<PAGE>
ROBERTSON STEPHENS MUTUAL FUNDS
The Growth & Income Fund
Annual Report
December 31, 1996
GROWTH & INCOME
[GRAPHIC]
4
<PAGE>
The Growth & Income Fund ANNUAL REPORT
FUND PHILOSOPHY
The Growth & Income Fund seeks to achieve long-term total return by investing
primarily in small- and mid-cap stocks, convertible bonds, and preferreds. Our
flexible, bottom-up approach is based on value recognition and trend analysis.
We look for well-managed companies with improving fundamentals that are
positioned for growth. Our formula for long-term success also includes a
disciplined approach to managing risk: losses are eliminated quickly, and we are
constantly looking for new opportunities. In addition, the Fund also may engage
in short sales of securities it expects to decline in price.
CONTENTS
Fund Highlights 1
Report to Shareholders 2
Fund Performance 10
Portfolio Summary 11
Schedule of Investments 12
Schedule of Securities Sold Short 19
Statement of Assets and Liabilities 20
Statement of Operations 21
Statement of Changes in Net Assets 22
Financial Highlights 23
Notes to Financial Statements 24
Report of Independent Accountants 28
Administration 28
<PAGE>
FUND HIGHLIGHTS
PERFORMANCE
The Robertson Stephens Growth & Income Fund was up 4.62% for the quarter ending
December 31, 1996. For the year, we outpaced our benchmarks and were pleased
with our results. (See Fund Performance on page 10.)
SMALL-CAPS LAG AGAIN
Large-capitalization stocks have outpaced small-caps for the last six months.
Going forward, we like the earnings prospects of many smaller-cap issues.
THE GOOD, THE BAD, AND THE UGLY
A brief look at our 1996 investment performance during a volatile year.
1997 - WHAT'S NEXT?
Our framework going forward rests on three key assumptions: corporate earnings
will slow, interest rates will remain a critical factor for stocks,
and baby boomers' desire to save for retirement will continue to be the
primary driver of public inflows into equity funds.
1
<PAGE>
[PHOTO]
FUND MANAGER
John L. Wallace
Portfolio Manager
The Growth & Income Fund
DEAR SHAREHOLDER:
The Growth & Income Fund was up 4.62% for the fourth quarter of 1996. Our
emphasis on small- to mid-cap growth stocks unfortunately led us to mixed
performance versus our primary benchmarks. Last quarter the S&P 500 and Lipper
Growth & Income Funds Indexes were up 8.37% and 7.80%, respectively.
Despite another tough quarter, we finished 1996 with a total return of 24.16%,
outperforming both the S&P 500, up 22.99%, and the Lipper Growth & Income Funds
Index, up 21.63%. We owe our results to a continued commitment to diversified
investing and disciplined risk management.
Since the market correction from May to August, investor enthusiasm has been
focused on blue-chip, large-cap stocks. The rush to celebrate a benign political
environment (a Republican Congress and Democratic president), better-than-
expected earnings, and a healthy economy with low inflation pushed the Dow Jones
Industrial Average up almost 10% IN THE
"WE OWE OUR RESULTS TO DIVERSIFIED INVESTING AND DISCIPLINED RISK MANAGEMENT."
2
<PAGE>
FOURTH QUARTER ALONE. The Dow gained more than 26% for the year, and small-caps
(as measured by the Russell 2000 Index) lagged considerably, gaining only 16.49%
for the year. (See chart below.)
Russell 2000 vs. S&P 500
RELATIVE STRENGTH:
[GRAPH]
SOURCE: THE LEUTHOLD GROUP
Since 1994, less than 25% of equity funds have been able to beat the S&P 500,
and that fact has not gone unnoticed. It is estimated that today 8% of all
equity mutual fund assets are indexed. Large inflows into index funds are
automatically invested in the heaviest-weighted large-cap stocks in the indexes.
More money has continued to pour into these funds, creating a vicious circle
that drives the index higher. Valuation of the index is not a consideration for
an index fund manager as new monies are invested. (Source: Merrill Lynch THEME &
PROFILE INVESTING, December 1996). We think that the risks of index investing
are rising. We are pleased to have beaten the S&P 500 in both 1995 and 1996, and
think that if 1997 turns out to be a down year, the average mutual fund could be
at an advantage over an "index" fund.
We believe that small-cap stocks still offer higher earnings potential at lower
price-to-earnings ratios than large-caps, and the median market cap of the Fund
is slightly less than $1 billion. Our forecast expects S&P 500 earnings growth
to be only 5-8%, and we believe 1997 may have a lot more negative earnings
surprises for investors than 1996. (See chart below.)
Projected EPS Growth as of 12/31/96
1996-1997
[GRAPH]
SOURCE: MERRILL LYNCH & CO. QUANTITATIVE ANALYSIS, I/B/E/S
3
<PAGE>
1996 IN REVIEW
THE GOOD, THE BAD, AND THE UGLY
We would like to briefly review for you our thoughts on 1996 performance. It
gives us and our shareholders a better view of our strengths and also our
weaknesses. We try to learn from our mistakes and to not take our successes too
seriously.
Overall, we are happy with our 1996 performance. Unfortunately, it was a "First
Half, Second Half" story. The Fund's price peaked in late May, corrected some
15% over the summer, and did not make a new high until late November. We then
finished the year slightly off the November high.
[PHOTO]
INVESTMENT MANAGEMENT
G. Randy Hecht
President
Robertson Stephens
Investment Trust
[email protected]
INVESTMENT TEAM
RESEARCH
John Seabern
TRADING
Don Heidary
ADMINISTRATION
Tara Britton
4
<PAGE>
THE GOOD - ENERGY AND TECHNOLOGY
Despite a volatile year, we owe the bulk of our performance to our energy and
technology sector commitments. We ended the year with approximately 23% of the
Fund's assets in tech stocks and about 13% in energy, particularly oil services.
Rising oil and gas prices were the surprise of 1996, even as Iraq was finally
allowed to sell oil again. Oil service stocks have regained pricing power after
many years, and earnings visibility is quite strong. Our best-performing
investments in this industry were DIAMOND OFFSHORE (0.92% of the portfolio at
year-end), VERITAS DGC (0.54%), HVIDE MARINE (1.19%), and PRIDE PETROLEUM
SERVICES (0.29%). We still like the group and think that the offshore drillers
have the best earnings visibility of any sector in the market.
Technology remains an important Fund component. Rapid changes in communication
and information access continue across the globe. Beneficiaries continue to be
software, networking, and telecom companies. Our investments in mainframe
software companies BMC SOFTWARE (1.34%) and COMPUWARE (1.21%) stood out in 1996.
Other big winners included TYCO TOYS PREFERRED (0.98%), PHILIP ENVIRONMENTAL
(1.17%), MONSANTO (1.13%), and GENESSEE & WYOMING RAILROAD (1.12%). The common
thread in these investments was the identification of a growth catalyst that
helped drive earnings and valuations above expectations.
5
<PAGE>
CORRECTION
THE BAD - SUMMER CORRECTION
The summer correction was particularly brutal for small-cap stocks, many of
which have not yet recovered to their old highs despite improving
fundamentals.
We try to be opportunistic and take advantage of market volatility by locking in
gains and cutting losses. Timely sales included COMPUTER ASSOCIATES (0.49%),
TOYS "R" US (0.99%), and VANSTAR (0.40%).
