<PAGE>
RUSSELL INSURANCE FUNDS
Russell Insurance Funds is a "series
mutual fund" with four different
investment portfolios.
These financial statements report on
four Funds, each of which has distinct
investment objectives and strategies.
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
Responsible for overall management
and administration of the Funds.
FRANK RUSSELL COMPANY
Consultant to Frank Russell
Investment Management Company.
<PAGE>
RUSSELL INSURANCE FUNDS
ANNUAL REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
Page
Multi-Style Equity Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Aggressive Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Non-US Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Core Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 45
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . 51
Manager, Money Managers and Service Providers. . . . . . . . . . . . . . . 52
RUSSELL INSURANCE FUNDS
Copyright -C- Frank Russell Company 1998. All rights reserved. This material is
proprietary and may not be reproduced, transferred, or distributed in any form
without prior written permission from Frank Russell Company. It is delivered on
an "as is" basis without warranty. The Russell logo is a trademark and service
mark of Frank Russell Company. This material must be accompanied or preceded by
a current Russell Insurance Funds' Prospectus containing complete information
concerning the investment objectives and operations of the Funds, charges, and
expenses. The Prospectus should be read carefully before an investment is made.
The performance quoted represents past performance and investment return and
principal value of an investment will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost. Investments in securities of
non-US issuers and foreign currencies involve investment risks different than
those of US issuers; the Prospectus contains further information and details
regarding these risks. Russell Fund Distributors, Inc., is the distributor of
Russell Insurance Funds.
<PAGE>
MULTI-STYLE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
OBJECTIVE: To provide capital growth and income.
INVESTS IN: Primarily U.S. equity securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns with moderate risk. The Fund employed the investment
management services of three managers with three separate and distinct
investment styles.
[GRAPH]
<TABLE>
<CAPTION>
LIPPER-C- GROWTH
YEARS MULTI-STYLE EQUITY FUND RUSSELL 1000-Registered Trademark- INDEX** & INCOME ++
- ----- ----------------------- ------------------------------------------ ----------------
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1997 $12,853 $13,285 $12,709
<CAPTION>
MULTI-STYLE EQUITY FUND RUSSELL 1000-Registered Trademark- INDEX
PERIODS ENDED GROWTH OF TOTAL PERIODS ENDED GROWTH OF TOTAL
12/31/97 $10,000 RETURN 12/31/97 $10,000 RETURN
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Inception $ 12,853 28.53% Inception $ 13,285 32.85%
<CAPTION>
LIPPER-C- GROWTH & INCOME FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/97 $10,000 RETURN
------------- ------------- -------------
<S> <C> <C> <C>
Inception $ 12,709 27.09%
</TABLE>
* The Fund commenced operations on January 2, 1997.
** Russell 1000-Registered Trademark- Index includes the 1,000 largest companies
in the Russell 3000-Registered Trademark- Index, the smallest of which is
valued at about $43 million. The Russell 1000 Index represents the universe
of stocks from which most active money managers typically select.
++ Lipper-C- Growth & Income Funds Average is the average total return for the
universe of funds within the Growth and Income Funds investment objective.
The total return for the funds reflects adjustments for income dividends
and capital gains distributions reinvested as of the ex-dividend dates.
2 Multi-Style Equity Fund
<PAGE>
MULTI-STYLE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1997, the Multi-Style Equity Fund reflected a
total return of 28.5% as compared to the Russell 1000-Registered Trademark-
Index which gained 32.9%. The Fund trailed the Index primarily due to the
strength of large cap stocks and the market's defensiveness late in the year.
However, performance compared favorably with the average mutual fund tracked in
the Lipper-C- Growth and Income Funds Universe.
PORTFOLIO HIGHLIGHTS
The performance of stocks in 1997 once again defied expectations. Stocks
provided investors with returns in excess of 30%--the first time the market has
ever produced three consecutive years of gains in excess of 20% per annum.
Despite the market's strength, a year end flight to defensive sectors made it a
difficult year for fund managers to keep pace with market indices. The market's
rotation away from segments emphasized by the "active" managers produced
particularly weak fourth quarter results. Technology stocks were hardest hit by
the market's changing sentiment, as tech shares were sold in favor of more
defensive alternatives, including utility stocks and fixed income instruments.
The dominance of large capitalization stocks appeared at an end by mid year, but
resumed in the fourth quarter, resulting in the largest 50 stocks of the Russell
1000 Index outperforming small cap stocks in the Russell 2000-Registered
Trademark- Index by nearly 14% for the year.
The strong rotation to safety had a decidedly negative effect on the Multi-Style
Equity Fund's sector and security selection results. The Fund's underweighting
in utilities relative to the index was the biggest contributor to its shortfall.
Weakness in the technology and capital goods sectors in the latter half of the
year also had a negative impact on results. Waning confidence in the ability of
US companies to increase profits, coupled with the uncertain impact of the
economic crises in Asia, resulted in weak returns from some of the market's
leaders, including Intel, one of the Fund's larger holdings during the year. The
Fund also failed to capture some strong returns from telephone utilities stocks
during the fourth quarter, as merger activity and defensive attributes combined
to boost share prices in the sector.
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
<TABLE>
<CAPTION>
(AS A PERCENT OF TOTAL INVESTMENTS) December 31, 1997
<S> <C>
Travelers Inc. 2.4%
Federal National Mortgage Association 2.3
General Electric Co. 2.3
Bristol-Myers Squibb Co. 2.2
BankAmerica Corp. 2.1
Schering-Plough 2.0
WorldCom, Inc. 1.9
Time Warner, Inc. 1.8
Chase Manhattan Corp. 1.7
Ford Motor Co. 1.7
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS December 31, 1997
<S> <C>
Current P/E Ratio 24.2x
Portfolio Price/Book Ratio 3.69x
Market Capitalization - $-Weighted Average 43.42 Bil
Number of Holdings 103
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MANAGERS STYLES
Chancellor LGT Asset Management, Inc. Growth
Equinox Capital Management, Inc. Value
Westpeak Investment Advisors, L.P. Market-Oriented
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Multi-Style Equity Fund 3
<PAGE>
MULTI-STYLE EQUITY FUND
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 97.7%
AUTO AND TRANSPORTATION - 4.9%
AMR Corp. (a) 2,100 $ 270
Delta Air Lines, Inc. 1,900 226
Federal Express Corp. (a) 1,900 116
Ford Motor Co. 8,200 399
Ryder System, Inc. 4,300 141
----------
1,152
----------
CONSUMER DISCRETIONARY - 13.0%
Carnival Corp. Class A 4,200 233
Cendant Corp. (a) 9,788 336
Dayton Hudson Corp. 1,700 115
Home Depot, Inc. (The) 6,250 368
JC Penney & Co., Inc. 3,300 199
Kohl's Corp. (a) 1,900 129
Sears Roebuck & Co. 2,400 109
Service Corp. International 5,500 203
Time Warner, Inc. 7,000 434
TJX Cos., Inc. 3,300 113
Toys "R" Us, Inc. (a) 4,500 141
Tribune Co. 4,300 268
Wal-Mart Stores, Inc. 4,700 185
Whirlpool Corp. 4,200 231
----------
3,064
----------
CONSUMER STAPLES - 7.4%
Anheuser-Busch Cos., Inc. 4,800 211
Coca-Cola Co. (The) 2,900 193
Colgate-Palmolive Co. 2,000 147
CPC International, Inc. 1,200 129
CVS Corp. 2,200 141
Gillette Co. 1,300 131
PepsiCo, Inc. 5,800 211
Philip Morris Cos., Inc. 4,600 208
Sara Lee Corp. 7,000 394
----------
1,765
----------
FINANCIAL SERVICES - 21.3%
Ahmanson (H.F.) & Co. 4,400 295
Allstate Corp. 3,600 327
Banc One Corp. 2,500 136
BankAmerica Corp. 6,700 489
Bankers Trust New York Corp. 1,000 112
Barnett Banks, Inc. 1,600 115
Chase Manhattan Corp. 3,700 405
Chubb Corp. (The) 2,700 204
Citicorp 700 89
Conseco, Inc. 3,500 159
Federal National Mortgage Association 9,700 554
First Chicago NBD Corp. 2,000 167
Fleet Financial Group, Inc. 3,800 285
Morgan Stanley, Dean Witter, Discover and Co. 6,400 378
NationsBank Corp. 6,100 371
SLM Holding Corp. 1,900 264
Transamerica Financial Corp. 1,300 138
Travelers, Inc. 10,407 561
----------
5,049
----------
HEALTH CARE - 11.5%
Aetna, Inc. 3,400 240
Baxter International, Inc. 3,700 187
Bristol-Myers Squibb Co. 5,400 511
Guidant Corp. 2,400 149
Lilly (Eli) & Co. 4,300 299
McKesson Corp. 1,200 130
Medtronic, Inc. 2,800 146
Pfizer, Inc. 3,900 291
Schering-Plough Corp. 7,600 472
Warner-Lambert Co. 2,400 298
----------
2,723
----------
INTEGRATED OILS - 5.9%
Amerada Hess Corp. NPV 4,000 220
Ashland, Inc. 3,100 166
Atlantic Richfield Co. 3,000 240
British Petroleum Co. PLC - ADR 1,900 151
Exxon Corp. 4,000 245
Mobil Corp. 2,200 159
Texaco, Inc. 3,900 212
----------
1,393
----------
MATERIALS AND PROCESSING - 6.6%
Crompton & Knowles Corp. 5,600 148
FMC Corp. (a) 1,500 101
Fort James Corp. 5,800 222
International Paper Co. 3,700 160
Mead Corp. 3,400 95
</TABLE>
4 Multi-Style Equity Fund
<PAGE>
MULTI-STYLE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Monsanto Co. 5,000 $ 210
Reynolds Metals Co. 2,600 156
Tyco International, Ltd. 5,400 243
USX-U.S. Steel Group 3,600 113
W. R. Grace & Co. 1,300 105
----------
1,553
----------
OTHER ENERGY - 0.5%
McDermott International, Inc. 3,600 132
----------
132
----------
PRODUCER DURABLES - 3.7%
Caterpillar, Inc. 2,700 131
Foster Wheeler Corp. 4,800 130
General Electric Co. 7,500 550
Thermo Electron Corp. (a) 1,300 58
----------
869
----------
TECHNOLOGY - 11.6%
Adaptec, Inc. (a) 2,300 85
Cisco Systems, Inc. (a) 2,850 159
COMPAQ Computer Corp. 1,700 96
Computer Associates International, Inc. 3,900 206
Electronic Data Systems Corp. 4,610 203
HBO & Co. 4,800 230
Hewlett-Packard Co. 2,200 138
Intel Corp. 1,400 98
International Business Machines Corp. 3,100 324
Microsoft Corp. (a) 2,500 323
Motorola, Inc. 2,900 165
National Semiconductor Corp. (a) 4,000 104
PeopleSoft, Inc. (a) 6,500 252
Tellabs, Inc. (a) 3,400 179
Textron, Inc. 2,700 169
----------
2,731
----------
UTILITIES - 11.3%
AT&T Corp. 5,200 318
Bell Atlantic Corp. 3,890 354
Consolidated Edison Co. 3,500 144
Edison International 6,900 188
Entergy Corp. 5,800 174
GTE Corp. 3,804 199
PG&E Corp. 9,030 275
SBC Communications, Inc. 5,000 366
Tele-Communications, Inc. Class A (a) 7,163 200
WorldCom, Inc. (a) 14,800 448
----------
2,666
----------
TOTAL COMMON STOCKS
(cost $19,143) 23,097
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C>
SHORT-TERM INVESTMENTS - 2.6%
Federated Prime Cash Obligaton Fund (b) $ 509 509
United States Treasury Notes (d)
5.125% due 04/30/98 100 100
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $609) 609
----------
TOTAL INVESTMENTS
(identified cost $19,752)(c) - 100.3% 23,706
OTHER ASSETS AND LIABILITIES,
NET - (0.3%) (67)
----------
NET ASSETS - 100.0% $ 23,639
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) See Note 2 for federal income tax information.
