SEGALL BRYANT & HAMILL
GROWTH AND INCOME FUND
SEMI-ANNUAL REPORT
OCTOBER 31, 1998
<PAGE>
SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
December 7, 1998
Dear fellow Shareholder:
For the six months ending October 30, 1998, the Segall Bryant & Hamill
Growth and Income Fund's total return at NAV was -5.15 percent. This compares to
the performance of the S&P 500 Index of -.41 percent and the performance of the
Wilshire 5000 (a broader representation of the stock market) of -4.77% for the
same time period. The Fund's total return for the period October 1, 1997 through
September 30, 1998 was 22.01%. Annualized total return from inception on
September 7, 1995 through September 30, 1998 was 13.70%.
Over the past six months, the market has exhibited its highest level of
volatility in over a decade. In July, the market hit new highs, but by early
September and again in October corrected almost 20%. The market has since roared
back to new highs, as the Federal Reserve lowered interest rates three times, in
an attempt to ease the global liquidity scare. During this period, the market
continued to display the same characteristics as it has over the past four
years- a handful of large capitalization stocks outperformed the broader market.
As of the end of the third quarter, the small to mid capitalization stocks
($300mln-$10bln in market capitalization) traded at relative valuation levels to
their large capitalization peers not seen since the bear market of 1973. This
valuation disparity has created an exceptional opportunity for investors that
are willing to `step up' and take advantage of the market's mispricing of these
stocks. We have and will continue to focus on companies that exhibit high and
sustainable Return on Invested Capital (ROI), combined with reasonable valuation
levels. This disciplined investment strategy has led us to concentrate more on
the mid capitalization tier of the market. Currently, the Fund has approximately
60% of its assets in companies that fall within the mid cap range. These
companies exhibit high ROI, superior growth rates and market position, but trade
at a discount to large cap stocks. Over the next three to five years, we feel
this sector of the market will outperform larger capitalization stocks while
exhibiting lower risk levels.
Our outlook for the economy is for modest growth in 1999, with low
inflation and possibly, deflation in some markets. Given this scenario, it is
important to invest in companies that can grow their revenues in units instead
on relying on price increases. The Fund is also positioned somewhat defensively
given the possibility of profit shortfalls in earnings due to margin
deterioration.
Two examples of recent purchases in the Fund are ServiceMaster and BJ's
Wholesale Club. ServiceMaster is one of the largest providers of residential and
supportive management services to individual consumers, businesses and
institutions nationwide. Its market leading brands include TruGreen-ChemLawn,
Terminix and American Home Shield. As the baby boom generation moves towards
retirement and ownership of homes increases, demand for time saving services
should increase dramatically. ServiceMaster provides all types of consumer
related services including lawn care, pest control and cleaning service. The
company also uses its strong cash flow to make `tuck-in' acquisitions to expand
geographically and increase its service offerings. ServiceMaster has an
excellent growth record, it has grown its revenue and earnings at 18% and
<PAGE>
SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
19% respectively over the past twenty-five years. BJ's Wholesale Club operates a
chain of 84 membership wholesale clubs in the eastern United States. BJ's
charges its members an annual fee to shop at its stores, in return for which the
members get a 20% discount on items purchased- ranging from household items to
apparel. BJ's has a relatively immature store base that should allow returns to
move up substantially as its stores attract new members. BJ's is trading at 40%
discount to the largest competitor, but its returns and growth rates are higher.
We remain confident that our selection process will lead to above-average
results over time. In coming months, there will undoubtedly be tests of
investors' 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.