We were slow to react in several issues where momentum and liquidity went
against us. Victims included VANS (1.13%), NATIONAL EDUCATION (1.13%), CAVALIER
HOMES (0.35%), and TEXAS INDUSTRIES (0.98%). We still own these companies and
believe that they have a positive risk-reward ratio for 1997.
"WE TRY TO BE OPPORTUNISTIC AND TAKE ADVANTAGE OF MARKET VOLATILITY BY LOCKING
IN GAINS AND CUTTING LOSSES."
6
<PAGE>
Real Estate Investment Trusts (REITs) were one of the best performing sectors in
1996. They typically have yielded 5-8%, with total return prospects pushing 12-
18%. However, we were underweighted all year, and it wasn't until late November-
December that we increased our exposure to more than 4% of the Fund. We think
REITs will continue to perform well this year.
THE UGLY - "MEA CULPAS"
We have a flexible approach to equity investing -- we search for a growth
catalyst that will drive earnings and valuations higher. Examples of catalysts
are new management, products, or markets. At any point during the ownership
cycle, if the catalyst changes for the negative, we will sell the entire
position. When our reason to own a stock evaporates, our discipline forces us to
sell. Unfortunately, there were several times in 1996 when we tried to
rationalize our mistakes and held on to a losing position.
The "mea culpas" of 1996 that negatively impacted performance were TWA PREFERRED
(0.91%), DATA TRANSLATION (0.04%), FEMRX INC. (0.25%), MOLTEN METALS TECHNOLOGY
(0.66%), and LSI INDUSTRIES (0.40%). We hope to react more quickly and learn
from these mistakes in the future.
7
<PAGE>
"FROM TIME TO TIME WE MAY REDUCE OUR EQUITY EXPOSURE BY PURCHASING PUTS ON THE
S&P 500, BUT AS OF THIS WRITING, WE FEEL THAT ANY MARKET DECLINE SHOULD BE
MINIMAL (5-10%)."
LOOKING AHEAD TO 1997
After two great years in which the S&P 500 has risen almost 65%, it's tough to
get exceedingly bullish for 1997. From time to time we may reduce our equity
exposure by purchasing puts on the S&P 500, but as of this writing, we feel that
any market decline should be minimal (5-10%). Our working assumptions for 1997
are as follows:
- - Corporate earnings will continue to slow to about 5-8% in 1997. We expect
small-cap stocks to grow faster, but liquidity concerns may prevent them
from regaining market leadership.
- - Interest rates will remain a critical factor for equities. The secular
downtrend in rates since 1981 is intact. (See chart below.) Cyclical
interruptions could drive rates above our forecasted 6-7.25% trading range.
Long-Term U.S. Government Yields
(1957 TO DATE)
[GRAPH]
SOURCE: INVESTMENT COMPANY INSTITUTE
8
<PAGE>
- - Cash inflows from individuals, especially baby boomers saving for
retirement, will continue to be the primary source of funds for the equity
market. Any dramatic reductions in these fund flows would be negative for
equities. (See chart below.)
MUTUAL FUND INFLOWS
($ BILLIONS)
[GRAPH]
SOURCE: INVESTMENT COMPANY INSTITUTE
SOME OF THE OTHER WILD CARDS THAT MIGHT AFFECT STOCK PRICES IN 1997:
- - Further declines in the Japanese equity market
- - Capital gains cut
- - Political surprises or gridlock
- - Continued strength in the dollar and/or oil prices
- - Stronger-than-expected economy and inflation
IN CONCLUSION
The Growth & Income Fund's philosophy of searching for growth with a disciplined
approach to risk paid off in 1996. We want to remind investors that successful
equity investing is not a short-term proposition. We focus on and look forward
to a long-term relationship with our shareholders.
On behalf of the entire Growth & Income team, I want to thank you for your trust
and support.
Wishing everyone a healthy and prosperous 1997,
Sincerely,
/s/ John L. Wallace
JOHN L. WALLACE
Portfolio Manager
January 21, 1997
TO HEAR MY ONGOING THOUGHTS ON THE FUND, CALL OUR
24-HOUR HOTLINE AT 1-800-766-3863. JANUARY 21, 1997
9
<PAGE>
FUND PERFORMANCE
Results of a hypothetical $10,000 investment in The Robertson Stephens Growth &
Income Fund, the S&P 500 Index(1), and the Lipper Growth & Income Funds Index(2)
IF INVESTED ON JULY 12, 1995(3)
[GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
GROWTH & INCOME S&P 500 LIPPER GROWTH &
FOR THE PERIOD ENDED 12/31/96 FUND INDEX(1) INCOME FUNDS INDEX(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Since inception (7/12/95)(3) 39.56% 36.72% 31.93%
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
GROWTH & INCOME S&P 500 LIPPER GROWTH &
FOR THE PERIODS ENDED 12/31/96 FUND INDEX(1) INCOME FUNDS INDEX(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One year 24.16% 22.99% 21.63%
- --------------------------------------------------------------------------------------------------------------------------------
Since inception (7/12/95)(3) 25.38% 23.64% 20.68%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's Composite Index of 500 Stocks ("S&P 500 Index") is a
widely recognized, unmanaged index of a selected portfolio of market
activity based on the aggregate performance of a selected portfolio of
publicly traded stocks. It is widely recognized as representative of the
stock market in general. Investment results assume the reinvestment of
dividends paid on the stocks constituting the index.
(2) The Lipper Growth & Income Funds Index is composed of 30 funds which
combine a growth of earnings orientation and an income requirement for
level and/or rising dividends. Lipper Mutual Funds indices are equally
weighted, composed of the largest mutual funds within their respective
investment objectives, and adjusted for the reinvestment of capital gains
distribution and income dividends. You cannot invest in an index.
(3) Date that the Fund's shares were first offered to the public.
Investors should realize that all performance data presented is based
upon past performance during limited periods of time, and that past
performance is no guarantee of future performance. Investors should
also realize that both investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. The correlation of performance between an
unmanaged index and this Fund is not usually exact.
International investing can involve greater currency fluctuations
and less political and economic stability. Investing in smaller
companies can involve more volatility, less liquidity, and less publicly
available information. Short selling is the sale of a borrowed security,
and the price of the security can increase between the date the security
is sold and the date when the fund must replace it. Options and futures
may not be perfectly correlated to the underlying index or security.
High-yielding, lower-quality debt securities may be considered to be of
lower standing and more speculative.
10
<PAGE>
PORTFOLIO SUMMARY
AS OF DECEMBER 31, 1996
[CHART]
Put Options/Warrants 0.4%
Shorts 0.8%
Utilities 1.5%
Biotech/Pharmaceuticals 1.6%
Media 1.7%
Building Products 1.7%
Entertainment 1.8%
Environmental Services 2.1%
Transportation 2.3%
Health/Medical 4.2%
Business/Commercial Services 4.3%
Oil/Gas Drilling 4.9%
Consumer Retail 5.4%
Manufacturing/Chemicals 5.8%
Cash/Cash Equivalents 0.1%
Other/Other Assets, Net 1.7%
Technology 22.9%
Financial/REIT 15.0%
Convertible/Preferreds 13.3%
Energy/Energy Services 8.5%
TOP TEN HOLDINGS
1.
AMERICAN POWER CONVERSION CORPORATION
Makes uninterruptible power supply (UPS), surge suppressor, and other products
that buffer computers and other electronic devices from electrical power
failures and surges.
