ANNUAL
DESCRIPTION OF ART WORK ON REPORT COVER
Small box with a leaf in it. Above box the funds name Laurel is showing and
below box the word Funds is there under a line.
Contrarian Fund
AUGUST 31, 1994
DEAR SHAREHOLDER,
We are pleased to bring you performance, market and portfolio activity in-
formation on the Contrarian Fund for the year ended August 31, 1994.
As you know from recent correspondence, on October 17, 1994, The Laurel
Family of Funds began integrating with The Dreyfus Family of Funds. In
connection with this integration, the Laurel Funds have been renamed to
provide a more cohesive fund family unified under the Dreyfus name. The
Laurel Contrarian Fund is now known, and publicly listed, as the Dreyfu-
s/Laurel Contrarian Fund. Please be assured that the Fund's name change
does not affect the value of your account or the investment objective or
strategy of your Fund. The integration is discussed in greater detail in
the subsequent events footnote, which is located in the notes to the fi-
nancial statements of this report.
In the pages that follow, we have provided a more detailed description of
the market environment over the last twelve months, along with commentary
on your Fund's investment management strategy and portfolio changes for
the period. Additional financial data is also included.
In closing, we would like to extend our appreciation for your past support
of The Laurel Family of Funds and hope that you will find that the new
Dreyfus Family of Funds will continue to provide the diversity and perfor-
mance that you have come to expect. As always, we welcome your thoughts
and suggestions.
Sincerely,
Richard W. Healey
Richard W. Healey
Vice President
The Laurel Funds
October 20, 1994
TABLE OF CONTENTS
Shareholder Letter 1
Market Environment 3
Portfolio Review 4
Performance Summary 5
Portfolio of Investments 6
Statement of Assets and Liabilities 9
Statement of Operations 10
Statement of Changes in Net Assets 11
Financial Highlights 12
Notes to Financial Statements 14
Independent Auditors' Report 20
Tax Information 21
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, OR THE U.S. GOVERNMENT, AND ARE NOT FEDERALLY IN-
SURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. ALL MUTUAL FUND SHARES INVOLVE CERTAIN INVEST-
MENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE DREYFUS FUNDS ARE DISTRIBUTED BY PREMIER MUTUAL FUND SERVICES.
MARKET ENVIRONMENT
ADVANCING PERFORMANCE AMID INTEREST RATE CAUTION
After a rocky start, the stock market evened out and ended the report pe-
riod September 1, 1993 through August 31, 1994 on a rally that began in
June. The volatility of January, February and March was primarily a re-
sponse to the Federal Reserve Board's initial interest rate hikes, which
sent securities markets around the world into sharp decline. In addition,
the U.S. equity market had to contend with Whitewater headlines, the North
Korean nuclear crisis and several other unsettling international situa-
tions. However, as months passed, investors began to adjust to the new en-
vironment of higher interest rates and later Fed moves had little effect
on market values. Although still cautious about future interest rate
hikes, the market seems to have shifted its focus to the strengthening
economy, which is exerting a positive influence on many industries and in-
dividual companies.
STRONG AND WEAK SECTORS CONTINUE TO SHIFT
Performance leadership flowed back and forth among various market sectors
throughout the report period. Weak and strong performers exchanged posi-
tions almost month to month, although consumer durable goods like major
appliances and autos stayed relatively strong through all the fluctua-
tions. On balance, financial companies, basic industries, utilities and
even health care stocks performed best, while consumer service and non-
durable stocks such as retailers lagged behind broad market performance.
THE OUTLOOK: GROWTH, FROM AN IMPROVING ECONOMY
The economy continued to improve as the report period drew to a close.
Global economic activity had also picked up, providing additional stimulus
for U.S. growth. While many investors expect the Fed to raise interest
rates again by year end, others feel that the economy's growth is insuffi-
cient to stimulate inflationary pressures that would force the Fed to act.
In terms of value, we believe the stock market still holds solid potential
for growth and appreciation. Traditional measures of value such as price-
to-earnings and price-to-book ratios may be somewhat above "normal", but
not markedly so.
If the economy's growth continues to percolate at its present steady pace,
we are optimistic about stock market performance overall and about the
Fund's potential to tally solid price appreciation in the months ahead.
PORTFOLIO REVIEW
Like most stock mutual funds, the Fund felt the effects of the early year
market decline, although our performance did rebound by the end of the pe-
riod as some astute sector selections began to provide handsome returns.
Market volatility and the almost-constant leadership rotation among sec-
tors made individual stock selection and sector allocation even more im-
portant than usual. Anticipating a turnaround in the health care sector as
President Clinton's reform proposal became bogged down in Congress, we
began to increase our position in these stocks to 11%. This move enabled
the Fund to capture excellent returns as health care stocks moved up in
the market rally. Going forward, we expect these stocks to perform well.
Increased worldwide economic activity also boosted the performance of en-
ergy stocks during the period, and here again the Fund benefited from
larger holdings. As with health care issues, we anticipate continued
strength for the energy sector as world economies recover and grow.
The Fund also benefited from positions in basic industry stocks such as
paper and steel. These industries, along with telecommunications issues
and various economically sensitive, cyclical stocks, should continue to do
well in the strengthening economic environment. Our regional airline hold-
ings provided the only real disappointment of the period. These stocks
failed to live up to their performance potential, largely due to investor
fears that the major airlines would soon be cutting into the rising plane
capacities and strong corporate earnings of these smaller carriers. At the
end of the period, however, these stocks were beginning to improve and
provide the Fund with stronger returns.
PERFORMANCE SUMMARY
CONTRARIAN FUND (UNAUDITED)
GROWTH OF $10,000 INVESTED FROM OCTOBER 17, 1988 -- AUGUST 31, 1994+
DESCRIPTION OF MOUNTAIN CHART
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Con-
trarian Fund's investor shares on October 17, 1988 through August 31, 1994
as compared with the growth of a $10,000 investment in the Standard &
Poor's 500 Index. The plot points used to draw the line graph were as
follows:
<TABLE>
<CAPTION>
GROWTH OF
$10,000
GROWTH OF $10,000 INVESTMENT
IN THE
MONTH INVESTED IN INVESTOR STANDARD &
POOR'S
ENDED SHARES OF THE FUND 500
INDEX
<S> <C> <C>
10/17/88 $10,000 --
10/88 $ 9,967 $10,000
11/30/88 -- $ 9,857
12/88 $10,062 $10,029
3/89 $10,715 $10,739
6/89 $11,602 $11,686
9/89 $12,271 $12,935
12/89 $11,805 $13,201
3/90 $11,447 $12,805
6/90 $12,301 $13,609
9/90 $10,244 $11,741
12/90 $10,798 $12,791
3/91 $13,076 $14,646
6/91 $13,056 $14,611
9/91 $14,476 $15,391
12/91 $15,290 $16,680
3/92 $15,377 $16,259
6/92 $14,750 $16,567
9/92 $15,603 $17,090
12/92 $16,909 $17,950
3/93 $18,513 $18,734
6/93 $19,032 $18,823
9/93 $20,660 $19,308
12/93 $10,492 $19,757
3/94 $19,222 $19,010
6/94 $18,908 $19,088
8/94 $20,032 $20,521
</TABLE>
AVERAGE ANNUAL TOTAL RETURN -- INVESTOR SHARES
<TABLE>
<S> <C>
Year Ended 8/31/94 (2.55)%
Five Years Ended 8/31/94 9.88%
Inception (10/17/88) through 8/31/94 12.56%
</TABLE>
+Hypothetical illustration of $10,000 invested in Investor Shares at in-
ception (October 17, 1988) and reinvestment of dividends and capital
gains at net asset value through August 31, 1994.
The Standard & Poor's Composite Index of 500 Common Stocks ("Standard &
Poor's 500") is an unmanaged index used to portray the pattern of common
stock price movement.
Index information is available at month-end only, therefore, the closest
month-end to inception date of the Fund has been used.
This period was one in which common stock prices fluctuated and the re-
sults should not be considered as representative of dividend income or
capital gain or loss which may be realized from an investment in the Fund
today. No adjustment has been made for a shareholder's tax liability on
dividends or capital gains.
NOTE: All figures cited here and on the following pages represent past
performance and do not guarantee future results. Investment return and
principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than original cost.
PORTFOLIO OF INVESTMENTS
CONTRARIAN FUND AUGUST 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
SHARES
VALUE
(NOTE 1)
COMMON STOCKS -- 96.0%
BASIC INDUSTRIES -- 14.7%
2,000 Alumax, Inc.+
$ 61,250
1,400 Broken Hill Proprietary Ltd. ADR
85,575
1,500 IMC Fertilizer Group, Inc.
60,188
2,000 Inco Ltd.
57,500
2,800 Pentair, Inc.
114,100
3,000 Stone Container Corporation
59,250
437,863
ENERGY -- 14.5%
191 El Paso Natural Gas Company
6,279
19,600 Global Marine, Inc.+
78,400
9,400 Parker Drilling Company+
52,875
10,500 Rowan Companies, Inc.+
77,438
3,300 Tidewater, Inc.
74,662
6,900 Varco International, Inc.+
43,125
7,800 Weatherford International, Inc.+
94,575
427,354
UTILITIES/GAS -- 12.3%
3,700 MCI Communications Corporation
89,956
1,400 Telecom Corporation, New Zealand ADR
70,175
1,100 Telefonica de Espana ADR
45,512
1,600 Telefonos de Mexico ADR
100,400
1,300 Telephone and Data Communications
56,550
362,593
CONSUMER SERVICES -- 11.0%
208 Cellular Communications, Puerto Rico+
6,396
1,400 Comcast Corporation, Class A
22,400
3,700 Comcast Corporation, Class A, Special
(non-voting)
59,200
4,000 Home Shopping Network, Inc.+
47,000
4,300 Levitz Furniture, Inc.+
40,313
1,300 NEXTEL Communications, Inc., Class A
33,963
1,600 Rogers Cantel Mobile Communications, Inc.+
47,200
2,100 Viacom, Inc., Class B+
69,300
325,772
HEALTH CARE -- 11.0%
2,500 Alza Corporation
58,750
1,700 FHP International Corporation+
45,900
2,000 Genzyme Corporation+
68,000
2,200 Healthtrust-The Hospital Company+
67,650
900 Schering-Plough Corporation
62,887
700 SmithKline Beecham ADR
21,788
324,975
CONSUMER DURABLES -- 9.0%
2,000 Champion Enterprises, Inc.+
73,000
6,600 Fedders Corporation+
50,325
3,600 Fleetwood Enterprises
94,950
3,400 River Oaks Furniture, Inc.+
48,450
266,725
FINANCIAL SERVICES -- 9.0%
3,375 Charter One Financial, Inc.
80,156
2,000 MGIC Investment Corporation
61,500
2,600 Phoenix Re Corporation, Class A
68,900
1,000 Transatlantic Holdings, Inc.
53,875
264,431
TRANSPORTATION -- 8.9%
4,100 Builders Transportation, Inc.+
51,762
3,000 Canadian Pacific Ltd. ADR
52,875
2,300 Comair Holdings, Inc.
60,950
2,100 SkyWest, Inc.
58,275
1,500 Werner Enterprises, Inc.
37,875
261,737
TECHNOLOGY -- 2.7%
5,200 TANDEM COMPUTERS, INC.+
78,650
CAPITAL GOODS -- 2.7%
2,300 Trinity Industries Inc.
78,200
OTHER -- 0.2%
920 Mesa Incorporated+
5,175
TOTAL COMMON STOCKS
(Cost $2,340,960)
2,833,475
<CAPTION>
PRINCIPAL
VALUE
AMOUNT
(NOTE 1)
CORPORATE BOND (Cost $79,288) -- 0.8%
$ 100,000 Nu Med, Inc., Sr. Sub. Deb.,
13.750% due 09/15/1995
$ 22,750
TOTAL INVESTMENTS
(Cost $2,420,248*) 96.8%
2,856,225
OTHER ASSETS AND LIABILITIES (NET) 3.2
93,905
NET ASSETS 100.0%
$2,950,130
<FN>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
CONTRARIAN FUND AUGUST 31, 1994
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost $2,420,248)
(Note 1)
See accompanying schedule
$2,856,225
Cash
77,403
Receivable from investment adviser (Note
2)
39,304
Receivable for Fund shares sold
6,354
Dividends receivable
829
TOTAL ASSETS
2,980,115
LIABILITIES
Accrued audit fees $10,558
Accrued shareholder reports expense 8,500
Investment management fee payable (Note
2) 6,263
Payable for Fund shares redeemed 1,929
Transfer agent fees payable (Note 2) 375
Accrued Trustees' fees and expenses
(Note 2) 259
Distribution fee payable (Note 3) 101
Accrued expenses and other payables 2,000
TOTAL LIABILITIES
29,985
NET ASSETS
$2,950,130
NET ASSETS consist of:
Accumulated net realized gain on invest-
ments sold
$193,263
Unrealized appreciation of investments
435,977
Par value
178
Paid-in capital in excess of par value
2,320,712
TOTAL NET ASSETS
$2,950,130
NET ASSET VALUE
INVESTOR SHARES
Net asset value, offering and redemption
price per share ($2,950,130 / 178,023
shares of beneficial interest outstand-
ing)
$16.57
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
CONTRARIAN FUND
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding
taxes of $1,042) $
32,677
Interest
9,727
TOTAL INVESTMENT INCOME
42,404
EXPENSES
Legal and audit fees $ 30,289
Investment advisory fee (Note 2) 23,862
Registration and filing fees 22,733
Shareholder reports expense 19,588
Investment management fee (Note 2) 15,958
Distribution fee (Note 3) 7,938
Custodian fees (Note 2) 6,275
Transfer agent fees (Note 2) 6,167
Trustees' fees and expenses (Note 2) 1,503
Amortization of organization costs (Note
6) 944
Other 394
Fees waived and/or expenses reimbursed by
adviser and custodian (Note 2) (68,515)
TOTAL EXPENSES
67,136
NET INVESTMENT LOSS
(24,732)
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS (Notes 1 and 4):
Net realized gain on investments sold
during the year
284,533
Net unrealized depreciation of invest-
ments during the year
(437,148)
NET REALIZED AND UNREALIZED LOSS ON IN-
VESTMENTS
(152,615)
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS
$(177,347)
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
CONTRARIAN FUND
<TABLE>
<CAPTION>
YEAR
YEAR
ENDED
ENDED
8/31/94
8/31/93
<S> <C> <C>
Net investment loss $ (24,732) $
(24,662)
Net realized gain on investments sold
during the year 284,533
111,782
Net unrealized appreciation/(deprecia-
tion) of investments during the year (437,148)
856,211
Net increase/(decrease) in net assets
resulting from operations (177,347)
943,331
Distribution to shareholders from net
realized gain on investments:
Investor Shares (166,692) --
Retail Class --
(182,355)
Institutional Class (9,767) --
Net increase/(decrease) in net assets
from Fund share transactions (Note 5):
Investor Shares (316,038) --
Retail Class --
25,744
Institutional Class --
167,243
Net increase/(decrease) in net assets (669,844)
953,963
NET ASSETS:
Beginning of year 3,619,974
2,666,011
End of year $2,950,130
$3,619,974
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
CONTRARIAN FUND
FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT EACH YEAR OR PERIOD.*
<TABLE>
<CAPTION>
YEAR
YEAR
ENDED
ENDED
8/31/94++
8/31/93++
<S> <C> <C>
Net asset value, beginning of period $17.81
$14.00
Income from investment operations:
Net investment income/(loss)*** (0.12)
(0.12)
Net realized and unrealized gain/(loss)
on investments (0.32)
4.90
Total from investment operations (0.44)
4.78
Less distributions:
Distributions from net investment income -- -
- -
Distributions from net realized capital
gains (0.80)
(0.97)
Total distributions (0.80)
(0.97)
Net asset value, end of period $16.57
$17.81
Total return+ (2.55)%
35.97%
Ratios to average net assets/Supplemen-
tal Data:
Net assets, end of period (in 000's) $2,950
$3,503
Ratio of operating expenses to average
net assets** 1.83%
2.00%
Ratio of net investment income/(loss) to
average net assets (0.68)%
(0.81)%
Portfolio turnover rate 65%
39%
<FN>
* The Fund commenced operations on October 17, 1988. Effective April 4,
1994, the Retail and Institutional Classes were reclassified as a sin-
gle class of shares known as the Investor Shares. The amounts shown
for the year ended August 31, 1994, were calculated using the perfor-
mance of a Retail Share outstanding from September 1, 1993 to April 3,
1994, and the performance of an Investor Share outstanding from April
4, 1994 to August 31, 1994. The Financial Highlights for the year
ended August 31, 1993 and prior periods are based upon a Retail Share
outstanding.
