5.055% due 08/20/98 (a) 330 327
4.990% due 10/15/98 170 167
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $96,645) 96,652
----------
<CAPTION>
MARKET
VALUE
(000)
----------
<S> <C>
TOTAL INVESTMENTS
(identified cost $545,898)(c) - 119.9% $ 551,279
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (19.9%) (91,348)
----------
NET ASSETS - 100.0% $ 459,931
----------
----------
</TABLE>
(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 in connection with futures contracts purchased (sold)
and options written by the Fund.
(g) Rate noted is yield-to-maturity.
(h) Nonincome-producing security.
* $100,000 notional value represents 1 contract
** Represents 1 OTC contract.
ABBREVIATIONS:
ADR - American Depositary Receipt
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced Security
FOREIGN CURRENCY ABBREVIATIONS:
AUD - Australian dollar
The accompanying notes are an integral part of the financial statements.
Fixed Income III Fund 99
<PAGE>
FIXED INCOME III FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
United States Treasury 5 Year Note
Futures Contracts
expiration date 09/98 (11) $ (6)
United States Treasury 10 Year Note
Futures Contracts
expiration date 09/98 183 127
United States Treasury 20 Year Bond
Futures Contracts
expiration date 09/98 216 218
United States Treasury 30 Year Bond
Futures Contracts
expiration date 09/98 55 46
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (Sold) (#) $ 385
----------
----------
<CAPTION>
NOTIONAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
OPTIONS WRITTEN
(Notes 2 and 3)
United States Treasury
Jul 99.75 Call * $ 4,700 $ 14
Aug 102.84 Call ** 1,188 --
Nov 94.28 Call * 3,100 1
Nov 95.27 Put * 2,700 --
Nov 109.00 Call * 2,700 2
Federal National Mortgage Association
Sept 101.23 Call * 3,200 12
Sept 101.29 Call ** 3,275 12
Sept 101.30 Call ** 3,275 13
----------
Total Liability for Options Written
(premiums received $112)(#) $ 54
----------
----------
</TABLE>
(#) At June 30, 1998, United States Government Securities valued at $24,887
were held as collateral in connection with futures contracts purchased
(sold) and options written by the Fund.
* Represents 1 OTC contract.
** $100,000 notional amount represents 1 contract.
The accompanying notes are an integral part of the financial statements.
100 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $545,898)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 551,279
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,823
Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790
Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,043
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . 109
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 4,327
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566,166
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 750
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 99,465
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 227
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
Options written, at market value (premiums received $112)(Notes 2 and 3) . . . . . . 54
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 4,327
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,235
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,931
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,500
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,394
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,381
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,688
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,931
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($459,931,159 divided by 43,383,676 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.60
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income III Fund 101
<PAGE>
FIXED INCOME III FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,676
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,814
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,818
EXPENSES (Notes 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,118
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,392
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,426
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,236
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 81 3,470
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (925)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (26) (698)
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,772
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 15,198
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
102 Fixed Income III Fund
<PAGE>
FIXED INCOME III FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,426 $ 20,665
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,470 6,722
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . . (698) 4,087
-------------- --------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . 15,198 31,474
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,898) (20,551)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . . -- (798)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . (1,957) (1,962)
-------------- --------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . . (7,855) (23,311)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 70,155 82,193
-------------- --------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 77,498 90,356
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,433 292,077
-------------- --------------
End of period (including undistributed net investment income of
$6,500 and accumulated distributions in excess of net investment
income of $28, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,931 $ 382,433
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Fixed Income III Fund 103
<PAGE>
FIXED INCOME III 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993**
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 10.42 $ 10.17 $ 10.34 $ 9.37 $ 10.44 $ 10.00
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .30 .63 .64 .67 .66 .49
Net realized and unrealized gain (loss) on investments . .08 .32 (.16) .97 (1.07) .52
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . .38 .95 .48 1.64 (.41) 1.01
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.15) (.62) (.64) (.67) (.66) (.48)
In excess of net investment income . . . . . . . . . . . -- (.02) (.01) -- -- --
Net realized gain on investments . . . . . . . . . . . . (.05) (.06) -- -- -- (.08)
In excess of net realized gain on investments. . . . . . -- -- -- -- -- (.01)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.20) (.70) (.65) (.67) (.66) (.57)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 10.60 $ 10.42 $ 10.17 $ 10.34 $ 9.37 $ 10.44
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a)(b) . . . . . . . . . . . . . . . . . . 3.65 9.64 4.88 17.99 (3.89) 10.22
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 459,931 382,433 292,077 252,465 166,620 124,234
Ratios to average net assets (%)(b)(c):
Operating expenses, net . . . . . . . . . . . . . . . .67 .70 .73 .61 .20 .20
Operating expenses, gross . . . . . . . . . . . . . . .67 .70 .73 .61 .20 .40
Net investment income . . . . . . . . . . . . . . . . 5.94 6.13 6.32 6.83 7.02 6.30
Portfolio turnover rate (%)(c) . . . . . . . . . . . . . 323.55 274.84 144.26 141.37 134.11 181.86
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** 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 anyinvestment services fees.
See Note 4.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1993 are
annualized.
104 Fixed Income III Fund
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 28 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") 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.
Short-term investments 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 specific identified cost incurred by each money
manager within a particular fund. The Funds may lend portfolio securities
as approved by the Board of Trustees on April 27, 1998.
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis.
AMORTIZATION AND ACCRETION: All premiums and discounts, including original
issue discounts, for the Funds 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.
At December 31, 1997, 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 12/31/05 TOTALS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income I $ -- $ 8,058,364 $ -- $ -- $ -- $ 8,058,364
Fixed Income II 948,478 3,534,633 698,949 1,746,912 538,227 7,467,199
</TABLE>
Notes to Financial Statements 105
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The aggregate cost of investments and the composition of gross unrealized
appreciation and depreciation of investment securities for federal income
tax purposes as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Equity I $ 1,034,311,545 $ 347,139,788 $ (27,761,333) $ 319,378,455
Equity II 436,005,416 136,641,878 (15,831,294) 120,810,584
Equity III 214,315,571 50,960,496 (8,454,067) 42,506,429
Equity Q 838,687,300 340,172,535 (16,564,835) 323,607,700
International 908,299,447 241,473,299 (82,456,746) 159,016,553
Fixed Income I 1,000,622,717 23,995,691 (1,996,408) 21,999,283
Fixed Income II 252,106,452 1,307,355 (596,807) 710,548
Fixed Income III 545,510,885 8,379,427 (2,611,312) 5,768,115
</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. 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 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.
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 were deferred and were 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 underlying securities as collateral. 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) Outstanding purchases and sales of investment securities and income
at the closing rate of exchange prevailing on the respective trade
dates of such transactions.
106 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
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 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.
FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio
purchases and sales of securities denominated in a foreign currency,
certain Funds may enter into foreign currency exchange spot contracts and
forward foreign currency exchange contracts ("contracts"). The
International Fund may enter into foreign currency forward overlays on
liquidity reserve balances. Additionally, from time to time the
International, Fixed Income I, Fixed Income II and Fixed Income III Funds
may enter into contracts to hedge certain foreign currency-denominated
assets. Contracts are recorded at market value. Certain risks may 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 June
30, 1998, 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 (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 call and put options on foreign currencies. The
domestic equity Funds may utilize options to equitize liquidity reserve
balances.
Notes to Financial Statements 107
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
When a Fund writes a covered call or a 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. Realized gains (losses) on
purchased options are included in net realized gain (loss) from
investments.
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 six months ended June 30, 1998, 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 $ 602,330,853 $ 595,620,410 International $ 354,909,112 $ 381,971,298
Equity II 257,887,684 228,519,812 Fixed Income I 167,583,482 97,384,725
Equity III 143,964,092 154,486,325 Fixed Income II 60,714,674 46,406,807
Equity Q 425,202,345 518,224,095 Fixed Income III 183,323,849 110,983,266
</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 $ 736,617,581 $ 666,514,334
Fixed Income II 121,434,032 105,694,261
Fixed Income III 579,411,656 534,485,324
</TABLE>
108 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written options
and futures contracts for the six months ended June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
EQUITY I FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
------------ --------------
<S> <C> <C>
Outstanding December 31, 1997 176 $ 39,023,305
Opened 644 166,750,694
Closed (632) (154,242,604)
------------ --------------
Outstanding June 30, 1998 188 $ 51,531,395
------------ --------------
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY II FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
------------ --------------
<S> <C> <C>
Outstanding December 31, 1997 146 $ 26,114,344
Opened 379 81,887,863
Closed (389) (80,349,857)
------------ --------------
Outstanding June 30, 1998 136 $ 27,652,350
------------ --------------
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY III FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
------------ --------------
<S> <C> <C>
Outstanding December 31, 1997 39 $ 7,190,350
Opened 122 27,181,561
Closed (131) (29,106,311)
------------ --------------
Outstanding June 30, 1998 30 $ 5,265,600
------------ --------------
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY Q FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
------------ --------------
<S> <C> <C>
Outstanding December 31, 1997 109 $ 24,972,119
Opened 250 63,137,351
Closed (291) (70,979,445)
------------ --------------
Outstanding June 30, 1998 68 $ 17,130,025
------------ --------------
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
------------ --------------
<S> <C> <C>
Outstanding December 31, 1997 361 $ 46,978,235
Opened 1,648 162,677,546
Closed (1,444) (157,742,217)
------------ --------------
Outstanding June 30, 1998 565 $ 51,913,564
------------ --------------
------------ --------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each
contract was opened.
Notes to Financial Statements 109
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
FIXED INCOME I WRITTEN OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------ --------------
<S> <C> <C>
Outstanding December 31, 1997 209 $ 135,513
Opened 159 157,162
Closed (53) (19,953)
Expired (172) (181,130)
------------ --------------
Outstanding June 30, 1998 143 $ 91,592
------------ --------------
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME III WRITTEN OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------ --------------
<S> <C> <C>
Outstanding December 31, 1997 226 $ 146,732
Opened 211 193,849
Closed (82) (29,313)
Expired (188) (199,224)
------------ --------------
Outstanding June 30, 1998 167 $ 112,044
------------ --------------
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME III FUTURES CONTRACTS FUTURES CONTRACTS
SOLD SHORT PURCHASED
AGGREGATE AGGREGATE
NUMBER OF FACE VALUE OF NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1) CONTRACTS CONTRACTS (1)
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1997 -- $ -- 429 $ 50,469,783
Opened (11) (1,200,609) 1,017 118,773,418
Closed -- -- (992) (115,306,343)
------------ -------------- ------------ --------------
Outstanding June 30, 1998 (11) $ (1,200,609) 454 $ 53,936,858
------------ -------------- ------------ --------------
------------ -------------- ------------ --------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each
contract was opened.
SECURITIES LENDING: Effective April 27, 1998, the Investment Company
resumed its securities lending program. The program allows each Fund to
loan securities with a value up to 33 1/3% of its total assets to certain
brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S.
Government agency obligations as collateral against the loaned securities.
To the extent that a loan is secured by cash collateral, such collateral
shall be invested by Morgan Stanley Trust Company ("MSTC") in short-term
instruments, money market mutual funds, and such other short-term
investments, provided the investments meet certain quality and
diversification requirements. Under the securities-lending arrangement, the
collateral received is recorded on the Fund's statement of assets and
liabilities along with the related obligation to return the collateral. In
those situations where the Company has relinquished control of securities
transferred, it derecognizes the securities and records a receivable from
the counterparty.
Income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs, is divided
between the Fund and MSTC and is included as interest income for the Fund.
To the extent that a loan is secured by non-cash collateral, brokers pay
the Fund negotiated lenders' fees, which are divided between the Fund and
MSTC and are included as interest income for the Fund. All collateral
received will be in an amount at least equal to 102% (for loans of U.S.
securities) or 105% (for non-U.S. securities) of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. Should the borrower of the
securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Consequently, loans are
made only to borrowers which are deemed to be of good financial standing.
As of June 30, 1998, the value of outstanding securities on loan and the
value of collateral amounted to as follows:
110 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
VALUE OF VALUE VALUE OF VALUE
SECURITIES ON OF SECURITIES ON OF
LOAN COLLATERAL LOAN COLLATERAL
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Equity I $ 24,269,294 $ 25,127,643 International $ 84,853,827 $ 95,609,372
Equity II 43,756,804 44,628,850 Fixed Income II 9,142,524 9,326,250
Equity III 7,317,484 7,538,290 Fixed Income III 4,234,868 4,327,475
Equity Q 23,061,746 23,938,938
</TABLE>
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 Money Market and the U.S. Government Money Market
Funds are a series of the Investment Company that are 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 six months ended June 30, 1998, 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 $16,627,331 before
waivers. Such fee is payable monthly and is equal to the annual rate, by
Fund, shown in the table below, of the average daily net assets of the
applicable Fund.
<TABLE>
<CAPTION>
ANNUAL RATE ANNUAL RATE
----------- -----------
<S> <C> <C> <C>
Equity I 0.60% International 0.75%
Equity II 0.75 Fixed Income I 0.30
Equity III 0.60 Fixed Income II 0.50
Equity Q 0.60 Fixed Income III 0.55
</TABLE>
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. The Manager
of the Fixed Income III Fund 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 waivers for the Fixed Income III Fund for the period ended June 30,
1998.
FRIMCo calculates its management fee based on average daily net assets for
each Fund less any management fee incurred on assets invested in the Money
Market Fund (see Note 5) thereby eliminating any duplication of fees.
ANALYTIC SERVICES: Fees for analytic services provided to the Funds are
paid or accrued to Frank Russell Company, an affiliate of the Investment
Company. Frank Russell Company provides its TruVP System to the Funds,
pursuant to a written Service Agreement. The TruVP System provides
analytics used by the investment department.
TRANSFER AGENT: The Funds have a contract with FRIMCo, to provide transfer
agent services to the Investment Company. Total fees for the six months
ended June 30, 1998 were $912,381.
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 Funds for
its services.
Notes to Financial Statements 111
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
ACCRUED FEES PAYABLE TO AFFILIATES AS OF JUNE 30, 1998 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
MANAGEMENT ANALYTIC TRANSFER AGENT
FEES SERVICE FEES FEES TOTALS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equity I $ 649,662 $ 12,828 $ 41,716 $ 704,206
Equity II 330,651 8,106 24,538 363,295
Equity III 125,543 4,375 12,657 142,575
Equity Q 561,510 4,237 35,177 600,924
International 663,534 8,818 21,487 693,839
Fixed Income I 216,778 4,879 44,667 266,324
Fixed Income II 102,205 4,545 19,368 126,118
Fixed Income III 201,777 4,303 21,384 227,464
------------ ------------ ------------ ------------
$ 2,851,660 $ 52,091 $ 220,994 $ 3,124,745
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
BROKERAGE COMMISSIONS: The Funds may effect portfolio transactions through
Frank Russell Securities, Inc., an affiliate of the Manager, when a money
manager determines that the Fund will receive competitive execution, price,
and commissions. Upon completion of such transactions, Frank Russell
Securities, Inc. will refund up to 70% of the commissions paid by that Fund
after reimbursement for research services provided to FRIMCo. Amounts
retained by Frank Russell Securities, Inc. for the six months ended June
30, 1998 were as follows:
<TABLE>
<S> <C> <C> <C>
Equity I $ 31,158 Equity III $ 12,013
Equity II 1,792 International 141,438
Equity Q 1,526
</TABLE>
Additionally, the Funds paid brokerage commissions to non-affiliated
brokers who provided brokerage and research services to the Manager.
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 $54,794 for the six months ended June
30, 1998, and were allocated to each Fund on a pro rata basis, including 20
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
June 30, 1998, $331,948,000 of the Money Market Fund's net assets
represents investments by these Funds and $414,563,000 represents the
investments of other affiliated funds not presented herein.
6. FUND SHARE TRANSACTIONS
Share transactions for shares for each period were as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
-------------------------------------------- --------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
EQUITY I
Proceeds from shares sold 6,485,718 9,571,549 $ 209,948,819 $ 318,926,605
Proceeds from reinvestment
of distributions 1,048,082 8,403,086 33,735,537 251,274,449
Payments for shares redeemed (6,070,989) (12,432,666) (202,247,870) (416,468,295)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) 1,462,811 5,541,969 $ 41,436,486 $ 153,732,759
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
</TABLE>
112 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
-------------------------------------------- --------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
EQUITY II
Proceeds from shares sold 2,651,877 4,308,084 $ 92,634,427 $ 138,867,923
Proceeds from reinvestment
of distributions 235,563 1,960,489 8,002,815 61,436,762
Payments for shares redeemed (1,938,749) (3,821,842) (68,046,401) (128,686,967)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) 948,691 2,446,731 $ 32,590,841 $ 71,617,718
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
EQUITY III
Proceeds from shares sold 645,957 1,592,374 $ 20,015,231 $ 53,105,282
Proceeds from reinvestment
of distributions 274,074 1,960,469 8,206,424 57,577,559
Payments for shares redeemed (1,025,460) (2,899,571) (32,286,280) (93,209,130)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) (105,429) 653,272 $ (4,064,625) $ 17,473,711
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
EQUITY Q
Proceeds from shares sold 4,249,802 8,963,096 $ 162,602,368 $ 322,888,554
Proceeds from reinvestment
of distributions 886,279 5,185,592 32,736,247 181,290,822
Payments for shares redeemed (3,952,603) (11,469,089) (151,745,934) (424,121,094)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) 1,183,478 2,679,599 $ 43,592,681 $ 80,058,282
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
INTERNATIONAL
Proceeds from shares sold 4,492,473 10,420,072 $ 171,020,342 $ 390,495,912
Proceeds from reinvestment
of distributions 228,291 1,995,915 8,400,710 68,774,542
Payments for shares redeemed (5,436,499) (9,560,991) (207,949,900) (360,640,598)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) (715,735) 2,854,996 $ (28,528,848) $ 98,629,856
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
FIXED INCOME I
Proceeds from shares sold 8,378,077 13,731,606 $ 182,218,058 $ 290,844,536
Proceeds from reinvestment
of distributions 537,702 1,875,831 11,612,328 39,542,171
Payments for shares redeemed (3,953,075) (10,089,965) (85,921,284) (213,616,474)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) 4,962,704 5,517,472 $ 107,909,102 $ 116,770,233
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
FIXED INCOME II
Proceeds from shares sold 2,784,635 7,036,585 $ 51,419,303 $ 129,655,206
Proceeds from reinvestment
of distributions 177,960 641,394 3,266,703 11,742,346
Payments for shares redeemed (1,868,469) (7,319,010) (34,500,357) (135,131,042)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) 1,094,126 358,969 $ 20,185,649 $ 6,266,510
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
FIXED INCOME III
Proceeds from shares sold 11,319,246 16,294,869 $ 119,057,942 $ 168,283,128
Proceeds from reinvestment
of distributions 708,556 2,096,517 7,412,839 21,580,122
Payments for shares redeemed (5,357,521) (10,407,484) (56,315,814) (107,669,883)
------------------- ----------------- ------------------- -----------------
Total net increase (decrease) 6,670,281 7,983,902 $ 70,154,967 $ 82,193,367
------------------- ----------------- ------------------- -----------------
------------------- ----------------- ------------------- -----------------
</TABLE>
Notes to Financial Statements 113
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS
7. DIVIDENDS
On July 2, 1998, the Board of Trustees declared the following dividends
from net investment income payable on July 7, 1998, to shareholders of
record on July 2, 1998:
<TABLE>
<S> <C> <C> <C>
Equity I $ 0.0689 Fixed Income I $ 0.3207
Equity II 0.0187 Fixed Income II 0.2452
Equity III 0.1093 Fixed Income III 0.1903
Equity Q 0.0796
</TABLE>
8. BENEFICIAL INTEREST
The following Funds have one or more shareholders with an interest greater
than 10% of the total outstanding shares as of June 30, 1998: Equity I
19.5%, Equity III 13.4% and 12.0%, Equity Q 21.3%, Fixed Income I 12.6% and
12.8%, Fixed Income III 23.3%, and International 21.1%.
9. SUBSEQUENT EVENTS
On August 10, 1998, Frank Russell Company entered into an agreement with
The Northwestern Mutual Life Insurance Co., an insurance organization,
pursuant to which Northwestern Mutual Life will acquire all of the
outstanding common stock of Frank Russell Company.
114 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A Street, Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 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
Mark E. Swanson, Treasurer and Chief Accounting Officer
Randall P. Lert, Director of Investments
Karl Ege, Secretary and General Counsel
MANAGER AND TRANSFER AGENT
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
OFFICE OF SHAREHOLDER INQUIRES
909 A Street
Tacoma, WA 98402
(800) RUSSEL4
(800) 787-7354
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 - One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Barclays Global Investors, N.A., San Francisco, CA
Equinox Capital Management, Inc., New York, NY
INVESCO Capital Management, Inc., Atlanta, GA
Lincoln Capital Management Company, Chicago, IL
Morgan Stanley Asset Management, Inc., New York, NY
Peachtree Asset Management, Atlanta, GA
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 LLP, 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
Barclays Global Investors, N.A., San Francisco, CA
Franklin Portfolio Associates, LLC, Boston, MA
J.P. Morgan Investment Management, Inc., New York, NY
INTERNATIONAL
J.P. Morgan Investment Management, Inc., New York, NY
Marathon Asset Management Limited, London, England
Mastholm Asset Management, LLC, Bellevue, WA
Oechsle International Advisors, Boston, MA
Rowe Price-Fleming International, Inc., Baltimore, MD
Sanford C. Bernstein & Co., Inc., New York, NY
The Boston Company Asset Management, Inc., Boston, MA
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, Inc., 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, Money Managers and Service Providers 115
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
Frank Russell Investment Company is a "series mutual fund" with 28
different investment portfolios. These financial statements report
on five Funds, each of which has distinct investment objectives and
strategies.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
Responsible for overall management and administration of the Funds.
FRANK RUSSELL COMPANY
Consultant to Frank Russell Investment Management Company.
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
SEMIANNUAL REPORT
JUNE 30, 1998 (UNAUDITED)
TABLE OF CONTENTS
Page
Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . . . . 1
Equity Balanced Strategy Fund . . . . . . . . . . . . . . . . . . . . 2
Aggressive Strategy Fund. . . . . . . . . . . . . . . . . . . . . . . 8
Balanced Strategy Fund. . . . . . . . . . . . . . . . . . . . . . . . 14
Moderate Strategy Fund. . . . . . . . . . . . . . . . . . . . . . . . 20
Conservative Strategy Fund. . . . . . . . . . . . . . . . . . . . . . 26
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 31
Manager, Money Managers and Service Providers . . . . . . . . . . . . 38
FRANK RUSSELL INVESTMENT COMPANY - LIFEPOINTS-Registered Trademark- FUNDS
Copyright -C- Frank Russell Company 1998. 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 is the owner of the
trademarks, service marks, and copyrights related to its 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 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. 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
We are pleased to present the Frank Russell Investment Company 1998 Semiannual
Report. This report covers information on five of the Funds and represents the
Funds' first six months of our seventeenth year in operation.
We remain committed to providing our clients with superior investment solutions
through the benefits of multi-manager, multi-style diversification used in
structuring our Funds. The commitment proved worthwhile in the first six months
of 1998, as our Funds, in general, provided solid returns as compared to their
respective benchmarks and attracted many new investors, both creating
significant growth in assets.
Frank Russell Investment Management Company (FRIMCo) continuously evaluates the
Funds we offer our clients. Each of these Funds is carefully monitored by
Russell investment professionals to ensure that the most appropriate investment
advisors and strategies are utilized within each Fund. The advisors are
monitored by FRIMCo, using the expertise and advice of the Investment Policy and
Research group of Frank Russell Company.
Since the close of 1997, we have implemented changes in our Funds' structure
which we believe will benefit current and potential investors. The former Class
C shares of the Russell Funds have been renamed Russell Fund Class E shares, and
their fee structure now aligns with the Russell LifePoints-Registered Trademark-
Funds' Class E shares. Additionally, the Russell LifePoints-Registered
Trademark- Funds' Class D shares were opened for investment in March 1998.
We are also pleased to announce FRIMCo has retained Boston Financial Data
Services (BFDS) to assist in the transfer agent process, effective June 1998. We
anticipate this change will enhance the level of services provided to our
clients.
Thank you for your continued confidence and investment with Frank Russell
Investment Company. We look forward to the remainder of 1998 and continuing to
earn your support.
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 Investment Company Frank Russell Investment Company
<PAGE>
EQUITY BALANCED STRATEGY FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
INVESTMENTS
Portfolios of the Frank Russell
Investment Company Series Mutual Fund
- Class S Shares
DOMESTIC EQUITIES - 71.3%
Diversified Equity Fund 389,348 $19,498,526
Quantitative Equity Fund 464,498 19,416,025
Real Estate Securities Fund 114,860 3,275,814
Special Growth Fund 131,815 6,535,366
-----------
48,725,731
-----------
INTERNATIONAL EQUITIES - 23.8%
Emerging Markets Fund 339,237 3,260,072
International Securities Fund 206,301 13,005,208
-----------
16,265,280
-----------
SHORT-TERM INVESTMENTS - 4.6%
Money Market Fund
due on demand (b) 3,121,000 3,121,000
-----------
TOTAL INVESTMENTS - 99.7%
(identified cost $64,247,956)(a) 68,112,011
-----------
OTHER ASSETS AND LIABILITIES
Deferred organization expenses (Note 2) 29,118
Other assets 391,283
Liabilities (Note 4) (236,676)
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET - 0.3% 183,725
-----------
NET ASSETS - 100.0% $68,295,736
-----------
-----------
NET ASSETS CONSIST OF:
Accumulated distributions in excess
of net investment income $ (738,035)
Accumulated net realized gain (loss) 603,589
Unrealized appreciation (depreciation)
on investments 3,864,055
Shares of beneficial interest 69,914
Additional paid-in capital 64,496,213
-----------
NET ASSETS $68,295,736
-----------
-----------
NET ASSET VALUE, offering and redemption price
per share:
Class E ($65,231,402 divided by 6,677,492
shares of $.01 par value shares of beneficial
interest outstanding) $ 9.77
-----------
-----------
Class D ($3,064,334 divided by 313,907
shares of $.01 par value shares of beneficial
interest outstanding) $ 9.76
-----------
-----------
</TABLE>
(a) See Note 2 for federal income tax information.
(b) At cost, which approximates market.
The accompanying notes are an integral part of the financial statements.
2 Equity Balanced Strategy Fund
<PAGE>
EQUITY BALANCED STRATEGY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income distributions from Underlying Funds (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,234
EXPENSES (Notes 1, 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,688
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,533
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,448
Registration fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,591
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
Shareholder servicing fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,256
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,227
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,349
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (95,229)
--------------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,120
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,114
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,049)
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 694,660 643,611
--------------
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 4,081,330
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,724,941
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 4,762,055
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Balanced Strategy Fund 3
<PAGE>
EQUITY BALANCED STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, 1998 SEPTEMBER 30, 1997* TO
(UNAUDITED) DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,114 $ 8,083
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643,611 202,018
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 4,081,330 (217,275)
------------------- -------------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 4,762,055 (7,174)
------------------- -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,004) (8,083)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (310) --
In excess of net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (731,741) (79,767)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,294) --
Net realized gain on investments
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (163,073)
------------------- -------------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (774,349) (250,923)
------------------- -------------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 61,322,868 3,243,259
------------------- -------------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 65,310,574 2,985,162
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,985,162 --
------------------- -------------------
End of period (including accumulated distributions in excess of
net investment income of $738,035 and $800, respectively) . . . . . . . . . . . $ 68,295,736 $ 2,985,162
------------------- -------------------
------------------- -------------------
</TABLE>
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
4 Equity Balanced Strategy Fund
<PAGE>
EQUITY BALANCED STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS E
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998* 1997**
---------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 8.83 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01 (e) .09
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .14 2.73
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .95 (3.06)
---------- ----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . 1.10 (.24)
---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.01) (.09)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.24)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.60)
---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.16) (.93)
---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.77 $ 8.83
---------- ----------
---------- ----------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.43 (2.42)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 65,231 2,985
Ratios to average net assets (%):
Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . . . .25 .25
Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .68(b) 3.58(d)
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18(b) .45(d)
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 58.32 48.30
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period September 30, 1997 (commencement of operations) to
December 31, 1997.
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio has not been annualized due to the Fund's short period of
operation.
(e) Average month-end shares outstanding for the period were used for this
calculation.
Equity Balanced Strategy Fund 5
<PAGE>
EQUITY BALANCED STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS D
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.92
----------
INCOME FROM INVESTMENT OPERATIONS:
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . (.01)
----------
LESS DISTRIBUTIONS:
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.15)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.76
----------
----------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.07)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 3,064
Ratios to average net assets (%):
Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . . . .50
Operating expenses, gross (c)(d) . . . . . . . . . . . . . . . . . . . . . . . --
Net investment income (loss) (b) . . . . . . . . . . . . . . . . . . . . . . . (.05)
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 58.32
</TABLE>
* For the period March 24, 1998 (commencement of sale) to June 30, 1998
(Unaudited).
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio is not meaningful due to the Fund's short period of operation.
6 Equity Balanced Strategy Fund
<PAGE>
AGGRESSIVE STRATEGY FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
---------- -----------
<S> <C> <C>
INVESTMENTS
Portfolios of the Frank Russell
Investment Company Series Mutual Fund
- Class S Shares
DOMESTIC EQUITIES - 55.6%
Diversified Equity Fund 183,020 $ 9,165,646
Quantitative Equity Fund 219,457 9,173,288
Real Estate Securities Fund 78,169 2,229,392
Special Growth Fund 98,035 4,860,592
-----------
25,428,918
-----------
INTERNATIONAL EQUITIES - 23.1%
Emerging Markets Fund 222,452 2,137,759
International Securities Fund 133,861 8,438,608
-----------
10,576,367
-----------
BONDS - 17.2%
Multistrategy Bond Fund 762,358 7,890,403
-----------
SHORT-TERM INVESTMENTS - 2.7%
Money Market Fund
due on demand (b) 1,216,000 1,216,000
-----------
TOTAL INVESTMENTS - 98.6%
(identified cost $44,230,833)(a) 45,111,688
-----------
OTHER ASSETS AND LIABILITIES
Deferred organization expenses (Note 2) 28,888
Other assets 671,515
Liabilities (Note 4) (54,551)
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET - 1.4% 645,852
-----------
NET ASSETS - 100.0% $45,757,540
-----------
-----------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of
net investment income $ (176,307)
Accumulated net realized gain (loss) 110,237
Unrealized appreciation (depreciation)
on investments 880,855
Shares of beneficial interest 45,862
Additional paid-in capital 44,896,893
-----------
NET ASSETS $45,757,540
-----------
-----------
NET ASSET VALUE, offering and redemption price
per share:
Class E ($43,496,699 divided by 4,359,348
shares of $.01 par value shares of beneficial
interest outstanding) $ 9.98
-----------
-----------
Class D ($2,260,841 divided by 226,798
shares of $.01 par value shares of beneficial
interest outstanding) $ 9.97
-----------
-----------
</TABLE>
(a) See Note 2 for federal income tax information.
(b) At cost, which approximates market.
The accompanying notes are an integral part of the financial statements.
8 Aggressive Strategy Fund
<PAGE>
AGGRESSIVE STRATEGY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,593
EXPENSES (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,849
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,253
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Registration fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,645
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,362
Shareholder servicing fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,488
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,361
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,523
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,394
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,094)
--------------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,300
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,293
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,248)
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 210,965 178,717
--------------
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 1,192,962
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,371,679
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 1,483,972
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Aggressive Strategy Fund 9
<PAGE>
AGGRESSIVE STRATEGY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, 1998 SEPTEMBER 16, 1997* TO
(UNAUDITED) DECEMBER 31, 1997
------------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,293 $ 22,778
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,717 304,411
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 1,192,962 (312,107)
------------------- --------------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 1,483,972 15,082
------------------- --------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (106,292) (22,778)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,717) --
In excess of net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162,943) (119,617)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,364) --
Net realized gain on investments
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (250,558)
------------------- --------------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (291,316) (392,953)
------------------- --------------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 39,257,610 5,685,145
------------------- --------------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 40,450,266 5,307,274
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,307,274 --
------------------- --------------------
End of period (including accumulated distributions in excess of
net investment income of $176,307 and undistributed net investment
income of $2,716, respectively) . . . . . . . . . . . . . . . . . . . . . . . . $ 45,757,540 $ 5,307,274
------------------- --------------------
------------------- --------------------
</TABLE>
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
10 Aggressive Strategy Fund
<PAGE>
AGGRESSIVE STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS E
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998* 1997**
---------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.14 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08 .10
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .09 1.66
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .79 (1.77)
---------- ----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .96 (.01)
---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.05) (.10)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.07) (.21)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.54)
---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.12) (.85)
---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.98 $ 9.14
---------- ----------
---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.49 (.19)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 43,497 5,307
Ratios to average net assets (%):
Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .25 .25
Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .72 (b) 2.88 (d)
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 (b) .97 (d)
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 118.85 56.88
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period September 16, 1997 (commencement of operations) to
December 31, 1997.
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio has not been annualized due to the Fund's short period
of operation.
Aggressive Strategy Fund 11
<PAGE>
AGGRESSIVE STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS D
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.09
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .05
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . (.04)
----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .01
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.05)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.08)
----------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.13)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.97
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.08)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 2,261
Ratios to average net assets (%):
Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .50
Operating expenses, gross (c)(d). . . . . . . . . . . . . . . . . . . . . . . . --
Net investment income (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 118.85
</TABLE>
* For the period March 24, 1998 (commencement of sale) to June 30, 1998
(Unaudited).
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio is not meaningful due to the Fund's short period of operation.
(e) The ratio has not been annualized due to the Fund's short period of
operation.
12 Aggressive Strategy Fund
<PAGE>
BALANCED STRATEGY FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
----------- -------------
<S> <C> <C>
INVESTMENTS
Portfolios of the Frank Russell
Investment Company Series Mutual Fund
- Class S Shares
DOMESTIC EQUITIES - 41.5%
Diversified Equity Fund 402,364 $ 20,150,387
Quantitative Equity Fund 477,194 19,946,721
Real Estate Securities Fund 221,751 6,324,325
Special Growth Fund 128,048 6,348,624
-------------
52,770,057
-------------
INTERNATIONAL EQUITIES - 16.6%
Emerging Markets Fund 371,929 3,574,241
International Securities Fund 278,602 17,563,077
-------------
21,137,318
-------------
BONDS - 40.0%
Diversified Bond Fund 1,313,927 31,140,073
Multistrategy Bond Fund 1,898,161 19,645,969
-------------
50,786,042
-------------
SHORT-TERM INVESTMENTS - 2.1%
Money Market Fund
due on demand (b) 2,700,000 2,700,000
-------------
TOTAL INVESTMENTS - 100.2%
(identified cost $123,688,372)(a) 127,393,417
-------------
OTHER ASSETS AND LIABILITIES
Deferred organization expenses (Note 2) 28,888
Other assets 353,135
Liabilities (Note 4) (660,805)
-------------
TOTAL OTHER ASSETS AND LIABILITIES,
NET - (0.2%) (278,782)
-------------
NET ASSETS - 100.0% $ 127,114,635
-------------
-------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of
net investment income $ (78,290)
Accumulated net realized gain (loss) 478,295
Unrealized appreciation (depreciation)
on investments 3,705,045
Shares of beneficial interest 125,452
Additional paid-in capital 122,884,133
-------------
NET ASSETS $ 127,114,635
-------------
-------------
NET ASSET VALUE, offering and redemption price
per share:
Class E ($125,961,832 divided by 12,431,469
shares of $.01 par value shares of beneficial
interest outstanding) $ 10.13
-------------
-------------
Class D ($1,152,803 divided by 113,752
shares of $.01 par value shares of beneficial
interest outstanding) $ 10.13
-------------
-------------
</TABLE>
(a) See Note 2 for federal income tax information.
(b) At cost, which approximates market.
The accompanying notes are an integral part of the financial statements.
14 Balanced Strategy Fund
<PAGE>
BALANCED STRATEGY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,524,985
EXPENSES (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105,080
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,836
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,987
Registration fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,607
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 696
Shareholder servicing fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,384
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,848
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,227
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (183,336)
--------------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,891
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,419,094
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,294
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 447,917 495,211
--------------
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 3,869,562
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,364,773
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 5,783,867
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Balanced Strategy Fund 15
<PAGE>
BALANCED STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, 1998 SEPTEMBER 16, 1997*
(UNAUDITED) TO DECEMBER 31, 1997
------------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,419,094 $ 21,081
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,211 174,597
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 3,869,562 (164,517)
------------------ -------------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 5,783,867 31,161
------------------ -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,410,080) (21,081)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,647) --
In excess of net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77,485) (56,712)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (805) --
Net realized gain on investments
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (129,168)
------------------ -------------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (1,503,017) (206,961)
------------------ -------------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 119,279,289 3,730,296
------------------ -------------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 123,560,139 3,554,496
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,554,496 --
------------------ -------------------
End of period (including accumulated distributions in excess of net
investment income of $78,290 and undistributed net investment
income of $5,633, respectively) . . . . . . . . . . . . . . . . . . . . . . . . $ 127,114,635 $ 3,554,496
------------------ ------------------
------------------ ------------------
</TABLE>
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
16 Balanced Strategy Fund
<PAGE>
BALANCED STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS E
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998* 1997**
---------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.46 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 .09
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .05 .85
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .64 (.83)
---------- ----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .83 .11
---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.09)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.01) (.15)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.41)
---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.16) (.65)
---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.13 $ 9.46
---------- ----------
---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.79 1.04
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 125,962 3,554
Ratios to average net assets (%):
Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .25 .25
Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .69 (b) 4.03 (d)
Net investment income (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.68 1.30
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 79.20 29.58
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period September 16, 1997 (commencement of operations) to
December 31, 1997.
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio has not been annualized due to the Fund's short period of
operation.
Balanced Strategy Fund 17
<PAGE>
BALANCED STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS D
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.22
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.01)
----------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.16)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.13
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.68
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 1,153
Ratios to average net assets (%):
Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . . . . .50
Operating expenses, gross (c)(d) . . . . . . . . . . . . . . . . . . . . . . . . --
Net investment income (e). . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.20
</TABLE>
* For the period March 24, 1998 (commencement of sale) to June 30, 1998
(Unaudited).
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio is not meaningful due to the Fund's short period of operation.
(e) The ratio has not been annualized due to the Fund's short period of
operation.
18 Balanced Strategy Fund
<PAGE>
MODERATE STRATEGY FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
------------ ------------
<S> <C> <C>
INVESTMENTS
Portfolios of the Frank Russell
Investment Company Series Mutual Fund
- Class S Shares
DOMESTIC EQUITIES - 28.9%
Diversified Equity Fund 31,356 $ 1,570,329
Quantitative Equity Fund 37,276 1,558,135
Real Estate Securities Fund 25,091 715,583
Special Growth Fund 5,799 287,507
------------
4,131,554
------------
INTERNATIONAL EQUITIES - 10.8%
Emerging Markets Fund 28,096 269,998
International Securities Fund 20,289 1,279,019
------------
1,549,017
------------
BONDS - 58.4%
Diversified Bond Fund 158,680 3,760,705
Volatility Constrained Bond Fund 240,951 4,597,347
------------
8,358,052
------------
SHORT-TERM INVESTMENTS - 1.7%
Money Market Fund
due on demand (b) 250,000 250,000
------------
TOTAL INVESTMENTS - 99.8%
(identified cost $14,114,172)(a) 14,288,623
------------
OTHER ASSETS AND LIABILITIES
Deferred organization expenses (Note 2) 29,154
Other assets 29,313
Liabilities (Note 4) (26,651)
------------
TOTAL OTHER ASSETS AND LIABILITIES,
NET - 0.2% 31,816
------------
NET ASSETS - 100.0% $ 14,320,439
------------
------------
NET ASSETS CONSIST OF:
Undistributed net investment income $ 17,569
Accumulated net realized gain (loss) 17,366
Unrealized appreciation (depreciation)
on investments 174,451
Shares of beneficial interest 14,106
Additional paid-in capital 14,096,947
------------
NET ASSETS $ 14,320,439
------------
------------
NET ASSET VALUE, offering and redemption price
per share:
Class E ($13,379,334 divided by 1,317,860
shares of $.01 par value shares of beneficial
interest outstanding) $ 10.15
------------
------------
Class D ($941,105 divided by 92,770 shares
of $.01 par value shares of beneficial
interest outstanding) $ 10.14
------------
------------
</TABLE>
(a) See Note 2 for federal income tax information.
(b) At cost which approximates market.
The accompanying notes are an integral part of the financial statements.
20 Moderate Strategy Fund
<PAGE>
MODERATE STRATEGY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,290
EXPENSES (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,342
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,326
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934
Registration fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Distribution fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614
Shareholder servicing fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,731
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,945
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,987)
--------------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,958
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,332
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,104)
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 24,907 17,803
--------------
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 187,844
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,647
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 294,979
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Moderate Strategy Fund 21
<PAGE>
MODERATE STRATEGY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, 1998 OCTOBER 2, 1997* TO
(UNAUDITED) DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,332 $ 2,421
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,803 12,847
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 187,844 (13,393)
----------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 294,979 1,875
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,469) (2,421)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,485) --
In excess of net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,985)
Net realized gain on investments
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (9,109)
----------------- -----------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (72,954) (14,515)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 13,713,287 397,767
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 13,935,312 385,127
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,127 --
----------------- -----------------
End of period (including undistributed net investment income of
$17,569 and $1,191, respectively) . . . . . . . . . . . . . . . . . . . . . . . $ 14,320,439 $ 385,127
----------------- -----------------
----------------- -----------------
</TABLE>
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
22 Moderate Strategy Fund
<PAGE>
MODERATE STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS E
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998* 1997**
---------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.61 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 (f) .07
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .06 .38
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .49 (.46)
---------- ----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .69 (.01)
---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.07)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (.07)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.24)
---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.38)
---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.15 $ 9.61
---------- ----------
---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.18 (.06)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 13,379 385
Ratios to average net assets (%):
Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .25 .25
Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .76 (b) -- (d)
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.70 (b) 1.01 (e)
Portfolio turnover rate (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.88 (e) 9.66 (b)
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period October 2, 1997 (commencement of operations) to December 31,
1997.
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio is not meaningful due to the Fund's short period of operation.
(e) The ratio has not been annualized due to the Fund's short period of
operation.
(f) Average month-end shares outstanding for the period were used for this
calculation.
Moderate Strategy Fund 23
<PAGE>
MODERATE STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS D
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.18
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07 (f)
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .02
----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .09
----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.13)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.14
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 941
Ratios to average net assets (%):
Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .50
Operating expenses, gross (c)(d). . . . . . . . . . . . . . . . . . . . . . . . --
Net investment income (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Portfolio turnover rate (%)(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 118.88
</TABLE>
* For the period March 24, 1998 (commencement of sale) to June 30, 1998
(Unaudited).
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio is not meaningful due to the Fund's short period of operation.
(e) The ratio has not been annualized due to the Fund's short period of
operation.
(f) Average month-end shares outstanding for the period were used for this
calculation.
24 Moderate Strategy Fund
<PAGE>
CONSERVATIVE STRATEGY FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
---------- ----------
<S> <C> <C>
INVESTMENTS
Portfolios of the Frank Russell
Investment Company Series Mutual Fund
- Class S Shares
DOMESTIC EQUITIES - 16.3%
Diversified Equity Fund 2,848 $ 142,630
Quantitative Equity Fund 4,081 170,597
Real Estate Securities Fund 5,035 143,591
----------
456,818
----------
INTERNATIONAL EQUITIES - 6.0%
Emerging Markets Fund 2,776 26,680
International Securities Fund 2,228 140,457
----------
167,137
----------
BONDS - 77.5%
Diversified Bond Fund 21,143 501,077
Volatility Constrained Bond Fund 87,397 1,667,537
----------
2,168,614
----------
TOTAL INVESTMENTS - 99.8%
(identified cost $2,783,624)(a) 2,792,569
----------
OTHER ASSETS AND LIABILITIES
Other assets 25,031
Liabilities (Note 4) (20,682)
----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET - 0.2% 4,349
----------
NET ASSETS - 100.0% $2,796,918
----------
----------
NET ASSETS CONSIST OF:
Undistributed net investment income $ 9,945
Accumulated net realized gain (loss) 146
Unrealized appreciation (depreciation) on investments 8,945
Shares of beneficial interest 2,727
Additional paid-in capital 2,775,155
----------
NET ASSETS $2,796,918
----------
----------
NET ASSET VALUE, offering and redemption price
per share:
Class E ($2,219,085 divided by 216,308
shares of $.01 par value shares of beneficial
interest outstanding) $ 10.26
----------
----------
Class D ($577,833 divided by 56,390
shares of $.01 par value shares of beneficial
interest outstanding) $ 10.25
----------
----------
</TABLE>
(a) See Note 2 for federal income tax information.
The accompanying notes are an integral part of the financial statements.
26 Conservative Strategy Fund
<PAGE>
CONSERVATIVE STRATEGY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,714
--------------
EXPENSES (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,186
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,894
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,519
Registration fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544
Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
Shareholder servicing fees
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 806
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,061
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,344
Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,781)
--------------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,563
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,151
--------------
REALIZED AND UNREALIZED
GAIN (Loss) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (256)
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 402 146
--------------
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 9,285
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,431
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 23,582
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Conservative Strategy Fund 27
<PAGE>
CONSERVATIVE STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED PERIOD NOVEMBER 7,
JUNE 30, 1998 1997* TO
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,151 $ 149
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 501
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 9,285 (340)
----------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 23,582 310
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,053) (149)
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,231) --
In excess of net investment income
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (72)
Net realized gain on investments
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (351)
----------------- -----------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (4,284) (572)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 2,755,000 22,882
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 2,774,298 22,620
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,620 --
----------------- -----------------
End of period (including undistributed net investment income of
$9,945 and $78, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,796,918 $ 22,620
----------------- -----------------
----------------- -----------------
</TABLE>
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
28 Conservative Strategy Fund
<PAGE>
CONSERVATIVE STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS E
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998* 1997**
--------------- ---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 9.88 $ 10.00
--------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 .07
Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . .03 .23
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . .34 (.16)
--------------- ---------------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . .47 .14
--------------- ---------------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . (.09) (.07)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . -- (.03)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . -- (.16)
--------------- ---------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (.09) (.26)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.26 $ 9.88
--------------- ---------------
--------------- ---------------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.78 1.36
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . 2,219 23
Ratios to average net assets (%):
Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . .25 .25
Operating expenses, gross (c). . . . . . . . . . . . . . . . . . . . . . . 2.35 (e) -- (d)
Net investment income (e). . . . . . . . . . . . . . . . . . . . . . . . . 1.47 .67
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . 182.86 (e) 0.00 (b)
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period November 7, 1997 (commencement of operations) to
December 31, 1997.