2.
FISHER SCIENTIFIC INTERNATIONAL, INC.
Produces instruments, supplies, equipment, and related accessories to worldwide
research centers, medical and educational laboratories, and industrial
consumers.
3.
TEXAS INSTRUMENTS, INC.
Manufactures electronic devices and components, such as laptop computers and
computer chips.
4.
NOBLE DRILLING CORPORATION
Owns and operates the world's largest fleet of offshore mobile oil and gas
drilling rigs, as well as 46 land rigs. Also holds labor contracts for 16
third-party-owned rigs.
5.
SMITH INTERNATIONAL, INC.
Supplies products and services used to drill oil and gas wells.
6.
BMC SOFTWARE, INC.
Develops and markets system software products that ease data and database
management for large enterprises.
7.
SCIENTIFIC GAMES HOLDING CORPORATION
Manufactures and sells instant lottery tickets to domestic and foreign
governmental lottery authorities and licensees.
8.
COACHMEN INDUSTRIES, INC.
Manufactures recreational vehicles and conversions, modular housing units,
repair parts and supplies, and office furniture.
9.
CARDINAL HEALTH, INC.
National wholesaler of pharmaceuticals, surgical and hospital supplies,
therapeutic plasma, and other specialty pharmaceutical, health, and beauty care
products.
10.
COMPUWARE CORPORATION
Develops and maintains system software products that enable computer programmers
and analysts to improve efficiency in application program testing, test data
preparation, error analysis, and maintenance.
11
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
- -----------------------------------------------------------------------------------------------------------------------------
BANKS - 5.8%
Bank United Corporation, Class A(1) 40,000 $ 1,070,000
Collective Bancorp, Inc. 80,000 2,810,000
Commercial Federal Corporation 65,000 3,120,000
Corestates Financial Corporation 60,000 3,112,500
Firstar Corporation 65,000 3,412,500
Glendale Federal Bank, FSB(1) 80,000 1,860,000
Great Western Financial Corporation 85,000 2,465,000
- -----------------------------------------------------------------------------------------------------------------------------
17,850,000
- -----------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 0.3%
FemRx, Inc.(1) 174,000 783,000
- -----------------------------------------------------------------------------------------------------------------------------
783,000
- -----------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 1.7%
Royal Plastics Group, Ltd.(1),(2) 125,000 2,314,138
Texas Industries, Inc. 60,000 3,037,500
- -----------------------------------------------------------------------------------------------------------------------------
5,351,638
- -----------------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES - 2.6%
National Education Corporation(1) 230,000 3,507,500
U-Ship, Inc.(1) 250,000 781,250
Wallace Computer Services, Inc. 105,000 3,622,500
- -----------------------------------------------------------------------------------------------------------------------------
7,911,250
- -----------------------------------------------------------------------------------------------------------------------------
CLOTHING/RETAIL - 3.9%
Brown Group, Inc. 110,000 2,021,250
Regis Corporation 130,000 2,112,500
Saks Holdings, Inc.(1) 35,000 945,000
SkyMall, Inc.(1) 49,000 434,875
Sport-Haley, Inc.(1) 250,000 3,140,625
Vans, Inc.(1) 280,000 3,500,000
- -----------------------------------------------------------------------------------------------------------------------------
12,154,250
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 1.7%
ADT, Ltd.(1) 155,000 3,545,625
Western Staff Services, Inc.(1) 180,000 1,642,500
- -----------------------------------------------------------------------------------------------------------------------------
5,188,125
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE/COMPONENTS - 4.5%
Compaq Computer Corporation(1) 47,000 3,489,750
Dell Computer Corporation(1) 45,000 2,390,625
Read-Rite Corporation(1) 90,000 2,272,500
Scientific Games Holdings Corporation(1) 150,000 4,012,500
Sequent Computer Systems, Inc.(1) 100,000 1,775,000
- -----------------------------------------------------------------------------------------------------------------------------
13,940,375
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
<CAPTION>
DECEMBER 31, 1996 SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE - 2.7%
BMC Software, Inc.(1) 100,000 $ 4,137,500
Dynamic Healthcare Technologies, Inc.(1) 257,500 1,223,125
Intergraph Corporation(1) 125,000 1,281,250
Midway Games, Inc.(1) 85,000 1,721,250
- -----------------------------------------------------------------------------------------------------------------------------
8,363,125
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES - 2.1%
Autodesk, Inc. 100,000 2,800,000
Compuware Corporation(1) 75,000 3,759,375
- -----------------------------------------------------------------------------------------------------------------------------
6,559,375
- -----------------------------------------------------------------------------------------------------------------------------
DATA COMMUNICATIONS - 2.7%
Cabletron Systems, Inc.(1) 110,000 3,657,500
Digi International, Inc.(1) 156,000 1,482,000
FORE Systems, Inc.(1) 57,500 1,890,312
Sync Research, Inc.(1) 95,000 1,306,250
- -----------------------------------------------------------------------------------------------------------------------------
8,336,062
- -----------------------------------------------------------------------------------------------------------------------------
DATA PROCESSING SERVICES - 1.6%
Affiliated Computer Services, Inc., Class A(1) 107,000 3,183,250
Equifax, Inc. 60,000 1,837,500
- -----------------------------------------------------------------------------------------------------------------------------
5,020,750
- -----------------------------------------------------------------------------------------------------------------------------
ELECTRONICS - 2.5%
American Power Conversion Corporation(1) 185,000 5,041,250
Harman International Industries, Inc. 47,500 2,642,187
- -----------------------------------------------------------------------------------------------------------------------------
7,683,437
- -----------------------------------------------------------------------------------------------------------------------------
ENERGY - 4.3%
Consolidated Natural Gas Company 60,000 3,315,000
Costilla Energy, Inc.(1) 134,000 1,825,750
El Paso Natural Gas Company 70,000 3,535,000
Gulf Canada Resources, Ltd.(1) 165,000 1,216,875
Questar Corporation 90,000 3,307,500
- -----------------------------------------------------------------------------------------------------------------------------
13,200,125
- -----------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES - 4.2%
BJ Services Company(1) 43,600 2,223,600
Drilex International, Inc.(1) 138,000 1,656,000
National-Oilwell, Inc.(1) 9,000 276,750
Smith International, Inc.(1) 100,000 4,487,500
Tuboscope Vetco International Corporation(1) 20,000 310,000
Varco International, Inc.(1) 105,000 2,428,125
Veritas DGC, Inc.(1) 90,000 1,665,000
- -----------------------------------------------------------------------------------------------------------------------------
13,046,975
- -----------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 1.8%
Hollywood Entertainment Corporation(1) 130,000 2,405,000
International Game Technology, Inc.(1) 100,000 1,825,000
Sodak Gaming, Inc.(1) 92,500 1,422,187
- -----------------------------------------------------------------------------------------------------------------------------
5,652,187
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
DECEMBER 31, 1996 SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENVIRONMENTAL SERVICES - 2.1%
Philip Environmental, Inc.(1) 250,000 $ 3,625,000
Tetra Technologies, Inc.(1) 120,000 3,030,000
- -----------------------------------------------------------------------------------------------------------------------------
6,655,000
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES - 3.7%
American Express Company 55,000 3,107,500
Conseco, Inc. 55,000 3,506,250
Federal National Mortgage Association 75,000 2,793,750
Matrix Capital Corporation(1) 120,000 1,905,000
- -----------------------------------------------------------------------------------------------------------------------------
11,312,500
- -----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE/HMO - 0.6%
