SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
SEMI-ANNUAL REPORT
Dated October 31, 1997
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
For the six months ending October 31, 1997, the Segall Bryant and Hamill Growth
and Income Fund's total return at NAV was 13.53 percent. This compares to the
performance of the S&P 500 Index of 15.17 percent for the same time period.
INVESTING IN AN EXPENSIVE MARKET
Over the past year, the Fund's equity exposure increased to take advantage of
rising equity markets. Currently, the Fund has approximately 87 percent of total
portfolio assets invested in equity securities.
Although we remain bullish long term, the past few years have seen unprecedented
returns in the equity markets, with very little volatility. Being prudent
managers of your capital, we feel caution is warranted in the near term. We
continue to believe that current price valuations for stocks are overly
expensive-- especially in the large-capitalization sector of the market. Due to
these valuation levels, we continue to focus our stock selections toward
mid-capitalization stocks, e.g., stocks from companies with market
capitalizations ranging from $1 billion to $5 billion. By focusing the Fund in
the mid-capitalization area of the market, we feel that attractive stocks can be
purchased at reasonable valuations with comparable growth rates to the large
capitalization stocks.
In addition, we have structured the Fund's portfolio to attempt to take on less
risk than that of a portfolio consisting of securities representing the broader
market. As of October 31, 1997, the Fund had a Beta of .83, which means the Fund
in theory is only 83% as volatile as the S&P 500. Beta is intended to be a
statistical measure of relative risk based on financial models, however, it is
possible that the Fund's volatility may be greater or less than the broader
market indices.
STOCK SELECTION
We take a growth IN income approach in stock selection for the Voyageur Growth
and Income Fund. Our philosophy for selecting stocks in the Fund is to invest in
companies that we believe are in unique businesses with potential to achieve
above-average growth in earnings, return on investment and dividends. We use
in-depth research and analysis to identify companies that are committed to
building long-term shareholder value through the effective use of corporate
assets. We search for companies that have demonstrated strong or improving
Return on Investment (ROI) over an extended period of time. ROI is calculated by
dividing a company's total capital--its common and preferred stock equity plus
its long-term funded debt--into earnings before interest, taxes and dividends
are paid. As a measure of a company's management, operational efficiency and
profitability, we believe that companies with superior ROI will, over time,
demonstrate above average growth, thereby leading to an appreciation in their
stock prices.
<PAGE>
NEW INVESTMENTS
An example of a recent purchase that fits our selection process is Applied
Power, a diversified manufacturer of industrial and commercial products
worldwide. We believe Applied Power has a high return on capital, consistent
business model, excellent management and is positioned number one in its
markets.
Over time, Applied Power intends to become a "sustainable growth" company as
higher-growth business units begin to dominate the sales mix. To achieve this
goal, Applied Power hopes to continually broaden its presence in high growth
emerging countries and increase its offering of products sold to rapidly-growing
market segments. Growth businesses make up over 60% of Applied's revenue mix, up
from only 9% in 1987. We believe Applied Power's Technical Environments and
Enclosures (TE&E) segment has excellent growth prospects and acquisition
opportunities. The TE&E segment supplies custom enclosures for some of the
world's largest technology companies on a regional basis. This very profitable
segment should represent more than one-third of total revenues (and a higher
proportion of operating profit) in 1998 and should eventually dominate Applied
Power's revenue mix.
While we are cautious near term on the valuation levels in the stock market, we
remain bullish on interest rates. Given our current outlook for moderate/slowing
growth, low inflation and increased fiscal responsibility from Washington, long
term rates should continue to trend downward from the low 6% range today. Given
this outlook, we have purchased a position in US Treasury Strips due in 2021.
This position will allow the Fund to realize significant returns if our forecast
proves correct.
We remain confident that our selection process will lead to above-average
results over time. In coming months, there will undoubtedly be tests of
investor's enthusiasm for stocks, which could produce greater volatility in
prices. Under these circumstances, we believe that the stocks we are emphasizing
will prove to be ones toward which investors will gravitate. In addition, our
move away from large cap stocks, which appear overpriced, should benefit
shareholders as midcap stock returns move toward more historical valuation
levels.
