LINCOLN LIFE(TM) MULTI FUND(R)
VARIABLE
ANNUITY
ANNUAL
REPORT 1997
<PAGE>
MULTI FUND(R) 1997 ANNUAL REPORT
INDEX
LINCOLN NATIONAL FUNDS Page
STATEMENT OF NET ASSETS
Lincoln National Aggressive Growth Fund, Inc. 10
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Lincoln National Bond Fund, Inc. 11
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Lincoln National Capital Appreciation Fund, Inc. 13
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Lincoln National Equity-Income Fund, Inc. 14
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Lincoln National Global Asset Allocation Fund, Inc. 17
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Lincoln National Growth and Income Fund, Inc. 28
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Lincoln National International Fund, Inc. 30
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Lincoln National Managed Fund, Inc. 32
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Lincoln National Money Market Fund, Inc. 36
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Lincoln National Social Awareness Fund, Inc. 36
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Lincoln National Special Opportunities Fund, Inc. 38
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STATEMENT OF OPERATIONS 40
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STATEMENT OF CHANGES IN NET ASSETS 42
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NOTES TO FINANCIAL STATEMENTS 44
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FINANCIAL HIGHLIGHTS 51
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 53
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<PAGE>
LINCOLN LIFE(TM)
January 1998
Dear Multi Fund(R) contractowner:
This booklet contains the 1997 annual report of the Multi Fund(R) Variable
Annuity's 14 underlying variable investment options. We are pleased to report
that most of the options produced favorable returns for the period ending
December 31, 1997.
The U.S. economy enjoyed its seventh year of expansion in 1997, propelling the
American stock market to historic highs. The U.S. stock market suffered two
brief corrections in 1997 - one as a result of the Federal Reserve Board
modestly raising short-term interest rates in the spring, and the other as a
result of financial problems in Asia. However, the fundamental strength of the
U.S. economy allowed many domestic stocks to recover by year's end.
Increased productivity resulting from improvements in technology and
organizational changes have helped American companies increase earnings.
Despite vigorous U.S. economic growth, the Consumer Price Index rose 1.8% -
the smallest increase since 1986.
Low U.S. inflation contributed to a strong domestic bond market. Low interest
rates in the U.S. and abroad have boosted bond prices while yields have
fallen. At year's end, the difference in U.S. Treasury Bonds' short-term and
long-term interest rates, known as the yield curve, was the smallest in four
years. Adding to U.S. Treasuries' attractiveness was Washington's apparent
commitment to eliminate the Federal budget deficit.
Overseas, European equity and bond markets also performed relatively well,
although returns for U.S. investors were reduced by the fact that the U.S.
dollar rose sharply in value against European currencies. The Continent is
generally benefiting from fiscal reform and private sector efforts to improve
productivity. Asia was the world's investment weak spot in 1997. Markets along
the Pacific Rim were negatively affected by a depressed financial sector, poor
fiscal planning, unstable politics and currency devaluations.
We remain optimistic about the long-term prospects in the various financial
markets, however we would caution that the types of returns received over the
last couple of years cannot be expected every year. We believe our portfolio
managers' disciplined approach will continue to prevail for those of you
willing to maintain a long-term investment strategy. Commentaries from each of
the portfolio managers begin on page 3 of this booklet.
The following table summarizes the performance results of the Multi Fund®
Variable Annuity contract for 1997. These figures are slightly different from
those appearing later in this report because the performance results are net
of all charges, while those shown later in the report are before deduction of
the contractual fees.
<TABLE>
<CAPTION>
1997 YEAR-TO-DATE PERFORMANCE
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
EQUITY BALANCED FIXED INCOME
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Fund 21.86% Global Asset Allocation Fund 18.16% Bond Fund 8.15%
Capital Appreciation Fund 23.99 Managed Fund 20.46 Money Market 4.06
Equity-Income Fund 29.29
Growth and Income Fund 29.48
International Fund 4.94
Social Awareness Fund 36.06
Special Opportunities Fund 26.81
</TABLE>
<PAGE>
The following additional table is provided in accordance with the Securities
and Exchange Commission regulations. It shows results as of the most recently
completed calendar quarter after the deduction of all charges. The charges
include surrender charges that apply to certain premature withdrawals from a
contract. Most contractowners regard Multi Fund(R) as a long-term investment
product, so they rarely contend with these surrender charges.
MULTI FUND(R)
SEC-REQUIRED QUARTERLY PERFORMANCE(1)
DECEMBER 31, 1997
TEN YEARS
ONE YEAR FIVE YEARS OR INCEPTION
12/31/96 TO 12/31/92 TO 12/31/87 TO
MULTI FUND(R) 12/31/97 12/31/97 12/31/97
- ------------------------------------------------------------------------
Aggressive Growth 12.05% N/A 11.57(2)%
Bond (0.55) 5.46% 7.83
Capital Appreciation 14.01 N/A 14.70(2)
Equity-Income 18.89 N/A 18.55(2)
Global Asset Allocation 8.65 12.37 11.42(2)
Growth and Income 19.06 17.73 14.66
International 3.51 10.65 6.18(2)
Managed 10.77 12.02 11.26
Money Market (4.32) 2.51 4.44
Social Awareness 25.12 21.41 17.39(2)
Special Opportunities 16.61 16.11 15.14
We invite you to review the reports provided in this booklet and hope they
help you develop a better understanding of your investment performance. Your
sales representative will help answer any questions you may have, or you may
contact a customer service representative at 800-4LINCOLN (800-454-6265). We
appreciate your continued confidence in Lincoln Life and look forward to
helping you meet your long-term financial goals.
Sincerely,
/s/ Jeffrey K. Dellinger
Jeffrey K. Dellinger
Vice President
1) In compliance with SEC guidelines, these results show the percent change for
periodic contracts (on an annualized basis) for each of the required periods
with dividends reinvested and include reduction of all recurring expenses
(e.g., administrative fees) and non-recurring expenses (e.g., surrender
charges -- periodic/years 1-5 = 8%, 6-10 = 4% and 11+years = 0%. Flexible
premium/7-6-5-4-3-2-1 declining 1% annually.)
2) Indicates performance since inception.
Small-cap stocks and emerging company stocks may be subject to a higher degree
of risk than more established companies' securities. The illiquidity of the
small-cap market may adversely affect the value of these investments so that
shares, when redeemed, may be worth more or less than their original cost.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than the
original cost. Past performance is not indicative of future results.
An investment in the Money Market Fund is neither insured nor guaranteed by
the U.S. Government and there is no assurance that the subaccount will
maintain a stable $1.00 share price.
The risks associated with investing on a worldwide basis include differences
in regulation of financial data and reporting, currency exchange differences,
as well as economic and political systems which may be different from those in
the United States.
Contracts with the elective Enhanced Guaranteed Minimum Death Benefit rider
are subject to an additional fee, as a result, returns would have been lower.
This material must be preceded or accompanied by a prospectus for the Lincoln
National Life Variable Annuity Account C. Read the prospectus carefully before
you invest or send money.
2
<PAGE>
AGGRESSIVE GROWTH FUND
MANAGED BY: [LYNCH & MAYER LOGO]
GROWTH OF $10,000 INVESTED 1/3/94 THROUGH 12/31/97
RUSSELL 2000 AGGRESSIVE GROWTH FUND
--------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- ------------------------------------------------------
1994 -1.83% $ 9,817 -9.37% $ 9,063
1995 28.45% $12,610 34.15% $12,158
1996 16.54% $14,696 17.02% $14,227
1997 22.40% $17,983 23.09% $17,512
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +23.09%
- --------------------------------------
Lifetime +15.04%
(since 1/3/94)
- --------------------------------------
The Aggressive Growth Fund returned 23.1% for the year ended Dec. 31, 1997 vs.
its benchmark, the S&P Mid-Cap 400, of 32.3%
The shares of U.S.-based smaller and mid-sized companies outperformed
larger-cap U.S. stocks indices in the third quarter of 1997 for the first time
since 1994. However, this shift reversed in the fourth quarter, back in favor
of large capitalization companies. For the year, the strongest stock picks
came from investments made in the Consumer Staples, Consumer Cyclical, and
Telecommunications sectors. The two areas that most detracted from performance
in 1997 were the Technology and Health Care groups.
For 1998, we believe that the market remains vulnerable to a significant
correction at any time. Our bullish stance on investing in mid-cap companies
rests primarily upon their relatively attractive prices and higher earnings
growth rates versus large-cap companies.
We sincerely thank you for your support in 1997 and we look forward to
delivering strong performance in 1998.
Ed Petner Kevin P. Ferguson
BOND FUND
MANAGED BY: [LINCOLN INVESTMENT MANAGEMENT LOGO]
GROWTH OF $10,000 INVESTED 1/1/88 THROUGH 12/31/97
LEHMAN BROTHERS
GOVERNMENT/CORPORATE
BOND INDEX BOND FUND
---------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- ------------------------------------------------------
1988 7.58% $10,758 7.93% $10,793
1989 14.24% $12,290 13.07% $12,204
1990 8.27% $13,306 6.64% $13,014
1991 16.10% $15,449 17.21% $15,254
1992 7.58% $16,620 7.84% $16,450
1993 11.06% $18,458 12.26% $18,466
1994 -3.50% $17,812 -4.18% $17,694
1995 19.24% $21,239 18.95% $21,047
1996 2.91% $21,857 2.31% $21,534
1997 9.75% $23,988 9.30% $23,536
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +9.30%
- --------------------------------------
Five Year +7.43%
- --------------------------------------
Ten Year +8.94%
- --------------------------------------
The Bond Fund returned 9.30% for the year ended Dec. 31, 1997 vs. 9.8% for its
index, the Lehman Brothers Government/Corporate Bond Index. The economy
remained good throughout the year with Gross Domestic Product growth of 3.9%.
Inflation was very low once again in spite of the good economic growth,
surprising many market participants. The Consumer Price Index increased by
only 1.8% - the lowest increase since 1986. The under-performance for the year
was a result of the fourth quarter performance as the Fund's return of 3.04%
lagged the index by 17 basis
3
<PAGE>
points. Corporate bonds widened in spread to U.S. Treasuries in the fourth
quarter in sympathy with the Asian financial crisis. The spread widening
caused significant under-performance of corporate bonds versus Treasuries in
the fourth quarter. This affected the performance of the Fund, as we kept the
portfolio over-weighted in corporate bonds versus the Index during the year.
Corporate bonds under-performed a duration equivalent Treasury by 29 basis
points in 1997. The weakness in corporate bonds followed five years of very
good out-performance of corporate bonds versus Treasuries.
We think a recession in 1998 is a low probability, and accordingly, we think a
significant credit scare is unlikely. After the expected first quarter supply
and demand imbalance, we see corporate bonds out-performing Treasury
securities slightly for the entire year. With this outlook, we plan to
overweight corporate bonds again this year, with a bias for the larger
Treasury allocations in the first quarter.
David C. Fischer
CAPITAL APPRECIATION FUND
Managed by: [JANUS LOGO]
GROWTH OF $10,000 INVESTED 1/3/94 THROUGH 12/31/97
CAPITAL APPRECIATION
S&P 500 INDEX FUND
--------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- ------------------------------------------------------
1994 1.31% $10,131 2.71% $10,271
1995 37.52% $13,932 28.69% $13,218
1996 22.92% $17,125 18.02% $15,600
1997 33.35% $22,837 25.29% $19,545
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +25.29%
- --------------------------------------
Lifetime +18.24%
(since 1/3/94)
- --------------------------------------
The Capital Appreciation Fund returned 25.3% for the year ended December 31,
1997 versus its benchmark, the S&P 500 of 33.4%.
Domestic equities moved through two very different investment periods over the
past twelve months. As the year began, the mega-caps of the S&P 500 emerged as
the driving force behind the Index's early gains, and we were underweighted in
these market favorites. Instead, we stayed true to our investment discipline
favoring companies with strong earnings prospects. The market came to
appreciate the tremendous earnings potential that a variety of the holdings
possess.
Early in the period, the Fund held substantial positions in banking and
financial services stocks. More recently, though, we either trimmed or sold
these positions as interest rates moved lower and it became more difficult to
4
<PAGE>
grow interest income. Pharmaceutical stocks performed well over the period. We
increased the Fund's technology weighting as October's market correction
offered an opportune time to take advantage of the markets volatility.
As we enter 1998, the Fund owns high-quality growth stocks of top-notch
companies with dominant or niche market franchises. We believe that superior
earnings growth will become the focal point for investors, and companies that
can provide consistently superior earnings will once again be rewarded.
James P. Craig
EQUITY-INCOME FUND
MANAGED BY: [FIDELITY INVESTMENTS LOGO]
GROWTH OF $10,000 INVESTED 1/3/94 THROUGH 12/31/97
S&P 500 INDEX EQUITY-INCOME FUND
--------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- ------------------------------------------------------
1994 1.31% $10,131 5.65% $10,565
1995 37.52% $13,932 34.74% $14,235
1996 22.92% $17,125 19.81% $17,055
1997 33.35% $22,837 30.67% $22,286
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +30.67%
- --------------------------------------
Lifetime +22.18%
(since 1/3/94)
- --------------------------------------
The Equity-Income Fund returned 30.7% for the year ended December 31, 1997
versus its benchmark, the S&P 500, which gained a very strong 33.4%.
Stock selection and underexposure to capital goods including technology was a
significant contributor to performance. An overweight in financial stocks
along with limited impact by Asian developments contributed to the portfolio.
Certain consumer non-durables, such as Philip Morris, Schering-Plough and
Bristol-Myers Squibb were among top contributors to performance.
A variety of economically sensitive positions underperformed in the wake of
the Asian crisis. A strong dollar made U.S. goods and services less
competitive. Commodity-oriented steel, aluminum and precious metals stocks
weakened. Following good performance in the first nine months of the year,
energy positions hurt the portfolio. An underweighting in public utilities
detracted from performance.
We continue to monitor positions to determine the impact of unfolding global
developments.
Stephen R. Petersen
GLOBAL ASSET ALLOCATION FUND
MANAGED BY: [PUTNAM INVESTMENTS LOGO]
<TABLE>
<CAPTION>
GROWTH OF $10,000 INVESTED 1/1/88 THROUGH 12/31/97
LEHMAN BROTHERS
GOVERNMENT/CORPORATE GLOBAL ASSET
BOND INDEX S&P 500 INDEX EAFE ALLOCATION FUND
-----------------------------------------------------------------------------------------------
ENDING ENDING ENDING ENDING
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE RETURN BALANCE RETURN BALANCE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1988 7.58% $10,758 16.61% $11,661 28.30% $12,830 10.87% $11,087
1989 14.24% $12,290 31.68% $15,355 10.54% $14,182 17.91% $13,073
1990 8.27% $13,306 -3.12% $14,876 -23.40% $10,864 0.92% $13,193
1991 16.10% $15,449 30.48% $19,410 12.12% $12,180 18.43% $15,624
1992 7.58% $16,620 7.62% $20,889 -12.17% $10,698 6.43% $16,629
1993 11.06% $18,458 10.07% $22,993 32.57% $14,182 17.28% $19,503
1994 -3.50% $17,812 1.31% $23,294 7.77% $15,284 -1.82% $19,148
1995 19.24% $21,239 37.52% $32,034 11.22% $16,999 23.95% $23,733
1996 2.91% $21,857 22.92% $39,376 6.05% $18,028 15.04% $27,303
1997 9.75% $23,988 33.35% $52,508 1.78% $18,348 19.47% $32,619
</TABLE>
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +19.47%
- --------------------------------------
Five Year +14.42%
- --------------------------------------
Ten Year +12.55%
- --------------------------------------
The Global Asset Allocation Fund returned 19.5% for the year ended December
31, 1997
5
<PAGE>
versus its customized benchmark (50% S&P 500; 20% LB Aggregate Bond; 15% EAFE,
10% Solomon World Government; 5% 90 Day T-Bill) of 20.0%.
We manage the Fund in a broadly diversified portfolio of domestic and foreign
stocks, bonds, and cash seeking to enhance returns through security selection
and by shifting Fund assets to favor strong-performing markets and avoid
underperforming asset classes. We took advantage of the global capital market
environment in 1997 by weighting the portfolio in favor of global stock
markets, particularly the U.S. We also reduced the portfolios exposure to
global fixed income and maintained exposure to high yield bonds. These shifts
boosted performance throughout the year.
As 1998 begins, we continue to expect strong equity market performance. We remai
n overweight in U.S. stocks, particularly small-caps. The belief is the Asian
crisis will be effectively managed and that corporate profits will respond to
the strength of western economies, not the weakness of eastern economies. With
inflation pressures easing, the U.S. bond market remains optimistic.
International equity markets offer mixed opportunities. We will continue to
monitor closely economic and market developments both at home and abroad, and
manage the portfolio in a prudent and broadly diversified fashion.
William Landes, Ph.D
GROWTH AND INCOME FUND
MANAGED BY: [VANTAGE GLOBAL ADVISORS LOGO]
GROWTH OF $10,000 INVESTED 1/1/88 THROUGH 12/31/97
GROWTH AND INCOME
S&P 500 INDEX FUND
--------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- -----------------------------------------------------
1988 16.61% $11,661 8.18% $10,818
1989 31.68% $15,355 20.75% $13,063
1990 -3.12% $14,876 0.95% $13,187
1991 30.48% $19,410 30.61% $17,223
1992 7.62% $20,889 1.84% $17,540
1993 10.07% $22,993 13.12% $19,842
1994 1.31% $23,294 1.32% $20,103
1995 37.52% $32,034 38.81% $27,906
1996 22.92% $39,376 18.76% $33,141
1997 33.35% $52,508 30.93% $43,391
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +30.93%
- --------------------------------------
Five Year +19.86%
- --------------------------------------
Ten Year +15.81%
- --------------------------------------
The Growth and Income Fund returned 30.9% for the year ended December 31, 1997
versus its benchmark the S&P 500 of 33.4%. The 15 largest stocks in the S&P
500 returned over 41% for the year.
The Fund provided investors with healthy returns for 1997. The Fund is
diversified across industries and securities, it minimizes individual industry
and security risk. The focus on attractively priced companies steered the
portfolio clear of some companies that fell significantly.
During 1998, the market will be particularly sensitive to earnings reports of
those higher priced large cap stocks. The Fund steers away from overvalued
companies, investing instead in companies well positioned to steadily move
through the uncertain markets ahead.
T. Scott Wittman
6
<PAGE>
INTERNATIONAL FUND
MANAGED BY: [CLAY FINLAY INC. LOGO]
GROWTH OF $10,000 INVESTED 5/1/91 THROUGH 12/31/97
INTERNATIONAL
EAFE FUND
--------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- -----------------------------------------------------
1991 3.34% $10,334 -0.36% $ 9,964
1992 -12.17% $ 9,076 -7.93% $ 9,174
1993 32.57% $12,033 38.90% $12,742
1994 7.77% $12,967 3.28% $13,160
1995 11.22% $14,422 8.89% $14,330
1996 6.05% $15,295 9.52% $15,695
1997 1.78% $15,567 6.00% $16,636
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year + 6.00%
- --------------------------------------
Five Year +12.64%
- --------------------------------------
Lifetime + 7.93%
(since 5/1/91)
- --------------------------------------
The International Fund returned 6.0% for the year ended December 31, 1997
versus 2.1%, the MSCI EAFE Index during a roller coaster year. The serious
currency crisis that began in the "ASEAN" markets during the later part of the
year brought markets down dramatically and had a contagious impact across the
globe.
Over the year, Japan was a positive contributor with stock selection
discipline performing exceptionally well. Investments in quality growth
companies selling at attractive prices performed well despite adverse market
conditions. Performance in Europe was mixed for 1997, while the portfolio
benefited from good stock selection in the Nordic Countries. Exposure was
reduced in the other pacific regions as the markets in the region were hit.
The Fund had limited exposure to Malaysia which was hardest hit by the crisis.
Exposure to the emerging markets was positive to overall results.
In Japan strong stock selection is expected to protect the portfolio in 1998.
Investments will continue to be sold in the other pacific region and holdings
added in the emerging markets.
Francis Finlay
MANAGED FUND
MANAGED BY: [LINCOLN INVESTMENT MANAGEMENT LOGO]
GROWTH OF $10,000 INVESTED 1/1/88 THROUGH 12/31/97
LEHMAN BROTHERS
GOVERNMENT/CORPORATE
BOND INDEX S&P 500 INDEX MANAGED FUND
----------------------------------------------------------------------
ENDING ENDING ENDING
ACCOUNT ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE RETURN BALANCE
- -------------------------------------------------------------------------------
1988 7.58% $10,758 16.61% $11,661 9.00% $10,900
1989 14.24% $12,290 31.68% $15,355 16.97% $12,750
1990 8.27% $13,306 -3.12% $14,876 3.50% $13,196
1991 16.10% $15,449 30.48% $19,410 21.66% $16,054
1992 7.58% $16,620 7.62% $20,889 3.66% $16,642
1993 11.06% $18,458 10.07% $22,993 11.53% $18,561
1994 -3.50% $17,812 1.31% $23,294 -1.84% $18,219
1995 19.24% $21,239 37.52% $32,034 29.29% $23,555
1996 2.91% $21,857 22.92% $39,376 12.05% $26,394
1997 9.75% $23,988 33.35% $52,508 21.82% $32,153
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +21.82%
- --------------------------------------
Five Year +14.08%
- --------------------------------------
Ten Year +12.39%
- --------------------------------------
The Managed Fund returned 21.8% for the year ended December 31, 1997 versus
20.2% for its customized benchmark (50% S&P 500 / 45% Lehman Brothers
Government/Corporate Bond / 5% 90 Day Treasury Bills). 1997 will go down as a
year worth remembering. The stock market continued its amazing bull run even
though it closed the year off its highs by about 5 percent. The bond market
rallied strongly in the second half of the year. The U.S. financial markets
overall provided excellent returns. Inflation finished the year at +1.8%, the
lowest rate of inflation since 1986.
7
<PAGE>
The asset allocation as of December 31, 1997 was 56.4% equities, 38.6%
fixed-income, and 5.0% cash. The Fund's performance is related to two basic
components: the stock/bond/cash split and the style breakdown within the
equity holdings by large-cap versus small-cap. The equity component is
targeted to be approximately 85% large-cap and 15% small-cap.
Heading into 1998, the mantra of predicting equity returns at or slightly
below the long-term historical trend, again seems to be the most plausible
forecast. We still face a number of potential negatives for the coming
quarter, most heavily influenced by the currency and financial crisis in Asia
and the potential negative ramifications of earnings that don't support
current valuations. It still appears too early to suggest that a bear market
or recession is in the winds, and thus equity holdings will remain relatively
high. We will be looking to take a more defensive bias in the coming quarter.
While equities will be reduced, we don't anticipate that they will fall out of
the 50 - 55% range.
Jay Yentis
SOCIAL AWARENESS FUND
MANAGED BY: [VANTAGE GLOBAL ADVISORS LOGO]
GROWTH OF $10,000 INVESTED 5/2/88 THROUGH 12/31/97
SOCIAL AWARENESS
S&P 500 INDEX FUND
--------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- -----------------------------------------------------
1988 9.11% $10,911 4.89% $10,489
1989 31.68% $14,368 31.18% $13,759
1990 -3.12% $13,919 -4.30% $13,168
1991 30.48% $18,162 37.22% $18,069
1992 7.62% $19,546 3.60% $18,719
1993 10.07% $21,514 13.56% $21,258
1994 1.31% $21,796 0.19% $21,298
1995 37.52% $29,974 42.83% $30,420
1996 22.92% $36,844 28.94% $39,224
1997 33.35% $49,131 37.53% $53,944
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +37.53%
- --------------------------------------
Five Year +23.58%
- --------------------------------------
Lifetime +19.03%
(since 5/2/88)
- --------------------------------------
The Social Awareness Fund returned 37.5% for the year ended December 31, 1997
versus its benchmark the S&P 500 of 33.4%. The performance has clearly been
outstanding, outperforming both the competition and the market.
In addition to a positive economic environment, there are two market trends
that should benefit the Fund over the coming year. First, there is increasing
investment in socially responsible companies, as more investors decide to
reflect their values in their investments. Second, the socially responsible
companies in which the Fund invests are much more attractively priced than
some of the larger companies that violate the Fund's social criteria. Over the
long term, stocks that are better values tend to outperform.
The current economic environment of steady growth and low inflation should
bode well for stock market returns and the Fund.
T. Scott Wittman
8
<PAGE>
SPECIAL OPPORTUNITIES FUND
MANAGED BY: [VANTAGE GLOBAL ADVISORS LOGO]
GROWTH OF $10,000 INVESTED 1/1/88 THROUGH 12/31/97
S&P MIDCAP SPECIAL
400 INDEX OPPORTUNITIES FUND
--------------------------------------------
ENDING ENDING
ACCOUNT ACCOUNT
YEAR RETURN BALANCE RETURN BALANCE
- -----------------------------------------------------
1988 20.86% $12,086 3.88% $10,388
1989 35.53% $16,380 32.90% $13,806
1990 -5.16% $15,535 -7.42% $12,781
1991 50.08% $23,315 42.83% $18,255
1992 11.90% $26,089 7.28% $19,584
1993 13.94% $29,726 18.42% $23,192
1994 -3.61% $28,653 -1.00% $22,960
1995 30.91% $37,510 31.86% $30,275
1996 19.20% $44,712 16.51% $35,274
1997 32.25% $59,131 28.15% $45,203
Average annualized return Ended
on investments 12/31/97
- --------------------------------------
One Year +28.15%
- --------------------------------------
Five Year +18.21%
- --------------------------------------
Ten Year +16.28%
- --------------------------------------
The Special Opportunities Fund returned 28.2% for the year ended December 31,
1997 versus its benchmark the S&P Mid-Cap 400 Index of 32.3%. The Fund has
provided solid returns versus peer funds in its category. The Fund provides
consistent returns while controlling risk and should provide stability in
an uncertain market.
The very largest companies have outperformed the rest of the market over the
past year. As a result, some of those companies are overpriced - investors are
paying more for what they are getting. Over the long term, undervalued stocks
should outperform. In 1998, we see a possible shift from large high priced
stocks to smaller stocks with attractive prices. The market for 1998 should
reward precisely the type of companies in which the Fund invests.
T. Scott Wittman
9
<PAGE>
AGGRESSIVE GROWTH FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Number Market
COMMON STOCKS: of Shares Value
- ------------------------------------------------------
AUTOMOBILES & AUTO PARTS: 2.0%
- ------------------------------------------------------
Tower Automotive* 159,000 $ 6,687,938
- ------------------------------------------------------
BANKING, FINANCE & INSURANCE: 5.1%
- ------------------------------------------------------
ReliaStar Financial* 145,200 5,980,425
Unum 96,400 5,241,750
Washington Mutual 99,800 6,365,369
- ------------------------------------------------------
17,587,544
BUILDINGS & MATERIALS: 0.8%
- ------------------------------------------------------
J. Ray McDermott,S.A.* 60,100 2,584,300
- ------------------------------------------------------
CABLE, MEDIA & PUBLISHING: 9.2%
- ------------------------------------------------------
Chancellor Media-A* 130,300 9,727,709
HSN* 142,800 7,363,125
Jacor Communications* 155,700 8,281,294
Sinclair Broadcasting Group* 129,800 6,011,363
- ------------------------------------------------------
31,383,491
CHEMICALS: 2.6%
- ------------------------------------------------------
Crompton & Knowles 303,800 8,050,700
W.R. Grace & Company* 8,900 715,894
- ------------------------------------------------------
8,766,594
COMPUTERS & TECHNOLOGY: 8.0%
- ------------------------------------------------------
Adaptec* 140,700 5,232,281
Autodesk 156,400 5,767,250
Filenet* 61,600 1,859,550
Hyperion Software* 119,900 4,316,400
Network Associates Inc.* 81,000 4,275,281
Scientific-Atlanta 118,900 1,991,575
Sterling Commerce* 104,000 3,997,500
- ------------------------------------------------------
27,439,837
ELECTRONICS & ELECTRICAL: 3.3%
- ------------------------------------------------------
Altera* 53,600 1,777,175
Etec Systems* 92,700 4,304,756
General Cable Corp. 148,400 5,370,225
- ------------------------------------------------------
11,452,156
ENERGY: 7.8%
- ------------------------------------------------------
BJ Services* 124,900 8,984,994
Diamond Offshore Drilling 53,516 2,575,458
Forcenergy* 90,400 2,367,350
Nabors Industries* 158,300 4,976,556
Ocean Energy* 69,600 3,432,150
Sun 41,500 1,745,594
United Meridian* 91,000 2,559,375
- ------------------------------------------------------
26,641,477
ENVIRONMENTAL SERVICES: 0.8%
- ------------------------------------------------------
Perkin-Elmer 40,200 2,856,713
- ------------------------------------------------------
FARMING & AGRICULTURE: 1.0%
- ------------------------------------------------------
Delta and Pine Land 109,600 3,342,800
- ------------------------------------------------------
FOOD, BEVERAGE & TOBACCO: 6.8%
- ------------------------------------------------------
CKE Restaurants 89,800 3,782,825
Flowers Industries 327,750 6,739,359
International Home Foods* 74,300 2,080,400
Interstate Bakeries 186,400 6,966,700
ShowBiz Pizza Time* 159,100 3,679,188
- ------------------------------------------------------
23,248,472
Number Market
of Shares Value
- ------------------------------------------------------
HEALTHCARE & PHARMACEUTICALS: 1.8%
- ------------------------------------------------------
Biochem Pharma* 232,800 $ 4,859,700
Centocor* 44,000 1,468,500
- ------------------------------------------------------
6,328,200
INDUSTRIAL MACHINERY: 6.4%
- ------------------------------------------------------
Falcon Drilling* 201,900 7,079,119
Kennametal* 65,900 3,414,444
McDermott International 309,000 11,317,125
- ------------------------------------------------------
21,810,688
LEISURE, LODGING & ENTERTAINMENT: 0.9%
- ------------------------------------------------------
International Game Technology 119,800 3,024,950
- ------------------------------------------------------
METALS & MINING: 3.0%
- ------------------------------------------------------
Outdoor Systems* 264,150 10,136,756
- ------------------------------------------------------
MISCELLANEOUS: 1.0%
- ------------------------------------------------------
CoreStaff* 133,600 3,557,100
- ------------------------------------------------------
PACKAGING & CONTAINERS: 1.6%
- ------------------------------------------------------
Sealed Air* 90,000 5,557,500
- ------------------------------------------------------
PAPER & FOREST PRODUCTS: 2.0%
- ------------------------------------------------------
Fort James 183,100 7,003,575
- ------------------------------------------------------
RETAIL: 13.9%
- ------------------------------------------------------
Corporate Express* 260,350 3,360,142
Dollar Thrifty Automotive* 177,200 3,632,600
Family Dollar Stores 316,800 9,286,200
Meyer (Fred) Inc.* 213,600 7,769,700
Pier 1 Imports 378,000 8,552,250
Stage Stores* 96,600 3,616,463
Tandy 117,600 4,534,950
Zale* 306,300 7,044,900
- ------------------------------------------------------
47,797,205
TELECOMMUNICATIONS: 6.0%
- ------------------------------------------------------
ECI Telecommunications 244,900 6,260,256
Electric Lightwave Inc.* 89,000 1,329,438
Mobile Telecomm Technologies* 122,600 2,712,525
QUALCOMM* 70,800 3,577,612
Teleport Communications Group* 123,900 6,806,756
- ------------------------------------------------------
20,686,587
TEXTILES, APPAREL & FURNITURE: 4.0%
- ------------------------------------------------------
Jones Apparel Group* 151,500 6,514,500
Lear* 147,900 7,025,250
- ------------------------------------------------------
13,539,750
TRANSPORTATION & SHIPPING: 1.1%
- ------------------------------------------------------
C.H. Robinson Worldwide 100,000 2,256,250
CNF Transportation* 42,600 1,634,775
- ------------------------------------------------------
3,891,025
COMMON STOCK: 89.1%
(Cost $250,430,109) 305,324,658
- ------------------------------------------------------
Maturity
Amount
- ------------------------------------------------------
REPURCHASE AGREEMENT:
State Street Bank & Trust Co.
Repurchase Agreement, dated
12/31/97, 5.20%, maturing
1/2/98, collateralized by
U.S.Treasury Notes, 5.50%,
11/15/98 $41,468,000 41,468,000
- ------------------------------------------------------
TOTAL REPURCHASE AGREEMENT: 12.1%
(Cost $41,468,000) 41,468,000
- ------------------------------------------------------
TOTAL INVESTMENTS: 101.2%
(Cost $291,898,109) 346,792,658
- ------------------------------------------------------
Other Assets Under Liabilities: (1.2)% (4,029,958)
- ------------------------------------------------------
10
<PAGE>
Market
Value
- ------------------------------------------------------
NET ASSETS: 100.0%
(Equivalent to $16.385 per
share based on 20,918,781
shares issued and
outstanding) $342,762,700
======================================================
BOND FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Par Market
LONG-TERM DEBT INVESTMENTS: Amount Value
- ------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS: 35.7%
- ------------------------------------------------------
Federal Home Loan Mortgage
7.60%, 7/25/05 $ 466,146 $ 467,088
6.39%, 10/15/06 2,000,000 2,015,625
3.50%, 12/15/21 2,000,000 1,685,724
FHLMC
7.30%, 12/1/12 2,950,456 3,016,841
FNMA
6.35%, 8/24/00 4,000,000 4,006,080
6.80%, 8/1/05 928,450 937,444
7.18%, 10/1/05 2,551,603 2,627,352
6.66%, 11/1/05 980,844 986,975
6.66%, 12/1/05 1,961,768 1,974,642
7.043%, 7/1/06 2,464,985 2,608,964
7.15%, 10/1/15 2,849,519 2,894,043
8.00%, 4/1/17 323,297 338,250
7.00%, 10/1/25 2,627,076 2,655,809
FNMA Strip
0.00%, 7/24/06 9,500,000 5,750,730
GNMA
9.00%, 5/15/17 131,248 142,650
9.00%, 9/15/19 645,090 701,132
6.50%, 11/15/23 846,990 845,137
U.S. Treasury Bond
12.75%, 11/15/10 20,280,000 28,953,754
12.00%, 8/15/13 500,000 737,065
U.S. Treasury Note
6.50%, 8/31/01 3,575,000 3,665,626
6.25%, 6/30/02 18,750,000 19,131,375
U.S. Treasury Strip
0.00%, 5/15/05 9,840,000 6,461,238
0.00%, 2/15/11 16,500,000 7,616,398
- ------------------------------------------------------
100,219,942
COLLATERALIZED MORTGAGE OBLIGATIONS: 0.1%
- ------------------------------------------------------
Mid-State Trust
7.63%, 4/1/22 204,189 208,397
- ------------------------------------------------------
AUTOMOBILE & AUTO EQUIPMENT: 0.8%
- ------------------------------------------------------
Chrysler
7.45%, 2/1/97 1,000,000 1,071,250
Goodyear Tire & Rubber
6.63%, 12/1/06 1,250,000 1,267,188
- ------------------------------------------------------
2,338,438
BANKING, FINANCE & INSURANCE: 24.7%
- ------------------------------------------------------
Ahmanson, H. F.