Diagnostic Health Services, Inc.(1) 220,000 1,760,000
- -----------------------------------------------------------------------------------------------------------------------------
1,760,000
- -----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.8%
Everest Reinsurance Holdings, Inc. 85,000 2,443,750
- -----------------------------------------------------------------------------------------------------------------------------
2,443,750
- -----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 4.7%
Breed Technologies, Inc. 100,000 2,600,000
Cavalier Homes, Inc. 95,000 1,092,500
Coachmen Industries, Inc. 139,200 3,949,800
Furniture Brands International, Inc.(1) 250,000 3,500,000
Skyline Corporation 140,000 3,465,000
- -----------------------------------------------------------------------------------------------------------------------------
14,607,300
- -----------------------------------------------------------------------------------------------------------------------------
MEDIA - 1.7%
Liberty Media Corporation, Grade A(1) 105,000 2,999,062
Lin Television Corporation(1) 42,000 1,774,500
Univision Communications, Inc., Class A(1) 17,000 629,000
- -----------------------------------------------------------------------------------------------------------------------------
5,402,562
- -----------------------------------------------------------------------------------------------------------------------------
MEDICAL INSTRUMENTS/DEVICES - 2.5%
Meridian Diagnostics, Inc. 155,000 2,015,000
Novoste Corporation(1) 185,000 2,451,250
Ventritex, Inc.(1) 130,000 3,201,250
- -----------------------------------------------------------------------------------------------------------------------------
7,667,500
- -----------------------------------------------------------------------------------------------------------------------------
MEDICAL SUPPLIES - 1.1%
Biosource International, Inc.(1) 195,000 1,340,625
PLC Systems, Inc.(1) 60,000 1,350,000
SeaMED Corporation(1) 75,000 815,625
- -----------------------------------------------------------------------------------------------------------------------------
3,506,250
- -----------------------------------------------------------------------------------------------------------------------------
MOTOR VEHICLES/PARTS SUPPLIERS - 0.8%
Boyds Wheels, Inc.(1) 170,000 2,380,000
- -----------------------------------------------------------------------------------------------------------------------------
2,380,000
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
<CAPTION>
DECEMBER 31, 1996 SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NETWORK SYSTEMS - 2.5%
3Com Corporation(1) 40,000 $ 2,935,000
Newbridge Networks Corporation(1) 85,000 2,401,250
Storage Technology Corporation(1) 50,000 2,381,250
- -----------------------------------------------------------------------------------------------------------------------------
7,717,500
- -----------------------------------------------------------------------------------------------------------------------------
OIL/GAS DRILLING - 4.9%
Diamond Offshore Drilling, Inc.(1) 50,000 2,850,000
ENSCO International, Inc.(1) 5,000 242,500
Marine Drilling Companies, Inc.(1) 150,000 2,953,125
Noble Drilling Corporation(1) 230,000 4,571,250
Precision Drilling Corporation(1) 43,500 1,511,625
Transocean Offshore, Inc. 50,000 3,131,250
- -----------------------------------------------------------------------------------------------------------------------------
15,259,750
- -----------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 1.3%
Cardinal Health, Inc. 67,500 3,931,875
- -----------------------------------------------------------------------------------------------------------------------------
3,931,875
- -----------------------------------------------------------------------------------------------------------------------------
R.E.I.T. - 4.7%
Ambassador Apartments, Inc.(1) 77,500 1,830,937
Bedford Property Investors, Inc. 90,000 1,575,000
Crescent Real Estate Equities Trust 50,000 2,637,500
Health and Retirement Property Trust 105,000 2,034,375
JP Realty, Inc. 110,000 2,846,250
Simon DeBartolo Group, Inc. 60,000 1,860,000
Walden Residential Properties, Inc. 70,000 1,741,250
- -----------------------------------------------------------------------------------------------------------------------------
14,525,312
- -----------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS - 3.2%
Cypress Semiconductor Corporation(1) 130,000 1,836,250
Motorola, Inc. 54,500 3,344,937
Texas Instruments, Inc. 72,500 4,621,875
- -----------------------------------------------------------------------------------------------------------------------------
9,803,062
- -----------------------------------------------------------------------------------------------------------------------------
SPECIALTY CHEMICALS - 1.1%
Monsanto Company 90,000 3,498,750
- -----------------------------------------------------------------------------------------------------------------------------
3,498,750
- -----------------------------------------------------------------------------------------------------------------------------
SPECIALTY WHOLESALE - 1.5%
Fisher Scientific International, Inc. 100,000 4,712,500
- -----------------------------------------------------------------------------------------------------------------------------
4,712,500
- -----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 1.1%
Comsat Corporation 145,000 3,570,625
- -----------------------------------------------------------------------------------------------------------------------------
3,570,625
- -----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 2.3%
Airborne Freight Corporation 3,700 86,487
Genesee & Wyoming, Inc., Class A(1) 100,000 3,475,000
Hvide Marine, Inc., Class A(1) 170,000 3,697,500
- -----------------------------------------------------------------------------------------------------------------------------
7,258,987
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
DECEMBER 31, 1996 SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES - 1.5%
Houston Industries, Inc. 100,000 $ 2,262,500
US West Communications Group 75,000 2,418,750
- -----------------------------------------------------------------------------------------------------------------------------
4,681,250
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS - 84.5% (Cost: $224,972,769) 261,735,147
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS
- -----------------------------------------------------------------------------------------------------------------------------
BANKS - 0.3%
The Sakura Bank, Ltd., 7.50%, Expires 10/1/01, 144A(3),(4) 18 954,795
- -----------------------------------------------------------------------------------------------------------------------------
954,795
- -----------------------------------------------------------------------------------------------------------------------------
ENERGY - 1.0%
Mesa, Inc., 8.00%, Expires 6/30/08, Series A 489,981 3,123,629
- -----------------------------------------------------------------------------------------------------------------------------
3,123,629
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS - 0.7%
Westinghouse Electric Corporation, $1.30, Expires 6/1/97, Series C(3) 125,000 2,218,750
- -----------------------------------------------------------------------------------------------------------------------------
2,218,750
- -----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 2.0%
Crown Cork & Seal Company, Inc., 4.50%, Expires 2/26/00 70,000 3,640,000
Timet Capital Trust, 6.625%, Expires 11/1/26, 144A(3),(4) 45,000 2,446,875
- -----------------------------------------------------------------------------------------------------------------------------
6,086,875
- -----------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 1.0%
Tyco Toys Inc., 8.25%, Expires 7/1/00, Series C 300,000 3,037,500
- -----------------------------------------------------------------------------------------------------------------------------
3,037,500
- -----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 0.4%
Loral Space & Communications, 6.00%, Expires 11/1/06, 144A(3),(4) 23,600 1,333,400
- -----------------------------------------------------------------------------------------------------------------------------
1,333,400
- -----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 0.7%
