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Previous: VARIABLE ACCOUNT II AIG LIFE INSURANCE CO, 485APOS, 1998-03-13 |
Next: MUNICIPAL INVT TR FD INSURED SERIES 203 DEFINED ASSET FUNDS, 24F-2NT, 1998-03-13 |
<PAGE>
Texas Commerce Bank National Association
AVESTA Trust
ANNUAL REPORT
December 31, 1997
Trustee
-------------------------------------------------------
Texas Commerce Bank National Association
712 Main
Houston, Texas 77002
Legal Counsel Independent Accountants
- ------------------------------ -----------------------------------------
Simpson Thacher & Bartlett Price Waterhouse, LLP
425 Lexington Avenue 1201 Louisiana, Suite 2900
New York, New York 10017 Houston, Texas 77002
AVESTA Trust
-------------------------------------------------------
7-TCT-37
P.O. Box 1555
Houston, Texas 77251 - 1555
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
----------------------------------------
AVESTA TRUST
------------
INDEX TO FUND FINANCIAL STATEMENTS AND SCHEDULES
-------------------------------------------------
Page ref.
Equity Growth Fund (1) 1-7
Equity Income Fund (1) 8-15
Balanced Fund (1) 16-25
Income Fund (1) 26-31
Core Equity Fund (2) 32-39
Small Capitalization Fund (2) 40-48
Short-Intermediate Term U.S. Government Securities Fund (2) 49-54
U.S. Government Securities Fund (2) 55-59
Intermediate Term Bond Fund (3) 60-66
Money Market Fund (1) 67-73
Notes to Financial Statements 74-78
Report of Independent Accountants 79
Unitholder Meeting Results 80-88
(1) Financial statements and schedules include the Portfolio of Investments
and Statement of Assets and Liabilities as of December 31, 1997,
Statements of Operations for the year ended December 31, 1997, Statement
of Changes in Net Assets for the years ended December 31, 1997 and 1996,
and Financial Highlights for each of the five years ended December 31,
1997.
(2) Financial statements and schedules include the Portfolio of Investments
and Statement of Assets and Liabilities as of December 31, 1997,
Statements of Operations for the year ended December 31, 1997, Statement
of Changes in Net Assets for the year ended December 31, 1997 and 1996,
and Financial Highlights for the four years ended December 31, 1997, and
for the period from April 1, 1993 (inception) through December 31, 1993.
(3) Financial statements and schedules include the Portfolio of Investments
and Statement of Assets and Liabilities as of December 31, 1997,
Statements of Operations for the year ended December 31, 1997, Statement
of Changes in Net Assets for the year ended December 31, 1997 and 1996,
and Financial Highlights for the three years ended December 31, 1997, and
for the period from October 3, 1994 (inception) through December 31,
1994.
<PAGE>
Short-Intermediate Term U.S. Government Securities Fund
- --------------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years Since Inception
April 1, 1993
------------------------------------------------
Period ended 12/31/97 6.30% 6.93% 4.61%
- -------------------------------------------------------------------------------
The Short-Intermediate Term U.S. Government Securities Fund's objective (the
"Fund") is to provide as high a level of current income as is consistent with
preservation of capital. The Fund invests primarily in U.S. government
securities and related repurchase agreements. "U.S. Government Securities"
include debt securities issued by the Treasury that are direct obligations of
the United States government. These securities are backed by the full faith and
credit of U.S. or it's agencies or instrumentalities. These securities are not
direct obligations of the Treasury. As a matter of operating policy, the Fund
maintains a dollar-weighted average maturity, under normal market conditions, of
two to five years measured at the time of investment. The Fund maintained its
maturity structure between 2.5 years and 2.7 years throughout the full year
1997. During the year, over 75% of the Fund's assets were invested in Treasury
and U.S. government agency securities. At December 31, 1997 the average maturity
of the Fund's portfolio securities was 2.7 years.
The Short-Intermediate Term U.S. Government Securities Fund's average annual
total return* from inception on April 1, 1993 through December 31, 1997 was
4.61%. For the full year 1997, the Fund returned 6.30%. The return on the Lehman
Brothers 1 - 3 Year Government Index and the Lehman Brothers Intermediate
Government Bond Index was 6.65% and 7.87%, respectively, for 1997.
The following graph illustrates total return* based on a $10,000 investment in
the Fund made at the date of inception (April 1, 1993) and held through December
31, 1997, as well as the performance of the Lehman Brothers 1-3 Year Government
Index and the Lehman Brothers Intermediate Government Bond Index over the same
period. Past performance is not predictive of future performance.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Short-Intermediate Lehman Brothers Lehman Brothers 1-3 Year
U.S. Govt. Govt. Bond Index Government Index
<S> <C> <C> <C>
1Q $10,000 $10,000 $10,000
2Q 93 $10,086 $10,289 $10,112
3Q $10,249 $10,623 $10,251
4Q $10,243 $10,587 $10,317
1Q $10,104 $10,269 $10,265
2Q 94 $10,080 $10,151 $10,266
3Q $10,151 $10,194 $10,369
4Q $10,135 $10,230 $10,368
1Q $10,486 $10,712 $10,712
2Q 95 $10,913 $11,376 $11,051
3Q $11,031 $11,577 $11,217
4Q $11,352 $12,106 $11,492
1Q $11,250 $11,832 $11,536
2Q 96 $11,314 $11,888 $11,658
3Q $11,459 $12,089 $11,853
4Q $11,656 $12,441 $12,078
1Q $11,680 $12,340 $12,156
2Q 97 $11,930 $12,768 $12,426
3Q $12,200 $13,196 $12,670
4Q $12,390 $13,634 $12,881
</TABLE>
The Lehman Brothers Intermediate Government Bond Index is composed of all bonds
covered by the Lehman Brothers Government Bond Index with maturities between one
and 9.99 years. The Lehman Brothers 1-3 Year Government Index is composed of all
bonds covered by the Lehman Brothers Government Bond Index with maturities
between one and three years.
*Total returns for the Fund are net of expenses and fees and reflect
reimbursement of certain expenses.
<PAGE>
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Average Annual Total Return* 1 Year Since Inception October 3, 1994
------------------------------------------------
Period ended 12/31/97 7.26% 7.76%
- --------------------------------------------------------------------------------
The Intermediate Term Bond Fund's objective is current income, with
consideration given to stability of principal. Primary investment emphasis is on
intermediate term, investment grade fixed-income securities. The Fund maintains
a dollar weighted average portfolio maturity ranging from three to ten years.
Under normal market conditions, at least 65% of the Intermediate Term Bond
Fund's total assets will be invested in bonds, notes, or debentures issued by
domestic or foreign corporations, U.S. government securities and debt
obligations collateralized by U.S. government securities. During the first
quarter of the year, interest rates increased somewhat and the yield on
five-year U.S. Treasury bonds increased approximately 50 basis points, lessening
the value of the securities in the Fund's portfolio. As rates dropped during the
second quarter, the Adviser structured the Fund's portfolio more aggressively
than its benchmark Index.
The AVESTA Intermediate Term Bond Fund had average annual total return* from
inception on October 3, 1994 through December 31, 1997 of 7.76%. For the full
year 1997, the Fund returned 7.26%. The return of the Lehman Brothers
Government/ Corporate Bond Index was 9.76% over the same period.
The following graph illustrates total return* based on a $10,000 investment in
the Fund made at the date of inception (October 3, 1994) and held through
December 31, 1997, as well as the performance of the Lehman Brothers
Intermediate Government/Corporate Bond Index for the same time period. Past
performance is not predictive of future returns.
[LINE GRAPH APPEARS HERE]
Intermediate Term Lehman Brothers Int.
Bond Fund Govt./Corp. Bond Index
3Q $10,000 $10,000
4Q 94 $9,992 $9,989
1Q $10,441 $10,426
2Q 95 $11,066 $10,947
3Q $11,215 $11,127
4Q $11,670 $11,518
1Q $11,418 $11,422
2Q 96 $11,444 $11,494
3Q $11,599 $11,698
4Q $11,887 $11,985
1Q $11,805 $11,971
2Q 97 $12,130 $12,324
3Q $12,460 $12,657
4Q $12,749 $12,928
The Lehman Brothers Government/Corporate Bond Index is composed of all bonds
that are investment grade (rated Baa or higher by Moody's or BBB or higher by
S&P, if unrated by Moody's). Issues must have amounts outstanding in excess of
$25 million and have at least one year to maturity. Total return for the Index
comprises price appreciation/depreciation and income as a percentage of the
original investment. The Index is rebalanced monthly by market capitalization.
*Total return for the AVESTA Intermediate Term Bond Fund is net of expenses and
fees and reflect reimbursement of certain expenses.
<PAGE>
Income Fund
- ----------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years 5 Years Since Inception
April 4, 1988
----------------------------------------------
Period ended 12/31/97
8.73% 9.46% 6.66% 7.47%
- ----------------------------------------------------------------------------
The Income Fund's (the "Fund") objective is to invest in securities that earn a
high level of current income with consideration also given to safety of
principal. As a matter of operating policy, the fixed-income securities
purchased by the Fund normally have a maturity in excess of one year. Throughout
1997, the Fund's average maturity fluctuated between 9.1 years and 10.0 years.
Interest rates rose somewhat during the first quarter of the year as the Federal
Reserve tightened short-term interest rates and the Fund's maturity structure
was defensive. However, the Adviser moved the Fund to a more market-neutral
position amid some signs of stabilization of the interest rate environment in
the second quarter, and remained in that stance for the balance of the year.
The Income Fund's total return* for 1997 was 8.73%, compared to 9.76% for the
Lehman Brothers Government/Corporate Bond Index.
The following graph illustrates the total return* based on a $10,000 investment
in the Fund made at the date of inception (April 4, 1988) and held through
December 31, 1997, as well as the performance of the Lehman Brothers
Government/Corporate Bond Index over the same period. Past performance is not
predictive of future performance.
[LINE GRAPH APPEARS HERE]
Lehman Brothers
Income Fund Govt./Corp. Bond Index
1Q $10,000 $10,000
2Q 88 10,198 10,099
3Q 10,330 10,288
4Q 10,390 10,387
1Q 10,491 10,500
2Q 89 11,156 11,345
3Q 11,126 11,451
4Q 11,468 11,864
1Q 11,296 11,729
2Q 90 11,646 12,152
3Q 11,680 12,225
4Q 12,225 12,848
1Q 12,388 13,194
2Q 91 12,484 13,394
3Q 13,194 14,165
4Q 13,904 14,920
1Q 13,543 14,696
2Q 92 14,057 15,292
3Q 14,688 16,039
4Q 14,617 16,051
1Q 15,344 16,798
2Q 93 15,707 17,303
3Q 16,199 17,877
4Q 16,106 17,826
1Q 15,563 17,265
2Q 94 15,261 17,052
3Q 15,329 17,137
4Q 15,387 17,200
1Q 15,807 18,057
2Q 95 16,661 19,228
3Q 16,986 19,596
4Q 17,898 20,509
1Q 17,408 20,029
2Q 96 17,529 20,123
3Q 17,754 20,479
4Q 18,239 21,105
1Q 18,036 20,923
2Q 97 18,661 21,684
3Q 19,300 22,444
4Q 19,831 23,164
The Lehman Brothers Government/Corporate Bond Index is composed of all bonds
that are investment grade (rated Baa or higher by Moody's or BBB or higher by
S&P, if unrated by Moody's). Issues must have amounts outstanding in excess of
$25 million and have at least one year to maturity. Total return for the Index
comprises price appreciation/depreciation and income as a percentage of the
original investment. The Index is rebalanced monthly by market capitalization.
* Total returns for the Fund are net of expenses and fees and reflect
reimbursement of certain expenses and waivers of certain fees.
<PAGE>
U.S. Government Securities Fund
- -----------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years Since Inception
April 1, 1993
----------------------------------------
Period ended 12/31/97
9.55% 11.83% 7.31%
- -----------------------------------------------------------------------------
The U.S. Government Securities Fund's (the "Fund") objective is to provide
current income with an emphasis on capital preservation. The Fund invests
primarily in U.S. government securities and related repurchase agreements. The
average maturity ranged from 9 years to 22.9 years during the full year 1997.
Substantially all of the assets of the Fund were invested in U.S. government and
government agency securities throughout 1997. The Fund invests primarily in
long-term Treasury securities and is structured to remain relatively fully
invested. The Fund's performance roughly paralleled the course of long-term bond
prices during the year.
The U.S. Government Securities Fund's average total return* from inception on
April 1, 1993 through December 31, 1997 was 7.31%. For the full year 1997, the
Fund returned 9.55%. The total return of the Lehman Brothers Government
Long-Term Bond Index was 15.12% for 1997.
The following graph illustrates total return based on a $10,000 investment in
the Fund made at the date of inception (April 1, 1993) and held through December
31, 1997, as well as the performance of the Lehman Brothers Government Long-Term
Bond Index over the same period. Past performance is not predictive of future
performance.
[LINE GRAPH APPEARS HERE]
U.S Government Lehman Brothers Govt.
Securities Fund Long-Term Bond Index
1Q $10,000 $10,000
2Q 93 10,535 10,289
3Q 11,051 10,623
4Q 10,912 10,587
1Q 10,266 10,269
2Q 94 9,997 10,151
3Q 9,821 10,194
4Q 9,997 10,230
1Q 10,647 10,712
2Q 95 11,749 11,376
3Q 11,977 11,577
4Q 13,008 12,106
1Q 12,124 11,832
2Q 96 12,152 11,888
3Q 12,275 12,089
4Q 12,814 12,441
1Q 12,355 12,340
2Q 97 13,014 12,768
3Q 13,596 13,196
4Q 14,037 13,634
The Lehman Brothers Government Long-Term Bond Index is composed of all bonds
covered by the Lehman Brothers Government Bond Index with maturities of ten
years or greater. Total return for the Index comprises price
appreciation/depreciation and income as a percentage of the original investment.
The Index is rebalanced monthly by market capitalization.
* Total returns for the Fund are net of expenses and fees and reflect
reimbursement of certain expenses and waivers of certain fees.
<PAGE>
Balanced Fund
- --------------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years 5 Years Since Inception
April 4, 1988
-------------------------------------------------
Period ended 12/31/97
23.67% 19.46% 12.05% 11.64%
- --------------------------------------------------------------------------------
The Balanced Fund's (the "Fund") objective is to provide a balance of current
income and growth of capital. Investment emphasis is on common stocks and
fixed-income securities. At the beginning of 1997, the Fund was invested to
achieve a ratio of 50% equity investments and 50% fixed-income investments.
Within the equity portion of the portfolio, positions in large-capitalization
stocks were the outstanding performers. These large-cap leaders include The Walt
Disney Company, General Electric, Microsoft and Coca-Cola. Within the Fund's
fixed-income sector, the Adviser positioned the Fund defensively in the first
quarter when interest rates began to climb somewhat. The Fund's duration and
maturity were moved into a market-neutral posture mid-year amid signs of
stabilization, and remained in that mode for the balance of the year.
The Balanced Fund's total return* for 1997 was 23.67%, compared to a return for
the Lehman Brothers Government/Corporate Bond Index of 9.76% and the Standard &
Poor's 500 Stock Index of 33.38%, respectively.
The following graph illustrates total return* based on a $10,000 investment in
the Fund made at the date of inception (April 4, 1988) and held through December
31, 1997, as well as the performance of the Lehman Brothers Government/Corporate
Bond Index and the Standard & Poor's 500 Stock Index. Past performance is not
predictive of future returns.
[LINE GRAPH APPEARS HERE]
Balanced Lehman Bros S&P 500
Fund Govt./Corp. Index Stock Index
-------- ----------------- -----------
1Q $10,000 $10,000 $10,000
2Q 88 $10,429 $10,099 $10,666
3Q $10,409 $10,288 $10,702
4Q $10,571 $10,387 $11,033
1Q $11,148 $10,500 $11,815
2Q 89 $11,990 $11,345 $12,858
3Q $12,440 $11,451 $14,235
4Q $12,500 $11,864 $14,528
1Q $12,240 $11,729 $14,091
2Q 90 $12,765 $12,152 $14,978
3Q $12,079 $12,225 $12,919
4Q $12,688 $12,848 $14,077
1Q $14,169 $13,194 $16,122
2Q 91 $13,778 $13,394 $16,085
3Q $14,636 $14,165 $16,945
4Q $15,729 $14,920 $18,366
1Q $15,263 $14,696 $17,902
2Q 92 $15,306 $15,292 $18,243
3Q $15,904 $16,039 $18,818
4Q $16,565 $16,051 $19,765
1Q $17,034 $16,798 $20,628
2Q 93 $17,144 $17,303 $20,729
3Q $17,487 $17,877 $21,264
4Q $17,560 $17,826 $21,757
1Q $16,976 $17,265 $20,932
2Q 94 $16,724 $17,052 $21,020
3Q $17,186 $17,137 $22,048
4Q $17,162 $17,200 $22,045
1Q $18,211 $18,057 $24,191
2Q 95 $19,560 $19,228 $26,501
3Q $20,477 $19,596 $28,607
4Q $21,253 $20,509 $30,329
1Q $21,541 $20,029 $31,957
2Q 96 $22,076 $20,123 $33,391
3Q $22,484 $20,479 $34,423
4Q $23,657 $21,105 $37,292
1Q $24,016 $20,923 $38,292
2Q 97 $26,928 $21,684 $44,977
3Q $28,638 $22,444 $48,346
4Q $29,258 $23,164 $49,735
The Lehman Brothers Government/Corporate Bond Index is composed of all bonds
that are investment grade (rated Baa or higher by Moody's or BBB or higher by
S&P, if unrated by Moody's). Issues must have amounts outstanding in excess of
$25 million and have at least one year to maturity. The Standard & Poor's 500
Stock Index covers industrial, utility, transportation and financial companies
of the U.S. markets (mostly NYSE issues). The Index represents about 75% of NYSE
market capitalization and 30% of NYSE issues. It is a capitalization-weighted
Index calculated on a total return basis with dividends reinvested.
*Total returns are net of expenses and fees and reflect reimbursement of certain
expenses.
<PAGE>
Equity Income Fund
- --------------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years 5 Years Since Inception
April 4, 1988
-------------------------------------------------
Period ended 12/31/97
31.05% 27.35% 17.52% 14.35%
- --------------------------------------------------------------------------------
The Equity Income Fund's objective is to invest in securities that provide both
capital appreciation as well as current income. Investment emphasis is on
equity-based securities, which include common stocks and those debt securities
and preferred stocks convertible into common stocks. The top three performance
sectors for the Equity Income Fund for the year were financial services,
technology, and healthcare. The Fund's philosophy continues to favor the
combination of higher yielding stocks with attractive valuations and superior
earnings growth potential. Individual stock leaders included AT&T, Eli Lilly &
Co., Travelers Corporation, Bristol-Myers Squibb, and Bank of New York. Changes
in the portfolio holdings included increasing the Fund's exposure to the
consumer sector to a level more comparable to that of the S&P 500.