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio is not meaningful due to the Fund's short period of operation.
(e) The ratio has not been annualized due to the Fund's short period of
operation.
Conservative Strategy Fund 29
<PAGE>
CONSERVATIVE STRATEGY FUND
FINANCIAL HIGHLIGHTS - CLASS D
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998*
---------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 10.20
---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .08
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . .03
---------------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . .11
---------------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . (.06)
---------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.25
---------------
---------------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.08
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . 578
Ratios to average net assets (%):
Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . .50
Operating expenses, gross (c)(d). . . . . . . . . . . . . . . . . . . . . --
Net investment income (e) . . . . . . . . . . . . . . . . . . . . . . . . .81
Portfolio turnover rate (%)(e) . . . . . . . . . . . . . . . . . . . . . . . 182.86
</TABLE>
* For the period March 24, 1998 (commencement of sale) to June 30, 1998
(Unaudited).
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4 for current period amounts.
(d) The ratio is not meaningful due to the Fund's short period of operation.
(e) The ratio has not been annualized due to the Fund's short period of
operation.
30 Conservative Strategy Fund
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 28 different investment portfolios, referred to as
"Funds." These financial statements report on five LifePoints-Registered
Trademark- 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.
Beginning March 24, 1998 the Funds made available Class D shares in
addition to their Class E 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 D shares are charged a 12b-1 distribution fee not to exceed
0.25% and a shareholder servicing fee of 0.25%. Class E shares are charged
a shareholder servicing fee of 0.25%.
Each of the LifePoints Funds allocates its assets by investing in a
combination of Class S shares of the Investment Company's portfolios (the
"Underlying Funds"). Each of the LifePoints Funds will adjust its
investments within set limits based on Frank Russell Investment Management
Company's ("FRIMCo" or "Manager") outlook for the economy, financial
markets and relative market valuation of the asset classes represented by
each Underlying Fund. However, the LifePoints Funds may deviate from set
limits when, in FRIMCo's opinion, it is necessary to do so to pursue a
LifePoints Fund's investment objective. The amounts allocated to each
Underlying Fund by each LifePoints Fund will generally vary within 10% of
the percentages specified below:
<TABLE>
<CAPTION>
ASSET ALLOCATION RANGES
--------------------------------------------------------------------------
EQUITY
BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
ASSET CLASS/UNDERLYING FUNDS FUND FUND FUND FUND FUND
---------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equities
US Equities
Diversified Equity 30% 21% 16% 11% 5%
Special Growth 10 11 5 2 --
Quantitative Equity 30 21 16 11 6
Real Estate Securities 5 5 5 5 5
International Equities
International Securities 20 19 14 9 5
Emerging Markets 5 5 3 2 1
Bonds
Diversified Bond -- -- 25 27 18
Volatility Constrained Bond -- -- -- 33 60
Multistrategy Bond -- 18 16 -- --
</TABLE>
OBJECTIVES OF THE UNDERLYING FUNDS:
DIVERSIFIED EQUITY FUND: To provide income and capital growth by investing
principally in equity securities.
SPECIAL GROWTH FUND: To maximize total return primarily through capital
appreciation and by assuming a higher level of volatility than is
ordinarily expected from the Diversified Equity Fund, by investing in
equity securities.
QUANTITATIVE EQUITY FUND: To provide a total return greater than the total
return of the US 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 Index by
investing in equity securities.
Notes to Financial Statements 31
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
REAL ESTATE SECURITIES FUND: To achieve a high level of total return
generated through above-average current income, while maintaining the
potential for capital appreciation by investing primarily in the equity
securities of companies in the real estate industry.
INTERNATIONAL SECURITIES FUND: To provide favorable total return and
additional diversification for US investors by investing primarily in
equity and fixed-income securities of non-US companies, and securities
issued by non-US governments.
EMERGING MARKETS FUND: To maximize total return, primarily through capital
appreciation and by assuming a higher level of volatility than is
ordinarily expected from developed market international portfolios.
DIVERSIFIED BOND FUND: To provide effective diversification against
equities and a stable level of cash flow by investing in fixed-income
securities.
VOLATILITY CONSTRAINED BOND FUND: To preserve capital and generate current
income consistent with the preservation of capital by investing primarily
in fixed-income securities with low-volatility characteristics.
MULTISTRATEGY BOND FUND: To provide maximum total return, primarily through
capital appreciation and by assuming a higher level of volatility than is
ordinarily expected from broad fixed-income market portfolios, by investing
in fixed-income securities.
Financial statements of the Underlying Funds can be obtained by calling the
Office of Shareholder Inquiries at (800) RUSSEL4, (800) 787-7354.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") 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: Investments in Underlying Funds are valued at the net
asset value per share of each Underlying Fund as of the close of regular
trading on the New York Stock Exchange. Short-term investments having a
maturity of sixty days or less are valued at amortized cost.
INVESTMENT TRANSACTIONS: Securities transactions of the Underlying Funds
are recorded on a trade date basis. Realized gains and losses from
securities transactions are recorded on the basis of specific identified
cost.
INVESTMENT INCOME: Distributions of income and capital gains from the
Underling Funds are recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
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.
The aggregate cost of investments and the composition of gross unrealized
appreciation and depreciation of investment securities for federal income
tax purposes as of June 30, 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Equity Balanced Strategy $ 64,247,956 $4,478,550 $(614,495) $3,864,055
Aggressive Strategy 44,230,833 1,365,869 (485,014) 880,855
Balanced Strategy 123,688,372 4,565,490 (860,445) 3,705,045
Moderate Strategy 14,114,173 243,559 (69,109) 174,450
Conservative Strategy 2,783,624 16,153 (7,208) 8,945
</TABLE>
32 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Income dividends are generally
declared and paid quarterly. 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 GAAP. As a result, net investment income and net
realized gain (or loss) from investment transactions for a reporting period
may differ significantly from distributions during such period. The
differences between tax regulations and GAAP relate primarily to certain
securities sold at a loss. Accordingly, the Funds may periodically make
reclassifications among certain of their capital accounts without impacting
their net asset value.
EXPENSES: The Funds incur shareholder servicing fees, management fees, and
other operating expenses other than those expressly assumed by FRIMCo.
Certain expenses not directly attributable to any one Fund but applicable
to all Funds, such as Trustee fees, insurance, legal and other expenses
will be allocated to each Fund based on each Fund's net assets. In
addition, Class D and Class E will pay shareholder servicing fees and Class
D will pay 12b-1 distribution fees. Expenses included in the accompanying
financial statements reflect the expenses of each Fund and do not include
any expenses associated with the Underlying Funds.
DEFERRED ORGANIZATION EXPENSES: Organization costs of the Equity Balanced
Strategy Fund, Aggressive Strategy Fund, Balanced Strategy Fund, and
Moderate Strategy Fund have been deferred and are being amortized over 60
months on a straight-line basis.
3. INVESTMENT TRANSACTIONS
SECURITIES: During the six months ended June 30, 1998, purchases and sales
of the Underlying Funds were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
Equity Balanced Strategy $ 73,750,895 $ 12,884,779
Aggressive Strategy 52,815,583 14,503,204
Balanced Strategy 152,453,997 32,675,605
Moderate Strategy 21,412,332 7,702,885
Conservative Strategy 4,501,455 1,741,015
</TABLE>
4. RELATED PARTIES
MANAGER: The Investment Company has an investment advisory agreement with
the Manager under which the Manager directs the investments of the Fund in
accordance with its investment objectives, policies, and limitations. The
Funds are charged a fee by the Manager equal to 0.25% of average daily net
assets. For the six months ended June 30, 1998, the Manager voluntarily
agreed to waive the management fee of 0.25% of average daily net assets.
The manager has voluntarily agreed to reimburse the Funds for all expenses
excluding manager fees, shareholder servicing fees, and 12b-1 distribution
fees.
The waivers and reimbursements as of June 30, 1998 were as follows:
<TABLE>
<CAPTION>
MANAGEMENT REIMBURSED TOTAL EXPENSE
FEES WAIVED BY FRIMCO REDUCTIONS
----------- ---------- -------------
<S> <C> <C> <C>
Equity Balanced Strategy $ 54,687 $ 40,542 $ 95,229
Aggressive Strategy 30,850 27,244 58,094
Balanced Strategy 105,080 78,256 183,336
Moderate Strategy 8,342 8,645 16,987
Conservative Strategy 1,185 16,596 17,781
</TABLE>
Notes to Financial Statements 33
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
TRANSFER AGENT: The Funds have a contract with FRIMCo to provide transfer
agent services to the Investment Company.
DISTRIBUTOR AND SHAREHOLDER SERVICING: Pursuant to the Distribution
Agreement with Investment Company, Russell Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Administrator, serves as
distributor for all Investment Company portfolio shares, including Class E
and Class D of the Funds.
The Investment Company has 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 D Shares subject to
the Distribution Plan. The 12b-1 Fee payments shall not exceed 0.25% of the
average daily net assets of a Fund's Class D shares on an annual basis.
The Investment Company has adopted a Shareholder Services Plan ("Services
Plan") under which it may make payments to the distributor or any
investment advisors, banks, broker-dealers, financial planners or other
financial institutions ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents'
clients who beneficially own Class E and Class D shares of the LifePoints
Funds. Payments under the Services Plan are calculated daily and paid
quarterly by the Investment Company, at an annual rate of 0.25% of the
average daily net assets of a LifePoints Fund's Class E and Class D Shares.
ACCRUED FEES PAYABLE TO AFFILIATES AS OF JUNE 30, 1998 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
OTHER FEES SHAREHOLDER
PAYABLE TO SERVICING AND
MANAGER DISTRIBUTION FEES TOTALS
---------- ----------------- ----------
<S> <C> <C> <C>
Equity Balanced Strategy $ 209 $ 37,336 $ 37,545
Aggressive Strategy 92 25,227 25,319
Balanced Strategy 611 72,156 72,767
Moderate Strategy 15,749 7,053 22,802
Conservative Strategy -- 1,467 1,467
---------- ----------------- ----------
$ 16,661 $ 143,239 $ 159,900
---------- ----------------- ----------
---------- ----------------- ----------
</TABLE>
RECEIVABLE FROM MANAGER FOR REIMBURSEMENT OF EXPENSES AS OF JUNE 30, 1998 WERE
AS FOLLOWS:
<TABLE>
<S> <C>
Equity Balanced Strategy $ 21,750
Aggressive Strategy 11,113
Balanced Strategy 60,625
Moderate Strategy 594
Conservative Strategy 7,708
----------
$ 101,790
----------
----------
</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 $54,794 for the six months ended June
30, 1998, and were allocated to each Fund on a pro rata basis, including 23
other affiliated funds not represented herein. The LifePoints Funds have
been reimbursed by FRIMCo for this expense.
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
June 30, 1998, $7,287,000 of the Money Market Fund's net assets represents
investments by these Funds and $739,224,000 represents the investments of
other affiliated funds not presented herein.
34 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. FUND SHARE TRANSACTIONS
Share transactions for each Class of shares were as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
--------------------------------------- ----------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD FOR THE SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
EQUITY BALANCED STRATEGY
CLASS E (b)
Proceeds from Shares Sold 6,385,187 313,780 $ 58,733,816 $ 3,028,465
Proceeds from reinvestment
of distributions 76,756 27,548 756,770 244,906
Payments for shares redeemed (122,583) (3,196) (1,191,252) (30,112)
------------------- ----------------- ------------------ ----------------
Net increase (decrease) 6,339,360 338,132 58,299,334 3,243,259
------------------- ----------------- ------------------ ----------------
CLASS D (e)
Proceeds from Shares Sold 314,776 -- 3,031,741 --
Proceeds from reinvestment
of distributions 669 -- 6,603 --
Payments for shares redeemed (1,538) -- (14,810) --
------------------- ----------------- ------------------ ----------------
Net increase (decrease) 313,907 -- 3,023,534 --
------------------- ----------------- ------------------ ----------------
Total increase (decrease) 6,653,267 338,132 $ 61,322,868 $ 3,243,259
------------------- ----------------- ------------------ ----------------
------------------- ----------------- ------------------ ----------------
AGGRESSIVE STRATEGY
CLASS E (a)
Proceeds from Shares Sold 3,854,575 552,413 $ 37,728,078 $ 5,431,416
Proceeds from reinvestment
of distributions 21,656 35,751 218,862 329,624
Payments for shares redeemed (97,347) (7,700) (969,879) (75,895)
------------------- ----------------- ------------------ ----------------
Net increase (decrease) 3,778,884 580,464 36,977,061 5,685,145
------------------- ----------------- ------------------ ----------------
CLASS D (e)
Proceeds from Shares Sold 226,683 -- 2,279,348 --
Proceeds from reinvestment
of distributions 2,195 -- 22,081 --
Payments for shares redeemed (2,080) -- (20,880) --
------------------- ----------------- ------------------ ----------------
Net increase (decrease) 226,798 -- 2,280,549 --
------------------- ----------------- ------------------ ----------------
Total increase (decrease) 4,005,682 580,464 $ 39,257,610 $ 5,685,145
------------------- ----------------- ------------------ ----------------
------------------- ----------------- ------------------ ----------------
</TABLE>
(a) For the period ended December 31, 1997. Fund share transactions are for the
period September 16, 1997 (commencement of sale of shares) to
December 31, 1997.
(b) For the period ended December 31, 1997. Fund share transactions are for the
period September 30, 1997 (commencement of sale of shares) to
December 31, 1997.
(e) For the period March 24, 1998 (commencement of sale of shares) to
June 30, 1998.
Notes to Financial Statements 35
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
--------------------------------------- ----------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD FOR THE SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
BALANCED STRATEGY
CLASS E (a)
Proceeds from Shares Sold 13,213,141 358,855 $ 129,836,795 $ 3,571,839
Proceeds from reinvestment
of distributions 144,873 19,490 1,467,096 185,933
Payments for shares redeemed (1,302,113) (2,777) (13,184,262) (27,476)
------------------- ----------------- ------------------- ------------------
Net increase (decrease) 12,055,901 375,568 118,119,629 3,730,296
------------------- ----------------- ------------------- ------------------
CLASS D (e)
Proceeds from Shares Sold 112,227 -- 1,144,208 --
Proceeds from reinvestment
of distributions 1,525 -- 15,452 --
Payments for shares redeemed -- -- -- --
------------------- ----------------- ------------------- ------------------
Net increase (decrease) 113,752 -- 1,159,660 --
------------------- ----------------- ------------------- ------------------
Total increase (decrease) 12,169,653 375,568 $ 119,279,289 $ 3,730,296
------------------- ----------------- ------------------- ------------------
------------------- ----------------- ------------------- ------------------
MODERATE STRATEGY
CLASS E (c)
Proceeds from Shares Sold 1,289,952 39,036 $ 12,890,749 $ 387,800
Proceeds from reinvestment
of distributions 4,204 1,213 42,379 11,694
Payments for shares redeemed (16,370) (175) (163,744) (1,727)
------------------- ----------------- ------------------- ------------------
Net increase (decrease) 1,277,786 40,074 12,769,384 397,767
------------------- ----------------- ------------------- ------------------
CLASS D (e)
Proceeds from Shares Sold 91,840 -- 934,509 --
Proceeds from reinvestment
of distributions 1,137 -- 11,485 --
Payments for shares redeemed (207) -- (2,092) --
------------------- ----------------- ------------------- ------------------
Net increase (decrease) 92,770 -- 943,902 --
------------------- ----------------- ------------------- ------------------
Total increase (decrease) 1,370,556 40,074 $ 13,713,286 $ 397,767
------------------- ----------------- ------------------- ------------------
------------------- ----------------- ------------------- ------------------
</TABLE>
(a) For the period ended December 31, 1997. Fund share transactions are for the
period September 16, 1997 (commencement of sale of shares) to
December 31, 1997.
(c) For the period ended December 31, 1997. Fund share transactions are for the
period October 2, 1997 (commencement of sale of shares) to
December 31, 1997.
(e) For the period March 24, 1998 (commencement of sale of shares) to
June 30, 1998.
36 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
LIFEPOINTS-Registered Trademark- FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
--------------------------------------- ----------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD FOR THE SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
CONSERVATIVE STRATEGY
CLASS E (d)
Proceeds from Shares Sold 222,298 2,231 $ 2,262,591 $ 22,309
Proceeds from reinvestment
of distributions 50 58 511 573
Payments for shares redeemed (8,329) -- (83,229) --
------------------- ----------------- ------------------- ------------------
Net increase (decrease) 214,019 2,289 2,179,873 22,882
------------------- ----------------- ------------------- ------------------
CLASS D (e)
Proceeds from Shares Sold 56,106 -- 572,234 --
Proceeds from reinvestment
of distributions 317 -- 3,231 --
Payments for shares redeemed (33) -- (338) --
------------------- ----------------- ------------------- ------------------
Net increase (decrease) 56,390 - 575,127 --
------------------- ----------------- ------------------- ------------------
Total increase (decrease) 270,409 2,289 $ 2,755,000 $ 22,882
------------------- ----------------- ------------------- ------------------
------------------- ----------------- ------------------- ------------------
</TABLE>
(d) For the period ended December 31, 1997. Fund share transactions are for the
period November 7, 1997 (commencement of sale of shares) to
December 31, 1997.
(e) For the period March 24, 1998 (commencement of sale of shares) to
June 30, 1998.
7. DIVIDENDS
On July 2, 1998, the board of Trustees declared the following dividends
from net investment income payable on July 7, 1998, to shareholders at
record on July 2, 1998:
<TABLE>
<S> <C> <C> <C>
Equity Balanced Strategy Class E $ 0.0105 Moderate Strategy Class E $0.0713
Equity Balanced Strategy Class D 0.0092 Moderate Strategy Class D 0.0652
Aggressive Strategy Class E 0.0295 Conservative Strategy Class E 0.0789
Aggressive Strategy Class D 0.0239 Conservative Strategy Class D 0.0727
Balanced Strategy Class E 0.0603
Balanced Strategy Class D 0.0546
</TABLE>
8. BENEFICIAL INTEREST
As of June 30, 1998, the following Funds have one or more shareholders with
beneficial interest of greater than 10% of the total outstanding shares of
each respective Fund: Equity Balanced Strategy Class E 49.3% and 17.3%,
Equity Balanced Strategy Class D 80.7% and 14.3%, Aggressive Strategy Class
E 30.2% and 13.7%, Aggressive Strategy Class D 88.4%, Balanced Strategy
Class E 18.2%, 15.6% and 41.6%, Balanced Strategy Class D 89.0%, Moderate
Strategy Class E 11.6% and 55.7%, Moderate Strategy Class D 98.4%,
Conservative Strategy Class E 74.4% and Conservative Strategy Class D
99.3%.
9. SUBSEQUENT EVENTS
On August 10, 1998, Frank Russell Company entered into an agreement with
The Northwestern Mutual Life Insurance Co., an insurance organization,
pursuant to which Northwestern Mutual Life will acquire all of the
outstanding common stock of Frank Russell Company.
Notes to Financial Statements 37
<PAGE>
Frank Russell Investment Company
909 A Street, Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 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
Mark E. Swanson, Treasurer and Chief Accounting Officer
Randall P. Lert, Director of Investments
Karl Ege, Secretary and General Counsel
MANAGER AND TRANSFER AGENT
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
OFFICE OF SHAREHOLDER INQUIRES
909 A Street
Tacoma, WA 98402
(800) RUSSEL4
(800) 787-7354
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 - One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 02109
DISTRIBUTOR
Russell Fund Distributors, Inc.
909 A Street
Tacoma, WA 98402
MONEY MANAGERS OF UNDERLYING FUNDS
DIVERSIFIED EQUITY
Alliance Capital Management L.P., Minneapolis, MN
Barclays Global Investors, N.A., San Francisco, CA
Equinox Capital Management, Inc., New York, NY
INVESCO Capital Management, Inc., Atlanta, GA
Lincoln Capital Management Company, Chicago, IL
Morgan Stanley Asset Management, Inc., New York, NY
Peachtree Asset Management, Atlanta, GA
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 LLP, Boston, MA
QUANTITATIVE EQUITY
Barclays Global Investors, N.A., San Francisco, CA
Franklin Portfolio Associates, LLC, Boston, MA
J.P. Morgan Investment Management, Inc., New York, NY
INTERNATIONAL SECURITIES
J.P. Morgan Investment Management, Inc., New York, NY
Marathon Asset Management Limited, London, England
Mastholm Asset Management, LLC, Bellevue, WA
Oechsle International Advisors, Boston, MA
Rowe Price-Fleming International, Inc., Baltimore, MD
Sanford C. Bernstein & Co., Inc., New York, NY
The Boston Company Asset Management, Inc., Boston, MA
EMERGING MARKETS
Genesis Asset Management Limited, London, England
J.P. Morgan Investment Management, Inc., New York, NY
Montgomery Asset Management, L.P., San Francisco, CA
REAL ESTATE SECURITIES
AEW Capital Management, L.P., Boston, MA
Cohen & Steers Capital Management, New York, NY
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.
38 Manager, Money Managers and Service Providers
<PAGE>
FRANK RUSSELL INVESTMENT
COMPANY
Frank Russell Investment Company
is a "series mutual fund" with 28
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
RUSSELL FUNDS
SEMIANNUAL REPORT
JUNE 30, 1998 (UNAUDITED)
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Letter to Our Clients . . . . . . . . . . . . . . . . . . . 1
Diversified Equity Fund . . . . . . . . . . . . . . . . . . 2
Special Growth Fund . . . . . . . . . . . . . . . . . . . . 16
Equity Income Fund. . . . . . . . . . . . . . . . . . . . . 32
Quantitative Equity Fund. . . . . . . . . . . . . . . . . . 42
International Securities Fund . . . . . . . . . . . . . . . 54
Diversified Bond Fund . . . . . . . . . . . . . . . . . . . 74
Volatility Constrained Bond Fund. . . . . . . . . . . . . . 92
Multistrategy Bond Fund . . . . . . . . . . . . . . . . . . 102
Notes to Financial Statements . . . . . . . . . . . . . . . 116
Manager, Money Managers and Service Providers . . . . . . . 128
</TABLE>
FRANK RUSSELL INVESTMENT COMPANY - RUSSELL FUNDS
Copyright -C- Frank Russell Company 1998. 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
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.
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
We are pleased to present the Frank Russell Investment Company 1998 Semiannual
Report. This report covers information on eight of the Funds and represents the
Funds' first six months of our seventeenth year in operation.
We remain committed to providing our clients with superior investment solutions
through the benefits of multi-manager, multi-style diversification used in
structuring our Funds. The commitment proved worthwhile in the first six months
of 1998, as our Funds, in general, provided solid returns as compared to their
respective benchmarks and attracted many new investors, both creating
significant growth in assets.
Frank Russell Investment Management Company (FRIMCo) continuously evaluates the
Funds we offer our clients. Each of these Funds is carefully monitored by
Russell investment professionals to ensure that the most appropriate investment
advisors and strategies are utilized within each Fund. The advisors are
monitored by FRIMCo, using the expertise and advice of the Investment Policy and
Research group of Frank Russell Company.
Since the close of 1997, we have implemented changes in our Funds' structure
which we believe will benefit current and potential investors. The former Class
C shares of the Russell Funds have been renamed Russell Fund Class E shares, and
their fee structure now aligns with the Russell LifePoints-Registered Trademark-
Funds' Class E shares. Additionally, the Russell LifePoints-Registered
Trademark- Funds' Class D shares were opened for investment in March 1998.
We are also pleased to announce FRIMCo has retained Boston Financial Data
Services (BFDS) to assist in the transfer agent process, effective June 1998. We
anticipate this change will enhance the level of services provided to our
clients.
Thank you for your continued confidence and investment with Frank Russell
Investment Company. We look forward to the remainder of 1998 and continuing to
earn your support.
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 Investment Company Frank Russell Investment Company
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 94.9%
AUTO AND TRANSPORTATION - 3.9%
AMR Corp. (a) 50,200 $ 4,179
Aviall, Inc. (a) 8,600 118
Bandag, Inc. 900 35
BE Aerospace, Inc. (a) 2,400 70
Chrysler Corp. 38,600 2,176
Comair Holdings, Inc. 10,400 320
Continental Airlines, Inc. Class B (a) 46,300 2,819
Cooper Tire & Rubber Co. 154,200 3,180
Dana Corp. 13,000 696
Delta Air Lines, Inc. 26,100 3,373
Eaton Corp. 4,500 350
Echlin, Inc. 4,100 201
Exide Corp. 68,700 1,155
FDX Corp. (a) 14,200 891
Ford Motor Co. 152,500 8,997
General Motors Corp. 19,700 1,316
Kansas City Southern Industries, Inc. 7,500 372
KLM Royal Dutch Airlines 64,072 2,623
Meritor Automotive, Inc. 34,400 826
Navistar International Corp. (a) 53,800 1,553
Nordic American Tanker Shipping, Ltd. 108,400 1,633
Norfolk Southern Corp. 123,000 3,667
Northwest Airlines Corp.Class A (a) 109,500 4,223
Overseas Shipholding Group, Inc. 15,000 306
PACCAR, Inc. 7,600 396
Southwest Airlines Co. 2,100 62
Trinity Industries, Inc. 9,500 394
UAL Corp. (a) 71,600 5,585
Walbro Corp. 31,500 441
----------
51,957
----------
CONSUMER DISCRETIONARY - 13.2%
Abercrombie & Fitch Co. Class A (a) 10,050 442
America Online, Inc. 26,600 2,820
American Greetings Corp. Class A 1,700 86
Apple South 28,900 376
Avon Products, Inc. 21,800 1,689
Barry (R.G.) Corp. (a) 90,000 1,485
Bed Bath & Beyond, Inc. (a) 30,000 1,554
Belo (A.H.) Corp. Class A 15,000 366
Borders Group, Inc. (a) 8,400 311
Brinker International, Inc. (a) 7,000 135
Browning-Ferris Industries, Inc. 800 28
Brunswick Corp. 27,100 671
Carnival Corp. Class A 184,600 7,315
Cendant Corp. (a) 46,300 967
Chancellor Media Corp. (a) 31,000 1,538
Chris Craft Industries, Inc. (a) 3,202 175
Circuit City Stores, Inc. 14,800 694
Clear Channel Communications, Inc. (a) 15,300 1,670
Cognizant Corp. 8,700 548
Costco Companies, Inc. (a) 11,300 713
Cracker Barrel Old Country Store, Inc. 8,800 279
Danka Business Systems - ADR 38,600 456
Darden Restaurants, Inc. 41,800 663
Dayton Hudson Corp. 224,900 10,908
Dillard's, Inc. Class A 9,100 377
Disney (Walt) Co. 117,300 12,324
Dollar Tree Stores, Inc. (a) 1,425 58
Eastman Kodak Co. 34,891 2,549
Estee Lauder Companies Class A 800 56
Federated Department Stores, Inc. (a) 109,557 5,895
Fortune Brands, Inc. 22,700 872
Fruit of the Loom, Inc. Class A (a) 18,800 624
Gannett Co., Inc. 11,000 782
General Nutrition Companies, Inc. (a) 39,700 1,236
Grand Casinos, Inc. (a) 50,000 837
Harland (John H.) Co. 20,000 339
Harrah's Entertainment, Inc. (a) 25,200 586
Hasbro, Inc. 72,800 2,862
Hilton Hotels Corp. 54,600 1,556
Hollinger International, Inc. Class A 11,600 197
Home Depot, Inc. (The) 135,850 11,284
Host Marriott Corp. (a) 35,800 638
International Game Technology 13,300 322
Interpublic Group Cos., Inc. 2,400 146
InterTAN, Inc. (a) 20,000 107
JC Penney & Co., Inc. 45,000 3,254
Jones Apparel Group, Inc. (a) 21,000 768
Kellwood Co. 20,000 715
King World Productions, Inc. (a) 23,300 594
Kmart Corp. (a) 81,900 1,576
Knight-Ridder, Inc. 6,400 352
Kohl's Corp. (a) 52,700 2,734
Limited, Inc. (The) 166,100 5,502
Liz Claiborne, Inc. 4,500 235
Lowe's Cos., Inc. 60,000 2,434
Mark Bros. Jewelers, Inc. (a) 70,000 1,339
Marriot International, Inc. Class A 13,200 427
Mattel, Inc. 216,041 9,141
May Department Stores Co. 62,400 4,087
Maytag Corp. 22,500 1,111
McDonald's Corp. 28,400 1,960
McGraw-Hill, Inc. 4,700 383
MediaOne Group, Inc. (a) 113,800 5,000
Meredith Corp. 11,400 535
Metromedia International Group, Inc. (a) 127,200 1,518
</TABLE>
2 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Neiman-Marcus Group, Inc. (a) 7,900 $ 343
New York Times Co. Class A 7,000 555
Nordstrom, Inc. 21,000 1,621
Office Depot, Inc. (a) 44,400 1,401
OfficeMax, Inc. (a) 46,800 772
Omnicom Group, Inc. 31,600 1,576
Payless ShoeSource, Inc. (a) 5,200 383
Petroleum Heat & Power, Inc. Class A 275,885 535
Premark International, Inc. 44,400 1,432
Promus Hotel Corp. New (a) 3,295 127
Pulitzer Publishing Co. 3,300 295
Rubbermaid, Inc. 54,500 1,809
Sears Roebuck & Co. 111,400 6,802
Service Corp. International 45,900 1,968
Staples, Inc. (a) 4,600 133
Stewart Enterprises, Inc. Class A 32,200 861
Tiffany & Co. 2,100 101
Time Warner, Inc. 51,500 4,400
TJX Cos., Inc. 63,400 1,530
Tribune Co. 43,900 3,021
Tupperware Corp. 11,400 321
Unisource Worldwide, Inc. 105,100 1,136
USA Waste Services, Inc. (a) 48,300 2,385
V.F. Corp. 12,700 654
Valassis Communications, Inc. (a) 2,900 112
Viacom, Inc. Class B (a) 52,000 3,029
Viad Corp. 39,400 1,093
Wal-Mart Stores, Inc. 136,700 8,305
Warnaco Group, Inc. Class A 300 13
Whirlpool Corp. 45,900 3,156
Young & Rubicam, Inc. (a) 4,200 134
----------
173,204
----------
CONSUMER STAPLES - 7.7%
American Stores Co. 15,100 365
Anheuser-Busch Cos., Inc. 58,100 2,742
Bestfoods 28,400 1,649
Campbell Soup Co. 23,000 1,222
Chiquita Brands International, Inc. 49,100 690
Coca-Cola Co. (The) 143,600 12,278
Coca-Cola Enterprises, Inc. 57,900 2,273
Colgate-Palmolive Co. 72,900 6,415
ConAgra, Inc. 78,700 2,494
Corn Products International, Inc. (a) 8,000 271
CVS Corp. 67,100 2,613
Dean Foods Co. 3,900 214
Dial Corp. New 3,500 91
Dole Food, Inc. 31,600 1,570
Gillette Co. 92,146 5,224
Hannaford Brothers Co. 4,500 198
International Multifoods Corp. 64,900 1,785
Interstate Bakeries Corp. 18,500 614
Kroger Co. (a) 900 39
McCormick & Co., Inc. 900 32
PepsiCo, Inc. 305,100 12,566
Philip Morris Cos., Inc. 537,325 21,157
Procter & Gamble Co. 116,100 10,572
Quaker Oats Co. 14,400 791
Ralston-Purina Group 2,200 257
Rite Aid Corp. 103,000 3,869
RJR Nabisco Holdings Corp. 85,300 2,026
SuperValu, Inc. 17,300 768
SYSCO Corp. 46,400 1,189
Tyson Foods, Inc. Class A 4,800 104
Unilever NV 49,100 3,876
Universal Corp. 15,700 587
Vlasic Foods International, Inc. (a) 2,300 46
Weis Markets, Inc. 800 29
Winn-Dixie Stores, Inc. 300 15
Wrigley (Wm.), Jr. Co. 4,300 421
----------
101,052
----------
FINANCIAL SERVICES - 19.3%
ACE, Ltd. 6,500 253
AFLAC, Inc. 190,000 5,759
Ahmanson (H.F.) & Co. 110,600 7,853
Allstate Corp. 92,908 8,507
Ambac Financial Group, Inc. 37,200 2,176
American Express Co. 48,700 5,552
American International Group, Inc. 105,143 15,351
AmSouth Bancorp 31,350 1,232
Associates First Capital Corp. Class A 66,558 5,117
Automatic Data Processing, Inc. 126,100 9,189
Banc One Corp. 77,800 4,342
BankAmerica Corp. 84,600 7,313
Bankers Trust New York Corp. 11,400 1,323
Bear Stearns Cos., Inc. 10,352 589
Beneficial Corp. 13,600 2,083
Berkshire Hathaway, Inc. Class A (a) 9 705
Canadian Hotel Income Properties 235,200 1,918
CCB Financial Corp. 200 21
Centura Banks, Inc. 700 44
Charter One Financial, Inc. 46,400 1,557
Chase Manhattan Corp. 166,400 12,563
Chubb Corp. (The) 20,000 1,607
</TABLE>
Diversified Equity Fund 3
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Cincinnati Financial Corp. 900 $ 35
Citicorp 61,000 9,104
City National Corp. 9,100 336
CMAC Investment Corp. 2,800 172
Comdisco, Inc. 60,200 1,144
Comerica, Inc. 29,700 1,968
Commerce Bancshares, Inc. 27,685 1,343
Conseco, Inc. 73,768 3,449
Countrywide Credit Industries, Inc. 14,000 711
Danielson Holding Corp. (a) 100,000 737
Dime Bancorp, Inc. 45,500 1,362
Donaldson, Lufkin & Jenrette, Inc. 400 20
Dow Jones & Co., Inc. 30,400 1,695
DST Systems, Inc. (a) 14,300 801
Duke Realty Investments, Inc. 13,000 307
Dun & Bradstreet Corp. 9,600 347
Edwards (A.G.), Inc. 3,500 149
Equitable Companies, Inc. 12,400 929
Everest Reinsurance Holdings, Inc. 13,600 523
Federal Home Loan Mortgage Corp. 62,600 2,946
Federal National Mortgage Association 104,000 6,318
Fifth Third Bancorp 18,700 1,176
First American Corp. 71,500 3,441
First Data Corp. 140,500 4,680
First Security Corp. 37,600 804
First Union Corp. 47,400 2,761
Fleet Financial Group, Inc. 51,400 4,292
GATX Corp. 3,000 132
General Re Corp. 17,100 4,335
Golden West Financial Corp. 6,800 723
Green Tree Financial Corp. 84,000 3,596
Hartford Financial Services Group, Inc. (The) 19,200 2,196
Household International Corp. 86,700 4,313
Jefferson-Pilot Corp. 4,800 278
KeyCorp 30,000 1,069
Lehman Brothers Holdings, Inc. 17,800 1,381
Local Financial Corp. (a) 129,300 1,681
Loews Corp. 16,800 1,464
Marsh & McLennan Cos., Inc. 18,450 1,115
MBIA, Inc. 29,900 2,239
MBNA Corp. 392,812 12,963
Mercury General Corp. 8,000 516
Merrill Lynch & Co., Inc. 41,400 3,819
MGIC Investment Corp. 29,100 1,661
Morgan (J.P.) & Co., Inc. 1,700 199
Morgan Stanley, Dean Witter,
Discover and Co. 133,015 12,154
National City Corp. 18,640 1,323
National Commerce Bancorp 200 8
NationsBank Corp. 107,743 8,242
Nationwide Financial Services, Inc. Class A 3,300 168
North Fork Bancorporation, Inc. 30,600 748
Northern Trust Corp. 16,900 1,288
Norwest Corp. 126,900 4,743
Old Kent Financial Corp. 2,485 89
Old Republic International Corp. 25,200 739
Pacific Century Financial Corp. 25,000 600
PaineWebber Group, Inc. 34,650 1,486
Paychex, Inc. 38,250 1,554
PennCorp Financial Group, Inc. 54,000 1,107
PNC Bank Corp. 42,900 2,309
Progressive Corp. 22,200 3,130
Provident Companies, Inc. 27,200 938
Public Storage, Inc. 35,000 980
Reinsurance Group of America, Inc. (a) 4,300 221
Reliance Group Holdings, Inc. 10,700 187
Reliastar Financial Corp. 1,100 53
Republic New York Corp. 20,100 1,265
Ryder System, Inc. 79,800 2,519
Simon DeBartolo Group, Inc. 2,700 88
SLM Holding Corp. 8,900 436
SouthTrust Corp. 58,600 2,549
Spieker Properties, Inc. 10,500 407
St. Paul Cos., Inc. 54,100 2,276
Star Banc Corp. 4,600 294
State Street Corp. 7,200 500
TCF Financial Corp. 21,200 625
TIG Holdings, Inc. 30,300 697
Transamerica Financial Corp. 14,200 1,635
Transatlantic Holdings, Inc. 2,850 220
Travelers, Inc. 44,655 2,707
Union Planters Corp. 3,200 188
United Asset Management Corp. 3,500 91
Washington Mutual, Inc. 96,510 4,186
Wells Fargo & Co. 2,600 959
Westcorp, Inc. 24,700 340
Zions Bancorp 5,500 292
----------
254,625
----------
HEALTH CARE - 10.6%
Aetna, Inc. 70,300 5,351
Allergan, Inc. 6,400 297
Alliance Pharmaceutical Corp. (a) 40,000 165
ALZA Corp. (a) 39,500 1,708
American Home Products Corp. 92,500 4,787
Amgen, Inc. (a) 32,000 2,092
Bausch & Lomb, Inc. 5,200 261
</TABLE>
4 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Baxter International, Inc. 79,000 $ 4,251
Bergen Brunswig Corp. Class A 17,975 833
Beverly Enterprises, Inc. New (a) 34,500 476
Biogen, Inc. (a) 700 34
Biomet, Inc. 95,200 3,142
Bristol-Myers Squibb Co. 143,300 16,471
Cardinal Health, Inc. 24,400 2,287
ChromaVision Medical Systems, Inc. (a) 120 1
Columbia/HCA Healthcare Corp. 234,900 6,841
First Health Group Corp. (a) 52,600 1,499
Genesis Health Ventures, Inc. (a) 13,100 328
Genzyme Corp. (a) 17,100 433
HBO & Co. 36,000 1,269
Humana, Inc. (a) 24,200 755
Integrated Health Services, Inc. 32,000 1,200
IVAX Corp. (a) 50,100 463
Johnson & Johnson 79,600 5,871
Lilly (Eli) & Co. 68,300 4,512
Mallinckrodt, Inc. 9,000 267
Medtronic, Inc. 23,600 1,505
Merck & Co., Inc. 137,700 18,417
Mylan Laboratories, Inc. 249,900 7,513
PacifiCare Health Systems, Inc. Class B (a) 28,400 2,508
Pfizer, Inc. 163,200 17,738
Quest Diagnostics, Inc. (a) 47,600 1,041
Quintiles Transnational Corp. (a) 37,000 1,818
Schering-Plough Corp. 111,900 10,253
Shared Medical Systems 1,900 140
Stryker Corp. 7,300 280
Tenet Healthcare Corp. (a) 44,575 1,393
Total Renal Care Holdings, Inc. (a) 5,000 173
Trigon Healthcare, Inc. (a) 18,000 651
U.S. Surgical Corp. 1,800 82
United Healthcare Corp. 82,100 5,213
US Bioscience, Inc. (a) 42,014 344
Warner-Lambert Co. 59,700 4,142
Watson Pharmaceuticals, Inc. (a) 2,300 107
Wellpoint Health Networks, Inc. Class A (a) 2,737 203
----------
139,115
----------
INTEGRATED OILS - 3.2%
Amerada Hess Corp. NPV 59,200 3,216
Amoco Corp. 74,000 3,080
Ashland, Inc. 43,325 2,237
Atlantic Richfield Co. 21,500 1,680
Coastal Corp. 56,100 3,916
Crown Central Petroleum Co. Class B (a) 62,000 783
Exxon Corp. 126,800 9,042
Kerr-McGee Corp. 22,000 1,273
Lyondell Petrochemical Co. 31,700 965
Mobil Corp. 24,300 1,862
Murphy Oil Corp. 1,900 96
Phillips Petroleum Co. 46,000 2,217
Sun Co., Inc. 26,000 1,009
Tenneco, Inc. 52,300 1,991
Texaco, Inc. 41,900 2,501
Unocal Corp. 55,900 1,998
USX-Marathon Group 126,100 4,327
----------
42,193
----------
MATERIALS AND PROCESSING - 7.2%
Air Products & Chemicals, Inc. 41,400 1,656
Albany International Corp. Class A 55,275 1,323
Albemarle Corp. 12,300 272
Alumax, Inc. 2,200 102
Aluminum Co. of America 4,200 277
American Real Estate Partners, L.P. (a) 196,462 2,014
Archer-Daniels-Midland Co. 41,000 794
Arco Chemical Co. 5,200 298
Armstrong World Industries, Inc. 20,700 1,395
ASARCO, Inc. 13,400 298
Asia Pulp & Paper Co, - ADR Ltd. 30,000 338
Avery Dennison Corp. 22,000 1,183
Bethlehem Steel Corp. (a) 34,500 429
Boise Cascade Office Products Corp. (a) 10,254 159
Bowater, Inc. 7,600 359
Capital Automotive 15,100 215
Catellus Development Corp. (a) 105,100 1,859
Centex Corp. 9,400 355
Champion International Corp. 22,500 1,107
Commonwealth Industries, Inc. 85,000 839
Corning, Inc. 10,200 354
Crown Cork & Seal Co., Inc. 40,200 1,910
du Pont (E.I.) de Nemours & Co. 48,300 3,604
Eastman Chemical Co. 48,100 2,994
Ecolab, Inc. 400 12
Engelhard Corp. 25,800 522
FMC Corp. (a) 19,800 1,350
Fort James Corp. 43,500 1,936
Gaylord Container Corp. Class A (a) 429,200 3,299
Georgia-Pacific Group 11,700 690
Georgia-Pacific Timber Group 27,500 634
Getty Realty Holding Corp. 40,000 775
Goodrich (B.F.) Co. 16,300 809
Great Lakes Chemical Corp. 74,000 2,919
</TABLE>
Diversified Equity Fund 5
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Harsco Corp. 20,200 $ 925
Hexcel Corp. (a) 82,500 1,867
Homestake Mining Co. 50,400 523
Illinois Tool Works, Inc. 32,900 2,194
International Paper Co. 40,300 1,733
International Specialty Products (a) 1,300 24
Johns Manville Corp. 6,400 96
Kimberly-Clark Corp. 68,800 3,156
Lafarge Corp. 19,800 778
Longview Fibre Co. 50,000 713
Louisiana Pacific Corp. 45,000 821
LTV Corp. 6,800 65
Lubrizol Corp. 24,100 729
Mead Corp. 23,400 743
Mercer International, Inc. 131,100 1,307
Monsanto Co. 132,300 7,392
Nalco Chemical Co. 400 14
Newhall Land & Farming Co. 22,900 647
Olin Corp. 28,700 1,197
Oregon Steel Mills, Inc. 30,000 559
Pentair, Inc. 7,100 302
Phelps Dodge Corp. 60,000 3,431
Philip Services Corp. (a) 13,400 55
Potlatch Corp. 2,200 92
Praxair, Inc. 45,700 2,139
Reynolds Metals Co. 28,000 1,566
Sealed Air Corp. New (a) 28,438 1,045
Solutia, Inc. 35,400 1,016
Sonoco Products Co. 13,620 412
Standard Register Co. 5,800 205
Stone Container Corp. (a) 54,100 845
Timken Co. 20,800 641
Tyco International, Ltd. 290,800 18,320
UCAR International, Inc. (a) 10,000 292
USG Corp. 5,000 271
Vulcan Materials Co. 900 96
W.R. Grace & Co. New (a) 54,800 935
Westvaco Corp. 30,300 856
Zeigler Coal Holding Co. 10,000 171
----------
95,253
----------
MISCELLANEOUS - 0.2%
BEC Energy (a) 3,800 158
FBR Asset Investment Corp. (a) 30,600 566
Legacy Hotels Real Estate
Investment Trust (a) 365,000 2,133
SFX Entertainment, Inc. Class A (a) 6,700 307
TeleTech Holdings, Inc. (a) 6,800 84
----------
3,248
----------
OTHER ENERGY - 2.2%
Apache Corp. 48,200 1,518
Baker Hughes, Inc. 85,200 2,945
BJ Services Co. (a) 18,600 541
British Petroleum Co. PLC - ADR 306 27
Burlington Resources, Inc. 6,700 289
Camco International, Inc. 14,800 1,152
Diamond Offshore Drilling, Inc. 4,600 184
Dresser Industries, Inc. 4,000 176
EEX Corp. (a) 50,989 478
Enron Oil & Gas Co. 4,800 97
ENSCO International, Inc. 24,300 422
EVI Weatherford, Inc. (a) 1,275 47
Gulf Canada Resources, Ltd. (a) 23,400 116
Halliburton Co. 71,300 3,177
MarketSpan Corp. (a) 23,692 709
Nabors Industries, Inc. (a) 12,000 238
Noble Affiliates, Inc. 23,200 882
Ocean Energy, Inc. New (a) 1,960 38
Octel Corp. (a) 18,500 368
R&B Falcon Corp. (a) 71,900 1,627
Rowan Cos., Inc. (a) 5,000 97
Santa Fe Energy Resources, Inc. (a) 32,300 347
Schlumberger, Ltd. 91,000 6,216
Sempra Energy (a) 2,400 67
Tidewater, Inc. 6,700 221
Transocean Offshore, Inc. 45,100 2,007
TransTexas Gas Corp. (a) 2,500 22
Triton Energy, Ltd. Class A (a) 48,800 1,742
UTI Energy Corp. (a) 20,700 267
Valero Energy Corp. 58,700 1,952
Vastar Resources, Inc. 1,100 48
Western Atlas, Inc. (a) 8,000 679
----------
28,696
----------
PRODUCER DURABLES - 6.1%
AGCO Corp. 40,900 841
Alcatel Alsthom Compagnie
Generale d'Electricite - ADR 30,103 1,225
AMP, Inc. 15,600 536
Case Corp. 42,700 2,060
Caterpillar, Inc. 82,000 4,336
Clayton Homes, Inc. 9,300 177
CommScope, Inc. (a) 19,100 309
Cordant Technologies, Inc. 12,000 554
Crane Co. 39,100 1,899
Credence Systems Corp. (a) 10,300 196
Cummins Engine Co., Inc. 5,600 287
Elsag Bailey Process Automation NV (a) 79,300 1,908
</TABLE>
6 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Foster Wheeler Corp. 48,100 $ 1,031
General Electric Co. 161,500 14,697
General Semiconductor, Inc. (a) 134,000 1,323
Gulfstream Aerospace Corp. (a) 17,600 818
Honeywell, Inc. 5,100 426
Hubbell, Inc. Class B 300 12
Ingersoll-Rand Co. 74,350 3,276
ITT Industries, Inc. 4,200 157
Johnson Controls, Inc. 28,700 1,641
Kaiser Ventures, Inc. (a) 78,900 957
Knoll, Inc. (a) 17,400 513
Lexmark International Group, Inc. Class A (a) 22,000 1,342
Litton Industries, Inc. (a) 15,900 938
Lockheed Martin Corp. 33,600 3,557
MagneTek, Inc. (a) 54,700 862
Molex, Inc. 4,075 102
National Service Industries, Inc. 6,300 321
Northern Telecom, Ltd. 87,200 4,948
Northrop Grumman Corp. 20,400 2,104
Parker-Hannifin Corp. 10,000 381
Pitney Bowes, Inc. 3,900 188
Raytheon Co. Class A 2,811 162
Sensormatic Electronics Corp. (a) 85,000 1,190
Tecumseh Products Co. Class A 300 16
Tektronix, Inc. 11,450 405
Teradyne, Inc. (a) 17,900 479
Thermo Instrument Systems, Inc. (a) 7,500 197
Thomas & Betts Corp. 6,900 340
U.S. Filter Corp. New (a) 81,800 2,296
United Technologies Corp. 78,800 7,289
Whittaker Corp. New (a) 152,200 2,017
Xerox Corp. 116,600 11,848
----------
80,161
----------
TECHNOLOGY - 13.2%
3Com Corp. (a) 51,500 1,580
ADC Telecommunications, Inc. (a) 15,700 573
Adobe Systems, Inc. 11,900 505
Altera Corp. (a) 1,000 30
Andrew Corp. (a) 800 14
Apple Computer, Inc. (a) 106,900 3,067
Arrow Electronics, Inc. (a) 2,400 52
Ascend Communications, Inc. (a) 36,500 1,807
Autodesk, Inc. 10,100 388
BMC Software, Inc. (a) 67,400 3,501
Cadence Design Systems, Inc. (a) 28,000 875
CDW Computer Centers, Inc. (a) 1,800 90
CIENA Corp. (a) 1,300 90
Cisco Systems, Inc. (a) 251,650 23,168
COMPAQ Computer Corp. 338,500 9,605
CompUSA, Inc. (a) 37,500 677
Computer Associates International, Inc. 31,400 1,745
Computer Sciences Corp. 900 58
Compuware Corp. (a) 28,000 1,430
Cooper Industries, Inc. 16,600 912
Cypress Semiconductor Corp. (a) 85,000 707
Dell Computer Corp. (a) 181,500 16,834
Electronic Data Systems Corp. 169,238 6,770
EMC Corp. (a) 54,500 2,442
Ericsson (LM) Telephone Co.