Trans World Airlines, Inc., 8.00%, Expires 12/31/49, 144A(3),(4) 85,000 2,125,000
- -----------------------------------------------------------------------------------------------------------------------------
2,125,000
- -----------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.6%
CalEnergy Capital Trust, 6.25%, Expires 3/10/16, 144A(3),(4) 30,000 1,893,750
- -----------------------------------------------------------------------------------------------------------------------------
1,893,750
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS - 6.7% (Cost: $18,632,844) 20,773,699
- -----------------------------------------------------------------------------------------------------------------------------
WARRANTS
- -----------------------------------------------------------------------------------------------------------------------------
WARRANTS
- -----------------------------------------------------------------------------------------------------------------------------
Glendale Federal Bank, FSB, Warrants, Strike $12.00, Expires 8/21/00(5) 80,000 1,020,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS - 0.3% (Cost $859,953) 1,020,000
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16
<PAGE>
<CAPTION>
DECEMBER 31, 1996 CONTRACTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PUT OPTIONS
- -----------------------------------------------------------------------------------------------------------------------------
S&P INDEX PUT OPTIONS
March 97 730 100 $ 175,000
March 97 750 100 241,250
- -----------------------------------------------------------------------------------------------------------------------------
416,250
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL PUT OPTIONS - 0.1% (Cost: 413,100) 416,250
<CAPTION>
PAR VALUE
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLOTHING/RETAIL - 0.2%
Charming Shoppes, Inc., 7.5%, Due 7/15/06(3) 500,000 497,500
- -----------------------------------------------------------------------------------------------------------------------------
497,500
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE/COMPONENTS - 0.3%
AST Research, Inc., Due 12/14/13(3) 3,000,000 960,000
- -----------------------------------------------------------------------------------------------------------------------------
960,000
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE - 0.7%
Platinum Technology, Inc., 6.75%, Due 11/15/01(3) 700,000 852,250
Softkey International, Inc., 5.50%, Due 11/1/00, 144A(3),(4) 1,750,000 1,454,687
- -----------------------------------------------------------------------------------------------------------------------------
2,306,937
- -----------------------------------------------------------------------------------------------------------------------------
CONSUMER/SPECIALTY RETAIL - 0.2%
Sports and Recreation, Inc., 4.25%, Due 11/1/00(3) 1,000,000 745,000
- -----------------------------------------------------------------------------------------------------------------------------
745,000
- -----------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES - 0.7%
Molten Metal Technology, Inc., 5.50%, Due 5/1/06, 144A(3),(4) 3,000,000 2,055,000
- -----------------------------------------------------------------------------------------------------------------------------
2,055,000
- -----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE/MEDICAL TECHNOLOGY/HMO - 0.4%
Healthsource, Inc., 5.00%, Due 3/1/03, 144A(3),(4) 1,750,000 1,395,625
- -----------------------------------------------------------------------------------------------------------------------------
1,395,625
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS - 0.6%
Empresas ICA Sociedad, 5.00%, Due 3/15/04(3) 2,500,000 1,737,500
- -----------------------------------------------------------------------------------------------------------------------------
1,737,500
- -----------------------------------------------------------------------------------------------------------------------------
MACHINERY/GENERAL INDUSTRIAL - 0.2%
Robbins & Myers, Inc., 6.50%, Due 9/1/03(3) 500,000 565,000
- -----------------------------------------------------------------------------------------------------------------------------
565,000
- -----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 0.5%
Mascotech, Inc., 4.50%, Due 12/15/03 2,000,000 1,640,000
- -----------------------------------------------------------------------------------------------------------------------------
1,640,000
- -----------------------------------------------------------------------------------------------------------------------------
MEDICAL SERVICES - 0.4%
Renal Treatment Centers, Inc., 5.625%, Due 7/15/06, 144A(3),(4) 1,250,000 1,206,250
- -----------------------------------------------------------------------------------------------------------------------------
1,206,250
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
17
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
DECEMBER 31, 1996 PAR VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDICAL SUPPLIES - 0.4%
Rotech Medical Corporation, 5.25%, Due 6/1/03, 144A(3),(4) 1,250,000 $ 1,240,625
- -----------------------------------------------------------------------------------------------------------------------------
1,240,625
- -----------------------------------------------------------------------------------------------------------------------------
OIL/GAS SERVICES - 0.3%
Pride Petroleum Services, Inc., 6.25%, Due 2/15/06 500,000 905,000
- -----------------------------------------------------------------------------------------------------------------------------
905,000
- -----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.6%
Midcom Communications, 8.25%, Due 9/15/03, 144A(3),(4) 2,000,000 1,840,000
- -----------------------------------------------------------------------------------------------------------------------------
1,840,000
- -----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 0.5%
Broadband Technologies, Inc., 5.00%, Due 5/15/01, 144A(3),(4) 2,000,000 1,540,000
- -----------------------------------------------------------------------------------------------------------------------------
1,540,000
- -----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION SERVICES - 0.6%
Offshore Logistics, Inc., 6.00%, Due 12/15/03(3) 1,800,000 1,890,000
- -----------------------------------------------------------------------------------------------------------------------------
1,890,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS - 6.6% (Cost: $21,357,527) 20,524,437
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT BONDS
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury STRIP, Due 11/15/24 9,140,000 1,400,796
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL GOVERNMENT BONDS - 0.5% (Cost: $1,287,020) 1,400,796
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.7% (Cost: $267,523,213) 305,870,329
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CASH - 0.1% 140,905
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
DEPOSITS WITH BROKERS AND CUSTODIAN BANK FOR SECURITIES SOLD SHORT
- -----------------------------------------------------------------------------------------------------------------------------
Cash 383,739
Repurchase Agreement
State Street Bank and Trust Company, 5.00%, dated 12/31/96,
due 1/2/97, maturity value, $2,400,667 (collateralized by
$1,880,000 par value U.S. Treasury Notes, 9.25%, due 2/15/16) 2,400,000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS WITH BROKERS AND CUSTODIAN BANK FOR SECURITIES SOLD SHORT - 0.9% 2,783,739
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
<CAPTION>
DECEMBER 31, 1996 VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
RECEIVABLE FROM BROKERS FOR SECURITIES SOLD SHORT - 1.0% $ 3,143,633
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SECURITIES SOLD SHORT - (0.8)% (Proceeds: $2,497,383) (2,535,312)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS, NET - 0.1% 371,664
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $ 309,774,958
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Non-income-producing security.
(2) Foreign security denominated in Canadian Dollars.
(3) Fair-value security. See 1.a. in Notes to Financial Statements.
(4) These securities may be resold in transactions exempt from registration
under Rule 144A of the Securities Act of 1933, normally to qualified
institutional buyers.
(5) See 4.d. in Notes to Financial Statements.