We appreciate your continued support.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) OCTOBER 31, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (note 1)
(identified cost: $4,466,241) ....................... $5,211,214
Cash in bank on demand deposit ......................... 420,820
Dividends and interest receivable ...................... 2,064
Due from adviser ....................................... 24,669
Organizational costs (note 1) .......................... 18,080
----------
Total assets ........................................ 5,676,847
----------
LIABILITIES
Accrued expenses ....................................... 38,622
----------
Total liabilities ................................... 38,622
----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ..... $5,638,225
==========
Represented by:
Capital Stock - $.01 par value (note 1) ............ $ 4,122
Additional paid-in capital .......................... 4,198,729
Undistributed net investment income ................. 22,769
Accumulated net realized gain on investments ........ 667,632
Unrealized appreciation on investments .............. 744,973
----------
TOTAL NET ASSETS .................................. $5,638,225
==========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Shares of capital stock outstanding: 412,247 (note 4) $ 13.68
==========
See accompanying notes to financial statements.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Investment income:
Dividends ...................................................... $ 28,146
Interest ....................................................... 19,601
---------
Total investment income ...................................... 47,747
---------
Expenses (note 2):
Investment advisory and management fee ......................... 21,809
Dividend disbursing, administrative and accounting services fees 16,493
Distribution fee ............................................... 7,270
Printing, postage and supplies ................................. 4,723
Legal fees ..................................................... 1,989
Custodian fees ................................................. 2,478
Compensation of directors ...................................... 228
Audit and accounting fees ...................................... 4,500
Registration fees .............................................. 12,517
Amortization of organizational costs ........................... 3,190
Other expenses ................................................. 670
---------
Total expenses ............................................... 75,867
---------
Less (note 2):
Expenses waived or absorbed .................................... (24,669)
---------
Total net expenses ........................................... 51,198
---------
Investment loss-net .......................................... (3,451)
---------
Realized and unrealized gain on investments:
Net realized gain on investments ............................. 475,757
Net increase in unrealized appreciation or depreciation of
investments ................................................ 233,122
---------
Net gain on investments ...................................... 708,879
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............. $ 705,428
=========
See accompanying notes to financial statements.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31, 1997 YEAR ENDED
(UNAUDITED) APRIL 30, 1997
----------- -----------
<S> <C> <C>
Operations:
Investment income (loss) gain - net ....................... $ (3,451) $ 34,815
Realized gain on investments - net ........................ 475,757 260,524
Net change in unrealized appreciation or depreciation
of investments .......................................... 233,122 209,479
----------- -----------
Net increase in net assets resulting from operations ...... 705,428 504,818
----------- -----------
Distributions to shareholders from:
Investment income - net:
Class A ................................................. -- (22,265)
Class B ................................................. -- (395)
Net realized gain on investments:
Class A ................................................. -- (141,429)
Class B ................................................. -- (5,650)
----------- -----------
Total distributions ................................... -- (169,739)
----------- -----------
Capital share transactions (note 4):
Proceeds from sale of shares:
Class A ................................................. 628,025 1,247,582
Class B ................................................. -- 212,813
Net asset value of shares issued in reinvestment of
net investment income and net realized gain distributions:
Class A ............................................. -- 153,267
Class B ............................................. -- 3,486
Payments for redemption of shares:
Class A ................................................. (872,757) (723,029)
Class B ................................................. -- (25,225)
----------- -----------
Increase in net assets from capital share transactions .... (244,732) 868 ,894
----------- -----------
Total increase in net assets ............................ 460,696 1,203,973
Net assets at beginning of period ............................ 5,177,529 3,973,556
----------- -----------
Net assets at end of period (including undistributed
net investment income of $22,769, and $23,030
respectively) ........................................... $ 5,638,225 $ 5,177,529
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Segall, Bryant and Hamill Growth and Income Fund (the "Fund"), a series
within VAM Institutional Funds, Inc., is registered under the Investment Company
Act of 1940 (as amended) as a diversified open-end management investment
company. The Fund's investment objective is growth of capital. The Fund's
secondary objective is current income. The Fund seeks to achieve these
objectives by investing in a diversified portfolio of securities including
common stock, preferred stock, bonds, convertible securities, and warrants and
rights to purchase common stock.