Class B - ADR 119,940 3,432
FORE Systems (a) 5,600 148
General Dynamics Corp. 1,000 47
General Motors Corp. Class H (a) 16,300 768
Haemonetics Corp. (a) 8,300 133
Hewlett-Packard Co. 98,700 5,910
Hutchinson Technology, Inc. (a) 13,600 371
Imation Corp. (a) 10,000 166
IMS Health, Inc. (a) 2,700 155
Informix Corp. (a) 26,200 206
Ingram Micro, Inc. Class A (a) 13,300 589
Integrated Device Technology (a) 110,000 784
Intel Corp. 136,400 10,101
International Business Machines Corp. 58,350 6,699
Iomega Corp. (a) 55,900 328
Learning Co., Inc. (The) (a) 19,700 584
Lernout & Hauspie Speech Products N.V. (a) 18,300 1,091
Linear Technology Corp. 2,900 175
LSI Logic Corp. (a) 900 21
Lucent Technologies, Inc. 110,800 9,217
Micron Technology, Inc. (a) 27,100 672
Microsoft Corp. (a) 198,300 21,490
Motorola, Inc. 39,700 2,087
NCR Corp. (a) 700 23
Nokia Corp. - ADR 173,800 12,611
Novell, Inc. (a) 108,700 1,386
Oracle Systems Corp. (a) 35,000 858
PeopleSoft, Inc. (a) 25,000 1,173
SCI Systems, Inc. (a) 7,400 278
Seagate Technology (a) 10,100 241
Sterling Software, Inc. (a) 26,300 777
Storage Technology Corp. (a) 40,000 1,735
Sun Microsystems, Inc. (a) 21,700 943
Synopsys, Inc. (a) 24,800 1,135
Tandy Corp. 27,700 1,470
Tellabs, Inc. (a) 45,100 3,227
</TABLE>
Diversified Equity Fund 7
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Texas Instruments, Inc. 79,000 $ 4,606
Textron, Inc. 3,700 265
Vishay Intertechnology, Inc. (a) 37,835 679
Vitesse Semiconductor Corp. (a) 8,900 275
Western Digital Corp. (a) 56,100 663
----------
174,439
----------
UTILITIES - 8.1%
360 Communications Co. (a) 600 19
Airtouch Communications, Inc. (a) 189,800 11,090
Ameren Corp. 6,700 266
American Water Works, Inc. 22,000 682
Associated Group, Inc. Class B (a) 4,000 156
AT&T Corp. 124,900 7,135
Baltimore Gas & Electric Co. 11,000 342
Bell Atlantic Corp. 154,070 7,029
BellSouth Corp. 13,300 893
Carolina Power & Light Co. 9,900 429
Central & Southwest Corp. 19,600 527
Century Telephone Enterprises, Inc. 45,250 2,075
Citizens Utilities Co. Class B (a) 189,655 1,825
Comcast Corp. Class A 2,800 111
Conectiv, Inc. 4,300 88
Consolidated Edison, Inc. 50,400 2,322
DTE Energy Co. 174,700 7,054
Duke Power Co. 68,000 4,029
Edison International 118,100 3,491
Energy East Corp. (a) 17,600 733
Entergy Corp. 164,800 4,738
Florida Progress Corp. 3,800 156
FPL Group, Inc. 26,400 1,663
GPU, Inc. 40,000 1,513
GTE Corp. 75,437 4,196
Houston Industries, Inc. 7,300 225
IPALCO Enterprises, Inc. 5,800 258
K N Energy, Inc. 5,100 276
Kansas City Power & Light Co. 14,800 429
MCI Communications Corp. 32,800 1,904
Montana Power Co. 25,600 890
National Fuel & Gas Co. 2,600 113
Niagara Mohawk Power Corp. (a) 53,000 792
NICOR, Inc. 13,100 526
NIPSCO Industries, Inc. 12,000 336
Northeast Utilities (a) 95,400 1,616
OGE Energy Corp. 6,800 184
PacifiCorp. 92,000 2,082
Paging Network, Inc. (a) 158,400 2,208
Peco Energy Co. 5,400 158
PG&E Corp. 110,200 3,478
Pinnacle West Capital Corp. 27,800 1,251
Public Service Enterprise Group, Inc. 48,400 1,667
Questar Corp. 600 12
SBC Communications, Inc. 166,300 6,652
Tele-Communications, Inc. Series A (a) 129,100 5,011
Unicom Corp. 146,000 5,119
United States Cellular Corp. (a) 2,400 74
Williams Cos. (The) 39,000 1,316
WorldCom, Inc. (a) 144,200 6,967
----------
106,106
----------
TOTAL COMMON STOCKS
(cost $965,841) 1,250,049
----------
PREFERRED STOCKS - 0.2%
Elsag Bailey Financing Trust (conv.)(a) 12,600 540
Metromedia International Group, Inc. (conv.) 16,100 829
Sealed Air Corp. (conv.) 31,700 1,331
----------
TOTAL PREFERRED STOCKS
(cost $2,647) 2,700
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C>
SHORT-TERM INVESTMENTS - 4.9%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 61,017 61,017
United States Treasury Notes (b)(c)
5.250% due 07/31/98 3,600 3,600
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $64,617) 64,617
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
----------
<S> <C>
TOTAL INVESTMENTS
(identified cost $1,033,105)(d) - 100.0% $1,317,366
OTHER ASSETS AND LIABILITIES,
NET - 0.0% (33)
----------
NET ASSETS - 100.0% $1,317,333
----------
----------
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures contracts purchased by the
Fund.
(d) 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)
---------- ----------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 09/98 190 $ 1,408
S&P 400 Midcap Index Futures Contracts
expiration date 09/98 18 45
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 1,453
----------
----------
(#) At June 30, 1998, United States Treasury Notes valued at $3,600 were held
as collateral in connection with futures contracts purchased by the Fund.
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Equity Fund 9
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $1,033,105)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,366
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,854
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,301
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,323
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 7,086
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,341,930
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,477
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,561
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 894
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 392
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 7,086
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,597
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,333
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,967
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,242
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,261
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,453
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983,147
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,333
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
Class S ($1,313,079,635 divided by 26,217,074 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50.08
--------------
--------------
Class E ($4,253,074 divided by 85,061 shares of $.01 par value
shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 50.00
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,693
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,295
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
--------------
Total Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,092
EXPENSES (Notes 1, 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,644
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 5
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,280
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,812
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,933
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,002 74,935
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,297
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,302 113,599
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,534
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 192,346
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Equity Fund 11
<PAGE>
DIVERSIFIED EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,812 $ 7,062
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,935 179,083
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 113,599 46,630
-------------- --------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 192,346 232,775
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,845) (7,061)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1)
In excess of net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (22)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1)
Net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,831) (192,410)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85) (475)
In excess of net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (752)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2)
-------------- --------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (29,761) (200,724)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 109,289 313,717
-------------- --------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 271,874 345,768
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,045,459 699,691
-------------- --------------
End of period (including undistributed net investment income of
$1,967 at June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,333 $ 1,045,459
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 Diversified Equity Fund
<PAGE>
DIVERSIFIED EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS S
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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 43.64 $ 41.45 $ 38.62 $ 32.26 $ 34.88 $ 35.60
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .14 .37 .48 .60 .58 .56
Net realized and unrealized gain (loss) on investments . 7.49 12.06 8.15 10.63 (.49) 3.03
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 7.63 12.43 8.63 11.23 .09 3.59
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.07) (.37) (.48) (.60) (.58) (.55)
Net realized gain on investments . . . . . . . . . . . . (1.12) (9.83) (5.32) (4.27) (1.87) (3.76)
In excess of net realized gain on investments. . . . . . -- (.04) -- -- (.26) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (1.19) (10.24) (5.80) (4.87) (2.71) (4.31)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 50.08 $ 43.64 $ 41.45 $ 38.62 $ 32.26 $ 34.88
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 17.73 31.32 23.29 35.17 (0.01) 10.53
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 1,313,080 1,042,620 699,691 530,645 414,036 388,420
Ratios to average net assets (%)(b):
Operating expenses. . . . . . . . . . . . . . . . . . .88 .92 .94 .95 .95 .96
Net investment income . . . . . . . . . . . . . . . . .64 .80 1.18 1.56 1.73 1.54
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 87.94 114.11 99.90 92.53 57.53 99.80
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
Diversified Equity Fund 13
<PAGE>
DIVERSIFIED EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS E
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1998* 1997**
------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 43.64 $ 45.55
------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01 .06
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . 7.47 7.97
------------- --------------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . 7.48 8.03
------------- --------------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (.06)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (.01)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (1.12) (9.83)
In excess of net realized gain on investments. . . . . . . . . . . . . . . . . . . -- (.04)
------------- --------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.12) (9.94)
------------- --------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50.00 $ 43.64
------------- --------------
------------- --------------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.38 15.99(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 4,253 2,839
Ratios to average net assets (%)(c):
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50 1.63
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02 .10
Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 87.94 114.11
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period May 27, 1997 (commencement of sale) to December 31, 1997.
(a) Periods less than one year are not annualized.
(b) Total return represents performance for the period May 27, 1997 to
December 31, 1997.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1997 are
annualized.
14 Diversified Equity Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 95.2%
AUTO AND TRANSPORTATION - 4.4%
AAR Corp. 108,450 $ 3,206
ABC Rail Products Corp. (a) 10,000 173
Airborne Freight Corp. 64,000 2,236
AirNet Systems, Inc. (a) 9,000 145
Alaska Air Group, Inc. (a) 24,700 1,348
Alexander & Baldwin, Inc. 6,200 180
America West Holding Corp. Class B (a) 25,900 740
Arvin Industries, Inc. 9,300 338
ASA Holdings, Inc. 35,000 1,737
Bandag, Inc. 5,700 222
Carey International, Inc. New (a) 10,000 280
Coach USA, Inc. (a) 18,300 835
Coachmen Industries, Inc. 100,600 2,628
Consolidated Freightways Corp. (a) 17,500 243
Control Devices, Inc. 13,332 173
Excel Industries, Inc. 8,000 114
Fleetwood Enterprises, Inc. 50,600 2,024
FRP Properties, Inc. (a) 5,000 160
Hawker Pacific Aerospace (a) 18,000 200
Hertz Corp. Class A 4,500 199
Hunt (JB) Transportation Services, Inc. 24,700 880
Keystone Automotive Industries, Inc. (a) 6,000 138
Landair Services, Inc. (a) 7,000 206
Lear Corp. (a) 10,500 539
M.S. Carriers, Inc. (a) 8,200 221
Mark VII, Inc. (a) 8,000 143
Midwest Express Holdings, Inc. (a) 54,450 1,970
Navistar International Corp. (a) 83,800 2,420
Offshore Logistics, Inc. (a) 62,100 1,102
Skywest, Inc. 84,000 2,341
Transport Corp. of America (a) 12,000 196
Trinity Industries, Inc. 50,900 2,112
USA Truck, Inc. (a) 14,000 221
USFreightways Corp. 15,900 522
Wynn?s International, Inc. 10,000 193
----------
30,385
----------
CONSUMER DISCRETIONARY - 19.6%
Aaron Rents, Inc. 1,100 22
Abacus Direct Corp. (a) 26,050 1,353
Abercrombie & Fitch Co. Class A (a) 55,600 2,446
AccuStaff, Inc. (a) 102,450 3,202
ACNielsen Corp. (a) 21,600 545
American Eagle Outfitters, Inc. (a) 46,425 1,787
American Greetings Corp. Class A 62,600 3,189
Anchor Gaming (a) 19,200 1,490
Apollo Group, Inc. Class A (a) 43,000 1,422
Applied Graphics Technologies, Inc. (a) 22,000 1,002
ARC International Corp. (a) 25,000 103
Ascent Entertainment Group, Inc. (a) 18,000 200
Aviation Sales Co. (a) 5,300 210
Aztar Corp. (a) 18,400 125
Barnes & Noble, Inc. (a) 48,000 1,797
Belo (A.H.) Corp. Class A 7,600 185
Best Buy Co. (a) 111,400 4,024
Big Flower Holdings, Inc. (a) 10,600 318
BJ?s Wholesale Club, Inc. (a) 23,600 959
Bowne & Co., Inc. 42,100 1,894
Brinker International, Inc. (a) 23,900 460
Brylane, Inc. (a) 20,000 920
Buckle, Inc. (The) (a) 61,050 1,801
Cameron Ashley, Inc. (a) 10,000 169
Capstar Broadcasting Corp. Class A (a) 80,000 2,010
Catalytica, Inc. (a) 12,000 235
Central Newspapers, Inc. Class A 24,200 1,688
Choice Hotels International, Inc. (a) 200 3
Chris Craft Industries, Inc. (a) 7,700 421
CKE Restaurants, Inc. 63,590 2,623
Claire?s Stores, Inc. 61,900 1,269
Coinmach Laundry Corp. (a) 6,000 140
Cole National Corp. Class A (a) 5,000 200
Computer Horizons Corp. (a) 61,700 2,287
Consolidated Graphics, Inc. (a) 16,500 973
Cornell Corrections, Inc. (a) 7,000 147
Daisytek International Corp. (a) 8,000 203
Dan River, Inc. Class A (a) 11,000 187
Darden Restaurants, Inc. 61,200 972
Data Processing Corp. (a) 5,700 177
Department 56, Inc. (a) 43,400 1,541
DeVry, Inc. (a) 84,000 1,843
Dollar Tree Stores, Inc. (a) 35,250 1,428
Dress Barn, Inc. (a) 10,000 249
Equity Corp. International (a) 31,100 746
Extended Stay America, Inc. (a) 100 1
Footstar, Inc. (a) 6,300 302
Fossil, Inc. (a) 52,650 1,310
Furniture Brands International, Inc. (a) 10,400 292
Gibson Greetings, Inc. (a) 6,600 165
Goody's Family Clothing, Inc. (a) 50,300 2,744
Grand Casinos, Inc. (a) 37,100 621
Grey Advertising 4,500 1,782
Hearst-Argyle Television, Inc. (a) 33,000 1,320
Helen of Troy, Ltd. New (a) 10,000 217
Huffy Corp. 6,500 118
InaCom Corp. (a) 24,600 781
</TABLE>
16 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Insurance Auto Auctions, Inc. (a) 20,000 $ 280
Interim Services, Inc. (a) 59,000 1,895
Iron Mountain, Inc. (a) 5,000 220
ITT Educational Services, Inc. (a) 40,000 1,290
Knight-Ridder, Inc. 25,800 1,421
La-Z-Boy Chair Co. 2,700 153
Leather Factory, Inc. (a) 60,000 30
Lee Enterprises, Inc. 46,500 1,424
Legato Systems, Inc. (a) 59,600 2,324
Linens 'N Things, Inc. (a) 12,000 367
Lithia Motors, Inc. Class A (a) 10,000 145
Lo-Jack Corp. (a) 15,000 187
Lodgenet Entertainment Corp. (a) 18,000 178
Maxim Group, Inc. (a) 11,000 219
Maytag Corp. 19,300 953
Mazel Stores, Inc. (a) 12,000 192
McClatchy Newspapers, Inc. Class A 50,775 1,758
McGraw-Hill, Inc. 20,000 1,631
Media General, Inc. Class A 100 5
Metzler Group, Inc. (a) 70,000 2,564
NewsEdge Corp. (a) 44,150 436
Nutramax Products, Inc. New (a) 10,000 94
O'Charleys, Inc. (a) 15,000 221
OfficeMax, Inc. (a) 12,000 198
Ogden Corp. 22,700 628
On Assignment, Inc. (a) 50,000 1,747
Orckit Communications, Ltd. (a) 21,900 415
Outdoor Systems, Inc. (a) 35,625 997
Oxford Industries, Inc. 3,100 108
Pacific Sunwear of California (a) 57,400 2,009
Personnel Group of America, Inc. (a) 26,000 520
Petco Animal Supplies, Inc. (a) 13,000 259
Pillowtex Corp. 5,500 221
Polo Ralph Lauren Corp. Class A New (a) 60,450 1,693
Premark International, Inc. 13,000 419
Prime Hospitality Corp. (a) 64,800 1,130
Protection One, Inc. 12,000 130
Pulitzer Publishing Co. 13,500 1,205
RCM Technologies, Inc. (a) 8,000 162
RDO Equipment Co. Class A (a) 9,000 151
Recoton Corp. (a) 4,400 147
Red Roof Inns, Inc. (a) 11,600 196
Regis Corp. 6,000 177
Rent-Way, Inc. (a) 35,250 1,071
Reynolds & Reynolds Co. Class A 64,200 1,168
Richey Electronics, Inc. (a) 20,000 152
Robert Half International, Inc. (a) 31,250 1,746
RockShox, Inc. (a) 19,000 76
Rocky Shoes & Boots, Inc. (a) 12,000 171
Romac International, Inc. (a) 57,900 1,759
Ross Stores, Inc. 95,450 4,104
Rural/Metro Corp. (a) 15,900 207
Russ Berrie & Co., Inc. 6,100 152
Russell Corp. 13,800 417
Ryan's Family Steak Houses, Inc. (a) 128,800 1,312
Saga Communications Class A (a) 8,300 132
Schultz Sav-o Stores, Inc. 76,500 1,205
SCP Pool Corp. (a) 8,500 204
Scripps (E.W.) Co. Class A 28,000 1,535
Select Appointments Holdings PLC - ADR 60,000 1,740
ShoLodge, Inc. (a) 20,033 158
Shopko Stores, Inc. (a) 69,000 2,346
Showbiz Pizza Time, Inc. (a) 64,650 2,594
Spectrian Corp. (a) 9,500 154
Sport Supply Group, Inc. (a) 20,000 162
Sportsman's Guide, Inc. (The) (a) 24,200 104
Springs Industries, Inc. 4,500 208
StaffMark, Inc. (a) 49,600 1,817
Strategic Distribution, Inc. (a) 30,600 161
Superior Services, Inc. (a) 39,000 1,172
Talbots, Inc. 11,700 306
Teltrend, Inc. (a) 12,000 206
The Men's Wearhouse, Inc. (a) 101,550 3,351
Tiffany & Co. 23,000 1,104
TJX Cos., Inc. 114,800 2,770
TRM Copy Centers Corp. (a) 18,000 243
United Natural Foods, Inc. (a) 7,000 200
United Television, Inc. 10,450 1,197
United Video Satellite Group Class A (a) 5,700 226
Urban Outfitters, Inc. (a) 10,000 183
Valassis Communications, Inc. (a) 83,250 3,210
Video Update, Inc. Class A (a) 50,000 72
Wackenhut Corp. 6,000 136
Wackenhut Corrections Corp. (a) 45,000 1,052
Washington Post Co. Class B 4,500 2,592
West Marine, Inc. (a) 20,000 360
Wolverine World Wide, Inc. 57,900 1,256
World Color Press, Inc. (a) 17,400 609
Youth Services International, Inc. (a) 18,000 132
Zale Corp. (a) 13,700 436
----------
134,785
----------
CONSUMER STAPLES - 2.6%
American Italian Pasta Co. Class A (a) 16,300 607
Aurora Foods, Inc. (a) 41,000 866
</TABLE>
Special Growth Fund 17
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Beringer Wine Estates Holdings, Inc. Class B (a) 20,300 $ 893
Block Drug Co., Inc. Class A 22,331 842
Canandaigua Wine International, Inc. Class A (a) 5,100 251
Coca-Cola Bottling Co. 18,200 1,203
Earthgrains Co. 41,650 2,327
Fleming Cos., Inc. 24,600 432
Hormel (George A.) & Co. - Hormel Foods Corp. 13,100 453
IBP, Inc. 35,300 640
International Multifoods Corp. 8,300 228
Longs Drug Stores, Inc. 5,300 153
Nature's Sunshine Products, Inc. 8,000 179
Pilgrim's Pride Corp. 7,000 140
Robert Mondavi Corp. Class A (a) 23,500 665
Standard Commercial Corp. (a) 16,000 176
Suiza Foods Corp. (a) 35,000 2,089
SuperValu, Inc. 28,600 1,269
Tootsie Roll Industries, Inc. 30,000 2,303
Universal Foods Corp. 20,600 457
Whole Foods Market, Inc. (a) 33,400 2,021
----------
18,194
----------
FINANCIAL SERVICES - 21.9%
Acceptance Insurance Companies, Inc. (a) 6,200 152
Allmerica Financial Corp. 21,600 1,404
Ambac Financial Group, Inc. 26,800 1,568
AmerUs Life Holdings, Inc. 8,800 285
Amplicon, Inc. 12,000 156
AMRESCO, Inc. (a) 40,100 1,163
Amwest Insurance Group, Inc. 12,030 176
Arden Realty Group, Inc. 30,000 776
Argonaut Group, Inc. 1,200 38
ARM Financial Group, Inc. Class A 7,000 155
Associated Banc-Corp. 3,000 113
Astoria Financial Corp. 44,500 2,381
BancorpSouth, Inc. 1,800 38
Bank Plus Corp. (a) 15,600 191
Bank United Corp. Class A 3,300 158
Bankatlantic Bancorp, Inc. Class A 123,895 1,464
Banknorth Group, Inc. 1,600 59
Bear Stearns Cos., Inc. 61,398 3,492
Berkley (W.R.) Corp. 31,300 1,254
Billing Information Concepts Corp. (a) 48,700 743
BISYS Group, Inc. New (a) 28,300 1,160
Capital One Financial Corp. 26,300 3,266
Centris Group, Inc. 135,800 1,681
Centura Banks, Inc. 4,200 262
Charter One Financial, Inc. 67,600 2,269
Chartwell Re Corp. 2,700 79
Chittenden Corp. 925 32
City National Corp. 99,350 3,670
Colonial BancGroup, Inc. 52,300 1,687
Comdisco, Inc. 57,500 1,092
Commerce Bancshares, Inc. 8,917 432
Commerce Group, Inc. 3,000 116
Commonwealth Bancorp, Inc. 4,200 96
Compass Bancshares, Inc. 15,150 680
Conning Corp. New 9,600 187
CORT Business Services Corp. (a) 33,400 1,052
Cullen Frost Bankers, Inc. 5,500 298
Data Transmission Network Corp. (a) 5,000 200
Delta Financial Corp. (a) 15,000 276
Dime Bancorp, Inc. 35,700 1,069
Donaldson, Lufkin & Jenrette, Inc. 97,800 4,969
Downey Financial Corp. 10,155 332
DST Systems, Inc. (a) 30,000 1,680
Duke Realty Investments, Inc. 51,900 1,226
Edwards (A.G.), Inc. 47,600 2,032
Enhance Financial Services Group, Inc. 14,400 486
Envoy Corp. New (a) 37,050 1,755
Everest Reinsurance Holdings, Inc. 22,500 865
Executive Risk, Inc. 24,000 1,770
EXEL, Ltd. 21,000 1,634
F&M National Corp. 1,000 29
FBL Financial Group, Inc. Class A 7,200 184
Fidelity National Financial 109,946 4,377
Financial Federal Corp. (a) 8,500 228
Financial Security Assurance Holdings, Ltd. 8,900 523
FINOVA Group, Inc. 17,500 991
First American Corp. 26,000 1,251
First American Financial Corp. 7,700 693
First Financial Holdings, Inc. 3,000 72
First Hawaiian Creditcorp, Inc. 3,900 142
First Republic Bank (a) 15,250 551
First Savings Bank of Washington Bancorp, Inc. 2,100 53
First Virginia Banks, Inc. 7,050 360
FirstFed Financial Corp. (a) 35,200 1,830
FIRSTPLUS Financial Group, Inc. (a) 25,400 914
Flagstar Bancorp, Inc. 2,900 71
Flushing Financial Corp. 6,300 181
Foremost Corp. of America 2,900 70
Fremont General Corp. 35,125 1,903
</TABLE>
18 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Gables Residential Trust 52,000 $ 1,410
GATX Corp. 14,800 649
Hartford Life, Inc. Class A 23,200 1,321
HealthCare Financial Partners, Inc. (a) 31,000 1,899
Hibernia Corp. 22,900 462
Horace Mann Educators Corp. 40,000 1,380
IMC Mortgage Co. (a) 92,100 967
Imperial Credit Industries, Inc. (a) 71,152 1,645
Intercontinental Life Corp. (a) 6,400 162
Jack Henry & Assocociates, Inc. 49,300 1,695
Jefferies Group, Inc. 30,100 1,234
JSB Financial, Inc. 1,300 76
LandAmerica Financial Group, Inc. 47,800 2,737
Legg Mason, Inc. 23,000 1,324
Lehman Brothers Holdings, Inc. 32,000 2,482
Leucadia National Corp. 52,000 1,719
Liberty Financial Cos., Inc. 5,400 186
Life USA Holdings, Inc. New 7,000 90
Litchfield Financial Corp. 7,350 153
M & T Bank Corp. (a) 250 139
MAF Bancorp, Inc. 28,800 1,048
Markel Corp. (a) 13,000 2,314
Medical Assurance, Inc. (a) 630 17
Mid Ocean, Ltd. 18,000 1,413
Morgan Keegan, Inc. 70,900 1,835
Mutual Risk Management, Ltd. 25,550 931
NAC Reinsurance Corp. 100 5
National Commerce Bancorp 9,300 389
National Data Corp. 35,000 1,531
Nationwide Financial Services, Inc. Class A 24,200 1,234
Ocean Financial Corp. 2,800 54
Ocwen Financial Corp. (a) 65,300 1,755
Ohio Casualty Corp. 8,300 366
Old Kent Financial Corp. 4,500 162
Old Republic International Corp. 52,050 1,526
Orion Capital Corp. 11,100 620
Pacific Century Financial Corp. 36,200 869
Pacific Gulf Properties, Inc. 7,000 151
Paychex, Inc. 40,500 1,645
Penn Treaty American Corp. (a) 5,400 170
Pennsylvania REIT 7,000 155
Peoples Heritage Financial Group 73,680 1,741
PMI Group, Inc. (The) 14,000 1,027
Price (T. Rowe) & Associates, Inc. 35,800 1,343
Profit Recovery Group International, Inc. (The) (a) 65,000 1,816
Provident Bankshares Corp. 13,430 396
Provident Companies, Inc. 34,400 1,187
PXRE Corp. 41,959 1,259
Queens County Bancorp 5,998 262
Raymond James Financial, Inc. 69,900 2,093
Reliance Group Holdings, Inc. 38,600 676
Reliastar Financial Corp. 6,300 302
RenaissanceRe Holdings, Ltd. 36,800 1,704
Republic Bancorp, Inc. 3,267 62
Resource Bancshares Mortgage Group 112,400 2,079
Riggs National Corp. 2,200 64
RLI Corp. 4,250 173
Rollins Truck Leasing Corp. 21,650 268
Roslyn Bancorp, Inc. 30,400 678
Ryder System, Inc. 36,200 1,143
Saville Systems Ireland PLC - ADR (a) 39,600 1,975
SCPIE Holdings, Inc. 300 10
Selective Insurance Group, Inc. 53,400 1,195
Silicon Valley Bancshares (a) 62,400 2,204
Smith (Charles E.) Residential Realty, Inc. 44,000 1,408
Southern Pacific Funding Corp. (a) 14,000 220
Sovereign Bancorp, Inc. 96,866 1,580
Sovran Self Storage, Inc. 37,200 1,051
St. Francis Capital Corp. 3,000 116
Sterling Bancshares, Inc. 45,000 709
SunAmerica, Inc. 39,000 2,240
Sunstone Hotel Investors, Inc. 8,100 108
TCF Financial Corp. 48,000 1,416
Transatlantic Holdings, Inc. 38,550 2,980
Trenwick Group, Inc. 31,500 1,223
UMB Financial Corp. 1,400 69
Union Planters Corp. 27,575 1,622
United Fire & Casualty Co. 27,450 1,076
Unitrin, Inc. 5,000 345
Valley National Bancorp 4,418 128
Washington Federal, Inc. 18,709 517
Webster Financial Corp. 58,100 1,917
Westamerica Bancorporation 60,000 1,928
Whitney Holding Corp. 1,000 51
Wilmington Trust Corp. 2,600 158
XTRA Corp. 2,500 151
----------
151,132
----------
HEALTH CARE - 6.3%
AmSurg Corp. Class A (a) 11,200 85
Arterial Vascular Engineering, Inc. (a) 47,200 1,684
ARV Assisted Living, Inc. (a) 12,000 150
Assisted Living Concepts, Inc. (a) 8,000 138
</TABLE>
Special Growth Fund 19
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Balanced Care Corp. (a) 22,100 $ 160
Beverly Enterprises, Inc. New (a) 14,100 195
Bindley Western Industries, Inc. 21,333 704
Biogen, Inc. (a) 20,000 977
Biosite Diagnostics, Inc. (a) 12,000 129
CorVel Corp. (a) 4,000 154
Curative Technologies, Inc. (a) 26,000 741
Genset - ADR (a) 23,000 674
Health Care & Retirement Corp. (a) 27,500 1,085
Health Management Associates Class A (a) 54,000 1,806
Healthcare Services Group, Inc. (a) 12,000 190
Hooper Holmes, Inc. 12,000 252
Human Genome Sciences, Inc. (a) 27,000 964
IDEXX Laboratories, Inc. (a) 55,150 1,372
Immucor Corp. (a) 16,000 136
Incyte Pharmaceuticals, Inc. (a) 35,300 1,205
Integrated Health Services, Inc. 7,400 277
Landauer, Inc. 3,700 111
Lincare Holdings, Inc. (a) 102,800 4,318
Lunar Corp. (a) 11,000 201
Maxxim Medical, Inc. (a) 6,000 174
MedImmune, Inc. (a) 6,900 430
Monarch Dental Corp. New (a) 11,000 172
NBTY, Inc. (a) 82,500 1,506
NCS HealthCare, Inc. Class A (a) 47,500 1,354
NovaCare, Inc. (a) 140,200 1,647
Orthodontic Centers of America, Inc. (a) 51,450 1,077
Pediatric Services of America, Inc. (a) 8,100 123
Pediatrix Medical Group (a) 49,800 1,852
Physio-Control International Corp. (a) 9,000 237
PMR Corp. (a) 29,000 290
Protocol Systems, Inc. (a) 20,000 172
Quintiles Transnational Corp. (a) 32,000 1,572
Renal Care Group, Inc. (a) 49,550 2,183
Res-Care, Inc. (a) 9,000 165
Respironics, Inc. (a) 36,000 553
Rexall Sundown, Inc. (a) 45,100 1,607
Sola International, Inc. (a) 54,600 1,785
STAAR Surgical Co. New (a) 15,000 232
Steris Corp. (a) 17,000 1,078
Sun Healthcare Group, Inc. (a) 17,700 259
Theragenics Corp. (a) 25,350 659
Thermo BioAnalysis Corp. (a) 25,000 453
Total Renal Care Holdings, Inc. (a) 71,507 2,467
Trigon Healthcare, Inc. (a) 30,600 1,107
Twinlab Corp. New (a) 36,100 1,577
U.S. Vision, Inc. New (a) 17,400 209
UroCor, Inc. (a) 20,000 137
Urologix, Inc. (a) 17,000 145
Weider Nutrition International, Inc. Class A 10,700 182
Wesley Jessen VisionCare, Inc. New (a) 2,800 65
----------
43,177
----------
INTEGRATED OILS - 0.9%
Cross Timbers Oil Co. 106,200 2,024
Equitable Resources, Inc. 13,800 421
Giant Industries, Inc. 48,600 844
Houston Exploration Co. (The) (a) 14,300 328
Murphy Oil Corp. 20,300 1,029
Sun Co., Inc. 29,000 1,126
Tesoro Petroleum Corp. (a) 12,500 199
----------
5,971
----------
MATERIALS AND PROCESSING - 8.9%
ACX Technologies, Inc. (a) 3,600 78
Advanced Energy Industries, Inc. (a) 14,100 164
Agrium, Inc. 99,700 1,259
AK Steel Holding Corp. 26,300 470
Albany International Corp. Class A 10,521 252
Albemarle Corp. 12,400 274
American Buildings Co. New (a) 7,000 205
Ameron, Inc. 1,300 75
Applied Extrusion Technologies, Inc. (a) 22,000 157
AptarGroup, Inc. 31,700 1,971
Atchison Casting Corp. (a) 9,000 161
Ball Corp. 15,500 623
Banta Corp. 30,800 937
Bethlehem Steel Corp. (a) 47,200 587
Bowater, Inc. 15,000 709
Brush Wellman, Inc. 7,300 150
Building Materials Holding Corp. (a) 12,000 164
Burlington Industries, Inc. (a) 22,100 311
BWay Corp. (a) 7,500 161
CalMat Co. 9,200 202
Cambrex Corp. 7,500 197
Carbide/Graphite Group, Inc. (The) (a) 6,000 167
Centex Construction Products, Inc. 50,800 1,956
Centex Corp. 64,000 2,416
Channell Commercial Corp. (a) 18,000 190
Chemed Corp. 4,000 136
Chesapeake Corp. 10,300 401
Citation Corp. (a) 9,000 179
Cleveland-Cliffs, Inc. 9,200 493
</TABLE>
20 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Comfort Systems USA, Inc. (a) 49,150 $ 1,149
Commercial Metals Co. 3,500 108
Consolidated Papers, Inc. 30,600 834
Correctional Properties Trust New (a) 3,300 67
Crompton & Knowles Corp. 44,550 1,122
Culp, Inc. 2,100 24
CUNO, Inc. (a) 10,000 216
Cyprus Amax Minerals Co. 13,100 174
Dayton Superior Corp. Class A (a) 10,000 180
Dexter Corp. 12,400 394
Easco, Inc. 12,000 121
Engle Homes, Inc. 10,200 156
Ennis Business Forms, Inc. 55,375 644
Finish Line (The), Inc. Class A (a) 47,350 1,326
Giant Cement Holding, Inc. (a) 5,000 143
Goodrich (B.F.) Co. 27,600 1,370
Granite Construction, Inc. 4,900 150
Guilford Mills, Inc. 8,600 172
Hughes Supply, Inc. 51,950 1,903
IMCO Recycling, Inc. 9,000 167
Interface, Inc. 18,800 378
International Specialty Products (a) 5,500 102
Kaydon Corp. 40,000 1,413
Lafarge Corp. 22,400 881
Lesco, Inc. 8,000 148
Lone Star Industries, Inc. 30,600 2,358
LTV Corp. 33,000 316
Millennium Chemicals, Inc. 39,800 1,348
Minerals Technologies, Inc. 33,600 1,709
Mohawk Industries, Inc. (a) 22,700 719
National Steel Corp. Class B 500 6
NCI Building Systems, Inc. (a) 30,400 1,752
NN Ball & Roller, Inc. 20,000 238
Northland Cranberries, Inc. Class A 12,000 185
Olin Corp. 16,600 692
OM Group 21,000 866
P.H. Glatfelter Co. 9,000 142
Pan Pacific Retail Properties, Inc. 8,000 155
Penford Corp. 8,000 240
Pentair, Inc. 4,200 179
Plum Creek Timber Co. L.P. 35,300 1,061
Potlatch Corp. 15,600 655
Quaker Fabric Corp. New (a) 10,500 151
Quanex Corp. 5,700 173
Rayonier, Inc. 13,400 616
Reliance Steel & Aluminum Co. 2,600 100
RMI Titanium Co. (a) 5,400 123
Rock of Ages Corp. Class A (a) 10,400 161
RPM, Inc. (Ohio) 24,600 418
Scotts Co. (The) Class A (a) 8,200 305
SIFCO Industries 62,000 1,310
Southdown, Inc. 21,500 1,534
SPS Technologies, Inc. (a) 6,500 380
St. Joe Corp. 50,700 1,388
Stone & Webster, Inc. 2,900 115
Synalloy Corp. 10,000 134
Texas Industries, Inc. 75,300 3,991
Thomas Industries, Inc. 100 2
Timken Co. 27,100 835
TJ International, Inc. 24,550 737
Tractor Supply Co. (a) 8,000 199
Triangle Pacific Corp. (a) 1,400 77
Universal Stainless & Alloy Products, Inc. (a) 10,000 91
USG Corp. 60,000 3,248
USX-U.S. Steel Group 31,500 1,040
Valley National Gases, Inc. (a) 15,000 165
Webb (Del E.) Corp. 54,500 1,413
Wellman, Inc. 20,100 456
Wellsford Real Properties, Inc. (a) 18,400 260
Wolverine Tube, Inc. (a) 8,000 304
Zero Corp. 8,000 227
----------
60,961
----------
MISCELLANEOUS - 1.0%
Alexandria Real Estate Equities, Inc. 26,000 778
BEC Energy (a) 18,000 747
ChoicePoint, Inc. (a) 13,200 668
Education Management Corp. New (a) 500 17
Griffon Corp. (a) 98,300 1,260
Kaynar Technologies, Inc. (a) 7,000 160
LNR Property Corp. 60,000 1,538
MAXIMUS, Inc. (a) 47,000 1,351
Pameco Corp. (a) 8,000 160
Stolt Comex Seaway, S. A. - ADR Class A (a) 16,125 278
----------
6,957
----------
OTHER ENERGY - 4.4%
Atwood Oceanics, Inc. (a) 14,000 557
Bayard Drilling Technologies, Inc. (a) 15,000 122
BJ Services Co. (a) 35,000 1,017
Chesapeake Energy Corp. 32,500 130
Coho Energy, Inc. (a) 125,480 847
</TABLE>
Special Growth Fund 21
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Core Laboratories NV (a) 30,000 $ 645
Costilla Energy, Inc. (a) 12,000 105
Dailey International Inc. (a) 22,400 134
Eastern Enterprises, Inc. 10,900 467
Evergreen Resources, Inc. (a) 15,000 281
Global Industries, Inc. (a) 50,600 851
HS Resources, Inc. (a) 7,900 115
Input/Output, Inc. (a) 47,800 851
Mallon Resources Corp. New (a) 20,000 238
Marine Drilling Co, Inc. (a) 46,000 733
MarketSpan Corp. (a) 54,972 1,646
Mitcham Industries, Inc. (a) 16,000 184
Noble Drilling Corp. (a) 43,750 1,053
Northwestern Corp. 1,600 40
OMNI Energy Services Corp. New (a) 13,600 184
ONEOK, Inc. 17,600 702
Pool Energy Services Co. (a) 80,500 1,187
Rowan Cos., Inc. (a) 47,300 919
Santa Fe International Corp. 37,400 1,131
Seacor Holdings, Inc. (a) 43,600 2,673
Sempra Energy (a) 24,100 669
Stolt Comex Seaway SA (a) 39,400 758
Supreme Industries, Inc. Class A (a) 15,037 184
Transocean Offshore, Inc. 24,000 1,068
Tuboscope Vetco International Corp. (a) 18,400 363
Ultramar Diamond Shamrock Corp. 37,000 1,168
Unit Corp. (a) 25,000 152
Valero Energy Corp. 15,000 499
Varco International, Inc. (a) 117,050 2,319
Veritas DGC, Inc. (a) 66,700 3,331
Vintage Petroleum, Inc. 80,450 1,518
Willbros Group, Inc. (a) 12,000 188
Wiser Oil Co. 97,000 1,073
----------
30,102
----------
PRODUCER DURABLES - 6.8%
AFC Cable Systems, Inc. (a) 8,125 288
Ag-Chem Equipment Co., Inc. (a) 12,000 266
AGCO Corp. 43,500 894
AgriBiotech, Inc. New (a) 15,300 423
Allied Waste Industries, Inc. (a) 45,250 1,083
AMETEK, Inc. 3,400 100
ANTEC Corp. (a) 5,000 116
Bell Industries (a) 75,583 860
C&D Technologies, Inc. 3,300 191
Cascade Corp. 7,900 144
CFM Technologies, Inc. (a) 10,000 144
Champion Enterprises, Inc. (a) 58,400 1,716
Chart Industries, Inc. 48,000 1,146
Cincinnati Milacron, Inc. 13,300 323
Cohu, Inc. 43,100 1,048
Columbus McKinnon Corp. 42,000 1,113
Commercial Intertech Corp. 2,700 49
D.R. Horton, Inc. 69,900 1,459
Daniel Industries, Inc. 6,800 129
DeCrane Aircraft Holdings, Inc. (a) 12,000 204
Detroit Diesel Corp. (a) 3,000 65
EG&G, Inc. 19,200 576
FARO Technologies, Inc. (a) 12,000 127
Farr Co. (a) 15,750 185
FLIR Systems, Inc. (a) 10,000 172
Flow International Corp. (a) 15,000 172
Franklin Electric Co., Inc. 2,400 161
Gemstar International Group, Ltd. (a) 58,250 2,170
General Cable Corp. 25,950 749
Gleason Corp. 5,300 149
Graco, Inc. 4,800 167
Gradall Industries, Inc. (a) 13,000 189
Helix Technology Corp. 10,000 150
Holophane Corp. (a) 7,000 177
Innovative Valve Technologies, Inc. (a) 24,000 174
JLK Direct Distribution, Inc. Class A (a) 1,400 31
Kaman Corp. Class A 4,700 89
Kaufman & Broad Home Corp. 9,200 292
Kellstrom Industries, Inc. (a) 28,900 845
Kennametal, Inc. 14,200 593
KLA Instruments Corp. (a) 32,500 900
Knoll, Inc. (a) 7,200 212
Lennar Corp. 99,100 2,923
Lexmark International Group, Inc. Class A (a) 34,500 2,105
Litton Industries, Inc. (a) 19,500 1,151
Middleby Corp. (The) (a) 27,700 166
Molex, Inc. Class A 28,200 659
NACCO Industries, Inc. Class A 2,400 310
National-Oilwell, Inc. (a) 54,000 1,448
Newmark Homes Corp. (a) 20,000 200
Novellus Systems, Inc. (a) 20,000 714
NVR, Inc. (a) 3,500 144
OYO Geospace Corp. (a) 7,700 208
Perceptron, Inc. (a) 8,000 95
Pittway Corp. Class A 22,467 1,660
Powell Industries, Inc. (a) 10,000 121
Pulte Corp. 30,600 914
Ryland Group, Inc. 43,200 1,134
</TABLE>
22 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Scotman Industries, Inc. 2,800 $ 78
Snap-On Tools Corp. 6,900 250
Standard Pacific Corp. 89,200 1,840
Starrett (L.S.) Co. Class A 29,900 1,181
STM Wireless, Inc. Class A (a) 20,000 181
Superior TeleCom, Inc. 9,200 383
TB Wood's Corporation 10,000 210
Tecumseh Products Co. Class A 4,600 243
Teradyne, Inc. (a) 43,082 1,152
Terex Corp. (a) 73,900 2,106
Thomas & Betts Corp. 2,800 138
Toll Brothers, Inc. (a) 44,100 1,265
TransTechnology Corp. 5,600 144
TriStar Aerospace Co. (a) 80,000 1,240
U.S. Home Corp. (a) 5,400 223
Uniphase Corp. (a) 28,050 1,760
Worldtex, Inc. (a) 20,000 116
----------
46,503
----------
TECHNOLOGY - 12.8%
ADC Telecommunications, Inc. (a) 14,600 533
Allen Telecom, Inc. (a) 16,000 186
American Xtal Technology, Inc. (a) 5,900 85
Anixter International, Inc. (a) 28,500 543
Aspen Technology, Inc. (a) 50,000 2,525
Autodesk, Inc. 32,800 1,261
Avid Technology, Inc. (a) 44,700 1,495
Avnet, Inc. 21,500 1,176
Bel Fuse, Inc. (a) 6,000 134
Berg Electronics Corp. (a) 50,000 978
Boole & Babbage, Inc. (a) 9,000 215
BTG, Inc. (a) 22,000 198
Business Objects SA - ADR (a) 36,550 617
Cable Design Technologies Corp. (a) 76,000 1,568
CACI International, Inc. Class A (a) 6,000 126
Cambridge Technology Partners, Inc. (a) 50,000 2,731
CBT Group Public, Ltd. - ADR (a) 61,550 3,293
Celeritek, Inc. (a) 30,000 186
CFI ProServices, Inc. (a) 12,000 204
CHS Electronics, Inc. (a) 55,900 992
Ciber, Inc. (a) 101,500 3,857
Citrix Systems, Inc. (a) 28,950 1,979
Comarco, Inc. (a) 8,000 168
Compuware Corp. (a) 99,650 5,088
Cotelligent Group, Inc. (a) 9,000 210
Digi International, Inc. (a) 66,300 1,338
DSP Communications, Inc. (a) 79,600 1,095
Electronics For Imaging, Inc. (a) 18,500 390
Esterline Corp. (a) 11,800 246
Exar Corp. (a) 12,000 251
Excite, Inc. (a) 5,000 468
Fairchild Corp. (The) Class A (a) 8,000 162
FORE Systems (a) 40,100 1,060
Harmon Industries, Inc. 10,500 249
HNC Software, Inc. (a) 55,500 2,265
Hyperion Software Corp. (a) 43,000 1,226
IDX Systems Corp. (a) 79,150 3,651
Information Management Resources, Inc. (a) 67,650 2,287
Integrated Circuit Systems, Inc. (a) 6,000 99
Integrated Silicon Solution, Inc. (a) 133,200 924
Intersolv, Inc. (a) 900 14
Keane, Inc. (a) 31,050 1,739
Kronos, Inc. (a) 6,000 219
Lernout & Hauspie Speech Products NV (a) 11,800 704
LSI Logic Corp. (a) 64,000 1,476
Macromedia, Inc. (a) 51,050 954
Manhattan Associates, Inc. (a) 30,000 622
Mercury Interactive Corp. (a) 50,400 2,243
MicroStrategy, Inc. (a) 16,300 460
MIPS Technologies, Inc. (a) 15,000 210
Network Associates, Inc. (a) 34,650 1,657
Open Market, Inc. (a) 60,000 1,125
Optek Technology, Inc. (a) 9,000 168
ORBIT/FR, Inc. (a) 9,000 60
OSI Systems, Inc. New (a) 17,000 169
Par Technology Corp. (a) 25,000 152
PeopleSoft, Inc. (a) 37,800 1,774
Pericom Semiconductor Corp. New (a) 25,000 169
Photronics, Inc. (a) 4,000 88
PMC - Sierra, Inc. (a) 39,100 1,828
PSINET, Inc. (a) 70,000 901
QuadraMed Corp. New (a) 122,700 3,351
Safeguard Scientifics, Inc. (a) 28,500 1,188
Sandisk Corp. (a) 10,000 138
ScanSource, Inc. (a) 8,000 153
SeaChange International, Inc. (a) 14,000 172
Seagate Technology (a) 22,550 537
SpecTran Corp. (a) 18,000 143
Sterling Software, Inc. (a) 54,200 1,602
Storage Technology Corp. (a) 60,200 2,611
Symantec Corp. (a) 59,700 1,552
Systems & Computer Technology Corp. (a) 30,250 813
Tech-Sym Corp. (a) 39,700 1,104
Tekelec, Inc. (a) 18,700 837
</TABLE>
Special Growth Fund 23
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Tellabs, Inc. (a) 18,500 $ 1,324
Transaction Systems Architects, Inc. Class A (a) 48,000 1,848
USCS International, Inc. (a) 30,000 621
Verilink Corp. (a) 23,000 184
Veritas Software Corp. (a) 70,811 2,925
Vitesse Semiconductor Corp. (a) 64,500 1,991
Xylan Corp. (a) 64,150 1,908
----------
87,793
----------
UTILITIES - 5.6%
AGL Resources, Inc. 16,200 322
Aquarion Co. 1,500 51
Atmos Energy Corp. 5,000 153
California Water Service Group 2,100 53
Centennial Cellular Corp. Class A (a) 52,700 1,966
Central Hudson Gas & Electric Corp. 3,300 151
Central Maine Power Co. 89,300 1,741
Century Telephone Enterprises, Inc. 28,700 1,317
CILCORP, Inc. 3,300 158
Citizens Utilities Co. Class B (a) 86,746 835
Cleco Corp. 5,600 167
Colonial Gas Co. 2,700 77
Commonwealth Energy System 4,400 166
Conectiv, Inc. 26,800 549
Connecticut Energy Corp. 1,400 39
CoreComm, Inc. (a) 71,966 1,871
DPL, Inc. 45,000 816
E'town Corp. 1,000 37
Eastern Utilities Associates 13,200 346
Empire District Electric Co. 3,000 63
Energen Corp. 7,100 143
Energy East Corp. (a) 31,900 1,328
Florida Progress Corp. 32,700 1,345
General Communication, Inc. Class A (a) 22,000 131
Hawaiian Electric Industries, Inc. 8,400 333
Idaho Power Co. 7,200 249
Interstate Energy Corp. 22,200 721
IXC Communications, Inc. (a) 33,800 1,631
Jones Intercable, Inc. Class A (a) 79,400 1,985
K N Energy, Inc. 20,500 1,111
MCN Corp. 41,500 1,032
MDU Resources Group, Inc. 6,600 236
Metrocall, Inc. (a) 36,000 218
MidAmerican Energy Holdings Co. 21,200 458
Minnesota Power & Light Co. 9,800 390
Montana Power Co. 33,800 1,175
National Fuel & Gas Co. 11,000 479
Nevada Power Co. 23,300 600
New Century Energies, Inc. 25,500 1,159
New England Electric System 24,900 1,077
New Jersey Resources Corp. 2,300 82
NICOR, Inc. 12,500 502
Northwest Natural Gas Co. 1,400 39
NUI Corp. 3,900 99
Piedmont Natural Gas Co., Inc. 6,000 202
Pinnacle West Capital Corp. 28,100 1,265
Public Service Co. of New Mexico 23,900 542
Puget Sound Power & Light Co. 33,200 890
Questar Corp. 8,800 173
Rochester Gas & Electric Corp. 19,500 623
SCANA Corp. 25,500 760
SIG Corp., Inc. 2,800 90
Southwest Gas Corp. 11,100 271
St. Joseph Light & Power Co. 9,200 171
TNP Enterprises, Inc. 8,300 256
UGI Corp. 9,000 224
United Illuminating Co. 6,500 329
United States Cellular Corp. (a) 47,400 1,458
UtiliCorp United, Inc. 21,500 810
Washington Gas & Light Co. 12,300 329
Washington Water Power Co. 11,400 256
Western Resources, Inc. 28,100 1,091
WICOR, Inc. 9,200 213
Wisconsin Energy Corp. 37,800 1,148
WPS Resources Corp. 5,600 184
----------
38,686
----------
TOTAL COMMON STOCKS
(cost $515,494) 654,646
----------
PREFERRED STOCKS - 0.2%
Callon Petroleum Co. Series A (conv.) 4,000 132
Finova Finance Trust 13,000 1,021
Golden Books Financial Trust (conv.) (a) 3,000 71
----------
TOTAL PREFERRED STOCKS
(cost $952) 1,224
----------
</TABLE>
24 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.1%
American Residential Services, Inc. (conv.)