** Annualized expense ratios before waiver of fees and/or reimbursement
of expenses by investment adviser, transfer agent and custodian for
the years ended August 31, 1994, 1993, 1992, 1991, 1990 and for the
period ended August 31, 1989 were 3.69%, 4.70%, 3.88%, 5.18%, 4.58%
and 5.28%, respectively.
*** Net investment income/(loss) before waiver of fees and/or reimburse-
ment of expenses by investment adviser, transfer agent and custodian
for the years ended August 31, 1994, 1993, 1992, 1991, 1990 and for
the period ended August 31, 1989 were $(.44), $(.54), $(.24), $(.24),
$(.14) and $(.18), respectively.
+ Total return represents aggregate total return for the periods indi-
cated.
++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for this
period since use of the undistributed income method does not accord
with results of operations.
+++ Annualized.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
PERIOD
ENDED ENDED ENDED
ENDED
8/31/92 8/31/91 8/31/90
8/31/89
<S> <C> <C>
<C>
$14.08 $12.06 $ 14.95
$12.00
0.04 0.13 0.15
0.18
0.67 3.08 (1.80)
2.82
0.71 3.21 (1.65)
3.00
(0.09) (0.22) (0.14)
(0.05)
(0.70) (0.97) (1.10)
- --
(0.79) (1.19) (1.24)
(0.05)
$14.00 $14.08 $ 12.06
$14.95
5.10% 29.93% (11.47)%
25.05%
$2,666 $2,197 $ 1,831
$1,635
1.99% 2.00% 2.00%
1.84%+++
0.25% 1.09% 1.34%
1.75%+++
76% 205% 176%
93%
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Laurel Investment Series (the "Trust") (formerly The Boston Company
Investment Series), The Laurel Funds, Inc., The Laurel Funds Trust and The
Laurel Tax-Free Municipal Funds are all registered open-end investment
companies that compose The Laurel Fund Family. The Trust is an investment
company that consists of three funds: the Contrarian Fund, the Short-Term
Bond Fund and the International Fund. This report contains financial
statements for the Contrarian Fund (the "Fund"). The Trust is a
Massachusetts business trust and is registered with the Securities and Ex-
change Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. Effective
April 4, 1994, the Retail and Institutional Classes of shares were reclas-
sified as a single class of shares known as the Investor Shares, and the
Fund began offering Trust Shares. As of August 31, 1994, the Fund had not
issued any Trust Shares. Investor Shares are designed for the retail in-
vestor and bear a distribution fee. Trust Shares are designed for institu-
tional investors, clients of financial institutions, such as banks, trust
companies or thrift institutions, who have qualified accounts, and bear no
distribution fee. Each class of shares has identical rights and privileges
except with respect to the distribution fee and voting rights on matters
affecting a single class. The following is a summary of significant ac-
counting policies consistently followed by the Fund in the preparation of
its financial statements in accordance with generally accepted accounting
principles.
(A) PORTFOLIO VALUATION
Investments in securities that are traded on a national securities ex-
change are valued at the last reported sales price or, in the absence of a
recorded sale, at the mean of the closing bid and asked prices. Over-the-
counter securities are valued at the closing bid price at the close of
business each day, or, if market quotations for such securities are not
readily available, at fair value, as determined in good faith by the Board
of Trustees. Investments in U.S. Government Securities (other than short-
term securities) are valued at the most recent quoted bid price in the
over-the-counter market. Short-term investments with maturities of 60 days
or less from the valuation day are valued on the basis of amortized cost.
Foreign securities are generally valued at the preceding closing values of
such securities on their respective exchanges, except that when an occur-
rence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities will be deter-
mined by consideration of other factors by or under the direction of the
Board of Trustees or its delegates.
(B) REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. Under the terms
of a typical repurchase agreement, the Fund takes possession of an under-
lying debt obligation subject to an obligation of the seller to repur-
chase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to mar-
ket fluctuations during the Fund's holding period. The value of the col-
lateral is at least equal, at all times, to the total amount of the repur-
chase obligations, including interest. In the event of counterparty de-
fault, the Fund has the right to use the collateral to offset losses
incurred. There is potential loss to the Fund in the event the Fund is de-
layed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. The Fund's investment manager, acting under the supervision of the
Board of Trustees, reviews the value of the collateral and the creditwor-
thiness of those banks and dealers with which the Fund enters into repur-
chase agreements to evaluate potential risks.
(C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Dividend income
is recorded on the ex-dividend date, except that certain dividends from
foreign securities are recorded as soon as the Fund is informed of the ex-
dividend date. Interest income is recorded on the accrual basis. Securi-
ties purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date. Realized gains and losses
from securities sold are recorded on the identified cost basis. Investment
income and realized and unrealized gains and losses are allocated based
upon relative net assets of each class.
(D) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions to shareholders are recorded on the ex-
dividend date. Dividends from net investment income, if any, of the Fund
are declared on a class level and paid quarterly. The Fund distributes any
net realized capital gains on a Fund level annually. Additional distribu-
tions of net investment income and capital gains for the Fund may be made
at the discretion of the Board of Trustees in order to avoid the 4% nonde-
ductible Federal excise tax. Income distributions and capital gain distri-
butions on a Fund level are determined in accordance with income tax regu-
lations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and
gains on various investment securities held by the Fund, timing differ-
ences and differing characterization of distributions made by the Fund as
a whole. Permanent differences incurred during the year ended August 31,
1994 resulting from a tax basis net operating loss were reclassified to
paid-in capital at year end.
(E) FEDERAL TAXES
It is the Fund's intention to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code applicable to
regulated investment companies and by distributing substantially all of
its taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
2. INVESTMENT MANAGEMENT FEE, TRUSTEES' FEES AND OTHER RELATED PARTY
TRANSACTIONS
Effective April 4, 1994, the Trust entered into an investment management
agreement with Mellon Bank, N.A. (the "Manager"), a wholly owned subsid-
iary of Mellon Bank Corporation ("Mellon"), under which the Manager pro-
vides, or arranges for one or more third parties to provide, investment
advisory, administrative, custody, fund accounting and transfer agency
services to the Trust. The Manager also directs the investment of the Fund
in accordance with its investment objectives, policies and limitations.
For these services, the Fund pays the Manager a fee, calculated daily and
paid monthly, at the annual rate of 1.25% of the value of the Fund's aver-
age daily net assets. Out of its fee, the Manager pays all of the expenses
of the Fund except brokerage, taxes, interest, Rule 12b-1 distribution
fees and expenses, fees and expenses of the non-interested Trustees (in-
cluding counsel fees) and extraordinary expenses. In addition, the Manager
is required to reduce its fee in an amount equal to the Fund's allocable
portion of fees and expenses of the non-interested Trustees (including
counsel). Prior to April 4, 1994, the Trust had an investment advisory
agreement under which the Fund paid The Boston Company Advisors, Inc.
("Boston Advisors") a monthly fee at the annual rate of 1.00% of the value
of its average daily net assets for investment advisory services. For the
year ended August 31, 1994, Boston Advisors, as investment adviser, volun-
tarily waived fees of $23,862 and reimbursed expenses of $38,378.
Effective April 4, 1994, the Fund entered into an administration agreement
with Frank Russell Investment Management Company (the "Administrator") to
serve as the Fund's administrator to provide various administrative and
corporate secretarial services to the Fund. The Administrator's fee is
paid by the Manager out of the management fee described above.
No officer or employee of Mellon or of any parent, subsidiary or affiliate
thereof receives any compensation from The Laurel Fund Family for serving
as an officer or Trustee of The Laurel Fund Family. The Laurel Fund Family
pays each Trustee who is not an officer or employee of Mellon or of any
parent, subsidiary or affiliate thereof, or of the Administrator or any
parent, subsidiary or affiliate thereof, $27,000 per annum, $1,000 for
each Board meeting attended, and $750 for each Audit Committee meeting at-
tended, and reimburses each Trustee for travel and out-of-pocket expenses.
Prior to April 4, 1994, the Trust paid each Trustee $5,000 per annum, plus
$1,000 per meeting attended, plus $250 per Audit Committee meeting at-
tended, plus reimbursement for travel and out-of-pocket expenses.
Prior to April 4, 1994, the Trust had individual contracts, which con-
tained specific fee provisions, with Boston Safe Deposit and Trust Com-
pany, a wholly owned subsidiary of Mellon, and The Shareholder Services
Group, Inc. to provide custody and transfer agent services, respectively,
to the Fund. For the period ended April 4, 1994, the custodian waived its
fees of $6,275. Effective April 4, 1994, the payment of fees for custody,
accounting and transfer agent services are covered by the investment man-
agement agreement described above. Funds Distributor, Inc. ("Funds Dis-
tributor") continues to act as distributor of the Fund's shares.
3. DISTRIBUTION PLAN
The Fund has adopted a plan of distribution (the "Plan") pursuant to Rule
12b-1 under the 1940 Act relating to Investor Shares. Under the Plan, the
Fund may pay up to 0.25% of the value of the average daily net assets of
Investor Shares to compensate Funds Distributor for shareholder servicing
activities and for activities primarily intended to result in the sale of
Investor Shares. The Trust Shares bear no distribution fee. Prior to April
4, 1994, under a distribution plan, the Fund was authorized to spend annu-
ally up to 0.25% and 0.15% of its average daily net assets on distribution
expenses for the Retail Class and the Institutional Class, respectively,
which classes, on April 4, 1994, were reclassified into Investor Shares.
Under its terms, the Plan shall remain in effect from year to year, pro-
vided such continuance is approved annually by a vote of a majority of
those Trustees who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or
in any agreement related to the Plan.
4. SECURITIES TRANSACTIONS
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended August 31, 1994 aggregated
$2,205,841 and $2,579,588, respectively, for the Fund.
At August 31, 1994, aggregate gross unrealized appreciation for all secu-
rities in which there was an excess of value over tax cost amounted to
$582,246 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value amounted to $146,269.
5. SHARES OF BENEFICIAL INTEREST
The Trust has the authority to issue an unlimited number of shares of ben-
eficial interest of each class in each separate series, with a par value
of $.001. The Trust has authority to issue two classes of shares. Effec-
tive April 4, 1994, the Retail and Institutional Classes of shares were
combined and reclassified as a single class of shares known as the
Investor Shares. The table below summarizes transactions in Fund shares
for the periods shown in the accompanying Statement of Changes in Net As-
sets.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
8/31/94 8/31/93*
(INVESTOR SHARES) (RETAIL CLASS)
(INSTITUTIONAL CLASS)
SHARES** AMOUNT*** SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C> <C> <C> <C>
<C>
Sold 136,619 $ 2,337,972 261,416 $ 3,615,652
682 $ 77,876
Issued as rein-
vestment of div-
idends and dis-
tributions 10,218 171,464 9,485 134,019 -
- - --
Redeemed (172,032) (2,825,474) (258,473) (3,629,195)
(334) (5,365)
Exchanged for In-
stitutional
shares -- -- (6,216) (94,732) -
- - --
Issued in exchange
for Retail
shares -- -- -- --
6,216 94,732
Net increase/ de-
crease (25,195) $ (316,038) 6,212 $ 25,744
6,564 $167,243
<FN>
* The Fund commenced selling Institutional Class shares on February 1,
1993. Any shares outstanding prior to February 1, 1993 were designated
as Retail Class shares.
** Shares include 18,936 of subscriptions, 339 of reinvestments and 3,836
of redemptions for the Institutional Class up to April 4, 1994.
*** Amounts include $329,352 of subscriptions, $5,688 of reinvestments and
$66,208 of redemptions for the Institutional Class up to April 4,
1994.
</TABLE>
6. ORGANIZATION COSTS
The Fund paid all costs in connection with the Fund's organization includ-
ing the fees and expenses of registering and qualifying the Fund's shares
for distribution under Federal and state securities regulations. All such
costs were being amortized on the straight-line method over a period of
five years. These costs were fully amortized during the year ended August
31, 1994.
7. LINE OF CREDIT
The Trust and several affiliated entities participate in a $20 million
line of credit provided by Continental Bank, N.A. under a Line of Credit
Agreement (the "Agreement") dated March 31, 1992, as amended, primarily
for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of securi-
ties. Under this Agreement, the Trust may borrow up to the amount speci-
fied in its Borrowing Base Certificate. Interest is payable either at the
bank's Money Market Rate or the London Interbank Offered Rate (LIBOR) plus
0.375% on an annualized basis. As amended effective May 21, 1994, the
Trust and the other affiliated entities are charged an aggregated commit-
ment fee of $40,000, which is allocated equally among each of the partici-
pants. The Agreement requires, among other provisions, each participating
fund to maintain a ratio of net assets (not including funds borrowed pur-
suant to the Agreement) to aggregate amount of indebtedness pursuant to
the Agreement of no less than 4 to 1. At August 31, 1994, the Fund had no
outstanding borrowings under this Agreement. During the year ended August
31, 1994, the Fund had an average outstanding balance of $822 with an in-
terest rate of 3.875%. Interest expense totalled $32 for the year ended
August 31, 1994.
8. SUBSEQUENT EVENTS
At a meeting held on September 23, 1994, the Board of Trustees of The Lau-
rel Investment Series approved several changes which became effective Oc-
tober 17, 1994. The name of the Trust became The Dreyfus/Laurel Investment
Series, which consists of Dreyfus/Laurel Short-Term Bond Fund, Dreyfus/
Laurel International Fund and Dreyfus/ Laurel Contrarian Fund. The in-
vestment manager became The Dreyfus Corporation. Premier Mutual Fund Ser-
vices, Inc. became each fund's distributor and sub-administrator.