8.25%, 10/1/02 2,000,000 2,150,000
Aristar Financial
7.50%, 7/1/99 1,500,000 1,530,000
Banc One
9.88%, 3/1/09 500,000 627,500
Banque Paribas-NY
8.35%, 6/15/07 1,400,000 1,559,250
Barnett Bank
6.90%, 9/1/05 1,500,000 1,539,375
Barnett Capital Trust I
8.06%, 12/1/26 1,900,000 2,028,250
Citicorp Notes
6.33%, 1/5/06 1,600,000 1,586,000
Par Market
Amount Value
- ------------------------------------------------------
Comerica Bank
7.88%, 9/15/26 $1,500,000 $1,676,250
Dow Capital
9.00%, 5/15/10 3,000,000 3,622,500
Finova Capital
6.12%, 5/28/02 1,000,000 997,500
First Bank System
6.88%, 9/15/07 1,000,000 1,023,750
First of America Capital Trust I
8.12%, 1/31/27 2,000,000 2,125,000
First Security
7.00%, 7/15/05 1,000,000 1,030,000
First Union
8.00%, 8/15/09 2,000,000 2,207,500
First USA Bank
5.75%, 1/15/99 2,000,000 1,995,000
Fleet Financial Group
7.25%, 9/1/99 1,000,000 1,018,750
General Motors Acceptance
8.17%, 1/2/00 618,494 636,889
7.88%, 3/7/01 1,500,000 1,573,125
8.88%, 6/1/10 1,500,000 1,790,625
Harris Bankcorp
9.38%, 6/1/01 250,000 273,750
Household Affinity Credit Card
6.05%, 5/15/01 1,000,000 998,185
Household Finance
9.63%, 7/15/00 875,000 946,094
Hydro-Quebec
7.20%, 10/5/09(2) 3,000,000 3,065,100
International Lease Finance
8.25%, 1/15/00 2,000,000 2,085,000
John Deere Capital
8.63%, 8/1/19 2,000,000 2,195,000
Lehman Brothers Holdings
8.88%, 3/1/02 1,000,000 1,091,250
Mellon Capital I Notes
7.72%, 12/1/26 1,500,000 1,558,125
Mercantile Bancorp
7.30%, 6/15/07 1,325,000 1,391,250
Midland Bank PLC
0.00%, 9/29/49(2) 1,400,000 1,198,190
Morgan Stanley Group
6.88%, 3/1/07 2,250,000 2,311,875
National Westminister Bank
9.45%, 5/1/01 500,000 548,125
Nynex Capital Funding
7.63%, 10/15/09(2) 3,000,000 3,419,159
PNC Funding
6.88%, 7/15/07 1,187,000 1,216,675
Salomon Brothers
7.25%, 1/15/00 1,000,000 1,021,250
Salomon Smith Barney
7.88%, 10/1/99 3,000,000 3,093,750
Simon DeBartolo Group
7.13%, 6/24/05 1,300,000 1,347,125
SouthTrust Bank of Birmingham
7.69%, 5/15/25 2,750,000 3,196,875
Spiegel Charge Account Trust
6.95%, 2/15/01 71,428 71,280
Standard Chartered PLC Notes
6.15%, 12/29/49 2,500,000 1,771,125
State Street Capital-B
8.04%, 3/15/27 1,400,000 1,508,500
Union Bank Switzerland
7.25%, 7/15/06 2,250,000 2,382,188
Wachovia Capital Trust I
7.64%, 1/15/27 1,900,000 1,930,875
- ------------------------------------------------------
69,338,010
BUILDING & MATERIALS: 1.0%
- ------------------------------------------------------
Champion International
7.70%, 12/15/99 1,500,000 1,545,000
Georgia-Pacific
9.95%, 6/15/02 1,000,000 1,131,250
- ------------------------------------------------------
2,676,250
11
<PAGE>
Par Market
Amount Value
- ------------------------------------------------------
CABLE, MEDIA, & PUBLISHING: 1.6%
- ------------------------------------------------------
News America Holdings
8.45%, 8/1/34 $1,500,000 $1,710,000
Time Warner
9.13%, 1/15/13 2,000,000 2,367,500
Viacom International
8.75%, 5/15/01(2) 500,000 507,500
- ------------------------------------------------------
4,585,000
ENERGY: 1.2%
- ------------------------------------------------------
Commonwealth Edison
9.38%, 2/15/00 500,000 530,000
Enron
9.50%, 6/15/01 1,000,000 1,101,250
Petro-Canada
8.60%, 10/15/01 1,500,000 1,618,125
- ------------------------------------------------------
3,249,375
ENVIRONMENTAL SERVICES: 0.6%
- ------------------------------------------------------
Waste Management
6.63%, 7/15/02 1,750,000 1,760,938
- ------------------------------------------------------
FOOD, BEVERAGE & TOBACCO: 0.3%
- ------------------------------------------------------
Nabisco
7.55%, 6/15/15 750,000 787,500
- ------------------------------------------------------
HEALTHCARE & PHARMACEUTICALS: 1.1%
- ------------------------------------------------------
Allegiance
7.30%, 10/15/06 750,000 789,375
Glaxo Wellcome plc
6.13%, 1/25/06 2,250,000 2,230,313
- ------------------------------------------------------
3,019,688
LEISURE, LODGING & ENTERTAINMENT: 0.5%
- ------------------------------------------------------
Darden Restaurants
6.38%, 2/1/06 1,500,000 1,466,250
- ------------------------------------------------------
METALS & MINING: 2.8%
- ------------------------------------------------------
Alcan Aluminum
8.88%, 1/15/22 500,000 546,875
Cyprus Amax Minerals
7.38%, 5/15/07 2,500,000 2,631,250
Inco
9.60%, 6/15/22 1,300,000 1,495,000
Newmont Gold
8.91%, 1/5/09 695,959 769,905
Placer Dome
7.37%, 6/3/26 1,000,000 1,067,500
Placer Dome-Series A
7.31%, 1/26/21 1,000,000 1,021,250
Reynolds Metals
9.00%, 8/15/03 250,000 280,625
- ------------------------------------------------------
7,812,405
MISCELLANEOUS: 0.6%
- ------------------------------------------------------
Manitoba
7.75%, 7/17/16 1,500,000 1,715,625
- ------------------------------------------------------
PAPER & FOREST PRODUCTS: 0.7%
- ------------------------------------------------------
James River
6.70%, 11/15/03 2,000,000 2,017,500
- ------------------------------------------------------
RETAIL: 1.2%
- ------------------------------------------------------
Sears Roebuck
9.05%, 2/6/12 2,000,000 2,412,500
Service Corp International
7.00%, 6/1/15 1,000,000 1,032,500
- ------------------------------------------------------
3,445,000
Par Market
Amount Value
- ------------------------------------------------------
TELECOMMUNICATIONS: 4.5%
- ------------------------------------------------------
AT&T Capital
7.47%, 5/11/05 $2,750,000 $ 2,894,375
Litton Industries
6.98%, 3/15/36 1,000,000 1,035,000
Nynex
9.55%, 5/1/10 1,454,760 1,656,608
Pacificorp
9.15%, 8/9/11 2,000,000 2,432,500
Rochester Telephone MTN
9.00%, 7/19/00 2,000,000 2,132,500
U.S. Cellular
7.25%, 8/15/07 1,500,000 1,548,750
US West Capital Funding
6.95%, 1/15/37 1,000,000 1,031,250
- ------------------------------------------------------
12,730,983
TRANSPORTATION & SHIPPING: 2.8%
- ------------------------------------------------------
American Airline
10.18%, 1/2/13 1,500,000 1,874,654
Burlington Norhtern Railroad
6.94%, 1/2/14 485,755 499,543
Chicago & Northwestern Holdings
6.25%, 7/30/12 1,374,728 1,362,699
CSX
7.25%, 5/1/27 1,000,000 1,067,500
Federal Express
7.96%, 3/28/17 1,129,243 1,199,820
United Airlines
9.35%, 4/7/16 1,500,000 1,780,110
- ------------------------------------------------------
7,784,326
UTILITIES: 12.7%
- ------------------------------------------------------
Cleveland Electric Illumination
8.26%, 10/30/98 2,500,000 2,534,375
Colonial Gas-Series A
6.81%, 5/19/27 1,500,000 1,543,125
Consumers Energy
8.75%, 2/15/98 1,000,000 1,002,500
8.88%, 11/15/99 1,000,000 1,045,000
Detriot Edison
6.56%, 5/1/01 2,000,000 2,022,500
DQU II Funding
8.70%, 6/1/16 2,474,000 2,807,990
Great Lakes Power
9.00%, 8/1/04 1,500,000 1,655,625
Houston Light & Power Capital
Trust II
8.26%, 2/1/37 1,900,000 2,106,625
Korea Electric Power
8.00%, 7/1/02 2,000,000 1,695,000
MidAmerican Energy
6.50%, 12/15/01 1,250,000 1,262,500
National Rural Utility
7.20%, 10/1/15 1,000,000 1,055,000
Nevada Power
7.06%, 5/1/00 1,500,000 1,530,000
New Jersey Bell
7.85%, 11/15/29 1,950,000 2,296,125
Noble Affiliates
7.25%, 10/15/23 600,000 618,000
Old Dominion Electric
8.76%, 12/1/22 1,600,000 1,826,000
Pennsylvania Power & Light
7.70%, 10/1/09 3,000,000 3,296,250
PSI Energy
8.56%, 12/27/11 2,000,000 2,362,500
Public Service
6.38%, 11/1/05 1,500,000 1,507,500
Texas Gas Transmissions
8.63%, 4/1/04 1,000,000 1,115,000
Washington Water Public
8.01%, 12/17/01 2,000,000 2,117,500
- ------------------------------------------------------
35,399,115
TOTAL LONG TERM DEBT INVESTMENT: 92.9%
(Cost $249,033,420) 260,554,742
- ------------------------------------------------------
12
<PAGE>
Par Market
Amount Value
- ------------------------------------------------------
MONEY MARKET INSTRUMENTS:
Merrill Lynch & Co.
5.87%, 1/13/98 $8,700,000 $ 8,682,977
Monsanto Co.
6.30%, 1/5/98 6,300,000 6,295,590
- ------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS: 5.4%
(Cost $14,978,567) 14,978,567
- ------------------------------------------------------
TOTAL INVESTMENTS: 98.3%
(Cost $264,011,987) 275,533,309
- ------------------------------------------------------
Other Assets Over Liabilities: 1.7% 4,849,862
- ------------------------------------------------------
NET ASSETS: 100%
(Equivalent to $12.861 per share
based on 21,801,725 shares issued
and outstanding) $280,383,171
- ------------------------------------------------------
CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Number Market
COMMON STOCKS: of Shares Value
- ------------------------------------------------------
AUTOMOBILES & AUTO PARTS: 1.6%
- ------------------------------------------------------
Federal-Mogul 174,425 $ 7,064,213
- ------------------------------------------------------
BANKING, FINANCE & INSURANCE: 12.5%
- ------------------------------------------------------
Associates First Capital 58,000 4,125,250
Bank of New York 113,525 6,563,164
BankAmerica 56,300 4,109,900
Barclays PLC (UK) 231,002 6,153,760
First Empire State 9,450 4,394,250
Household International 25,650 3,271,978
Lloyds TSB Group plc (UK) 167,185 2,167,565
Morgan St Dean Witter Discover* 100,000 5,912,500
Northern Trust 16,325 1,141,730
Schwab (Charles) 193,400 8,110,712
Schweizerische
Lebensversicherungs-und
Rentenanstalt (Switzerland)* 3,179 2,494,058
Star Banc 42,100 2,415,487
Unum 100,050 5,440,219
- ------------------------------------------------------
56,300,573
CABLE, MEDIA & PUBLISHING: 8.5%
- ------------------------------------------------------
Elsevier-CVA (Netherlands)* 159,324 2,578,745
Meredith 100,075 3,571,426
Tele-communications A* 510,895 14,257,163
Time Warner 90,000 5,580,000
Univision Communications-A* 50,725 3,541,239
Wolters Kluwer NV (Netherlands) 71,053 9,182,719
- ------------------------------------------------------
38,711,292
CHEMICALS: 6.9%
- ------------------------------------------------------
Cytec Industries* 43,000 2,018,313
DuPont (E.I.) deNemours 116,750 7,012,297
Imperial Chemical ADR 50,000 3,246,875
Monsanto 300,800 12,633,600
Pioneer Natural Resources 128,150 3,708,341
Solutia 88,410 2,359,442
- ------------------------------------------------------
30,978,868
COMPUTERS & TECHNOLOGY: 17.7%
- ------------------------------------------------------
America Online* 45,100 4,022,356
Applied Graphics Technologies* 83,775 4,440,075
Cadence Design Systems* 510,000 12,495,000
Cisco Systems* 275,813 15,393,785
Dell Computer* 53,000 4,453,656
Gartner Group Class A* 72,000 2,686,500
Intel 70,000 4,915,313
Linear Technology 100,700 5,796,544
Number Market
of Shares Value
- ------------------------------------------------------
Microsoft* 110,000 $14,214,062
Parametric Technology* 243,075 11,500,486
- ------------------------------------------------------
79,917,777
CONSUMER PRODUCTS: 2.6%
- ------------------------------------------------------
Minnesota Mining & Manufacturing 52,750 4,328,797
Unilever NV 120,000 7,492,500
- ------------------------------------------------------
11,821,297
ELECTRONICS & ELECTRICAL: 13.3%
- ------------------------------------------------------
Analog Devices* 150,000 4,153,125
CBS* 472,975 13,923,202
Electrolux AB (Sweden)* 16,233 1,127,334
Maxim Integrated Products* 251,700 8,699,381
Phillips Electronics NV
(Netherlands) 55,845 3,350,975
Pittway 19,687 1,370,707
Schlumberger Limited 235,675 18,971,838
Texas Instruments 190,000 8,550,000
- ------------------------------------------------------
60,146,562
ENERGY: 5.2%
- ------------------------------------------------------
Diamond Offshore Drilling 40,000 1,925,000
Santa Fe International 136,950 5,572,153
Smith International* 145,000 8,899,375
Transocean Offshore 150,000 7,228,125
- ------------------------------------------------------
23,624,653
ENVIRONMENTAL SERVICES: 3.6%
- ------------------------------------------------------
Burlington Resources 165,825 7,431,033
Halliburton 165,650 8,603,447
- ------------------------------------------------------
16,034,480
FOOD, BEVERAGE & TOBACCO: 1.0%
- ------------------------------------------------------
Coca-Cola Enterprises 32,550 1,157,559
JP Foodservice* 88,725 3,277,280
- ------------------------------------------------------
4,434,839
HEALTHCARE & PHARMACEUTICALS: 12.2%
- ------------------------------------------------------
Bristol-Myers Squibb 43,975 4,161,134
Cardinal Health 61,412 4,613,576
Eli Lilly & Company 84,575 5,888,534
Glaxo Wellcome plc (UK) 53,762 1,275,224
Omnicare 82,750 2,565,250
Pfizer 117,100 8,731,269
Schering-Plough* 114,825 7,133,503
SmithKline Beecham Plc (UK) 460,000 4,746,106
Tyco International 140,000 6,308,750
Warner-Lambert 77,275 9,582,100
- ------------------------------------------------------
55,005,446
INDUSTRIAL MACHINERY: 1.4%
- ------------------------------------------------------
Dionex* 123,750 6,172,031
- ------------------------------------------------------
LEISURE, LODGING & ENTERTAINMENT: 1.3%
- ------------------------------------------------------
Carnival Cruise Lines 59,225 3,279,584
Royal Caribbean Cruises 46,150 2,460,372
- ------------------------------------------------------
5,739,956
MISCELLANEOUS: 1.5%
- ------------------------------------------------------
Robert Half International* 64,212 2,568,480
Siebe plc (UK) 217,446 4,088,920
- ------------------------------------------------------
6,657,400
PACKAGING & CONTAINERS: 0.4%
- ------------------------------------------------------
Sealed Air* 31,475 1,943,581
- ------------------------------------------------------
RETAIL: 2.2%
- ------------------------------------------------------
Costco Companies* 129,025 5,753,708
Dayton Hudson 64,325 4,341,938
- ------------------------------------------------------
10,095,646
TELECOMMUNICATIONS: 3.0%
- ------------------------------------------------------
CIENA Corp.* 52,050 3,188,063
Comcast - Special Class A 327,425 10,324,119
- ------------------------------------------------------
13,512,182
TOTAL COMMON STOCKS: 94.9%
(Cost $ 363,764,593) 428,160,796
- ------------------------------------------------------
13
<PAGE>
Par Market
Money Market Instruments: Amount Value
- ------------------------------------------------------
FMC Discount Note
6.00%, 1/2/98 $ 3,000,000 $ 2,999,500
General Electric Capital Corp
6.70%, 1/2/98 22,100,000 22,095,887
- ------------------------------------------------------
TOTAL MONEY MARKET INSTUMENTS: 5.6%
(Cost $25,095,387) 25,095,387
- ------------------------------------------------------
TOTAL INVESTMENTS: 100.5%
(Cost $388,859,980) 453,256,183
- ------------------------------------------------------
Other Assets Under Liabilities: (0.5%) (2,220,516)
- ------------------------------------------------------
NET ASSETS: 100.0%
(Equivalent to $17.530 per share
based on 25,728,647 shares issued
and outstanding) $451,035,667
======================================================
EQUITY INCOME FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Par Market
LONG TERM-DEBT INVESTMENTS: Amount** Value
- ------------------------------------------------------
Daimler-Benz Capital
4.125%, 07/05/03 $ 830,000 $ 641,390
- ------------------------------------------------------
TOTAL LONG-TERM DEBT INVESTMENTS: 0.1%
(Cost $542,255) 641,390
- ------------------------------------------------------
CONVERTIBLE BONDS
- ------------------------------------------------------
AIR TRANSPORTATION: 0.1%
- ------------------------------------------------------
Continental Airlines
6.75%, 04/15/06 320,000 540,000
- ------------------------------------------------------
AUTOMOTIVE: 0.1%
- ------------------------------------------------------
Volkswagon International
3.00%, 01/24/02 860,000 986,850
- ------------------------------------------------------
BANKING, FINANCE & INSURANCE: 0.1%
- ------------------------------------------------------
Loews
3.125%, 09/15/07 400,000 401,000
- ------------------------------------------------------
BROADCASTING: 0.1%
- ------------------------------------------------------
Jacor Communications
0.00%, 06/12/11 610,000 446,825
- ------------------------------------------------------
COMPUTER & TECHNOLOGY: 0.3%
- ------------------------------------------------------
Apple Computer
6.00%, 6/1/01 600,000 482,250
Cirrus Logic
6.00%, 12/15/03 460,000 349,600
Micron Technology
7.00%, 7/1/04 1,160,000 1,071,550
Softkey International
5.50%, 11/1/00 770,000 678,563
- ------------------------------------------------------
2,581,963
LEISURE, LODGING & ENTERTAINMENT: 0.0%
- ------------------------------------------------------
Hilton Hotels
5.00%, 05/15/06 360,000 397,800
- ------------------------------------------------------
Par Market
Amount** Value
- ------------------------------------------------------
MACHINERY & ENGINEERING: 0.1%
- ------------------------------------------------------
Hexcel Corp
7.00%, 08/01/03 $ 210,000 $ 343,088
Matsushita Electric Industries (Japan)
1.30%, 03/29/02 30,000,000 287,698
1.40%, 03/31/04 15,000,000 141,317
- ------------------------------------------------------
772,103
MISCELLANEOUS: 0.8%
- ------------------------------------------------------
ADT Operations Lyons
0.00%, 7/6/10 380,000 470,250
News America Holdings
0.00%, 3/11/13 3,450,000 1,630,125
Quantum
7.00%, 8/1/04 410,000 374,638
Rite-Aid Notes
5.25%, 9/15/02 1,030,000 1,105,963
Time Warner
0.00%, 6/22/13 5,630,000 2,857,225
- ------------------------------------------------------
6,438,201
PETROLEUM & PETROLEUM RELATED: 0.5%
- ------------------------------------------------------
Baker Hughes
0.00%, 5/5/08 750,000 633,750
Pennzoil
6.50%, 1/15/03 1,370,000 2,599,575
4.75%, 10/1/03 810,000 1,101,600
- ------------------------------------------------------
4,334,925
REAL ESTATE: 0.0%
- ------------------------------------------------------
Liberty Property Trust
8.00%, 07/01/01 10,000 14,325
- ------------------------------------------------------
RETAIL: 0.3%
- ------------------------------------------------------
Baker (J.)
7.00%, 06/01/02 260,000 181,675
Charming Shoppes
7.50%, 7/15/06 200,000 189,500
Federated Department Stores
5.00%, 10/01/03 720,000 972,000
Home Depot
3.25%, 10/01/01 910,000 1,237,600
- ------------------------------------------------------
2,580,775
TOTAL CONVERTIBLE BONDS: 2.4%
(Cost $17,249,593) 19,494,767
- ------------------------------------------------------
Number
COMMON STOCKS: of Shares
- ------------------------------------------------------
AEROSPACE & DEFENSE: 3.4%
- ------------------------------------------------------
Allied-Signal 138,600 5,396,738
Boeing 33,886 1,658,296
GenCorp 53,300 1,332,500
General Dynamics 10,700 924,881
Lockheed Martin 72,400 7,131,400
Loral Space and Communications 6,700 143,631
Northrop 21,300 2,449,500
Textron 54,000 3,375,000
Thiokol 12,900 1,048,125
United Technologies 64,300 4,681,844
- ------------------------------------------------------
28,141,915
AUTOMOBILES & AUTO PARTS: 2.4%
- ------------------------------------------------------
Bayerische Motoren Werke (BMW)
AG (Germany) 1,700 1,271,161
Chrysler 146,500 5,154,969
Cooper Industries 18,598 911,302
Cunnins Engine 10,200 602,438
General Motors 72,900 4,419,563
Goodrich (B.F.) 47,500 1,968,281
Meritor Automotive 49,233 1,036,970
Modine Manufacturing 20,400 700,612
TRW 21,500 1,147,563
Volvo AB (Sweden) 80,100 2,150,376
Volvo AB ADR 10,900 294,300
- ------------------------------------------------------
19,657,535
14
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------
BANKING, FINANCE & INSURANCE: 24.8%
- ------------------------------------------------------
Aetna Inc. 20,300 $ 1,432,419
Allstate 137,005 12,450,329
American Bankers Insurance Group 65,400 3,004,313
American Express 182,000 16,243,500
American Financial Group 47,100 1,898,719
Banc One 154,000 8,364,125
Bank of Boston 35,600 3,344,175
Bank of New York 198,700 11,487,344
Bank of Nova Scotia (Canada) 30,100 1,418,192
BankAmerica 135,700 9,906,100
Bear Stearns 16,346 776,435
Beneficial 35,200 2,926,000
Canadian Imperial Bank of
Commerce (Canada) 61,700 1,920,774
Chase Manhattan 30,000 3,285,000
Cigna 11,500 1,990,219
Citicorp 36,400 4,602,325
Comerica 43,600 3,934,900
CS Holdings AG (Switzerland) 11,000 1,700,410
Den Danske Bank (Denmark) 11,030 1,469,894
Den Norske Bank ASA (Norway) 15,000 70,787
Edperbrascan Class A 209,500 3,810,556
Federal National Mortgage 317,700 18,128,756
First Bank Systems 45,200 5,059,575
First Chicago NBD 125,923 10,514,571
First Marathon (Canada)* 92,100 1,317,601
Fleet Financial Group 56,900 4,263,944
Fremont General 81,197 4,445,536
General Re Corp. 12,800 2,713,600
Hartford Financial Services 60,200 5,632,463
Highlands Insurance Group* 30,970 878,774
Household International 31,200 3,979,950
Lehman Brothers Holdings 34,080 1,738,080
Marsh & McLennan 12,000 894,750
MBIA 7,200 481,050
National Bank of Canada 144,600 2,387,324
NationsBank 178,677 10,865,795
Nationwide Financial Services-A 8,700 314,288
Nomura Securities (Japan) 30,000 400,476
Norwest 103,966 4,015,687
ReliaStar Financial 106,000 4,365,875
Royal Bank of Canada (Canada) 63,000 3,331,911
Safeco Corp.* 3,200 155,800
Salomon Inc. 9,000 533,250
Societe Generale (France)* 5,245 714,020
Sparebanken NOR (Norway) 15,700 559,939
Sparebanken Sveriga AB
Swedbank - A Shares (Sweden) 32,200 732,547
Transamerica 20,500 2,183,250
Washington Mutual 127,175 8,111,380
Wells Fargo 15,400 5,227,338
- ------------------------------------------------------
199,984,046
BUILDING & MATERIALS: 0.5%
- ------------------------------------------------------
Fluor 26,400 986,700
Foster Wheeler 13,700 370,756
Masco 33,600 1,709,400
Newport News Shipbuilding 6,860 174,501
Zurn Industries 27,300 858,244
- ------------------------------------------------------
4,099,601
CABLE, MEDIA, & PUBLISHING: 1.6%
- ------------------------------------------------------
Chancellor Media-A* 6,200 462,869
Comsat 28,200 683,850
Dun & Bradstreet 32,400 1,002,375
Ennis Business Forms 18,200 168,350
Harland (John H.) 1,200 25,200
Hollinger International 18,700 261,800
McGraw-Hill 25,900 1,916,600
New England Bus Svc 15,500 523,125
Polaroid 31,200 1,519,050
Viacom Class A* 700 28,613
Viacom Class B* 147,200 6,099,600
- ------------------------------------------------------
12,691,432
Number Market
of Shares Value
- ------------------------------------------------------
CHEMICALS: 3.8%
- ------------------------------------------------------
Air Products & Chemicals 29,000 $ 2,385,250
Dexter 27,000 1,166,063
Dial 46,900 976,106
DuPont(E.I.)DeNemours 59,500 3,573,719
Great Lakes Chemical 44,800 2,010,400
Hercules Inc. 64,200 3,214,013
Hoechst AG (Germany)* 32,800 1,136,006
Lyondell Petrochemicals 21,852 579,078
Millenium Chemicals* 35,042 825,677
Monsanto 55,300 2,322,600
Nalco Chemical 33,300 1,317,431
Olin 53,700 2,517,188
Solutia 57,400 1,531,863
Takeda Chemical Industries
(Japan) 44,000 1,255,745
Union Carbide 84,500 3,628,219
Witco 57,700 2,354,881
- ------------------------------------------------------
30,794,239
COMPUTERS & TECHNOLOGY: 2.4%
- ------------------------------------------------------
Cognizant 32,400 1,443,825
Deluxe 64,400 2,221,800
EG&G 34,700 722,194
Electronic Data Systems 126,900 5,575,669
First Data 44,600 1,304,550
Gulfstream Aerospace* 17,900 523,575
IBM 39,900 4,172,044
NCR Corp.* 31,700 881,656
Unisys Corp.* 166,518 2,310,439
- ------------------------------------------------------
19,155,752
CONSUMER PRODUCTS: 6.2%
- ------------------------------------------------------
Avon Products 5,500 337,563
B A T 5,100 95,625
B.A.T. Industries plc
(United Kingdom) 95,666 875,007
Corning 14,000 519,750
Fuji Photo Film (Japan) 29,000 1,112,433
General Electric 405,200 29,731,550
Maytag 74,200 2,768,588
Minnesota Mining & Manufacturing 81,900 6,720,919
Premark International 34,600 1,003,400
Rubbermaid 82,000 2,050,000
Unilever NV 24,800 1,548,450
Unilever (United Kingdom) 439,600 3,781,502
- ------------------------------------------------------
50,544,787
ELECTRONICS & ELECTRICAL: 3.3%
- ------------------------------------------------------
AMP 38,200 1,604,400
CBS* 174,185 5,127,571
Cilcorp 14,100 689,138
Eaton 33,100 2,954,175
Emerson Electric 15,900 897,356
Nitto Denko (Japan) 18,000 310,714
Raytheon Co.-Class A 4,649 229,246
Raytheon Co. - Class B 123,100 6,216,550
Schlumberger Ltd 77,500 6,238,750
Sunbeam-Oster 14,900 627,663
Thomas & Betts 18,300 864,675
Whirlpool 13,400 737,000
Xerox 8,000 590,500
- ------------------------------------------------------
27,087,738
ENERGY: 9.3%
- ------------------------------------------------------
Amerada Hess 46,200 2,535,225
Amoco 35,700 3,038,963
Atlantic Richfield 73,200 5,865,150
British Petroleum ADR 164,349 13,096,561
Coastal 23,600 1,461,725
Compagnie Francaise de
Petroleum Total 63,533 3,526,081
Donnelley & Sons 49,700 1,851,325
Dresser Industries 70,900 2,973,369
Duke Energy 35,276 1,953,409
Ente Nazionele Idrocarburi SpA
(ENI)(Italy)* 4,600 26,081
Exxon 21,900 1,340,006
Kerr-McGee 15,100 956,019
Mobil 40,900 2,952,469
15
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------
Nova Corp. 63,500 $ 607,219
Occidental Petroleum 143,000 4,191,688
Pacific Enterprises 69,900 2,629,988
Phillips Petroleum 49,300 2,397,213
Questar 76,600 3,418,275
Royal Dutch Petroleum 154,000 8,344,875
Santa Fe Energy Resources Inc 33,989 382,376
Texaco 5,203 282,913
Total SA (France)* 53,254 5,790,881
Ultramar Diamond Shamrock* 21,800 694,875
Unocal 41,000 1,591,313
USX-Marathon Group 89,800 3,030,750
Valero Energy 22,400 704,200
- ------------------------------------------------------
75,642,949
ENVIROMENTAL SERVICES: 1.6%
- ------------------------------------------------------
Browning Ferris 101,887 3,769,819
Burlington Resources 26,900 1,205,456
Halliburton 64,100 3,329,194
Safety Kleen 30,600 839,588
Waste Management 126,800 3,487,000
- ------------------------------------------------------
12,631,057
FOOD, BEVERAGE & TOBACCO: 6.0%
- ------------------------------------------------------
CPC International 27,400 2,952,350
DiMon 13,700 359,625
Dole Food 10,100 439,350
Gallagher Group Plc 83,900 1,793,363
General Mills 37,014 2,651,128
Goodman Fielder Limited
(Australia)* 581,718 924,734
Heinz (H.J.) 37,700 1,915,631
PepsiCo 13,000 473,688
Philip Morris 507,000 22,973,438
Ralston-Purina Group 27,300 2,537,194
RJR Nabisco Holdings 217,860 8,169,750
The Seagram Co. Ltd. 38,700 1,250,494
The Seagram Co. Ltd. (Canada) 17,700 572,685
Universal 23,300 958,213
UST* 22,400 827,400
- ------------------------------------------------------
48,799,043
HEALTHCARE & PHARMACEUTICALS: 6.2%
- ------------------------------------------------------
Allegiance 40,480 1,434,510
American Home Products 83,500 6,387,750
Bausch & Lomb 17,100 677,588
Baxter International 72,400 3,651,675
Bristol-Myers Squibb 72,700 6,879,238
Columbia/HCA Healthcare 217,400 6,440,475
Johnson & Johnson 26,400 1,739,100
Merck & Company 33,400 3,548,750
Novartis 2,300 3,728,454
Pharmacia & Upjohn 39,500 1,446,688
Schering-Plough 115,600 7,181,650
Tyco International 162,834 7,337,707
- ------------------------------------------------------
50,453,585
INDUSTRIAL MACHINERY: 1.2%
- ------------------------------------------------------
American Standard* 55,800 2,137,838
Caterpillar 27,900 1,354,894
Harnischfeger Industries 22,600 798,063
Ingersoll-Rand 61,250 2,480,625
Parker Hannifin 48,450 2,222,644
Regal-Beloit 8,200 242,413
Snap-on 5,450 237,756
- ------------------------------------------------------
9,474,233
LEISURE, LODGING & ENTERTAINMENT: 1.5%
- ------------------------------------------------------
Circus Circus Enterprises* 60,600 1,242,300
Eastman Kodak 33,200 2,018,975
Hasbro 57,400 1,808,100
ITT 38,900 3,223,838
MGM Grand* 32,500 1,172,031
Mirage Resorts* 25,800 586,950
Sabre Group Holdings* 15,900 459,113
Viad 83,800 1,618,388
- ------------------------------------------------------
12,129,695
Number Market
of Shares Value
- ------------------------------------------------------
METALS & MINING: 1.8%
- ------------------------------------------------------
Alcan Aluminum 22,100 $ 610,513
Alcan Aluminum Ltd. (Canada) 32,500 895,799
Alumax 62,775 2,134,350
Aluminum Co America 59,800 4,208,425
Inco, Ltd. 12,300 209,100
Inco, Ltd. (Canada) 14,500 246.493
Inland Steel 74,700 1,279,238
Kaiser Aluminum Corporation 39,582 348,816
Lukens 12,700 362,744
Newmont Mining 62,000 1,821,250
Noranda 20,100 345,909
Pechiney S.A. (France) 12,384 488,493
Phelps Dodge 11,700 728,325
USX-U.S. Steel Group 41,200 1,287,500
- ------------------------------------------------------
14,966,955
MISCELLANEOUS: 0.9%
- ------------------------------------------------------
AC Nielson* 56,500 1,377,187
Block (H&R) 46,000 2,061,375
Digital Equipment* 12,700 469,900
Manpower* 2,200 77,550
Ogden Corp. 17,500 493,281
Omron (Japan) 20,000 313,016
Ryder Systems 44,300 1,450,825
Unilever NV-CVA 1,200 74,019
WorldCom 12,900 1,385,138
- ------------------------------------------------------
7,702,291
PACKAGING & CONTAINERS: 0.2%
- ------------------------------------------------------
Dofasco (Canada) 71,800 1,155,269
Domtar Inc. 90,200 627,845
- ------------------------------------------------------
1,783,114
PAPER & FOREST PRODUCTS: 1.7%
- ------------------------------------------------------
Boise Cascade 42,700 1,291,675
Champion International 40,900 1,853,281
Georgia-Pacific 14,200 862,650
Georgia-Pacific (Timber Group)* 14,200 322,163
Kimberly-Clark 119,200 5,878,050
Weyerhaeuser 71,500 3,507,969
- ------------------------------------------------------
13,715,788
REAL ESTATE: 0.6%
- ------------------------------------------------------
Alexandria R.E. Equities 10,500 331,406
Boston Properties 5,800 191,763
Equity Residential Properties 38,500 1,946,656
Fastighets AB Tornet (Sweden) 19,520 278,010
First Industrial Realty 8,800 317,900
Liberty Property Trust 3,300 94,256
Macerich 14,700 418,950
Patriot American Hospitality 15,398 443,655
Weeks 11,100 355,200
- ------------------------------------------------------
4,377,796
RETAIL: 4.5%
- ------------------------------------------------------
American Stores 27,400 563,413
Charming Shoppes* 37,600 175,075
CVS Corporation 27,500 1,761,719
Dayton Hudson 32,600 2,200,500
Federated Department Stores* 64,800 2,790,450
Footstar* 33,077 888,944
Harcourt General 51,600 2,825,100
Harsco 48,200 2,078,625
Hudson's Bay Co. (Canada)* 36,300 808,811
Jostens 13,900 320,569
Limited 88,822 2,264,961
May Department Stores 12,000 632,250
Payless ShoeSource* 31,324 2,102,624
Public Storage 6,100 179,188
Tandy 51,500 1,985,969
TJX 109,640 3,768,875
Toys R Us* 35,500 1,116,031
Tricon Global Restaurants* 1,950 56,672
Wal-Mart Stores 254,200 10,025,013
Woolworth* 10,100 205,788
- ------------------------------------------------------
36,750,577
16
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------
TELECOMMUNICATIONS: 4.5%
- ------------------------------------------------------
Alcatel Alsthorn (France) 24,440 $ 3,103,943
Alltel 41,400 1,699,988
Ameritech 64,200 5,168,100
AT & T 28,700 1,757,875
BCE 3,400 113,263
BCE (Canada) 42,800 1,426,716
Bell Atlantic 110,788 10,081,708
BellSouth 88,000 4,955,500
MCI Communications 20,700 886,866
Niagara Mohawk Power* 82,200 863,100
SBC Communications 50,800 3,721,100
Sprint 27,000 1,582,875
WorldCom 24,996 756,910
- ------------------------------------------------------
36,117,944
TEXTILES, APPAREL, & FURNITURE: 0.8%
- ------------------------------------------------------
Johnson Controls 40,300 1,924,325
Kellwood 40,400 1,212,000
Stevens & Stevens 47,300 1,212,063
Stride Rite 16,300 195,600
Unifi 41,000 1,668,188
- ------------------------------------------------------
6,212,176
TRANSPORTATION & SHIPPING: 1.3%
- ------------------------------------------------------
Brunswick 41,300 1,251,906
CSX Corp. 106,400 5,745,600
Norfolk Southern 111,700 3,441,756
- ------------------------------------------------------
10,439,262
UTILITIES: 2.9%
- ------------------------------------------------------
Allegheny Energy 94,200 3,061,500
American Electric Power 79,000 4,078,375
Central Maine Power 48,800 744,200
Cinergy 43,000 1,647,438
Consolidated Edison of NY 45,575 1,868,575
DPL Inc. 44,000 1,265,000
DQE 5,000 175,625
Entergy 132,600 3,969,713
France Telecom SA (France)* 3,500 126,845
Illinova 28,200 759,638
National Grid Group Plc
(United Kingdom) 166,000 794,754
Nova (Canada) 32,700 311,113
PacifiCorp 23,200 633,650
PECO Energy 14,000 339,500
PG&E 54,945 1,672,388
Pinnacle West Capital 51,000 2,161,125
- ------------------------------------------------------
23,609,439
TOTAL COMMON STOCK: 93.4%
(Cost $542,643,646 ) 756,962,949
- ------------------------------------------------------
PREFERRED STOCKS:
- ------------------------------------------------------
Aetna 12,400 886,600
Ahmanson (H.F.)cv.