(d) Held as collateral by the custodian in connection with futures
contracts purchased by the Fund.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
PLC - Public Limited Company
The accompanying notes are an integral part of the financial statements.
Multi-Style Equity Fund 5
<PAGE>
MULTI-STYLE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S&P 500 Index Futures Contracts
expiration date 03/98 2 $ (3)
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ (3)
----------
----------
</TABLE>
(#) At December 31, 1997, United States Treasury Notes valued at $100 were held
as collateral by the custodian in connection with futures contracts
purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
6 Multi-Style Equity Fund
<PAGE>
MULTI-STYLE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $19,752,143)(Note 2) . . . . . . . . . . . . . . . . . . . . . . $ 23,706,189
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,778
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,144
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,142
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,165
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,809,418
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,055
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 36,066
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,189
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 100
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,410
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,639,008
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,005
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581,770
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,954,046
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,925)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,500
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,046,612
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,639,008
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($23,639,008 divided by 1,850,033 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.78
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Multi-Style Equity Fund 7
<PAGE>
MULTI-STYLE EQUITY FUND
STATEMENT OF OPERATIONS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313,020
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,267
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,287
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,747
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,869
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,702
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,872
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,098
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,002
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,281
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,951
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,522
Expense reductions (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . (132,718)
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177,804
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,483
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,606
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,164 581,770
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,954,046
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,925) 3,951,121
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,532,891
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 4,679,374
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 Multi-Style Equity Fund
<PAGE>
MULTI-STYLE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,483
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581,770
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 3,951,121
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . 4,679,374
--------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105,478)
--------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 5). . . . . . . . . . . . . . 19,040,112
--------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,614,008
NET ASSETS
Beginning of period (original capital) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
--------------
End of period (including undistributed net investment income of $41,005) . . . . . . . . . . . . . . . $ 23,639,008
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Multi-Style Equity Fund 9
<PAGE>
MULTI-STYLE EQUITY FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1997*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .09
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.75
----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.84
----------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.06)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.78
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.53
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,639
Ratios to average net assets (%)(b):
Operating expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Operating expenses, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.61
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.95
Average commission rate paid per share
of security ($ omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0297
</TABLE>
* For the period January 2, 1997 (commencement of operations) to
December 31, 1997.
(a) The total return for the period is not annualized.
(b) The ratios for the period January 2, 1997 (commencement of
operations) to December 31, 1997, are annualized.
10 Multi-Style Equity Fund
<PAGE>
AGGRESSIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
OBJECTIVE: To enhance total return, primarily through capital appreciation and
by assuming a higher level of volatility than is ordinarily expected from the
Multi-Style Equity Fund.
INVESTS IN: Primarily small capitalization and "emerging growth-type" U.S.
equity securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to
achieve higher returns with moderate risk. The Fund employed the investment
management services of two small capitalization stock fund managers with
distinct investment styles.
[GRAPH]
<TABLE>
<CAPTION>
LIPPER-C- SMALL
YEARS AGGRESSIVE EQUITY FUND RUSSELL 2500-TM- INDEX** CO. GROWTH++
- ----- ---------------------- ------------------------ ---------------
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1997 $13,507 $12,436 $12,074
<CAPTION>
AGGRESSIVE EQUITY FUND RUSSELL 2500-TM- INDEX
PERIODS ENDED GROWTH OF TOTAL PERIODS ENDED GROWTH OF TOTAL
12/31/97 $10,000 RETURN 12/31/97 $10,000 RETURN
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Inception $ 13,507 35.07% Inception $ 12,436 24.36%
<CAPTION>
LIPPER-C- SMALL CO. GROWTH FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL
12/31/97 $10,000 RETURN
------------- ------------- -------------
<S> <C> <C> <C>
Inception $ 12,074 20.74%
</TABLE>
* The Fund commenced operations on January 2, 1997. Index comparison began
November 1, 1996.
** Russell 2500-TM- Index is composed of the bottom 500 stocks in the Russell
1000-Registered Trademark- Index and all the stocks in the Russell
2000-Registered Trademark- Index. The largest security in this index has a
market capitalization of about $5.7 billion.
++ Lipper-C- Small Co. Growth Funds Average is the average total return for the
universe of funds within the Small Company Growth Funds investment objective.
The total return for the funds reflects adjustments for income dividends and
capital gains distributions reinvested as of the ex-dividend dates.
12 Aggressive Equity Fund
<PAGE>
AGGRESSIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1997, the Aggressive Equity Fund reflected a
total return of 35.1% as compared to the Russell 2500-TM- Index which was up
only 24.4%. The Fund's performance was even better relative to other small cap
funds tracked by Lipper-C- Analytical Services. Good security selection was the
primary contributor to positive results, with particularly strong returns from
financial services stocks.
PORTFOLIO HIGHLIGHTS
After outperforming large caps in the second and third quarters, the small
capitalization market appeared to be gaining momentum. However, the market's
flight to defensive stocks in the fourth quarter proved a decisive setback, with
the Russell 2000-Registered Trademark- Index gaining only 22.4% for the year
versus the 32.9% gain of the large and medium cap Russell 1000-Registered
Trademark- Index. Despite fourth quarter sector weakness, the Fund produced
strong results for the year, with managers' security selection accounting for
the superior performance.
Investment style had minimal influence on the performance of the Fund during the
year, despite the value-dominated small cap market. While the returns of small
value stocks rivaled large caps, small growth stocks trailed by a sizable
margin. The Russell 2000-Registered Trademark- Value Index gained 31.8% during
the year, while its counterpart, the Russell 2000-Registered Trademark- Growth
rose only 12.9%. The Aggressive Equity Fund managers were both very well
diversified during the year, which helped avoid the some of the performance
deterioration suffered by many small cap funds in the market's extreme rotation
to defensive sectors toward year end.
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
<TABLE>
<CAPTION>
(AS A PERCENT OF TOTAL INVESTMENTS) December 31, 1997
<S> <C>
New York State Electric & Gas Corp. 1.4%
Centex Corp. 1.3
Mercury General Corp. 1.2
Arvin Industries, Inc. 1.2
Universal Health Services, Inc. 1.1
Aliant Communications, Inc. 1.1
Bowne & Co., Inc. 1.0
Airborne Freight Corp. 1.0
California Water Service Co. 1.0
Boston Edison Co. 0.9
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS December 31, 1997
<S> <C>
Current P/E Ratio 17.8x
Portfolio Price/Book Ratio 2.90x
Market Capitalization - $-Weighted Average 1.2 Bil
Number of Holdings 299
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MANAGERS STYLES
Rothschild Asset Management, Inc. Small Cap - Value
Westpeak Investment Advisors, L.P. Small Cap - Value
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Aggressive Equity Fund 13
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 97.4%
AUTO AND TRANSPORTATION - 6.2%
Airborne Freight Corp. 2,500 $ 155
Alaska Air Group, Inc. (a) 1,700 66
Alexander & Baldwin, Inc. 2,900 79
Arvin Industries, Inc. 5,600 186
Avondale Industries, Inc. (a) 600 18
Barnes Group, Inc. 3,600 82
CNF Transportation, Inc. 700 27
Hvide Marine, Inc. Class A (a) 300 8
M.S. Carriers, Inc. (a) 1,500 37
Midwest Express Holdings, Inc. (a) 600 23
MotivePower Industries, Inc. (a) 1,500 35
Roadway Express, Inc. 300 7
Trinity Industries, Inc. 1,900 85
USFreightways Corp. 2,400 78
Werner Enterprises, Inc. 900 18
Yellow Corp. (a) 1,900 48
----------
952
----------
CONSUMER DISCRETIONARY - 16.4%
Abacus Direct Corp. (a) 700 29
Authentic Fitness Corp. 2,600 48
Barra, Inc. (a) 1,050 25
BHC Communications, Inc. Class A 100 13
Big Flower Holdings, Inc. (a) 400 10
Bowne & Co., Inc. 4,000 159
Bristol Hotel Co. (a) 450 13
Burlington Coat Factory Warehouse Corp. 4,460 73
CapStar Hotel Co. (a) 700 24
Carson Pirie Scott & Co. (a) 1,100 55
Cash America International, Inc. 3,700 48
Cato Corp. Class A 2,900 26
Central Newspapers, Inc. Class A 1,000 74
CKE Restaurants, Inc. 1,100 46
Computer Horizons Corp. (a) 800 36
Computer Task Group, Inc. 500 18
Cox Radio, Inc. Class A (a) 1,500 60
Dress Barn, Inc. (a) 3,300 92
Fedders Corp. 3,600 23
Foodmaker, Inc. (a) 5,100 77
Furniture Brands International, Inc. (a) 1,900 39
Genesco, Inc. (a) 2,500 32
Grey Advertising 300 98
GTECH Holdings Corp. (a) 2,600 83
Gymboree Corp. (a) 2,100 57
Interim Services, Inc. (a) 400 10
ITT Educational Services, Inc. (a) 1,200 27
Libbey, Inc. 400 15
Merrill Corp. 2,400 55
Mine Safety Appliances Co. 1,600 105
Norrell Corp. 1,000 20
On Assignment, Inc. (a) 600 15
Oxford Industries, Inc. 500 16
Payless ShoeSource, Inc. (a) 1,500 101
Pier 1 Imports, Inc. 4,600 104
Pinkerton's, Inc. New (a) 300 7
Pittston Brink's Group 400 16
Plantronics, Inc. New (a) 700 28
Pulitzer Publishing Co. 2,200 138
Rainforest Cafe, Inc. (a) 700 23
Ross Stores, Inc. 2,500 91
Russ Berrie & Co., Inc. 1,900 50
Ryan's Family Steak Houses, Inc. (a) 4,800 41
Showbiz Pizza Time, Inc. (a) 600 14
Sonic Corp. (a) 1,500 42
StaffMark, Inc. (a) 1,200 38
Stewart Enterprises, Inc. Class A 200 9
TETRA Technologies, Inc. (a) 300 6
Tiffany & Co. 2,100 76
Timberland Co. Class A (a) 300 17
Toro Co. 1,300 55
Transaction Network Services, Inc. (a) 2,000 34
Unifirst Corp. 300 8
United Stationers, Inc. (a) 1,100 53
Univision Communications, Inc.
