Aon Funds
Annual Report
October 31, 1999
<PAGE>
December 30, 1999
[LETTERHEAD OF AON FUNDS]
Dear Fellow Shareholder:
During fiscal 1999, broad U.S. equity market returns surged, led primarily by
large capitalization stocks. Interest rates moved higher as the economy
continued to expand, notwithstanding subdued inflation. Fund 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 68% of its advisory fee
during the year, helping achieve that goal.
Thank you for your continued support.
Sincerely,
/s/ Michael A. Conway
Michael A. Conway
President
<PAGE>
Aon Funds
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TABLE OF CONTENTS
Government Securities Fund Commentary Pages 2 - 3
Asset Allocation Fund Commentary Pages 4 - 7
REIT Index Fund Commentary Pages 8 - 9
Audited Financial Statements Pages 10 - 49
Report of Independent Auditors Page 10
Money Market Fund
Statement of Assets and Liabilities Page 11
Statement of Operations Page 12
Statements of Changes in Net Assets Page 13
Schedule of Investments Pages 14 - 17
Financial Highlights Pages 18 - 19
Government Securities Fund
Statement of Assets and Liabilities Page 20
Statement of Operations Page 21
Statements of Changes in Net Assets Page 22
Schedule of Investments Page 23
Financial Highlights Pages 24 - 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 - 34
Financial Highlights Pages 35 - 36
REIT Index Fund
Statement of Assets and Liabilities Page 37
Statement of Operations Page 38
Statements of Changes in Net Assets Page 39
Schedule of Investments Pages 40 - 42
Financial Highlights Pages 43 - 44
Notes to the Financial Statements Pages 45 - 49
<PAGE>
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, 1999. The
illustration assumes that all dividends and distributions are reinvested.
Government Securities Fund
Performance of a $10,000 Investment
<TABLE>
<CAPTION>
9/3/96 10/31/96 10/31/97 10/31/98 10/31/99
<S> <C> <C> <C> <C> <C>
Lehman Brothers U.S. Government Bond Index $10,000 $10,365 $11,262 $12,532 $12,380
Government Securities Fund $10,000 $10,279 $11,189 $12,501 $12,188
</TABLE>
9/3/96 to
Comparison of Returns 1 Year 3 Years(3) 10/31/99(4)
- -------------------------------------------------------------------------------
Government Securities Fund(1) -2.50% 5.84% 21.88%
Lehman Brothers U.S. Government Bond Index(2) -1.21% 6.11% 23.80%
(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) Average annual total return.
(4) Cumulative total return. September 3, 1996 was the inception date of the
Fund.
2
<PAGE>
Aon Funds
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GOVERNMENT SECURITIES FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
U. S. interest rates increased sharply during the year ended October 31, 1999.
Fear of a resurgence in inflation from higher energy prices coupled with
continued GDP growth in the U. S. and around the world were responsible for
higher rates.
The Fund total return for the year ended October 31, 1999 was -2.50%. For
comparison, the Lehman Brothers Government Bond Fund Index returned -1.21%. The
Fund underperformance was essentially due to its longer duration compared to the
Lehman Index during this period of rising rates.
The higher rate structure currently in place suggests that GDP growth should
slow from the rapid pace of 1999. Slower growth coupled with continued
productivity gains should keep inflation from rising. Once the market becomes
less fearful of the threat of higher inflation, rates are expected to decline.
Francis P. Wren
Portfolio Manager
3
<PAGE>
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, 1999. The illustration assumes
that all dividends and distributions are reinvested.
Asset Allocation Fund
Performance of a $10,000 Investment
<TABLE>
<CAPTION>
3/3/94 10/31/94 10/31/95 10/31/96 10/31/97 10/31/98 10/31/99
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund $10,000 $10,184 $12,926 $14,356 $19,037 $19,076 $21,920
Lipper Flexible Portfolio Fund Average $10,000 $9,927 $11,697 $13,425 $16,005 $17,453 $19,816
</TABLE>
<TABLE>
<CAPTION>
3/3/94 to
Comparison of Returns 1 Year 3 Years(2) 5 Years(2) 10/31/99(3)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation Fund(1) 14.91% 15.15% 16.56% 119.20%
Lipper Flexible Portfolio Fund Average(4) 13.54% 13.86% 14.82% 98.16%
</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 Inc.