INDEPENDENT AUDITORS' REPORT
KPMG
The Board of Trustees and Shareholders
The Laurel Investment Series Contrarian Fund
We have audited the accompanying statement of assets and liabilities, in-
cluding the portfolio of investments, of the Contrarian Fund of The Laurel
Investment Series (formerly The Boston Company Investment Series), as of
August 31, 1994, and the related statement of operations, statement of
changes in net assets, and the financial highlights for the year then
ended. These financial statements and financial highlights are the respon-
sibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on
our audit. The statement of changes in net assets for the year ended Au-
gust 31, 1993 and financial highlights for the four year period ended Au-
gust 31, 1993 and for the period from October 17, 1988 to August 31, 1989
were audited by other auditors whose report thereon, dated October 8,
1993, expressed an unqualified opinion on that statement and those finan-
cial highlights.
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 fi-
nancial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1994 by correspondence with the custo-
dian and brokers. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evalu-
ating 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 Contrarian Fund of The Laurel Investment Series as of August 31,
1994, and the results of operations, changes in net assets, and financial
highlights for the year then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
October 21, 1994
TAX INFORMATION (UNAUDITED)
THE LAUREL FUNDS CONTRARIAN FUND
YEAR ENDED AUGUST 31, 1994
The following tax information represents fiscal year end disclosures of
various tax benefits passed through to shareholders at calendar year end.
The capital gains dividend distribution paid to shareholders for the fis-
cal year ended August 31, 1994, whether taken in shares or in cash, is as
follows:
Long Term Capital Gains $176,459
Of the distributions made by the Fund, 100% represents the amount of each
distribution which will qualify for the dividends received deduction
available to corporate shareholders.
The above figures may differ from those cited elsewhere in this report due
to differences in the calculations of income and capital gains for Securi-
ties and Exchange Commission (book) purposes and Internal Revenue Service
(tax) purposes.
FOR MORE INFORMATION ON THE LAUREL FUNDS INCLUDING:
* Fund information - 9:00 a.m. to 5:00 p.m., Monday through Friday
* Additional Prospectuses - Read the prospectus carefully before you
invest.
* Account Information - 9:00 a.m. to 5:00 p.m., Monday through Friday
* Yield and Share Price Information - 24 hours a day, 7 days a week
CALL 1-800-548-2868
Or write:
The Dreyfus Family of Funds
P.O. Box 9692
Providence, R.I. 02940-9830
The Funds are distributed by:
Premier Mutual Fund Services, Inc.
One Exchange Place
10th Floor
Boston, MA 02109
CONT 2104
ANNUAL
DESCRIPTION OF ART WORK ON REPORT COVER
Small box with a leaf in it. Above box the funds name Laurel is showing
and below box the word Funds is there under a line.
Short-Term Bond Fund
AUGUST 31, 1994
DEAR SHAREHOLDER,
We are pleased to bring you performance, market and portfolio activity in-
formation on the Short-Term Bond Fund for the year ended August 31, 1994.
As you know from recent correspondence, on October 17, 1994, The Laurel
Family of Funds began integrating with The Dreyfus Family of Funds. In
connection with this integration, the Laurel Funds have been renamed to
provide a more cohesive fund family unified under the Dreyfus name. The
Laurel Short-Term Bond Fund is now known, and publicly listed, as the
Dreyfus/Laurel Short-Term Bond Fund. Please be assured that the Fund's
name change does not affect the value of your account or the investment
objective or strategy of your Fund. The integration is discussed in
greater detail in the subsequent events footnote, which is located in the
notes to the financial statements of this report.
In the pages that follow, we have provided a more detailed description of
the market environment over the last twelve months, along with commentary
on your Fund's investment management strategy and portfolio changes for
the period. Additional financial data is also included.
In closing, we would like to extend our appreciation for your past support
of The Laurel Family of Funds and hope that you will find that the new
Dreyfus Family of Funds will continue to provide the diversity and perfor-
mance that you have come to expect. As always, we welcome your thoughts
and suggestions.
Sincerely,
Richard W. Healey
Richard W. Healey
Vice President
The Laurel Funds
October 20, 1994
TABLE OF CONTENTS
Shareholder Letter 1
Market Environment 3
Portfolio Strategy 4
Performance Summary 5
Portfolio of Investments 6
Statement of Assets and Liabilities 8
Statement of Operations 9
Statement of Changes in Net Assets 10
Financial Highlights 11
Notes to Financial Statements 13
Independent Auditors' Report 18
Tax Information 19
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, OR THE U.S. GOVERNMENT, AND ARE NOT FEDERALLY IN-
SURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. ALL MUTUAL FUND SHARES INVOLVE CERTAIN INVEST-
MENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE DREYFUS FUNDS ARE DISTRIBUTED BY PREMIER MUTUAL FUND SERVICES.
MARKET ENVIRONMENT
STEADILY RISING SHORT-TERM INTEREST RATES
After more than five years of declining interest rates, the Federal Re-
serve Board raised short-term rates six times between January and August
1994. The first three hikes sent the securities markets, including the
bond market in which this Fund invests, into sharp corrections. Market
values dropped in keeping with the inverse relationship that exists be-
tween interest rates and bond prices. Fortunately, the Fund's shorter ma-
turity bonds were less affected by decreases in capital value than inter-
mediate and longer maturity issues.
As the marketplace adapted to the new reality of rising interest rates,
subsequent hikes had little effect on bond values. Although the market re-
mained somewhat volatile at the end of the annual report period (September
1, 1993 through August 31, 1994), it had calmed considerably from the ear-
lier part of the year. The short maturity bond sector had become rela-
tively stable, anticipating another Fed interest rate increase toward the
end of the year. However, the market continues to watch the economy care-
fully for any signs of too-rapid growth that could prompt the Fed to make
an earlier interest rate move.
A STRENGTHENING ECONOMY
Following several years of a sluggish, stop-and-start recovery, the econ-
omy finally established a relatively steady pace of expansion toward the
end of 1993. In fact, government statistics for the first six months of
1994 indicated stronger-than-anticipated growth, with lower unemployment
and solid increases in housing sales and new orders for manufactured
goods. In raising the Federal Funds and discount interest rates, the Fed
was responding to this growth and attempting to head off inflation before
it had a chance to surface.
As the report period ended, the economy continued to grow and inflation
remained low. This is a positive environment for investment and, if it can
be sustained, investors should be rewarded over the long term.
THE OUTLOOK: CONTINUED GROWTH AND HIGHER RATES
Over the next several months, we expect the economy to continue along its
path of steady growth. In order to keep inflation in check, the Fed will
most likely continue to raise interest rates gradually. Still, even moder-
ately higher interest rates will be low by historic standards. In this
climate, we believe the bond market will offer ample opportunity for posi-
tive investment performance.
PORTFOLIO STRATEGY
Despite daunting market conditions that challenged bond investors in vir-
tually every market sector, the Short-Term Bond Fund was able to tally a
modest positive total return for the report period. Two of our most impor-
tant strategies for achieving these returns have been to keep the Fund's
weighted average maturity very short at between one and two years, and to
focus our portfolio on investments of the very highest quality. This com-
bined approach has enabled us to minimize the performance-dampening effect
of interest rate advances while keeping the Fund flexible for future rate
changes.
Looking ahead, we believe the market will remain relatively stable
throughout the fall if the current pace of economic growth continues. Ac-
cordingly, we plan to keep the portfolio's average weighted maturity short
and to retain our focus on superior quality investments. Once the Fed
raises short-term interest rates again, we will extend the average
weighted maturity a bit further to help capture higher yields and garner
additional income for the Fund.
PERFORMANCE SUMMARY
SHORT-TERM BOND FUND (UNAUDITED)
GROWTH OF $10,000 INVESTED FROM OCTOBER 18, 1988 -- AUGUST 31, 1994+
DESCRIPTION OF MOUNTAIN CHART
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Short-
Term Bond Fund's investor shares on October 18, 1988 through August 31,
1994 as compared with the growth of a $10,000 investment in the Merrill
Lynch 1-3 Year Government Treasury Index. The plot points used to draw the
line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF
$10,000
INVESTMENT IN
THE
GROWTH OF $10,000 MERRILL LYNCH 1-3
YEAR
MONTH INVESTED IN INVESTOR GOVERNMENT
TREASURY
ENDED SHARES OF THE FUND INDEX
<S> <C> <C>
10/18/88 $10,000 --
10/88 $10,012 $10,000
11/88 $ 9,981 $ 9,973
12/88 $10,026 $ 9,996
3/89 $10,234 $10,121
6/89 $10,467 $10,624
9/89 $10,659 $10,778
12/89 $10,877 $11,083
3/90 $11,042 $11,182
6/90 $11,294 $11,495
9/90 $11,477 $11,769
12/90 $11,791 $12,160
3/91 $12,305 $12,427
6/91 $12,341 $12,671
9/91 $12,836 $13,097
12/91 $13,365 $13,579
3/92 $13,291 $13,600
6/92 $13,646 $13,992
9/92 $14,035 $14,408
12/92 $14,023 $14,434
3/93 $14,263 $14,754
6/93 $14,392 $14,913
9/93 $14,553 $15,127
12/93 $14,587 $15,216
3/94 $14,402 $15,140
6/94 $14,386 $15,153
8/94 $14,518 $15,337
</TABLE>
AVERAGE ANNUAL TOTAL RETURN -- INVESTOR SHARES
<TABLE>
<CAPTION>
<S> <C>
Year Ended 8/31/94 0.06%
Five Years Ended 8/31/94 6.50%
Inception (10/18/88) through 8/31/94 6.56%
</TABLE>
+ Hypothetical illustration of $10,000 invested in Investor Shares at in-
ception (October 18, 1988) and reinvestment of dividends and capital
gains at net asset value through August 31, 1994.
The Merrill Lynch 1-3 Year Government Treasury Index consists of AAA
U.S. Government and Treasury bonds maturing from 1 to 2.99 years.
Index information is available at month-end only, therefore, the closest
month-end to inception date of the Fund has been used.
This period was one in which short-term bond prices fluctuated and the
results should not be considered as a representation of the dividend in-
come or capital gain or loss which may be realized from an investment in
the Fund today. No adjustment has been made for a shareholder's tax lia-
bility on dividends or capital gains.
NOTE: All figures cited here and on the following pages represent past
performance and do not guarantee future results. Investment return and
principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than original cost.
PORTFOLIO OF INVESTMENTS
SHORT-TERM BOND FUND AUGUST 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
VALUE
AMOUNT RATE DATE
(NOTE 1)
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 37.2%
$270,000 U.S. Treasury Notes 7.625% 12/31/94 $
272,263
90,000 U.S. Treasury Notes 5.500 02/15/95
90,143
150,000 U.S. Treasury Notes 7.500 02/29/96
153,382
350,000 U.S. Treasury Notes 5.125 12/31/98
329,301
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $858,898)
845,089
MEDIUM-TERM NOTES -- 20.2%
100,000 Atlantic Richfield Company 10.375 07/15/95
103,750
50,000 Beneficial Corporation 9.500 05/25/95
51,250
150,000 Commercial Credit Group 9.200 06/15/95
153,563
100,000 ITT Financial Corporation 8.375 08/01/95
102,000
50,000 Schering Plough Corporation Zero 12/02/96
43,312
Coupon
5,380 SPNB Home Equity Loan 8.100 06/15/20
5,442
TOTAL MEDIUM-TERM NOTES
(Cost $451,619)
459,317
MORTGAGE-BACKED SECURITIES -- 5.6%
GOVERNMENT NATIONAL MORTGAGE ASSOCI-
ATION (GNMA) -- 5.3%
19,641 GNMA 10.000 03/15/03
21,219
41,516 GNMA 11.500 07/15/13
46,939
51,705 GNMA II 6.000 07/20/17
51,640
TOTAL GNMA (COST $113,333)
119,798
FEDERAL HOME LOAN MORTGAGE CORPORA-
TION (FHLMC) -- 0.3%
(Cost $7,555)
7,612 FHLMC 5.417 03/01/19
7,640
TOTAL MORTGAGED-BACKED
SECURITIES
(Cost $120,888)
127,438
REPURCHASE AGREEMENT -- 33.9%
(Cost $770,000)
$770,000 Agreement with Morgan Stanley & Co.,
4.650% dated 08/31/94, to be repur-
chased at $770,099 on 09/01/94, col-
lateralized by $750,000 U.S. Trea-
sury Bond, 8.125% due 08/15/19 $
770,000
TOTAL INVESTMENTS
(Cost $2,201,405*) 96.9%
2,201,844
OTHER ASSETS AND LIABILITIES (NET) 3.1
70,743
NET ASSETS 100.0%
$2,272,587
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
SHORT-TERM BOND FUND AUGUST 31, 1994
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost $2,201,405)
(Note 1)
See accompanying schedule:
Securities $1,431,844
Repurchase agreement 770,000
$2,201,844
Cash
6,565
Receivable from investment adviser (Note
2)
71,055
Interest receivable
13,819
Receivable for Fund shares sold
76
TOTAL ASSETS
2,293,359
LIABILITIES
Accrued audit fees $10,558
Accrued shareholder reports expense 3,000
Dividends payable 2,822
Investment management fee payable (Note
2) 2,177
Transfer agent fees payable (Note 2) 252
Accrued Trustees' fees and expenses
(Note 2) 194
Payable for Fund shares redeemed 90
Distribution fee payable (Note 3) 78
Accrued expenses and other payables 1,601
TOTAL LIABILITIES
20,772
NET ASSETS
$2,272,587
NET ASSETS consist of:
Distributions in excess of net invest-
ment income
$(4,964)
Accumulated net realized loss on invest-
ments sold
(150,476)
Unrealized appreciation of investments
439
Par value
192
Paid-in capital in excess of par value
2,427,396
TOTAL NET ASSETS
$2,272,587
NET ASSET VALUE
INVESTOR SHARES
Net asset value, offering and redemption
price per share ($2,272,587 / 191,832
shares of beneficial interest outstand-
ing)
$11.85
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
SHORT-TERM BOND FUND
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $
175,721
EXPENSES
Shareholder reports expense $ 29,560
Legal and audit fees 26,789
Registration and filing fees 24,287
Investment advisory fee (Note 2) 9,060
Transfer agent fees (Note 2) 5,665
Investment management fee (Note 2) 5,143
Distribution fee (Note 3) 4,543
Custodian fees (Note 2) 3,098
Trustees' fees and expenses (Note 2) 1,606
Amortization of organization costs (Note
6) 1,051
Other 5,455
Fees waived and/or expenses reimbursed by
investment adviser and custodian (Note
2) (90,576)
TOTAL EXPENSES
25,681
NET INVESTMENT INCOME
150,040
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS (Notes 1 and 4):
Net realized gain on investments sold
during the year
699
Net unrealized depreciation of invest-
ments during the year
(156,593)
NET REALIZED AND UNREALIZED LOSS ON IN-
VESTMENTS
(155,894)
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $
(5,854)
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
SHORT-TERM BOND FUND
<TABLE>
<CAPTION>
YEAR
YEAR
ENDED
ENDED
8/31/94
8/31/93
<S> <C> <C>
Net investment income $ 150,040 $
269,709
Net realized gain on investments sold
during the year 699
24,532
Net unrealized depreciation of invest-
ments during the year (156,593)
(73,490)
Net increase/(decrease) in net assets re-
sulting from operations (5,854)
220,751
Distributions to shareholders from net
investment income:
Investor Shares (131,766) --
Retail Class --
(266,613)
Institutional Class (13,133)
(2,533)
Distributions to shareholders in excess
of net investment income:
Investor Shares (4,675) --
Retail Class --
(558)
Institutional Class (466)
(5)
Net increase/(decrease) in net assets
from Fund share transactions (Note 5):
Investor Shares (1,106,873) --
Retail Class --
(1,923,798)
Institutional Class --
58,871
Net decrease in net assets (1,262,767)
(1,913,885)
NET ASSETS:
Beginning of year 3,535,354
5,449,239
End of year (including distributions in
excess of net investment income of
$4,964 at August 31, 1994) $ 2,272,587 $
3,535,354
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
SHORT-TERM BOND FUND
FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT EACH YEAR.*
<TABLE>
<CAPTION>
YEAR YEAR
YEAR
ENDED ENDED
ENDED
8/31/94 8/31/93++
8/31/92
<S> <C> <C>
<C>
Net asset value, beginning of year $12.50 $12.64
$12.23
Income from investment operations:
Net investment income*** 0.63 0.68
0.75
Net realized and unrealized gain/(loss)
on investments (0.62) (0.15)
0.41
Total from investment operations 0.01 0.53
1.16
Less distributions:
Distributions from net investment income (0.64) (0.67)
(0.75)
Distributions in excess of net invest-
ment income (0.02) (0.00)#
- --
Total distributions (0.66) (0.67)
(0.75)
Net asset value, end of year $11.85 $12.50
$12.64
Total return+ 0.06% 4.34%
9.73%
Ratios to average net assets/Supplemen-
tal Data:
Net assets, end of year (in 000's) $2,273 $3,477
$5,449
Ratio of operating expenses to average
net assets** 0.95% 0.99%
0.98%
Ratio of net investment income to aver-
age net assets 5.38% 5.29%
5.96%
Portfolio turnover rate 53% 6%
30%
<FN>
* The Fund commenced operations on October 18, 1988. Effective April 4,
1994, the Retail and Institutional Classes were reclassified as a sin-
gle class of shares known as the Investor Shares. The amounts shown for
the year ended August 31, 1994, were calculated using the performance
of a Retail Share outstanding from September 1, 1993 to April 3, 1994,
and the performance of an Investor Share outstanding from April 4, 1994
to August 31, 1994. The Financial Highlights for the year ended August
31, 1993 and prior periods are based upon a Retail Share outstanding.