During the six months ended October 31, 1997, the Fund stopped offering Class
B and Class C shares. All outstanding Class B shares were converted to Class A
shares in a transaction which was expense free for the Class B shareholders.
There were no Class C shares outstanding. The current shares of the fund
(formerly referred to as "Class A") are no-load shares. They are sold without a
front end load and without a contingent deferred sales charge.
On April 30, 1997, the Fund reorganized by transferring substantially all of
its assets to a new series of VAM Institutional Funds, Inc. Prior to April 30,
the Fund was a series of Voyageur Mutual Funds III, Inc. The Fund's investment
objective was not changed as a result of the reorganization. The financial
history of the Fund continued from the prior series of Voyageur Mutual Funds
III, Inc. to the new series of VAM Institutional Funds, Inc.
Pursuant to its articles of incorporation, Voyageur Institutional Funds, Inc.
has 10 trillion shares of authorized capital stock that may be issued.
The significant accounting policies followed by the Fund is summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net increases (decreases) in net assets resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges are valued at the last sales price on that exchange; securities traded
in the over-the-counter market and listed securities for which no sale was
reported on the valuation date are valued on the basis of the last current bid
price. The values of fixed income securities are determined by using pricing
services or prices quoted by independent brokers. When market quotations are not
readily available, or in certain other circumstances, securities are valued at
fair value according to methods selected in good faith by the Board of
Directors. Investments in short-term securities with maturities of more than 60
days from the valuation date are valued at the last bid price or at fair value
as determined by a pricing service approved by the Board of Directors.
Short-term securities with maturities of less than 60 days are valued at
amortized cost which approximates market value.
Security transactions are accounted for on trade date. Realized gains and
losses are calculated on the identified cost basis. Dividend income is
recognized on the ex-dividend date. Interest income, including level-yield
amortization of premium and discount, is accrued daily.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders in amounts that will avoid or minimize federal
income or excise taxes for the Fund.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of losses deferred for
tax purposes due to "wash sale" transactions. The character of distributions
made during the year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax purposes. Also, due
to the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year the that the income or realized gains
(losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification entries have been made to increase
undistributed net investment income and decrease additional paid-in capital by
$3,190.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income, if any, are
declared and paid annually. Net realized capital gains, if any, are also
distributed annually. All distributions are payable in cash or reinvested in
additional shares of each Fund.
ORGANIZATIONAL COSTS
Organizational costs of the Fund are being amortized over 60 months on a
straight line basis.
(2) EXPENSES AND SALES CHARGES
The Fund has an investment advisory agreement with Voyageur Asset Management
LLC (Voyageur). Under the investment advisory agreement, Voyageur provides the
Fund with office facilities, equipment and personnel, and monitors the
performance of various organizations performing services for the Fund. The
investment advisory agreement provides for the payment on a monthly basis of a
fee equal to an annual rate of .75% of the Fund's average daily net assets.
Investment decisions for the Fund are made and executed by Segall Bryant and
Hamill, the Fund's sub-adviser. Voyageur pays Segall Bryant and Hamill for their
services a sub-advisory fee equal to .75% of average daily net assets. The Fund
paid no direct fees to the sub-adviser.
The Fund also pays a fee to Voyageur for acting as the Fund's transfer agent,
dividend-disbursing and accounting services agent. The fee for the Fund is equal
to the sum of $1.25 per shareholder account per month, a fixed monthly fee
ranging from $1,000 to $1,500 based on the level of the Fund's average daily net
assets and an annualized percentage of average daily net assets at reducing
rates from .11% to .035%. The Fund is also responsible for reimbursing
Voyageur's out-of-pocket expenses in connection with the performance of transfer
agency, dividend disbursing and accounting services.
In addition to the advisory fee and the transfer agency, dividend disbursing
and accounting services fees, the Fund is responsible for paying most other
operating expenses including outside directors' fees and expenses, custodian
fees, registration fees, printing and shareholder reports, legal and auditing
fees and other miscellaneous expenses.
The Fund had a distribution agreement under Rule 12b-1 of the Investment
Company Act of 1940. Under this plan, the Fund pays a monthly distribution fee
at an annual rate of .25% of the Fund's average daily net
assets.