Class A (a) 200 14
WestPoint Stevens, Inc. (a) 800 39
Zale Corp. (a) 300 8
----------
2,533
----------
CONSUMER STAPLES - 2.0%
Coors (Adolph) Co. Class B 800 27
Earthgrains Co. 2,000 94
Genovese Drug Stores, Inc. Class A 1,210 21
Schweitzer-Mauduit International, Inc. 1,200 45
Smithfield Foods, Inc. (a) 600 20
Smucker (J.M.) Co. 800 19
Universal Corp. 2,100 85
----------
311
----------
FINANCIAL SERVICES - 20.4%
Acceptance Insurance Companies, Inc. (a) 1,600 39
Alfa Corp. 1,100 19
AMBAC, Inc. 2,000 92
American Annuity Group, Inc. 1,500 33
Brenton Banks, Inc. 400 16
</TABLE>
14 Aggressive Equity Fund
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
BSB Bancorp, Inc. 1,100 $ 38
Capital Bancorp, Florida 1,500 85
CMAC Investment Corp. 400 24
Comdisco, Inc. 2,150 72
CORT Business Services Corp. (a) 3,100 123
Dain Rauscher Corp. 300 21
Delphi Financial Group, Inc. (a) 2,712 122
Deposit Guaranty Corp. 600 34
Everest Reinsurance Holdings, Inc. 1,100 45
First Savings Bank, SLA 300 15
FIRSTPLUS Financial Group, Inc. (a) 1,500 57
Foremost Corp. of America 1,000 70
Fremont General Corp. 1,400 77
Gallagher (Arthur J.) & Co. 1,500 52
GATX Corp. 1,000 73
GBC Bancorp 1,500 95
Golden State Bancorp, Inc. (a) 3,100 116
Greenpoint Financial Corp. 600 44
Horace Mann Educators Corp. 600 17
Imperial Bancorp (a) 770 38
Jefferies Group, Inc. 2,600 106
Magna Group, Inc. 2,000 92
McGrath RentCorp 4,000 94
Mercantile Bankshares Corp. 3,000 115
Merchants New York Bancorp, Inc. 1,800 74
Mercury General Corp. 3,400 187
Mississippi Valley Bancshares, Inc. 400 13
NAC Reinsurance Corp. 1,400 68
National Western Life Insurance Co. Class A (a) 300 30
North Fork Bancorporation, Inc. 1,000 34
Orion Capital Corp. 1,200 56
Pacific Century Financial Corp. 3,200 79
Pioneer Group, Inc. 2,600 72
Poe & Brown, Inc. 1,000 45
Raymond James Financial, Inc. 450 18
Reliastar Financial Corp. 200 8
RLI Corp. 1,000 50
Rollins Truck Leasing Corp. 4,200 75
Selective Insurance Group, Inc. 1,000 27
Silicon Valley Bancshares (a) 200 11
Sotheby's Holdings Co., Inc. Class A 3,700 68
SPS Transaction Services, Inc. (a) 2,400 54
St. Francis Capital Corp. 300 15
T R Financial Corp. 2,600 86
Triangle Bancorp, Inc. 500 18
USBANCORP, Inc. 800 58
Value Line, Inc. 1,900 75
Wilmington Trust Corp. 1,600 99
----------
3,144
----------
HEALTH CARE - 4.6%
Alpharma, Inc. Class A 1,800 39
Andrx Corp. (a) 500 17
Bindley Western Industries, Inc. 1,400 43
Biomatrix, Inc. (a) 500 15
Biomet, Inc. 4,200 107
Health Care & Retirement Corp. (a) 200 8
ICN Pharmaceuticals, Inc. 200 10
Incyte Pharmaceuticals, Inc. (a) 600 26
Integrated Health Services, Inc. 1,900 59
Mariner Health Group, Inc. (a) 3,100 50
Marquette Medical Systems, Inc. Class A (a) 1,400 37
Parexel International Corp. (a) 300 11
Patterson Dental Co. (a) 300 14
Perrigo Co. (a) 5,000 67
SONUS Pharmaceuticals, Inc. (a) 200 7
Theragenics Corp. (a) 300 11
United Wisconsin Services, Inc. 200 5
Universal Health Services, Inc. Class B (a) 3,500 176
----------
702
----------
INTEGRATED OILS - 1.5%
Cabot Oil & Gas Corp. 1,700 33
Houston Exploration Co. (The) (a) 600 11
Lyondell Petrochemical Co. 4,000 106
Murphy Oil Corp. 1,600 87
----------
237
----------
MATERIALS AND PROCESSING - 11.9%
ACX Technologies, Inc. (a) 2,000 49
Amcast Industrial Corp. 1,300 30
Ameron, Inc. 300 19
Brush Wellman, Inc. 1,300 32
CalMat Co. 1,300 36
Carbide/Graphite Group, Inc. (The) (a) 300 10
Centex Corp. 3,100 195
Chase Industries, Inc. (a) 1,700 43
</TABLE>
Aggressive Equity Fund 15
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Commonwealth Industries, Inc. 1,300 $ 19
Dekalb Genetics Corp. Class B 600 24
Dexter Corp. 1,700 73
Florida Rock Industries, Inc. 1,400 32
Giant Cement Holding, Inc. (a) 900 21
Halter Marine Group, Inc. (a) 1,350 39
Hughes Supply, Inc. 1,800 63
Interface, Inc. 2,100 60
International Specialty Products (a) 5,800 87
Lafarge Corp. 3,200 95
MacDermid, Inc. 1,100 89
Martin Marietta Materials, Inc. 1,500 55
MasTec, Inc. (a) 200 5
Minerals Technologies, Inc. 800 36
Mohawk Industries, Inc. (a) 4,050 89
Oneida, Ltd. 2,400 64
Reliance Steel & Aluminum Co. 300 9
Simpson Manufacturing Co., Inc. (a) 1,400 47
Southdown, Inc. 2,300 135
SPS Technologies, Inc. (a) 400 17
St. Mary Land & Exploration Co. 1,000 34
TJ International, Inc. 1,500 37
Tredegar Industries, Inc. 900 59
Universal Forest Products, Inc. 400 5
US Industries, Inc. 2,250 68
Vulcan Materials Co. 1,000 102
Webb (Del E.) Corp. 1,800 47
----------
1,825
----------
OTHER ENERGY - 4.4%
Atwood Oceanics, Inc. (a) 400 19
Berry Petroleum Co. Class A 2,000 35
BJ Services Co. (a) 700 50
Calenergy, Inc. (a) 400 11
Camco International, Inc. 200 13
El Paso Natural Gas Co. 400 27
EVI, Inc. (a) 1,000 52
Falcon Drilling Co., Inc. (a) 3,300 116
Helmerich & Payne, Inc. 1,400 95
Ocean Energy, Inc. (a) 500 25
Oryx Energy Co. (a) 4,000 102
Penn Virginia Corp. 700 20
RPC, Inc. 1,400 16
Smith International, Inc. (a) 700 43
Thermo Ecotek Corp. (a) 1,300 24
Trico Marine Services, Inc. (a) 900 26
----------
674
----------
PRODUCER DURABLES - 9.0%
Aeroquip-Vickers, Inc. 600 29
AFC Cable Systems, Inc. (a) 1,375 40
C&D Technologies, Inc. 300 14
Cincinnati Milacron, Inc. 2,400 62
Cohu, Inc. 1,100 33
Coltec Industries, Inc. (a) 4,400 102
Credence Systems Corp. (a) 400 12
CTS Corp. 2,400 77
Daniel Industries, Inc. 1,100 21
Dionex Corp. (a) 200 10
Ducommun, Inc. (a) 2,300 80
Electroglas, Inc. (a) 400 6
Encore Wire Corp. (a) 700 22
Fluke Corp. 600 16
Franklin Electric Co., Inc. 500 31
GenCorp, Inc. 4,200 105
Helix Technology Corp. 400 8
Kuhlman Corp. 2,200 86
Lindsay Manufacturing Co. 300 13
MagneTek, Inc. (a) 1,200 23
Mathews International Corp. Class A 400 18
Miller (Herman), Inc. 200 11
Pittway Corp. Class A 300 21
Robbins & Myers, Inc. 2,800 111
Snap-On Tools Corp. 1,900 83
Standard Pacific Corp. 1,800 28
Starrett (L.S.) Co. Class A 300 11
Tektronix, Inc. 2,600 103
Thiokol Corp. 1,000 81
Veeco Instruments, Inc. (a) 300 7
Watts Industries, Inc. Class A 2,400 68
Wausau-Mosinee Paper Corp. 350 7
Zurn Industries, Inc. 1,300 41
----------
1,380
----------
TECHNOLOGY - 8.0%
ANADIGICS, Inc. (a) 1,000 30
Aspen Technology, Inc. (a) 700 24
Boole & Babbage, Inc. (a) 400 12
Burr-Brown Corp. (a) 300 10
CHS Electronics, Inc. New (a) 600 10
Citrix Systems, Inc. (a) 100 8
Dallas Semiconductor Corp. 600 24
Data General Corp. (a) 3,800 66
Davox Corp. (a) 400 13
Digital Microwave Corp. (a) 3,600 52
Electro Scientific Industries, Inc. (a) 700 27
Esterline Corp. (a) 1,900 68
</TABLE>
16 Aggressive Equity Fund
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
FactSet Research Systems, Inc. (a) 400 $ 12
Harbinger Corp. (a) 900 25
KEMET Corp. (a) 300 6
Microchip Technology, Inc. (a) 300 9
National Computer Systems, Inc. 800 28
Park Electrochemical Corp. 1,200 34
Policy Management Systems Corp. (a) 1,400 97
REMEC, Inc. (a) 500 11
Sandisk Corp. (a) 500 10
Sanmina Corp. (a) 900 61
Semtech Corp. (a) 400 16
SpeedFam International, Inc. (a) 500 13
SPSS, Inc. (a) 300 6
Symantec Corp. (a) 4,100 90
Synopsys, Inc. (a) 1,304 46
Systems & Computer Technology Corp. (a) 2,100 104
Tech-Sym Corp. (a) 1,300 33
Tracor, Inc. New (a) 1,800 55
Unitrode Corp. (a) 500 11
Veritas Software Corp. (a) 900 46
Viasoft, Inc. (a) 800 34
Vitesse Semiconductor Corp. (a) 900 34
Volt Information Sciences, Inc. (a) 900 48
Wind River Systems, Inc. (a) 200 8
Yahoo! Inc. (a) 600 42
----------
1,223
----------
UTILITIES - 13.0%
Aliant Communications, Inc. 5,200 163
American Water Works, Inc. 1,900 52
Black Hills Corp. 1,300 46
Boston Edison Co. 3,700 140
California Water Service Co. 2,600 154
Central Hudson Gas & Electric Corp. 800 35
Eastern Utilities Associates 1,100 29
Energen Corp. 2,000 80
Interstate Power Co. 2,800 105
McLeodUSA, Inc. (a) 400 13
Minnesota Power & Light Co. 1,900 83
National Fuel & Gas Co. 2,100 102
New York State Electric & Gas Corp. 5,900 209
NIPSCO Industries, Inc. 2,200 109
NUI Corp. 3,100 89
OGE Energy Corp. 1,000 55
Pacific Gateway Exchange, Inc. (a) 700 38
Rochester Gas & Electric Corp. 3,800 129
Sierra Pacific Resources 1,200 45
Tel-Save Holdings, Inc. (a) 2,600 51
UGI Corp. 4,300 126
United States Cellular Corp. (a) 3,200 99
Washington Gas & Light Co. 1,400 42
----------
1,994
----------
TOTAL COMMON STOCKS
(cost $12,459) 14,975
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.7%
Federated Prime Cash Obligaton Fund (b) $ 366 366
United States Treasury Notes
5.125% due 04/30/98 (c) 50 50
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $415) 416
----------
TOTAL INVESTMENTS
(identified cost $12,874)(d) - 100.1% 15,391
OTHER ASSETS AND LIABILITIES,
NET - (0.1%) (19)
----------
NET ASSETS - 100.0% $ 15,372
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) Held as collateral by the custodian in connection with futures contracts
purchased by the Fund.
