Aon Funds
Annual Report
October 31, 1998
<PAGE>
[LETTERHEAD OF AON FUNDS]
Aon Funds
1-800-AON FNDS
December 31, 1998
Dear Fellow Shareholder:
Fiscal 1998 was a volatile year for both the equity and bond markets. Several
factors contributed to that volatility, including concerns over Asian, Russian,
and Latin American economies as well as corporate profitability. A significant
split in performance was seen in the U.S. stock market as large capitalization
stocks out-performed mid and small capitalization stocks by wide margins. The
Federal Reserve interest rate cuts late in the year bolstered both the stock and
bond markets. Share performance is discussed on the following pages.
It is an ongoing management goal that shareholders benefit from expense control.
Aon Advisors, the Funds' investment advisor, waived 65% of its advisory fee
during the year, helping achieve that goal. This "no frills" annual report also
reflects the commitment to expense control.
Thank you for your continued support.
Sincerely,
/s/ Michael A. Conway
Michael A. Conway
President
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Aon Funds
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TABLE OF CONTENTS
Government Securities Fund Commentary Pages 2 - 3
Asset Allocation Fund Commentary Pages 4 - 5
S&P 500 Index Fund Commentary Pages 6 - 7
International Equity Fund Commentary Pages 8 - 9
REIT Index Fund Commentary Pages 10 - 11
Financial Statements Pages 12 - 77
Report of Independent Auditors Page 12
Money Market Fund
Statement of Assets and Liabilities Page 13
Statement of Operations Page 14
Statements of Changes in Net Assets Page 15
Schedule of Investments Pages 16 - 18
Financial Highlights Pages 19 - 20
Government Securities Fund
Statement of Assets and Liabilities Page 21
Statement of Operations Page 22
Statements of Changes in Net Assets Page 23
Schedule of Investments Page 24
Financial Highlights Page 25
Asset Allocation Fund
Statement of Assets and Liabilities Page 26
Statement of Operations Page 27
Statements of Changes in Net Assets Page 28
Schedule of Investments Pages 29 - 35
Financial Highlights Pages 36 - 37
S&P 500 Index Fund
Statement of Assets and Liabilities Page 38
Statement of Operations Page 39
Statements of Changes in Net Assets Page 40
Schedule of Investments Pages 41 - 51
Financial Highlights Page 52
International Equity Fund
Statement of Assets and Liabilities Page 53
Statement of Operations Page 54
Statements of Changes in Net Assets Page 55
Schedule of Investments Pages 56 - 60
Industry Diversification Page 61 - 62
Financial Highlights Page 63
REIT Index Fund
Statement of Assets and Liabilities Page 64
Statement of Operations Page 65
Statements of Changes in Net Assets Page 66
Schedule of Investments Pages 67 - 69
Financial Highlights Page 70
Notes to the Financial Statements Pages 71 - 77
1
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Aon Funds
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GOVERNMENT SECURITIES FUND
COMPARISON OF A $10,000 INVESTMENT
The following graph illustrates the growth of a $10,000 investment in the
Government Securities Fund and an investment in the Lehman Brothers U.S.
Government Bond Index from the inception of the Fund to October 31, 1998. The
illustration assumes that all dividends and distributions are reinvested.
[GRAPH APPEARS BELOW]
<TABLE>
<CAPTION>
09/03/96 10/31/96 10/31/97 10/31/98
<S> <C> <C> <C> <C>
Government Securities Fund $10,000 $10,279 $11,189 $12,501
Lehman Brothers U.S. Government Index $10,000 $10,365 $11,262 $12,532
</TABLE>
9/3/96 to
COMPARISON OF RETURNS One Year 10/31/98(3)
- -------------------------------------------------------------------------------
Government Securities Fund(1) 11.72% 25.01%
Lehman Brothers U.S.Government Bond Index(2) 11.28% 25.32%
(1) Total return is calculated including reinvestment of all income and capital
gain distributions. Results represent past performance and do not indicate
future results. The value of an investment in the Government Securities Fund and
the return on investment will fluctuate, and redemption proceeds may be higher
or lower than an investor's original cost.
(2) The Lehman Brothers U.S. Government Bond Index is an unmanaged index
generally considered to be representative of U.S. Government bond market
activity.
(3) Cumulative total return. September 3, 1996 was the inception date of the
Fund.
2
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Aon Funds
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GOVERNMENT SECURITIES FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
U.S. Treasury yields declined during the six months ended October 31, 1998.
Concerns regarding an overheating economy were replaced with a "flight to
quality" brought about by turmoil in overseas markets and the collapse of a
large hedge fund. During this period, yield spreads on agencies, mortgage
backed, and "off the run" Treasuries compared to new issue Treasuries widened
dramatically as the yield curve steepened.
The total return for the Fund for the year ended October 31, 1998 was 11.72%.
For comparison, the Lehman Brothers U.S. Government Bond Index returned 11.28%.
Fund performance was due to its longer duration and emphasis on non-callable
issues compared to the Lehman Brothers U.S. Government Bond Index.
The Treasury curve is currently pricing in continued lower inflation. Absent new
"shocks" to the capital markets, it will be difficult for Treasuries to pierce
the low yields achieved in October. Consequently, the Fund is currently less
aggressively positioned for lower rates.
Francis P. Wren
Portfolio Manager
3
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Aon Funds
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ASSET ALLOCATION FUND
COMPARISON OF A $10,000 INVESTMENT
The following graph illustrates the growth of a $10,000 investment in the Asset
Allocation Fund and an investment in the Lipper Flexible Portfolio Fund Average
from the inception of the Fund to October 31, 1998. The illustration assumes
that all dividends and distributions are reinvested.
[GRAPH APPEARS BELOW]
<TABLE>
<CAPTION>
03/03/94 10/31/94 10/31/95 10/31/96 10/31/97 10/31/98
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund $10,000 $10,184 $12,926 $14,356 $19,037 $19,076
Lipper Flexible Portfolio Fund Average $10,000 $ 9,927 $11,697 $13,425 $16,005 $17,453
</TABLE>
<TABLE>
<CAPTION>
3/3/94 to
Comparison of Returns 1 Year 3 Year(2) 10/31/98(3)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund(1) 0.21% 13.84% 90.76%
Lipper Flexible Portfolio Fund Average(4) 9.05% 14.26% 74.53%
</TABLE>
(1) Total return is calculated including reinvestment of all income and capital
gain distributions. Results represent past performance and do not indicate
future results. The value of an investment in the Asset Allocation Fund and the
return on investment will fluctuate, and redemption proceeds may be higher or
lower than an investor's original cost.
(2) Average annual total return.
(3) Cumulative total return. March 3, 1994 was the inception date of the Fund.
(4) The Lipper Flexible Portfolio Fund Average is the average of the returns for
the flexible portfolio funds tracked by Lipper Analytical Services.
4
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Aon Funds
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ASSET ALLOCATION FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The fiscal year ended October 31, 1998 was disappointing in terms of
performance. The Fund returned .21% compared to the Lipper Flexible Portfolio
Fund Average return of 9.05%.
We entered the fiscal year with the expectation that corporate profits would
continue to advance, presenting good opportunities in the equity markets.
However, we felt many larger cap stocks were already expensive. Accordingly, we
continued to favor stocks over bonds in our asset allocation using a blend of
small, midcap, and large stocks. This approach was successful through the first
six months of the fiscal year. However, a combination of factors led to poor
relative performance for the balance of the year. These included reduced
earnings in some sectors and the significant under performance of small and mid
cap stocks relative to large cap issues.
Bonds performed well over the year as expectations of a slowing economy and
liquidity concerns led to higher bond prices. Over the course of the year, the
Fund maintained a portion of bonds and short-term investments ranging from 20%
to over 40%.
Our approach to picking stocks is to focus on those companies which have
attractive margins, strong cash flows, and high returns on capital. We evaluate
these variables in relation to the current stock price and projected growth.
Based on this approach, we feel many small and mid capitalization stocks offer
attractive returns. Conversely, many large cap stocks sell at very high
multiples of their earnings and cash flow in relation to historical and
projected growth.
As we enter 1999 we continue to favor stocks over bonds in our asset allocation.
However, given valuation levels and the volatility of the equity markets, bonds
and cash equivalents are expected to remain a meaningful component of the Fund's
asset allocation. We are working hard to improve returns to shareholders in the
current year.
Thank you for your continued support.
John G. Lagedrost
Portfolio Manager
5
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Aon Funds
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S&P 500 INDEX FUND
Comparison of a $10,000 Investment
The following graph illustrates the growth of a $10,000 investment in the S&P
500 Index Fund and an investment in the S&P 500 Index from the inception of the
Fund to October 31, 1998. The illustration assumes that all dividends and
distributions are reinvested.
[GRAPH APPEARS BELOW]
09/03/96 10/31/96 10/31/97 10/31/98
S&P 500 Index Fund $10,000 $10,786 $14,192 $17,336
S&P 500 Index $10,000 $10,809 $14,280 $17,420
9/3/96 to
COMPARISON OF RETURNS One Year 10/31/98(3)
- ---------------------------------------------------------------------
S&P 500 Index Fund(1) 22.16% 73.36%
S&P 500 Index(2) 21.99% 74.20%
(1) Total return is calculated including reinvestment of all income and capital
gain distributions. Results represent past performance and do not indicate
future results. The value of an investment in the S&P 500 Index Fund and the
return on investment will fluctuate, and redemption proceeds may be higher or
lower than an investor's original cost.
(2) The S&P 500 Index is an unmanaged index generally considered to be
representative of stock market activity.
(3) Cumulative total return. September 3, 1996 was the inception date of the
Fund.
6
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Aon Funds
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S&P 500 INDEX FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The S&P 500 Index Fund had a 22.16% total return compared to the S&P 500 Index
return of 21.99% for the year ended October 31, 1998.
The equity market price volatility increased in last year. Several factors
contributed to this increase including; fears over the Asian crisis, the Russian
debt crisis, and possible Brazilian devaluation. However, the Federal Reserve
Board first lowered the Fed Funds rate in September, followed by further cuts in
October and November. These interest rate cuts fueled a rally in the equity
markets over September and October, resulting in a 22.16% total return for the
Fund.
As the Fund enters its third full year of operations, we will continue to
minimize expenses and replicate the performance of the S&P 500 Index. The S&P
500 Index Fund remains fully invested in the stock market and is well-positioned
to meet its objectives in 1999.
Melissa A. Aton
Portfolio Manager
7
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Aon Funds
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INTERNATIONAL EQUITY FUND
COMPARISON OF A $10,000 INVESTMENT
The following graph illustrates the growth of a $10,000 investment in the
International Equity Fund and an investment in the Morgan Stanley Capital
International (MSCI) Non-U.S. Equity Index from the inception of the Fund to
October 31, 1998. The illustration assumes that all dividends and distributions
are reinvested.
[GRAPH APPEARS BELOW]
09/03/96 10/31/96 10/31/97 10/31/98
International Equity Fund $10,000 $10,232 $11,393 $11,993
MSCI Non-U.S. Equity Index $10,000 $10,202 $10,725 $11,644
9/3/96 to
COMPARISON OF RETURNS One Year 10/31/98(3)
- --------------------------------------------------------------------------
International Equity Fund(1) 5.27% 19.93%
MSCI Non-U.S. Equity Index(2) 8.57% 16.44%
(1) Total return is calculated including reinvestment of all income and capital
gain distributions. Results represent past performance and do not indicate
future results. The value of an investment in the International Equity Fund and
the return on investment will fluctuate, and redemption proceeds may be higher
or lower than an investor's original cost.
(2) The MSCI Non-U.S. Equity Index is an unmanaged index generally considered to
be representative of international equity market activity.
(3) Cumulative total return. September 3, 1996 was the inception date of the
Fund.
8
<PAGE>
Aon Funds
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INTERNATIONAL EQUITY FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the year ended October 31, 1998, the International Equity Fund returned
5.27%. The Fund trailed the Morgan Stanley Capital International (MSCI) Non-U.S.
Equity Index 8.57% return.
For the year, unhedged equity returns in Europe were strong, on average 27%. In
contrast, unhedged market returns in Japan and Southeast Asia were significantly
negative. On a hedged basis, returns for Europe would be slightly lower,
reflecting the U.S. dollar's depreciation against European currencies in the
past twelve months.
For the fiscal year, the Fund was underweight in Europe excluding U.K., Canada
and Japan in favor of Australia, New Zealand and the U.K. The Fund also held a
5% strategic allocation to cash during the fiscal year. The underweight in Japan
added to performance but the negative contribution from the cash more than
offset this contribution. The Fund had almost no exposure to the Japanese
financial sector during the fiscal year. The Japanese equity component of the
portfolio outperformed the passive benchmark component by 6%. The contribution
from currency management was slightly negative during the fiscal year.
Strategy
The International Equity Fund currently maintains a defensive posture,
reflecting the view that the Japanese equity market, the largest component of
the Index is overpriced. Given our valuation analysis and fundamental
considerations, we are underweight Japan by 7%. The Fund has no exposure to the
Hong Kong equity market. The Fund has overweights in the Australian,
Netherlands, New Zealand, Switzerland and U.K. equity markets.
The Fund is overweight in the electronics equipment, broadcasting, media and
publishing, chemicals, beverage/tobacco, non-ferrous metals and merchandising
industries. Industry weights have been reduced in the traditional
telecommunications, auto/tires and multi-industry sector.
Most currencies are near their fair value, with the Hong Kong dollar and British
pound being the exceptions. The Fund is underweight the Japanese yen due to the
significantly higher U.S. dollar interest rates compared to those of Japan. The
underweight to the British pound is based on its overvaluation. The lack of
exposure to the Hong Kong dollar stems primarily from concerns about the
sustainability of the peg. The degree of uncertainty over China's future
attitude towards the territory and the maintenance of the peg provide an
unfavorable backdrop to holding the HK dollar.
Brinson Partners, Inc. Aon Advisors, Inc.
Subadvisor Portfolio Manager
9
<PAGE>
Aon Funds
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REIT INDEX FUND
COMPARISON OF A $10,000 INVESTMENT
The following graph illustrates the growth of a $10,000 investment in the REIT
Index Fund and an investment in the Morgan Stanley REIT Index from the inception
of the Fund to October 31, 1998. The illustration assumes that all dividends and
distributions are reinvested.
[GRAPH APPEARS BELOW]
09/03/96 10/31/96 10/31/97 10/31/98
REIT Index Fund $10,000 $10,482 $13,991 $12,096
Morgan Stanley REIT Index $10,000 $10,440 $13,862 $12,023
9/3/96 to
COMPARISON OF RETURNS One Year 10/31/98(3)
- ---------------------------------------------------------------------------
REIT Index Fund(1) -13.27% 20.23%
Morgan Stanley REIT Index(2) -13.55% 20.96%
(1) Total return is calculated including reinvestment of all income and capital
gain distributions. Results represent past performance and do not indicate
future results. The value of an investment in the REIT Index Fund and the return
on investment will fluctuate, and redemption proceeds may be higher or lower
than an investor's original cost.
(2) The Morgan Stanley REIT Index is an unmanaged index generally considered to
be representative of REIT market activity.
(3) Cumulative total return. September 3, 1996 was the inception date of the
Fund.
10
<PAGE>
Aon Funds
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REIT INDEX FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The REIT Index Fund had a total return of -13.27% compared to the Morgan Stanley
REIT Index return of -13.55% for the year ended October 31, 1998.
REITs have significantly underperformed the broader market this year. There are
a number of possible reasons for this: 1) a decreasing rate of earnings growth;
2) analyst downward revisions of funds from operations (FFO); 3) heightened
probability of slower economic conditions; and 4) money moving out of REIT
mutual funds. There is also the potential for lower occupancy rates in 1999
and an anticipated oversupply.
The REIT Index Fund remains fully invested in the REIT market and continues to
closely replicate the performance of the Morgan Stanley REIT Index.