The Equity Income Fund's total return* for 1997 was 31.05%, compared to the
return of the Standard & Poor's 500 Stock Index of 33.38%.
The following graph illustrates total return* based on a $10,000 investment in
the Fund made at the date of inception (April 4, 1988) and held through December
31, 1997, as well as the performance of the Standard & Poor's 500 Stock Index.
Past performance is not predictive of future returns.
[LINE GRAPH APPEARS HERE]
Equity S&P 500
Income Fund Stock Index
----------- ------------
1Q $10,000 $10,000
2Q 88 $10,440 $10,666
3Q $10,599 $10,702
4Q $10,919 $11,033
1Q $11,556 $11,815
2Q 89 $12,433 $12,858
3Q $13,689 $14,235
4Q $13,376 $14,528
1Q $12,884 $14,091
2Q 90 $13,261 $14,978
3Q $11,812 $12,919
4Q $12,788 $14,077
1Q $13,938 $16,122
2Q 91 $14,018 $16,085
3Q $14,799 $16,945
4Q $15,613 $18,366
1Q $15,127 $17,902
2Q 92 $15,373 $18,243
3Q $15,680 $18,818
4Q $16,490 $19,765
1Q $17,574 $20,628
2Q 93 $17,844 $20,729
3Q $18,684 $21,264
4Q $18,525 $21,757
1Q $17,823 $20,932
2Q 94 $17,697 $21,020
3Q $17,954 $22,048
4Q $17,900 $22,045
1Q $19,400 $24,191
2Q 95 $20,868 $26,501
3Q $22,766 $28,607
4Q $23,936 $30,329
1Q $25,065 $31,957
2Q 96 $25,751 $33,391
3Q $26,421 $34,423
4Q $28,212 $37,292
1Q $28,983 $38,292
2Q 97 $33,922 $44,977
3Q $35,982 $48,346
4Q $36,972 $49,735
The Standard & Poor's 500 Stock Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets (mostly NYSE issues).
The Index represents about 75% of NYSE market capitalization and 30% of NYSE
issues. It is a capitalization-weighted Index calculated on a total return basis
with dividends reinvested.
*Total returns for the Fund are net of expenses and fees and reflect
reimbursement of certain expenses.
<PAGE>
Core Equity Fund
- --------------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years Since Inception
April 1, 1993
-------------------------------------------------
Period ended 12/31/97
33.33% 27.06% 17.20%
- --------------------------------------------------------------------------------
The Core Equity Fund's (the "Fund") objective is to maximize total investment
return through emphasis on long-term capital appreciation and current income
consistent with reasonable risk. The Fund pursues its objective by investing at
least 70% of its total assets in equity-based securities. The Fund reflected the
performance of the Standard & Poor's 500 Stock Index during the first half of
the year as a result of its strategy of remaining full invested in the market
and diversified among the Standard & Poor's 500 Stock Index. During the second
half, the Fund's Adviser increased its holdings in large capitalization
companies such as Warner-Lambert, H.J. Heinz and Campbell Soup as well as
positions in other large capitalization companies.
The Core Equity Fund's average annual total return* from inception on April 1,
1993 through December 31, 1997 was 17.20%. For the full year 1997, the Fund
returned 33.33%, compared to the return of the Standard & Poor's 500 Stock Index
of 33.38%.
The following graph illustrates the total return* based on a $10,000 investment
in the Fund made at the date of inception (April 1, 1993) and held through
December 31, 1997, as well as the performance of the Standard & Poor's 500 Stock
Index. Past performance is not predictive of future returns.
[LINE GRAPH APPEARS HERE]
Date Core Equity Fund S&P 500 Stock Index
---- ---------------- -------------------
1Q $10,000 $10,000
2Q 93 $10,007 $10,049
3Q $10,553 $10,308
4Q $10,796 $10,547
1Q $10,197 $10,147
2Q 94 $10,099 $10,190
3Q $10,571 $10,688
4Q $10,362 $10,687
1Q $11,037 $11,727
2Q 95 $11,632 $12,847
3Q $12,494 $13,868
4Q $13,007 $14,702
1Q $13,753 $15,492
2Q 96 $14,315 $16,187
3Q $14,543 $16,687
4Q $15,939 $18,078
1Q $16,328 $18,563
2Q 97 $19,132 $21,804
3Q $20,672 $23,437
4Q $21,251 $24,110
The Standard & Poor's 500 Stock Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets (mostly NYSE issues).
The Index represents about 75% of NYSE market capitalization and 30% of NYSE
issues. It is a capitalization-weighted Index calculated on a total return basis
with dividends reinvested.
*Total returns are net of expenses and fees and reflect reimbursement of certain
expenses.
<PAGE>
Equity Growth Fund
- --------------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years 5 Years Since Inception
April 4, 1988
-------------------------------------------------
Period ended 12/31/97
37.20% 27.65% 16.13% 14.78%
- --------------------------------------------------------------------------------
The Equity Growth Fund's (the "Fund") objective is capital appreciation. Current
income is a secondary objective. Primary emphasis is on equity-based securities,
which include common stocks and those debt securities and preferred stocks that
are convertible into common stocks. Throughout 1997, growth stocks outperformed
the value sector. During the first half of 1997, the Fund's performance was
enhanced by a mix of large and mid-capitalization common stocks. The Fund's
Adviser continued steps towards a broader portfolio, representative of a large
and mid-capitalization growth style. During the second half of the year, the
Fund continued to be positioned in a manner that reflects its growth objective
at approximately 2/3 growth stocks and 1/3 cyclical stocks. With the Fund's
focus on valuation and growing earnings, the Adviser continues to find
opportunities in growth stocks.
The Equity Growth Fund's total return* for 1997 was 37.20%, compared to the
Standard & Poor's 500 Stock Index return of 33.38% and the S&P/Barra Growth
Index return of 36.53%.
The following graph illustrates total return* based on a $10,000 investment in
the Fund made at the date of inception (April 4, 1988) and held through December
31, 1997, as well as the performance of the Standard & Poor's 500 Stock Index.
Past performance is not predictive of future returns.
[LINE GRAPH APPEARS HERE]
Date Equity Growth Fund S&P 500 Index Barra Growth Index
----- ------------------ ------------- ------------------
1Q $10,000 $10,000 $10,000
2Q 88 $10,545 $10,666 $10,611
3Q $10,282 $10,702 $10,605
4Q $10,458 $10,033 $10,904
1Q $11,492 $11,815 $11,611
2Q 89 $12,512 $12,858 $12,672
3Q $13,219 $14,235 $14,300
4Q $13,149 $14,528 $14,872
1Q $13,045 $14,091 $14,393
2Q 90 $14,578 $14,978 $15,815
3Q $12,314 $12,919 $13,530
4Q $12,958 $14,077 $14,902
1Q $15,513 $16,122 $17,357
2Q 91 $14,701 $16,085 $17,227
3Q $15,572 $16,945 $18,323
4Q $17,064 $18,366 $20,620
1Q $16,654 $17,902 $19,549
2Q 92 $16,146 $18,243 $19,499
3Q $16,734 $18,818 $20,381
4Q $18,162 $19,765 $21,665
1Q $18,293 $20,628 $21,557
2Q 93 $18,173 $20,729 $21,114
3Q $18,374 $21,264 $21,106
4Q $18,613 $21,757 $22,028
1Q $17,986 $20,932 $21,077
2Q 94 $17,774 $21,020 $21,059
3Q $18,588 $22,048 $22,564
4Q $18,445 $22,045 $22,718
1Q $19,726 $24,191 $24,949
2Q 95 $21,369 $26,501 $27,528
3Q $22,719 $28,607 $29,713
4Q $23,201 $30,329 $31,381
1Q $24,468 $31,957 $32,739
2Q 96 $25,559 $33,391 $35,033
3Q $26,059 $34,423 $36,267
4Q $27,962 $37,292 $38,902
1Q $28,886 $38,292 $40,291
2Q 97 $34,702 $44,977 $48,463
3Q $37,572 $48,346 $51,309
4Q $38,362 $49,735 $53,112
The Standard & Poor's 500 Stock Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets (mostly NYSE issues).
The Index represents about 75% of NYSE market capitalization and 30% of NYSE
issues. It is a capitalization-weighted Index calculated on a total return basis
with dividends reinvested. The S&P/Barrra Growth Index covers approximately
one-half of the stocks in the S&P 500, based on their price-to-book ratios.
*Total returns are net of expenses and fees and reflect reimbursement of certain
expenses.
<PAGE>
Small Capitalization Fund
- --------------------------------------------------------------------------------
Average Annual Total Return* 1 Year 3 Years Since Inception
April 1, 1993
--------------------------------------------------
Period ended 12/31/97 24.08% 28.66% 17.81%
- --------------------------------------------------------------------------------
The Small Capitalization Fund's (the "Fund") objective is capital appreciation.
Although the Fund, in seeking its objective, may receive current income from
dividends and interest, income is only an incidental consideration. The Fund
invests primarily in common stocks of U.S. companies having stock market
capitalizations of $100 million to $1 billion at time of purchase. The Fund
tries to identify smaller, rapidly growing companies in growth sectors of the
economy. These smaller capitalization companies may be more volatile than larger
capitalization companies. Small capitalization equities delivered weak
performance in the first quarter, reflecting the market's concern after the
Federal Reserve raised short-term interest rates in March. However, strong
second and third quarters reflected the market's conclusion that the tightenings
were over. Energy, consumer and financial service stocks held in the Fund
boasted the largest gains. Market weakness in the fourth quarter was a result of
the volatility in Asian markets and the resulting flight to quality by
investors.
The Small Capitalization Fund's average annual total return* from inception on
April 1, 1993 through December 31, 1997 was 17.81%. For the full year 1997, the
Fund returned 24.08% compared to the Standard & Poor's 600 Small Capitalization
Stock Index return of 25.59%
The following graph illustrates the total return* based on a $10,000 investment
in the Fund made at the date of inception (April 1, 1993) and held through
December 31, 1997, as well as the performance of the Standard & Poor's 600 Small
Capitalization Stock Index. Past performance is not predictive of future
returns.
[LINE GRAPH APPEARS HERE]
Small Capitalization Fund S&P 600 Stock Index
1Q $10,000 $10,000
2Q 93 $10,002 $10,218
3Q $10,886 $11,263
4Q $10,894 $11,469
1Q $10,179 $10,865
2Q 94 $9,553 $10,408
3Q $10,511 $11,198
4Q $10,227 $10,922
1Q $11,025 $11,438
2Q 95 $11,450 $12,528
3Q $12,499 $14,130
4Q $13,412 $14,194
1Q $14,815 $15,005
2Q 96 $15,896 $15,787
3Q $16,730 $16,293
4Q $17,554 $17,220
1Q $16,695 $16,264
2Q 97 $19,540 $19,210
3Q $22,730 $22,316
4Q $21,780 $21,626
The Standard & Poor's 600 Small Cap Stock Index covers 600 industrial,
technology, utility, transportation and financial companies of the U.S. markets.
The Index represents about 4% of the total market value of U.S. equities. It is
a capitalization-weighted Index calculated on a total return basis with
dividends reinvested.
*Total returns for the Fund are net of expenses and fees and reflect
reimbursement of certain expenses and waivers of certain fees.
<PAGE>
EQUITY GROWTH FUND
------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number
of
shares Value
------ -----
COMMON STOCKS - 99.5%
Consumer Discretionary - 14.8%
25,200 Bed Bath & Beyond, Inc. * $ 970,200
17,200 Dayton Hudson Corporation 1,161,000
12,300 Disney (Walt) Company 1,218,469
9,000 Federated Department Stores, Inc. * 387,563
27,650 GAP, Inc. 979,847
18,900 Gannett Company, Inc. 1,168,256
14,300 Home Depot, Inc. 841,913
20,800 Jones Apparel Group, Inc. * 894,400
42,300 Kroger Company * 1,562,456
10,000 Service Corporation International 369,375
Wal-Mart Stores, Inc. 1,810,181
45,900
--------------
Total Consumer Discretionary 11,363,660
--------------
Consumer Staples - 18.1%
13,700 Campbell Soup Company 796,313
44,600 Coca-Cola Company 2,971,475
52,600 Coca-Cola Enterprises 1,870,588
15,100 Gillette Company 1,516,606
14,200 H. J. Heinz Company 721,538
26,600 PepsiCo, Inc. 969,238
42,900 Philip Morris Companies, Inc. 1,943,906
25,800 Procter & Gamble Company 2,059,163
11,700 Ralston Purina Group 1,087,369
--------------
Total Consumer Staples 13,936,196
--------------
Financial Services - 11.1%
19,800 American Express Company 1,767,150
14,250 American International Group, Inc. 1,549,688
5,400 Citicorp, Inc. 682,763
The accompanying notes are an integral part of this statement.
-1-
<PAGE>
EQUITY GROWTH FUND
------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
- --------- -----
Financial Services (continued)
28,500 Federal National Mortgage Association $ 1,626,281
69,650 The Charles Schwab Corporation 2,920,938
--------------
Total Financial Services 8,546,820
--------------
Healthcare - 17.8%
14,000 Abbott Laboratories, Inc. 917,875
11,000 American Home Products Corporation 841,500
19,000 Bristol-Myers Squibb Company 1,797,875
25,300 Johnson & Johnson 1,666,638
22,700 Lilly (Eli) & Company 1,580,488
18,600 Medtronic, Inc. 973,013
22,600 Merck & Company, Inc. 2,401,250
25,000 Pfizer, Inc. 1,864,063
15,300 Schering-Plough Corporation 950,513
5,200 Warner Lambert Company 644,800
--------------
Total Healthcare 13,638,015
--------------
Integrated Oil - 2.4%
17,400 Diamond Offshore Drilling, Inc. 837,375
16,200 Exxon Corporation 991,238
--------------
Total Integrated Oil 1,828,613
--------------
Materials & Processing - 4.6%
21,900 DuPont (E.I.) de Nemours & Company, Inc. 1,315,369
13,900 Illinois Tool Works, Inc. 835,738
6,600 Minnesota Mining & Manufacturing Company 541,613
19,300 Tyco International, Inc. 869,706
--------------
Total Materials & Processing 3,562,426
--------------
Other Energy - 2.4%
24,200 Baker Hughes Incorporated 1,055,725
10,100 Schlumberger, Ltd. 813,050
--------------
Total Other Energy 1,868,775
--------------
The accompanying notes are an integral part of this statement.
-2-
<PAGE>
EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Number of
shares Value
--------- -----
Producer Durables - 5.0%
51,800 General Electric Company $ 3,800,825
--------------
Technology - 19.8%
11,300 BMC Software, Inc. * 741,563
13,300 Camco International, Inc. 847,044
18,450 Cisco Systems, Inc. * 1,028,588
41,750 Compaq Computer Corporation 2,356,266
12,200 Computer Associates International, Inc. 645,075
18,400 Hewlett-Packard Company 1,150,000
34,700 Intel Corporation 2,437,675
11,574 Lucent Technologies, Inc. 924,473
24,200 Microsoft Corporation * 3,127,850
31,700 Platinum Technology, Inc. * 895,525
12,600 QUALCOMM, Inc. * 636,300
51 Siebel Systems, Inc. * 2,132
8,200 Texas Instruments, Inc. 369,000
--------------
Total Technology 15,161,491
--------------
Utilities - 3.5%
18,100 GTE Corporation 945,725
14,600 SBC Communications, Inc. 1,069,450
21,100 WorldCom, Inc. * 638,275
--------------
Total Utilities 2,653,450
--------------
Total Common Stocks (Cost $45,765,185) 76,360,271
--------------
Total Investments (Cost $45,765,185) - 99.5% 76,360,271
Other assets in excess of liabilities - 0.5% 369,956
--------------
NET ASSETS - 100% $ 76,730,227
==============
* Non-income producing security.
The accompanying notes are an integral part of this statement.
-3-
<PAGE>
EQUITY GROWTH FUND
------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
Assets
--------------
Investments, at value (cost $45,765,185) $76,360,271
Investment income receivable 93,319
Receivable for investments sold 3,036,997
Receivable for units issued 19,469
-----------------
Total assets 79,510,056
-----------------
Liabilities
--------------
Payable for investments purchased 2,779,829
-----------------
Total liabilities 2,779,829
-----------------
Net assets $76,730,227
=================
Net assets were comprised of:
Units of beneficial interest $30,609,868
Accumulated net investment income 1,954,808
Accumulated net realized gain 13,570,465
Net unrealized appreciation 30,595,086
-----------------
Net assets at December 31, 1997 $76,730,227
=================
Unit value, offering price and redemption price per unit
($76,730,227 / 2,000,502 units of beneficial interest issued
and outstanding; unlimited number of units authorized) $ 38.36
=================
The accompanying notes are an integral part of this statement.
-4-
<PAGE>
EQUITY GROWTH FUND
------------------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
Income:
Dividends $ 779,840
Interest 63,588
------------
Total income 843,428
------------
Expenses:
Management fee (Note 3) 700,938
Accounting fees 46,599
Audit fees 12,023
Directors' fees 2,505
Insurance 4,915
Legal fees 1,231
Registration fees 7,398
Miscellaneous 2,169
------------
Total expenses 777,778
Expense subsidy (Note 4) (76,840)
------------
Net expenses 700,938
------------
Net investment income 142,490
============
Net realized and unrealized gain on investments
-----------------------------------------------
Net realized gain on investments 4,969,397
Change in unrealized appreciation in value of investments
during the year 16,308,101
------------
Net realized and unrealized gain on investments 21,277,498
------------
Net increase in net assets resulting from operations $ 21,419,988
============
The accompanying notes are an integral part of this statement.
