<PAGE>
ANNUAL
REPORT
[LOGO]
RSI RETIREMENT TRUST
Core Equity Fund
Value Equity Fund
Emerging Growth Equity Fund
International Equity Fund
Actively Managed Bond Fund
Intermediate-Term Bond Fund
Short-Term Investment Fund
1998
BROKER/DEALER:
RETIREMENT SYSTEM
Distributors Inc.
317 Madison Avenue
New York, NY 10017-5397
<PAGE>
TABLE OF CONTENTS
- ------------------------------------------------------
<TABLE>
<S> <C>
President's Message...................................................... 1
Investment Review........................................................ 3
Combined Financial Statements............................................ 22
Financial Statements of Investment Funds................................. 24
Core Equity Fund..................................................... 24
Value Equity Fund.................................................... 28
Emerging Growth Equity Fund.......................................... 32
International Equity Fund............................................ 37
Actively Managed Bond Fund........................................... 43
Intermediate-Term Bond Fund.......................................... 50
Short-Term Investment Fund........................................... 56
Notes to Financial Statements............................................ 60
Independent Auditor's Report............................................. 77
Annual Meeting Results................................................... 78
Officers, Consultants, Investment Managers and Custodians................ 79
Board of Trustees........................................................ 80
</TABLE>
[LOGO]
is a registered trademark of Retirement System Group Inc.
<PAGE>
OFFICERS
---------------------------------------------------------------
William Dannecker, President
James P. Coughlin, C.F.A., Executive Vice President and Chief
Investment Officer
Stephen P. Pollak, Esq., Executive Vice President, Counsel and
Secretary
Heidi Viceconte, First Vice President and Treasurer
John F. Meuser, Senior Vice President
Durando J. Saccente, Senior Vice President
Veronica A. Fisher, Vice President and Assistant Treasurer
Chris R. Kaufman, Vice President
Stephen A. Hughes, First Vice President
Herbert Kuhl, Jr., C.F.A., First Vice President
Deborah A. Modzelewski, First Vice President
Michael Morgenroth, Second Vice President
CONSULTANTS
---------------------------------------------------------------
Actuarial--Retirement System Consultants Inc.
Administrative and Recordkeeping--Retirement System Consultants
Inc.
Investments--Hewitt Associates, LLC
INVESTMENT MANAGERS
---------------------------------------------------------------
Friess Associates, Inc.
HLM Management Company, Inc.
Morgan Grenfell Investment Services Limited
Retirement System Investors Inc.
CUSTODIANS
---------------------------------------------------------------
The Chase Manhattan Bank
Custodial Trust Company
DISTRIBUTOR
---------------------------------------------------------------
Retirement System Distributors Inc.
TRANSFER AGENT
---------------------------------------------------------------
Retirement System Consultants Inc.
INDEPENDENT AUDITORS
---------------------------------------------------------------
McGladrey & Pullen, LLP
COUNSEL
---------------------------------------------------------------
Swidler Berlin Shereff Friedman, LLP
79
<PAGE>
BOARD OF TRUSTEES
---------------------------------------------------------------
Herbert G. Chorbajian
Chairman, President and Chief Executive Officer
ALBANK, FSB, NY
Candace Cox
Investments
James P. Cronin
President, Treasurer and Chief Executive Officer
The Dime Savings Bank, Norwich, CT
William Dannecker
President and Chief Executive Officer
Retirement System Group Inc., NY
Covington Hardee
Retired Chairman
The Lincoln Savings Bank, FSB, NY
Ralph L. Hodgkins, Jr.
Retired Chief Executive Officer
Mid Maine Savings Bank, FSB, ME
Maurice E. Kinkade
Director of Development
Maplebrook School
President, KINCO Management
Willliam G. Lillis
Real Estate Consultant
William A. McKenna, Jr.
Chairman, President and Chief Executive Officer
Ridgewood Savings Bank, NY
William L. Schrauth
President and Chief Executive Officer
The Savings Bank of Utica, NY
William E. Swan
President and Chief Executive Officer
Lockport Savings Bank, NY
Raymond L. Willis
Private Investments
80
<PAGE>
THE INFORMATION CONTAINED HEREIN SHALL NOT BE CONSTRUED TO BE OR CONSTITUTE AN
OFFER OR SOLICITATION OF AN OFFER TO BUY UNITS IN THE RSI RETIREMENT TRUST.
SALES OF UNITS IN THE TRUST MAY BE MADE ONLY IN THOSE STATES WHERE SUCH UNITS
ARE EXEMPT FROM REGISTRATION OR HAVE BEEN QUALIFIED FOR SALE. TOTAL RETURNS ARE
BASED ON HISTORICAL RESULTS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
FUTURE PERFORMANCE AND UNIT NET ASSET VALUE WILL FLUCTUATE SO THAT UNITS, IF
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS MATERIAL MUST
BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
<PAGE>
PRESIDENT'S MESSAGE
To Our Unitholders:
This past fiscal year has been a volatile one, characterized by
precipitous market drops and dramatic upward surges. In fact,
with the market doing poorly one quarter and fully recovering
the next, volatility like this has not been seen for quite some
time.
The first three months of fiscal year 1998 (i.e., fourth
quarter 1997), for instance, were affected by concern over an
overheated domestic economy, a fear of inflation, and
uncertainty about the Asian markets. During this period,
investors favored quality stocks, with large cap stocks
performing respectably, while non-U.S. stocks and small cap
stocks in the U.S. showed negative results.
A major turnaround was in evidence during the second three
months of fiscal '98 (i.e., first quarter 1998), with all major
domestic equity indices showing strong double-digit returns.
The U.S. economy remained prosperous, and most of the major
European countries showed positive economic growth during the
period, as well.
In the third quarter of the fiscal year, European countries
continued to show good economic growth (international equity
returns for Europe were 5.15%), while the struggle in the Asian
markets persisted (-8.82%). The U.S. stock market gained 3.31%
during the quarter, as measured by the S&P 500, and the U.S.
continued its expansion while inflation was on the decline.
During the final quarter of fiscal '98, the U.S. stock
market declined 9.90%, representing the first negative return
in the last 15 quarters. In fact, for the first time in five
years, bonds led stocks over the trailing four quarters ended
September 30, 1998. With this kind of volatility, many stocks,
including those held by several of the Trust's equity funds,
were adversely affected.
Overall, in fiscal year 1998, the conditions that have
prevailed over the past several years--moderate economic
growth, low inflation rates, favorable interest rates and
substantial investment in mutual funds--continued. However,
even with these favorable conditions, extreme market volatility
was evident throughout the year.
Several funds in RSI Retirement Trust produced solid,
long-term investment returns for various periods ended
September 30, 1998, with the Core Equity Fund achieving the
best performance of the equity funds in the Trust this year.
Outperforming its benchmark for every period in this report,
the Core Equity Fund generated a return that was over five
percentage points higher than its Lipper benchmark for fiscal
year '98. While the Value Equity Fund slightly underperformed
its benchmark for the year, for the longer time frames of three
and five years ended September 30, 1998, it outperformed the
benchmark for both periods.
Although the two funds on the fixed-income side of the
Trust slightly underperformed their benchmarks for the one-year
period ended September 30, 1998, they outperformed their
benchmarks for all other periods in this report.
1
<PAGE>
At RSI Retirement Trust, we never lose sight of the fact
that we are devoted exclusively to investing the assets of
tax-qualified pension plans and IRA accounts; we are entrusted
with retirement assets, and we exercise careful judgment when
investing those assets.
On behalf of the Board of Trustees, I want to thank you,
our unitholders, for choosing RSI Retirement Trust to help meet
your retirement savings goals. I'd also like to thank the
members of the Board for their invaluable counsel and
assistance. Please feel free to call me if you would like to
discuss any part of this report.
Sincerely,
[SIGNATURE]
William Dannecker
President and Trustee
November 16, 1998
2
<PAGE>
INVESTMENT REVIEW
CORE EQUITY FUND
The Core Equity Fund seeks capital appreciation over the long
term. The Fund invests in a broadly diversified group of
high-quality, medium-to-large companies which the manager,
Retirement System Investors Inc., believes to be reasonably
valued relative to their earnings growth potential.
MARKET ENVIRONMENT
In fiscal year 1998, growth stocks outperformed value stocks,
and large capitalization stocks in nearly every category
outperformed smaller capitalization stocks. The best performing
categories of the broad market, as measured by the S&P 500,
were telecommunications service providers, healthcare companies
and companies providing consumer staples. The worst performing
sectors of the market were in such cyclical sectors as basic
materials, energy and capital goods.
As the year progressed, the pace of economic and corporate
earnings growth slowed. These issues were somewhat
counterbalanced by declining interest rates, continued strong
domestic employment and consumer spending, and low levels of
inflation. A lack of confidence in currencies and policies
swept around the world to affect most emerging economies,
leading to instability in the entire world financial system.
The increasing weakness of significant portions of the global
economy began to affect American companies--particularly
exporters--which also had to contend with the strong dollar. A
strong dollar makes U.S. products more costly in other
currencies and diminishes the foreign profits of U.S. based
multinationals when reported in dollar terms. During the latter
part of the fiscal year, this dollar strength softened
somewhat. During the period, a weakened Presidency contributed
to questions about the ability of the world's leading economy
to take a decisive role in resolving the world's financial
problems.
As the fiscal year progressed, investors increasingly
showed an aversion to risk. This showed up in investor
preferences for large cap stocks, for high dividend paying
stocks, and for growth stocks where the perceived likelihood of
continued steady growth was high. This created a large
valuation gap in the market related to market capitalization
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
and
MEASURING RISK AND RETURN
CORE EQUITY FUND VS S&P 500
FOR 10-YEAR PERIOD ENDED 9/30/98
CORE EQUITY S&P 500
<S> <C> <C>
RETURN 15.87% 17.29%
RISK 11.46% 11.74%
THIS CHART COMPARES THE HISTORICAL AVERAGE ANNUAL
TOTAL RETURN AND THE RISK (AS MEASURED BY THE
STANDARD DEVIATION) OF THE CORE EQUITY FUND AND
THE STANDARD & POOR'S 500 INDEX FOR THE TEN-YEAR
PERIOD ENDED 9/30/98. THE S&P 500 INDEX IS AN
UNMANAGED INDEX OF COMMON STOCKS WIDELY USED
AS A MEASURE OF THE BROAD EQUITY MARKET AND IS A
REPRESENTATIVE MARKET INDEX FOR THIS FUND.
STANDARD DEVIATION IS A STATISTICAL MEASURE OF
VOLATILITY OFTEN USED AS A MEASURE OF RISK.
IN GENERAL, THE GREATER THE STANDARD DEVIATION,
THE GREATER THE TENDENCY TO VARY FROM THE AVERAGE
ANNUAL TOTAL RETURN. BY COMPARING THE MAGNITUDE OF
THE STANDARD DEVIATIONS, THE RELATIVE VOLATILITY OF
EACH INVESTMENT CAN BE DETERMINED. A LOWER
STANDARD DEVIATION REFLECTS LOWER VOLATILITY.
</TABLE>
3
<PAGE>
perceptions of stability of growth, with the largest growth
stocks significantly outperforming all other common stock
categories.
During the fiscal year, the Core Fund maintained its
significant exposure to high growth segments of the economy,
e.g., technology and healthcare, but worked at the margin to
lower the volatility of returns by increasing the proportion in
the portfolio of mid-cap low P/E stocks, principally stocks
which had gotten relatively "cheaper" on traditional valuation
measures such as price/earnings ratios, yield and price to book
measures compared to the larger growth stocks, and which appear
to be more defensive in nature.
Relative to the S&P 500 (a representative market index for
this Fund), Core Fund performance was helped by its favorable
stock selection in technology, and its overweighting and
positive stock selection in the healthcare sector. The Fund had
only limited exposure to the outperforming consumer staples and
utilities sectors and was overweighted in financial stocks
which modestly hurt performance. While the Fund was
overweighted in capital goods and energy stocks, both poorly
performing sectors, the Fund's stocks performed better than the
S&P stocks in those sectors, helping performance versus the
Index.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CORE EQUITY FUND VS S&P 500
<S> <C> <C>
88 $10,000.00 $10,000.00
89 $13,309.71 $13,285.99
90 $12,722.51 $12,048.77
91 $15,212.05 $15,814.32
92 $16,536.51 $17,563.15
93 $18,954.61 $19,847.63
94 $19,548.14 $20,577.33
95 $25,670.34 $26,691.94
96 $31,089.08 $32,127.42
97 $41,827.64 $45,140.60
98 $43,641.22 $49,252.70
Core Equity: $43,641
S&P 500: $49,253
GROWTH OF $10,000
CORE EQUITY S&P 500
1 year 10,434 10,911
3 year 19,001 18,452
5 year 23,024 24,815
10 year 43,641 49,253
CUMULATIVE RETURNS
1 year 4.34% 9.11%
3 year 70.01% 84.52%
5 year 130.24% 148.15%
10 year 336.41% 392.53%
AVERAGE ANNUAL RETURNS
1 year 4.34% 9.11%
3 year 19.35% 22.65%
5 year 18.15% 19.93%
10 year 15.87% 17.29%
</TABLE>
PERFORMANCE RESULTS
The Core Equity Fund returned
4.34% for the one-year period
ended September 30, 1998,
underperforming the S&P 500, which posted a 9.11% return for
the same period. The S&P 500 is an unmanaged representative
index of the broad equity market. (All market index results
that appear in this report are gross, since expenses are not
applicable; in this report, all Trust results are net.) For the
three, five and ten years ended September 30, 1998, the Core
Fund produced average annual returns of 19.35%, 18.15% and
15.87%, respectively, while the S&P 500 posted average annual
returns of 22.65%, 19.93% and 17.29% for these same three
periods.
It should be noted that the Core Equity Fund's annualized
return for the ten years ended September 30, 1998, was achieved
while taking less risk (as measured by standard deviation) than
the S&P 500 (see chart on page 3).
The Core Equity Fund's return of 4.34% for the one-year
period ended September 30, 1998--the best performing Trust
equity fund--significantly outperformed the -1.08% return of
its Lipper benchmark, the Lipper Growth and Income Funds
Average, for the same period. For this period, Core ranked in
the top 29% of its Lipper grouping (205th out of 715 funds).
For the trailing three, five and ten years ended September 30,
1998, the Fund achieved annualized returns of 19.35%, 18.15%
and 15.87%, respectively, outperforming the Lipper benchmark's
annualized returns of 16.62%, 15.09% and 14.01% for the same
three periods. For all three periods, Core was a first quartile
performer versus the Lipper Growth & Income
4
<PAGE>
Funds grouping with rankings in the top 25% (111th out of 449
funds), top 11% (31st out of 289 funds) and top 16% (23rd out
of 144 funds), respectively. Past performance is not a
guarantee of future results.
CORE EQUITY FUND VS LIPPER GROWTH AND INCOME FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
-----------------------------------
1 Year 3 Years 5 Years 10 Years
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
CORE EQUITY FUND(1) 4.34% 19.35% 18.15% 15.87%
Lipper Growth & Income Funds Avg.(2) -1.08 16.62 15.09 14.01
</TABLE>
1. All performance results shown are net of management fees
and all related investment expenses.
2. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
VALUE EQUITY FUND
The Value Equity Fund seeks income and capital appreciation by
investing in a diversified portfolio of stocks with a below
average price-to-earnings (P/E) ratio and above-average growth
prospects. The portfolio typically has a dividend yield that is
higher than the market itself. The aim of the portfolio
manager, Retirement System Investors Inc., is to produce
above-market returns by choosing stocks whose current prices do
not adequately reflect their ability to grow earnings and
dividends over time. (Retirement System Investors Inc. became
the manager of this Fund on April 1, 1995.)
MARKET ENVIRONMENT
In fiscal year 1998, value stocks delivered somewhat lower
returns than the broad equity market, as measured by the S&P
500 Index. The Russell 1000 Value Index (a representative
market index for this Fund) returned 3.59% for the 12 months
ended September 30, 1998, versus the S&P 500 Index, which
returned 9.11% for the same period. Some of this divergence was
traceable to the relatively higher weighting in the S&P 500 of
consumer staples and healthcare companies, stock groups which
performed well during the year. Generally, growth stocks
outperformed value stocks
5
<PAGE>
and large capitalization stocks
outperformed smaller
capitalization stocks. A high
exposure to financial companies
helped the Russell 1000 Value
Index ("Russell Index") returns
for most of the fiscal year, but
hurt returns later in the period
as trading losses and credit
concerns caused a sell-off in
the sector, leaving 12 month
returns for this largest of
Russell Index sectors at -4.2%.
A significant positive
contribution to Russell Index
returns came from its high
exposure to telecommunications,
electric and gas utility service
providers; the utility
sector--the second largest
Russell Index
component--returned a total of
39.3% over the fiscal year.
As the year progressed, the
strong economy and robust
corporate earnings growth of
previous years slowed, and a
lack of confidence in currencies
and policies affected most
emerging economies, leading to
instability in the entire world
financial system. These
negatives for the stock market
were offset by the positive
factors of continued low
inflation, high employment and
consumer spending, and declining
interest rates in the U.S. The
increasing weakness of
significant portions of the
global economy began to affect
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
American
MEASURING RISK AND RETURN
VALUE EQUITY FUND VS
RUSSELL 1000 VALUE INDEX
FOR 10-YEAR PERIOD ENDED 9/30/98
VALUE EQUITY RUSSELL 1000 VALUE
<S> <C> <C>
RETURN 12.84% 15.86%
RISK 14.19% 11.51%
THIS CHART COMPARES THE HISTORICAL AVERAGE
ANNUAL TOTAL RETURN AND THE RISK (AS MEASURED
BY THE STANDARD DEVIATION) OF THE VALUE EQUITY
FUND AND THE RUSSELL 1000 VALUE INDEX FOR
THE TEN-YEAR PERIOD ENDED 9/30/98. THE RUSSELL
1000 VALUE INDEX IS A REPRESENTATIVE MARKET
INDEX FOR THIS FUND. SEE THE CORE EQUITY FUND
CHART (P. ) FOR A DEFINITION OF STANDARD DEVIATION.
</TABLE>
companies, particularly exporters, which also had to contend
with the strong dollar, making U.S. products more costly in
other currencies and diminishing the foreign profits of U.S.
based multinationals when reported in dollar terms. A weakened
Presidency contributed to questions about the ability of the
world's leading economy to take a decisive role in resolving
the world's financial problems.
As the fiscal year progressed, investors' aversion to risk
increased. This benefited such sectors as utilities, food and
tobacco companies, and other high dividend payers like auto
manufacturers and the major oil companies. Additionally,
perhaps counter-intuitively, some investors gravitated to
stocks of large companies without reference to traditional
valuation measures such as price earnings ratios, yield, or
price to book ratios. This created a large valuation gap in the
market related to market capitalization, with the largest
stocks significantly outperforming the smaller ones.
The Fund's investments in the following industries helped
performance during the fiscal year: electric and natural gas
utilities; telecommunications service providers; pharmaceutical
manufacturers; auto companies; and value technology issues. The
Fund seeks to buy undervalued stocks and avoided purchasing
large
6
<PAGE>
capitalization high P/E stocks, which we generally viewed as
overpriced. Because the market gravitated to just these "tried
and true" names--no matter their high cost based on
conventional valuation measures--the Fund's relative returns
for the year were negatively affected. Certain special
situations investments, companies with unique products and
attributes which the market recognized during the course of the
year, contributed significant positive returns to the
portfolio. Relative to the Russell Index, an underweighting in
utilities hurt returns; in the energy sector, Fund weightings
were low in the better performing integrated multinationals and
higher in the poorly performing energy services sector. In
technology, the Fund was overweighted to the Russell Index;
this factor, and favorable stock selection of value oriented
technology issues generated a large positive contribution to
total Fund returns. Good stock selection in the consumer
staples sector also added to returns.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
VALUE EQUITY FUND VS RUSSELL 1000 VALUE INDEX
<S> <C> <C>
88 $10,000.00 $10,000.00
89 $12,461.63 $12,838.89
90 $9,454.86 $10,878.81
91 $12,781.02 $14,026.32
92 $13,649.75 $15,764.85
93 $15,756.12 $19,763.18
94 $16,095.28 $19,627.82
95 $19,415.49 $25,062.53
96 $23,604.43 $29,561.03
97 $34,130.33 $42,068.88
98 $33,481.76 $43,580.19
Value Equity: $33,482
Russell 1000: $43,580
GROWTH OF $10,000
VALUE EQUITY RUSSELL 1000
1 year $9,810 $10,359
3 year $17,245 $17,389
5 year $21,250 $22,051
10 year $33,482 $43,580
CUMULATIVE RETURNS
1 year -1.90% 3.59%
3 year 72.45% 73.89%
5 year 112.50% 120.51%
10 year 234.82% 335.80%
AVERAGE ANNUAL RETURNS
1 year -1.90% 3.59%
3 year 19.92% 20.25%
5 year 16.27% 17.13%
10 year 12.84% 15.86%
</TABLE>
PERFORMANCE RESULTS
For the one-year period ended
September 30, 1998, the Value
Equity Fund returned
-1.90%, trailing the 3.59% return of the Russell 1000 Value
Index, an unmanaged representative index reflecting the
performance of approximately 725 stocks with a
less-than-average growth orientation. For the three-, five- and
ten-year periods ended September 30, 1998, the Fund produced
annual returns of 19.92%, 16.27% and 12.84%, respectively,
compared to annualized returns of 20.25%, 17.13% and 15.86% for
the Russell 1000 Value Index for these specific trailing
periods. [Retirement System Investors Inc. has been the manager
of the Fund since April 1, 1995. During the period, it returned
21.74% per annum, while the Russell 1000 Value Index reflected
an annualized return of 22.94% for the same period.] The Fund's
risk profile, as measured by standard deviation, versus the
market (the Russell 1000 Value) is reflected in the chart on
page 3.
For the one year period ended September 30, 1998, the
Fund's return of -1.90% trailed the -1.08% return of the Lipper
Growth and Income Funds Average, a representative performance
benchmark, for the same period. For the recent three and five
years ended September 30, 1998, the Value Equity Fund reflected
annualized returns of 19.92% and 16.27% and outpaced the Lipper
benchmark returns of 16.62% and 15.09% per annum for those
periods. These performances ranked the fund in the top 19%
(82nd out of 449 funds) and top 32% (90th out of 289 funds) of
its Lipper benchmark grouping, respectively. For the recent
ten-year period, the Fund returned 12.84% per year versus the
14.01% annualized return for the Lipper benchmark. [Retirement
System Investors Inc., the manager of this Fund since April 1,
1995, or 3 1/2 years ended September 30, 1998, reflected an
annualized return of 21.74% and exceeded the 19.03% annualized
return for the Lipper Growth & Income Funds average by 244
basis points per year. Value ranked in the top 27% of its
Lipper benchmark grouping--111th out of 418 funds.] Past
performance is not a guarantee of future results.