/s/ Ralph M. Segall /s/ David P. Kalis
Ralph M. Segall, CFA David P. Kalis, CFA
2
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 87.97% Market Value
- --------------------------------------------------------------------------------
ADVERTISING AGENCIES: 2.94%
3,500 The Interpublic Group of Companies, Inc.................. $ 204,750
---------
COMMERCIAL BANKS U.S.: 2.39%
2,200 Star Banc Corporation.................................... 166,375
---------
COMMERCIAL SERVICES: 2.25%
7,400 The ServiceMaster Company................................ 156,325
---------
COMPUTER SERVICES: 2.89%
3,500 Ceridian Corporation*.................................... 200,813
---------
COMPUTER SOFTWARE: 2.59%
1,700 Microsoft Corporation*................................... 179,988
---------
CONSUMER PRODUCTS MISCELLANEOUS: 2.38%
6,000 Blyth Industries, Inc.*.................................. 165,750
---------
DENTAL SUPPLIES AND EQUIPMENT: 1.11%
3,000 DENTSPLY International, Inc.............................. 77,250
---------
DIVERSIFIED MANUFACTURING: 3.80%
3,200 Applied Power, Inc....................................... 88,200
8,000 Littlefuse, Inc.*........................................ 176,000
---------
264,200
---------
ELECTRIC INTEGRATED: 1.67%
2,400 New Century Energies, Inc................................ 115,950
---------
ELECTRONICS: 3.92%
6,500 Methode Electronics, Inc................................. 99,938
5,281 Molex Incorporated Class A............................. 172,623
---------
272,561
---------
FINANCIAL GUARANTEE INSURANCE: 2.18%
3,900 MGIC Investment Corporation.............................. 152,100
---------
3
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED), CONTINUED
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Shares Market Value
- --------------------------------------------------------------------------------
FOOD RETAIL: 4.13%
6,000 Safeway, Inc*............................................ $ 286,875
---------
IDENTIFICATION SYSTEMS / DEVICES: 2.57%
4,000 Symbol Technologies, Inc................................. 179,000
---------
INSTRUMENTS SCIENTIFIC: 3.03%
2,500 The PerkinElmer Corporation............................. 210,781
---------
INVESTMENT MANAGEMENT: 1.60%
7,000 Security Capital Group Incorporated Class B*........... 111,563
---------
LIFE / HEALTH INSURANCE: 2.67%
5,000 Protective Life Corporation.............................. 185,313
---------
MEDICAL BIOMEDICAL GENETICS: 2.20%
2,200 Biogen, Inc.*............................................ 152,900
---------
MEDICAL DRUGS: 2.70%
4,000 Abbott Laboratories...................................... 187,750
---------
MEDICAL INSTRUMENTS: 1.95%
4,000 Biomet, Inc.*............................................ 135,750
---------
MEDICAL PRODUCTS: 2.93%
2,500 Johnson & Johnson........................................ 203,750
---------
MULTILINE INSURANCE: 1.24%
2,000 The Allstate Corporation................................. 86,125
---------
OFFICE AUTOMATION AND EQUIPMENT: 2.79%
2,000 Xerox Corporation........................................ 193,750
---------
OFFICE FURNISHINGS: 0.65%
2,500 Steelcase, Inc. Class A................................ 45,000
---------
4
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
OFFICE SUPPLIES AND FORMS: 4.76%
3,700 Avery Dennison Corporation............................... $ 153,318
5,700 New England Business Service, Inc........................ 177,412
---------
330,730
---------
OPERATIONS: 5.60%
2,400 General Electric Company................................. 210,000
2,800 Illinois Tool Works, Inc................................. 179,550
---------
389,550
---------
PIPELINES: 2.28%
3,000 Enron Corp............................................... 158,250
---------
PUBLISHING NEWSPAPERS: 1.66%
2,000 Tribune Company.......................................... 115,250
---------
RETAIL BUILDING PRODUCTS: 5.73%
5,000 Fastenal Company......................................... 180,625
5,000 The Home Depot, Inc...................................... 217,500
---------
398,125
---------
RETAIL DISCOUNT: 2.40%
7,000 Dollar General Corporation............................... 167,124
---------
SUPER REGIONAL BANKS U.S.: 4.64%
3,000 First Union Corporation.................................. 174,000
4,000 Norwest Corporation...................................... 148,750
---------
322,750
---------
TELEPHONE LONG DISTANCE: 1.59%
2,000 MCI WORLDCOM, Inc........................................ 110,500
---------
TEXTILE APPAREL: 2.73%
11,000 Jones Apparel Group, Inc.*............................... 189,750
---------
Total Common Stocks (cost $5,052,366).................... 6,116,648
---------
5
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Principal
Amount SHORT-TERM INVESTMENTS: 6.67% Market Value
- --------------------------------------------------------------------------------
$257,534 Star Treasury Fund..................................... $ 257,534
750,000 U.S. Treasury Strips*.................................. 206,419
---------
Total Short-Term Investments (cost $425,393)........... 463,953
---------
Total Investments in Securities
(cost $5,477,759+): 94.64%........................... 6,580,601
Liabilities in excess of Other Assets: 5.36%........... 372,492
---------
TOTAL NET ASSETS: 100.0% .............................. 6,953,093
=========
* Non-incoming producing security.