4
<PAGE>
Aon Funds
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ASSET ALLOCATION FUND
Top Ten Market Sectors
Stated as a percentage of net assets 10/31/99 4/30/99
-------- -------
Technology 14.8% 12.4%
Consumer Staples 14.5% 17.0%
Health Care 9.3% 8.8%
Capital Goods 6.7% 9.0%
Finance 5.9% 12.9%
Communication Services 5.8% 4.0%
Energy 4.8% 4.7%
Consumer Cyclical 3.9% 5.6%
Basic Materials 1.0% 1.7%
Transportation 0.0% 0.3%
Top Ten Common Stocks
Stated as a percentage of net assets 10/31/99
--------
General Electric 2.7%
Clear Channel Communications 2.2%
Time Warner, Inc. 2.1%
AMFM, Inc. 1.7%
Johnson & Johnson 1.7%
Schering-Plough Corp. 1.6%
Warner-Lambert Co. 1.5%
Merck & Co. 1.4%
Sun Microsystems 1.3%
Alltel Corp. 1.3%
Asset Allocation, as of October 31, 1999
Stated as a percentage of net assets
Common Stocks 66.7%
Short Term Investments and Other* 15.8%
Fixed Income 17.5%
* Includes short-term agency debt, commercial paper, demand notes and other net
liabilities
5
<PAGE>
Aon Funds
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ASSET ALLOCATION FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Investment Performance
The Aon Asset Allocation Fund earned a 14.91% total return compared to the
average Lipper flexible portfolio fund 13.54% return for the year ended October
31, 1999. The chart on page 4 shows the return of the Fund relative to its peer
group for various periods ending October 31,1999. In August 1999, Forbes
magazine named the Aon Asset Allocation Fund as one of its ten best buys among
asset allocation funds, based on data for the five year period ending June 30,
1999.
Asset Allocation
Over the past fiscal year, the Fund's investment in common stocks has fluctuated
in a range between approximately 55% and 75% of assets, but has favored the
upper half of this range. Our allocation to equities reflects the number of
great companies in attractive areas of the economy generating strong profits.
During this period, the percentage of the Fund's assets invested in fixed income
securities has ranged from the mid-teens to the low 30's, as we have believed
equities offer better potential total return. As the third component of our
asset allocation, we usually keep a portion of the Fund's assets in short term
investments in order to take advantage of the inevitable stock market dips,
adjust our bond portfolio duration, and to cushion some of the volatility in the
equity and fixed income markets.
Equity Selection
The Fund seeks to invest in firms which exhibit attractive operating margins and
returns on capital. We focus on cash flow, as measured by earnings before
interest and taxes ("EBITDA"). Companies which have high EBITDA margins and/or
returns on capital invested usually have proprietary characteristics in terms of
product, asset values, and market share. Fund management also pays close
attention to the way in which a company generates revenue, and looks for
companies with a growing sales base, recurring revenues, and unit growth.
Valuation is an important part of the investment decision. The Fund seeks to
acquire positions in companies at reasonable multiples of cash flow and
earnings. In the investment process, Fund management evaluates historical and
projected revenue growth, earnings, cash flow, trends in operating margins, and
the balance sheet. The objective is to build the portfolio so the historical and
projected earnings and cash flow growth rates are greater than the broader
market, while the multiple paid is below the market's P/E to growth ratio.
Equity Performance
The equity portion of the portfolio was the primary driver of the Fund's returns
this year. Those sectors which were significant contributors to performance
included Media-TV/Radio/Cable, Technology, and Communications Services.
Media constitutes a very significant area of investment for the Fund, with
investments in cable, entertainment, radio, TV, and billboards. Holdings include
Time Warner, Clear Channel
6
<PAGE>
Aon Funds
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Communications, and AMFM. These companies exhibit exactly the type of
characteristics we look for: high operating margins, great cash flows, a
steadily growing revenue base, and good management. These companies benefitted
from a strong advertising environment and synergies from consolidation.
Technology was a key component of performance. In this sector we focused on
computer hardware, software, and communications equipment. Major contributors to
performance were Sun Microsystems, EMC, and Tellabs. Sun and EMC benefitted from
the strong demand for computer servers, and data storage, respectively. Tellabs
achieved excellent returns because the demand for the Company's
telecommunications products remained much stronger than the market had
originally expected.