7
<PAGE>
VALUE EQUITY FUND VS LIPPER GROWTH AND INCOME FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
-----------------------------------
1 Year 3 Years 5 Years 10 Years
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
VALUE EQUITY FUND(1) -1.90% 19.92% 16.27% 12.84%
Lipper Growth & Income Funds Avg.(2) -1.08 16.62 15.09 14.01
</TABLE>
1. All performance results shown are net of management fees
and all related investment expenses.
2. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
EMERGING GROWTH EQUITY FUND
The Emerging Growth Equity Fund, a fund that has above-average
volatility, seeks capital appreciation through investment in
quality growth stocks of smaller companies--those in the $50
million to $750 million capitalization range at time of
purchase.
MARKET ENVIRONMENT
Economic growth, as measured by the Gross Domestic Product
("GDP"), was respectable for the fourth quarter, 1997 at 3.7%,
annualized, and reached a very strong 6.4% for the first
quarter, 1998, before dropping off substantially in the second
quarter to 2.7%. For the final quarter of fiscal year 1998, the
GDP was 3.3%. It was a year when large cap growth stocks, for
the most part, were in favor, followed by large cap value
stocks. The stock market for large cap growth and value stocks
peaked in mid-July, 1998 and then dropped off about 15% for the
remainder of the third quarter. As noted in the Market
Commentary for the Core Equity Fund, a number of factors
contributed to the change of investor sentiment for equities,
especially during the September quarter. While economic
uncertainty on a global basis was of concern, most noticeably
at fiscal year-end, it was a period when inflation in the U.S.
remained very subdued (1.5% year-on-year through September 30,
1998) and long interest rates were the lowest in over 30 years.
8
<PAGE>
Stock of small
capitalization companies, as
measured by the Russell 2000
Growth Index, peaked on April
17, 1998 (three months before
large cap stocks), and dropped
severely through August. The
Russell 2000 Growth Index (the
most appropriate market index
benchmark for the Fund) was down
35% at August 31st from its
peak, but experienced solid
recovery in September (Index
rose 10.14%). From September 30,
1997 through the market peak in
April, the Russell 2000 Growth
Index showed a lackluster,
single digit increase of 5.4%.
In contrast, large cap growth
stocks, as measured by the
Russell 1000 Growth Index,
increased 29.0% from Septmber
30, 1997 to its peak on July
20th, while the S&P 500 Index
rose 25.3% from September 30,
1997 to its peak in July.
With little or no interest
in small cap stocks for most of
the year, and major liquidity
concerns, the Russell 2000
Growth Index returned -24.83%
for the year versus +11.10% for
the Russell 1000 Growth Index
and +9.11% for the S&P 500
Index. (For comparative
purposes, in fiscal year 1997,
the Russell 2000 Growth Index
rose 23.35% while the Russell
1000 Growth Index was up 36.30%
and the S&P 500 generated a
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
40.50% return.)
MEASURING RISK AND RETURN
EMERGING GROWTH EQUITY FUND VS
RUSSELL 2000 GROWTH INDEX
FOR 10-YEAR PERIOD ENDED 9/30/98
EMERGING GROWTH RUSSELL 2000 GROWTH
<S> <C> <C>
RETURN 12.67% 9.11%
RISK 23.63% 20.68%
THIS CHART COMPARES THE HISTORICAL AVERAGE ANNUAL
TOTAL RETURN AND THE RISK (AS MEASURED BY THE
STANDARD DEVIATION) OF THE EMERGING GROWTH
EQUITY FUND AND THE RUSSELL 2000 GROWTH INDEX
FOR THE TEN-YEAR PERIOD ENDED 9/30/98. THE RUSSELL
2000 GROWTH INDEX IS A REPRESENTATIVE MARKET INDEX FOR
THIS FUND. SEE THE CORE EQUITY FUND CHART (P. )
FOR A DEFINITION OF STANDARD DEVIATION.
</TABLE>
The Emerging Growth Equity Fund is managed by two
investment managers under sub-advisory agreements with
Retirement System Investors Inc.--HLM Management Company, Inc.
("HLM"), since April 1, 1997 and Friess Associates, Inc.
("Friess") since January 1, 1990. As of September 30, 1998,
Friess was managing 61% of the assets of the Fund and HLM was
managing the remaining 39%.
Friess is a small market capitalization, aggressive
growth-oriented manager. At the start of the year, Friess
maintained over 83% of the portfolio assets in the consumer,
technology and energy sectors of the market. This position
changed to 76.5% at September 30, 1998. Portfolio performance
was most volatile during the fourth quarter, 1997 (mainly in
the month of December, when Friess underperformed versus the
market by over 6% (-6.32% vs. +0.06%), and the third quarter,
1998 (principally in September, with a gross return of +1.39%
versus +10.14% for the market).
9
<PAGE>
In the fourth quarter, 1997 Friess shifted assets out of
the technology, energy and capital goods sectors because of
deteriorating earnings prospects, which were further impacted
by the Asian financial crisis. As a result, 19.7% of the
portfolio holdings in these three sectors were eliminated from
early December through January, 1998--technology went from
25.7% to 15.8%, energy from 12.9% to 4.9% and capital goods
from 7.45 to 5.6% of portfolio assets. This action took place
after incurring major portfolio losses in these sectors.
(During this period, cash reached 25% of the assets managed by
Friess and declined gradually to 10% at March 31, 1998).
After the completion of portfolio restructuring (i.e.,
acquiring stocks that exhibited little exposure to the more
sensitive industries that were experiencing major changes in
earnings expectations), performance was modestly favorable for
the first and second quarters of 1998 followed by a hostile
environment in the third quarter, especially in August, when
the small cap growth market (Russell 2000 Growth Index) was
dramatically down, at -23.08%. It was a period when consumer
cyclical and technology stocks were hit the hardest, and the
Friess portfolio, with heavy concentrations in both areas,
suffered accordingly. For this quarter, Friess experienced a
gross return of -31.55%, down over nine percentage points
versus the Russell 2000 Growth Index of -22.36%. (Friess's
gross return for fiscal 1998 was -38.66% versus +46.21% for
fiscal year 1997.)
Friess continues to conduct its research of identifying
companies through intensive bottom-up research by working with
company managements as well as customers, competitors, and
suppliers. At September 30, 1998, the portion of the Fund's
portfolio managed by Friess held 59 stocks with emphasis on
holding stronger companies with more predictable earnings (down
from 88 holdings at September 30, 1997).
HLM invests in small capitalization stocks and is a more
conservative emerging growth company manager than Friess. It
invests in high-quality emerging companies that are
entrepreneurially managed, rapidly growing and have the
potential to become profitable industry leaders. At time of
purchase, the companies will normally have a market value of
$100-$500 million. (At September 30, 1998, the average market
cap was $322 million for HLM and $502 million for Friess.) A
substantial majority of HLM's portfolio companies have
completed their IPO's within the past four years. For the 12
months ended September 30th, HLM reflected a gross portfolio
return of -24.16%, which was in line with the market--the
Russell 2000 Growth Index--which declined 24.83% for this
period.
The weakness in performance was broadly spread with just a
few pockets of relative strength. The strongest areas were
financial services, reflecting HLM's ownership of processors
serving the financial services market and the consumer
discretionary and business services sectors. Within the
consumer discretionary sector, the exception was the education
area, which was weak. The relatively stronger performance in
the financial services and business services sectors reflects
investor recognition of the perceived sustainability of
earnings trends in these
10
<PAGE>
groups. The weakest areas were health care services, where
price pressure from the payers continued, and biotechnology and
medical products, where valuations severely compressed.
During the year, HLM industry exposure shifted slightly.
The only substantial increase in industry weighting was in
financial services, ending at 10% of portfolio assets. This
weighting is largely composed of companies who provide
processing services to financial service companies, or serve
the financial needs of major corporations. The technology
industry showed the largest decline, from 23.5% of portfolio
assets to 18.4%. This decline reflects the growing worldwide
softness in industry fundamentals, with the exception of the
Internet, where HLM has only modest exposure because of
difficulty in identifying potentially successful business
models. The other industry showing a substantial decline was
energy, where assets declined from 7.9% to 0.4%, reflecting
worldwide demand softness, which was strongly influenced by the
Asian economic woes. Significant industries where HLM's
exposure remained high during the year were consumer
discretionary, business and educational service stocks with
holdings of about 28% and a 26% weighting in the broadly
diversified health care area.
On September 30, 1998, the HLM portfolio held 46 stocks, of
which only two overlapped with the Friess holdings. (At
September 30, 1997, HLM held 57 stocks, with an overlap of four
stocks with Friess). The reduced number of holdings is well
within the range of the 40 to 60 stocks that HLM traditionally
holds. The current lower number reflects HLM's focus on the
most sustainable business models; including a smaller than
normal content of recently public companies.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EMERGING GROWTH EQUITY FUND VS RUSSELL 2000 GROWTH INDEX
<S> <C> <C>
88 $10,000.00 $10,000.00
89 $11,537.54 $12,350.68
90 $8,992.47 $9,110.41
91 $14,020.33 $13,736.24
92 $14,572.98 $13,706.07
93 $21,336.85 $17,706.13
94 $21,601.16 $17,861.23
95 $31,584.79 $22,894.04
96 $40,288.93 $25,780.62
97 $50,741.11 $31,801.52
98 $32,978.42 $23,904.27
Emerging Growth: $32,978
Russell 2000 Growth: $23,904
GROWTH OF $10,000
EMERGING GROWTH EQUITY RUSSELL 2000 GROWTH
1 year $6,499 $9,517
3 year $10,441 $10,441
5 year $15,456 $13,501
10 year $32,978 $23,904
CUMULATIVE RETURNS
1 year -35.01% -24.83%
3 year 4.41% 4.41%
5 year 54.56% 35.01%
10 year 229.78% 139.04%
AVERAGE ANNUAL RETURNS
1 year -35.01% -24.83%
3 year 1.45% 1.45%
5 year 9.10% 6.19%
10 year 12.67% 9.11%
</TABLE>
PERFORMANCE RESULTS
The Emerging Growth Equity Fund
declined -35.01% for the
one-year period ended
11
<PAGE>
September 30, 1998, and trailed the -24.83% return of the
Russell 2000 Growth Index, a representative index that reflects
the performance of the small company growth securities
component of the Russell 2000 Index. (The latter index was down
19.01%). For the three-year period ended September 30, 1998,
the Fund's net return, at 1.45%, annualized, was equal to the
market return; and, for the five- and ten-year periods, the
Fund outperformed the Russell 2000 Growth Index, achieving an
average annual return of 9.10% and 12.67% per year,
respectively, compared to the 6.19% and 9.11% return per year
for the Index. The Fund's risk profile (as measured by standard
deviation) versus the market (the Russell 2000 Growth Index) is
reflected in the chart on page 3.
For the one-year period ended September 30, 1998, the
Emerging Growth Fund produced a return of -35.01, compared to
the Lipper Small Company Growth Funds Average return of
-20.60%. For the longer periods (three, five and ten years),
the annualized returns trailed the Lipper Small Company Growth
Average (the Fund's representative performance benchmark) with
annualized returns of 1.45%, 9.10% and 12.67% versus annualized
returns of 6.45%, 9.40% and 13.02%, respectively, for the
Lipper benchmark. Past performance is not a guarantee of future
results.
EMERGING GROWTH EQUITY FUNDS VS LIPPER SMALL COMPANY GROWTH
FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
-----------------------------------
1 Year 3 Years 5 Years 10 Years
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
EMERGING GROWTH EQUITY FUND(1) -35.01% 1.45% 9.10% 12.67%
Lipper Small Company Growth Funds Avg.(2) -20.60 6.45 9.40 13.02
</TABLE>
1. All performance results shown are net of management fees
and all related investment expenses.
2. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks capital appreciation over
time by investing in stocks of companies that are headquartered
in foreign countries, in order to take advantage of
opportunities outside the U.S. capital markets. While holdings
are principally concentrated in the larger markets abroad
(including small capitalization companies), some investments
are also made in emerging markets. The portfolio manager,
Morgan Grenfell Investment Services Ltd. ("Morgan Grenfell"),
looks for companies whose current prices, in their view, do not
reflect their true earnings potential, and for stocks that are
misperceived by investors, and therefore, are selling at
undervalued prices. (Morgan Grenfell manages under a
sub-advisory agreement with Retirement System Investors Inc.)
MARKET ENVIRONMENT
The year ended September 30, 1998 was an extraordinarily
difficult one for international markets, as a series of events
around the globe combined to undermine investor confidence and
induce extreme volatility into equity and
12
<PAGE>
currency markets alike. Fiscal year 1997 closed with problems
mainly confined to the markets of the Far East. However, by the
close of the period under review, all markets had undergone
periods of severe correction. Problems continued to emanate
from Asia as the Japanese economy confirmed recession. Further
concerns were created as Russia devalued the ruble and
defaulted on a number of bond
issues, while write-offs were reported by a number of leveraged
hedge funds and global banks. The period under review ended in
great uncertainty as investors attempted to assess the
likelihood of recession spreading to the economies of the West.
Weighed down by problems in the East, the MSCI EAFE Index ended
the fiscal year down 8.35%, which, like 1997, compared
unfavorably again to the U.S. (S&P 500 Index was up 9.11%). In
addition, as in 1997, there was enormous disparity of returns:
Europe at +8.7%, compared more than favorably with Japan, which
was down over 33%. However, most dramatic market declines were
seen in the emerging markets of the world, where the problems
in Russia and continuing problems in Asia encouraged investors
to exit these traditionally more volatile markets-- Indonesia
down 87%, followed by Malaysia (-73%), and Thailand (-64%). In
Latin America, the market also reacted unfavorably, with Brazil
down 48% and Mexico down 43%. Hong Kong, which had reacted well
to the Chinese take-over in June 1997, fell 47% and the Hong
Kong/U.S. dollar exchange rate peg was attacked. Singapore was
also down 49%.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURING RISK AND RETURN
INTERNATIONAL EQUITY FUND VS
MSCI EAFE
FOR 10-YEAR PERIOD ENDED 9/30/98
INTERNATIONAL
<S> <C> <C>
EQUITY MSCI EAFE
RETURN 6.20% 5.10%
RISK 13.41% 16.59%
THIS CHART COMPARES THE HISTORICAL AVERAGE
ANNUAL TOTAL RETURN AND THE RISK (AS MEASURED BY
THE STANDARD DEVIATION) OF THE INTERNATIONAL
EQUITY FUND AND THE MSCI EAFE FOR THE TEN-YEAR
PERIOD ENDED 9/30/98. THE MSCI EAFE IS A
REPRESENTATIVE MARKET INDEX FOR THIS FUND.
SEE THE CORE EQUITY FUND CHART (P. 2)
FOR A DEFINITION OF STANDARD DEVIATION.
</TABLE>
13
<PAGE>
In the face of deteriorating fundamentals, the portfolio
manager reduced Latin American holdings to zero in the second
quarter and also reduced weightings in the Far East to below
index weightings. Despite these moves, the International Equity
Fund underperformed versus the market, with a gross return of
-9.31 compared to -8.35% for the MSCI EAFE Index. Good stock
selection in the U.K., Sweden, and Japan was offset by
generally poor returns in European stock markets. Asset
allocation was also negative, with the positive impact of
underweighting Japan more than offset by poor allocation
throughout Europe. Here the core markets, namely Germany
(+15.9%) and France (+14.8%) did particularly well. The U.K.,
on the other hand, where the portfolio was overweighted,
returned +3.4%. Despite Yen strength towards the end of the
year, the portfolio benefited from the hedges from Yen into
U.S. dollars, which were in place throughout the year.
For the past four fiscal years, the MSCI EAFE Index has
significantly trailed the U.S. stock market performance, with
returns of 5.80% in 1995, 8.61% in 1996, 12.18% in 1997 and
-8.35% in 1998, versus the S&P 500, which returned 29.72%,
20.36%, 40.50%, and 9.11%, respectively, for these periods.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND VS MSCI EAFE
<S> <C> <C>
88 $10,000.00 $10,000.00
89 $11,964.14 $12,229.84
90 $10,163.69 $8,853.32
91 $11,749.89 $10,792.34
92 $11,352.33 $10,024.49
93 $13,797.88 $12,666.51
94 $15,291.72 $13,908.68
95 $16,163.12 $14,717.98
96 $18,171.34 $15,987.88
97 $20,516.55 $17,934.99
98 $18,247.64 $16,436.61
International Equity: $18,248
MSCI EAFE: $16,437
GROWTH OF $10,000
INTERNATIONAL EQUITY MSCI EAFE
1 year $8,894 $9,165
3 year $11,290 $11,168
5 year $13,225 $12,976
10 year $18,248 $16,437
CUMULATIVE RETURNS
1 year -11.06% -8.35%
3 year 12.90% 11.68%
5 year 32.25% 29.76%
10 year 82.48% 64.37%
AVERAGE ANNUAL RETURNS
1 year -11.06% -8.35%
3 year 4.13% 3.75%
5 year 5.75% 5.35%
10 year 6.20% 5.10%
</TABLE>
PERFORMANCE RESULTS
For the one-year period ended
September 30, 1998, the
International Equity Fund
returned -11.06%, versus the MSCI EAFE Index return of -8.35%.
For the recent three- and five-year periods, the Fund reflected
annualized returns of 4.13% and 5.75%, outperforming the EAFE
Index, which returned 3.75% and 5.35% per annum for both these
periods. For the ten years ended September 30, 1998, the
International Fund produced a return of 6.20%, annualized,
compared to the MSCI EAFE Index per year return of 5.10%.
During this period, the Fund had a much lower risk exposure, as
measured by standard deviation, than the MSCI EAFE Index (see
chart on page 3).
14
<PAGE>
The International Equity Fund's return of -11.06% for the
one-year period ended September 30, 1998 underperformed the
-10.65% return of the Lipper International Funds Average, the
Fund's performance benchmark. For the trailing three-,
five- and ten-year periods ended September 30, 1998, the Fund
returned 4.13%, 5.75% and 6.20% per annum, respectively, versus
an annualized return of 4.79%, 6.41% and 8.42%, respectively,
for the Lipper benchmark. Past performance is not a guarantee
of future results.
INTERNATIONAL EQUITY FUND VS LIPPER INTERNATIONAL FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
--------------------------------------
1 Year 3 Years 5 Years 10 Years
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND(1) -11.06% 4.13% 5.75% 6.20%
Lipper International Funds Avg.(2) -10.65 4.79 6.41 8.42
</TABLE>
1. All performance results shown are net of management fees
and all related investment expenses.
2. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
15
<PAGE>
ACTIVELY MANAGED BOND FUND
The Actively Managed Bond Fund invests in high-quality,
fixed-income securities (bonds and other debt securities) with
maturities of up to 30 years. The Fund has been managed by
Retirement System Investors Inc. exclusively since August 2,
1993. Its performance index is the Lehman Brothers Aggregate
Bond Index.
MARKET ENVIRONMENT
The environment for fixed-income
investors was mostly favorable
during the fiscal year ended
September 30, 1998. The bond
market rallied on prospects that
deflation and weakened economies
in Asia and other developing
countries would slow the U.S.
economy and further reduce
inflation. Inflation declined to
less than 2.0% by various
measurements (CPI, PPI, GDP
deflators, etc.), real returns
on fixed-income securities were
above historical averages and
also above low foreign bond
yields, and a Federal budget
surplus reduced Treasury
financings. The Federal Reserve
reduced the Funds rate to 5.25%
from 5.50% at its September
meeting, citing the dampening
effect of a global slowdown on
the U.S. economy. A further cut
in Fed Funds to 5.0%, and a cut
in the discount rate to 4.75%
from 5.0% were made in October
(fiscal year 1999), citing
unsettled credit market
conditions.
Interest rates trended lower
throughout the 1998 fiscal year.
The 30-year Treasury ended
fiscal 1998 at 4.97% versus
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
6.40%
MEASURING RISK AND RETURN
ACTIVELY MANAGED BOND FUND VS
LEHMAN BROTHERS AGGREGATE BOND INDEX
FOR 10-YEAR PERIOD ENDED 9/30/98
ACTIVELY MANAGED LEHMAN BROS.
<S> <C> <C>
RETURN 8.81% 9.30%
RISK 5.29% 4.68%
THIS CHART COMPARES THE HISTORICAL AVERAGE
ANNUAL TOTAL RETURN AND THE RISK (AS MEASURED
BY THE STANDARD DEVIATION) OF THE ACTIVELY
MANAGED BOND FUND AND THE LEHMAN BROS.
AGGREGATE BOND INDEX FOR THE TEN-YEAR PERIOD
ENDED 9/30/98. LEHMAN BROS. IS A REPRESENTATIVE
MARKET INDEX FOR THIS FUND. SEE THE CORE EQUITY
FUND CHART (P. ) FOR A DEFINITION OF
STANDARD DEVIATION
</TABLE>
the year before; the ten-year Treasury declined to 4.41% from
6.10%; the five-year Treasury fell to 4.21% from 5.98%; and the
two-year Treasury was 4.26% versus 5.77%. A flat to inverted
yield curve currently discounts further rate cuts by the
Federal Reserve.
During the final quarter of fiscal 1998 (July through
September), a flight to quality developed which attracted money
to U.S. Treasuries. Russia defaulted and fear grew of more debt
defaults among developing countries. Volatility increased in
the markets and spreads widened sharply between Treasuries and
other bond sectors. Leveraged arbitrageurs faced a credit
crunch, and to raise liquidity, mortgages, corporates, agencies
and other non-Treasuries were sold, with yield spreads widening
at least 50 to 100 basis points over normal levels.
Consequently, long term Treasuries considerably outperformed
other bond sectors in the September quarter and also for the
year. Callable products, despite higher yields, lagged during
the quarter and year because of the spread widenings and their
15
<PAGE>
shorter durations. Funds with above-average exposure to long
Treasuries were the best performers in fiscal 1998, and those
primarily in short callable issues were underperformers.
The Actively Managed Bond Fund began fiscal 1998 with a
duration of 5.8 years, which was gradually raised to 6.5 years
at September 30, 1998. The Lehman Brothers Aggregate Bond Index
had a modified duration of 4.3 years at the end of fiscal 1998.
Investment objectives during the year primarily consisted of
buying Federal agency bonds and mortgages to obtain higher
yields, while maintaining duration longer than the Index. At
September 30, 1998, the yield to maturity of the Actively
Managed Bond Fund was 6.55%, versus 5.37% for the Aggregate
Bond Index.
The Fund maintained high quality, with 15% in U.S.
Treasuries, 17% in Federal agency notes and bonds, 8% in
Federal agency mortgage pass thrus, 58% in agency and AAA rated
collateralized mortgage obligations and 2% in corporates as of
fiscal year end. (The quality of holdings is restricted to "A"
or better, and at least 65% of holdings must be U.S. Government
or agency issues.)