** Annualized expense ratios before waiver of fees and/or reimbursement
of expenses by investment adviser, transfer agent and custodian for
the years ended August 31, 1994, 1993 and 1992 were 4.21%, 2.54% and
1.88%, respectively.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, transfer agent and custodian for the
years ended August 31, 1994, 1993 and 1992 would have been $.25, $.48
and $.63, respectively.
+ Total return represents aggregate total return for the periods indi-
cated.
++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for this
period since use of the undistributed income method does not accord
with results of operations.
# Amount represents less than $0.01.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
SHORT-TERM BOND FUND
FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT EACH YEAR OR PERIOD.*
<TABLE>
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
8/31/91 8/31/90
8/31/89
<S> <C> <C>
<C>
Net asset value, beginning of period $11.82 $11.84
$12.00
Income from investment operations:
Net investment income*** 0.82 0.93
0.86
Net realized and unrealized gain/(loss)
on investments 0.41 (0.02)
(0.17)
Total from investment operations 1.23 0.91
0.69
Less distributions:
Distributions from net investment income (0.82) (0.93)
(0.85)
Distributions in excess of net invest-
ment income -- --
- --
Total distributions (0.82) (0.93)
(0.85)
Net asset value, end of period $12.23 $11.82
$11.84
Total return+ 10.79% 7.95%
5.97%
Ratios to average net assets/Supplemen-
tal Data:
Net assets, end of period (in 000's) $3,895 $2,771
$3,374
Ratio of operating expenses to average
net assets** 0.99% 0.99%
1.14%++
Ratio of net investment income to aver-
age net assets 6.90% 7.77%
8.07%++
Portfolio turnover rate 70% 52%
232%
<FN>
* The Fund commenced operations on October 18, 1988. Effective April 4,
1994, the Retail and Institutional Classes were reclassified as a sin-
gle class of shares known as the Investor Shares. The Financial High-
lights for the year ended August 31, 1991 and prior periods are based
upon a Retail Share outstanding.
** Annualized expense ratios before waiver of fees and/or reimbursement
of expenses by
investment adviser, transfer agent and custodian for the years ended
August 31, 1991
and 1990 and for the period ended August 31, 1989 were 3.07%, 3.67%
and 1.54%,
respectively.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, transfer agent and custodian for the
years ended August 31, 1991 and
1990 and for the period ended August 31, 1989 would have been $.57,
$.61 and $.82,
respectively.
+ Total return represents aggregate total return for the periods
indicated.
++ Annualized.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Laurel Investment Series (the "Trust") (formerly The Boston Company
Investment Series), The Laurel Funds, Inc., The Laurel Funds Trust and The
Laurel Tax-Free Municipal Funds are all registered open-end investment
companies that compose The Laurel Fund Family. The Trust is an investment
company that consists of three funds: the Contrarian Fund, the Short-Term
Bond Fund and the International Fund. This report contains financial
statements for the Short-Term Bond Fund (the "Fund"). The Trust is a Mas-
sachusetts business trust and is registered with the Securities and Ex-
change Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. Effective
April 4, 1994, the Retail and Institutional Classes of shares were reclas-
sified as a single class of shares known as the Investor Shares, and the
Fund began offering Trust Shares. As of August 31, 1994, the Fund had not
issued any Trust Shares. Investor Shares are designed for the retail in-
vestor and bear a distribution fee. Trust Shares are designed for institu-
tional investors, clients of financial institutions, such as banks, trust
companies or thrift institutions, who have qualified accounts, and bear no
distribution fee. Each class of shares has identical rights and privileges
except with respect to the distribution fee and voting rights on matters
affecting a single class. The following is a summary of significant ac-
counting policies consistently followed by the Fund in the preparation of
its financial statements in accordance with generally accepted accounting
principles.
(A) PORTFOLIO VALUATION
Investments in securities that are traded on a national securities ex-
change are valued at the last reported sales price or, in the absence of a
recorded sale, at the mean of the closing bid and asked prices. Over-the-
counter securities are valued at the closing bid price at the close of
business each day, or, if market quotations for such securities are not
readily available, at fair value, as determined in good faith by the Board
of Trustees. Investments in U.S. Government Securities (other than short-
term securities) are valued at the most recent quoted bid price in the
over-the-counter market. Short-term investments with maturities of 60 days
or less from the valuation day are valued on the basis of amortized cost.
Foreign securities are generally valued at the preceding closing values of
such securities on their respective exchanges, except that when an
occurrence subsequent to the time a value was so established is likely to
have changed such value, then the fair value of those securities will be
determined by consideration of other factors by or under the direction of
the Board of Trustees or its delegates.
(B) REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. Under the terms
of a typical repurchase agreement, the Fund takes possession of an under-
lying debt obligation subject to an obligation of the seller to repur-
chase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to mar-
ket fluctuations during the Fund's holding period. The value of the col-
lateral is at least equal, at all times, to the total amount of the repur-
chase obligations, including interest. In the event of counterparty de-
fault, the Fund has the right to use the collateral to offset losses
incurred. There is potential loss to the Fund in the event the Fund is de-
layed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. The Fund's investment manager, acting under the supervision of the
Board of Trustees, reviews the value of the collateral and the creditwor-
thiness of those banks and dealers with which the Fund enters into repur-
chase agreements to evaluate potential risks.
(C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Securities purchased or sold on a when-issued or delayed-
delivery basis may be settled a month or more after the trade date. Real-
ized gains and losses from securities sold are recorded on the identified
cost basis. Investment income and realized and unrealized gains and losses
are allocated based upon relative net assets of each class.
(D) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions to shareholders are recorded on the ex-
dividend date. Dividends from net investment income, if any, of the Fund
are declared on a class level and paid quarterly. The Fund distributes any
net realized capital gains on a Fund level annually. Additional distribu-
tions of net investment income and capital gains for the Fund may be made
at the discretion of the Board of Trustees in order to avoid the 4% nonde-
ductible Federal excise tax. Income distributions and capital gain distri-
butions on a Fund level are determined in accordance with income tax regu-
lations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and
gains on various investment securities held by the Fund, timing differ-
ences and differing characterization of distributions made by the Fund as
a whole. Permanent differences incurred during the year ended August 31,
1994 resulting from different book and tax accounting for certain debt in-
struments have been reclassified to paid-in capital at year end.
(E) FEDERAL TAXES
It is the Fund's intention to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code applicable to
regulated investment companies and by distributing substantially all of
its taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
2. INVESTMENT MANAGEMENT FEE, TRUSTEES' FEES AND OTHER RELATED PARTY
TRANSACTIONS
Effective April 4, 1994, the Trust entered into an investment management
agreement with Mellon Bank, N.A. (the "Manager"), a wholly owned subsid-
iary of Mellon Bank Corporation ("Mellon"), under which the Manager
provides,
or arranges for one or more third parties to provide, investment advisory,
administrative, custody, fund accounting and transfer agency services to
the
Trust. The Manager also directs the investment of the Fund in accordance
with
its investment objectives, policies and limitations. For these services,
the
Fund pays the Manager a fee, calculated daily and paid monthly, at the
annual
rate of 0.55% of the value of the Fund's average daily net assets. Out of
its fee, the Manager pays all of the expenses of the Fund except brokerage,
taxes, interest, Rule 12b-1 distribution fees and expenses, fees and ex-
penses of the non-interested Trustees (including counsel fees) and ex-
traordinary expenses. In addition, the Manager is required to reduce its
fee in an amount equal to the Fund's allocable portion of fees and ex-
penses of the non-interested Trustees (including counsel). Prior to April
4, 1994, the Trust had an investment advisory agreement under which the
Fund paid The Boston Company Advisors, Inc. ("Boston Advisors") a monthly
fee at the annual rate of 0.50% of the value of its average daily net as-
sets for investment advisory services. For the year ended August 31, 1994,
Boston Advisors, as investment adviser, voluntarily waived fees of $9,060
and reimbursed expenses of $78,894.
Effective April 4, 1994, the Fund entered into an administration agreement
with Frank Russell Investment Management Company (the "Administrator") to
serve as the Fund's administrator to provide various administrative and
corporate secretarial services to the Fund. The Administrator's fee is
paid by the Manager out of the management fee described above.
No officer or employee of Mellon or of any parent, subsidiary or affiliate
thereof receives any compensation from The Laurel Fund Family for serving
as an officer or Trustee of The Laurel Fund Family. The Laurel Fund Family
pays each Trustee who is not an officer or employee of Mellon or of any
parent, subsidiary or affiliate thereof, or of the Administrator or any
parent, subsidiary or affiliate thereof, $27,000 per annum, $1,000 for
each Board meeting attended, and $750 for each Audit Committee meeting
attended, and reimburses each Trustee for travel and out-of-pocket ex-
penses. Prior to April 4, 1994, the Trust paid each Trustee $5,000 per
annum, plus $1,000 per meeting attended, plus $250 per Audit Committee
meeting attended, plus reimbursement for travel and out-of-pocket ex-
penses.
Prior to April 4, 1994, the Trust had individual contracts, which con-
tained specific fee provisions, with Boston Safe Deposit and Trust Com-
pany, a wholly owned subsidiary of Mellon, and The Shareholder Services
Group, Inc. to provide custody and transfer agent services, respectively,
to the Fund. For the period ended April 4, 1994, the custodian waived its
fees of $2,622. Effective April 4, 1994, the payment of fees for custody,
accounting and transfer agent services are covered by the investment man-
agement agreement described above. Funds Distributor, Inc. ("Funds Dis-
tributor") continues to act as distributor of the Fund's shares.
3. DISTRIBUTION PLAN
The Fund has adopted a plan of distribution (the "Plan") pursuant to Rule
12b-1 under the 1940 Act relating to Investor Shares. Under the Plan, the
Fund may pay up to 0.25% of the value of the average daily net assets of
Investor Shares to compensate Funds Distributor for shareholder servicing
activities and for activities primarily intended to result in the sale of
Investor Shares. The Trust Shares bear no distribution fee. Prior to April
4, 1994, under the distribution plan, the Fund was authorized to spend an-
nually up to 0.25% and 0.15%, of its average daily net assets on distribu-
tion expenses for the Retail Class and the Institutional Class, respec-
tively, which classes, on April 4, 1994 were reclassified into Investor
Shares.
Under its terms, the Plan shall remain in effect from year to year, pro-
vided such continuance is approved annually by a vote of a majority of
those Trustees who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or
in any agreement related to the Plan.
4. SECURITIES TRANSACTIONS
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended August 31, 1994 aggregated
$1,335,513 and $2,952,141, respectively, for the Fund.
At August 31, 1994, aggregate gross unrealized appreciation for all secu-
rities in which there was an excess of value over tax cost amounted to
$26,289, and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value amounted to $25,850.
5. SHARES OF BENEFICIAL INTEREST
The Trust has the authority to issue an unlimited number of shares of ben-
eficial interest of each Class in each separate series, with a par value
of $.001. The Trust has authority to issue two classes of shares. Effec-
tive April 4, 1994, the Retail and Institutional Classes of shares were
combined and reclassified as a single class of shares known as the Inves-
tor Shares. The table below summarizes transactions in Fund shares for the
periods shown in the accompanying Statement of Changes in Net Assets.
<TABLE>
<CAPTION>
YEAR ENDED YEAR
ENDED
8/31/94 8/31/93*
(INVESTOR SHARES) (RETAIL CLASS)
(INSTITUTIONAL CLASS)
SHARES** AMOUNT*** SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C> <C> <C>
<C> <C>
Sold 125,473 $ 1,547,869 147,353 $ 1,852,904
216 $ 2,706
Issued as rein-
vestment of div-
idends and dis-
tributions 8,894 108,098 13,071 164,107
200 2,515
Redeemed (225,283) (2,762,840) (305,609) (3,841,443)
(3,651) (45,716)
Exchanged for In-
stitutional
shares (7,905) (99,366)
Issued in exchange
for Retail
shares -- -- -- --
7,905 99,366
Net increase/(de-
crease) (90,916) $ (1,106,873) (153,090) $ (1,923,798)
4,670 $ 58,871
<FN>
* The Fund commenced selling Institutional Class shares on February 1,
1993. Any shares outstanding prior to February 1, 1993 were designated
as Retail Class shares.