-5-
<PAGE>
EQUITY GROWTH FUND
------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
<TABLE>
<CAPTION>
Years ended
December 31,
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
Increase in net assets:
From operations:
Net investment income $ 142,490 $ 209,574
Net realized gain on investments 4,969,397 2,782,798
Change in unrealized appreciation in value of investments during
the year 16,308,101 6,636,433
------------------ ----------------
Net increase in net assets resulting from operations 21,419,988 9,628,805
------------------ ----------------
From unit transactions:
Net proceeds from units issued 16,841,951 15,022,289
Cost of units redeemed (18,859,834) (12,900,781)
------------------ ----------------
Net increase/(decrease) in net assets resulting
from unit transactions (2,017,883) 2,121,508
------------------ ----------------
Total increase in net assets 19,402,105 11,750,313
Net assets, beginning of year 57,328,122 45,577,809
------------------ ----------------
Net assets, end of year $ 76,730,227 $ 57,328,122
================== ================
Net change in units outstanding:
Units issued 488,810 590,521
Units redeemed (539,124) (504,266)
------------------ ----------------
(50,314) 86,255
================== ================
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
(Selected data for a unit of beneficial interest outstanding
throughout each of the years indicated)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $ 27.95 $ 23.20 $ 18.44 $ 18.61 $ 18.16
--------- -------- --------- -------- --------
Investment income 0.41 0.35 0.38 0.38 0.38
Expenses (0.38) (0.27) (0.23) (0.21) (0.22)
Expense subsidy 0.04 0.02 0.02 0.03 0.03
Management fee reductions - - - - 0.01
--------- -------- --------- -------- --------
Net investment income 0.07 0.10 0.17 0.20 0.20
Net realized and unrealized
gain/(loss) on investments 10.34 4.65 4.59 (0.37) 0.25
--------- -------- --------- -------- --------
Total from investment operations 10.41 4.75 4.76 (0.17) 0.45
--------- -------- --------- -------- --------
Net asset value, end of year $ 38.36 $ 27.95 $ 23.20 $ 18.44 $ 18.61
========= ======== ========= ======== ========
Total return 37.20% 20.52% 25.78% (0.90)% 2.48%
Ratios/supplemental data:
Net Assets, End of Year
(000 omitted) $ 76,730 $ 57,328 $ 45,578 $ 36,683 $ 30,648
Management fee reductions - - - - $ 11,479
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 1.11% 1.08% 1.10% 1.17% 1.21%
Of management fee reductions - - - - (0.04)
--------- -------- --------- -------- --------
Of expenses 1.11 1.08 1.10 1.17 1.17
Of expense subsidy (0.11) (0.08) (0.10) (0.17) (0.21)
--------- -------- --------- -------- --------
Of net expenses 1.00% 1.00% 1.00% 1.00% 0.96%
========= ======== ========= ======== ========
Of net investment income 0.20% 0.41% 0.78% 1.07% 1.12%
Portfolio turnover 35% 62% 99% 116% 97%
Average brokerage commission
rate $ 0.13 N/A N/A N/A N/A
</TABLE>
* Amounts adjusted to reflect 10:1 reverse split for the year ended 1993.
Per unit amounts are calculated using average units outstanding for the year.
The accompanying notes are an integral part of this statement.
-7-
<PAGE>
EQUITY INCOME FUND
------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
COMMON STOCKS - 99.6%
Auto & Transportation - 3.9%
16,800 Ford Motor Company $ 817,950
11,200 General Motors Corporation 679,000
25,000 Norfolk Southern Corporation 770,313
10,900 Union Pacific Corporation 680,569
----------
Total Auto & Transportation 2,947,832
----------
Consumer Discretionary - 3.9%
3,900 Disney (Walt) Company 386,344
7,100 Home Depot, Inc. 418,013
13,200 Penney (J.C.) Company, Inc. 796,125
11,700 Sears, Roebuck & Company 529,425
19,800 Wal-Mart Stores, Inc. 780,863
----------
Total Consumer Discretionary 2,910,770
----------
Consumer Staples - 12.6%
17,400 Anheuser-Busch Companies, Inc. 765,600
21,000 Coca-Cola Company 1,399,125
9,000 Gillette Company 903,938
20,000 PepsiCo, Inc. 728,750
33,590 Philip Morris Companies, Inc. 1,522,047
24,200 Procter & Gamble Company 1,931,462
9,800 Ralston Purina Group 910,788
29,000 Sysco Corporation 1,321,311
----------
Total Consumer Staples 9,483,021
----------
Financial Services - 17.2%
20,200 American Express Company 1,802,849
16,430 American International Group, Inc. 1,786,763
22,300 Bank of New York 1,289,219
6,300 Citicorp, Inc. 796,556
23,200 First Union Corporation 1,189,000
The accompanying notes are an integral part of this statement.
-8-
<PAGE>
EQUITY INCOME FUND
------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
Financial Services (continued)
3,500 General Re Corporation $ 742,000
24,800 SunTrust Banks, Inc. 1,770,100
14,900 TransAmerica Corporation 1,586,850
36,749 Travelers Group, Inc. 1,979,852
-----------
Total Financial Services 12,943,189
-----------
Healthcare - 12.6%
14,300 Abbott Laboratories, Inc. 937,544
13,100 American Home Products Corporation 1,002,150
21,700 Bristol-Myers Squibb Company 2,053,362
12,800 Johnson & Johnson 843,200
27,600 Lilly (Eli) & Company 1,921,650
10,900 Merck & Company, Inc. 1,158,125
21,000 Pfizer, Inc. 1,565,812
-----------
Total Healthcare 9,481,843
-----------
Integrated Oil - 8.3%
11,700 Amoco Corporation 995,963
17,400 Chevron Corporation 1,339,800
19,000 Mobil Corporation 1,371,563
28,372 Royal Dutch Petroleum Company ADR 1,537,408
18,300 Texaco, Inc. 995,061
-----------
Total Integrated Oil 6,239,795
-----------
Materials & Processing - 7.2%
36,800 Dover Corporation 1,329,400
9,800 Dow Chemical Company 994,700
19,800 DuPont (E.I.) de Nemours & Company, Inc. 1,189,238
13,700 International Paper Company 590,812
31,200 Monsanto Company 1,310,400
-----------
Total Materials & Processing 5,414,550
-----------
The accompanying notes are an integral part of this statement.
-9-
<PAGE>
EQUITY INCOME FUND
------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
Other Energy - 2.4%
17,400 Enron Corporation $ 723,188
4,900 Schlumberger, Ltd. 394,450
15,300 Sonat, Inc. 699,975
----------
Total Other Energy 1,817,613
----------
Producer Durables - 6.8%
7,400 Boeing Company 362,137
27,200 General Electric Company 1,995,799
13,100 Lockheed Martin Corporation 1,290,350
28,900 Sundstrand Corporation 1,455,838
----------
Total Producer Durables 5,104,124
----------
Technology - 13.2%
12,800 Hewlett-Packard Company 800,000
15,900 Intel Corporation 1,116,975
21,100 International Business Machines Corporation 2,206,269
9,584 Lucent Technologies, Inc. 765,522
7,100 Microsoft Corporation * 917,675
13,500 Motorola, Inc. 770,344
714 Raytheon Company - Class A 35,209
23,100 Raytheon Company - Class B 1,166,550
16,700 Texas Instruments, Inc. 751,500
18,500 Xerox Corporation 1,365,531
----------
Total Technology 9,895,575
----------
Utilities - 11.5%
18,600 AT&T Corporation 1,139,250
11,000 Ameritech Corporation 885,500
9,700 Bell Atlantic Corporation 882,700
13,500 BellSouth Corporation 760,219
33,100 DQE, Inc. 1,162,638
The accompanying notes are an integral part of this statement.
-10-
<PAGE>
EQUITY INCOME FUND
------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
Utilities (continued)
20,100 Duke Power Company $ 1,113,038
15,000 GTE Corporation 783,750
22,800 NIPSCO Industries, Inc. 1,127,175
11,400 SBC Communications, Inc. 835,050
--------------
Total Utilities 8,689,320
--------------
Total Common Stocks (Cost $45,602,062) 74,927,632
--------------
SHORT-TERM INVESTMENTS - 0.1%
Short-Term Investment Fund - 0.1%
101,000 Fidelity Institutional Cash Portfolios:
Government 101,000
--------------
Total Short-Term Investments (Cost $101,000) 101,000
--------------
Total Investments (Cost $45,703,062) - 99.7% 75,028,632
Other assets in excess of liabilities - 0.3% 214,430
--------------
NET ASSETS - 100% $ 75,243,062
==============
* Non-income producing security.
The accompanying notes are an integral part of this statement.
-11-
<PAGE>
EQUITY INCOME FUND
------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
Assets
-----------
Investments, at value (cost $45,703,062) $75,028,632
Cash 908
Investment income receivable 122,968
Receivable for investments sold 3,514,708
Receivable for units issued 29,748
-----------
Total assets 78,696,964
-----------
Liabilities
-----------
Payable for investments purchased 3,450,039
Payable for units redeemed 3,863
-----------
Total liabilities 3,453,902
-----------
Net assets $75,243,062
===========
Net assets were comprised of:
Units of beneficial interest $28,066,589
Accumulated net investment income 5,539,793
Accumulated net realized gain 12,311,110
Net unrealized appreciation 29,325,570
-----------
Net assets at December 31, 1997 $75,243,062
===========
Unit value, offering price and redemption price
per unit ($75,243,062 / 2,035,410 units of
beneficial interest issued and outstanding;
unlimited number of units authorized) $ 36.97
===========
The accompanying notes are an integral part of this statement.
-12-
<PAGE>
EQUITY INCOME FUND
------------------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
Income:
Dividends $ 1,361,525
Interest 174,765
------------
Total income 1,536,290
------------
Expenses:
Management fee (Note 3) 709,821
Accounting fees 45,561
Audit fees 12,023
Directors' fees 2,505
Insurance 4,990
Legal fees 1,231
Registration fees 10,385
Miscellaneous 2,229
------------
Total expenses 788,745
Expense subsidy (Note 4) (78,924)
------------
Net expenses 709,821
------------
Net investment income 826,469
============
Net realized and unrealized gain on investments
-----------------------------------------------
Net realized gain on investments 5,012,917
Change in unrealized appreciation in value of
investments during the year 12,446,787
------------
Net realized and unrealized gain on investments 17,459,704
------------
Net increase in net assets resulting from operations $ 18,286,173
============
The accompanying notes are an integral part of this statement.
-13-
<PAGE>
EQUITY INCOME FUND
------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
Years ended
December 31,
-------------------------------
1997 1996
---- ----
Increase in net assets:
From operations:
Net investment income $ 826,469 $ 991,807
Net realized gain on investments 5,012,917 4,768,241
Change in unrealized appreciation in
value of investments during
the year 12,446,787 4,099,749
------------ ------------
Net increase in net assets resulting
from operations 18,286,173 9,859,797
------------ ------------
From unit transactions:
Net proceeds from units issued 18,819,863 14,693,984
Cost of units redeemed (25,253,438) (16,148,394)
------------ ------------
Net decrease in net assets resulting
from unit transactions (6,433,575) (1,454,410)
------------ ------------
Total increase in net assets 11,852,598 8,405,387
Net assets, beginning of year 63,390,464 54,985,077
------------ ------------
Net assets, end of year $ 75,243,062 $ 63,390,464
============ ============
Net change in units outstanding:
Units issued 564,632 578,822
Units redeemed (776,284) (629,084)
------------ ------------
(211,652) (50,262)
============ ============
The accompanying notes are an integral part of this statement.
-14-
<PAGE>
EQUITY INCOME FUND
------------------
FINANCIAL HIGHLIGHTS
--------------------
(Selected data for a unit of beneficial interest outstanding
throughout each of the years indicated)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $ 28.21 $ 23.93 $ 17.90 $ 18.52 $ 16.49
--------- -------- --------- -------- --------
Investment income 0.74 0.69 0.65 0.57 0.52
Expenses (0.38) (0.27) (0.23) (0.21) (0.22)
Expense subsidy 0.04 0.01 0.02 0.02 0.03
Management fee reductions - - - - 0.01
--------- --------- --------- --------- --------
Net investment income 0.40 0.43 0.44 0.39 0.35
Net realized and unrealized
gain/(loss) on investments 8.36 3.85 5.59 (1.01) 1.68
--------- -------- --------- -------- --------
Total from investment operations 8.76 4.28 6.03 (0.62) 2.03
--------- -------- --------- -------- --------
Net asset value, end of year $ 36.97 $ 28.21 $ 23.93 $ 17.90 $ 18.52
========= ======== ========= ======== ========
Total return 31.05% 17.87% 33.72% (3.37)% 12.34%
Ratios/supplemental data:
Net Assets, End of Year
(000 omitted) $ 75,243 $ 63,390 $ 54,985 $ 39,296 $ 41,605
Management fee reductions - - - - $ 17,330
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 1.11% 1.07% 1.09% 1.12% 1.21%
Of management fee reductions - - - - (0.05)
--------- --------- --------- --------- --------
Of expenses 1.11 1.07 1.09 1.12 1.16
Of expense subsidy (0.11) (0.07) (0.09) (0.12) (0.21)
--------- -------- --------- -------- --------
Of net expenses 1.00% 1.00% 1.00% 1.00% 0.95%
========= ======== ========= ======== ========
Of net investment income 1.16% 1.67% 2.10% 2.13% 1.98%
Portfolio turnover 14% 24% 11% 42% 40%
Average brokerage commission
rate $ 0.13 N/A N/A N/A N/A
</TABLE>
* Amounts adjusted to reflect 10:1 reverse split for the year ended 1993.
Per unit amounts are calculated using average units outstanding for the year.
The accompanying notes are an integral part of this statement.
-15-
<PAGE>
BALANCED FUND
-------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
COMMON STOCKS - 48.3%
Consumer Discretionary - 7.1%
5,700 Bed Bath & Beyond, Inc. * $ 219,450
3,850 Dayton Hudson Corporation 259,875
2,700 Disney (Walt) Company 267,469
2,000 Federated Department Stores, Inc. * 86,125
6,250 GAP, Inc. 221,484
4,300 Gannett Company, Inc. 265,794
3,300 Home Depot, Inc. 194,288
4,700 Jones Apparel Group, Inc. * 202,100
9,600 Kroger Company * 354,600
2,300 Service Corporation International 84,956
10,500 Wal-Mart Stores, Inc. 414,094
----------
Total Consumer Discretionary 2,570,235
----------
Consumer Staples - 8.8%
3,100 Campbell Soup Company 180,188
10,300 Coca-Cola Company 686,238
12,000 Coca-Cola Enterprises 426,750
3,400 Gillette Company 341,488
3,200 H. J. Heinz Company 162,600
6,100 PepsiCo, Inc. 222,269
9,800 Philip Morris Companies, Inc. 444,063
6,000 Procter & Gamble Company 478,875
2,700 Ralston Purina Group 250,931
----------
Total Consumer Staples 3,193,402
----------
Financial Services - 5.4%
4,600 American Express Company 410,550
3,200 American International Group, Inc. 348,000
1,200 Citicorp, Inc. 151,725
The accompanying notes are an integral part of this statement.
-16-
<PAGE>
BALANCED FUND
-------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
Financial Services (continued)
6,600 Federal National Mortgage Association $ 376,613
16,050 The Charles Schwab Corporation 673,096
----------
Total Financial Services 1,959,984
----------
Healthcare - 8.7%
3,200 Abbott Laboratories, Inc. 209,800
2,500 American Home Products Corporation 191,250
4,400 Bristol-Myers Squibb Company 416,350
5,900 Johnson & Johnson 388,663
5,300 Lilly (Eli) & Company 369,011
4,200 Medtronic, Inc. 219,713
5,200 Merck & Company, Inc. 552,500
5,800 Pfizer, Inc. 432,463
3,600 Schering-Plough Corporation 223,650
1,200 Warner Lambert Company 148,800
----------
Total Healthcare 3,152,200
----------
Integrated Oil - 1.2%
4,100 Diamond Offshore Drilling, Inc. 197,313
3,700 Exxon Corporation 226,393
----------
Total Integrated Oil 423,706
----------
Materials & Processing - 2.8%
3,100 Camco International, Inc. 197,431
5,000 DuPont (E.I.) de Nemours & Company, Inc. 300,312
3,100 Illinois Tool Works, Inc. 186,388
1,500 Minnesota Mining & Manufacturing Company 123,094
4,400 Tyco International, Inc. 198,275
----------
Total Materials & Processing 1,005,500
----------
Other Energy - 1.2%
5,500 Baker Hughes Incorporated 239,938
The accompanying notes are an integral part of this statement.
-17-
<PAGE>
BALANCED FUND
-------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
Other Energy (continued)
2,300 Schlumberger, Ltd. $ 185,150
-----------
Total Other Energy 425,088
-----------
Producer Durables - 2.5%
12,000 General Electric Company 880,500
-----------
Technology - 9.1%
2,600 BMC Software, Inc. * 170,625
4,250 Cisco Systems, Inc. * 236,938
9,550 Compaq Computer Corporation 538,978
2,800 Computer Associates International, Inc. 148,050
4,200 Hewlett-Packard Company 262,500
8,000 Intel Corporation 562,000
2,644 Lucent Technologies, Inc. 211,190
5,550 Microsoft Corporation * 717,338
7,400 Platinum Technology, Inc. * 209,050
2,900 QUALCOMM, Inc. * 146,450
1,900 Texas Instruments, Inc. 85,500
-----------
Total Technology 3,288,619
-----------
Utilities - 1.7%
4,100 GTE Corporation 214,225
3,300 SBC Communications, Inc. 241,725
4,800 WorldCom, Inc. * 145,200
-----------
Total Utilities 601,150
-----------
Total Common Stocks (Cost $12,181,020) 17,500,384
-----------
The accompanying notes are an integral part of this statement.
-18-
<PAGE>
BALANCED FUND
-------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Principal
amount Value
------ -----
CORPORATE BONDS - 13.6%
Auto & Transportation - 1.2%
$ 360,000 Ford Motor Company 8.875%, 1/15/22 $ 444,017
----------
Financial & Other - 10.8%
500,000 Anheuser-Busch Companies, Inc. 6.75%, 8/1/03 512,950
500,000 Associates Corporation of North America
7.52%, 3/29/00 516,040
400,000 BankAmerica Corporation 6.20%, 2/15/06 392,160
100,000 Caterpillar Financial Services 6.95%, 11/1/00 102,278
193,000 Ford Credit Grantor Trust 5.90%, 10/15/00 192,703
225,000 Ford Motor Credit Company 6.25%, 12/8/05 222,590
450,000 McDonald's Corporation 7.05%, 11/15/25 443,147
600,000 PNC Student Loan Trust 6.138%, 1/25/00 602,166
325,000 Procter & Gamble Company 6.45%, 1/15/26 319,777
600,000 Wal-Mart Stores, Inc. 6.75%, 5/15/02 614,526
----------
Total Financial & Other 3,918,337
----------
Healthcare - 1.6%
600,000 Abbott Laboratories 5.60%, 10/1/03 585,264
----------
Total Corporate Bonds (Cost $4,747,548) 4,947,618
----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 31.6%
U.S. Government Agency Obligations - 4.5%
Government National Mortgage Association,
825,000 6.50%, 1/22/28 816,486
825,000 Federal National Mortgage Association,
6.50%, 1/22/28 814,688
----------
Total U.S. Government Agency Obligations 1,631,174
----------
U.S. Government Obligations - 27.1 %
625,000 U.S. Treasury Bond, 6.25%, 8/15/23 643,750
1,625,000 U.S. Treasury Bond, 6.50%, 11/15/26 1,734,688
The accompanying notes are an integral part of this statement.