Melissa A. Aton
Portfolio Manager
11
<PAGE>
[LETTERHEAD OF ERNST & YOUNG, LLP]
The Board of Trustees and Shareholders
Aon Funds --
Money Market Fund
Government Securities Fund
Asset Allocation Fund
S&P 500 Index Fund
International Equity Fund
REIT Index Fund
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Aon Funds - Money Market Fund, Government
Securities Fund, Asset Allocation Fund, S&P 500 Index Fund, International Equity
Fund and REIT Index Fund as of October 31, 1998, the related statements of
operations, changes in net assets and the financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits 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
October 31, 1998, by correspondence with the custodian. 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 audits provide 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
Aon Funds - Money Market Fund, Government Securities Fund, Asset Allocation
Fund, S&P 500 Index Fund, International Equity Fund and REIT Index Fund at
October 31, 1998, the results of their operations, changes in their net assets
and the financial highlights for the periods indicated therein, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG, LLP
Chicago, Illinois
December 11, 1998
12
<PAGE>
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at amortized cost which approximates fair value...................... $ 694,930
Receivable for fund shares sold................................................... 1,774
Interest receivable............................................................... 819
-----------
Total Assets........................................................................... 697,523
LIABILITIES
Dividends payable................................................................. 3,659
Accrued expenses payable.......................................................... 127
Investment advisory fees payable.................................................. 70
-----------
Total Liabilities...................................................................... 3,856
-----------
Net Assets............................................................................. $ 693,667
===========
Net Asset Value Per Share (based on net assets of $693,667 and 693,667 shares
issued and outstanding)........................................................... $ 1.00
===========
</TABLE>
See accompanying notes to the financial statements
13
<PAGE>
MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
In thousands
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest......................................................................... $ 45,566
-----------
Total Investment Income............................................................... 45,566
EXPENSES
Investment advisory fees......................................................... 2,442
Fund administration fees......................................................... 407
Registration fees................................................................ 134
Professional fees................................................................ 74
Fund accounting fees............................................................. 73
Custodian fees................................................................... 70
Trustees fees.................................................................... 26
Transfer agent fees.............................................................. $ 17
-----------
Total Expenses........................................................................ 3,243
Less: Fee Waiver..................................................................... 1,628
-----------
Net Expenses.......................................................................... 1,615
-----------
Net Investment Income................................................................. $ 43,951
===========
</TABLE>
See accompanying notes to the financial statements
14
<PAGE>
MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
In thousands ENDED ENDED
10/31/98 10/31/97
------------ ----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income........................................................ $ 43,951 31,683
Net realized gain............................................................ 0 0
Change in net unrealized appreciation........................................ 0 0
----------- ----------
Increase in net assets from operations....................................... 43,951 31,683
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................................ (43,951) (31,683)
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................................................. 7,411,667 6,575,729
Reinvestment of distributions................................................ 19,465 12,754
Cost of shares redeemed ..................................................... (7,503,821) (6,217,231)
----------- ----------
Change in net assets from capital transactions............................... (72,689) 371,252
----------- ----------
Change in net assets.............................................................. (72,689) 371,252
Net assets at beginning of year................................................... 766,356 395,104
----------- ----------
Net assets at end of year......................................................... $ 693,667 766,356
=========== ==========
Undistributed net investment income............................................... $ 0 0
=========== ==========
</TABLE>
See accompanying notes to the financial statements
15
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
In thousands AMOUNT VALUE AMOUNT VALUE
-------------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER Norwest Financial
AEROSPACE & DEFENSE - 3.6% 5.500% due 11/04/98 $ 25,000 $ 24,989
International Lease Finance Corp. Sun Trust Bank
5.100% due 12/01/98 $ 25,000 $ 24,894 5.070% due 12/03/98 5,000 4,978
US Bancorp
AUTO & TRUCK - 4.7% 5.300% due 11/16/98 11,000 10,976
Ford Motor Credit ----------
5.480% due 11/06/98 3,000 2,998 43,936
5.060% due 01/08/99 20,000 19,809 BANKING - FOREIGN - 3.6%
Paccar Financial Corp. Canadian Imperial
5.050% due 11/23/98 10,000 9,969 5.410% due 11/16/98 10,000 9,978
--------- 5.212% due 12/02/98 15,000 14,933
32,776 ----------
ASSET BACKED SECURITIES - 10.9% 24,911
Asset Securitization Corp. BEVERAGES - 1.4%
5.500% due 11/12/98 10,000 9,983 Anheuser Busch Co
5.270% due 11/13/98 5,000 4,991 5.110% due 11/12/98 10,000 9,984
5.240% due 12/04/98 5,000 4,976
5.250% due 01/22/99 5,000 4,940 BROKERAGE SERVICES - 4.3%
Corporate Asset Funding Co. Goldman Sachs Group
5.500% due 11/09/98 15,000 14,983 5.480% due 11/02/98 20,000 19,997
5.270% due 11/20/98 5,000 4,986 Merrill Lynch and Company
5.100% due 01/11/99 5,000 4,950 5.500% due 11/17/98 5,000 4,988
Preferred Receivables Funding Corp. 5.500% due 11/19/98 5,000 4,986
5.340% due 11/03/98 5,575 5,573 ----------
5.420% due 11/19/98 10,000 9,973 29,971
5.480% due 11/20/98 10,000 9,971 CHEMICAL - 6.0%
--------- DuPont De Nemours & Co.
75,326 5.270% due 11/10/98 10,000 9,987
BANKING - DOMESTIC - 6.3%
First Chicago Financial Corp. 5.170% due 12/09/98 10,000 9,945
5.100% due 11/17/98 3,000 2,993 Nalco Chemical Co.
5.420% due 11/23/98 10,000 9,967
5.400% due 12/21/98 12,000 11,910
----------
41,809
See accompanying notes to the financial statements
16
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL PRINCIPAL
In thousands AMOUNT VALUE AMOUNT VALUE
-------------- -------- -------------- ----------
COMPUTERS - 4.3% Household Financial Corp.
Avnet, Inc. 5.050% due 01/22/99 $ 25,000 $ 24,712
5.250% due 11/05/98 $ 5,000 4,997 ----------
5.150% due 11/13/98 5,000 4,991 102,446
5.250% due 11/23/98 5,000 4,984 INSURANCE - 3.6%
5.120% due 12/04/98 5,000 4,977 Prudential Funding Corp.
IBM Credit 5.480% due 11/05/98 15,000 14,991
5.040% due 01/25/99 10,000 9,881 5.050% due 12/10/98 5,000 4,973
--------- 5.150% due 01/14/99 5,000 4,948
29,830 ----------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 7.2% 24,912
General Electric Capital Corp. MACHINERY - 2.1%
5.320% due 11/03/98 10,000 9,997 Illinois Tool Works
5.500% due 11/24/98 5,000 4,982 5.150% due 12/22/98 15,000 14,891
5.090% due 12/10/98 10,000 9,945
Motorola, Inc. PAPER & FOREST PRODUCT - 2.9%
5.150% due 12/07/98 25,000 24,871 Weyerhaeuser Real Estate Co.
--------- 5.070% due 11/25/98 20,000 19,932
49,795
ENTERTAINMENT - 3.6%
Walt Disney Co TELECOMMUNICATION - 4.3%
5.100% due 12/18/98 15,000 14,900 Ameritech Capital Funding Corp.
5.110% due 12/18/98 10,000 9,933 5.200% due 12/03/98 10,000 9,954
--------- Bell South Capital Funding Corp.
24,833
FINANCE - 14.8% 5.200% due 11/09/98 20,000 19,977
American Express ----------
5.180% due 11/02/98 3,096 3,096 29,931
5.490% due 11/20/98 25,000 24,928 UTILITIES - 3.8%
American General Finance Northern Illinois Gas Co.
5.070% due 12/11/98 20,000 19,887 5.240% due 11/06/98 19,000 18,986
5.200% due 12/15/98 5,000 4,968 Potomac Electric Power Co.
Associates Corp. North America 5.100% due 11/03/98 7,150 7,148
5.100% due 12/10/98 17,000 16,906 ----------
5.070% due 12/16/98 8,000 7,949 26,134
----------
Total Commercial Paper - 87.4% 606,311
See accompanying notes to the financial statements
17
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
PRINCIPAL PRINCIPAL
In thousands AMOUNT VALUE AMOUNT VALUE
-------------- -------- -------------- ----------
U.S. GOVERNMENT SECURITIES CERTIFICATES OF DEPOSIT
U.S. Government Agencies - 11.5% BANKING - DOMESTIC - 1.3%
Federal Farm Credit Bank Comerica Bank
5.320% due 01/04/99 $ 10,000 10,000 5.162% due 02/16/99 $ 5,000 $ 5,000
First of America
Federal Home Loan Bank 5.244% due 02/16/99 2,000 2,000
5.560% due 03/25/99 10,000 10,000 Huntington National Bank
5.740% due 05/07/99 10,000 10,000 5.350% due 01/06/99 2,000 2,000
5.300% due 10/06/99 10,000 10,000 ----------
5.030% due 10/29/99 10,000 10,000 Total Certificates of Deposit - 1.3% 9,000
--------- ----------
40,000
Federal Home Loan Mortgage Corp. TOTAL INVESTMENTS -100.2% 694,930
5.120% due 11/30/98 5,275 5,253
Liabilities, less other assets - (0.2%) (1,263)
Federal National Mortgage Association ----------
5.320% due 02/10/99 5,000 4,995 TOTAL NET ASSETS - 100.0% $ 693,667
5.500% due 02/12/99 15,670 15,672 ==========
5.450% due 02/16/99 3,700 3,699
---------
24,366
---------
Total U.S. Government Securities - 11.5% 79,619
</TABLE>
See accompanying notes to the financial statements
18
<PAGE>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
Selected per share data 10/31/98 10/31/97 10/31/96
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year.......................... $ 1.00 1.00 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. 0.05 0.05 0.05
Net realized and unrealized gain....................... 0.00 0.00 0.00
------------ ------------ ------------
Total income from investment operations..................... 0.05 0.05 0.05
LESS DISTRIBUTIONS:
Dividends from net investment income................... 0.05 0.05 0.05
Distributions from net realized gain................... 0.00 0.00 0.00
------------ ------------ ------------
Total distributions......................................... 0.05 0.05 0.05
------------ ------------ ------------
Net asset value, end of year................................ $ 1.00 1.00 1.00
============ ============ ============
Total return ............................................... 5.54% 5.44% 5.43%
============ ============ ============
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)...................... $693,667 766,356 395,104
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............ 0.20% 0.22% 0.23%
Expenses, before waivers and reimbursements............ 0.40% 0.40% 0.46%
Net investment income, net of waivers
and reimbursements................................. 5.40% 5.34% 5.30%
Net investment income, before waivers
and reimbursements................................. 5.20% 5.16% 5.07%
</TABLE>
See accompanying notes to the financial statements
19
<PAGE>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Selected per share data 10/31/95 10/31/94
-------- --------
<S> <C> <C>
Net asset value, beginning of year.............................................. $ 1.00 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................................... 0.06 0.04
Net realized and unrealized gain........................................... * *
-------- --------
Total income from investment operations......................................... 0.06 0.04
LESS DISTRIBUTIONS:
Dividends from net investment income....................................... 0.06 0.04
Distributions from net realized gain....................................... * *
-------- --------
Total distributions............................................................. 0.06 0.04
-------- --------
Net asset value, end of year.................................................... $ 1.00 1.00
======== ========
Total return.................................................................... 5.93% 3.77%
======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).......................................... $420,094 410,912
Ratio to average net assets of:
Expenses, net of waivers and reimbursements................................ 0.14% 0.15%
Expenses, before waivers and reimbursements................................ 0.39% 0.40%
Net investment income, net of waivers
and reimbursements..................................................... 5.79% 3.73%
Net investment income, before waivers
and reimbursements..................................................... 5.54% 3.48%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1 cent per share
See accompanying notes to the financial statements
20
<PAGE>
GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
<C> <C>
ASSETS
Investments in securities, at value (cost - $148,796)............................. $ 154,101
Interest receivable............................................................... 2,259
Receivable for fund shares sold................................................... 671
------------
Total Assets........................................................................... 157,031
LIABILITIES
Dividends payable................................................................. 669
Accrued expenses payable.......................................................... 37
Investment advisory fees payable.................................................. 13
------------
Total Liabilities...................................................................... 719
------------
Net Assets............................................................................. $ 156,312
============
ANALYSIS OF NET ASSETS:
Paid in capital................................................................... $ 145,715
Accumulated net realized gain..................................................... 5,263
Net unrealized appreciation....................................................... 5,305
Undistributed net investment income............................................... 29
------------
Net Assets............................................................................. $ 156,312
============
Net Asset Value Per Share (based on net assets of $156,312 and 14,092 shares
issued and outstanding)........................................................... $ 11.09
============
</TABLE>
See accompanying notes to the financial statements
21
<PAGE>
GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
In thousands
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest.......................................................................... $ 7,748
-----------
Total Investment Income................................................................ 7,748
EXPENSES
Investment advisory fees.......................................................... 586
Fund administration fees.......................................................... 67
Fund accounting fees.............................................................. 41
Registration fees................................................................. 29
Transfer agent fees............................................................... 11
Custodian fees.................................................................... 11
Professional fees................................................................. 11
Trustees fees..................................................................... 4
-----------
Total Expenses......................................................................... 760
Less: Fee Waiver...................................................................... 452
-----------
Net Expenses........................................................................... 308
-----------
Net Investment Income.................................................................. 7,440
NET REALIZED AND UNREALIZED GAIN
Net realized gain on sale of investments.......................................... 5,706
Change in net unrealized appreciation on investments.............................. 2,243
-----------
Net realized and unrealized gain ................................................. 7,949
-----------
Net Increase in Net Assets from Operations............................................. $ 15,389
============
</TABLE>
See accompanying notes to the financial statements
22
<PAGE>
GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
In thousands 10/31/98 10/31/97
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income......................................................... $ 7,440 4,357
Net realized gain (loss)...................................................... 5,706 (412)
Change in net unrealized appreciation......................................... 2,243 2,580
----------- -----------
Increase in net assets from operations........................................ 15,389 6,525
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................................................... (7,420) (4,350)
Net realized gain............................................................. 0 0
----------- -----------
Total distributions........................................................... (7,420) (4,350)
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................................................. 44,216 60,676
Reinvestment of distributions................................................. 7,420 4,504
Cost of shares redeemed....................................................... (7,678) (3,475)
----------- -----------
Increase in net assets from capital transactions.............................. 43,958 61,705
----------- -----------
Increase in net assets............................................................. 51,927 63,880
Net assets at beginning of year.................................................... 104,385 40,505