Communications Services was the third area of strength, as a number of firms
such as Worldcom and Alltel continued to benefit from the increased demand for
voice and data services. In other sectors, GE was a standout performer and is
currently the Fund's largest single holding. Health care provided good relative
returns.
Disappointments included the environmental service stocks, which as a group
failed to meet their business plans. Other areas of weakness were in Consumer
Staples (other than Media), where the market appeared to view the steady growth
prospects of many of these companies as boring compared to the excitement in the
Technology sector, despite fairly good earnings results. The Fund was also hurt
by being under-weighted in Technology relative to the S&P, as this sector was
the best performing in the S&P.
In terms of our industry exposure, we made some changes during the year. We cut
exposure to Financial stocks as the higher level of interest rates does not bode
well for the multiples on these stocks. We increased exposure to Technology,
particularly in the communications sector as we believe the demand to upgrade
and build out telecommunications systems will remain attractive. We also
increased exposure in Telecommunications Services as we expect continued strong
growth in demand, boosted in part by the Internet.
Fixed Income Performance
Over the past year the Fund held a blend of Treasury, agency, and corporate
bonds. The Fund benefitted from bond under-weighting relative to stocks. The
fixed income portion of the portfolio performed well in relative terms because
the portfolio duration was relatively short.
Outlook
In the coming year we expect continued growth in corporate profits. This should
lend support to stock market valuations. On the negative side, the prospect of
higher interest rates and the fact the market's advance has been so narrow is
troubling. We are hopeful the market will broaden out as there are plenty of
stocks which sell at attractive valuations in the current market.
John Lagedrost
Portfolio Manager
7
<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, 1999. The illustration assumes that all dividends and
distributions are reinvested.
REIT Index Fund
Performance of a $10,000 Investment
<TABLE>
<CAPTION>
9/3/96 10/31/96 10/31/97 10/31/98 10/31/99
<S> <C> <C> <C> <C> <C>
Morgan Stanley REIT Index $10,000 $10,482 $13,991 $12,096 $11,339
REIT Index Fund $10,000 $10,440 $13,862 $12,023 $11,265
</TABLE>
9/3/96 to
Comparison of Returns 1 Year 3 Years(3) 10/31/99(4)
- -----------------------------------------------------------------------
REIT Index Fund(1) -6.31% 2.57% 12.65%
Morgan Stanley REIT Index(2) -6.26% 2.66% 13.39%
(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) Average annual total return.
(4) Cumulative total return. September 3, 1996 was the inception date of the
Fund.
8
<PAGE>
Aon Funds
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REIT INDEX FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The REIT Index Fund total return for the year ended October 31, 1999 was -6.31%
compared to the Morgan Stanley REIT Index total return of -6.26% . REIT stock
returns in general were negatively impacted during the year by several market
conditions including fear of rising interest rates and inflation and concern
over growth in profits.
The REIT Index Fund remains fully invested in the REIT market and continues to
closely replicate the performance of the Morgan Stanley REIT Index.