SCHEDULE OF SECURITIES SOLD SHORT
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES
AccuStaff, Inc. 22,500 $ 475,312
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE/COMPONENTS
Mylex Corporation 40,000 500,000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES
Sykes Enterprises, Inc. 27,500 1,031,250
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
MEDICAL SUPPLIES
Ultrafem, Inc. 20,000 350,000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RESTAURANTS
Quality Dining, Inc. 10,000 178,750
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES SOLD SHORT - (0.8)% (Proceeds: $2,497,383) $ 2,535,312
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value (Cost: $267,523,213) $ 305,870,329
Cash 140,905
Deposits with brokers and custodian bank for securities sold short 2,783,739
Receivable from brokers for securities sold short 3,143,633
Receivable for investments sold 3,484,842
Receivable for fund shares subscribed 1,088,524
Dividends/interest receivable 551,312
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 317,063,284
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Securities sold short (Proceeds: $2,497,383) 2,535,312
Payable for investments purchased 2,276,139
Payable for fund shares redeemed 1,084,333
Payable to custodian bank 778,828
Payable to adviser 333,571
Accrued expenses 213,433
Payable to distributor 66,710
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 7,288,326
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 309,774,958
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital 267,448,798
Accumulated net realized gain from investments 3,567,044
Accumulated net realized gain from securities sold short 193,991
Net unrealized appreciation on investments 38,394,304
Net unrealized appreciation on securities sold short 170,821
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 309,774,958
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PRICING OF SHARES: $ 13.62
Net Asset Value, offering and redemption price per share
(net assets of $309,774,958 applicable to 22,744,504 shares of
beneficial interest outstanding with no par value)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Dividends (Net of foreign tax withheld of $3,737) $ 3,086,084
Interest 1,572,541
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 4,658,625
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees 2,462,636
Distribution fees 615,659
Administrative services fee 615,659
Custodian and transfer agent fees 345,928
Shareholder reports 104,438
Professional fees 92,946
Registration and filing fees 87,220
Trustees' fees and expenses 22,326
Interest expense 3,883
Insurance fees 1,355
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,352,050
Less: Expense waiver by adviser (140,905)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES, NET 4,211,145
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 447,480
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED GAIN/(LOSS) AND UNREALIZED APPRECIATION/(DEPRECIATION) ON INVESTMENTS AND SECURITIES SOLD SHORT
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments 14,368,389
Net realized gain from securities sold short 129,616
Net change in unrealized appreciation on investments 25,033,904
Net change in unrealized appreciation on securities sold short 125,009
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NET REALIZED GAIN AND UNREALIZED APPRECIATION ON INVESTMENTS AND SECURITIES SOLD SHORT 39,656,918
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 40,104,398
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
12/31/96 12/31/95(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) $ 447,480 $ (5,124)
Net realized gain/(loss) from investments 14,368,389 (3,511,975)
Net realized gain from securities sold short 129,616 64,375
Net change in unrealized appreciation on investments 25,033,904 13,360,400
Net change in unrealized appreciation on securities sold short 125,009 45,812
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 40,104,398 9,953,488
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (457,356) -
Realized gain on investments (7,274,370) -
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (7,731,726) -
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions 140,500,320 126,948,478
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL SHARE TRANSACTIONS 140,500,320 126,948,478
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 172,872,992 136,901,966
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Beginning of period 136,901,966 0
End of period $ 309,774,958 $ 136,901,966
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund commenced operations on July 12, 1995.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR A SHARE OUTSTANDING YEAR ENDED PERIOD ENDED
THROUGHOUT EACH PERIOD: 12/31/96 12/31/95(1)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.24 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.02 0
Net realized gain and net change in unrealized appreciation from investments
and securities sold short 2.70 1.24
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 2.72 1.24
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.02) -
Distributions from realized gain on investments (0.32) -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.62 $ 11.24
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 24.16% 12.40%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period $ 309,774,958 $ 136,901,966
Ratio of Expenses to Average Net Assets 1.71%(2) 1.94%
Ratio of Net Investment Income/(Loss) to Average Net Assets 0.18%(2) (0.01)%
Portfolio Turnover Rate 212% 97%
Average Commission Rate Paid(4) $ 0.0567 -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund commenced operations on July 12, 1995.
(2) If the Fund had paid all of its expenses and had received no waiver from
the Adviser, the ratio of expenses to average net assets for the year ended
December 31, 1996, would have been 1.76%, and the ratio of net investment
income to average net assets would have been 0.13%.
(3) Ratios, except for total return and portfolio turnover rate, have been
annualized.
(4) A fund is required to disclose its average commission rate per share for
security trades on which a commission is charged. This amount may vary from
fund to fund and period to period depending on the mix of trades executed
in various markets where trading practices and commission rate structures
may differ. This rate generally does not reflect markups, markdowns or
spreads on shares traded on a principle basis, if any.
Per-share data for each period has been determined by using the average
number of shares outstanding throughout each period. Distributions
reflect actual per-share amounts distributed for the year.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Robertson Stephens Growth & Income Fund (the "Fund") is a series of the
Robertson Stephens Investment Trust (the "Trust"), a Massachusetts business
trust organized on May 11, 1987. The Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Fund became effective to offer shares to the
public on July 12, 1995. The Trust offers eleven series of shares -- The
Robertson Stephens Emerging Growth Fund, The Robertson Stephens Value + Growth
Fund, The Contrarian Fund-TM-, The Robertson Stephens Developing Countries Fund,
The Robertson Stephens Growth & Income Fund, The Robertson Stephens Partners
Fund, The Information Age Fund-TM-, The Robertson Stephens Global Natural
Resources Fund, and The Robertson Stephens Global Low-Priced Stock Fund, The
Robertson Stephens Diversified Growth Fund, and The Robertson Stephens MicroCap
Growth Fund. The assets for each series are segregated and accounted for
separately.
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES:
The following policies are in conformity with generally accepted accounting
principles.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
a. INVESTMENT VALUATIONS:
Marketable securities are valued at the last sale price on the principal
exchange or market on which they are traded; or, if there were no sales that
day, at the mean between the closing bid and asked prices. Short-term
investments that will mature in 60 days or less are stated at amortized cost,
which approximates market value. At December 31, 1996, 91% of the Fund's long
positions and 100% of its short positions were valued in this manner.
Securities for which market quotations are not readily available are valued at
their fair value as determined in accordance with the guidelines and procedures
adopted by the Fund's Board of Trustees. The guidelines and procedures use
fundamental valuation methods which include, but are not limited to, the
analysis of: the effect of any restrictions on the sale of the security, product
development and trends of the security's issuer, changes in the industry and
other competing companies, significant changes in the issuer's financial
position, and any other event which could have a significant impact on the value
of the security. At December 31, 1996, approximately 9% of the Fund's long
positions were valued using these guidelines and procedures.
As its normal course of business, the Fund has invested a significant portion of
its assets in companies within a number of industries in the technology sector.
Accordingly, the performance of the Fund may be subject to a greater risk of
market fluctuation than that of a fund invested in a wider spectrum of market or
industrial sectors.
b. REPURCHASE AGREEMENTS:
Repurchase agreements are fully collateralized by U.S. government securities.
All collateral is held by the Fund's custodian and is monitored daily to ensure
that the collateral's market value equals at least 100% of the repurchase price
under the agreement. However, in the event of default or bankruptcy, realization
and/or retention of the collateral may be subject to legal proceedings. The
Fund's policy is to limit repurchase agreement transactions to those parties
deemed by the Fund's Investment Adviser to have satisfactory creditworthiness.
24
<PAGE>
c. FEDERAL INCOME TAXES:
The Fund complied with requirements of the Internal Revenue Code, qualifying as
a regulated investment company. Therefore, the Fund is not subject to income
tax, and no provision for such tax was made.
d. SECURITIES TRANSACTIONS:
Securities transactions are accounted for on the date the securities are
purchased, sold, or sold short (trade date). Realized gains and losses on
securities transactions are determined on the basis of specific identification.
e. INVESTMENT INCOME:
Dividend income is recorded on the ex-dividend date. Interest income is accrued
and recorded daily.
f. DISTRIBUTIONS TO SHAREHOLDERS:
Dividends to shareholders are recorded on the ex-dividend date.
g. CAPITAL ACCOUNTS:
Due to the timing of dividend distributions and the differences in accounting
for income and realized gains/(losses) for financial statement and federal
income tax purposes, the fiscal year in which amounts are distributed may differ
from the year in which the income and realized gains/(losses) were recorded by
the portfolio.