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
ACTIVELY MANAGED BOND FUND VS LEHMAN BROTHERS AGGREGATE BOND INDEX
<S> <C> <C>
88 $10,000.00 $10,000.00
89 $10,844.55 $11,125.28
90 $11,373.95 $11,965.48
91 $13,409.42 $13,878.20
92 $15,154.99 $15,620.96
93 $16,919.06 $17,180.88
94 $16,074.03 $16,626.62
95 $18,245.20 $18,962.61
96 $18,991.54 $19,891.07
97 $20,903.65 $21,821.14
98 $23,272.19 $24,329.71
Actively Managed: $23,272
Lehman Bros. Index: $24,330
GROWTH OF $10,000
ACTIVELY MANAGED BOND FUND LB AGG. BOND INDEX
1 year $11,133 $11,150
3 year $12,755 $12,830
5 year $13,755 $14,161
10 year $23,272 $24,330
CUMULATIVE RETURNS
1 year 11.33% 11.50%
3 year 27.55% 28.30%
5 year 37.55% 41.61%
10 year 132.72% 43.30%
AVERAGE ANNUAL RETURNS
1 year 11.33% 11.50%
3 year 8.45% 8.66%
5 year 6.58% 7.21%
10 year 8.81% 9.30%
</TABLE>
PERFORMANCE RESULTS
The Actively Managed Bond Fund
posted a return of 11.33% for
the one-year period
ended September 30, 1998 and was within 17 basis points of the
11.50% return of the Lehman Brothers Aggregate Bond Index, a
representative market index. For the recent three- and
five-year periods, the Fund's annualized returns were 8.45% and
6.58% compared to the market index returns of 8.66% and 7.21%
per annum. Over the longer term, ten years ended September 30,
1998, the Fund had a return of 8.81% per year compared to the
9.30% annualized return of the Lehman Brothers Aggregate Bond
Index. During this ten-year period, the Fund's risk profile, as
measured by standard deviation, exceeded that of the market
index (see chart on page 3).
The Actively Managed Bond Fund underperformed its Lipper
benchmark, the U.S. Government Bond Funds Average, for the
one-year period ended September 30, 1998, with a return of
11.33%, compared to the 11.64% return of the benchmark. Over
the longer term (three, five and ten years ended September 30,
1998), the Fund showed superior performance results compared to
its Lipper benchmark with annualized returns of 8.45%, 6.58%
and 8.81%, respectively. For all three periods, the Lipper
benchmark reflected returns of 7.82%, 6.10% and 8.19% per
annum. For these periods, the Fund achieved a top 17% ranking
(25th out of 152 funds), a top 26% ranking (25th out of 97
funds) and a top 22% ranking (11th out of 52 funds),
respectively, in the Lipper benchmark grouping. Past
performance is not a guarantee of future results.
16
<PAGE>
ACTIVELY MANAGED BOND FUND VS LIPPER U.S. GOVERNMENT BOND FUNDS
AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
-----------------------------------
1 Year 3 Years 5 Years 10 Years
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
ACTIVELY MANAGED BOND FUND(1) 11.33% 8.45% 6.58% 8.81%
Lipper U.S. Government Bond Funds
Avg.(2) 11.64 7.82 6.10 8.19
</TABLE>
1. All performance results shown are net of management fees
and all related investment expenses.
2. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
INTERMEDIATE-TERM BOND FUND
The Intermediate-Term Bond Fund invests in high-quality,
fixed-income securities that mature within ten years or have
expected average lives of ten years or less. It is
managed by Retirement System
Investors Inc. Its performance
index is the Lehman Brothers
Government-Intermediate Bond
Index.
MARKET ENVIRONMENT
The mostly favorable environment
for fixed-income investors (see
Actively Managed Bond Fund) also
had a positive impact on the
Intermediate-Term Bond Fund,
until the final quarter of
fiscal 1998. The flight to
quality into Treasuries, with
yield spreads widening sharply
in all other bond sectors,
caused the Intermediate Fund to
underperform in the September
quarter and fiscal 1998 year. As
noted under the Actively Managed
Bond Fund, during the final
quarter of fiscal 1998 (July
through September) a flight to
quality developed, which
attracted money to U.S.
Treasuries. Russia defaulted and
fear grew of more debt defaults
among developing countries.
Volatility increased in the
markets and spreads widened
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
sharply between Treasuries
MEASURING RISK AND RETURN
INTERMEDIATE-TERM BOND FUND VS
LEHMAN BROTHERS GOVERNMENT-
INTERMEDIATE BOND INDEX
FOR 10-YEAR PERIOD ENDED 9/30/98
<S> <C> <C>
INTERMEDIATE-TERM LEHMAN BROS.
RETURN 7.75% 8.38%
RISK 3.64% 3.84%
THIS CHART COMPARES THE HISTORICAL AVERAGE
ANNUAL TOTAL RETURN AND THE RISK (AS MEASURED
BY THE STANDARD DEVIATION) OF THE INTERMEDIATE-TERM
BOND FUND AND THE LEHMAN BROS. GOVERNMENT-
INTERMEDIATE BOND INDEX FOR THE TEN-YEAR PERIOD
ENDED 9/30/98. LEHMAN BROS. IS A REPRESENTATIVE
MARKET INDEX FOR THIS FUND. SEE THE CORE EQUITY
FUND CHART (P. 2) FOR A DEFINITION OF
STANDARD DEVIATION.
</TABLE>
and other bond sectors. Leveraged arbitrageurs faced a credit
crunch, and to raise liquidity sold mortgages, corporates,
agencies and other non-Treasuries, with yield spreads widening
at least 50 to 100 basis points over normal levels.
Consequently, long-term Treasuries considerably outperformed
other bond sectors in the September quarter and also for the
year. Callable products, despite higher yields, lagged during
the quarter and year because of the spread widenings and their
shorter durations. Funds with above-average exposure to long
Treasuries were the best performers in fiscal 1998, and those
primarily in short callable issues were underperformers.
17
<PAGE>
Conversely, should the spreads narrow to more normal
levels, it will permit the Intermediate-Term Bond Fund to
outperform. The Intermediate-Term Bond Fund is also yield
oriented, with a yield to maturity of 5.77% at September 30,
1998, versus 4.51% for the Lehman Brothers
Government-Intermediate Bond Index. The duration of the Fund
was increased to 3.8 years at September 30, 1998, from 3.4
years at the start of the fiscal year, and compares with the
Indice's 3.1 year modified duration.
The Intermediate-Term Bond Fund maintained an emphasis on
high-quality, fixed-income investments during the one-year
period covered by this report. At the end of the year, 99.8% of
the holdings were in "AAA" securities, including 6% in U.S.
Treasuries, 13% in agency mortgage pass thrus, 57% in agency
and AAA rated collateralized mortgage obligations, and 23% in
Federal agency notes and bonds. (The quality of holdings is
restricted to "A" or better, and at least 65% of holdings must
be U.S. Government or agency issues.)
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
INTERMEDIATE-TERM LEHMAN BROTHERS GOVERNMENT/
<S> <C> <C>
BOND FUND VS INTERMEDIATE BOND INDEX
1988 $10,000.00 $10,000.00
1989 $10,877.30 $10,962.50
1990 $11,811.40 $11,902.87
1991 $13,431.61 $13,521.12
1992 $14,965.24 $15,206.52
1993 $16,047.43 $16,369.47
1994 $15,707.31 $16,123.83
1995 $17,315.15 $17,833.51
1996 $18,122.54 $18,744.34
1997 $19,508.03 $20,213.46
1998 $21,084.75 $22,353.31
Intermediate-Term Bond: $21,085
Lehman Brothers Index: $22,353
GROWTH OF $10,000
INTERMEDIATE-TERM BOND FUND LB GOV'T-INTER. BOND INDEX
1 year $10,808 $11,059
3 year $12,177 $12,534
5 year $13,139 $13,655
10 year $21,085 $22,353
CUMULATIVE RETURNS
1 year 8.08% 10.59%
3 year 21.77% 25.34%
5 year 31.39% 36.55%
10 year 110.85% 123.53%
AVERAGE ANNUAL RETURNS
1 year 8.08% 10.59%
3 year 6.79% 7.82%
5 year 5.61% 6.43%
10 year 7.75% 8.38%
</TABLE>
PERFORMANCE RESULTS
The Intermediate-Term Bond Fund
posted a return of 8.08% for the
one-year period
ended September 30, 1998, versus the 10.59% return for the
Lehman Brothers Government-Intermediate Bond Index, a
representative market index. For the three and five years ended
September 30, 1998, the Fund reflected annualized returns of
6.79% and 5.61% compared to 7.82% and 6.43% per annum for the
market index. For the ten-year period ended September 30, 1998,
the Intermediate-Term Bond
18
<PAGE>
Fund achieved an annualized return of 7.75%, while the market
index returned 8.38% per year. Both the Fund and the market
index had similar risk profiles, as measured by standard
deviation, during this period (see chart on page 3).
For the one-year period ended September 30, 1998, the Fund
had a return of 8.08% versus 8.25% for the Lipper
Short-Intermediate (one to five years maturity) U.S. Government
Funds Average, the Fund's performance benchmark. For the recent
three-, five-, and ten-year periods, the Fund's experienced
annualized returns of 6.79%, 5.61% and 7.75%, respectively,
outperformed the Lipper benchmark for all three periods by 15,
30, and 23 basis points, per year, respectively. Past
performance is not a guarantee of future results.
INTERMEDIATE-TERM BOND FUND VS LIPPER SHORT-INT. U.S. GOV'T.
FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
-----------------------------------
1 Year 3 Years 5 Years 10 Years
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INTERMEDIATE-TERM BOND FUND(1) 8.08% 6.79% 5.61% 7.75%
Lipper Short-Intermediate (1 to 5
years maturity) U.S. Gov't. Funds
Avg.(2) 8.25 6.64 5.31 7.52
</TABLE>
1. All performance results shown are net of management fees
and all related investment expenses.
2. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
SHORT-TERM INVESTMENT FUND
The Short-Term Investment Fund, managed by Retirement System
Investors Inc., invests in high-quality, cash equivalent-type
securities maturing in one year or less, and U.S. Government
instruments with maturities of up to two years. The portfolio's
maximum average maturity is one year.
MARKET ENVIRONMENT
Short-term interest rates fell
throughout most of fiscal 1998
as the upheaval in world
financial markets sent investors
flocking to the safety and
liquidity of U.S. Treasury
securities. On September 29, the
Fed lowered the funds rate by 25
basis points and most believe
that more rate cuts are likely.
During the 52-week period
beginning September 30, 1997,
the 90-day Treasury bill moved
from its 12-month high of 5.47%
at December 23, 1997 to its
12-month low of 4.36% at
September 30, 1998.
During the one year ended
September 30, 1998, the
Short-Term Investment Fund's
average maturity peaked at 164
days
19
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURING RISK AND RETURN
SHORT-TERM INVESTMENT FUND VS
SALOMON BROS. 6-MONTH U.S. TREASURY BILLS
FOR 10-YEAR PERIOD ENDED 9/30/98
SHORT-TERM INVESTMENT SALOMON BROS. T-BILLS
<S> <C> <C>
RETURN 5.24% 5.73%
RISK 0.95% 0.81%
THIS CHART COMPARES THE HISTORICAL AVERAGE ANNUAL
TOTAL RETURN AND THE RISK (AS MEASURED BY THE
STANDARD DEVIATION) OF THE SHORT-TERM INVESTMENT
FUND AND THE SALOMON BROS. 6-MONTH U.S. TREASURY BILLS
FOR THE TEN-YEAR PERIOD ENDED 9/30/98. T-BILLS ARE A
REPRESENTATIVE MARKET INDEX FOR THIS FUND. SEE THE
CORE EQUITY FUND CHART (P. 2) FOR A DEFINITION OF
STANDARD DEVIATION.
</TABLE>
on September 30, 1998, approximately one month longer than the
average maturity of 120 days one year earlier on September 30,
1997. Short intersector yield spreads (e.g., one-month
commercial paper versus two-year Treasury notes) widened
tremendously, from 28 basis points on September 30, 1997 to 97
basis points on September 30, 1998. Most other short
intersector spreads also widened as the short-term portion of
the yield curve became slightly inverted in recent months.
Investment changes during the fiscal year included introducing
short mortgages and Remics to increase both the average
maturity and yield of the fund while maintaining a commitment
to quality. Accordingly, at September 30, 1998, 94.1% of
holdings were rated "AA" or better by two or more of the
nationally recognized rating agencies.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SHORT-TERM SALOMON BROS. 6-MONTH
<S> <C> <C>
INVESTMENT FUND VS. U.S. TREASURY BILLS
1988 $10,000.00 $10,000.00
1989 $10,889.55 $10,864.46
1990 $11,797.50 $11,760.36
1991 $12,552.12 $12,559.17
1992 $13,022.82 $13,125.54
1993 $13,321.68 $13,558.42
1994 $13,717.67 $14,075.53
1995 $14,427.46 $14,905.86
1996 $15,122.31 $15,719.46
1997 $15,861.99 $16,570.43
1998 $16,668.91 $17,461.11
Short-Term: $16,669
Salomon Bros. T-Bills: $17,461
GROWTH OF $10,000
SHORT-TERM INVESTMENT SALOMON BROS. T-BILLS
1 year $10,509 $10,538
3 year $11,554 $11,714
5 year $12,513 $12,878
10 year $16,669 $17,461
CUMULATIVE RETURNS
1 year 5.09% 5.38%
3 year 15.54% 17.14%
5 year 25.13% 28.78%
10 year 66.69% 74.61%
AVERAGE ANNUAL RETURNS
1 year 5.09% 5.38%
3 year 4.93% 5.41%
5 year 4.59% 5.19%
10 year 5.24% 5.73%
</TABLE>
PERFORMANCE RESULTS
For the one-year period ended
September 30, 1998, the
Short-Term Investment Fund
returned 5.09% versus the 4.93% for the Lipper Retail Money
Funds Average, an unmanaged index of money funds that reflects
performance after fees and expenses are taken out. Salomon
Brothers 6-Month U.S. Treasury bills (an unmanaged index which
provides a representative proxy for the short-term fixed-income
securities market) returned 5.38% for this period. For the
recent three-year period, the Fund's annualized return of 4.93%
compared favorably to its Lipper benchmark, but trailed the
Salomon Brothers 6-Month U.S. Treasury Bills, which returned
5.41% per annum over the three years ended September 30, 1998.
For the five-year period ended September 30, 1998, the Fund
returned 4.59% annually, compared to the 4.66% annualized
return of its Lipper benchmark, and the 5.19% return per year
for the Salomon Brothers index. The Fund's 5.24% annualized
return for the ten-year period ended September 30, 1998 trailed
the 5.28% per year return of the Lipper benchmark and the 5.73%
annualized return of the Salomon Brothers 6-Month U.S. Treasury
Bills for the same period. Both the Fund and the Salomon
Brothers 6-Month Treasury Bills had extremely low risk
profiles, as measured by standard deviation, during this period
(see chart on page 3). Past performance is not a guarantee of
future results.
SHORT-TERM INVESTMENT FUND VS LIPPER RETAIL MONEY FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
-----------------------------------
1 Year 3 Years 5 Years 10 Years
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT FUND(1) 5.09% 4.93% 4.59% 5.24%
Lipper Retail Money Funds Average(2) 4.93 4.91 4.66 5.28
</TABLE>
1. All performance results shown are net of management fees
and all related expenses.
20
<PAGE>
2. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
21
<PAGE>
COMBINED FINANCIAL STATEMENTS
RSI RETIREMENT TRUST
Combined Statement of Assets and Liabilities September 30,
1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$473,088,011)--Note 2(A) $587,336,702
Cash 1,236,884
Receivable for investments sold 3,971,568
Receivable for units sold 3,690,430
Dividends and interest receivable 1,938,880
Collateral for securities loaned, at fair value (Note 4) 9,269,414
Other assets 101,289
------------
607,545,167
LIABILITIES:
Payable for investments purchased $ 8,213,443
Payable upon return of securities loaned (Note 4) 9,269,414
Options written, at value (premiums received $15,085) 5,000
Payable for units redeemed 5,058,430
Payable to investment managers 228,691
Net loss on forward foreign currency contracts 141,796
Accrued expenses 503,660 23,420,434
----------- ------------
NET ASSETS--Note 5 $584,124,733
------------
------------
</TABLE>
Combined Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $17,402,591
Dividends 4,881,131
-----------
Total Income $ 22,283,722
Expenses:
Investment manager's fees--Note 3(A) 3,310,209
Shareholder servicing fees and expenses--Note 3(B) 2,673,378
Custodian fees and expenses 271,948
Legal and auditing fees 145,832
Consultant fees 83,088
Trustees' fees and expenses--Note 3(C) 207,775
Printing and Postage 116,260
Insurance 122,085
Other 221,428
-----------
Total Expenses 7,152,003
Less fees paid indirectly--Note 4 (80,586)
Less expense reimbursement--Note 3(A) (123,847)
-----------
Net Expenses 6,947,570
------------
INVESTMENT INCOME--NET 15,336,152
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, STOCK OPTIONS,
AND FOREIGN CURRENCIES--Note 4:
Net realized gain (loss) on:
Investments 51,824,192
Options written 89,879
Foreign currency transactions 514,201
-----------
52,428,272
-----------
Unrealized appreciation (depreciation) on:
Investments (72,541,810)
Options written 39,413
Foreign currency translations of other assets and
liabilities (178,222)
-----------
(72,680,619)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCIES AND STOCK OPTIONS (20,252,347)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (4,916,195)
------------
------------
</TABLE>
See Notes to Financial Statements
22
<PAGE>
RSI RETIREMENT TRUST (CONTINUED)
Combined Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
------------- -------------
<S> <C> <C>
OPERATIONS
Investment income--net $ 15,336,152 $ 16,104,518
Net realized gain 52,428,272 87,569,039
Net unrealized appreciation (72,680,619) 29,216,787
------------- -------------
Net increase in net assets resulting from operations (4,916,195) 132,890,344
------------- -------------
CAPITAL TRANSACTIONS--Note 5
Value of units sold 150,412,586 134,275,808
Value of units redeemed (203,447,714) (277,141,568)
------------- -------------
Net (decrease) in net assets resulting from capital
transactions (53,035,128) (142,865,760)
------------- -------------
Net increase (decrease) (57,951,323) (9,975,416)
NET ASSETS at beginning of year 642,076,056 652,051,472
------------- -------------
NET ASSETS at end of year $ 584,124,733 $ 642,076,056
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements
23
<PAGE>
FINANCIAL STATEMENTS OF INVESTMENT FUNDS
CORE EQUITY FUND
Statement of Investments September 30, 1998
--------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- ------------
<C> <S> <C> <C>
COMMON AND PREFERRED STOCKS 98.0%
AEROSPACE AND DEFENSE 5.4%
151,000 Allied Signal Inc. $ 5,341,625
40,700 Lockheed Martin Corp. 4,103,068
------------
9,444,693
------------
BANKING 5.8%
55,300 Bank America Corp. 3,324,913
65,576 Chase Manhattan Bank 2,836,162
38,900 Citicorp 3,615,268
16,000 Washington Mutual 537,000
------------
10,313,343
------------
BUILDING PRODUCTS 4.1%
92,500 Armstrong World
Industries Inc. 4,948,750
22,000 Martin Marietta Materials 950,125
31,100 Southdown, Inc. 1,399,500
------------
7,298,375
------------
CHEMICALS 2.6%
82,100 E.I. Du Pont De Nemours &
Company 4,607,863
------------
COMPUTER SYSTEMS 9.1%
125,500 EMC Corp.* 7,177,030
84,800 Hewlett Packard Corp. 4,489,100
950 Hyperion Solutions 20,603
34,500 International Business
Machines Corp. 4,416,000
------------
16,102,733
------------
DRUG AND HEALTH CARE 11.1%
160,400 Johnson & Johnson 12,551,300
53,000 Merck & Company, Inc. 6,866,813
6,400 Twinlab Corporation* 163,200
------------
19,581,313
------------
ELECTRONICS & ELECTRICAL 11.4%
57,150 Cisco Systems, Inc.* 3,532,584
115,800 Emerson Electric Co. 7,208,550
3,100 General Electric Co. 246,644
106,500 Intel Corp. 9,132,375
------------
20,120,153
------------
ENERGY 12.6%
75,800 Amoco Corp. 4,083,725
120,400 Halliburton Co. 3,438,925
155,600 Royal Dutch Petroleum Co. 7,410,450
3,400 Schlumberger Ltd. 171,063
113,800 Texaco Inc. 7,133,837
------------
22,238,000
------------
</TABLE>
See Notes to Financial Statements 24
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Investments September 30, 1998
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- ------------
<C> <S> <C> <C>
FINANCIAL SERVICES 9.1%
170,000 Federal National Mortgage
Association $ 10,922,500
35,800 Sunamerica, Inc. 2,183,800
41,400 Sunamerica, Inc.
Preferred 2,124,338
23,000 Travelers Group, Inc. 862,500
------------
16,093,138
------------
FOOD AND SERVICES 0.8%
37,100 Dole Food Co. 1,340,238
------------
HOUSEHOLD PRODUCTS 0.6%
15,300 Procter & Gamble Co. 1,085,344
------------
INSURANCE 2.6%
110,200 Allstate Corp. 4,593,963
------------
MACHINERY & ENGINEERING 2.7%
7,500 Cincinnati Milacron, Inc. 115,781
99,900 Ingersoll-Rand Corp.* 3,789,956
29,700 John Deere & Co. 898,425
------------
4,804,162
------------
MACHINERY/GENERAL 0.2%
10,000 Snap-On, Inc. 308,125
------------
METALS AND MINING 1.1%
4,800 Aluminum Company of
America 340,800
31,900 Potash Corp.of
Saskatchewan 1,678,738
------------
2,019,538
------------
MULTI INDUSTRY 0.5%
18,100 Philip Morris Companies
Inc. 833,731
------------
OFFICE AND BUSINESS
EQUIPMENT 4.4%
91,000 Xerox Corp. 7,712,250
------------
PHARMACEUTICALS 4.3%
70,800 Pfizer Inc. 7,500,375
------------
RETAIL 0.0%
1,200 Federated Department
Stores* 43,650
900 Pier 1 Imports Inc. 6,750
900 Tiffany & Co. 28,238
------------
78,638
------------
<CAPTION>
Shares Value
- ---------- ------------
<C> <S> <C> <C>
SOFTWARE PRODUCTS 2.9%
5,600 BMC Software, Inc.* $ 336,000
24,100 Cadence Design Systems
Inc.* 616,056
72,375 Computer Associates
International, Inc. 2,677,875
43,400 Sterling Commerce, Inc.* 1,502,725
------------
5,132,656
------------
TELECOMMUNICATIONS 6.7%
55,700 GTE Corp. 3,063,500
102,682 Lucent Technologies, Inc. 7,091,476
42,300 Tellabs Inc.* 1,684,068
------------
11,839,044
------------
Total Common and Preferred Stocks (Cost
$68,427,628) $173,047,675
------------
<CAPTION>
Principal
Amount
- ----------
<C> <S> <C> <C>
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 1.6%
$2,885,471 Bear Stearns & Co. Inc.