-19-
<PAGE>
BALANCE FUND
------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Principal
amount Value
------ -----
U.S. Government Obligations (continued)
$ 400,000 U.S. Treasury Bond, 6.75%, 8/15/26 $ 440,376
1,800,000 U.S. Treasury Note, 5.625%, 2/15/06 1,779,750
280,000 U.S. Treasury Note, 5.875%, 2/15/04 282,450
1,500,000 U.S. Treasury Note, 6.00%, 8/15/00 1,510,785
750,000 U.S. Treasury Note, 6.125%, 8/15/07 770,745
2,650,000 U.S. Treasury Note, 6.375%, 3/31/01 2,699,688
-----------
Total U.S. Government Obligations 9,862,232
-----------
Total U.S. Government and Agency
Obligations (Cost $11,292,682) 11,493,406
-----------
SHORT-TERM INVESTMENTS - 16.5%
Repurchase Agreements - 5.0%
Goldman Sachs and Company, dated 12/31/97, 5.75%,
due 1/2/98 in the amount of $184,000 (collateralized
by U.S. Government obligations in a pooled cash
account), repurchase
184,000 proceeds $184,059 184,000
Lehman Brothers, dated 12/31/97, 6.25%, due 1/2/98
in the amount of $1,634,000 (collateralized by U.S.
Government obligations in a pooled cash account),
1,634,000 repurchase proceeds $1,634,567 1,634,000
-----------
Total Repurchase Agreements 1,818,000
-----------
Number of
shares
------
Short-Term Investment Fund - 4.6%
1,672,000 Fidelity Institutional Cash Portfolios: Government 1,672,000
-----------
The accompanying notes are an integral part of this statement.
-20-
<PAGE>
BALANCE FUND
------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Principal
amount Value
------ -----
Short-Term U.S. Government Obligations - 6.9%
$ 2,400,000 U.S. Treasury Note, 5.625%, 11/30/98 $ 2,400,000
100,000 U.S. Treasury Bill, 4.96%, 2/25/98 99,485
-------------
Total Short-Term U.S. Government Obligations 2,499,485
-------------
Total Short-Term Investments (Cost $5,988,018) 5,989,485
-------------
Total Investments (Cost $34,209,268) - 109.8% 39,930,888
Liabilities in excess of other assets - (9.8%) (3,572,251)
-------------
NET ASSETS - 100% $ 36,358,637
=============
* Non-income producing security.
The accompanying notes are an integral part of this statement.
-21-
<PAGE>
BALANCED FUND
-------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
Assets
--------------
Investments, at value (cost $34,209,268) $39,930,888
Cash 553
Investment income receivable 299,414
Receivable for investments sold 1,496,763
Receivable for units issued 24,649
-----------
Total assets 41,752,267
-----------
Liabilities
-----------
Management fee payable 5,328,630
Payable for units redeemed 65,000
-----------
Total liabilities 5,393,630
-----------
Net assets $36,358,637
===========
Net assets were comprised of:
Units of beneficial interest $13,006,584
Accumulated net investment income 7,527,733
Accumulated net realized gain 10,102,700
Net unrealized appreciation 5,721,620
-----------
Net assets at December 31, 1997 $36,358,637
===========
Unit value, offering price and redemption price per unit
($36,358,637 / 1,242,772 units of beneficial interest issued
and outstanding; unlimited number of units authorized) $ 29.26
===========
The accompanying notes are an integral part of this statement.
-22-
<PAGE>
BALANCED FUND
-------------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
Income:
Dividends $ 151,495
Interest 806,452
-----------
Total income 957,947
-----------
Expenses:
Management fee (Note 3) 256,363
Accounting fees 41,752
Audit fees 12,023
Directors' fees 2,505
Insurance 4,216
Legal fees 1,231
Registration fees 8,978
Miscellaneous 1,703
-----------
Total expenses 328,771
Expense subsidy (Note 4) (72,408)
-----------
Net expenses 256,363
-----------
Net investment income 701,584
===========
Net realized and unrealized gain on investments
-----------------------------------------------
Net realized gain on investments 1,810,231
Change in unrealized appreciation in value of investments
during the year 2,792,495
-----------
Net realized and unrealized gain on investments 4,602,726
-----------
Net increase in net assets resulting from operations $ 5,304,310
===========
The accompanying notes are an integral part of this statement.
-23-
<PAGE>
BALANCED FUND
-------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Increase in net assets:
From operations:
Net investment income $ 701,584 $ 620,001
Net realized gain on investments 1,810,231 1,430,532
Change in unrealized appreciation in value of
investments during the year 2,792,495 322,380
------------ ------------
Net increase in net assets resulting from operations 5,304,310 2,372,913
------------ ------------
From unit transactions:
Net proceeds from units issued 17,984,284 6,612,764
Cost of units redeemed (9,561,179) (7,825,902)
------------ ------------
Net increase/(decrease) in net assets resulting
from unit transactions 8,423,105 (1,213,138)
------------ ------------
Total increase in net assets 13,727,415 1,159,775
Net assets, beginning of year 22,631,222 21,471,447
------------ ------------
Net assets, end of year $ 36,358,637 $ 22,631,222
============ ============
Net change in units outstanding:
Units issued 638,998 297,343
Units redeemed (352,780) (351,351)
------------ ------------
286,218 (54,008)
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
- 24 -
<PAGE>
BALANCED FUND
-------------
FINANCIAL HIGHLIGHTS
--------------------
(Selected data for a unit of beneficial interest outstanding
throughout each of the years indicated)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $ 23.66 $ 21.25 $ 17.16 $ 17.56 $ 16.57
--------- -------- --------- -------- --------
Investment income 1.01 0.85 0.76 0.63 0.64
Expenses (0.35) (0.26) (0.23) (0.20) (0.19)
Expense subsidy 0.08 0.04 0.04 0.03 0.02
Net investment income 0.74 0.63 0.57 0.46 0.47
Net realized and unrealized
gain/(loss) on investments 4.86 1.78 3.52 (0.86) 0.52
--------- -------- --------- -------- --------
Total from investment operations 5.60 2.41 4.09 (0.40) 0.99
--------- -------- --------- -------- --------
Net asset value, end of year $ 29.26 $ 23.66 $ 21.25 $ 17.16 $ 17.56
========= ======== ========= ======== ========
Total return 23.67% 11.31% 23.83% (2.27)% 6.01%
Ratios/supplemental data:
Net Assets, End of Year
(000 omitted) $ 36,359 $ 22,631 $ 21,471 $ 22,802 $ 37,276
Ratios to Average Net Assets:
Of expenses 1.28% 1.17% 1.17% 1.17% 1.10%
Of expense subsidy (0.28) (0.17) (0.17) (0.17) (0.10)
--------- -------- --------- -------- --------
Of net expenses 1.00% 1.00% 1.00% 1.00% 1.00%
========= ======== ========= ======== ========
Of net investment income 2.73% 2.82% 2.94% 2.94% 2.78%
Portfolio turnover 64% 70% 98% 157% 148%
Average brokerage commission
rate $ 0.12 N/A N/A N/A N/A
</TABLE>
* Amounts adjusted to reflect 10:1 reverse split for the year ended 1993.
Per unit amounts are calculated using average units outstanding for the year.
The accompanying notes are an integral part of this statement.
-25-
<PAGE>
INCOME FUND
-----------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<S> <C> <FN>
LONG-TERM INVESTMENTS - 96.0%
CORPORATE BONDS - 46.2%
Auto & Transportation - 2.7%
$ 1,140,000 Ford Motor Company, 8.88%, due 01/15/22 $ 1,406,053
--------------
Financial & Other - 41.6%
2,400,000 Abbott Laboratories, 5.60%, due 10/01/03 2,341,056
2,500,000 Anheuser-Busch Companies, Inc., 6.75%, due 08/01/03 2,564,750
2,400,000 Associates Corporation Of North America, 7.52%, due 03/29/00 2,476,992
2,000,000 BankAmerica Corporation, 6.20%, due 02/15/06 1,960,800
2,400,000 Caterpillar Financial Services, 6.95%, due 11/01/00 2,454,672
1,000,000 Ford Motor Credit Company, 6.25%, due 12/08/05 989,290
2,000,000 McDonald's Corporation, 7.05%, due 11/15/25 1,969,540
2,410,000 PNC Student Loan Trust, 6.14%, due 01/25/00 2,418,702
1,725,000 Procter & Gamble Company, 6.45%, due 01/15/26 1,697,279
2,400,000 Wal-Mart Stores, Inc., 6.75%, due 05/15/02 2,458,104
---------------
Total Financial & Other 21,331,185
---------------
Financial Services - 1.9%
964,422 Ford Credit Grantor Trust, 5.90%, due 10/15/00 963,516
--------------
Total Corporate Bonds (Cost $22,824,606) 23,700,754
--------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 49.8%
U.S. Government Agency Obligations - 9.6%
2,600,000 Government National Mortgage Association, 6.50%, due 01/22/28 2,573,168
2,384,619 Federal National Mortgage Association, 6.50%, due 09/01/26 2,363,753
---------------
Total U.S. Government Agency Obligations 4,936,921
---------------
U.S. Treasury Obligations - 40.2%
3,850,000 U.S. Treasury Bond, 6.75%, due 08/15/26 4,238,619
3,500,000 U.S. Treasury Bond, 8.13%, due 05/15/21 4,410,560
4,000,000 U.S. Treasury Note, 5.63%, due 10/31/99 3,996,240
2,200,000 U.S. Treasury Note, 5.75%, due 08/15/03 2,201,364
5,700,000 U.S. Treasury Note, 6.38%, due 03/31/01 5,806,875
---------------
Total U.S. Treasury Obligations 20,653,658
---------------
</TABLE>
The accompanying notes are an integral part of this statement.
-26-
<PAGE>
INCOME FUND
-----------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<S> <C> <C>
Total U.S. Government and Agency
Obligations (Cost $24,921,340) $ 25,590,579
--------------
Total Long-Term Investments (Cost $47,745,946) 49,291,333
--------------
SHORT-TERM INVESTMENTS - 2.4%
Repurchase Agreement - 0.4%
Lehman Brothers, dated 12/31/97, 6.25%,
due 1/2/98 (collateralized by U.S. Government obligations in a
$ 169,000 pooled cash account), repurchase proceeds $169,059 169,000
--------------
<CAPTION>
Number of
shares
------
<S> <C> <C>
Short-Term Investment Fund - 0.1%
68,200 Fidelity Institutional Cash Portfolios: Government 68,200
--------------
<CAPTION>
Principal
amount
------
<S> <C> <C>
U.S. Government Obligation - 1.9%
$1,000,000 U.S. Treasury Note, 5.63%, due 11/30/98 1,000,000
--------------
Total Short-Term Investments (Cost $1,231,418) 1,237,200
--------------
Total Investments (Cost $48,977,364) - 98.4% 50,528,533
Other assets in excess of liabilities - 1.6% 800,484
--------------
NET ASSETS - 100% $ 51,329,017
==============
</TABLE>
The accompanying notes are an integral part of this statement.
-27-
<PAGE>
INCOME FUND
-----------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
Assets
--------------
Investments, at value (cost $48,977,364) $50,528,533
Cash 210
Investment income receivable 741,892
Receivable for units issued 4,909,834
-----------
Total assets 56,180,469
-----------
Liabilities
---------------
Payable for investments purchased 4,839,406
Payable for units redeemed 12,046
-----------
Total liabilities 4,851,452
-----------
Net assets $51,329,017
===========
Net assets were comprised of:
Units of beneficial interest $24,020,060
Accumulated net investment income 23,862,520
Accumulated net realized gain 1,895,268
Net unrealized appreciation 1,551,169
-----------
Net assets at December 31, 1997 $51,329,017
===========
Unit value, offering price and redemption price per unit
($51,329,017 / 2,543,633 units of beneficial interest issued
and outstanding; unlimited number of units authorized) $ 20.18
===========
The accompanying notes are an integral part of this statement.
-28-
<PAGE>
INCOME FUND
-----------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
Income:
Interest $ 3,373,648
---------------
Expenses:
Management fee (Note 3) 512,611
Accounting fees 43,338
Audit fees 12,023
Directors' fees 2,505
Insurance 4,990
Legal fees 1,231
Registration fees 4,334
Miscellaneous 2,062
---------------
Total expenses 583,094
Expense subsidy (Note 4) (70,483)
Management fee reduction (Note 4) (128,407)
---------------
Net expenses 384,204
---------------
Net investment income 2,989,444
===============
Net realized and unrealized gain/(loss) on investments
------------------------------------------------------
Net realized loss on investments (39,579)
Change in unrealized appreciation in value of investments
during the year 1,289,272
---------------
Net realized and unrealized gain on investments 1,249,693
---------------
Net increase in net assets resulting from operations $ 4,239,137
===============
The accompanying notes are an integral part of this statement.
-29-
<PAGE>
INCOME FUND
-----------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
Years ended
December 31,
-----------------------------
1997 1996
---- ----
Decrease in net assets:
From operations:
Net investment income $ 2,989,444 $ 3,016,803
Net realized (loss)/gain on investments (39,579) 233,730
Change in unrealized appreciation/
(depreciation) in value of
investments during the year 1,289,272 (2,268,924)
------------ ------------
Net increase in net assets resulting
from operations 4,239,137 981,609
------------ ------------
From unit transactions:
Net proceeds from units issued 8,887,000 8,529,032
Cost of units redeemed (15,411,419) (13,347,969)
------------ ------------
Net decrease in net assets resulting
from unit transactions (6,524,419) (4,818,937)
------------ ------------
Total decrease in net assets (2,285,282) (3,837,328)
Net assets, beginning of year 53,614,299 57,451,627
------------ ------------
Net assets, end of year $ 51,329,017 $ 53,614,299
============ ============
Net change in units outstanding:
Units issued 461,702 473,031
Units redeemed (806,698) (738,759)
------------ ------------
(344,996) (265,728)
============ ============
The accompanying notes are an integral part of this statement.
-30-
<PAGE>
INCOME FUND
-----------
FINANCIAL HIGHLIGHTS
--------------------
(Selected data for a unit of beneficial interest outstanding
throughout each of the years indicated)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------------------------
1997** 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $ 18.56 $ 18.21 $ 15.39 $ 16.11 $ 14.62
----------- ----------- ----------- ----------- -----------
Investment income 1.26 1.14 1.09 0.97 0.97
Expenses (0.20) (0.20) (0.18) (0.17) (0.17)
Expense subsidy 0.03 0.01 0.02 0.01 0.02
Management fee reductions 0.05 0.05 0.04 0.03 --
----------- ----------- ----------- ----------- -----------
Net investment income 1.14 1.00 0.97 0.84 0.82
Net realized and unrealized
gain/(loss) on investments 0.48 (0.65) 1.85 (1.56) 0.67
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.62 0.35 2.82 (0.72) 1.49
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 20.18 $ 18.56 $ 18.21 $ 15.39 $ 16.11
=========== =========== =========== =========== ===========
Total return 8.73% 1.91% 18.38% (4.47)% 10.18%
Ratios/supplemental data:
Net Assets, End of Year
(000 omitted) $ 51,329 $ 53,614 $ 57,452 $ 52,235 $ 76,085
Management fee reductions $ 128,407 $ 136,137 $ 136,617 $ 99,627 $ --
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 1.14% 1.07% 1.08% 1.07% 1.09%
Of management fee reductions (0.25) (0.25) (0.25) (0.25) --
----------- ----------- ----------- ----------- -----------
Of expenses 0.89 0.82 0.83 0.82 1.09
Of expense subsidy (0.14) (0.07) (0.08) (0.07) (0.09)
----------- ----------- ----------- ----------- -----------
Of net expenses 0.75% 0.75% 0.75% 0.75% 1.00%
=========== =========== =========== =========== ===========
Of net investment income 5.82% 5.58% 5.77% 5.43% 5.20%
Portfolio turnover 97% 72% 93% 239% 156%
</TABLE>
* Amounts adjusted to reflect 10:1 reverse split for the year ended 1993.
Per unit amounts are calculated using average units outstanding for the year.
The accompanying notes are an integral part of this statement.
-31-
<PAGE>
CORE EQUITY FUND
----------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
COMMON STOCKS - 99.4%
Auto & Transportation - 4.4%
7,200 AMR Corporation * $ 925,200
11,400 Ford Motor Company 555,038
4,300 General Motors Corporation 260,687
21,400 Southwest Airlines Company 526,975
------------
Total Auto & Transportation 2,267,900
------------
Consumer Discretionary - 10.3%
13,300 Dayton Hudson Corporation 897,750
4,500 Disney (Walt) Company 445,781
13,600 Federated Department Stores, Inc. * 585,650
15,200 General Nutrition Companies, Inc. * 516,800
9,350 Home Depot, Inc. 550,481
9,900 New York Times Company 654,638
7,000 Service Corporation International 258,563
16,000 Walgreen Co. 502,000
22,300 Wal-Mart Stores, Inc. 879,456
------------
Total Consumer Discretionary 5,291,119
------------
Consumer Staples - 12.0%
9,300 Campbell Soup Company 540,563
16,500 Coca-Cola Company 1,099,312
24,800 Coca-Cola Enterprises 881,950
6,600 Gillette Company 662,888
9,700 H. J. Heinz Company 492,881
11,600 PepsiCo, Inc. 422,675
17,300 Philip Morris Companies, Inc. 783,906
11,800 Procter & Gamble Company 941,788
5,100 Unilever, N.V. 318,431
------------
Total Consumer Staples 6,144,394
------------
The accompanying notes are an integral part of this statement.
-32-
<PAGE>
CORE EQUITY FUND
----------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number
of
shares Value
------ -----
Financial Services - 17.8%
10,300 American Express Company $ 919,275
12,000 American International Group, Inc. 1,305,000
3,900 Citicorp, Inc. 493,106
22,600 Federal National Mortgage Association 1,289,613
16,900 MBIA, Inc. 1,129,131
14,500 Norwest Corporation 560,063
11,400 Student Loan Marketing Association 1,586,025
10,050 The Charles Schwab Corporation 421,472
26,350 Travelers Group, Inc. 1,419,606
------------
Total Financial Services 9,123,291
------------
Healthcare - 10.4%
5,900 Abbott Laboratories, Inc. 386,819
5,100 American Home Products Corporation 390,150
7,600 Bristol-Myers Squibb Company 719,150
8,600 Johnson & Johnson 566,525
8,000 Lilly (Eli) & Company 557,000
9,400 Merck & Company, Inc. 998,750
11,200 Pfizer, Inc. 835,100
10,400 Schering-Plough Corporation 646,100
1,800 Warner Lambert Company 223,200
------------
Total Healthcare 5,322,794
------------
Integrated Oil - 8.9%
4,300 Amoco Corporation 366,038
11,490 British Petroleum Company Sponsored ADR 915,606
6,800 Chevron Corporation 523,600
16,900 Exxon Corporation 1,034,069
12,600 Mobil Corporation 909,563
15,600 Royal Dutch Petroleum Company NY shares 845,325
------------
Total Integrated Oil 4,594,201
------------
The accompanying notes are an integral part of this statement.