(d) See Note 2 for federal income tax information.
The accompanying notes are an integral part of the financial statements.
Aggressive Equity Fund 17
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
NUMBER APPRECIATION
OF (DEPRECIATION)
CONTRACTS (000)
---------- ------------
<S> <C> <C>
FUTURES CONTRACTS
(Notes 2 and 3)
S & P 400 Midcap Index Futures Contracts
expiration date 03/98 2 $ 6
----------
Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts Purchased (#) $ 6
----------
----------
</TABLE>
(#) At December 31, 1997, United States Treasury Notes valued at $50 were held
as collateral by the custodian in connection with futures contracts
purchased by the Fund.
The accompanying notes are an integral part of the financial statements.
18 Aggressive Equity Fund
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $12,874,398)(Note 2) . . . . . . . . . . . . . . . . . . . . . . $ 15,390,537
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,201
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,627
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,495
Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . 1,400
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,165
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,492,425
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,563
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 40,259
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,939
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,761
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,371,664
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,172
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098,319
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,516,139
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,950
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,425
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,736,659
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,371,664
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($15,371,664 divided by 1,142,541 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.45
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Aggressive Equity Fund 19
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF OPERATIONS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 190,131
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,280
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,411
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,490
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,644
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,506
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,418
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,831
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,002
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,282
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,818
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,991
Expense reductions (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . (118,714)
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,277
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,134
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 992,514
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,805 1,098,319
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,516,139
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,950 2,522,089
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,620,408
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 3,668,542
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 Aggressive Equity Fund
<PAGE>
AGGRESSIVE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,134
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098,319
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 2,522,089
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . 3,668,542
--------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,962)
--------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 5). . . . . . . . . . . . . . 11,723,084
--------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,346,664
NET ASSETS
Beginning of period (original capital) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
--------------
End of period (including undistributed net investment income of $3,172) . . . . . . . . . . . . . . . $ 15,371,664
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Aggressive Equity Fund 21
<PAGE>
AGGRESSIVE EQUITY FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1997*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . 3.45
----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.49
----------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.04)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.45
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.07
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,372
Ratios to average net assets (%)(b):
Operating expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25
Operating expenses, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.22
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.56
Average commission rate paid per share of security ($ omitted) . . . . . . . . . . . . . . . . . . . . . . .0360
</TABLE>
* For the period January 2, 1997 (commencement of operations) to
December 31, 1997.
(a) The total return for the period is not annualized.
(b) The ratios for the period are annualized.
22 Aggressive Equity Fund
<PAGE>
NON-US FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
OBJECTIVE: To provide favorable total return and diversification for US
investors.
INVESTS IN: Primarily the equity securities of non-US companies in developed
foreign markets.
STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher
returns than its benchmark index with moderate risk by employing the investment
management services of three managers with separate and distinct investment
approaches. The Fund's primary source of added value is intended to be stock
selection with only moderate country allocations relative to the index to
capture the diversification benefits of international investment in an asset
allocation context.
[GRAPH]
<TABLE>
<CAPTION>
LIPPER-C-
YEARS NON-US FUND SB BMI WORLD EX-US++++ INTERNATIONAL++
- ----- ----------- ---------------------- ---------------
<S> <C> <C> <C>
* $10,000 $10,000 $10,000
1997 $10,030 $10,261 $10,513
<CAPTION>
NON-US FUND LIPPER-C- INTERNATIONAL FUNDS AVERAGE
PERIODS ENDED GROWTH OF TOTAL PERIODS ENDED GROWTH OF TOTAL
12/31/97 $10,000 RETURN 12/31/97 $10,000 RETURN
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Inception $ 10,030 0.30% Inception $ 10,513 5.13%
<CAPTION>
SALOMON BROTHERS BROAD MARKET INDEX (BMI) EX-US++++
PERIODS ENDED GROWTH OF TOTAL
12/31/97 $10,000 RETURN
------------- ------------- -------------
<S> <C> <C> <C>
Inception $ 10,261 2.61%
</TABLE>
* The Fund commenced operations on January 2, 1997.
++ Lipper-C- International Funds Average is the average total return for the
universe of funds within the International Funds investment objective. The
total return for the funds reflects adjustments for income dividends and
capital gains distributions reinvested as of the ex-dividend dates.
++++ Salomon Brothers BMI Index ex-US is a comprehensive float-weighted equity
index consisting of every company with an investable market capitalization
of over $100 million in 22 countries.
24 Non-US Fund
<PAGE>
NON-US FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1997, the Non-US Fund had a total return of 0.3%
as compared to the Salomon Brothers Broad Market Index ex-US, which gained 2.6%
for the year. The Fund's shortfall to the benchmark was primarily due to weak
security selection results from holdings in the United Kingdom and Singapore.
PORTFOLIO HIGHLIGHTS
The consequences of the economic crises sweeping Asia during the last four
months of the year were felt in virtually all developed markets as well. Already
in a recession attributed to a poorly timed increase in consumption taxes,
prospects for Japan's economy worsened when the weakening economies of its Asian
trading partners diminished prospects for Japan's export business. Several
major corporate failures in Japan provided some indications of the severity of
the situation. Japanese stocks dropped 28% during the year. Although European
economies seemed much healthier, the uncertain exposure of European companies to
these markets dampened enthusiasm during the fourth quarter, however, European
stocks still gained 24% for the year.
While the Fund's emphasis on stock selection helped it avoid some of the major
downturns in individual markets, poor results from UK holdings as well as the
Fund's underweighting in the market contributed to a shortfall to the index for
the year. The Fund's modest overweighting in Asian markets also had a negative
impact.
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
<TABLE>
<CAPTION>
(AS A PERCENT OF TOTAL INVESTMENTS) December 31, 1997
<S> <C>
Royal Dutch Petroleum Co. (Netherlands) 2.7%
Schweiz Bankgesellsch (Switzerland) 2.2
Lloyds TSB Group (UK) 2.0
Glaxo Wellcome (UK) 1.8
Toyota Motor Corp. (Japan) 1.7
Novartis AG (Switzerland) 1.7
Veba AG (Germany) 1.6
Eaux (France) 1.6
Bank of Tokyo - Mitsubishi, Ltd. (Japan) 1.4
Nippon Telegraph & Telephone Corp. (Japan) 1.4
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS December 31, 1997
<S> <C>
Current P/E Ratio 21.9x
Portfolio Price/Book Ratio 2.39x
Market Capitalization - $-Weighted Average 29.80 Bil
Number of Holdings 193
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MANAGERS STYLES
Oechscle International Advisors Growth
The Boston Company Asset Management Value
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Non-US Fund 25
<PAGE>
NON-US FUND
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
COMMON STOCKS - 92.2%
AUSTRALIA - 2.1%
Amcor, Ltd. 900 $ 4
Broken Hill Proprietary Co. 3,100 29
CSR, Ltd. 5,100 17
Mayne Nickless, Ltd. 3,000 16
National Australia Bank, Ltd. 900 13
Southcorp Holdings, Ltd. 3,500 11
Telstra Corp., Ltd. (a) 2,000 4
Western Mining Corp., Ltd. 8,700 30
Westpac Banking Corp. 3,233 21
----------
145
----------
AUSTRIA - 0.2%
OMV AG 100 14
----------
14
----------
BELGIUM - 1.0%
Algem Maatsch Voor Nijverheidskredit
Almanij NPV 500 25
Credit Communal Holding/ Dexia NPV 150 20
Groupe Bruxelles Lambert NPV 60 9
PetroFina SA NPV 35 13
----------
67
----------
DENMARK - 1.3%
Jyske Bank AS (Regd.) 400 49
Novo Nordisk AS Series B 299 43
----------
92
----------
FINLAND - 0.5%
Kymmene OY 1,000 20
Rautaruukki OY 1,600 13
----------
33
----------
FRANCE - 8.9%
AXA - UAP 482 37
Carrefour SA 48 25
Cie de St. Gobain 176 25
Cie Finance Paribas Class A (BR) 555 48
Eaux (cie Generale) 762 106
Elf Aquitaine SA 530 61
Eridania Beghin-Say 100 16
France Telecom SA (a) 860 31
L'Air Liquide 324 51
Lagardere Groupe (Regd) 752 25
Peugeot SA 156 20
Sanofi SA 393 44
SEITA 500 18
SGS Thomson Microelectronics (a) 470 29
Societe Generale 150 20
Thomson-CSF 500 16
Union des Assurances Federales 200 26
Usinor Sacilor 647 9
----------
607
----------
GERMANY - 8.5%
Bilfinger & Berger BAU AG 310 10
Continental AG 1,530 34
Deutsche Bank AG 1,040 73
Deutsche Lufthansa AG (a) 1,870 36
Douglas Holding AG 550 17
Dresdner Bank AG 505 23
Hannover Rueckversicherungs AG 301 28
Henkel KGAA 260 15
Karstadt AG 50 17
Muenchener Rueckversicherungs-Gesellschaft AG 227 85
ProSieben Media AG - ADR (a) 40 1
SAP AG 80 24
Schering AG 140 13
SGL Carbon AG 200 26
Siemens AG 1,040 62
SKW Trostberg AG 340 11
Veba AG 1,582 108
----------
583
----------
HONG KONG - 2.5%
Dickson Concepts International, Ltd. 8,000 12
Hong Kong Electric Holding, Ltd. 9,000 34
HSBC Holdings (UK Regd) PLC 1,600 39
Hutchison Whampoa, Ltd. 6,000 38
New World Development Co., Ltd. 3,000 10
Sun Hung Kai Properties, Ltd. 4,000 28
Swire Pacific, Ltd. Class A 2,500 14
----------
175
----------
</TABLE>
26 Non-US Fund
<PAGE>
NON-US FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
ITALY - 3.3%
Ente Nazionale Idrocarburi SPA (Regd) 8,800 $ 50
Fiat di Risp SPA 13,000 21
Istituto Mobiliane Italiano SPA 3,000 36