Dated 9/30/1998 5.40% Due
10/1/98 Collateralized by
$7,475,000 United States
Treasury Strips Due
5/15/2016 (Value
$2,943,281) $ 2,885,471
------------
Total Investments (Cost
$71,313,099) 99.8% $175,933,146
------ ------------
</TABLE>
<TABLE>
<CAPTION>
Expiration
Date/
# of Strike
Contracts Price
- ---------- -----------
<C> <S> <C> <C> <C>
WRITTEN COVERED CALL OPTIONS
3 Intel Corp. Jan
1999/100
Total Written Call Options (Premiums Received $2,622) $ (825)
-----------
Other Assets, Less Liabilities 0.2% 434,638
------ -----------
Net Assets 100.0% $176,366,959
------ -----------
------ -----------
</TABLE>
*Denotes non-income producing security.
See Notes to Financial Statements 25
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$71,313,099)--Note 2(A) $175,933,146
Receivable for investments sold 2,025,260
Receivable for units sold 116,934
Dividends and interest receivable 193,645
Collateral for securities loaned, at fair value (Note 4) 7,402
Other assets 25,203
------------
178,301,590
LIABILITIES:
Payable for investments purchased $ 272,816
Payable upon return of securities loaned (Note 4) 7,402
Options written, at value (premiums received $2,622) 825
Payable for units redeemed 1,491,760
Payable to investment managers 76,661
Accrued expenses 85,167 1,934,631
---------- ------------
NET ASSETS at value, applicable to 2,221,060 outstanding
units of beneficial interest--Note 5 $176,366,959
------------
------------
NET ASSET VALUE offering and redemption price per unit
($176,366,959 divided by 2,221,060 units) $ 79.41
------------
------------
</TABLE>
Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $3,051,088
Interest 235,593
----------
Total Income $ 3,286,681
Expenses:
Investment manager's fees--Note 3(A) 1,040,755
Shareholder servicing fees and expenses--Note 3(B) 647,415
Custodian fees and expenses 34,593
Legal and auditing fees 21,927
Consultant fees 11,816
Trustees' fees and expenses--Note 3(C) 26,104
Printing and Postage 16,613
Insurance 39,230
Other 24,412
----------
Total Expenses 1,862,865
------------
INVESTMENT INCOME--NET 1,423,816
REALIZED AND UNREALIZED GAIN (LOSS)--Note 4:
Net realized gain on:
Investments 39,241,066
Options written 93,166
----------
39,334,232
----------
Unrealized appreciation (depreciation) on:
Investments (31,401,951)
Options written 1,797
----------
(31,400,154)
----------
NET REALIZED AND UNREALIZED GAIN 7,934,078
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,357,894
------------
------------
</TABLE>
See Notes to Financial Statements
26
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 1,423,816 $ 2,030,012
Net realized gain 39,334,232 45,193,447
Net unrealized appreciation (depreciation) (31,400,154) 19,327,785
------------ ------------
Net increase in net assets resulting from operations 9,357,894 66,551,244
------------ ------------
CAPITAL TRANSACTIONS--Note 5:
Value of units sold 22,854,166 25,795,510
Value of units redeemed (68,118,523) (97,429,664)
------------ ------------
Net (decrease) in net assets resulting from capital transactions (45,264,357) (71,634,154)
------------ ------------
Net (decrease) (35,906,463) (5,082,910)
NET ASSETS at beginning of year 212,273,422 217,356,332
------------ ------------
NET ASSETS at end of year $176,366,959 $212,273,422
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
27
<PAGE>
VALUE EQUITY FUND
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C> <C>
COMMON AND PREFERRED STOCKS 98.6%
AEROSPACE AND DEFENSE 3.0%
22,500 Allied Signal Inc. $ 795,938
10,800 Lockheed Martin Corp. 1,088,775
-----------
1,884,713
-----------
AUTOMOBILES 3.5%
24,200 Chrysler Corp. 1,158,575
22,500 Ford Motor Co. 1,056,094
-----------
2,214,669
-----------
AUTOMOTIVE PRODUCTS 0.1%
1,700 Goodyear Tire 87,338
-----------
BANKING 8.1%
7,900 Banc One Corp. 336,738
10,600 Bank America Corp. 637,325
25,500 Chase Manhattan Bank 1,102,875
5,900 Citicorp 548,331
23,700 Nationsbank Corp. 1,267,950
2,800 Royal Bank of Canada 112,875
35,400 Washington Mutual 1,188,113
-----------
5,194,207
-----------
BUILDING PRODUCTS 4.3%
13,000 Martin Marietta Materials 561,438
48,696 Southdown, Inc. 2,191,320
-----------
2,752,758
-----------
BUSINESS AND PUBLIC
SERVICES 1.5%
60,000 US Filter Corp.* 960,000
-----------
CHEMICALS 0.2%
2,500 E.I. Du Pont De Nemours &
Co. 140,313
-----------
COMPUTER SYSTEMS 5.9%
34,600 EMC Corp.* 1,978,688
7,100 International Business
Machines Corp. 908,800
18,200 Sun Microsystems Inc.* 906,588
-----------
3,794,076
-----------
DRUG AND HEALTH CARE 10.7%
5,600 Amgen* 423,150
60,100 Beverly Enterprises* 480,800
18,700 Bristol-Myers Squibb Co. 1,942,463
11,400 HCR Manor Care Inc.* 334,163
143,000 HRPT Properties Trust 2,305,875
47,800 Tenet Healthcare Corp.* 1,374,250
-----------
6,860,701
-----------
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C> <C>
ELECTRONICS & ELECTRICAL 2.3%
16,500 Altera Corp.* $ 578,531
10,300 Dallas Semiconductor 278,100
7,000 Intel Corp. 600,250
-----------
1,456,881
-----------
ENERGY 7.5%
12,628 British Petroleum 1,101,793
43,300 Diamond Offshore Drilling 1,125,800
21,600 Halliburton Co. 616,950
4,400 Mobil Corp. 334,125
24,300 Noble Drilling Corp.* 358,425
5,000 Schlumberger Ltd. 251,563
4,000 Texaco Inc. 250,750
24,300 Tosco Corp. 522,450
7,300 Transocean Offshore 253,219
-----------
4,815,075
-----------
ENTERTAINMENT 0.3%
9,100 Carmike Cinemas* 167,213
-----------
FINANCIAL SERVICES 7.3%
1,000 Associates First Capital 65,250
19,600 Federal National Mortgage
Association 1,259,300
5,500 Merrill Lynch & Co. 260,563
13,900 Morgan Stanley Dean
Witter & Co. 598,569
32,100 Sunamerica, Inc.
Preferred 1,647,130
22,850 Travelers Group, Inc. 856,875
-----------
4,687,687
-----------
FOREST PRODUCTS AND PAPER 0.5%
9,800 Mead Corp. 288,488
-----------
INSURANCE 1.9%
28,800 Allstate Corp. 1,200,600
-----------
MACHINERY / GENERAL 2.0%
21,200 Maytag Corp. 1,012,300
7,700 Snap-On Tools Inc. 237,256
-----------
1,249,556
-----------
MACHINERY AND ENGINEERING 0.8%
3,300 Ingersoll-Rand Corp. 125,194
24,300 Thermo Electron Corp.* 366,018
-----------
491,212
-----------
MATERIALS AND SERVICES 2.2%
15,600 FDX Corp.* 703,950
45,750 Werner Enterprises 717,703
-----------
1,421,653
-----------
</TABLE>
See Notes to Financial Statements 28
<PAGE>
VALUE EQUITY FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C> <C>
METALS AND MINING 1.3%
7,000 Aluminum Company of
America $ 497,000
1,700 Phelps Dodge Corp. 88,719
5,000 Potash Corp. of
Saskatchewan 263,125
-----------
848,844
-----------
MULTI INDUSTRY 2.3%
32,400 Philip Morris Companies
Inc. 1,492,425
-----------
OFFICE AND BUSINESS
EQUIPMENT 3.3%
30,200 Lexmark Intl. Group
Inc.--Class A* 2,093,238
-----------
OIL AND GAS 2.9%
22,500 Burlington Resources 840,938
34,400 Enron Oil & Gas Co. 602,000
33,400 Union Pacific Resources 411,238
-----------
1,854,176
-----------
RETAIL 3.3%
13,800 Federated Department
Stores* 501,975
45,500 Kmart Corporation 543,155
21,700 Kmart Financing
Convertible Preferred 1,085,000
-----------
2,130,130
-----------
SOFTWARE PRODUCTS 3.1%
38,300 Cadence Design Systems
Inc.* 979,044
15,800 Computer Associates
International, Inc. 584,600
11,800 Sterling Commerce* 408,575
-----------
1,972,219
-----------
TELECOMMUNICATIONS 10.9%
30,500 ADC Telecommunications* 642,405
23,400 American Telephone &
Telegraph Corp. 1,367,438
26,300 Bell Atlantic Corp. 1,273,906
30,900 GTE Corp. 1,699,500
15,500 SBC Communications 688,780
10,000 Tellabs Inc.* 398,125
17,653 US West Inc. 925,678
-----------
6,995,832
-----------
UTILITIES 9.5%
15,100 Cinergy Corp. 577,574
23,100 Duke Power Co. 1,528,930
15,000 Nicor Inc. 621,563
26,200 Peoples Energy Corp. 943,200
10,300 Texas Utilities 479,594
24,700 US West Media Group* 1,097,606
40,900 Washington Water Power
Company 810,331
-----------
6,058,798
-----------
Total Common and Preferred Stocks (Cost
$63,731,352) $63,112,802
-----------
<CAPTION>
Principal
Amount Value
- ---------- -----------
<C> <S> <C> <C>
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 1.7%
$1,104,067 Bear Stearns & Co. Inc.
Dated 9/30/1998 5.40% Due
10/1/98 Collateralized by
$3,450,000 United States
Treasury Strips Due
8/15/2019 (Value
$1,127,736) $ 1,104,067
-----------
</TABLE>
<TABLE>
<CAPTION>
Expiration
Date/
# of Strike
Contracts Price
- ---------- -----------
<C> <S> <C> <C> <C>
LONG PUT OPTIONS 0.5%
5 S&P 100 Dec
1998/560 $ 35,500
10 S&P 100 Dec
1998/580 87,375
13 S&P 100 Oct
1998/560 86,937
2 S&P 100 Oct
1998/570 15,350
3 S&P 100 Oct
1998/580 26,025
3 S&P 500 Dec
1998/1175 46,500
-----------
Total Long Put Options (Premiums
Paid $95,586) $ 297,687
-----------
Total Investments (Cost $64,931,005) 100.9% $64,514,556
-----------
WRITTEN COVERED CALL OPTIONS
20 Chrysler Corp. Oct 1998/60 $ (250)
7 EMC Corp. Oct 1998/55 (2,800)
3 EMC Corp. Oct 1998/65 (150)
3 Federal National Mortgage
Association Nov 1998/70 (375)
4 Lexmark Oct 1998/75 (600)
-----------
Total Written Call Options (Premiums Received $12,463) $ (4,175)
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Liabilities, net of other
assets -0.9 % (579,717)
------ -----------
Net Assets 100.0 % $63,930,664
------ -----------
------ -----------
</TABLE>
*Denotes non-income producing security.
See Notes to Financial Statements 29
<PAGE>
VALUE EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$64,931,005)--Note 2(A) $ 64,514,556
Receivable for investments sold 117,800
Receivable for units sold 27,749
Dividends and interest receivable 99,805
Collateral for securities loaned, at fair value (Note 4) 14,320
Other assets 14,303
------------
64,788,533
LIABILITIES:
Payable for investments purchased $ 316,701
Payable upon return of securities loaned (Note 4) 14,320
Options written, at value (premiums received $12,463) 4,175
Payable for units redeemed 441,666
Payable to investment managers 21,198
Accrued expenses 59,809 857,869
---------- ------------
NET ASSETS at value, applicable to 1,136,058 outstanding
units of beneficial interest--Note 5 $ 63,930,664
------------
------------
NET ASSET VALUE offering and redemption price per unit
($63,930,664 divided by 1,136,058 units) $ 56.27
------------
------------
</TABLE>
Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 1,236,120
Interest 139,290
------------
Total Income $ 1,375,410
Expenses:
Investment manager's fees--Note 3(A) 261,587
Shareholder servicing fees and expenses--Note 3(B) 343,214
Custodian fees and expenses 37,483
Legal and auditing fees 19,427
Consultant fees 11,816
Trustees' fees and expenses--Note 3(C) 26,135
Printing and Postage 16,582
Insurance 10,927
Other 26,266
------------
Total Expenses 753,437
Less fees paid indirectly--Note 4 (4,410)
------------
Net Expenses 749,027
------------
INVESTMENT INCOME--NET 626,383
REALIZED AND UNREALIZED GAIN (LOSS)--Note 4:
Net realized gain (loss) on:
Investments 11,456,410
Options written (3,287)
------------
11,453,123
------------
Unrealized appreciation (depreciation) on:
Investments (14,065,836)
Options written 37,616
------------
(14,028,220)
------------
NET REALIZED AND UNREALIZED GAIN (2,575,097)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,948,714)
------------
------------
</TABLE>
See Notes to Financial Statements
30
<PAGE>
VALUE EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 626,383 $ 714,434
Net realized gain 11,453,123 16,009,624
Net unrealized appreciation (depreciation) (14,028,220) 4,183,788
------------ ------------
Net increase (decrease) in net assets resulting from operations (1,948,714) 20,907,846
------------ ------------
CAPITAL TRANSACTIONS--Note 5:
Value of units sold 20,642,979 11,173,465
Value of units redeemed (15,152,673) (23,923,187)
------------ ------------
Net increase (decrease) in net assets resulting from capital
transactions 5,490,306 (12,749,722)
------------ ------------
Net increase 3,541,592 8,158,124
NET ASSETS at beginning of year 60,389,072 52,230,948
------------ ------------
NET ASSETS at end of year $ 63,930,664 $ 60,389,072
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
31
<PAGE>
EMERGING GROWTH EQUITY FUND
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C> <C>
COMMON STOCKS 94.7%
APPAREL AND TEXTILES 4.8%
28,900 Ann Taylor Stores Corp.* $ 587,031
10,000 Cutter & Buck Inc.* 230,000
32,650 DM Management Co.* 257,117
35,300 Pacific Sunwear* 785,425
18,600 Quiksilver Inc.* 338,288
20,000 Tarrant Apparel Group* 481,250
-----------
2,679,111
-----------
BROADCASTING & PUBLISHING 1.9%
15,500 Citadel Communications
Corp.* 315,812
21,200 Metro Networks, Inc.* 747,300
-----------
1,063,112
-----------
BUILDING & CONSTRUCTION 3.3%
19,900 Comfort Systems US, Inc.* 400,488
40,700 Dycom Industries, Inc.* 1,266,788
8,100 Elcor Corp. 171,112
-----------
1,838,388
-----------
BUSINESS & PUBLIC
SERVICES 6.0%
21,500 Ambassadors
International* 376,250
18,200 Bright Horizons Family
Solutions* 384,475
16,000 Complete Business
Solutions* 456,000
25,100 First Consulting Group* 428,268
62,600 Metrocall, Inc.* 297,350
8,300 RCM Technologies Inc.* 121,388
14,400 Sabre Group* 432,000
22,500 SPR, Inc.* 483,750
6,200 Stewart Information
Services.* 357,275
-----------
3,336,756
-----------
COMMERCIAL SERVICES 7.4%
21,900 AHL Services, Inc.* 714,488
1,000 FYI Inc.* 24,375
10,800 Lason, Inc.* 546,750
36,650 NFO Worldwide, Inc.* 364,208
34,000 Profit Recovery Group
Intl.* 1,034,875
24,100 Superior Services Inc.* 674,800
21,800 Telebanc* 351,525
19,600 Waste Connections, Inc.* 387,100
-----------
4,098,121
-----------
CONSUMER GOODS & SERVICES 1.5%
36,500 Fossil Inc.* 492,750
7,576 Metris Companies, Inc. 351,337
-----------
844,087
-----------
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C> <C>
EDUCATION SERVICES 1.6%
23,100 Advantage Learning
Systems* $ 872,025
2,500 Edutrek International
Inc.A* 17,188
-----------
889,213
-----------
ELECTRONICS & ELECTRICAL 0.8%
24,100 Artisan Components, Inc.* 171,712
20,000 Proxim, Inc.* 255,000
-----------
426,712
-----------
ENERGY 0.1%
6,300 Tom Brown Inc.* 77,175
-----------
ENTERTAINMENT 1.0%
26,000 CEC Entertainment, Inc.* 526,500
-----------
FINANCIAL DATA PROCESSING 1.4%
32,100 Inspire Insurance* 750,338
-----------
FOOD AND SERVICES 5.3%
35,000 Apple South Inc.* 385,000
47,600 Brinker Intl. Inc.* 892,500
35,000 Buffets Inc.* 371,875
17,490 CKE Restaurants, Inc. 520,328
31,800 Gardenburger, Inc.* 361,725
5,200 Logans Roadhouse* 87,100
10,000 Papa Johns Intl. Inc.* 329,375
-----------
2,947,903
-----------
INSURANCE 0.6%
16,700 Amerin Corp.* 309,994
-----------
MACHINERY & ENGINEERING 1.4%
18,900 Astec Industries Inc.* 800,888
-----------
MANUFACTURING 1.3%
40,400 Rayovac Corp.* 691,850
-----------
MEDICAL SERVICES & DRUGS 23.2%
13,400 Access Health, Inc.* 491,612
38,400 ADAC Laboratories* 921,600
34,900 Advanced Paradigm, Inc.* 1,051,363
27,000 Alpharma, Inc.* 708,750
15,300 Biomatrix* 596,700
32,100 Genzyme Transgenics
Corp.* 124,388
18,700 Intensiva Healthcare
Corp.* 114,538
8,000 Kendle International
Inc.* 263,000
46,300 Laser Vision Centers,
Inc.* 549,812
12,500 Medicis Pharmaceutical
Class A* 495,313
23,300 Osteotech Inc.* 614,537
26,400 Perclose, Inc.* 432,300
13,400 Pharmacyclic Inc.* 219,425
23,800 Province Healthcare Co.* 797,300
</TABLE>
See Notes to Financial Statements 32
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
MEDICAL SERVICES &
DRUGS--Continued
<C> <S> <C> <C>
69,400 Quadramed Corp.* $ 1,396,675
19,575 Renal Care Group Inc.* 500,386
26,250 Res Care, Inc.* 492,188
32,000 Stergenics Int'l., Inc.* 672,000
13,200 Sunrise Assisted Living* 452,925
50,600 Theragenics Corp.* 717,888
13,600 Ventana Medical Systems* 234,600
10,000 Visx, Inc.* 670,000
6,900 Xomed Surgical Products
Inc.* 282,038
-----------
12,799,338
-----------
REAL ESTATE 2.8%
17,600 Lasalle Partners Inc.* 575,300
38,400 Trammell Crow Co.* 979,200
-----------
1,554,500
-----------
RETAIL 5.5%
23,200 American Eagle
Outfitters, Inc.* 800,400
30,000 Eagle Hardware & Garden* 645,000
23,800 Fingerhut Co., Inc. 261,800
39,900 Maxim Group, Inc.* 753,113
23,600 United Stationers* 557,550
-----------
3,017,863
-----------
SOFTWARE 18.2%
41,300 Ardent Software, Inc.* 508,506
15,500 Akent Technology* 287,718
13,300 Bisys Group Inc.* 579,380
28,600 Business Objects SA* 357,500
45,300 Caere Corp.* 475,650
16,300 Cognizant Technology
Solutions Corp.* 252,650
22,700 Concord Communications
Inc.* 896,650
33,700 First Virtual* 315,938
2,600 FVC Com Inc.* 24,374
15,500 Information Management
Resources Inc.* 381,687
39,800 Intelligroup Inc.* 671,625
25,700 Mapics, Inc.* 562,187
21,200 Pinnacle Systems, Inc.* 535,300
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C> <C>
SOFTWARE--Continued
37,100 Platinum Software Corp.* $ 373,319
14,700 Qlogic Corp.* 954,581
21,400 RWD Technologies Inc.* 449,400
31,000 Segue Software, Inc.* 511,500
26,600 Software AG Systems* 452,200
15,900 Sykes Enterprises, Inc.* 268,313
50,000 Xircom, Inc.* 1,225,000
-----------
10,083,478
-----------
TELECOMMUNICATIONS 2.9%
25,400 IDT Corp.* 577,850
30,100 Intervoice Inc.* 690,419
54,600 Picturetel Corp.* 341,250
-----------
1,609,519
-----------
TRANSPORTATION 3.7%
29,200 Atlantic Coast Airlines* 682,550
17,000 Atlas Air, Inc.* 487,688
38,150 Knight Transportation
Inc.* 610,400
13,800 MS Carriers, Inc.* 265,650
-----------
2,046,288
-----------
Total Common Stocks (Cost $52,786,046) $52,391,134
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
- ----------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT 8.4%
$4,618,301 Bear Stearns & Co. Inc.
Dated 9/30/1998 5.4% Due
10/1/98 Collateralized by
$11,375,000 United States
Treasury Strips Due
8/15/2019 (Value
$3,718,260) and 2,525,000
United States Treasury
Strips Due 5/15/2016
(Value $994,219) $ 4,618,301
-----------
Total Investments (Cost
$57,404,346) 103.1% $57,009,435
Liabilities, net of other assets -3.1% (1,722,926)
------ -----------
Net Assets 100.0% $55,286,509
------ -----------
------ -----------
</TABLE>
*Denotes non-income producing security.