-33-
<PAGE>
CORE EQUITY FUND
----------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number
of
shares Value
------ -----
Materials & Processing - 7.4%
27,200 Dover Corporation $ 982,600
5,000 Dow Chemical Company 507,500
14,200 DuPont (E.I.) de Nemours & Company, Inc. 852,888
9,900 Illinois Tool Works, Inc. 595,238
4,300 Kimberly-Clark Corporation 212,043
7,750 Minnesota Mining & Manufacturing Company 635,984
----------
Total Materials & Processing 3,786,253
----------
Other Energy - 2.5%
11,500 Baker Hughes Incorporated 501,688
9,900 Schlumberger, Ltd. 796,950
----------
Total Other Energy 1,298,638
----------
Producer Durables - 6.0%
8,900 Boeing Company 435,544
14,300 Emerson Electric Company 807,056
24,900 General Electric Company 1,827,038
----------
Total Producer Durables 3,069,638
----------
Technology - 13.1%
13,400 ALLTEL Corporation * 550,237
4,600 BMC Software, Inc. * 301,875
7,350 Cisco Systems, Inc. * 409,763
18,100 Compaq Computer Corporation 1,021,519
6,050 Computer Associates International, Inc. 319,894
7,000 Hewlett-Packard Company 437,500
12,000 Intel Corporation 843,000
7,700 International Business Machines Corporation 805,131
3,838 Lucent Technologies, Inc. 306,560
12,400 Microsoft Inc. * 1,602,700
274 Raytheon Company - Class A 13,512
The accompanying notes are an integral part of this statement.
-34-
<PAGE>
CORE EQUITY FUND
----------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
Number of
shares Value
------ -----
Technology (continued)
2,900 Texas Instruments, Inc. $ 130,500
-----------
Total Technology 6,742,191
-----------
Utilities - 6.6%
11,550 AT&T Corporation 707,437
10,600 GTE Corporation 553,850
9,500 MCI Communications Corporation 406,719
17,400 NIPSCO Industries, Inc. 860,213
12,100 SBC Communications, Inc. 886,325
-----------
Total Utilities 3,414,544
-----------
Total Common Stocks (Cost $34,295,444) 51,054,963
-----------
Principal
amount
------
SHORT-TERM INVESTMENTS - 0.4%
Repurchase Agreement - 0.4%
Lehman Brothers, dated 12/31/97, 6.25%,
due 1/2/98 in the amount of $240,000
(collateralized by U.S. Government obligations
in a pooled cash account), repurchase proceeds
$240,000 $240,083 240,000
-----------
Number of
shares
------
Short-Term Investment Fund - 0.0%
3,089 Fidelity Institutional Cash Portfolios: Government 3,089
-----------
Total Short-Term Investments (Cost $243,089) 243,089
-----------
Total Investments (Cost $34,538,533) - 99.8% 51,298,052
Other assets in excess of liabilities - 0.2% 99,450
-----------
NET ASSETS - 100% $51,397,502
===========
* Non-income producing security.
The accompanying notes are an integral part of this statement.
-35-
<PAGE>
CORE EQUITY FUND
----------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
Assets
-------------
Investments, at value (cost $34,538,533) $51,298,052
Cash 832
Investment income receivable 64,969
Receivable for units issued 33,649
-----------
Total assets 51,397,502
-----------
Liabilities
-----------
Total liabilities 0
-----------
Net assets $51,397,502
===========
Net assets were comprised of:
Units of beneficial interest $30,879,971
Accumulated net investment income 1,238,604
Accumulated net realized gain 2,519,408
Net unrealized appreciation 16,759,519
-----------
Net assets at December 31, 1997 $51,397,502
===========
Unit value, offering price and redemption price per unit
($51,397,502 / 2,418,258 units of beneficial interest
issued and outstanding; unlimited number of units authorized) $ 21.25
===========
The accompanying notes are an integral part of this statement.
-36-
<PAGE>
CORE EQUITY FUND
----------------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
Income:
Dividends $ 553,018
Interest 103,898
------------
Total income 656,916
------------
Expenses:
Management fee (Note 3) 377,800
Accounting fees 42,834
Audit fees 12,023
Directors' fees 2,505
Insurance 4,474
Legal fees 1,231
Registration fees 10,388
Miscellaneous 1,798
------------
Total expenses 453,053
Expense subsidy (Note 4) (75,253)
------------
Net expenses 377,800
------------
Net investment income 279,116
============
Net realized and unrealized gain on investments
-----------------------------------------------
Net realized gain on investments 1,155,783
Change in unrealized appreciation in value of
investments during the year 8,866,879
------------
Net realized and unrealized gain on investments 10,022,662
------------
Net increase in net assets resulting from operations $ 10,301,778
============
The accompanying notes are an integral part of this statement.
-37-
<PAGE>
CORE EQUITY FUND
----------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
<TABLE>
<CAPTION>
Years ended
December 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Increase in net assets:
From operations:
Net investment income $ 279,116 $ 292,789
Net realized gain on investments 1,155,783 374,940
Change in unrealized appreciation in value of
investments during the year 8,866,879 4,766,319
------------ ------------
Net increase in net assets resulting from operations 10,301,778 5,434,048
------------ ------------
From unit transactions:
Net proceeds from units issued 21,816,166 6,279,420
Cost of units redeemed (9,304,019) (7,497,025)
------------ ------------
Net increase/(decrease) in net assets resulting
from unit transactions 12,512,147 (1,217,605)
------------ ------------
Total increase in net assets 22,813,925 4,216,443
Net assets, beginning of year 28,583,577 24,367,134
------------ ------------
Net assets, end of year $ 51,397,502 $ 28,583,577
============ ============
Net change in units outstanding:
Units issued 1,107,322 440,515
Units redeemed (482,551) (520,615)
------------ ------------
624,771 (80,100)
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
-38-
<PAGE>
CORE EQUITY FUND
----------------
FINANCIAL HIGHLIGHTS
--------------------
(Selected data for a unit of beneficial interest outstanding
throughout each of the periods indicated)
<TABLE>
<CAPTION>
April 1, to
Years ended December 31, December 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period $ 15.94 $ 13.01 $ 10.36 $ 10.80 $ 10.00
--------- -------- --------- -------- --------
Investment income 0.33 0.30 0.29 0.28 0.21
Expenses (0.23) (0.16) (0.14) (0.13) (0.21)
Expense subsidy 0.04 0.02 0.02 0.03 0.13
Management fee reductions - - - - 0.01
--------- -------- --------- -------- --------
Net investment income 0.14 0.16 0.17 0.18 0.14
Net realized and unrealized
gain/(loss) on investments 5.17 2.77 2.48 (0.62) 0.66
--------- -------- --------- -------- --------
Total from investment operations 5.31 2.93 2.65 (0.44) 0.80
--------- -------- --------- -------- --------
Net asset value, end of period $ 21.25 $ 15.94 $ 13.01 $ 10.36 $ 10.80
========= ======== ========= ======== ========
Total return 33.33% 22.54% 25.53% (4.03)% 7.95%
Ratios/supplemental data:
Net Assets, End of Period
(000 omitted) $ 51,398 $ 28,584 $ 24.367 $ 21.035 $ 11,718
Management Fee Reductions - - - - $ 6,949
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 1.20% 1.14% 1.17% 1.27% 2.74%
--------- -------- --------- -------- --------
Of management fee reductions - - - - (0.21)
--------- -------- --------- -------- --------
Of expenses 1.20 1.14 1.17 1.27 2.53
Of expense subsidy (0.20) (0.14) (0.17) (0.27) (1.74)
--------- -------- --------- -------- --------
Of net expenses 1.00% 1.00% 1.00% 1.00% 0.79%
========= ======== ========= ======== ========
Of net investment income 0.74% 1.10% 1.44% 1.68% 1.84%
Portfolio turnover 24% 29% 133% 129% 83%
Average brokerage commission
rate $ 0.14 N/A N/A N/A N/A
</TABLE>
* Commencement of operations. Ratios have been annualized.
Per unit amounts are calculated using average units outstanding for the period.
The accompanying notes are an integral part of this statement.
- 39 -
<PAGE>
SMALL CAPITALIZATION FUND
-------------------------
PORTFOLIO OF INVESTMENTS
------------------------
December 31, 1997
-----------------
<TABLE>
<CAPTION>
Number of
shares Value
------ -----
<C> <S> <C>
COMMON STOCKS - 93.1%
Auto & Transportation - 6.1%
17,450 AAR Corporation $ 676,188
13,425 Air Express International Corporation 409,463
17,900 MotivePower Industries Inc. * 416,175
27,650 Offshore Logistics, Inc. * 591,017
8,650 Tower Automotive, Inc. * 363,841
-----------
Total Auto & Transportation 2,456,684
-----------
Consumer Discretionary - 18.6%
17,200 BJ's Wholesale Club, Inc. * 539,650
11,900 Carson Pirie Scott Company * 596,488
7,500 CDI Corporation * 343,125
9,550 Cinar Films, Inc. * 371,256
11,450 Corrections Corporation of America * 424,366
11,300 Fair Isaac & Company 376,431
20,200 Galey & Lord, Inc. * 361,075
17,400 Kellwood Company 522,000
32,800 Lojack Corporation * 483,800
19,650 Mohawk Industries * 431,072
12,750 Personnel Group of America, Inc. * 420,750
20,400 Proffitt's, Inc. * 580,125
9,350 St. John Knits, Inc. 374,000
16,700 Servico, Inc. * 281,813
15,250 Stage Stores, Inc. * 569,969
33,600 Stride Rite Corporation 403,200
5,445 Univision Communications, Inc. * 380,128
-----------
Total Consumer Discretionary 7,459,248
-----------
Consumer Staples - 3.8%
16,150 JP Food Service * 596,541
</TABLE>
The accompanying notes are an integral part of this statement.
-40-
<PAGE>
SMALL CAPITALIZATION FUND
-------------------------
PORTFOLIO OF INVESTMENTS
------------------------
December 31, 1997
-----------------
<TABLE>
<CAPTION>
Number of
shares Value
------ -----
<C> <S> <C>
Consumer Staples (continued)
10,450 Schweitzer-Mauduit International, Inc. $ 389,263
9,100 Suiza Foods Corporation * 542,018
-------------
Total Consumer Staples 1,527,822
-------------
Financial Services - 17.7%
15,100 Alexandria Real Estate Equities, Inc. 476,594
13,350 Allied Group, Inc. 382,144
14,950 BancTec, Inc. * 400,847
10,700 Bank United Corporation 523,631
25,950 City National Corporation 958,528
17,200 Dime Community Bancorp, Inc. 408,500
11,022 Delphi Financial Group, Inc. * 495,990
6,300 Finova Group, Inc. 313,031
12,200 First Savings Bank of Washington Bancorp, Inc. 335,500
18,750 Klamath First Bancorp, Inc. 403,125
8,300 Magna Group, Inc. 379,725
5,400 Southwest Securities Group, Inc. 139,050
19,900 TR Financial Corporation 661,675
11,450 Vesta Insurance Group, Inc. 679,844
16,700 Weeks Corporation 534,400
-------------
Total Financial Services 7,092,584
-------------
Healthcare - 11.9%
23,050 ADAC Laboratories * 455,238
15,900 Alternative Living Services, Inc. * 470,044
21,750 Ballard Medical Products 527,438
7,950 Centocor, Inc. * 264,338
16,850 Concentra Managed Care, Inc. * 568,688
16,150 IMPATH, Inc. * 528,913
15,300 Medquist, Inc. * 531,675
</TABLE>
The accompanying notes are an integral part of this statement.
-41-
<PAGE>
SMALL CAPITALIZATION FUND
-------------------------
PORTFOLIO OF INVESTMENTS
------------------------
December 31, 1997
-----------------
<TABLE>
<CAPTION>
Number of
shares Value
------ -----
<C> <S> <C>
Healthcare (continued)
7,900 Sofamor/Danek Group, Inc. * $ 513,994
13,100 Superior Consultant Holdings Corporation * 393,000
11,100 Sybron International Corporation * 521,006
------------
Total Healthcare 4,774,334
------------
Integrated Oil - 0.6%
13,700 Lomak Petroleum, Inc. 222,625
------------
Materials & Processing - 5.7%
16,700 AMCOL International Corporation 265,113
22,544 Delta & Pine Land Company 687,592
10,200 Encore Wire Corporation * 313,013
19,100 Intermet Corporation 334,250
12,950 Jacobs Engineering Group, Inc. * 328,605
10,500 NCI Building Systems, Inc. * 372,750
------------
Total Materials & Processing 2,301,323
------------
Energy - 7.9%
13,400 Abraxas Petroleum Corporation * 197,650
10,400 Atwood Oceanics * 492,700
34,050 Coho Energy, Inc. * 310,706
23,150 Dawson Production Services, Inc. * 402,231
11,300 EVI, Inc. * 584,775
11,200 Falcon Drilling Company, Inc. * 392,700
25,128 Louis Dreyfus Natural Gas Corporation 469,580
18,000 Plains Resources, Inc. * 309,375
------------
Total Energy 3,159,717
------------
Producer Durables - 3.9%
15,100 Gardner Denver Machinery Inc. * 382,219
30,928 ITEQ, Inc. * 355,672
</TABLE>
The accompanying notes are an integral part of this statement.
-42-
<PAGE>
SMALL CAPITALIZATION FUND
-------------------------
PORTFOLIO OF INVESTMENTS
------------------------
December 31, 1997
-----------------
<TABLE>
Number of
shares Value
------ -----
<S> <C> <C>
Producer Durables (continued)
16,300 Tracor, Inc. * $ 495,113
19,950 Willbros Group, Inc. * 299,250
---------------
Total Producer Durables 1,532,254
---------------
Technology - 14.6%
20,500 Actel Corporation * 258,813
23,200 Allen Telecom, Inc. * 427,750
25,250 Analyst International Company 871,125
10,600 BISYS Group, Inc. * 352,450
8,850 Black Box Corporation * 313,069
20,500 CHS Electronics, Inc. * 351,063
21,700 Computer Products, Inc. * 490,963
19,700 Comverse Technology, Inc. * 768,300
20,000 Integrated Process Equipment Corporation * 315,000
16,250 National Computer Systems, Inc. 572,813
13,200 PRI Automation, Inc. * 381,150
19,500 Visio Corporation * 748,306
---------------
Total Technology 5,850,802
---------------
Utilities - 2.3%
8,750 California Energy Company, Inc. * 251,563
10,800 Tejas Gas Corporation * 661,500
---------------
Total Utilities 913,063
---------------
Total Common Stocks (Cost $28,247,698) 37,290,456
---------------
</TABLE>
The accompanying notes are an integral part of this statement.
-43-
<PAGE>
SMALL CAPITALIZATION FUND
-------------------------
PORTFOLIO OF INVESTMENTS
------------------------
December 31, 1997
-----------------
<TABLE>
Principal
amount Value
------ -----
<S> <C> <C>
SHORT-TERM INVESTMENTS - 10.3%
Repurchase Agreements - 8.9%
Goldman Sachs and Company, dated 12/31/97,
5.75%, due 1/2/98 in the amount of $1,772,000 (collateralized
by U.S. Government obligations in a pooled cash account),
$ 1,772,000 repurchase proceeds $1,772,566 $ 1,772,000
Lehman Brothers, dated 12/31/97, 6.25%, due 1/2/98 in the amount
of $1,772,000 (collateralized by U.S. Government obligations in
a pooled cash account), repurchase
1,772,000 proceeds $1,772,615 1,772,000
---------------
Total Repurchase Agreements 3,544,000
---------------
Number of
shares
------
Short-Term Investment Fund - 1.4%
545,000 Fidelity Institutional Cash Portfolios: Government 545,000
---------------
Total Short-Term Investments (Cost $4,089,000) 4,089,000
---------------
Total Investments (Cost $32,336,698) - 103.4% 41,379,456
Liabilities in excess of other assets - (3.4%) (1,351,144)
---------------
NET ASSETS - 100% $ 40,028,312
===============
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of this statement.
-44-
<PAGE>
SMALL CAPITALIZATION FUND
-------------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
Assets
------------
Investments, at value (cost $32,336,698) $41,379,456
Cash 738
Investment income receivable 8,523
Receivable for investments sold 181,983
Receivable for units issued 62,538
--------------
Total assets 41,633,238
--------------
Liabilities
-------------
Payable for investments purchased 1,598,033
Payable for units redeemed 6,893
--------------
Total liabilities 1,604,926
--------------
Net assets $40,028,312
==============
Net assets were comprised of:
Units of beneficial interest $25,913,575
Accumulated net investment income 158,428
Accumulated net realized gain 4,913,551
Net unrealized appreciation 9,042,758
--------------
Net assets at December 31, 1997 $40,028,312
==============
Unit value, offering price and redemption price per unit
($40,028,312 / 1,837,939 units of beneficial interest issued
and outstanding; unlimited number of units authorized) $ 21.78
==============
The accompanying notes are an integral part of this statement.
-45-
<PAGE>
SMALL CAPITALIZATION FUND
STATEMENT OF OPERATIONS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Net investment income
----------------------
Income:
<S> <C>
Dividends $ 219,587
Interest 126,874
-------------
Total income 346,461
-------------
Expenses:
Management fee (Note 3) 352,263
Accounting fees 42,034
Audit fees 12,023
Directors' fees 2,505
Insurance 4,179
Legal fees 1,231
Registration fees 12,340
Miscellaneous 1,474
-------------
Total expenses 428,049
Expense subsidy (Note 4) (75,786)
Management fee reductions (Note 4) (45,611)
-------------
Net expenses 306,652
-------------
Net investment income 39,809
=============
Net realized and unrealized gain on investments
-----------------------------------------------
Net realized gain on investments 2,445,973
Change in unrealized appreciation in value of investments during the year 4,450,108
-------------
Net realized and unrealized gain on investments 6,896,081
-------------
Net increase in net assets resulting from operations $6,935,890
=============
</TABLE>
The accompanying notes are an integral part of this statement.