+ At October 31, 1998, the cost of securities for Federal tax purposes was
approximately the same as the basis for financial reporting. Unrealized
appreciation and depreciation of securities were as follows:
Gross unrealized appreciation.......................... $1,215,761
Gross unrealized depreciation.......................... (112,919)
----------
Net unrealized appreciation............................ $1,102,842
==========
See Notes to Financial Statements.
6
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES AT OCTOBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(identified cost $5,477,759) (Note 1) ..................... $ 6,580,601
Cash ....................................................... 2,127
Receivables:
Fund shares sold ........................................ 11,200
Securities sold ......................................... 371,377
Dividends and interest .................................. 4,542
Due from adviser ........................................ 1,406
Deferred organizational costs (Note 1) ..................... 19,662
-----------
Total assets .......................................... 6,990,915
LIABILITIES
Payables:
Administration fee ...................................... 2,548
Distribution fees ....................................... 6,525
Other ................................................... 13,374
Accrued expenses ........................................... 15,375
-----------
Total liabilities ..................................... 37,822
NET ASSETS .................................................. $ 6,953,093
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE ($6,953,093/531,395) ...................... $ 13.08
===========
COMPONENTS OF NET ASSETS
Capital Stock - $.01 par value (Note 1) .................... $ 5,314
Additional paid-in capital ................................. 5,709,402
Accumulated net investment loss ............................ (15,136)
Undistributed net realized gain on investments ............. 150,671
Unrealized appreciation on investments ..................... 1,102,842
-----------
Net assets ............................................ $ 6,953,093
===========
See Notes to Financial Statements.
7
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends ....................................................... $ 33,055
Interest ........................................................ 1,298
Other ........................................................... 10,451
---------
Total income ............................................... 44,804
---------
Expenses
Advisory fees ................................................. 25,689
Custodian and accounting fees ................................. 5,848
Distribution fees ............................................. 8,563
Administration fee (Note 3) ................................... 7,561
Professionals' fees ........................................... 4,285
Registration fees ............................................. 2,554
Reports to shareholders ....................................... 1,025
Transfer agent fees ........................................... 3,277
Directors' fees ............................................... 1,151
Amortization of organization costs (Note 2-D) ................. 1,608
Other ......................................................... 14,634
---------
Total expenses ............................................. 76,195
Less: expense reimbursement (Note 3) ....................... (16,255)
---------
Net expenses ............................................... 59,940
NET INVESTMENT LOSS ..................................... (15,136)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions .................... (115,806)
Net change in unrealized appreciation of investments ............ (209,835)
---------
Net realized and unrealized loss on investments ............ (325,641)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .... $(340,777)
=========
See Notes to Financial Statements.
8
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months Year
Ended Ended
October 31, 1998* April 30, 1998
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment loss ....................... $ (15,136) $ (16,413)
Net realized (loss) gain on investments ... (115,806) 770,537
Net change in unrealized appreciation of
investments .............................. (209,835) 800,826
----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............. (340,777) 1,554,950
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income - net:
Class A ................................. -- (23,030)
Net realized gains on investments:
Class A ................................. -- (685,903)
TOTAL DISTRIBUTIONS .................... -- (708,933)
----------- -----------
CAPITAL SHARE TRANSACTIONS (Note 4)
Proceeds from sale of shares:
Class A ................................. 230,403 1,682,033
Net asset value of shares issued in
reinvestment of net investment income
and net realized gain distributions:
Class A ................................. -- 696,385
Payments for redemption of shares:
Class A ................................. -- (1,136,892)
Class B ................................. -- (201,605)
----------- -----------
Increase in net assets from capital
shares transactions ...................... 230,403 1,039,921
TOTAL (DECREASE) INCREASE IN NET ASSETS . (110,374) 1,885,938
NET ASSETS
Beginning of period ....................... 7,063,467 5,177,529
----------- -----------
END OF PERIOD (including undistributed
net investment income (loss) of
$(15,136) and $0, respectively) .......... $ 6,953,093 $ 7,063,467
=========== ===========
* Unaudited.