See Notes to Financial Statements 33
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$57,404,346)--Note 2(A) $ 57,009,435
Receivable for investments sold 1,675,655
Receivable for units sold 37,810
Dividends and interest receivable 24,049
Collateral for securities loaned, at fair value (Note 4) 818,732
Other assets 12,579
------------
59,578,260
LIABILITIES:
Payable for investments purchased $3,038,003
Payable upon return of securities loaned (Note 4) 818,732
Payable for units redeemed 308,092
Payable to investment managers 45,629
Accrued expenses 81,295 4,291,751
---------- ------------
NET ASSETS at value, applicable to 1,007,017 outstanding
units of beneficial interest--Note 5 $ 55,286,509
------------
------------
NET ASSET VALUE offering and redemption price per unit
($55,286,509 divided by 1,007,017 units) $ 54.90
------------
------------
</TABLE>
See Notes to Financial Statements
34
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 102,506
Interest 451,640
-----------
Total Income $ 554,146
Expenses:
Investment manager's fees--Note 3(A) 906,749
Shareholder servicing fees and expenses--Note 3(B) 440,791
Custodian fees and expenses 52,912
Legal and auditing fees 22,327
Consultant fees 11,817
Trustees' fees and expenses--Note 3(C) 51,120
Printing and Postage 16,613
Insurance 13,981
Other 30,467
-----------
Total Expenses 1,546,777
Less fees paid indirectly--Note 4 (56,176)
-----------
Net Expenses 1,490,601
-----------
INVESTMENT (LOSS)--NET (936,455)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized (loss) on investments (4,262,493)
Unrealized (depreciation) on investments (25,625,265)
-----------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS (29,887,758)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(30,824,213)
-----------
-----------
</TABLE>
See Notes to Financial Statements
35
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment (loss)--net $ (936,455) $ (1,179,968)
Net realized gain (loss) (4,262,493) 20,339,766
Net unrealized appreciation (depreciation) (25,625,265) 1,076,088
------------ ------------
Net increase (decrease) in net assets resulting from operations (30,824,213) 20,235,886
------------ ------------
CAPITAL TRANSACTIONS--Note 5:
Value of units sold 11,606,019 15,421,504
Value of units redeemed (17,083,955) (36,204,646)
------------ ------------
Net (decrease) in net assets resulting from capital transactions (5,477,936) (20,783,142)
------------ ------------
Net (decrease) (36,302,149) (547,256)
NET ASSETS at beginning of year 91,588,658 92,135,914
------------ ------------
NET ASSETS at end of year $ 55,286,509 $ 91,588,658
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
36
<PAGE>
INTERNATIONAL EQUITY FUND
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- ------------
<C> <S> <C> <C>
COMMON AND PREFERRED STOCKS 99.2%
AEROSPACE 1.0%
94,500 Rolls Royce $ 326,004
------------
AUTOMOBILES 3.8%
484 Bayer Motoren Werk 311,304
42 Bayer Motoren Werk--Rights* 26,386
11,000 Bridgestone Corp. 222,217
4,000 Honda Motor Co. Ltd. 121,944
13,000 Toyota Motor Corp. 291,269
12,430 Volvo AB Series B 304,621
------------
1,277,741
------------
BANKING 11.2%
241,570 Banca di Roma* 431,142
5,240 Banco Popular Espanol 330,115
23,000 Bank of Tokyo-Mitsubishi Bank 147,838
21,630 Barclays Plc. 353,245
5,230 Bayerische Vereins 384,891
6,370 Credit Commercial de France 409,148
2,760 Credit Suisse Group 305,047
4,370 Far East Bank & Trust 3,446
31,830 Istituto Banc San Paolo Tori 399,586
20,530 Lloyds Tsb Group Plc. 229,916
22,800 St. George Bank Ltd. 143,148
44,538 Standard Chartered Plc. 314,105
13,000 Sumitomo Bank Ltd. 90,723
12,000 Sumitomo Trust & Banking Co. 22,920
1,350 UBS AG* 263,308
------------
3,828,578
------------
BROADCASTING & PUBLISHING 3.4%
26,860 Flextech* 260,182
9,830 Reed International 82,857
2,100 Television Francaise 359,691
2,294 Wolters Kluwer CVA 440,162
------------
1,142,892
------------
BUILDING MATERIALS 0.1%
27,200 Pioneer International Ltd. 50,744
------------
BUSINESS & PUBLIC SERVICES 3.4%
880 SAP AG Non-Voting Preferred 417,530
4,000 Secom Co. 249,764
9,910 Securitas AB Series B 508,495
------------
1,175,789
------------
<CAPTION>
Shares Value
- -------- ------------
<C> <S> <C> <C>
CHEMICALS 2.8%
7,790 Akzo Nobel N.V. Preferred $ 276,874
32,000 Asahi Chemical Industries 97,790
9,980 Hoechst AG 412,013
1,250 SGL Carbon AG 85,634
6,000 Shin-etsu Chemical Co. 95,425
------------
967,736
------------
COMMERCIAL SERVICES 1.2%
19,600 Mayne Nickless Ltd. 104,473
12,000 Vedior Nv-Cva 296,009
------------
400,482
------------
CONSTRUCTION & HOUSING 0.9%
5,682 IHC Caland NV 265,249
22,000 Kajima Corp. 53,332
------------
318,581
------------
CONSUMER GOODS & SERVICES 7.5%
1,400 Accor SA 293,498
320 Compagne Financiere Richemont
AG Series A 409,156
6,000 Fuji Photo Film Co. 207,157
10,104 Getronics NV 458,279
8,000 Kao Corp. 128,114
9,649 Logica 356,372
5,000 Marui Co. Limited 72,725
240 Nestle SA 477,464
2,000 TDK Corp. 136,636
------------
2,539,401
------------
ELECTRONICS & ELECTRICAL 9.7%
2,530 Alcatel Alsthom 224,796
7,710 ASM Lithography* 123,927
12,000 Canon Inc. 244,181
49,743 General Electric Corp. 363,493
8,000 Matsushita Electric Industrial
Corp. 109,015
14,000 Matsushita Electric Works 106,649
19,000 Minebea Corporation 155,067
10,220 Nokia ABA Shares 811,391
7,010 Philips Electronic 377,446
2,000 Rohm Co. 190,996
5,780 SGS-Thomson Microelectronics* 268,127
3,200 Sony Corp. 223,083
11,000 Sumitomo Electric Industries 106,826
------------
3,304,997
------------
</TABLE>
See Notes to Financial Statements 37
<PAGE>
INTERNATIONAL EQUITY FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- ------------
ENERGY 4.9%
<C> <S> <C> <C>
41,871 British Petroleum $ 640,400
31,138 Lasmo 92,074
41,000 Osaka Gas Co. 104,512
5,230 Royal Dutch Petroleum 259,408
4,570 Total B Shares 575,651
------------
1,672,045
------------
FINANCIAL SERVICES 2.0%
8,000 Credit Saison Co. Ltd. 155,148
9,506 ING Groep NV Cva 428,130
13,000 Nomura Securities Company Ltd. 93,588
------------
676,866
------------
FOOD & SERVICES 1.4%
26,380 Associated British Foods 268,757
16,470 Bass Plc. 197,323
------------
466,080
------------
HEALTH 10.6%
24,100 Astra AB Series A 412,201
22,090 Glaxo Plc. 652,065
375 Novartis AG 601,110
2,690 Novo Nordisk Series B 323,815
35 Roche Holding AG 376,721
10,000 Sankyo Co. 221,849
47,440 Smithkline Beecham 521,608
5,000 Takeda Chemical Industries 134,065
6,000 Yamanouchi Pharm 129,583
7,055 Zeneca Group Plc. 249,377
------------
3,622,394
------------
INDUSTRIAL COMPONENTS 2.5%
63,649 BICC 63,817
14,000 NGK Insulators Ltd 133,183
17,000 NSK 58,695
15,770 Scania AB B Shares 298,913
4,406 Valeo 314,444
------------
869,052
------------
INSURANCE 6.9%
1,275 Allianz AG 395,158
13,005 Allied Zurich Plc.* 133,046
4,770 AXA-UAP 436,591
31,800 QBE Insurance Group Ltd. 115,826
45,796 Royal & Sun Alliance Insurance
Group 396,911
31,920 Skandia Forsakrings AB 415,575
19,000 Tokio Marine & Fire 170,280
600 Zurich Allied AG* 297,765
------------
2,361,152
------------
<CAPTION>
Shares Value
- -------- ------------
<C> <S> <C> <C>
LEISURE 0.8%
16,000 Kirin Brewery Co. Ltd. $ 128,349
3,900 Sony Music Entertainment 128,349
------------
256,698
------------
MACHINERY & ENGINEERING 1.7%
6,180 Mannesmann AG 565,733
------------
MERCHANDISING 5.8%
14,850 Ahold NV 443,512
4,800 Familymart Co. 184,061
19,400 Great Univeral Stores 220,888
7,700 Gucci Group NV 275,718
5,330 Hennes & Mauritz AB Series B 387,783
5,000 Ito-Yokado Co. 238,745
33,040 Morrison Supermarket 144,582
48,000 Pacific Dunlop Ltd. 81,503
------------
1,976,792
------------
METALS & MINING 0.8%
114,000 NKK Corp. 56,946
12,350 Ssab (Svenskt Stal) AB Series
A 130,049
26,000 WMC Ltd. 78,178
------------
265,173
------------
MULTI INDUSTRY 0.3%
1,000 Keyence Corp. 96,012
------------
REAL ESTATE 0.2%
7,000 Mitsubishi Estate 45,920
7,000 Mitsui Fudosan Co. 35,944
------------
81,864
------------
TELECOMMUNICATIONS 10.9%
51,980 British Telecom 700,495
19,800 Colt Telecom Group Plc.* 166,726
22,400 Ericsson Telefonaktiebolaget
Series B 423,152
5,000 Nippon Comsys Corp. 50,394
66 Nippon Tel & Tel Corp. 482,412
43,130 Securicor Group 279,438
59,900 Telecom Italia Mobile SPA 348,624
93,990 Telecom Italia SPA Preferred 448,941
12,123 Telefonica de Espana 442,029
71,582 Telewest Communications Plc.* 163,919
18,473 Vodafone Group Plc. 214,414
------------
3,720,544
------------
</TABLE>
See Notes to Financial Statements 38
<PAGE>
INTERNATIONAL EQUITY FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- ------------
TEXTILE & APPAREL 0.7%
<C> <S> <C> <C>
2,150 Adidas Salomon AG $ 246,342
------------
TRANSPORTATION 1.7%
20 East Japan Railway Corp. 99,906
16,420 Railtrack Group Plc. 473,254
------------
573,160
------------
<CAPTION>
Shares Value
- -------- ------------
<C> <S> <C> <C>
UTILITIES 3.0%
27,690 British Energy Plc. $ 271,280
170,209 Centrica* 329,026
23,515 National Power 214,193
11,000 Tokyo Electric Power Co. 210,904
------------
1,025,403
------------
Total Investments (Cost $33,202,721) 99.2% $ 33,808,255
------------
Other Assets, Less Liabilities 0.8% 274,361
------ ------------
Net Assets 100.0% $ 34,082,616
------ ------------
------ ------------
</TABLE>
*Denotes non-income producing security.
Geographical Diversification September 30, 1998
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net
Assets
--------------------
Country Total
- ---------------------------------------------------------- --------------------
<S> <C>
United Kingdom 25.5%
Japan 17.7
Netherlands 10.7
France 8.5
Sweden 8.5
Germany 8.3
Switzerland 8.0
Italy 4.8
Finland 2.4
Spain 2.3
Australia 1.7
Denmark 1.0
---
Total Investments 99.4%
Other Assets Less Liabilities 0.6%
---
Total 100.0%
---
---
</TABLE>
See Notes to Financial Statements
39
<PAGE>
INTERNATIONAL EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$33,202,721)--Note 2(A) $ 33,808,255
Cash 445,095
Receivable for investments sold 152,853
Receivable for units sold 5,370
Dividends and interest receivable 85,931
Collateral for securities loaned, at fair value
(Note 4) 587,950
Other assets 6,896
------------
35,092,350
LIABILITIES:
Payable for investments purchased $ 34,184
Payable upon return of securities loaned (Note
4) 587,950
Payable for units redeemed 150,522
Payable to investment managers 17,398
Net loss on forward foreign currency contracts 141,796
Accrued expenses 77,884 1,009,734
--------- ------------
NET ASSETS at value, applicable to 750,128
outstanding units of beneficial interest--Note 5 $ 34,082,616
------------
------------
NET ASSET VALUE offering and redemption price per
unit
($34,082,616 divided by 750,128 units) $ 45.44
------------
------------
</TABLE>
See Notes to Financial Statements
40
<PAGE>
INTERNATIONAL EQUITY FUND (CONTINUED)
Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 491,417
Interest 124,604
-------------
Total Income $ 616,021
Expenses:
Investment manager's fees--Note 3(A) 295,732
Shareholder servicing fees and expenses--Note
3(B) 209,713
Custodian fees and expenses 93,949
Legal and auditing fees 22,671
Consultant fees 12,191
Trustees' fees and expenses--Note 3(C) 26,104
Printing and Postage 16,613
Insurance 7,368
Other 52,376
-------------
Total Expenses 736,717
Less fees paid indirectly--Note 4 (20,000)
-------------
Net Expenses 716,717
-------------
INVESTMENT (LOSS)--NET (100,696)
REALIZED AND UNREALIZED GAIN (LOSS)--Note 4:
Net realized gain on:
Investments 1,277,446
Foreign currency transactions 514,201
-------------
1,791,647
-------------
Unrealized appreciation (depreciation) on
investments
Investments (5,599,783)
Foreign currency translations of other assets
and liabilities (178,222)
-------------
(5,778,005)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES (3,986,358)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (4,087,054)
-------------
-------------
</TABLE>
See Notes to Financial Statements
41
<PAGE>
INTERNATIONAL EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment (loss)--net $ (100,696) $ (107,067)
Net realized gain 1,791,647 4,019,696
Net unrealized appreciation (depreciation) (5,778,005) 544,854
------------ ------------
Net increase (decrease) in net assets resulting from
operations (4,087,054) 4,457,483
------------ ------------
CAPITAL TRANSACTIONS--Note 5:
Value of units sold 9,648,430 9,216,371
Value of units redeemed (6,755,055) (17,999,512)
------------ ------------
Net increase (decrease) in net assets resulting from
capital transactions 2,893,375 (8,783,141)
------------ ------------
Net (decrease) (1,193,679) (4,325,658)
NET ASSETS at beginning of year 35,276,295 39,601,953
------------ ------------
NET ASSETS at end of year $ 34,082,616 $ 35,276,295
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
42
<PAGE>
ACTIVELY MANAGED BOND FUND
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
CORPORATE BONDS 1.6%
$ 245,000 Consolidated Natural Gas
Sf Deb 8.625% Due
12/01/2011 $ 256,790
2,000,000 Pepsico Inc.
Structured Medium Term
Note
6.125% Due 03/04/2008 2,013,160
320,000 Public Service Electric
and Gas 6.375% Due
05/01/2008 338,410
------------
Total Corporate Bonds
(Cost $2,577,130) $ 2,608,360
------------
MORTGAGES 7.1%
$ 963,669 Chase Mortgage Finance
Remic 98-52 A12
7.00% Due 7/25/2028 $ 992,354
1,000,000 First Bank System
Mortgage Corp.
Remic 93-6 A10
7.25% Due 7/25/2024 1,028,610
1,000,000 First Union Residential
Trust
Remic 98-B 1A8
6.75% Due 08/25/2028 1,025,225
978,920 General Electric Capital
Mortgage Services
Remic 98-12 2A8
6.75% Due 06/25/2028 1,004,456
4,146,351 General Electric Capital
Mortgage Services
Remic 97-7 A9
7.50% Due 08/25/2027 4,278,118
3,200,000 PNC Mortgage Securities
Remic 98-4 3A2
6.75% Due 05/25/2028 3,278,218
------------
Total Mortgages
(Cost $11,178,785) $ 11,606,981
------------
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS 92.8%
$ 70,095 Collateralized Mortgage
Security Corp.
Remic X1
7.00% Due 6/1/2006 $ 69,889
8,000,000 Federal Home Loan Bank
0.00% Due 06/25/2012 2,830,632
10,000,000 Federal Home Loan Bank
0.00% Due 06/26/2017 2,419,050
10,000,000 Federal Home Loan Bank
0.00% Due 07/02/2012 3,542,460
15,000,000 Federal Home Loan Bank
0.00% Due 07/14/2017 3,595,305
28,000,000 Federal Home Loan Bank
0.00% Due 07/25/2017 7,018,760
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 3,000,000 Federal Home Loan Bank
0.00% Due 07/07/2017 $ 720,123
15,000,000 Federal Home Loan
Mortgage Corp.
0.00% Due 02/02/2023 2,540,955
1,039,818 Federal Home Loan
Mortgage Corp.
Remic 1574V
6.50% Due 03/15/2023 1,027,256
1,956,724 Federal Home Loan
Mortgage Corp.
Remic 1574U
6.50% Due 09/15/2023 1,934,013
2,838,000 Federal Home Loan
Mortgage Corp.
Remic 1505Q
7.00% Due 05/15/2023 2,933,198
3,875,408 Federal Home Loan
Mortgage Corp.
Remic 1527OZ
7.50% Due 05/15/2023 3,876,075
3,000,000 Federal Home Loan
Mortgage Corp.
Remic 1966V
7.50% Due 06/15/2027 3,000,288
708,000 Federal Home Loan
Mortgage Corp.
Remic 1966N
7.50% Due 09/15/2026 711,641
662,010 Federal Home Loan
Mortgage Corp.
Pool #141001
7.75% Due 9/1/2016 682,943
365,293 Federal Home Loan
Mortgage Corp.
Pool #533624
8.50% Due 12/01/2007 378,602
124,148 Federal Home Loan
Mortgage Corp.
Pool #297625
8.50% Due 6/1/2017 129,722
1,321,375 Federal Home Loan
Mortgage Corp.
Remic 1378NZ
7.50% Due 10/15/2022 1,323,411
460,327 Federal Home Loan
Mortgage Corp.
Remic 1454N
7.00% Due 12/15/2022 460,159
784,498 Federal Home Loan
Mortgage Corp.
Remic 1483ZA
7.50% Due 12/15/2022 823,168
969,483 Federal Home Loan
Mortgage Corp.
Remic 1455M
7.00% Due 12/15/2022 955,082
3,473,691 Federal Home Loan
Mortgage Corp.
Remic 1459TZ
7.50% Due 01/15/2023 3,480,798
</TABLE>
See Notes to Financial Statements 43
<PAGE>
ACTIVELY MANAGED BOND FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 1,673,234 Federal Home Loan
Mortgage Corp.
Remic 1527QZ
7.50% Due 05/15/2023 $ 1,678,056
212,000 Federal Home Loan
Mortgage Corp.
Remic 1486D
7.00% Due 04/15/2023 220,978
802,000 Federal Home Loan
Mortgage Corp.
Remic 1526P
6.50% Due 06/15/2023 803,578
320,000 Federal Home Loan
Mortgage Corp.
Remic 1574O
6.50% Due 09/15/2023 321,510
562,000 Federal Home Loan
Mortgage Corp.
Remic 1578N
7.00% Due 09/15/2023 568,167
592,550 Federal Home Loan
Mortgage Corp.
Remic 1560N
7.00% Due 11/15/2022 589,609
604,000 Federal Home Loan
Mortgage Corp.
Remic 1583OB
7.00% Due 06/15/2023 605,031
270,000 Federal Home Loan
Mortgage Corp.
Remic 1608O
6.50% Due 11/15/2023 269,346
599,000 Federal Home Loan
Mortgage Corp.
Remic 1627C
6.00% Due 12/15/2023 595,629
1,279,189 Federal Home Loan
Mortgage Corp.
Remic 1671Z
7.00% Due 02/15/2024 1,286,611
1,481,283 Federal Home Loan
Mortgage Corp.
Remic 1663-ZA
7.00% Due 01/15/2024 1,478,322
568,000 Federal Home Loan
Mortgage Corp.
Remic 1790C-E
8.00% Due 11/15/2023 575,864
676,000 Federal Home Loan
Mortgage Corp.
Remic 1814D
6.50% Due 02/15/2026 685,042
2,479,599 Federal Home Loan
Mortgage Corp.
Remic 2018ZA
6.50% Due 01/15/2028 2,439,026
925,000 Federal Home Loan
Mortgage Corp.
Remic 2036B
7.00% Due 03/15/2028 933,245
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 1,000,000 Federal Home Loan
Mortgage Corp.
Remic 2038PS
6.50% Due 07/15/2026 $ 995,794
975,000 Federal Home Loan
Mortgage Corp.
Remic 2064U
7.00% Due 06/15/2028 973,479
2,000,000 Federal Home Loan
Mortgage Corp.
Remic 2088ZE
7.00% Due 09/15/2028 1,979,375
990,000 Federal Home Loan
Mortgage Corp.
Zero Coupon
0.00% Due 11/06/2017 222,267
4,000,000 Federal Home Loan
Mortgage Corp.