=========== ===========
Net assets at end of year.......................................................... $ 156,312 104,385
=========== ===========
Undistributed net investment income................................................ $ 29 9
=========== ===========
</TABLE>
See accompanying notes to the financial statements
23
<PAGE>
GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
In thousands AMOUNT VALUE AMOUNT VALUE
-------------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES U.S. GOVERNMENT OBLIGATIONS - 35.0%
U.S. GOVERNMENT AGENCIES - 63.6% U.S. Treasury Bonds
A.I.D. Israel 7.500% due 11/15/16 $ 5,000 $ 6,237
5.250% due 09/15/00 $ 7,200 $ 7,287 8.125% due 05/15/21 20,000 27,050
5.890% due 08/15/05 6,500 6,898 6.125% due 11/15/27 10,000 11,247
--------- ----------
14,185 44,534
Federal Home Loan Bank U.S. Treasury Inflation Index Security
5.625% due 03/19/01 5,000 5,100 3.625% due 01/15/08 10,107 10,095
54,629
Federal Home Loan Mortgage Corp. Total U.S. Government Securities - 98.6%
4.770% due 11/16/98 2,300 2,295 (cost - $148,777) 154,082
4.770% due 11/20/98 375 374
5.950% due 01/19/06 5,000 5,231 DEMAND NOTE
5.750% due 04/15/08 10,000 10,312 UTILITY-ELECTRIC - 0.0%
--------- Wisconsin Electric
18,212 4.751% due 11/02/98
Federal National Mortgage Association (cost - $19) 19 19
5.875% due 02/02/06 20,000 20,829 ----------
5.750% due 02/15/08 20,000 20,786 TOTAL INVESTMENTS - 98.6%
5.750% due 04/15/03 10,000 10,373 (cost - $148,796) 154,101
5.750% due 06/15/05 3,500 3,616
---------
55,604 Other assets, less liabilities - 1.4% 2,211
Private Export Funding Corp. ----------
6.310% due 09/30/04 6,000 6,352 TOTAL NET ASSETS - 100.0% $ 156,312
--------- ==========
99,453
</TABLE>
See accompanying notes to the financial statements
24
<PAGE>
GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR 09/03/96
ENDED ENDED THROUGH
Selected per share data 10/31/98 10/31/97 10/31/96
--------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period........................... $ 10.49 10.21 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.59 0.59 0.07
Net realized and unrealized gain.......................... 0.60 0.28 0.21
--------- --------- ---------
Total income from investment operations........................ 1.19 0.87 0.28
LESS DISTRIBUTIONS:
Dividends from net investment income...................... 0.59 0.59 0.07
Distributions from net realized gain...................... 0.00 0.00 0.00
--------- --------- ---------
Total distributions............................................ 0.59 0.59 0.07
--------- --------- ---------
Net asset value, end of period................................ $ 11.09 10.49 10.21
========= ========= =========
Total return .................................................. 11.72% 8.86% 2.79%**
========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................... $ 156,312 104,385 40,505
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............... 0.23% 0.46% 0.89%*
Expenses, before waivers and reimbursements............... 0.57% 0.65% 0.89%*
Net investment income, net of waivers
and reimbursements.................................... 5.54% 5.92% 5.59%*
Net investment income, before waivers
and reimbursements.................................... 5.20% 5.73% 5.59%*
Portfolio turnover rate........................................ 219% 136% 4%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
See accompanying notes to the financial statements
25
<PAGE>
ASSET ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost - $179,294).............................. $ 209,844
Interest receivable................................................................ 1,071
Receivable for securities sold..................................................... 117
Dividends receivable............................................................... 79
Receivable for fund shares sold.................................................... 14
------------
Total Assets............................................................................ 211,125
LIABILITIES
Payable for securities purchased................................................... 1,395
Accrued expenses payable........................................................... 58
Investment advisory fees payable................................................... 42
------------
Total Liabilities....................................................................... 1,495
------------
Net Assets.............................................................................. $ 209,630
============
ANALYSIS OF NET ASSETS
Paid in capital.................................................................... $ 179,855
Accumulated net realized loss ..................................................... (1,624)
Net unrealized appreciation........................................................ 30,550
Undistributed net investment income................................................ 849
------------
Net Assets.............................................................................. $ 209,630
============
Net Asset Value Per Share (based on net assets of $209,630 and 13,337 shares
issued and outstanding)............................................................ $ 15.72
============
</TABLE>
See accompanying notes to the financial statements
26
<PAGE>
ASSET ALLOCATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
In thousands
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $ 4,122
Dividends....................................................................... 2,009
Other Income.................................................................... 1
-----------
Total Investment Income.............................................................. 6,132
EXPENSES
Investment advisory fees........................................................ 1,472
Fund administration fees........................................................ 113
Fund accounting fees............................................................ 45
Registration fees............................................................... 36
Custodian fees.................................................................. 21
Professional fees............................................................... 20
Transfer agent fees............................................................. 13
Trustees fees................................................................... 8
-----------
Total Expenses....................................................................... 1,728
Less: Fee Waiver.................................................................... 904
-----------
Net Expenses......................................................................... 824
-----------
Net Investment Income................................................................ 5,308
NET REALIZED AND UNREALIZED LOSS
Net realized loss on sale of investments........................................ (1,757)
Change in net unrealized appreciation on investments............................ (8,185)
-----------
Net realized and unrealized loss ............................................... (9,942)
-----------
Net Decrease in Net Assets from Operations........................................... $ (4,634)
===========
</TABLE>
See accompanying notes to the financial statements
27
<PAGE>
ASSET ALLOCATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
In thousands ENDED ENDED
10/31/98 10/31/97
--------- ---------
<S> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS
Net investment income...................................................... $ 5,308 2,545
Net realized gain (loss)................................................... (1,757) 6,331
Change in net unrealized appreciation...................................... (8,185) 29,245
------------ -----------
Change in net assets from operations....................................... (4,634) 38,121
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................................... (4,730) (2,279)
Net realized gain.......................................................... (6,046) (290)
------------ -----------
Total distributions........................................................ (10,776) (2,569)
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares............................................... 115,208 72,743
Reinvestment of distributions.............................................. 10,719 5,130
Cost of shares redeemed ................................................... (65,772) (36,820)
------------ -----------
Increase in net assets from capital transactions........................... 60,155 41,053
------------ -----------
Increase in net assets.......................................................... 44,745 76,605
Net assets at beginning of year................................................. 164,885 88,280
------------ -----------
Net assets at end of year....................................................... $ 209,630 164,885
============ ===========
Undistributed net investment income............................................. $ 849 271
============ ===========
</TABLE>
See accompanying notes to the financial statements
28
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS MACHINERY / EQUIPMENT - 0.8%
COMMON STOCKS - BASIC MATERIALS Sundstrand Corp. 33,637 $ 1,579
CHEMICAL - 0.2%
Polymer Group, Inc.* 47,274 $ 417 MANUFACTURING - DIVERSIFIED - 1.2%
Illinois Tool Works 10,064 645
METALS & MINING - 0.1% United Technologies Corp. 19,021 1,812
USEC, Inc.* 10,000 146 ---------
2,457
PAPER & FOREST PRODUCTS - 0.5% ---------
Caraustar Industries 30,000 713 Total Common Stocks - Capital
Fibermark, Inc.* 27,000 385 Goods - 7.5% 15,713
---------
1,098 COMMON STOCKS - COMMUNICATION SERVICES
--------- CELLULAR AND WIRELESS - 0.2%
Total Common Stocks - Basic Paging Network, Inc.* 74,779 411
Materials - 0.8% 1,661
COMMON STOCKS - CAPITAL GOODS LONG DISTANCE - 0.6%
AEROSPACE & DEFENSE - 0.5% Star Telecommunications* 17,000 223
Kellstrom Industries, Inc.* 50,000 1,125 MCI Worldcom, Inc.* 20,000 1,105
---------
CONTAINER - 0.5% 1,328
AptarGroup, Inc. 15,000 401 TELEPHONE - 0.8%
Bway Corp.* 35,455 607 Ameritech Corporation 7,500 405
--------- Cincinnati Bell 35,000 908
1,008 Clearnet Communications* 30,728 225
ELECTRICAL EQUIPMENT - 2.3% ---------
General Electric 42,712 3,737 1,538
Triumph Group, Inc.* 36,649 1,187 ---------
--------- Total Common Stocks - Communication
4,924 Services - 1.6% 3,277
ENVIRONMENTAL - 2.2%
Allied Waste Industries, Inc.* 100,018 2,163 COMMON STOCKS - CONSUMER CYCLICAL
Waste Industries, Inc.* 25,000 584 APPAREL & TEXTILES - 1.0%
Waste Management, Inc. 41,516 1,873 Interface, Inc. 167,502 2,062
---------
4,620 FURNITURE - 0.2%
Meadowcraft, Inc.* 67,500 489
See accompanying notes to the financial statements
29
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
PRINTING & PUBLISHING - 1.7% Viacom, Inc. B* 4,490 $ 269
Getty Images, Inc.* 41,000 $ 505 Walt Disney Co. 56,046 1,510
Journal Register Co.* 35,700 573 ---------
Scholastic Corp.* 36,800 1,451 2,486
Tribune Co. 16,388 944 FOOD RETAILERS - 3.2%
--------- Dominick's Supermarkets, Inc.* 27,261 1,331
3,473 Kroger Co.* 72,184 4,006
LEISURE TIME - 0.3% Safeway, Inc.* 30,000 1,434
National RV Holdings, Inc.* 30,000 679 ---------
6,771
LODGING / HOTELS - 0.5% FOOD PRODUCERS - 0.6%
Host Marriot Corp.* 80,000 1,160 Dean Foods Co 25,000 1,172
RETAIL - GENERAL - 0.2% HOUSEHOLD PRODUCTS / HOUSEWARES - 0.7%
Dayton Hudson Corp. 10,000 424 Libbey, Inc. 30,000 930
Rubbermaid, Inc. 15,000 498
RETAIL SPECIALTY - 1.2% ---------
Home Depot 49,774 2,165 1,428
Petsmart, Inc.* 45,000 323 MEDIA - TV / RADIO / CABLE - 7.7%
--------- Canwest Global Comm Corp. 65,356 764
2,488 Chancellor Media Corp.* 80,550 3,091
--------- Clear Channel Comms.* 74,676 3,402
Total Common Stocks - Consumer Emmis Broadcasting Corp.* 25,500 835
Cyclical - 5.1% 10,775 Jacor Communications* 20,000 1,100
Outdoor Systems, Inc.* 83,707 1,847
COMMON STOCKS - CONSUMER STAPLES Time Warner, Inc. 37,577 3,488
BEVERAGES - 0.8% TV Azteca SA ADR 72,500 634
Coca-Cola Enterprises 35,000 1,262 Young Broadcasting Corp.* 30,000 947
Panamerican Beverages 25,758 522 ---------
--------- 16,108
1,784 ---------
DRUG STORES - 1.1% Total Common Stocks -
CVS Corporation 50,000 2,284 Consumer Staples - 15.3% 32,033
ENTERTAINMENT - 1.2% COMMON STOCKS - ENERGY
Viacom, Inc. A* 11,912 707 EXPLORATION/DRILLING - 1.6%
Core Laboratories N.V.* 66,000 1,489
See accompanying notes to the financial statements
30
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
Pride International, Inc.* 60,000 $ 698 REAL ESTATE / REITS - 2.4%
R & B Falcon Corp.* 20,000 271 Colonial Properties Trust 51,350 $ 1,412
TransCoastal Marine Svcs., Inc.* 40,000 181 Excel Legacy Corp.* 50,300 138
Transocean Offshore, Inc. 21,258 785 First Industrial Realty Trust 43,335 1,110
--------- Hanover Capital Mortgage 6,500 26
3,424 Hanover Capital Mtge Wts* 55,500 7
OIL & GAS SERVICE - 1.7% Health Care REIT, Inc. 41,375 936
Eagle Geophysical, Inc.* 20,000 136 Spieker Properties, Inc. 38,416 1,325
Newpark Resources, Inc.* 114,184 1,078 ---------
Petroleum Geo Services ADR * 63,578 1,359 4,954
Schlumberger 10,000 525 SAVINGS AND LOAN - 0.6%
Superior Energy Services, Inc.* 100,000 403 Washington Mutual, Inc. 31,800 1,191
--------- ---------
3,501
--------- Total Common Stocks - Finance - 8.8% 18,364
Total Common Stocks - Energy - 3.3% 6,925 COMMON STOCKS - HEALTH CARE
BIO-TECHNOLOGY - 0.8%
COMMON STOCKS - FINANCE Amgen* 20,000 1,571
BANKS - 2.6%
Banc One Corp. 30,570 1,494 DRUGS - 3.8%
BankAmerica Corp. 41,626 2,391 American Home Products Corp. 10,000 488
State Street Corp. 15,000 936 Cardinal Health, Inc. 10,000 946
Texas Regional Bancshares 29,547 672 Lilly Eli & Co. 10,000 809
--------- Merck & Co. 14,758 1,996
5,493 Schering-Plough Corp. 21,904 2,253
FINANCIAL SERVICES - 1.9% Warner-Lambert Co 20,000 1,568
Associates First Capital Corp. 25,758 1,816 ---------
MS Dean Witter, Inc. 17,500 1,133 8,060
PMI Group, Inc. 20,000 1,009 MEDICAL PRODUCTS & SUPPLIES - 4.3%
--------- Abbott Labs 48,122 2,259
3,958 Becton Dickenson Co. 61,516 2,591
INSURANCE - 1.3% Hanger Ortho. Group, Inc.* 7,000 138
American Bank Note Holo. 50,000 472
American International Group 26,928 2,296
---------
2,768
See accompanying notes to the financial statements
31
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL
AMOUNT OR
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
Johnson & Johnson Co. 39,516 $ 3,221 First Data 37,677 $ 998
Ocular Sciences, Inc.* 35,000 879 Saville Systems Ireland ADR* 60,684 1,024
--------- Transaction Systems Arch.* 2,000 72
9,088 ---------
--------- 4,175
Total Common Stocks - PHOTOGRAPHY / IMAGING - 0.6%
Health Care - 8.9% 18,719 Xerox Corp. 11,800 1,143
---------
COMMON STOCKS - MISCELLANEOUS
PROFESSIONAL SERVICES - 1.1% Total Common Stocks -
Billing Concepts Corp.* 80,316 1,134 Technology - 6.6% 13,804
Rental Service Group* 54,000 1,202
--------- COMMON STOCKS - TRANSPORTATION
MISCELLANEOUS - 0.3%
Total Common Stocks - Coach USA, Inc. 25,000 670
Miscellaneous - 1.1% 2,336 ---------
COMMON STOCKS - TECHNOLOGY Total Common Stocks - 59.3%
COMMUNICATION EQUIPMENT - 0.8% (cost - $95,345) 124,277
Amerilink Corp.* 20,000 170
Lucent Technologies 5,000 401 U.S. GOVERNMENT SECURITIES
Powerwave Technologies, Inc.* 48,637 587 U.S. GOVERNMENT AGENCY - 3.1%
Tellabs, Inc.* 10,000 550 Federal Home Loan Mortgage Corp.
--------- 4.770% due 11/16/98 $ 6,525 6,512
1,708
COMPUTER RELATED - 3.2% U.S. GOVERNMENT OBLIGATIONS - 16.2%
Compaq Computers Corp. 70,004 2,214 U.S. Treasury Notes
EMC Corp Mass., Inc.* 28,728 1,849 7.125% due 09/30/99 661 677
IBM 5,000 742 7.750% due 01/31/00 1,508 1,569
Sun Microsystems* 33,874 1,973 6.500% due 08/31/01 1,727 1,824
--------- 5.250% due 08/15/03 9,000 9,391
6,778 5.625% due 05/15/08 4,000 4,309
COMPUTER SOFTWARE / SERVICES - 2.0% ---------
Advanced Comm. Systems* 45,000 439 17,770
Carreker-Antinori, Inc.* 3,500 23
CSG Systems Intl, Inc.* 29,700 1,619
See accompanying notes to the financial statements
32
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL PRINCIPAL
In thousands, except shares AMOUNT VALUE AMOUNT VALUE
-------------- -------- -------------- ----------
U.S. Treasury Bond COMMUNICATIONS & MEDIA - 2.2%
4.500% due 09/30/00 $ 9,000 $ 9,045 Airtouch Communications
5.750% due 11/15/00 7,000 7,195 7.000% due 10/01/03 $ 788 $ 834
--------- Panamsat
16,240 6.000% due 01/15/03 3,000 3,002
--------- Tribune Company
6.875% due 11/01/06 800 858
Total U.S. Government Obligations 34,010 ----------
--------- 4,694
COMPUTER - 1.3%
Total U.S. Government Securities - 19.3% IBM Corp.
(cost - $40,101) 40,522 5.370% due 09/22/03 2,000 1,997
Oracle Corp.
CORPORATE BONDS 6.720% due 02/15/04 750 772
AEROSPACE & DEFENSE - 1.0% ----------
Boeing Capital Corp. 2,769
5.960% due 05/25/04 2,000 1,988 ENTERTAINMENT & LEISURE - 0.6%
Brunswick Corp.
AGRICULTURAL & INDUSTRIAL EQUIPMENT - 0.5% 6.750% due 12/15/06 300 313
Case Corp. Royal Caribbean
6.750% due 10/21/07 1,000 1,048 7.000% due 10/15/07 1,000 967
----------
AUTO & TRUCK - 2.6% 1,280
Chrysler Finance Corp. FOOD, BEVERAGE & TOBACCO - 1.5%
6.950% due 03/25/02 1,000 1,051 Canandaigua Wine
General Motors Acceptance Corp. 8.750% due 12/15/03 100 100
5.875% due 01/22/03 1,300 1,314 Nabisco, Inc.
General Motors Corp. 6.125% due 02/01/33 3,000 3,012
6.375% due 05/01/08 3,000 3,110 ----------
--------- 3,112
5,475 HEALTH CARE - 0.4%
BANK AND BANK HOLDING COMPANY - 1.8% Omega Healthcare Investors
NationsBank Corp. 6.950% due 08/01/07 1,000 895
7.500% due 09/15/06 1,576 1,729
Northern Trust Company MACHINERY - 1.0%
6.250% due 06/02/08 2,000 2,055 John Deere Capital Co.
--------- 5.850% due 01/15/01 2,000 2,020
3,784
See accompanying notes to the financial statements
33
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL
PRINCIPAL AMOUNT OR
In thousands, except shares AMOUNT VALUE SHARES VALUE
-------------- -------- -------------- ----------
METAL & MINERAL - 0.4% PREFERRED STOCK
Southdown, Inc. BANKS - 1.0%
10.000% due 03/01/06 $ 788 $ 890 ABN Amro Capital Fndg Trst. 80,000 $ 2,030
NON FERROUS METAL - 0.5% FINANCIAL SERVICES - 0.8%
Phelps Dodge Merrill Lynch STRYPES 22,243 1,621
6.375% due 11/01/04 1,000 1,038
MEDIA - TV / RADIO / CABLE - 0.3%
OIL & GAS INTERNATIONAL - 1.0% Evergreen Media Corp. 10,000 758
Enron Corp
6.625% due 11/15/05 1,000 1,050 COMPUTER SOFTWARE / SERVICES - 0.3%
Enron Oil & Gas Microsoft Corp. 6,700 655
6.500% due 12/01/07 1,000 1,034 ----------
---------
2,084 Total Preferred Stock - 2.4% (cost - $4,474) 5,064
RESTAURANTS & LODGING - 0.5%
Hilton Hotels Corp. COMMERCIAL PAPER
7.000% due 07/15/04 1,000 969 AUTO & TRUCK - 0.4%
Ford Motor Credit Corp.