Voyageur and Segall, Bryant and Hamill have voluntarily agreed to pay all
expenses (excluding fees paid indirectly, stock transfer fees, taxes, interest
and brokerage commissions) which exceed 1.75% of average daily net assets.
During the six months ended October 31, 1997, Voyageur and Segall, Bryant and
Hamill voluntarily absorbed $24,669 for the Fund.
(3) INVESTMENT SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (other
than short-term securities) aggregated $3,105,696 and $2,755,334 for the Fund
during the six months ended October 31, 1997.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(4) CAPITAL STOCK
Transactions in shares during the periods shown were as follows:
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 31, APRIL 30,
1997 1997
-------------- --------------
Shares sold.......................... 46,530 126,012
Shares reinvested.................... -- 13,480
Shares redeemed..................... (64,113) (63,181)
---------- -----------
Increase in shares outstanding...... (17,583) 76,311
============ ==========
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(5) FINANCIAL HIGHLIGHTS
Per share data (rounded to the next cent) for a share of capital stock
outstanding and selected information for each period are as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR PERIOD FROM
ENDED ENDED SEPTEMBER 7, 1995*
OCTOBER 31, 1997 APRIL 30, TO APRIL 30,
(UNAUDITED) 1997 1996
---------------------------------------
<S> <C> <C> <C>
Net asset value:
Beginning of period.................... $12.05 $11.24 $10.00
------ ------ --------
Operations:
Net investment income (loss)........... (.01) .08 .02
Net realized and unrealized gain on
investments.......................... 1.64 1.13 1.24
------ ------ --------
Total from operations.............. 1.63 1.21 1.26
------ ------ --------
Distributions to shareholders:
From net investment income............. -- (.05) (.02)
From net realized gains................ -- (.35) --
------ --------
Total from distributions........... -- (.40) (.02)
------ ------ --------
Net asset value:
End of period.......................... $13.68 $12.05 $11.24
====== ====== ========
Total investment return (c)............... 13.53% 10.89% 12.64%
Net assets at end of
period (000's omitted)................. $5,638 $4,965 $3,962
Ratios:
Expenses to average net assets (d)..... 1.75%(a) 1.86% 1.98%(a)
Expenses to average net assets
(net of expenses paid indirectly).... 1.75%(a) 1.75% 1.75%(a)
Net investment income (loss) to
average net assets................... (.12)%(a) .76% .36%(a)
Assuming no voluntary waivers and
reimbursements and expense
reductions: (e)
Expenses................ 2.62%(a) 2.58% 2.97%(a)
Net investment income
(loss)............... (.97)%(a) .04% (.63)%(a)
Portfolio turnover rate (excluding
short-term securities)................. 56.6% 108.0% 56.1%
Average commission rate (b)............... $0.05 $0.05 N/A
</TABLE>
- ----------------------------
* Commencement of operations
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(5) FINANCIAL HIGHLIGHTS (CONTINUED)
Notes to Financial Highlights
(a) Adjusted to an annual basis.
(b) Beginning in the year ended April 30, 1997, the average commission rate
paid per share for security transactions is a required disclosure.
(c) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(d) The expense ratio reflects the effect of gross expenses attributable to
earnings credits on uninvested cash balances received by the Fund.