Remic 2089 ZB
7.00% Due 08/15/2026 3,949,375
200,000 Federal National Mortgage
Association
Medium Term Note
6.69% Due 02/02/2011 208,988
1,000,000 Federal National Mortgage
Association
Medium Term Note
7.65% Due 10/06/2006 1,028,305
1,000,000 Federal National Mortgage
Association
Medium Term Note
8.00% Due 04/26/2012 1,019,047
1,300,000 Federal National Mortgage
Association
Medium Term Note
6.29% Due 01/22/2008 1,343,909
1,855,000 Federal National Mortgage
Association
Medium Term Note
6.36% Due 07/16/2008 1,925,284
2,844,318 Federal National Mortgage
Association
Remic 93-199Z
7.00% Due 10/25/2023 2,862,937
2,072,352 Federal National Mortgage
Association
Remic 93-247Z
7.00% Due 03/25/2023 2,099,324
280,000 Federal National Mortgage
Association
Remic 93-245L
6.50% Due 12/25/2023 282,538
2,925,000 Federal National Mortgage
Association
Remic 94-30P
6.50% Due 02/25/2024 2,931,865
1,500,000 Federal National Mortgage
Association
Remic 94-36N
6.50% Due 03/25/2024 1,502,735
</TABLE>
See Notes to Financial Statements 44
<PAGE>
ACTIVELY MANAGED BOND FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 4,474,638 Federal National Mortgage
Association
Remic 1994-36UA
7.00% Due 08/25/2023 $ 4,406,817
2,114,000 Federal National Mortgage
Association
Remic 1994-61E
7.50% Due 04/25/2024 2,180,718
1,428,652 Federal National Mortgage
Association
Remic 1997-34C
7.00% Due 06/18/2027 1,420,861
1,315,210 Federal National Mortgage
Association
Remic 98-45ZB
7.00% Due 08/18/2028 1,345,221
2,673,966 Federal National Mortgage
Association
Pool #050965
6.50% Due 1/1/2024 2,722,606
556,446 Federal National Mortgage
Association
Pool #050987
6.50% Due 2/1/2009 567,854
1,018,259 Federal National Mortgage
Association
Pool#50966
7.00% Due 1/1/2024 1,047,493
854,676 Federal National Mortgage
Association
Pool#239024
7.00% Due 10/1/2023 879,214
437,867 Federal National Mortgage
Association
Pool #87277
7.50% Due 4/1/2018 452,536
380,000 Federal National Mortgage
Association
Remic 92-161H
7.50% Due 09/25/2022 404,036
1,056,056 Federal National Mortgage
Association
Remic 9323-PZ
7.50% Due 03/25/2023 1,150,370
4,863,932 Federal National Mortgage
Association
Remic 93-255E
7.10% Due 12/25/2023 4,975,419
218,717 Federal National Mortgage
Association
Remic 93-250DZ
7.00% Due 12/25/2023 223,810
1,196,000 Federal National Mortgage
Association
Remic 94-23E
6.00% Due 02/25/2024 1,169,814
385,000 Federal National Mortgage
Association
Remic G96-1PK
7.50% Due 06/17/2026 424,915
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 2,614,000 Federal National Mortgage
Association
Remic 98-49GC
6.50% Due 01/20/2025 $ 2,622,626
1,371,000 Federal National Mortgage
Association
Remic 93-226C
6.00% Due 12/25/2023 1,350,006
612,000 Federal National Mortgage
Association
Remic 93-61HB
6.75% Due 3/25/2022 638,984
3,820,118 Federal National Mortgage
Association
Remic 1993-247C
7.00% Due 03/25/2023 3,903,821
4,169,519 Federal National Mortgage
Association
Remic 1994-69 Class CA
7.25% Due 03/25/2023 4,137,406
18,580 Federal National Mortgage
Association
Remic X-12AC
8.00% Due 07/25/2025 18,549
21,216 Government National
Mortgage Association
Backed Trust
Remic 1A
0.00% Due 5/20/2017 20,157
23,511 Government National
Mortgage Association
Pool #1350
6.50% Due 3/15/2002 23,914
23,847 Government National
Mortgage Association
Pool #011192
7.25% Due 4/15/2006 24,579
647,364 Government National
Mortgage Association
Pool #377003
8.00% Due 8/15/2024 677,305
495,307 Government National
Mortgage Association
Pool #364979
8.00% Due 04/15/2024 518,216
943 Government National
Mortgage Association
Pool #010855
8.00% Due 07/15/2006 995
380,400 Government National
Mortgage Association
Pool #152027
8.00% Due 10/20/2016 399,759
</TABLE>
See Notes to Financial Statements 45
<PAGE>
ACTIVELY MANAGED BOND FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 1,110,909 Government National
Mortgage Association
Pool #377341
8.00% Due 11/15/2024 $ 1,162,289
234,058 Government National
Mortgage Association
Pool #000675
8.00% Due 12/20/2016 245,969
1,369 Government National
Mortgage Association
Pool #002919
8.00% Due 2/15/2004 1,431
48,154 Government National
Mortgage Association
Pool #000710
8.00% Due 2/20/2017 50,584
125,802 Government National
Mortgage Association
Pool #193256
8.00% Due 3/15/2017 133,132
11,073 Government National
Mortgage Association
Pool #209105
8.00% Due 3/20/2017 11,632
192,528 Government National
Mortgage Association
Pool #213606
8.00% Due 4/15/2017 203,745
103,744 Government National
Mortgage Association
Pool #202887
8.00% Due 4/15/2017 109,789
9,775 Government National
Mortgage Association
Pool #216159
8.00% Due 4/15/2017 10,345
4,524 Government National
Mortgage Association
Pool #290013
8.00% Due 4/15/2020 4,750
71,579 Government National
Mortgage Association
Pool #291195
8.00% Due 5/15/2020 75,166
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 231,678 Government National
Mortgage Association
Pool #218150
8.00% Due 6/15/2017 $ 245,176
94,701 Government National
Mortgage Association
Pool #290123
8.00% Due 6/15/2020 99,446
54,221 Government National
Mortgage Association
Pool #05214
8.00% Due 7/15/2005 56,995
6,736 Government National
Mortgage Association
Pool #247493
8.00% Due 7/15/2018 7,109
551,564 Government National
Mortgage Association
Pool #385850
8.00% Due 8/15/2024 577,074
629,260 Government National
Mortgage Association
Pool #373826
8.00% Due 9/15/2023 658,615
271,179 Government National
Mortgage Association
Pool #196754
8.50% Due 2/15/2017 288,836
63,658 Government National
Mortgage Association
Pool #205624
8.50% Due 3/15/2017 67,803
163,350 Government National
Mortgage Association
Pool #169957
8.50% Due 7/15/2016 174,114
8,887 Government National
Mortgage Association
Pool #025811
9.00% Due 1/15/2009 9,574
287,371 Government National
Mortgage Association
Pool #226673
9.50% Due 07/15/2017 311,537
</TABLE>
See Notes to Financial Statements 46
<PAGE>
ACTIVELY MANAGED BOND FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 195,003 Government National
Mortgage Association
Pool #010260
8.00% Due 06/15/2006 $ 205,720
193,843 Government National
Mortgage Association
Pool #346560
8.00% Due 04/15/2023 202,887
4,676 Government National
Mortgage Association
Pool #026113
9.00% Due 08/15/2008 5,028
11,978 Government National
Mortgage Association
Pool #035238
9.50% Due 09/15/2009 12,965
17,977 Government National
Mortgage Association
Pool #157799
9.00% Due 07/15/2016 19,370
13,890 Government National
Mortgage Association
Pool #158361
9.50% Due 06/15/2016 15,072
2,285 Government National
Mortgage Association
Pool #179930
9.50% Due 12/15/2016 2,480
7,239 Government National
Mortgage Association
Pool #173806
9.00% Due 10/15/2016 7,800
4,593 Government National
Mortgage Association
Pool #176069
9.00% Due 08/15/2016 4,949
28,238 Government National
Mortgage Association
Pool #177254
9.00% Due 09/15/2016 30,426
37,756 Government National
Mortgage Association
Pool #211434
9.50% Due 04/15/2017 40,930
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 25,360 Government National
Mortgage Association
Pool #199032
9.50% Due 01/15/2017 $ 27,493
6,271 Government National
Mortgage Association
Pool #237572
9.50% Due 12/15/2017 6,799
5,840 Government National
Mortgage Association
Pool #226855
9.50% Due 07/15/2017 6,332
19,399 Government National
Mortgage Association
Pool #226651
9.50% Due 06/15/2018 21,030
3,759 Government National
Mortgage Association
Pool #262208
9.50% Due 08/15/2018 4,075
134,802 Government National
Mortgage Association
Pool #319342
8.50% Due 03/15/2022 143,572
1,000,000 Government National
Mortgage Association
Remic 97-18J
7.00% Due 11/20/2027 1,034,910
1,000,000 Government National
Mortgage Association
Remic 98-1A
7.00% Due 01/20/2028 1,017,644
6,020,000 United States Treasury
Bonds
9.25% Due 2/15/2016 8,873,859
6,800,000 United States Treasury
Zero Coupon Strips
0.00% Due 2/15/2006 4,873,424
19,180,000 United States Treasury
Zero Coupon Strips
0.00% Due 2/15/2010 11,023,321
------------
Total United States Government and Agency
Obligations (Cost $142,619,620) $150,621,964
------------
Total Investments (Cost
$156,375,535) 101.5% $164,837,305
Liabilities, Less Other Assets -1.5% (2,482,256)
------ ------------
Net Assets 100.0% $162,355,049
------ ------------
------ ------------
</TABLE>
See Notes to Financial Statements 47
<PAGE>
ACTIVELY MANAGED BOND FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$156,375,535)--Note 2(A) $164,837,305
Cash 266,084
Receivable for units sold 761,823
Dividends and interest receivable 854,440
Collateral for securities loaned, at fair value
(Note 4) 4,870,700
Other assets 22,720
------------
171,613,072
LIABILITIES:
Payable for investments purchased $3,972,931
Payable upon return of securities loaned (Note
4) 4,870,700
Payable for units redeemed 280,735
Payable to investment managers 43,565
Accrued expenses 90,092 9,258,023
------- ------------
NET ASSETS at value, applicable to 4,303,204
outstanding units of beneficial interest--Note 5 $162,355,049
------------
------------
NET ASSET VALUE offering and redemption price per
unit ($162,355,049 divided by 4,303,204 units) $ 37.73
------------
------------
</TABLE>
Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $10,517,554
----------
Total Income $10,517,554
Expenses:
Investment manager's fees--Note 3(A) 500,102
Shareholder servicing fees and expenses--Note 3(B) 551,984
Custodian fees and expenses 24,464
Legal and auditing fees 22,327
Consultant fees 11,816
Trustees' fees and expenses--Note 3(C) 26,104
Printing and Postage 16,613
Insurance 30,609
Other 34,546
----------
Total Expenses 1,218,565
----------
INVESTMENT INCOME--NET 9,298,989
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--Note 4:
Net realized gain on investments 3,247,694
Unrealized appreciation on investments 3,846,747
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 7,094,441
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,393,430
----------
----------
</TABLE>
See Notes to Financial Statements
48
<PAGE>
ACTIVELY MANAGED BOND FUND
(CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 9,298,989 $ 9,227,012
Net realized gain 3,247,694 1,219,640
Net unrealized appreciation 3,846,747 3,740,985
------------ ------------
Net increase in net assets resulting from operations 16,393,430 14,187,637
------------ ------------
CAPITAL TRANSACTIONS--Note 5:
Value of units sold 26,734,278 36,098,759
Value of units redeemed (27,911,465) (53,451,868)
------------ ------------
Net (decrease) in net assets resulting from capital
transactions (1,177,187) (17,353,109)
------------ ------------
Net increase (decrease) 15,216,243 (3,165,472)
NET ASSETS at beginning of year 147,138,806 150,304,278
------------ ------------
NET ASSETS at end of year $162,355,049 $147,138,806
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
49
<PAGE>
INTERMEDIATE-TERM BOND FUND
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS 7.9%
$ 193,949 Collateralized Mortgage
Obligation Trust
Remic 27A
7.25% Due 04/23/2017 $ 199,483
1,142,402 Citicorp
Mortgage
9.00% Due 08/25/2027 1,168,167
300,000 General Electric Capital
Management Service
Remic 96-3A4
7.00% Due 03/25/2026 308,348
1,467,978 General Electric Capital
Management Service
Mortgage
7.00% Due 01/25/2028 1,492,331
1,107,862 Residential Funding
Mortgage Security
Remic 1997-S6A7
7.00% Due 05/25/2012 1,108,472
456,000 Capstead Securities Corp.
IV
CMO 93-1E
7.50% Due 02/01/2023 470,679
------------
Total Collateralized Mortgage
Obligations
(Cost $4,709,983)
$ 4,747,480
------------
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS 92.8%
$ 560,000 Federal Home Loan Bank
5.125% Due 09/15/2003 568,412
980,708 Federal Home Loan
Mortgage Corp.
Remic 1701C
6.50% Due 03/15/2009 988,095
500,000 Federal Home Loan
Mortgage Corp.
Remic 1770PH
8.00% Due 08/15/2023 513,530
2,000,000 Federal Home Loan
Mortgage Corp.
Structured Note
6.50% Due 10/15/2007 2,023,298
615,000 Federal Home Loan
Mortgage Corp.
6.57% Due 02/11/2008 629,675
2,000,000 Federal Home Loan
Mortgage Corp.
6.54% Due 08/26/2008 2,030,084
1,500,000 Federal Home Loan
Mortgage Corp.
6.91% Due 06/20/2005 1,554,426
215,624 Federal Home Loan
Mortgage Corp.
Remic 1316Z
8.00% Due 06/15/2022 227,930
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 400,000 Federal Home Loan
Mortgage Corp.
Remic Series 32 Class E
7.50% Due 03/25/2005 $ 405,650
1,427,748 Federal Home Loan
Mortgage Corp.
Remic 2046PZ
6.50% Due 02/15/2028 1,421,178
6,721 Federal Home Loan
Mortgage Corp.
Pool #200030
9.00% Due 03/01/2001 6,944
22,144 Federal Home Loan
Mortgage Corp.
Pool #200034
8.50% Due 05/01/2001 22,743
9,917 Federal Home Loan
Mortgage Corp.
Pool #200035
9.00% Due 05/01/2001 10,245
40,439 Federal Home Loan
Mortgage Corp.
Pool #200040
9.00% Due 06/01/2001 41,776
38,772 Federal Home Loan
Mortgage Corp.
Pool #200070
7.50% Due 04/01/2002 39,339
64,747 Federal Home Loan
Mortgage Corp.
Pool #200071
7.50% Due 05/01/2002 65,693
40,176 Federal Home Loan
Mortgage Corp.
Pool #212242
7.50% Due 07/01/2001 40,622
9,904 Federal Home Loan
Mortgage Corp.
Pool #212719
7.50% Due 08/01/2001 10,014
56,478 Federal Home Loan
Mortgage Corp.
Pool #213857
7.50% Due 11/01/2001 57,105
20,305 Federal Home Loan
Mortgage Corp.
Pool #214040
7.50% Due 12/01/2001 20,530
575 Federal Home Loan
Mortgage Corp.
Pool #251478
7.00% Due 12/01/1998 589
26,274 Federal Home Loan
Mortgage Corp.
Pool #320139
8.00% Due 09/01/2001 26,625
127,820 Federal Home Loan
Mortgage Corp.
Remic 1379I
7.50% Due 03/15/2022 127,823
</TABLE>
See Notes to Financial Statements 50
<PAGE>
INTERMEDIATE-TERM BOND FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 41,548 Federal Home Loan
Mortgage Corp.
Remic 1468-O
7.00% Due 10/15/2022 $ 41,678
1,500,000 Federal Home Loan
Mortgage Corp.
Remic 1500H
6.75% Due 08/15/2021 1,558,533
337,373 Federal Home Loan
Mortgage Corp.
Remic 157A
8.75% Due 07/15/2000 350,898
892,613 Federal Home Loan
Mortgage Corp.
Remic 1587Z
6.50% Due 10/15/2008 899,367
1,031,000 Federal Home Loan
Mortgage Corp.
Remic 1617C
6.50% Due 02/15/2023 1,039,546
225,000 Federal Home Loan
Mortgage Corp.
Remic 1663C
7.00% Due 01/15/2024 229,418
1,115,639 Federal Home Loan
Mortgage Corp.
Remic 1681K
7.00% Due 08/15/2023 1,115,039
140,000 Federal Home Loan
Mortgage Corp.
Remic 1692K
7.20% Due 09/15/2023 140,502
142,000 Federal Home Loan
Mortgage Corp.
Remic 1695EA
7.00% Due 12/15/2023 147,339
1,387,213 Federal Home Loan
Mortgage Corp.
Remic 1697E
6.00% Due 03/15/2009 1,419,181
1,048,042 Federal Home Loan
Mortgage Corp.
Remic 1706LB
7.00% Due 06/15/2023 1,052,805
339,000 Federal Home Loan
Mortgage Corp.
Remic 1754B
8.50% Due 02/15/2022 344,978
740,000 Federal Home Loan
Mortgage Corp.
Remic 1831J
7.00% Due 09/15/2024 757,331
1,440,000 Federal Home Loan
Mortgage Corp.
Remic 1932B
7.00% Due 06/15/2025 1,460,756
777,719 Federal Home Loan
Mortgage Corp.
Remic 2062Z
6.50% Due 06/15/2028 800,115
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 99,913 Federal National Mortgage
Association
Remic 93-244A
0.00% Due 11/25/2023 $ 95,883
250,000 Federal National Mortgage
Association
7.59% Due 10/04/2006 255,367
500,000 Federal National Mortgage
Association
Medium Term Note
7.65% Due 10/06/2006 514,153
400,000 Federal National Mortgage
Association
Medium Term Note
7.43% Due 06/13/2007 416,410
320,000 Federal National Mortgage
Association
Medium Term Note
6.50% Due 03/19/2008 333,278
1,895,000 Federal National Mortgage
Association
Medium Term Note
6.48% Due 04/02/2008 1,972,318
385,000 Federal National Mortgage
Association
Medium Term Note
6.87% Due 10/02/2007 400,049
450,000 Federal National Mortgage
Association
Medium Term Note
6.90% Due 08/21/2007 481,616
500,000 Federal National Mortgage
Association
Medium Term Note
6.63% Due 03/20/2008 513,815
500,000 Federal National Mortgage
Association
Medium Term Note
6.61% Due 04/10/2008 514,270
1,500,000 Federal National Mortgage
Association
Medium Term Note
6.44% Due 01/07/2008 1,581,588
213,874 Federal National Mortgage
Association
Remic G-94-8M
8.00% Due 05/17/2024 213,938
177,000 Federal National Mortgage
Association
Remic G-41PT
7.50% Due 10/25/2021 189,484
99,036 Federal National Mortgage
Association
Pool #28785
9.00% Due 06/01/2001 102,928
243,259 Federal National Mortgage
Association
Pool #87277
7.50% Due 04/01/2018 251,409
</TABLE>
See Notes to Financial Statements 51
<PAGE>
INTERMEDIATE-TERM BOND FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 14,233 Federal National Mortgage
Association
Pool #7242
8.50% Due 07/01/2001 $ 14,642
17,070 Federal National Mortgage
Association
Pool #26607
9.00% Due 05/01/2001 17,741
10,300 Federal National Mortgage
Association
Pool #26707
9.00% Due 05/01/2001 10,705
57,821 Federal National Mortgage
Association
Pool #28645
9.00% Due 06/01/2001 60,093
16,916 Federal National Mortgage
Association
Pool #29470
9.00% Due 07/01/2001 17,581
3,971 Federal National Mortgage
Association
Pool #29658
8.50% Due 07/01/2001 4,085
52,733 Federal National Mortgage
Association
Pool #30409
8.50% Due 09/01/2001 54,246
127,428 Federal National Mortgage
Association
Pool #355656
7.00% Due 08/01/2003 130,501
63,029 Federal National Mortgage
Association
Pool #46609
8.00% Due 05/01/2002 64,511
96,914 Federal National Mortgage
Association
Pool #46872
8.00% Due 05/01/2002 98,880
5,859 Federal National Mortgage
Association
Pool #47137
8.00% Due 05/01/2002 5,998
107,894 Federal National Mortgage
Association
Pool #47402
8.00% Due 05/01/2002 110,430
81,356 Federal National Mortgage
Association
Pool #47932
8.00% Due 05/01/2002 83,268
49,997 Federal National Mortgage
Association
Pool #48103
8.00% Due 05/01/2002 51,172
679,915 Federal National Mortgage
Association
Pool #82407
9.00% Due 03/01/2004 716,617
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 172,761 Federal National Mortgage
Association
Remic 1990-132Z
7.00% Due 11/25/2020 $ 178,918
360,297 Federal National Mortgage
Association
Remic 1992-131H
7.50% Due 06/25/2021 363,778
1,000,000 Federal National Mortgage
Association
Remic 1992-138P
7.50% Due 08/25/2022 1,000,073
225,000 Federal National Mortgage
Association
Remic 1992-202J
7.50% Due 04/25/2020 231,955
244,000 Federal National Mortgage
Association
Remic 1993-1G
7.50% Due 01/25/2022 253,608
1,200,000 Federal National Mortgage
Association
Remic 1994-38J
7.00% Due 11/25/2012 1,251,239
1,000,000 Federal National Mortgage
Association
Remic 1994-75N
7.00% Due 04/25/2024 1,014,545
985,288 Federal National Mortgage
Association
Remic 1998-32LA
7.00% Due 03/18/2012 994,570
2,221,000 Federal National Mortgage
Association
Remic 92-135J
7.50% Due 02/25/2021 2,269,775
711,000 Federal National Mortgage
Association
Remic 92-174H
7.25% Due 09/25/2021 727,098
645,000 Federal National Mortgage
Association
Remic 93-54J
6.75% Due 10/25/2022 661,495
660,000 Federal National Mortgage
Association
Remic 93-89D
7.00% Due 06/25/2023 670,805
455,215 Federal National Mortgage
Association
Remic G92-40ZC
7.00% Due 07/25/2022 470,468
1,000,000 Federal National Mortgage
Association
Remic G93-32J
6.75% Due 05/25/2009 1,039,262
442,960 Federal National Mortgage
Association
Remic G93-40ZC
6.50% Due 12/25/2023 433,210
</TABLE>
See Notes to Financial Statements 52
<PAGE>
INTERMEDIATE-TERM BOND FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 659,493 Federal National Mortgage
Association
Remic G94-5A
7.00% Due 01/17/2024 $ 669,326
1,552,855 Federal National Mortgage
Association
Remic X-188AQZ
6.00% Due 10/25/2008 1,555,815
976,915 Federal National Mortgage
Association
Remic 98-34AV
6.50% Due 06/18/2028 987,146
18,703 Federal National Mortgage
Association Strips
0.00% Due 03/01/2018 17,373
613,289 Government National
Mortgage Association
Pool #9257
8.25% Due 06/20/2025 642,115
9,461 Government National
Mortgage Association
Pool #008881
8.25% Due 03/15/2006 9,991
1,040 Government National
Mortgage Association
Pool #009335
8.25% Due 04/15/2006 1,098
775,438 Government National
Mortgage Association
Pool #409781
8.25% Due 08/15/2025 818,608
403,482 Government National
Mortgage Association
Pool #427291
8.25% Due 12/15/2027 425,540
764,214 Government National
Mortgage Association
Pool #453323
8.25% Due 09/15/2027 805,994
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 599,053 Government National
Mortgage Association
Pool #453336
8.25% Due 09/15/2027 $ 631,804
2,077,095 Government National
Mortgage Association
Pool #440640
8.25% Due 06/15/2027 2,190,651
10,000 United States Treasury
Bonds
3.50% Due 11/15/1998 9,980
200,000 United States Treasury
Notes
7.75% Due 02/15/2001 215,000
4,000,000 United States Treasury
Strips
0.00% Due 08/15/2002 3,387,320
------------
Total United States Government and
Agency Obligations
(Cost $54,098,621)
55,395,348
------------
SHORT TERM INVESTMENTS 1.6%
CERTIFICATE OF DEPOSIT 0.2%
$ 126,080 Hudson City Savings CD
7.56% Due 02/22/1999
(Cost $126,080) 126,080
------------
REPURCHASE AGREEMENT 1.4%
850,000 Cantor Fitzgerald, Inc.
Dated 9/30/1998
5.42% Due 10/1/98
Collateralized by
$742,000 United States
Treasury Notes Due
2/15/2005 (Value
$868,140) 850,000
------------
Total Short Term Investments (Cost
$976,080) 1.6% $ 976,080
------------
Total Investments (Cost $59,784,684) 102.3% $ 61,118,908
Liabilities, Net of Other Assets -2.3% (1,400,492)
------ ------------
Net Assets 100.0% $ 59,718,416
------ ------------
------ ------------
</TABLE>
See Notes to Financial Statements 53
<PAGE>
INTERMEDIATE-TERM BOND FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$59,784,684)--Note 2(A) $61,118,908
Cash 48,162
Receivable for units sold 256,257
Dividends and interest receivable 530,746
Collateral for securities loaned, at fair value
(Note 4) 2,970,310
Other assets 12,796
-----------
64,937,179
LIABILITIES:
Payable for units redeemed $2,166,568
Payable upon return of securities loaned (Note
4) 2,970,310
Payable to investment managers 19,064
Accrued expenses 62,821 5,218,763
-------- -----------
NET ASSETS at value, applicable to 1,751,290
outstanding units of
beneficial interest--Note 5 $59,718,416
-----------
-----------
NET ASSET VALUE offering and redemption price per
unit
($59,718,416 divided by 1,751,290 units) $ 34.10
-----------
-----------
</TABLE>
Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $4,527,149
----------
Total Income $4,527,149
Expenses:
Investment manager's fees--Note 3(A) 243,403
Shareholder servicing fees and expenses--Note 3(B) 332,867
Custodian fees and expenses 14,907
Legal and auditing fees 19,426
Consultant fees 11,816
Trustees' fees and expenses--Note 3(C) 26,104
Printing and Postage 16,613
Insurance 14,898
Other 31,717
----------
Total Expenses 711,751
----------
INVESTMENT INCOME--NET 3,815,398
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--Note 4:
Net realized gain on investments 864,694
Unrealized appreciation on investments 282,393
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,147,087
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,962,485
----------
----------
</TABLE>
See Notes to Financial Statements
54
<PAGE>
INTERMEDIATE-TERM BOND FUND
(CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
----------- -----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 3,815,398 $ 4,223,168
Net realized gain 864,694 786,866
Net unrealized appreciation 282,393 321,150
----------- -----------
Net increase in net assets resulting from operations 4,962,485 5,331,184
----------- -----------
CAPITAL TRANSACTIONS--Note 5:
Value of units sold 7,479,124 17,101,876
Value of units redeemed (21,111,961) (28,798,252)
----------- -----------
Net (decrease) in net assets resulting from capital
transactions (13,632,837) (11,696,376)
----------- -----------
Net (decrease) (8,670,352) (6,365,192)
NET ASSETS at beginning of year 68,388,768 74,753,960
----------- -----------
NET ASSETS at end of year $59,718,416 $68,388,768
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements
55
<PAGE>
SHORT-TERM INVESTMENT FUND
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
CORPORATE BONDS
$ 260,000 MidAmerica Energy 5.05%
Due 10/15/1998 $ 259,933
25,000 Pepsico Inc. 7.625% Due
11/01/1998 25,034
125,000 Southwestern Bell 5.70%
Due 03/11/1999 125,229
------------
Total Corporate Bonds (Cost
$409,889) 1.3% $ 410,196
------------
COMMERCIAL PAPER
$ 807,000 Anheuser Busch Co.