preferred-Series D 6,800 935,000
Airtouch Communications 46,000 1,638,750
American Bankers Insurance 1,400 130,200
Armco 1,500 70,125
Automatic Com Exchange Sec. 17,800 418,300
Chiquita Brands 22,800 1,242,356
Conseco* 6,100 951,600
Conseco Finance Trust IV 16,500 841,500
DECS Trust 30,000 772,500
Evergreen Media 13,800 1,060,875
Hilton Hotels 17,300 486,563
Hollinger International 47,000 605,125
Host Marriott 5,000 305,625
Houston Industries 25,500 1,455,094
International Paper 6,100 296,613
Kmart Financing 24,700 1,287,488
Loral Space & Communication 24,300 1,488,375
MCM Financing 2,400 150,000
MCN Financing III 31,200 1,259,700
Merrill 11,900 410,550
- ------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------
Occidental Petroleum 14,100 $ 1,170,300
Salomon-Preferred* 16,700 676,350
TJX Companies* 1,700 620,500
Tosco 3,200 206,000
U.S. West 54,100 3,076,106
Unocal Capital Trust 11,000 618,750
Vornado Realty Trust 12,400 818,400
Wang Laboratories 10,700 535,000
Wang Laboratories-Series B 9,900 495,000
WBK Strypes Trust 25,700 860,950
Williams 3,600 485,100
- ------------------------------------------------------
TOTAL PREFERRED STOCKS: 3.2%
(Cost $20,570,803 ) 26,255,395
- ------------------------------------------------------
Maturity
REPURCHASE AGREEMENT: Amount
- ------------------------------------------------------
State Street Bank and Trust
Co. Repurchase Agreement,
dated 12/31/97, 5.30%,
maturing 01/02/98,
collateralized by U.S.
Treasury Bonds 5.25%,
01/31/01 $22,032,000 22,032,000
- ------------------------------------------------------
TOTAL REPURCHASE AGREEMENT: 2.7%
(Cost $22,032,000) 22,032,000
- ------------------------------------------------------
TOTAL INVESTMENTS: 101.8%
(Cost $603,038,297) 825,386,501
- ------------------------------------------------------
Other Assets Under Liabilities: (1.8%) (14,316,665)
- ------------------------------------------------------
NET ASSETS: 100%
(Equivalent to $20.118 per
share based on 40,315,773
shares issued and outstanding) $811,069,836
======================================================
GLOBAL ASSET ALLOCATION FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Par Market
LONG-TERM DEBT INVESTMENTS: Amount** Value
- ------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS: 10.9%
- ------------------------------------------------------
Federal Home Loan Mortgage:
6.00%, 10/15/08 $1,160,000 $1,121,669
7.00%, 11/1/12 856,351 869,999
8.50%, 9/1/26 227,250 237,547
8.50%, 8/1/27 454,500 474,810
Federal National Mortgage Association:
7.00%, 3/18/02 195,898 198,671
9.50%, 5/1/07 730,657 771,072
7.50%, 7/1/07 309,867 320,325
6.375%, 8/15/07 855,000 561,489
6.00%, 6/25/09 915,000 892,353
5.50%, 2/1/11 287,426 280,060
5.50%, 3/1/11 210,030 204,648
5.50%, 4/1/11 603,263 587,805
5.50%, 4/1/11 561,856 547,458
5.50%, 4/1/11 321,344 313,110
5.50%, 5/1/11 996,810 962,545
5.50%, 5/1/11 141,661 136,791
5.50%, 5/1/11 70,882 68,446
5.50%, 6/1/11 122,460 118,250
5.50%, 12/1/11 427,798 413,092
5.50%, 1/1/12 346,635 334,286
6.25%, 12/25/13 470,103 462,317
8.50%, 10/25/19 755,000 817,759
7.00%, 2/25/23 279,841 274,126
17
<PAGE>
Par Market
Amount** Value
- ------------------------------------------------------
6.9785%, 7/1/25 $ 201,078 $ 209,121
6.50%, 8/1/25 408,650 405,074
6.50%, 9/1/25 592,435 587,066
6.50%, 9/1/25 357,574 354,333
6.50%, 9/1/25 24,032 23,814
6.50%, 12/1/25 453,328 449,078
6.50%, 3/1/26 458,303 453,720
7.40%, 5/1/26 666,674 681,049
6.50%, 5/1/26 506,064 501,003
6.50%, 3/1/27 295,823 292,495
6.50%, 4/1/27 446,950 441,921
6.50%, 4/1/27 245,725 242,960
Fico CPN Strip:
0.00%, 4/6/06(+) 600,000 365,520
Goverment National Mortgage Association:
7.00%, 8/15/12 930,600 951,248
7.00%, 11/15/12 465,301 474,316
7.00%, 11/15/12 252,450 257,341
1.00%, 6/15/13 464,249 507,192
11.00%, 12/15/15 64,878 72,725
11.00%, 12/15/15 38,246 42,872
11.00%, 12/15/15 3,710 4,158
6.875%, 11/20/21 62,800 64,331
7.375%, 4/20/23 277,428 24,191
7.125%, 9/20/23 52,623 53,642
6.875%, 11/20/23 292,708 299,111
7.375%, 5/20/24 352,935 360,656
7.375%, 6/20/24 100,108 102,298
7.00%, 8/15/25 127,041 128,669
7.125%, 8/20/25 424,640 434,725
7.00%, 10/15/25 759,010 768,734
6.875%, 10/20/25 814,821 834,173
7.50%, 11/15/25 698,544 718,627
7.00%, 11/15/25 830,030 840,146
7.00%, 11/15/25 74,965 75,902
7.50%, 12/15/25 253,391 260,596
7.375%, 6/20/26 352,107 361,570
7.50%, 10/15/26 666,885 684,807
7.00%, 10/15/26 286,277 289,855
7.00%, 11/15/26 3,065,331 3,103,647
7.50%, 1/15/27 909,736 933,901
7.50%, 1/15/27 431,759 443,228
7.50%, 2/15/27 779,728 800,196
7.50%, 5/15/27 111,288 114,210
7.50%, 6/15/27 190,745 195,692
7.50%, 7/15/27 497,644 510,552
7.50%, 7/15/27 98,858 101,422
7.00%, 7/15/27 655,281 663,472
7.50%, 8/15/27 2,516,827 2,581,321
7.50%, 8/15/27 489,047 501,579
7.50%, 8/15/27 229,869 235,760
7.50%, 8/15/27 214,102 219,588
7.50%, 8/15/27 98,515 101,039
7.50%, 8/15/27 97,156 99,645
7.50%, 9/15/27 877,053 899,254
7.50%, 9/15/27 490,766 503,342
7.50%, 9/15/27 123,572 126,700
7.50%, 10/15/27 891,102 913,658
7.50%, 10/15/27 495,733 508,281
7.00%, 10/15/27 337,514 340,467
7.00%, 11/15/27 95,684 96,521
6.00%, 1/16/28(1) 845,000 852,394
7.00%, 1/26/28 265,000 267,152
5.50%, 2/16/28(1) 1,895,000 1,889,078
GNMA Strip:
0.00%, 11/20/27 6,438 6,490
U S Treasury Bills:
5.21%, 1/22/98(+) 1,800,000 1,794,624
Par Market
Amount** Value
- ------------------------------------------------------
U S Treasury Notes:
5.625%, 10/31/99(+) $1,460,000 $ 1,458,993
5.75%, 11/15/00(+) 1,345,000 1,347,354
5.75%, 11/30/02(+) 1,380,000 1,381,656
6.375%, 8/15/27(+) 50,000 52,793
- ------------------------------------------------------
47,891,676
ASSET BACKED - 2.0%
- ------------------------------------------------------
Advanta Mortgage Loan Trust 97 3A3
6.69%, 4/25/17 595,000 597,138
7.05%, 5/25/21 685,000 694,205
Advanta Mortgage Loan Trust 1997 A-7
6.63%, 1/25/29 615,000 617,114
Amres 97-3A3
6.60%, 1/25/18 400,000 401,750
Carco 1997-1 A
6.689%, 8/15/04 525,000 526,477
CMAC 1997 ML1 A3
6.57%, 12/15/30 165,000 166,444
Capital Equipment Receivables Trust
6.28%, 6/15/00 180,000 180,414
Collateralized Mortgage Obligations
9.00%, 11/20/20 1,415,438 1,557,316
First Union
6.65%, 6/18/08 420,000 423,806
GE Capital Management Services
6.00%, 2/25/24 417,320 415,550
Green Tree Financial 97-2 A6
7.24%, 4/15/28 540,000 557,885
Greentree 97-3
6.93%, 7/15/28 930,000 945,113
Greentree 97-B A1
6.55%, 7/15/28 852,355 856,617
PNC 976 A2
6.60%, 1/1/00 508,065 511,161
Provident Bank Home Equity Trust
6.91%, 1/25/29 190,000 190,623
- ------------------------------------------------------
8,641,613
AEROSPACE & DEFENSE: 0.1%
- ------------------------------------------------------
Axiohm Transaction Solutions
9.75%, 10/1/07 10,000 10,175
BE Aerospace
9.875%, 2/1/06 45,000 47,588
L-3 Communications
10.375%, 5/1/07 20,000 21,700
Lockheed Martin
7.25%, 5/15/06 410,000 434,088
Sequa
9.375%, 12/15/03 5,000 5,225
- ------------------------------------------------------
518,776
AUTOMOBILE & AUTO EQUIPMENT: 0.2%
- ------------------------------------------------------
Argo - Technical
8.625%, 10/1/07 10,000 10,000
Delco Remy International
8.625%, 12/15/07 15,000 15,188
Exide
2.90%, 12/15/05 5,000 3,269
Ford Motor Credit
7.00%, 9/25/01 450,000 462,938
Hayes Lemmerz International
9.125%, 7/15/07 115,000 119,313
Johnstown America Industries
11.75%, 8/15/05 15,000 16,500
K and F Industries
9.25%, 10/15/07 15,000 15,413
Lear
9.50%, 7/15/06 25,000 27,500
Mahindra And Mahindra NTS
5.00%, 7/9/01 55,000 50,875
Motors and Gears
10.75%, 11/15/06 40,000 42,600
- ------------------------------------------------------
763,596
18
<PAGE>
Par Market
Amount** Value
- ------------------------------------------------------
BANKING, FINANCE & INSURANCE: 2.5%
- ------------------------------------------------------
AFC Capital Trust I
8.207%, 2/3/27 $ 230,000 $ 255,588
Aames Financial
9.125%, 11/1/03 45,000 44,325
Aegon NV
8.00%, 8/15/06 1,075,000 1,187,875
Barco Nacional de Con
11.25%, 5/30/06 45,000 49,950
Banponce-MTN
7.125%, 5/2/02 350,000 360,063
Carson
10.375%, 11/1/07 20,000 20,425
Central Bank Philippines
6.25%, 12/1/17 231,000 195,484
Chevy Chase Bank
9.25%, 12/1/05 50,000 51,375
Colonial Capital II
8.92%, 1/15/27 35,000 38,456
Delta Financial
9.50%, 8/1/04 20,000 20,000
Dime Capital Trust I
9.33%, 5/6/27 15,000 16,969
Dollar Financial Group
10.875%, 11/15/06 20,000 21,425
ESAT Holdings
0.00%, 2/1/07(2) 75,000 53,625
Empress River Casino Finance
10.75%, 4/1/02 40,000 43,050
First Financial Caribbean
7.84%, 10/10/06 140,000 145,950
First Nationwide Holdings
10.625%, 10/1/03 40,000 44,800
12.50%, 4/15/03 50,000 57,000
Firstar Bank Milwaukee
6.25%, 12/1/02 340,000 339,734
General Motors Acceptance
6.40%, 5/19/99 315,000 316,575
Greenpoint Bank
6.70%, 7/15/02 250,000 251,563
Greenpoint Capital Trust
9.10%, 6/1/27 15,000 16,556
Hartford Life
7.10%, 6/15/07 400,000 412,500
Imperial Credit Capital Trust I
10.25%, 6/14/02 30,000 29,700
Imperial Credit Industries
9.875%, 1/15/07 35,000 34,475
Intertek Finance PLC
10.25%, 11/1/06 35,000 36,663
Korean Development Bank
7.90%, 2/1/02 200,000 172,500
Lehman Brothers Holdings
6.50%, 10/1/02 265,000 264,234
6.40%, 12/27/99 320,000 321,600
Merita Bank Ltd
6.50%, 1/15/06 565,000 562,175
Ministry Finance of Russia
9.25%, 11/27/01 83,000 79,161
NationsBank
6.875%, 2/15/05 875,000 899,063
North Fork Capital Trust I
8.70%, 12/15/26 10,000 10,725
Ocwen Capital Trust I
10.875%, 8/1/27 10,000 10,838
Ocwen Federal Bank Fsb
12.00%, 6/15/05 5,000 5,506
Ocwen Financial
11.875%, 10/1/03 5,000 5,638
Orange Cogen Funding
8.175%, 3/15/22 110,000 118,910
Phoenix Home Life Mutual
6.95%, 12/1/06 315,000 321,694
Pindo Deli Finance Mauritius
10.75%, 10/1/07 66,000 56,760
Popular
6.40%, 8/25/00 530,000 533,313
Par Market
Amount** Value
- ------------------------------------------------------
Provident Capital Trust I
8.60%, 12/1/26 $ 35,000 $ 37,275
PRT Funding
11.625%, 4/15/04 40,000 30,800
Quebec Province
7.125%, 2/9/24 770,000 795,988
Radnor Holdings
10.00%, 12/1/03 5,000 5,200
Riggs Capital Trust
8.625%, 12/31/26 35,000 37,144
Salomon Brothers
7.30%, 5/15/02 395,000 408,825
Sampoerna International Finance
8.375%, 6/15/06 475,000 349,125
Societe Generale-NY Notes
7.40%, 6/1/06 605,000 638,275
Southern Investments UK
6.80%, 12/1/06 845,000 861,900
Sovereign Capital Trust
9.00%, 4/1/27 20,000 21,700
State Development Bank of China
7.375%, 2/1/07 570,000 568,575
Webster Capital Trust I
9.36%, 1/29/27 5,000 5,588
- ------------------------------------------------------
11,166,638
BUILDING & MATERIALS: 0.0%
- ------------------------------------------------------
American Architectural
11.75%, 12/1/07 10,000 10,050
Atrium
10.50%, 11/15/06 5,000 5,244
Building Materials
8.625%, 12/15/06 5,000 5,150
Continental Homes Holdings
10.00%, 4/15/06 35,000 37,800
JCAC
10.125%, 6/15/06 50,000 54,500
MDC Holdings
11.125%, 12/15/03 25,000 27,688
MCII Holdings
0.00%, 11/15/02 25,000 22,531
Southdown
10.00%, 3/1/06 25,000 27,281
Williams Scotsman
9.875%, 6/1/07 15,000 15,525
- ------------------------------------------------------
205,769
CABLE, MEDIA & PUBLISHING: 0.9%
- ------------------------------------------------------
Acme Television
0.00%, 9/30/04 20,000 14,700
Adelphia Communications
9.875%, 3/1/07 300,000 318,000
Allbritton
11.50%, 8/15/04 15,000 15,788
American Media Operation
11.625%, 11/15/04 50,000 54,375
Argly Television
9.75%, 11/1/05 63,000 69,930
Cablevision Systems
9.25%, 2/15/13 10,000 10,650
9.875%, 2/15/13 125,000 138,438
Century Communications
9.50%, 3/1/05 25,000 26,375
Chancellor Media
8.50%, 12/15/07 65,000 63,619
Citadel Broadcasting
10.25%, 7/1/07 20,000 21,600
Comcast
9.50%, 1/15/08 25,000 26,625
Commodore Media
7.50%, 5/1/03(2) 90,000 100,350
Fox Kids Worldwide
9.25%, 11/1/07 125,000 121,250
0.00%, 11/1/07(2) 55,000 32,725
Fox/Liberty Networks LLC
8.875%, 8/15/07 50,000 50,000
19
<PAGE>
Par Market
Amount** Value
- ------------------------------------------------------
Frontiervision Holdings
0.00%, 9/15/07(2) $ 50,000 $ 36,875
Garden State Newspapers
8.75%, 10/1/09 20,000 20,100
Granite Broadcasting
10.375%, 5/15/05 75,000 78,469
9.375%, 12/1/05 35,000 35,394
Gray Comm System
10.625%, 10/1/06 5,000 5,425
Heartland Wireless
14.00%, 10/15/04 20,000 8,000
Herff Jones
11.00%, 8/15/05 45,000 48,825
Hollinger International Publishing
9.25%, 3/15/07 125,000 131,875
8.625%, 3/15/05 20,000 20,725
International Cabletel
0.00%, 2/1/06(2) 75,000 58,313
Jones Intercable
10.50%, 3/1/08 65,000 71,175
9.625%, 3/15/02 50,000 53,688
Knology Holdings
0.00%, 10/15/07 55,000 30,250
Lamar Advertising
9.625%, 12/1/06 85,000 91,800
8.625%, 9/15/07 35,000 36,006
Marcus Cable Operating Notes
0.00%, 8/1/04(2) 50,000 46,500
News America Holdings
7.70%, 10/30/25 665,000 696,588
Outdoor Communications
9.25%, 8/15/07 10,000 10,250
Outdoor Systems
8.875%, 6/15/07 125,000 130,938
Pegasus Media
12.50%, 7/1/05 50,000 57,125
Radio One
7.00%, 5/15/04 5,000 4,838
SFX Broadcasting
10.75%, 5/15/06 125,000 137,188
Sinclair Broadcast Group
10.00%, 9/30/05 75,000 78,938
8.75%, 12/15/07 100,000 101,000
Spanish Broadcasting System
7.50%, 6/15/02(2) 100,000 114,750
11.00%, 3/15/04 30,000 33,075
Sullivan Broadcasting
10.25%, 12/15/05 75,000 80,156
TCI Satellite
10.875%, 2/15/07 15,000 15,900
Time Warner
8.875%, 10/1/12 360,000 424,800
Universal Outdoor Notes
9.75%, 10/15/06 55,000 61,875
Viacom
8.00%, 7/7/06 350,000 351,750
Von Hoffman Press
10.375%, 5/15/07 15,000 16,031
- ------------------------------------------------------
4,153,047
CHEMICALS: 0.2%
- ------------------------------------------------------
Harris Chemical
10.75%, 10/15/03 50,000 53,500
ISP Holdings
9.75%, 2/15/02 45,000 47,700
NL Industries
0.00%, 10/15/05(2) 40,000 39,900
Pioneer Americas Acquisition
9.25%, 6/15/07 15,000 15,038
Solutia
6.72%, 10/15/37 765,000 775,542
Sovereign Specialty Chemicals
9.50%, 8/1/07 20,000 20,600
Sterling Chemical Holdings
0.00%, 8/15/08(2) 40,000 27,150
- ------------------------------------------------------
979,430
Par Market
Amount** Value
- ------------------------------------------------------
COMPUTER & TECHNOLOGY: 0.4%
- ------------------------------------------------------
Cellnet Data Systems
0.00%, 10/1/07 $ 125,000 $ 64,375
Concentric Network
12.75%, 12/15/07 10,000 10,275
Decisionone Notes
9.75%, 8/1/07 10,000 10,425
Millipore
7.20%, 4/1/02 285,000 293,194
Nextlink Communications
12.50%, 4/15/06 25,000 28,594
Real Time Data
13.50%, 8/15/06(2) 2,000 1,080
WMX Technologies
7.10%, 8/1/26 990,000 1,035,788
Wright Medical Technology
10.75%, 7/1/00 90,000 88,875
- ------------------------------------------------------
1,532,606
CONSUMER PRODUCTS: 0.0%
- ------------------------------------------------------
Capstar
0.00%, 2/1/09 85,000 60,563
Color Spot Nurseries
10.50%, 12/15/07 20,000 20,300
French Fragrances
10.375%, 5/15/07 15,000 15,825
Sassco Fashions
12.75%, 12/31/03 25,000 26,469
United Stationer Supply
12.75%, 5/1/05 7,000 7,796
William Carter Holdings
12.00%, 10/1/08 25,000 26,750
- ------------------------------------------------------
157,703
ELECTRONICS/ELECTRICAL EQUIPMENT: 0.3%
- ------------------------------------------------------
Delta Electronics
.50%, 3/6/04 40,000 48,952
Echostar Satellite Broadcast
0.00%, 3/15/04(2) 40,000 34,100
Fairchild Semiconductor
0.00%, 3/14/08(2) 30,000 30,900
10.125%, 3/15/07 65,000 68,738
Flextronics International
8.75%, 10/15/07 20,000 19,950
HCC Industries
10.75%, 5/15/07 20,000 20,800
National Semiconductor
6.50%, 10/1/02 10,000 9,438
Pagemart Nationwide
0.00%, 2/1/05(2) 30,000 26,850
Raytheon
6.45%, 8/15/02 815,000 822,131
Signature Brands USA
13.00%, 8/15/02 100,000 107,375
Sygnet Wireless
11.50%, 10/1/06 15,000 16,106
Tracor
8.50%, 3/1/07 5,000 5,075
VLSI Technology
8.25%, 10/1/05 20,000 19,475
Wavetek
10.125%, 6/15/07 10,000 10,388
- ------------------------------------------------------
1,240,278
ENERGY: 0.2%
- ------------------------------------------------------
Abraxas Petroleum
11.50%, 11/1/04 30,000 32,700
Benton Oil and Gas
9.375%, 11/1/07 5,000 5,138
COHO Energy
8.875%, 10/15/07 20,000 20,100
Chesapeake Energy
9.125%, 4/15/06 125,000 129,063
Costilla Energy Notes
10.25%, 10/1/06 10,000 10,425
20
<PAGE>
Par Market
Amount** Value
- ------------------------------------------------------
DII Group
8.50%, 9/15/07 $ 10,000 $ 9,850
Dailey Petroleum Service
9.75%, 8/15/07 10,000 10,463
Panaco
10.625%, 10/1/04 10,000 10,075
Pride Petroleum Services
9.375%, 5/1/07 20,000 21,550
Snyder Oil
8.75%, 6/15/07 15,000 15,225
TransAmerican Energy
11.50%, 6/15/02 200,000 196,500
0.00%, 6/15/02(2) 195,000 156,000
Transamerica Refining
16.00%, 6/30/03 40,000 40,800
Wiser Oil
9.50%, 5/15/07 15,000 14,700
- ------------------------------------------------------
672,589
ENVIRONMENTAL SERVICES: 0.2%
- ------------------------------------------------------
Allied Waste Industries
10.25%, 12/1/06 25,000 27,375
0.00%, 6/1/07 60,000 42,375
Columbia Gas Systems
7.32%, 11/28/10 500,000 515,625
NewPark Resources
8.625%, 12/15/07 10,000 10,200
Petroleum Geo-Services
7.50%, 3/31/07 175,000 185,500
TransTexas Gas
13.75%, 12/31/01 257,000 287,519
- ------------------------------------------------------
1,068,594
FOOD, BEVERAGE & TOBACCO: 0.5%
- ------------------------------------------------------
Ameriserv Food
8.875%, 10/15/06 25,000 25,313
10.125%, 7/15/07 15,000 15,750
Aurora Foods
9.875%, 2/15/07 20,000 21,100
Canandaigua Wine
8.75%, 12/15/03 5,000 5,113
Chiquita Brands
9.625%, 1/15/04 15,000 15,975
Del Monte Foods
12.25%, 4/15/07 10,000 10,788
Philip Morris
7.50%, 1/15/02 405,000 419,681
7.50%, 4/1/04 1,095,000 1,149,750
7.75%, 1/15/27 355,000 384,731
Ralphs Grocery
10.45%, 6/15/04 5,000 5,625
Southern Foods, SFG Cap
9.875%, 9/1/07 10,000 10,388
Southland Corp.
5.00%, 12/15/03 50,000 42,438
Windy Hill Pet Food
9.75%, 5/15/07 5,000 5,213
- ------------------------------------------------------
2,111,865
HEALTHCARE & PHARMACEUTICALS: 0.4%
- ------------------------------------------------------
Abbey Healthcare
9.50%, 11/1/02 45,000 47,025
Alaris Medical Systems
9.75%, 12/1/06 50,000 52,313
Dade International
11.125%, 5/1/06 50,000 55,750
Fresensius Medical Care
9.00%, 12/1/06 50,000 52,250
Frontiervision
11.00%, 10/15/06 15,000 16,725
Genesis Eldercar
9.00%, 8/1/07 25,000 24,563
Genesis Health Ventures
9.25%, 10/1/06 55,000 56,100
Par Market
Amount** Value
- ------------------------------------------------------
Graphic Controls
12.00%, 9/15/05 $ 45,000 $ 50,288
ICN Pharmaceuticals
9.25%, 8/15/05 20,000 21,250
Icon Fitness
0.00%, 11/15/06(2) 60,000 35,175
Integrated Health Services
9.50%, 9/15/07 20,000 20,650
9.25%, 1/15/08 40,000 40,800
Manor Care
7.50%, 6/15/06 285,000 302,813
National Health
7.30%, 7/15/07 565,000 590,425
Paracelsus Healthcare
10.00%, 8/15/06 50,000 51,375
Paragon Health
9.50%, 11/1/07 60,000 60,150
Prime Hospitality
9.25%, 1/15/06 50,000 53,188
9.75%, 4/1/07 40,000 43,000
Tenet Healthcare
8.625%, 1/15/07 125,000 129,531
Urohealth Systems
12.50%, 4/1/04 40,000 38,100
- ------------------------------------------------------
1,741,471
INDUSTRIAL MACHINERY: 0.0%
- ------------------------------------------------------
AEP Industries
9.875%, 11/15/07 15,000 15,450
Coinmach
11.75%, 11/15/05 50,000 55,375
11.75%, 11/15/05 5,000 5,538
Foamex L.P.
9.875%, 6/15/07 15,000 15,150
Koppers Industries
9.875%, 12/1/07 10,000 10,300
POGO Producing
8.75%, 5/15/07 5,000 5,069
Safety Components International
10.125%, 7/15/07 20,000 20,675
Terex
13.25%, 5/15/02 30,000 34,275
ViaSystems
9.75%, 6/1/07 5,000 5,169
Waxman Industries
0.00%, 6/1/04(2) 5,000 4,350
- ------------------------------------------------------
171,351
LEISURE, LODGING & ENTERTAINMENT: 0.6%
- ------------------------------------------------------
AMC Entertainment
9.50%, 3/15/09 150,000 155,437
Argosy Gaming
13.25%, 6/1/04 100,000 104,000
Boyd Gaming
9.50%, 7/15/07 50,000 52,625
Cinemark
9.625%, 8/1/08 175,000 182,000
Coast Hotels & Casino
13.00%, 12/15/02 65,000 73,450
Colorado Gaming
12.00%, 6/1/03 79,350 85,698
Fitzgeralds Gaming
12.25%, 12/15/04 70,000 70,700
Hollywood Casino
12.75%, 11/1/03 75,000 80,250
Host Mar Travel Plaza
9.50%, 5/15/05 55,000 58,575
John Q. Hammons Hotels
8.875%, 2/15/04 125,000 127,969
Lady Luck Gaming
11.875%, 3/1/01 50,000 51,000
Mohegan Tribal Gaming
13.50%, 11/15/02 45,000 58,219
21
<PAGE>
Par Market
Amount** Value
- ------------------------------------------------------
Players International
10.875%, 4/15/05 $ 25,000 $ 27,000
Premier Parks
12.00%, 8/15/03 50,000 55,625
Showboat Marina Casino
13.50%, 3/15/03 50,000 59,500
Six Flags Theme Parks
0.00%, 6/15/05(2) 250,000 261,250
Sun International Hotels
8.625%, 12/15/07 75,000 75,188
Time Warner Entertainment
8.375%, 7/15/33 535,000 611,906
7.25%, 9/1/08 320,000 335,600
- ------------------------------------------------------
2,525,992
METALS & MINING: 0.4%
- ------------------------------------------------------
AK Steel
9.125%, 12/15/06 65,000 66,950
Anker Coal Group
9.75%, 10/1/07 15,000 15,000
Armco
9.00%, 9/15/07 10,000 9,825
Continental Global Group
11.00%, 4/1/07 30,000 32,100
Noranda
7.00%, 7/15/05 625,000 638,281
Parker Drilling
9.75%, 11/15/06 35,000 37,800
Potash Corp. Saskatchewan
7.125%, 6/15/07 725,000 749,469
Remington Product
11.00%, 5/15/06 15,000 12,675
WCI Steel
10.00%, 12/1/04 50,000 51,375
- ------------------------------------------------------
1,613,475
MISCELLANEOUS - 0.4%
- ------------------------------------------------------
Affinity Group Holding
11.00%, 4/1/07 75,000 79,969
Details
10.00%, 11/15/03 15,000 15,413
Falcon Holdings Group L.P.