RETAIL - FOOD AND DRUGS - 0.5% 5.227% due 11/20/98 $ 500 500
Kroger 5.308% due 11/20/98 325 325
7.650% due 04/15/07 1,000 1,080 ----------
825
WASTE MANAGEMENT SERVICES - 0.5% FINANCIAL SERVICES - 2.0%
Waste Management, Inc. AIG Funding, Inc.
6.625% due 07/15/02 1,000 1,036 5.570% due 11/02/98 765 765
UTILITIES - 0.4% American Express Credit Corp.
Korea Electric Power 5.117% due 11/13/98 265 265
7.000% due 10/01/02 1,000 835 5.254% due 11/13/98 2,275 2,275
--------- 5.277% due 11/13/98 370 370
5.294% due 11/13/98 150 150
Total Corporate Bonds - 16.7% 5.147% due 11/20/98 300 300
(cost - $34,39) 34,997 ----------
4,125
----------
See accompanying notes to the financial statements
34
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL
In thousands, except shares AMOUNT VALUE
-------------- --------
Total Commercial Paper - 2.4%
(cost - $4,950) $ 4,950
DEMAND NOTE
UTILITY-ELECTRIC - 0.0%
Wisconsin Electric
4.751% due 11/02/98
(cost - $34) $ 34 34
---------
TOTAL INVESTMENTS - 100.1%
(cost - $179,294) 209,844
Liabilities, less other assets - (0.1%) (214)
---------
TOTAL NET ASSETS - 100.0% $ 209,630 $
=========
</TABLE>
* Non-income producing security.
See accompanying notes to the financial statements
35
<PAGE>
ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
Selected per share data 10/31/98 10/31/97 10/31/96
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year........................ $ 16.60 12.75 12.04
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.39 0.27 0.31
Net realized and unrealized (loss) gain.............. (0.32) 3.85 1.01
------------- ------------- -------------
Total income from investment operations................... 0.07 4.12 1.32
LESS DISTRIBUTIONS:
Dividends from net investment income................. 0.35 0.24 0.31
Distributions from net realized gain................. 0.60 0.03 0.30
------------- ------------- -------------
Total distributions....................................... 0.95 0.27 0.61
------------- ------------- -------------
Net asset value, end of year.............................. $ 15.72 16.60 12.75
============= ============= =============
Total return.............................................. 0.21% 32.61% 11.06%
============= ============= =============
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).................... $ 209,630 164,885 88,280
Ratio to average net assets of:
Expenses, net of waivers and reimbursements.......... 0.36% 0.56% 0.87%
Expenses, before waivers and reimbursements.......... 0.76% 0.78% 0.87%
Net investment income, net of waivers
and reimbursements............................... 2.33% 1.90% 2.48%
Net investment income, before waivers
and reimbursements............................... 1.93% 1.68% 2.48%
Portfolio turnover rate................................... 64% 64% 120%
</TABLE>
See accompanying notes to the financial statements
36
<PAGE>
ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR 03/03/94
ENDED THROUGH
Selected per share data 10/31/95 10/31/94
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................................. $ 9.97 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................................... 0.24 0.17
Net realized and unrealized gain............................................ 2.41 0.01
---------- ---------
Total income from investment operations.......................................... 2.65 0.18
LESS DISTRIBUTIONS:
Dividends from net investment income........................................ 0.24 0.16
Distributions from net realized gain........................................ 0.34 0.05
---------- ---------
Total distributions.............................................................. 0.58 0.21
---------- ---------
Net asset value, end of period................................................... $ 12.04 9.97
========== =========
Total return..................................................................... 26.92% 1.84%**
========== =========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......................................... $ 73,775 10,189
Ratio of expenses to average net assets.......................................... 0.96% 1.25%*
Ratio of net investment income to average net assets............................. 2.73% 2.63%*
Portfolio turnover rate.......................................................... 95% 64%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
See accompanying notes to the financial statements
37
<PAGE>
S&P 500 INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost - $171,740)........................... $ 224,818
Dividends receivable............................................................ 230
Receivable for securities sold.................................................. 53
Receivable for fund shares sold................................................. 22
------------
Total Assets......................................................................... 225,123
LIABILITIES
Variation margin................................................................ 61
Accrued expenses payable........................................................ 53
Investment advisory fees payable................................................ 9
------------
Total Liabilities.................................................................... 123
------------
Net Assets........................................................................... $ 225,000
============
ANALYSIS OF NET ASSETS
Paid in capital................................................................. 167,143
Accumulated net realized gain .................................................. 1,899
Net unrealized appreciation..................................................... 53,112
Undistributed net investment income............................................. 2,846
------------
Net Assets........................................................................... $ 225,000
============
Net Asset Value Per Share (based on net assets of $225,000 and 13,663 shares
issued and outstanding)......................................................... $ 16.47
============
</TABLE>
See accompanying notes to the financial statements
38
<PAGE>
S&P 500 INDEX FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
In thousands
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends..................................................................... $ 3,066
Interest...................................................................... 593
Other ........................................................................ 1
-------------
Total Investment Income............................................................ 3,660
EXPENSES
Investment advisory fees...................................................... 638
Fund administration fees...................................................... 106
Fund accounting fees.......................................................... 56
Registration fees............................................................. 33
Professional fees............................................................. 20
Custodian fees................................................................ 19
Transfer agent fees........................................................... 13
Trustees fees................................................................. 6
-------------
Total Expenses..................................................................... 891
Less: Fee Waiver.................................................................. 452
-------------
Net Expenses....................................................................... 439
-------------
Net Investment Income.............................................................. 3,221
NET REALIZED AND UNREALIZED GAIN
Net realized gain on sale of investments...................................... 600
Net realized gain on futures contracts........................................ 1,215
Change in net unrealized appreciation on investments.......................... 32,735
Change in net unrealized appreciation on futures contracts.................... 130
-------------
Net realized and unrealized gain.............................................. 34,680
-------------
Net Increase in Net Assets from Operations......................................... $ 37,901
=============
</TABLE>
See accompanying notes to the financial statements
39
<PAGE>
S&P 500 INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
In thousands 10/31/98 10/31/97
-------- --------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income.......................................................... $ 3,221 1,725
Net realized gain.............................................................. 1,815 4,249
Change in net unrealized appreciation.......................................... 32,865 19,397
---------- ----------
Increase in net assets from operations......................................... 37,901 25,371
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................................... (1,957) (145)
Net realized gain.............................................................. (4,165) 0
---------- ----------
Total distributions............................................................ (6,122) (145)
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................................................... 128,734 92,357
Reinvestment of distributions.................................................. 6,123 182
Cost of shares redeemed ....................................................... (60,248) (25,005)
---------- ----------
Increase in net assets from capital transactions............................... 74,609 67,534
---------- ----------
Increase in net assets.............................................................. 106,388 92,760
Net assets at beginning of year..................................................... 118,612 25,852
---------- ----------
Net assets at end of year........................................................... $ 225,000 118,612
========== ==========
Undistributed net investment income................................................. $ 2,846 1,582
========== ==========
</TABLE>
See accompanying notes to the financial statements
40
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS Asarco, Inc. 1,012 $ 22
COMMON STOCKS - BASIC MATERIALS Barrick Gold Corp. 9,542 204
AGRICULTURAL - 0.2% Battle Mountain Gold Co. 5,833 32
Archer-Daniels-Midland Co. 15,281 $ 255 Cyprus Amax Mineral Co. 2,378 30
Pioneer Hi-Bred International 6,248 175 Freeport McMoran Copper 4,609 57
--------- Homestake Mining Co. 5,371 64
430 Inco Ltd. 4,286 46
CHEMICALS - 1.8% Newmont Mining Corp. 4,032 86
Air Products & Chemicals, Inc. 5,978 226 Phelps Dodge 1,554 90
Dow Chemical 5,748 538 Placer Dome, Inc. 6,394 101
DuPont De Nemours & Co. 28,618 1,646 Reynolds Metals 1,901 114
Eastman Chemical Co. 1,962 115 ---------
FMC Corp.* 931 48 1,374
Goodrich, BF Co. 1,793 65 PAPER & FOREST PRODUCT - 0.6%
Monsanto Co. 15,228 619 Bemis Co. 1,393 52
PPG Industries 4,502 257 Boise Cascade 1,439 40
Praxair, Inc. 4,078 164 Champion International 2,478 79
Rohm & Haas Co. 4,562 154 Georgia Pacific Co. 2,324 120
Union Carbide Corp. 3,555 137 International Paper 7,800 362
--------- Louisiana-Pacific Co. 2,839 50
3,969 Mead Corp. 2,686 85
CHEMICALS - SPECIALTY - 0.3% Potlatch Corp. 750 27
Ecolab, Inc. 3,302 99 Stone Container Corp. 2,532 24
Englehard Corp. 3,644 77 Temple Inland 1,447 70
Great Lakes Chemical 1,501 62 Union Camp Corp. 1,854 80
Hercules, Inc. 2,399 80 Westvaco Corp. 2,559 63
Intl Flavors & Fragrance 2,739 103 Weyerhaeuser Co. 5,063 237
Morton International, Inc. 3,317 82 Willamette Industries 2,794 87
Nalco Chemical Co. 1,754 54 ---------
Sigma-Aldrich Corp. 2,532 78 1,376
W.R. Grace & Co.* 1,824 32 STEEL - 0.1%
--------- Allegheny Teledyne, Inc. 5,021 103
667 Armco, Inc.* 2,786 13
METALS & MINING - 0.6% Bethlehem Steel 3,239 29
Alcan Aluminum Ltd. 5,833 148 Nucor Corp. 2,270 103
Aluminum Co. of America 4,794 380
See accompanying notes to the financial statements
41
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
USX-US Steel 2,170 $ 50 Thomas & Betts Co. 1,431 $ 64
Worthington Inds, Inc. 2,524 34 ---------
--------- 8,778
332 ENVIRONMENTAL - 0.4%
--------- Browning Ferris 4,425 157
Total Common Stocks - Basic Millipore Corp. 1,112 27
Materials - 3.6% 8,148 Waste Management, Inc. 14,498 654
---------
COMMON STOCKS - CAPITAL GOODS 838
AEROSPACE & DEFENSE - 0.8% MACHINERY - EQUIPMENT - 0.7%
Boeing Co. 25,620 961 Briggs & Stratton 650 31
General Dynamics Corp. 3,202 190 Caterpillar, Inc. 9,312 419
Lockheed Martin Corp. 4,971 554 Cooper Industries 3,139 139
Northrop Grumman Corp. 1,774 141 Cummins Engine 1,031 35
--------- Deere & Co. 6,310 223
1,846 Dover Co. 5,686 181
CONSTRUCTION - 0.1% Harnischfeger 1,266 12
Case Equipment Corp. 1,908 42 Ingersoll Rand Co. 4,208 213
Fluor Corp. 2,070 80 Milacron, Inc. 1,031 20
Foster Wheeler Corp. 1,085 17 NACCO Industries 194 18
McDermott International 1,593 47 Pall Corp. 3,193 81
--------- Parker Hannifin 2,793 100
186 Timken Co. 1,608 29
CONTAINERS - 0.1% ---------
Ball Corp. 823 35 1,501
Crown Cork & Seal 3,255 104 MANUFACTURING - DIVERSIFIED - 1.1%
Owens-Illinois, Inc.* 4,000 122 Aeroquip - Vickers, Inc. 750 24
Sealed Air Corp.* 2,181 77 Centex Corp. 1,546 52
--------- Crane Co. 1,812 52
338 Eaton Corp. 1,862 126
ELECTRICAL EQUIPMENT - 3.9% Illinois Tool Works 6,402 411
AMP, Inc. 4,849 199 Johnson Controls 2,070 116
Emerson Electric Co. 11,266 744 National Service Inds. 1,139 41
General Electric 82,698 7,236 Thermo Electron Corp.* 4,300 86
Honeywell 3,255 260 Tyco International Ltd. 16,293 1,009
Raychem 2,170 66
Rockwell International Corp. 5,079 209
See accompanying notes to the financial statements
42
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
United Technologies Corp. 5,902 $ 562 US West, Inc. - Comm Group 12,727 $ 730
--------- ---------
2,479 10,522
OFFICE SUPPLIES - 0.2% ---------
Avery Dennison Co. 2,986 124 Total Common Stocks -
Moore Corp. 2,232 25 Communication Services - 7.7% 17,370
Pitney Bowes, Inc. 7,042 388
--------- COMMON STOCKS - CONSUMER CYCLICAL
537 APPAREL & TEXTILE - 0.3%
TRUCKS & PARTS - 0.1% Fruit of the Loom, Inc.* 1,862 28
Navistar International* 1,762 37 Liz Claiborne, Inc. 1,708 50
Paccar, Inc. 1,962 86 Nike, Inc. 7,333 320
--------- Reebok International Ltd. 1,447 24