NOTE 2 CAPITAL SHARES:
a. TRANSACTIONS:
The Fund has authorized an unlimited number of shares of beneficial interest
with no par value. Transactions in capital shares for the year ended December
31, 1996, and for the period from July 12, 1995 (Commencement of Operations),
through December 31, 1995, were as follows:
1/1/96 - 12/31/96 SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 24,212,751 $314,442,257
Share reinvested 543,194 7,520,835
- ------------------------------------------------------------------------------
24,755,945 321,963,092
- ------------------------------------------------------------------------------
Shares redeemed (14,194,773) (181,462,772)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net increase 10,561,172 $140,500,320
- ------------------------------------------------------------------------------
7/12/95 - 12/31/95 SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 14,440,164 $150,810,508
Share reinvested 0 0
- ------------------------------------------------------------------------------
14,440,164 150,810,508
- ------------------------------------------------------------------------------
Shares redeemed (2,256,832) (23,862,030)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net increase 12,183,332 $126,948,478
- ------------------------------------------------------------------------------
NOTE 3 TRANSACTIONS WITH AFFILIATES:
a. ADVISORY FEES AND EXPENSE LIMITATION:
Under the terms of an advisory agreement, which is reviewed and approved
annually by the Board of Trustees, the Fund pays Robertson Stephens Investment
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Management, L.P. ("RSIM") an investment advisory fee and an administrative
services fee calculated respectively at an annual rate of 1.00% and 0.25% of the
average daily net assets of the Fund. For the year ended December 31, 1996, the
Fund incurred investment advisory fees and administrative fees of $2,462,636 and
$615,659, respectively. Effective November 25, 1996, RSIM voluntarily agreed to
waive expenses of the Fund exceeding an annual expense ratio of 1.30%. For the
year ended December 31, 1996, the Adviser agreed to waive $140,905 of its fees.
RSIM may recoup waived or reimbursed operating expenses over the succeeding two
years, subject to expense limitations then applicable to the Fund. No previous
expense waivers or reimbursements of operating expenses were recouped by RSIM
from the Fund during the year ended December 31, 1996.
b. AFFILIATED PERSONS:
Certain officers and Trustees of the Fund are also members and/or officers of
Robertson, Stephens & Company Group, L.L.C. ("RS Group"), the managing member of
Robertson, Stephens & Company LLC (RS & Co.), the Fund's distributor and RSIM,
the Fund's Adviser. G. Randy Hecht, President, Chief Executive Officer and a
Trustee of the Fund, is also a Director of RSIM, a Member of RS Group, and Chief
Operating Officer of RS & Co. Terry R. Otton, Chief Financial Officer of the
Fund, is a Member of RS Group and Chief Financial Officer of RS & Co. John P.
Rohal, a Trustee of the Fund, is a Member of RS Group and Director of Research
for RS & Co. Dana K. Welch, Secretary of the Fund, is a member of RS Group and
General Counsel of RS & Co. John L. Wallace, Portfolio Manager, is a Member of
RS Group. All affiliated and access persons, as defined in the 1940 Act, follow
strict guidelines and policies on personal trading as outlined in the Fund's
Code of Ethics.
c. COMPENSATION OF TRUSTEES AND OFFICERS:
Trustees and officers of the Fund who are affiliated persons receive no
compensation from the Fund. Trustees of the Fund who are not interested persons
of the Trust, as defined in the 1940 Act, collectively received compensation and
reimbursement of expenses of $22,326 for the year ended December 31, 1996.
d. DISTRIBUTION FEES:
The Fund has entered into an agreement with RS & Co. for distribution services
and has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940
Act, which is reviewed and approved annually by the Fund's Board of Trustees.
Under this Plan, RS & Co. is compensated for services in such capacity including
its expenses in connection with the promotion and distribution of the Fund's
shares. The distribution fee is calculated at an annual rate of 0.25% of the
average daily net assets of the Fund. For the year ended December 31, 1996, the
Fund incurred distribution fees of $615,659.
e. BROKERAGE COMMISSIONS:
RSIM may direct orders for investment transactions to RS & Co. as broker-dealer,
subject to Fund policies as stated in the prospectus, regulatory constraints,
and the ability of RS & Co. to provide competitive prices and commission rates.
All investment transactions in which RS & Co. acts as a broker may only be
executed on an agency basis. Subject to certain constraints, the Fund may make
purchases of securities from offerings or underwritings in which RS & Co. has
been retained by the issuer. For the year ended December 31, 1996, the Fund paid
brokerage commissions of $179,275 to RS & Co., which represented 14% of total
commissions paid during the year.
26
<PAGE>
NOTE 4 INVESTMENTS:
a. TAX BASIS OF INVESTMENTS:
At December 31, 1996, the cost of investments and securities sold short for
federal income tax purposes was $272,293,459. Accumulated net unrealized
appreciation on investments and securities sold short was $37,328,824,
consisting of gross unrealized appreciation and depreciation of $49,930,256 and
$(12,601,432), respectively.
b. INVESTMENT PURCHASES AND SALES:
For the year ended December 31, 1996, the cost of investments purchased and the
proceeds from investments sold (excluding options, securities sold short and
short-term investments) were $640,091,257 and $508,695,178, respectively.
c. SHORT SALES:
Short sales are transactions in which the Fund sells a security it does not own,
in anticipation of a decline in the market value of that security. To complete
such a transaction, the Fund must borrow the security to deliver to the buyer
upon the short sale; the Fund then is obligated to replace the security borrowed
by purchasing it in the open market at some later date. The Fund will incur a
loss if the market price of the security increases between the date of the short
sale and the date on which the Fund replaces the borrowed security. The Fund
will realize a gain if the security declines in value between those dates. All
short sales must be fully collateralized. The Fund maintains the collateral in a
segregated account consisting of cash and/or U.S. government securities
sufficient to collateralize its obligation on the short positions. The Fund may
also sell short "against the box" (i.e., the Fund enters into a short sale as
described above while holding an offsetting long position in the security which
is sold short). If the Fund enters into a short sale against the box, it will
hold an equivalent amount of the securities to cover its position while the
short sale is outstanding. The Fund limits the value of short sale positions
(excluding short sales against the box) to 25% of the Fund's total assets. At
December 31, 1996, the Fund had 1% of its total assets in short positions. For
the year ended December 31, 1996, the cost of investments purchased to cover
short sales and proceeds from investments sold short were $34,694,753 and
$36,655,065, respectively.
Included in the "Other Assets, Net" category in the Schedule of Investments is
the following security sold short where the Fund has purchased the underlying
security to effectively close out the short position. Included in Receivable
from Brokers for Securities Sold Short is $646,250 for this short position. At
December 31, 1996, the cost of the associated long position and the unrealized
appreciation on investments and securities sold short are $390,312 and $255,938,
respectively. At December 31, 1996, the Fund chose not to complete the
transactions which would have required delivery of the purchased security to the
lender. The Fund does not consider this boxed position as an investment.