** Shares include 51,296 of subscriptions, 1,060 of reinvestments and
5,203 of redemptions for the Institutional Class up to April 4, 1994.
*** Amounts include $635,969 of subscriptions, $13,003 of reinvestments
and $62,943 of redemptions for the Institutional Class up to April 4,
1994.
</TABLE>
6. ORGANIZATION COSTS
The Fund paid all costs in connection with the Fund's organization includ-
ing the fees and expenses of registering and qualifying the Fund's shares
for distribution under Federal and state securities regulations. All such
costs were being amortized on the straight-line method over a period of
five years. These costs were fully amortized during the year ended August
31, 1994.
7. LINE OF CREDIT
The Trust and several affiliated entities participate in a $20 million
line of credit provided by Continental Bank, N.A. under a Line of Credit
Agreement (the "Agreement") dated March 31, 1992, as amended, primarily
for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of securi-
ties. Under this Agreement, the Trust may borrow up to the amount speci-
fied in its Borrowing Base Certificate. Interest is payable either at the
bank's Money Market Rate or the London Interbank Offered Rate (LIBOR) plus
0.375% on an annualized basis. As amended effective May 21, 1994, the
Trust and the other affiliated entities are charged an aggregated commit-
ment fee of $40,000, which is allocated equally among each of the partici-
pants. The Agreement requires, among other provisions, each participating
fund to maintain a ratio of net assets (not including funds borrowed pur-
suant to the Agreement) to aggregate amount of indebtedness pursuant to
the Agreement of no less than 4 to 1. At August 31, 1994, the Fund had no
outstanding borrowings under this Agreement.
8. CAPITAL LOSS CARRYFORWARD
As of August 31, 1994, the Fund had available for Federal tax purposes un-
used capital loss carryforwards of $133,822 expiring in 1997 and $10,258
expiring in 1999.
9. SUBSEQUENT EVENTS
At a meeting held on September 23, 1994, the Board of Trustees of The Lau-
rel Investment Series approved several changes which became effective Oc-
tober 17, 1994. The name of the Trust became The Dreyfus/Laurel Investment
Series, which consists of Dreyfus/Laurel Short-Term Bond Fund, Dreyfu-
s/Laurel International Fund and Dreyfus/ Laurel Contrarian Fund. The in-
vestment manager became The Dreyfus Corporation. Premier Mutual Fund Ser-
vices, Inc. became each fund's distributor and sub-administrator.
INDEPENDENT AUDITORS' REPORT
KPMG
The Board of Trustees and Shareholders
The Laurel Investment Series Short-Term Bond Fund
We have audited the accompanying statement of assets and liabilities, in-
cluding the portfolio of investments, of the Short-Term Bond Fund of The
Laurel Investment Series (formerly The Boston Company Investment Series),
as of August 31, 1994, and the related statement of operations, statement
of changes in net assets, and the financial highlights for the year then
ended. These financial statements and financial highlights are the respon-
sibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on
our audit. The statement of changes in net assets for the year ended Au-
gust 31, 1993 and financial highlights for the four year period ended Au-
gust 31, 1993 and for the period from October 18, 1988 to August 31, 1989
were audited by other auditors whose report thereon,
dated October 8, 1993, expressed an unqualified opinion on that statement
and those financial highlights.
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 fi-
nancial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1994 by correspondence with the custo-
dian and brokers. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evalu-
ating 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 Short-Term Bond Fund of The Laurel Investment Series as of August
31, 1994, and the results of operations, changes in net assets, and finan-
cial highlights for the year then ended in conformity with generally ac-
cepted accounting principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
October 21, 1994
TAX INFORMATION (UNAUDITED)
THE LAUREL FUNDS SHORT-TERM BOND FUND
YEAR ENDED AUGUST 31, 1994
The following tax information represents fiscal year end disclosures of
various tax benefits passed through to shareholders at calendar year end.
At August 31, 1994 the Fund had available for Federal tax purposes unused
capital loss carryforwards of $140,218 expiring in 1997, and $10,258 ex-
piring in 1999.
Of the distributions made by the Fund from investment income, 58.78% rep-
resents the portion of each distribution derived from investments in U.S.
Government and Agency Obligations. All or a portion of the distributions
made from this income may be exempt from taxation at the state level.
Please consult your tax advisor for state specific information.
The above figures may differ from those cited elsewhere in this report due
to differences in the calculations of income and capital gains for Securi-
ties and Exchange Commission (book) purposes and Internal Revenue Service
(tax) purposes.
FOR MORE INFORMATION ON THE LAUREL FUNDS INCLUDING:
* Fund information - 9:00 a.m. to 5:00 p.m., Monday through Friday
* Additional Prospectuses - Read the prospectus carefully before you
invest.
* Account Information - 9:00 a.m. to 5:00 p.m., Monday through Friday
* Yield and Share Price Information - 24 hours a day, 7 days a week
CALL 1-800-548-2868
Or write:
The Dreyfus Family of Funds
P.O. Box 9692
Providence, R.I. 02940-9830
The Funds are distributed by:
Premier Mutual Fund Services, Inc.
One Exchange Place
10th Floor
Boston, MA 02109
STB2104
<PAGE>
- ---------------------------------------------------------------------------
- -----
A N N U A L
Small box with a leaf in
it. Above box the funds
name Laurel is showing
and below box the word
Funds is there under a
line.
[LEAF]
International
Fund
[LEAF]
-----------------------------------------------------------------
- -----
AUGUST 31, 1994
<PAGE>
DEAR SHAREHOLDER,
We are pleased to bring you performance, market and portfolio activity
information on the International Fund for the year ended August 31, 1994.
As you know from recent correspondence, on October 17, 1994, The Laurel
Family
of Funds began integrating with The Dreyfus Family of Funds. In
connection
with this integration, the Laurel Funds have been renamed to provide a
more
cohesive fund family unified under the Dreyfus name. The Laurel
International
Fund is now known, and publicly listed, as the Dreyfus/Laurel
International
Fund. Please be assured that the Fund's name change does not affect the
value
of your account or the investment objective or strategy of your Fund. The
integration is discussed in greater detail in the subsequent events
footnote,
which is located in the notes to the financial statements of this report.
In the pages that follow, we have provided a more detailed description of
the
market environment over the last twelve months, along with commentary on
your
Fund's investment management strategy and portfolio changes for the
period.
Additional financial data is also included.
In closing, we would like to extend our appreciation for your past
support of
The Laurel Family of Funds and hope that you will find that the new
Dreyfus
Family of Funds will continue to provide the diversity and performance
that
you have come to expect. As always, we welcome your thoughts and
suggestions.
Sincerely,
Richard W. Healey
Vice President
The Laurel Funds
October 20, 1994
1
...........................................................................
.....
<PAGE>
TABLE of CONTENTS
...........................................................................
.....
<TABLE>
<S> <C>
Shareholder Letter........................................ 1
Market Environment........................................ 3
Portfolio Review.......................................... 4
Performance Summary....................................... 5
Portfolio of Investments.................................. 6
Statement of Assets and Liabilities....................... 17
Statement of Operations................................... 18
Statement of Changes in Net Assets........................ 19
Financial Highlights...................................... 20
Notes to Financial Statements............................. 22
Independent Auditors' Report.............................. 29
</TABLE>
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED
BY, ANY BANK, OR THE U.S. GOVERNMENT, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER
AGENCY. ALL MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL, AND THERE CAN BE NO GUARANTEE THAT A MONEY
MARKET
FUND WILL BE ABLE TO MAINTAIN A STABLE $1.00 SHARE PRICE.
THE DREYFUS FUNDS ARE DISTRIBUTED BY PREMIER MUTUAL FUND SERVICES.
2
...........................................................................
.....
<PAGE>
MARKET ENVIRONMENT
...........................................................................
.....
POSITIVE PERFORMANCE AMID DIMINISHING VOLATILITY
The world's stock markets ended the report period September 1, 1993 to
August
31, 1994 on a positive note, achieving aggregate performance exceeding
returns
tallied by the broad U.S. stock market averages.
This growth was accompanied by a fair amount of volatility, particularly
in
the first quarter of 1994. Overseas markets throughout Southeast Asia and
Europe followed the lead of U.S. securities markets, which dropped
sharply in
February and March in response to the Federal Reserve Board's early
interest
rate hikes. International markets worried that their own interest rates
would
soon climb, too. Some rates did rise, although not as precipitously as
investors had feared. Hong Kong, New Zealand and United Kingdom posted
the
most significant price declines of the period, while markets in France
and
Switzerland also came under strong pressure. Italy was a clear and
positive
exception. Its stock market rose 27% during March, April and May on
expectations that a recent election would soon produce major economic
reform.
As the report period drew to a close, much of this early volatility began
to
subside. A certain amount of rebalancing occurred, with some of the
sharpest
first quarter market swings correcting themselves.
STRENGTH BUILDS IN EUROPE AND EMERGING MARKETS
Despite the performance-dampening effects of rising U.S. interest rates
on
international markets, underlying economic considerations remained
positive in
many countries. Once the U.S. clarified its policies on interest rates
and the
dollar, many of the issues that had been causing upheaval in these
markets
were finally settled. Investors could once again return to decision-
making
based on fundamentals.
In Europe, many economies are either on the brink of recovery or in its
early
stages. In fact, the stock market in the United Kingdom now offers the
best
relative value in the world. While its economy seems to have turned the
corner, the UK still lags the U.S. economic cycle by approximately six
months,
giving investors ample opportunity to profit from the economic expansion.
Germany is another promising European market. Among the emerging markets,
Thailand offers particularly good value in an economy that continues to
grow
well. The recent election in Mexico removed much of the uncertainty that
had
been plaguing its stock market, and the government now seems set on a
conservative economic course that bodes well for investors.
THE OUTLOOK: GROWTH AND OPPORTUNITY
Looking ahead, we see growth opportunities in select markets around the
globe.
European markets offer solid investment potential, particularly in the
pharmaceutical industry where stock values have become exceptionally
attractive. Japan seems to have reached the bottom of its economic cycle
and
should begin to offer better value as the
3
...........................................................................
.....
<PAGE>
MARKET ENVIRONMENT (continued)
...........................................................................
.....
economy begins to recover. In Latin America, consumer goods stocks are
well-positioned for good performance as falling interest rates and
controlled
inflation give people more disposable income.
In the following section, we discuss the specific strategies that
produced
success for the Fund from September 1, 1993 through August 31, 1994.
PORTFOLIO REVIEW
...........................................................................
.....
Despite a rather challenging period for the world's securities markets,
the
Fund tallied returns well in excess of those posted by the Standard &
Poor's
500 during the most recent fiscal year. The Fund provided shareholders
with a
9.6% return for the period, while the S&P grew just 2.4% during this
time.
The Fund remained fully invested in equities throughout the fiscal year.
With
large positions in both Italy and Japan, the Fund benefited handsomely
from
rises in these markets. By focusing on non-dollar-denominated
investments, the
Fund also managed to temper or even avoid losses in some markets when the
dollar began to weaken.
Going forward, we are currently evaluating some very attractive sectors
in
local markets around the world. With many of the most unsettling issues
of the
period now behind us, we believe international equities markets are
well-positioned to outperform the domestic market in coming months.
4
...........................................................................
.....
<PAGE>
PERFORMANCE SUMMARY
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND (UNAUDITED)
GROWTH OF $10,000 INVESTED FROM OCTOBER 12, 1988 -- AUGUST 31, 1994+
A line graph depicting the total growth (including reinvestment of
dividends and
capital gains) of a hypothetical investment of $10,000 in International
Fund's
investor shares on October 12, 1988 through August 31, 1994 as compared
with the
growth of a $10,000 investment in the Morgan Stanley EAFE Index. The plot
points
used to draw the line graph were as follows:
<TABLE>
<CAPTION>
Growth of
$10,000
Invested in
Investor Growth of $10,000
Month Shares of the Investment in the Morgan Stanley
Ended Fund EAFE Index
<S> <C> <C>
9/30/88 -- $ 10,000
10/12/88 $10,000 --
10/88 10,075 10,950
11/88 10,217 11,354
12/88 10,180 11,481
3/89 10,113 11,472
6/89 9,913 11,397
9/89 11,074 12,890
12/89 11,752 13,908
3/90 10.780 12,641
6/90 11,368 13,557
9/90 9,033 10,688
12/90 9,577 11,516
3/91 10,247 12,210
6/91 9,735 11,558
9/91 10,291 12,490
12/91 10,212 12,819
3/92 9,277 11,937
6/92 9,493 12,353
9/92 9,583 12,067
12/92 9,151 11,647
3/93 10,077 13,042
6/93 10,527 14,231
9/93 11,255 15,417
12/93 11,399 15,619
3/94 11,803 16,496
6/94 11,911 16,941
8/94 12,577 17,637
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN -- INVESTOR SHARES
<S> <C>
-------------------------------------------------------------------
Year Ended 8/31/94 9.64%
-------------------------------------------------------------------
Five Years Ended 8/31/94 3.02%
-------------------------------------------------------------------
Inception (10/12/88) through 8/31/94 3.97%
-------------------------------------------------------------------
<FN>
+ HYPOTHETICAL ILLUSTRATION OF $10,000 INVESTED IN INVESTOR SHARES AT
INCEPTION
(OCTOBER 12, 1988) AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AT NET
ASSET VALUE THROUGH AUGUST 31, 1994.
THE MORGAN STANLEY EAFE INDEX IS A COMPOSITE PORTFOLIO CONSISTING OF
EQUITY
TOTAL RETURNS FOR THE COUNTRIES OF EUROPE, AUSTRALIA, NEW ZEALAND AND
COUNTRIES IN THE FAR EAST, WEIGHTED BASED ON EACH COUNTRY'S GROSS
DOMESTIC
PRODUCT.
INDEX INFORMATION IS AVAILABLE AT MONTH-END ONLY; THEREFORE, THE CLOSEST
MONTH-END TO INCEPTION DATE OF THE FUND HAS BEEN USED.
THIS PERIOD WAS ONE IN WHICH STOCK PRICES FLUCTUATED AND THE RESULTS
SHOULD NOT
BE CONSIDERED AS A REPRESENTATION OF THE DIVIDEND INCOME OR CAPITAL GAIN
OR
LOSS WHICH MAY BE REALIZED FROM AN INVESTMENT IN THE FUND TODAY. NO
ADJUSTMENT
HAS BEEN MADE FOR A SHAREHOLDER'S TAX LIABILITY ON DIVIDENDS OR CAPITAL
GAINS.