0.00%, 9/15/03 58,000 60,900
FWT
9.875%, 11/15/07 15,000 15,413
Glenoit
11.00%, 4/15/07 15,000 16,163
Hedstrom Holdings
10.00%, 6/1/07 15,000 15,150
0.00%, 6/1/09 5,000 3,000
Huntsman
9.0937%, 7/1/07 50,000 52,500
Integrated Device Technology
5.50%, 6/1/02 20,000 16,800
Iron Mountain
10.125%, 10/1/06 10,000 11,025
8.75%, 9/30/09 20,000 20,550
Isle of Capri/Cap
13.00%, 8/31/04 10,000 10,138
OrbComm Global
14.00%, 8/15/04 50,000 54,500
OutSourcing Solutions
11.00%, 11/1/06 20,000 22,100
Pierce Leahy
11.125%, 7/15/06 3,000 3,405
Polymer Group
9.00%, 7/1/07 20,000 20,000
Premium Standard Farms
11.00%, 9/17/03 18,158 19,974
Radnor Holdings
10.00%, 12/1/03 10,000 10,400
Railcar Leasing
6.75%, 7/15/06 653,353 663,153
Par Market
Amount** Value
- ------------------------------------------------------
Soc Quimica Y Minera De
7.70%, 9/15/06 $120,000 $ 122,850
UIH Australia/Pacific Notes
14.00%, 5/15/06 65,000 44,525
- ------------------------------------------------------
1,277,928
PACKAGING & CONTAINERS: 0.0%
- ------------------------------------------------------
Huntsman Packaging
9.125%, 10/1/07 25,000 25,813
Owens-Illinois
8.10%, 5/15/07 25,000 26,813
Riverwood International
10.25%, 4/1/06 50,000 50,375
10.875%, 4/1/08 5,000 4,825
Stater Brothers
11.00%, 3/1/01 5,000 5,500
Stone Container
11.50%, 10/1/04 30,000 32,100
11.50%, 8/15/06 10,000 10,500
- ------------------------------------------------------
155,926
PAPER & FOREST PRODUCTS: 0.0%
- ------------------------------------------------------
Florida Coast Paper LLC
12.75%, 6/1/03 45,000 47,925
MAXXAM Group Holdings
12.00%, 8/1/03 10,000 10,863
Repap,Wisconsin
9.875%, 5/1/06 50,000 54,750
- ------------------------------------------------------
113,538
REAL ESTATE: 0.0%
- ------------------------------------------------------
HMH Properties
8.875%, 7/15/07 35,000 36,925
- ------------------------------------------------------
RETAIL: 0.1%
- ------------------------------------------------------
Adams Outdoor Advertising
10.75%, 3/15/06 50,000 54,750
Affinity Group
11.50%, 10/15/03 75,000 80,156
Amscan Holdings
9.875%, 12/15/07 10,000 10,225
FRD Acquisition
12.50%, 7/15/04 10,000 10,850
Fleming
10.50%, 12/1/04 30,000 31,500
Jitney-Jungle Stores
12.00%, 3/1/06 50,000 56,750
Outdoor Systems
9.375%, 10/15/06 5,000 5,338
Rite Aid
6.70%, 12/15/01 115,000 116,869
Sealy Mattress
0.00%, 12/15/07(2) 20,000 12,150
Specialty Retailers
8.50%, 7/15/05 5,000 5,100
Stater Brothers Holdings
9.00%, 7/1/04 100,000 104,250
Zale
8.50%, 10/1/07 20,000 19,800
- ------------------------------------------------------
507,738
TELECOMMUNICATIONS: 0.9%
- ------------------------------------------------------
Adelphia Communications
9.50%, 2/15/04 10,475 10,737
Advanced Radio Telecom
14.00%, 2/15/07 25,000 24,000
American Communication Services
0.00%, 11/1/05(2) 80,000 64,400
0.00%, 4/1/06(2) 75,000 58,031
American Community Services
13.75%, 7/15/07 20,000 23,700
BTI Telecom
10.50%, 9/15/07 30,000 30,750
Capstar Broadcasting
9.25%, 7/1/07 50,000 51,250
22
<PAGE>
Par Market
Amount** Value
- ------------------------------------------------------
Cencall Communication
0.00%, 1/15/04(2) $ 5,000 $ 4,531
Centennial Cellular
8.875%, 11/1/01 15,000 15,300
Comcast Cellular
9.50%, 5/1/07 60,000 62,850
Compania Telecom Chile
7.625%, 7/15/06 1,060,000 1,086,500
Dobson Communications
11.75%, 4/15/07 55,000 58,163
GST USA
0.00%, 12/15/05(2) 95,000 72,675
GlobalStar
11.375%, 2/15/04 50,000 57,500
Hyperion Telecommunication
0.00%, 4/15/03(2) 60,000 43,650
12.25%, 9/1/04 35,000 38,763
ITC Deltacom
11.00%, 6/1/07 35,000 38,675
Intelcom Group USA
0.00%, 5/1/06(2) 60,000 45,000
Intercel
0.00%, 2/1/06(2) 80,000 57,200
Intermedia Communications
8.50%, 1/15/08 80,000 80,200
Iridium LLC/Capital
14.00%, 7/15/05 70,000 76,825
11.25%, 7/15/05 20,000 19,800
Jacor Communications
9.75%, 12/15/06 5,000 5,388
MGC Communications
13.00%, 10/1/04 10,000 10,050
McLeodusa
0.00%, 3/1/07(2) 65,000 47,288
Metrocall
10.375%, 10/1/07 30,000 30,600
9.75%, 11/1/07 20,000 19,850
Mobile Telecommunications
13.50%, 12/15/02 30,000 34,950
Nextel Communications
0.00%, 8/15/04(2) 250,000 222,500
0.00%, 9/15/07 450,000 285,188
OmniPoint
11.625%, 8/15/06 30,000 31,800
Qwest Communications International
0.00%, 10/15/07(2) 35,000 23,800
RCN
10.00%, 10/15/07 10,000 10,325
0.00%, 10/15/07 50,000 31,500
SK Telecom
7.75%, 4/29/04 275,000 213,813
Teleport Communications
0.00%, 7/1/07(2) 50,000 41,000
Teligent
11.50%, 12/1/07 60,000 60,300
US West Capital Funding
6.95%, 1/15/37(+) 620,000 639,375
Ucar Global Enterprises
12.00%, 1/15/05 30,000 33,863
Winstar Communications
0.00%, 3/1/07(2) 40,000 49,000
0.00%, 10/15/05(2) 30,000 31,425
Winstar Equipment
12.50%, 3/15/04 30,000 33,450
Wireless One
13.00%, 10/15/03 40,000 17,600
- ------------------------------------------------------
3,893,565
TEXTILES & FURNITURE: 0.0%
- ------------------------------------------------------
Celestica International
10.50%, 12/31/06 25,000 27,125
Clark-Schwebel
10.50%, 4/15/06 45,000 48,994
GFSI
9.625%, 3/1/07 25,000 25,750
Guess
9.50%, 8/15/03 5,000 5,163
- ------------------------------------------------------
107,032
Par Market
Amount** Value
- ------------------------------------------------------
TRANSPORTATION & SHIPPING: 0.5%
- ------------------------------------------------------
Atlantic Express
10.75%, 2/1/04 $ 10,000 $ 10,625
Blue Bird Body Notes
10.75%, 11/15/06 25,000 26,875
CSX Transportation
7.95%, 5/1/27 315,000 355,163
Chemical Leaman
10.375%, 6/15/05 10,000 10,500
Coach USA
9.375%, 7/1/07 20,000 20,450
Continental Airlines
9.50%, 12/15/01 65,000 68,413
7.42%, 10/1/08 100,000 102,875
Eletson Holdings
9.25%, 11/15/03 50,000 51,188
Kitty Hawk
9.95%, 11/15/04 30,000 30,675
Newport News Shipbuilding
8.625%, 12/1/06 60,000 63,300
Norfolk Southern
6.95%, 5/1/02 400,000 412,000
7.80%, 5/15/07 400,000 453,500
7.05%, 5/1/37 555,000 588,994
Trans World Airlines
11.50%, 12/15/04 15,000 15,075
Viking Star Shipping
9.625%, 7/15/03 4,000 4,195
- ------------------------------------------------------
2,213,828
UTILITIES: 0.8%
- ------------------------------------------------------
AES
8.375%, 8/15/07 25,000 25,000
Arizona Public Service
6.75%, 11/15/06 315,000 321,694
Cleveland Electric
9.50%, 5/15/05 30,000 33,488
Comp Nav Perez
9.00%, 1/30/04 35,000 35,788
Connecticut Light & Power
7.875%, 6/1/01 210,000 216,825
El Pase Electric
9.40%, 5/1/11 10,000 11,375
Enersis SA
7.40%, 12/1/16 735,000 764,400
Illinova
7.125%, 2/1/04 80,000 81,800
Jersey Central Power & Light
6.85%, 11/27/06 115,000 117,300
Long Island Lighting
9.00%, 11/1/22 45,000 50,119
Midland Funding II
11.75%, 7/23/05 80,000 94,000
Niagara Mohawk Power
9.95%, 6/1/00 50,000 50,000
5.875%, 9/1/02 50,000 48,125
Northeast Utilities
8.38%, 3/1/05 36,800 36,800
Northeast Utility
8.58%, 12/1/06 14,277 14,224
Saga Petroleum
7.25%, 9/23/27 295,000 307,538
YPF Sociedad Anomina
7.75%, 8/27/07 1,220,000 1,238,300
- ------------------------------------------------------
3,446,776
FOREIGN GOVERNMENT BONDS: 8.1%
- ------------------------------------------------------
Bundes Republic. Deutsch.
Series 92
7.25%, 10/21/02 (Germany) 8,280,000 5,076,866
Bundes Republic. Deutschland 97
(Germany)
6.00%, 7/4/07 8,995,000 5,252,730
Bundesrepublic Deutschland
(Germany)
8.00%, 7/22/02 7,875,000 4,943,245
France O.A.T. (France)
5.50%, 10/25/07 18,574,000 3,121,209
23
<PAGE>
Par Market
Amount** Value
- ------------------------------------------------------
Germany (Federal Republic of)
(Germany)
6.00%, 1/4/07 $ 9,710,000 $ 5,665,944
Mexican Disc-C (Mexico)
6.8203%, 12/31/19 591,000 547,783
New Zealand Government
(New Zealand)
10.00%, 3/15/02 1,615,000 1,027,133
8.00%, 4/15/04 1,220,000 737,388
Poland Global Regd (Poland)
4.00%, 10/27/14 90,000 75,825
Republic of Brazil (Brazil)
6.875%, 4/15/06 2,400 2,064
South Africa (Republic of)
(South Africa)
13.00%, 8/31/10 1,160,000 227,072
Swedish Government (Sweden)
8.00%, 8/15/07 10,100,000 1,460,433
Turkey T-Bill (Turkey)
0.00%, 9/16/98 30,830,000,000 80,791
Turkey T-Bill(Turkey)
0.00%, 6/4/98 32,370,000,000 107,683
Turkey T-Bill Government
(Turkey)
0.00%, 7/29/98 40,760,000,000 117,668
United Kingdom Treasury
(UK)
7.00%, 6/7/02 2,270,000 3,815,742
United Kingdom Treasury
(UK)
7.50%, 12/7/06 1,730,000 3,067,658
- --------------------------------------------------------
35,327,234
TOTAL LONG-TERM DEBT INVESTMENTS: 30.6%
(Cost $132,624,633) 134,236,959
- --------------------------------------------------------
Number
COMMON STOCKS: of Shares
- ------------------------------------------------------
AEROSPACE AND DEFENSE: 0.8%
- ------------------------------------------------------
Boeing 22,975 1,124,339
Micrel* 3,300 93,431
Northrop 6,925 796,375
Remec* 6,925 157,111
Rolls-Royce plc (United Kingdom) 52,000 197,280
Textron 18,400 1,150,000
- ------------------------------------------------------
3,518,536
AUTOMOBILES & AUTO PARTS: 1.8%
- ------------------------------------------------------
Avis Rent-A-Car* 5,500 175,656
Bayerische Motoren Werke (BMW)
AG (Germany) 777 580,995
Bridgestone (Japan) 8,000 173,693
Chrysler 13,825 486,467
Cooper Industries 17,410 853,090
Dana 23,960 1,138,100
General Motors Class H 13,160 486,097
Goodyear Tire & Rubber 20,510 1,304,949
Meritor Automotive 3,916 82,486
Michelin (France) 11,292 568,021
Penske Motorsports* 3,200 79,800
Perusahaan Otomobil Nasional
(Malaysia) 15,000 14,649
Qingling Motors (Hong Kong) 104,000 51,011
Renault SA (France)* 2,070 58,181
Tata Engineering and Locom-GDR 9,500 79,183
TRW 15,900 848,663
Tenneco 29,015 1,146,093
- ------------------------------------------------------
8,127,134
BANKING, FINANCE & INSURANCE: 10.3%
- ------------------------------------------------------
ABN Amro Holdings N.V.
(Netherlands) 8,945 174,354
Ahmanson (H.F.) & Co. 17,125 1,146,305
Allied Irish Banks (Ireland) 52,261 507,155
American Express 27,200 2,427,600
American General 20,040 1,083,412
American International Group 15,000 1,631,250
Aon 17,615 1,032,679
Associates First Capital 4,700 334,288
Banco Frances Rio Plata 5,500 150,563
Banco Frances Del Rio Plata
(Argentina) 10,888 101,060
Banc One 15,550 844,559
Bangkok Bank-For Reg (Thailand) 13,000 33,657
Bank of Boston 5,600 526,050
Bank of Ireland (Ireland) 37,085 572,638
Bank of Nova Scotia (Canada) 9,952 468,878
Number Market
of Shares Value
- ------------------------------------------------------
BankAmerica 33,900 $ 2,474,700
Bankers Trust New York 8,795 988,888
Banque Nationale de Paris (France) 3,150 167,292
Beneficial 6,860 570,238
Cetelem (France) 1,970 268,183
Cigna 5,085 880,023
Comerica 12,500 1,128,125
Commonwealth Bank of Australia
(Australia) 18,025 206,682
Conseco 26,700 1,213,181
Crestar Financial 600 34,200
Dao Heng Bank Group Ltd.
(Hong Kong) 37,000 92,413
Deutsche Bank AG (Germany) 6,300 440,606
Development Bank of Singapore
(Singapore) 27,000 231,085
Fifth Third Bancorp 4,100 334,919
Finance Indust Gaz et Eaux
(France) 1 431
First Chicago NBD 28,780 2,403,130
First National Bank Holdings
Limited (South Africa) 22,500 199,967
First Tennessee National
Corporation 4,670 312,014
Franklin Resources 10,300 895,456
G. Accion SA* 6,700 76,459
Grupo Financiero Banamex-B
(Mexico)* 77,000 230,036
Guoco Group (Hong Kong) 30,000 73,380
Haci Omer Sabanci Holdings* 13,000 198,250
Housing and Commercial Bank 647 3,394
HSBC Holdings (Hong Kong) 21,382 527,146
Industrial Finance - Foreign
(Thailand) 16,400 2,618
Irsa - SP GDR 2,000 75,250
ING Groep N.V. (Netherlands) 14,033 591,373
Julius Baer Holding AG
(Switzerland) 149 276,190
Liberty Life Association of Africa
(South Africa) 9,500 244,019
Malaysia Assurance Alliance
(Malaysia) 32,000 36,679
MBNA 55,013 1,502,529
Mercantile Bancorporation 8,260 507,990
Morgan (J.P.) 8,750 987,656
Morgan St Dean Witter Discover 18,602 1,099,843
Nikko Securities Ltd. (Japan) 59,000 156,615
Overseas Chinese Banking
(Singapore) 15,000 87,370
Overseas Union Bank (Singapore) 24,000 92,006
PNC Financial Group 38,530 2,198,618
QBE Insurance Group LTD
(Australia) 17,275 77,736
Regions Financial 10,160 428,942
Reinsurance Group of America 4,200 178,762
R.O.C. Taiwan Fund 31,000 251,875
Royal Bank of Canada (Canada) 4,100 216,839
Royal & Sun Alliance Insurance
Group (United Kingdom) 10,300 103,638
Schweizerische Bankgesellschaft
(Switzerland) 550 794,528
Societe Generale (France) 2,500 340,334
SouthTrust 300 19,013
State Bank of India - GDR 5,700 99,038
Summit Bancorp* 9,615 511,999
Suntrust Banks 7,640 545,305
Taiwan Fund 9,300 153,450
Travelers Group 44,548 2,399,996
USF & G 42,990 948,467
Unibanco-GDR* 13,100 421,656
Union Planters 9,090 617,552
United Overseas Bank (Singapore) 54,000 300,089
Washington Mutual 34,490 2,199,815
Wells Fargo 2,400 814,650
Westpac Banking 66,000 422,078
Yapi Ve Kredi Bankasi* 6,200 234,825
Zurich Versicherungsgesellschaft
(Switzerland) 393 187,092
- ------------------------------------------------------
45,111,081
BUILDINGS & MATERIALS: 0.9%
- ------------------------------------------------------
Cemex S.A.-Class B 34,300 181,981
Cemex S.A. de C.V. 52,508 238,229
Corporacion Moxctezuma -
Series B (Mexico)* 68,000 84,125
CRH (Ireland) 50,597 593,541
Gujarat Ambuja Cement-GDR 15,000 106,875
IJM - Berhad (Malaysia) 72,000 23,870
Lafarge SA (France) 5,700 373,691
Larsen & Toubro-GDR* 3,600 39,960
Masco 31,360 1,595,440
National City 7,395 486,221
White Cap Industries* 1,700 31,238
3,755,171
24
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------
CABLE, MEDIA, & PUBLISHING: 1.6%
- ------------------------------------------------------
Cellular Communications
International* 1 $ 47
Dai Nippon Printing (Japan) 20,000 375,926
Gannett 39,200 2,423,050
InterPublic Group 18,800 936,475
Lamar Advertising* 4,000 159,500
McGraw-Hill 10,605 784,770
Polaroid 21,475 1,045,564
Sinclair Broadcasting Group* 1,400 64,838
Star Publications (Malaysia) 28,000 31,951
Telecommunications-TCI Ventures
Group A* 29,100 824,803
Times Mirror 'A' 5,000 307,500
- ------------------------------------------------------
6,954,424
CHEMICALS: 0.8%
- ------------------------------------------------------
Bayer AG (Germany) 13,765 510,807
Cheung Kong Infrastructure
(Hong Kong) 32,000 90,457
Ciba Specialty Chemicals
(Switzerland)* 3,369 400,962
DuPont (E.I.) deNemours 14,755 886,222
Eastman Chemical 14,280 850,552
Witco 18,690 762,786
Zhenhai Refining-H (Hong Kong) 68,000 28,307
- ------------------------------------------------------
3,530,093
COMPUTERS & TECHNOLOGY: 5.4%
- ------------------------------------------------------
ASE Test* 1,700 110,713
Acer* 6,000 42,750
Adflex Solutions* 3,600 58,725
Analysts International 5,400 187,650
Applied Graphics Technologies* 1,200 63,600
Applied Micro Circuits* 1,300 16,169
Arbor Software* 3,700 150,544
Aspect Development* 1,400 72,975
Asustek Computer* 5,300 88,113
Aware* 7,400 75,388
BMC Software* 19,700 1,291,581
Best Software* 4,300 39,909
Black Box* 4,400 156,200
Compaq Computer 20,500 1,156,969
Complete Business Solutions* 6,000 261,375
Computer Associates International 57,895 3,061,198
Computer Horizons* 6,007 274,820
Computer Learning Centers* 8,500 521,156
Computer Task Group 5,000 177,813
Compuware* 23,300 746,328
Data Processing Resources* 3,600 92,475
Dell Computer* 11,400 957,956
Discreet Logic* 5,400 116,606
EMC* 40,800 1,119,450
HBO 32,000 1,535,000
Harbinger* 4,500 126,563
Hewlett-Packard 26,585 1,661,563
IDT* 4,500 90,844
Igen International* 3,800 50,350
Industrial-Matematik
International* 4,700 138,944
Information Management Associates* 2,100 19,359
Information Management Resources* 4,150 156,403
Integrated Process Equipment* 2,800 44,187
IBM 15,975 1,670,386
Keane* 8,900 361,563
Legato Systems* 3,600 157,950
Microsoft* 19,800 2,558,531
NCR* 20,680 575,162
Omtool, Ltd.* 6,700 68,675
PMC - Sierra* 2,100 65,494
PMT Services* 6,400 89,400
Parametric Technology* 16,400 775,925
PeopleSoft* 38,400 1,492,800
Peregrine Systems* 7,000 92,313
Peritus Software Services* 2,000 40,812
Pinnacle Systems* 2,000 49,375
Registry* 4,180 193,325
SDL* 2,600 37,538
Seagate Technology* 21,830 420,228
Number Market
of Shares Value
- ------------------------------------------------------
Simulation Sciences* 6,300 $ 102,375
Software AG Systems* 900 13,050
Summit Design 4,700 48,469
Technology Solutions* 9,325 246,238
- ------------------------------------------------------
23,723,285
CONSUMER PRODUCTS: 2.4%
- ------------------------------------------------------
Clorox 24,940 1,971,819
Equity* 7,950 183,844
Estee Lauder Class A 10,000 514,375
Fuji Photo Film (Japan) 9,000 345,238
General Electric 47,700 3,499,988
Guangdong Kelon Electric Holding
(Hong Kong) 73,000 74,910
Home Products International* 6,500 75,563
Kao (Japan) 29,000 418,275
Magna International - Class A
(Canada) 4,100 256,994
Minnesota Mining & Manufacturing 10,725 880,120
Procter & Gamble 27,800 2,218,788
Weider Nutrition International 15,600 194,025
- ------------------------------------------------------
10,633,939
ELECTRONICS & ELECTRICAL: 3.5%
- ------------------------------------------------------
ABB (Switzerland) 92 115,472
ATMI* 2,300 55,344
Act Manufacturing* 2,800 40,075
Advanced Lighting Technologies* 8,600 162,325
Beiging Datang Power (Hong Kong)* 58,000 26,577
Brooks Automation* 3,350 61,138
Canon Electronics (Japan) 18,000 419,809
CBS 45,300 1,333,519
Credence Systems* 8,125 240,195
Dixons Group plc (United Kingdom) 19,900 197,443
EFTC* 6,200 102,300
Eaton 7,965 710,876
Emerson Electric 16,965 957,462
Flextronics International* 4,700 160,975
General Electric (United Kingdom) 69,935 460,278
Harmonic Lightwaves* 7,300 79,844
Intel 20,945 1,470,732
LeCroy* 2,100 62,738
Murata Manufacturing (Japan) 4,000 100,656
Phillips Electronics N.V.
(Netherlands) 8,659 519,583
Photronics* 3,800 92,625
Power Integrations* 6,000 57,188
Premisys Communications* 4,200 109,200
RF Micro Devices* 2,100 25,397
Raytheon-Class A* 7,739 381,611
SGS-Thomson Microelec-NY shs* 7,693 469,754
Schlumberger Limited 24,400 1,964,200
Siliconware Precision* 3,300 42,323
Smiths Industries (UK) 24,097 344,019
Sony (Japan) 6,000 533,968
Taiwan Semiconductors-ADR* 1,800 32,738
Texas Instruments 44,400 1,998,000
Xerox 29,365 2,167,504
- ------------------------------------------------------
15,495,868
ENERGY: 3.8%
- ------------------------------------------------------
Amoco 12,730 1,083,641
A.O. Taneft-ADR 1,100 156,750
Atlantic Richfield 12,680 1,015,985
British Petroleum (UK) 37,593 496,387
British Petroleum ADR 10,954 872,897
Burmah Castrol (United Kingdom) 30,708 535,401
Centrais Elec Bras 18,700 464,882
Coastal 12,660 784,129
Elf Aquitaine 24,250 1,421,656
Elf Aquitaine (France) 4,702 546,426
Enron 7,100 295,094
Ente Nazionale Idrocarburi SpA
(ENI) 102,357 580,339
Exxon 40,387 2,471,180
Huaneng Power International* 3,000 69,563
Kerr-McGee 8,150 515,997
Mobil 25,010 1,805,409
Occidental Petroleum 27,771 814,037
Petroleo Brasileiro 13,400 313,292
Ramco Energy PLC 11,000 146,438
25
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------
Shell Transport & Trading
(United Kingdom) 64,977 $ 473,198
Tosco 26,815 1,013,942
Total SA (France) 5,684 618,082
- ------------------------------------------------------
16,494,725
ENVIRONMENTAL SERVICES: 1.0%
- ------------------------------------------------------
Browning Ferris 25,105 928,885
Cia Vale Do Rio Doce 15,100 303,661
Halliburton 37,300 1,937,269
Superior Services* 4,900 143,019
USA Waste Services* 25,100 985,175
Waterlink* 3,300 54,450
- ------------------------------------------------------
4,352,459
FOOD, BEVERAGE & TOBACCO: 3.7%
- ------------------------------------------------------
B.A.T. Industries plc
(United Kingdom) 76,010 695,224
Bass plc (United Kingdom) 36,560 564,461
Campbell Soup 13,800 802,125
China Foods Holdings Limited
(Hong Kong) 98,000 32,256
Coca-Cola Enterprises 37,800 1,344,263
ConAgra 22,000 721,875
Fine Host* 3,600 36,675
General Cigar Holdings* 3,400 72,463
General Mills 18,665 1,336,881
Greencore Group (Ireland) 64,457 303,556
Guangnan Holdings (Hong Kong) 34,000 27,868
Heinz (H.J.) 19,520 991,860
Holt's Cigar Holdings* 2,300 21,131
Kentucky Fried Chicken Berhad
(Malaysia) 36,000 58,288
Nestle SA (Switzerland) 620 928,304
NG Fung Hong Limited (Hong Kong) 42,000 44,183
Panamerican Beverages 9,200 300,150
PepsiCo 26,015 947,922
Philip Morris 29,200 1,323,125
PT Gudang Garam (India) 19,000 28,932
Quaker Oats 20,540 1,083,485
RJR Nabisco Holdings 20,215 758,063
Ralston-Purina Group 6,785 630,581
Sara Lee 31,830 1,792,427
Unilever (United Kingdom) 60,243 518,219
Whitman 28,760 749,557
- ------------------------------------------------------
16,113,874
HEALTHCARE & PHARMACEUTICALS: 7.2%
- ------------------------------------------------------
American Home Products 17,875 1,367,438
American Homepatient* 3,400 79,050
Astra AB-A Shrs (Sweden) 7,624 132,126
Baxter International 26,655 1,344,412
BioReliance* 900 20,700
Bristol-Myers Squibb 40,615 3,843,194
Cardinal Health 11,400 856,425
CareMatrix* 3,600 103,500
Centennial HealthCare* 4,500 101,531
Compdent* 2,725 55,692
Concentra Managed Care* 3,839 129,326
Cor Therapeutics* 5,900 133,119
Cytyc* 5,700 142,144
Digene* 6,000 51,375
Dura Pharmaceuticals* 4,200 193,725
Eli Lilly & Company 16,300 1,134,888
F.Y.I.* 2,800 64,575
Glaxo Wellcome plc-ADR 10,645 509,629
Glaxo Wellcome plc
(United Kingdom) 20,143 477,788
Healthcare Recoveries* 8,500 187,000
Healthsouth* 43,800 1,215,450
Impath* 3,400 109,650
Johnson & Johnson 17,770 1,170,599
Kendle International* 3,500 57,750
MedQuist* 4,000 138,500
Medicis Pharmaceutical Cl A* 6,550 335,278
Merck & Company 31,450 3,341,563
Minimed* 2,900 114,369
Monarch Dental* 2,000 27,125
NBTY* 800 26,750
NCS HealthCare* 2,300 60,663
Number Market
of Shares Value
- ------------------------------------------------------
National Surgery Centers* 5,175 $ 135,520
Novartis (Switzerland) 270 437,688
OrthAlliance-Class A* 1,800 16,369
Pediatrix Medical Group* 900 38,475
Pfizer 32,500 2,423,281
Pharmacia & Upjohn 54,297 1,988,628
Pharmacia & Upjohn (Sweden) 6,258 230,314
Phymatrix* 5,900 93,294
Promedco Management* 6,200 62,388
Quintiles Transnational* 12,700 487,363
Ranbaxy Laboratories-GDR 4,400 112,750
Renal Care Group* 3,150 101,194
Rexall Sundown* 13,196 398,767
Sabratek* 5,400 155,925
Schering-Plough 25,600 1,590,400
Simione Central Holdings* 5,900 53,469
Spine-Tech* 3,600 185,287
Stewart Enterprises 4,250 198,422
Trimeris* 3,550 46,039
Tyco International 50,200 2,262,138
VA Technologie (Austria) 2,653 402,838
Warner-Lambert 17,800 2,207,200
Wesley Jessen VisionCare* 4,900 191,713
Xomed Surgical Products* 2,200 51,975
Yamanouchi Pharmaceutical (Japan) 8,000 171,852
- ------------------------------------------------------
31,568,623
INDUSTRIAL MACHINERY: 0.9%
- ------------------------------------------------------
ADE* 3,500 61,250
Caterpillar 16,220 787,684
Deere & Co. 11,525 672,052
Ingersoll-Rand 23,900 967,950
Innovative Valve Technologies* 1,500 30,188
Mannesmann AG (Germany)* 1,000 502,015
Molins (United Kingdom) 7,262 35,696
Rieter Holdings (Switzerland) 433 184,810
Sandvik (Sweeden) 11,851 339,065
Terex-Appreciation Rights* 600 10,800
Tomkins Plc (UK) 99,384 465,572
- ------------------------------------------------------
4,057,082
LEISURE, LODGING & ENTERTAINMENT: 1.2%
- ------------------------------------------------------
American Coin Merchandising* 1,500 26,625
Berjaya Sports Toto Berhad
(Malaysia) 49,000 125,302
Carnival Cruise Lines 20,500 1,135,188
Eastman Kodak 19,450 1,182,803
ITT 9,200 762,450
Indian Hotels 2,500 47,031
Marriott International 20,800 1,440,400
Morton's Restaurant Group* 2,800 56,700
North Face* 7,900 174,047
Pegasus Systems* 4,200 62,475
Signature Resorts* 7,300 160,144
Travel Services International* 4,300 100,513
Trendwest Resorts* 1,700 38,888
Vistana* 7,600 173,850
- ------------------------------------------------------
5,486,416
METALS & MINING: 0.3%
- ------------------------------------------------------
Billiton Plc (South Africa)* 40,000 102,745
CIA Siderurgica Nacl 2,300 59,369
Grupo Imsa SA 6,000 141,375
Hindalco Industries* 3,300 64,944
Khgm Polska Miedz* 9,500 60,563
Madeco SA 7,400 112,850
Outdoor Systems* 3,050 117,044
Pohang Iron & Steel (Korea) 1,020 27,621
Rio Tinto plc (United Kingdom) 34,285 398,982
Siderurgica Venez Siv-SP 14,000 56,840
- ------------------------------------------------------
1,142,333
MISCELLANEOUS: 1.8%
- ------------------------------------------------------
Barnett 4,000 89,000
Bright Horizons* 3,500 66,281
BTR PLC (United Kingdom) 115,400 355,007
CN Biosciences 2,400 61,200
26
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------
Caribiner International* 1,600 $ 71,200
Cendant 31,500 1,082,813
Consolidated Stores* 22,500 988,594
Cookson Group PLC (United Kingdom) 41,100 132,538
CoreStaff* 3,425 91,191
Education Management* 5,200 162,825
Encad Incorporated* 5,400 149,850
Helix Technology 2,500 49,063
Ito-Yokado, Ltd. (Japan) 7,000 357,129
KTI INC* 1,600 26,300
Lason Incorporated* 6,200 163,913
Learning Tree International* 3,500 101,719
Lonrho PLC (South Africa) 74,200 112,830
Magna International-Class A 300 18,844
Malakoff Berhad (Malaysia) 40,000 83,269
Market Facts* 5,000 85,000
Metzler Group* 500 19,938
NCO Group* 8,850 225,675
On Assignment* 7,100 186,375
Outsource International* 3,900 46,313
Pitney Bowes 17,285 1,554,570
Romac International* 3,900 95,306
Ryder Systems 22,260 729,015
Securicor (United Kingdom) 56,573 267,354
Siebe plc (United Kingdom) 7,000 131,630
Staff Leasing* 6,000 114,000
Strayer Education 7,200 243,000
Universal Outdoor Holdings* 3,000 156,375
Wackenhut Corrections* 4,200 112,875
- ------------------------------------------------------
8,130,992
PACKAGING & CONTAINERS: 0.4%
- ------------------------------------------------------
Owens-Illinois* 37,865 1,436,503
Multicanal Participacoes* 16,700 100,200
- ------------------------------------------------------
1,536,703
PAPER & FOREST PRODUCTS: 0.9%
- ------------------------------------------------------
Asia Pulp and Paper-Sponsors 4,350 43,772
Boise Cascade 24,860 752,015
Consolidated Graphics* 2,600 121,225
Kimberly-Clark 30,345 1,496,388
Kimberly Clark De Mexico-A
(Mexico) 42,400 200,778
Mayr-Melnhof Karton 7,076 93,757
PT Indah Kiat Pulp and Paper
(India) 135,000 23,932
Svenska Cellulosa (Sweeden) 16,292 366,535
Temple-Inland 5,795 303,151
Willamette Industries 19,265 620,092
- ------------------------------------------------------
4,021,645
REAL ESTATE: 0.3%
- ------------------------------------------------------
Amoy Properties Ltd. (Hong Kong) 160,000 140,436
Ayala Land (Philippines) 238,000 94,025
Belle (Phillippines)* 830,000 31,970
CB Commercial Real Estate
Services Group* 400 12,875
Cheung Kong (Holdings) (Hong Kong) 41,000 268,577
SM Prime Holdings 450,000 66,667
Starwood Lodging Trust 8,100 468,788
Sun Hung Kai Properties
(Hong Kong) 19,000 132,433
Youth Services International* 6,100 93,597
- ------------------------------------------------------
1,309,368
RETAIL: 4.4%
- ------------------------------------------------------
99 Cents Only Stores* 1,750 51,625
Action Performance* 4,600 175,088
Ameriking* 75 3,750
Brasil Distr Pao Acu 10,400 201,500
CVS Corporation 34,821 2,230,720
CIFRA S.A. - SERIES V (Mexico) 76,000 186,538
Colgate-Palmolive 17,600 1,293,600
CompUSA* 19,000 589,000
Cost Plus* 3,100 90,675
Costco Companies 32,400 1,444,837
Dayton Hudson 20,200 1,363,500
Distribucion Y Servicio* 4,800 89,100
Dollar Thrifty Automotive* 8,500 174,250
Guitar Center* 4,700 109,275
Hibbett Sporting Goods* 3,300 73,425
Number Market
of Shares Value
- ------------------------------------------------------
Home Depot 13,601 $ 800,759
Hot Topic* 3,200 71,800
Il Fornaio America* 500 7,500
Kmart* 73,995 855,567
Linens N Things* 4,600 200,675
Liz Claiborne 18,600 777,713
Lowe's Companies 20,280 967,102
PJ America* 2,300 34,213
Penney (J.C.) 600 36,188
Piercing Pagoda* 4,100 116,081
PT Ramayana Lestari Sentosa
(India) 19,000 17,877
Rent-Way* 10,200 189,338
Ricoh (Japan) 11,000 136,714
Safeway* 11,900 752,675
Sanmina* 2,570 174,921
Super-Sol Limited - ADR 16,100 226,406
TJX 31,600 1,086,250
The Men's Wearhouse* 3,700 129,500
Toys R Us* 35,600 1,119,175
Track 'N Trail* 4,100 36,388
Tricon Global Restaurants* 1 15
Walgreen 41,000 1,286,375
Wal-Mart Stores 57,000 2,247,938
- ------------------------------------------------------
19,348,053
TELECOMMUNICATIONS: 4.3%
- ------------------------------------------------------