7.25% due 04/15/04 $ 250 $ 178
Getty Images, Inc. (conv.)
4.75% due 06/01/03 800 757
Titan Corp. (conv.)
8.250% due 11/01/03 45 82
----------
TOTAL LONG-TERM INVESTMENTS
(cost $1,019) 1,017
----------
SHORT-TERM INVESTMENTS - 4.5%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) 28,759 28,759
United States Treasury Notes (b)(c)
5.250% due 07/31/98 1,900 1,900
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $30,659) 30,659
----------
TOTAL INVESTMENTS - 100.0%
(identified cost $548,124)(d) 687,546
OTHER ASSETS AND LIABILITIES,
NET - 0.0% 113
----------
NET ASSETS - 100.0% $ 687,659
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures
contracts purchased by the Fund.
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NV - Nonvoting
PLC - Public Limited Company
REIT - Real Estate Investment Trust
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
--------- --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 09/98 35 $ 337
S&P 400 Midcap Index Futures Contracts
expiration date 09/98 136 379
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 716
----------
----------
(#) At June 30, 1997, United States Treasury Notes valued at
$1,900 were held as collateral in connection with futures
contracts purchased by the Fund.
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 25
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $548,124)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 687,546
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,035
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,364
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 43,732
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746,944
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,679
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,088
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 569
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 94
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 43,732
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,285
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,659
--------------
--------------
NET ASSETS CONSIST OF:
Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . . . $ (21)
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,611
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,422
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518,792
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,659
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
Class S ($683,802,981 divided by 13,793,303 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.58
--------------
--------------
Class E ($3,856,405 divided by 78,508 shares of $.01 par value
shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.12
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,434
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------------
Total Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,475
EXPENSES (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,016
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 5
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,484
--------------
Net investment loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9)
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,751
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,952 35,703
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,889
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 27,061
-------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,764
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 62,755
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Growth Fund 27
<PAGE>
SPECIAL GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9) $ 869
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,703 66,347
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 27,061 53,907
---------------- ----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 62,755 121,123
---------------- ----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (249) (842)
In excess of net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) --
Net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,044) (68,942)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) (356)
---------------- ----------------
Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . (11,379) (70,140)
---------------- ----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 60,495 130,847
---------------- ----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 111,871 181,830
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,788 393,958
---------------- ----------------
End of period (including accumulated distributions in excess of net
investment income of $21 and undistributed net investment income of $258,
respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,659 $ 575,788
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28 Special Growth Fund
<PAGE>
SPECIAL GROWTH FUND
FINANCIAL HIGHLIGHTS - CLASS S
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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 45.72 $ 40.79 $ 39.17 $ 33.47 $ 35.82 $ 36.63
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . -- .08 .12 .18 .16 .07
Net realized and unrealized gain (loss) on investments . 4.73 11.18 6.87 9.25 (.71) 5.22
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 4.73 11.26 6.99 9.43 (.55) 5.29
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.02) (.08) (.12) (.21) (.10) (.07)
Net realized gain on investments . . . . . . . . . . . . (.85) (6.25) (5.25) (3.52) (.85) (6.03)
In excess of net realized gain on investments. . . . . . -- -- -- -- (.85) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.87) (6.33) (5.37) (3.73) (1.80) (6.10)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 49.58 $ 45.72 $ 40.79 $ 39.17 $ 33.47 $ 35.82
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . 10.44 28.77 18.65 28.52 (3.71) 15.48
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 683,803 572,635 393,048 313,678 229,077 188,891
Ratios to average net assets (%)(b):
Operating expenses. . . . . . . . . . . . . . . . . . 1.09 1.15 1.19 1.22 1.20 1.31
Net investment income . . . . . . . . . . . . . . . . -- .18 .28 .49 .50 .19
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 91.10 97.19 118.13 87.56 55.40 91.97
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
Special Growth Fund 29
<PAGE>
SPECIAL GROWTH FUND
FINANCIAL HIGHLIGHTS - CLASS E
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>
YEAR ENDED DECEMBER 31,
-------------------------
1998* 1997 1996**
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 45.42 $ 40.75 $ 43.48
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . (.41) (.13) (.02)
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . 4.96 11.05 1.63
---------- ---------- ----------
Total Income From Investment Operations. . . . . . . . . . . . . . . . . . . 4.55 10.92 1.61
---------- ---------- ----------
LESS DISTRIBUTIONS:
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (.85) (6.25) (4.34)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.12 $ 45.42 $ 40.75
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 27.90 4.04(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . 3,856 3,153 910
Ratios to average net assets (%)(c):
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.67 1.83 1.89
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (.58) (.51) (.38)
Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . . . . 91.10 97.19 118.13
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) Periods less than one year are not annualized.
(b) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.
30 Special Growth Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 94.9%
AUTO AND TRANSPORTATION - 6.1%
AMR Corp. (a) 30,600 $ 2,547
Chrysler Corp. 57,600 3,247
CSX Corp. 11,400 519
Delta Air Lines, Inc. 15,300 1,978
Ford Motor Co. 60,400 3,564
General Motors Corp. 15,900 1,062
Navistar International Corp. (a) 24,700 713
Trinity Industries, Inc. 21,000 872
UAL Corp. (a) 25,800 2,012
Union Pacific Corp. 7,800 344
----------
16,858
----------
CONSUMER DISCRETIONARY - 10.1%
Brunswick Corp. 25,900 641
Carnival Corp. Class A 42,600 1,688
De Beers Consolidated Mines, Ltd. - ADR 38,200 664
Deluxe Corp. 16,200 580
Eastman Kodak Co. 20,493 1,497
Federated Department Stores, Inc. (a) 41,162 2,215
Fortune Brands, Inc. 22,300 857
Harrah's Entertainment, Inc. (a) 2,900 67
Hasbro, Inc. 26,300 1,034
JC Penney & Co., Inc. 25,800 1,866
King World Productions, Inc. (a) 33,600 857
Kmart Corp. (a) 36,700 707
MediaOne Group, Inc. (a) 68,500 3,010
Office Depot, Inc. (a) 32,600 1,029
Sears Roebuck & Co. 37,100 2,265
Time Warner, Inc. 15,900 1,358
Toys "R" Us, Inc. (a) 46,800 1,103
Tribune Co. 24,500 1,686
V.F. Corp. 7,600 391
Viacom, Inc. Class B (a) 43,100 2,511
Whirlpool Corp. 26,900 1,849
----------
27,875
----------
CONSUMER STAPLES - 2.7%
Albertson's, Inc. 7,600 394
American Stores Co. 8,200 198
Anheuser-Busch Cos., Inc. 30,500 1,439
ConAgra, Inc. 46,200 1,464
Heinz (H.J.) Co. 4,500 253
IBP, Inc. 27,100 491
PepsiCo, Inc. 37,100 1,528
RJR Nabisco Holdings Corp. 52,600 1,249
UST Corp. 15,400 416
----------
7,432
----------
FINANCIAL SERVICES - 28.5%
Ahmanson (H.F.) & Co. 21,900 1,555
Allstate Corp. 58,220 5,331
Ambac Financial Group, Inc. 29,200 1,708
American General Corp. 9,500 676
Associates First Capital Corp. Class A 11,915 916
Banc One Corp. 57,000 3,181
BankAmerica Corp. 28,400 2,455
Bankers Trust New York Corp. 16,200 1,880
Camden Property Trust 12,294 366
Chase Manhattan Corp. 93,936 7,092
Chelsea GCA Realty, Inc. 13,000 520
CIGNA Corp. 11,100 766
CIT Group, Inc. (The) Class A 26,600 998
Colonial Properties Trust 18,700 580
Countrywide Credit Industries, Inc. 31,400 1,594
Dime Bancorp, Inc. 48,000 1,437
Dow Jones & Co., Inc. 17,800 992
Federal National Mortgage Association 32,300 1,962
First American Corp. 40,900 1,968
First Chicago NBD Corp. 12,500 1,108
First Data Corp. 14,900 496
First Security Corp. 6,100 130
First Union Corp. 68,700 4,002
Fleet Financial Group, Inc. 37,700 3,148
Hartford Financial Services Group, Inc. (The) 17,100 1,956
Kilroy Realty Corp. 16,100 403
MBIA, Inc. 28,900 2,164
Morgan Stanley, Dean Witter, Discover and Co. 52,100 4,761
National City Corp. 5,800 412
NationsBank Corp. 33,781 2,584
PaineWebber Group, Inc. 3,500 150
PMI Group, Inc. (The) 13,800 1,013
PNC Bank Corp. 58,300 3,137
Prentiss Properties Trust 14,100 343
Provident Companies, Inc. 55,400 1,911
Public Storage, Inc. 28,800 807
Reliance Group Holdings, Inc. 38,700 677
Reliastar Financial Corp. 15,500 744
Ryder System, Inc. 44,200 1,395
SouthTrust Corp. 44,100 1,918
Spieker Properties, Inc. 11,000 426
TCF Financial Corp. 37,600 1,109
TIG Holdings, Inc. 46,400 1,067
Transamerica Financial Corp. 8,400 967
Travelers, Inc. 22,218 1,347
Union Planters Corp. 32,700 1,923
Washington Mutual, Inc. 53,100 2,303
----------
78,378
----------
</TABLE>
32 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
HEALTH CARE - 4.0%
Aetna, Inc. 23,600 $ 1,797
Baxter International, Inc. 23,300 1,254
Bergen Brunswig Corp. Class A 16,400 761
Bristol-Myers Squibb Co. 13,650 1,569
Columbia/HCA Healthcare Corp. 76,000 2,213
Genzyme Corp. (a) 16,500 418
Schering-Plough Corp. 18,600 1,704
Tenet Healthcare Corp. (a) 35,600 1,112
United Healthcare Corp. 2,400 152
----------
10,980
----------
INTEGRATED OILS - 9.0%
Amerada Hess Corp. NPV 25,300 1,374
Amoco Corp. 25,800 1,074
Ashland, Inc. 35,237 1,819
Atlantic Richfield Co. 29,100 2,274
Coastal Corp. 33,700 2,353
Equitable Resources, Inc. 25,300 772
Exxon Corp. 53,400 3,808
Kerr-McGee Corp. 22,400 1,296
Mobil Corp. 14,200 1,088
Phillips Petroleum Co. 20,200 973
Tenneco, Inc. 52,900 2,014
Texaco, Inc. 42,200 2,519
USX-Marathon Group 95,100 3,263
----------
24,627
----------
MATERIALS AND PROCESSING - 6.2%
Aluminum Co. of America 19,100 1,259
Armstrong World Industries, Inc. 7,200 485
Bowater, Inc. 9,800 463
Dow Chemical Co. 6,800 658
Eastman Chemical Co. 37,200 2,316
FMC Corp. (a) 13,400 914
Freeport-McMoRan Copper & Gold, Inc. Class B 53,500 813
Great Lakes Chemical Corp. 10,200 402
Harsco Corp. 16,200 742
IMC Global, Inc. 35,600 1,072
International Paper Co. 23,600 1,015
Lafarge Corp. 16,200 637
LTV Corp. 29,900 286
Lubrizol Corp. 12,200 369
Mead Corp. 38,100 1,210
Nucor Corp. 11,500 529
Olin Corp. 20,000 834
Reynolds Metals Co. 16,400 917
Temple-Inland, Inc. 11,100 598
Timken Co. 22,700 699
Westvaco Corp. 34,600 977
----------
17,195
----------
OTHER ENERGY - 2.1%
Apache Corp. 17,600 554
BJ Services Co. (a) 19,600 570
Global Marine, Inc. (a) 20,700 387
Helmerich & Payne, Inc. 14,200 316
Occidental Petroleum Corp. 23,600 637
Santa Fe Energy Resources, Inc. (a) 57,900 622
Tosco Corp. 40,800 1,199
Transocean Offshore, Inc. 8,700 387
Ultramar Diamond Shamrock Corp. 13,600 429
Valero Energy Corp. 24,200 805
----------
5,906
----------
PRODUCER DURABLES - 4.7%
AGCO Corp. 44,000 905
AMP, Inc. 18,300 629
Case Corp. 7,900 381
Caterpillar, Inc. 20,800 1,100
Diebold, Inc. 14,000 404
Foster Wheeler Corp. 28,200 605
General Electric Co. 18,000 1,638
General Signal Corp. 8,300 299
Harnischfeger Industries, Inc. 18,300 518
Hitachi, Ltd. ADR 6,700 432
Johnson Controls, Inc. 27,700 1,584
Litton Industries, Inc. (a) 8,100 478
Matsushita Electric
Industrial Co., Ltd. - ADR 3,000 482
Northrop Grumman Corp. 6,100 629
Raytheon Co. Class B 5,700 337
Tektronix, Inc. 8,300 294
Xerox Corp. 21,200 2,154
----------
12,869
----------
TECHNOLOGY - 5.4%
COMPAQ Computer Corp. 40,100 1,138
Data General Corp. (a) 29,500 441
Electronic Data Systems Corp. 49,162 1,966
Hewlett-Packard Co. 13,800 826
Equity Income Fund 33
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
International Business Machines Corp. 47,700 $ 5,477
MEMC Electronic Materials, Inc. (a) 13,700 142
National Semiconductor Corp. (a) 28,500 376
Seagate Technology (a) 32,500 774
Storage Technology Corp. (a) 39,000 1,692
Tandy Corp. 26,300 1,395
VLSI Technology, Inc. (a) 38,500 645
----------
14,872
----------
UTILITIES - 16.1%
Alltel Corp. 3,300 153
AT&T Corp. 74,800 4,273
Baltimore Gas & Electric Co. 30,400 944
BCE, Inc. 30,200 1,289
Bell Atlantic Corp. 127,098 5,799
Columbia Gas System, Inc. 12,450 693
Consolidated Edison, Inc. 26,200 1,207
DTE Energy Co. 43,400 1,752
Edison International 28,200 834
Entergy Corp. 36,400 1,046
FirstEnergy Corp. 24,700 760
FPL Group, Inc. 15,500 976
GPU, Inc. 22,300 843
GTE Corp. 82,172 4,571
Illinova Corp. 22,800 684
Niagara Mohawk Power Corp. (a) 41,200 615
PacifiCorp. 92,400 2,091
Peco Energy Co. 30,200 881
PG&E Corp. 93,965 2,966
Public Service Enterprise Group, Inc. 32,200 1,109
SBC Communications, Inc. 136,300 5,452
Texas Utilities Co. 37,000 1,540
U.S. West, Inc. (a) 23,700 1,114
WorldCom, Inc. (a) 54,200 2,619
----------
44,211
----------
TOTAL COMMON STOCKS
(cost $220,457) 261,203
----------
PRINCIPAL
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS - 4.9%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 12,351 12,351
United States Treasury Notes (b)(c)
5.250% due 07/31/98 1,000 1,000
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $13,351) 13,351
----------
TOTAL INVESTMENTS
(identified cost $233,808)(d) - 99.8% 274,554
OTHER ASSETS AND LIABILITIES,
NET - 0.2% 660
----------
NET ASSETS - 100.0% $ 275,214
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures
contracts purchased by the Fund.
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
The accompanying notes are an integral part of the financial statements.
34 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 09/98 35 $ 296
S&P Barra Value Futures Contracts
expiration date 09/98 30 31
-----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 327
-----------
-----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at
$1,000 were held as collateral in connection with futures
contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
Equity Income Fund 35
<PAGE>
EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $233,808)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 274,554
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,205
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 6,712
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,184
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,054
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 808
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 217
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 95
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 6,712
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,970
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,214
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 796
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,227
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,746
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,055
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,214
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
Class S ($274,635,700 divided by 6,254,333 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43.91
--------------
--------------
Class E ($577,904 divided by 13,131 shares of $.01 par value
shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 44.01
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,508
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,872
EXPENSES (Notes 1, 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,021
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 1
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,280
----------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592
----------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,227
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,261 23,488
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,665
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 4,920
-------------- ----------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,408
----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 30,000
----------------
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Equity Income Fund 37
<PAGE>
EQUITY INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,592 $ 3,241
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,488 50,220
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 4,920 8,353
-------------- ----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . 30,000 61,814
-------------- ----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (793) (3,241)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) --
In excess of net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (46)
Net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,016) (52,197)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (78)
-------------- ----------------
Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . . (12,829) (55,562)
-------------- ----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 30,753 25,784
-------------- ----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 47,924 32,036
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,290 195,254
-------------- ----------------
End of period (including undistributed net investment income of
$796 at June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,214 $ 227,290
-------------- ----------------
-------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38 Equity Income Fund
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - CLASS S
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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 41.08 $ 40.22 $ 38.43 $ 32.21 $ 35.90 $ 35.32
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .26 .69 .82 .94 .90 .83
Net realized and unrealized gain (loss) on investments . 4.78 12.11 7.03 10.08 (.70) 3.69
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 5.04 12.80 7.85 11.02 .20 4.52
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.13) (.69) (.82) (.97) (.89) (.83)
In excess of net investment income . . . . . . . . . . . -- (.01) (.01) -- -- --
Net realized gain on investments . . . . . . . . . . . . (2.08) (11.24) (5.23) (3.83) (3.00) (3.11)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (2.21) (11.94) (6.06) (4.80) (3.89) (3.94)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 43.91 $ 41.08 $ 40.22 $ 38.43 $ 32.21 $ 35.90
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 12.64 33.59 21.45 34.76 .69 13.23
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 274,636 226,952 195,132 180,116 144,285 149,532
Ratios to average net assets (%)(b):
Operating expenses. . . . . . . . . . . . . . . . . . 1.00 1.04 1.07 1.06 1.04 1.05
Net investment income . . . . . . . . . . . . . . . . 1.24 1.51 2.03 2.51 2.56 2.23
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 124.62 139.33 106.40 92.40 89.91 78.72
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
Equity Income Fund 39
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - CLASS E
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>
YEAR ENDED DECEMBER 31,
-----------------------
1998* 1997 1996**
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 41.43 $ 40.22 $ 41.86
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .13 .32 .10
Net realized and unrealized gain (loss) on investments . 4.81 12.20 2.39
---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 4.94 12.52 2.49
---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.28) (.07) (.18)
Net realized gain on investments . . . . . . . . . . . . (2.08) (11.24) (3.95)
---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (2.36) (11.31) (4.13)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 44.01 $ 41.43 $ 40.22
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 12.30 32.68 6.23(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 578 338 122
Ratios to average net assets (%)(c):
Operating expenses. . . . . . . . . . . . . . . . . . 1.56 1.74 1.77
Net investment income . . . . . . . . . . . . . . . . .66 .77 1.50
Portfolio turnover rate (%)(c) . . . . . . . . . . . . . 124.62 139.33 106.40
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period November 4, 1996 (commencement of sale) to December 31,
1996.
(a) Periods less than one year are not annualized.
(b) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.
40 Equity Income Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ----------
<S> <C> <C>
COMMON STOCKS - 97.6%
AUTO AND TRANSPORTATION - 3.8%
AMR Corp. (a) 105,000 $ 8,741
Bandag, Inc. 6,000 234
Burlington Northern, Inc. 7,800 766
Chrysler Corp. 58,400 3,292
CNF Transportation, Inc. 4,200 179
Consolidated Freightways Corp. (a) 1,400 19
Cooper Tire & Rubber Co. 9,500 196
CSX Corp. 20,500 933
Dana Corp. 35,600 1,905
Eaton Corp. 30,200 2,348
Echlin, Inc. 34,800 1,707
Exide Corp. 2,000 34
FDX Corp. (a) 2,100 132
Ford Motor Co. 143,200 8,449
General Motors Corp. 74,400 4,971
Genuine Parts Co. 20,800 719
Goodyear Tire & Rubber Co. 25,200 1,624
Hertz Corp. Class A 15,600 691
Hunt (JB) Transportation Services, Inc. 11,700 417
Kansas City Southern Industries, Inc. 90,700 4,501
Lear Corp. (a) 15,800 811
Meritor Automotive, Inc. 5,600 134
Modine Manufacturing Co. 11,500 398
Navistar International Corp. (a) 41,500 1,198
Norfolk Southern Corp. 34,900 1,040
PACCAR, Inc. 2,900 151
Southwest Airlines Co. 3,000 89
Union Pacific Corp. 23,200 1,024
Wisconsin Central Transportation Corp. (a) 3,100 67
----------
46,770
----------
CONSUMER DISCRETIONARY - 11.0%
ACNielsen Corp. (a) 18,000 455
AnnTaylor Stores Corp. (a) 23,100 489
AutoZone Inc. (a) 27,800 888
Avon Products, Inc. 2,300 178
Best Buy Co. (a) 16,800 607
BHC Communications, Inc. Class A 1,000 140
Black & Decker Corp. 8,800 537
Buffets, Inc. (a) 9,800 154
Burlington Coat Factory Warehouse Corp. 18,900 425
Carter-Wallace, Inc. 900 16
Cintas Corp. 2,200 112
Circuit City Stores, Inc. 18,100 848
Circus Circus Enterprises, Inc. (a) 16,200 274
Corporate Express, Inc. (a) 16,600 210
Darden Restaurants, Inc. 42,300 672
Dayton Hudson Corp. 340,900 16,534
Deluxe Corp. 15,700 562
Department 56, Inc. (a) 17,700 628
Dillard's, Inc. Class A 19,000 787
Disney (Walt) Co. 84,500 8,878
Donnelley (R.R.) & Sons Co. 12,000 549
Eastman Kodak Co. 42,500 3,105
EKCO Group, Inc. (a) 5,800 46
Enesco Group, Inc. 4,800 148
Extended Stay America, Inc. (a) 11,700 132
Federated Department Stores, Inc. (a) 39,200 2,109
Fingerhut Cos., Inc. 45,100 1,488
Fortune Brands, Inc. 7,700 296
Fruit of the Loom, Inc. Class A (a) 110,900 3,680
Furniture Brands International, Inc. (a) 9,200 258
Gannett Co., Inc. 83,900 5,962
General Nutrition Companies, Inc. (a) 15,400 479
Grand Casinos, Inc. (a) 6,500 109
Hasbro, Inc. 31,300 1,230
Home Depot, Inc. (The) 93,550 7,770
Host Marriott Corp. (a) 69,900 1,245
Huffy Corp. 3,500 63
International Game Technology 19,800 480
Kmart Corp. (a) 321,100 6,181
Knight-Ridder, Inc. 34,700 1,911
La-Z-Boy Chair Co. 7,200 407
Leggett & Platt, Inc. 36,400 910
Mattel, Inc. 61,100 2,585
May Department Stores Co. 8,600 563
McClatchy Newspapers, Inc. Class A 800 28
McDonald's Corp. 21,900 1,511
McGraw-Hill, Inc. 30,900 2,520
MGM Grand, Inc. (a) 9,900 312
Micro Warehouse, Inc. (a) 8,800 135
Mine Safety Appliances Co. 600 43
Mirage Resorts, Inc. (a) 29,300 624
Newell Co. 10,600 528
Nine West Group, Inc. (a) 3,100 83
Premark International, Inc. 15,000 484
Promus Hotel Corp. New (a) 31,727 1,221
QUALCOMM, Inc. (a) 10,800 607
Reebok International, Ltd. (a) 11,400 316
Rubbermaid, Inc. 19,300 641
Sears Roebuck & Co. 78,800 4,812
Service Corp. International 44,500 1,908
Shaw Industries, Inc. 25,300 446
Snyder Communications, Inc. (a) 19,500 858
Sunglass Hut International, Inc. (a) 44,200 486
</TABLE>
42 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ----------
<S> <C> <C>
Talbots, Inc. 2,800 $ 73
Time Warner, Inc. 90,700 7,749
Times Mirror Co. Series A 7,500 472
TJX Cos., Inc. 94,600 2,282
Toys "R" Us, Inc. (a) 50,300 1,185
Tribune Co. 38,000 2,615
Tricon Global Restaurants, Inc. (a) 37,300 1,182
Tupperware Corp. 28,400 799
V.F. Corp. 29,100 1,499
Viacom, Inc. Class B (a) 130,900 7,625
Viad Corp. 98,200 2,725
Wal-Mart Stores, Inc. 115,700 7,029
Warnaco Group, Inc. Class A 25,400 1,078
Washington Post Co. Class B 1,300 749
Waste Management, Inc. 95,700 3,351
Whirlpool Corp. 35,000 2,407
----------
135,483
----------
CONSUMER STAPLES - 7.7%
Albertson's, Inc. 74,100 3,839
American Stores Co. 16,000 387
Anheuser-Busch Cos., Inc. 48,300 2,279
Block Drug Co., Inc. Class A 4,724 178
Coca-Cola Co. (The) 110,600 9,456
Dean Foods Co. 15,000 824
Fleming Cos., Inc. 14,100 248
Flowers Industries, Inc. 35,000 715
General Mills, Inc. 3,800 260
Gillette Co. 112,400 6,372
Hannaford Brothers Co. 8,000 352
Heinz (H.J.) Co. 26,400 1,482
Hormel (George A.) & Co. - Hormel Foods Corp. 2,200 76
Interstate Bakeries Corp. 22,000 730
Kellogg Co. 21,600 811
Kroger Co. (a) 48,500 2,079
Nabisco Holdings Corp. Class A 4,400 159
PepsiCo, Inc. 153,400 6,318
Philip Morris Cos., Inc. 261,700 10,304
Procter & Gamble Co. 139,000 12,658
Quaker Oats Co. 98,900 5,433
Ralston-Purina Group 11,500 1,343
RJR Nabisco Holdings Corp. 123,500 2,933
Safeway, Inc. (a) 239,870 9,760
Sara Lee Corp. 6,300 352
Seagram Co., Ltd. 58,600 2,399
SuperValu, Inc. 6,000 266
Tyson Foods, Inc. Class A 16,700 362
Unilever NV 133,600 10,546
Universal Corp. 40,000 1,496
Whitman Corp. 2,100 49
----------
94,466
----------
FINANCIAL SERVICES - 19.8%
AFLAC, Inc. 11,800 358
Ahmanson (H.F.) & Co. 42,100 2,989
Allstate Corp. 87,579 8,019
Ambac Financial Group, Inc. 23,800 1,392
American Express Co. 30,500 3,477
American International Group, Inc. 183,900 26,849
American National Insurance Co. 500 52
AmSouth Bancorp 44,250 1,740
Associated Banc-Corp. 4,700 177
Associates First Capital Corp. Class A 59,046 4,539
BankAmerica Corp. 244,000 21,091
Bankers Trust New York Corp. 58,600 6,801
Bear Stearns Cos., Inc. 81,526 4,637
Beneficial Corp. 6,000 919
Block (H&R) Co., Inc. 14,400 607
Capital One Financial Corp. 4,400 546
Charter One Financial, Inc. 12,300 413
CIGNA Corp. 58,700 4,050
Citicorp 44,200 6,597
City National Corp. 23,300 861
Colonial BancGroup, Inc. 3,200 103
Comdisco, Inc. 76,200 1,448
Comerica, Inc. 72,450 4,800
Conseco, Inc. 31,700 1,482
ContiFinancial Corp. (a) 3,800 88
Crescent Real Estate Equities, Inc. 19,400 652
Dime Bancorp, Inc. 61,600 1,844
Dow Jones & Co., Inc. 13,400 747
DST Systems, Inc. (a) 7,100 398
Dun & Bradstreet Corp. 77,200 2,789
Edwards (A.G.), Inc. 42,000 1,793
Equifax, Inc. 25,100 911
Equitable Companies, Inc. 79,500 5,958
Federal Home Loan Mortgage Corp. 217,400 10,231
Federal National Mortgage Association 144,500 8,778
Financial Security Assurance Holdings, Ltd. 2,800 165
FINOVA Group, Inc. 4,400 249
First Chicago NBD Corp. 12,752 1,130
First Data Corp. 53,400 1,779
</TABLE>
Quantitative Equity Fund 43
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ----------
<S> <C> <C>
First Tennessee National Corp. 9,100 $ 287
First Union Corp. 83,700 4,876
Firstar Corp. 10,400 395
Fleet Financial Group, Inc. 140 12
Fremont General Corp. 3,500 190
GATX Corp. 11,400 500
Golden West Financial Corp. 27,600 2,934
Greenpoint Financial Corp. 6,300 237
HRPT Properties Trust 31,500 593
Huntington Bancshares, Inc. 13,300 445
Kansas City Life Insurance Co. 1,300 118
KeyCorp 33,000 1,176
Lehman Brothers Holdings, Inc. 76,000 5,895
Lincoln National Corp. 29,600 2,705
Long Island Bancorp, Inc. 5,300 321
M & T Bank Corp. (a) 600 332
Marsh & McLennan Cos., Inc. 117,600 7,107
Marshall & Ilsley Corp. 2,100 107
MBIA, Inc. 11,600 869
Merrill Lynch & Co., Inc. 17,600 1,624
Money Store, Inc. 3,800 130
Morgan (J.P.) & Co., Inc. 13,600 1,593
Morgan Stanley, Dean Witter, Discover and Co. 148,750 13,592
National City Corp. 33,260 2,361
National Commerce Bancorp 3,200 134
NationsBank Corp. 199,609 15,270
North Fork Bancorporation, Inc. 34,650 847
Norwest Corp. 10,800 404
Ocwen Financial Corp. (a) 4,200 113
Ohio Casualty Corp. 1,200 53
Old Republic International Corp. 63,225 1,853
Pacific Century Financial Corp. 7,200 173
PaineWebber Group, Inc. 2,700 116
Peoples Heritage Financial Group 5,900 139
PMI Group, Inc. (The) 1,600 117
PNC Bank Corp. 4,905 264
Provident Financial Group, Inc. 2,900 132
Republic New York Corp. 12,200 768
Riggs National Corp. 1,100 32
Ryder System, Inc. 6,700 211
SAFECO Corp. 14,100 640
SLM Holding Corp. 2,500 123
SouthTrust Corp. 76,350 3,321
Sovereign Bancorp, Inc. 12,100 197
St. Paul Cos., Inc. 12,400 522
Star Banc Corp. 16,200 1,035
SunTrust Banks, Inc. 26,900 2,187
TCF Financial Corp. 6,600 195
Trans Financial, Inc. 5,800 332
Transamerica Financial Corp. 2,900 334
Travelers Property Casualty Corp. Class A 80,000 3,430
Travelers, Inc. 249,557 15,129
United Asset Management Corp. 1,200 31
UNUM Corp. 13,800 766
Washington Federal, Inc. 4,500 124
Washington Mutual, Inc. 32,900 1,426
Wells Fargo & Co. 9,100 3,357
Zions Bancorp 16,300 866
----------
244,499
----------
HEALTH CARE - 11.2%
Aetna, Inc. 11,400 868
Allergan, Inc. 13,200 612
ALZA Corp. (a) 15,000 649
American Home Products Corp. 194,200 10,050
Amgen, Inc. (a) 500 33
Bausch & Lomb, Inc. 3,700 185
Baxter International, Inc. 11,600 624
Bergen Brunswig Corp. Class A 20,500 951
Beverly Enterprises, Inc. New (a) 66,600 920
Boston Scientific Corp. (a) 28,600 2,048
Bristol-Myers Squibb Co. 168,100 19,321
Cardinal Health, Inc. 47,950 4,495
Chiron Corp. (a) 15,700 246
Columbia/HCA Healthcare Corp. 77,700 2,263
Forest Labs, Inc. (a) 16,200 583
Genesis Health Ventures, Inc. (a) 27,000 675
HBO & Co. 110,400 3,892
Health Care & Retirement Corp. (a) 16,600 655
HEALTHSOUTH Corp. (a) 87,000 2,322
Humana, Inc. (a) 64,700 2,018
Immune Response Corp. (a) 40,400 603
Integrated Health Services, Inc. 20,400 765
IVAX Corp. (a) 14,800 137
Johnson & Johnson 152,900 11,276
Lilly (Eli) & Co. 3,600 238
McKesson Corp. 30,600 2,486
Merck & Co., Inc. 166,270 22,239
Mylan Laboratories, Inc. 184,300 5,541
NovaCare, Inc. (a) 19,100 224
Olsten Corp. 4,100 46
Omnicare, Inc. 26,500 1,010
PacifiCare Health Systems, Inc. Class B (a) 43,700 3,859
</TABLE>
44 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ----------
<S> <C> <C>
Pfizer, Inc. 11,800 $ 1,283
Schering-Plough Corp. 119,400 10,940
Shared Medical Systems 6,600 485
Tenet Healthcare Corp. (a) 120,900 3,778
United Healthcare Corp. 132,500 8,414
Warner-Lambert Co. 135,500 9,400
Watson Pharmaceuticals, Inc. (a) 6,500 303
Wellpoint Health Networks, Inc. Class A (a) 25,100 1,858
----------
138,295
----------
INTEGRATED OILS - 5.1%
Amoco Corp. 17,800 741
Ashland, Inc. 48,900 2,524
Atlantic Richfield Co. 42,900 3,352
Coastal Corp. 24,000 1,676
Enron Corp. 16,400 887
Exxon Corp. 404,644 28,856
Lyondell Petrochemical Co. 7,800 237
Mobil Corp. 125,800 9,639
Pennzoil Co. 17,700 896
Phillips Petroleum Co. 134,100 6,462
Royal Dutch Petroleum Co. 25,400 1,392
Sun Co., Inc. 6,300 245
Tenneco, Inc. 107,600 4,096
Tesoro Petroleum Corp. (a) 1,600 25
Texaco, Inc. 21,700 1,295
Unocal Corp. 7,500 268
----------
62,591
----------
MATERIALS AND PROCESSING - 5.6%
Albemarle Corp. 4,100 90
Alcan Aluminum, Ltd. 31,400 867
Allegheny Teldyne, Inc. 24,400 558
Aluminum Co. of America 23,300 1,536
Arco Chemical Co. 10,300 591
Avery Dennison Corp. 6,400 344
Ball Corp. 1,400 56
Bethlehem Steel Corp. (a) 110,400 1,373
Boise Cascade Corp. 3,900 128
Burlington Industries, Inc. (a) 6,700 94
Catellus Development Corp. (a) 19,800 350
Champion International Corp. 2,900 143
Cleveland-Cliffs, Inc. 1,200 64
Consolidated Papers, Inc. 10,000 273
Crompton & Knowles Corp. 68,200 1,718
Cytec Industries, Inc. (a) 3,200 142
Dow Chemical Co. 140,900 13,623
du Pont (E.I.) de Nemours & Co. 97,300 7,261
Ecolab, Inc. 4,300 133
Engelhard Corp. 58,700 1,189
Fluor Corp. 36,200 1,846
Fort James Corp. 21,400 952
Freeport-McMoRan Copper & Gold, Inc. Class B 20,200 307
Georgia Gulf Corp. 1,900 43
Georgia-Pacific Group 44,000 2,593
Georgia-Pacific Timber Group 47,100 1,086
Goodrich (B.F.) Co. 62,410 3,097
Harsco Corp. 19,700 903
Illinois Tool Works, Inc. 9,200 614
Kimberly-Clark Corp. 62,200 2,853
Lafarge Corp. 12,700 499
Louisiana Pacific Corp. 15,200 277
Masco Corp. 36,700 2,220
Mead Corp. 16,600 527
Millennium Chemicals, Inc. 46,900 1,589
Monsanto Co. 87,700 4,900
Nucor Corp. 22,600 1,040
Owens-Corning Fiberglas Corp. 12,600 514
Pentair, Inc. 7,600 323
Reynolds Metals Co. 9,500 531
Rohm & Haas Co. 6,000 624
Rouse Co. (The) 2,400 75
Sherwin-Williams Co. 1,000 33
Sigma Aldrich Corp. 25,200 885
Solutia, Inc. 41,600 1,193
Stone Container Corp. (a) 33,300 520
Temple-Inland, Inc. 9,000 485
Tyco International, Ltd. 79,900 5,034
UCAR International, Inc. (a) 3,700 108
Unifi, Inc. 11,200 384
Union Camp Corp. 30,600 1,519
Union Carbide Corp. 9,100 486
USX-U.S. Steel Group 11,800 389
Vulcan Materials Co. 400 44
Wellman, Inc. 8,200 187
Witco Corp. 1,500 45
----------
69,258
----------
</TABLE>
Quantitative Equity Fund 45
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ----------
<S> <C> <C>
MISCELLANEOUS - 0.0%
Ventas, Inc. (a) 9,000 $ 124
----------
124
----------
OTHER ENERGY - 1.7%
AES Corp. (a) 29,000 1,524
Anadarko Petroleum Corp. 1,500 101
Apache Corp. 6,900 217
Baker Hughes, Inc. 63,530 2,196
Burlington Resources, Inc. 1,300 56
Camco International, Inc. 9,400 732
Cooper Cameron Corp. (a) 8,100 413
Diamond Offshore Drilling, Inc. 10,400 416
El Paso Natural Gas Co. 13,000 497
ENSCO International, Inc. 44,200 768
Halliburton Co. 34,700 1,546
Helmerich & Payne, Inc. 45,800 1,019
Input/Output, Inc. (a) 2,800 50
MarketSpan Corp. (a) 85,448 2,558
McDermott International, Inc. 46,900 1,615
Octel Corp. (a) 1,700 34
ONEOK, Inc. 15,900 634
R&B Falcon Corp. (a) 18,700 423
Schlumberger, Ltd. 43,800 2,992
Sempra Energy (a) 26,700 741
Tosco Corp. 26,700 784
Ultramar Diamond Shamrock Corp. 7,700 243
Union Pacific Resources Group, Inc. 33,500 588
Valero Energy Corp. 14,400 480
Western Atlas, Inc. (a) 6,000 510
----------
21,137
----------
PRODUCER DURABLES - 8.1%
AGCO Corp. 33,300 685
AlliedSignal, Inc. 109,100 4,841
Applied Materials, Inc. (a) 32,300 953
Boeing Co. 170,100 7,580
Case Corp. 14,800 714
Caterpillar, Inc. 210,500 11,130
Cincinnati Milacron, Inc. 3,600 88
Coltec Industries, Inc. (a) 22,600 449
Crane Co. 3,300 160
Cummins Engine Co., Inc. 2,200 113
Deere & Co. 119,000 6,292
Dover Corp. 54,000 1,850
EG&G, Inc. 20,600 618
Emerson Electric Co. 31,400 1,896
Foster Wheeler Corp. 5,200 111
General Electric Co. 221,700 20,175
Grainger (W.W.), Inc. 26,200 1,305
Gulfstream Aerospace Corp. (a) 37,300 1,734
Honeywell, Inc. 12,900 1,078
Ingersoll-Rand Co. 81,450 3,589
ITT Industries, Inc. 46,700 1,745
Johnson Controls, Inc. 15,400 881
Lexmark International Group, Inc. Class A (a) 47,500 2,898
Litton Industries, Inc. (a) 4,900 289
Lockheed Martin Corp. 15,300 1,620
Molex, Inc. 1,300 33
National Service Industries, Inc. 17,500 890
Northern Telecom, Ltd. 35,000 1,986
Parker-Hannifin Corp. 37,700 1,437
Perkin-Elmer Corp. 10,100 628
Pitney Bowes, Inc. 109,500 5,270
Pulte Corp. 20,600 615
Raychem Corp. 32,200 952
Republic Industries, Inc. (a) 131,400 3,285
Rockwell International Corp. 8,600 413
Sensormatic Electronics Corp. (a) 16,800 235
Snap-On Tools Corp. 35,100 1,272
Solectron Corp. (a) 8,800 370
Sundstrand Corp. 7,000 401
Tektronix, Inc. 4,700 166
Thermo Electron Corp. (a) 61,300 2,096
Thermo Instrument Systems, Inc. (a) 8,800 231
Thomas & Betts Corp. 22,800 1,123
United Technologies Corp. 33,600 3,108
Xerox Corp. 25,500 2,592
----------
99,897
----------
TECHNOLOGY - 11.2%
3Com Corp.v (a) 21,800 669
ADC Telecommunications, Inc. (a) 23,700 865
Anixter International, Inc. (a) 35,900 684
Apple Computer, Inc. (a) 297,700 8,540
Autodesk, Inc. 24,500 942
AVX Corp. 16,500 265
Bay Networks, Inc. (a) 43,900 1,416
C-Cube Microsystems, Inc. (a) 46,700 864
Cabletron Systems, Inc. (a) 7,400 99
Cisco Systems, Inc. (a) 110,100 10,136
COMPAQ Computer Corp. 126,120 3,579
CompUSA, Inc. (a) 15,100 273
Computer Associates International, Inc. 53,000 2,945
Computer Sciences Corp. 19,300 1,235
</TABLE>
46 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
--------- ----------
<S> <C> <C>
Comverse Technology, Inc. (a) 47,600 $ 2,469
Cooper Industries, Inc. 53,300 2,928
Dell Computer Corp. (a) 27,900 2,588
Electronic Data Systems Corp. 83,800 3,352
EMC Corp. (a) 95,400 4,275
General Dynamics Corp. 92,400 4,297
Gerber Scientific, Inc. 1,100 25
Harris Corp. 15,000 670
Informix Corp. (a) 236,600 1,863
Ingram Micro, Inc. Class A (a) 23,300 1,031
Intel Corp. 202,300 14,983
International Business Machines Corp. 83,700 9,610
LSI Logic Corp. (a) 35,300 814
Lucent Technologies, Inc. 107,000 8,901
Microsoft Corp. (a) 178,500 19,345
Motorola, Inc. 41,800 2,197
NCR Corp. (a) 24,000 780
Novell, Inc. (a) 472,500 6,024
Oracle Systems Corp. (a) 114,000 2,793
Quantum Corp. (a) 15,400 319
SCI Systems, Inc. (a) 47,600 1,791
Sterling Software, Inc. (a) 51,600 1,525
Storage Technology Corp. (a) 35,400 1,535
Sun Microsystems, Inc. (a) 102,500 4,452
Symantec Corp. (a) 5,500 143
Symbol Technologies, Inc. 31,350 1,183
Tech Data Corp. (a) 29,700 1,273
Texas Instruments, Inc. 40,000 2,333
Textron, Inc. 9,600 688
Vishay Intertechnology, Inc. (a) 46,470 834
Xilinx, Inc. (a) 7,200 246
----------
137,779
----------
UTILITIES - 12.4%
Airtouch Communications, Inc. (a) 71,500 4,178
Allegheny Energy, Inc. 13,200 398
Ameren Corp. 12,500 497
American Electric Power Co., Inc. 22,900 1,039
American Water Works, Inc. 31,100 964
Ameritech Corp. 149,500 6,709
AT&T Corp. 364,900 20,845
Baltimore Gas & Electric Co. 46,100 1,432
Bell Atlantic Corp. 250,014 11,407
BellSouth Corp. 168,100 11,284
Carolina Power & Light Co. 34,600 1,501
Central & Southwest Corp. 70,500 1,895
Cincinnati Bell, Inc. 14,300 409
CINergy Corp. 17,900 627
CMS Energy Corp. 10,900 480
Columbia Gas System, Inc. 32,450 1,805
Comcast Corp. Special Class A 59,300 2,405
Comsat Corp. Series 1 66,300 1,877
Consolidated Natural Gas Co. 7,800 459
Dominion Resources, Inc. 19,500 795
DTE Energy Co. 87,500 3,533
Energy East Corp. (a) 60,600 2,522
Entergy Corp. 24,500 704
FPL Group, Inc. 80,200 5,053
Frontier Corp. 20,000 630
GPU, Inc. 29,400 1,112
GTE Corp. 113,200 6,297
Houston Industries, Inc. 70,900 2,189
K N Energy, Inc. 25,300 1,371
Kansas City Power & Light Co. 7,400 215
MCI Communications Corp. 34,000 1,974
New Century Energies, Inc. 11,800 536
New England Electric System 7,400 320
Northern States Power Co. 17,200 492
OGE Energy Corp. 18,000 486
Paging Network, Inc. (a) 56,800 792
Peco Energy Co. 24,500 715
PG&E Corp. 213,200 6,729
Pinnacle West Capital Corp. 42,800 1,926
PP&L Resources, Inc. 21,900 497
Public Service Enterprise Group, Inc. 55,300 1,904
SBC Communications, Inc. 315,290 12,612
Southern Co. 33,400 925
Southwest Gas Corp. 13,100 320
Sprint Corp. 22,600 1,593
Tele-Communications TCI Ventures Group Series A (a) 65,500 1,310
Tele-Communications, Inc. Class A (a) 41,800 1,604
Tele-Communications, Inc. Series A (a) 75,800 2,942
Texas Utilities Co. 78,400 3,263
U.S. West, Inc. (a) 21,500 1,011
UtiliCorp United, Inc. 37,900 1,428
Western Resources, Inc. 6,800 264
Wisconsin Energy Corp. 12,600 383
WorldCom, Inc. (a) 281,900 13,619
----------
152,277
----------
TOTAL COMMON STOCKS
(cost $872,946) 1,202,576
----------
</TABLE>
Quantitative Equity Fund 47
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
--------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.3%
Frank Russell Investment Company
Money Market Fund,
due on demand (b) $ 26,304 $ 26,304
United States Treasury Notes (b)(c)
5.250% due 07/31/98 2,100 2,100
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $28,404) 28,404
----------
TOTAL INVESTMENTS
(identified cost $901,350)(d) - 99.9% 1,230,980
OTHER ASSETS AND LIABILITIES,
NET - 0.1% 1,115
----------
NET ASSETS - 100.0% $1,232,095
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures contracts purchased by the
Fund.