NOTE: ALL FIGURES CITED HERE AND ON THE FOLLOWING PAGES REPRESENT PAST
PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES
UPON REDEMPTION MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
</TABLE>
5
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS -- 71.4%
<C> <S>
<C>
FRANCE -- 15.2%
200 Air Liquide (L') $
31,170
500 Alcatel Alsthom Cie Generale d'Electricite
55,435
3,500 AXA Company+
169,730
400 Banque Nationale de Paris
18,546
200 Carnaudmetalbox SA
6,367
200 Casino Guichard Perrachon Et Cie
6,016
100 Chargeurs
27,727
200 Cie Financiale (Paribas)
13,715
100 Compagnie Bancaire SA
9,625
200 Compagnie De St. Gobain
25,469
500 Compagnie Financiere de Suez
25,524
100 Crecie Par Reesco NV
7,642
200 Danone
30,873
400 Eaux (Cie Generale Des)
41,461
100 Euro Disney SCA
172
100 Finextel
2,454
100 Havas
8,699
200 Lafarge Coppee SA
16,547
200 L'Oreal Group
45,533
200 Lvhm Moet Hennessey
32,984
100 Lyonnause Des Eaux Dunez
10,217
200 Michelin (Cie Gle Des Establ.)
8,784
100 Pechiney International
2,982
100 Pernod-Ricard
6,154
100 Peugeot SA
16,066
700 Rhone-Poulenc SA
17,789
100 Schneider SA
7,850
100 Sefimeg
7,950
100 Simco-Union Pout L'Habitation
8,635
200 Societe Generale
21,545
900 Societe National Elf Aquitaine
69,299
100 Sommer-Allibert
40,628
300 Thompson
8,979
800 Total Cie Francaise Des Petroles, Total 'B'
47,754
200 Unibail
18,620
</TABLE>
6 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
FRANCE (CONTINUED)
150 Union Immobiliere De France $
14,215
-
- ----------
883,156
-
- ----------
<CAPTION>
GERMANY -- 12.6%
<C> <S>
<C>
100 BASF Group AG
20,972
100 Bayer Group AG
24,062
200 Daimler-Benz Group AG
106,063
500 Deutsche Bank AG
232,072
500 Dresdner Bank AG
130,600
70 Mannesmann AG
19,467
300 RWE Aktiengesellschaft
90,233
200 Siemens AG
89,410
50 Viag AG
16,017
-
- ----------
728,896
-
- ----------
<CAPTION>
JAPAN -- 11.9%
<C> <S>
<C>
800 Ajinomoto Company
10,713
900 Asahi Chemical Industry
7,159
800 Asahi Glass Company
9,993
400 Bridgestone Company
6,396
500 Canon Inc.
8,744
400 Chugai Pharmaceutical
4,597
800 Dai Nippon Printing
15,189
200 Daido Steel
1,109
700 Dai-Ichi Kango Bank
12,731
2,100 Daikyo Kanko, Inc.
22,035
400 Daishowa Paper Manufacturing
4,077
400 Daiwa House Industry
6,116
600 Denki Kagaku Kogyo
2,488
1,300 Fuji Bank Ltd.
29,359
200 Fuji Photo Film
4,497
800 Fujitsu Ltd.
8,714
900 Hitachi Ltd.
8,922
400 Honda Motor
6,635
220 House Food Industrial Company
4,815
200 Industrial Bank of Japan
6,036
1,700 Itochu & Company
12,163
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
JAPAN (CONTINUED)
500 Ito-Yokado Company $
26,481
600 Japan Air Lines
4,545
600 Japan Energy Corporation
2,686
420 Joyo Bank
3,672
1,300 Kajima Corporation
12,939
400 Kamigumi Company
4,437
330 Kandenko Company
6,760
600 Kansai Electric Power
15,589
2,200 Kawasaki Steel Corporation
9,299
1,800 Kinki Nippon Railway Company Ltd.
15,289
1,000 Kirin Brewery Company
11,892
600 Komatsu Ltd.
5,426
200 Kyocera Corporation
14,830
100 Kyushu Electric Power
2,528
200 Maeda Road Construction
3,657
200 Marudai Food Company Ltd.
1,635
400 Matsushita Electric Works
7,035
1,100 Mitsubishi Bank
28,800
2,700 Mitsubishi Heavy Industries
21,180
900 Mitsubishi Kasei Company
4,839
200 Mitsubishi Trust & Banking
2,998
600 Mitsui Marine & Fire
4,797
600 Mitsui Trust & Banking
6,775
400 Mitsui & Company
3,446
800 NEC Corporation
9,753
600 Nikon
5,996
50 Nintendo Company
3,148
400 Nippon Light Metal Company
2,970
800 Nippon Oil Company
5,996
5,100 Nippon Steel Corporation
19,112
800 Nippon Yusen Kaisha
5,204
600 Oji Paper
6,116
1,600 Sakura Bank
22,704
200 Sanwa Shutter Corporation
1,849
220 Seven-Eleven Japan NPV
17,456
400 Shizuoka Bank
5,356
</TABLE>
8 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
JAPAN (CONTINUED)
500 Snow Brand Milk Products Company Ltd. $
3,937
100 Sony Corporation
6,106
400 Sumitomo Bank Ltd.
7,954
800 Sumitomo Electric Company
11,992
1,100 Sumitomo Trust & Banking
15,059
400 Taiyo Fishery Company+
1,639
1,000 Takeda Chemical Industries
12,691
800 Tokai Bank
10,553
800 Tokio Marine & Fire
9,913
300 Tokyo Electric Power Company
9,024
1,300 Tokyu Railway Corporation
9,548
1,200 Toyobo Company
5,432
500 Toyota Motor Company
10,792
600 UBE Industries Ltd.
2,446
200 Yakult Honsha
3,278
500 Yamanouchi Pharmaceutical Company
9,593
1,000 Yasuda Trust and Banking Company Ltd.
8,774
2,900 Yokogawa Electric Corporation
29,559
-
- ----------
687,973
-
- ----------
<CAPTION>
SWITZERLAND -- 6.5%
<C> <S>
<C>
11 Adia I
2,099
3 Alusuisse-Lonza Holdings AG, Series A
1,569
7 Alusuisse-Lonza Holdings AG, Series B
3,640
13 Brown Boveri & Cie AG, Series A
11,789
9 Brown Boveri & Cie AG, Series B
1,521
51 Ciba Geigy AG
30,894
37 Credit Suisse Holdings
15,345
75 CS Holdings
6,001
10 Forbo Holdings AG
20,098
3 Grand Magasin Jelmoli
403
24 Holderbank Financier Glaris AG
6,934
6 Merkur Holdings
1,654
68 Nestle SA
62,689
2 Roche Holdings, AG
18,032
12 Roche Holdings, AG Genuscheine NPV
54,998
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
SWITZERLAND (CONTINUED)
55 Sandoz Group AG $
28,555
1 Schindler Holdings AG
1,157
23 Schweiz Ruckversicherungs
9,537
36 Schweizerische Bankgesellschaft
31,755
86 Schweizerischer Bankverein
17,883
11 Sika Finanz AG
1,335
33 SMH AG Neuenburg
6,736
2 Societe Generale de Surveillance
3,065
4 Sulzer AG
2,898
3 Swiss Air AG
1,984
38 Union Bank Of Switzerland
8,908
25 Zurich Versicherungs
24,220
-
- ----------
375,699
-
- ----------
<CAPTION>
BELGIUM -- 6.4%
<C> <S>
<C>
135 ACEC Union Miniere NPV+
11,124
20 Bekaert SA
16,511
45 CBR Cimenteries NPV
17,103
279 Delhaize "Le Lion"
10,980
314 Electrabel NPV Common
55,899
50 Electrabell-Pr Reunies
8,993
500 Fortis AG
39,048
109 Generale de Banque
27,783
23 Gevaert Photo Prod NPV
6,810
28 Glaverbal NPV
4,330
144 Group Brussels Lambert SA
19,348
20 Kredietbank Afv NPV
4,157
75 Kredietbank NPV
15,704
195 Petrofina SA NPV
62,504
110 Royale Belge NPV
17,748
50 Solvay Et Cie, Series A, NPV
24,597
25 Tractobel
7,879
60 Tractobel Cap NPV
19,278
-
- ----------
369,796
-
- ----------
</TABLE>
10 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
AUSTRIA -- 6.0%
100 BWT Benchiser Wassertechnik AG $
15,168
100 Constantia Industry Holdings
8,856
500 Creditanstalt Bank
31,424
100 Ea Generali AG
29,087
100 Lenzing AG
11,545
200 Oesterreichische
11,904
600 Oesterreichische El Wirtsch
38,680
500 Omev AG
46,305
200 Radex Heraklith
8,326
200 Steyer-Daimler Puch AG
4,244
100 Universale-Bau AG
7,463
200 Veitscher
6,725
100 Wienerberger Baust
34,841
1,000 Z-Laenderbank Bank Austria AG
84,023
100 Z-Landerbank
5,485
-
- ----------
344,076
-
- ----------
<CAPTION>
ITALY -- 5.3%
<C> <S>
<C>
500 Aedes SpA di Risp
2,151
300 Aedes SpA Lig Lomb
2,464
900 Alitalia Linee Priv
666
500 Alitalia-Linee Aeree Italiane
283
2,000 Assicurazioni Generali
52,836
1,000 Banca Commerciale Italiana SpA
2,398
700 Banco Ambrosiano Veneto
1,922
300 Banco Ambrosiano Veneto di Risp
512
1,650 Banco Nazionale Del Agricoltra
1,662
200 Benetton
3,139
100 Cartiere Burgo
600
300 Cementir SpA
330
500 Cogefar-Impresit Construzioni
664
1,600 Credito Italiano SpA
2,278
1,700 Dalmine SpA
446
800 Edison
3,660
100 Falck Acc Ferr Lamb
320
10,200 Fiat SpA
40,742
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
ITALY (CONTINUED)
700 Fiat SpA di Risp $
1,699
500 Fidis
1,756
700 Finanziaria Cirio Bertolli De Rica SpA
484
600 Finanziaria Italgel SpA
583
300 Gildini
841
700 Instituto Banca San Paolo di Torino
4,228
100 Italcementi
778
100 Italcementi di Risp
386
600 Italgas
2,027
100 La Previdente
924
5,200 Mediobanca SpA
47,348
4,800 Montedison SpA
4,255
900 Montedison SpA di Risp
634
1,200 Olivetti & Group SpA
1,617
200 Olivetti & Group SpA di Risp
218
1,100 Parmalat Finanziaria SpA
1,371
1,400 Pirelli SpA
2,272
200 Pirelli Risp
251
300 RAS
4,879
300 RAS di Risp
2,857
200 Rinascente
1,262
1,000 Rinascente di Risp
3,385
700 Risanamento Napo
12,845
200 Saffa SpA, Class A
699
400 Saipem
991
100 Sasib
563
200 Sirti SpA
1,527
500 SME (Meridionale Finanziaria)
1,196
600 Smi (Soc Metal Ital)
357
500 Snia Bpd
694
500 Snia Bpd di Risp
399
400 Snia Bpd Risp
557
200 S.A.I. di Risp
1,417
100 S.A.I. (Societa Assicuratrice Industriale)
1,288
30,680 Telecom Italia SpA
89,689
1,540 Telecom Italia SpA di Risp
3,796
-
- ----------
317,146
-
- ----------
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
SPAIN -- 4.5%
500 Autopista Cesa $
4,719
1,800 Banco Bilbao Vizcaya
42,297
1,300 Banco Central Hispano Americans
26,127
800 Banco de Santander
32,462
300 Banco Espanol De Credito
2,384
900 Empresa Nacional De Elec
40,234
50 Gas Natural SDG SA
3,989
3,300 Iberdrola I
22,192
1,100 Repsol SA
35,305
3,600 Telefonica Nacional d'Espana
49,931
-
- ----------
259,640
-
- ----------
<CAPTION>
FINLAND -- 2.0%
<C> <S>
<C>
100 Amer Group, Series A
2,312
100 Cultor Oy, Series 1
2,645
2,800 Kansallis-Osake-Pankki
5,924
500 Kesko Group
5,485
50 Kone Corp Free, Series B
5,407
400 Kymmene Stromberg
10,971
100 Metra AB
3,272
100 Metra AB, Series B
3,291
200 Nokia Group AB
21,708
600 Outokumpu Oy, Series A
12,460
100 Pohjola Insurance Co., Series A
1,352
100 Pohjola Insurance Co., Series B
1,215
800 Repola
17,241
100 Sampo, Series A
5,194
175 Stockmann AB, Series B
7,817
2,600 Unitas
6,877
-
- ----------
113,171
-
- ----------
<CAPTION>
HONG KONG -- 0.7%
<C> <S>
<C>
200 Cheung Kong (Holdings)
1,012
240 China Light & Power
1,239
1,100 Hang Seng Bank Ltd
7,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
VALUE
SHARES
(NOTE 1)
COMMON STOCKS (continued)
<C> <S>
<C>
HONG KONG (CONTINUED)
700 Hong Kong Telecommunications
1,540
2,100 HSBC Holdings $
24,729
200 Hutchison Whampoa
1,002
220 Sun Hung Kai Properties
1,623
-
- ----------
39,045
-
- ----------
<CAPTION>
NETHERLANDS -- 0.3%
<C> <S>
<C>
100 ABN Amro Holdings
3,378
100 Royal Dutch Petroleum
11,277
-
- ----------
14,655
-
- ----------
TOTAL COMMON STOCKS (Cost $4,012,205)
4,133,253
-
- ----------
<CAPTION>
PREFERRED STOCKS -- 0.5%
<C> <S>
<C>
300 Credit Anstalt Bank
18,450
100 Nokia
10,873
-
- ----------
TOTAL PREFERRED STOCKS (Cost $26,556)
29,323
-
- ----------
<CAPTION>
RIGHTS -- 0.1%
<C> <S>
<C>
1,000 Banca Commerciale Italiana SpA, expire 09/07/94+
389
200 Lvmh Moet Hennessy, expire 10/03/94+
3,291
100 Pernod-Ricard, expire 09/07/94+
1,211
300 RAS di Risp, expire 09/07/94+
196
-
- ----------
TOTAL RIGHTS (Cost $4,756)
5,087
-
- ----------
<CAPTION>
WARRANTS -- 0.0%
<C> <S>
<C>
112 CS Holdings, expire 12/16/94+
406
100 Euro Disney, expire 07/11/04+
17
3 Grand Nagasin Jelmoli, expire
7
48 Holderbank Financiere Glaris, expire 01/19/95+
61
-
- ----------
TOTAL WARRANTS (Cost $569)
491
-
- ----------
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S>
<C>
U.S. TREASURY OBLIGATION -- 0.7% (Cost $44,890)
$ 45,000 U.S. Treasury Bill, 4.500%++ due 09/22/94+++
44,890
-
- ----------
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
PRINCIPAL
VALUE
AMOUNT
(NOTE 1)
COMMERCIAL PAPER -- 12.2%
<C> <S>
<C>
$352,000 Ford Motor Credit Corporation, 4.700% due 09/01/94 $
352,000
352,000 General Electric Capital Corporation, 4.750% due 09/01/94
352,000
-
- ----------
TOTAL COMMERCIAL PAPER (Cost $704,000)
704,000
-
- ----------
TOTAL INVESTMENTS (Cost $4,792,976*) 84.9%
4,917,044
<CAPTION>
CONTRACTS
<C> <S>
<C>
FUTURES -- LONG POSITION --
10 Eurotop, September 1994
1,235,000
2 Nikkei, September 1994
206,850
-
- ----------
TOTAL FUTURES -- LONG POSITION (Cost $1,408,270) 24.9
1,441,850
OTHER ASSETS AND LIABILITIES (NET) (9.8)
(565,939)
------
- ----------
NET ASSETS 100.0% $
5,792,955
------
- ----------
------
- ----------
--------------------------------------------------------------------------
- ----------
<FN>
* AGGREGATE COST FOR FEDERAL TAX PURPOSES.