Istituto Nazionale Delle Assicurazioni 30,000 61
Telecom Italia SPA (a) 14,000 62
----------
230
----------
JAPAN - 22.5%
Bank Of Tokyo - Mitsubishi, Ltd. 7,000 96
Bridgestone Tire Corp. 3,000 65
Canon Sales Co., Inc. 3,000 34
Canon, Inc. 1,000 23
Dai Ichi Kangyo Bank 1,000 6
Daiken Corp. 6,000 15
DDI Corp. 6 16
Fanuc Co. 1,000 38
Fuji Photo Film Co. 1,000 38
Fujitsu, Ltd. 7,000 75
Hitachi, Ltd. 4,000 28
Ishihara Sangyo (a) 18,000 20
Japan Tobacco, Inc. 8 57
Mitsubishi Corp. 4,000 32
Mitsubishi Estate Co., Ltd. 6,000 65
Mitsui Mining & Smelting 11,000 44
Mitsui Trust & Banking 22,000 43
Nippon Steel Corp. 16,000 24
Nippon Telegraph & Telephone Corp. 11 94
Nissan Motor Co., Ltd. 7,000 29
Nomura Securities 2,000 27
NSK, Ltd. 7,000 17
Ricoh Co., Ltd. 3,000 37
San-In Godo Bank 6,000 36
Sekisui Chemical Co., Ltd. 10,000 51
Sony Corp. 700 62
Sumitomo Forestry 3,000 15
Takeda Chemical Industries 2,000 57
TDK Corp. 1,000 75
Tokyo Electric Power 1,800 33
Toppan Printing 3,000 39
Toyota Motor Corp. 4,000 115
West Japan Railway Co. 16 51
Yamanouchi Pharmaceutical 4,000 86
----------
1,543
----------
MALAYSIA - 0.6%
Boustead Holdings Berhad 6,000 5
Commerce Asset Holdings 1,600 1
Gamuda Berhad 10,100 5
IND Oxygen, Inc. 14,000 4
Malakoff Berhad 7,000 15
Tanjong PLC 7,000 12
----------
42
----------
NETHERLANDS - 5.7%
Aegon 279 25
ING Groep NV 1,462 62
Ispat International NV Class A (a) 403 9
Koninklijke Ahold NV 920 24
Philips Electronics 690 41
Royal Dutch Petroleum Co. 3,240 178
Unilever NV 880 54
----------
393
----------
NEW ZEALAND - 0.3%
Lion Nathan, Ltd. 4,300 10
Telecom Corp. of New Zealand, Ltd. 2,300 11
----------
21
----------
NORWAY - 0.3%
Kvaerner Industries AS Series B 240 11
Norsk Hydro AS 260 13
----------
24
----------
SINGAPORE - 0.7%
Singapore Airlines, Ltd. (Alien Market) 3,000 20
Singapore Press Holdings (Alien Market) 1,000 12
United Overseas Bank, Ltd. (Alien Market) 3,000 17
----------
49
----------
SPAIN - 2.5%
Acerinox SA 44 6
Banco Bilbao Vizcaya SA 1,600 52
Banco Popular Espanol SA 180 13
Hidroelectrica del Cantabrico SA 480 21
Iberdrola SA 3,800 50
</TABLE>
Non-US Fund 27
<PAGE>
NON-US FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
Repsol SA 600 $ 26
Vallehermoso SA 200 6
----------
174
----------
SWEDEN - 2.4%
Autoliv, Inc. 1,620 53
Incentive AB Series B Free 400 36
Skandia Group Foersakerings Free 1,126 53
SKF AB Series A 1,300 26
----------
168
----------
SWITZERLAND - 7.3%
ABB AG (BR)(a) 15 19
Holderbank Financiere Glarus AG (BR) 23 19
Liechtenstein Global Trust AG (PC) 40 25
Nestle SA (Regd) 53 79
Novartis AG (Regd) 68 110
Roche Holdings Genusscheine AG NPV 8 79
Schweiz Bankgesellsch (BR) 102 147
Schweiz Ruckversicher (Regd) 13 24
----------
502
----------
UNITED KINGDOM - 21.6%
Allied Colloids PLC 7,900 22
Allied Irish Banks 3,200 31
Amersham International PLC 300 11
B.A.T. Industries PLC 3,900 36
BASS PLC 2,000 31
Billiton PLC (a) 4,200 11
British Airways PLC 2,300 21
British Petroleum Co. PLC 4,291 57
British Sky Broadcasting Group PLC 600 4
British Telecom PLC 6,900 54
Burmah Castrol PLC 700 12
Cadbury Schweppes PLC 2,200 22
Compass Group PLC 2,000 25
Diageo PLC 4,100 38
Flextech PLC (a) 900 8
General Cable PLC (a) 3,600 5
General Electric Co. PLC 1,900 12
Glaxo Wellcome PLC 4,900 117
Glynwed International PLC 4,800 20
Great University Stores PLC 3,000 38
HSBC Holdings PLC 2,100 54
Kingfisher PLC 1,300 18
Lloyds TSB Group PLC 10,100 131
LucasVarity PLC 5,400 19
MEPC PLC 2,500 21
MFI Furniture Group PLC 10,684 21
National Power PLC 1,700 17
Pilkington Brothers PLC 9,000 19
Prudential Corp. PLC 3,400 41
Racal Electronics PLC 5,300 23
Rank Group PLC 4,800 27
Reed International 1,500 14
Rio Tinto Corp. PLC (Regd) 650 8
RMC Group PLC 1,100 16
Rolls-Royce PLC 4,000 15
Royal & Sun Alliance Insurance Group PLC 3,000 30
Royal Bank of Scotland Group PLC 3,700 47
Sainsbury (J.) PLC 4,100 35
Scottish Power PLC 4,950 44
Sears PLC 14,000 12
Shell Transportation & Trading PLC (Regd) 3,600 25
Smith & Nephew PLC 5,000 15
Standard Chartered Bank Group PLC 2,144 23
Tomkins PLC 4,500 21
Unilever PLC 4,600 40
United Newspaper, Ltd. PLC 1,000 11
Vickers, Ltd. PLC 5,000 19
Vodafone Group PLC 7,400 53
Wessex Water PLC 4,000 34
Zeneca Group PLC 1,400 50
----------
1,478
----------
TOTAL COMMON STOCKS
(cost $6,351) 6,340
----------
PREFERRED STOCKS - 2.3%
AUSTRALIA - 0.6%
News Corp., Ltd. 5,300 26
WBK STRYPES Trust (conv.) 400 13
----------
39
----------
</TABLE>
28 Non-US Fund
<PAGE>
NON-US FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF VALUE
SHARES (000)
---------- ----------
<S> <C> <C>
AUSTRIA - 0.3%
Bank Austria AG (a) 484 $ 22
----------
22
----------
GERMANY - 1.4%
Krones AG NV 30 9
ProSieben Media AG NV (a) 226 11
RWE AG 1,110 47
SAP AG 90 29
----------
96
----------
TOTAL PREFERRED STOCKS
(cost $126) 157
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 0.4%
JAPAN - 0.4%
STB Cayman Capital, Ltd. (conv.)
0.500% due 10/01/07 JPY 5,000 28
----------
TOTAL LONG-TERM INVESTMENTS
(cost $43) 28
----------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.0%
UNITED STATES - 2.0%
Federated Prime Cash Obligaton Fund (b) $ 141 $ 141
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $141) 141
----------
TOTAL INVESTMENTS
(identified cost $6,661)(c) - 96.9% 6,666
OTHER ASSETS AND LIABILITIES,
NET - 3.1% 210
----------
NET ASSETS - 100.0% $ 6,876
----------
----------
</TABLE>
(a) Nonincome-producing security.
(b) At cost, which approximates market.
(c) See Note 2 for federal income tax information.
ABBREVIATIONS:
ADR - American Depositary Receipt
NPV - No Par Value
NV - Nonvoting
PLC - Public Limited Company
FOREIGN CURRENCY ABBREVIATIONS:
JPY - Japanese yen
The accompanying notes are an integral part of the financial statements.
Non-US Fund 29
<PAGE>
NON-US FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
GEOGRAPHIC DIVERSIFICATION ASSETS (000)
- ------------------------------- ---------- ----------
<S> <C> <C>
Europe 43.7% $ 3,005
Japan 22.8 1,571
United Kingdom 21.5 1,478
Pacific Basin 6.7 458
United States (Short-Term Investments) 2.0 141
Other 0.2 13
---------- ----------
Total Investments 96.9 6,666
Other Assets and Liabilities, Net 3.1 210
---------- ----------
NET ASSETS 100.0% $ 6,876
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- ------------------------------- ---------- ----------
<S> <C> <C>
Auto & Transportation 7.2% $ 495
Consumer Discretionary 10.1 697
Consumer Staples 7.2 492
Financial Services 23.6 1,625
Health Care 9.1 625
Integrated Oils 4.6 319
Materials & Processing 8.8 603
Miscellaneous 2.5 169
Other Energy 2.8 191
Producer Durables 4.3 298
Technology 5.1 350
Utilities 9.2 633
Long-Term Investments 0.4 28
Short-Term Investments 2.0 141
---------- ----------
Total Investments 96.9 6,666
Other Assets and Liabilities, Net 3.1 210
---------- ----------
NET ASSETS 100.0% $ 6,876
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30 Non-US Fund
<PAGE>
NON-US FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $6,660,827)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 6,666,445
Foreign currency holdings (identified cost $211,286) . . . . . . . . . . . . . . . . . . . . . . . . . . 208,167
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,458
Investments sold (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,420
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,495
Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,036
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,165
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,026,186
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,557
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 21,784
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,586
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,927
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,876,259
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,375
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (133,143)
Unrealized appreciation (depreciation) on:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,618
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,832)
Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,857
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,916,384
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,876,259
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($6,876,259 divided by 685,744 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.03
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Non-US Fund 31
<PAGE>
NON-US FUND
STATEMENT OF OPERATIONS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,720
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,567
Less foreign taxes withheld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,810)
--------------
Total Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,477
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,283
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,296
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,877
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,125
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,501
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,002
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,281
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,731
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,096
Expense reductions (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . (152,235)
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,861
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,616
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (133,143)
Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 20,759 (112,384)
--------------
Net change in unrealized appreciation or depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,618
Foreign currency-related transactions . . . . . . . . . . . . . . . . . . . . . . (3,832) 1,786
-------------- --------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,598)
--------------
Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ (46,982)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32 Non-US Fund
<PAGE>
NON-US FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,616
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,384)
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 1,786
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . (46,982)
--------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . . . . . . . . . . . 6,898,241
--------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,851,259
NET ASSETS
Beginning of period (original capital) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
--------------
End of period (including undistributed net investment income of $84,375) . . . . . . . . . . . . . . . $ 6,876,259
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Non-US Fund 33
<PAGE>
NON-US FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1997*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .09
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (.06)
----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .03
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.03
----------
----------
TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,876
Ratios to average net assets (%)(b):
Operating expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.30
Operating expenses, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.54
Average commission rate paid per share
of security ($ omitted)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0026
</TABLE>
* For the period January 2, 1997 (commencement of operations) to
December 31, 1997.
(a) The total return for the period is not annualized.
(b) The ratios for the period are annualized.
(c) In certain foreign markets the relationship between the translated U.S.
dollar price per share and commission paid per share may vary from that of
domestic markets.
34 Non-US Fund
<PAGE>
CORE BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
OBJECTIVE: To provide effective diversification against equities and a stable
level of cash flow.