SECURITIES SHARES VALUE
- ------------------------------------------------------------------------------
Octel Communications Corporation 25,000 $437,500
- ------------------------------------------------------------------------------
d. WARRANTS:
A warrant is an option which normally entitles the holder to purchase a
proportionate number of a particular class of the issuer's securities at a
predetermined price during a specific period. The Glendale Federal Bank, FSB,
Warrants were valued daily at the last sale price on the principal exchange or
market on which they were traded, or, if there were no sales that day, at the
mean between the closing bid and asked prices.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The Robertson Stephens Growth & Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments and securities sold short, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Robertson Stephens Growth & Income Fund (the "Fund") at December 31, 1996,
the results of its operations and changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund'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, 1996, by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Francisco, California
February 7, 1997
28
<PAGE>
ADMINISTRATION
OFFICERS AND TRUSTEES
G. Randy Hecht
President, Chief Executive Officer
Terry R. Otton
Chief Financial Officer
Dana K. Welch
Secretary
Leonard B. Auerbach, Trustee
President and Chairman of Auerbach
Associates, Inc.
Daniel R. Cooney, Trustee
Former Portfolio Manager of the
Lord Abbett Developing Growth Fund
James K. Peterson, Trustee
Former Director of the IBM
Retirement Funds
John P. Rohal, Trustee
Managing Director and Director of
Research, Robertson, Stephens & Co.
INVESTMENT ADVISER
Robertson, Stephens & Company Investment Management, L.P.
555 California Street, Suite 2600
San Francisco, CA 94104
DISTRIBUTOR
Robertson, Stephens & Company LLC
555 California Street, Suite 2600
San Francisco, CA 94104
1-800-766-3863
TRANSFER AGENT AND DISBURSING AGENT
State Street Bank & Trust Company
c/o National Financial Data Services
Kansas City, MO
1-800-272-6944
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
San Francisco, CA
LEGAL COUNSEL
Ropes & Gray
Boston, MA
This report is submitted for the information of shareholders of The Robertson
Stephens Growth & Income Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
Published February 28, 1997
<PAGE>
Design: Broom & Broom, Inc., San Francisco
Photography: Jerry Orabona, Bill Zemanek
THE ROBERTSON STEPHENS MUTUAL FUNDS
In addition to THE GROWTH & INCOME FUND, Robertson Stephens offers the following
mutual funds:
THE CONTRARIAN FUND-TM-
A DEFENSIVE POSITION IN TODAY'S VOLATILE MARKET - Invests in attractively
priced, growing companies worldwide that are out of favor or have not been
discovered by institutional investors. Adheres to an independent, aggressive,
and flexible investment strategy. Managed by Paul Stephens.
THE DEVELOPING COUNTRIES FUND
A PORTFOLIO OF GROWING COMPANIES IN EMERGING MARKETS - Invests primarily in
publicly traded equities of developing countries, as well as in private
placement emerging market equity securities. No load. Managed by Michael
Hoffman.
THE DIVERSIFIED GROWTH FUND
FOCUSING ON SMALL- AND MID-CAP COMPANIES - Invests primarily in equity
securities to create a portfolio broadly diversified over industries and
companies. No load. Managed by John Wallace.
THE EMERGING GROWTH FUND
SEEKING TO INVEST IN AMERICA'S MOST DYNAMIC, GROWTH-ORIENTED INDUSTRIES -
Invests primarily in common stocks of emerging growth companies (predominantly
technology, specialty retailing, and health care) with above-average growth
potential. No load. Managed by Jim Callinan.
THE GLOBAL LOW-PRICED STOCK FUND
SEEKING OVERLOOKED AND UNDERVALUED COMPANIES - Invests in companies worldwide
that are low-priced (stock prices no greater than $10 per share), have future
growth potential, but are underappreciated or overlooked by other investors. No
load. Managed by Hannah Sullivan.
THE GLOBAL NATURAL RESOURCES FUND
PRIMARILY FOCUSING ON ATTRACTIVE HARD ASSET COMPANIES - Invests in equities of
companies engaged in the discovery, development, production or distribution of
natural resources, such as energy, metals, and forest products. No load. Managed
by Andy Pilara, Jr.
THE INFORMATION AGE FUND-TM-
FOCUSING ON INVESTMENTS IN THE INFORMATION TECHNOLOGY SECTOR - Invests in a wide
range of technology companies with strong fundamentals, market advantage, and
growth potential, including computer hardware and software, telecommunications,
and multimedia. No load. Managed by Ron Elijah.
THE MICROCAP GROWTH FUND
FOCUSING ON COMPANIES WITH MARKET CAPS OF LESS THAN $250 MILLION - Invests
primarily in "micro-cap" companies with the potential for long-term capital
appreciation. No load. Managed by Dave Evans.
THE PARTNERS FUND
A SMALL-CAP FUND USING A VALUE METHODOLOGY - This methodology combines
traditional Graham & Dodd balance sheet analysis and cash flow analysis. No
load. Managed by Andy Pilara, Jr.
THE VALUE + GROWTH FUND
A GROWTH FUND FOR THE LONG-TERM INVESTOR - Invests primarily in growth companies
with favorable price/earnings ratios in sectors with the potential for above-
average growth. No load. Managed by Ron Elijah.
Please read the prospectus to learn about the Funds' objectives, investment
policies, and the special risks associated with The Robertson Stephens Mutual
Funds, including international investing, investing in smaller companies,
investing in a more limited number of issuers and sectors or a particular
sector, short selling, using options and futures, and investing in high-
yielding, lower-quality debt securities.
<PAGE>
ROBERTSON, STEPHENS & COMPANY
BRINGING THE FUND MANAGER TO YOU
555 California Street, Suite 2600
San Francisco, California 94104
FUND NEWS & INFORMATION
ROBERTSON STEPHENS INVESTOR SERVICES
- - Knowledgeable mutual fund representatives.
- - Automated access to daily net asset values.
- - Portfolio managers' hotline, 24 hours a day.
1-800-766-3863
ROBERTSON STEPHENS
MUTUAL FUND E-MAIL
[email protected]
ROBERTSON STEPHENS ON THE WEB
HTTP://WWW.RSIM.COM
ROBERTSON STEPHENS ACCOUNTLINK
- - Automated account information, 24 hours a day.
1-800-624-8025
FUND LISTINGS
The Fund is listed in The WALL STREET JOURNAL, USA TODAY, INVESTOR'S BUSINESS
DAILY, and most local newspapers as Gr Inc under the heading Robertson Stephens.
Its computer quotation symbol is RSGIX.
The views expressed in this report were those of the Fund's portfolio manager as
of the date specified, and may not reflect the views of the portfolio manager on
the date they are first published or at any other time thereafter. RSIM and its
affiliates may buy or sell investments at any time for the Fund, their other
clients or for their own accounts, and may not necessarily do so in a manner
consistent with the views expressed in this report. The prices at which they buy
or sell investments may be affected favorably by the contents of this report or
the timing of its publication. THE VIEWS EXPRESSED IN THIS REPORT ARE INTENDED
TO ASSIST SHAREHOLDERS OF THE FUND IN UNDERSTANDING THEIR INVESTMENT IN THE FUND
AND DO NOT CONSTITUTE INVESTMENT ADVICE; INVESTORS SHOULD CONSULT THEIR OWN
INVESTMENT PROFESSIONALS AS TO THEIR INDIVIDUAL INVESTMENT PROGRAMS.