Advanced Information Service
(Thailand) 7,500 37,217
Asia Satellite Telecom Holdings
(Hong Kong) 21,000 35,916
AT & T 15,505 949,681
AmeriLink* 2,700 69,694
Bell Atlantic 12,180 1,108,380
Bell Canada International* 4,400 67,925
BellSouth 21,130 1,189,883
CIA Telecom Chile S.A. 11,800 352,525
Compania Anonima Nacional
Telefonos de Venezuela 2,700 112,388
Computer Products* 9,800 222,644
Del Global Technologies* 7,011 70,110
Deutsche Telekom AG 5,120 95,360
Deutsche Telekom (Germany) 27,185 503,272
Dycom* 6,300 135,844
Ericsson (LM) Tel 'B' ADS 14,300 534,016
Excel Switching* 2,900 52,019
Grupo Televisa S.A.* 6,800 263,075
Heftel Broadcasting* 7,000 328,563
Hybrid Networks* 5,300 59,625
ITC DeltaCom* 2,200 36,025
Intermedia Communications* 3,200 194,200
Lucent Technologies 13,500 1,078,313
Mahanagar Telephone Nigam-GDR* 8,800 135,960
Northern Telecom Limited (Canada) 4,862 432,476
Northern Telecom Ltd 3 267
Philippine Long Distance
Telephone (Philippines) 4,900 106,469
Philippine Long Distance Telephone
Company ADR 800 18,000
Portugal Telecommunication 4,200 197,400
PT Indosat (India) 20,000 37,091
SBC Communications 30,142 2,207,901
SK Telecom (Korea) 170 44,631
Saga Communications* 4,943 105,039
Sprint 61,175 3,586,384
Telecommunicacoes Brasileiras
S/A-ADR 3,000 349,313
Telefonaktiebolaget LM Ericsson
(Sweeden) 8,330 313,395
Telefonica De Argentina 8,000 298,000
Telekom Malaysia (Malaysia) 54,000 159,599
Telekomunikasi Indonesia 5,300 58,631
Tellabs* 18,200 960,619
U.S. West Communications Group 22,500 1,015,313
Videsh Sanchar Nigam Ltd.* 5,500 77,138
Vodafone Group plc
(United Kingdom) 133,022 973,127
Winstar Communications 6,800 170,212
- ------------------------------------------------------
18,743,640
TEXTILES, APPAREL & FURNITURE: 0.2%
- ------------------------------------------------------
Cort Business Services* 5,600 222,950
French Fragrances* 6,700 61,138
Jones Apparel Group* 10,600 455,800
27
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------
PT Indorama Synthetics (India) 81,000 $ 36,082
Wolverine World Wide 6,185 139,936
- ------------------------------------------------------
915,906
TRANSPORTATION & SHIPPING:1.0%
- ------------------------------------------------------
Bombardier (Canada) 14,800 304,397
Budget Group* 8,300 286,869
Canadian National Railway 10,660 503,685
Delta Air Lines 7,490 891,310
Expeditors International 5,350 208,316
Jevic Transportation* 2,800 45,150
Linea Aerea Nacional-ADR* 7,700 104,913
New World Infrastructure
(Hong Kong)* 35,000 78,834
Norfolk Southern 390 12,017
Peninsular and Orient Steam
(United Kingdom) 19,483 223,193
Rental Service* 5,400 132,638
Union Pacific 18,925 1,181,630
Yamato Transport (Japan) 15,000 201,389
- ------------------------------------------------------
4,174,341
UTILITIES: 2.2%
- ------------------------------------------------------
Akzo Nobel (Netherlands) 2,993 516,335
BSES Ltd-GDR* 5,900 102,513
Compagnie Generale des Eaux
(France)* 3,949 550,703
Companhia Energetica de Minas
Gerais-ADR 6,600 286,704
EDP - Electricidade de Portugal,
SA (Portugal)* 31,000 587,306
Electricity Generating Public
Company Limited (Thailand)* 26,000 50,485
Engen Limited (South Africa) 34,000 172,920
Fomento Economico Mexicano,
SA de C.V.-B (Mexico) 55,900 446,258
Goodman Fielder Limited
(Australia) 140,828 223,868
Hirose Electric (Japan) 3,000 153,516
Hong Kong & China Gas (Hong Kong) 69,600 134,757
Hong Kong Electric (Hong Kong) 19,000 72,225
Hutchison Whampoa (Hong Kong) 32,000 200,741
Korea Electric Power (Korea) 8,000 74,100
Kurita Water Industries (Japan) 8,000 81,630
Lukoil Holding-ADR 3,400 312,800
Manila Electric (Philippines) 39,000 129,037
Mosenergo - ADR 3,500 130,655
Newbridge Networks (Canada)* 5,300 185,571
Omron (Japan) 20,000 313,016
Onward Kashiyama (Japan) 11,000 127,431
Oy Nokia AB (Finland) 4,317 306,625
Perez Companc S.A. (Argentina) 24,000 171,393
Portugal Telecom SA (Portugal) 6,600 306,409
Promise (Japan) 4,180 232,178
Pt Asta Agro Niaga (India)* 57,500 21,171
PTT Exploration and Production
Public Company Ltd. (Thailand) 5,800 69,325
Rohm (Japan) 3,000 306,111
Sankyo (Japan) 8,000 181,058
Scottish Power (United Kingdom) 67,950 601,328
Telefonos De Mexico SA (Mexico) 5,200 291,525
Tokyo Electron (Japan) 4,000 128,275
Unified Energy System* 8,400 234,054
Veba AG (Germany) 9,572 651,880
Vendex International (Netherlands) 6,545 361,404
YPF Sociedad Anonima-ADR 23,100 789,731
- ------------------------------------------------------
9,505,038
TOTAL COMMON STOCKS: 61.1%
(Cost $210,506,848) 267,750,729
- ------------------------------------------------------
PREFERRED STOCKS
- ------------------------------------------------------
Alfa,S.A. de C.V.-Class A
(Mexico) 101,619 687,789
American Radio Systems 5 605
Ameriking* 3,000 79,500
Cablevision Systems 157 18,644
Cablevision Systems PIK 465 53,475
California Federal 1,800 47,250
Capstar Broadcasting 25 28,563
Chancellor Radio Broadcast 502 60,115
Chevy Chase 670 34,840
Citadel Broadcasting 600 69,600
Echostar Communications* 20 21,050
El Paso Electric PIK 558 61,938
Intermedia Comm PIK 111 137,640
IXC Communications* 30 34,800
Number Market
of Shares Value
- ------------------------------------------------------
Nextel Communications* 25 $ 28,875
Nextlink Communications* 589 36,513
Public Service New Hampshire 2,110 54,987
Resorts World Berhad (Malaysia) 25,000 42,084
Sasol Ltd. (South Africa)* 21,800 228,016
Spanish Broadcasting 87 92,655
Time Warner 974 109,613
Von Hoffman* 360 11,250
Winstar Communications 50 52,000
- ------------------------------------------------------
TOTAL PREFERRED STOCKS: 0.5%
(Cost $2,044,629) 1,991,802
- ------------------------------------------------------
WARRANTS:
- ------------------------------------------------------
Compagnie Gen Eaux -
Wt2001 (France) 15 414
ESAT Holdings 75 2,625
Hyperion Telecommunications 100 6,000
Mexico Value Recovery Rights 909,000 0
Nextlink, Warrant 550 6
Spanish Broadcasting - WT99 35 8,225
- ------------------------------------------------------
TOTAL WARRANTS: 0.0%
(Cost $7,895) 17,270
- ------------------------------------------------------
Maturity
REPURCHASE AGREEMENT: Amount
- ------------------------------------------------------
Merrill Lynch Repurchase
Agreement dated 12/31/97,
6.50% maturing 1/2/98
collateralized by U.S.
Treasury Notes
7.75%, 12/31/99 $24,066,000 24,066,000
- ------------------------------------------------------
TOTAL REPURCHASE AGREEMENT: 5.5%
(Cost $24,066,000) 24,066,000
- ------------------------------------------------------
TOTAL INVESTMENTS: 97.7%
(Cost $369,250,005) 428,062,760
- ------------------------------------------------------
Par
SECURITIES SOLD SHORT Amount
- ------------------------------------------------------
FNMA
6.50%, 3/1/27 $(190,000) (187,625)
- ------------------------------------------------------
TOTAL SECURITIES SOLD SHORT: 0.0%
(Proceeds $187,209) (187,625)
- ------------------------------------------------------
Other Assets Over Liabilites: 2.3% 10,214,760
- ------------------------------------------------------
NET ASSETS: 100%
(Equivalent to $15.628 per share
based on 28,032,127 shares issued
and outstanding) $438,089,895
======================================================
GROWTH AND INCOME FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Number Market
COMMON STOCKS: of Shares Value
- -------------------------------------------------------
AEROSPACE & DEFENSE: 1.8%
- -------------------------------------------------------
General Dynamics 277,800 $24,012,338
United Technologies 536,400 39,056,625
- -------------------------------------------------------
63,068,963
AUTOMOBILES & AUTO PARTS: 3.2%
- -------------------------------------------------------
Cooper Industries 532,500 26,092,500
Ford Motor 1,342,700 65,372,706
General Motors 218,000 13,216,250
Johnson Controls 160,000 7,640,000
- -------------------------------------------------------
112,321,456
BANKING, FINANCE & INSURANCE: 16.8%
- -------------------------------------------------------
Ahmanson (H.F.) & Co. 442,000 29,586,375
Allstate 181,749 16,516,440
Bank of Boston 497,700 46,752,694
Bank of New York 333,600 19,286,250
Bankers Trust New York 381,800 42,928,638
Bear Stearns 702,827 33,384,282
Chase Manhattan 528,200 57,837,900
Cigna 233,700 40,444,706
Comerica 251,300 22,679,825
28
<PAGE>
Number Market
of Shares Value
- --------------------------------------------------------
First Chicago NBD 615,943 $ 51,431,241
Marsh & McLennan 537,000 40,040,063
MBIA 236,400 15,794,475
NationsBank 476,200 28,958,913
Paine Webber Group 551,850 19,073,316
SLM Holding 277,700 38,635,013
Torchmark 539,000 22,671,688
Travelers Group 1,305,399 70,328,371
- --------------------------------------------------------
596,350,190
BUILDINGS & MATERIALS: 1.8%
- --------------------------------------------------------
Armstrong World Industries 342,200 25,579,450
Centex 136,700 8,603,556
Masco 247,500 12,591,563
USG Corp.* 249,300 12,215,700
- --------------------------------------------------------
58,990,269
CABLE, MEDIA & PUBLISHING: 3.2%
- --------------------------------------------------------
Dun & Bradstreet 530,400 16,409,250
Gannett 342,300 21,158,419
Knight-Ridder 150,000 7,800,000
McGraw-Hill 333,400 24,671,600
New York Times 321,800 21,279,025
Omnicom Group 465,600 19,729,800
- --------------------------------------------------------
111,048,094
CHEMICALS: 2.1%
- --------------------------------------------------------
Avery Dennison 9,600 429,600
Dow Chemical 521,400 52,922,100
Lyondell Petrochemicals 449,300 11,906,450
Olin 164,700 7,720,313
- --------------------------------------------------------
72,978,463
COMPUTERS & TECHNOLOGY: 7.6%
- --------------------------------------------------------
American Power Conversion* 126,200 2,989,363
Bay Networks* 475,000 12,142,188
Cadence Design Systems* 1,650,350 40,433,575
Compaq Computer 936,400 52,848,075
Deluxe 145,900 5,033,550
HBO 519,400 24,914,969
Microsoft* 112,700 14,562,953
Network Associates Inc.* 275,500 14,541,234
PeopleSoft* 138,200 5,372,525
Quantum* 350,000 7,032,813
Storage Technology* 514,400 31,860,650
Sun Microsystems* 1,137,300 45,420,919
Western Digital* 759,100 12,193,044
- --------------------------------------------------------
269,345,858
CONSUMER PRODUCTS: 5.5%
- --------------------------------------------------------
Clorox 606,800 47,975,125
General Electric 1,211,400 88,886,465
Procter & Gamble 741,000 59,141,063
- --------------------------------------------------------
196,002,653
ELECTRONICS & ELECTRICAL: 2.0%
- --------------------------------------------------------
Honeywell 517,600 35,455,600
Raytheon-Class A 13,902 685,535
Read-Rite* 802,800 12,744,450
Tektronix 178,200 7,072,312
Xerox 223,000 16,460,188
- --------------------------------------------------------
72,418,085
ENERGY: 8.8%
- --------------------------------------------------------
Atlantic Richfield 238,500 19,109,813
Exxon 1,337,900 81,862,756
Halliburton 555,600 28,856,475
Helmerich & Payne 276,400 18,760,650
Occidental Petroleum 1,327,400 38,909,413
Oryx Energy* 642,900 16,393,950
Royal Dutch Petroleum 590,400 31,992,300
Texaco 778,000 42,303,750
USX-Marathon Group 1,016,900 34,320,375
- --------------------------------------------------------
312,509,482
FOOD, BEVERAGE & TOBACCO: 7.9%
- --------------------------------------------------------
Campbell Soup 140,600 8,172,375
Coca Cola 659,400 43,932,525
Number Market
of Shares Value
- --------------------------------------------------------
ConAgra 663,800 $ 21,780,938
Fortune Brands 281,200 10,421,975
Heinz (H.J.) 703,850 35,764,378
Hershey Foods 378,300 23,430,956
Philip Morris 1,874,300 84,929,219
RJR Nabisco Holdings 1,226,320 45,987,000
Universal Foods 142,600 6,024,850
- --------------------------------------------------------
280,444,216
HEALTHCARE & PHARMACEUTICALS: 10.0%
- --------------------------------------------------------
Amgen* 706,900 38,260,963
Bristol-Myers Squibb 923,800 87,414,575
Dura Pharmaceuticals* 155,100 7,153,988
Johnson & Johnson 533,800 35,164,075
Lincare Holdings* 340,800 19,510,800
Merck & Company 721,100 76,616,875
NovaCare* 425,000 5,551,563
Oxford Health Plans* 516,000 8,014,125
Phycor* 481,700 13,020,953
Schering-Plough 1,015,200 63,069,300
- --------------------------------------------------------
353,777,217
INDUSTRIAL MACHINERY: 3.5%
- --------------------------------------------------------
Caterpillar 878,600 42,667,013
Deere & Co. 742,800 43,314,525
Ingersoll-Rand 911,100 36,899,550
- --------------------------------------------------------
122,881,088
LEISURE, LODGING & ENTERTAINMENT: 1.7%
- --------------------------------------------------------
Boston Chicken* 823,700 5,289,698
Brunswick 511,300 15,498,781
Callaway Golf 750,400 21,433,300
King World Productions 328,900 18,993,975
- --------------------------------------------------------
61,215,754
METALS & MINING: 1.0%
- --------------------------------------------------------
Phelps Dodge 437,600 27,240,600
USX-U.S. Steel Group 299,100 9,346,875
- --------------------------------------------------------
36,587,475
MISCELLANEOUS: 0.6%
- --------------------------------------------------------
Cendant* 654,255 22,490,016
- --------------------------------------------------------
PAPER & FOREST PRODUCTS: 0.2%
- --------------------------------------------------------
Fort James 208,400 7,971,300
- --------------------------------------------------------
RETAIL: 5.0%
- --------------------------------------------------------
CompUSA* 903,900 28,020,900
Gap 431,250 15,282,422
Jostens 56,100 1,293,806
Liz Claiborne 278,600 11,648,963
Ross Stores 667,800 24,332,963
Safeway* 719,500 45,508,375
Staples* 244,100 6,789,031
TJX 1,307,600 44,948,750
- --------------------------------------------------------
177,825,210
TELECOMMUNICATIONS: 8.2%
- --------------------------------------------------------
Ameritech 626,900 50,465,450
AT & T 370,000 22,662,500
Bell Atlantic 596,356 54,268,396
BellSouth 573,600 32,300,850
GTE 788,700 41,209,575
PairGain Technologies* 243,000 4,715,719
SBC Communications 246,132 18,029,169
Tellabs* 765,500 40,404,047
U.S. West Communications Group 600,700 27,106,588
- --------------------------------------------------------
291,162,294
TEXTILES, APPAREL, & FURNITURE: 0.6%
- --------------------------------------------------------
Miller (Herman) 232,500 12,656,719
Tommy Hilfiger* 234,800 8,247,350
- --------------------------------------------------------
20,904,069
TRANSPORTATION & SHIPPING: 1.4%
- --------------------------------------------------------
AMR* 201,500 25,892,750
29
<PAGE>
Number Market
of Shares Value
- --------------------------------------------------------
Tidewater 193,400 $ 10,661,175
UAL Corp.* 143,800 13,301,500
- --------------------------------------------------------
49,855,425
UTILITIES: 3.1%
- --------------------------------------------------------
Baltimore Gas & Electric 150,900 5,140,031
General Public Utilities 657,150 27,682,444
Long Island Lighting 307,200 9,254,400
New York State Electric & Gas 602,500 21,388,750
Texas Utilities 794,200 33,008,938
Unicom 412,800 12,693,600
- --------------------------------------------------------
109,168,163
TOTAL COMMON STOCKS: 96.0%
(Cost $2,229,050,661) 3,399,315,740
- --------------------------------------------------------
Par
MONEY MARKET INSTRUMENTS: Amount
- --------------------------------------------------------
Bt Alex Brown Inc.
5.55%, 1/12/98 $11,500,000 11,480,498
Corporate Asset Funding
5.75%, 2/9/98 2,200,000 2,186,296
Daimler Benz NA Corp.
5.72%, 4/8/98 11,000,000 10,830,466
Dun & Bradstreet
5.75%, 2/9/98 2,200,000 2,186,296
General Electric Capital Corp.
5.54%, 1/7/98 2,000,000 1,998,153
IBM Credit Corp.
5.70%, 1/7/98 3,300,000 3,296,865
Merrill Lynch & Co Inc.
5.58%, 3/18/98 17,400,000 17,195,027
Metlife Funding Inc.
5.72%, 3/24/98 2,000,000 1,973,942
Mitsubishi International Corp.
6.30%, 2/11/98 12,800,000 12,708,160
6.20%, 2/12/98 4,600,000 4,566,727
Mitsui & Co.
5.95%, 1/21/98 14,400,000 14,352,400
5.80%, 2/12/98 2,000,000 1,986,467
Private Export Funding Corp.
5.70%, 2/17/98 12,300,000 12,208,468
Prudential Funding Corp.
5.70%, 3/25/98 10,000,000 9,868,583
Smith Barney Holdings
5.60%, 2/4/98 8,000,000 7,957,689
Sony Capital Corp.
5.87%, 2/9/98 1,400,000 1,391,097
5.88%, 2/10/98 7,800,000 7,749,040
Volkswagon Of America
6.20%, 1/5/98 10,000,000 9,993,111
- --------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS: 3.8%
(Cost $133,929,285) 133,929,285
- --------------------------------------------------------
TOTAL INVESTMENTS: 99.8%
(Cost $2,362,979,946) 3,533,245,025
- --------------------------------------------------------
Other Assets Over Liabilities: 0.2% 7,617,120
- --------------------------------------------------------
NET ASSETS: 100%
(Equivalent to $41.949 per share
based on 84,409,722 shares issued
and outstanding) $3,540,862,145
========================================================
INTERNATIONAL FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Number Market
COMMON STOCKS: of Shares Value
- --------------------------------------------------------
ARGENTINA: 0.8%
- --------------------------------------------------------
Argentinian Investment* 135,700 $ 3,577,052
- --------------------------------------------------------
AUSTRALIA: 4.1%
- --------------------------------------------------------
BRL Hardy Ltd. 1,000,000 3,077,034
Oil Search 950,000 1,716,898
QBE Insurance Group Ltd. 930,403 4,186,730
Southcorp Holdings Ltd. TD 1,140,000 3,772,967
Telstra Corp. Ins. Recp.* 440,000 928,778
Telstra Corp. Primary* 656,000 1,384,724
Woodside Petroleum Ltd. 565,000 3,982,815
- --------------------------------------------------------
19,049,946
BRAZIL: 0.7%
- --------------------------------------------------------
F & C Emerging Markets* 37,000 1,667,960
Telecommunicacoes Brasileiras
S/A-ADR 12,000 1,397,250
- --------------------------------------------------------
3,065,210
CANADA: 1.0%
- --------------------------------------------------------
Laidlaw 336,900 4,590,263
- --------------------------------------------------------
DENMARK: 0.9%
- --------------------------------------------------------
Unidanmark A/S 60,000 4,405,132
- --------------------------------------------------------
FINLAND: 1.3%
- --------------------------------------------------------
Merita Ltd. 675,000 3,691,774
Oy Nokia AB 34,400 2,443,343
- --------------------------------------------------------
6,135,117
FRANCE: 10.8%
- --------------------------------------------------------
Accor SA 25,700 4,774,351
Alcatel Alsthom 30,700 3,898,979
Axa-UAP 60,000 4,638,831
Cap Gemini Sogeti SA 64,900 5,317,199
CCF - Credit Commerce France 29,000 1,985,972
CIE Financiere de Paribas-A 23,650 2,053,449
Compagnie de Saint Gobain 29,100 4,130,572
Pinault-Printemps 8,580 4,573,816
Rhone-Poulenc A 114,500 5,124,795
Schneider SA 74,000 4,014,809
Technip 43,300 4,564,705
Total SA 50,000 5,437,038
- --------------------------------------------------------
50,514,516
GERMANY: 8.1%
- --------------------------------------------------------
Adidas AG 40,000 5,292,564
Allianz AG 16,550 4,269,187
Daimler-Benz AG 54,000 3,812,648
Deutsche Bank AG* 58,100 4,063,366
KSB AG-Vorzug 13,300 2,920,639
Mannesmann AG* 8,460 4,247,049
SAP AG 17,850 5,797,343
SGL Carbon AG 15,400 1,969,145
Veba AG 82,300 5,604,865
- --------------------------------------------------------
37,976,806
HONG KONG: 3.0%
- --------------------------------------------------------
Cheung Kong (Holdings) 363,000 2,377,893
Cheung Kong Infrastructure 1,283,000 3,626,773
Citic Pacific Ltd 400,000 1,590,231
Dao Heng Bank Group Ltd. 870,000 2,172,951
Peregrine Investment Holdings
Ltd 2,484,500 1,763,808
Swire Pacific A 477,000 2,616,718
- --------------------------------------------------------
14,148,374
HUNGARY: 0.8%
- --------------------------------------------------------
Matav RT ADR* 141,600 3,681,600
- --------------------------------------------------------
30
<PAGE>
Number Market
of Shares Value
- --------------------------------------------------------
INDIA: 0.6%
- --------------------------------------------------------
The India Magnum Fund 69,385 $ 2,671,323
- --------------------------------------------------------
IRELAND: 0.9%
- --------------------------------------------------------
Waterford Wedgewood 2,950,000 3,999,448
- --------------------------------------------------------
ITALY: 5.8%
- --------------------------------------------------------
Aeroporti di Roma Spa* 295,000 3,060,002
Assicurazioni Generali 186,500 4,580,704
Credito Italiano Spa 1,314,000 4,051,854
La Rinascente Spa* 633,000 4,723,254
Pirelli Spa 1,603,000 4,286,060
Telecom Italia Mobile Spa 1,381,000 6,374,021
- --------------------------------------------------------
27,075,895
JAPAN: 15.7%
- --------------------------------------------------------
Aderans Company 124,200 3,001,497
Amway Japan Ltd. 129,500 2,483,794
Canon Electronics 135,000 3,148,568
CSK 120,700 3,092,855
Keyence 18,780 2,780,729
Meitec 84,600 2,382,002
Minebea Co. Ltd. 242,000 2,599,257
Mitsubishi Estate 211,000 2,298,670
Mitsumi Electric 158,000 2,254,633
Nichiei 19,000 2,026,162
Nintendo 19,000 1,865,818
Nippon Telegraph & Telephone 390 3,351,108
NTT Data Communications 30 1,618,014
ORIX Finance-Leasing 44,000 3,071,849
Rohm 43,000 4,387,588
Ryohin Keikaku Ltd. 47,200 3,114,198
Secom 43,000 2,751,315
Sho-Bond 106,400 1,926,457
Shohkoh Fund 10,600 3,236,642
SMC 22,900 2,020,408
Sony 45,700 4,067,054
Sumitomo Realty and Development* 320,000 1,841,268
Taiyo Yuden Ltd. 211,000 1,464,997
TDK 40,000 3,019,680
Terumo 186,000 2,739,807
Uni-Charm 96,000 3,402,663
Yamaha 265,000 3,008,939
- --------------------------------------------------------
72,955,972
MEXICO: 1.1%
- --------------------------------------------------------
Grupo Carso SA de CV 500,000 3,328,375
Mexico Fund 81,800 1,681,808
- --------------------------------------------------------
5,010,183
NETHERLANDS: 6.6%
- --------------------------------------------------------
Aegon 51,200 4,560,375
Ahrend 85,770 2,696,052
ING Groep N.V. 96,700 4,075,095
Koninklijke Bols Wessanen N.V. 203,800 3,157,819
Koninklijke KNP BT 172,000 3,963,681
Koninklijke Pakhoed N.V. 115,900 3,345,744
PolyGram N.V. 36,400 1,742,314
Stork N.V. 88,500 3,056,995
Vendex International 75,000 4,141,377
- --------------------------------------------------------
30,739,452
NEW ZEALAND: 0.3%
- --------------------------------------------------------
Fletcher Challenge Building 793,900 1,622,223
- --------------------------------------------------------
NORWAY: 0.6%
- --------------------------------------------------------
Saga Petroleum ASA 160,500 2,764,164
- --------------------------------------------------------
POLAND: 0.5%
- --------------------------------------------------------
Polish Investment* 212,500 2,282,250
- --------------------------------------------------------
PORTUGAL: 1.1%
- --------------------------------------------------------
Portugal Telecommunication 110,000 5,170,000
- --------------------------------------------------------
RUSSIA: 0.3%
- --------------------------------------------------------
Lukoil Holding* 50,000 1,551,970
- --------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------
SINGAPORE: 1.3%
- --------------------------------------------------------
DBS Land 1,670,000 $ 2,560,832
Development Bank of Singapore 393,000 3,363,566
- --------------------------------------------------------
5,924,398
SPAIN: 4.1%
- --------------------------------------------------------
Banco Central Hispanoamericano 270,000 6,574,778
Corp Financiera Reunida SA* 600,000 3,209,610
Repsol SA 99,000 4,223,689
Telefonica de Espana 171,000 4,882,349
- --------------------------------------------------------
18,890,426
SWEDEN: 4.4%
- --------------------------------------------------------
Astra AB-A Shrs 227,400 3,940,901
Electrolux AB 51,100 3,548,745
Incentive AB-B Shares 43,000 3,885,885
Skandia Forsakrings AB 69,100 3,261,611
Telefonaktiebolaget LM Ericsson 52,500 1,975,177
Volvo AB 152,000 4,080,614
- --------------------------------------------------------
20,692,933
SWITZERLAND: 8.0%
- --------------------------------------------------------
ABB 3,180 3,991,313
Ares-Serono Group 1,690 2,785,841
Novartis 3,000 4,863,201
Roche Holding AG 490 4,861,457
Schweizerische Bankgesellschaft 3,750 5,417,237
Schweizerische
Lebensversicherungs-und
Rentenanstalt 6,300 4,942,613
Schweizerische Rueckversicherungs-
Gesellschaft 2,900 5,419,152
Zurich Versicherungsgesellschaft* 11,000 5,236,662
- --------------------------------------------------------
37,517,476
UNITED KINGDOM: 13.7%
- --------------------------------------------------------
Abbey National plc 241,400 4,177,006
Cable & Wireless plc 516,400 4,552,881
Corporate Services Group plc 573,500 2,024,415
Dixons Group plc 410,000 4,067,914
Elan plc - ADR* 80,400 4,115,475
Electra Investment Trust plc 410,000 3,594,508
Electrocomponents plc 431,700 3,218,643
Firstgroup plc 510,000 1,884,389
Genesis Chile Fund ptg 105,500 4,061,750
GKN plc 224,000 4,607,515
Lloyds TSB Group plc 382,000 4,952,657
Misys plc 209,600 6,326,954
Monument Oil and Gas plc* 1,400,000 1,951,359
Rentokil Initial 1,154,400 5,122,252
SEMA Group plc 184,400 4,509,288
Stagecoach Holdings plc 160,000 2,203,732
Standard Chartered plc 229,500 2,630,994
- --------------------------------------------------------
64,001,732
TOTAL COMMON STOCKS: 96.5%
(Cost $391,053,945) 450,013,861
- --------------------------------------------------------
Maturity
REPURCHASE AGREEMENT: Amount
- --------------------------------------------------------
State Street Bank and Trust Co,
Repurchase Agreement, dated
12/31/97, 5.30%,maturing
1/2/98, collateralized by
U.S. Treasury Notes 6.125%,
7/31/00 $9,091,000 9,091,000
- --------------------------------------------------------
TOTAL REPURCHASE AGREEMENT: 2.0%
(Cost $9,091,000) 9,091,000
- --------------------------------------------------------
TOTAL INVESTMENTS: 98.5%
(Cost $400,144,945) 459,104,861
- --------------------------------------------------------
Other Assets Over Liabilities: 1.5% 7,124,339
- --------------------------------------------------------
NET ASSETS: 100.0%
(Equivalent to $14.673 per share
based on 31,775,149 shares issued
and outstanding) $466,229,200
========================================================
31
<PAGE>
MANAGED FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Par Market
LONG-TERM DEBT INVESTMENTS: Amount Value
- -------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS: 19.2%
- -------------------------------------------------------
Federal Home Loan Mortgage Corp
6.3881%, 10/15/06 $ 2,000,000 $ 2,015,625
7.30%, 12/1/12 2,950,456 3,016,841
8.50%, 1/1/17 766,029 805,527
FNMA
6.35%, 8/24/00 3,500,000 3,505,320
0.00%, 8/7/01 7,000,000 5,690,719
7.60%, 7/25/05 466,146 467,088
6.73%, 8/1/05 2,103,015 2,120,102
7.175%, 10/1/05 3,927,657 4,044,257
6.655%, 11/1/05 980,844 986,975
6.66%, 12/1/05 1,961,768 1,974,642
7.043%, 7/1/06 2,464,985 2,608,964
0.00%, 7/24/06 11,500,000 6,961,410
0.00%, 7/5/14 2,500,000 900,775
7.15%, 10/1/15 2,849,519 2,894,043
7.50%, 5/25/20 4,000,000 4,112,896
7.00%, 10/1/25 2,627,076 2,655,809
GNMA
6.50%, 12/15/23 1,197,950 1,195,330
U.S. Treasury Bonds
10.75%, 8/15/05 15,000,000 19,518,750
12.75%, 11/15/10 28,125,000 40,154,060
U.S. Treasury Note
5.375%, 5/31/98 2,000,000 1,999,020
6.50%, 8/31/01 13,150,000 13,483,351
6.125%, 12/31/01 13,325,000 13,505,819
6.25%, 6/30/02 7,750,000 7,907,635
U.S. Treasury Strip
0.00%, 5/15/05 15,320,000 10,059,570
0.00%, 2/15/11 24,000,000 11,078,398
- -------------------------------------------------------
163,662,926
ASSET BACKED: 0.0%
- -------------------------------------------------------
Mid-State Trust
7.625%, 4/1/22 204,189 208,397
Spiegel Charge Account Trust
6.95%, 2/15/01 71,428 71,280
- -------------------------------------------------------
279,677
AUTOMOBILE & AUTO EQUIPMENT: 0.3%
- -------------------------------------------------------
Chrysler
7.45%, 02/01/2097 1,000,000 1,071,250
Goodyear Tire & Rubber
6.625%, 12/1/06 1,250,000 1,267,188
- -------------------------------------------------------
2,338,438
BANKING, FINANCE & INSURANCE: 8.6%
- -------------------------------------------------------
Ahmanson, H. F.