+ NON-INCOME PRODUCING SECURITY.
++ ANNUALIZED YIELD AT DATE OF PURCHASE (UNAUDITED).
+++ $45,000 IN PRINCIPAL OF U.S. TREASURY BILLS HAS BEEN PLEDGED AS
COLLATERAL
FOR INITIAL MARGIN FOR FUTURES CONTRACTS.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
...........................................................................
.....
<PAGE>
PORTFOLIO of INVESTMENTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND (UNAUDITED)
AT AUGUST 31, 1994, SECTOR DIVERSIFICATION OF THE FUND WAS AS FOLLOWS:
<TABLE>
<CAPTION>
% OF NET
VALUE
ASSETS
(NOTE 1)
<S> <C> <C>
COMMON STOCKS:
Banking 17.1% $
988,943
Financial Services 10.0
581,641
Utilities 10.0
580,327
Manufacturing 6.6
382,658
Durable Goods 5.4
313,823
Chemicals 3.1
179,875
Food and Household Products 3.1
179,608
Oil and Gas 3.0
169,644
Telecommunications 2.7
152,935
Basic Industry 1.9
113,872
Transportation 1.2
70,685
Consumer Services 1.1
62,350
Construction and Housing 1.0
54,189
Mining and Metals 0.9
52,676
Other 4.3
250,027
------ ---
- --------
TOTAL COMMON STOCKS 71.4
4,133,253
PREFERRED STOCKS 0.5
29,323
RIGHTS 0.1
5,087
WARRANTS 0.0
491
U.S. TREASURY OBLIGATIONS 0.7
44,890
COMMERCIAL PAPER 12.2
704,000
------ ---
- --------
TOTAL INVESTMENTS 84.9
4,917,044
FUTURES--LONG POSITION 24.9
1,441,850
OTHER ASSETS AND LIABILITIES (Net) (9.8)
(565,939)
------ ---
- --------
NET ASSETS 100.0% $
5,792,955
------ ---
- --------
------ ---
- --------
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
STATEMENT of ASSETS and LIABILITIES
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND AUGUST 31,
1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
<C>
Investments, at value (Cost $4,792,976) (Note 1)
See accompanying schedule $
4,917,044
Cash and foreign currency (Cost $670,932)
668,443
Receivable from investment adviser (Note 2)
145,291
Dividends and interest receivable
43,838
Receivable for Fund shares sold
68,670
--
- ----------
TOTAL ASSETS
5,843,286
--
- ----------
--
- ----------
LIABILITIES
Investment management fee payable (Note 2) $ 14,086
Payable for Fund shares purchased 7,695
Daily variation margin on open futures contracts (Note 1) 3,650
Transfer agent fees payable (Note 2) 760
Accrued Trustees' fees and expenses (Note 2) 447
Distribution fee payable (Note 3) 193
Accrued expenses and other payables 23,500
---------
TOTAL LIABILITIES
50,331
--
- ----------
NET ASSETS $
5,792,955
--
- ----------
--
- ----------
NET ASSETS consist of:
Undistributed net investment income $
74,036
Accumulated net realized loss on investments, futures
contracts and currency transactions
(1,901,540)
Net unrealized appreciation of investments, futures
contracts, foreign currency transactions and net other
assets
151,446
Par value
414
Paid-in capital in excess of par value
7,468,599
--
- ----------
TOTAL NET ASSETS $
5,792,955
--
- ----------
--
- ----------
NET ASSETS VALUE
INVESTOR SHARES
Net asset value, offering and redemption price per share
($5,792,955 DIVIDED BY 414,039 shares of beneficial
interest outstanding)
$13.99
- ------
- ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
...........................................................................
.....
<PAGE>
STATEMENT of OPERATIONS
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME
Dividends (net of withholding taxes of $12,761) $
95,849
Interest
36,540
-
- ---------
TOTAL INVESTMENT INCOME
132,389
EXPENSES
Investment management fee (Note 2) $ 33,088
Shareholder reports expense 32,024
Legal and audit fees 28,231
Investment advisory fee (Note 2) 27,471
Registration and filing fees 24,542
Custodian fees (Note 2) 20,058
Trustees' fees and expenses (Note 2) 15,572
Transfer agent fees (Note 2) 14,297
Distribution fee (Note 3) 9,001
Amortization of organization costs (Note 6) 923
Other 10,002
Fees waived and/or expenses reimbursed by adviser and
distributor (Notes 2 and 3) (121,384)
----------
TOTAL EXPENSES
93,825
-
- ---------
NET INVESTMENT INCOME
38,564
-
- ---------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(Notes 1 and 4):
Net realized gain on:
Securities transactions
314,583
Futures contracts
238,016
Forward foreign exchange contracts and foreign
currency
35,535
-
- ---------
Net realized gain on investments during the year
588,134
Net change in unrealized depreciation of:
Securities
(121,509)
Futures contracts
6,060
Currencies and net other assets
(312)
-
- ---------
Net unrealized depreciation of investments during the
year
(115,761)
-
- ---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
472,373
-
- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $
510,937
-
- ---------
-
- ---------
</TABLE>
18 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
STATEMENT of CHANGES in NET ASSETS
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
8/31/94 8/31/93
<S>
<C> <C>
Net investment income
$ 38,564 $ 49,741
Net realized gain on investments, forward foreign exchange contracts,
futures contracts and currency transactions during the year
588,134 623,351
Net unrealized appreciation/(depreciation) on investments, futures
contracts, currencies and net other assets during
the year
(115,761) 1,110,818
- ------------ ------------
Net increase in net assets resulting from operations
510,937 1,783,910
Net increase/(decrease) in net assets from Fund share transactions (Note
5):
Investor Shares
1,496,568 --
Retail Class
- -- (9,764,428)
Institutional Class
- -- 331,278
- ------------ ------------
Net increase/(decrease) in net assets
2,007,505 (7,649,240)
NET ASSETS:
Beginning of year
3,785,450 11,434,690
- ------------ ------------
End of year (including undistributed net investment income of $74,036 at
August 31, 1994)
$ 5,792,955 $ 3,785,450
- ------------ ------------
- ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
...........................................................................
.....
<PAGE>
FINANCIAL HIGHLIGHTS
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
INTERNATIONAL FUND
FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT EACH YEAR OR PERIOD.*
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
8/31/94+++ 8/31/93+++
<S> <C> <C>
--------------------------------------------------------------------------
- -
Net asset value, beginning of year $ 12.76 $ 10.93
---------- ----------
- -
Income from investment operations:
Net investment income*** 0.10 0.05
Net realized and unrealized gain/(loss) on
investments 1.13 1.78
---------- ----------
- -
Total from investment operations 1.23 1.83
Less distributions:
Distributions from net investment income -- --
Distributions from net realized capital gains -- --
---------- ----------
- -
Total distributions -- --
---------- ----------
- -
Net asset value, end of year $ 13.99 $ 12.76
---------- ----------
- -
Total return++ 9.64 % 16.74
%
---------- ----------
- -
---------- ----------
- -
Ratios to average net assets/Supplemental Data:
Net assets, end of year (in 000's) $ 5,793 $ 3,399
Ratio of operating expenses to average net
assets** 1.84 % 1.79
%#
Ratio of net investment income to average net
assets 0.74 % 0.46
%
Portfolio turnover rate 114 % 202
%
--------------------------------------------------------------------------
- -
<FN>
* THE FUND COMMENCED OPERATIONS ON OCTOBER 12, 1988. EFFECTIVE APRIL 4,
1994,
THE RETAIL AND INSTITUTIONAL CLASSES WERE RECLASSIFIED AS A SINGLE CLASS
OF
SHARES KNOWN AS THE INVESTOR SHARES. THE AMOUNTS SHOWN FOR THE YEAR
ENDED
AUGUST 31, 1994, WERE CALCULATED USING THE PERFORMANCE OF A RETAIL SHARE
OUTSTANDING FROM SEPTEMBER 1, 1993 TO APRIL 3, 1994, AND THE PERFORMANCE
OF
AN INVESTOR SHARE OUTSTANDING FROM APRIL 4, 1994 TO AUGUST 31, 1994. THE
FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED AUGUST 31, 1993 AND PRIOR
PERIODS ARE
BASED UPON A RETAIL SHARE OUTSTANDING.
** ANNUALIZED EXPENSE RATIOS BEFORE WAIVER OF FEES AND/OR REIMBURSEMENT OF
EXPENSES BY INVESTMENT ADVISER AND/OR TRANSFER AGENT AND/OR DISTRIBUTOR
FOR
THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992 WERE 4.21%, 3.15% AND
2.11%,
RESPECTIVELY.
*** NET INVESTMENT INCOME/(LOSS) BEFORE WAIVER OF FEES AND/OR REIMBURSEMENT
OF
EXPENSES BY INVESTMENT ADVISER AND/OR TRANSFER AGENT AND/OR DISTRIBUTOR
FOR
THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992 WERE $(0.21), $(0.10)
AND
$0.00, RESPECTIVELY.
# THE ANNUALIZED OPERATING EXPENSE RATIO EXCLUDES INTEREST EXPENSE. THE
ANNUALIZED RATIO INCLUDING INTEREST EXPENSE WAS 1.80% FOR THE YEAR ENDED
AUGUST 31, 1993.
+ ANNUALIZED.
++ TOTAL RETURN REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIODS
INDICATED.
+++ PER SHARE AMOUNTS HAVE BEEN CALCULATED USING THE MONTHLY AVERAGE SHARE
METHOD, WHICH MORE APPROPRIATELY PRESENTS THE PER SHARE DATA FOR THIS
PERIOD BECAUSE USE OF THE UNDISTRIBUTED INCOME METHOD DOES NOT ACCORD
WITH
RESULTS OF OPERATIONS.
</TABLE>
20 SEE NOTES TO FINANCIAL STATEMENTS.
...........................................................................
.....
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
...........................................................................
.....
- ---------------------------------------------------------------------------
- -----
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/92 8/31/91 8/31/90 8/31/89
<S> <C> <C> <C>
- ----------------------------------------------------
$ 11.25 $ 12.25 $ 12.98 $ 12.00
- ----------- ------------ ----------- ------------
0.03 0.12 0.19 0.12
(0.14) (0.73) (0.65) 0.89
- ----------- ------------ ----------- ------------
(0.11) (0.61) (0.46) 1.01
(0.07) (0.17) (0.18) (0.03)
(0.14) (0.22) (0.09) --
- ----------- ------------ ----------- ------------
(0.21) (0.39) (0.27) (0.03)
- ----------- ------------ ----------- ------------
$ 10.93 $ 11.25 $ 12.25 $ 12.98
- ----------- ------------ ----------- ------------
(1.05)% (4.88)% (3.69)% 8.40%
- ----------- ------------ ----------- ------------
- ----------- ------------ ----------- ------------
$ 11,435 $ 29,706 $ 31,372 $ 24,699
1.87% 1.63% 1.63% 1.76%+
0.24% 0.97% 1.50% 1.52%+
110% 145% 28% 47%
- ----------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
...........................................................................
.....
<PAGE>
NOTES to FINANCIAL STATEMENTS
...........................................................................
.....
1. SIGNIFICANT ACCOUNTING POLICIES
The Laurel Investment Series (the "Trust") (formerly The Boston Company
Investment Series), The Laurel Funds, Inc., The Laurel Funds Trust and
The
Laurel Tax-Free Municipal Funds are all registered open-end investment
companies that compose The Laurel Fund Family. The Trust is an investment
company that consists of three funds: the Contrarian Fund, the Short-Term
Bond
Fund and the International Fund. This report contains financial
statements for
the International Fund (the "Fund"). The Trust is a Massachusetts
business
trust and is registered with the Securities and Exchange Commission under
the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-
end
management investment company. Effective April 4, 1994, the Retail and
Institutional Classes of shares were reclassified as a single class of
shares
known as the Investor Shares, and the Fund began offering Trust Shares.
As of
August 31, 1994, the Fund had not issued any Trust Shares. Investor
Shares are
designed for the retail investor and bear a distribution fee. Trust
Shares are
designed for institutional investors, clients of financial institutions,
such
as banks, trust companies or thrift institutions, who have qualified
accounts,
and bear no distribution fee. Each class of shares has identical rights
and
privileges except with respect to the distribution fee and voting rights
on
matters affecting a single class. The following is a summary of
significant
accounting policies consistently followed by the Fund in the preparation
of
its financial statements in accordance with generally accepted accounting
principles.
(A) PORTFOLIO VALUATION
Investments in securities that are traded on a national securities
exchange
are valued at the last reported sales price or, in the absence of a
recorded
sale, at the mean of the closing bid and asked prices. Over-the-counter
securities are valued at the closing bid price at the close of business
each
day, or, if market quotations for such securities are not readily
available,
at fair value, as determined in good faith by the Board of Trustees.
Investments in U.S. Government Securities (other than short-term
securities)
are valued at the most recent quoted bid price in the over-the-counter
market.
Short-term investments with maturities of 60 days or less from the
valuation
day are valued on the basis of amortized cost. Foreign securities are
generally valued at the preceding closing values of such securities on
their
respective exchanges, except that when an occurrence subsequent to the
time a
value was so established is likely to have changed such value, then the
fair
value of those securities will be determined by consideration of other
factors
by or under the direction of the Board of Trustees or its delegates.
(B) REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. Under the terms
of a
typical repurchase agreement, the Fund takes possession of an underlying
debt
obligation subject to an obligation of the seller to repurchase, and the
Fund
to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement
results in a fixed rate of return that is not subject to market
22
...........................................................................
.....
<PAGE>
NOTES to FINANCIAL STATEMENTS (continued)
...........................................................................
.....
fluctuations during the Fund's holding period. The value of the
collateral is
at least equal, at all times, to the total amount of the repurchase
obligations, including interest. In the event of counterparty default,
the
Fund has the right to use the collateral to offset losses incurred. There
is
potential loss to the Fund in the event the Fund is delayed or prevented
from
exercising its rights to dispose of the collateral securities, including
the
risk of a possible decline in the value of the underlying securities
during
the period while the Fund seeks to assert its rights. The Fund's
investment
manager, acting under the supervision of the Board of Trustees, reviews
the
value of the collateral and the creditworthiness of those banks and
dealers
with which the Fund enters into repurchase agreements to evaluate
potential
risks.
(C) FUTURES CONTRACTS ACCOUNTING PRINCIPLES
The Fund may enter into futures contracts. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of
cash or
cash equivalents equal to a certain percentage of the contract amount.