(d) See Note 2 for federal income tax information.
ABBREVIATIONS:
NV - Nonvoting
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- --------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 09/98 29 $ 825
S&P 400 Midcap Index Futures Contracts
expiration date 09/98 84 122
-----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 947
-----------
-----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at
$2,100 were held as collateral in connection with futures
contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
48 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $901,350)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . $ 1,230,980
Receivables:
Dividends and interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,618
Investments sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,605
Fund shares sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,514
Short term investments held as collateral for securities loaned, at market (Note 3) . . . . . . . . . . . 29,124
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,274,841
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,189
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,104
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 830
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 183
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 29,124
--------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,746
--------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,232,095
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,050
Accumulated net realized gain (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,824
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,630
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857,349
--------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,232,095
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
Class S ($1,229,187,982 divided by 29,402,894 shares of $.01 par value
shares of beneficial interest outstanding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41.80
--------------
--------------
Class E ($2,907,175 divided by 69,725 shares of $.01 par value
shares of beneficial interest outstanding)(Note 1). . . . . . . . . . . . . . . . . . . . . . . . . . $ 41.69
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Quantitative Equity Fund 49
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,288
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 797
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
--------------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,141
EXPENSES (Notes 1, 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,371
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . 78
Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . 3
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,924
--------------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,217
--------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,054
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,099 59,153
-------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,162
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829 105,991
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------- --------------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,144
--------------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . $ 169,361
--------------------
--------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
50 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,217 $ 8,796
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,153 131,310
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . 105,991 93,591
---------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . 169,361 233,697
---------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,139) (8,794)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (2)
In excess of net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (23)
Net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,216) (145,647)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53) (311)
---------------- -----------------
Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . (25,413) (154,777)
---------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . 88,923 256,057
---------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . 232,871 334,977
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 999,224 664,247
---------------- -----------------
End of period (including undistributed net investment income of
$2,050 and accumulated distributions in excess of net investment
income of $23, respectively) $ 1,232,095 $ 999,224
---------------- -----------------
---------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Quantitative Equity Fund 51
<PAGE>
QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS S
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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $ 36.78 $ 33.05 $ 30.76 $ 24.84 $ 26.44 $ 25.82
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . .15 .38 .51 .50 .49 .45
Net realized and unrealized gain (loss) on investments 5.78 10.00 6.24 8.72 (.19) 2.69
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . 5.93 10.38 6.75 9.22 .30 3.14
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . (.08) (.38) (.51) (.51) (.49) (.45)
Net realized gain on investments . . . . . . . . . . . (.83) (6.27) (3.95) (2.79) (1.41) (2.07)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . (.91) (6.65) (4.46) (3.30) (1.90) (2.52)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $ 41.80 $ 36.78 $ 33.05 $ 30.76 $ 24.84 $ 26.44
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . 16.32 32.70 23.08 37.69 .19 12.56
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . 1,229,188 996,880 663,925 488,948 380,592 314,647
Ratios to average net assets (%)(b):
Operating expenses. . . . . . . . . . . . . . . . . .87 .91 .93 .93 .94 .98
Net investment income . . . . . . . . . . . . . . . .75 1.04 1.59 1.71 1.95 1.68
Portfolio turnover rate (%)(b) . . . . . . . . . . . . 77.26 87.67 74.33 78.83 45.97 62.48
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
52 Quantitative Equity Fund
<PAGE>
QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS E
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>
YEAR ENDED DECEMBER 31,
----------------------------
1998* 1997 1996**
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 36.80 $ 33.05 $ 33.81
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .03 .14 .05
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . 5.77 9.95 1.87
------------ ------------ ------------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . 5.80 10.09 1.92
------------ ------------ ------------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.08) (.07) (.08)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (.83) (6.27) (2.60)
------------ ------------ ------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.91) (6.34) (2.68)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $ 41.69 $ 36.80 $ 33.05
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.99 31.70 5.91(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . 2,907 2,344 322
Ratios to average net assets (%)(c):
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.45 1.59 1.65
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 .33 .81
Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . . . . . 77.26 87.67 74.33
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) Periods less than one year are not annualized.
(b) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.
Quantitative Equity Fund 53
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 91.2%
ARGENTINA - 0.1%
Banco de Galicia y Buenos Aires Class B - ADR 4,006 $ 73
Banco Frances del Rio la Plata - ADR 5,554 127
Naviera Perez Companc Class B 21,372 107
Sociedad Comercial del Plata - ADR 1,296 14
Telefonica de Argentina Class B - ADR 5,550 180
YPF Sociedad Anonima Class D - ADR 11,612 350
----------
851
----------
AUSTRALIA - 2.2%
Amcor, Ltd. 238,100 1,045
AMP, Ltd. (a) 20,309 238
Australia & New Zealand Bank Group, Ltd. 728,577 5,038
Australian Gas & Light Co. 25,740 161
Boral, Ltd. 557,892 1,049
Brambles Industries, Ltd. 8,000 157
Broken Hill Proprietary Co. 144,005 1,220
Caltex Australia 100,000 239
Colonial, Ltd (a) 31,000 94
Colonial, Ltd. Rights (a) 5,200 1
Commonwealth Bank of Australia 16,837 197
CSR, Ltd. 194,000 561
Eastern Aluminum 272,000 203
Eltin, Ltd. 204,565 166
Fairfax (John) 80,000 139
Foster's Brewing Group, Ltd. 192,400 454
GIO Australia Holdings 259,788 668
Goodman Fielder Wattie 93,000 136
Lend Lease Corp. 6,457 131
Mayne Nickless, Ltd. 63,836 339
National Australia Bank, Ltd. 42,135 557
News Corp. 288,310 2,359
Orica, Ltd. 60,000 356
Pacific Dunlop, Ltd. 456,137 739
Pasminco, Ltd. 70,000 53
Pioneer International, Ltd. 213,500 510
PMP Communications, Ltd. 165,000 268
Publishing Broadcasting, Ltd. 36,360 157
RGC, Ltd. 138,905 138
Santos, Ltd. 250,000 776
Tabcorp Holdings, Ltd. 22,000 113
Telstra Corp., Ltd. 52,194 134
Western Mining Corp., Ltd. 437,929 1,321
Westfield Trust (Units) 494,000 951
Westfield Trust (Units)(New)(a) 16,277 31
Westpac Banking Corp. 171,751 1,051
Woodside Petroleum, Ltd. 20,000 101
Woolworth's, Ltd. 123,811 404
----------
22,255
----------
AUSTRIA - 0.1%
Bank Austria AG 4,000 326
Brau-Union Goess-Reininghaus-Osterreichische Brau 1,346 80
Oester Brau Beteil 1,200 71
Voest-Alpine Stahl AG 11,000 441
Wienerberger Baustoff 1,300 314
----------
1,232
----------
BELGIUM - 0.7%
Credit Communal Holding/ Dexia NPV 1,287 194
Generale de Banque NPV 628 466
KBC Bancassurance Holding (a) 15,600 1,397
Kredietbank NPV 2,200 197
PetroFina SA NPV 970 398
Tractebel Investments International NPV 23,208 3,401
UCB Capital NV 29 151
Virgin Express Holdings PLC - ADR (a) 34,350 438
----------
6,642
----------
BRAZIL - 0.2%
Centrais Geradoras do Sul do Brasil SA NPV (a) 3,435,180 5
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar (Regd) - GDR 4,750 107
Companhia Energetica de Minas Gerais SA - ADR 3,539 112
Eletrobras (centrais) NPV 3,435,180 101
Telecomunicacoes Brasileiras - ADR 12,624 1,378
Telecomunicacoes de Sao Paulo - NPV (a) 37,771 6
Telecomunicacoes Brasileiras SA 1998 Rights (a) 44,709 1
Telesp Celular SA NPV (a) 37,771 2
Uniao de Bancos Brasileiros SA - GDR 3,974 117
Usinas Siderurgicas de Minas - ADR 19,363 97
----------
1,926
----------
CANADA - 3.8%
Abitibi-Consolidated, Inc. 67,000 863
Air Canada, Inc. (a) 100,000 894
</TABLE>
54 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Alcan Aluminum, Ltd. 4,640 $ 128
Algoma Steel, Inc. (a) 30,000 97
ATI Technologies, Inc. (a) 78,300 1,030
Barrick Gold Corp. (US Regd) 27,100 520
BCE, Inc. 91,000 3,902
Bombardier, Inc. Class B 77,800 2,120
Canadian Airlines Corp. (a) 45,000 127
Canadian Imperial Bank of Commerce 24,740 795
Canadian Pacific, Ltd. 206,800 5,818
CGI Group, Inc. (a) 88,600 1,885
Dofasco, Inc. NPV 27,601 449
Donohue, Inc. Class A 23,700 536
Edperbrascan Corp. Class A 26,500 445
Finning International, Inc. 17,000 155
Geac Computer Corp., Ltd. (a) 27,525 917
Hudson's Bay Co. 50,000 1,145
Imasco, Ltd. IF 69,600 1,284
Imperial Oil, Ltd. 59,796 1,044
Inco, Ltd. 66,087 900
Moore Corp., Ltd. 120,100 1,591
National Bank of Canada 65,500 1,280
Noranda, Inc. 100,600 1,736
Nova Scotia Power, Inc. 22,500 297
Potash Corp. of Saskatchewan, Inc. 21,400 1,611
Rogers Communications, Inc. Class B (a) 70,000 623
Royal Bank of Canada 37,520 2,256
Stelco, Inc. Series A 56,800 405
Suncor, Inc. NPV 3,790 129
The Seagram Co., Ltd. 51,300 2,090
Torstar Corp. Class B 15,600 498
Westcoast Energy, Inc. 20,500 456
----------
38,026
----------
CHILE - 0.0%
Chilectra SA - ADR 4,271 92
Enersis SA - ADR 1,783 43
Santa Isabel SA - ADR 918 10
----------
145
----------
CHINA - 0.0%
Huaneng Power International, Inc. Series N - ADR (a) 12,000 161
----------
161
----------
CZECH REPUBLIC - 0.0%
SPT Telecom AS (a) 5,800 80
----------
80
----------
DENMARK - 0.6%
Bang & Olufsen Holding Series B 10,000 721
Coloplast AS Class B (Regd) 5,250 516
Danisco 14,300 962
Den Danske Bank 1,285 154
GN Store Nord A/S 28,700 877
Jyske Bank AS (Regd) 7,700 909
Tele Danmark AS Series B 840 81
Tele Danmark Class B - ADR 39,100 1,843
Unidanmark Class A (Regd) 1,120 100
----------
6,163
----------
FINLAND - 1.2%
Enso OY Series A 82,500 893
Kesko 68,300 1,078
Kymmene OY 66,000 1,818
Metsa-Serla Oyj Series B 91,000 880
Neste 3,000 93
Nokia Oyj Series A 26,488 1,950
Orion-yhtyma OY Series B 18,210 561
Outokumpu OY Class A 37,200 475
OY Tamro AB 34,700 225
Pohjola Series B 9,600 478
Rauma Group (The) 9,300 191
Rautaruukki OY 102,200 783
Sampo Insurance Co., Ltd. Series A 18,000 855
Valmet Corp. Series A 66,600 1,149
----------
11,429
----------
FRANCE - 11.8%
Accor SA 21,841 6,113
Alcatel Alsthom 7,675 1,563
Alstom - ADR New (a) 34,250 1,115
AXA - UAP 14,041 1,579
Banque Nationale Paris 42,139 3,443
Boiron 3,400 272
Bongrain SA 1,300 653
Bull SA (a) 192,800 3,141
Canal Plus 1,100 206
Carrefour SA 2,872 1,817
</TABLE>
International Securities Fund 55
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Chargeurs International SA 25,622 $ 2,117
Christian Dior 5,855 737
Cie de St. Gobain 9,144 1,695
Clarins 3,284 304
Credit Commercial de France 3,834 323
Dexia France 9,069 1,221
Dexia France (Regd) 2,247 302
Elf Aquitaine - ADR 31,700 2,251
Elf Aquitaine SA 17,910 2,518
Eridania Beghin-Say 21,755 4,804
Euro RSCG 6,500 1,314
Galeries Lafayette 3,435 3,426
Groupe Andre SA (a) 4,745 558
Groupe Danone 26,452 7,294
GTM - Entrepose 18,900 1,963
Guyenne et Gascogne 2,295 936
Havas Advertising SA 1998 Warrants (a) 1,700 10
L'Air Liquide 11,880 1,965
L'Oreal (Societe) 321 179
Lafarge Corp. SA (BR) 7,567 782
Lagardere Groupe (Regd) 22,600 941
Lapeyre (BR) 1,620 151
Legrand 739 196
Legris Industries SA 3,900 183
LVMH Moet-Hennessy 13,354 2,673
Lyonnais Eaux Dumez 29,441 4,845
M6 Metropole Television 4,500 753
Michelin (Cie Gen) Class B (Regd) 36,889 2,129
Nord-Est 11,000 242
Omnicom SA (a) 8,736 1,020
Banque Paribas (a) 37,360 3,998
Pathe SA 469 92
Pechiney International Class A 44,282 1,784
Peugeot SA 6,051 1,301
Pinault-Printemps Redoute SA 1,484 1,242
Primagaz CIE 71 6
Renault (a) 98,072 5,579
Rhodia SA (a) 45,485 1,268
Sanofi SA 11,875 1,397
Schneider SA 47,763 3,809
Scor SA 16,000 1,015
Sefimeg (Regd) 2,000 145
SGS Thomson Microelectronics (a) 14,060 997
Simco (Regd) 3,300 271
Societe Generale 21,584 4,488
Sodexho 3,090 584
Strafor-Facom SA 20,500 2,004
Sylea 2,400 222
Thomson-CSF 45,524 1,732
Total Co. SA Class B 19,478 2,532
TV Francaise (TFI) 7,852 1,217
Union des Assurances Federales 4,538 715
Usinor Sacilor 147,542 2,279
Valeo 36,449 3,726
Vallourec (Usin) 360 27
Vivendi 34,577 7,383
----------
117,547
----------
GERMANY - 8.5%
Adidas AG 10,600 1,849
AGIV AG fuer Industrie und Verkehrswesen (a) 24,400 676
Allianz AG (Regd) 4,350 1,451
BASF AG 15,450 735
Bayer AG 86,029 4,455
Bayerische Hypotheken-und Wechsel Bank AG 6,371 404
Bayerische Motoren Werke AG 381 386
Bayerische Motoren Werke AG New (a) 76 63
Bayerische Vereinsbank AG 4,756 403
Bilfinger & Berger BAU AG 11,400 391
Buderus AG 1,093 546
Commerzbank AG 37,610 1,433
Continental AG 41,800 1,314
Daimler-Benz AG 45,680 4,496
Deutsche Bank AG 41,084 3,476
Deutsche Lufthansa AG 77,750 1,959
Deutsche Telekom AG 29,539 809
Dresdner Bank AG 44,446 2,403
Fresenius Medical Care AG - ADR 47,240 974
GEA AG 3,532 1,381
Gehe AG 12,085 648
Gerresheimer Glas AG 10,500 157
Hannover Rueckversicherungs AG 4,900 565
Hoechst AG 47,730 2,402
Holzmann (Philipp) (a) 2,100 501
Hornback Baumarkt AG 1,135 56
IKB Deutsche Industriebank AG 1,750 36
Karstadt AG 2,075 1,010
Kiekert AG 23,975 1,356
KM Europa Metal AG 3,400 430
KSB AG (a) 3,300 787
M.A.N. AG 5,470 2,135
Mannesmann AG NPV (a) 85,620 8,807
</TABLE>
56 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Merck KGAA 36,100 $ 1,619
Metro AG 9,240 558
Muenchener Rueckversicherungs-Gesellschaft AG 3,790 1,883
Preussag AG 9,270 3,321
ProSieben Media AG - ADR (a) 1,154 30
Rhoen - Klinikum AG 1,574 156
RWE AG 13,900 823
RWE AG 1998 Warrants (a) 15,000 262
SAP AG 3,800 2,307
Schering AG 9,400 1,108
Schmalbach Lubeca AG 6,275 1,583
SGL Carbon AG 4,279 499
Siemens AG 78,897 4,819
SKW Trostberg AG 21,200 764
Suedzucker AG 3,330 2,026
Tarkett AG 18,923 630
Veba AG 75,900 5,107
Viag AG 3,525 2,428
Volkswagen International AG 6,175 5,968
Wella Aktiengesellschaft 250 247
----------
84,632
----------
HONG KONG - 1.5%
Cathay Pacific Airways 343,000 241
CLP Holdings, Ltd. 192,500 877
First Pacific Co. 700,000 294
Great Eagle Holdings 559,041 491
Great Eagle Holdings 1998 Warrants (a) 12,094 0
Guangshen Railway Co., Ltd. 1,794,500 239
Guoco Group, Ltd. 162,000 170
Hang Lung Development Co. 192,000 191
Hang Seng Bank 85,000 481
Henderson Investment, Ltd. 1,550,000 805
Henderson Land Development Co., Ltd. 46,000 152
Hong Kong & China Gas Co., Ltd. 1999 Warrants (a) 16,236 1
Hong Kong & China Gas Co., Ltd. 575,392 654
Hong Kong Electric Holding, Ltd. 946,000 2,930
Hong Kong Telecommunications, Ltd. 86,400 162
HSBC Holdings (UK Regd) PLC 79,958 1,956
Hutchison Whampoa, Ltd. 501,000 2,645
Hysan Development 200,000 165
National Mutual Asia 596,000 381
New World Development Co., Ltd. 335,000 649
Orient Overseas International, Ltd. 121,000 45
QPL International Holdings, Ltd. 600,000 116
Sun Hung Kai Properties, Ltd. 156,000 662
Swire Pacific, Ltd. Class B 404,000 242
Tai Cheung Holdings 56,000 13
Television Broadcast 302,000 798
----------
15,360
----------
IRELAND - 0.3%
Greencore Group PLC 107,300 585
Independent Newspapers PLC 140,000 753
Smurfit (Jefferson) 206,300 614
Waterford Wedgwood (Units) 405,000 525
----------
2,477
----------
ISRAEL - 0.3%
ECI Telecom, Ltd. 67,000 2,529
----------
2,529
----------
ITALY - 3.7%
Assicurazioni Generali SPA 37,340 1,215
Banca Commerciale Italiana 242,000 1,448
Banca Pop di Bergamo CV 3,000 62
Banca Pop di Milano 153,000 1,218
Banco di Roma (a) 1,570,045 3,270
Credito Italiano 650,001 3,404
ENI SPA - ADR 30,300 1,970
Ente Nazionale Idrocarburi SPA (Regd) 510,940 3,350
Fiat SPA di Risp 179,300 444
Fila Holdings SPA - ADR 8,000 120
Finmeccanica SPA (a) 217,196 171
First Banco S. Paolo 52,000 751
Gucci Group NV 2,626 139
Industrie Natuzzi SPA - ADR 27,412 713
Istituto Mobiliare Italiano SPA 66,430 1,047
Istituto Mobiliare Italiano SPA - ADR 12,300 587
Istituto Nazionale Delle Assicurazioni 74,000 210
Italgas (Soc. Ital.) 22,000 90
Luxottica Group SPA - ADR 49,500 767
Magneti Marelli SPA 56,000 123
Mediaset SPA 358,985 2,292
Mediolanum SPA 40,576 1,288
Montefibre di Risp (a) 67,000 58
Montefibre SPA (a) 240,000 220
Pirelli SPA 438,700 1,370
Rinascente (LA) 13,100 131
Telecom Italia Mobile SPA 139,534 853
Telecom Italia SPA di Risp 893,953 4,330
Telecom Italia SPA 661,573 4,871
----------
36,512
----------
</TABLE>
International Securities Fund 57
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
JAPAN - 15.6%
Advantest 2,620 $ 141
Alps Electric Co. 11,000 131
Amada Co., Ltd. 42,000 205
Aoki International 32,000 212
Aoyama Trading Co. 57,600 1,425
Apic Yamada Corp. 19,300 112
Asahi Bank, Ltd. 204,000 900
Bank of Kyoto, Ltd. 120,000 563
Bank of Yokohama 182,000 448
Bridgestone Tire Corp. 73,000 1,732
Brother Industries 122,000 457
Canon Chemicals, Inc. 8,000 84
Canon, Inc. 218,000 4,966
Chugai Pharmaceutical Co. 89,000 584
Citizen Watch Co., Ltd. 12,000 99
Credit Saison Co. 74,750 1,487
CSK Corp., Ltd. 22,000 439
Dai Ichi Kangyo Bank 175,000 1,031
Dai Ichi Pharmaceutical Co. 117,000 1,548
Dai Nippon Ink & Chemical Corp. 171,000 526
Dai Nippon Screen Manufacturing Co. 21,000 86
Dai-Tokyo Fire & Marine 361,000 1,261
Daifuku Machinery Co. 9,000 34
Daito Trust Construction 51,350 390
Daiwa House Industries Co. 22,000 195
Daiwa Kosho Lease Co., Ltd. 87,000 367
Daiwa Securities 95,000 410
DDI Corp. 480 1,677
Deodeo Corp. 15,000 88
East Japan Railway 456 2,150
Ebara Corp. 59,000 527
Eisai Co. 54,900 750
Ezaki Glico Co. 69,000 393
Fanuc Co. 20,800 722
Fuji Machine Manufacturing Co. 61,000 1,623
Fuji Oil Co. 60,000 264
Fujitsu, Ltd. 235,000 2,481
Fujitsu, Ltd. 1999 Warrants
Series 2 (a) 23 47
Furukawa Electric Co. 148,000 500
Gakken Co. (a) 64,000 107
General Sekiyu KK 26,000 101
Heiwa Corp. 19,000 170
Hitachi Koki Co. 71,000 292
Hitachi Zosen Corp. 62,000 100
Hitachi, Ltd. 570,000 3,731
Hokkaido Electric 20,700 291
Honda Motor Co., Ltd. 64,000 2,287
Inax Corp. 21,000 72
Intec, Inc. 40,000 316
Ishihara Sangyo 110,000 153
Ishikawajima-Harima Heavy Industries 271,000 496
Ito-Yokado Co., Ltd. 119,000 5,620
Itochu Corp. 150,000 325
Japan Tobacco, Inc. 147 998
Jeol 50,000 229
Kandenko Co., Ltd. 9,000 56
Kao Corp. 202,000 3,126
Kawasaki Steel Corp. 445,000 805
Kawasho Corp. 17,000 21
Kinki Coca-Cola Bottling 27,000 328
Kirin Beverage Corp. 27,000 509
Kirin Brewery Co. 84,000 796
Kissei Pharmaceutical Co. 34,000 504
Koa Fire & Marine 82,000 317
Kokuyo Co., Ltd. 11,000 187
Komatsu Forklift Co., Ltd. 36,000 175
Komori Corp. 10,000 191
Kuraray Co., Ltd. 26,000 222
Kurimoto Iron Works 90,000 332
Kyocera Corp. 9,000 441
Kyushu Electric Power 13,900 218
Laox 10,000 62
Mabuchi Motor Co. 29,600 1,884
Makita Corp. 107,000 1,237
Marubeni Corp. 687,000 1,376
Marui Co., Ltd. 27,000 404
Maruichi Steel Tube 38,000 526
Matsumotokiyoshi 28,500 1,006
Matsushita Electric Industrial Co., Ltd. 297,000 4,790
Mikuni Coca-Cola Bottling 36,000 620
Minebea Co., Ltd. 168,000 1,678
Ministop Co., Ltd. 700 13
Mitsubishi Chemical 387,000 703
Mitsubishi Corp. 142,000 883
Mitsubishi Estate Co., Ltd. 121,000 1,068
Mitsubishi Heavy Industries 425,000 1,611
Mitsui Fudosan Co., Ltd. 174,000 1,379
Mitsui Marine & Fire Insurance Co., Ltd. 30,000 151
Mitsui O.S.K. Lines 156,000 266
Mitsui Trust & Banking 374,000 884
Murata Manufacturing Co., Ltd. 101,000 3,287
Namco 50,600 1,186
Nanto Bank 57,000 239
NEC Corp. 71,000 664
Nichido Fire & Marine 450 2
</TABLE>
58 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Nichiei Co., Ltd. 31,900 $ 2,178
Nikko Securities Co., Ltd. 110,000 457
Nintendo Co. 8,300 771
Nippon Denso Co. 159,000 2,645
Nippon Fire & Marine 80,000 328
Nippon Oil Co. 156,000 505
Nippon Steel Corp. 205,000 362
Nippon Telegraph & Telephone Corp. 804 6,687
Nippon Yusen 320,000 1,088
Nishimatsu Construction 298,000 1,466
Nisshin Flour Milling Co., Ltd. 118,000 779
Nissho Iwai Corp. 250,000 432
Nomura Securities 225,000 2,628
Noritake Co. 73,000 343
Oki Electric Industries 120,000 289
Osaka Gas Co. 138,000 355
Pioneer Electronics Corp. 245,000 4,696
Ricoh Co., Ltd. 68,000 719
Rinnai Corp. 70,000 1,063
Rohm Co. 31,000 3,195
Roland Corp. 9,000 148
Sakura Bank, Ltd. 736,000 1,916
Sangetsu Co. 6,000 78
Sankyo Co., Ltd. 26,000 594
Sankyo Co., Ltd. GUNMA 45,000 732
Sankyo Seiko Co. 96,000 232
Sanwa Bank 116,000 1,041
Sega Enterprises 6,800 118
Sekisui Chemical Co., Ltd. 298,000 1,530
Sekisui House, Ltd. 109,000 847
Seven-Eleven Japan NPV 3,200 191
Sharp Corp. 76,000 618
Shin Etsu Chemical Co. 80,050 1,389
Shiseido Co., Ltd. 89,000 1,014
Shohkoh Fund & Co., Ltd. 700 173
Showa Shell Sekiyu 50,000 224
Sony Corp. 102,400 8,850
Stanley Electric 76,000 279
Sumitomo Corp. 45,000 217
Sumitomo Electric Industries 55,000 558
Sumitomo Forestry 145,000 817
Sumitomo Realty & Development 232,000 1,027
Sumitomo Rubber Industries 30,000 162
Sumitomo Trust & Banking 293,000 1,314
Tadano 60,000 174
Taiyo Yuden Co. 58,000 619
Takeda Chemical Industries 44,000 1,174
Takefuji Corp. 11,300 523
TDK Corp. 9,000 667
Toc Co. 42,000 361
Toda Corp. 50,000 201
Toho Bank 83,000 334
Tohoku Electric Power 16,500 244
Tokio Marine & Fire Insurance Co. 17,000 175
Tokyo Broadcasting 40,000 448
Tokyo Electric Power 74,000 1,456
Tokyo Electronics 4,800 148
Tokyo Gas Co. 718,000 1,605
Tokyo Steel Manufacturing 67,400 348
Toppan Printing 35,000 376
Torii Pharmaceutical Co., Ltd. 12,200 223
Toshiba Corp. 441,000 1,808
Tostem Corp. 50,000 650
Toyota Motor Corp. 117,000 3,038
Uniden Corp. 49,000 537
UNY Co., Ltd. 12,000 195
Yamaha Motor Co. 50,000 315
Yamanouchi Pharmaceutical 92,000 1,923
Yamato Kogyo Co. 34,000 251
Yamato Transport 108,000 1,215
Yasuda Fire & Marine Insurance Co., Ltd. (The) 33,000 142
Yodogawa Steel Works, Ltd. 61,000 287
Yurtec Corp. 11,550 69
----------
155,051
----------
MALAYSIA - 0.2%
Berjaya Leisure Berhad 50,000 27
Carlsberg Brewery Malaysia Berhad 149,000 452
Commerce Asset Holdings 160,000 60
Golden Hope Plantation 45,000 41
Kumpulan Guthrie 344,000 199
Malayan Banking Berhad 123,000 124
Malayan Banking Berhad Class A (a) 123,000 124
Malaysian Airline System 41,000 14
Oriental Holdings Berhad 25,000 42
Perlis Plantations 189,000 164
Resorts World Berhad 481,000 528
Technical Resource Industries Berhad 349,000 240
----------
2,015
----------
MEXICO - 0.2%
Cemex SA de CV - ADR 18,000 134
Cemex SA de CV Class B NPV 21,360 94
</TABLE>
International Securities Fund 59
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Cemex SA de CV NPV 640 $ 2
Cifra SA de CV - ADR (a) 2,283 41
Compania Cervecerias Unidas SA - ADR 2,702 57
Fomento Economico Mexicano SA de CV (a) 4,031 126
Gruma SA - ADR (a) 8,262 73
Gruma SA Series B NPV (a) 28,131 61
Grupo Financiero Banamex AC Series B NPV (a) 49,168 96
Grupo Financiero Banamex AC Series L NPV (a) 3,238 5
Grupo Industrial Maseca Series B NPV 88,656 65
Grupo Modelo SA Series C 13,110 111
Grupo Radio Centro SA de CV - ADR 32,600 363
Grupo Television SA de CV - GDR (a) 5,556 209
Kimberly-Clark, Mexico Class A NPV 33,601 119
Panamerican Beverages, Inc. Class A 6,508 205
Telefonos de Mexico SA Series L - ADR 8,675 417
TV Azteca SA de CV - ADR 5,700 61
----------
2,239
----------
NETHERLANDS - 6.5%
ABN Amro Holdings NV 93,878 2,198
AKZO Nobel NV 12,500 1,388
AKZO Nobel NV 575 128
Apothekers Cooperatie OPG 17,600 593
ASM Lithography Holding NV (a) 11,410 338
Baan Co. NV (a) 2,460 88
Benckiser NV Class B (a) 15,000 923
Boskalis Westminster CVA 20,856 310
CSM NV CVA 7,592 365
DOCdata NV (a) 34,400 987
Elsevier NV 57,804 873
European Vinyls Corp. International NV 6,100 107
Fortis Amev NV 9,187 538
Heineken Holding NV Class A (a) 13,125 433
Hollandsche Beton Groep NV 41,630 868
Hunter Douglas NV 34,903 1,897
ING Groep NV 61,046 4,000
KNP BT (Kon) NV 53,302 1,377
Koninklijke Ahold NV 8,194 263
Koninklijke Emballage Industrie Van Leer 41,400 961
Koninklijke KPN NV (a) 118,251 4,555
Koninklijke Numico NV 5,400 169
Nedlloyd Groep NV 40,000 813
Nutreco Holding NV 49,800 1,744
Pakhoed Kon NV CVA 6,000 195
Philips Electronics 84,795 7,133
Philips Electronics NV - ADR 42,100 3,573
Polygram 31,663 1,617
Royal Dutch Petroleum Co. 133,083 7,385
Royal PTT Nederland NV 21,375 1,360
Stork NV 20,634 658
TNT Post Group NV (a) 118,251 3,025
Unilever NV 27,010 2,145
Vedior 29,113 824
Vendex NV (a) 29,503 1,110
Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit 178,323 6,483
Wereldhave NV 6,966 401
Wolters Kluwer CVA 19,304 2,650
----------
64,475
----------
NEW ZEALAND - 0.4%
Air New Zealand Class B 177,600 191
Fletcher Challenge Building 19,322 24
Fletcher Challenge Energy 518,204 1,240
Fletcher Challenge Paper 120,098 134
Lion Nathan, Ltd. 61,200 136
Telecom Corp. of New Zealand, Ltd. 710,265 1,523
Telecom Corp. of New Zealand, Ltd. NPV 189,645 784
Wrightson Limited 250,000 48
----------
4,080
----------
NORWAY - 0.6%
Bergesen DY AS Series A 3,510 67
Fred. Olsen Energy ASA (a) 42,700 568
Kvaerner Industries AS Series B 7,200 223
Norsk Hydro AS 23,234 1,023
Orkla ASA Class A (a) 41,024 955
Orkla ASA Class B (a) 26,628 561
P4 Radio Hele Norge ASA 89,200 407
Rieber & Son ASA Series B 40,000 391
Saga Petroleum AS Series B 6,610 94
Schibsted AS 45,100 759
Storebrand ASA Series A (a) 45,000 400
----------
5,448
----------
PANAMA - 0.0%
Banco Latinoamericano de Exportaciones SA Class E 1,435 44
----------
44
----------
</TABLE>
60 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
PERU - 0.0%
Credicorp, Ltd. 3,300 $ 48
Telefonica Del Peru SA Class B - ADR 4,441 91
----------
139
----------
PORTUGAL - 0.4%
Banco Totta e Acores (Regd) 14,200 431
Jeronimo Martins SGPS 9,431 453
Portugal Telecom SA 47,814 2,536
Telecel-Comunicacaoes Pessoaissa 4,000 711
----------
4,131
----------
RUSSIA - 0.0%
Gazprom - ADR 6,190 66
Lukoil Oil Co. - ADR 1,140 38
----------
104
----------
SINGAPORE - 0.5%
Creative Technology, Ltd. (a) 5,000 62
Development Bank of Singapore, Ltd. (Alien Market) 259,600 1,441
Fraser & Neave 120,000 323
Jardine Strategic Holdings, Ltd. (a) 436,375 829
Jurong Shipyard 87,000 421
Mandarin Oriental International, Ltd. (a) 476,318 272
Overseas Union Bank (Alien Market) 60,000 132
Overseas Union Enterprises 192,000 284
Singapore Airlines, Ltd. (Alien Market) 59,000 277
Singapore Land 40,000 84
Singapore Press Holdings, Ltd. (Alien Market) 71,317 478
Singapore Telecommunications, Ltd. 73,000 104
Straits Steamship Land, Ltd. 95,000 86
United Overseas Bank, Ltd. (Alien Market) 93,000 290
----------
5,083
----------
SOUTH AFRICA - 0.2%
Sappi, Ltd. (a) 225,100 845
South African Breweries 48,000 987
----------
1,832
----------
SOUTH KOREA - 0.0%
Samsung Electronics, Ltd. 3,527 109
----------
109
----------
SPAIN - 3.6%
Acerinox SA 5,700 759
Adolfo Dominguez SA (a) 23,600 800
Banco Bilbao Vizcaya SA 35,290 1,811
Banco Popular Espanol SA 14,320 1,221
Banco Santander SA (Regd) (a) 96,228 2,463
Baron de Ley SA (a) 15,012 498
Campofrio Alimentacion SA (a) 6,800 561
Centros Commerciales Pryca 36,800 682
Corp. Fin. Reunida (a) 30,000 453
Corporacion Bancaria de Espana SA 44,300 1,999
Corporacion Bancaria de Espana SA (Regd)(a) 47,876 1,074
Dragados y Construcciones SA 5,300 170
Endesa SA 83,096 1,818
Fuerzas Electricat Series A 58,800 525
Gas Natural SDG SA 2,767 200
Gas Y Electricidad SA Series 2 17,424 1,326
Grupo Acciona SA 4,250 1,011
Hidroelectrica del Cantabrico SA 12,330 563
Iberdrola SA 107,643 1,748
Prosegur CIA de Seguridad SA (Regd) 40,000 476
Repsol SA 54,900 3,025
Repsol SA - ADR 45,200 2,486
Tabacalera SA Class A (Regd) 173,143 3,545
Telefonica de Espana 114,670 5,302
Union Electrica Fenosa 17,000 219
Viscofan Envoltura 20,000 931
----------
35,666
----------
SWEDEN - 2.9%
ABB AB Series A 17,490 248
ABB AB Series B 113,600 1,581
Asticus AB (a) 9,185 101
Astra AB Series A 141,850 2,899
Astra AB Series B 48,600 969
Atlas Copco AB Series B 9,840 268
Autoliv, Inc. 97,270 3,110
Avesta-Sheffield 52,500 260
BT Industries AB 19,000 384
Celsius Industrier AB Series B 12,000 280
Diligentia AB 18,370 159
Electrolux AB Series B (a) 156,800 2,693
Esselte AB Series B 3,090 72
Fastighetspartner NF AB (Units) (a) 17,000 17
Gambro AB Series B (a) 71,000 1,300
Granges AB 4,420 81
</TABLE>
International Securities Fund 61
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Hennes and Mauritz AB Series B 27,660 $ 1,765
Hoganas AB B Shares 21,000 469
Munksjo AB 40,900 400
Nordbanken Holding AB 133,432 979
Om Gruppen AB (a) 46,000 957
Pharmacia & Upjohn, Inc. 43,600 2,011
Sandvik AB Series A 3,420 95
Sandvik AB Series B 8,760 241
Scandic Hotels AB 24,090 876
Scania AB Series A 34,300 834
Scania AB Series B 4,800 116
Scribona AB Series B Free 3,060 37
Stora Kopparbergs Bergslags Aktiebolag Series A 122,900 1,934
Svenska Celluosa Series B Free 13,700 355
Svenska Handelsbank Series A 39,000 1,809
Telefonaktiebolaget Ericsson (LM) Series B 34,520 1,007
Tornet Fastighets AB 52,500 842
----------
29,149
----------
SWITZERLAND - 5.7%
ABB AG 789 1,167
Adecco SA 3,532 1,595
Baloise Holding, Ltd. 400 328
Baloise Holding, Ltd. 1998 Rights (a) 800 656
Barry Callebaut AG (Regd) (a) 3,035 655
Bobst AG (BR) 250 461
Ciba Specialty Chemicals AG 3,100 399
Credit Suisse Group (Regd) 5,295 1,180
Fischer (Georg) AG (Regd) 1,400 545
Forbo Holding AG (Regd) 2,450 1,249
Generali (Schweiz) Holding 9,525 2,875
Hero (BR) 1,465 996
Holderbank Financiere Glarus AG (BR) 600 765
Jelmoli Holding AG 835 1,061
Lindt & Spruengli AG 120 310
Lindt & Spruengli AG (Regd) 10 261
Nestle SA (Regd) 5,492 11,772
Novartis AG (Regd) 2,229 3,715
Phoenix Mecano (BR) 400 259
Publicitas Holdings SA - (Regd) 1,000 310
Roche Holdings Genusscheine AG NPV 578 5,685
Sarna Kunststoff Holdings AG (Regd) 200 350
SGS Holding (BR) 675 1,146
Siegfried AG Series R 1,041 1,320
SMH AG Neuenburg (Regd) 7,700 1,286
Sulzer AG (Regd) 1,480 1,170
Sulzer Medica AG (Regd) 7,485 1,967
Swisslog Holding AG 8,992 1,039
UBS AG (a) 28,451 10,597
Valora Holding AG (Regd) 800 212
Zurich Versicherungsgesellschaft (Regd) 2,800 1,791
----------
57,122
----------
THAILAND - 0.0%
Thai Farmers Bank (Alien Market) 114,000 101
----------
101
----------
UNITED KINGDOM - 19.4%
Abbey National PLC 32,000 569
Airtours PLC 116,000 870
Anglian Water PLC 87,300 1,224
ASDA-MFI Group PLC 876,708 3,012
B.A.T. Industries PLC 281,700 2,822
Barclays Bank PLC 92,000 2,654
Barratt Development PLC 57,400 253
BASS PLC 53,071 995
Berisford PLC 230,000 879
BG PLC 33,176 192
Billiton PLC 281,000 570
BOC Group PLC 178,100 2,428
British Aerospace PLC (a) 540,740 4,144
British Airways PLC 146,281 1,584
British Airways PLC - ADR 7,350 791
British Petroleum Co. PLC 402,598 5,875
British Sky Broadcasting Group PLC 72,800 523
British Steel PLC 367,600 809
British Telecom PLC 182,160 2,251
BTR PLC (a) 1,141,230 3,239
Bunzl PLC 355,000 1,672
Burmah Castrol PLC 33,000 588
Cable & Wireless Communications PLC (a) 268,600 2,722
Cable & Wireless PLC 197,000 2,395
Cadbury Schweppes PLC 105,918 1,640
Caradon PLC 77,624 238
Centrica PLC (a) 58,000 98
Clark (Matthew) & Sons 45,000 142
Coats Viyella PLC 268,000 329
Commercial Union Assurance Co. PLC 122,000 2,277
Compass Group PLC (a) 172,000 1,979
Courtaulds Textile Co. PLC 111,200 538
Cowie Group PLC 167,416 978
Devro International PLC 162,000 1,362
</TABLE>
62 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Diageo PLC 787,087 $ 9,331
Diageo PLC Class B (a) 1,360 11
ED&F Man Group PLC 110,000 569
Electrocomponents PLC 24,000 188
EMI Group PLC 137,000 1,199
First Leisure Corp. PLC 135,000 784
Flextech PLC (a) 70,000 648
Gallaher Group PLC 80,000 442
General Accident PLC 66,900 1,508
GKN PLC (a) 14,000 178
Glaxo Wellcome PLC 245,315 7,369
Glynwed International PLC 165,200 680
Granada Group PLC 56,000 1,030
Great University Stores PLC 88,000 1,161
Guardian Royal Exchange PLC (a) 332,857 1,951
Hanson PLC 212,750 1,294
Heywood Williams Group PLC 21,041 91
Hickson International PLC 607,000 750
Hillsdown Holdings PLC 269,051 732
HSBC Holdings PLC 28,000 711
Hyder PLC 92,250 1,451
Imperial Chemical Industries PLC 166,000 2,666
Imperial Tobacco Group PLC 81,000 598
Independent Newspapers PLC 268,300 1,411
Kingfisher PLC 131,642 2,121
Ladbroke Group, Ltd. PLC 449,269 2,468
Laing (John) PLC Class A NV 31,000 204
Laird Group PLC 188,868 883
Lloyds TSB Group PLC 260,620 3,649
London Clubs International 110,000 290
LucasVarity PLC 1,573,503 6,253
Manchester United PLC 240,000 632
Medeva PLC 248,000 704
MEPC PLC 46,800 412
MFI Furniture Group PLC 352,076 373
Mirror Group News PLC 866,000 3,268
Monsoon PLC (a) 79,000 202
National Power PLC 68,000 640
National Westminster Bank PLC 125,000 2,235
Northern Rock PLC 64,000 566
Nycomed Amersham PLC (a) 80,652 601
Pace Micro Technology PLC 160,000 203
PIC International Group PLC (a) 235,000 844
Pilkington Brothers PLC 176,000 325
Powell Duffryn PLC 55,000 502
Powergen PLC 180,848 2,500
Premier Consolidated Oil PLC 836,000 590
Premier Farnell PLC 61,000 311
Provident Financial PLC 64,649 1,015
Prudential Corp. PLC 118,000 1,556
Racal Electronics PLC 301,400 1,709
Railtrack Group PLC 249,664 6,124
Rank Group PLC 125,500 689
Redland PLC 17,927 103
Reed International 207,880 1,881
Rio Tinto Corp. PLC (Regd) 243,724 2,747
Rolls-Royce PLC 37,037 153
Royal & Sun Alliance Insurance Group PLC 362,399 3,749
Royal Bank of Scotland Group PLC 95,200 1,653
Safeway PLC 340,875 2,234
Sainsbury (J.) PLC 184,595 1,646
Shell Transportation & Trading PLC (Regd) 738,100 5,201
Smith & Nephew PLC 599,000 1,498
Smith (David S.) Holdings PLC 38,500 124
SmithKline Beecham PLC 269,000 3,286
Somerfield PLC 680,500 4,352
South West Water PLC 72,200 1,197
Stagecoach Holdings PLC 72,273 1,539
Stakis PLC 535,302 1,090
Standard Chartered Bank Group PLC 152,000 1,728
Storehouse PLC 410,000 1,705
Tarmac, Ltd. PLC 891,768 1,593
Taylor Woodrow PLC 500,200 1,670
Tesco Store Holdings PLC 51,181 500
Thames Water PLC 57,000 1,038
Thorn PLC 292,285 1,181
Tomkins PLC 721,256 3,917
Transport Development Group PLC (a) 91,560 454
Unilever PLC 111,200 1,185
United Newspaper, Ltd. PLC 47,200 660
Vickers, Ltd. PLC 179,700 657
Vodafone Group PLC 515,150 6,542
W.H. Smith Group PLC (a) 346,140 3,076
Wessex Water PLC 126,400 963
WPP Group PLC 221,000 1,449
Zeneca Group PLC 32,000 1,375
----------
193,410
----------
VENEZUELA - 0.0%
CIA Anon Nacional Telefonos de Venezuela - ADR 4,397 110
----------
110
----------
TOTAL COMMON STOCKS
(cost $782,073) 908,275
----------
</TABLE>
International Securities Fund 63
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
PREFERRED STOCKS - 1.5%
AUSTRALIA - 0.2%
News Corp., Ltd. 179,345 $ 1,274
Sydney Harbour Casino Holdings, Ltd. (a) 850,053 496
----------
1,770
----------
AUSTRIA - 0.3%
Z Landerbank Bank Austria AG 33,509 2,723
----------
2,723
----------
BRAZIL - 0.1%
Banco Bradesco SA NPV 12,694,361 106
Banco Itau SA (Regd) 151,000 86
Brahma (cia Cervej) NPV 166,711 104
Brasmotor SA NPV 445,000 41
CEMIG SA 2,979,808 93
Cim Port Itau (Cia) 313,600 56
Petroleo Brasileiro SA NPV 1,642,669 305
Telecomunicacoes de Minas Gerais Class B NPV 668,186 47
Telecomunicacoes de Sao Paulo SA NPV 913,538 215
Telecomunicacoes do Rio de Janeiro SA NPV 694,625 52
Telemig Celular SA Class C NPV (a) 668,186 20
Telerj Celular SA Class B NPV (a) 694,625 41
Telesp Celular SA Class B NPV (a) 913,538 76
Usiminas Uni Sd Mg NPV 14,962 75
----------
1,317
----------
GERMANY - 0.7%
Bayer Motoren Werk 600 376
Bayerische Motoren Werke AG (a) 120 73
Draegerwerk AG 950 23
Dyckerhoff AG 200 78
Fielmann AG 2,271 79
Fresenius AG 820 156
Hornbach Holding AG 1,130 103
Hugo Boss 261 576
Jungheinrich 6,290 1,168
Krones AG NV 800 322
M.A.N. AG 200 54
Porsche AG 350 1,009
ProSieben Media AG NV (a) 9,543 495
Rheinmetall AG (a) 23,800 680
RWE AG 15,000 641
SAP AG 1,062 721
Volkswagen AG 400 276
Wella AG 100 112
----------
6,942
----------
ITALY - 0.0%
Fiat SPA 135,300 337
----------
337
----------
JAPAN - 0.2%
Sanwa International Financial Bermuda Trust (conv.) 204,000,000 1,505
----------
1,505
----------
NETHERLANDS - 0.0%
Internationale Nederlanden Groep NV 2,274 11
----------
11
----------
UNITED STATES - 0.0%
WBK STRYPES Trust (conv.) 15,700 474
----------
474
----------
TOTAL PREFERRED STOCKS
(cost $11,552) 15,079
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.1%
JAPAN - 0.1%
Sumitomo Wiring Systems
0.900% due 09/03/08 JPY 40,000 239
Yamanouchi Pharmaceutical (conv.)