5.72% Due 10/01/1998 $ 807,000
953,000 Sherwin-Williams Co.
5.72% Due 10/01/1998 953,000
------------
Total Corporate Paper (Cost
$1,760,000) 5.4% $ 1,760,000
------------
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS
$ 205,435 Federal Farm Credit Bank
5.79% Due 03/01/1999 $ 205,828
55,000 Federal Farm Credit Bank
Medium Term Note 5.70%
Due 11/03/1998 54,995
100,000 Federal Home Loan Bank
5.30% Due 11/18/1998 99,942
250,000 Federal Home Loan Bank
5.42% Due 12/08/1998 250,180
100,000 Federal Home Loan Bank
5.04% Due 10/01/1998 99,971
500,000 Federal Home Loan Bank
4.96% Due 10/28/1998 499,704
250,000 Federal Home Loan Bank
5.59% Due 02/02/1999 250,279
250,000 Federal Home Loan Bank
5.512% Due 02/16/1999 250,257
500,000 Federal Home Loan Bank
5.905% Due 10/21/1998 499,900
100,000 Federal Home Loan Bank
Medium Term Note 5.24%
Due 11/30/1998 99,909
30,000 Federal Home Loan Bank
Medium Term Note 5.71%
Due 11/20/1998 29,996
500,000 Federal Home Loan Bank
5.21% Due 10/20/2000 500,000
500,000 Federal Home Loan
Mortgage Corp. 5.70%
Due 02/02/1999 501,990
100,000 Federal Home Loan
Mortgage Corp. 5.30%
Due 10/26/1998 99,957
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 100,000 Federal Home Loan
Mortgage Corp. 5.50%
Due 10/30/1998 $ 99,948
200,000 Federal Home Loan
Mortgage Corp. 5.70%
Due 01/18/1999 200,700
170,548 Federal Home Loan
Mortgage Corp. Pool
#90027 8.00% Due
11/01/1998 170,548
229,766 Federal Home Loan
Mortgage Corp. Pool
#91909 6.50% Due
09/01/1999 231,001
233,625 Federal Home Loan
Mortgage Corp. Pool
#80120 7.00% Due
08/01/1999 235,830
240,529 Federal Home Loan
Mortgage Corp. Pool
#80157 7.00% Due
03/01/2000 244,053
176,797 Federal Home Loan
Mortgage Corp. Pool
#90315
5.50% Due 12/01/1998 176,534
91,391 Federal Home Loan
Mortgage Corp. Pool
#90320
6.00% Due 01/01/1999 91,615
207,365 Federal Home Loan
Mortgage Corp. Pool
#90345
7.00% Due 05/01/1999 208,663
66,742 Federal Home Loan
Mortgage Corp. Pool
#90352
7.50% Due 05/01/1999 67,316
410,428 Federal Home Loan
Mortgage Corp. Pool
#90337
6.00% Due 05/01/1999 411,430
188,361 Federal Home Loan
Mortgage Corp. Pool
#90354
7.50% Due 08/01/1999 189,980
194,241 Federal Home Loan
Mortgage Corp. Pool
#71994
5.50% Due 02/01/1999 193,662
248,461 Federal Home Loan
Mortgage Corp. Pool
#72075
6.00% Due 03/01/1999 249,068
335,711 Federal Home Loan
Mortgage Corp. Pool
#72494
7.50% Due 06/01/1999 338,595
25,093 Federal Home Loan
Mortgage Corp. Pool
#72804
7.50% Due 09/01/1999 25,309
</TABLE>
See Notes to Financial Statements 56
<PAGE>
SHORT-TERM INVESTMENT FUND (CONTINUED)
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 127,972 Federal Home Loan
Mortgage Corp. Pool
#40009
6.50% Due 09/01/2000 $ 129,145
466,404 Federal Home Loan
Mortgage Corp. Pool
#50192
6.50% Due 09/01/1999 468,517
661,754 Federal Home Loan
Mortgage Corp. Remic
1674/VA
4.95% Due 07/15/2000 659,266
60,541 Federal Home Loan
Mortgage Corp. Remic
1663PL
7.00% Due 01/15/1999 60,545
87,010 Federal Home Loan
Mortgage Corp. Remic
1730E
7.00% Due 02/15/1999 87,112
78,586 Federal Home Loan
Mortgage Corp. Remic
92-79LB
7.00% Due 09/25/1999 79,020
100,000 Federal National Mortgage
Association
5.05% Due 11/10/1998 99,911
600,000 Federal National Mortgage
Association
Remic 1997-67PA 6.25%
Due 05/18/2000 600,792
250,000 Federal National Mortgage
Association
5.55% Due 10/05/1998 249,994
250,000 Federal National Mortgage
Association Medium Term
Note 5.35% Due
10/13/1998 249,934
250,000 Federal National Mortgage
Association Medium Term
Note 5.38% Due
10/23/1998 249,955
40,000 Federal National Mortgage
Association Medium Term
Note 4.75% Due
10/26/1998 40,000
200,000 Federal National Mortgage
Association Medium Term
Note 5.42% Due
11/02/1998 199,890
200,000 Federal National Mortgage
Association Medium Term
Note 5.23% Due
11/25/1998 199,829
500,000 Federal National Mortgage
Association Medium Term
Note 5.75% Due
02/09/1999 500,285
<CAPTION>
Principal
Amount Value
- ----------- ------------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
OBLIGATIONS (Continued)
$ 207,688 Federal National Mortgage
Association Remic
1992-106G 7.00% Due
06/25/1999 $ 208,898
64,551 Federal National Mortgage
Association Pool #50702
7.50% Due 01/01/2000 65,495
968,026 Federal National Mortgage
Association Pool
#124673
7.00% Due 02/01/2000 984,415
120,658 Federal National Mortgage
Association Pool
#143012
7.00% Due 01/01/1999 122,000
128,257 Federal National Mortgage
Association Pool
#148681
7.00% Due 02/01/1999 129,684
844,811 Federal National Mortgage
Association Pool
#190781
7.50% Due 05/01/2000 852,694
342,752 Federal National Mortgage
Association Pool
#190808
7.50% Due 04/01/2000 345,950
1,564,801 Federal National Mortgage
Association Pool
#303072
7.50% Due 07/01/2000 1,579,401
400,554 Federal National Mortgage
Association Pool
#303581
7.00% Due 01/01/2000 405,009
------------
Total United States Government and
Agency
Obligations (Cost $15,106,732)
46.8% $ 15,144,901
------------
REPURCHASE AGREEMENT
$12,800,000 Cantor Fitzgerald, Inc.
Dated 9/30/1998 5.42%
Due 10/1/98
Collateralized by
$9,583,000 United
States Treasury Bond
Due 8/15/2019 (Value
$13,056,838) 39.5% $ 12,800,000
------------
Total Investments (Cost $30,076,621) 93.0% $ 30,115,097
Other Assets, Less Liabilities 7.0% 2,269,423
------ ------------
Net Assets 100.0% $ 32,384,520
------ ------------
------ ------------
</TABLE>
See Notes to Financial Statements 57
<PAGE>
SHORT-TERM INVESTMENT FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$30,076,621)--Note 2(A) $30,115,097
Cash 477,543
Receivable for units sold 2,484,487
Dividends and interest receivable 150,264
Other assets 6,792
-----------
33,234,183
LIABILITIES:
Payable for investments purchased $578,808
Payable for units redeemed 219,087
Payable to investment managers 5,176
Accrued expenses 46,592 849,663
-------- -----------
NET ASSETS at value, applicable to 1,451,475
outstanding units of
beneficial interest--Note 5 $32,384,520
-----------
-----------
NET ASSET VALUE offering and redemption price per
unit
($32,384,520 divided by 1,451,475 units) $ 22.31
-----------
-----------
</TABLE>
Statement of Operations Year Ended September 30, 1998
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $1,406,761
---------
Total Income $1,406,761
Expenses:
Investment manager's fees--Note 3(A) 61,881
Shareholder servicing fees and expenses--Note 3(B) 147,394
Custodian fees and expenses 13,640
Legal and auditing fees 17,727
Consultant fees 11,816
Trustees' fees and expenses--Note 3(C) 26,104
Printing and Postage 16,613
Insurance 5,072
Other 21,644
---------
Total Expenses 321,891
Less expense reimbursement--Note 3(A) (123,847)
---------
Net Expenses 198,044
----------
INVESTMENT INCOME--NET 1,208,717
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note
4:
Realized (loss) on investments (625)
Unrealized appreciation on investments 21,885
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 21,260
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,229,977
----------
----------
</TABLE>
See Notes to Financial Statements
58
<PAGE>
SHORT-TERM INVESTMENT FUND
(CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
----------- -----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 1,208,717 $ 1,196,927
Net realized (loss) (625) --
Net unrealized appreciation 21,885 22,137
----------- -----------
Net increase in net assets resulting from operations 1,229,977 1,219,064
----------- -----------
CAPITAL TRANSACTIONS--Note 5:
Value of units sold 51,447,590 19,468,323
Value of units redeemed (47,314,082) (19,334,439)
----------- -----------
Net increase in net assets resulting from capital
transactions 4,133,508 133,884
----------- -----------
Net increase 5,363,485 1,352,948
NET ASSETS at beginning of year 27,021,035 25,668,087
----------- -----------
NET ASSETS at end of year $32,384,520 $27,021,035
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--GENERAL
Participation in RSI Retirement Trust ("RSI") is limited to
IRA's and trusts established by eligible employers, which
include banks, savings banks, credit unions, savings and loan
associations and other organizations determined by the Trustees
of RSI to have business interests in common with organizations
participating in RSI. Such trusts are exempt from taxation
under Section 501(a) of the Internal Revenue Code ("Code") and
have been established under pension or profit sharing plans
which are qualified under Section 401 of the Code
("Participating Plans").
In order to provide investment products to Participating
Plans, RSI operates, pursuant to an Agreement and Declaration
of Trust amended effective as of August 31, 1984 ("Trust
Agreement"), as a series fund currently issuing as of September
30, 1998 seven classes of units of beneficial interest: Core
Equity Fund, Value Equity Fund, Emerging Growth Equity Fund,
International Equity Fund, Actively Managed Bond Fund,
Intermediate-Term Bond Fund and Short-Term Investment Fund
("Investment Funds"). The Trust Agreement was amended in 1984
to provide for the continued operation of RSI as an open-end
management investment company under the Investment Company Act
of 1940 ("Act"). Retirement System Distributors Inc.
("Distributors") acts as the distributor of the Investment
Funds' units of beneficial interest. The Distributor is a
wholly owned subsidiary of Retirement System Group Inc.
("RSGroup-Registered Trademark-").
On April 24, 1992, the remaining unitholders of RSI's
Dedicated Bond Fund sold their units and the proceeds were used
to purchase units in other RSI fixed-income funds. The
Dedicated Bond Fund has been inactive subsequent to this date.
The financial statements of the Investment Funds are
presented on a combined and individual basis. The combined
financial statements should be read in conjunction with the
individual financial statements.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
(A) SECURITIES VALUATION: Except for debt securities with
remaining maturities of 60 days or less, investments for
which market prices are available are valued as follows:
(1)each listed security is valued at its closing price
obtained from the respective exchange on which the
security is listed, or, if there were no sales on that
day, at its last reported closing or bid price;
(2)each unlisted security quoted on the NASDAQ is valued at
the last current bid price obtained from the NASDAQ;
(3)United States Government and agency obligations and
certain other debt obligations are valued based upon bid
quotations from various market makers for identical or
similar obligations;
60
<PAGE>
(4)mortgage-backed securities and asset-backed securities
are valued with a cash flow model based on both the
pre-payment assumptions (Public Securities Association
median) and the price-yield spreads over comparable
United States Treasury Securities;
(5)short-term money market instruments (such as
certificates of deposit, bankers' acceptances and
commercial paper) are valued by bid quotations or by
reference to bid quotations of available yields for
similar instruments of issuers with similar credit
rating.
Debt securities with remaining maturities of 60 days or
less are valued on the basis of amortized cost. In the absence
of an ascertainable market value, investments are valued at
their fair value as determined by the officers of RSI using
methods and procedures reviewed and approved by RSI's Trustees.
Investments and other assets and liabilities denominated in
foreign currencies are translated to U.S. dollars at the
prevailing rates of exchange. It is not practical to isolate
that portion of income arising from changes in the exchange
rates from the portion arising from changes in the market
prices of securities.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized
gain and loss from securities transactions are recorded on
a specific cost basis. Dividend income is recognized on the
ex-dividend date or when the dividend information is known;
interest income, including, where applicable, amortization
of discount and premium on investments and zero coupon
bonds, is recognized on an accrual basis.
The Investment Funds may enter into repurchase agreements
with financial institutions, deemed to be creditworthy by
the Investment Funds' Manager, subject to the sellers'
agreement to repurchase and the Funds' agreement to resell
such securities at a mutually agreed upon price. Securities
purchased subject to repurchase agreements are deposited
with the Investment Funds' custodian and, pursuant to the
terms of the repurchase agreement, must have an aggregate
market value greater than or equal to the repurchase price
plus accrued interest at all times. If the value of the
underlying securities falls below the value of the
repurchase price plus accrued interest, the Investment
Funds will require the seller to deposit additional
collateral by the next business day. If the request for
additional collateral is not met, or the seller defaults on
its repurchase obligation, the Investment Funds maintain
the right to sell the underlying securities at market value
and may claim any resulting loss against the seller.
(C) SECURITIES LOANS: The Investment Funds lend their
securities to other market participants and receive
compensation in the form of fees or they retain a portion
of interest on the investment of any cash received as
collateral. The Investment Funds also continue to receive
interest or dividends on the securities loaned. The loans
are secured by collateral at least equal, at all times,
61
<PAGE>
to the fair value of the securities loaned plus accrued
interest. Gain or loss in the fair value of the securities
loaned that may occur during the term of the loan will be
for the account of the Investment Funds. Collateral is
recognized as an asset and the obligation to return the
collateral is recognized as a liability in all cases where
cash collateral is received. When other forms of collateral
are received, the assets and liabilities are generally not
recognized as the counter-parties have the ability to
redeem the collateral on short notice from the Funds.
(D) DIVIDENDS TO UNITHOLDERS: RSI does not normally declare
nor pay dividends on its net investment income or capital
gains.
(E) FEDERAL INCOME TAXES: RSI has received a determination
letter from the Internal Revenue Service stating that it is
exempt from taxation under Section 501(a) of the Internal
Revenue Code with respect to funds derived from
Participating Plans which are pension or profit sharing
trusts maintained in conformity with Section 401 of the
Code.
(F) ACCOUNTING 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 liabilities at the
date of the financial statements and the reported amounts
of increase and decrease in net assets from operations
during the year. Actual results could differ from those
estimates.
(G) OTHER: RSI accounts separately for the assets, liabilities
and operations of each Investment Fund. Expenses directly
attributed to each Investment Fund are charged to that
Investment Fund's operations; expenses which are applicable
to all Investment Funds are allocated among them.
Administrative expenses incurred by RSI relating to the
administration of Plans of Participation are charged to
Full Participation Employers (as defined in the Trust
Agreement) and are not included in the operation of the
Investment Funds.
The Investment Funds may enter into financial futures
contracts which require initial margin deposits of cash or
U.S. Government securities equal to approximately 10% of
the value of the contract. During the period the financial
futures are open, changes in the value of the contracts are
recognized by "marking to market" on a daily basis to
reflect the market value of the contracts at the close of
each day's trading. Accordingly, variation margin payments
are made or received to reflect daily unrealized gains or
losses. The Investment Fund is exposed to market risk as a
result of movements in securities, values and interest
rates.
(H) OPTIONS VALUATION: The Investment Funds may write call
options on equity securities. Premiums received for call
options written are recorded as a liability and "marked to
market" daily to reflect the current value of the option
written. If the written option is exercised prior to
expiration, the premium received is treated as a realized
gain. If the written option is exercised, the premium
received is added to the sale proceeds of the underlying
security.
62
<PAGE>
NOTE 3--INVESTMENT MANAGERS' FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
(A) Retirement System Investors Inc. ("Investors") is the
Investment Advisor for each Investment Fund. Investors has
retained sub-advisors to manage the International Equity
Fund and the Emerging Growth Equity Fund. Investors acts as
Investment Manager to the remaining Trust Investment Funds,
and in the case of all Investment Funds, exercises general
oversight with respect to the portfolio management,
including reporting of manager performance to the Trustees
and Investment Committee, compliance matters, sub-advisory
portfolio analysis, and presentations to unitholders.
Beginning April 1, 1997, HLM Management Company, Inc.
became one of the two sub-advisors to the Emerging Growth
Equity Fund, replacing The Putnam Advisory Company, Inc.
Friess Associates, Inc. continues to be the other sub-
advisor to the Emerging Growth Equity Fund.
Fees incurred by Investors pursuant to the provisions of
its investment management contracts are payable monthly to
Investors and quarterly to all sub-advisors and are
computed based on the value of the net assets of each
Investment Fund determined on a monthly or quarterly basis
as appropriate at the rates listed in the following table.
<TABLE>
<CAPTION>
INVESTMENT FUND INVESTMENT MANAGER FEE
- -------------------------- ------------------------------------ -----------------------------
<S> <C> <C>
Core Equity Fund Retirement System Investors Inc. .60% on first $50 million
.50% on next $150 million,
and .40% over $200 million
Value Equity Fund Retirement System Investors Inc. .60% on first $10 million,
.50% on next $10 million,
.40% on next $20 million,
.30% on next $20 million,
.20% on next $40 million,
.15% on next $50 million,
and .10% over $150 million
Emerging Growth Friess Associates, Inc.(Sub-advisor) 1.00%
Equity Fund
HLM Management Company, Inc. 1.00% on first $25 million
(Sub-advisor) .80% on next $25 million,
and .60% over $50 million
International Morgan Grenfell Investment .60% on first $50 million,
Equity Fund Services Limited (Sub-advisor) and .50% over $50 million
Actively Managed Retirement System Investors Inc. .40% on first $50 million,
Bond Fund .30% on next $100 million,
and .20% over $150 million
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT FUND INVESTMENT MANAGER FEE
- -------------------------- ------------------------------------ -----------------------------
<S> <C> <C>
Intermediate-Term Retirement System Investors Inc. .40% on first $50 million,
Bond Fund .30% on next $100 million,
and .20% over $150 million
Short-Term Retirement System Investors Inc. .25 on first $50 million,
Investment Fund and .20% over $50 million
</TABLE>
RSI's investment management agreement with Investors
provides for RSI to receive a management fee of 0.20% per
annum of the average daily net assets of the Investment
Funds that employ a sub-advisor. For the year ended
September 30, 1998, Investors has voluntarily waived a
portion of its investment manager's fee from the Short-Term
Investment Fund amounting to $123,847, to limit the Fund's
annual expenses to 0.80% of average net assets.
(B) Shareholder servicing fees and expenses for the year ended
consist of fees paid to Retirement System Consultants Inc.,
(a subsidiary of RSGroup) under a contract for providing
administrative services for the Investment Funds. The fee
arrangement applicable for each of the Investment Funds is
as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS FEE
- --------------------------------- ---------
<S> <C>
First $25 million .60%
Next $25 million .50%
Next $25 million .40%
Next $25 million .30%
Over $100 million .20%
</TABLE>
(C) Each Trustee who is not an officer of RSI receives an
annual fee of $9,500 and a fee of $950 per meeting
attended, except that such fee is $400 for a telephonic
meeting. Such Trustees also participate in a deferred
compensation plan which permits each Trustee to defer
payment of a portion of their fees. A Trustee and several
officers of RSI are also officers of RSGroup and its
subsidiaries.
NOTE 4--SECURITIES TRANSACTIONS
The following summarizes the securities transactions, other
than short-term securities, by the various Investment Funds for
the year ended September 30, 1998:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------- ----------------
<S> <C> <C>
Core Equity Fund $ 10,794,064 $ 55,018,221
Value Equity Fund 68,305,535 61,221,795
Emerging Growth Equity Fund 143,480,556 147,997,850
International Equity Fund 36,896,837 33,022,970
Actively Managed Bond Fund 116,681,502 106,422,253
Intermediate-Term Bond Fund 68,141,521 76,935,549
</TABLE>
64
<PAGE>
Net unrealized appreciation (depreciation) consisting of
gross unrealized appreciation and gross unrealized depreciation
at September 30, 1998 for each of the Investment Funds was as
follows:
<TABLE>
<CAPTION>
NET UNREALIZED GROSS
APPRECIATION GROSS UNREALIZED UNREALIZED
(DEPRECIATION) APPRECIATION DEPRECIATION
---------------- ---------------- --------------
<S> <C> <C> <C>
Core Equity Fund $ 104,620,047 $ 106,721,378 $ (2,101,331)
Value Equity Fund (416,449) 8,160,656 (8,577,105)
Emerging Growth Equity Fund (394,911) 6,088,294 (6,483,205)
International Equity Fund 605,534 5,045,924 (4,440,390)
Actively Managed Bond Fund 8,461,770 8,529,690 (67,920)
Intermediate-Term Bond Fund 1,334,224 1,365,474 (31,250)
Short-Term Investment Fund 38,476 38,969 (493)
</TABLE>
The following summarizes the market value of securities
that were on loan to brokers and the value of securities and
cash held as collateral for these loans at September 30, 1998:
<TABLE>
<CAPTION>
VALUE OF
SECURITIES VALUE OF
LOANED COLLATERAL
-------------- --------------
<S> <C> <C>
Core Equity Fund $ 3,664,320 $ 3,948,840
Value Equity Fund 6,767,630 7,503,141
Emerging Growth Equity Fund 19,064,697 20,456,208
International Equity Fund 543,898 587,950
Actively Managed Bond Fund 6,765,794 6,800,917
Intermediate Term Bond Fund 3,217,954 3,229,440
Short-Term Investment Fund 143,135 145,998
</TABLE>
These securities lending arrangements may result in
significant credit exposure in the event the counterparty to
the transaction was unable to fulfill its contractual
obligations. In accordance with industry practice, the
securities lending agreements are generally collaterized by
cash or securities with a market value in excess of the
Investment Funds obligation under the contract. The Investment
Funds attempt to minimize credit risk associated with these
activities by monitoring broker credit exposure and collateral
values on a daily basis and requiring additional collateral to
be deposited with or returned to the Investment Funds when
deemed necessary.