8.25%, 10/1/02 2,000,000 2,150,000
Aristar Financial
7.50%, 7/1/99 1,500,000 1,530,000
Banc One
9.875%, 3/1/09 500,000 627,500
Banque Paribas-NY
8.35%, 6/15/07 1,600,000 1,782,000
Barnett Bank
6.90%, 9/1/05 1,500,000 1,539,375
Barnett Capital Trust I
8.06%, 12/1/26 1,900,000 2,028,250
Citicorp Notes
6.33%, 1/5/06 1,600,000 1,586,000
Comerica Bank
7.875%, 9/15/26 1,500,000 1,676,250
Dow Capital
9.0%, 5/15/10 3,000,000 3,622,500
Par Market
Amount Value
- -------------------------------------------------------
Finova Capital
6.12%, 5/28/02 $1,000,000 $ 997,500
First of America Capital Trust I
8.12%, 1/31/27 2,000,000 2,125,000
First Union
8.0%, 8/15/09 2,000,000 2,207,500
First USA Bank
5.75%, 1/15/99 2,000,000 1,995,000
Fleet Financial Group
7.25%, 9/1/99 1,000,000 1,018,750
Ford Motor Credit
7.95%, 5/17/99 2,000,000 2,052,500
General Electric Capital
8.3%, 9/20/09 3,000,000 3,472,500
General Motors Acceptance
7.875%, 3/7/01 1,500,000 1,573,125
8.875%, 6/1/10 1,500,000 1,790,625
Household Finance
9.625%, 7/15/00 875,000 946,094
Hydro-Quebec
7.2%, 10/5/09(2) 3,000,000 3,065,100
International Lease Finance
8.25%, 1/15/00 2,000,000 2,085,000
John Deere Capital
8.625%, 8/1/19 2,000,000 2,195,000
Lehman Brothers Holdings
8.875%, 3/1/02 1,000,000 1,091,250
Mellon Capital I Notes
7.72%, 12/1/26 1,500,000 1,558,125
Mercantile Bancorp
7.3%, 6/15/07 1,325,000 1,391,250
Midland Bank Plc
0.0%, 9/29/49(2) 1,600,000 1,369,360
Morgan Stanley Group
6.875%, 3/1/07 2,250,000 2,311,875
National Westminister Bank
9.45%, 5/1/01 500,000 548,125
NationsBank Corp.
8.125%, 6/15/02 1,000,000 1,070,000
Nynex Capital Funding
7.63%, 10/15/09(2) 3,000,000 3,419,159
PNC Funding
6.875%, 7/15/07 1,663,000 1,704,575
Salomon Brothers
7.25%, 1/15/00 1,000,000 1,021,250
Salomon Smith Barney
7.875%, 10/1/99 3,000,000 3,093,750
Simon DeBartolo Group
7.125%, 6/24/05 1,500,000 1,554,375
SouthTrust Bank of Birmingham
7.69%, 5/15/25 2,750,000 3,196,875
Standard Chartered Plc Notes
6.15%, 12/29/49(2) 3,000,000 2,125,350
State Street Capital-B
8.035%, 3/15/27 1,400,000 1,508,500
Union Bank Switzerland
7.25%, 7/15/06 2,250,000 2,382,188
Wachovia Capital Trust I
7.64%, 1/15/27 1,900,000 1,930,875
- -------------------------------------------------------
73,342,451
BUILDING & MATERIALS: 0.2%
- -------------------------------------------------------
Champion International
7.7%, 12/15/99 1,500,000 1,545,000
- -------------------------------------------------------
CABLE, MEDIA, & PUBLISHING: 0.5%
- -------------------------------------------------------
News America Holdings
8.45%, 8/1/34 1,500,000 1,710,000
Time Warner
9.125%, 1/15/13 2,000,000 2,367,500
Viacom International
8.75%, 5/15/01(2) 500,000 507,500
- -------------------------------------------------------
4,585,000
CONSUMER PRODUCTS: 0.3%
- -------------------------------------------------------
Westvaco
8.3%, 8/1/22 2,500,000 2,703,125
- -------------------------------------------------------
32
<PAGE>
Par Market
Amount Value
- -------------------------------------------------------
ENERGY: 0.4%
- -------------------------------------------------------
Commonwealth Edison
9.375%, 2/15/00 $ 500,000 $ 530,000
Enron
9.5%, 6/15/01 1,000,000 1,101,250
Petro-Canada
8.6%, 10/15/01 1,500,000 1,618,125
- -------------------------------------------------------
3,249,375
ENVIRONMENTAL SERVICES: 0.2%
- -------------------------------------------------------
Waste Management
6.625%, 7/15/02 2,000,000 2,012,500
- -------------------------------------------------------
FOOD, BEVERAGE & TOBACCO: 0.1%
- -------------------------------------------------------
Nabisco
7.55%, 6/15/15 750,000 787,500
- -------------------------------------------------------
HEALTHCARE & PHARMACEUTICALS: 0.4%
- -------------------------------------------------------
Allegiance
7.3%, 10/15/06 1,000,000 1,052,500
Glaxo Wellcome plc
6.125%, 1/25/06 2,250,000 2,230,313
- -------------------------------------------------------
3,282,813
LEISURE, LODGING, & ENTERTAINMENT: 0.2%
- -------------------------------------------------------
Darden Restaurants
6.375%, 2/1/06 1,500,000 1,466,250
- -------------------------------------------------------
METALS & MINING: 0.8%
- -------------------------------------------------------
Cyprus Amax Minerals
7.375%, 5/15/07 2,500,000 2,631,250
Inco
9.6%, 6/15/22 1,300,000 1,495,000
Newmont Gold
8.91%, 1/5/09 695,959 769,905
Placer Dome
7.37%, 6/3/26 1,000,000 1,067,500
Placer Dome-Series A
7.31%, 1/26/21 1,000,000 1,021,250
- -------------------------------------------------------
6,984,905
MISCELLANEOUS: 0.2%
- -------------------------------------------------------
Manitoba
7.75%, 7/17/16 1,500,000 1,715,625
- -------------------------------------------------------
RETAIL: 0.5%
- -------------------------------------------------------
Sears Roebuck
9.05%, 2/6/12 2,500,000 3,015,625
Service Corp International
7.0%, 6/1/15 1,000,000 1,032,500
- -------------------------------------------------------
4,048,125
TELECOMMUNICATIONS: 0.9%
- -------------------------------------------------------
Litton Industries
6.98%, 3/15/36 1,000,000 1,035,000
Pacificorp
9.15%, 8/9/11 1,500,000 1,824,375
Southwestern Bell Capital
7.13%, 6/1/05 2,000,000 2,090,000
U.S. Cellular
7.25%, 8/15/07 1,500,000 1,548,750
US West Capital Funding
6.95%, 1/15/37 1,000,000 1,031,250
- -------------------------------------------------------
7,529,375
TRANSPORTATION & SHIPPING: 1.4%
- -------------------------------------------------------
American Airline
10.18%, 1/2/13 1,500,000 1,874,654
Burlington Norhtern Railroad
6.94%, 1/2/14 485,755 499,543
Chicago & Northwestern Holdings
6.25%, 7/30/12 1,374,728 1,362,699
CSX Notes
7.25%, 5/1/27 1,000,000 1,067,500
Par Market
Amount Value
- --------------------------------------------------------
Federal Express
7.96%, 3/28/17 $1,129,243 $ 1,199,821
General American Transportation
7.5%, 2/28/15 1,468,054 1,546,962
Norfolk Southern
7.05%, 5/1/37 2,000,000 2,122,500
United Airlines
9.35%, 4/7/16 1,500,000 1,780,110
- --------------------------------------------------------
11,453,789
UTILITIES: 4.0%
- --------------------------------------------------------
Baltimore Gas & Electric
8.92%, 7/16/98 1,000,000 1,016,250
Colonial Gas-Series A
6.81%, 5/19/27 1,500,000 1,543,125
Detriot Edison
6.56%, 5/1/01 2,000,000 2,022,500
DQU II Funding
8.7%, 6/1/16 2,475,000 2,809,125
Great Lakes Power
9.0%, 8/1/04 1,500,000 1,655,625
Houston Light & Power Capital
Trust II
8.257%, 2/1/37 1,900,000 2,106,625
Korea Electric Power
8.0%, 7/1/02 2,250,000 1,906,875
MidAmerican Energy
6.5%, 12/15/01 1,250,000 1,262,500
National Rural Utility
8.5%, 2/15/98 1,000,000 1,002,500
Nevada Power
7.06%, 5/1/00 1,500,000 1,530,000
Noble Affiliates
7.25%, 10/15/23 600,000 618,000
Old Dominion Electric
7.48%, 12/1/13 1,500,000 1,603,125
Pacific Gas and Electric
6.25%, 8/1/03 2,000,000 2,012,500
Pennsylvania Power & Light
7.7%, 10/1/09 3,000,000 3,296,250
PSI Energy
8.57%, 12/27/11 500,000 591,250
Public Service
6.375%, 11/1/05 1,500,000 1,507,500
South Carolina Electric
9.0%, 7/15/06 2,500,000 2,931,250
Texas Gas Transmissions
8.625%, 4/1/04 2,000,000 2,230,000
Texas Utilities
7.375%, 8/1/01 1,500,000 1,554,375
Washington Water Public
8.01%, 12/17/01 1,000,000 1,058,750
- --------------------------------------------------------
34,258,125
TOTAL LONG - TERM DEBT INVESTMENTS: 38.2%
(Cost $312,879,056) 325,244,999
- --------------------------------------------------------
Number
COMMON STOCKS: of Shares
- --------------------------------------------------------
AEROSPACE & DEFENSE: 0.9%
- --------------------------------------------------------
GenCorp 27,100 677,500
General Dynamics 20,900 1,806,544
United Technologies 67,300 4,900,281
- --------------------------------------------------------
7,384,325
AUTOMOBILES & AUTO PARTS: 1.7%
- --------------------------------------------------------
Cooper Industries 71,100 3,483,900
Ford Motor 130,900 6,373,194
General Motors 46,900 2,843,313
Goodrich (B.F.) 30,600 1,267,988
Simpson Industries 69,500 825,313
- --------------------------------------------------------
14,793,708
BANKING, FINANCE & INSURANCE: 9.2%
- --------------------------------------------------------
Ahmanson (H.F.) & Co. 38,100 2,550,319
Allstate 22,610 2,054,684
AmSouth Bancorporation 54,000 2,932,875
33
<PAGE>
Number Market
of Shares Value
- --------------------------------------------------------
Bank of Boston 61,600 $ 5,786,550
BankAmerica 25,000 1,825,000
Bankers Trust New York 41,000 4,609,938
Bear Stearns 109,669 5,209,277
Chase Manhattan 65,100 7,128,450
Chittenden 21,875 754,688
Cigna 29,400 5,088,038
Comerica 15,400 1,389,850
First Chicago NBD 75,835 6,332,223
First Commonwealth Financial Corp. 24,300 852,019
John Alden Financial 25,700 616,800
Magna Group 18,400 841,800
Marsh & McLennan 69,800 5,204,463
MBIA 7,400 494,413
NationsBank 31,800 1,933,838
Onebancorp 10,800 765,450
Oxford Health Plans* 38,100 591,741
Paine Webber Group 74,700 2,581,819
RenaissanceRe Holdings* 16,200 714,825
SLM Holding 28,000 3,895,500
Torchmark 113,000 4,753,063
Travelers Group 138,049 7,437,390
United Bankshares 15,500 744,969
United Wisconsin Service 31,000 798,250
- --------------------------------------------------------
77,888,232
BUILDING & MATERIALS: 0.6%
- --------------------------------------------------------
Armstrong World Industries 13,400 1,001,650
Centex 16,200 1,019,588
Centex Construction Products 27,000 813,375
Masco 22,000 1,119,250
USG Corp.* 28,900 1,416,100
- --------------------------------------------------------
5,369,963
CABLE, MEDIA, & PUBLISHING: 1.2%
- --------------------------------------------------------
Dun & Bradstreet 91,400 2,827,688
Hollinger International 50,200 702,800
McClatchy Newspapers 17,300 470,344
McGraw-Hill 26,400 1,953,600
Media General-A 18,100 756,806
New York Times 56,300 3,722,838
- --------------------------------------------------------
10,434,076
CHEMICALS: 1.5%
- --------------------------------------------------------
Avery Dennison 64,300 2,877,425
Dow Chemical 66,000 6,699,000
Lyondell Petrochemicals 79,300 2,101,450
NL Industries* 47,100 641,738
Quaker Chemical 36,600 693,113
- --------------------------------------------------------
13,012,726
COMPUTERS & TECHNOLOGY: 4.4%
- --------------------------------------------------------
Advanced Digital Information* 13,500 225,281
American Power Conversion* 46,200 1,094,363
Bay Networks* 50,000 1,278,125
Cadence Design Systems* 125,850 3,083,325
Compaq Computer 111,050 6,267,384
Datastream System Inc.* 25,000 768,750
HBO & Co. 85,600 4,106,125
Hyperion Software* 20,600 741,600
Information Management Resources* 23,700 893,194
Merisel* 97,000 427,411
MicroAge* 34,800 525,262
Microsoft* 16,700 2,157,953
Networks Asscociates Inc.* 15,100 796,997
PeopleSoft* 68,800 2,674,600
Sandisk* 33,600 675,150
Shared Medical Systems 11,400 752,400
SMART Modular Technologies* 28,200 645,075
Storage Technology* 54,600 3,381,788
Stratus Computer* 17,700 669,281
Sun Microsystems* 128,400 5,127,975
Western Digital* 93,000 1,493,813
- --------------------------------------------------------
37,785,852
CONSUMER PRODUCTS: 2.9%
- --------------------------------------------------------
Clorox 42,800 3,383,875
CPI 28,600 647,075
Damark International* 35,000 345,625
Number Market
of Shares Value
- --------------------------------------------------------
General Electric 156,200 $11,461,175
Maytag 10,000 373,125
Procter & Gamble 101,800 8,124,913
- --------------------------------------------------------
24,335,788
ELECTRONICS & ELECTRICAL: 1.2%
- --------------------------------------------------------
American Residential Services* 37,600 587,500
DSP Group* 32,000 648,000
Electro Scientific Industries* 17,200 658,975
FirstEnergy* 24,200 701,800
Kemet* 36,100 697,181
Magne Tek* 33,600 655,200
Raytheon-Class A 2,991 147,484
Sawtek* 27,100 713,069
Tektronix 17,400 690,563
Thomas Industries 40,350 796,913
Unitrode* 36,000 774,000
Veeco Instruments* 16,200 357,413
Xerox 41,000 3,026,313
- --------------------------------------------------------
10,454,411
ENERGY: 4.0%
- --------------------------------------------------------
Atlantic Richfield 75,800 6,073,475
Exxon 134,600 8,235,838
Helmerich & Payne 22,300 1,513,613
Key Energy Group* 40,000 867,500
Occidental Petroleum 98,800 2,896,075
Ocean Energy* 13,600 670,650
Oryx Energy* 91,500 2,333,250
Royal Dutch Petroleum 94,000 5,093,625
Texaco 103,800 5,644,125
USX-Marathon Group 31,700 1,069,875
- --------------------------------------------------------
34,398,026
ENVIRONMENTAL SERVICES: 1.0%
- --------------------------------------------------------
Berry Petroleum 38,900 678,319
Halliburton 77,600 4,030,350
Honeywell 35,900 2,459,150
Veritas DGC* 19,900 786,050
- --------------------------------------------------------
7,953,869
FOOD, BEVERAGE & TOBACCO: 4.5%
- --------------------------------------------------------
800-JR Cigar* 28,100 709,525
Campbell Soup 47,600 2,766,750
Canandaiqua Wine Class A* 15,000 832,500
Coca Cola 81,200 5,409,950
ConAgra 100,600 3,300,938
Foodmaker* 47,000 707,938
Fortune Brands 11,800 437,338
Heinz (H.J.) 72,050 3,661,041
Herbalife International* 11,533 247,967
Hershey Foods 40,900 2,533,244
Philip Morris 231,000 10,467,188
Pilgrims Pride Corp. 55,100 857,494
Quaker Oats 20,700 1,091,925
RJR Nabisco Holdings 102,580 3,846,750
ShowBiz Pizza Time* 32,800 758,500
Sonic Corp.* 26,000 734,500
- --------------------------------------------------------
38,363,548
HEALTHCARE & PHARMACEUTICALS: 5.8%
- --------------------------------------------------------
ADAC Laboratories* 37,500 735,938
Amgen* 80,900 4,378,713
Beverly Enterprises Inc.* 90,000 1,170,000
Bristol-Myers Squibb 106,400 10,068,100
Dura Pharmaceuticals* 42,000 1,937,250
Herbalife International* 23,067 501,700
Integrated Health Services 22,875 713,414
Johnson & Johnson 73,400 4,835,225
Lincare Holdings* 65,900 3,772,775
Merck & Co. 85,400 9,073,750
Pharmerica Inc.* 40,959 428,790
Protein Design Labs* 17,300 688,756
Safeskin* 12,900 733,284
Schering-Plough 127,100 7,896,088
Sybron International* 16,100 755,694
Theragenics* 17,100 619,875
Universal Health Services Class B* 16,100 811,038
- --------------------------------------------------------
49,120,390
34
<PAGE>
Number Market
of Shares Value
- --------------------------------------------------------
INDUSTRIAL MACHINERY: 1.7%
- --------------------------------------------------------
Caterpillar 99,200 $ 4,817,400
Deere & Co. 99,500 5,802,094
Ingersoll-Rand 71,700 2,903,850
Manitowoc 21,400 695,500
- --------------------------------------------------------
14,218,844
LEISURE, LODGING, & ENTERTAINMENT: 0.7%
- --------------------------------------------------------
Boston Chicken* 84,300 541,364
Callaway Golf 87,600 2,502,075
King World Productions 56,700 3,274,425
- --------------------------------------------------------
6,317,864
METALS & MINING: 0.5%
- --------------------------------------------------------
Comstock Resources* 51,600 615,975
National Steel-Class B* 42,700 493,719
Phelps Dodge 35,500 2,209,875
Southdown 12,700 749,300
Zeigler Coal Holdings 25,700 419,231
- --------------------------------------------------------
4,488,100
MISCELLANEOUS: 2.2%
- --------------------------------------------------------
Advo* 33,800 659,100
Alliant Techsystems* 13,300 741,475
Carson Pirie Scott* 16,600 832,075
Cendant* 84,456 2,903,175
CommNet Cellular* 22,600 806,538
CoreStaff* 6,440 172,264
Davox* 24,100 781,744
Green Mountain Power 25,600 468,800
Helix Technology 29,400 576,975
Intermet 40,000 702,500
International Specialty Products* 47,300 706,544
LeaRonal 32,850 771,975
Louis Dreyfus Natural Gas* 34,500 644,719
Nautica Enterprises* 31,600 742,600
Northwestern Public Service 35,000 805,000
One Valley Bancorp 18,612 721,215
Plantronics* 19,100 764,000
Republic Group 37,290 610,624
Smithfield Foods* 24,800 812,975
Somatogen* 132,900 593,897
TNP Enterprises 26,300 874,475
Tredegar Industries 12,300 810,263
Xtra 14,700 861,788
- --------------------------------------------------------
18,364,721
PAPER & FOREST PRODUCTS: 0.1%
- --------------------------------------------------------
Fort James 23,500 898,875
- --------------------------------------------------------
REAL ESTATE: 0.1%
- --------------------------------------------------------
U.S. Home* 22,300 875,275
- --------------------------------------------------------
RETAIL: 3.6%
- --------------------------------------------------------
Ames Department Stores* 42,300 732,319
Cato-A 85,700 765,944
CompUSA* 179,200 5,555,200
CVS Corp. 22,200 1,422,188
Family Dollar Stores 144,200 4,226,862
Footstar* 28,800 774,000
Genesco* 63,800 813,450
Goody's Family Clothing Inc.* 25,400 691,356
Jostens 84,500 1,948,781
Liz Claiborne 47,500 1,986,094
Renters Choice* 36,500 752,813
Russ Berrie 26,600 698,250
Safeway* 54,100 3,421,825
The Men's Wearhouse* 19,700 689,500
TJX 156,200 5,369,375
U.S. Rentals* 32,100 754,350
- --------------------------------------------------------
30,602,307
TELECOMMUNICATIONS: 4.2%
- --------------------------------------------------------
Ameritech 89,800 7,228,900
AT & T 23,200 1,421,000
Number Market
of Shares Value
- --------------------------------------------------------
Bell Atlantic 73,514 $ 6,689,774
BellSouth 65,800 3,705,363
CellStar* 38,600 770,794
GTE 58,300 3,046,175
Melita International* 76,300 684,316
Pairgain Technologies* 94,100 1,826,128
Tellabs* 67,300 3,552,178
U.S. West Communications Group 140,900 6,358,113
- --------------------------------------------------------
35,282,741
TEXTILES, APPAREL, & FURNITURE: 1.2%
- --------------------------------------------------------
Asarco Inc. 66,200 1,485,363
Dress Barn* 28,300 796,822
Johnson Controls 101,200 4,832,300
Miller (Herman) 29,100 1,584,131
Tommy Hilfiger* 1,000 35,125
Triangle Pacific* 21,400 726,263
Williams-Sonoma* 18,700 783,063
- --------------------------------------------------------
10,243,067
TRANSPORTATION & SHIPPING: 1.0%
- --------------------------------------------------------
America West Holdings-Class B* 43,000 800,875
AMR* 22,800 2,929,800
Brunswick 16,200 491,033
Consolidated Freightways* 49,600 682,000
M.S. Carriers* 32,300 795,388
Tidewater 29,400 1,620,675
Trico Marine Services* 24,700 727,106
- --------------------------------------------------------
8,046,877
UTILITIES: 1.8%
- --------------------------------------------------------
Black Hills 21,900 771,975
Edison International 104,600 2,843,813
General Public Utilities 40,100 1,689,213
Laclede Gas 29,400 825,038
MDU Resources Group 24,600 777,975
New York State Electric & Gas 70,700 2,509,850
Texas Utilities 101,700 4,226,906
Unicom 45,400 1,396,050
- --------------------------------------------------------
15,040,820
TOTAL COMMON STOCKS: 56.0%
(Cost $317,805,394) 475,674,405
- --------------------------------------------------------
Par
MONEY MARKET INSTRUMENTS: Amount
- --------------------------------------------------------
Barclay's US Funding Corp.
5.83%, 1/7/98 $12,600,000 12,587,757
Flour Corp.
5.9089%, 1/15/98 8,300,000 8,281,021
Merrill Lynch & Co
5.8824%, 1/13/98 15,800,000 15,769,085
UBS Finance (DE) Inc.
6.0642%, 1/5/98 6,000,000 5,995,967
- --------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS: 5.0%
(Cost $42,633,830) 42,633,830
- --------------------------------------------------------
TOTAL INVESTMENTS: 99.2%
(Cost $673,318,280) 843,553,234
- --------------------------------------------------------
Other Assets Over Liabilities: 0.8% 7,092,281
- --------------------------------------------------------
NET ASSETS: 100.0%
(Equivalent to $19.304 per share
based on 44,065,341 shares issued
and outstanding) $850,645,515
========================================================
35
<PAGE>
MONEY MARKET FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Par Market
MONEY MARKET INSTRUMENTS: Amount Value
- --------------------------------------------------------
AUTOMOBILE AND AUTO PARTS: 5.2%
- --------------------------------------------------------
Daimler-Benz NA Corp.
5.69%, 2/12/98 $4,700,000 $ 4,669,622
- --------------------------------------------------------
BANKING, FINANCE AND INSURANCE: 60.6%
- --------------------------------------------------------
American Express Centurian Bank
5.94%, 4/20/98 4,500,000 4,500,000
Associates Corp. North America
6.75%, 1/2/98 3,300,000 3,300,000
Avco Financial Services
5.53%, 2/5/98 1,100,000 1,094,086
Cargill Financial Services
5.63%, 2/18/98 4,000,000 3,969,973
Corestates Bank
5.58%, 5/1/98 4,500,000 4,500,000
First Bank North America
5.88%, 4/10/98 4,500,000 4,497,649
J.P. Morgan & Co. Inc.
5.70%, 3/16/98 4,400,000 4,348,447
Mercantile Safe Deposit
5.99%, 12/15/98 4,000,000 4,004,218
Met-life Funding Corp.
5.73%, 2/5/98 3,019,000 3,002,182
5.78%, 2/23/98 1,000,000 991,491
PNC Bank
6.00%, 6/5/98 3,000,000 3,000,699
Private Export Funding
5.62%, 1/28/98 4,000,000 3,983,140
Prudential Funding Corp.
5.70%, 3/25/98 4,500,000 4,440,863
Salomon Smith Barney Inc.
6.00%, 1/12/98 4,000,000 3,992,666
Sun Trust Bank Inc.
5.59%, 2/25/98 4,500,000 4,461,568
- --------------------------------------------------------
54,086,982
CHEMICALS: 9.7%
- --------------------------------------------------------
Dupont EI De Nemours & Co.
5.66%, 3/4/98 3,800,000 3,762,958
Monsanto Co.
5.64%, 1/7/98 4,900,000 4,895,476
- --------------------------------------------------------
8,658,434
CONSUMER PRODUCTS AND SERVICES: 10.0%
- --------------------------------------------------------
Clorox Co.
5.59%, 1/8/98 4,000,000 3,995,652
PHH Corp.
5.68%, 5/26/98 4,900,000 4,900,000
- --------------------------------------------------------
8,895,652
ENTERTAINMENT: 2.8%
- --------------------------------------------------------
Walt Disney & Co.
5.60%, 4/22/98 2,500,000 2,456,833
- --------------------------------------------------------
EQUIPMENT RENTAL AND LEASING: 3.9%
- --------------------------------------------------------
International Lease Finance
5.57%, 1/20/98 3,500,000 3,489,711
- --------------------------------------------------------
PERSONAL CREDIT INSTITUTIONS: 4.2%
- --------------------------------------------------------
Toyota Motor Credit
5.70%, 3/11/98 3,800,000 3,758,485
- --------------------------------------------------------
TELECOMMUNICATIONS: 3.4%
- --------------------------------------------------------
AT&T Corp.
5.66%, 1/15/98 3,000,000 2,993,397
- --------------------------------------------------------
Market
Value
- --------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS: 99.8%
(Cost $89,009,116) $89,009,116
- --------------------------------------------------------
Other Assets Over Liabilities: 0.2% 217,516
- --------------------------------------------------------
NET ASSETS: 100.0%
(Equivalent to $10.000 per share
based on 8,922,663 shares issued
and outstanding) $89,226,632
- --------------------------------------------------------
SOCIAL AWARENESS FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Number Market
COMMON STOCKS: of Shares Value
- --------------------------------------------------------
AUTOMOBILES & AUTO PARTS: 0.2%
- --------------------------------------------------------
Paccar Inc. 51,200 $ 2,691,200
- --------------------------------------------------------
BANKING, FINANCE & INSURANCE: 30.0%
- --------------------------------------------------------
Ahmanson (H.F.) & Co. 268,900 17,999,494
Allstate 185,734 16,878,577
AmSouth Bancorporation 262,350 14,248,884
Bank of Boston 119,700 11,244,319
BankAmerica 212,400 15,505,200
Bankers Trust New York 143,300 16,112,294
Bear Stearns 286,694 13,617,965
Chase Manhattan 229,200 25,097,400
Cigna* 86,200 14,917,987
City National 329,500 12,170,906
Comerica 166,200 14,999,550
Edwards (A.G.) 354,250 14,081,437
First Chicago NBD 107,311 8,960,469
First of America Bank 202,550 15,621,669
First Union 124,200 6,365,250
Marsh & McLennan 208,900 15,576,106
Mellon Bank 323,900 19,636,438
Mercury General 162,600 8,983,650
Mid Ocean* 61,000 3,309,250
NationsBank 100,400 6,105,575
Old Republic International 224,550 8,350,453
Paine Webber Group 448,050 15,485,728
Reliance Group Holdings 649,200 9,169,950
Republic New York 78,900 9,009,394
SLM Holding* 87,000 12,103,875
SunAmerica 323,400 13,825,350
T. Rowe Price Associates 120,000 7,560,000
Travelers Group 557,599 30,040,646
- --------------------------------------------------------
376,977,816
BUILDINGS & MATERIALS: 1.0%
- --------------------------------------------------------
Masco* 70,600 3,591,775
Oakwood Homes 290,900 9,654,244
- --------------------------------------------------------
13,246,019
CABLE, MEDIA, & PUBLISHING: 6.4%
- --------------------------------------------------------
Dun & Bradstreet 474,700 14,686,031
Ennis Business Forms 176,800 1,635,400
Gannett 288,200 17,814,362
McGraw-Hill* 240,400 17,789,600
New York Times 223,075 14,750,834
Omnicom Group 323,400 13,704,075
- --------------------------------------------------------
80,380,302
CHEMICALS: 0.2%
- --------------------------------------------------------
International Flavors & Fragrances 44,700 2,302,050
- --------------------------------------------------------
36
<PAGE>
Number Market
of Shares Value
- --------------------------------------------------------
COMPUTERS & TECHNOLOGY: 9.8%
- --------------------------------------------------------
American Power Conversion* 484,700 $ 11,481,331
Cadence Design Systems* 562,400 13,778,800
Compaq Computer 393,300 22,196,869
Deluxe 218,300 7,531,350
EMC* 158,600 4,351,587
HBO 374,100 17,945,109
Microsoft* 133,000 17,186,094
PeopleSoft* 105,200 4,089,650
Quantum* 328,000 6,590,750
Storage Technology* 222,000 13,750,125
Western Digital* 249,600 4,009,200
- --------------------------------------------------------
122,910,865
CONSUMER PRODUCTS: 1.8%
- --------------------------------------------------------
Avon Products 156,100 9,580,638
Clorox 135,200 10,689,250
Premark International 93,900 2,723,100
- --------------------------------------------------------
22,992,988
ELECTRONICS & ELECTRICAL EQUIPMENT: 0.8%
- --------------------------------------------------------
Anixter International* 346,300 5,713,950
Xerox 62,000 4,576,375
- --------------------------------------------------------
10,290,325
ENERGY: 3.2%
- --------------------------------------------------------
Global Marine* 227,500 5,573,750
Helmerich & Payne 70,000 4,751,250
Oryx Energy* 299,200 7,629,600
Sun 169,000 7,108,563
US Industries 499,800 15,056,475
- --------------------------------------------------------
40,119,638
FOOD, BEVERAGE & TOBACCO: 7.9%
- --------------------------------------------------------
Campbell Soup 244,300 14,199,938
Coca Cola 233,000 15,523,625
Flowers Industries 496,050 10,200,028
Hershey Foods 205,500 12,728,156
Hormel Foods 80,400 2,633,100
International Multifoods 74,000 2,095,125
Interstate Bakeries 429,200 16,041,350
Quaker Oats 321,600 16,964,400
Ralston-Purina Group 72,600 6,747,263
Universal Foods 34,500 1,457,625
- --------------------------------------------------------
98,590,610
HEALTHCARE & PHARMACEUTICALS: 6.8%
- --------------------------------------------------------
Agouron Pharmaceuticals* 204,400 5,985,087
Beverly Enterprises Inc.* 605,700 7,874,100
Johnson & Johnson 269,400 17,746,725
Lincare Holdings* 134,100 7,677,225
Oxford Health Plans* 58,000 900,812
Pharmerica Inc.* 275,654 2,885,753
Phycor* 605,300 16,362,016
Schering-Plough 412,800 25,645,200
- --------------------------------------------------------
85,076,918
INDUSTRIAL MACHINERY: 0.4%
- --------------------------------------------------------
Deere & Co. 88,800 5,178,150
- --------------------------------------------------------
LEISURE, LODGING, & ENTERTAINMENT: 1.3%
- --------------------------------------------------------
Boston Chicken* 326,400 2,096,100
Callaway Golf 215,200 6,146,650
Fleetwood Enterprises 64,000 2,716,000
King World Productions 95,300 5,503,575
- --------------------------------------------------------
16,462,325
METALS & MINING: 0.2%
- --------------------------------------------------------
Cleveland Cliffs Iron 62,900 2,881,606
- --------------------------------------------------------
MISCELLANEOUS: 0.4%
- --------------------------------------------------------
Timken 146,400 5,032,500
- --------------------------------------------------------
PACKAGING & CONTAINERS: 0.5%
- --------------------------------------------------------
Sealed Air* 99,000 6,113,250
- --------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------
RETAIL: 9.1%
- --------------------------------------------------------
CompUSA* 553,300 $ 17,152,300
CVS Corporation* 168,400 10,788,125
Federated Department Stores* 254,700 10,968,019
Gap 253,500 8,983,406
Jostens 83,300 1,921,106
Pier 1 Imports 266,565 6,031,033
Ross Stores 386,675 14,089,470
Safeway* 220,512 13,947,384
Staples* 41,000 1,140,312
Tiffany 294,700 10,627,619
TJX 495,400 17,029,375
Wal-Mart Stores 27,800 1,096,363
- --------------------------------------------------------
113,774,512
TELECOMMUNICATIONS: 12.4%
- --------------------------------------------------------
Alltel 314,400 12,910,050
Ameritech 281,600 22,668,800
AT & T 650,100 39,818,625
BellSouth 283,600 15,970,225
PairGain Technologies* 305,900 5,936,372
SBC Communications 307,932 22,556,019
Tellabs* 265,600 14,018,700
U.S. West Communications Group 482,400 21,768,300
- --------------------------------------------------------
155,647,091
TEXTILES, APPAREL, & FURNITURE: 0.9%
- --------------------------------------------------------
Miller (Herman) 118,100 6,429,069
Tommy Hilfiger* 129,500 4,548,688
- --------------------------------------------------------
10,977,757
TRANSPORTATION & SHIPPING: 1.0%
- --------------------------------------------------------
AMR Corp.* 58,500 7,517,250
Tidewater 22,700 1,251,338
UAL Corp.* 34,400 3,182,000
- --------------------------------------------------------
11,950,588
TOTAL COMMON STOCK: 94.3%
(Cost $825,251,661) 1,183,596,510
- --------------------------------------------------------
Par
MONEY MARKET INSTRUMENTS: Amount
- --------------------------------------------------------
Corporate Asset Funding
5.77%, 01/06/98 $2,400,000 2,398,076
5.75%, 02/09/98 1,700,000 1,689,410
5.79%, 02/12/98 9,400,000 9,337,271
Dun & Bradstreet Corp.