123 Russell Corp. 931 23
Spring Industries 502 18
Total Common Stocks - Capital VF Corp. 3,054 128
Goods - 7.4% 16,626 ---------
591
COMMON STOCKS - COMMUNICATION SERVICES AUTO MANUFACTURERS - 1.6%
CELLULAR & WIRELESS - 0.4% Chrysler Corp. 16,433 791
Airtouch Communications* 14,558 815 Ford Motor Co. 30,864 1,674
Nextel Communications, Inc.* 7,350 133 General Motors Corp. 16,568 1,045
--------- ---------
948 3,510
LONG DISTANCE - 2.6% AUTO PARTS - 0.4%
AT & T Corp. 41,230 2,567 Cooper Tire & Rubber Co. 1,970 33
MCI Worldcom, Inc.* 45,127 2,493 Dana 4,219 176
Sprint Corp. 10,950 840 Genuine Parts Co. 4,620 146
--------- Goodyear Tire & Rubber 4,078 220
5,900 ITT Industries, Inc. 3,047 109
TELEPHONE - 4.7% Snap on Tools, Inc. 1,601 57
Alltel Corp. 6,956 326 TRW, Inc. 3,109 177
Ameritech Corp. 27,994 1,510 ---------
Bell Atlantic 39,456 2,096 918
Bell South Corp. 25,163 2,008 COMMERCIAL & CONSUMER SERVICES - 0.5%
Frontier Corp. 4,400 132 Cendant Corp.* 21,753 249
GTE Corp. 24,439 1,434 Dun & Bradstreet 4,440 126
SBC Communications, Inc. 49,362 2,286 H & R Block 2,586 116
See accompanying notes to the financial statements
43
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
IMS Health, Inc. 4,140 $ 275 Interpublic GRP Cos., Inc. 3,474 $ 203
Laidlaw, Inc. 8,357 79 Jostens, Inc. 1,031 23
Service Corp. International 6,541 233 Knight Ridder, Inc. 2,078 106
--------- McGraw Hill Cos, Inc. 2,532 228
1,078 Meredith Corp. 1,346 50
FURNITURE, APPLIANCES & TOOLS - 0.2% New York Times 4,964 140
Black & Decker 2,370 122 Omnicom Group 4,340 215
Maytag Corp. 2,432 120 Times Mirror Co. 2,286 127
Stanley Works 2,224 67 Tribune Co. 3,102 179
Whirlpool Corp. 1,862 95 --------
--------- 1,906
404 RETAIL - DISCOUNT - 1.8%
HOMEBUILDING & SUPPLIES - 0.2% Consolidated Stores* 2,800 46
Armstrong World Industries 1,031 64 Dollar General Corp. 4,625 110
Fleetwood Enterprises 977 31 Wal-Mart Stores, Inc. 56,720 3,914
Kaufman & Broad Home Corp. 1,031 29 --------
Masco Co. 8,664 244 4,070
Owens Corning 1,393 51 RETAIL - GENERAL - 1.2%
Pulte Corp. 1,138 29 Dayton Hudson Corp. 11,050 468
--------- Dillard Dept. Stores 2,793 87
448 Federated Department Stores* 5,371 206
LEISURE TIME - 0.3% Fred Meyer, Inc.* 3,900 208
Brunswick Corp. 2,532 49 Harcourt General, Inc. 1,808 88
Harrah's Entertainment, Inc.* 2,586 37 K Mart 12,397 175
Hasbro, Inc. 3,455 121 Kohl's Corporation* 4,000 191
Mattel, Inc. 7,488 269 May Department Stores 5,929 362
Mirage Resorts, Inc.* 4,600 78 Nordstrom, Inc. 3,932 107
--------- Penny JC Co. 6,433 306
554 Sears Roebuck & Co. 10,019 450
LODGING & HOTELS - 0.1% --------
Hilton Hotels Corp. 6,302 126 2,648
Marriott International 6,510 175 RETAIL - SPECIALTY - 1.6%
--------- Autozone, Inc.* 3,900 103
301 Circuit City Stores, Inc. 2,532 92
PRINTING & PUBLISHING - 0.8% Gap, Inc. 9,949 598
American Greetings Co. 1,862 75 Home Depot, Inc. 37,328 1,624
Dow Jones & Co. 2,378 109
Gannett Co., Inc. 7,288 451
See accompanying notes to the financial statements
44
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
The Limited Ltd. 5,746 $ 147 Procter & Gamble 34,120 $ 3,032
Lowes Companies 8,880 299 ---------
Pep Boys - Manny, Mo, Jack 1,601 25 5,959
Sherwin Williams 4,440 112 DRUG STORES - 0.6%
Staples, Inc.* 7,300 238 CVS Corp. 9,772 446
Tandy Corp. 2,594 129 Longs Drug Stores 984 38
TJX Cos, Inc. 8,132 154 Rite Aid Corp. 6,640 264
Toys "R" Us, Inc.* 6,672 131 Walgreen Co. 12,604 614
Venator Group, Inc.* 3,409 29 ---------
--------- 1,362
3,681 ENTERTAINMENT - 0.9%
WHOLESALERS - 0.1% King World Productions, Inc. 1,862 49
Costco Companies, Inc.* 5,509 313 Walt Disney Co. 51,877 1,397
--------- Viacom, Inc.* 9,042 541
Total Common Stocks - ---------
Consumer Cyclical - 9.1% 20,422 1,987
FOOD PRODUCERS - 2.4%
COMMON STOCKS - CONSUMER STAPLES BestFoods 7,334 400
BEVERAGES - 3.1% Campbell Soup 11,574 617
Anheuser-Busch Cos., Inc. 12,404 737 Conagra, Inc. 12,396 377
Brown Foremann 1,754 119 General Mills 4,078 300
Coca-Cola Co. 62,707 4,241 H J Heinz Co. 9,330 542
Coca-Cola Enterprises 10,100 364 Hershey Foods 3,624 246
Coors, Adolph, Inc. 931 47 Kellogg Co. 10,342 341
Pepsico, Inc. 37,429 1,263 Quaker Oats 3,509 207
Seagrams Co., Ltd. 8,757 288 Ralston-Purina Group 8,058 269
--------- Sara Lee Corp. 11,897 710
7,059 Unilever ADR 16,328 1,229
COSMETIC & TOILETRIES - 2.7% Wrigley Wm JR Co. 2,993 242
Alberto-Culver Co. 1,500 40 ---------
Avon Products, Inc. 6,718 267 5,480
Colgate Palmolive Co. 7,542 667 FOOD RETAILERS - 0.8%
Gillette Co. 28,524 1,282 Albertson's, Inc. 6,283 349
Kimberly Clark 13,900 671 American Stores Co. 6,942 226
Cardinal Health, Inc. 3,400 321
Great Atlantic & Pacific 1,031 24
Kroger* 6,502 361
See accompanying notes to the financial statements
45
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
Super-Valu, Inc. 3,008 $ 72 UST, Inc. 4,702 $ 160
Sysco Corp. 8,596 232 ---------
Winn-Dixie Stores, Inc. 3,824 130 3,552
--------- ---------
1,715 Total Common Stock - Consumer
HOUSEHOLD PRODUCTS / HOUSEWARES - 0.4% Staples - 15.0% 33,681
Clorox Co. 2,586 282
Fort James Corp. 5,670 229 COMMON STOCKS - ENERGY
Fortune Brands, Inc. 4,440 147 EXPLORATION & DRILLING - 0.3%
Newell Co. 4,105 181 Anadarko Petroleum Corp. 3,100 105
Rubbermaid, Inc. 3,871 128 Apache Corp. 2,500 71
Tupperware Corp. 1,501 23 Burlington Resources, Inc. 4,561 188
--------- Helmerich & Payne 1,266 30
990 Kerr-McGee Co. 1,266 50
MEDIA - TV, RADIO, CABLE - 1.7% Oryx Energy * 2,686 38
CBS, Inc. 18,242 510 Rowan Companies, Inc.* 2,170 32
Clear Channel Communications* 6,300 287 Union Pacific Resources Group 6,412 83
Comcast Corp. 9,372 463 ---------
Mediaone Group* 15,467 654 597
Tele Communications, Inc.* 13,333 562 OIL & GAS - DOMESTIC - 0.8%
Time Warner, Inc. 15,167 1,408 Amerada Hess Corp. 2,278 126
--------- Atlantic Richfield 8,164 562
3,884 Occidental Petroleum 8,964 178
RESTAURANTS - 0.7% Pennzoil Co. 1,239 44
Dardeen Restaurants 3,678 61 Phillips Petroleum Co. 6,664 288
McDonalds Corp. 17,522 1,172 Unocal Corp 6,202 210
Tricon Global Restaurants* 3,882 169 USX-Marathon 7,433 243
Wendy's International 3,355 70 ---------
--------- 1,651
1,472 OIL & GAS - INTERNATIONAL - 5.3%
SPECIALTY PRINTING / SERVICES - 0.1% Amoco Corp. 24,408 1,370
Deluxe Corp. 2,016 65 Chevron Corp. 16,683 1,360
Donnelley RR & Sons 3,624 156 Exxon Corp. 59,930 4,270
--------- Mobil Corp. 19,846 1,502
221 Royal Dutch Petroleum ADR 54,456 2,682
TOBACCO - 1.6% Texaco, Inc. 13,728 814
RJR Nabisco Holdings Corp. 8,300 237 ---------
Philip Morris Co., Inc. 61,707 3,155 11,998
See accompanying notes to the financial statements
46
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
OIL & GAS - SERVICE - 0.6% Republic New York Corp. 2,794 $ 117
Ashland, Inc. 1,854 $ 89 State Street Corp. 4,100 256
Baker Hughes, Inc. 8,078 178 Summit Bancorp 4,500 171
Halliburton Co. 11,234 404 Sun Trust Banks, Inc. 5,433 379
Schlumberger 12,696 667 Synovus Financial Corp. 6,700 155
Sun Co. 2,362 81 Union Planters Corp. 3,200 149
--------- US Bancorp 18,941 691
1,419 Wachovia Corp. 5,286 480
--------- Wells Fargo & Co. 2,159 799
---------
Total Common Stocks - Energy - 7.0% 15,665 15,975
FINANCIAL SERVICES - 4.1%
COMMON STOCKS - FINANCE American Express Co. 11,689 1,033
BANK & BANK HOLDING COMPANY - 7.1% American General Corp. 6,463 443
Banc One Corp. 29,747 1,454 Associates First Capital Corp. 8,772 618
Bank of New York 19,130 604 Bear Stearns Companies, Inc. 2,900 103
BankAmerica Corp. 44,153 2,536 Capital One Financial Corp. 1,700 173
Bankboston Corporation 7,448 274 Charles Schwab Corp. 6,800 326
Bankers Trust of New York 2,516 158 Countrywide Credit Ind., Inc. 2,800 121
BB&T Corp. 7,200 257 Fannie Mae 26,340 1,865
Chase Manhattan 21,642 1,230 FHLMC 17,192 989
Comerica, Inc. 4,039 260 Franklin Resources, Inc. 6,500 246
Fifth Third Bancorp 6,743 447 Household International 12,405 454
First Union Corp. 24,611 1,427 Lehman Brothers Holdings 3,100 118
Fleet Financial Group, Inc. 14,556 581 MBIA, Inc. 2,470 151
Huntington Bancshares 5,400 155 MBNA Corp. 19,159 437
Key Corp. 11,174 339 Merrill Lynch 8,772 520
Mellon Bank 6,610 397 MS Dean Witter, Inc. 14,863 962
Mercantile Bancorp 3,800 174 Providian Corp. 2,378 189
Morgan (J.P.) & Co., Inc. 4,602 434 SLM Holding Corp. 4,300 172
National City Corp. 8,333 536 SunAmerica, Inc. 5,000 352
Northern Trust Co. 2,800 206 ---------
Norwest Corp. 19,406 722 9,272
PNC Bank Corp. 7,680 384 INSURANCE - 4.6%
Regions Financial Corp. 5,500 203 Allstate Corp. 21,024 905
See accompanying notes to the financial statements
47
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
American International Group 26,628 $ 2,270 DRUGS - 8.2%
Aon Corp. 4,308 267 American Home Products Corp. 33,334 $ 1,625
CHUBB Group 4,294 264 Bristol-Meyer/Squibb 25,316 2,799
Cigna Corp. 5,486 400 Lilly Eli & Co. 28,194 2,282
Cincinnati Financial Corp. 4,300 160 Merck & Co. 28,442 3,847
Citigroup, Inc. 58,018 2,730 Pfizer, Inc. 33,150 3,557
Conseco, Inc. 7,957 276 Pharmacia & Upjohn, Inc. 12,861 681
General RE Corp. 1,962 431 Schering Plough Corp. 18,606 1,914
Hartford Financial Services 5,994 318 Warner-Lambert Co. 20,816 1,631
Jefferson Pilot 2,742 167 ---------
Lincoln National Corp. 2,586 196 18,336
Loews Corp. 2,893 272 MEDICAL PRODUCTS & SUPPLIES - 3.2%
Marsh & McLennan Co. 6,574 365 Abbott Labs 39,276 1,843
MGIC Investment 2,894 113 Allergan 1,654 103
Progressive Corp. 1,800 265 ALZA Corp.* 2,170 104
Provident Companies, Inc. 3,500 102 Bard C.R., Inc. 1,447 62
Safeco Corp. 3,601 156 Bausch & Lomb, Inc. 1,447 60
St. Paul Companies 6,040 200 Baxter International, Inc. 7,172 430
Torchmark Corp. 3,616 158 Becton Dickinson Co. 6,302 265
Transamerica Corp. 1,654 172 Biomet, Inc. 2,793 95
Unum Corp. 3,516 156 Boston Scientific Corp.* 4,994 272
--------- Guidant Corp. 3,832 293
10,343 Johnson & Johnson Co. 34,189 2,786
SAVINGS & LOAN - 0.3% Mallinckrodt, Inc. 1,862 53
Golden West Financial 1,547 140 Medtronic, Inc. 11,888 773
Washington Mutual, Inc. 15,027 563 St. Jude Medical 2,103 59
--------- ---------
703 7,198
--------- MEDICAL SERVICES - 0.6%
Total Common Stocks - Aetna Life and Casualty Co. 3,698 276
Finance - 16.1% 36,293 Columbia/HCA Healthcare 16,298 342
HCR Manor Care, Inc.* 2,801 91
COMMON STOCKS - HEALTH CARE Healthsouth Corp.* 10,700 130
BIO/SPECIALTY - 0.2% Humana, Inc.* 4,232 80
Amgen* 6,518 512
See accompanying notes to the financial statements
48
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
Tenet Healthcare Corp.* 7,825 $ 219 Compaq Computers Corp. 42,463 $ 1,343
United Healthcare Corp. 4,902 214 Data General Corp.* 1,331 23
--------- Dell Computer Corp.* 32,184 2,108
1,352 EMC Corp. Massachusetts* 12,682 816
--------- Gateway 2000, Inc.* 4,000 223
Total Common Stocks - Hewlett-Packard Co. 26,286 1,582
Health Care - 12.2% 27,398 IBM 23,464 3,483
Seagate Technology, Inc.* 6,171 163
COMMON STOCKS - MISCELLANEOUS Silicon Graphics, Inc.* 4,840 54
DIVERSIFIED - 0.9% Sun Microsystems* 9,704 565
Allied Signal, Inc. 14,358 559 Unisys Corp.* 6,440 171
Corning Corporation 5,787 210 ---------
3M Co. 10,342 827 13,470
Tenneco, Inc. 4,340 132 COMPUTER SOFTWARE & SERVICES - 4.8%
Textron, Inc. 4,232 315 Adobe Systems, Inc. 1,700 63
--------- Autodesk, Inc. 1,266 39
Total Common Stocks - ADP, Inc. 7,687 598
Miscellaneous - 0.9% 2,043 BMC Software, Inc.* 5,200 250
Cabletron Systems* 4,124 47
COMMON STOCKS - TECHNOLOGY Ceridian Corporation* 1,854 106
COMMUNICATION EQUIPMENT - 2.2% Computer Associates 14,244 561
Andrew Corp.* 2,236 37 Computer Sciences* 3,978 210
Ascend Communications, Inc.* 4,900 236 Electronic Data Systems 12,500 509
General Instrument Co.* 3,863 99 Equifax 3,800 147
Harris Corp. 1,962 69 First Data 11,366 301
Lucent Technologies 33,290 2,669 HBO & Co. 11,000 289
Motorola, Inc. 15,182 789 Microsoft Corp.* 60,560 6,412
Northern Telecom 16,581 710 Novell, Inc.* 8,888 132
Scientific - Atlanta, Inc. 1,962 29 Oracle Systems Corp.* 24,703 730
Tellabs, Inc.* 4,948 272 Parametric Tech Co.* 6,900 115
--------- Paychex, Inc. 4,100 204
4,910 Peoplesoft, Inc. 5,900 125
COMPUTER RELATED - 6.0% Shared Medical System 656 33
3 Com Corp.* 8,986 324 ---------
Apple Computer, Inc.* 3,401 126 10,871
Cisco Systems, Inc.* 39,514 2,489
See accompanying notes to the financial statements
49
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
ELECTRONICS - 0.3% RAILROAD - 0.5%
EG&G 1,139 $ 29 Burlington Northern Santa Fe 12,078 $ 373
Grainger WW, Inc. 2,540 117 CSX Corp. 5,571 219
Perkin-Elmer Corp. 1,285 108 Norfolk Southern Co. 9,703 320
Raytheon Co. 8,594 499 Union Pacific Corp. 6,348 302
Tektronix, Inc. 1,256 22 ---------
--------- 1,214
775 TRUCKING - 0.1%
PHOTOGRAPHY & IMAGING - 0.7% Federal Express* 3,817 201
Eastman Kodak 8,226 638 Ryder System Co. 1,916 47
Ikon Office Solution 3,455 33 ---------
Polaroid Corp. 1,166 31 248
Xerox 8,364 810 ---------
--------- Total Common Stocks -
1,512 Transportation - 1.0% 2,291
SEMICONDUCTOR - 2.3%
Advanced Micro Devices* 3,609 81 COMMON STOCKS - UTILITIES
Applied Materials, Inc.* 9,396 326 ELECTRIC - 2.6%
Intel Corp. 42,646 3,803 AES Corp.* 4,500 184
KLA-Tencor Corp.* 2,200 81 Ameren Corp. 3,532 141
LSI Logic Corp.* 3,655 55 American Electric Power Co. 4,902 240
Micron Technology, Inc. 5,471 208 Baltimore Gas & Electric 3,771 118
National Semiconductor* 4,263 54 Carolina Power & Light 3,924 180
Texas Instruments 10,012 640 Central & Southwest Corp. 5,471 152
--------- Cinergy Corp. 4,083 141
5,248 Consolidated Edison 6,041 303
--------- Dominion Resources 4,994 231
Total Common Stocks - DTE Energy Co. 3,717 158
Technology - 16.3% 36,786 Duke Power 9,148 592
Edison International 9,058 239
COMMON STOCKS - TRANSPORTATION Entergy Corp. 6,287 181
AIR TRANSPORTATION - 0.4% First Energy Corp. 6,024 181
AMR Corp.* 4,648 311 FPL Group, Inc. 4,648 291
Delta Airlines 1,916 202 General Public Utilities, Inc. 3,247 140
Southwest Airlines Co. 8,487 180 Houston Industries 7,460 232
US Airways Group, Inc.* 2,401 136 Niagara Mohawk Power 4,817 70
---------
829
See accompanying notes to the financial statements
50
<PAGE>
S&P 500 INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL
In thousands, except shares SHARES VALUE AMOUNT VALUE
----------- ---------- ------------ ---------
Northern States Power 3,808 $ 103 U.S. GOVERNMENT SECURITIES
Pacificorp 7,641 146 U.S. GOVERNMENT AGENCY - 0.2%
Peco Energy Co. 5,633 218 Federal Home Loan Mortgage Corp.