In June 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 provides
accounting and reporting standards for transfers of financial
assets, including repurchase agreements and securities lending
arrangements, and establishes new requirements for pledged
collateral. RSI has adopted this pronouncment effective January
1, 1998 and its adoption had no effect on the net assets of the
Investment Funds.
65
<PAGE>
For the year ended September 30, 1998 the Emerging Growth
Equity Fund, Value Equity Fund, and the International Equity
Fund each had expenses paid through brokerage/service
arrangements which amounted to $56,176, $4,410 and $20,000,
respectively.
NOTE 5--CAPITAL TRANSACTIONS:
At September 30, 1998 there were an unlimited number of
units of beneficial interest authorized for each Investment
Fund.
Transactions in the units of beneficial interest of each
Investment Fund for the year ended September 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Core Equity Value Equity
Fund Fund
----------------------- -----------------------
Units Amount Units Amount
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Units sold 276,487 $ 22,854,166 334,572 $ 20,642,979
Units redeemed (844,421) (68,118,523) (251,265) (15,152,673)
--------- ------------ --------- ------------
Net increase (decrease) (567,934) $(45,264,357) 83,307 $ 5,490,306
--------- ------------ --------- ------------
--------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Growth International
Equity Fund Equity Fund
----------------------- ----------------------
Units Amount Units Amount
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Units sold 153,746 $ 11,606,019 195,365 $ 9,648,430
Units redeemed (231,027) (17,083,955) (135,770) (6,755,055)
--------- ------------ --------- -----------
Net increase (decrease) (77,281) $ (5,477,936) 59,595 $ 2,893,375
--------- ------------ --------- -----------
--------- ------------ --------- -----------
</TABLE>
<TABLE>
<CAPTION>
Actively Managed Intermediate-Term
Bond Fund Bond Fund
----------------------- -----------------------
Units Amount Units Amount
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Units sold 744,236 $ 26,734,278 227,648 $ 7,479,124
Units redeemed (782,105) (27,911,465) (643,793) (21,111,961)
--------- ------------ --------- ------------
Net (decrease) (37,869) $ (1,177,187) (416,145) $(13,632,837)
--------- ------------ --------- ------------
--------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
Short-Term
Investment Fund
------------------------
Units Amount
---------- ------------
<S> <C> <C>
Units sold 2,372,449 $ 51,447,590
Units redeemed (2,193,734) (47,314,082)
---------- ------------
Net increase 178,715 $ 4,133,508
---------- ------------
---------- ------------
</TABLE>
66
<PAGE>
Transactions in the units of beneficial interest of each
Investment Fund for the year ended September 30, 1997 were as
follows:
<TABLE>
<CAPTION>
Core Equity Value Equity
Fund Fund
------------------------ -----------------------
Units Amount Units Amount
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Units sold 396,478 $ 25,795,510 227,658 $ 11,173,465
Units redeemed (1,449,971) (97,429,664) (491,588) (23,923,187)
---------- ------------ --------- ------------
Net (decrease) (1,053,493) $(71,634,154) (263,930) $(12,749,722)
---------- ------------ --------- ------------
---------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Growth International
Equity Fund Equity Fund
----------------------- -----------------------
Units Amount Units Amount
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Units sold 227,146 $ 15,421,504 199,932 $ 9,216,371
Units redeemed (516,504) (36,204,646) (384,652) (17,999,512)
--------- ------------ --------- ------------
Net (decrease) (289,358) $(20,783,142) (184,720) $ (8,783,141)
--------- ------------ --------- ------------
--------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
Actively Managed Intermediate-Term
Bond Fund Bond Fund
------------------------ -----------------------
Units Amount Units Amount
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Units sold 1,111,406 $ 36,098,759 559,693 $ 17,101,876
Units redeemed (1,652,565) (53,451,868) (943,239) (28,798,252)
---------- ------------ --------- ------------
Net (decrease) (541,159) $(17,353,109) (383,546) $(11,696,376)
---------- ------------ --------- ------------
---------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
Short-Term
Investment Fund
-----------------------
Units Amount
--------- ------------
<S> <C> <C>
Units sold 943,098 $ 19,468,323
Units redeemed (938,236) (19,334,439)
--------- ------------
Net increase 4,862 $ 133,884
--------- ------------
--------- ------------
</TABLE>
67
<PAGE>
Net Assets at September 30, 1998 are comprised as follows:
<TABLE>
<CAPTION>
Emerging
Core Equity Growth Value Equity International
Fund Equity Fund Fund Equity Fund
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Paid-in capital (deficit) $(147,455,283) $(40,744,296) $(27,931,128) $(2,206,300)
Accumulated income 48,669,083 (3,897,760) 19,333,579 (1,761,617)
Accumulated realized gain 170,531,315 100,323,476 72,936,374 37,586,795
Unrealized appreciation 104,621,844 (394,911) (408,161) 463,738
------------- ------------ ------------ -----------
$ 176,366,959 $ 55,286,509 $ 63,930,664 $34,082,616
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
Short-Term Actively
Investment Intermediate-Term Managed
Fund Bond Fund Bond Fund
-------------- --------------- ------------
<S> <C> <C> <C>
Paid-in capital (deficit) $(11,061,810) $ (84,337,106) $(49,203,909)
Accumulated income 42,078,568 126,622,050 165,876,513
Accumulated realized gain 1,329,286 16,099,248 37,220,675
Unrealized appreciation 38,476 1,334,224 8,461,770
-------------- --------------- ------------
$ 32,384,520 $ 59,718,416 $162,355,049
-------------- --------------- ------------
-------------- --------------- ------------
</TABLE>
NOTE 6--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
The Investment Funds activity during the year in writing
equity call options had off-balance sheet risk of accounting
loss. These financial instruments involve market risk in excess
of the amount recognized in the Statement of Assets and
Liabilities. A written equity call option obligates the
Investment Funds to deliver the underlying security upon
exercise by the holder of the option. The Investment Funds
cover options written by owning the underlying security.
A summary of the Investment Funds option transactions
written for the year follows:
<TABLE>
<CAPTION>
Number of
Options Premiums
CORE EQUITY FUND Contracts Received
--------- ----------
<S> <C> <C>
Contracts outstanding at September 30, 1997 0 $ 0
Options written 293 101,391
Options exercised 0 0
Options expired (290 ) (98,769)
--- ----------
Contracts outstanding at September 30, 1998 3 $ 2,622
--- ----------
--- ----------
</TABLE>
<TABLE>
<CAPTION>
Number of
Options Premiums
VALUE EQUITY FUND Contracts Received
--------- ----------
<S> <C> <C>
Contracts outstanding at September 30, 1997 46 $17,947
Options written 128 36,828
Options exercised 0 0
Options expired (137 ) (42,312 )
--- ----------
Contracts outstanding at September 30, 1998 37 $12,463
--- ----------
--- ----------
</TABLE>
68
<PAGE>
As of September 30, 1998, the International Equity Fund had
an outstanding forward currency contract as set forth below.
These contracts are reported in the financial statements at the
Fund's net loss of $(141,796), which is the difference between
the forward foreign exchange rate at the dates of entry into
the contracts and the forward rates at September 30, 1998.
<TABLE>
<CAPTION>
CONTRACTS TO SELL
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Japanese Yen for U.S.
294,564,000 $2,025,191 11/13/98 $(141,796)
</TABLE>
69
<PAGE>
NOTE 7--FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CORE EQUITY FUND
----------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Unit Operating Performance:*
(for a unit outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 76.11 $ 56.57 $ 46.71 $ 35.57 $ 34.49
-------- -------- -------- -------- --------
Income from Investment Operations:
Investment income--net 0.58 0.60 0.72 0.74 0.54
Net realized and unrealized gain
on investments 2.72 18.94 9.14 10.40 0.54
-------- -------- -------- -------- --------
Total from Investment Operations 3.30 19.54 9.86 11.14 1.08
-------- -------- -------- -------- --------
Net Asset Value, End of the Year $ 79.41 $ 76.11 $ 56.57 $ 46.71 $ 35.57
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 4.34% 34.54% 21.11% 31.32% 3.13%
Ratios/Supplemental Data
Ratios to Average Net Assets
Expenses (0.94)% (0.90)% (0.92)% (0.98)% (1.01)%
Investment income--net 0.72% 0.92% 1.40% 1.86% 1.56%
Portfolio Turnover Rate 5.62% 5.68% 9.95% 7.91% 6.47%
Net Assets at End of the Year ($1,000's) $176,367 $212,273 $217,356 $189,942 $141,544
</TABLE>
-----------------------------------------
* Using average units basis.
70
<PAGE>
<TABLE>
<CAPTION>
VALUE EQUITY FUND
----------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Unit Operating Performance:*
(for a unit outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 57.36 $ 39.67 $ 32.63 $ 27.05 $ 26.48
-------- -------- -------- -------- --------
Income from Investment Operations:
Investment income--net 0.57 0.60 0.72 0.93 0.79
Net realized and unrealized gain
(loss) on investments (1.66) 17.09 6.32 4.65 (0.22)
-------- -------- -------- -------- --------
Total from Investment Operations (1.09) 17.69 7.04 5.58 0.57
-------- -------- -------- -------- --------
Net Asset Value, End of the Year $ 56.27 $ 57.36 $ 39.67 $ 32.63 $ 27.05
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return (1.90)% 44.59% 21.58% 20.63% 2.15%
Ratios/Supplemental Data
Ratios to Average Net Assets
Expenses** (1.11)% (1.20)% (1.20)% (1.32)% (1.41)%
Investment income--net 0.93% 1.26% 1.98% 3.24% 3.02%
Portfolio Turnover Rate 95.66% 99.25% 61.53% 67.06% 40.41%
Net Assets at End of the Year ($1,000's) $63,931 $60,389 $52,231 $43,824 $35,603
</TABLE>
-----------------------------------------
* Using average units basis.
** Ratio reflects fees paid with brokerage commissions only for
the years ended 9/30/98, 9/30/97, 9/30/96 and 9/30/95.
71
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH EQUITY FUND
----------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Unit Operating Performance:*
(for a unit outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 84.47 $ 67.07 $ 52.58 $ 35.96 $ 35.52
-------- -------- -------- -------- --------
Income from Investment Operations:
Investment (loss)--net (0.90) (0.95) (0.90) (0.67) (0.57)
Net realized and unrealized gain
on investments (28.67) 18.35 15.39 17.29 1.01
-------- -------- -------- -------- --------
Total from Investment Operations (29.57) 17.40 14.49 16.62 0.44
-------- -------- -------- -------- --------
Net Asset Value, End of the Year $ 54.90 $ 84.47 $ 67.07 $ 52.58 $ 35.96
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return (35.01)% 25.94% 27.56% 46.22% 1.24%
Ratios/Supplemental Data
Ratios to Average Net Assets
Expenses** (1.94)% (1.98)% (1.91)% (2.12)% (2.08)%
Investment (loss)--net (1.22)% (1.39)% (1.54)% (1.61)% (1.64)%
Portfolio Turnover Rate 204.41% 177.68% 150.40% 170.54% 114.15%
Net Assets at End of the Year ($1,000's) $55,287 $91,589 $92,136 $74,625 $48,293
</TABLE>
-----------------------------------------
* Using average units basis.
** Ratio reflects fees paid with brokerage commissions only for
the years ended 9/30/98, 9/30/97, 9/30/96 and 9/30/95.
72
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Unit Operating Performance:*
(for a unit outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 51.09 $ 45.25 $ 40.25 $ 38.08 $ 34.36
-------- -------- -------- -------- --------
Income from Investment Operations:
Investment (loss)--net (0.14) (0.14) (0.08) (0.02) (0.09)
Net realized and unrealized gain
(loss) on investments (5.51) 5.98 5.08 2.19 3.81
-------- -------- -------- -------- --------
Total from Investment Operations (5.65) 5.84 5.00 2.17 3.72
-------- -------- -------- -------- --------
Net Asset Value, End of the Year $ 45.44 $ 51.09 $ 45.25 $ 40.25 $ 38.08
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return (11.06)% 12.91% 12.42% 5.70% 10.83%
Ratios/Supplemental Data
Ratios to Average Net Assets
Expenses** (1.94)% (1.96)% (1.93)% (1.90)% (1.96)%
Investment (loss)--net (0.27)% (0.29)% (0.20)% (0.07)% (0.25)%
Portfolio Turnover Rate 92.82% 61.87% 51.29% 51.40% 44.25%
Net Assets at End of the Year ($1,000's) $34,083 $35,276 $39,602 $31,143 $28,672
</TABLE>
-----------------------------------------
* Using average units basis.
** Ratio reflects fees paid with brokerage commissions only for
the years ended 9/30/98, 9/30/97, 9/30/96 and 9/30/95.
73
<PAGE>
<TABLE>
<CAPTION>
ACTIVELY MANAGED BOND FUND
--------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Unit Operating Performance:*
(for a unit outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 33.89 $ 30.79 $ 29.58 $ 26.06 $ 27.43
-------- -------- -------- -------- --------
Income from Investment Operations:
Investment income--net 2.19 2.04 1.80 1.64 1.47
Net realized and unrealized gain
(loss) on investments 1.65 1.06 (0.59) 1.88 (2.84)
-------- -------- -------- -------- --------
Total from Investment Operations 3.84 3.10 1.21 3.52 (1.37)
-------- -------- -------- -------- --------
Net Asset Value, End of the Year $ 37.73 $ 33.89 $ 30.79 $ 29.58 $ 26.06
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 11.33 % 10.07 % 4.09 % 13.51 % (4.99)%
Ratios/Supplemental Data
Ratios to Average Net Assets
Expenses (0.81)% (0.81)% (0.80)% (0.84)% (0.82)%
Investment income--net 6.16 % 6.32 % 5.94 % 5.95 % 5.51 %
Portfolio Turnover Rate 71.12 % 69.29 % 17.14 % 18.21 % 8.54 %
Net Assets at End of the Year ($1,000's) $162,355 $147,139 $150,304 $140,127 $136,210
</TABLE>
-----------------------------------------
* Using average units basis.
74
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND FUND
----------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Unit Operating Performance:*
(for a unit outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 31.55 $ 29.30 $ 28.01 $ 25.40 $ 25.95
-------- -------- -------- -------- --------
Income from Investment Operations:
Investment income--net 1.93 1.78 1.74 1.66 1.46
Net realized and unrealized gain
(loss) on investments 0.62 0.47 (0.45) 0.95 (2.01)
-------- -------- -------- -------- --------
Total from Investment Operations 2.55 2.25 1.29 2.61 (0.55)
-------- -------- -------- -------- --------
Net Asset Value, End of the Year $ 34.10 $ 31.55 $ 29.30 $ 28.01 $ 25.40
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 8.08% 7.68% 4.61% 10.28% (2.12)%
Ratios/Supplemental Data
Ratios to Average Net Assets
Expenses (1.10)% (1.04)% (0.98)% (0.98)% (0.95)%
Investment income--net 5.92% 5.86% 6.06% 6.27% 5.68%
Portfolio Turnover Rate 107.30% 67.95% 13.20% 15.95% 17.92%
Net Assets at End of the Year ($1,000's) $59,718 $68,389 $74,754 $90,482 $89,780
</TABLE>
-----------------------------------------
* Using average units basis.
75
<PAGE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT FUND
----------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Unit Operating Performance:*
(for a unit outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 21.23 $ 20.24 $ 19.31 $ 18.36 $ 17.83
-------- -------- -------- -------- --------
Income from Investment Operations:
Investment income--net 1.06 0.97 0.94 0.93 0.53
Net realized and unrealized gain
(loss) on investments 0.02 0.02 (0.01) 0.02 0.00
-------- -------- -------- -------- --------
Total from Investment Operations 1.08 0.99 0.93 0.95 0.53
-------- -------- -------- -------- --------
Net Asset Value, End of the Year $ 22.31 $ 21.23 $ 20.24 $ 19.31 $ 18.36
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 5.09% 4.89% 4.82% 5.17% 2.97%
Ratios/Supplemental Data
Ratios to Average Net Assets
Expenses (0.80)% (0.80)% (0.80)% (0.80)% (0.80)%
Investment income--net 4.89% 4.67% 4.76% 4.94% 2.92%
Decrease in above expense ratio
due to fee waiver 0.50% 0.45% 0.39% 0.34% 0.32%
Net Assets at End of the Year ($1,000's) $32,385 $27,021 $25,668 $27,360 $29,975
</TABLE>
-----------------------------------------
* Using average units basis.
76
<PAGE>
INDEPENDENT AUDITOR'S REPORT
---------------------------------------------------------------
To the Unitholders and Board of Trustees
RSI Retirement Trust
We have audited the combined and individual statements of
assets and liabilities, including the statements of
investments, of the Core Equity Fund, Emerging Growth Equity
Fund, Value Equity Fund, International Equity Fund, Actively
Managed Bond Fund, Intermediate-Term Bond Fund and Short-Term
Investment Fund (the "Investment Funds") of the RSI Retirement
Trust as of September 30, 1998, and the related statements of
operations for the year then ended, 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 five years in the
period then ended. These financial statements and financial
highlights are the responsibility of the Trust'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. Our procedures included
confirmation of securities owned as of September 30, 1998, by
correspondence with the custodians and brokers. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of the Investment Funds of RSI
Retirement Trust at September 30, 1998, the results of their
operations, the changes in their net assets and the financial
highlights for the periods indicated, in conformity with
generally accepted accounting principles.
[SIGNATURE]
New York, New York
October 30, 1998
77
<PAGE>
1998 ANNUAL MEETING
RESULTS
On May 28, 1998, RSI held its Annual Meeting of Trust
Participants to consider: (1) the election of three Trustees
for terms of three years and (2) ratification or rejection of
McGladrey & Pullen, LLP as independent accountants of RSI for
the fiscal year ending September 30, 1998. These results, which
are unaudited, follow:
<TABLE>
<CAPTION>
PROPOSAL 1: ELECTION OF TRUSTEES
- --------------------------------------------------------------------
SHARES % OF SHARES % OF OUTSTANDING SHARES
<S> <C> <C> <C>
NOMINEE:
Candace Cox
FOR 10,707,457 99.98 85.22
AGAINST 1,979 .02 .02
ABSTAIN 0 -- --
NOMINEE:
William A. McKenna Jr.
FOR 10,707,069 99.98 85.22
AGAINST 2,367 .02 .02
ABSTAIN 0 -- --
NOMINEE:
Raymond L. Willis
FOR 10,707,457 99.98 85.22
AGAINST 1,979 .02 .02
ABSTAIN 0 -- --
<CAPTION>
PROPOSAL 2: APPROVAL OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------
SHARES % OF SHARES % OF OUTSTANDING SHARES
<S> <C> <C> <C>
FOR 10,705,722 99.97 85.20
AGAINST 885 .01 .01
ABSTAIN 2,829 .03 .02
</TABLE>
78
<PAGE>
OFFICERS
---------------------------------------------------------------
William Dannecker, President
James P. Coughlin, C.F.A., Executive Vice President and Chief
Investment Officer
Stephen P. Pollak, Esq., Executive Vice President, Counsel and
Secretary
Heidi Viceconte, First Vice President and Treasurer
John F. Meuser, Senior Vice President
Durando J. Saccente, Senior Vice President
Veronica A. Fisher, Vice President and Assistant Treasurer
Chris R. Kaufman, Vice President
Stephen A. Hughes, First Vice President
Herbert Kuhl, Jr., C.F.A., First Vice President
Deborah A. Modzelewski, First Vice President
Michael Morgenroth, Second Vice President
CONSULTANTS
---------------------------------------------------------------
Actuarial--Retirement System Consultants Inc.
Administrative and Recordkeeping--Retirement System Consultants
Inc.
Investments--Hewitt Associates, LLC
INVESTMENT MANAGERS
---------------------------------------------------------------
Friess Associates, Inc.
HLM Management Company, Inc.
Morgan Grenfell Investment Services Limited
Retirement System Investors Inc.
CUSTODIANS
---------------------------------------------------------------
The Chase Manhattan Bank
Custodial Trust Company
DISTRIBUTOR
---------------------------------------------------------------
Retirement System Distributors Inc.
TRANSFER AGENT
---------------------------------------------------------------
Retirement System Consultants Inc.
INDEPENDENT AUDITORS
---------------------------------------------------------------
McGladrey & Pullen, LLP
COUNSEL
---------------------------------------------------------------
Swidler Berlin Shereff Friedman, LLP
79
<PAGE>
BOARD OF TRUSTEES
---------------------------------------------------------------
Herbert G. Chorbajian
Chairman, President and Chief Executive Officer
ALBANK, FSB, NY
Candace Cox
Investments
James P. Cronin
President, Treasurer and Chief Executive Officer
The Dime Savings Bank, Norwich, CT
William Dannecker
President and Chief Executive Officer
Retirement System Group Inc., NY
Covington Hardee
Retired Chairman
The Lincoln Savings Bank, FSB, NY
Ralph L. Hodgkins, Jr.
Retired Chief Executive Officer
Mid Maine Savings Bank, FSB, ME
Maurice E. Kinkade
Director of Development
Maplebrook School
President, KINCO Management
Willliam G. Lillis
Real Estate Consultant
William A. McKenna, Jr.
Chairman, President and Chief Executive Officer
Ridgewood Savings Bank, NY
William L. Schrauth
President and Chief Executive Officer
The Savings Bank of Utica, NY
William E. Swan
President and Chief Executive Officer
Lockport Savings Bank, NY
Raymond L. Willis
Private Investments
80
<PAGE>
THE INFORMATION CONTAINED HEREIN SHALL NOT BE CONSTRUED TO BE OR CONSTITUTE AN
OFFER OR SOLICITATION OF AN OFFER TO BUY UNITS IN THE RSI RETIREMENT TRUST.
SALES OF UNITS IN THE TRUST MAY BE MADE ONLY IN THOSE STATES WHERE SUCH UNITS
ARE EXEMPT FROM REGISTRATION OR HAVE BEEN QUALIFIED FOR SALE. TOTAL RETURNS ARE
BASED ON HISTORICAL RESULTS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
FUTURE PERFORMANCE AND UNIT NET ASSET VALUE WILL FLUCTUATE SO THAT UNITS, IF
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS MATERIAL MUST
BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
<PAGE>
ANNUAL REPORT
[LOGO]
RSI RETIREMENT TRUST
Core Equity Fund
Value Equity Fund
Emerging Growth Equity Fund
International Equity Fund
Actively Managed Bond Fund
Intermediate-Term Bond Fund
Short-Term Investment Fund
1998
BROKER/DEALER:
RETIREMENT SYSTEM
Distributors Inc.
317 Madison Avenue
New York, NY 10017-5397