5.75%, 02/09/98 3,300,000 3,279,444
5.73%, 03/04/98 9,400,000 9,307,238
Merrill Lynch & CO
5.82%, 01/06/98 6,000,000 5,995,150
5.95%, 01/14/98 7,900,000 7,883,026
Mitsui & CO
5.92%, 01/20/98 5,200,000 5,183,753
Sony Capital Corp
5.80%, 01/26/98 7,800,000 7,768,583
Toyota Motor Credit
5.70%, 03/11/98 8,000,000 7,912,600
UBS Finance Inc
6.50%, 01/02/98 9,100,000 9,098,357
US Treasury Bill (+)
5.55%, 04/30/98 2,235,000 2,194,318
- --------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS: 5.7%
(Cost $72,047,226) 72,047,226
- --------------------------------------------------------
TOTAL INVESTMENTS: 100%
(Cost $897,298,887) 1,255,643,736
- --------------------------------------------------------
Other Assets Under Liabilities (0.0%) (149,389)
- --------------------------------------------------------
NET ASSETS: 100.0%
(Equivalent to $35.657 per share
based on 35,210,468 shares issued
and outstanding) $1,255,494,347
========================================================
37
<PAGE>
SPECIAL OPPORTUNITIES FUND
STATEMENT OF NET ASSETS
December 31, 1997
INVESTMENTS:
Number Market
COMMON STOCKS: of Shares Value
- --------------------------------------------------------
AEROSPACE: 1.0%
- --------------------------------------------------------
General Dynamics 98,100 $ 8,479,519
- --------------------------------------------------------
AUTOMOBILES & AUTO PARTS: 2.7%
- --------------------------------------------------------
Cooper Industries 143,500 7,031,500
Dana 171,100 8,127,250
Johnson Controls 176,600 8,432,650
- --------------------------------------------------------
23,591,400
BANKING, FINANCE & INSURANCE: 12.2%
- --------------------------------------------------------
AmSouth Bancorporation 159,400 8,657,413
Bank of Boston 92,300 8,670,430
Bankers Trust New York 65,500 7,364,655
Bear Stearns 186,799 8,872,952
Cigna 42,400 7,337,850
Edwards (A.G.) 217,950 8,663,512
Marsh & McLennan 105,200 7,843,975
MBIA 124,000 8,284,750
Mercury General 167,600 9,259,900
Mid Ocean 143,500 7,784,875
Old Republic International 225,500 8,385,781
SLM Holding 53,500 7,443,188
Star Banc 148,400 8,514,450
- --------------------------------------------------------
107,083,731
BUIDINGS & MATERIALS: 3.8%
- --------------------------------------------------------
Centex 130,400 8,207,050
Lafarge 260,100 7,689,206
Masco 170,000 8,648,750
USG* 172,500 8,452,500
- --------------------------------------------------------
32,997,506
CABLE, MEDIA & PUBLISHING: 4.0%
- --------------------------------------------------------
Central Newspapers-Class A 111,800 8,266,213
Gannett 148,400 9,172,974
New England Business Services Inc. 268,300 9,055,125
New York Times 136,700 9,039,288
- --------------------------------------------------------
35,533,600
CHEMICALS: 5.0%
- --------------------------------------------------------
Avery Dennison 198,700 8,891,825
Dexter 195,800 8,456,113
Flowserve 230,500 6,439,594
International Flavors &
Fragrances 94,000 4,841,000
Lubrizol 179,400 6,615,375
Lyondell Petrochemicals 315,000 8,347,500
- --------------------------------------------------------
43,591,407
COMPUTERS & TECHNOLOGY: 10.0%
- --------------------------------------------------------
American Power Conversion* 339,500 8,041,906
BMC Software* 124,300 8,149,419
CheckFree Holdings Corp.* 305,100 8,294,906
Deluxe 235,300 8,117,850
HBO 176,400 8,461,687
PeopleSoft* 236,000 9,174,500
Quantum* 294,400 5,915,600
Storage Technology* 137,000 8,485,437
Stratus Computer* 145,600 5,505,500
Sun Microsystems* 203,200 8,115,300
Symantec* 397,700 8,786,684
- --------------------------------------------------------
87,048,789
CONSUMER PRODUCTS: 3.0%
- --------------------------------------------------------
Brinker International* 531,100 8,497,600
Clorox 107,300 8,483,406
Premark International* 310,400 9,001,600
- --------------------------------------------------------
25,982,606
Number Market
of Shares Value
- --------------------------------------------------------
CONTAINERS & PACKAGING: 0.9%
- --------------------------------------------------------
Ball 221,000 $ 7,804,063
- --------------------------------------------------------
ELECTRONICS & ELECTRICAL: 2.8%
- --------------------------------------------------------
Applied Materials* 239,000 7,192,406
Honeywell 116,700 7,993,950
SCI Systems* 213,800 9,313,663
- --------------------------------------------------------
24,500,019
ENERGY: 7.4%
- --------------------------------------------------------
National Fuel Gas 167,800 8,169,763
Occidental Petroleum 279,800 8,201,638
Oryx Energy* 304,400 7,762,200
Peoples Energy 212,000 8,347,500
Phillips Petroleum 158,400 7,702,200
Smith International* 128,300 7,874,413
Sun 210,000 8,833,125
USX-Marathon Group 225,300 7,603,875
- --------------------------------------------------------
64,494,714
FOOD, BEVERAGE & TOBACCO: 5.1%
- --------------------------------------------------------
Dean Foods 154,200 9,174,900
Fortune Brands 210,000 7,783,124
Gallagher Group Plc 127,200 2,718,900
International Multifoods 289,100 8,185,144
Interstate Bakeries 234,200 8,753,225
Universal 205,500 8,451,188
- --------------------------------------------------------
45,066,481
HEALTHCARE & PHARMACEUTICALS: 2.9%
- --------------------------------------------------------
Beverly Enterprises* 476,400 6,193,200
Health Management Associates
Class A* 323,650 8,172,163
Lincare Holdings* 148,500 8,501,625
Pharmerica* 216,809 2,269,719
- --------------------------------------------------------
25,136,707
INDUSTRIAL MACHINERY: 3.8%
- --------------------------------------------------------
Cincinnati Milacron 305,000 7,910,938
Deere & Co. 149,000 8,688,563
Ingersoll-Rand 206,550 8,365,275
Parker Hannifin 171,850 7,883,619
- --------------------------------------------------------
32,848,395
LEISURE & ENTERTAINMENT: 0.8%
- --------------------------------------------------------
Callaway Golf 246,800 7,049,225
- --------------------------------------------------------
METALS & MINING: 3.8%
- --------------------------------------------------------
ASARCO 259,800 5,829,263
Bethlehem Steel* 769,500 6,636,937
Carpenter Technology 160,400 7,709,225
Nucor 127,200 6,145,350
Phelps Dodge 109,800 6,835,050
- --------------------------------------------------------
33,155,825
MISCELLANEOUS: 2.8%
- --------------------------------------------------------
Aeroquip - Vickers 161,000 7,899,063
Navistar International* 332,200 8,242,713
Timken 232,900 8,005,938
- --------------------------------------------------------
24,147,714
PAPER & FOREST PRODUCTS: 0.8%
- --------------------------------------------------------
Fort James 183,800 7,030,350
- --------------------------------------------------------
RETAIL: 8.7%
- --------------------------------------------------------
CompUSA* 266,000 8,246,000
CVS Corp. 121,500 7,783,593
Liz Claiborne 152,500 6,376,406
Neiman-Marcus Group* 281,800 8,524,450
Pier 1 Imports 372,700 8,432,337
Ross Stores 230,500 8,398,844
Safeway* 130,312 8,242,234
Staples* 300,775 8,365,305
Tiffany 79,800 2,877,788
TJX 247,800 8,518,125
- --------------------------------------------------------
75,765,082
38
<PAGE>
Number Market
of Shares Value
- --------------------------------------------------------
TELECOMMUNICATIONS: 0.9%
- --------------------------------------------------------
Paging Network* 717,800 $ 7,738,780
- --------------------------------------------------------
TEXTILES, APPAREL & FURNITURE: 1.0%
- --------------------------------------------------------
Tommy Hilfiger* 239,500 8,412,438
- --------------------------------------------------------
TRANSPORTATION & SHIPPING: 2.9%
- --------------------------------------------------------
AMR Corp.* 68,800 8,840,800
Northwest Airlines-Class A* 181,500 8,694,984
Tidewater 141,600 7,805,700
- --------------------------------------------------------
25,341,484
UTILITIES: 6.8%
- --------------------------------------------------------
Baltimore Gas & Electric 259,700 8,846,031
General Public Utilities 210,200 8,854,675
New Century Energies 169,575 8,129,002
Rochester Gas & Electric 264,200 8,982,800
Sierra Pacific Resources 239,900 8,996,250
Texas Utilities 172,900 7,186,156
Unicom 288,500 8,871,375
- --------------------------------------------------------
59,866,289
TOTAL COMMON STOCKS: 93.1%
(Cost $617,615,135) 812,666,124
- --------------------------------------------------------
Par
MONEY MARKET INSTRUMENTS: Amount
- --------------------------------------------------------
Associates Corporation North America
6.75%, 1/2/98 $4,500,000 4,500,000
Barclay's US Funding Corp.
5.83%, 1/7/98 9,800,000 9,790,478
Corporate Asset Funding
5.75%, 2/9/98 1,300,000 1,291,902
Dun & Bradstreet
5.75%, 2/9/98 1,500,000 1,490,656
J.P. Morgan & Co. Inc.
5.78%, 3/16/98 5,700,000 5,633,215
Merrill Lynch & Co.
5.77%, 2/9/98 5,700,000 5,664,370
Metlife Funding Inc.
5.72%, 3/24/98 1,000,000 986,971
Mitsubishi Intl Corp.
5.81%, 1/20/98 7,900,000 7,875,776
Sony Capital Corp.
5.80%, 1/12/98 7,900,000 7,885,999
5.87%, 1/30/98 6,500,000 6,469,264
Toyota Motor Credit
5.70%, 3/11/98 6,500,000 6,428,988
US Treasury Bill(+)
5.55%, 4/30/98 825,000 810,323
- --------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS: 6.7%
(Cost $58,827,942) 58,827,942
- --------------------------------------------------------
TOTAL INVESTMENTS: 99.8%
(Cost $676,443,077) 871,494,066
- --------------------------------------------------------
Other Assets Over Liabilities: 0.2% 1,328,173
- --------------------------------------------------------
NET ASSETS: 100%
(Equivalent to $35.056 per share
based on 24,897,592 shares issued
and outstanding) $872,822,239
========================================================
(+) Fully or Partially pledged as collateral for Financial Futures.
* Non-income producing security.
** Par amounts for Foreign debt are expressed in local currency.
(1) When issued Security.
(2) Step-up Bond - The rate shown on the Statement of Net Assets is the rate
in effect at 12/31/97 and will reset at a future date.
See accompanying notes to financial statements.
39
<PAGE>
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Aggressive Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and Income
Fund Fund Fund Fund Fund Fund
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,859,625 $18,522,446 $ 1,056,314 $ 1,440,030 $10,290,629 $ 6,634,207
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends 927,971 0 3,589,886 14,332,829 3,956,856 58,780,169
- ------------------------------------------------------------------------------------------------------------------------------------
Less: Dividend Tax 0 0 (95,324) (97,617) (68,242) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income 2,787,596 18,522,446 4,550,876 15,675,242 14,179,243 65,414,376
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees 2,109,952 1,221,295 2,940,632 6,053,404 2,808,358 9,714,765
- ------------------------------------------------------------------------------------------------------------------------------------
Accounting fees 135,105 125,681 162,067 254,201 238,281 789,481
- ------------------------------------------------------------------------------------------------------------------------------------
Custodial fees 17,208 0 102,502 63,205 258,300 0
- ------------------------------------------------------------------------------------------------------------------------------------
Directors fees 2,750 2,750 2,750 2,750 2,750 2,750
- ------------------------------------------------------------------------------------------------------------------------------------
Printing and Postage 44,077 47,546 44,707 66,731 115,733 98,940
- ------------------------------------------------------------------------------------------------------------------------------------
Other 5,146 12,006 7,501 2,630 27,509 35,066
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,314,238 1,409,278 3,260,159 6,442,921 3,450,931 10,641,002
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 473,358 17,113,168 1,290,717 9,232,321 10,728,312 54,773,374
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS:
Net realized gain(loss) on:
- ------------------------------------------------------------------------------------------------------------------------------------
Investment transactions 45,635,441 701,047 47,551,080 17,646,451 34,840,506 209,728,724
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currency transactions 0 0 29,352 (24,828) (1,132,189) 0
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS 45,635,441 701,047 47,580,432 17,621,623 33,708,317 209,728,724
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on:
Investments 14,000,694 5,841,862 29,099,418 137,791,784 22,118,470 535,067,917
- ------------------------------------------------------------------------------------------------------------------------------------
Translation of assets and
liabilities in foreign currencies 0 0 (152,234) 12,821 (441,392) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on investments
and foreign currency related transactions 14,000,694 5,841,862 28,947,184 137,804,605 21,677,078 535,067,917
- ------------------------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS 59,636,135 6,542,909 76,527,616 155,426,228 55,385,395 744,796,641
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $60,109,493 $23,656,077 $77,818,333 $164,658,549 $66,113,707 $799,570,015
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
40
<PAGE>
STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Money Social Special
International Managed Market Awareness Opportunities
Fund Fund Fund Fund Fund
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 314,562 $ 24,278,217 $ 5,264,962 $ 3,192,895 $ 2,596,765
- ----------------------------------------------------------------------------------------------------------------------
Dividends 6,494,272 8,114,272 0 13,412,402 12,470,346
- ----------------------------------------------------------------------------------------------------------------------
Less: Dividend Tax (363,969) 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Total investment income 6,444,865 32,392,489 5,264,962 16,605,297 15,067,111
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees 3,741,563 2,873,786 451,243 3,355,544 2,824,015
- ----------------------------------------------------------------------------------------------------------------------
Accounting fees 305,946 306,853 63,683 349,850 300,158
- ----------------------------------------------------------------------------------------------------------------------
Custodial fees 234,539 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Directors fees 2,750 2,750 2,750 2,750 2,750
- ----------------------------------------------------------------------------------------------------------------------
Printing and Postage 51,207 72,027 28,088 50,785 56,530
- ----------------------------------------------------------------------------------------------------------------------
Other 23,724 16,506 9,860 40,095 15,759
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,359,729 3,271,922 555,624 3,799,024 3,199,212
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 2,085,136 29,120,567 4,709,338 12,806,273 11,867,899
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS:
Net realized gain(loss) on:
- ----------------------------------------------------------------------------------------------------------------------
Investment transactions 19,799,004 62,174,659 (105) 54,631,990 75,795,433
- ----------------------------------------------------------------------------------------------------------------------
Foreign currency transactions (1,772,825) 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS 18,026,179 62,174,659 (105) 54,631,990 75,795,433
- ----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on:
Investments 6,901,245 59,803,118 0 224,321,657 96,003,484
- ----------------------------------------------------------------------------------------------------------------------
Translation of assets and
liabilities in foreign currencies (129,915) 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on investments
and foreign currency related transactions 6,771,330 59,803,118 0 224,321,657 96,003,484
- ----------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS 24,797,509 121,977,777 (105) 278,953,647 171,798,917
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $26,882,645 $151,098,344 $ 4,709,233 $291,759,920 $183,666,816
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
41
<PAGE>
Statements of Changes in Net Assets
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Aggressive Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and Income
Fund Fund Fund Fund Fund Fund
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1996 $138,470,624 $250,816,054 $127,935,784 $238,770,876 $248,772,262 $1,833,450,457
- ---------------------------------------------------------------------------------------------------------------------------------
Changes from operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 57,076 16,821,434 1,919,672 6,935,436 8,285,181 48,237,783
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments and foreign currency
related transactions 11,900,740 (3,454,651) 10,296,305 12,117,083 26,677,086 85,813,991
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on
investments and foreign currency
related transactions 16,841,039 (7,435,059) 19,506,786 48,767,044 7,148,121 261,545,447
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 28,798,855 5,931,724 31,722,763 67,819,563 42,110,388 395,597,221
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income (57,076) (16,821,434) (1,919,672) (6,935,436) (8,285,181) (48,237,783)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (2,790,157) 0 (6,563,477) (4,278,448) (14,516,993) (112,217,388)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS TO SHAREHOLDER (2,847,233) (16,821,434) (8,483,149) (11,213,884) (22,802,174) (160,455,171)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS 78,186,517 13,401,561 116,066,459 161,776,782 47,970,999 396,630,995
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 104,138,139 2,511,851 139,306,073 218,382,461 67,279,213 631,773,045
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT DECEMBER 31, 1996 $242,608,763 $253,327,905 $267,241,857 $457,153,337 $316,051,475 $2,465,223,502
Changes from operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 473,358 17,113,168 1,290,717 9,232,321 10,728,312 54,773,374
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments
and foreign currency related
transactions 45,635,441 701,047 47,580,432 17,621,623 33,708,317 209,728,724
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on
investments and foreign currency
related transactions 14,000,694 5,841,862 28,947,184 137,804,605 21,677,078 535,067,917
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 60,109,493 23,656,077 77,818,333 164,658,549 66,113,707 799,570,015
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (11,900,740) 0 (10,296,305) (12,117,083) (26,677,086) (85,813,991)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS TO SHAREHOLDER (11,900,740) 0 (10,296,305) (12,117,083) (26,677,086) (85,813,991)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM CAPITAL
SHARE TRANSACTIONS 51,945,184 3,399,189 116,271,782 201,375,033 82,601,799 361,882,619
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 100,153,937 27,055,266 183,793,810 353,916,499 122,038,420 1,075,638,643
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997 $342,762,700 $280,383,171 $451,035,667 $811,069,836 $438,089,895 $3,540,862,145
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
Money Social Special
International Managed Market Awareness Opportunities
Fund Fund Fund Fund Fund
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1996 $358,390,603 $589,164,601 $75,319,387 $ 297,982,902 $505,754,680
- ----------------------------------------------------------------------------------------------------------------
Changes from operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income 2,066,271 25,904,853 4,381,291 7,063,379 11,444,983
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments and foreign currency
related transactions 21,685,866 18,028,760 0 36,341,047 47,162,977
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on
investments and foreign currency
related transactions 14,664,589 33,901,393 0 73,057,957 32,939,003
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 38,416,726 77,835,006 4,381,291 116,462,383 91,546,963
- ----------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income (2,066,271) (25,904,853) (4,381,291) (7,063,379) (11,444,983)
- ----------------------------------------------------------------------------------------------------------------
Net realized gain on investments (2,498,696) (37,948,391) 0 (18,559,957) (38,158,400)
- ----------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS TO SHAREHOLDER (4,564,967) (63,853,244) (4,381,291) (25,623,336) (49,603,383)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS 48,132,300 72,594,054 15,038,221 247,772,594 100,893,476
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 81,984,059 86,575,816 15,038,221 338,611,641 142,837,056
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS AT DECEMBER 31, 1996 $440,374,662 $675,740,417 $90,357,608 $636,594,543 $648,591,736
Changes from operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income 2,085,136 29,120,567 4,709,338 12,806,273 11,867,899
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments and foreign currency
related transactions 18,026,179 62,174,659 (105) 54,631,990 75,795,433
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on
investments and foreign currency
related transactions 6,771,330 59,803,118 0 224,321,657 96,003,484
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 26,882,645 151,098,344 4,709,233 291,759,920 183,666,816
- ----------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income 0 0 (4,709,233) 0 0
- ----------------------------------------------------------------------------------------------------------------
Net realized gain on investments (21,685,866) (18,028,760) 0 (36,341,046) (47,162,977)
- ----------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS TO SHAREHOLDER (21,685,866) (18,028,760) (4,709,233) (36,341,046) (47,162,977)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM CAPITAL
SHARE TRANSACTIONS 20,657,759 41,835,514 (1,130,976) 363,480,930 87,726,664
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 25,854,538 174,905,098 (1,130,976) 618,899,804 224,230,503
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997 $466,229,200 $850,645,515 $89,226,632 $1,255,494,347 $872,822,239
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
THE FUNDS: Aggressive Growth Fund, Bond Fund, Capital Appreciation Fund,
Equity Income Fund, Global Asset Allocation Fund, Growth and Income Fund,
International Fund, Managed Fund, Money Market Fund, and Social Awareness Fund
are registered as open-end, diversified management investment companies and
Special Opportunities Fund is registered as an open-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended. The Funds' shares are sold only to The Lincoln National Life
Insurance Company (the Company) for allocation to its Variable Annuity Account
C, which was established for the purpose of funding variable annuity
contracts, and to its Flexible Premium Variable Life Accounts D, G, and K,
which were established for the purpose of funding variable universal life
contracts.
The Funds' investment objectives are as follows:
FUND INVESTMENT OBJECTIVE
Aggressive Growth Fund The investment objective is to maximize
capital appreciation. The Fund invests in
stocks of smaller, lesser known companies
which have a chance to grow significantly in
a short time.
Bond Fund The investment objective is to maximize
current income consistent with prudent
investment strategy. The Fund invests
primarily in medium and long-term corporate
and government bonds.
Capital Appreciation Fund The investment objective is to maximize
long-term growth of capital in a manner
consistent with preservation of capital. The
Fund primarily buys stocks in a large number
of companies of all sizes if the companies
are competing well and if their products or
services are in high demand. It may also buy
some money market securities and bonds,
including junk (high-risk) bonds.
Equity Income Fund The investment objective is to achieve
reasonable income by investing primarily in
income-producing equity securities. The Fund
invests mostly in high-income stocks and some
high-yielding bonds (including junk bonds).
Global Asset Allocation Fund The investment objective is to maximize
long-term total return consistent with
preservation of capital. The Fund allocates
its assets among several categories of equity
and fixed-income securities, both of U.S. and
foreign issuers.
Growth and Income Fund The investment objective is to maximize
long-term capital appreciation. The Fund buys
stocks of established companies.
International Fund The investment objective is to maximize
long-term capital appreciation. The Fund
trades in securities issued outside the
United States - mostly stocks, with an
occasional bond or money market security.
Managed Fund The investment objective is to maximize
long-term total return (capital gains plus
income) consistent with prudent investment
strategy. The Fund invests in a mix of
stocks, bonds, and money market securities,
as determined by an investment committee.
Money Market Fund The investment objective is to maximize
current income consistent with the
preservation of capital. The Fund invests in
short-term obligations issued by U.S.
corporations, the U.S. Government, and
federally-chartered banks and U.S. branches
of foreign banks.
Social Awareness Fund The investment objective is to maximize
long-term capital appreciation. The Fund buys
stocks of established companies which adhere
to certain specific social criteria.
Special Opportunities Fund The investment objective is to maximize
capital appreciation. The Fund primarily
invests in mid-size companies whose stocks
have significant growth potential. Current
income is a secondary consideration.
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION: Portfolio securities which are traded on stock exchanges
are valued at the last reported sale price on the exchange or market where
primarily traded or listed or, in the absence of recent sales, at the mean
between the last reported bid and asked prices. Long-term debt investments are
valued at their bid quotations. The Funds hedge certain portions of their
exposure to fluctuations in interest, market, and foreign exchange risks by
entering into derivative transactions. These hedges include options, financial
futures, and forward foreign currency contracts. Options traded on exchanges
are valued at the last bid price for options purchased and the last sale price
for options written. Options traded in the over-the-counter market are valued
at the last asked price for options written and the last bid price for options
purchased. Financial futures are valued at the settlement price established
each day by the board of trade or exchange on which they are traded. Forward
foreign currency contracts are valued at the forward exchange rates prevailing
on the day of valuation. Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Funds' Board of Directors. Money
market instruments are stated at amortized cost, which approximates market
value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Interest income includes premium and discount amortization on money market
instruments and mortgage-backed securities; it also includes original issue
and market discount amortization on long-term debt investments. Realized gains
or losses from investment transactions are reported on an identified cost
basis. Gains and losses on premiums from expired options are recognized on the
date of expiration.
SECURITIES SOLD SHORT: Short-selling of securities obligate the Funds to
replace the security borrowed by purchasing it at market value at the
replacement date. The Funds would realize a gain (loss) if the price of the
security declines (increases) between the sale and replacement date.
FOREIGN CURRENCY TRANSACTIONS: The books and records of the Funds are
maintained in U.S. dollars. All assets and liabilities denominated in a
foreign currency are translated into U.S. dollars based upon foreign exchange
rates prevailing at the end of the period. Income and expenses and purchases
and sales of investments are translated into U.S. dollars at the rate of
exchange prevailing on the respective dates of such transactions. The effects
of changes in foreign currency exchange rates on investments in securities are
not segregated from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or loss
on investment in securities.
Reported net realized gains and losses on foreign currency transactions arise
from sales and maturities of forward foreign currency contracts, currency
gains and losses between the trade and settlement dates on securities
transactions, and the differences 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 change in unrealized
appreciation or depreciation on translation of assets and liabilities in
foreign currencies arise from changes in the value of other assets and
liabilities at the end of the period resulting from changes in the exchange
rates.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
EXPENSES: The custodian bank of the Bond Fund, Growth and Income Fund, Managed
Fund, Money Market Fund, Social Awareness Fund and Special Opportunities Fund
has agreed to waive its custodial fees when the Funds maintain a prescribed
amount of cash on deposit in certain non-interest bearing accounts. For the
year ended December 31, 1997, the custodial fees offset arrangements were not
material to either total expenses or the calculation of the ratio of expenses
to average net assets.
TAXES: Each Fund has complied with the special provisions of the Internal
Revenue Code for regulated investment companies. As such, each Fund is not
subject to U.S. federal income taxes to the extent that it distributes all of
its taxable income for its fiscal year.
Withholding taxes on foreign interest have been provided for in accordance
with the applicable country's tax rates.
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. OTHER ASSETS OVER (UNDER) LIABILITIES
The statement of net assets accounts "Other Assets Over(Under) Liabilities" at
December 31, 1997 consisted of the following assets (liabilities):
<TABLE>
<CAPTION>
Aggressive Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and Income
Fund Fund Fund Fund Fund Fund
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 198 $ 530,393 $ 85,153 $ - $ 164,334 $ 327,939
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign currency - - 994,332 83,429 8,626,788 -
- ----------------------------------------------------------------------------------------------------------------------------------
Receivable for dividends earned 60,562 - 218,967 1,617,387 514,469 6,986,935
- ----------------------------------------------------------------------------------------------------------------------------------
Receivable for interest earned 6,105 4,016,447 - 195,735 2,175,929 -
- ----------------------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 313,947 - 2,722,694 1,366,280 4,629,301 -
- ----------------------------------------------------------------------------------------------------------------------------------
Receivable for cap shares sold 435,143 439,750 557,062 1,046,027 441,263 1,390,227
- ----------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased (4,603,421) - (6,346,680) (17,900,326) (6,659,089) -
- ----------------------------------------------------------------------------------------------------------------------------------
Payable for cap shares redeemed - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Management fees payable (241,893) (136,728) (349,296) (638,566) (343,355) (1,087,981)
- ----------------------------------------------------------------------------------------------------------------------------------
Other, net (599) - (102,748) (86,631) 665,120 -
- ----------------------------------------------------------------------------------------------------------------------------------
$(4,029,958) $4,849,862 $(2,220,516) $(14,316,665) $10,214,760 $7,617,120
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Money Social Special
International Managed Market Awareness Opportunities
Fund Fund Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 758,385 $ 594,610 $ 74,337 $ 54,061 $ 435,576
- --------------------------------------------------------------------------------------------------------------------
Foreign currency 9,089,788 - - - -
- --------------------------------------------------------------------------------------------------------------------
Receivable for dividends earned 550,473 900,761 - 1,661,399 1,313,351
- --------------------------------------------------------------------------------------------------------------------
Receivable for interest earned 1,338 5,041,011 69,127 - 844
- --------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 12,773,471 820,079 - - 2,943,143
- --------------------------------------------------------------------------------------------------------------------
Receivable for cap shares sold 23,665 585,799 128,448 1,287,191 480,366
- --------------------------------------------------------------------------------------------------------------------
Payable for securities purchased (14,877,043) (526,484) - (2,705,823) (3,618,484)
- --------------------------------------------------------------------------------------------------------------------
Payable for cap shares redeemed (816,270) - - - -
- --------------------------------------------------------------------------------------------------------------------
Management fees payable (396,637) (323,495) (17,999) (359,217) (328,123)
- --------------------------------------------------------------------------------------------------------------------
Other, net 17,169 - (36,397) (87,000) 101,500
- --------------------------------------------------------------------------------------------------------------------
$ 7,124,339 $7,092,281 $ 217,516 $ (149,389) $ 1,328,173
================================================================================
</TABLE>
3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Lincoln Investment Management Company (the Advisor) and it's affiliates manage
the Funds' investment portfolios and maintain their accounts and records. In
return for these services, the Advisor receives a management fee at an annual
rate of .48% of the first $200,000,000 of the average daily net asset value of
the Funds, .40% of the next $200,000,000, and .30% of the average daily net
asset value of the Funds in excess of $400,000,000 for all the Funds except
for the Global Asset Allocation Fund, which has management fee annual rates of
.75%, .70%, and .68%, respectively, the International Fund which has
management fee annual rates of .90%, .75%, and .60%, respectively, and the
Aggressive Growth Fund, which has management fee annual rates of .75%, .70%,
and .65%, respectively. The Capital Appreciation Fund, and the Equity Income
Fund, have management fees of .80% and .95%, respectively, with no
breakpoints. In addition, Delaware Service Company (Delaware) which is an
affiliate of the Advisor, provides accounting services and other
administration support to the Funds. In return for these services, Delaware
receives a minimum fee of $65,000 and $87,000 annually for the first
$100,000,000 of the average daily net asset value of the Domestic and
International Funds respectively, .0375% and .060% of the next $400,000,000,
.035% and .060% of the next $250,000,000, .030% and .060% of the next
$250,000,000, and .020% and .050% of the daily net asset value of the Funds in
excess of $1 billion dollars. (The International funds pricing arrangement is
applied to the Global Asset Allocation and International funds.)
If the aggregate annual expenses of a Fund, including the management fee, but
excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses, exceed
1 1/2% of the average daily net asset value of each Fund, except for the
International Fund, which is 2%, the Advisor will reimburse the Fund in the
amount of such excess. No reimbursement was due for the year ended December
31, 1997.
Certain officers and directors of the Funds are also officers or directors of
the Company and receive no compensation from the Funds. The compensation of
unaffiliated directors of the Funds is borne by the Funds.
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
4. ANALYSIS OF NET ASSETS
The analysis of net assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
Aggressive Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and Income
Fund Fund Fund Fund Fund Fund
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, par value
$.01 per share** $ 209,188 $ 218,017 $ 257,286 $ 403,158 $ 280,321 $ 844,097
- ----------------------------------------------------------------------------------------------------------------------------------
Paid in capital in excess of par
value of shares issued 241,550,164 258,636,305 337,645,698 561,465,887 335,826,492 2,105,250,871
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain
(loss) on investments 45,635,441 (7,105,641) 47,580,432 17,621,623 33,708,317 209,728,724
- ----------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 473,358 17,113,168 1,290,717 9,232,321 10,728,312 54,773,374
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
on investments and foreign currency 54,894,549 11,521,322 64,261,534 222,346,847 57,546,453 1,170,265,079
- ----------------------------------------------------------------------------------------------------------------------------------
$342,762,700 $280,383,171 $451,035,667 $811,069,836 $438,089,895 $3,540,862,145
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Money Social Special
International Managed Market Awareness Opportunities
Fund Fund Fund Fund Fund
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, par value
$.01 per share** $ 317,751 $ 440,653 $ 89,227 $ 352,105 $ 248,975
- -------------------------------------------------------------------------------------------------------------------
Paid in capital in excess of par
value of shares issued 386,924,052 588,674,682 89,137,405 829,695,929 589,628,248
- -------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain
(loss) on investments 18,026,179 62,174,659 - 54,631,991 75,795,433
- -------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,085,136 29,120,567 - 12,806,273 11,867,899
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
on investments and foreign currency 58,876,082 170,234,954 - 358,008,049 195,281,684
- -------------------------------------------------------------------------------------------------------------------
$466,229,200 $850,645,515 $89,226,632 $1,255,494,347 $872,822,239
==========================================================================
</TABLE>
** Each Fund has 50,000,000 authorized shares except for the Growth and Income
Fund, which has 150,000,000, and the Managed, International, Social
Awareness and Equity Income Funds, which each have 100,000,000 authorized
shares.