-46-
<PAGE>
SMALL CAPITALIZATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Increase in net assets:
From operations:
Net investment income $ 39,809 $ 5,774
Net realized gain on investments 2,445,973 2,846,278
Change in unrealized appreciation in value of
investments during the year 4,450,108 1,536,847
---------------- ---------------
Net increase in net assets resulting from
operations 6,935,890 4,388,899
---------------- ---------------
From unit transactions:
Net proceeds from units issued 19,285,660 7,179,789
Cost of units redeemed (6,943,447) (3,666,519)
---------------- ---------------
Net increase in net assets resulting
from unit transactions 12,342,213 3,513,270
---------------- ---------------
Total increase in net assets 19,278,103 7,902,169
Net assets, beginning of year 20,750,209 12,848,040
---------------- ---------------
Net assets, end of year $ 40,028,312 $ 20,750,209
================ ===============
Net change in units outstanding:
Units issued 1,005,821 458,305
Units redeemed (349,979) (234,176)
---------------- ---------------
655,842 224,129
================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
-47-
<PAGE>
SMALL CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
(Selected data for a unit of beneficial interest outstanding
throughout each of the periods indicated)
<TABLE>
<CAPTION>
Years ended December 31, April 1, to
---------------------------------------------------------------- December 31,
1997** 1996 1995 1994 1993*
--- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period $ 17.55 $ 13.41 $ 10.23 $ 10.89 $ 10.00
---------- ---------- ---------- ---------- ----------
Investment income 0.21 0.16 0.17 0.16 0.09
Expenses (0.27) (0.20) (0.18) (0.16) (0.19)
Expense subsidy 0.05 0.03 0.04 0.05 0.10
Management fee reductions 0.03 0.02 0.02 0.01 0.02
---------- ---------- ---------- ---------- ----------
Net investment income 0.02 0.01 0.05 0.06 0.02
Net realized and unrealized
gain/(loss) on investments 4.21 4.13 3.13 (0.72) 0.87
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.23 4.14 3.18 (0.66) 0.89
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.78 $ 17.55 $ 13.41 $ 10.23 $ 10.89
========== ========== ========== ========== ==========
Total return 24.08% 30.88% 31.14% (6.12)% 8.94%
Ratios/supplemental data:
Net Assets, End of Period
(000 omitted) $ 40,028 $ 20,750 $ 12,848 $ 9,267 $ 9,838
Management fee reductions $ 45,611 $ 24,219 $ 15,584 $ 9,153 $ 14,349
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 1.40% 1.37% 1.50% 1.60% 2.46%
Of management fee reductions (0.15) (0.15) (0.15) (0.15) (0.33)
---------- ---------- ---------- ---------- ----------
Of expenses 1.25 1.22 1.35 1.45 2.13
Of expense subsidy (0.25) (0.22) (0.35) (0.45) (1.31)
---------- ---------- ---------- ---------- ----------
Of net expenses 1.00% 1.00% 1.00% 1.00% 0.82%
========== ========== ========== ========== ==========
Of net investment income 0.13% 0.04% 0.46% 0.55% 0.28%
Portfolio turnover 43% 68% 89% 120% 161%
Average brokerage commission
rate $ 0.26 N/A N/A N/A N/A
</TABLE>
* Commencement of operations. Ratios have been annualized.
Per unit amounts are calculated using average units outstanding for the period.
The accompanying notes are an integral part of this statement.
-48-
<PAGE>
SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
-------------------------------------------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<C> <S> <C>
INTERMEDIATE-TERM U.S. GOVERNMENT OBLIGATIONS - 98.3%
U.S. Government Agency Obligations - 29.9%
$1,330,000 Federal Farm Credit Bank, 6.90%, due 05/01/02 $ 1,377,335
1,300,000 Federal Home Loan Bank, 6.79%, due 04/17/01 1,332,825
2,319,728 Federal Home Loan Mortgage Corporation, 5.60%, due 09/15/00 2,292,170
2,171,737 Federal National Mortgage Association, 6.00%, due 05/01/01 2,160,031
---------------
Total U.S. Government Agency Obligations 7,162,361
---------------
U.S. Government Obligations - 68.4%
1,375,000 U.S. Treasury Note, 5.88%, due 10/31/98 1,377,365
4,006,000 U.S. Treasury Note, 5.50%, due 11/15/98 4,001,633
1,000,000 U.S. Treasury Note, 5.88%, due 01/31/99 1,002,340
2,000,000 U.S. Treasury Note, 6.38%, due 04/30/99 2,018,120
1,408,000 U.S. Treasury Note, 7.75%, due 11/30/99 1,460,138
500,000 U.S. Treasury Note, 5.63%, due 11/30/00 499,060
1,150,000 U.S. Treasury Note, 6.50%, due 05/31/01 1,177,313
900,000 U.S. Treasury Note, 5.88%, due 11/30/01 903,654
500,000 U.S. Treasury Note, 5.88%, due 09/30/02 502,735
1,000,000 U.S. Treasury Note, 5.75%, due 11/30/02 1,000,780
1,265,000 U.S. Treasury Note, 5.75%, due 08/15/03 1,265,784
1,100,000 U.S. Treasury Note, 6.88%, due 05/15/06 1,177,000
---------------
Total U.S. Government Obligations 16,385,922
---------------
Total Intermediate-Term U.S. Government
Obligations (Cost $23,258,589) 23,548,283
---------------
</TABLE>
The accompanying notes are an integral part of this statement.
-49-
<PAGE>
SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
-------------------------------------------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<C> <S> <C>
SHORT-TERM INVESTMENTS - 0.9%
Repurchase Agreement - 0.8%
Lehman Brothers, dated 12/31/97, 6.25%, due 1/2/98
in the amount of $189,000 (collateralized by U.S.
Government obligations in a pooled cash account),
$ 189,000 repurchase proceeds $189,066 $ 189,000
---------------
<CAPTION>
Number of
shares
------
<S> <C> <C>
Short-Term Investment Fund - 0.1%
9,000 Fidelity Institutional Cash Portfolios: Government 9,000
---------------
Total Short-Term Investments
(Cost $198,000) 198,000
---------------
Total Investments (Cost $23,456,589) - 99.2% 23,746,283
Other assets in excess of liabilities - 0.8% 202,180
---------------
NET ASSETS - 100% $ 23,948,463
===============
</TABLE>
The accompanying notes are an integral part of this statement.
-50-
<PAGE>
SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
-------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Assets
------------
<S> <C>
Investments, at value (cost $23,456,589) $ 23,746,283
Cash 789
Investment income receivable 211,980
Receivable for units issued 680
--------------
Total assets 23,959,732
--------------
Liabilities
-------------
Payable for units redeemed 11,269
--------------
Total liabilities 11,269
--------------
Net assets $ 23,948,463
==============
Net assets were comprised of:
Units of beneficial interest $ 19,042,492
Accumulated net investment income 5,395,570
Accumulated net realized loss (779,293)
Net unrealized appreciation 289,694
--------------
Net assets at December 31, 1997 $ 23,948,463
==============
Unit value, offering price and redemption price per unit
($23,948,463 / 1,932,192 units of beneficial interest issued and
outstanding; unlimited number of units authorized) $ 12.39
==============
</TABLE>
The accompanying notes are an integral part of this statement.
-51-
<PAGE>
SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
-------------------------------------------------------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
<TABLE>
<S> <C>
Income:
Interest $ 1,596,815
-----------------
Expenses:
Management fee (Note 3) 194,675
Accounting fees 40,970
Audit fees 12,023
Directors' fees 2,505
Insurance 4,474
Legal fees 1,231
Registration fees 4,956
Miscellaneous 1,749
-----------------
Total expenses 262,583
Expense subsidy (Note 4) (67,908)
-----------------
Net expenses 194,675
-----------------
Net investment income 1,402,140
=================
Net realized and unrealized gain/(loss) on investments
------------------------------------------------------
Net realized loss on investments (36,214)
Change in unrealized appreciation in value of investments during the year 173,254
-----------------
Net realized and unrealized gain on investments 137,040
-----------------
Net increase in net assets resulting from operations $ 1,539,180
=================
</TABLE>
The accompanying notes are an integral part of this statement.
-52-
<PAGE>
SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
-------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Decrease in net assets:
From operations:
Net investment income $ 1,402,140 $ 1,492,190
Net realized loss on investments (36,214) (261,104)
Change in unrealized appreciation/(depreciation) in
value of investments during the year 173,254 (513,449)
---------------- ---------------
Net increase in net assets resulting from
operations 1,539,180 717,637
---------------- ---------------
From unit transactions:
Net proceeds from units issued 7,667,388 8,522,957
Cost of units redeemed (13,808,886) (9,473,140)
---------------- ---------------
Net decrease in net assets resulting
from unit transactions (6,141,498) (950,183)
---------------- ---------------
Total decrease in net assets (4,602,318) (232,546)
Net assets, beginning of year 28,550,781 28,783,327
---------------- ---------------
Net assets, end of year $ 23,948,463 $ 28,550,781
================ ===============
Net change in units outstanding:
Units issued 641,679 745,912
Units redeemed (1,158,939) (832,085)
---------------- ---------------
(517,260) (86,173)
================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
-53-
<PAGE>
SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
-------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------
(Selected data for a unit of beneficial interest outstanding
throughout each of the periods indicated)
<TABLE>
<CAPTION>
Years ended December 31, April 1, to
-------------------------------------------------- December 31,
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period $ 11.66 $ 11.35 $ 10.14 $ 10.24 $ 10.00
------- ------- -------- ------- --------
Investment income 0.76 0.69 0.66 0.52 0.33
Expenses (0.12) (0.10) (0.10) (0.09) (0.13)
Expense subsidy 0.03 0.01 0.02 0.02 0.07
Management fee reduction - - - - 0.02
------- ------- -------- ------- --------
Net investment income 0.67 0.60 0.58 0.45 0.29
Net realized and unrealized
gain/(loss) on investments 0.06 (0.29) 0.63 (0.55) (0.05)
------- ------- -------- ------- --------
Total from investment operations 0.73 0.31 1.21 (0.10) 0.24
------- ------- -------- ------- --------
Net asset value, end of period $ 12.39 $ 11.66 $ 11.35 $ 10.14 $ 10.24
======= ======= ======== ======= ========
Total return 6.30% 2.68% 12.01% (1.05)% 2.43%
Ratios/supplemental data:
Net Assets, End of Period
(000 omitted) $23,948 $ 25,551 $ 28,783 $ 22,992 $ 17,391
Management fee reductions $ - $ - $ - $ - $ 9,789
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 1.01% 0.88% 0.91% 0.96% 1.66%
Of management fee reductions - - - - (0.15)
------- ------- -------- ------- --------
Of expenses 1.01 0.88 0.91 0.96 1.51
Of expense subsidy (0.26) (0.13) (0.16) (0.21) (0.91)
------- ------- -------- ------- --------
Of net expenses 0.75% 0.75% 0.75% 0.75% 0.60%
======= ======= ======== ======= ========
Of net investment income 5.40% 5.26% 5.38% 4.41% 3.76%
Portfolio turnover 63% 177% 187% 268% 247%
</TABLE>
* Commencement of operations. Ratios have been annualized.
Per unit amounts are calculated using average units outstanding for the period.
The accompanying notes are an integral part of this statement.
-54-
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
-------------------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT OBLIGATIONS - 87.3%
U.S. Treasury Bond - 22.2%
$ 590,000 U.S. Treasury Bond, 6.75%, due 08/15/26 $ 649,555
-----------
U.S. Treasury Notes - 65.1%
775,000 U.S. Treasury Note, 5.88%, due 08/31/99 777,418
535,000 U.S. Treasury Note, 6.25%, due 10/31/01 544,110
175,000 U.S. Treasury Note, 5.75%, due 08/15/03 175,109
400,000 U.S. Treasury Note, 6.13%, due 08/15/07 411,064
-----------
Total U.S. Treasury Notes 1,907,701
-----------
Total Long-Term U.S. Government
Obligations (Cost $2,466,921) 2,557,256
-----------
SHORT-TERM INVESTMENTS - 10.9%
U.S. Treasury Note - 8.5%
250,000 U.S. Treasury Note, 5.63%, due 11/30/98 250,000
-----------
<CAPTION>
Number of
shares
------
<C> <S> <C>
Short-Term Investment Fund - 2.4%
69,000 Fidelity Institutional Cash Portfolios: Government 69,000
-----------
Total Short-Term Investments (Cost $318,280) 319,000
-----------
Total Investments (Cost $2,785,201) - 98.2% 2,876,256
Other assets in excess of liabilities - 1.8% 51,503
-----------
NET ASSETS - 100% $ 2,927,759
===========
</TABLE>
The accompanying notes are an integral part of this statement.
-55-
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Assets
------------
<S> <C>
Investments, at value (cost $2,785,201) $2,876,256
Cash 865
Investment income receivable 50,444
Receivable for units issued 194
----------
Total assets 2,927,759
----------
Liabilities
----------------
Total liabilities 0
----------
Net assets $2,927,759
==========
Net assets were comprised of:
Units of beneficial interest $2,181,832
Accumulated net investment income 731,587
Accumulated net realized loss (76,715)
Net unrealized appreciation 91,055
----------
Net assets at December 31, 1997 $2,927,759
==========
Unit value, offering price and redemption price per unit
($2,927,759 / 209,490 units of beneficial interest issued and
outstanding; unlimited number of units authorized) $ 13.98
==========
</TABLE>
The accompanying notes are an integral part of this statement.
-56-
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
-------------------------------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
<TABLE>
<S> <C>
Income:
Interest $ 180,471
----------
Expenses:
Management fee (Note 3) 23,662
Accounting fees 38,503
Audit fees 12,023
Directors' fees 2,505
Insurance 3,571
Legal fees 1,231
Registration fees 5,037
Miscellaneous 1,058
----------
Total expenses 87,590
Expense subsidy (Note 4) (63,928)
Management fee reduction (Note 4) (2,783)
----------
Net expenses 20,879
----------
Net investment income 159,592
==========
Net realized and unrealized gain/(loss) on investments
------------------------------------------------------
Net realized gain on investments 114,518
Change in unrealized depreciation in value of investments during the year (15,753)
----------
Net realized and unrealized gain on investments 98,765
----------
Net increase in net assets resulting from operations $258,357
==========
</TABLE>
The accompanying notes are an integral part of this statement.
-57-
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
-------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
<TABLE>
Years ended
December 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Increase/(decrease) in net assets:
From operations:
Net investment income $ 159,592 $ 164,927
Net realized gain on investments 114,518 54,565
Unrealized depreciation in value of investments
during the year (15,753) (271,709)
---------------- ---------------
Net increase/(decrease) in net assets resulting
from operations 258,357 (52,217)
---------------- ---------------
From unit transactions:
Net proceeds from units issued 772,453 794,123
Cost of units redeemed (849,728) (872,518)
---------------- ---------------
Net decrease in net assets resulting
from unit transactions (77,275) (78,395)
---------------- ---------------
Total increase/(decrease) in net assets 181,082 (130,612)
Net assets, beginning of year 2,746,677 2,877,289
---------------- ---------------
Net assets, end of year $ 2,927,759 $ 2,746,677
================ ===============
Net change in units outstanding:
Units issued 59,298 64,599
Units redeemed (65,037) (70,569)
---------------- ---------------
(5,739) (5,970)
================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
-58-
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
-------------------------------
FINANCIAL HIGHLIGHTS
--------------------
(Selected data for a unit of beneficial interest outstanding
throughout each of the periods indicated)
<TABLE>
Years ended December 31, April 1, to
-------------------------------------------------- December 31,
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period $ 12.76 $ 13.01 $ 10.00 $ 10.91 $ 10.00
------- ------- ------- ------- -------
Investment income 0.85 0.83 0.81 0.70 0.45
Expenses (0.41) (0.26) (0.25) (0.24) (0.38)
Expense subsidy 0.30 0.16 0.16 0.15 0.31
Management fee reductions 0.01 0.01 0.01 0.01 0.02
------- ------- ------- ------- -------
Net investment income 0.75 0.74 0.73 0.62 0.40
Net realized and unrealized
gain/(loss) on investments 0.47 (0.99) 2.28 (1.53) 0.51
------- ------- ------- ------- -------
Total from investment operations 1.22 (0.25) 3.01 (0.91) 0.91
------- ------- ------- ------- -------
Net asset value, end of period $ 13.98 $ 12.76 $ 13.01 $ 10.00 $ 10.91
======= ======= ======= ======= =======
Total return 9.55% (1.89)% 30.11% (8.39)% 9.12%
Ratios/supplemental data:
Net Assets, End of Period
(000 omitted) $ 2,928 $ 2,747 $ 2,877 $ 2,628 $ 2,916
Management fee reductions $ 2,783 $ 2,757 $ 2,527 $ 1,886 $ 3,040
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 3.15% 2.09% 2.22% 2.38% 4.69%
Of management fee reductions (0.10) (0.10) (0.10) (0.10) (0.21)
-------- -------- -------- -------- --------
Of expenses 3.05 1.99 2.12 2.28 4.48
Of expense subsidy (2.30) (1.24) (1.37) (1.53) (3.84)
-------- -------- -------- -------- ---------
Of net expenses 0.75% 0.75% 0.75% 0.75% 0.64%
======== ======== ======== ======== =========
Of net investment income 5.73% 6.01% 6.38% 6.23% 4.91%
Portfolio turnover 87% 48% 17% 174% 232%
</TABLE>
* Commencement of operations. Ratios have been annualized.
Per unit amounts are calculated using average units outstanding for the period.
The accompanying notes are an integral part of this statement.
-59-
<PAGE>
INTERMEDIATE TERM BOND FUND
---------------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<S> <C> <C>
CORPORATE BONDS - 27.0%
Financial & Other - 15.0%
$ 150,000 Associates Corporation of North America, 7.70%, due 3/01/02 $ 158,663
450,000 Chrysler Financial Corporation, 6.95%, due 03/25/02 460,967
200,000 Chubb Capital, 6.88%, due 02/01/03 205,014
78,907 Ford Credit Grantor Trust, 5.90%, due 10/15/00 78,833
400,000 Ford Motor Credit Company, 6.25%, due 12/08/05 395,716
350,000 General Motors Acceptance Corporation, 6.63%, due 10/15/05 354,858
31,421 General Motors Acceptance Corporation, 7.15%, due 03/15/00 31,548
250,000 Household Finance Corporation, 6.70%, due 01/06/00 252,782
200,000 Premier Auto Trust, 6.25%, due 08/06/01 200,500
288,135 Toyota Auto Receivables, 6.45%, due 04/15/02 289,305
200,000 SBC Communications, Inc., 6.88%, due 08/15/06 206,950
150,000 U.S. Leasing International, 5.95%, due 10/15/03 146,680
----------------
Total Financial & Other 2,781,816
----------------
Financial Services - 12.0%
150,000 BankAmerica Corporation, 6.85%, due 03/01/03 152,984
300,000 Commercial Credit Corporation, 5.90%, due 09/01/03 294,033
150,000 Commercial Credit Corporation, 6.13%, due 12/01/05 147,156
350,000 First Chicago NBD Corporation, 7.13%, due 05/15/07 365,278
200,000 First Union Corporation, 7.00%, due 03/15/06 206,074
450,000 NationsBank Corporation, 7.00%, due 05/15/03 463,302
200,000 Norwest Corporation, 6.20%, due 12/01/05 197,977
400,000 Smith Barney Holdings Inc., 7.00%, due 03/15/04 412,500
----------------
Total Financial Services 2,239,304
----------------
Total Corporate Bonds (Cost $4,851,509) 5,021,120
----------------
</TABLE>
The accompanying notes are an integral part of this statement.