See Notes to Financial Statements.
9
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
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:
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<TABLE>
<CAPTION>
Six Months Year Year Period from
Ended Ended Ended Sept. 7, 1995* to
April 30, 1998# April 30, 1998 April 30, 1997 April 30, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ..... $13.79 $12.05 $11.24 $10.00
------ ------ ------ ------
Operations:
Net investment (loss) income ............ (0.03) (0.03) 0.08 0.02
Net realized and unrealized (loss)
gain on investments .................... (0.68) 3.48 1.13 1.24
------ ------ ------ ------
Total from operations ............... (0.71) 3.45 1.21 1.26
------ ------ ------ ------
Distributions to shareholders:
From net investment income .............. -- (0.06) (0.05) (0.02)
From net realized gains ................. -- (1.65) (0.35) --
------ ------ ------ ------
Total from distributions ............ -- (1.71) (0.40) (0.02)
------ ------ ------ ------
Net asset value, end of period ........... $13.08 $13.79 $12.05 $11.24
====== ====== ====== ======
Total investment return(b) ............... (5.15%) 30.39% 10.89% 12.64%
Net assets, end of period (millions) ..... $ 7.0 $ 7.1 $ 5.0 $ 4.0
Ratios:
Expenses to average net assets(c) ........ 1.75%(a) 1.75% 1.86% 1.98%(a)
Expenses to average net assets
(net of expenses paid indirectly) ...... 1.75%(a) 1.75% 1.75% 1.75%(a)
Net investment income (loss) to
average net assets ...................... (0.44%)(a) (0.28%) 0.76% 0.36%(a)
Assuming no voluntary waivers and
reimbursement and expense reductions(d)
Expenses ............................ 2.24%(a) 2.39% 2.58% 2.97%(a)
Net investment (loss) income ........ (0.92%)(a) (0.92%) 0.04% (0.63%)(a)
Portfolio turnover rate
(excluding short-term securities) ...... 36.5% 104.5% 108.0% 56.1%
</TABLE>
* Commencement of operations.
# Unaudited.
(a) Adjusted to an annual basis.
(b) 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.
(c) The expense ratio reflects the effect of gross expenses attributable to
earnings credits on uninvested cash balances received by the Fund. (d) Prior
to the year ended April 30, 1997, the ratios reflect the most restrictive
state limitation in effect.
See Notes to Financial Statements.
10
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Segall, Bryant & 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.
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:
A. 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.
B. 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.
11
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SEGALL BRYANT & HAMILL GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
C. 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.
D. 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.
E. ORGANIZATIONAL COSTS
Organizational costs of the Fund are being amortized over 60 months
on a straight-line basis.
NOTE 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 &
Hamill, the Fund's sub-adviser. Voyageur pays Segall Bryant & 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.
In addition to the advisory fee, 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 & 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, 1998, Voyageur and Segall, Bryant &
Hamill voluntarily absorbed $16,255 for the Fund.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (other
than short-term securities) aggregated $2,336,586 and $2,337,939 for the Fund
during the six months ended October 31, 1998.
NOTE 4 - CAPITAL STOCK
Transactions in shares during the periods shown were as follows:
Six Months Year
Ended Ended
October 31, 1998 April 30, 1998
- --------------------------------------------------------------------------------
Shares sold ............................... 44,800 129,913
Shares reinvested ......................... -- 56,617
Shares redeemed ........................... (64,113) (102,278)
------- --------
Increase in shares outstanding ............ (19,313) 82,252
======= ========
13
<PAGE>
ADVISOR
Voyageur Asset Management LLC
90 South Street
Minneapolis, Minnesota 55402
==================
SUB-ADVISOR
Segall Bryant & Hamill
10 South Wacker Drive, Suite 2150
Chicago, Illinois 60606
==================
CUSTODIAN
Star Bank, N.A.
425 Walnut Street, M/L 6118
Cincinnati, Ohio 45202
==================
TRANSFER AGENT
American Data Services
P.O. Box 5536
Hauppauge, New York 11788-0132