PP & L Resources, Inc. 3,832 104 5.280% due 11/12/98 $ 104 $ 104
PG & E Corp. 9,688 295 4.770% due 11/20/98 350 349
Public Service Enterprises 5,948 226 ---------
Southern, Co. 17,698 499 453
Texas Utilities Co. 7,092 310 U.S. GOVERNMENT OBLIGATIONS - 0.1%
Unicom Corp. 5,525 208 U.S. Treasury Bills
--------- 5.360% due 12/03/98 75 75
5,883 4.290% due 01/21/99 100 99
NATURAL GAS - 0.7% ---------
Coastal Corp. 5,472 193 174
Columbia Energy Group 2,111 122 ---------
Consolidated Natural Gas 2,378 126 Total U.S. Government Securities - 0.3%
Eastern Enterprises 542 22 (cost - $627) 627
Enron Corp. 8,356 441
Nicor 1,293 55 DEMAND NOTE
Oneok, Inc. 850 29 UTILITY-ELECTRIC - 0.0%
People's Energy Corp. 904 33 Wisconsin Electric
Sempra Energy 6,163 160 4.751% due 11/02/98
Sonat, Inc. 2,770 84 (cost - $22) 22 22
Williams Companies 10,858 298 ---------
--------- TOTAL INVESTMENTS - 99.9%
1,563 (cost - $171,740) 224,818
--------- Other assets, less liabilities - 0.1% 182
Total Common Stocks - Utilities - 3.3% 7,446 ---------
---------
Total Common Stocks - 99.6% TOTAL NET ASSETS - 100.0% $ 225,000
=========
(cost - $171,091) 224,169
*Non-income producing security.
</TABLE>
See accompanying notes to the financial statements
51
<PAGE>
S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR 09/03/96
ENDED ENDED THROUGH
Selected per share data 10/31/98 10/31/97 10/31/96
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period............................ $ 14.15 10.77 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... 0.25 0.21 0.02
Net realized and unrealized gain........................... 2.78 3.19 0.77
---------- ---------- ---------
Total income from investment operations......................... 3.03 3.40 0.79
LESS DISTRIBUTIONS:
Dividends from net investment income....................... 0.23 0.02 0.02
Distributions from net realized gain....................... 0.48 0.00 0.00
---------- ---------- ---------
Total distributions............................................. 0.71 0.02 0.02
---------- ---------- ---------
Net asset value, end of period................................. $ 16.47 14.15 10.77
========== ========== =========
Total return ................................................... 22.16% 31.58% 7.86%**
========== ========== =========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................... $ 225,000 118,612 25,852
Ratio to average net assets of:
Expenses, net of waivers and reimbursements................ 0.21% 0.37% 0.71%*
Expenses, before waivers and reimbursements................ 0.42% 0.49% 1.26%*
Net investment income, net of waivers
and reimbursements..................................... 1.51% 1.66% 1.60%*
Net investment income, before waivers
and reimbursements..................................... 1.30% 1.54% 1.05%*
Portfolio turnover rate......................................... 7% 13% 0%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
See accompanying notes to the financial statements
52
<PAGE>
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost - $55,810)............................ $ 60,539
Foreign currency (cost - $1,125) ............................................... 1,103
Receivable for securities sold.................................................. 604
Dividends receivable............................................................ 134
Cash............................................................................ 21
Receivable for fund shares sold................................................. 5
------------
Total Assets......................................................................... 62,406
LIABILITIES
Payable for securities purchased ............................................... 628
Accrued expenses payable........................................................ 119
Net unrealized depreciation on forward foreign currency contracts............... 86
Investment advisory fees payable................................................ 30
------------
Total Liabilities.................................................................... 863
------------
Net Assets........................................................................... $ 61,543
============
ANALYSIS OF NET ASSETS
Paid in capital................................................................. $ 57,967
Accumulated net realized loss................................................... (1,491)
Net unrealized apppreciation.................................................... 4,621
Undistributed net investment income............................................. 446
------------
Net Assets........................................................................... $ 61,543
============
Net Asset Value Per Share (based on net assets of $61,543 and 5,416 shares
issued and outstanding)......................................................... $ 11.36
============
</TABLE>
See accompanying notes to the financial statements
53
<PAGE>
INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
In thousands
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends (net of $172 for foreign taxes withheld)................................... $ 1,252
Interest............................................................................. 193
----------
Total Investment Income................................................................... 1,445
EXPENSES
Investment advisory fees............................................................. 571
Custodian fees....................................................................... 199
Fund accounting fees................................................................. 71
Fund administration fees............................................................. 30
Transfer agent fees.................................................................. 12
Registration fees.................................................................... 9
Professional fees.................................................................... 6
Trustees fees........................................................................ 2
----------
Total Expenses............................................................................ 900
Less: Fee Waiver......................................................................... 210
----------
Net Expenses.............................................................................. 690
----------
Net Investment Income..................................................................... 755
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on sale of investments and foreign currency transactions........... (1,564)
Net realized gain on forward foreign currency contracts.............................. 187
Change in net unrealized appreciation on investments and foreign currency............ 3,439
Change in net unrealized depreciation on forward foreign currency contracts.......... (184)
----------
Net realized and unrealized gain..................................................... 1,878
----------
Net Increase in Net Assets from Operations................................................ $ 2,633
==========
</TABLE>
See accompanying notes to the financial statements
54
<PAGE>
INTERNATIONAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
In thousands 10/31/98 10/31/97
-------- --------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income........................................................... $ 755 506
Net realized gain (loss)........................................................ (1,377) 1,691
Change in net unrealized appreciation........................................... 3,255 1,188
---------- ---------
Increase in net assets from operations.......................................... 2,633 3,385
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................................... (2,001) (55)
Net realized gain............................................................... (563) 0
---------- ---------
Total distributions............................................................. (2,564) (55)
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................................................... 30,278 27,669
Reinvestment of distributions................................................... 2,564 134
Cost of shares redeemed ........................................................ (24,511) (3,167)
---------- ---------
Increase in net assets from capital transactions................................ 8,331 24,636
---------- ---------
Increase in net assets............................................................... 8,400 27,966
Net assets at beginning of year...................................................... 53,143 25,177
---------- ---------
Net assets at end of year............................................................ $ 61,543 53,143
========== =========
Undistributed net investment income.................................................. $ 446 1,577
========== =========
</TABLE>
See accompanying notes to the financial statements
55
<PAGE>
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS - FOREIGN Tractabel Inv Intl Npv 1,960 $ 327
AUSTRALIA - 5.2% Union Miniere Npv 354 13
Amcor Limited 14,000 $ 58 ---------
Brambles Industries Ltd. 10,000 218 2,803
Broken Hill Proprietary Co. 41,500 351 CANADA - 2.4%
CSR Limited Ord 54,000 123 Agrium, Inc. 6,000 63
David Jones Limited 75,000 76 Alcan Aluminum Ltd. 3,600 90
Lend Lease Corp Ltd. 6,000 132 Bank of Montreal 2,400 98
National Australia Bank Lts 29,000 383 Canadian National Railway Co. 2,400 120
News Corporation Ltd. 50,152 341 Canadian Pacific Ltd 7,300 163
News Corporation Ltd. Pfd 18,140 109 Extendicare, Inc.* 5,600 29
Orica Limited 9,000 49 Hudsons Bay Co. 4,500 57
Pacific Dunlop 41,000 73 Imasco Ltd. 3,600 67
QBE Insurance 25,855 102 Imperial Oil Ltd. 7,800 123
Qantas Airways Limited 40,537 69 Magna International 1,000 62
Rio Tinto Limited 9,700 121 Newbridge Networks Corp.* 2,400 49
Santos Limited 38,300 112 Northern Telecom Ltd. 600 26
Telstra Corporation 103,500 409 Nova Corp. 1,816 25
Westpac Bank 48,000 291 Potash Corp. 1,000 69
WMC Limited 33,000 111 Royal Bank of Canada 2,900 133
Woolworths Ltd. 15,000 53 Seagram Co. Ltd. 1,400 46
--------- Shaw Communications, Inc. 5,300 106
3,181 Trans Canada Pipeline 7,580 114
BELGIUM - 4.6% Westcoast Energy 2,200 43
Delhaize-Le Lion 3,080 263 ---------
Electrabel Cap 1,490 550 1,483
Fortis Ag 2,505 720 DENMARK - 0.6%
Fortis Ag - Strip Vvpr 75 0 Den Danske Bank 1,200 163
Groupe Bruxelles Lambert 880 163 Tele Danmark 1,700 185
KBC Bancassurance Holding 5,634 393 ---------
KBC Bankverzekerin Strip 70 0 348
Petrofina Sa 475 177 FINLAND - 2.9%
Solvay Sa 2,510 197 Merita Ltd 33,500 179
Nokia Ab 14,800 1,347
Rauma Oy 1 0
See accompanying notes to the financial statements
56
<PAGE>
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
Sampo Insurance Co. 2,300 $ 72 BMW Ag 220 $ 155
Upm-Kymmene Oy 8,800 210 BMW Ag Rights 51 35
--------- Commerzbank Ag 1,560 47
1,808 Continental Ag 5,550 147
FRANCE - 8.9% Daimler Benz Ag 3,557 276
Alcatel-Alsthom 1,990 222 Deutsche Bank Ag 5,290 329
Axa Uap 2,770 313 Deutsche Telekom Ag 15,200 414
Banque Nationale De Paris 3,326 211 Dresdner Bank Ag 7,000 273
Carrefour 280 186 Hoechst Ag 2,750 115
Clf - Dexia France 1,470 217 Man Ag 390 127
Compagnie De Saint-Gobain 1,505 223 Mannesmann Ag 3,700 364
Eridania Beghin Say Sa 580 104 Metro Ag 4,450 274
France Telecom Sa 4,130 288 Muenchener Rueckver Ag 1,110 508
Gruope Danone 840 222 Preussag Ag 300 111
L'Air Liquide 1,223 205 Rwe Ag 3,920 213
Lagardere SCA 4,980 200 Sap Ag 200 84
Michelin (Cgde) 3,941 162 Schering Ag 2,000 236
Paribas 2,080 153 Siemens Ag 9,370 563
Pechiney Sa 2,697 93 Veba Ag 7,320 409
Peugeot Sa 1,340 223 Volkswagen Ag 4,300 323
Pinault Printemps Redoute Sa 1,000 167 ---------
Rhone-Poulenc 5,762 263 6,361
Seita 5,330 317 ITALY - 3.7%
Soc Natl Elf Aquit 2,240 259 Assicurazioni Generali 13,092 469
Societe Generale 1,417 187 Danieli Risp (Savings) 21,000 81
Suez Lyonnaise Des Eaux 2,196 393 Ente Nazionale Idrocarburi 71,000 423
Thomson CSF 4,310 150 Instituto Bancario San Paolo 9,000 132
Total Sa 1,960 226 Instituto Mobiliare Italinao 10,000 154
Vivendi 2,070 473 Montedison 131,300 130
--------- Rinascente 11,800 114
5,457 Telecom Italia Spa 35,665 258
GERMANY - 10.3% Tim Spa 47,000 273
Allianz Ag 2,628 901 Uncredito Italiano Spa 50,000 269
Bayer Ag 11,240 457 ---------
2,303
See accompanying notes to the financial statements
57
<PAGE>
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
JAPAN - 14.3% Sekisui House Ltd. 19,000 $ 189
Acom Co Ltd. 2,000 $ 112 Shin-Etsu Chemical Co. 4,000 80
Amada Co. 21,000 126 Sony Corp. 4,200 267
Bridgestone Corp. 2,000 44 Sumitomo Chemical Co. 25,000 84
Canon, Inc. 16,000 303 Sumitomo Electric 17,000 188
Cannon Sales Co., Inc. 7,000 93 Takeda Chemical 12,000 390
Citizen Watch Co. 18,000 99 TDK Corp. 3,000 198
Dai Nippon Printing Co., Ltd. 18,000 277 Tokio Marine & Fire 19,000 216
Daiichi Pharm Co. 16,000 267 Toray Industries, Inc. 53,000 246
Daikin Industries 21,000 166 Toshiba Corp. 49,000 230
Daiwa House 11,000 124 Toyo Suisan Kaisha 11,000 73
Denso Corporation 16,000 301 Toyota Motor Corporation 13,000 312
Fanuc Co. 7,900 237 Yamato Transport Co. Ltd. 7,000 84
Fuji Photo Film 4,000 147 --------
Fujitsu Ltd. 11,000 117 8,779
Honda Motor Co. 9,000 270 MALAYSIA - 0.0%
Hoya Corp. 4,000 171 Malayan Banking 6,000 5
Ito-Yokado Co Ltd. 8,000 467 Nestle (Malaysia) Bhd 4,000 10
Kao Corp. 2,000 40 --------
Kaneka Corp. 21,000 154 15
Kirin Brewery Co Ltd. 21,000 229 NETHERLANDS - 5.7%
Kokuyo 6,000 80 Abn-Amro Holdings 11,860 222
Kuraray Co., Ltd. 24,000 256 Akzo Nobel 2,900 113
Kyocera Corp. 2,000 88 Elsevier 23,700 334
Marui Co. 10,000 174 Heineken Nv 5,700 304
Matsushita Electric Indl Co. 23,000 338 ING Groep 13,955 675
Ngk Insulators 32,000 356 KLM 146 4
Nintendo 2,100 178 Koninklijke Kpn Nv 7,381 287
Nippon Meat Packer 14,000 195 Philips Electronics 2,800 149
Omron Corp. 6,000 59 Royal Dutch Petroleum 22,100 1,067
Sankyo Co Ltd. 14,000 316 Unilever 4,600 341
Secom 5,000 371 --------
Sega Enterprises 3,000 67 3,496
NEW ZEALAND - 3.3%
Auckland Intl Airport Ltd. 64,000 66
Brierley Investments Ltd. 447,800 102
See accompanying notes to the financial statements
58
<PAGE>
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
Carter Holt Harvey Ltd. 180,500 $ 147 Julius Baer Holding Ag 60 $ 184
Fletcher Challenge Building 69,300 92 Nestle Sa 421 895
Fletcher Challenge Energy 76,500 141 Novartis 780 1,405
Fletcher Challenge Paper 137,700 87 Roche Holding Ag 92 1,073
Fletcher Forestry Shares 40,480 14 Schw Ruckversicherungs 188 419
Lion Nathan Ltd. 72,400 190 SwissCom 84 29
Telecom Corp. of New Zealand 296,600 1,217 ---------
--------- 4,784
2,056 UNITED KINGDOM - 23.7%
NORWAY - 0.4% Abbey National Ord 16,000 311
Norsk Hydro Asa 3,200 139 Allied Zurich Plc 30,500 365
Norske Skogindustrier Asa 4,800 137 Barclays Plc 20,000 431
--------- Bass Plc 8,482 103
276 Billiton Plc 89,000 218
SINGAPORE - 0.6% BOC Group Plc 22,000 323
Singapore Press Hds 28,932 249 Booker Plc 36,000 75
UTD Overseas Bank 29,000 136 Boots Co. Ord 23,000 345
--------- British American Tobacco 21,500 194
385 British Petroleum Ord 57,712 848
SWEDEN - 2.9% British Sky Broadcasting 4,500 37
Abb As 9,340 99 British Steel Plc 217,000 372
Astra As 12,360 200 British Telecommunications 58,000 750
Drott Ab 2,700 21 Cable and Wireless Ord 15,000 168
Electrolux Ab 8,990 135 Charter Plc 37,846 189
Ericsson Lm 15,060 339 Coats Viyella Plc 165,000 86
Investor Ab 3,800 148 Diageo Plc 28,920 312
Nordbanken Holding Ab 30,200 181 Fairview Holdings Plc 22,750 31
Skandia Forsakrings Ab 11,140 142 Fki Plc 93,000 196
Skanska As 2,700 89 General Electric Co. 53,000 424
Svenska Handelsbanken 3,050 128 Glaxo Holdings Ord 31,500 979
Swedish Match Ab 36,400 128 Greenalls Group Plc 29,000 158
Volvo Ab 6,660 144 Hanson Plc 37,750 266
--------- Hillsdown Holdings 45,500 64
1,754 House of Fraser Plc 77,000 84
SWITZERLAND - 7.8%
Abb Ag 157 188
Credit Suisse Group 3,841 591
See accompanying notes to the financial statements
59
<PAGE>
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL
In thousands, except shares SHARES VALUE AMOUNT VALUE
----------- ---------- ------------ ---------
Hsbc Holdings Ord 20,235 $ 474 COMMERCIAL PAPER - 1.1%
Inchcape 25,000 44 RETAIL -1.1%
Jefferson Smurfit Group Plc 79,702 132 Albertson's Inc.