This is
known as the initial margin. Subsequent payments ("variation margin") are
made
or received by the Fund each day, depending on the daily fluctuation of
the
value of the contract. The daily changes in the contract are recorded as
unrealized gains or losses. The Fund recognizes a realized gain or loss
when
the contract is closed.
The use of futures contracts as a hedging device involves several risks.
The
change in value of futures contracts primarily corresponds with the value
of
their underlying instruments, which may not correlate with the change in
value
of the hedged investments. In addition, the Fund may not be able to enter
into
a closing transaction because of an illiquid secondary market.
(D) FORWARD FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in forward foreign currency contracts. Forward
foreign
currency contracts are valued at the forward rate and are marked-to-
market
daily. The change in market value is recorded by the Fund as an
unrealized
gain or loss. When the contract is closed, the Fund records a realized
gain or
loss equal to the difference between the value of the contract at the
time it
was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate
fluctuations
in the underlying prices of the Fund's investment securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a
decline in
the value of the hedged currency, they also limit any potential gain that
might result should the value of the currency increase. In addition, the
Fund
could be exposed to risks if the counterparties to the contracts are
unable to
meet the terms of their contracts.
(E) FOREIGN CURRENCY
The books and records of the Fund are maintained in United States (U.S.)
dollars. Foreign currencies, investments and other assets and liabilities
are
translated into U.S.
23
...........................................................................
.....
<PAGE>
NOTES to FINANCIAL STATEMENTS (continued)
...........................................................................
.....
dollars at the exchange rates prevailing at the end of the period, and
purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions. Unrealized gains
and
losses which result from changes in foreign currency exchange rates have
been
included in the unrealized appreciation/(depreciation) of foreign
currency and
net other assets. Net realized foreign currency gains and losses
resulting
from changes in exchange rates include foreign currency gains and losses
between trade date and settlement date on investment securities
transactions,
foreign currency transactions and the difference between the amounts of
interest and dividends recorded on the books of the Fund and the amount
actually received. The portion of foreign currency gains and losses
related to
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gains and losses on
investment securities sold.
(F) SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Dividend
income is
recorded on the ex-dividend date except that certain dividends from
foreign
securities are recorded as soon as the Fund is informed of the ex-
dividend
date. Interest income is recorded on the accrual basis. Securities
purchased
or sold on a when-issued or delayed-delivery basis may be settled a month
or
more after the trade date. Realized gains and losses from securities sold
are
recorded on the identified cost basis. Investment income and realized and
unrealized gains and losses are allocated based upon the relative net
assets
of each class.
(G) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions to shareholders are recorded on the ex-
dividend
date. Dividends from net investment income, if any, of the Fund are
declared
on a class level and paid semi-annually. The Fund distributes any net
realized
capital gains on a Fund level annually. Additional distributions of net
investment income and capital gains for the Fund may be made at the
discretion
of the Board of Trustees in order to avoid the 4% nondeductible Federal
excise
tax. Income distributions and capital gain distributions on a Fund level
are
determined in accordance with income tax regulations, which may differ
from
generally accepted accounting principles. These differences are primarily
due
to differing treatments of income and gains on various investment
securities
held by the Fund, timing differences and differing characterization of
distributions made by the Fund as a whole. Permanent differences incurred
during the year ended August 31, 1994 resulted from different book and
tax
accounting for certain investment securities.
(H) FEDERAL TAXES
It is the Fund's intention to qualify as a regulated investment company
by
complying with the requirements of the Internal Revenue Code applicable
to
regulated investment companies and by distributing substantially all of
its
taxable income to its shareholders. Therefore, no Federal income tax
provision
is required.
24
...........................................................................
.....
<PAGE>
NOTES to FINANCIAL STATEMENTS (continued)
...........................................................................
.....
2. INVESTMENT MANAGEMENT FEE, TRUSTEES' FEES
AND OTHER RELATED PARTY TRANSACTIONS
Effective April 4, 1994, the Trust entered into an investment management
agreement with Mellon Bank, N.A. (the "Manager"), a wholly owned
subsidiary of
Mellon Bank Corporation ("Mellon"), under which the Manager provides, or
arranges for one or more third parties to provide, investment advisory,
administrative, custody, fund accounting and transfer agency services to
the
Trust. The Manager also directs the investment of the Fund in accordance
with
its investment objectives, policies and limitations. For these services,
the
Fund pays the Manager a fee, calculated daily and paid monthly, at the
annual
rate of 1.50% of the value of the Fund's average daily net assets. Out of
its
fee, the Manager pays all of the expenses of the Fund except brokerage,
taxes,
interest, Rule 12b-1 distribution fees and expenses, fees and expenses of
the
non-interested Trustees (including counsel fees) and extraordinary
expenses.
In addition, the Manager is required to reduce its fee in an amount equal
to
the Fund's allocable portion of fees and expenses of the non-interested
Trustees (including counsel). Prior to April 4, 1994, the Trust had an
investment advisory agreement under which the Fund paid The Boston
Company
Advisors, Inc. ("Boston Advisors") a monthly fee at the annual rate of
0.95%
of the value of its average daily net assets for investment advisory
services.
For the period ended August 31, 1994, Boston Advisors, as investment
adviser,
voluntarily waived fees of $27,471 and reimbursed expenses of $93,444.
From September 1, 1993 to July 31, 1994, PanAgora Asset Management, Inc.
("PanAgora") served as sub-investment adviser for the Fund. Fifty percent
of
the outstanding voting stock of PanAgora is owned by Nippon Life
Insurance
Company, and fifty percent is owned by Lehman Brothers. PanAgora was paid
a
fee by Mellon at an annual rate of 0.75% of the value of the Fund's
average
daily net assets. The Fund paid no direct sub-investment advisory fee to
PanAgora.
Effective April 4, 1994, the Fund entered into an administration
agreement
with Frank Russell Investment Management Company (the "Administrator") to
serve as the Fund's administrator to provide various administrative and
corporate secretarial services to the Fund. The Administrator's fee is
paid by
the Manager out of the management fee described above.
No officer or employee of Mellon or of any parent, subsidiary or
affiliate
thereof receives any compensation from The Laurel Fund Family for serving
as
an officer or Trustee of The Laurel Fund Family. The Laurel Fund Family
pays
each Trustee who is not an officer or employee of Mellon or of any
parent,
subsidiary or affiliate thereof, or of the Administrator or any parent,
subsidiary or affiliate thereof, $27,000 per annum, $1,000 for each Board
meeting attended, and $750 for each Audit Committee meeting attended, and
reimburses each Trustee for travel and out-of-pocket expenses. Prior to
April
4, 1994,
25
...........................................................................
.....
<PAGE>
NOTES to FINANCIAL STATEMENTS (continued)
...........................................................................
.....
the Trust paid each Trustee $5,000 per annum, plus $1,000 per meeting
attended, plus $250 per Audit Committee meeting attended, plus
reimbursement
for travel and out-of-pocket expenses.
Prior to April 4, 1994, the Trust had individual contracts, which
contained
specific fee provisions, with Boston Safe Deposit and Trust Company, a
wholly
owned subsidiary of Mellon, and The Shareholder Services Group, Inc. to
provide custody and transfer agent services, respectively, to the Fund.
Effective April 4, 1994, the payment of fees for custody, accounting and
transfer agent services are covered by the investment management
agreement
described above. Funds Distributor, Inc. ("Funds Distributor") continues
to
act as distributor of the Fund's shares.
3. DISTRIBUTION PLAN
The Fund has adopted a plan of distribution (the "Plan") pursuant to Rule
12b-1 under the 1940 Act relating to Investor Shares. Under the Plan, the
Fund
may pay up to 0.25% of the value of the average daily net assets of
Investor
Shares to compensate Funds Distributor for shareholder servicing
activities
and for activities primarily intended to result in the sale of Investor
Shares. The Trust Shares bear no distribution fee. Prior to April 4,
1994,
under a distribution plan, the Fund was authorized to spend annually up
to
0.25% and 0.15% of its average daily net assets on distribution expenses
for
the Retail Class and the Institutional Class, respectively, which
classes, on
April 4, 1994, were reclassified into Investor Shares. For the year ended
August 31, 1994, Funds Distributor waived $469 in distribution fees.
Under its terms, the Plan shall remain in effect from year to year,
provided
such continuance is approved annually by a vote of a majority of those
Trustees who are not "interested persons" of the Trust and who have no
direct
or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan.
4. SECURITIES TRANSACTIONS
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended August 31, 1994 aggregated
$5,699,111 and $4,292,965, respectively, for the Fund.
At August 31, 1994, aggregate gross unrealized appreciation for all
securities
in which there was an excess of value over tax cost amounted to $280,064,
and
aggregate gross unrealized depreciation for all securities in which there
was
an excess of tax cost over value amounted to $155,996 for the Fund.
5. SHARES OF BENEFICIAL INTEREST
The Trust has the authority to issue an unlimited number of shares of
beneficial interest of each Class in each separate series, with a par
value of
$.001. The Trust has authority
26
...........................................................................
.....
<PAGE>
NOTES to FINANCIAL STATEMENTS (continued)
...........................................................................
.....
to issue two classes of shares. Effective April 4, 1994, the Retail and
Institutional Classes of shares were combined and reclassified as a
single
class of shares known as the Investor Shares. The table below summarizes
transactions in Fund shares for the periods shown in the accompanying
Statement of Changes in Net Assets.
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED
AUGUST 31, 1994
AUGUST 31, 1993*
(INVESTOR
(INSTITUTIONAL CLASS)
SHARES) (RETAIL
CLASS)
SHARES** AMOUNT*** SHARES
AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
<C> <C>
--------------------------------------------------------------------------
- ----------
Sold 910,492 $11,309,382 861,657 $
9,316,148 111,096 $ 1,277,509
Redeemed (793,030) (9,812,814 ) (1,621,049)
(18,868,909) (101,637) (1,157,898)
Exchanged for Institutional
shares (20,772)
(211,667)
Issued in exchange for Retail
shares -- -- -- -
- - 20,772 211,667
-------- ------------ ---------- ------
- ------ -------- ------------
-------- ------------ ---------- ------
- ------ -------- ------------
Net increase/(decrease) 117,462 $ 1,496,568 (780,164) $
(9,764,428) 30,231 $ 331,278
-------- ------------ ---------- ------
- ------ -------- ------------
-------- ------------ ---------- ------
- ------ -------- ------------
--------------------------------------------------------------------------
- ----------
<FN>
* THE FUND COMMENCED SELLING INSTITUTIONAL CLASS SHARES ON FEBRUARY 1,
1993.
ANY SHARES OUTSTANDING PRIOR TO FEBRUARY 1, 1993 WERE DESIGNATED AS
RETAIL
CLASS SHARES.
** SHARES INCLUDE 273,052 OF SUBSCRIPTIONS AND 255,176 OF REDEMPTIONS FOR
THE
INSTITUTIONAL CLASS UP TO APRIL 4, 1994.
*** AMOUNTS INCLUDE $3,497,501 OF SUBSCRIPTIONS AND $3,369,970 OF
REDEMPTIONS
FOR THE INSTITUTIONAL CLASS UP TO APRIL 4, 1994.
</TABLE>
6. ORGANIZATION COSTS
The Fund paid all costs in connection with the Fund's organization
including
the fees and expenses of registering and qualifying the Fund's shares for
distribution under Federal and state securities regulations. All such
costs
were being amortized on the straight-line method over a period of five
years.
These costs were fully amortized during the year ended August 31, 1994.
7. LINE OF CREDIT
The Trust and several affiliated entities participate in a $20 million
line of
credit provided by Continental Bank, N.A. under a Line of Credit
Agreement
(the "Agreement") dated March 31, 1992, as amended, primarily for
temporary or
emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. Under
this
Agreement, the Trust may borrow up to the amount specified in its
Borrowing
Base Certificate. Interest is payable either at the bank's Money Market
Rate
or the London Interbank Offered Rate (LIBOR) plus 0.375% on an annualized
basis. As amended effective May 21, 1994, the Trust and the other
affiliated
entities are charged an aggregated commitment fee of $40,000, which is
allocated equally among each of the
27
...........................................................................
.....
<PAGE>
NOTES to FINANCIAL STATEMENTS (continued)
...........................................................................
.....
participants. The Agreement requires, among other provisions, each
participating fund to maintain a ratio of net assets (not including funds
borrowed pursuant to the Agreement) to aggregate amount of indebtedness
pursuant to the Agreement of no less than 4 to 1. At August 31, 1994, the
Fund
had no outstanding borrowings under this Agreement.
8. CAPITAL LOSS CARRYFORWARDS
As of August 31, 1994, the Fund had available for Federal tax purposes
unused
capital loss carryforwards of $1,871,098 expiring in the year 2001.
9. SUBSEQUENT EVENTS
At a meeting held on September 23, 1994, the Board of Trustees of The
Laurel
Investment Series approved several changes which became effective October
17,
1994. The name of the Trust became The Dreyfus/Laurel Investment Series,
which
consists of Dreyfus/Laurel Short-Term Bond Fund, Dreyfus/Laurel
International
Fund and Dreyfus/ Laurel Contrarian Fund. The Dreyfus Corporation became
the
investment manager. Premier Mutual Fund Services, Inc. became each fund's
distributor and sub-administrator.
28
...........................................................................
.....
<PAGE>
INDEPENDENT AUDITORS' REPORT
...........................................................................
.....
[LOGO]
The Board of Trustees and Shareholders
The Laurel Investment Series International Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the International Fund of The
Laurel Investment Series (formerly The Boston Company Investment Series),
as
of August 31, 1994, and the related statement of operations, statement of
changes in net assets, and the financial highlights for the year then
ended.
These financial statements and financial highlights are the
responsibility of
the Fund's management. Our responsibility is to express an opinion on
these
financial statements and financial highlights based on our audit. The
statement of changes in net assets for the year ended August 31, 1993 and
financial highlights for the four year period ended August 31, 1993 and
for
the period from October 12, 1988 to August 31, 1989 were audited by other
auditors whose report thereon, dated October 8, 1993, expressed an
unqualified
opinion on that statement and those financial highlights.
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. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in
the financial statements. Our procedures included confirmation of
securities
owned as of August 31, 1994 by correspondence with the custodian and
brokers.
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
International Fund of The Laurel Investment Series as of August 31, 1994,
and
the results of operations, changes in net assets, and financial
highlights for
the year then ended in conformity with general accepted accounting
principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
October 21, 1994
29
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FOR MORE INFORMATION ON THE LAUREL FUNDS INCLUDING:
- FUND INFORMATION - 9:00 a.m. to 5:00 p.m., Monday through Friday
- ADDITIONAL PROSPECTUS - Read the prospectus carefully before you
invest.
- ACCOUNT INFORMATION - 9:00 a.m. to 5:00 p.m., Monday through Friday
- YIELD AND SHARE PRICE INFORMATION - 24 hours a day, 7 days a week
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CALL 1-800-548-2868
OR WRITE:
The Dreyfus Family of Funds
P.O. Box 9692
Providence, RI 02940-9830
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The Funds are distributed by:
Premier Mutual Fund Services, Inc.
One Exchange Place
10th Floor
Boston, MA 02109
INT
2104