1.250% due 03/31/14 60,000 615
----------
TOTAL LONG-TERM INVESTMENTS
(cost $986) 854
----------
SHORT-TERM INVESTMENTS - 4.6%
UNITED STATES - 4.6%
Frank Russell Investment Company
Money Market Fund, due on demand (b) $ 36,968 36,968
United States Treasury Notes
5.250% due 07/31/98 (b)(c) 9,400 9,400
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $46,368) 46,368
----------
</TABLE>
64 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
----------
<S> <C>
TOTAL INVESTMENTS
(identified cost $840,979)(d) - 97.4% $ 970,576
OTHER ASSETS AND LIABILITIES,
NET - 2.6% 25,623
----------
NET ASSETS - 100.0% $ 996,199
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral in connection with futures contracts purchased
by the Fund.
(d) 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
FOREIGN CURRENCY ABBREVIATIONS:
AUD - Australian dollar
CAD - Canadian dollar
CHF - Swiss franc
DEM - German mark
ESP - Spanish peseta
FIM - Finnish markka
FRF - French franc
GBP - British pound
ITL - Italian lira
JPY - Japanese yen
MXN - Mexican peso
MYR - Malaysian ringgit
NLG - Dutch guilder
NOK - Norwegian krone
NZD - New Zealand dollar
PTE - Portuguese escudo
SEK - Swedish krone
SGD - Singapore dollar
USD - U.S. dollar
The accompanying notes are an integral part of the financial statements.
International Securities Fund 65
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
FTSE - 100 Index Futures Contracts (UK)
expiration date 09/98 305 $ 541
TOPIX Index Futures Contracts (Japan)
expiration date 09/98 242 509
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 1,050
----------
----------
</TABLE>
(#) At June 30, 1998, United States Treasury Notes valued at $9,400 were held
as collateral in connection with futures contracts purchased by the Fund.
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- ------------------------------------------------- ---------- ----------
<S> <C> <C>
Auto & Transportation 7.9% $ 78,545
Consumer Discretionary 17.8 177,150
Consumer Staples 8.4 83,526
Financial Services 15.6 155,395
Health Care 5.2 51,979
Integrated Oils 1.9 19,000
Materials & Processing 11.9 118,693
Miscellaneous 1.4 13,606
Other Energy 3.1 31,281
Producer Durables 8.5 84,637
Technology 3.7 37,199
Utilities 7.3 72,343
Long-Term Investments 0.1 854
Short-Term Investments 4.6 46,368
---------- ----------
Total Investments 97.4 970,576
Other Assets and Liabilities, Net 2.6 25,623
---------- ----------
NET ASSETS 100.0% $ 996,199
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- ------------------------------------------------- ---------- ----------
<S> <C> <C>
Europe 47.4% $ 472,717
Japan 15.8 157,410
United Kingdom 19.4 193,410
Pacific Basin 5.1 50,933
Latin America 0.7 6,772
United States (Short-Term Investments) 4.6 46,368
Other 4.4 42,966
---------- ----------
Total Investments 97.4 970,576
Other Assets and Liabilities, Net 2.6 25,623
---------- ----------
NET ASSETS 100.0% $ 996,199
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
66 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
FOREIGN CURRENCY EXCHANGE CONTRACTS (Note 2)
June 30, 1998 (Unaudited)
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
AUD 169 USD 102 07/01/98 $ (3)
AUD 99 USD 60 07/02/98 (2)
AUD 9 USD 6 07/02/98 --
AUD 229 USD 139 07/06/98 (3)
CAD 2 USD 1 07/02/98 --
DEM 183 USD 101 07/02/98 --
DEM 267 USD 148 07/03/98 --
ESP 394 USD 3 07/02/98 --
FIM 1,025 USD 186 07/01/98 (1)
FRF 4,056 DEM 1,210 07/02/98 (4)
FRF 5,113 USD 846 07/02/98 --
FRF 4,056 DEM 1,210 07/02/98 4
FRF 3,028 USD 500 07/31/98 (1)
FRF 626 USD 103 07/31/98 --
FRF 2,131 USD 351 07/31/98 (2)
FRF 1,985 USD 329 07/31/98 --
GBP 454 USD 756 07/01/98 (2)
GBP 1 AUD 3 07/02/98 --
GBP 1 AUD 3 07/02/98 --
GBP 6 USD 10 07/02/98 --
GBP 314 USD 524 07/02/98 --
GBP 705 USD 1,170 07/03/98 (6)
GBP 158 USD 263 07/03/98 (1)
GBP 455 USD 759 07/07/98 (1)
ITL 27 USD -- 07/02/98 --
JPY 21,762 USD 153 07/03/98 (4)
MXN 8,484 USD 945 07/02/98 1
MYR 2,574 NLG 1,250 07/01/98 (9)
MYR 2,574 NLG 1,250 07/01/98 4
NLG 3,718 USD 1,820 07/01/98 (9)
NZD 4 USD 2 07/02/98 --
PTE 990 USD 5 07/02/98 --
PY 13,992 USD 99 07/06/98 (2)
SEK 35 USD 4 07/02/98 --
SEK 1,430 USD 181 07/03/98 2
SEK 2,705 USD 339 07/06/98 --
SGD 2 USD 1 07/02/98 --
USD 239 CHF 362 07/02/98 --
USD 195 DEM 351 07/02/98 --
USD 307 JPY 42,587 07/02/98 1
USD 519 NLG 1,053 07/02/98 1
USD 114 NOK 874 07/02/98 --
USD 67 NZD 68 07/02/98 --
USD 118 SEK 944 07/02/98 --
USD 179 SGD 300 07/02/98 (1)
USD 465 ITL 825,727 07/02/98 (1)
USD 508 CHF 772 07/03/98 1
USD 673 JPY 93,375 07/03/98 2
USD 161 ITL 285,750 07/07/98 1
USD 166 FRF 997 07/31/98 (1)
------------
$ (36)
------------
------------
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
DELIVER FOR SETTLEMENT (DEPRECIATION)
(000) (000) DATE (000)
- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
JPY 2,049,000 USD 15,054 08/27/98 $ 110
JPY 100,000 USD 730 09/18/98 (2)
NZD 983 USD 538 07/01/98 27
NZD 1,300 USD 707 07/01/98 31
NZD 2,788 USD 1,552 07/01/98 102
NZD 1,140 USD 622 07/01/98 29
NZD 3,690 USD 1,901 09/03/98 (19)
USD 3,216 NZD 6,211 07/01/98 16
USD 9,816 GBP 6,000 09/18/98 158
USD 11,635 GBP 7,000 09/18/98 2
USD 7,068 GBP 4,250 09/18/98 (3)
USD 1,483 JPY 200,000 09/18/98 (20)
USD 8,490 JPY 1,175,000 09/18/98 106
USD 362 JPY 50,000 09/18/98 4
USD 693 JPY 100,000 09/18/98 38
USD 10,846 JPY 1,500,000 09/18/98 129
------------
$ 708
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Securities Fund 67
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $840,979)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 970,576
Foreign currency holdings (identified cost $18,148). . . . . . . . . . . . . . . . . . . . . . . . . . . 18,057
Forward foreign currency exchange contracts (cost $74,715)(Note 2) . . . . . . . . . . . . . . . . . . . 89,612
Foreign currency exchange spot contracts (cost $16,178)(Note 2). . . . . . . . . . . . . . . . . . . . . 16,189
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,393
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,429
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,301
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,315
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . . 127
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 91,381
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,380
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,165
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,082
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 856
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562
Forward foreign currency exchange contracts (cost $74,715)(Note 2) . . . . . . . . . 88,904
Foreign currency exchange spot contracts (cost $16,178)(Note 2). . . . . . . . . . . 16,225
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 91,381
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,181
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 996,199
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,871
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,545
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,597
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841,391
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 996,199
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
Class S ($994,537,569 divided by 15,776,662 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63.04
--------------
--------------
Class E ($1,661,882 divided by 26,465 shares of $.01 par value
shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 62.80
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
68 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,054
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,301
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,561)
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,120
EXPENSES (Notes 1,2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,450
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 861
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 2
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,643
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,477
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,374
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,151
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (1,487) 37,038
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,337
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,325
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . 1,157 87,819
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,857
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 133,334
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Securities Fund 69
<PAGE>
INTERNATIONAL SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX MONTHS
ENDED JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,477 $ 7,468
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . 37,038 25,520
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . 87,819 (33,866)
------------------- -----------------
Net increase (decrease) in net assets resulting from operations. . . . 133,334 (878)
------------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (5,261)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3)
In excess of net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,871)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3)
Net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,175) (31,097)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (45)
In excess of net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (15,023)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (22)
------------------- -----------------
Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . (3,180) (55,325)
------------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). 25,008 153,002
------------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . 155,162 96,799
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841,037 744,238
------------------- -----------------
End of period (including undistributed net investment income of
$2,871 and accumulated distributions in excess of net investment
income of $5,606, respectively) . . . . . . . . . . . . . . . . . . . . . $ 996,199 $ 841,037
------------------- -----------------
------------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
70 International Securities Fund
<PAGE>
INTERNATIONAL SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS S
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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 54.69 $ 58.48 $ 56.61 $ 53.96 $ 57.95 $ 44.75
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .54 .56 .53 .56 .44 .40
Net realized and unrealized gain (loss) on investments . 8.01 (.46) 3.72 4.89 1.23 14.53
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . 8.55 .10 4.25 5.45 1.67 14.93
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . -- (.37) (.31) (.88) (.04) (.38)
In excess of net investment income . . . . . . . . . . . -- (.27) (.17) (.23) (.02) (.23)
Net realized gain on investments . . . . . . . . . . . . (.20) (2.19) (1.90) (1.69) (5.60) (1.12)
In excess of net realized gain on investments. . . . . . -- (1.06) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.20) (3.89) (2.38) (2.80) (5.66) (1.73)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 63.04 $ 54.69 $ 58.48 $ 56.61 $ 53.96 $ 57.95
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 15.67 .26 7.63 10.20 4.86 33.48
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 994,537 839,767 743,615 623,389 563,333 454,482
Ratios to average net assets (%)(b):
Operating expenses, net . . . . . . . . . . . . . . . 1.20 1.26 1.30 1.30 1.30 1.38
Operating expenses, gross . . . . . . . . . . . . . . 1.20 1.26 1.31 1.31 1.33 1.42
Net investment income . . . . . . . . . . . . . . . . 1.80 .91 .91 .97 .70 .82
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 71.72 73.54 42.43 42.96 72.23 60.22
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
International Securities Fund 71
<PAGE>
INTERNATIONAL SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS E
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>
YEAR ENDED DECEMBER 31,
----------------------
1998* 1997 1996**
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . $ 54.64 $ 58.47 $ 58.56
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . .44 .35 (.03)
Net realized and unrealized gain (loss) on investments . . . . . . . . . 7.92 (.64) 1.68
---------- ---------- ----------
Total Income From Investment Operations . . . . . . . . . . . . . . . 8.36 (.29) 1.65
---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . -- (.14) (.27)
In excess of net investment income . . . . . . . . . . . . . . . . . . . -- (.15) (.16)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . (.20) (2.19) (1.31)
In excess of net realized gain on investments. . . . . . . . . . . . . . -- (1.06) --
---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . (.20) (3.54) (1.74)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 62.80 $ 54.64 $ 58.47
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.34 (.41) 2.86(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . 1,662 1,271 623
Ratios to average net assets (%)(c):
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 1.75 1.96 2.00
Net investment income (loss). . . . . . . . . . . . . . . . . . . . . 1.29 .19 (.61)
Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . 71.72 73.54 42.43
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period November 4, 1996 (commencement of sale) to
December 31, 1996.
(a) Periods less than one year are not annualized.
(b) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.
72 International Securities Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 96.6%
ASSET-BACKED SECURITIES - 8.6%
Advanta Home Equity Loan Trust
Series 1991-1 Class A
9.000% due 02/25/06 $ 44 $ 45
AFC Home Equity Loan Trust
Series 1996-2 Class 1 A3
7.590% due 09/25/27 1,315 1,327
Arcadia Automobile Receivables Trust
Series 1998-A Class A4
6.000% due 11/17/03 315 315
Series 1998-B Class A3
5.950% due 11/15/02 610 611
Series 1998-B Class A4
6.000% due 11/15/03 215 216
BankAmerica Manufactured Housing Contract
Series 1997-1 Class A4
6.200% due 06/10/10 (c) 1,000 1,008
Case Equipment Loan Trust
Series 1998-A Class A4
5.830% due 02/15/05 2,185 2,185
Chase Credit Card Master Trust
Series 1997-5 Class A
6.194% due 08/15/05 3,000 3,048
Circuit City Credit Card Master Trust
8.000% due 11/15/03 2,030 2,088
Citibank Credit Card Master Trust I
Series 1997-3 Class A
6.839% due 02/10/04 (c) 980 993
Series 1998-6 Class A
5.850% due 04/10/03 4,570 4,584
Contimortgage Home Equity Loan
Mortgage Pass-thru Certificate
Series 1994-3 Class A-4
7.850% due 06/01/24 321 336
Series 1994-4 Class A-6
8.270% due 12/15/24 232 240
Series 1996-4 Class A-9
6.880% due 01/15/28 825 839
Series 1997-2 Class A-6
7.120% due 03/15/16 825 851
Fleetwood Credit Corp. Grantor Trust
Series 1997-B Class A
6.400% due 05/15/13 3,442 3,480
Green Tree Financial Corp.
Series 1997-1 Class M1
7.220% due 03/15/28 (c) 1,200 1,237
Series 1997-4 Class M1
7.220% due 02/15/29 925 972
Series 1997-7 Class A5
6.540% due 07/15/19 3,000 3,053
Green Tree Recreational, Equipment &
Consumer Loan Trust
Series 1997-3 Class A1
6.550% due 07/15/28 2,743 2,765
Series 1998-A Class A1C
6.180% due 06/15/19 561 562
Metris Master Trust
Series 1996-1 Class A
6.450% due 02/20/02 2,560 2,574
Series 1997-1 Class A
6.870% due 10/20/05 2,695 2,789
Oakwood Mortgage Investors, Inc.
Series 1997-D Class A3
6.500% due 02/15/28 605 614
Series 1998-A Class A2
6.100% due 05/15/28 715 716
Onyx Acceptance Grantor Trust
Series 1997-1 Class A
6.550% due 09/15/03 (c) 95 96
Series 1998-1 Class A
5.950% due 07/15/04 2,728 2,730
Series 1998-A Class A3
5.850% due 08/15/02 2,580 2,580
Pacificamerica Home Equity Loan
Series 1998-2 Class AF
6.590% due 06/26/28 1,600 1,600
Preferred Credit Corp.
Series 1997-1 Class A6
7.590% due 07/25/26 850 896
Premier Auto Trust
Series 1997-2 Class A5
6.320% due 03/06/02 3,770 3,817
Series 1998-3 Class A4
5.960% due 10/08/02 4,000 4,002
Providian Master Trust
6.250% due 06/15/07 2,065 2,089
Sears Credit Account Master Trust
Series 1997-1 Class A
6.200% due 07/16/07 1,860 1,870
Series 1998-1 Class A
5.800% due 08/15/05 915 913
Student Loan Marketing Association
Series 1996-3 Class A1
5.680% due 10/25/04 (c) 2,008 2,006
Team Fleet Financing Corp.
Series 1997-1 Class A
7.350% due 05/15/03 1,800 1,864
Union Acceptance Corp.
Series 1998-B Class A4
5.900% due 02/09/04 1,440 1,440
</TABLE>
74 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Wal-Mart Stores, Inc.
Series 1994-B3
8.800% due 12/30/14 $ 315 $ 386
WFS Financial Owner Trust
6.050% due 04/20/03 855 854
World Omni Automobile Lease
Securitization Trust
Series 1996 - B Class A2
6.200% due 11/15/02 771 773
Series 1997-A Class B
7.300% due 06/25/03 (c) 750 763
Series 1997-B Class A3
6.180% due 11/25/03 1,565 1,572
----------
67,699
----------
BANKERS ACCEPTANCE NOTES - 0.1%
Mellon Bank, NA
7.625% due 09/15/07 355 389
----------
389
----------
CORPORATE BONDS AND NOTES - 17.7%
Air Products & Chemicals, Inc
8.750% due 04/15/21 250 316
Allegiance Corp.
7.300% due 10/15/06 875 925
7.000% due 10/15/26 130 133
America West Airlines, Series A
6.850% due 07/02/09 480 487
American Express Co.
8.500% due 08/15/01 255 273
American General Finance Corp.
8.500% due 06/15/99 570 584
American Health Properties
7.050% due 01/15/02 550 562
American Stores Co.
8.000% due 06/01/26 690 786
Analog Devices, Inc.
6.625% due 03/01/00 125 126
Aristar, Inc.
6.300% due 07/15/00 1,270 1,276
7.750% due 06/15/01 500 521
Associates Corp. of North America
Series H (MTN)
6.250% due 03/15/99 1,010 1,013
6.500% due 10/15/02 450 456
7.090% due 04/11/03 400 419
AT&T Capital Corp.
6.050% due 04/01/99 (c) 2,000 1,999
AT&T Corp.
8.625% due 12/01/31 220 248
Atlantic Richfield Co.
9.125% due 08/01/31 550 743
Avco Financial Services, Inc.
5.750% due 01/23/01 (MTN) 1,280 1,272
6.000% due 08/15/02 800 796
Baltimore Gas & Electric Co.
7.250% due 07/01/02 500 522
6.500% due 02/15/03 840 853
Banco De Latinoamerica
6.500% due 04/02/01 1,225 1,241
Bank of New York, Inc.
7.875% due 11/15/02 350 374
Bank One, Columbus, Ohio
7.375% due 12/01/02 120 125
BankAmerica Corp.
6.850% due 03/01/03 425 436
6.875% due 06/01/03 260 269
Bankboston NA
6.375% due 04/15/08 1,300 1,297
Barnett Bank, Inc.
6.900% due 09/01/05 405 421
Baxter International Inc.
6.625% due 02/15/28 825 820
Bear Stearns Co Inc. (MTN)(c)
5.856% due 02/16/01 2,000 2,008
Bell Atlantic Corp. (MTN)
8.750% due 12/01/04 450 512
Bell Telephone Co. of Pennsylvania
8.350% due 12/15/30 355 448
BellSouth Telecommunications
7.000% due 12/01/95 385 410
Beneficial Corp.
8.400% due 05/15/08 1,235 1,451
Boeing Co.
8.750% due 08/15/21 550 699
Boston Scientific
6.625% due 03/15/05 300 303
Campbell Soup Co.
8.875% due 05/01/21 420 546
Carolina Power & Light Co.
6.875% due 08/15/23 410 419
Case Corp.
7.250% due 08/01/05 330 349
7.250% due 01/15/16 295 318
</TABLE>
Diversified Bond Fund 75
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Caterpillar Financial Services (MTN)
9.500% due 02/06/07 $ 420 $ 514
Caterpillar, Inc.
8.000% due 02/15/23 200 235
Central Fidelity Banks, Inc.
8.150% due 11/15/02 170 189
Central Power & Light Co.
Series FF
6.875% due 02/01/03 600 622
Champion International Corp.
6.400% due 02/15/26 460 475
Chase Manhattan Corp.
6.500% due 08/01/05 300 304
Chesapeake & Potomac Telephone Co.
8.375% due 10/01/29 230 288
Choice Hotels International Inc.
7.125% due 05/01/08 1,075 1,092
Chrysler Corp.
7.450% due 03/01/27 800 888
Chrysler Financial Corp.
6.080% due 03/12/01 (MTN) 900 905
5.686% due 06/11/01 2,000 1,998
Cincinnati Gas & Electric Co.
7.200% due 10/01/23 410 420
CIT Group Holdings, Inc.
6.350% due 07/31/98 3,000 3,001
6.625% due 06/28/99 (MTN) 1,200 1,208
6.700% due 05/02/00 (MTN) 500 507
6.150% due 12/15/02 (MTN) 500 502
Citicorp
5.824% due 05/24/01 (MTN)(c) 2,000 2,000
9.500% due 02/01/02 120 132
7.125% due 06/01/03 390 406
City National Bank
6.375% due 01/15/08 850 853
Coca Cola Enterprises, Inc.
7.000% due 10/01/26 675 728
6.750% due 01/15/38 250 252
Colonial Realty LP (MTN)
6.980% due 09/26/05 450 463
Commercial Credit Co.
5.750% due 07/15/00 295 294
7.875% due 07/15/04 805 867
6.500% due 06/01/05 540 548
8.700% due 06/15/10 380 454
Commonwealth Edison Co. Series 85
7.375% due 09/15/02 945 984
Conagra, Inc. (MTN)
8.100% due 05/20/02 300 321
Consolidated Natural Gas Co.
8.625% due 12/01/11 31 32
Consolidated Rail Corp.
Pass-thru Certificate Structured Note
Series 1995 Class A
6.760% due 05/25/15 459 472
Constitution Capital Trust I
9.150% due 04/15/27 400 450
CoreStates Capital Corp.
5.875% due 10/15/03 400 395
Cox Communications Inc.
6.500% due 11/15/02 550 557
6.690% due 09/20/04 (MTN) 400 409
Crown Cork & Seal Finance PLC
7.000% due 12/15/06 750 777
Dayton Hudson Corp.
6.400% due 02/15/03 295 296
7.500% due 07/15/06 100 108
Discover Credit Corp. (MTN)
8.350% due 04/27/99 360 366
Dole Food Co., Inc.
6.750% due 07/15/00 170 171
Duke Power Co.
7.000% due 07/01/33 695 704
Eastman Chemical Co.
7.250% due 01/15/24 300 313
EQCC Home Equity Loan Trust
Series 1997-1 Class A4
7.160% due 03/15/13 900 933
Excel Realty Trust, Inc.
6.875% due 10/15/04 775 785
Federal Express Corp.
7.600% due 07/01/97 300 322
Finova Capital Corp.
7.125% due 05/01/02 925 953
First Bank Systems, Inc.
8.000% due 07/02/04 700 759
First Chicago Corp.
5.791% due 11/14/01 (MTN) 3,000 3,003
8.875% due 03/15/02 505 548
First Interstate Bancorp (MTN)
9.375% due 01/23/02 135 148
First Union Institutional Capital Trust I
8.040% due 12/01/26 225 242
First Union National Bank, Newark (MTN)
7.125% due 10/15/06 500 529
Fleet Financial Group Inc.
6.875% due 03/01/03 300 308
8.125% due 07/01/04 595 649
</TABLE>
76 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Florida Residential Property &
Casualty Insurance Co. Series A
7.375% due 07/01/03 $ 1,700 $ 1,760
Ford Motor Credit Co.
5.968% due 03/21/01 (MTN)(c) 4,000 4,016
6.125% due 04/28/03 1,830 1,830
7.500% due 06/15/04 300 319
6.750% due 05/15/05 350 360
Fort James Corp.
6.625% due 09/15/04 895 908
Fortune Brands, Inc.
7.875% due 01/15/23 380 436
General Electric Capital Corp.
8.300% due 09/20/09 235 277
6.660% due 05/01/18 (c) 775 785
General Motors Acceptance Corp.
6.625% due 10/01/02 1,975 1,997
Grand Metropolitan Investment Corp.
7.450% due 04/15/35 300 339
GTE California, Inc.
6.750% due 05/15/27 550 553
Hertz Corp.
7.625% due 08/01/02 550 575
9.000% due 11/01/09 230 276
Household Finance Corp.
6.375% due 06/30/00 1,200 1,208
ICI Wilmington, Inc.
6.950% due 09/15/04 380 394
Interamerican Development Bank
6.375% due 10/22/07 300 312
International Lease Finance Corp.
5.750% due 01/15/99 455 455
6.375% due 08/01/01 400 403
6.375% due 02/15/02 400 403
8.375% due 12/15/04 1,000 1,120
IRT Property Co.
7.250% due 08/15/07 450 468
ITT Financial Corp.
7.400% due 11/15/25 715 761
Jackson National Life Insurance Co.
8.150% due 03/15/27 950 1,110
JC Penney & Co., Inc.
7.600% due 04/01/07 550 595
JPM Capital Trust I
7.540% due 01/15/27 225 234
Kansas Gas & Electric Co.
7.600% due 12/15/03 200 213
6.500% due 08/01/05 450 458
Key Bank Corp.
8.000% due 07/01/04 150 163
7.500% due 06/15/06 750 808
6.500% due 04/15/08 750 756
Lehman Brothers Holdings, Inc.
6.150% due 03/15/00 (MTN) 800 801
6.000% due 02/26/01 (MTN) 1,000 998
6.250% due 04/01/03 150 150
Liberty Mutual Insurance Co.
7.697% due 10/15/97 650 710
7.875% due 10/15/26 1,000 1,125
Lincoln National Corp.
7.250% due 05/15/05 450 474
Lockheed Martin Corp.
7.750% due 05/01/26 600 684
Masco Corp.
6.625% due 04/15/18 500 504
May Department Stores Co.
6.875% due 11/01/05 480 503
MCI Communications Corp.
6.125% due 04/15/02 550 548
Mellon Capital II Series B
7.995% due 01/15/27 320 348
Mirage Resorts, Inc.
6.625% due 02/01/05 955 939
Motorola, Inc.
7.500% due 05/15/25 600 665
Nabisco, Inc.
6.375% due 02/01/35 850 845
Nationsbank Corp.
7.750% due 08/15/04 450 483
Natexis Ambs Co. LLC
8.440% due 12/29/49 150 150
New England Telephone & Telegraph Co.
7.875% due 11/15/29 235 278
News America Holdings, Inc.
7.750% due 01/20/24 300 323
Northwestern Bell Telephone Co.
7.750% due 05/01/30 630 733
Norwest Corp. Series H (MTN)
6.750% due 06/15/07 300 310
Norwest Financial, Inc.
6.250% due 11/01/02 525 527
6.375% due 11/15/03 575 583
6.000% due 02/01/04 600 599
6.750% due 06/01/05 200 208
NYNEX Corp.
9.550% due 05/01/10 349 403
</TABLE>
Diversified Bond Fund 77
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Occidental Petroleum Corp.
8.500% due 11/09/01 (MTN) $ 245 $ 263
10.125% due 11/15/01 210 234
Pacific Bell
7.500% due 02/01/33 785 821
Pennsylvania Power & Light Co.
6.875% due 03/01/04 1,000 1,033
Pennzoil Co.
10.125% due 11/15/09 85 106
PepsiCo, Inc.
7.625% due 12/18/98 285 287
Philadelphia Electric Company
7.125% due 09/01/02 550 567
Philip Morris Cos., Inc.
6.950% due 06/01/06 295 306
7.200% due 02/01/07 1,000 1,033
7.650% due 07/01/08 310 331
Pitney Bowes Credit Corp.
8.550% due 09/15/09 460 546
PNC Funding Corp.
6.875% due 07/15/07 800 834
Praxair, Inc.
6.850% due 06/15/05 700 727
Procter & Gamble Co. Sharing ESOP
Series A
9.360% due 01/01/21 90 119
Ralston Purina Co.
7.875% due 06/15/25 615 702
Raytheon Co.
6.300% due 03/15/05 880 884
Realty Income Corp.
7.750% due 05/06/07 1,175 1,233
Republic of New York Corp.
8.250% due 11/01/01 150 160
9.750% due 12/01/00 190 206
Rite Aid Corp.
6.700% due 12/15/01 950 966
Rockwell International Corp.
8.875% due 09/15/99 255 264
Salomon Smith Barney Holdings, Inc.
6.750% due 02/15/03 800 816
6.250% due 06/15/05 150 149
Seagram Co., Ltd.
8.350% due 01/15/22 320 373
Sears Roebuck Acceptance Corp.
6.750% due 01/15/28 800 800
Sears Roebuck Acceptance Corp.
Series II (MTN)
6.690% due 04/30/01 375 382
Service Corp. International
7.375% due 04/15/04 560 589
6.750% due 06/01/01 250 254
Shopping Center Associates
6.750% due 01/15/04 750 759
Socgen Real Estate Co. LLC
7.640% due 12/29/49 (g) 430 438
Spieker Properties (MTN)
8.000% due 07/19/05 700 750
Summit Properties Inc.
7.200% due 08/15/07 475 481
Suntrust Banks, Inc.
7.375% due 07/01/02 700 730
Tenneco Corp.
10.200% due 03/15/08 590 738
Texaco Capital, Inc.
9.750% due 03/15/20 440 610
8.875% due 09/01/21 220 285
Texas Utilities Electric Co.
9.500% due 08/01/99 805 833
TIG Capital Trust I
8.597% due 01/15/27 1,050 1,178
Time Warner, Inc.
7.975% due 08/15/04 300 323
8.110% due 08/15/06 600 661
8.180% due 08/15/07 600 669
6.875% due 06/15/18 950 954
Union Carbide Chemicals & Plastics
7.875% due 04/01/23 590 637
Union Oil Co. (MTN)
9.400% due 02/15/11 470 592
Union Pacific Corp.
7.600% due 05/01/05 120 127
Union Pacific Railroad Trust
Pass-thru Certificate
Series 1996-A2
7.060% due 05/15/03 500 520
Union Planters Bank
6.500% due 03/15/18 670 667
United Technologies Corp.
8.750% due 03/01/21 380 479
US Bank National - Minnesota
5.762% due 12/19/01 2,000 1,998
USA Waste Services, Inc.
6.500% due 12/15/02 825 828
USX Marathon Group
8.500% due 03/01/23 800 937
Virginia Electric & Power Co.
8.750% due 04/01/21 200 214
</TABLE>
78 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Wachovia Corp. New
6.800% due 06/01/05 $ 305 $ 314
Wal-Mart Stores, Inc.
7.500% due 05/15/04 300 321
Wells Fargo & Co.
6.875% due 04/01/06 500 514
Wellsford Residential Properties Trust
9.375% due 02/01/02 750 819
Westvaco Corp.
9.750% due 06/15/20 115 155
Whirlpool Corp.
9.500% due 06/15/00 250 265
Willamette Industries, Inc.
7.850% due 07/01/26 520 586
Wilmington Trust
10.370% due 01/02/07 1,647 1,774
Wisconsin Central Transportation Corp.
6.625% due 04/15/08 850 848
World Financial Properties Tower
Series 1996 WBF-B
6.910% due 09/01/13 1,182 1,229
----------
138,836
----------
EURODOLLAR BONDS - 2.0%
Abbey National PLC
6.700% due 06/29/49 (g) 900 904
Australian Gas Light Co.
6.400% due 04/15/08 1,000 1,014
Caterpillar Financial Services Corp.
5.778% due 02/12/01 (MTN) 4,000 4,004
Finland, Republic of
5.875% due 02/27/06 475 476
Hutchison Whampoa Finance, Ltd.
7.450% due 08/01/17 1,475 1,170
Italy, Republic of
6.875% due 09/27/23 150 165
Nationsbank Corp.
5.838% due 06/17/02 (MTN)(c) 3,000 3,001
Ontario, Province of
7.375% due 01/27/03 525 554
Skandinaviska Enskilda Banken
8.125% due 09/06/49 (g) 800 868
Societe Generale
7.850% due 04/29/49 (g) 1,500 1,603
Svenska Handelsbanken
7.125% due 03/29/49 (g) 875 901
Videotron Holdings PLC Step Up Bond
Zero Coupon due 07/01/04 925 909
----------
15,569
----------
MORTGAGE-BACKED SECURITIES - 36.6%
ACLC Franchise Loan Receivables 1997
Pass Thru Class A1
7.120% due 03/15/12 861 896
American Southwest Financial Corp.
Series G Class G-4 CMO
12.250% due 11/01/14 215 244
BKB Commercial Mortgage Trust
Series 1997-C1 Class B
7.218% due 04/25/00 (c) 712 710
Capita Equipment Receivables Trust
Series 1996 - 1 Class A4
6.280% due 06/15/00 860 864
Chase Commercial Mortgage Securities Corp.
Series 1997-1 Class E
7.370% due 12/19/07 (c) 800 806
Citicorp Mortgage Securities, Inc.
Series 1992-1 Class A-5
8.000% due 04/25/21 285 286
Series 1997-5 Class A1
6.500% due 11/25/27 1,000 1,003
Collateralized Mortgage Obligation Trust 56
Class B CMO
9.985% due 12/01/18 227 244
Commercial Mortgage Acceptance Corp.
Series 1997-ML1 Class A1
6.500% due 11/15/04 (c) 1,191 1,212
CSFB Finance Co., Ltd.
Series 1995-A Class A
7.090% due 11/15/05 (c) 450 444
Delta Funding Home Equity Loan Trust
Series 1997-3 Class M1F
7.080% due 10/25/28 500 506
DLJ Commercial Mortgage Corp
Series 1998-CG1 Class A1A
6.110% due 12/10/07 1,350 1,349
DLJ Mortgage Acceptance Corp.
Series 1993 Class A-2 CMO
7.650% due 09/18/03 2,500 2,532
Federal Home Loan Mortgage Corp. (b)
6.500% 15 Year TBA 6,170 6,212
7.000% 30 Year TBA 1,575 1,599
</TABLE>
Diversified Bond Fund 79
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
6.500% 30 Year TBA $ 32,950 $ 32,857
8.000% 30 Year TBA 1,425 1,474
6.000% 30 Year TBA Gold 2,830 2,759
Federal Home Loan Mortgage Corp.
Partcipation Certificate
7.000% due 1998 8 8
7.000% due 1999 2,315 2,358
7.500% due 2001 171 173
7.000% due 2002 74 75
7.000% due 2003 288 292
6.750% due 2007 344 349
7.000% due 2008 66 67
8.000% due 2008 112 116
8.500% due 2008 143 149
6.500% due 2009 1,496 1,510
7.500% due 2009 (c) 2,061 2,123
8.000% due 2009 229 237
7.500% due 2010 47 48
8.000% due 2010 42 43
6.000% due 2011 6,248 6,221
6.500% due 2011 657 664
7.500% due 2011 416 428
8.000% due 2011 436 450
6.000% due 2012 998 991
7.500% due 2012 688 708
8.000% due 2012 291 301
12.000% due 2014 94 107
12.000% due 2015 63 72
9.000% due 2016 638 679
12.500% due 2016 77 88
8.000% due 2017 661 683
9.000% due 2017 5 5
9.000% due 2018 1,265 1,351
9.000% due 2020 616 658
8.500% due 2022 153 160
9.000% due 2022 204 217
6.500% due 2024 3,237 3,243
7.500% due 2024 1,672 1,713
9.000% due 2024 738 780
8.000% due 2025 4,067 4,250
8.500% due 2025 817 853
9.000% due 2025 543 574
8.500% due 2026 1,069 1,115
9.000% due 2026 22 23
6.500% due 2027 496 495
7.500% due 2027 1,049 1,075
8.500% due 2027 4,420 4,634
6.500% due 2028 1,581 1,577
7.000% due 2028 502 509
7.500% due 2028 3,475 3,561
Federal Home Loan Mortgage Corp.
Participation Certificate
Series 1053 Class G
7.000% due 03/15/21 1,561 1,590
Federal National Mortgage
Association Pools
7.000% due 1999 228 229
7.500% due 1999 (c) 1,683 1,756
7.500% due 1999 (c)(h) 1,201 1,202
7.000% due 2000 685 690
9.500% due 2001 34 35
8.000% due 2002 359 365
9.500% due 2002 83 85
6.000% due 2003 468 466
7.000% due 2003 636 644
7.500% due 2003 841 853
8.000% due 2003 134 136
9.500% due 2003 101 106
6.500% due 2004 28 28
8.000% due 2004 166 169
9.500% due 2005 111 116
7.790% due 2006 775 790
9.500% due 2006 105 110
7.000% due 2007 110 112
6.500% due 2008 656 662
7.000% due 2008 356 363
6.500% due 2009 4,841 4,883
7.000% due 2009 573 586
8.000% due 2010 27 28
10.500% due 2010 28 31
6.000% due 2011 1,630 1,613
7.500% due 2011 195 200
8.000% due 2011 95 98
7.000% due 2012 852 867
7.500% due 2012 114 117
9.000% due 2016 29 31
8.000% due 2017 655 683
9.000% due 2017 664 708
8.000% due 2020 35 36
8.000% due 2022 565 589
7.000% due 2023 741 752
7.000% due 2023 (h) 74 75
8.000% due 2023 109 113
6.500% due 2024 5,301 5,305
</TABLE>
80 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
7.000% due 2024 (h) $ 676 $ 686
7.500% due 2024 584 599
7.000% due 2025 (h) 3,738 3,792
8.500% due 2025 1,074 1,121
8.500% due 2026 2,649 2,765
9.000% due 2026 547 579
6.500% due 2027 2,372 2,363
6.500% due 2028 4,870 4,850
8.000% due 2028 353 365
Federal National Mortgage Association
(REMIC)
Series 1992-10 Class ZD
8.000% due 11/25/21 1,685 1,844
Series 1994-81 Class PJ
8.000% due 07/25/23 1,550 1,681
Series G92-36 Class A
7.000% due 04/25/15 85 85
Federal National Mortgage Association (b)
6.500% 15 Year TBA 1,705 1,715
6.000% 30 Year TBA 4,480 4,361
6.500% 30 Year TBA 2,345 2,335
7.000% 30 Year TBA 2,005 2,033
7.500% 30 Year TBA 8,510 8,728
8.000% 30 Year TBA 2,755 2,851
Federal National Mortgage Association Aces
Series 1998-M1 Class A2
6.250% due 01/25/08 1,250 1,253
Federal National Mortgage Association
Principal Only Strip
Zero Coupon due 03/25/20 124 102
Federal National Mortgage Association
Interest Only Inverse Floater
Series 1993-208 Class SA
0.103% due 02/25/23 (c) 32,569 364
First Union Lehman Brothers Commercial Trust
Series 1997 - C1 Class C
7.440% due 04/18/07 750 794
Government National Mortgage
Association Pools
6.500% due 2008 175 177
6.500% due 2009 1,578 1,599
7.000% due 2011 21 21
9.000% due 2016 1,586 1,704
9.500% due 2016 82 89
8.000% due 2017 2,229 2,407
9.000% due 2017 153 166
9.000% due 2020 59 63
10.500% due 2020 340 378
10.500% due 2021 55 62
7.000% due 2022 617 628
7.000% due 2023 (c) 9,357 9,578
7.000% due 2023 2,278 2,317
7.500% due 2023 2,166 2,228
7.000% due 2024 (c) 1,652 1,670
7.000% due 2024 7,106 7,226
7.500% due 2024 1,215 1,250
7.500% due 2025 1,738 1,787
8.000% due 2025 3,134 3,248
9.000% due 2025 5,445 5,857
6.500% due 2026 261 260
8.000% due 2026 5,190 5,378
7.000% due 2027 2,970 3,017
7.500% due 2027 1,974 2,029
8.000% due 2027 3,473 3,599
8.500% due 2027 306 322
6.500% due 2028 7,336 7,320
7.000% due 2028 193 196
Government National Mortgage Association (b)
6.500% 30 Year TBA 5,980 5,967
7.500% 30 Year TBA 9,955 10,232
8.000% 30 Year TBA 2,825 2,927
GS Mortgage Securities Corp. II
Series 1997-GL Class A2A
6.940% due 07/13/30 2,079 2,121
Series 1998-GLII Class A1
6.312% due 04/13/31 (c) 973 983
Housing Securities, Inc.