INVESTS IN: Fixed-income securities.
STRATEGY: The Fund uses a multi-style, multi-manager strategy and employed
two managers with distinct approaches to managing portfolios of
intermediate-maturity, investment-grade fixed income securities.
[GRAPH]
<TABLE>
<CAPTION>
YEARS CORE BOND FUND LB AGGREGATE**
- ----- -------------- --------------
<S> <C> <C>
* $10,000 $10,000
1997 $10,973 $10,966
<CAPTION>
CORE BOND FUND LEHMAN BROTHERS AGGREGATE BOND INDEX
PERIODS ENDED GROWTH OF TOTAL PERIODS ENDED GROWTH OF TOTAL
12/31/97 $10,000 RETURN 12/31/97 $10,000 RETURN
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Inception $ 10,973 9.73% Inception $ 10,966 9.66%
</TABLE>
* The Fund commenced operations on January 2, 1997.
** Lehman Brothers Aggregate Bond Index is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index,
and the Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
36 Core Bond Fund
<PAGE>
CORE BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
December 31, 1997 (Unaudited)
PERFORMANCE REVIEW
For the year ended December 31, 1997, the Core Bond Fund reflected a total
return of 9.7% as compared to the Lehman Brothers Aggregate Bond Index which
also gained 9.7%. The Fund equaled the benchmark based on the performance of its
mortgage-backed holdings and its longer duration position versus the index.
PORTFOLIO HIGHLIGHTS
Interest rates declined throughout the year as signs of disinflation, or even
deflation, helped ease yields. Although quite volatile again in 1997, the trend
in falling yields was quite strong, with the yield on the long bond reaching its
lowest point since its introduction in 1977. The Federal Reserve Board added
uncertainty to the market, but made only one interest rate move during the year,
a 1/4% increase in the first quarter. With trends in the economy suggesting
stable growth and no inflation, investors found appealing opportunities in
several segments of the bond markets, including lower quality corporate issues.
Uncertainties in the marketplace for bonds created some challenging
opportunities to add value. The Fund generated positive returns through security
selection, with a focus on exploiting favorable yield spreads, particularly in
mortgage-backed securities. However, mortgage-backed securities appeared to be
exposed to prepayments late in the year, as rates on mortgages reached very
attractive levels. Contrary to these expectations, the sector proved to be the
best performer versus duration-equivalent alternatives. Reflecting the benefit
of multiple manager perspectives, PIMCO was able to maintain an overweighting in
the sector by focusing on securities less vulnerable to prepayment concerns,
helping offset the reduction in mortgage-backed positions by Standish, Ayer &
Wood. While the strong performance of corporate issues throughout the first
three quarters also contributed positively to the Fund's performance, the
market's flight to quality in the fourth quarter produced weak returns from
lower quality issues in the sector.
- --------------------------------------------------------------------------------
TOP TEN ISSUERS
<TABLE>
<CAPTION>
(AS A PERCENT OF TOTAL INVESTMENTS) December 31, 1997
<S> <C>
United States Treasury 25.6%
Federal National Mortgage Association 21.9
Federal Home Loan Mortgage Corp. 1.8
Government National Mortgage Association 1.4
The Money Store Home Equity Trust 1.2
Citicorp 1.1
Bear Stearns Capital Trust 1.1
Golman Sachs Group, L.P. 0.8
Crescent Real Estate Equities 0.8
First Nationwide Holdings 0.6
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS December 31, 1997
<S> <C>
Weighted Average Quality Diversification AAA
Weighted Average Years-to Maturity 8.2 Years
Weighted Average Duration 4.9 Years
Current Yield (SEC 30-day standardized) 6.5%
Number of Issues 79
Number of Issuers 69
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MANAGERS STYLES
Pacific Investment Management Co. Broad Market-Sector
Rotation
Standish, Ayer & Wood Broad Market-Sector
Rotation
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than when purchased.
Past performance is not indicative of future results.
Core Bond Fund 37
<PAGE>
CORE BOND FUND
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
LONG-TERM INVESTMENTS - 78.4%
ASSET-BACKED SECURITIES - 2.5%
Citibank Credit Card Master Trust I
Series 1997-6 Class A Principal Only
Zero Coupon due 08/15/06 $ 75 $ 50
Residential Funding Mortgage Securities II
Series 1997-HS5 Class M1
7.010% due 05/25/27 50 51
The Money Store Home Equity Loan Trust
Series 1994-D Class A-4
8.750% due 09/15/20 50 52
Series 1996-B Class A5
7.180% due 02/15/15 60 61
----------
214
----------
CORPORATE BONDS AND NOTES - 19.4%
Advanta Home Equity Loan Trust
7.040% due 12/25/28 50 50
Amerus Capital I Series A
8.850% due 02/01/27 25 28
BankBoston Corporation
6.875% due 07/15/03 25 26
Bear Stearns Capital Trust I
7.000% due 01/15/27 100 101
Chancellor Radio Broadcasting
8.125% due 12/15/07 25 25
Citicorp
9.500% due 02/01/02 50 56
Colonial Realty LP (MTN)
7.160% due 01/17/03 50 52
Crescent Real Estate Equities
6.625% due 09/15/02 75 75
Dime Bancorp Trust I Series A
9.330% due 05/06/27 25 28
Exide Corp.
2.900% due 12/15/05 50 32
Ferrellgas LP/Financing Corp. Series A
10.000% due 08/01/01 35 37
First Nationwide Parent Holdings
12.500% due 04/15/03 50 57
First Tennessee Capital I Series A
8.070% due 01/06/27 25 26
Goldman Sachs Group, LP
6.200% due 02/15/01 75 75
Great Atlantic & Pacific Tea Inc
7.700% due 01/15/04 25 26
Imperial Capital Trust I Series B
9.980% due 12/31/26 25 28
Imperial Credit Industries, Inc., Series B
9.875% due 01/15/07 35 34
Jackson National Life Insurance Co.
8.150% due 03/15/27 25 27
Kaufman and Broad Home Corp.
7.750% due 10/15/04 50 50
Lite-On Technology Corp.
Zero Coupon due 12/01/02 (conv.) 50 50
Markel Capital Trust I Series B
8.710% due 01/01/46 25 27
Meditrust
7.375% due 07/15/00 25 26
MMI Trups
7.625% due 12/15/27 25 25
Ocwen Financial Corp.
11.875% due 10/01/03 50 56
Orion Capital Trust I
8.730% due 01/01/37 25 27
REAC USA Finance Co. (MTN)
7.500% due 06/15/03 50 53
Reliance Group Holdings, Inc.
9.000% due 11/15/00 50 52
Revlon Worldwide
Zero Coupon due 03/15/01 40 28
Rose Hills Co.
9.500% due 11/15/04 25 26
Salomon, Inc. (MTN)
6.625% due 11/30/00 25 25
Simon Debartolo Group, LP
6.875% due 11/15/06 50 50
Sinclair Broadcast Group, Inc.
8.750% due 12/15/07 50 50
Southland Corp. Series A
4.500% due 06/15/04 50 41
Summit Properties Inc.
7.200% due 08/15/07 25 26
Sun Healthcare Group, Inc.
9.500% due 07/01/07 25 26
Tanger Properties LP
8.750% due 03/11/01 25 26
7.875% due 10/24/04 25 25
</TABLE>
38 Core Bond Fund
<PAGE>
CORE BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
Taubman Realty Group, LP
8.000% due 06/15/99 $ 25 $ 26
Tenet Healthcare Corp.
8.625% due 12/01/03 25 26
Toll Brothers Corp.
7.750% due 09/15/07 25 25
Travelers Property Casualty Corp.
6.750% due 04/15/01 25 25
United Companies Financial Corp.
7.700% due 01/15/04 25 26
Viacom, Inc.
7.750% due 06/01/05 25 25
Westinghouse Credit Corp.
8.875% due 06/14/14 25 28
----------
1,653
----------
MORTGAGE-BACKED SECURITIES - 27.5%
Chase Commercial Mortgage Securities Corp.
6.600% due 12/19/07 25 24
Federal Home Loan Mortgage Corp. Groups
Participation Certificate
6.000% due 2011 95 94
7.500% due 2026 74 76
Federal National Mortgage Association Pools
8.500% due 2025 27 28
7.000% due 2026 321 324
Federal National Mortgage Association
(REMIC) Series 1992-10 Class ZD
8.000% due 11/25/21 796 874
Federal National Mortgage Association
6.500% 30 Year TBA (c) 800 790
Government National Mortgage
Association Pools
7.000% due 2026 132 133
----------
2,343
----------
NON-US BONDS - 0.3%
Videotron Holdings PLC Step Up Bond
Zero Coupon until 07/01/99 due 07/01/04 25 24
----------
24
----------
UNITED STATES GOVERNMENT
TREASURIES - 27.7%
United States Treasury Bonds
8.125% due 08/15/19 375 469
6.500% due 11/15/26 250 267
United States Treasury Notes
5.625% due 11/30/98 50 50
6.000% due 06/30/99 50 50
6.625% due 06/30/01 265 272
6.250% due 10/31/01 350 356
6.625% due 04/30/02 25 26
5.750% due 08/15/03 350 350
6.500% due 10/15/06 500 524
----------
2,364
----------
YANKEE BONDS - 1.0%
Applied International Finance
11.750% due 10/01/05 25 23
Call Net Enterprises, Inc.
Zero Coupon until 12/15/02
due 08/15/07 25 17
Royal Caribbean Cruises
7.500% due 10/15/27 25 25
Tata Engineering & Locomotive, Ltd.
7.875% due 07/15/07 25 25
----------
90
----------
TOTAL LONG-TERM INVESTMENTS
(cost $6,511) 6,688
----------
<CAPTION>
NUMBER
OF
SHARES
----------
<S> <C> <C>
PREFERRED STOCKS - 1.0%
El Paso Electric Co. Series A 215 24
Primedia, Inc. 250 25
Time Warner, Inc. 31 34
----------
TOTAL PREFERRED STOCKS
(cost $81) 83
----------
</TABLE>
Core Bond Fund 39
<PAGE>
CORE BOND FUND
STATEMENT OF NET ASSETS, CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
---------- ----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 28.8%
Federated Prime Cash Obligaton Fund (a) $ 2,454 $ 2,454
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,454) 2,454
----------
TOTAL INVESTMENTS
(identified cost $9,046)(b)- 108.2% 9,225
OTHER ASSETS AND LIABILITIES,
NET - (8.2%) (702)
----------
NET ASSETS - 100.0% $ 8,523
----------
----------
</TABLE>
(a) At cost, which approximates market.
(b) See Note 2 for federal income tax information.
(c) Forward commitment. See Note 2.
ABBREVIATIONS:
LP - Limited Partnership
MTN - Medium Term Note
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced Security
The accompanying notes are an integral part of the financial statements.