-60-
<PAGE>
INTERMEDIATE TERM BOND FUND
---------------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
- ------ -----
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 62.2%
U.S. Government Agency Obligations - 28.0%
$ 500,000 Federal Home Loan Bank, 7.00%, due 04/02/07 $ 532,185
100,000 Federal Home Loan Bank, 6.05%, due 06/28/00 100,562
1,093,563 Federal Home Loan Mortgage Corporation, 7.00%, due 09/01/04 1,109,616
194,917 Federal National Mortgage Association, 6.50%, due 03/01/00 195,379
672,241 Federal National Mortgage Association, 7.00%, due 07/01/04 681,693
758,454 Federal National Mortgage Association, 7.00%, due 12/01/03 768,472
692,303 Government National Mortgage Association, 7.00%, due 11/15/27 697,925
1,087,489 Government National Mortgage Association, 7.50%, due 10/15/27 1,113,991
--------------
Total U.S. Government Agency Obligations 5,199,823
--------------
U.S. Treasury Obligations - 34.2%
780,000 U.S. Treasury Bond, 6.25%, due 08/15/23 803,400
655,000 U.S. Treasury Bond, 7.25%, due 08/15/22 756,630
1,700,000 U.S. Treasury Note, 5.50%, due 04/15/00 1,693,098
500,000 U.S. Treasury Note, 5.75%, due 11/15/00 500,935
1,100,000 U.S. Treasury Note, 5.88%, due 08/31/99 1,103,431
190,000 U.S. Treasury Note, 6.38%, due 03/31/01 193,563
885,000 U.S. Treasury Note, 6.38%, due 08/15/02 907,815
390,000 U.S. Treasury Note, 6.50%, due 10/15/06 408,344
--------------
Total U.S. Treasury Obligations 6,367,216
--------------
Total U.S. Government and Agency
Obligations (Cost $11,362,145) 11,567,039
--------------
</TABLE>
The accompanying notes are an integral part of this statement.
-61-
<PAGE>
INTERMEDIATE TERM BOND FUND
---------------------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<S> <C> <C>
SHORT-TERM INVESTMENTS - 9.7%
Repurchase Agreements - 7.7%
Goldman Sachs and Company, dated 12/31/97, 5.75%,
due 1/2/98 in the amount of $591,000 (collateralized
by U.S. Government obligations in a pooled cash
$ 591,000 account), repurchase proceeds $591,189 $ 591,000
Lehman Brothers, dated 12/31/97, 6.25%, due 1/2/98 in the amount
of $835,000 (collateralized by U.S. Government obligations in a
pooled cash account), repurchase proceeds
835,000 $835,290 835,000
----------------
Total Repurchase Agreements 1,426,000
----------------
<CAPTION>
Number
of
shares
- ------
<C> <C> <C>
Short-Term Investment Fund - 2.0%
367,300 Fidelity Institutional Cash Portfolios: Government 367,300
----------------
Total Short-Term Investments (Cost $1,793,300) 1,793,300
----------------
Total Investments (Cost $18,006,954) - 98.9% 18,381,459
Other assets in excess of liabilities - 1.1% 213,791
----------------
NET ASSETS - 100% $ 18,595,250
================
</TABLE>
The accompanying notes are an integral part of this statement.
-62-
<PAGE>
INTERMEDIATE TERM BOND FUND
---------------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Assets
------------
<S> <C>
Investments, at value (cost $18,006,954) $18,381,459
Cash 135
Investment income receivable 213,981
Receivable for units issued 208
--------------
Total assets 18,595,783
--------------
Liabilities
------------
Payable for units redeemed 533
--------------
Total liabilities 533
--------------
Net assets $18,595,250
==============
Net assets were comprised of:
Units of beneficial interest $16,315,954
Accumulated net investment income 1,608,215
Accumulated net realized gain 296,576
Net unrealized appreciation 374,505
--------------
Net assets at December 31, 1997 $18,595,250
==============
Unit value, offering price and redemption price per unit
($18,595,250 / 1,458,246 units of beneficial interest issued and
outstanding; unlimited number of units authorized)
$ 12.75
==============
</TABLE>
The accompanying notes are an integral part of this statement.
-63-
<PAGE>
INTERMEDIATE TERM BOND FUND
STATEMENT OF OPERATIONS
DECEMBER 31, 1997
Net investment income
---------------------
Income:
Interest $ 955,834
-------------
Expenses:
Management fee (Note 3) 112,462
Accounting fees 39,659
Audit fees 12,023
Directors' fees 2,505
Insurance 3,792
Legal fees 7,782
Registration fees 8,635
Miscellaneous 1,149
-------------
Total expenses 188,007
Expense subsidy (Note 4) (75,545)
-------------
Net expenses 112,462
-------------
Net investment income 843,372
=============
Net realized and unrealized gain on investments
-----------------------------------------------
Net realized gain on investments 85,966
Change in unrealized appreciation in value of
investments during the year 359,955
-------------
Net realized and unrealized gain on investments 445,921
-------------
Net increase in net assets resulting from operations $1,289,293
=============
The accompanying notes are an integral part of this statement.
-64-
<PAGE>
INTERMEDIATE TERM BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Increase in net assets:
From operations:
Net investment income $ 843,372 $ 337,012
Net realized gain/(loss) on investments 85,966 (136,033)
Change in unrealized appreciation/(depreciation) in
value of investments during the year 359,955 (106,912)
---------------- ---------------
Net increase in net assets resulting from operations 1,289,293 94,067
---------------- ---------------
From unit transactions:
Net proceeds from units issued 14,646,175 5,518,425
Cost of units redeemed (4,288,976) (3,694,415)
---------------- ---------------
Net increase in net assets resulting
from unit transactions 10,357,199 1,824,010
---------------- ---------------
Total increase in net assets 11,646,492 1,918,077
Net assets, beginning of year 6,948,758 5,030,681
---------------- ---------------
Net assets, end of year $ 18,595,250 $ 6,948,758
================ ===============
Net change in units outstanding:
Units issued 1,218,217 477,320
Units redeemed (344,539) (323,790)
---------------- ---------------
873,678 153,530
================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
-65-
<PAGE>
INTERMEDIATE TERM BOND FUND
FINANCIAL HIGHLIGHTS
(Selected data for a unit of beneficial interest outstanding
throughout each of the periods indicated)
<TABLE>
<CAPTION>
October 3, 1994
Years ended December 31, to
------------------------------------ December 31,
1997 1996 1995 1994*
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of period $ 11.89 $ 11.67 $ 9.99 $ 10.00
------- -------- ------- --------
Investment income 0.64 0.70 0.72 0.17
Expenses (0.13) (0.16) (0.16) (0.08)
Expense subsidy 0.05 0.07 0.08 0.06
--------- -------- ------- --------
Net investment income 0.56 0.61 0.64 0.15
Net realized and unrealized
gain/(loss) on investments 0.30 (0.39) 1.04 (0.16)
------- -------- ------- --------
Total from investment operations 0.86 0.22 1.68 (0.01)
------- -------- ------- --------
Net asset value, end of period $ 12.75 $ 11.89 $ 11.67 $ 9.99
======= ======== ======= ========
Total return 7.26% 1.86% 16.79% (0.32)%
Ratios/supplemental data:
Net Assets, End of Period
(000 omitted) $18,595 $ 6,949 $ 5,031 $ 5,124
Ratios to Average Net Assets:
Of expenses 1.25% 1.42% 1.43% 1.38%
Of expense subsidy (0.50) (0.67) (0.68) (0.63)
------- -------- ------- --------
Of net expenses 0.75% 0.75% 0.75% 0.75%
======= ======== ======= ========
Of net investment income 5.61% 5.32% 5.89% 6.12%
Portfolio turnover 138% 134% 198% 7%
</TABLE>
* Commencement of operations. Ratios have been annualized.
Per unit amounts are calculated using average units outstanding for the period.
The accompanying notes are an integral part of this statement.
-66-
<PAGE>
MONEY MARKET FUND
-----------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Annualized
Principal Maturity yield on date
amount date of purchase Value
------ ---- ------------- -----
<S> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 3.7%
$2,000,000 Bankers Trust New York Corporation 04/02/98 6.24% $ 1,999,858
3,000,000 Bankers Trust New York Corporation 05/21/98 6.16% 3,000,415
------------
Total Certificates of Deposit 5,000,273
------------
COMMERCIAL PAPER - 68.0%
5,850,000 American Express Credit Corporation 03/02/98 5.57% 5,795,693
5,900,000 Anheuser Busch Co. 01/16/98 5.49% 5,886,504
1,520,000 Baltimore Gas & Electric Co., Inc. 01/16/98 5.87% 1,516,282
1,000,000 Bear Stearns 01/20/98 5.53% 997,081
5,000,000 Bell South Telephone 02/09/98 5.68% 4,969,233
5,500,000 Cades 03/23/98 5.58% 5,430,948
1,500,000 Caterpillar Financial Services Company 01/09/98 5.54% 1,498,153
6,000,000 Coca-Cola Company 02/13/98 5.64% 5,959,580
2,115,000 Florida Power & Light, Series B 03/05/98 5.70% 2,114,551
5,000,000 Ford Credit Europe 02/04/98 5.50% 4,974,028
2,700,000 General Electric Capital Corporation 01/23/98 5.60% 2,690,760
3,000,000 General Electric Capital Corporation 01/21/98 5.72% 2,990,467
5,900,000 Goldman Sachs Group, LP 04/20/98 5.55% 5,800,855
4,000,000 International Lease Finance Corporation 01/12/98 5.55% 3,993,217
1,950,000 Lucent Technologies Inc. 01/23/98 5.68% 1,943,512
4,000,000 Lucent Technologies Inc. 02/06/98 5.72% 3,977,120
3,500,000 Merrill Lynch & Company 02/27/98 5.60% 3,468,966
4,000,000 Met Life 03/20/98 5.67% 3,950,687
4,000,000 National Rural Utilities Cooperative Finance 04/17/98 5.67% 3,933,220
1,500,000 National Rural Utilities Cooperative Finance 02/27/98 6.01% 1,500,457
5,500,000 Schering Corporation 02/03/98 5.64% 5,471,565
1,000,000 Societe Generale - Spons. ADR 01/12/98 5.77% 999,993
5,768,000 Toyota Motor Credit Co. 01/16/98 5.73% 5,754,232
6,000,000 USAA Capital 02/13/98 5.68% 5,959,293
-------------
Total Commercial Paper 91,576,397
-------------
</TABLE>
<PAGE>
MONEY MARKET FUND
-----------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<S> <C> <C>
CORPORATE BONDS - 10.4%
$5,000,000 Bank One Indiana, NA, 5.51%, due 02/05/98 $ 4,999,721
3,000,000 International Business Machines Corporation, 5.65%, due 01/22/98 2,999,765
1,000,000 International Business Machines Credit Corporation, 5.65%, due 09/15/98 999,673
1,900,000 International Business Machines Credit Corporation, 5.80%, due 11/06/98 1,899,613
1,000,000 International Lease Finance Corporation, 6.04%, due 05/06/98 999,571
2,000,000 Merrill Lynch & Company, Inc., 5.92%, due 08/03/98 2,000,000
--------------
Total Corporate Bonds 13,989,343
--------------
<CAPTION>
Number of
shares
------
<S> <C> <C>
SHORT-TERM INVESTMENT FUND - 2.8%
3,774,000 Fidelity Institutional Cash Portfolios: Government 3,774,000
----------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 5.2%
2,000,000 Federal Home Loan Bank, 5.84%, due 12/17/98 1,998,926
2,000,000 Federal National Mortgage Association, 5.94%, due 08/14/98 2,001,318
3,000,000 Federal National Mortgage Association, 5.51%, due 02/24/98 2,998,092
----------------
Total U.S. Government Agency Obligations 6,998,336
----------------
</TABLE>
The accompanying notes are an integral part of this statement.
-68-
<PAGE>
MONEY MARKET FUND
-----------------
PORTFOLIO OF INVESTMENTS
------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Principal
amount Value
------ -----
<C> <S> <C>
U.S. TREASURY NOTE - 2.2%
$3,000,000 U.S. Treasury Note, 5.13%, due 02/28/98 $ 2,997,169
----------------
REPURCHASE AGREEMENTS - 7.6%
Goldman Sachs and Company, dated 12/31/97, 5.75%,
due 1/2/98 in the amount of $4,180,000 (collateralized by U.S.
4,180,000 Government obligations in a pooled cash account), repurchase 4,180,000
proceeds $4,181,335
Lehman Brothers, dated 12/31/97, 6.25%, due 1/2/98 in the
amount of $6,075,000 (collateralized by U.S.
6,075,000 Government obligations in a pooled cash account), repurchase
proceeds $6,077,109 6,075,000
----------------
Total Repurchase Agreements 10,255,000
----------------
Total Investments (Cost $134,499,518) - 99.9% 134,499,518
Other assets in excess of liabilities - 0.1% 79,376
----------------
NET ASSETS - 100% $134,578,894
================
</TABLE>
The accompanying notes are an integral part of this statement.
69
<PAGE>
MONEY MARKET FUND
-----------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Assets
------------
<S> <C>
Investments, at amortized cost, which approximates value $134,499,518
Cash 676
Investment income receivable 683,394
Receivable for units issued 358,596
---------------
Total assets 135,542,184
---------------
Liabilities
-------------
Payable for units redeemed 963,290
---------------
Total liabilities 963,290
---------------
Net assets at December 31, 1997 $134,578,894
===============
Unit value, offering price and redemption price per unit
($134,578,894 / 134,578,894 units of beneficial interest issued
and outstanding; unlimited number of units authorized) $ 1.00
===============
</TABLE>
The accompanying notes are an integral part of this statement.
-70-
<PAGE>
MONEY MARKET FUND
-----------------
STATEMENT OF OPERATIONS
-----------------------
DECEMBER 31, 1997
-----------------
Net investment income
---------------------
Income:
Interest $6,927,151
-------------
Expenses:
Management fee (Note 3) 806,004
Accounting fees 52,236
Audit fees 12,023
Directors' fees 2,505
Insurance 5,522
Legal fees 1,231
Registration fees 30,932
Miscellaneous 2,855
-------------
Total expenses 913,308
Expense subsidy (Note 4) (107,304)
Management fee reduction (Note 4) (185,719)
-------------
Net expenses 620,285
-------------
Net investment income $6,306,866
=============
The accompanying notes are an integral part of this statement.
- 71 -
<PAGE>
MONEY MARKET FUND
-----------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
<TABLE>
<CAPTION>
Years ended
December 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
Increase in net assets:
From operations:
Net investment income $ 6,306,866 $ 4,432,124
----------------- ---------------
Dividends to unitholders (6,306,866) (4,432,124)
----------------- ---------------
From unit transactions:
Net proceeds from units issued 185,047,372 163,851,223
Net asset value of units issued for
dividends reinvested 4,021,779 4,432,124
Cost of units redeemed (173,596,247) (120,487,579)
----------------- ---------------
Net increase in net assets resulting
from unit transactions 15,472,904 47,795,768
----------------- ---------------
Total increase in net assets 15,472,904 47,795,768
Net assets, beginning of year 119,105,990 71,310,222
----------------- ---------------
Net assets, end of year $ 134,578,894 $ 119,105,990
================= ===============
Net change in units outstanding:
Units issued 185,047,372 163,851,223
Units redeemed (173,596,247) (120,487,579)
Units issued for dividends reinvested 4,021,779 4,432,124
----------------- ---------------
15,472,904 47,795,768
================= ===============
</TABLE>
The accompanying notes are an integral part of this statement.
- 72 -
<PAGE>
MONEY MARKET FUND
-----------------
FINANCIAL HIGHLIGHTS
--------------------
(Selected data for a unit of beneficial interest outstanding
throughout each of the years indicated)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- --------- --------
Investment income 0.056 0.054 0.059 0.045 0.032
Expenses (0.007) (0.008) (0.008) (0.008) (0.008)
Expense subsidy 0.001 0.001 0.001 0.001 0.002
Management fee reductions 0.001 0.002 0.002 0.001 -
-------- -------- --------- -------- --------
Net investment income 0.051 0.049 0.054 0.039 0.026
Dividends to unitholders (0.051) (0.049) (0.054) (0.039) (0.026)
-------- -------- --------- -------- --------
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ========= ========
Total return 5.10% 5.10% 5.57% 3.80% 2.60%
Ratios/supplemental data:
Net Assets, End of Year
(000 omitted) $134,579 $119,106 $ 71,310 $ 55,505 $ 28,024
Management fee reductions $185,719 $134,952 $100,525 $ 27,802 $ -
Ratios to Average Net Assets:
Of expenses without waivers
and assumption of expenses 0.74% 0.72% 0.72% 0.83% 0.82%
Of management fee reductions (0.15) (0.15) (0.15) (0.15) -
------- ------- -------- ------- ---------
Of expenses 0.59 0.57 0.57 0.68 0.82
Of expense subsidy (0.09) (0.07) (0.07) (0.18) (0.17)
------- ------- -------- ------- ---------
Of net expenses 0.50% 0.50% 0.50% 0.50% 0.65%
======= ======= ======== ======= =========
Of net investment income 5.09% 4.93% 5.43% 3.90% 2.57%
</TABLE>
Per unit amounts are calculated using average units outstanding for the year.
The accompanying notes are an integral part of this statement.
-73-
<PAGE>
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
----------------------------------------
AVESTA TRUST
------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 1 - TRUST DESCRIPTION
- --------------------------
The AVESTA Trust (the "Trust"), formerly the Retirement Investment Trust, is
registered under the Investment Company Act of 1940 as an open-end, management
investment company that consists of fifteen funds for the collective investment
of retirement accounts for which Texas Commerce Bank National Association
("TCB") or one of its affiliated banks serves as trustee. Under an amended and
restated Declaration of Trust, TCB is the Trustee of the Trust and, as such,
provides or arranges for the provision of investment advisory, administrative
and custodial services and unit holder accounting. Chase Securities of Texas,
Inc., an affiliate of TCB, is the distributor of the Trust. Each fund has an
unlimited number of units authorized.
The Trust currently offers ten funds, each of which is accounted for separately
and has a different investment objective.
The EQUITY GROWTH FUND seeks to increase retirement assets primarily by
investing in equity-based securities, which include common stocks and those debt
securities and preferred stocks convertible into common stock, that provide
capital appreciation. Current income is a secondary objective.
The EQUITY INCOME FUND seeks to increase retirement assets by investing
primarily in equity-based securities that provide capital appreciation as well
as current income.
The BALANCED FUND seeks to increase retirement assets by investing in a
combination of bonds and equity-based securities to provide a balance of current
income and capital appreciation.
The INCOME FUND seeks to increase retirement assets by investing primarily in
domestic debt securities that earn a high level of current income with
consideration also given to safety of principal.
The CORE EQUITY FUND seeks to increase retirement assets by investing primarily
in common stocks of U.S. companies to maximize total investment return through
emphasis on capital appreciation and current income consistent with reasonable
risk.