Series 1994-2 Class A1
6.500% due 07/25/09 861 865
Lehman Brothers Mortgage Trust, Inc.
Series 1991-2 Class A-1
8.000% due 03/20/99 23 24
Merrill Lynch Mortgage Investors, Inc.
Series 1996-C2 Class A1
6.690% due 11/21/28 453 462
Series 1996-C2 Class A2
6.820% due 11/21/28 2,400 2,480
Series 1997-C1 Class A1
6.950% due 06/18/29 (c) 3,574 3,689
Mortgage Capital Funding, Inc.
Series 1996-MC1 Class A2B
7.900% due 02/15/06 775 831
</TABLE>
Diversified Bond Fund 81
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Norwest Asset Securities Corp.
Series 1997-9 Class A5
7.000% due 06/25/12 $ 961 $ 983
Series 1998-7 Class B4
6.500% due 04/25/13 2,113 2,124
Railcar Leasing, LLC
Series 1 Class A1
6.750% due 07/15/06 1,953 1,997
Residential Funding Mortgage Securities
Series 1997-S4 Class A5
7.000% due 03/25/12 950 970
Series 1997-S10 Class A-5
7.000% due 07/25/12 965 986
Series 1997-S18 Class A7
6.750% due 11/25/12 733 747
Series 1998-S9 Class 1A1
6.500% due 04/25/13 1,111 1,117
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1992 Class A-3
10.500% due 05/25/24 (c) 128 129
Series 1994-C1 Class C
8.000% due 06/25/26 975 1,027
Series 1994-C2 Class D
8.000% due 04/25/25 368 378
Series 1995-C1 Class C
6.900% due 02/25/27 (c) 350 355
Series 1995-C1 Class D
6.900% due 02/25/27 775 775
Ryland Acceptance Corp. Four
Series 88 Class E CMO
7.950% due 01/01/19 1,944 2,017
Structured Asset Securities Corp.
Mortgage Pass-thru Certificate
Series 1996-CFL Class C
6.525% due 02/25/28 300 301
United States Department of Veteran Affairs
REMIC
Series 1992-1 Class 2-E
7.750% due 03/15/16 550 564
WFS Financial Owner Trust
Series 1998-A Class A4
5.950% due 05/20/03 2,610 2,612
----------
286,457
----------
UNITED STATES GOVERNMENT
AGENCIES - 4.9%
Federal Home Loan Bank
6.450% due 03/13/02 4,250 4,301
Federal National Mortgage Association
5.790% due 10/12/99 (MTN) 4,000 4,008
6.100% due 10/06/00 (MTN) 1,305 1,309
6.250% due 11/20/02 (MTN) 1,335 1,344
7.780% due 09/29/06 (MTN) 665 680
6.940% due 03/19/07 (MTN) 1,065 1,097
7.280% due 05/23/07 (MTN) 655 684
6.900% due 08/21/07 (MTN) 2,155 2,222
6.780% due 10/22/07 (MTN) 2,010 2,060
6.000% due 05/15/08 4,600 4,663
Government Backed Trust Certificates
Class 1-C
9.250% due 11/15/01 2,725 2,890
Government Backed Trust Certificates
Series 2E
9.400% due 05/15/02 803 848
Series T-3
9.625% due 05/15/02 (c) 3,091 3,270
Resolution Funding Corp.
8.625% due 01/15/21 1,380 1,844
8.625% due 01/15/30 390 545
8.875% due 07/15/20 1,855 2,550
Tennessee Valley Authority
Series E
6.250% due 12/15/17 610 630
6.750% due 11/01/25 2,900 3,207
----------
38,152
----------
UNITED STATES GOVERNMENT
TREASURIES - 24.8%
United States Treasury Bonds
10.750% due 05/15/03 5,825 7,098
10.750% due 08/15/05 5,760 7,494
8.750% due 11/15/08 2,680 3,059
10.375% due 11/15/09 1,510 1,887
11.750% due 02/15/10 3,025 4,036
12.750% due 11/15/10 13,805 19,661
13.875% due 05/15/11 2,120 3,217
14.000% due 11/15/11 1,100 1,707
10.375% due 11/15/12 980 1,312
12.000% due 08/15/13 980 1,453
13.250% due 05/15/14 725 1,166
11.750% due 11/15/14 195 293
9.875% due 11/15/15 2,850 4,151
</TABLE>
82 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
7.250% due 05/15/16 $ 1,075 $ 1,259
9.250% due 02/15/16 3,920 5,452
7.500% due 11/15/16 7,900 9,484
8.750% due 05/15/17 230 310
8.875% due 08/15/17 7,130 9,720
8.125% due 08/15/19 9,610 12,403
8.000% due 11/15/21 12,460 16,062
7.625% due 11/15/22 6,980 8,699
6.250% due 08/15/23 2,210 2,366
7.500% due 11/15/24 1,255 1,557
6.875% due 08/15/25 1,100 1,274
6.750% due 08/15/26 13,535 15,495
6.500% due 11/15/26 2,000 2,221
6.625% due 02/15/27 3,975 4,489
United States Treasury Notes
5.875% due 08/31/99 4,365 4,382
6.875% due 08/31/99 2,990 3,035
5.875% due 10/31/99 1,055 1,056
5.875% due 11/15/99 3,625 3,641
7.750% due 11/30/99 7,060 7,271
7.750% due 01/31/00 2,075 2,144
5.875% due 02/15/00 95 96
6.000% due 08/15/00 10,595 10,696
8.750% due 08/15/00 795 846
6.250% due 08/31/00 425 431
5.250% due 01/31/01 30 30
6.375% due 03/31/01 90 92
5.875% due 11/30/01 50 51
6.250% due 01/31/02 985 1,007
6.250% due 02/28/02 7,180 7,345
6.500% due 05/31/02 330 341
3.625% due 07/15/02 4,000 3,956
5.750% due 10/31/02 640 645
----------
194,390
----------
YANKEE BONDS - 1.9%
Abitibi-Consolidated Inc. (h)
7.400% due 04/01/18 400 407
7.500% due 04/01/28 675 689
African Development Bank
9.750% due 12/15/03 325 381
6.750% due 10/01/04 300 312
6.875% due 10/15/15 1,245 1,323
8.800% due 09/01/19 295 382
Alberta, Province of
9.250% due 04/01/00 160 169
Asian Development Bank
8.000% due 04/30/01 175 184
8.500% due 05/02/01 180 192
6.250% due 10/24/05 315 320
Canadian Occidental Petroleum Ltd.
7.400% due 05/01/28 900 918
Carter Holt Harvey Ltd.
8.875% due 12/01/04 350 392
Hydro Quebec
Series GH
8.250% due 04/15/26 505 612
International American Development Bank
7.000% due 06/15/25 1,400 1,571
6.950% due 08/01/26 155 172
International Bank for Reconstruction &
Development
8.625% due 10/15/16 270 348
Manitoba, Province of
Series CB
8.800% due 01/15/20 200 261
Series CD
9.250% due 04/01/20 200 271
New Brunswick, Province of
7.125% due 10/01/02 400 416
9.750% due 05/15/20 190 269
Newfoundland, Province of
10.000% due 12/01/20 90 128
Noranda Forest, Inc.
6.875% due 11/15/05 250 253
Nova Scotia, Province of
9.125% due 05/01/21 690 916
Quebec, Province of
7.125% due 02/09/24 985 1,054
Royal Caribbean Cruises Ltd.
7.250% due 03/15/18 450 461
Saskatchewan, Province of
8.000% due 07/15/04 1,045 1,151
Tyco International Group S.A.
6.375% due 06/15/05 700 702
Wharf International Finance, Ltd.
7.625% due 03/13/07 850 670
----------
14,924
----------
TOTAL LONG-TERM INVESTMENTS
(cost $738,521) 756,416
----------
</TABLE>
Diversified Bond Fund 83
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NOTIONAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
OPTIONS PURCHASED - 0.0%
United States Treasury 10 Year Notes (e)
Jul 99.98 Call** $ 8,900 $ 8
Aug 100.65 Call** 300 3
Sep 100.47 Call** 900 13
Sep 101.61 Call* 601 5
Sep 100.55 Call* 592 8
United States Treasury 30 Year Bonds (e)
Nov 109.52 Call** 2,300 30
----------
TOTAL OPTIONS PURCHASED
(cost $56) 67
----------
<CAPTION>
NUMBER
OF
SHARES
----------
<S> <C> <C>
PREFERRED STOCKS - 0.3%
Credit Lyonnais Capital S.C.A. - ADR 15,700 393
Equity Office Properties Trust 21,500 935
TIG Holdings, Inc. 7,200 764
----------
TOTAL PREFERRED STOCKS
(cost $2,190) 2,092
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 13.3%
Federal Home Loan Mortgage
Discount Notes (a)(f)
5.400% due 07/09/98 $ 2,000 1,998
5.450% due 07/20/98 3,340 3,330
5.400% due 08/28/98 2,000 1,982
Frank Russell Investment Company
Money Market Fund,
due on demand (a) 95,837 95,837
Raytheon Co.
5.700% due 07/09/98 (a) 1,000 999
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $104,146) 104,146
----------
TOTAL INVESTMENTS
(identified cost $844,913)(d) - 110.2% 862,721
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (10.2%) (79,668)
----------
NET ASSETS - 100.0% $ 783,053
----------
----------
</TABLE>
(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.
(f) Rate noted is yield-to-maturity.
(g) Perpetual floating rate note.
(h) Held as collateral in connection with options written
by the Fund.
* Represents 1 OTC contract.
** $100,000 notional amount represents 1 contract.
ABBREVIATIONS:
ADR - American Depositary Receipt
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced Security
The accompanying notes are an integral part of the financial statements.
84 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NOTIONAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
OPTIONS WRITTEN
(Notes 2 and 3)
Abitibi-Consolidated, Inc.*
Aug 138.00 Call $ 675 $ --
Aug 148.00 Call 400 --
Federal National Mortgage Association*
Aug 102.84 Call 1,188 --
Sep 101.29 Call 1,462 6
Sep 101.30 Call 1,462 6
United States Treasury 10 Year Notes**
Jul 99.75 Call 3,400 10
Jul 112.19 Call 2,000 --
Nov 109.00 Call 2,100 2
Nov 94.28 Put 2,300 --
United States Treasury 30 Year Bonds**
Nov 95.27 Put 2,100 --
----------
Total Liability for Options Written
(premiums received $76)(#) $ 24
----------
----------
</TABLE>
(#) At June 30, 1998, United States Government Securities valued at $20,007
were held as collateral in connection with options written by the Fund.
* Represents 1 OTC contract.
** $100,000 notional amount represents 1 contract.
The accompanying notes are an integral part of the financial statements.
Diversified Bond Fund 85
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $844,913)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 862,721
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,648
Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,122
Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,403
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,698
-----------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,592
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 4,170
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 99,690
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 331
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Options written, at market value (premiums received $76)(Notes 2 and 3). . . . . . . 24
-------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,539
-----------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 783,053
-----------------
-----------------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,657
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,036)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,808
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765,242
-----------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 783,053
-----------------
-----------------
NET ASSET VALUE, offering and redemption price per share:
Class S ($779,739,493 divided by 32,903,022 shares of $.01 par value
shares of beneficial interest outstanding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23.70
-----------------
-----------------
Class E ($3,313,059 divided by 137,920 shares of $.01 par value
shares of beneficial interest outstanding)(Note 1). . . . . . . . . . . . . . . . . . . . . . . . . $ 24.02
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
86 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,809
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,425
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,294
EXPENSES (Notes 1, 2 and 4):
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,618
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 4
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,058
--------------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,236
--------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,688
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . (2) 4,856
------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (10) 182
------------ --------------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,038
--------------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . $ 27,274
--------------------
--------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Diversified Bond Fund 87
<PAGE>
DIVERSIFIED BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX FOR THE
MONTHS ENDED FISCAL YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
--------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,236 $ 39,108
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,856 4,407
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 182 11,285
--------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 27,274 54,800
--------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,359) (39,001)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120) (45)
In excess of net investment income
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (514)
In excess of net realized gain on investments
Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (578) (2,393)
Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (8)
--------------- -----------------
Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . . (19,060) (41,961)
--------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 85,039 121,196
--------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 93,253 134,035
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689,800 555,765
--------------- -----------------
End of period (including undistributed net investment income of
$3,657 and accumulated distributions in excess of net investment
income of $100, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . $ 783,053 $ 689,800
--------------- -----------------
--------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
88 Diversified Bond Fund
<PAGE>
DIVERSIFIED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS S
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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 23.43 $ 22.97 $ 23.69 $ 21.53 $ 23.73 $ 23.49
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .71(c) 1.45 1.47 1.54 1.46 1.48
Net realized and unrealized gain (loss) on investments . .16 .56 (.71) 2.18 (2.22) .83
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . .87 2.01 .76 3.72 (.76) 2.31
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . (.58) (1.45) (1.48) (1.56) (1.42) (1.48)
In excess of net investment income . . . . . . . . . . . -- (.02) -- -- -- (.01)
Net realized gain on investments . . . . . . . . . . . . -- -- -- -- -- (.58)
In excess of net realized gain on investments . . . . . (.02) (.08) -- -- (.02) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.60) (1.55) (1.48) (1.56) (1.44) (2.07)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 23.70 $ 23.43 $ 22.97 $ 23.69 $ 21.53 $ 23.73
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 3.77 9.09 3.43 17.76 (3.25) 10.02
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 779,739 687,331 554,804 513,808 525,315 477,341
Ratios to average net assets (%)(b):
Operating expenses . . . . . . . . . . . . . . . . . .56 .60 .61 .59 .56 .58
Net investment income . . . . . . . . . . . . . . . . 6.03 6.35 6.46 6.69 6.57 6.13
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 185.78 172.43 138.98 135.85 153.21 177.74
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the periods ended June 30, 1998 are annualized.
(c) Average month-end shares outstanding for the period were used for this
calculation.
Diversified Bond Fund 89
<PAGE>
DIVERSIFIED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS E
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>
YEAR ENDED DECEMBER 31,
-----------------------
1998* 1997 1996**
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . $ 24.06 $ 22.98 $ 23.16
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . .67(d) 1.22 .25
Net realized and unrealized gain (loss) on investments . . . .14 .66 (.09)
---------- ---------- ----------
Total Income From Investment Operations . . . . . . . . . .81 1.88 .16
---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . (.83) (.72) (.34)
Net realized gain on investments . . . . . . . . . . . . . . -- -- --
In excess of net realized gain on investments. . . . . . . . (.02) (.08) --
---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . . . (.85) (.80) (.34)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . $ 24.02 $ 24.06 $ 22.98
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . 3.44 8.35 .67(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . 3,313 2,469 962
Ratios to average net assets (%)(c):
Operating expenses. . . . . . . . . . . . . . . . . . . . 1.14 1.29 1.31
Net investment income . . . . . . . . . . . . . . . . . . 5.45 5.64 5.75
Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . 185.78 172.43 138.98
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period November 4, 1996 (commencement of sale) to
December 31, 1996.
(a) Periods less than one year are not annualized.
(b) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.
(d) Average month-end shares outstanding for the period were used for this
calculation.
90 Diversified Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 94.3%
ASSET-BACKED SECURITIES - 34.0%
ABFS Equipment Contract Trust
6.100% due 10/15/05 $ 400 $ 401
Advanta Home Equity Loan Trust
Series 1994-1 Class A-2
6.300% due 07/25/25 152 152
AFC Home Equity Loan Trust
Series 1993-2 Class A
6.000% due 01/20/13 129 128
AFC Mortgage Loan Trust
Series 1996-3 Class 1A2
7.220% due 02/25/27 123 123
Banc One Auto Grantor Trust
Series 1997-A Class A
6.270% due 11/20/03 2,204 2,218
Barnett Auto Trust
Series 1997-A Class A3
6.030% due 11/15/01 5,700 5,713
California Infrastructure PG&E
Series 1997-1 Class A3
6.150% due 06/25/02 1,600 1,610
Case Equipment Loan Trust
Series 1997-B Class C
6.410% due 09/15/04 233 234
Chase Credit Card Master Trust
Series 1997-2 Class A
6.300% due 04/15/03 2,900 2,933
Series 1997-5 Class A
6.194% due 08/15/05 800 813
Chase Manhattan Auto Owner Trust
Series 1998-B Class A4
5.800% due 02/17/03 2,000 2,000
Chemical Master Credit Card Trust I
Series 1996-1 Class A
5.550% due 09/15/03 4,000 3,961
Chevy Chase Auto Receivables Trust
Series 1996-2 Class A
5.900% due 07/15/03 619 619
Series 1997-1 Class A
6.500% due 10/15/03 872 876
Series 1997-3 Class A
6.200% due 03/20/04 (c) 699 702
Contimortgage Home Equity Loan
Trust Pass-thru Certificate
Series 1997-4 Class A2
6.270% due 02/15/12 500 500
Delta Funding Home Equity Loan Trust
Series 1998-1 Class A2A
5.858% due 05/25/30 (c) 364 364
EQCC Home Equity Loan Trust
Series 1993-4 Class A
5.725% due 12/15/08 42 42
Equivantage Home Equity Loan Trust
Series 1996-1 Class A
6.550% due 10/25/25 15 15
Fingerhut Master Trust
Series 1998-1 Class A
6.070% due 02/15/05 250 250
First Chicago Master Trust II
Credit Card Certificates
Series 1994-L
7.150% due 04/15/01 3,200 3,249
First Security Auto Grantor Trust
Series 1997-A Class A
6.300% due 08/15/03 500 502
Green Tree Financial Corp.
Series 1998-1 Class A3
5.950% due 04/01/13 500 500
Series 1998-2 Class A3
6.050% due 10/01/07 325 326
Green Tree Home Improvement Loan Trust
Series 1997-A Class HIA3
7.050% due 08/15/23 500 509
Honda Auto Receivables Grantor Trust
Series 1995-A Class A
6.200% due 12/15/00 209 209
Series 1997-A Class A
5.850% due 02/15/03 253 253
IMC Home Equity Loan Trust
Series 1997-5 Class A1
6.510% due 02/20/06 (c) 433 434
Series 1998-1 Class A3
6.410% due 04/20/18 350 351
Nationsbank Credit Card Master Trust
Series 1995-1 Class A
6.450% due 04/15/03 2,500 2,528
New Century Home Equity Loan Trust
Series 1998-NC3 Class A1
6.000% due 06/26/28 1,000 996
Nissan Auto Receivables Grantor Trust
Series 1997-1 Class A
6.150% due 02/15/03 633 634
NPF VI Inc.
Series 1998-1A Class A
6.220% due 06/01/02 400 401
</TABLE>
92 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Olympic Automobile Receivables Trust
Series 1996-B Class A4
6.700% due 03/15/02 $ 1,000 $ 1,010
Series 1996-D Class CTFS
6.125% due 04/15/02 2,315 2,316
PBG Equipment Trust
Series 1A Class A
6.270% due 01/20/12 550 550
PNC Student Loan Trust I
Series 1997-2 Class A3
6.314% due 01/25/01 3,500 3,540
Premier Auto Trust
Series 1997-3 Class A4
6.200% due 01/06/01 3,500 3,514
Prime Credit Card Master Trust
Series 1992-2 Class A2
7.450% due 11/15/02 1,000 1,022
Remodelers Home Improvement Loan
Series 1995-3 Class A2
6.800% due 12/20/07 76 76
Rental Car Finance Corp.
Series 1997-1 Class A1
6.250% due 06/25/03 420 421
Ryder Vehicle Lease Trust
Series 1998-A Class A
6.100% due 09/15/08 (c) 400 400
Sears Credit Account Master Trust II
Series 1995-3 Class A
7.000% due 10/15/04 500 510
Series 1997-1 Class A
6.200% due 07/16/07 500 503
Series 1998-1 Class A
5.800% due 08/15/05 1,000 998
SPNB Home Equity Loan
Series 1991-1 Class B
8.150% due 06/15/20 39 39
Standard Credit Card Master Trust
Series 1994-4 Class A
8.250% due 11/07/03 850 906
The Money Store Auto Grantor Trust
Series 1997-4 Class A2
6.350% due 03/20/04 500 504
The Money Store Small Business
Administration Loan Trust
Series 1997-1 Class A
6.241% due 01/15/25 (c) 483 484
Series 1997-1 Class B
6.720% due 01/15/25 (c) 483 486
Toyota Auto Lease Trust
Series 1997-A Class A1
6.200% due 04/26/04 3,600 3,612
UCFC Home Equity Loan Trust
Series 1993-B1 Class A-1
6.075% due 07/25/14 78 78
WFS Financial Owner Trust
Series 1996-D Class A3
6.050% due 07/20/01 (c) 2,947 2,955
World Omni Automobile Lease
Securitization Trust
Series 1996-B Class A3
6.250% due 11/15/02 696 700
Series 1996-B Class B
6.850% due 11/15/02 (c) 399 399
Series 1997-A Class A2
6.750% due 06/25/03 (c) 3,498 3,525
Series 1997-A Class A4
6.900% due 06/25/03 400 406
Series 1997-B Class A1
6.070% due 11/25/03 600 600
----------
64,100
----------
CORPORATE BONDS AND NOTES - 28.4%
Advanta National Bank
6.450% due 10/30/00 250 239
Ahmanson (H.F.)
9.875% due 11/15/99 900 944
Aristar Inc.
6.125% due 12/01/00 500 501
Associates Corp. of North America
6.375% due 08/15/00 4,000 4,033
Banco De Latinoamerica
6.500% due 04/02/01 (c) 1,000 1,013
Bankamerica Corp.
9.500% due 04/01/01 750 812
Banponce Corp. (MTN)
Series 2
5.750% due 03/01/99 1,100 1,098
</TABLE>
Volatility Constrained Bond Fund 93
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Bear Stearns Co., Inc.
7.625% due 09/15/99 $ 725 $ 738
Caterpillar Financial Services (MTN)
6.100% due 07/15/99 500 501
Chase Manhattan Corp.
10.125% due 11/01/00 750 817
5.813% due 12/05/09 (c) 800 790
Chrysler Financial Corp. (MTN)
6.610% due 06/16/00 850 860
CIT Group Holdings, Inc. (MTN)
6.125% due 12/15/00 3,100 3,111
Coca-Cola Put Asset Trust
6.000% due 03/15/01 950 951
Comdisco, Inc. (MTN)
6.070% due 05/08/00 1,000 1,003
Conseco, Inc.
6.400% due 06/15/0 (c) 850 849
Cox Enterprises, Inc.
6.250% due 08/26/99 1,000 1,002
Crescent Real Estate Equities
6.625% due 09/15/02 750 740
ERAC USA Finance Co.
6.375% due 05/15/03 825 827
ERP Operating, L.P.
8.500% due 05/15/99 225 229
Finova Capital Corp.
6.450% due 06/01/00 625 630
First Bank South Dakota
5.722% due 12/20/00 (c) 500 500
First Chicago Corp.
9.000% due 06/15/99 500 514
First Industrial, L.P.
6.500% due 04/05/01 (c) 1,075 1,077
Franchise Finance Corp.
7.000% due 11/30/00 575 584
General Electric Capital Corp. (MTN)
6.120% due 08/15/00 4,000 4,026
General Motors Acceptance Corp. (MTN)
7.500% due 07/22/99 850 864
7.465% due 07/25/19 938 941
7.012% due 04/01/20 (c) 972 984
Greyhound Financial Corp.
8.500% due 02/15/99 775 786
Heller Financial, Inc. (MTN)
5.738% due 03/01/99 (c) 600 600
Hertz Corp.
6.625% due 07/15/00 650 655
Homeside Lending, Inc. (MTN)
6.875% due 05/15/00 825 839
JC Penney & Co., Inc. (MTN)
6.375% due 09/15/00 675 682
KeyCorp
8.400% due 04/01/99 1,000 1,017
Lehman Brothers Holdings, Inc. (MTN)
6.000% due 02/26/01 1,250 1,248
Lehman Brothers Holdings, Inc. (MTN)
Series IBC
7.000% due 05/13/99 700 706
Liberty Property, L.P. (MTN)
6.600% due 06/05/02 400 405
MBNA Corp. (MTN)
Series B
6.500% due 09/15/00 375 377
MCI Communications Corp.
6.125% due 04/15/02 (c) 1,250 1,251
Merrill Lynch & Co., Inc. (MTN)
7.260% due 03/25/02 925 950
Midlantic Corp.
9.250% due 09/01/99 450 466
Norwest Financial, Inc.
6.375% due 09/15/02 500 505
Procter & Gamble
9.625% due 01/14/01 3,900 4,211
Salomon Smith Barney Holdings, Inc.
6.625% due 07/01/02 75 76
6.500% due 10/15/02 300 303
Salomon, Inc. (MTN)
5.382% due 04/05/99 (c) 1,000 1,000
Sears Roebuck Acceptance Corp. (MTN)
6.160% due 09/20/00 4,000 4,017
Sears Roebuck Acceptance Corp. (MTN)
Series II
6.690% due 04/30/01 750 763
Sovereign Bancorp, Inc. (Regd)
6.750% due 07/01/00 625 631
Wellsford Residential Property Trust (MTN)
6.019% due 11/24/99 (c) 850 851
----------
53,517
----------
EURODOLLAR BONDS - 0.8%
ALPS Pass-thru Trust
Series 1994-1 Class A-2
7.150% due 09/15/04 (c) 262 262
</TABLE>
94 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Videotron Holdings PLC Step Up Bond
Zero Coupon due 07/01/04 $ 1,175 $ 1,155
----------
1,417
----------
MORTGAGE-BACKED SECURITIES - 10.4%
Bayview Financial Acquisition Trust
Series 1998-1 Class A1
7.010% due 05/25/29 600 609
Bear Stearns Mortgage Securities, Inc.
Series 1996-6 Class A2
7.000% due 11/25/27 688 688
BKD Commercial Mortgage Trust
Series 1997-C1 Class B
7.218% due 04/25/00 (c) 441 440
Chase Mortgage Finance Corp.
Series 1998-S2 Class A1
6.500% due 07/25/28 500 502
Citicorp Mortgage Securities, Inc.
REMIC Series 1997-5 Class A1
6.500% due 11/25/27 400 401
Credit Suisse First Boston Mortgage
7.000% due 12/25/37 450 450
Federal Home Loan Mortgage Corp (MTN).
6.770% due 09/15/02 300 311
Federal Home Loan Mortgage Corp. Groups
7.500% due 2000 169 170
7.500% due 2002 70 71
9.000% due 2005 203 209
7.375% due 2006 188 192
8.000% due 2018 645 668
Federal Home Loan Mortgage Corp.
Participation Certificate
Series 1540 Class C
6.050% due 02/15/11 692 693
Series 2061 Class PH
6.000% due 05/15/16 400 400
Federal National Mortgage Association Pools
7.000% due 2004 621 629
8.750% due 2004 40 42
8.500% due 2010 612 638
6.250% due 2013 1,400 1,416
Federal National Mortgage Association
Grantor Trust
REMIC Series 1996-T6 Class C
6.200% due 02/26/01 988 988
GE Capital Mortgage Services, Inc.
Series 1998-10 Class 2A1
6.500% due 05/25/13 500 502
REMIC Series 1997-9 Class 1A2
6.750% due 10/25/27 300 302
Government National Mortgage
Association Pools
9.500% due 2025 597 647
7.250% due 2026 913 940
Merit Securities Corp.
Series II Class 1A1
6.580% due 07/28/22 1,100 1,100
Norwest Integrated Structured Assets, Inc.
Series 1998-1 Class 2A1
7.000% due 06/25/28 500 503
Prudential Home Mortgage Securities Co.
Series 1993-S7 Class A4
5.900% due 12/25/23 850 843
Series 1994-19 Class A2
7.050% due 05/25/24 370 373
Residential Accredited Loans, Inc.
Series 1997-QS7 Class A1
7.500% due 07/25/27 279 282
Residential Asset Secruitization Trust
Mortgage Pass-thru Certificates
Series 1996-A8 Class A1
8.000% due 12/25/26 20 20
Series 1997-A5 Class A3
7.125% due 07/25/27 50 50
Series 1997-A9 Class A1
7.250% due 11/26/27 6 6
Series 1998-A2 Class A1
6.750% due 04/25/28 473 475
Series 1998-A5 Class A1
6.750% due 05/25/28 494 494
Residential Funding Mortgage Securities I
Series 1997-S12 Class A10
6.700% due 08/25/27 850 853
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1994-C1 Class D
8.000% due 06/25/26 (c) 647 657
Series 1995-2 Class C1
7.450% due 05/25/29 (c) 264 268
SASCO LLC
Series 1997-N1 Class D
6.178% due 09/25/28 (c) 600 600
</TABLE>
Volatility Constrained Bond Fund 95
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Structured Asset Securities Corp.
Series 1998-C2A Class A
6.145% due 01/25/13 (c) $ 200 $ 200
Union Planters Mortgage Finance Corp.
Series 1998-A Class A1
6.350% due 01/25/28 475 476
Wilshire Funding Corporation
Series 1997-WFC1 Class AI
7.250% due 08/25/27 607 612
----------
19,720
----------
MUNICIPAL BONDS - 0.3%
Philadelphia, Pennsylvania, Authority
for Industrial Development Class A
6.480% due 06/15/04 604 623
----------
623
----------
UNITED STATES GOVERNMENT
AGENCIES - 0.3%
Federal Home Loan Bank
6.070% due 01/17/01 500 499
----------
499
----------
UNITED STATES GOVERNMENT
TREASURIES - 17.8%
United States Treasury Notes
6.000% due 06/30/99 850 854
5.875% due 11/15/99 225 226
5.375% due 02/01/00 75 75
5.375% due 02/15/01 15,800 15,746
6.500% due 08/31/01 1,625 1,669
6.250% due 02/28/02 650 665
3.625% due 07/15/02 10,558 10,442
5.750% due 10/31/02 500 504
5.750% due 11/30/02 3,120 3,146
5.500% due 05/31/03 250 250
----------
33,577
----------
YANKEE BONDS - 2.3%
Brascan, Ltd.
7.375% due 10/01/02 1,000 1,028
Household International
5.250% due 10/15/98 850 849
Noranda Forest, Inc.
8.875% due 10/15/99 450 465
Quebec, Province of
13.250% due 09/15/14 450 506
Tyco International Group SA
6.125% due 06/15/01 500 501
Westpac Banking, Ltd.
7.875% due 10/15/02 1,006 1,067
----------
4,416
----------
TOTAL LONG-TERM INVESTMENTS
(cost $177,577) 177,869
----------
SHORT-TERM INVESTMENTS - 5.3%
Frank Russell Investment Company
Money Market Fund,
due on demand (a) 9,979 9,979
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $9,979) 9,979
----------
TOTAL INVESTMENTS
(identified cost $187,556)(b) - 99.6% 187,848
OTHER ASSETS AND LIABILITIES,
NET - 0.4% 809
----------
NET ASSETS - 100.0% $ 188,657
----------
----------
</TABLE>
(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
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
96 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $187,556)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 187,848
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,125
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 9,326
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,444
LIABILITIES
Payables:
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 604
Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,488
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 127
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 9,326
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,787
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,657
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 831
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,357)
Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 292
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,792
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,657
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($188,656,577 divided by 9,886,198 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.08
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Volatility Constrained Bond Fund 97
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,292
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-----------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,581
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 448
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707
-----------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,874
-----------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (269)
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 337
-----------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
-----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 4,942
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
98 Volatility Constrained Bond Fund
<PAGE>
VOLATILITY CONSTRAINED BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,874 $ 9,182
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (269) (141)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 337 325
---------------- ---------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 4,942 9,366
---------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,751) (9,388)
---------------- ---------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 15,490 9,801
---------------- ---------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 15,681 9,779
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,976 163,197
---------------- ---------------
End of period (including undistributed net investment income of
$831 and $708, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,657 $ 172,976
---------------- ---------------
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Volatility Constrained Bond Fund 99
<PAGE>
VOLATILITY CONSTRAINED BOND 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998* 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 19.06 $ 19.07 $ 19.21 $ 18.64 $ 19.78 $ 19.51
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . .50 1.07 1.09 1.21 1.15 .82
Net realized and unrealized gain (loss) on investments . .02 .02 (.22) .58 (1.16) .45
---------- ---------- ---------- ---------- ---------- ----------
Total Income From Investment Operations . . . . . . . .52 1.09 .87 1.79 (.01) 1.27
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income. . . . . . . . . . . . . . . . . . (.50) (1.10) (1.01) (1.22) (1.13) (.71)
Tax return of capital. . . . . . . . . . . . . . . . . . -- -- -- -- -- (.29)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . (.50) (1.10) (1.01) (1.22) (1.13) (1.00)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 19.08 $ 19.06 $ 19.07 $ 19.21 $ 18.64 $ 19.78
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . 2.75 5.90 4.66 9.89 (.02) 6.67
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . 188,657 172,976 163,197 181,881 195,007 225,672
Ratios to average net assets (%)(b):
Operating expenses. . . . . . . . . . . . . . . . . . .78 .78 .76 .71 .67 .66
Net investment income . . . . . . . . . . . . . . . . 5.38 5.63 5.69 6.33 5.97 5.79
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 136.83 197.45 311.51 256.72 182.65 220.77
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended June 30, 1998 are annualized.
100 Volatility Constrained Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 95.1%
ASSET-BACKED SECURITIES - 4.5%
ACLC Franchise Loan Receivables
Series 1997-B Class A1
6.728% due 04/15/14 $ 987 $ 1,004
Advanta Mortgage Loan Trust
7.040% due 01/25/29 1,600 1,645
American Airlines, Inc.
Series 1990-H
9.800% due 01/02/08 1,190 1,460
Class A-1
9.710% due 01/02/07 333 383
Cityscape Home Equity Loan Trust
Pass-thru Certificate
Series 1996-2 Class A2
7.200% due 04/25/11 826 837
Contimortgage Home Equity Loan Trust
6.430% due 04/15/16 870 876
7.220% due 01/15/28 370 379
Fleetwood Credit Corp. Grantor Trust
Series 1994-B Class A
6.750% due 03/15/10 308 310
Fund America Investors Corp. II
Pass-thru Certificate
Series 1993-F Class A-1
5.400% due 09/25/09 82 81
GMAC Commercial Mortgage Securities, Inc.
Series 1996-C1 Class F
7.860% due 11/15/06 500 489
Green Tree Financial Corp.
Series 1995-5 Class A3
6.250% due 10/15/25 856 858
Series 1995-6 Class A3
6.650% due 11/15/25 900 905
Series 1995-8 Class A2
6.150% due 12/15/26 (b) 176 176
Series 1998-4 Class A3
5.980% due 08/01/08 1,800 1,801
Green Tree Home Equity Loan Trust
Series 1998-C Class A2
6.030% due 07/15/29 1,300 1,302
Green Tree Recreational Equipment
6.100% due 11/15/10 800 800
Greenwich Capital Acceptance, Inc.
Series 1994 Class A-1
8.725% due 11/25/24 (b) 121 126
IMC Home Equity Loan Trust
Series 1998-3 Class A3
6.160% due 05/20/14 490 490
MBNA Master Credit Card Trust
Series 1994-B Class A
5.591% due 01/15/02 (b) 2,000 1,999
New Century Home Equity Loan Trust
Series 1997-NC6 Class A4
6.730% due 07/25/22 300 305
Residential Funding Mortgage Securities II
Series 1997-HS5 Class M1
7.010% due 05/25/27 1,400 1,425
Salomon Brothers Mortgage
Securities VII, Inc.
Series 1997 Class A2
7.174% due 03/25/25 855 894
Southern Pacific Secured Assets Corp.
Series 1998-1 Class A2
6.270% due 02/25/18 1,000 1,001
Student Loan Marketing Association
Series 1997-3 Class A1
5.787% due 04/25/06 (b) 2,721 2,716
The Money Store Home Equity Loan Trust
Series 1996-A Class A5
6.850% due 06/15/19 700 709
UCFC Home Equity Loan Trust
Series 1996-B1 Class A7
8.200% due 09/15/27 320 347
----------
23,318
----------
CORPORATE BONDS AND NOTES - 33.1%
A.H. Belo Corp.
6.875% due 06/01/02 900 918
Aames Financial Corp.
9.125% due 11/01/03 475 471
Advanta National Bank
6.450% due 10/30/00 700 699
Albank Capital Trust
9.270% due 06/06/27 625 729
American General Institutional Capital
Series B
8.125% due 03/15/46 1,130 1,284
American Standard Co.
7.375% due 04/15/05 1,675 1,669
Amerus Capital I Series A
8.850% due 02/01/27 500 565
AMR Corp. (MTN)
9.950% due 03/07/01 1,000 1,094
</TABLE>
102 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Amresco, Inc.
9.875% due 03/15/05 $ 650 $ 657
AT&T Capital Corp.
6.050% due 04/01/99 (b) 3,000 2,999
6.920% due 04/29/99 (MTN) 205 207
6.410% due 08/13/99 (MTN) 310 311
6.470% due 12/03/99 (MTN) 480 481
6.480% due 12/03/99 (MTN) 1,100 1,110
Banesto Delaware, Inc.
8.250% due 07/28/02 500 532
Bankamerica Corp. (MTN)
5.708% due 03/05/01 (b) 5,000 4,999
Bankers Trust of NY Corp.
5.788% due 05/11/03 2,000 1,998
Banponce Trust I
Series A
8.327% due 02/01/27 475 517
Banque Paribas-NY
6.875% due 03/01/09 675 679
Beaver Valley Funding Corp.
9.000% due 06/01/17 1,470 1,692
BellSouth Capital Funding Corp.
6.040% due 11/15/26 2,020 2,048
BellSouth Telecommunications, Inc.
5.850% due 11/15/45 640 639
Beneficial Corp. (MTN)
5.901% due 04/02/02 (b) 2,000 1,998
Building Materials Corp.
8.000% due 10/15/07 1,400 1,400
California Energy Co., Inc.
10.250% due 01/15/04 2,250 2,396
CBS, Inc.
7.125% due 11/01/23 725 692
Chase Manhattan Corp.
6.375% due 04/01/08 890 892
Citicorp (MTN)
5.738% due 06/27/02 (b) 3,000 2,995
5.778% due 08/13/02 (b) 2,000 2,001
Cleveland Electric Illumination Co.
7.430% due 11/01/09 260 273
Cliffs Drilling Co.
Series B
10.250% due 05/15/03 445 476
Colonial Realty LP
7.500% due 07/15/01 775 795
Columbia/HCA Healthcare Corp.
8.020% due 08/05/02 (MTN) 2,000 2,040
8.360% due 04/15/24 680 716
Commercial Federal Corp.
7.950% due 12/01/06 100 100
Conmed Corp.
9.000% due 03/15/08 350 349
Connecticut Light & Power Co.
7.750% due 06/01/02 195 200
7.875% due 10/01/24 975 995
Conseco Financing Trust II
8.700% due 11/15/26 875 984
Conseco Financing Trust III
8.796% due 04/01/27 700 799
Contifinancial Corp.
8.375% due 08/15/03 900 936
Continental Airlines, Inc.
9.500% due 12/15/01 1,445 1,537
CP Limited Partnership
8.750% due 03/02/00 500 518
Crescent Real Estate Equities
6.625% due 09/15/02 900 891
7.125% due 09/15/07 1,000 1,009
CS Wireless System, Inc. Step Up Bond
Zero Coupon due 03/01/06 (b) 360 83
CSC Holdings, Inc.
7.875% due 12/15/07 600 632
Dime Capital Trust I Series A
9.330% due 05/06/27 325 381
Dresser Industries, Inc.
7.600% due 08/15/96 910 1,047
EOP Operating LP
6.376% due 02/15/02 1,610 1,604
ERAC USA Finance Co. (MTN)
6.350% due 01/15/01 725 730
ERP Operating, LP
8.500% due 05/15/99 350 357
Felcor Suites LP
7.625% due 10/01/07 570 567
First Nationwide Holdings, Inc.
12.500% due 04/15/03 1,100 1,249
10.625% due 10/01/03 875 989
First Republic Bancorp
7.750% due 09/15/12 750 783
Ford Motor Credit Co.
5.908% due 03/05/01 (MTN)(b) 5,000 5,005
5.813% due 02/13/03 (b) 2,000 1,997
Fox/Liberty Networks LLC
8.875% due 08/15/07 950 969
</TABLE>
Multistrategy Bond Fund 103
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Fox/Liberty Networks LLC Step Up Bond
Zero Coupon due 08/15/07 $ 295 $ 205
Fugi JGB Investment LLC
9.870% due 12/31/49 (e) 2,190 1,924
General Motors Acceptance Corp.
6.625% due 04/24/00 (MTN) 550 556
5.800% due 02/23/01 (MTN) 1,730 1,721
6.375% due 12/01/01 755 760
Global Crossing Holdings Ltd.
9.625% due 05/15/08 700 730
Goldman Sachs Group, LP (MTN)
5.925% due 02/22/02 (b) 5,000 4,994
Great Atlantic & Pacific Tea, Inc.
7.750% due 04/15/07 1,225 1,229
Grove Worldwide LLC
9.250% due 05/01/08 400 392
GTE Corp.
6.840% due 04/15/18 650 652
6.940% due 04/15/28 1,250 1,260
Haven Capital Trust I
10.460% due 02/01/27 350 395
Health Care Reit, Inc.
7.625% due 03/15/08 825 832
Homeside, Inc.
11.250% due 05/15/03 226 268
Household Bank Nevada NA (MTN)
5.876% due 10/22/03 (b) 4,000 3,988
Imperial Capital Trust I
Series B
9.980% due 12/31/26 250 294
Imperial Credit Industries, Inc.
Series B
9.875% due 01/15/07 675 672
Interpool Capital Trust
Series B
9.875% due 02/15/27 500 580
K Mart Corp.
7.820% due 01/02/02 (MTN) 700 708
7.840% due 01/02/02 (MTN) 900 911
7.770% due 07/02/02 (MTN) 700 707
7.470% due 07/31/02 (MTN) 500 499
9.780% due 01/05/20 1,000 1,131
Kaufman and Broad Home Corp.
7.750% due 10/15/04 800 798
Lehman Brothers Holdings, Inc.
5.902% due 01/18/00 (MTN)(b) 3,000 3,009
6.250% due 04/01/03 1,000 1,001
Loewen Group International, Inc.
Series 4
8.250% due 10/15/03 700 726
Long Island Lighting Co.
9.000% due 11/01/22 4,045 4,622
Markel Capital Trust I
Series B
8.710% due 01/01/46 325 357
MCI Communications Corp.
6.125% due 04/15/02 650 648
McLeodusa, Inc.
8.375% due 03/15/08 825 827
Merck and Co. Series B (MTN)
5.760% due 05/03/37 2,765 2,865
Merita Bank, Ltd.
7.150% due 12/29/49 (b) 1,200 1,224
Merrill Lynch & Co (MTN)
6.019% due 08/03/00 (b) 5,000 5,029
MMI Capital Trust I
Series B
7.625% due 12/15/27 1,425 1,474
Morgan Stanley Dean Witter (MTN)
5.875% due 03/11/03 (b) 1,700 1,701
Natexis Ambs Co. LLC
8.440% due 12/29/49 425 425
New England Education Loan Marketing Corp. (MTN)
1.000% due 06/11/01 4,000 4,000
Nextel Communications, Inc. Step Up Bond
Zero Coupon due 01/15/04 160 157
Zero Coupon due 09/15/07 1,800 1,215
Zero Coupon due 10/31/07 485 316
Zero Coupon due 02/15/08 650 414
Niagara Mohawk Power Corp.
7.000% due 10/01/00 3,000 3,008
8.750% due 04/01/22 715 786
Norfolk Southern Corp.
7.800% due 05/15/27 235 270
7.050% due 05/01/37 915 972
North Atlantic Energy Corp.
Series A
9.050% due 06/01/02 671 690
Northwest Airlines, Inc.
7.625% due 03/15/05 2,370 2,358
Ocwen Federal Bank
12.000% due 06/15/05 300 328
</TABLE>
104 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Ocwen Financial Corp.
11.875% due 10/01/03 $ 725 $ 814
Onbank Capital Trust I
9.250% due 02/01/27 450 550
Optel, Inc.
11.500% due 07/01/08 825 825
Orion Capital Trust I
8.730% due 01/01/37 125 135
Orion Capital Trust II
7.701% due 04/15/28 100 105
Paxson Communications Corp.
11.625% due 10/01/02 550 590
Philip Morris, Inc.
6.150% due 03/15/00 3,000 3,000
Premier Parks, Inc. Step Up Bond
Zero Coupon due 04/01/08 375 249
Prime Succession Acquisition Co.
10.750% due 08/15/04 400 438
Providian Capital I
Series A
9.525% due 02/01/27 500 571
Prudential Insurance Co. of America
6.875% due 04/15/03 700 715
PX Escrow Company Step Up Bond
Zero Coupon due 02/01/06 1,650 1,188
Revlon Worldwide
Zero Coupon due 03/15/01 1,900 1,477
Rose Hills Corp.