40 Core Bond Fund
<PAGE>
CORE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $9,046,217)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 9,225,360
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,084
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,652
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,495
Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,165
--------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,336,756
LIABILITIES
Payables:
Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . $ 784,125
Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 4,249
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,699
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814,073
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,522,683
--------------
--------------
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,541
Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,932
Unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . . . . . . . . . . . 179,143
Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,160
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,172,907
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,522,683
--------------
--------------
NET ASSET VALUE, offering and redemption price per share:
($8,522,683 divided by 815,958 shares of $.01 par value
shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.45
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Core Bond Fund 41
<PAGE>
CORE BOND FUND
STATEMENT OF OPERATIONS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 479,879
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,769
--------------
Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518,648
EXPENSES (Notes 2 and 4):
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,221
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,044
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,792
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,925
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,354
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,002
Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,281
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,912
--------------
Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,531
Expense reductions (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . (107,903)
--------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,628
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461,020
--------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3)
Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,078
Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 179,143
--------------
Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,221
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 680,241
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
42 Core Bond Fund
<PAGE>
CORE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period January 2, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 461,020
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,078
Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 179,143
--------------
Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . 680,241
--------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (338,625)
--------------
FROM FUND SHARE TRANSACTIONS:
Net increase (decrease) in net assets from Fund share transactions (Note 5). . . . . . . . . . . . . . 8,156,067
--------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,497,683
NET ASSETS
Beginning of period (original capital) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
--------------
End of period (including undistributed net investment income of $118,541) . . . . . . . . . . . . . . $ 8,522,683
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Core Bond Fund 43
<PAGE>
CORE BOND FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
1997*
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
----------
Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
----------
LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.49)
----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.45
----------
----------
TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.73
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,523
Ratios to average net assets (%)(b):
Operating expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Operating expenses, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.20
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.38
Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.86
</TABLE>
* For the period January 2, 1997 (commencement of operations) to
December 31, 1997.
(a) The total return for the period is not annualized.
(b) The ratios for the period are annualized.
44 Core Bond Fund
<PAGE>
RUSSELL INSURANCE FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
Russell Insurance Funds (the "Investment Company") is a series mutual fund
with four investment portfolios, referred to as "Funds." These financial
statements report on the Funds, each of which has distinct investment
objectives and strategies. These Funds are offered at net asset value to
qualified insurance company separate accounts offering variable insurance
products. The Investment Company is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. It is organized and operates as a Massachusetts business trust
under a master trust agreement dated July 11, 1996. The Investment Company's
master trust agreement permits the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest at a $.01 par
value.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") which require the use of management
estimates. The following is a summary of the significant accounting policies
followed by the Funds in the preparation of these financial statements.
SECURITY VALUATION: United States equity and fixed-income securities listed
and traded principally on any national securities exchange are valued on the
basis of the last sale price or, lacking any sale, at the closing bid price,
on the primary exchange on which the security is traded. United States
over-the-counter equity and fixed-income securities and options are valued
on the basis of the closing bid price. Futures contracts are valued on the
basis of the last sale price. Many fixed-income securities do not trade each
day and, thus, last sale or bid prices are frequently not available. Fixed
income securities, therefore, may be valued using prices provided by a
pricing service when such prices are believed to reflect the fair market
value of such securities.
International equity and fixed income securities traded on a national
securities exchange are valued on the basis of the last sale price.
International securities traded over the counter are valued on the basis of
the mean of bid prices. In the absence of a last sale or mean bid price,
respectively, such securities may be valued on the basis of prices provided
by a pricing service if those prices are believed to reflect the fair market
value of such securities.
Short-term investments maturing within 60 days of the valuation date are
valued at amortized cost unless the Board of Trustees determines that
amortized cost does not represent fair value.
The Funds may value certain securities for which market quotations are not
readily available at "fair value," as determined in good faith pursuant to
procedures established by the Board of Trustees.
INVESTMENT TRANSACTIONS: Securities transactions are recorded on a trade
date basis. Realized gains and losses from securities transactions are
recorded on the basis of specific identified cost incurred by each money
manager within a particular fund. The Funds may lend portfolio securities
but have not done so in 1997.
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis.
AMORTIZATION AND ACCRETION: All zero-coupon bond discounts and original
issue discounts are accreted for both tax and financial reporting purposes.
All short-term and long-term premiums/discounts are amortized/accreted for
both tax and financial reporting purposes.
FEDERAL INCOME TAXES: As a Massachusetts business trust, each Fund is a
separate corporate taxpayer and determines its net investment income and
capital gains (or losses) and the amounts to be distributed to each Fund's
shareholders without regard to the income and capital gains (or losses) of
the other Funds.
It is each Fund's intention to qualify as a regulated investment company and
distribute all of its taxable income. Therefore, no federal income tax
provision was required for the Funds. From November 1, 1997 to December 31,
1997, the Non-US Fund incurred net realized capital losses of $186,584. As
permitted by tax regulations, the Non-US Fund intends to elect to defer
these losses and treat them as arising in the year ending December 31, 1998.
Notes to Financial Statements 45
<PAGE>
RUSSELL INSURANCE FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1997
The aggregate cost of investments and the composition of gross unrealized
appreciation and depreciation of investment securities for federal income
tax purposes as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Multi-Style Equity $ 19,770,494 $ 4,349,340 $ (413,645) $ 3,935,695
Aggressive Equity 12,875,519 2,836,405 (321,387) 2,515,018
Non-US 6,938,147 668,551 (732,086) (63,535)
Core Bond 9,047,208 186,111 (7,959) 178,152
</TABLE>
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: For all Funds, income
dividends and capital gain distributions, if any, are recorded on the
ex-dividend date. Dividends are generally declared and paid quarterly,
except for the Non-U.S. Fund, which generally declares and pays dividends
annually. Capital gain distributions are generally declared and paid
annually. An additional distribution may be paid by the Funds to avoid
imposition of federal income tax on any remaining undistributed capital
gains and net investment income.
The timing and characterization of certain income and capital gain
distributions are determined in accordance with federal tax regulations
which may differ from GAAP. As a result, net investment income and net
realized gain (or loss) on investment and foreign currency-related
transactions for a reporting period may differ significantly from
distributions during such period. The differences between tax regulations
and GAAP primarily relate to investments in options, futures, forward
contracts, passive foreign investment companies, foreign-denominated
investments, mortgage-backed securities, and certain securities sold at a
loss. Accordingly, a Fund may periodically make a reclassification among
certain of its capital accounts without impacting its net asset value.
The following reclassifications have been made to reflect activity for the
year ended December 31, 1997:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED
INCOME GAIN (LOSS)
-------------- ------------
<S> <C> <C>
Non-US $ 20,759 $ (20,759)
Core Bond (3,854) 3,854
</TABLE>
EXPENSES: The Funds will pay their own expenses other than those expressly
assumed by Frank Russell Investment Management Company ("FRIMCo" or
"Manager"). Most expenses can be directly attributed to the individual
Funds. Expenses which cannot be directly attributed are allocated among all
Funds principally based on their relative net assets.
DEFERRED ORGANIZATION EXPENSES: Organization costs of the Funds have been
deferred and are being amortized over 60 months on a straight-line basis.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts and transactions of the
Non-US Fund are translated into U.S. dollars on the following basis:
(a) Market value of investment securities, other assets and
liabilities at the closing rate of exchange on the valuation date.
(b) Outstanding purchases and sales of investment securities and
income at the closing rate of exchange prevailing on the
respective trade dates of such transactions.
Reported net realized gains or losses from foreign currency-related
transactions arise from: sales and maturities of short-term securities;
sales of foreign currencies; currency gains or losses realized between the
trade and settlement dates on securities transactions; the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Non-US Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized gains or losses from
foreign currency-related transactions arise from changes in the value of
assets and liabilities, other than investments in securities, at period-end,
as a result of changes in the exchange rates.
46 Notes to Financial Statements
<PAGE>
RUSSELL INSURANCE FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1997
It is not practical to isolate that portion of the results of operations of
the Non-US Fund that arises as a result of changes in exchange rates from
that portion that arises from changes in market prices of investments during
the year. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. However, for federal income tax
purposes the Non-US Fund does isolate the effects of changes in foreign
exchange rates from the fluctuations arising from changes in market prices
for realized gain (or loss) on debt obligations.
DERIVATIVES: To the extent permitted by the investment objectives,
restrictions and policies set forth in the Funds' Prospectus and Statement
of Additional Information, the Funds may participate in various
derivative-based transactions. Derivative securities are instruments or
agreements whose value is derived from an underlying security or index. They
include options, futures, swaps, forwards, structured notes and stripped
securities. These instruments offer unique characteristics and risks that
assist the Funds in meeting their investment strategies.
The Funds typically use derivatives in three ways: cash equitization,
hedging, and return enhancement. Cash equitization is a technique that may
be used by certain Funds through the use of options and futures to earn
market-like returns with their excess and liquidity reserve cash balances.
Hedging is used by some funds to limit or control risks, such as adverse
movements in exchange rates and interest rates. Return enhancement can be
accomplished through the use of derivatives in a Fund. By purchasing certain
instruments, Funds may more effectively achieve the desired portfolio
characteristics that allow them to meet their investment objectives.
Depending on how the derivatives are structured and utilized, the risks
associated with them may vary widely. These risks are generally categorized
as market risk, liquidity risk and counterparty or credit risk.
FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio purchases
and sales of securities denominated in a foreign currency, the Non-US Fund
may enter into foreign currency exchange spot contracts and forward foreign
currency exchange contracts ("contracts"). Contracts are recorded at market
value. Certain risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts
and are generally limited to the amount of unrealized gain on the contracts,
if any, that is recognized in the Statement of Assets and Liabilities.
Realized gains or losses arising from such transactions are included in net
realized gain (or loss) from foreign currency-related transactions. Open
contracts at December 31, 1997 are presented on the Statement of Net Assets
of the Fund.
FORWARD COMMITMENTS: The Funds may contract to purchase securities for a
fixed price at a future date beyond customary settlement time (not to exceed
120 days)(i.e., a "forward commitment," "delayed settlement" or "when
issued" transaction, e.g., to be announced ("TBA")) consistent with a Fund's
ability to manage its investment portfolio and meet redemption requests. The
price of the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is negotiated.
The Funds may dispose of a forward commitment transaction prior to
settlement if it is appropriate to do so and realize short-term gains (or
losses) upon such sale. When effecting such transactions, cash or liquid
high-grade debt obligations of the Fund in a dollar amount sufficient to
make payment for the portfolio securities to be purchased will be segregated
on the Fund's records at the trade date and maintained until the transaction
is settled. A forward commitment transaction involves a risk of loss if the
value of the security to be purchased declines prior to the settlement date
or the other party to the transaction fails to complete the transaction.
FUTURES CONTRACTS: The domestic and international equity Funds utilize
futures to equitize liquidity reserve balances. The face or contract amounts
of these instruments reflect the extent of the Funds' exposure to off
balance sheet risk. The primary risks associated with the use of futures
contracts are an imperfect correlation between the change in market value of
the securities held by the Fund and the prices of futures contracts, and the
possibility of an illiquid market. Changes in the initial settlement values
of futures contracts are accounted for as unrealized appreciation
(depreciation) until the contracts are terminated, at which time realized
gains and losses are recognized.
The Funds may invest in interest rate futures contracts, stock index futures
contracts, and foreign currency futures contracts and options thereon that
are traded on a United States or foreign exchange or board of trade.