Lloyds TSB Group Plc 61,500 760 5.630% due 11/02/98
Marks & Spencer Plc 78,500 582 (cost - $680) 680 $ 680
Mirror Group Plc 89,000 217 ---------
National Westminster Bank Plc 18,500 313 TOTAL INVESTMENTS - 98.4%
Nycomed Amersham Plc 27,000 190 (cost - $55,810) 60,539
Peninsular & Orient Steam Nav 21,606 225
Prudential Corp. 15,000 195 Cash and other assets,
Reed International Plc 34,000 288 less liabilities - 1.6% 1,004
Rio Tinto Plc 22,000 267 ---------
RJB Mining Plc 61,000 77
Royal Sun Alliance 22,966 210 TOTAL NET ASSETS - 100.0% $ 61,543
Sainsbury (J) Plc 10,000 88 =========
Scottish Hydro-electric Plc 27,500 283 * Non-income producing security.
Sedgwick Group Plc 64,000 241
Smithkline Beecham Plc 58,000 726
Tate & Lyle Ord 38,500 226
Terranova Foods Plc 22,750 45
Tesco 106,500 301
Thames Water Plc 18,791 349
Thames Water Plc Class B 20,500 26
United News & Media Plc 18,000 199
Vodafone Group Ord 24,708 331
Williams Holding Plc 24,153 151
Yorshire Water Plc 35,000 301
---------
14,570
---------
Total Common Stocks -
Foreign - 97.3% (cost - $55,130) 59,859
</TABLE>
See accompanying notes to the financial statements
60
<PAGE>
INTERNATIONAL EQUITY FUND
INDUSTRY DIVERSIFICATION
OCTOBER 31, 1998
As a percentage of net assets
<TABLE>
<CAPTION>
<S> <C>
NON - U.S. EQUITIES
Aerospace & military technology........................................ 0.24 %
Appliances and household durable....................................... 1.45
Automobiles............................................................ 2.83
Banking................................................................ 11.64
Beverages and tobacco.................................................. 2.81
Broadcasting and publishing............................................ 3.06
Building materials and components...................................... 1.14
Business and public services........................................... 4.49
Chemicals.............................................................. 3.78
Construction and housing............................................... 0.65
Data processing and reproduction....................................... 0.68
Electrical and electronics............................................. 6.09
Electronic components.................................................. 1.37
Energy sources......................................................... 6.43
Financial services..................................................... 1.58
Food and household products............................................ 3.65
Forest products and paper.............................................. 1.28
Health and personal care............................................... 10.03
Industrial components.................................................. 2.06
Insurance.............................................................. 7.93
Leisure and tourism.................................................... 0.43
Machinery and engineering.............................................. 0.81
Merchandising.......................................................... 5.26
Metals - steel......................................................... 0.60
Metals - non ferrous................................................... 1.49
Miscellaneous materials and commodities................................ 0.00
Multi-industry......................................................... 2.20
Real estate............................................................ 0.24
Recreation and other consumer goods.................................... 0.80
Telecommunications..................................................... 8.09
Textiles and apparel................................................... 0.15
Transportation - airlines.............................................. 0.12
Transportation - road and rail......................................... 0.33
Transportation - shipping.............................................. 0.37
</TABLE>
See accompanying notes to the financial statements
61
<PAGE>
INTERNATIONAL EQUITY FUND
INDUSTRY DIVERSIFICATION
OCTOBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Utilities - electrical and gas.............................................. 3.15
Wholesale and international trade........................................... 0.20
--------
97.30
COMMERCIAL PAPER
Retail...................................................................... 1.10
--------
TOTAL INVESTMENTS................................................................ 98.40
Cash and other assets, less liabilities.......................................... 1.60 %
--------
TOTAL NET ASSETS................................................................. 100.00 %
========
</TABLE>
See accompanying notes to the financial statements
62
<PAGE>
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR 09/03/96
ENDED ENDED THROUGH
Selected per share data 10/31/98 10/31/97 10/31/96
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period........................... $ 11.34 10.20 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.17 0.11 0.02
Net realized and unrealized gain.......................... 0.40 1.05 0.21
------------ ------------ ------------
Total income from investment operations........................ 0.57 1.16 0.23
LESS DISTRIBUTIONS:
Dividends from net investment income...................... 0.43 0.02 0.03
Distributions from net realized gain...................... 0.12 0.00 0.00
------------ ------------ ------------
Total distributions............................................ 0.55 0.02 0.03
------------ ------------ ------------
Net asset value, end of period................................. $ 11.36 11.34 10.20
============ ============ ============
Total return .................................................. 5.27% 11.34% 2.32%**
============ ============ ============
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................... $ 61,543 53,143 25,177
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............... 1.15% 1.40% 1.46%*
Expenses, before waivers and reimbursements............... 1.50% 1.61% 1.46%*
Net investment income, net of waivers
and reimbursements.................................... 1.25% 1.14% 1.52%*
Net investment income, before waivers
and reimbursements.................................... 0.90% 0.93% 1.52%*
Portfolio turnover rate........................................ 45% 27% 0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
See accompanying notes to the financial statements
63
<PAGE>
REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost - $60,941)............................ $ 60,336
Receivable for securities sold.................................................. 512
Dividends receivable............................................................ 156
Receivable for fund shares sold................................................. 3
-------------
Total Assets......................................................................... 61,007
LIABILITIES
Accrued expenses payable........................................................ 12
Investment advisory fees payable................................................ 5
-------------
Total Liabilities.................................................................... 17
-------------
Net Assets........................................................................... $ 60,990
=============
ANALYSIS OF NET ASSETS
Paid in capital................................................................. $ 59,114
Accumulated net realized loss................................................... (413)
Net unrealized depreciation..................................................... (605)
Undistributed net investment income............................................. 2,894
-------------
Net Assets........................................................................... $ 60,990
=============
Net Asset Value Per Share (based on net assets of $60,990 and 5,340 shares
issued and outstanding)......................................................... $ 11.42
=============
</TABLE>
See accompanying notes to the financial statements
64
<PAGE>
REIT INDEX FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
In thousands
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends......................................................................... $ 4,127
Interest.......................................................................... 15
------------
Total Investment Income................................................................ 4,142
EXPENSES
Investment advisory fees.......................................................... 492
Fund administration fees.......................................................... 41
Fund accounting fees.............................................................. 31
Custodian fees.................................................................... 17
Transfer agent fees............................................................... 12
Professional fees................................................................. 9
Registration fees................................................................. 4
Trustees fees..................................................................... 3
Other............................................................................. 1
------------
Total Expenses......................................................................... 610
Less: Fee Waiver...................................................................... 410
------------
Net Expenses........................................................................... 200
------------
Net Investment Income.................................................................. 3,942
NET REALIZED AND UNREALIZED LOSS
Net realized loss on sale of investments.......................................... (317)
Change in net unrealized depreciation on investments.............................. (13,803)
------------
Net realized and unrealized loss.................................................. (14,120)
------------
Net Decrease in Net Assets from Operations............................................. $ (10,178)
============
</TABLE>
See accompanying notes to the financial statements
65
<PAGE>
REIT INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
In thousands 10/31/98 10/31/97
-------- --------
<S> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS
Net investment income...................................................... $ 3,942 2,825
Net realized gain (loss)................................................... (317) 598
Change in net unrealized appreciation...................................... (13,803) 12,744
------------- -------------
Change in net assets from operations....................................... (10,178) 16,167
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................................... (3,370) (639)
Net realized gain.......................................................... (690) (4)
------------- -------------
Total distributions........................................................ (4,060) (643)
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares............................................... 14,502 66,295
Reinvestment of distributions.............................................. 4,059 643
Cost of shares redeemed.................................................... (43,232) (8,253)
------------- -------------
Change in net assets from capital transactions............................. (24,671) 58,685
------------- -------------
Change in net assets............................................................ (38,909) 74,209
Net assets at beginning of year................................................. 99,899 25,690
------------- -------------
Net assets at end of year....................................................... $ 60,990 99,899
============= =============
Undistributed net investment income............................................. $ 2,894 2,322
============= =============
</TABLE>
See accompanying notes to the financial statements
66
<PAGE>
REIT INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS - REAL ESTATE Pacific Gulf Properties 10,020 $ 199
INVESTMENT TRUSTS (REITS) Penn Real Estate Invest Trust 6,755 138
APARTMENTS - 18.6% Prime Group Realty Trust 7,900 127
AMLI Residential Properties 8,345 $ 188 Rouse Co. 34,400 965
Apartment Invest & Mgmt Co. 24,213 846 Washington REIT 17,970 319
Archstone Communities Trust 71,830 1,446 ---------
Associated Estates Realty 11,470 151 3,606
Avalon Bay Communities 31,162 1,001 ENTERTAINMENT - 0.2%
Berkshire Realty Co. 18,490 166 Entertainment Properties Trust 7,000 116
BRE Properties 22,180 535
Camden Property Trust 22,394 602 HOTEL - 9.9%
Cornerstone Realty Income 21,600 232 Boykin Lodging Co. 8,700 124
Equity Residential Properties 60,699 2,549 Equity Inns, Inc. 18,325 192
Essex Property Trust, Inc. 8,305 261 Felcor Suite Hotels 33,890 799
Gables Residential Trust 12,775 336 Hospitality Properties Trust 21,465 569
Home Properties of New York 7,900 212 Innkeepers USA Trust 17,150 197
Irvine Apartment Community 9,985 262 Jameson Inns, Inc. 4,955 48
Lexford Residential Trust 4,800 85 Meristar Hospitality Corp 22,883 423
MGI Properties, Inc. 6,920 202 Patriot American Hospitality 73,198 650
Mid-America Apart Community 9,395 230 RFS Hotel Investors, Inc. 12,625 164
Post Properties, Inc. 17,795 688 Sunstone Hotel Investors, Inc. 18,845 171
Smith, Charles E. Residential 7,695 236 Starwood Lodging Trust 92,600 2,622
Summit Properties, Inc. 12,615 222 Winston Hotels 8,235 71
Town & Country Trust 7,935 120 ---------
United Dominion Realty Trust 51,985 578 6,030
Walden Residential Props, Inc. 9,135 211 MANUFACTURED HOMES - 1.7%
--------- Chateau Properties, Inc. 13,790 405
11,359 Manufact. Home Community 13,015 325
DIVERSIFIED - 5.9% Sun Communities, Inc. 8,535 285
Boston Properties, Inc. 31,900 909 ---------
Colonial Properties Trust 13,010 358 1,015
Eastgroup Properties 8,295 158 OFFICE PROPERTY - 23.8%
First Union Real Estate 15,900 92 Alexandria Real Estate Equities 6,300 168
Glenborough Realty Trust, Inc. 15,895 341 Arden Realty Group, Inc. 31,300 677
Brandywine Realty Trust 19,055 341
Carramerica Realty Corp. 33,415 752
See accompanying notes to the financial statements
67
<PAGE>
REIT INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
In thousands, except shares SHARES VALUE SHARES VALUE
----------- ---------- ------------ ---------
Cornerstone Properties 51,100 $ 792 JP Realty, Inc. 8,810 $ 184
Cousins Properties, Inc. 15,840 453 Lexington Corp. Properties 8,645 108
Crescent Real Estate 59,815 1,499 Macerich Co. 15,375 424
Duke Realty Investments, Inc. 40,760 973 Prime Retail, Inc. 20,988 203
Equity Office Properties 127,089 3,050 Simon Property Group, Inc. 83,495 2,500
Great Lakes REIT, Inc. 8,800 145 Taubman Centers, Inc. 26,480 362
Highwoods Properties, Inc. 29,420 822 Urban Shopping Centers, Inc. 8,910 294
Kilroy Realty Corp. 13,900 308 ---------
Koger Equity, Inc. 13,360 225 5,137
Liberty Property Trust 30,485 701 RESTAURANTS - 0.3%
Mack-Cali Realty Corp. 29,195 865 US Restaurant Properties 6,500 159
Parkway Properties, Inc. 5,400 154
Prentiss Properties Trust 20,000 413 SHOPPING CENTER - 14.9%
PSB Business Parks, Inc. 11,900 240 AMB Property Corp 43,100 991
Reckson Assoc Realty Corp. 20,070 455 Bradley Real Estate, Inc. 11,950 251
SL Green Realty Corp. 11,900 225 Burnham Pacific Properties 16,010 210
Spieker Properties, Inc. 32,250 1,113 Centertrust Ret. Properties, Inc. 11,630 127
Tower Realty Trust, Inc. 8,500 172 Developers Diversified 28,700 542
--------- Federal Realty Investment Trust 20,060 454
14,543 First Washington Realty Trust 4,400 100
OUTLET CENTERS - 1.1% Glimcher Realty Trust 11,850 192
Chelsea GCA Realty, Inc. 7,795 268 IRT Property Co. 16,680 171
Konover Property Trust* 7,100 49 JDN Realty Corp. 15,505 330
Mills Corp. 11,645 253 Kimco Realty Corp. 28,550 1,137
Tanger Factory Outlet Center 4,000 88 Kranzco Realty Trust 5,330 79
--------- Mid Atlantic Realty Trust 7,300 93
658 New Plan Excel Realty Trust 44,022 1,002
PRISONS - 0.4% Pan Pacific Retail Properties 10,600 198
CCA Prison Realty Trust 10,800 254 Ramco - Gershenson Prop. 3,600 57
Regency Realty Corp. 12,805 295
REGIONAL MALL - 8.4% Saul Centers, Inc. 6,395 102
CBL & Associates Properties 12,125 316 Vornado Realty Trust 41,778 1,407
Crown American Realty 13,265 106 Weingarten Realty Investment 13,365 594
General Growth Industries 18,005 640
See accompanying notes to the financial statements
68
<PAGE>
REIT INDEX FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
PRINCIPAL
In thousands, except shares SHARES VALUE AMOUNT VALUE
----------- ---------- ------------ ---------
Western Investment REIT 8,745 $ 113 U.S. GOVERNMENT SECURITIES
Westfield America, Inc. 36,800 633 U.S. GOVERNMENT AGENCIES - 0.3%
--------- Federal Home Loan Mortgage Corp.
9,078 5.420% due 11/02/98 125 $ 125
STORAGE - 4.6% 5.100% due 11/09/98 100 100
Public Storage, Inc. 62,105 1,657 ---------
Shurgard Storage Centers 14,365 387 (cost - $225) 225
Sovran Self Storage, Inc. 6,220 159
Storage Trust Realty 8,095 182 DEMAND NOTE
Storage USA 13,865 422 UTILITY - ELECTRICAL -0.1%
--------- Wisconsin Electric
2,807 4.751% due 11/02/98
TRIPLE NET LEASE - 3.3% (cost - $46) 46 46
Captec Net Lease Realty, Inc. 4,800 61 ---------
Capital Automotive Reit* 12,400 175
Commercial Net Lease Realty 14,715 216 TOTAL INVESTMENTS - 98.9%
Franchise Finance Corp. 24,560 611 (cost - $60,941) 60,336
Golf Trust of America 3,900 104
National Golf Properties 6,295 179 Other assets, less liabilities - 1.1% 654
Realty Income Corp. 13,450 335 ---------
Trinet Corporate Realty Trust 12,485 359
--------- TOTAL NET ASSETS - 100.0% $ 60,990
2,040 =========
WAREHOUSE / INDUSTRIAL - 5.4%
American Industrial Properties 5,600 59 *Non-income producing security.