9.500% due 11/15/04 500 523
Salomon Smith Barney Holdings
7.980% due 03/01/00 400 413
Salomon, Inc.
7.125% due 08/01/99 275 278
7.750% due 05/15/00 550 567
6.625% due 11/30/00 (MTN) 750 760
SB Treasury Company LLC
9.400% due 12/29/49 (b) 725 716
Seagate Technology, Inc.
7.450% due 03/01/37 1,085 1,066
Simon Debartolo Group, LP
6.750% due 07/15/04 850 849
Sinclair Broadcast Group, Inc.
8.750% due 12/15/07 375 383
Sovereign Capital Trust I
9.000% due 04/01/27 975 1,101
Spieker Properties, LP
6.950% due 12/15/02 500 508
Summit Properties, Inc.
7.200% due 08/15/07 625 633
Sun Healthcare Group, Inc.
9.500% due 07/01/07 625 634
TCI Communications, Inc.
5.975% due 09/11/00 (MTN)(b) 2,000 1,989
9.650% due 03/31/27 435 533
Tele-Communications, Inc.
6.340% due 02/01/02 570 568
Teleport Communications Group Step Up Bond
Zero Coupon due 07/01/07 1,545 1,329
Tenet Healthcare Corp.
8.000% due 01/15/05 500 518
8.125% due 12/01/08 1,700 1,704
Time Warner, Inc.
7.975% due 08/15/04 225 242
8.110% due 08/15/06 450 496
8.180% due 08/15/07 450 501
7.480% due 01/15/08 800 854
8.050% due 01/15/16 900 1,012
6.850% due 01/15/26 2,470 2,539
Tokai Preferred Capital Co. LLC
9.980% due 12/29/49 (b) 2,500 2,313
Toledo Edison Co.
8.000% due 12/31/98 (MTN) 500 503
8.700% due 09/01/02 500 527
Toll Brothers Corp.
7.750% due 09/15/07 1,175 1,157
Trenwick Capital Trust I
8.820% due 02/01/37 625 692
Tricon Global Restaurants Inc.
7.450% due 05/15/05 825 824
TU Electrical Capital V
8.175% due 01/30/37 830 869
United Companies Financial Corp.
8.375% due 07/01/05 625 621
US Air, Inc.
9.625% due 02/01/01 500 520
Valero Energy
6.750% due 12/15/02 570 577
Webster Capital Trust I
9.360% due 01/29/27 250 285
</TABLE>
Multistrategy Bond Fund 105
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Wellsford Residential Property Trust
9.375% due 02/01/02 $ 475 $ 518
Wireless One, Inc. Step Up Bond
Zero Coupon due 08/01/06 (b) 220 32
----------
173,122
----------
EURODOLLAR BONDS - 5.9%
Amvescap PLC
6.600% due 05/15/05 1,675 1,693
Argentina, Republic of
Series 10
5.688% due 04/01/00 (b) 289 238
Series L
6.625% due 03/31/05 (b) 1,900 1,677
Arisco Productos Alimenticios
10.750% due 05/22/05 110 103
Auxiliaire Credit Foncier
5.688% due 09/25/02 (b) 1,070 1,045
Brazil, Republic of
9.375% due 04/07/08 350 309
Bulgaria, Republic of, Series A
6.563% due 07/28/24 (b) 1,090 833
Colombia, Republic of
8.625% due 04/01/08 1,800 1,708
Credit Fonc France
8.000% due 01/14/02 600 632
Credit Lyonnais
7.125% due 09/19/49 (e) 1,170 1,142
Fifth Mexican Acceptance Corp. Class A
8.000% due 12/15/98 1,050 297
Ford Motor Credit
5.813% due 01/17/02 2,175 2,173
ForeningsSparbanken AB
7.500% due 11/29/49 480 497
Globo Communicacoes e Participacoes S.A.
10.625% due 12/05/08 750 668
Hutchison Whampoa Finance, Ltd.
7.450% due 08/01/17 325 258
Korea, Republic of
8.188% due 04/08/00 3,000 2,855
8.750% due 04/15/03 840 815
8.875% due 04/15/08 600 545
Okobank
7.114% due 10/29/49 (b) 90 91
Okobank Series E (MTN)
6.188% due 09/29/49 (b) 750 743
Panama, Republic of
8.875% due 09/30/27 1,450 1,370
Poland, Republic of, Step Up Bond
4.000% due 10/27/14 (b) 4,265 3,812
Sibneft
9.691% due 08/15/00 600 570
Skandinaviska Enskilda Banken (e)
7.500% due 03/29/49 1,610 1,662
8.125% due 09/06/49 475 515
6.500% due 12/29/49 1,200 1,202
Skandinaviska Enskilda Banken
Series 1 (MTN)
6.625% due 03/29/49 (e) 510 511
Tata Electric Co.
8.500% due 08/19/17 625 525
Telefonica De Argentina SA
9.125% due 05/07/08 750 707
TFM SA de CV Step Up Bond
Zero Coupon due 06/15/09 (144A) 1,160 737
Zero Coupon due 06/15/09 370 221
Videotron Holdings PLC Step Up Bond
Zero Coupon due 07/01/04 (b) 650 638
----------
30,792
----------
MORTGAGE-BACKED SECURITIES - 39.8%
Asset Securitization Corp.
Series 1997-D5 Class A1C
6.750% due 02/14/41 500 520
Series 1997-D5 Class A10
6.850% due 02/14/41 900 946
Bear Stearns Mortgage Securities, Inc.
6.750% due 04/30/30 (b) 1,744 1,745
Chase Commercial Mortgage Securities Corp.
6.600% due 12/19/07 1,500 1,472
Collateralized Mortgage Securities Corp.
Series J Class J-5 CMO
7.985% due 05/01/17 1,775 1,784
Delta Funding Home Equity Loan Trust
Series 1997-3 Class M1F
7.080% due 10/25/28 1,250 1,265
Federal Home Loan Mortgage Corp. (d)
6.500% 15 Year TBA 7,700 7,753
6.500% 30 Year TBA 15,300 15,257
6.000% 30 Year TBA GOLD 5,000 4,875
</TABLE>
106 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Federal Home Loan Mortgage Corp.
Participation Certificate Groups
7.000% due 2009 $ 469 $ 480
6.000% due 2011 2,615 2,604
8.500% due 2025 1,364 1,424
6.000% due 2026 990 957
8.500% due 2026 1,379 1,439
8.500% due 2027 7,157 7,519
6.000% due 2028 2,495 2,433
6.500% due 2028 2,570 2,563
Federal Home Loan Mortgage Corp.
Participation Certificate
Series 1014 Class E
7.950% due 02/15/20 433 441
Federal Home Loan Mortgage Corp.
Series 1037 Class Z
9.000% due 02/15/21 1,291 1,363
Series 1934 Class AB
6.000% due 08/15/07 1,415 1,412
Federal National Mortgage
Association Pools
7.500% due 1999 (f) 1,758 1,803
6.000% due 2003 262 261
10.000% due 2005 224 236
6.000% due 2009 1,313 1,306
6.000% due 2011 1,762 1,747
6.500% due 2013 5,907 5,940
7.815% due 2023 (b) 865 892
7.000% due 2024 (f) 1,035 1,050
7.000% due 2025 (f) 6,868 6,967
7.000% due 2026 (b)(f) 855 867
7.718% due 2026 (b) 6,885 7,074
6.500% due 2027 1,033 1,029
7.000% due 2027 (f) 418 424
6.500% due 2028 3,785 3,769
7.000% due 2028 (f) 1,472 1,493
Federal National Mortgage Association
(REMIC) Series 1992-10 Class ZD
8.000% due 11/25/21 1,657 1,813
(REMIC) Series 1997-16 Class M
Zero Coupon due 02/25/23 950 658
Federal National Mortgage Association (d)
6.000% 15 Year TBA 3,925 3,882
6.500% 15 Year TBA 9,480 9,441
7.000% 15 Year TBA 640 652
6.000% 30 Year TBA 3,360 3,271
6.500% 30 Year TBA 14,875 14,814
7.000% 30 Year TBA 3,450 3,499
8.000% 30 Year TBA 4,140 4,285
GMAC Commercial Mortgage
Securities, Inc.
6.853% due 09/15/06 (b) 230 239
Government National Mortgage
Association Pools
7.000% due 2023 (b) 4,918 5,021
7.000% due 2024 (b) 7,507 7,682
8.000% due 2024 440 456
7.500% due 2025 1,987 2,043
8.000% due 2025 1,169 1,211
7.000% due 2026 (b) 3,193 3,265
7.500% due 2026 1,111 1,142
8.000% due 2026 871 903
8.500% due 2026 3,109 3,266
6.875% due 2027 (b) 3,952 4,038
7.500% due 2027 1,171 1,204
8.000% due 2027 4,477 4,639
7.500% due 2028 1,814 1,864
Government National Mortgage
Association (d)
6.500% 30 Year TBA 11,820 11,794
7.000% 30 Year TBA 3,500 3,556
7.500% 30 Year TBA 6,800 6,989
8.000% 30 Year TBA 6,500 6,736
Kidder Peabody Acceptance Corp.
Series 1994-C1 Class B
6.850% due 02/01/06 1,065 1,082
Paine Webber Mortgage
Acceptance Corp. IV
Series 1995-M1 Class A
6.700% due 01/15/07 720 726
Resolution Trust Corp.
Mortgage Pass-thru Certificate
Series 1994-C2 Class G
8.000% due 04/25/25 253 256
Series 1995-C1 Class C
6.900% due 02/25/27 (b) 300 304
Series 1995-1 Class 2-C
7.500% due 10/25/28 (b) 325 327
Series 1994-1 Class M-2
7.750% due 09/25/29 399 409
Salomon Brothers Mortgage
Securities VII, Inc.
Mortgage Pass-thru Certificate
Series 1994-16
8.286% due 11/25/24 (b) 651 676
</TABLE>
Multistrategy Bond Fund 107
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Structured Asset Securities Corp.
Mortgage Pass-thru Certificate
Series 1996-CFL Class A1C
5.944% due 02/25/28 $ 201 $ 200
Series 1996-CFL Class C
6.525% due 02/25/28 250 250
Series 1998-C2A Class A
6.145% due 01/25/13 (b) 2,189 2,189
----------
207,892
----------
MUNICIPAL BONDS - 1.3%
California, State of
5.000% due 02/01/23 310 303
Jacksonville, Florida
Electric Authority Revenue
5.000% due 10/01/23 715 692
Massachusetts Bay
Transportation Authority
4.750% due 03/01/21 440 413
Massachusetts State
Water Reserve Authority
4.750% due 08/01/27 280 260
Municipal Electric Authority of Georgia
5.000% due 01/01/26 1,300 1,264
Nevada State General Obligation
4.750% due 05/15/26 920 861
New Jersey Economic Development
Authority Series A
7.425% due 02/15/29 1,335 1,517
Series B
Zero Coupon due 02/15/08 520 289
New York Metropolitan
Transportation Authority
4.750% due 04/01/28 490 457
New York City, New York
Municipal Water Finance Authority
Water and Sewer System Revenue
4.750% due 06/15/25 565 533
South Carolina State
Public Service Authority Revenue
5.000% due 01/01/29 350 338
----------
6,927
----------
NON-US BONDS - 0.3%
Australian Government
10.000% due 10/15/07 AUD 2,000 1,633
----------
1,633
----------
UNITED STATES GOVERNMENT
AGENCIES - 0.2%
Tennessee Valley Authority
5.880% due 04/01/36 990 1,029
----------
1,029
----------
UNITED STATES GOVERNMENT
TREASURIES - 7.1%
United States Treasury Bonds
6.625% due 02/15/27 5,420 6,120
8.125% due 08/15/19 (f) 8,040 10,377
United States Treasury
Interest Only Strips
Zero Coupon due 02/15/19 1,775 546
United States Treasury Notes
5.125% due 11/30/98 (f) 2,150 2,148
5.750% due 12/31/98 (f) 725 726
5.875% due 11/15/99 2,725 2,737
7.750% due 11/30/99 6,950 7,157
6.625% due 06/30/01 (f) 4,625 4,760
6.250% due 10/31/01 1,675 1,710
7.875% due 11/15/04 470 528
United States Treasury
Principal Only Strip
Zero Coupon due 11/15/99 465 432
----------
37,241
----------
YANKEE BONDS - 2.9%
Argentina, Republic of
9.150% due 11/30/02 (b) 2,570 2,576
5.500% due 03/31/23 (b) 450 340
Brazil Media Trust
6.563% due 09/15/07 (b) 1,129 912
Credit Lyonnais
5.688% due 07/10/00 (b) 4,000 3,959
Crown Packaging Enterprise, Ltd.
Step Up Bond
Zero Coupon due 08/01/06 300 15
Diamond Cable Communication PLC
Step Up Bond
Zero Coupon due 02/15/07 310 229
Grupo Iusacell S.A. de C.V.
10.000% due 07/15/04 750 741
Petroleos Mexicanos
9.500% due 09/15/27 900 847
Petroleum Geo-Services
7.125% due 03/30/28 800 810
Royal Caribbean Cruises
7.500% due 10/15/27 1,400 1,464
</TABLE>
108 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Santander Finnish Issuances
6.588% due 09/30/49 (e) $ 500 $ 490
Societe Generale
7.850% due 04/29/49 (e) 300 321
St. George Bank, Ltd.
7.150% due 10/01/05 700 727
Tata Engineering & Locomotive, Ltd.
7.875% due 07/15/07 625 532
TV Azteca SA De CV
10.125% due 02/15/04 1,050 1,045
----------
15,008
----------
TOTAL LONG-TERM INVESTMENTS
(cost $491,675) 496,962
----------
<CAPTION>
NOTIONAL
AMOUNT
(000)
----------
<S> <C> <C>
OPTIONS - 0.0%
United States Treasury Bonds
Jul 99.98 Call * 13,300 12
Aug 100.65 Call * 500 5
Sept 100.47 Call * 1,400 20
Sept 100.55 Call ** 1,447 21
Sept 101.61 Call ** 1,470 13
Nov 109.52 Call * 3,400 45
----------
TOTAL OPTIONS
(cost $95) 116
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
----------
<S> <C> <C>
PREFERRED STOCKS - 1.3%
American RE Capital 18,100 468
Australia & New Zealand
Banking Group, Ltd. 5,300 144
California Federal Preferred Capital Corp.
Series A 66,050 1,804
Credit Lyonnais Capital S.C.A. - ADR 6,400 160
El Paso Electric Co. Series A
Payment in Kind Preferred Stock 4,603 505
Equity Office Properties Trust 18,000 783
NB Capital Corp. 700 730
Pinto Totta International Finance, Ltd. 1,250 1,280
Primedia, Inc. 5,000 495
Travelers Group, Inc. 10,550 582
----------
TOTAL PREFERRED STOCKS
(cost $6,872) 6,951
----------
WARRANTS - 0.0%
Capital Pacific Holdings, Inc.
2002 Warrants (h) 1,817 2
EOP Operating LP 1999 Warrants (h) 1,325 11
----------
TOTAL WARRANTS
(cost $0)
13
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 20.5%
AT&T Capital Corp. (MTN)
5.963% due 01/15/99 (b) $ 2,000 2,008
Bankers Trust Company
5.900% due 07/07/98 (a) 3,000 2,999
Bemis Company, Inc.
5.520% due 07/06/98 (a) 1,000 999
Federal Home Loan Mortgage Corp.
Discount Notes (g)
5.400% due 09/08/98 8,010 7,927
5.425% due 09/21/98 410 405
Federal National Mortgage Association
Discount Notes (a)(g)
5.750% due 07/06/98 2,000 1,998
5.460% due 07/17/98 5,100 5,078
Frank Russell Investment Company
Money Market Fund,
due on demand (a) 77,658 77,658
Imperial Chemical Industrial PLC
5.750% due 09/05/98 (b) 2,000 1,999
MBNA Corp.
5.838% due 09/14/98 (b) 950 950
</TABLE>
Multistrategy Bond Fund 109
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Salomon, Inc.
5.728% due 10/20/98 (b) $ 2,000 $ 2,000
Texaco, Inc.
5.500% due 08/10/98 (a) 2,000 1,988
United States Treasury Bills (f)(g)
4.955% due 07/23/98 295 294
5.055% due 08/20/98 (a) 450 447
4.990% due 10/15/98 130 128
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $106,850) 106,878
----------
TOTAL INVESTMENTS
(identified cost $605,492)(c) - 116.9% 610,920
OTHER ASSETS AND LIABILITIES,
NET, INCLUDING OPTIONS WRITTEN - (16.9%) (88,185)
----------
NET ASSETS - 100.0% $ 522,735
----------
----------
</TABLE>
(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 in connection with futures contracts purchased (sold) and
options written by the Fund.
(g) Rate noted is yield-to-maturity.
(h) Nonincome-producing security.
* $100,000 notional value represents 1 contract.
** Represents 1 OTC contract.
ABBREVIATIONS:
ADR - American Depositary Receipt
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced Security
FOREIGN CURRENCY ABBREVIATIONS:
AUD - Australian dollar
The accompanying notes are an integral part of the financial statements.
110 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
----------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
United States Treasury 5 Year Note
Futures Contracts
expiration date 09/98 (12) $ (6)
United States Treasury 10 Year Note
Futures Contracts
expiration date 09/98 246 139
United States Treasury 10 Year Note
Futures Contracts
expiration date 12/98 8 6
United States Treasury 20 Year Note
Futures Contracts
expiration date 09/98 287 462
United States Treasury 30 Year Bond
Futures Contracts
expiration date 09/98 41 33
------------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (Sold) (#) $ 634
------------
------------
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL MARKET
AMOUNT VALUE
(000) (000)
----------- ------------
<S> <C> <C>
OPTIONS WRITTEN
(Notes 2 and 3)
United States Treasury
Jul 99.75 Call * $ 5,100 $ 15
Aug 102.84 Call ** 1,782 --
Nov 94.28 Call * 3,400 1
Nov 95.27 Put * 2,900 --
Nov 109.00 Call * 2,900 2
Federal National Mortgage Association
Sept 101.23 Call ** 3,400 13
Sept 101.29 Call ** 3,575 13
Sept 101.30 Call ** 3,575 15
Total Liability for Options Written ------------
(premiums received $122)(#) $ 59
------------
------------
</TABLE>
(#) At June 30, 1998, United States Government Securities valued at $31,485 were
held as collateral in connection with futures contracts purchased (sold) and
options written by the Fund.
* $100,000 notional value represents 1 contract.
** Represents 1 OTC contract.
The accompanying notes are an integral part of the financial statements.
Multistrategy Bond Fund 111
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in
thousands (except
per share amount)
<S> <C> <C>
ASSETS
Investments at market (identified cost $605,492)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 610,920
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,414
Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,435
Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,442
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,477
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . 138
Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 4,253
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631,259
LIABILITIES
Payables:
Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 827
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 102,750
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 326
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Options written, at market value (premiums received $122)(Notes 2 and 3) . . . . . . 59
Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 4,253
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,524
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 522,735
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,448
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,690
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,428
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,877
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 522,735
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($522,734,584 divided by 50,513,484 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.35
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
112 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,720
Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,505
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
---------------
Total Investment Income 15,581
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,510
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,913
---------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,668
---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,397
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,032
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 81 3,758
-------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (955)
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475
Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (27) (523)
------------- ---------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,235
---------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 16,903
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Multistrategy Bond Fund 113
<PAGE>
MULTISTRATEGY BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Amounts in thousands
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,668 $ 21,669
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,758 8,182
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (523) 4,081
----------------- -----------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . 16,903 33,932
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,211) (21,584)
In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (670)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (1,726) (6,734)
----------------- -----------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (12,937) (28,988)
----------------- -----------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 81,457 126,940
----------------- -----------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 85,423 131,884
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437,312 305,428
----------------- -----------------
End of period (including undistributed net investment income of
$2,448 and accumulated distributions in excess of net
investment income of $9, respectively) . . . . . . . . . . . . . . . . . . . . $ 522,735 $ 437,312
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
114 Multistrategy Bond Fund
<PAGE>
MULTISTRATEGY BOND 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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998* 1997 1996 1995 1994 1993**
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD. . . . $ 10.26 $ 10.11 $ 10.25 $ 9.29 $ 10.31 $ 10.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . .29 .60 .61 .65 .58 .46
Net realized and unrealized
gain (loss) on investments . . . . . . . .08 .33 (.12) .97 (1.03) .40
--------- --------- --------- --------- --------- ---------
Total Income From Investment Operations .37 .93 .49 1.62 (.45) .86
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . (.24) (.60) (.61) (.66) (.57) (.46)
In excess of net investment income. . . . -- (.01) (.01) -- -- --
Net realized gain on investments. . . . . (.04) (.17) (.01) -- -- (.08)
In excess of net realized
gain on investments . . . . . . . . . . -- -- -- -- -- (.01)
--------- --------- --------- --------- --------- ---------
Total Distributions. . . . . . . . . . (.28) (.78) (.63) (.66) (.57) (.55)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD. . . . . . . $ 10.35 $ 10.26 $ 10.11 $ 10.25 $ 9.29 $ 10.31
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN (%)(a) . . . . . . . . . . . . 3.63 9.50 4.97 17.92 (4.35) 8.74
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) 522,735 437,312 305,428 218,765 173,035 98,374
Ratios to average net asssets (%)(b):
Operating expenses, net. . . . . . . . .80 .80 .81 .85 .85 .85
Operating expenses, gross. . . . . . . .80 .83 .88 .89 .90 1.20
Net investment income. . . . . . . . . 5.72 5.93 6.19 6.61 6.26 5.60
Portfolio turnover rate (%)(b). . . . . . 343.06 263.75 145.38 142.26 136.39 188.95
</TABLE>
* For the six months ended June 30, 1998 (Unaudited).
** For the period January 29, 1993 (commencement of operations) to December 31,
1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the periods ended June 30, 1998 and December 31, 1993 are
annualized.
Multistrategy Bond Fund 115
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
1. ORGANIZATION
Frank Russell Investment Company (the "Investment Company") is a series
mutual fund with 28 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.
Effective May 18, 1998, pursuant to approval of the Investment Company's
Board of Trustees, Class C shares were renamed Class E shares. As of July
8, 1996, the eight Funds that are reported in these financial statements
have available Class S and Class E 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 E shares are charged a shareholder servicing fee of
0.25% of average net assets. Class S shares are charged no such fees.
Prior to May 18, 1998 Class E shares were charged a 12b-1 distribution fee
and a shareholder servicing fee of 0.40% and 0.25% of average net assets,
respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") 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.
Short-term investments 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 specific identified cost incurred by each money
manager within a particular fund. The Funds may lend portfolio securities
as approved by the Board of Trustees on April 27, 1998.
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis.
AMORTIZATION AND ACCRETION: All premiums and discounts, including original
issue discounts, for the Funds 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.
116 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.
At December 31, 1997, the following Fund 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>
12/31/02 12/31/03 12/31/04 12/31/05 Totals
-------------- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Volatility Constrained Bond $ 5,583,410 $ 1,871,605 $ 2,135,100 $ 201,012 $ 9,791,127
</TABLE>
The aggregate cost of investments and the composition of gross unrealized
appreciation and depreciation of investment securities for federal income
tax purposes as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Diversified Equity $ 1,030,032,589 $ 313,936,215 $ (26,602,804) $ 287,333,411
Special Growth 547,390,314 159,811,042 (19,655,356) 140,155,686
Equity Income 233,640,314 49,131,303 (8,217,617) 40,913,686
Quantitative Equity 900,659,710 347,413,225 (17,092,935) 330,320,290
International Securities 830,836,359 211,873,553 (72,133,912) 139,739,641
Diversified Bond 844,690,868 19,463,797 (1,433,665) 18,030,132
Volatility Constrained Bond 187,498,796 884,054 (534,850) 349,204
Multistrategy Bond 605,211,483 8,237,263 (2,528,746) 5,708,517
</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 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.
EXPENSES: The Funds, and when appropriate each Class, will pay their own
expenses other than those expressly assumed by Frank Russell Investment
Management Company ("FRIMCo" or "Manager). 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 E shares will pay shareholder
servicing fees along with other expenses that may be attributable to that
Class. Prior to May 18, 1998, Class E shares were charged a 12b-1
distribution fee.
DEFERRED ORGANIZATION EXPENSES: Organization costs of the Multistrategy
Bond Fund were deferred and amortized over 60 months on a straight-line
basis.
Notes to Financial Statements 117
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
REPURCHASE AGREEMENTS: The Funds may engage in repurchase agreements with
several financial institutions whereby a Fund, through its custodian,
receives delivery of underlying securities as collateral. 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) Outstanding 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.
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.
FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio purchases
and sales of securities denominated in a foreign currency, certain Funds
may enter into foreign currency exchange spot contracts and forward foreign
currency exchange contracts ("contracts"). The International Securities
Fund may enter into foreign currency forward overlays on liquidity reserve
balances. Additionally, from time to time the International Securities,
Diversified Bond, Volatility Constrained Bond and Multistrategy Bond Funds
may enter into contracts to hedge certain foreign currency-denominated
assets. Contracts are recorded at market value. Certain risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts 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 June
30, 1998, are presented on the Statement of Net Assets for the applicable
Funds.
118 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FORWARD COMMITMENTS: The Funds may contract to purchase securities for a
fixed price at a future date beyond customary settlement time (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 call and put options on foreign currencies. The
domestic equity Funds may utilize options to equitize liquidity reserve
balances.
When a Fund writes a covered call or a 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. Realized gains (losses) on
purchased options are included in net realized gain (loss) from
investments.
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 CONTRACTS: 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 six months ended June 30, 1998, 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 $ 595,645,576 $ 500,013,696 International Securities $ 343,343,144 $ 310,488,887
Special Growth 334,832,019 275,232,968 Diversified Bond 132,023,870 82,758,405
Equity Income 172,928,939 150,835,424 Volatility Constrained Bond 46,904,438 28,880,536
Quantitative Equity 503,879,129 420,103,983 Multistrategy Bond 220,768,220 122,638,427
</TABLE>
Notes to Financial Statements 119
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 $ 620,216,521 $ 568,187,761
Volatility Constrained Bond 89,504,490 86,589,801
Multistrategy Bond 681,834,222 621,904,387
</TABLE>
OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written options
and futures contracts for the six months ended June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
----------- ---------------
<S> <C> <C>
Outstanding December 31, 1997 218 $ 49,118,032
Opened 620 160,137,907
Closed (630) (153,135,214)
----------- ---------------
Outstanding June 30, 1998 208 $ 56,120,725
----------- ---------------
----------- ---------------
<CAPTION>
SPECIAL GROWTH FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
----------- ---------------
<S> <C> <C>
Outstanding December 31, 1997 209 $ 36,950,817
Opened 472 100,685,345
Closed (510) (103,557,712)
----------- ---------------
Outstanding June 30, 1998 171 $ 34,078,450
----------- ---------------
----------- ---------------
<CAPTION>
EQUITY INCOME FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
----------- ---------------
<S> <C> <C>
Outstanding December 31, 1997 56 $ 10,247,020
Opened 177 39,980,815
Closed (168) (36,428,459)
----------- ---------------
Outstanding June 30, 1998 65 $ 13,799,376
----------- ---------------
----------- ---------------
<CAPTION>
QUANTITATIVE EQUITY FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
----------- ---------------
<S> <C> <C>
Outstanding December 31, 1997 108 $ 23,847,309
Opened 481 120,130,816
Closed (476) (115,635,624)
----------- ---------------
Outstanding June 30, 1998 113 $ 28,342,501
----------- ---------------
----------- ---------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each
contract was opened.
120 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
INTERNATIONAL SECURITIES FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
----------- ---------------
<S> <C> <C>
Outstanding December 31, 1997 409 $ 52,115,383
Opened 1,509 145,909,658
Closed (1,371) (147,744,332)
----------- ---------------
Outstanding June 30, 1998 547 $ 50,280,709
----------- ---------------
----------- ---------------
<CAPTION>
DIVERSIFIED BOND WRITTEN OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------- ---------------
<S> <C> <C>
Outstanding December 31, 1997 177 $ 114,076
Opened 138 133,393
Closed (46) (17,594)
Expired (145) (153,990)
----------- ---------------
Outstanding June 30, 1998 124 $ 75,885
----------- ---------------
----------- ---------------
<CAPTION>
MULTISTRATEGY BOND WRITTEN OPTIONS
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------- ---------------
<S> <C> <C>
Outstanding December 31, 1997 241 $ 157,083
Opened 232 216,244
Closed (87) (30,930)
Expired (206) (220,161)
----------- ---------------
Outstanding June 30, 1998 180 $ 122,236
----------- ---------------
----------- ---------------
</TABLE>
<TABLE>
<CAPTION>
MULTISTRATEGY BOND FUTURES CONTRACTS FUTURES CONTRACTS PURCHASED
SOLD SHORT
AGGREGATE AGGREGATE
NUMBER OF FACE VALUE OF NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1) CONTRACTS CONTRACTS (1)
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1997 -- $ -- 557 $ 65,554,916
Opened (12) (1,309,755) 1,229 143,529,767
Closed -- -- (1,204) (140,271,367)
----------- --------------- ----------- ---------------
Outstanding June 30, 1998 (12) $ (1,309,755) 582 $ 68,813,316
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each
contract was opened.
Notes to Financial Statements 121
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SECURITIES LENDING: Effective April 27, 1998, the Investment Company
resumed its securities lending program. The program allows each Fund to
loan securities with a value up to 33 1/3% of its total assets to certain
brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S.
Government agency obligations as collateral against the loaned securities.
To the extent that a loan is secured by cash collateral, such collateral
shall be invested by Morgan Stanley Trust Company ("MSTC") in short-term
instruments, money market mutual funds, and such other short-term
investments, provided the investments meet certain quality and
diversification requirements. Under the securities-lending arrangement, the
collateral received is recorded on the Fund's statement of assets and
liabilities along with the related obligation to return the collateral. In
those situations where the Company has relinquished control of securities
transferred, it derecognizes the securities and records a receivable from
the counterparty.
Income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs, is divided
between the Fund and MSTC and is included as interest income for the Fund.
To the extent that a loan is secured by non-cash collateral, brokers pay
the Fund negotiated lenders' fees, which are divided between the Fund and
MSTC and are included as interest income for the Fund. All collateral
received will be in an amount at least equal to 102% (for loans of U.S.
securities) or 105% (for non-U.S. securities) of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. Should the borrower of the
securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Consequently, loans are
made only to borrowers which are deemed to be of good financial standing.
As of June 30, 1998, the value of outstanding securities on loan and the
value of collateral amounted to as follows:
<TABLE>
<CAPTION>
VALUE OF VALUE VALUE OF VALUE
SECURITIES ON OF SECURITIES ON OF
LOAN COLLATERAL LOAN COLLATERAL
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Diversified Equity $ 6,864,339 $ 7,086,404 International Securities $ 76,660,265 $ 91,380,958
Special Growth 42,773,085 43,731,950 Volatility Constrained Bond 9,142,524 9,326,250
Equity Income 6,508,202 6,712,277 Multistrategy Bond 4,209,060 4,252,750
Quantitative Equity 28,108,262 29,123,802
</TABLE>
4. RELATED PARTIES
MANAGER: FRIMCo operates and administers all of the Funds which comprise
the Investment Company, and manages the Money Market and U.S. Government
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 six months ended June 30, 1998, 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 $21,077,352 before
waivers. Such fee is payable monthly and is equal to the annual rate, by
Fund, shown in the table below, of the average daily net assets of the
applicable Fund.
<TABLE>
<CAPTION>
ANNUAL RATE ANNUAL RATE
----------- -----------
<S> <C> <C> <C>
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
</TABLE>
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.
FRIMCo calculates its management fee based on average daily net assets for
each Fund, less any management fee incurred on assets invested in the Money
Market Fund (see Note 5) thereby eliminating any duplication of fees.
ANALYTIC SERVICES: Fees for analytic services provided to the Funds are
paid or accrued to Frank Russell Company, an affiliate of the Investment
Company. Frank Russell Company provides TruVP System to the Funds, pursuant
to a written Service Agreement. The TruVP System provides analytics used by
the investment department.
122 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
TRANSFER AGENT: The Funds have a contract with FRIMCo to provide transfer
agent services to the Investment Company. Total fees for the six months
ended June 30, 1998 were $1,454,790.
DISTRIBUTOR AND SHAREHOLDER SERVICING: Prior to May 18, 1998, the
Investment Company had a Distribution Plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act. Under this Plan, the Investment Company was
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 were primarily intended to
result in the sale of the Class C shares subject to the Distribution Plan.
Effective May 18, 1998, Class C shares were renamed Class E shares and the
12b-1 fee was eliminated.
The Investment Company has 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 E of
the Investment Company Funds. The Distributor may enter into
sub-distribution agreements with other non-affiliated parties (the
"Selling/Servicing Agents"). The amounts paid to the Distributor prior to
May 18, 1998 for distribution services relating to Class E are included in
the accompanying Statements of Operations. Currently, the Distributor
receives no compensation from the Investment Company for its services
relating to distributing the Class S and Class E 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 E Shares of the Funds. The amounts paid to the Distributor for
shareholder services relating to Class E are included in the accompanying
Statements of Operations.
The shareholder servicing payments shall not exceed 0.25% of the average
daily net assets of a Fund's Class E 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 JUNE 30, 1998 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
SHAREHOLDER
SERVICING &
MANAGEMENT ANALYTIC TRANSFER DISTRIBUTION DISTRIBUTION
FEES SERVICE FEES AGENT FEES FEES FEES TOTALS
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Diversified Equity $ 815,946 $ 12,158 $ 57,629 $ (459) $ 8,707 $ 893,981
Special Growth 515,938 7,760 40,325 (2,959) 7,543 568,607
Equity Income 177,478 4,641 33,920 233 1,138 217,410
Quantitative Equity 769,149 3,999 52,859 (1,921) 5,531 829,617
International Securities 764,447 10,485 79,422 (1,977) 3,892 856,269
Diversified Bond 280,358 4,379 42,115 (2,559) 6,654 330,947
Volatility Constrained Bond 75,827 5,775 45,570 -- -- 127,172
Multistrategy Bond 270,873 4,535 50,986 -- -- 326,394
------------ ------------ ----------- ------------ ------------ ------------
$ 3,670,016 $ 53,732 $ 402,826 $ (9,642) $ 33,465 $ 4,150,397
------------ ------------ ----------- ------------ ------------ ------------
------------ ------------ ----------- ------------ ------------ ------------
</TABLE>
BROKERAGE COMMISSIONS: The Funds may effect portfolio transactions through
Frank Russell Securities, Inc., an affiliate of the Manager, when a money
manager determines that the Fund will receive competitive execution, price,
and commissions. Upon completion of such transactions, Frank Russell
Securities, Inc. will refund up to 70% of the commissions paid by that Fund
after reimbursement for research services provided to FRIMCo. Amounts
retained by Frank Russell Securities, Inc. for the six months ended
June 30, 1998 were as follows:
<TABLE>
<S> <C> <C> <C>
Diversified Equity $ 32,597 Equity Income $ 13,838
Special Growth 5,981 International Securities 51,176
Quantitative Equity 1,387
</TABLE>
Additionally, the Funds paid brokerage commissions to non-affiliated
brokers who provided brokerage and research services to the Manager.
Notes to Financial Statements 123
<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 $54,794 for the six months ended June
30, 1998, and were allocated to each Fund and Class, where appropriate, on
a pro rata basis, including 20 other 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
June 30, 1998, $348,873,000 of the Money Market Fund's net assets
represents investments by these Funds and $397,638,000 represents the
investments of other affiliated Funds not presented herein.
6. FUND SHARE TRANSACTIONS
Share transactions for each Class of shares were as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
-------------------------------------- ----------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
DIVERSIFIED EQUITY
CLASS S
Proceeds from shares sold 5,479,820 8,086,088 $ 258,874,854 $ 375,766,850
Proceeds from reinvestment
of distributions 526,558 3,725,974 24,304,582 158,438,737
Payments for shares redeemed (3,679,362) (4,802,360) (174,813,319) (223,615,053)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 2,327,016 7,009,702 108,366,117 310,590,534
-------------- -------------- ---------------- ----------------
CLASS E (a)(b)
Proceeds from shares sold 22,793 66,243 1,057,135 3,187,196
Proceeds from reinvestment
of distributions -- 2 14 89
Payments for shares redeemed (2,777) (1,200) (133,788) (62,020)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 20,016 65,045 923,361 3,125,265
-------------- -------------- ---------------- ----------------
Total net increase (decrease) 2,347,032 7,074,747 $ 109,289,478 $ 313,715,799
-------------- -------------- ---------------- ----------------
-------------- -------------- ---------------- ----------------
SPECIAL GROWTH
CLASS S
Proceeds from shares sold 2,950,995 4,899,155 $ 142,158,320 $ 218,414,199
Proceeds from reinvestment
of distributions 187,374 1,184,723 8,815,920 51,369,028
Payments for shares redeemed (1,868,927) (3,197,051) (90,908,561) (141,074,274)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 1,269,442 2,886,827 60,065,679 128,708,953
-------------- -------------- ---------------- ----------------
CLASS E (b)
Proceeds from shares sold 19,422 52,918 922,768 2,414,652
Proceeds from reinvestment
of distributions -- 2 16 99
Payments for shares redeemed (10,321) (5,846) (493,515) (276,164)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 9,101 47,074 429,269 2,138,587
-------------- -------------- ---------------- ----------------
Total net increase (decrease) 1,278,543 2,933,901 $ 60,494,948 $ 130,847,540
-------------- -------------- ---------------- ----------------
-------------- -------------- ---------------- ----------------
</TABLE>
(a) Share transactions for Class E for the year ended December 31, 1997
are for the period May 27, 1997 (commencement of sale of shares) to
December 31, 1997.
(b) Effective May 18, 1998, Class C was renamed Class E.
124 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
-------------------------------------- ----------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
EQUITY INCOME
CLASS S
Proceeds from shares sold 1,255,315 1,660,711 $ 53,523,552 $ 73,122,240
Proceeds from reinvestment
of distributions 219,920 911,813 9,068,151 36,860,520
Payments for shares redeemed (745,573) (1,899,151) (32,062,124) (84,411,404)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 729,662 673,373 30,529,579 25,571,356
-------------- -------------- ---------------- ----------------
CLASS E (b)
Proceeds from shares sold 7,163 11,673 317,703 500,212
Proceeds from reinvestment
of distributions 1 4 48 177
Payments for shares redeemed (2,182) (6,565) (94,703) (288,276)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 4,982 5,112 223,048 212,113
-------------- -------------- ---------------- ----------------
Total net increase (decrease) 734,644 678,485 $ 30,752,627 $ 25,783,469
-------------- -------------- ---------------- ----------------
-------------- -------------- ---------------- ----------------
QUANTITATIVE EQUITY
CLASS S
Proceeds from shares sold 6,030,662 9,083,437 $ 237,914,410 $ 338,711,998
Proceeds from reinvestment
of distributions 530,117 3,377,853 20,337,558 119,025,818
Payments for shares redeemed (4,263,407) (5,466,417) (169,579,331) (203,662,362)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 2,297,372 6,994,873 88,672,637 254,075,454
-------------- -------------- ---------------- ----------------
CLASS E (b)
Proceeds form shares sold 18,607 57,845 747,693 2,137,628
Proceeds from reinvestment
of distributions -- 3 18 102
Payments for shares redeemed (12,585) (3,888) (497,211) (155,726)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 6,022 53,960 250,500 1,982,004
-------------- -------------- ---------------- ----------------
Total net increase (decrease) 2,303,394 7,048,833 $ 88,923,137 $ 256,057,458
-------------- -------------- ---------------- ----------------
-------------- -------------- ---------------- ----------------
INTERNATIONAL SECURITIES
CLASS S
Proceeds from shares sold 3,073,083 5,602,508 $ 185,040,737 $ 329,786,927
Proceeds from reinvestment
of distributions 44,754 778,773 2,611,288 42,316,642
Payments for shares redeemed (2,695,073) (3,744,190) (162,841,543) (219,850,134)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 422,764 2,637,091 24,810,482 152,253,435
-------------- -------------- ---------------- ----------------
CLASS E (b)
Proceeds from shares sold 6,124 15,385 370,870 911,652
Proceeds from reinvestment
of distributions -- 1 3 48
Payments for shares redeemed (2,914) (2,782) (173,240) (161,903)
-------------- -------------- ---------------- ----------------
Net increase (decrease) 3,210 12,604 197,633 749,797
-------------- -------------- ---------------- ----------------
Total net increase (decrease) 425,974 2,649,695 $ 25,008,115 $ 153,003,232
-------------- -------------- ---------------- ----------------
-------------- -------------- ---------------- ----------------
</TABLE>
(b) Effective May 18, 1998, Class C was renamed Class E.
Notes to Financial Statements 125
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SHARES DOLLARS
-------------------------------------- --------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------- ----------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
DIVERSIFIED BOND
CLASS S
Proceeds from shares sold 7,720,398 12,348,179 $ 181,913,823 $ 285,135,050
Proceeds from reinvestment
of distributions 486,301 1,005,608 11,413,737 23,212,199
Payments for shares redeemed (4,633,095) (8,175,529) (109,148,930) (188,567,724)
----------------- ----------------- ------------------- --------------------
Net increase (decrease) 3,573,604 5,178,258 84,178,630 119,779,525
----------------- ----------------- ------------------- --------------------
CLASS E (b)
Proceeds from shares sold 72,493 71,904 1,750,606 1,676,993
Proceeds from reinvestment
of distributions 1 1 17 14
Payments for shares redeemed (37,202) (11,128) (890,008) (260,392)
----------------- ----------------- ------------------- --------------------
Net increase (decrease) 35,292 60,777 860,615 1,416,615
----------------- ----------------- ------------------- --------------------
Total net increase (decrease) 3,608,896 5,239,035 $ 85,039,245 $ 121,196,140
----------------- ----------------- ------------------- --------------------
----------------- ----------------- ------------------- --------------------
VOLATILITY CONSTRAINED BOND
CLASS S
Proceeds from shares sold 2,678,972 4,531,595 $ 51,101,263 $ 86,343,467
Proceeds from reinvestment
of distributions 171,750 318,828 3,269,608 6,058,603
Payments for shares redeemed (2,038,939) (4,334,448) (38,880,533) (82,601,508)
----------------- ----------------- ------------------- --------------------
Total net increase (decrease) 811,783 515,975 $ 15,490,338 $ 9,800,562
----------------- ----------------- ------------------- --------------------
----------------- ----------------- ------------------- --------------------
MULTISTRATEGY BOND
CLASS S
Proceeds from shares sold 13,197,534 19,095,215 $ 136,061,616 $ 195,040,097
Proceeds from reinvestment
of distributions 1,073,173 2,374,546 11,032,592 24,254,657
Payments for shares redeemed (6,366,477) (9,058,823) (65,637,682) (92,355,378)
----------------- ----------------- ------------------- --------------------
Total net increase (decrease) 7,904,230 12,410,938 $ 81,456,526 $ 126,939,376
----------------- ----------------- ------------------- --------------------
----------------- ----------------- ------------------- --------------------
</TABLE>
There was no activity in Class E shares for Volatility Constrained Bond
and Multistrategy Bond Funds.
(b) Effective May 18, 1998, Class C was renamed Class E.
7. DIVIDENDS
On July 2, 1998, the Board of Trustees declared the following dividends
from net investment income payable on July 7, 1998, to shareholders of
record on July 2, 1998:
<TABLE>
<S> <C> <C> <C>
Diversified Equity - Class S $ 0.0752 Diversified Bond - Class S $ 0.1153
Diversified Equity - Class E 0.0177 Diversified Bond - Class E 0.1095
Equity Income - Class S 0.1279 Multistrategy Bond - Class S 0.0486
Equity Income - Class E 0.0748 Volatility Constrained - Class S 0.0842
Quantitative Equity - Class S 0.0711
Quantitative Equity - Class E 0.0237
</TABLE>
126 Notes to Financial Statements
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BENEFICIAL INTEREST
The following Funds or Class of shares have a shareholder with an interest
greater than 10% of the total outstanding shares as of June 30, 1998:
Diversified Bond - Class S 15.7%, Diversified Bond - Class E 81.3% and
18.7%, Diversified Equity - Class E 99.1%, Special Growth Fund - Class E
93.8%, Equity Income - Class E 40.4% and 59.4%, International Securities -
Class E 61.1% and 38.9% and Quantitative Equity - Class E 71.9% and 28.1%.
9. SUBSEQUENT EVENTS
On August 10, 1998, Frank Russell Company entered into an agreement with
The Northwestern Mutual Life Insurance Co., an insurance organization,
pursuant to which Northwestern Mutual Life will acquire all of the
outstanding common stock of Frank Russell Company.
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A Street, Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 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
Mark E. Swanson, Treasurer and Chief Accounting Officer
Randall P. Lert, Director of Investments
Karl Ege, Secretary and General Counsel
MANAGER AND TRANSFER AGENT
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
OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, WA 98402
(800) RUSSEL4
(800) 787-7354
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 - One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Barclays Global Investors, N.A., San Francisco, CA
Equinox Capital Management, Inc., New York, NY
INVESCO Capital Management, Inc., Atlanta, GA
Lincoln Capital Management Company, Chicago, IL
Morgan Stanley Asset Management, Inc., New York, NY
Peachtree Asset Management, Atlanta, GA
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 LLP, 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
Barclays Global Investors, N.A., San Francisco, CA
Franklin Portfolio Associates, LLC, Boston, MA
J.P. Morgan Investment Management, Inc., New York, NY
INTERNATIONAL SECURITIES
J.P. Morgan Investment Management, Inc., New York, NY
Marathon Asset Management Limited, London, England
Mastholm Asset Management, LLC, Bellevue, WA
Oechsle International Advisors, Boston, MA
Rowe Price-Fleming International, Inc., Baltimore, MD
Sanford C. Bernstein & Co., Inc., New York, NY
The Boston Company Asset Management, Inc., Boston, MA
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, Inc., 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.
128 Manager, Money Managers and Service Providers