5. INVESTMENTS
The cost of investments for federal income tax purposes approximates cost for
book purposes. The aggregate cost of investments purchased, the aggregate
proceeds from investments sold, the aggregate gross unrealized appreciation,
the aggregate gross unrealized depreciation and the net unrealized
appreciation at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
purchases From Sales Appreciation Depreciation Appreciation
<S> <C> <C> <C> <C> <C>
Aggressive Growth Fund $ 301,969,552 $ 263,574,720 $ 65,103,974 $ (10,209,425) $ 54,894,549
Bond Fund 136,294,105 139,486,208 12,430,933 (909,611) 11,521,322
Capital Appreciation Fund 588,712,332 472,375,203 71,130,629 (6,869,095) 64,261,534
Equity Income Fund 316,592,116 110,270,290 231,075,945 (8,729,098) 222,346,847
Global Asset Allocation Fund 673,339,257 617,675,731 67,874,270 (10,327,817) 57,546,453
Growth and Income Fund 1,165,801,847 935,231,051 1,256,662,616 (86,397,537) 1,170,265,079
International Fund 351,849,469 357,253,815 86,439,280 (27,563,198) 58,876,082
Managed Fund 384,926,354 397,835,950 183,448,222 (13,213,268) 170,234,954
Social Awareness Fund 621,442,906 303,126,491 378,901,852 (20,893,803) 358,008,049
Special Opportunities Fund. 555,276,263 519,914,159 207,955,569 (12,673,885) 195,281,684
</TABLE>
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
6. SUPPLEMENTAL FINANCIAL INSTRUMENT INFORMATION
OPTIONS: The Funds purchase or write options which are exchange traded to
hedge fluctuation risks in the price of certain securities. When the Funds
write a call or put option, an amount equal to the premium received is
reflected as a liability. The amount of the liability is subsequently
"marked-to-market" to reflect the current market value of the option written.
The premium paid by the Funds for the purchase of a call or put option is
recorded as an investment and subsequently "marked-to-market" to reflect the
current market value of the option purchased. The Funds are subject to the
risk of an imperfect correlation between movement in the price of the
instrument and the price of the underlying security or transaction. Risks may
also arise due to illiquid secondary markets for the instruments. Written call
option activity for the year ended December 31, 1997 is summarized as follows:
Global Asset Allocation Fund
----------------------------
Par Premiums
Amount Received
Options outstanding at January 1, 1997 $ - $ -
Options written 16,085,800 125,307
Options exercised - -
Options expired (12,860,000) (75,791)
Options closed (3,225,800) (49,516)
-----------------------------
Options outstanding at December 31, 1997 $ 0 $ 0
=============================
FORWARD FOREIGN CURRENCY CONTRACTS: The Funds may purchase or sell forward
foreign currency contracts to hedge risks of fluctuations in specific
transactions or portfolio positions. Forward foreign currency contracts
obligate the Funds to take or deliver a financial instrument of foreign
currency at a future date at a specified price. The realized and unrealized
gain or loss on the contracts are reflected in the accompanying financial
statements. The Funds are subject to the credit risks that the counter parties
to these contracts will fail to perform; although this risk is minimized by
purchasing such agreements from financial institutions with long standing,
superior performance records. In addition, the Funds are subject to the market
risks associated with unanticipated movements in the value of a foreign
currency relative to the U.S. dollar; however, such changes in the value
generally are offset by changes in the value of the items being hedged by such
contracts. Forward foreign currency contracts that were open at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Contracts to Foreign U.S. Cost Unrealized
Fund Receive (Deliver) Currency (Proceeds) Settlement Date(s) Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation (285,000) Great Britain Pound $ (477,157) February 1998 $ 8,042
Fund (20,000,000) Netherlands Guilder (9,782,343) March 1998 (125,534)
-----------
$ (117,492)
===========
Global Asset 128,888 Australian Dollar $ 88,299 March 1998 $ (4,182)
Allocation Fund 3,136,400 Canadian Dollar 2,194,822 March 1998 4,448
(25,530,432) Deutschemark (14,459,204) March 1998 202,438
7,309,976 Danish Kroner 1,080,558 March 1998 (9,394)
1,379,600 Finnish Marrka 258,038 March 1998 (3,641)
7,761,600 French Franc 1,315,169 February 1998 (20,958)
(1,742,500) Great Britain Pound (2,880,612) March 1998 16,616
1,446,240,000 Indonesian Rupiah 386,238 February, June 1998 (123,411)
7,138,533,730 Italian Lira 4,073,901 March 1998 (40,022)
1,504,946,250 Japanese Yen 11,791,507 March, June 1998 (146,701)
978,400 Mexican Peso 108,274 May 1998 12,433
(3,825,200) New Zealand Dollar (2,312,535) March 1998 105,369
3,225,250 Philippine Peso 92,023 March 1998 (12,424)
388,950 Polish Zloty 106,245 June 1998 (4,269)
(918,800) South African Rand (183,900) March 1998 (1,298)
278,349,285 Spanish Peseta 1,853,808 March 1998 (23,094)
13,130,710 Swedish Krona 1,703,298 March 1998 (46,231)
372,450 Swiss Franc 252,654 March 1998 4,388
78,997,400 Venezuelan Bolivars 145,204 June 1998 2,319
-----------
$ (87,614)
===========
</TABLE>
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FINANCIAL FUTURES CONTRACTS: The Funds may purchase or sell financial futures
contracts, which are exchange traded, to hedge fluctuation risks of adverse
changes in exchange markets or interest rates. Financial futures contracts
obligate the Funds to take delivery or deliver a financial instrument at a
future date at a specified price. The Funds deposit with its custodian a
specified amount of cash or eligible securities called "initial margin" or
"variation margin". The market value of investments pledged to cover margin
requirements for open positions at December 31, 1997 was $810,323 for the
Special Opportunities Fund, $7,040,315 for Global Asset Allocation Fund, and
$2,194,318 for Social Awareness Fund. The unrealized gain or loss on the
contracts are reflected in the accompanying financial statements. The Funds
are subject to the market risks of unexpected changes in the underlying
markets and interest rates; however, such changes in the value generally are
offset by changes in the value of the items being hedged by such contracts.
Financial futures contracts open at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Fund Contracts Cost Amount Date Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Asset 28 S&P 500 contracts $ 6,945,050 March 1998 $ (91,350)
Allocation Fund 58 Nasdaq 100 contracts 6,353,900 March 1998 (537,950)
30 Russell 2000 contracts 6,720,000 March 1998 (99,750)
72 U.S. Municipal Bond contracts 8,796,068 March 1998 68,932
(97) U.S. 10 Year Treasury note contracts (10,813,688) March 1998 (65,468)
(72) U.S. 20 Year Treasury note contracts (8,605,813) March 1998 (67,937)
(46) Gilt contracts (4,619,802) March 1998 23,316
119 Ftse 100 Index contracts 25,560,336 March 1998 (125,994)
(30) German 10 Year contracts (4,389,955) March 1998 45,688
(4) Dax Index contracts (943,633) March 1998 (7,806)
(8) Japanese 10 Year Note contracts (4,222,452) March 1998 238,869
(71) Nikkei 225 contracts (4,543,945) March 1998 412,331
(30) CAC 40 Index contracts (2,892,966) March 1998 (120,730)
11 BTPS contracts 16,632 February 1998 (15,140)
11 BTPS contracts 14,273 February 1998 20,424
(10) Bund contracts (17,326) February 1998 (15,892)
Bund contracts (12,705) February 1998 9,925
49 DTB 3 month Euromark contracts 6,823,672 March 1998 (272,178)
(49) DTB 3 month Euromark contracts (6,791,840) September 1998 258,053
130 Euro DM 3 month life contracts 17,509,278 March 1998 (239,785)
(130) Euro DM 3 month life contracts (17,814,898) March 1998 275,531
-----------
$ (306,911)
===========
Social Awareness Fund 200 S&P 500 Future $ 49,291,800 March 1998 $ (336,800)
Special Opportunities Fund 145 S&P 400 midcap stock index $ 24,067,680 March 1998 $ 230,695
</TABLE>
INDEXED SECURITIES: The Funds may invest in indexed securities whose value is
linked either directly or inversely to changes in foreign currencies, interest
rates, commodities, indices, or other reference instruments. Indexed
securities may be more volatile than the reference instrument itself, but any
loss is limited to the amount of the original investment.
REPURCHASE AGREEMENTS: The Funds, through their respective custodians, receive
delivery of the underlying securities, whose market value is required to be at
least 102% of the repurchase price. The advisor is responsible for determining
that the value of the collateral is at least equal to the repurchase price.
Repurchase agreements are subject to the risk of the default or insolvency of
the counterparty.
7. CREDIT AND MARKET RISKS
The Money Market Fund had investments in securities issued by banks, including
foreign banks, foreign branches of domestic banks, and other financial
institutions representing 60.6% of net assets at December 31, 1997. The
ability of these entities to meet their obligations may be affected by
economic conditions related to the industry.
The Capital Appreciation Fund, Equity Income Fund, Global Asset Allocation
Fund, and International Fund invest in foreign securities. As a result, there
may be additional risks, such as the investments being subject to restrictions
as to repatriation of cash back to the United States and to political or
economic uncertainties. None of these Funds had investments in excess of 5% in
any individual foreign country except the International Fund. Distribution of
investments for the International Fund, by industry, as a percentage of total
investments, consisted of the following at December 31, 1997:
Banking, Finance and Insurance 24.1%
-----------------------------------------------
Consumer Products and Services 20.4
-----------------------------------------------
Industrial 12.5
-----------------------------------------------
Healthcare and Pharmaceuticals 9.2
-----------------------------------------------
Telecommunications 8.0
-----------------------------------------------
Electrical and Electronics 7.4
-----------------------------------------------
Energy 6.8
-----------------------------------------------
Building and Materials 3.8
-----------------------------------------------
Others (individually less than 5%) 7.8
-----------------------------------------------
100.0%
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
8. SUMMARY OF CHANGES FROM CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
Shares Issued Upon
Capital Reinvestment of Capital Shares
Shares Sold Dividends Redeemed
--------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------------------------
Year Ended December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Fund 6,078,765 $ 79,416,717 227,830 $ 2,850,545 (318,939) $ (4,080,745)
Bond Fund 1,788,727 21,267,708 1,275,537 15,554,772 (2,013,517) (23,420,919)
Capital Appreciation Fund 8,060,307 109,806,931 545,394 7,469,658 (85,813) (1,210,130)
Equity Income Fund 10,947,919 157,067,481 549,558 7,755,394 (203,395) (3,046,093)
Global Asset Allocation Fund 2,499,623 32,553,085 1,632,543 22,006,756 (492,722) (6,588,842)
Growth and Income Fund 9,033,760 275,921,904 4,811,213 151,848,698 (1,005,429) (31,139,607)
International Fund 4,484,198 62,185,534 338,158 4,436,376 (1,318,363) (18,489,610)
Managed Fund 2,263,623 35,399,848 3,696,097 60,383,859 (1,483,351) (23,189,653)
Money Market Fund 7,448,642 72,720,559 278,649 4,552,350 (6,223,469) (62,234,688)
Social Awareness Fund 9,212,323 226,248,315 978,353 23,475,634 (76,562) (1,951,355)
Special Opportunities Fund 3,401,045 93,400,233 1,695,200 48,288,651 (1,522,103) (40,795,408)
Year Ended December 31, 1997:
Aggressive Growth Fund 3,320,603 49,037,657 892,895 11,957,816 (648,693) (9,050,289)
Bond Fund 1,115,273 14,114,365 1,416,753 16,821,434 (2,261,364) (27,536,610)
Capital Appreciation Fund 6,645,666 106,951,391 836,415 12,215,979 (178,409) (2,895,588)
Equity Income Fund 10,211,887 183,197,996 1,183,804 19,052,519 (51,029) (875,482)
Global Asset Allocation Fund 3,478,495 51,199,000 2,577,537 34,962,268 (241,050) (3,559,469)
Growth and Income Fund 6,674,962 251,498,635 3,927,100 134,051,775 (647,180) (23,667,791)
International Fund 2,736,777 40,729,431 1,702,170 23,752,137 (2,918,129) (43,823,809)
Managed Fund 1,267,957 22,772,807 2,677,655 43,933,612 (1,423,434) (24,870,905)
Money Market Fund 7,205,818 72,058,181 909,052 9,090,525 (8,227,968) (82,279,682)
Social Awareness Fund 10,416,924 322,889,993 1,581,459 43,404,427 (92,914) (2,813,490)
Special Opportunities Fund 2,437,238 78,263,255 2,072,674 58,607,959 (1,656,123) (49,144,550)
</TABLE>
<TABLE>
<CAPTION>
Net Increase (Decrease)
Resulting From Capital
Share Transactions
----------------------------
Shares Amount
----------------------------
Year Ended December 31, 1996:
<S> <C> <C>
Aggressive Growth Fund 5,987,656 $ 78,186,517
Bond Fund 1,050,747 13,401,561
Capital Appreciation Fund 8,519,888 116,066,459
Equity Income Fund 11,294,082 161,776,782
Global Asset Allocation Fund 3,639,444 47,970,999
Growth and Income Fund 12,839,544 396,630,995
International Fund 3,503,993 48,132,300
Managed Fund 4,476,369 72,594,054
Money Market Fund 1,503,822 15,038,221
Social Awareness Fund 10,114,114 247,772,594
Special Opportunities Fund 3,574,142 100,893,476
Year Ended December 31, 1997:
Aggressive Growth Fund 3,564,805 51,945,184
Bond Fund 270,662 3,399,189
Capital Appreciation Fund 7,303,672 116,271,782
Equity Income Fund 11,344,662 201,375,033
Global Asset Allocation Fund 5,814,982 82,601,799
Growth and Income Fund 9,954,882 361,882,619
International Fund 1,520,818 20,657,759
Managed Fund 2,522,178 41,835,514
Money Market Fund (113,098) (1,130,976)
Social Awareness Fund 11,905,469 363,480,930
Special Opportunities Fund 2,853,789 87,726,664
</TABLE>
9. DISTRIBUTION TO SHAREHOLDER
All of the Funds except for the Money Market Fund declare and distribute
dividends on net investment income annually. The Money Market Fund declares
and distributes dividends on net investment income daily. Distributions, if
any, of net realized gains are declared and distributed annually.
10. CAPITAL LOSS CARRYFORWARD
As of December 31, 1997, the Lincoln National Bond Fund, Inc. had $7,175,062
of unused capital loss carryforward for federal tax purposes. The loss
carryforward expires in the years 2002 to 2004.
50
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR EACH CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Income from Investment Operation Less Dividends From:
-------------------------------------- -----------------------------------
Net Net Net
Asset Realized and Total Asset Ratio of
Value Net Unrealized From Net Net Realized Value Expenses
Period Beginning Investment Gain(Loss) on Investment Investment Gain on Total End Total To Average
Ended of Period Income(Loss) Investments Operations Income Investment Dividends of Period Return** Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH FUND *
1993 $10.000 $ - $ - $ - $ - $ - $ - $10.000 - -
1994 10.000 0.019 (0.952) (0.933) (0.019) - (0.019) 9.048 (9.37%) 1.11%
1995 9.048 0.007 3.135 3.142 (0.007) - (0.007) 12.183 34.15% 0.94%
1996 12.183 0.004 1.989 1.993 (0.004) (0.192) (0.196) 13.980 17.02% 0.82%
1997 13.980 0.023 3.055 3.078 - (0.673) (0.673) 16.385 23.09% 0.81%
BOND FUND
1988 $11.141 $ 1.053 $(0.131) $ 0.922 $(1.053) $ - $(1.053) $11.010 7.93% 0.57%
1989 11.010 1.027 0.428 1.455 (1.027) - (1.027) 11.438 13.07% 0.53%
1990 11.438 0.998 (0.240) 0.758 (0.998) - (0.998) 11.198 6.64% 0.53%
1991 11.198 0.956 0.990 1.946 (0.956) - (0.956) 12.188 17.21% 0.52%
1992 12.188 0.903 0.052 0.955 (0.903) - (0.903) 12.240 7.84% 0.52%
1993 12.240 0.758 0.703 1.461 (0.758) (0.250) (1.008) 12.693 12.26% 0.50%
1994 12.693 0.741 (1.233) (0.492) (0.741) (0.519) (1.260) 10.941 (4.18%) 0.50%
1995 10.941 0.803 1.306 2.109 (0.803) - (0.803) 12.247 18.95% 0.49%
1996 12.247 0.767 (0.481) 0.286 (0.767) - (0.767) 11.766 2.31% 0.51%
1997 11.766 0.785 0.310 1.095 - - - 12.861 9.30% 0.53%
CAPITAL APPRECIATION FUND *
1993 $10.000 $ - $ - $ - $ - $ - $ - $10.000 - -
1994 10.000 0.134 0.152 0.286 (0.134) - (0.134) 10.152 2.71% 1.18%
1995 10.152 0.116 2.764 2.880 (0.116) - (0.116) 12.916 28.69% 1.07%
1996 12.916 0.135 2.051 2.186 (0.135) (0.463) (0.598) 14.504 18.02% 0.93%
1997 14.504 0.050 3.510 3.560 - (0.534) (0.534) 17.530 25.29% 0.89%
EQUITY INCOME FUND *
1993 $10.000 $ - $ - $ - $ - $ - $ - $10.000 - -
1994 10.000 0.258 0.335 0.593 (0.258) - (0.258) 10.335 5.65% 1.26%
1995 10.335 0.275 3.218 3.493 (0.275) (0.046) (0.321) 13.507 34.74% 1.15%
1996 13.507 0.288 2.451 2.739 (0.288) (0.178) (0.466) 15.780 19.81% 1.08%
1997 15.780 0.229 4.511 4.740 - (0.402) (0.402) 20.118 30.67% 1.02%
GLOBAL ASSET ALLOCATION FUND
1988 $ 9.027 $ 0.405 $ 0.589 $ 0.994 $(0.405) $ - $(0.405) $ 9.616 10.87% 1.16%
1989 9.616 0.573 1.165 1.738 (0.573) - (0.573) 10.781 17.91% 1.33%
1990 10.781 0.549 (0.516) 0.033 (0.549) (0.279) (0.828) 9.986 0.92% 1.14%
1991 9.986 0.426 1.391 1.817 (0.426) (0.138) (0.564) 11.239 18.43% 1.04%
1992 11.239 0.404 0.271 0.675 (0.404) (0.306) (0.710) 11.204 6.43% 1.07%
1993 11.204 0.362 1.522 1.884 (0.362) (0.224) (0.586) 12.502 17.28% 1.05%
1994 12.502 0.349 (0.702) (0.353) (0.349) (0.656) (1.005) 11.144 (1.82)% 1.06%
1995 11.144 0.412 2.247 2.659 (0.412) - (0.412) 13.391 23.95% 0.92%
1996 13.391 0.392 1.522 1.914 (0.392) (0.687) (1.079) 14.226 15.04% 1.00%
1997 14.226 0.383 2.205 2.588 - (1.186) (1.186) 15.628 19.47% 0.89%
GROWTH AND INCOME FUND
1988 $19.640 $ 0.540 $ 0.729 $ 1.269 $(0.540) $(2.997) $(3.537) $17.372 8.18% 0.54%
1989 17.372 0.793 2.859 3.652 (0.793) - (0.793) 20.231 20.75% 0.50%
1990 20.231 0.512 (0.539) (0.027) (0.512) (1.068) (1.580) 18.624 0.95% 0.48%
1991 18.624 0.617 5.142 5.759 (0.617) - (0.617) 23.766 30.61% 0.44%
1992 23.766 0.663 (0.336) 0.327 (0.663) (0.503) (1.166) 22.927 1.84% 0.41%
1993 22.927 0.610 2.285 2.895 (0.610) (0.519) (1.129) 24.693 13.12% 0.38%
1994 24.693 0.668 (0.428) 0.240 (0.668) (0.968) (1.636) 23.297 1.32% 0.37%
1995 23.297 0.701 7.680 8.380 (0.701) (1.221) (1.922) 29.756 38.81% 0.35%
1996 29.756 0.683 4.943 5.626 (0.683) (1.589) (2.272) 33.110 18.76% 0.36%
1997 33.110 0.649 9.331 9.980 - (1.141) (1.141) 41.949 30.93% 0.35%
INTERNATIONAL FUND *
1991 $10.000 $(0.030) $ 0.047 $ 0.017 $(0.059) $ - $(0.059) $9.958 (0.36)% 1.06%
1992 9.958 0.037 (0.867) (0.830) (0.037) - (0.037) 9.091 (7.93)% 1.46%
1993 9.091 0.010 3.551 3.561 (0.010) - (0.010) 12.642 38.90% 1.24%
1994 12.642 0.033 0.385 0.418 (0.033) - (0.033) 13.027 3.28% 1.24%
1995 13.027 0.069 0.892 0.961 (0.069) (0.521) (0.590) 13.398 8.89% 1.27%
1996 13.398 0.071 1.244 1.315 (0.071) (0.086) (0.157) 14.556 9.52% 1.19%
1997 14.556 0.066 0.771 0.837 - (0.720) (0.720) 14.673 6.00% 0.93%
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Investment Net Assets
Income Portfolio At End Average
Period To Average Turnover of Period Commission
Ended Net Assets Rate (000's) Rate
- --------------------------------------------------------------
AGGRESSIVE GROWTH FUND *
<S> <C> <C> <C> <C>
1993 - - $ 110 $ -
1994 0.21% 100.31% 60,697 -
1995 0.06% 85.82% 138,471 -
1996 0.03% 77.51% 242,609 0.0332
1997 0.16% 105.07% 342,763 0.0537
BOND FUND
1988 9.41% 183.79% $ 59,947 $ -
1989 9.13% 121.19% 91,152 -
1990 9.00% 76.67% 103,845 -
1991 8.32% 72.80% 139,854 -
1992 7.45% 257.27% 168,636 -
1993 6.05% 324.90% 226,150 -
1994 6.40% 213.26% 195,010 -
1995 6.90% 139.61% 250,816 -
1996 6.56% 142.19% 253,328 N/A***
1997 6.45% 56.16% 280,383 N/A***
CAPITAL APPRECIATION FUND *
1993 - - $ 110 $ -
1994 1.33% 185.28% 52,904 -
1995 1.00% 195.63% 127,936 -
1996 0.99% 92.73% 267,242 0.0374
1997 0.35% 137.07% 451,036 0.0364
EQUITY INCOME FUND *
1993 - - $ 110 $ -
1994 2.48% 33.40% 78,861 -
1995 2.27% 27.81% 238,771 -
1996 1.99% 22.17% 457,153 0.0292
1997 1.46% 17.81% 811,070 0.0353
GLOBAL ASSET ALLOCATION FUND
1988 4.36% 136.79% $ 26,885 $ -
1989 5.59% 79.11% 44,913 -
1990 5.49% 56.28% 56,088 -
1991 4.01% 101.41% 76,269 -
1992 3.70% 128.53% 95,607 -
1993 3.04% 208.55% 153,500 -
1994 3.07% 134.33% 195,697 -
1995 3.36% 146.49% 248,772 -
1996 2.93% 167.33% 316,051 0.0321
1997 2.77% 178.40% 438,090 0.0304
GROWTH AND INCOME FUND
1988 3.08% 179.88% $ 209,513 $ -
1989 4.06% 208.98% 295,399 -
1990 2.79% 59.47% 356,239 -
1991 2.86% 33.59% 581,297 -
1992 2.97% 74.50% 765,457 -
1993 2.58% 60.76% 1,034,105 -
1994 2.85% 76.34% 1,161,324 -
1995 2.64% 51.76% 1,833,450 -
1996 2.23% 46.70% 2,465,224 0.0459
1997 1.79% 32.09% 3,540,862 0.0428
INTERNATIONAL FUND *
1991 (0.30)% 25.18% $ 20,935 $ -
1992 0.39% 22.86% 45,627 -
1993 0.09% 61.44% 161,470 -
1994 0.25% 52.78% 316,350 -
1995 0.59% 63.15% 358,391 -
1996 0.51% 68.67% 440,375 0.0196
1997 0.44% 77.58% 466,229 0.0239
</TABLE>
51
<PAGE>
FINANCIAL HIGHLIGHTS - (CONTINUED)
(SELECTED DATA FOR EACH CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Income from Investment Operation Less Dividends From:
-------------------------------------- -----------------------------------
Net Net Net
Asset Realized and Total Asset Ratio of
Value Net Unrealized From Net Net Realized Value Expenses
Period Beginning Investment Gain(Loss) on Investment Investment Gain on Total End Total To Average
Ended of Period Income(Loss) Investments Operations Income Investment Dividends of Period Return** Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED FUND
1988 $12.283 $0.666 $ 0.352 $ 1.018 $(0.666) $(1.108) $(1.774) $11.527 9.00% 0.55%
1989 11.527 0.798 1.186 1.984 (0.798) - (0.798) 12.713 16.97% 0.52%
1990 12.713 0.705 (0.334) 0.371 (0.705) (0.438) (1.143) 11.941 3.50% 0.52%
1991 11.941 0.710 1.906 2.616 (0.710) - (0.710) 13.847 21.66% 0.50%
1992 13.847 0.653 (0.158) 0.495 (0.653) (0.036) (0.689) 13.653 3.66% 0.49%
1993 13.653 0.584 0.908 1.492 (0.584) (0.409) (0.993) 14.152 11.53% 0.45%
1994 14.152 0.628 (0.814) (0.186) (0.628) (0.555) (1.183) 12.783 (1.84)% 0.44%
1995 12.783 0.623 3.132 3.755 (0.623) (0.020) (0.643) 15.895 29.29% 0.43%
1996 15.895 0.628 1.291 1.919 (0.628) (0.920) (1.548) 16.266 12.05% 0.43%
1997 16.266 0.661 2.811 3.472 - (0.434) (0.434) 19.304 21.82% 0.42%
MONEY MARKET FUND
1988 $10.000 $0.744 $ - $ 0.744 $(0.744) - $(0.744) $10.000 7.21% 0.55%
1989 10.000 0.909 - 0.909 (0.909) - (0.909) 10.000 9.09% 0.54%
1990 10.000 0.802 - 0.802 (0.802) - (0.802) 10.000 7.94% 0.53%
1991 10.000 0.571 - 0.571 (0.571) - (0.571) 10.000 5.79% 0.53%
1992 10.000 0.354 - 0.354 (0.354) - (0.354) 10.000 3.48% 0.53%
1993 10.000 0.276 - 0.276 (0.276) - (0.276) 10.000 2.76% 0.50%
1994 10.000 0.381 - 0.381 (0.381) - (0.381) 10.000 3.82% 0.52%
1995 10.000 0.570 - 0.570 (0.570) - (0.570) 10.000 5.67% 0.52%
1996 10.000 0.505 - 0.505 (0.505) - (0.505) 10.000 5.07% 0.57%
1997 10.000 0.501 - 0.501 (0.501) - (0.501) 10.000 5.13% 0.59%
SOCIAL AWARENESS FUND *
1988 $10.000 $0.032 $ 0.454 $ 0.486 $(0.032) $ - $(0.032) $10.454 4.89% 1.64%
1989 10.454 0.309 2.920 3.229 (0.309) $(0.024) (0.333) 13.350 31.18% 0.99%
1990 13.350 0.289 (0.989) (0.700) (0.289) (0.154) (0.443) 12.207 (4.30)% 0.65%
1991 12.207 0.348 4.242 4.590 (0.348) - (0.348) 16.449 37.22% 0.56%
1992 16.449 0.399 0.179 0.578 (0.399) (0.051) (0.450) 16.577 3.60% 0.55%
1993 16.577 0.326 1.792 2.118 (0.326) (0.454) (0.780) 17.915 13.56% 0.51%
1994 17.915 0.377 (0.461) (0.084) (0.377) (0.812) (1.189) 16.642 0.19% 0.53%
1995 16.642 0.432 6.491 6.923 (0.432) (0.543) (0.975) 22.590 42.83% 0.50%
1996 22.590 0.389 5.748 6.137 (0.389) (1.022) (1.411) 27.316 28.94% 0.46%
1997 27.316 0.364 9.4471 9.811 - (1.470) (1.470) 35.657 37.53% 0.41%
SPECIAL OPPORTUNITIES FUND
1988 $17.933 $0.060 $ 0.327 $ 0.387 $(0.060) $(2.659) $(2.719) $15.601 3.88% 0.59%
1989 15.601 0.276 4.904 5.180 (0.276) - (0.276) 20.505 32.90% 0.55%
1990 20.505 0.236 (1.931) (1.695) (0.236) (1.208) (1.444) 17.366 (7.42)% 0.55%
1991 17.366 0.323 7.195 7.518 (0.323) - (0.323) 24.561 42.83% 0.53%
1992 24.561 0.546 1.106 1.652 (0.546) (0.955) (1.501) 24.712 7.28% 0.53%
1993 24.712 0.530 2.703 3.233 (0.530) (2.937) (3.467) 24.478 18.42% 0.49%
1994 24.478 0.565 (0.942) (0.377) (0.565) (1.372) (1.937) 22.164 (1.00)% 0.48%
1995 22.164 0.616 6.131 6.747 (0.616) (0.912) (1.528) 27.383 31.86% 0.45%
1996 27.383 0.548 3.867 4.414 (0.548) (1.827) 2.374 29.423 16.51% 0.44%
1997 29.423 0.477 7.293 7.770 - (2.137) (2.137) 35.056 28.15% 0.42%
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Investment Net Assets
Income Portfolio At End Average
Period To Average Turnover of Period Commission
Ended Net Assets Rate (000's) Rate
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGED FUND
1988 5.71% 166.57% $ 140,135 $ -
1989 6.47% 158.73% 182,576 -
1990 5.96% 93.38% 204,310 -
1991 5.53% 22.70% 276,899 -
1992 4.86% 226.66% 343,439 -
1993 4.24% 235.59% 445,040 -
1994 4.45% 160.79% 442,140 -
1995 4.37% 112.52% 589,165 -
1996 4.05% 108.86% 675,740 0.0441
1997 3.77% 53.40% 850,646 0.0393
MONEY MARKET FUND
1988 7.21% - $ 59,160 $ -
1989 9.09% - 88,551 -
1990 7.94% - 102,399 -
1991 5.79% - 149,555 -
1992 3.48% - 92,472 -
1993 2.76% - 81,042 -
1994 3.82% - 77,177 -
1995 5.67% - 75,319 -
1996 5.07% - 90,358 N/A***
1997 5.01% - 89,227 N/A***
SOCIAL AWARENESS FUND *
1988 0.30% 10.07% $ 2,067 $ -
1989 2.43% 63.37% 9,565 -
1990 2.34% 29.39% 24,674 -
1991 2.33% 45.00% 52,959 -
1992 2.50% 84.32% 89,669 -
1993 1.90% 84.43% 137,606 -
1994 2.22% 64.97% 163,514 -
1995 2.21% 54.02% 297,983 -
1996 1.58% 45.90% 636,595 0.0440
1997 1.37% 34.84% 1,255,494 0.0421
SPECIAL OPPORTUNITIES FUND
1988 0.39% 73.91% $ 63,982 $ -
1989 1.50% 92.56% 75,245 -
1990 1.33% 37.50% 83,762 -
1991 1.49% 111.60% 132,753 -
1992 2.35% 128.49% 189,867 -
1993 2.29% 74.11% 273,998 -
1994 2.49% 74.63% 318,417 -
1995 2.39% 90.12% 505,755 -
1996 2.00% 88.17% 648,592 0.0429
1997 1.57% 73.74% 872,822 0.0396
</TABLE>
* The per share data, total return, ratios and portfolio turnover are
calculated for the period from commencement of investment activity on May 2,
1988 through December 31, 1988 for the Social Awareness Fund, May 1, 1991
through December 31, 1991 for the International Fund, May 1, 1994 through
December 31, 1994 for the Equity Income, Capital Appreciation and Aggressive
Growth Funds. Accordingly, the total return, ratios, and portfolio turnover
have NOT been calculated on an annualized basis.
** Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual fund shares in which Separate Account C, D, G,
and K may invest. The total return percentages in the table are NOT calculated
on the same basis as the performance percentages in the letter at the front of
this booklet (those percentages are based upon the change in unit value).
*** The average commission rate is calculated on funds holding equity
securities. These funds do not hold equity securities; thus, an average
commission rate has not been calculated.
52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDER AND BOARD OF DIRECTORS OF LINCOLN NATIONAL AGGRESSIVE
GROWTH FUND, INC., LINCOLN NATIONAL BOND FUND, INC., LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC., LINCOLN NATIONAL EQUITY-INCOME FUND, INC., LINCOLN
NATIONAL GLOBAL ASSET ALLOCATION FUND, INC., LINCOLN NATIONAL GROWTH AND
INCOME FUND, INC., LINCOLN NATIONAL INTERNATIONAL FUND, INC., LINCOLN NATIONAL
MANAGED FUND, INC., LINCOLN NATIONAL MONEY MARKET FUND, INC., LINCOLN NATIONAL
SOCIAL AWARENESS FUND, INC., AND LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND,
INC.
We have audited the accompanying statements of net assets of Aggressive Growth
Fund, Bond Fund, Capital Appreciation Fund, Equity-Income Fund, Global Asset
Allocation Fund, Growth and Income Fund, International Fund, Managed Fund,
Money Market Fund, Social Awareness Fund, and Special Opportunities Fund (the
"Funds") as of December 31, 1997, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at December 31, 1997, the results of their operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended, and their financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
Ernst & Young, LLP
Philadelphia, Pennsylvania
February 4, 1998
53