(e) Prior to the year ended April 30, 1997, the ratios reflect the most
restrictive state limitation in effect.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
INVESTMENTS IN SECURITIES(UNAUDITED) OCTOBER 31, 1997
- --------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- --------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
COMMON STOCKS (86.9%):
CAPITAL GOODS (16.4%):
- --------------------------------------------------------------------------------
Avery Dennison Corporation 4,700 $ 147,306
Corning Incorporated 2,000 90,250
General Electric 1,000 64,562
Illinois Tool Works 2,000 98,375
Littelfuse Incorporated(c) 4,400 134,750
Molex Incorporated 4,125 144,633
Oea Incorporated 4,000 161,000
Raychem Corporation 900 81,506
-----------
922,382
-----------
COMMERCIAL SERVICES (1.7%):
- --------------------------------------------------------------------------------
Interpublic Group Company 2,000 95,000
-----------
CONSUMER CYCLICAL (5.6%):
- --------------------------------------------------------------------------------
Dollar General 3,000 99,188
Hartmarx Corporation 3,000 26,250
Home Depot 2,700 150,188
Sony Corporation ADR 500 42,188
------------
317,814
------------
CONSUMER NON-CYCLICAL (2.4%):
- --------------------------------------------------------------------------------
New England Business 4,700 136,888
------------
CONSUMER NON-DURABLE (2.7%):
- --------------------------------------------------------------------------------
Gillette Company 1,700 151,407
------------
ENERGY (3.7%):
- --------------------------------------------------------------------------------
Camco International Incorporated 2,000 144,500
Tosco Corporation 2,000 66,000
------------
210,500
------------
See accompanying notes to investments in securities.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
INVESTMENTS IN SECURITIES(UNAUDITED)(CONTINUED) OCTOBER 31, 1997
- --------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- --------------------------------------------------------------------------------
FINANCIAL (23.9%):
- --------------------------------------------------------------------------------
Allstate Corporation 2,000 $ 165,875
American Bankers 3,800 142,025
Chase Manhattan 1,200 138,450
CMAC 2,000 120,313
First Union Corporation 3,200 157,000
Hartford Life 2,900 107,119
Norwest Corporation 5,000 160,313
Protective Life Corporation 2,500 132,188
Republic New York 1,200 126,975
Royal Bank of Canada - ADR 1,900 102,006
-----------
1,352,264
-----------
HEALTH CARE (12.7%):
- --------------------------------------------------------------------------------
Abbott Labs 2,900 177,800
Biomet Incorporated 7,000 174,563
Dentsply International 6,000 170,250
Johnson & Johnson 1,500 86,065
Pfizer Incorporated 1,500 106,125
-----------
714,803
-----------
SERVICES (3.5%):
- --------------------------------------------------------------------------------
Reuters Holdings PLC - ADR 2,000 131,500
Security Capital Group - Class B 2,000 64,000
-----------
195,500
-----------
TECHNOLOGY (14.3%):
- --------------------------------------------------------------------------------
Danka Business Systems - ADR 6,300 233,100
First Data Corporation 4,500 130,781
Methode Electronics 5,000 98,750
Microsoft Corporation(c) 600 78,000
Motorola Corporation 1,200 74,100
Xerox Corporation 2,400 190,350
-----------
805,081
-----------
TOTAL INVESTMENTS IN COMMON STOCK (cost: $4,169,889) 4,901,639
-----------
See accompanying notes to investments in securities.
<PAGE>
SEGALL BRYANT AND HAMILL GROWTH AND INCOME FUND
INVESTMENTS IN SECURITIES (UNAUDITED)(CONTINUED) OCTOBER 31, 1997
- --------------------------------------------------------------------------------
MARKET
ISSUER PRINCIPAL AMOUNT VALUE(a)
- --------------------------------------------------------------------------------
NONCONVERTIBLE CORPORATE BONDS (2.5%):
FINANCIAL (2.5%):
- --------------------------------------------------------------------------------
Rockefeller Center, 12.3% due 12/31/00 (e) 200,000 142,250
----------
TOTAL INVESTMENTS IN NONCONVERTIBLE CORPORATE BONDS
(cost: $138,336) 142,250
----------
U.S. TREASURY ISSUES (3.0%)
- --------------------------------------------------------------------------------
U.S. Treasury Notes, 6.34% due 11/15/21 (d) 750,000 167,325
----------
TOTAL INVESTMENTS IN U.S. AGENCY OBLIGATIONS
(cost: $158,016) 167,325
----------
TOTAL INVESTMENTS IN SECURITIES (cost: $4,466,241)(b) $5,211,214
==========
See accompanying notes to investments in securities.
<PAGE>
VOYAGEUR GROWTH AND INCOME FUND
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in note 1 to the
financial statements.
(b) The cost of securities for federal income tax purposes for the Fund is
$4,466,241. The aggregate gross unrealized appreciation and
depreciation on investments based on this cost is:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation
------------ ------------ ------------
$862,798 $(117,825) $744,973
(c) Presently non-income producing security.
(d) Zero coupon security. Interest rate disclosed is the effective yield as
of October 31, 1997.
(e) Zero coupon security. Interest rate disclosed is the effective yield as
of the date of acquisition.