Notes to Financial Statements 47
<PAGE>
RUSSELL INSURANCE FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1997
3. INVESTMENT TRANSACTIONS
SECURITIES: During the period January 2, 1997 (commencement of operations)
to December 31, 1997, purchases and sales of investment securities
(excluding U.S. Government and Agency obligations, short-term investments,
futures and repurchase agreements) were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES PURCHASES SALES
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Multi-Style Equity $ 29,877,022 $ 11,246,535 Non-US $ 10,595,147 $ 3,946,818
Aggressive Equity 21,855,430 10,155,207 Core Bond 3,055,192 1,023,035
</TABLE>
Purchases and sales of U.S. Government and Agency obligations (excluding
short-term investments, options, futures and repurchase agreements) were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Core Bond $ 19,645,841 $ 15,156,342
</TABLE>
FUTURES CONTRACTS: Fund transactions in futures contract purchases for the
period January 2, 1997 (commencement of operations) to December 31, 1997
were as follows:
<TABLE>
<CAPTION>
MULTI-STYLE EQUITY FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
--------- -------------
<S> <C> <C>
Outstanding January 2, 1997* -- $ --
Opened 12 3,357,544
Closed (10) (2,865,069)
--------- -------------
Outstanding December 31, 1997 2 $ 492,475
--------- -------------
--------- -------------
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY FUTURES CONTRACTS
AGGREGATE
NUMBER OF FACE VALUE OF
CONTRACTS CONTRACTS (1)
--------- -------------
<S> <C> <C>
Outstanding January 2, 1997* -- $ --
Opened 23 3,505,325
Closed (21) (3,176,125)
--------- -------------
Outstanding December 31, 1997 2 $ 329,200
--------- -------------
--------- -------------
</TABLE>
(1) The aggregate face value of contracts is computed on the date each
contract was opened.
* Commencement of operations.
4. RELATED PARTIES
MANAGER: FRIMCo operates and administers all of the Funds which comprise the
Investment Company. FRIMCo is a wholly owned subsidiary of Frank Russell
Company, which researches and recommends to FRIMCo, and to the Investment
Company, one or more investment management organizations to manage the
portfolio of each Fund.
For the period January 2, 1997 (commencement of operations) to December 31,
1997, the management fee paid to FRIMCo, for the Funds listed below, in
accordance with the Investment Company's Management Agreement with that
firm, amounted to $371,741 before waivers and/or reimbursements. Such fee is
payable monthly and is equal to the annual rate, by Fund, shown in the
following table, of the average daily net assets of the applicable Fund.
<TABLE>
<CAPTION>
ANNUAL RATE ANNUAL RATE
----------- -----------
<S> <C> <C> <C>
Multi-Style Equity 0.78% Non-US 0.95%
Aggressive Equity 0.95 Core Bond 0.60
</TABLE>
48 Notes to Financial Statements
<PAGE>
RUSSELL INSURANCE FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1997
FRIMCo has voluntarily agreed to waive a portion of its management fee for
each Fund, up to the full amount of its fee, to the extent the Fund's
operating expenses exceed specified limits imposed by FRIMCo on an annual
basis. The Custodian has voluntarily agreed to waive its fee for
approximately the first twelve months. Additionally, FRIMCo has voluntarily
agreed to reimburse each Fund for all remaining expenses, after fee waivers,
that still exceed their respective expense caps.
The expense caps, waivers and reimbursements as of December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
EXPENSE MANAGEMENT CUSTODIAN FEES TOTAL EXPENSE
CAP FEES WAIVED WAIVED REDUCTIONS
------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Multi-Style Equity 0.92% $ 61,920 $ 70,798 $ 132,718
Aggressive Equity 1.25 34,172 84,542 118,714
Non-US 1.30 35,823 116,412 152,235
Core Bond 0.80 43,221 64,682 107,903
</TABLE>
TRANSFER AGENT: The Funds have a contract with FRIMCo, for the Funds listed
above, to provide transfer agent services to the Investment Company. Total
fees for the period January 2, 1997 (commencement of operations) to December
31, 1997 were $44,877.
DISTRIBUTOR: Russell Fund Distributors, Inc. (the "Distributor"), a wholly
owned subsidiary of FRIMCo, is the principal Distributor for Investment
Company shares. The Distributor receives no compensation from the Investment
Company for its services.
ACCRUED FEES PAYABLE TO AFFILIATES AS OF DECEMBER 31, 1997 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
MANAGEMENT TRANSFER
FEES AGENT FEES TOTALS
----------- ---------- ---------
<S> <C> <C> <C>
Multi-Style Equity $ 31,512 $ 4,554 $ 36,066
Aggressive Equity 36,456 3,803 40,259
Non-US 18,015 3,769 21,784
Core Bond 4,249 -- 4,249
----------- ---------- ---------
$ 90,232 $ 12,126 $ 102,358
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
BROKERAGE COMMISSIONS: The Funds paid brokerage commissions to
non-affiliated brokers who provided brokerage and research services to the
Manager. The Funds also paid brokerage commissions for trades executed
through Frank Russell Securities, Inc., an affiliate of FRIMCo. These
commissions are net of a refund (up to 70% of gross commissions) paid back
to the Fund effecting such transactions after reimbursement for research
services provided to FRIMCo. The amount retained by Frank Russell
Securities, Inc. during the period January 2, 1997 (commencement of
operations) to December 31, 1997 for the Multi-Style Equity Fund was $3,303.
BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not
affiliated with FRIMCo a retainer of $8,000 per year plus out-of-pocket
expenses. Total Trustee expenses were $56,008 for the period January 2, 1997
(commencement of operations) to December 31, 1997, and were allocated to
each Fund on a pro rata basis.
BENEFICIAL INTEREST: As of December 31, 1997, FRIMCo and the Funds had two
client relationships that represented the following percentages of the total
outstanding shares of the respective Funds.
<TABLE>
<CAPTION>
CLIENT RELATIONSHIP
PERCENTAGES
-------------------
<S> <C>
Multi-Style Equity 71%, 29%
Aggressive Equity 79%, 21%
Non-US 59%, 41%
Core Bond 52%, 48%
</TABLE>
Notes to Financial Statements 49
<PAGE>
RUSSELL INSURANCE FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1997
5. SHARE TRANSACTIONS
Share transactions for the period January 2, 1997 (commencement of
operations) to December 31, 1997 were as follows:
<TABLE>
<CAPTION>
MULTI-STYLE EQUITY SHARES DOLLARS
------------ ------------
<S> <C> <C>
Proceeds from shares sold 3,159,950 $ 35,492,250
Proceeds from reinvestment
of distributions 9,451 105,477
Payments for shares redeemed (1,321,867) (16,557,615)
------------ ------------
Total net increase (decrease) 1,847,534 $ 19,040,112
------------ ------------
------------ ------------
<CAPTION>
AGGRESSIVE EQUITY SHARES DOLLARS
------------ ------------
<S> <C> <C>
Proceeds from shares sold 2,044,963 $ 23,639,882
Proceeds from reinvestment
of distributions 4,358 44,962
Payments for shares redeemed (909,280) (11,961,760)
------------ ------------
Total net increase (decrease) 1,140,041 $ 11,723,084
------------ ------------
------------ ------------
<CAPTION>
NON-US SHARES DOLLARS
------------ ------------
<S> <C> <C>
Proceeds from shares sold 1,090,627 $ 10,979,143
Proceeds from reinvestment
of distributions -- --
Payments for shares redeemed (407,383) (4,080,902)
------------ ------------
Total net increase (decrease) 683,244 $ 6,898,241
------------ ------------
------------ ------------
<CAPTION>
CORE BOND SHARES DOLLARS
------------ ------------
<S> <C> <C>
Proceeds from shares sold 1,210,165 $ 12,264,143
Proceeds from reinvestment
of distributions 33,875 338,625
Payments for shares redeemed (430,582) (4,446,701)
------------ ------------
Total net increase (decrease) 813,458 $ 8,156,067
------------ ------------
------------ ------------
</TABLE>
50 Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Trustees of Russell Insurance Funds:
We have audited the accompanying statements of assets and liabilities and
statements of net assets of each of the series of Russell Insurance Funds
(comprised of Multi-Style Equity, Aggressive Equity, Non-U.S., and Core Bond
Funds (the "Funds")), as of December 31, 1997, and the related statements of
operations, the statements of changes in net assets and the financial highlights
for the period from January 2, 1997 (commencement of operations) to December 31,
1997. These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds enumerated above as of December 31, 1997, the results of their operations,
the changes in their net assets and the financial highlights for the period from
January 2, 1997 (commencement of operations) to December 31, 1997 in conformity
with generally accepted accounting principles.
Boston, Massachusetts
February 17, 1998
/s/ Coopers & Lybrand L.L.P.
Report of Independent Accountants 51
<PAGE>
RUSSELL INSURANCE FUNDS
909 A Street, Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 627-7001
TRUSTEES
George F. Russell, Jr., Chairman
Lynn L. Anderson
Paul E. Anderson
Paul Anton, PhD
William E. Baxter
Lee C. Gingrich
Eleanor W. Palmer
OFFICERS
Lynn L. Anderson, President and Chief Executive Officer
Peter F. Apanovitch, Manager of Short Term Investment Funds
George W. Weber, Treasurer and Chief Accounting Officer
Randall P. Lert, Director of Investments
Karl Ege, Secretary and General Counsel
MANAGER, TRANSFER AND DIVIDEND PAYING AGENT
Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
CONSULTANT
Frank Russell Company
909 A Street
Tacoma, WA 98402
OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 627-7001
CUSTODIAN
State Street Bank and Trust Co.
1776 Heritage Drive
North Quincy, MA 02171
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 - One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
DISTRIBUTOR
Russell Fund Distributors, Inc.
909 A Street
Tacoma, WA 98402
MONEY MANAGERS
MULTI-STYLE EQUITY FUND
Chancellor LGT Asset Management Inc., New York, NY
Equinox Capital Management, Inc., New York, NY
Westpeak Investment Advisors, LP, Boulder, CO
AGGRESSIVE EQUITY FUND
Rothschild Asset Management, Inc., New York, NY
Westpeak Investment Advisors, LP, Boulder, CO
NON-US FUND
J.P. Morgan Investment Management, Inc., New York, NY
Oechsle International Advisors, Boston, MA
The Boston Company Asset Management, Inc., Boston, MA
CORE BOND FUND
Pacific Investment Management Company, Newport Beach, CA
Standish, Ayer & Wood, Inc., Boston, MA
THIS REPORT IS PREPARED FROM THE BOOKS AND RECORDS OF THE FUNDS AND IS SUBMITTED
FOR THE GENERAL INFORMATION OF SHAREHOLDERS AND IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN
EFFECTIVE PROSPECTUS. NOTHING HEREIN CONTAINED IS TO BE CONSIDERED AN OFFER OF
SALE OR A SOLICITATION OF AN OFFER TO BUY SHARES OF RUSSELL INSURANCE FUNDS.
SUCH OFFERING IS MADE ONLY BY PROSPECTUS, WHICH INCLUDES DETAILS AS TO OFFERING
PRICE AND OTHER MATERIAL INFORMATION.
52 Manager, Money Managers and Service Providers