The SMALL CAPITALIZATION FUND seeks to increase retirement assets by investing
primarily in common stocks and other equity-based securities of small
capitalization U.S. companies that can provide capital appreciation.
-74-
<PAGE>
The SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND seeks to increase
retirement assets by investing primarily in shorter-term securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and
repurchase agreements with respect thereto, to provide a high level of current
income as is consistent with the preservation of capital.
The U.S. GOVERNMENT SECURITIES FUND seeks to increase retirement assets by
investing primarily in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and repurchase agreements with respect
thereto, to provide current income with emphasis on the preservation of capital.
There is no restriction on the maturity of the Fund's portfolio or any
particular portfolio security.
The INTERMEDIATE TERM BOND FUND seeks to increase retirement assets by investing
primarily in debt securities with intermediate term maturities to provide
current income, with consideration given to stability of principal.
The MONEY MARKET FUND seeks to increase retirement assets by investing only in
instruments with a remaining maturity of thirteen months or less to provide a
high level of current income with equal emphasis on liquidity and stability of
principal.
The RISK MANAGER-INCOME FUND ceased operations on December 26, 1997.
The RISK MANAGER-BALANCED FUND ceased operations on December 26, 1997.
The RISK MANAGER-GROWTH FUND ceased operations on December 29, 1997.
The INTERNATIONAL EQUITY FUND had not commenced operations at December 31, 1997.
The INTERNATIONAL BOND FUND had not commenced operations at December 31, 1997.
The ability of the issuers of the securities held by the Trust to meet their
obligations may be affected by economic developments in a specific industry or
region.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. 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 income and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Securities Valuation
Securities listed or traded on a national securities exchange are valued at the
last reported sales price on the primary exchange on which they are traded,
usually 3:00 p.m. Central Standard
-75-
<PAGE>
Time. Unlisted securities and listed securities for which the last sales price
is not available are valued at the last reported bid price.
U.S. Government securities are valued at the last reported bid price. For all
funds except for the Money Market Fund, short-term securities which mature in
more than 60 days are valued at current market quotations. Short-term securities
are valued at amortized cost if (1) their term to maturity from date of purchase
was 60 days or less, (2) their maturity is 60 days or less, or (3) their
original term to maturity from date of purchase exceeded 60 days, by amortizing
their value on the 61st day prior to maturity. The Money Market Fund values all
securities at amortized cost.
A repurchase agreement is a short-term investment in which a fund acquires
ownership of a debt security and the seller agrees to repurchase the security at
a future time at a specified price. Repurchase agreements are entered into only
with approved counterparties, which are monitored, on a daily basis. It is the
Trust's policy that its custodian take possession of the underlying collateral
securities, through physical delivery or book entry transfer, the value of which
exceeds the principal amount of the repurchase transaction, including accrued
interest. To the extent that any repurchase transaction exceeds one business
day; the value of the collateral is marked-to-market on a daily basis to ensure
the adequacy of the collateral.
Federal Income Taxes
No provision for federal income taxes is required because the IRS has ruled that
the Trust is a pooled-fund arrangement exempt from Federal Income Tax. To
maintain this tax-exempt status, only Individual Retirement Accounts, Keogh
plans, 401(k) plans and other plans exempt from federal taxation may invest in
the Trust.
Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Discounts and premiums are amortized using the scientific
method except for the Money Market Fund, which utilizes the straight-line
method.
Dividend Distributions
The Money Market Fund declares daily and pays monthly dividend distributions
from net investment income and short-term capital gains, if any; such dividend
distributions are automatically reinvested. Dividend distributions are recorded
on ex-dividend date. The other nine funds do not declare or pay dividends on
investment income or capital gains.
NOTE 3 - MANAGEMENT FEES
- ------------------------
The Trust has management agreements with TCB. Pursuant to these agreements, TCB
has responsibility for all investment advisory services in connection with the
management of the fund. TCB pays the compensation of officers and employees of
the Trust, occupancy and certain accounting and clerical costs of the Trust. The
Trust bears all other costs and expenses.
-76-
<PAGE>
The investment management fee paid by each fund is accrued daily and paid
monthly. With respect to the Equity Growth Fund, the Equity Income Fund, the
Balanced Fund, the Income Fund and the Core Equity Fund, the management fee is
limited to an annual rate of 1.00% of the first $250 million of the average
daily net assets, 0.90% of the next $250 million of such net assets and 0.80% of
such net assets in excess of $500 million. The Short-Intermediate Term U.S.
Government Securities Fund and the Intermediate Term Bond Fund pay a management
fee limited to an annual rate of 0.75% of the first $250 million of the average
daily net assets, 0.65% of the next $250 million of such net assets and 0.55% of
such net assets in excess of $500 million. The U.S. Government Securities Fund
pays a management fee limited to an annual rate of 0.85% of the first $250
million of the average daily net assets, 0.75% of the next $250 million of such
net assets and 0.65% of such net assets in excess of $500 million. The Small
Capitalization Fund pays a management fee limited to an annual rate of 1.15% of
the first $250 million of the average daily net assets, 1.05% of the next $250
million of such net assets and 0.95% of such net assets in excess of $500
million. The Money Market Fund pays a management fee limited to an annual rate
of 0.65% of average daily net assets.
NOTE 4 - EXPENSE SUBSIDY AND VOLUNTARY FEE WAIVER
- -------------------------------------------------
In accordance with the management agreements, TCB has agreed to subsidize 100%
of the operating expenses in excess of the management fee of each fund until net
assets of each fund exceeds $250 million. Generally, expenses applicable to all
funds are allocated equally. Expenses incurred for specific funds are allocated
to the respective funds.
From time to time, TCB may voluntarily elect to waive a portion of a fund's
management fee. The voluntary fee waiver may be discontinued at any time without
prior notice.
For the year ended December 31, 1997, TCB elected to reduce management fees by a
total of $362,520 resulting in the following amounts of fees reduced per fund:
$128,407 in the Income Fund, $45,611 in the Small Capitalization Fund, $2,783 in
the U.S. Government Securities Fund, and $185,719 in the Money Market Fund.
NOTE 5 - PORTFOLIO SECURITIES
- -----------------------------
Purchases and sales of investment securities, excluding short-term securities
for the period ended December 31, 1997 and gross unrealized appreciation and
depreciation at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Purchases Sales Appreciation Depreciation
--------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Equity Growth Fund $ 23,860,577 $ 25,237,546 $ 30,967,349 $ 372,263
Equity Income Fund 9,501,610 13,848,943 29,389,616 64,046
Balanced Fund 27,175,925 15,686,324 5,801,780 80,160
Income Fund 55,045,230 46,680,285 1,561,043 9,874
Core Equity Fund 21,475,599 8,467,788 16,857,882 98,363
Small Capitalization Fund 23,537,078 12,339,436 9,974,774 932,016
Short-Intermediate Term U.S.
Government Securities Fund 15,277,896 18,683,695 306,920 17,227
U.S. Government Securities Fund 2,514,948 2,130,300 91,055 0
</TABLE>
-77-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Intermediate Term Bond Fund 28,487,351 18,155,253 376,066 1,561
</TABLE>
Purchases and sales of long-term U.S. Government Obligations included in the
purchase and sale amounts above for the year ended December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Purchases Sales Appreciation Depreciation
--------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Balanced Fund $ 12,298,513 $ 3,394,858 $ 337,726 $ 4,313
Income Fund 41,976,456 45,200,612 720,378 9,874
Short-Intermediate Term U.S.
Government Securities Fund 13,659,555 18,015,510 306,920 17,227
U.S. Government Securities Fund 2,514,948 2,130,300 91,055 0
Intermediate Term Bond Fund 6,137,666 6,991,911 205,352 461
</TABLE>
The Money Market Fund held only short-term securities and, therefore, is not
included above.
NOTE 6 - REVERSE SPLIT OF SHARES OF BENEFICIAL INTEREST
- -------------------------------------------------------
On May 7, 1993, the Equity Growth Fund, the Equity Income Fund, the Balanced
Fund and the Income Fund effected a 10 for 1 reverse split of shares of
beneficial interest. One unit of beneficial interest was exchanged for each ten
units of beneficial interest outstanding.
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
At a Special Meeting of Participating Trusts of the Trust held on December 2,
1997, the Participating Trusts approved the redomiciling and conversion (the
"Conversion") of the Money Market, Income, Intermediate Term Bond, Equity
Growth, Equity Income, Balanced, Short-Intermediate Term U.S. Government
Securities, U.S. Government Securities, Small Capitalization and Core Equity
Fund, of the Trust to the Chase Funds portfolios of a Mutual Fund Investment
Trust, a newly formed open-end investment company organized as a Massachusetts
business trust ("MFIT"). The Conversion occurred following the close of business
on December 31, 1997. In the Conversion, each of the funds transferred its
assets and liabilities to a corresponding portfolio of MFIT and received, in
exchange, shares of the corresponding portfolio. Shares of MFIT were
subsequently distributed to Participating Trusts. Following the Conversion, each
fund intends to qualify as a "regulated investment company" for federal income
tax purposes under Subchapter M of the Internal Revenue Code and to meet all
other requirements that are necessary for it to be relieved of federal taxes on
income and gain it distributes to shareholders.
On January 20, 1998, Texas Commerce Bank National Association changed its name
to Chase Bank of Texas National Association.
-78-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Unitholders and the Supervisory Committee of
the AVESTA Trust
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the selected per unit data and ratios for the funds
listed in the accompanying index, present fairly, in all material respects, the
financial position of each of the portfolios constituting the AVESTA Trust (the
"Trust") at December 31, 1997, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended, and the selected per unit data and ratios for
each of the periods specified in the accompanying index, in conformity with
generally accepted accounting principles. These financial statements and
selected per unit data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers, and the
application of alternative auditing procedures where confirmations from brokers
were not received provide a reasonable basis for the opinion expressed above.
Houston, Texas
February 16, 1998
-79-
<PAGE>
SUPPLEMENTAL PROXY INFORMATION - UNITHOLDER MEETING RESULTS
A Special Meeting of Participating Trusts of the AVESTA Trust was held on
December 2, 1997. The Participating Trusts present at the Meeting, in person or
by proxy, each cast their votes on the following matters (each of which was
approved by the requisite vote of Participating Trusts) as follows (all
fractional shares rounded):
To approve or disapprove of the Plan of Conversion:
<TABLE>
<CAPTION>
Fund For Against Abstained
---- -------------------------------------------
<S> <C> <C> <C>
Equity Growth Fund 1,029,548 47,206 34,361
Equity Income Fund 1,078,580 31,630 73,010
Balanced Fund 425,801 41,330 14,824
Income Fund 1,271,054 15,785 74,571
Core Equity Fund 1,118,019 29,583 42,935
Small Capitalization Fund 888,690 14,628 43,113
Short-Intermediate Term U.S. Government
Securities Fund 1,115,747 - 23,311
U.S. Government Securities Fund 146,406 - 2,025
Intermediate Term Bond Fund 741,035 - 12,258
Money Market Fund 72,938,791 3,155,244 1,780,156
</TABLE>
To approve or disapprove the proposed changes to the Fund's fundamental
investment objectives, policies and restrictions:
<TABLE>
<CAPTION>
Fund For Against Abstained
---- -------------------------------------------
<S> <C> <C> <C>
Equity Growth Fund 1,029,548 47,206 34,361
Equity Growth Fund 1,023,353 47,206 40,556
Equity Income Fund 1,048,397 77,766 57,058
Balanced Fund 422,702 41,330 17,923
Income Fund 1,245,802 58,465 57,142
Core Equity Fund 1,072,867 29,583 88,087
Small Capitalization Fund 849,307 15,608 81,516
Short-Intermediate Term U.S. Government
Securities Fund 1,111,342 - 27,715
U.S. Government Securities Fund 131,796 3,684 12,950
Intermediate Term Bond Fund 711,084 - 42,208
Money Market Fund 70,248,567 6,701,186 924,438
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions:
-80-
<PAGE>
Investment Restriction 2a:
<TABLE>
<CAPTION>
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 1,023,353 47,206
Equity Income Fund 1,048,397 77,766
Balanced Fund 422,702 41,330
Income Fund 1,245,802 58,465
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government
Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,248,567 6,701,186
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2b:
<TABLE>
<CAPTION>
------------------------------------
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 1,023,353 47,206
Equity Income Fund 1,048,397 77,766
Balanced Fund 422,702 41,330
Income Fund 1,245,802 58,465
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government
Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,248,567 6,701,186
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2c:
<TABLE>
<CAPTION>
------------------------------------
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 992,120 78,439
Equity Income Fund 1,016,360 109,803
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government
</TABLE>
-81-
<PAGE>
<TABLE>
<S> <C> <C>
Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 66,624,420 10,325,333
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2d:
<TABLE>
<CAPTION>
------------------------------------
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government Securities
Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 68,696,358 8,253,395
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2e:
<TABLE>
<CAPTION>
------------------------------------
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government Securities
Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 68,696,358 8,253,395
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2f:
-82-
<PAGE>
<TABLE>
<CAPTION>
------------------------------------
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government Securities
Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,096,358 6,853,395
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2g:
<TABLE>
<CAPTION>
------------------------------------
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government Securities
Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 68,696,358 8,253,395
</TABLE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2h:
<TABLE>
<CAPTION>
------------------------------------
Fund For Against
---- ------------------------------------
<S> <C> <C>
Equity Growth Fund 1,023,353 47,206
Equity Income Fund 1,048,397 77,766
Balanced Fund 422,702 41,330
Income Fund 1,245,802 58,465
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S. Government Securities
Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
</TABLE>
-83-
<PAGE>
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,248,567 6,701,186
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2i:
-----------------------------
Fund For Against
---- -----------------------------
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 66,633,292 10,316,461
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2j:
-----------------------------
Fund For Against
---- -----------------------------
Equity Growth Fund 1,023,353 47,206
Equity Income Fund 1,048,397 77,766
Balanced Fund 422,702 41,330
Income Fund 1,245,802 58,465
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,248,567 6,701,186
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2k:
-----------------------------
Fund For Against
---- -----------------------------
-84-
<PAGE>
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 68,696,358 8,253,395
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2l:
-----------------------------
Fund For Against
---- -----------------------------
Equity Growth Fund 1,023,353 47,206
Equity Income Fund 1,048,397 77,766
Balanced Fund 422,702 41,330
Income Fund 1,245,802 58,465
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,248,567 6,701,186
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2m:
-----------------------------
Fund For Against
---- -----------------------------
Equity Growth Fund 1,023,353 47,206
Equity Income Fund 1,048,397 77,766
Balanced Fund 422,702 41,330
Income Fund 1,245,802 58,465
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,248,567 6,701,186
-85-
<PAGE>
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2n:
-----------------------------
Fund For Against
---- -----------------------------
Equity Growth Fund 1,023,353 47,206
Equity Income Fund 1,048,397 77,766
Balanced Fund 422,702 41,330
Income Fund 1,245,802 58,465
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 70,248,567 6,701,186
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2o:
-----------------------------
Fund For Against
---- -----------------------------
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 68,696,358 8,253,395
To approve or disapprove fundamental investment objectives, policies and
restrictions: Investment Restriction 2p:
-----------------------------
Fund For Against
---- -----------------------------
Equity Growth Fund 1,002,698 67,861
Equity Income Fund 1,029,426 96,737
-86-
<PAGE>
Balanced Fund 400,644 63,388
Income Fund 1,236,354 67,913
Core Equity Fund 1,072,867 29,583
Small Capitalization Fund 849,307 15,608
Short-Intermediate Term U.S.
Government Securities Fund 1,111,342 -
U.S. Government Securities Fund 131,796 3,684
Intermediate Term Bond Fund 711,084 -
Money Market Fund 66,633,292 10,316,461
To approve or disapprove authorizing the Fund to approve a new advisory
agreement between Mutual Fund Investment Trust and The Chase Manhattan Bank:
-------------------------------------
Fund For Against Abstained
---- -------------------------------------
Equity Growth Fund 1,039,706 30,325 41,083
Equity Income Fund 1,124,695 22,441 36,085
Balanced Fund 425,339 41,793 14,824
Income Fund 1,271,054 44,494 45,862
Core Equity Fund 1,142,522 1,874 46,142
Small Capitalization Fund 900,348 912 45,171
Short-Intermediate Term U.S.
Government Securities Fund 1,111,735 - 27,323
U.S. Government Securities Fund 146,406 - 2,025
Intermediate Term Bond Fund 737,963 - 15,330
Money Market Fund 73,913,448 2,821,496 1,139,247
To approve or disapprove authorizing the Fund to approve a subadvisory agreement
between The Chase Manhattan Bank and Texas Commerce Bank National Association:
-------------------------------------
Fund For Against Abstained
---- -------------------------------------
Equity Growth Fund 1,041,373 28,658 41,083
Equity Income Fund 1,085,926 65,034 32,259
Balanced Fund 425,801 41,330 14,824
Income Fund 1,271,054 44,494 45,862
Core Equity Fund 1,142,522 1,874 46,142
Small Capitalization Fund 901,261 - 45,171
Short-Intermediate Term U.S.
Government Securities Fund 1,111,735 - 27,323
U.S. Government Securities Fund 146,406 - 2,025
Intermediate Term Bond Fund 741,035 - 12,258
Money Market Fund 73,909,906 2,825,229 1,139,056
To approve or disapprove authorizing AVESTA Trust to elect Sarah E. Jones as a
Trustee of
-87-
<PAGE>
Mutual Fund Investment Trust:
-------------------------------------
Fund For Against Abstained
---- -------------------------------------
Equity Growth Fund 1,048,183 2,710 60,221
Equity Income Fund 1,094,917 3,541 84,762
Balanced Fund 437,347 12,106 32,503
Income Fund 1,250,125 17,383 93,902
Core Equity Fund 1,141,371 1,874 47,293
Small Capitalization Fund 895,264 979 50,188
Short-Intermediate Term U.S.
Government Securities Fund 1,097,987 - 41,071
U.S. Government Securities Fund 131,796 3,684 12,950
Intermediate Term Bond Fund 734,294 - 18,998
Money Market Fund 73,846,212 - 4,027,978
To approve or disapprove authorizing AVESTA Trust to elect Fergus Reid III as a
Trustee of Mutual Fund Investment Trust:
-------------------------------------
Fund For Against Abstained
---- -------------------------------------
Equity Growth Fund 1,048,183 2,710 60,221
Equity Income Fund 1,094,917 3,541 84,762
Balanced Fund 437,347 12,106 32,503
Income Fund 1,250,125 17,383 93,902
Core Equity Fund 1,141,371 1,874 47,293
Small Capitalization Fund 895,264 979 50,188
Short-Intermediate Term U.S.
Government Securities Fund 1,097,987 - 41,071
U.S. Government Securities Fund 131,796 3,684 12,950
Intermediate Term Bond Fund 734,292 - 18,998
Money Market Fund 73,846,212 - 4,027,978
-88-
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