Bedford Property Investors 11,320 202
Cabot Industrial Trust 9,300 186
Centerpoint Properties Corp. 9,785 350
First Industrial Realty Trust 18,905 484
Meridian Industrial Trust 15,895 350
Prologis Trust 61,730 1,347
Weeks Corp. 9,795 285
---------
3,263
---------
Total Common Stocks - Real Estate
Investment Trusts - 98.5%
(cost - $60,670) 60,065
</TABLE>
See accompanying notes to the financial statements
69
<PAGE>
REIT INDEX FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR 09/03/96
ENDED ENDED THROUGH
Selected per share data 10/31/98 10/31/97 10/31/96
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period............................ $ 13.69 10.44 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income...................................... 0.68 0.41 0.10***
Net realized and unrealized gain (loss).................... (2.40) 2.99 0.34
----------- ---------- ---------
Total income (loss) from investment operations.................. (1.72) 3.40 0.44
LESS DISTRIBUTIONS:
Dividends from net investment income....................... 0.46 0.15 0.00
Distributions from net realized gain....................... 0.09 0.00 0.00
----------- ---------- ---------
Total distributions............................................. 0.55 0.15 0.00
----------- ---------- ---------
Net asset value, end of period.................................. $ 11.42 13.69 10.44
=========== ========== =========
Total return.................................................... (13.27%) 32.78% 4.40%**
=========== ========== =========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........................ $ 60,990 99,899 25,690
Ratio to average net assets of:
Expenses, net of waivers and reimbursements................ 0.24% 0.51% 1.20%*
Expenses, before waivers and reimbursements................ 0.74% 0.82% 1.20%*
Net investment income, net of waivers
and reimbursements..................................... 4.80% 4.42% 5.97%*
Net investment income, before waivers
and reimbursements..................................... 4.30% 4.11% 5.97%*
Portfolio turnover rate......................................... 50% 22% 0%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
*** Calculated based on average shares outstanding throughout the period.
70
<PAGE>
AON FUNDS
NOTES TO THE FINANCIAL STATEMENTS
1. DESCRIPTION OF ENTITY
Aon Funds (the "Trust"), a Delaware business trust organized on May 16, 1996, is
registered under the Investment Company Act of 1940, as an open-end,
diversified, management investment company. The Trust consists of six Funds: the
Money Market Fund, the Government Securities Fund, the Asset Allocation Fund,
the S&P 500 Index Fund, the International Equity Fund, and the REIT Index Fund.
There are an unlimited number of shares authorized with no par value.
The Money Market Fund of the Trust is designated as a "Money Market Fund", and
must adhere to the guidelines governing such funds as described in Rule 2a-7
under the Investment Company Act of 1940. Pursuant to that Rule, the Money
Market Fund seeks to maintain a constant net asset value of $1.00 per share on a
daily basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds used in the preparation of their financial statements.
a) Security Valuation - Securities for which quotations are readily
available are valued at the last reported sales price on the exchange or
market on which they are principally traded, or lacking any sales, at the
last available bid price on the exchange or market on which they are
principally traded. Securities for which market quotations are not available
are stated at fair value as determined in good faith under procedures
established by the Board of Trustees. Debt securities are valued by an
independent pricing service that utilizes electronic data processing
techniques, including a "matrix system", to derive evaluated bid prices.
Stock index futures are valued daily at the settlement price established
each day on the exchange on which they are traded. Forward contracts are
valued daily using quoted forward exchange rates. Investments held by the
Money Market Fund, and short-term debt instruments held by other Funds, are
stated at amortized cost which approximates fair value.
b) Investment Transactions and Income - Security transactions are accounted
for on the trade date (the date the order to buy or sell is executed).
Interest income, which includes amortization of premiums and discounts, is
recorded on the accrual basis and dividend income is recorded on the
ex-dividend date, except for foreign dividends which are recorded when the
information becomes available. Realized gains and losses on investments are
determined based on an identified cost basis.
c) Foreign Currency Translation - Investment securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars using the last reported exchange rate on the London Stock Exchange
on the day of the valuation. Purchases and sales of portfolio securities,
commitments under forward foreign currency contracts, and income receipts
are translated into U.S. dollars using the last reported exchange rate at
the close of the London Stock Exchange on the day of each transaction.
Realized and unrealized foreign exchange gains or losses on investments are
included as a component of net realized and unrealized gain or loss on the
statement of operations.
71
<PAGE>
AON FUNDS
NOTES TO THE FINANCIAL STATEMENTS
d) Distributions to Shareholders - Distributions of net investment income
and net realized gain are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign
currency transactions. Dividends are declared daily and paid monthly for the
Money Market Fund, declared and paid monthly for the Government Securities
Fund, declared and paid quarterly for the Asset Allocation Fund, and
declared and paid annually for the REIT Index Fund, the International Equity
Fund, and the S&P 500 Index Fund.
e) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
3. INCOME TAXES
Each Fund intends to qualify as a "regulated investment company" under the
provision of Sub-chapter M of the Internal Revenue Code of 1986, as amended, and
thereby, under the provisions of the income tax laws available to regulated
investment companies, be relieved of substantially all income taxes. Therefore,
no provision has been made for Federal or State income taxes. The Asset
Allocation Fund, International Equity Fund and REIT Index Fund have capital loss
carryovers of $1,190,382, $1,450,566, and $79,105, respectively, for the tax
year ended October 31, 1998 available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, they will expire
in the year 2006.
At October 31, 1998, the identified cost of investments for federal income tax
purposes was as follows:
In Thousands
Money Market Fund $ 694,930
Government Securities Fund $ 148,796
Asset Allocation Fund $ 179,904
S&P 500 Index Fund $ 171,842
International Equity Fund $ 55,928
REIT Index Fund $ 61,179
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the investment advisory agreement with Aon Advisors, Inc.
(the "Investment Advisor"), a subsidiary of Aon Corporation, investment advisory
fees will be accrued daily and paid monthly at the following annual rates,
stated as a percentage of average daily net assets:
Money Market Fund .30%
Government Securities Fund .45% of the first $100 million;
.40% of the next $100 million;
72
<PAGE>
AON FUNDS
NOTES TO THE FINANCIAL STATEMENTS
.35% of the next $100 million;
.30% of the next $100 million;
and .25% of amounts in excess of $400 million
Asset Allocation Fund .65% of the first $250 million;
.55% of the next $250 million;
and .45% of amounts in excess of $500 million
S&P 500 Index Fund .30%
International Equity Fund .95% of the first $100 million;
.90% of the next $100 million;
and .85% of amounts in excess of $200 million
REIT Index Fund .60% of the first $100 million;
.55% of the next $100 million;
and .50% of amounts in excess of $200 million
The Investment Advisor has voluntarily agreed to waive sufficient investment
advisory fees to result in a net effective annual rate of .05% of the average
daily net assets of the S&P 500 Index Fund (.10% prior to August 1, 1998), .10%
of the average daily net assets of the Money Market Fund, the Government
Securities Fund, and the REIT Index Fund, .25% of the average daily net assets
of the Asset Allocation Fund, and between .55% and .60% of the average daily net
assets of the International Equity Fund until February 28, 2000.
The Investment Advisor has also agreed to waive its fees and reimburse each Fund
to the extent total annualized expenses exceed the following amounts, stated as
a percentage of average daily net assets:
Money Market Fund 1.00%
Government Securities Fund 1.50% of the first $30 million;
and 1.25% in excess of $30 million
Asset Allocation Fund 1.25%
S&P 500 Index Fund .75%
International Equity Fund 1.75% of the first $30 million;
and 1.50% in excess of $30 million
REIT Index Fund 1.50% of the first $30 million;
and 1.25% in excess of $30 million
To assist in the administration of the Trust, the Trust has entered into an
administration agreement with Aon Securities Corporation, an affiliate of Aon
Corporation, to provide certain administrative services for the Trust. Under
this agreement, the Trust pays Aon Securities Corporation an annual fee of .05%
of the average daily net assets of each Fund.
Certain officers and trustees of the Trust are also officers and directors of
the Investment Advisor and Aon Securities Corporation. These officers and
trustees serve without direct compensation from the Trust. During the year
ending October 31, 1998, the Trust incurred expenses totaling $50,000 for
compensation of unaffiliated trustees.
73
<PAGE>
AON FUNDS
NOTES TO THE FINANCIAL STATEMENTS
5. CAPITAL SHARE TRANSACTIONS
Capital stock transactions were as follows:
<TABLE>
<CAPTION>
MONEY MARKET GOVERNMENT SECURITIES ASSET ALLOCATION
In thousands FUND FUND FUND
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 395,104 $ 395,104 3,966 $ 40,052 6,925 $ 78,647
Shares sold 6,575,729 6,575,729 5,890 60,676 5,318 72,743
Dividend reinvestments 12,754 12,754 442 4,504 377 5,130
------------- -------------- ------------ ------------- ------------ ------------
Total issued 6,588,483 6,588,483 6,332 65,180 5,695 77,873
Shares redeemed (6,217,231) (6,217,231) (344) (3,475) (2,686) (36,820)
------------- -------------- ------------ ------------- ------------ ------------
Net change in shares 371,252 371,252 5,988 61,705 3,009 41,053
------------- -------------- ------------ ------------- ------------ ------------
Balance at October 31, 1997 766,356 766,356 9,954 101,757 9,934 119,700
Shares sold 7,411,667 7,411,667 4,161 44,216 6,730 115,208
Dividend reinvestments 19,465 19,465 691 7,420 647 10,719
------------- -------------- ------------ ------------- ------------ ------------
Total issued 7,431,132 7,431,132 4,852 51,636 7,377 125,927
Shares redeemed (7,503,821) (7,503,821) (714) (7,678) (3,974) (65,772)
------------- -------------- ------------ ------------- ------------ ------------
Net change in shares (72,689) (72,689) 4,138 43,958 3,403 60,155
------------- -------------- ------------ ------------- ------------ ------------
Balance at October 31, 1998 693,667 $ 693,667 14,092 $ 145,715 13,337 $ 179,855
============= ============== ============ ============= ============ ============
S&P 500 INDEX INTERNATIONAL EQUITY REIT INDEX
FUND FUND FUND
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------ ------------- ------------ ------------
Balance at October 31, 1996 2,400 $ 25,000 2,469 $ 25,000 2,460 $ 25,100
Shares sold 7,854 92,357 2,493 27,669 5,486 66,295
Dividend reinvestments 16 182 13 134 53 643
------------- -------------- ------------ ------------- ------------ ------------
Total issued 7,870 92,539 2,506 27,803 5,539 66,938
Shares redeemed (1,888) (25,005) (288) (3,167) (700) (8,253)
------------- -------------- ------------ ------------- ------------ ------------
Net change in shares 5,982 67,534 2,218 24,636 4,839 58,685
------------- -------------- ------------ ------------- ------------ ------------
Balance at October 31, 1997 8,382 92,534 4,687 49,636 7,299 83,785
Shares sold 8,597 128,734 2,657 30,278 1,068 14,502
Dividend reinvestments 427 6,123 238 2,564 296 4,059
------------- -------------- ------------ ------------- ------------ ------------
Total issued 9,024 134,857 2,895 32,842 1,364 18,561
Shares redeemed (3,743) (60,248) (2,166) (24,511) (3,323) (43,232)
------------- -------------- ------------ ------------- ------------ ------------
Net change in shares 5,281 74,609 729 8,331 (1,959) (24,671)
------------- -------------- ------------ ------------- ------------ ------------
Balance at October 31, 1998 13,663 $ 167,143 5,416 $ 57,967 5,340 $ 59,114
============= ============== ============ ============= ============ ============
</TABLE>
74
<PAGE>
AON FUNDS
NOTES TO THE FINANCIAL STATEMENTS
6. INVESTMENTS
Investment transactions for the year ended October 31, 1998, including
maturities and excluding short-term investments, were as follows:
PROCEEDS
In Thousands PURCHASES FROM SALES
-------------- --------------
Government Securities Fund $ 299,520 255,879
Asset Allocation Fund $ 189,071 126,060
S&P 500 Index Fund $ 88,860 12,957
International Equity Fund $ 34,057 25,348
REIT Index Fund $ 40,473 65,126
Gross unrealized appreciation and gross unrealized depreciation of investments
at October 31, 1998, were as follows:
<TABLE>
<CAPTION>
GOVERNMENT ASSET S&P 500 INTERNATIONAL REIT
In Thousands SECURITIES ALLOCATION INDEX EQUITY INDEX
FUND FUND FUND FUND FUND
----------------------------- --------------------------- ------------
<S> <C> <C> <C> <C> <C>
Gross unrealized appreciation $ 5,318 41,492 60,529 10,794 5,639
Gross unrealized depreciation (13) (10,942) (7,451) (6,065) (6,244)
-------------- ------------ ------------- ------------ ------------
Net unrealized appreciation (depreciation) $ 5,305 30,550 53,078 4,729 (605)
============== ============ ============= ============ ============
</TABLE>
7. WRITTEN COVERED CALL OPTIONS
The Asset Allocation Fund and S&P 500 Index Fund engage in portfolio hedging
with respect to declining stock and futures prices by writing covered call
options. The premiums received when a covered call option is written provide a
partial hedge against declining prices and enable each Fund to generate a higher
return. Transactions in options for the year ended October 31, 1998, were as
follows:
<TABLE>
<CAPTION>
ASSET ALLOCATION S&P 500 INDEX
FUND FUND
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
------------ ------------- ------------ ------------
<C> <C> <C> <C>
Options outstanding, beginning of year 200 $ 121,696 0 $ 0
Options written 0 0 20 94,895
Options expired (200) (121,696) 0 0
Options closed 0 0 (20) (94,895)
Options assigned 0 0 0 0
------------ ------------- ------------ ------------
Options outstanding, end of year 0 $ 0 0 $ 0
============ ============= ============ ============
</TABLE>
75
<PAGE>
AON FUNDS
NOTES TO THE FINANCIAL STATEMENTS
8. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund engages in portfolio hedging with respect to
changes in currency exchange rates by entering into forward foreign currency
contracts to purchase or sell currencies. Forward foreign currency contracts are
also used to achieve currency allocation strategies. A forward foreign currency
contract is a commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. Risks associated with such contracts include
movement in the value of the foreign currency relative to the U.S. dollar and
the ability of the counterparty to perform. The unrealized gain, if any,
represents the credit risk to the Fund on a forward foreign currency contract.
Fluctuations in the value of forward foreign currency contracts are recorded
daily as net unrealized gains or losses. The Fund realizes a gain or loss upon
settlement of the contracts. The statement of operations reflects net realized
and net unrealized gains and losses on these contracts. The counterparty to all
forward foreign currency contracts, at and for the year ending October 31, 1998,
was the Fund's custodian.
The International Equity Fund had the following open forward foreign currency
contracts at October 31, 1998, settling on March 15, 1999:
<TABLE>
<CAPTION>
UNREALIZED
LOCAL CONTRACT APPRECIATION
In Thousands CURRENCY AMOUNT VALUE (DEPRECIATION)
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Forward Foreign Currency Sale Contracts:
Belgian Franc 59,700 $ 1,690 $ 1,759 $ (69)
British Pound 2,400 3,941 3,992 (51)
Finish Marks 5,400 1,037 1,079 (42)
Netherlands Guilder 600 311 324 (13)
Forward Foreign Currency Buy Contracts:
Australian Dollar 1,380 864 860 (4)
Canadian Dollar 1,100 719 711 (8)
Danish Kroner 1,600 244 255 11
Italian Lira 915,000 538 560 22
Portuguese Escudo 66,400 378 393 15
Spanish Peseta 260,000 1,784 1,851 67
Swedish Krona 17,900 2,314 2,300 (14)
------------
Total $ (86)
============
</TABLE>
76
<PAGE>
AON FUNDS
NOTES TO THE FINANCIAL STATEMENTS
9. FUTURES CONTRACTS
The S&P 500 Index Fund invests in stock index futures contracts to rapidly
adjust exposure to the S&P 500 Index in anticipation of investing cash balances
or cash flows into the Fund in appropriate common stocks or in anticipation of
liquidating appropriate common stocks to meet expected redemption requests. The
use of stock index futures also lowers the transaction costs of the Fund. The
Fund bears the market risk arising from changes in the value of the futures
contracts. At the time the Fund enters into a futures contact, it is required to
make a margin deposit with the broker of a specified amount of cash or eligible
securities. Subsequently, as the market price of the futures contract
fluctuates, gains or losses are recorded and payments are made between the Fund
and the broker on a periodic basis. The statement of operations reflects gains
and losses as realized for closed futures contracts and as unrealized for open
futures contracts.
At October 31, 1998, the S&P 500 Index Fund had the following open futures
contracts:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
AMOUNT VALUE GAIN
------------ ------------- ------------
<S> <C> <C> <C>
Index Futures Buy Contracts
S&P 500 Index December 98; 2 contracts $ 518,010 552,600 34,590
============
</TABLE>
The value of U.S. Government Treasury Bills pledged to cover margin requirements
for open futures contracts at October 31, 1998, was $173,827.
10. DIVIDEND DESIGNATION
The Asset Allocation Fund designates $438,328 ($0.04 per share) of the dividend
paid December 31, 1997 to shareholders of record December 30, 1997, as capital
gain distribution for federal income tax purposes.
77