Andrew T. Ward
Portfolio Manager
9
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
The Board of Trustees and Shareholders
Aon Funds --
Money Market Fund
Government Securities Fund
Asset Allocation 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 and REIT Index Fund as of October 31,
1999, 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, 1999, 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, 1999, 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
December 10, 1999
10
<PAGE>
Money Market Fund
Statement of Assets and Liabilities
October 31, 1999
In thousands, except per share data
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments, at amortized cost which approximates fair value..... $ 1,146,637
Receivable for fund shares sold.................................. 3,284
Interest receivable.............................................. 296
--------------
Total Assets.......................................................... 1,150,217
Liabilities
Dividends payable................................................ 4,823
Accrued expenses payable......................................... 391
Investment advisory fees payable................................. 161
--------------
Total Liabilities..................................................... 5,375
--------------
Net Assets............................................................ $ 1,144,842
==============
Net Asset Value Per Share (based on net assets of $1,144,842 and
1,144,842 shares issued and outstanding)......................... $ 1.00
==============
</TABLE>
See accompanying notes to the financial statements
11
<PAGE>
Money Market Fund
Statement of Operations
For the year ended October 31, 1999
In thousands
Investment Income
Interest......................................... $ 40,309
--------------
Total Investment Income............................... 40,309
Expenses
Investment advisory fees......................... 2,361
Fund administration fees......................... 394
Professional fees................................ 86
Fund accounting fees............................. 72
Custodian fees................................... 67
Trustees fees.................................... 35
Transfer agent fees.............................. 20
Registration fees................................ 13
Printing fees.................................... 4
--------------
Total Expenses........................................ 3,052
Less: Fee Waiver..................................... 1,574
--------------
Net Expenses.......................................... 1,478
--------------
Net Investment Income................................. $ 38,831
==============
See accompanying notes to the financial statements
12
<PAGE>
Money Market Fund
Statements of Changes in Net Assets
Year Year
In thousands ended ended
10/31/99 10/31/98
Change in net assets from operations
Net investment income.......................... $ 38,831 43,951
Distributions to shareholders from:
Net investment income.......................... (38,831) (43,951)
Capital share transactions
Proceeds from sale of shares................... 7,682,976 7,411,667
Reinvestment of distributions.................. 22,647 19,465
Cost of shares redeemed ....................... (7,254,448) (7,503,821)
------------ -----------
Change in net assets from capital transactions. 451,175 (72,689)
------------ -----------
Change in net assets................................ 451,175 (72,689)
Net assets at beginning of year..................... 693,667 766,356
------------ -----------
Net assets at end of year........................... $ 1,144,842 693,667
============ ===========
Undistributed net investment income................. $ 0 0
============ ===========
See accompanying notes to the financial statements
13
<PAGE>
Money Market Fund
Schedule of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Principal
In thousands Amount Value Amount Value
----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER Banking - Domestic - 2.2%
Aerospace & Defense - 3.0% Bank One Financial Corp.
International Lease Finance Corp. 5.760% due 1/31/00 $ 10,000 $ 9,854
5.180% due 11/1/99 $ 20,000 $ 20,000 First Chicago Financial Corp.
5.310% due 11/1/99 15,000 15,000 5.740% due 1/31/00 6,000 5,913
-------- US Bancorp
35,000 5.300% due 11/22/99 10,000 9,969
Auto & Truck - 5.1% ---------
25,736
Ford Motor Credit Banking - International - 2.2%
5.150% due 12/3/99 7,000 6,968 Canadian Imperial
5.230% due 12/16/99 10,000 9,935 5.320% due 11/15/99 10,000 9,979
5.300% due 12/31/99 9,000 8,920 5.320% due 12/23/99 15,000 14,885
5.350% due 1/18/00 8,000 7,907 ---------
24,864
General Motors Acceptance Corp. Beverages - 1.1%
5.780% due 1/19/00 25,000 24,683 Coca-Cola Company
-------- 5.270% due 12/14/99 13,000 12,918
58,413
Asset Backed Securities - 8.3% Chemicals Manufacturing - 5.3%
Asset Securitization Corp. E.I. DuPont de Nemours
5.230% due 11/5/99 15,000 14,991 5.300% due 12/17/99 25,000 24,831
5.330% due 12/3/99 5,000 4,976 Nalco Chemical Company
5.950% due 1/27/00 10,000 9,856 5.320% due 11/2/99 4,462 4,461
Corporate Asset Funding Co. 5.300% due 11/4/99 11,000 10,995
5.170% due 11/10/99 5,000 4,994 5.310% due 11/8/99 10,000 9,990
5.950% due 1/14/00 5,000 4,939 5.330% due 11/24/99 10,000 9,966
5.460% due 1/24/00 15,000 14,791 ---------
6.000% due 1/24/00 5,000 4,930 60,243
Communications Equipment - 2.0%
Preferred Receivables Funding Corp. Motorola Credit Co.
5.390% due 11/2/99 5,000 4,999 5.300% due 12/23/99 15,000 14,885
5.360% due 12/3/99 10,000 9,952 5.950% due 1/21/00 8,700 8,583
5.380% due 12/7/99 5,000 4,973 ---------
6.100% due 1/12/00 10,000 9,878 23,468
5.780% due 1/25/00 5,000 4,932
--------
94,211
See accompanying notes to the financial statements
14
<PAGE>
Money Market Fund
Schedule of Investments
October 31, 1999
Principal Principal
In thousands Amount Value Amount Value
----------- ------- ----------- -------
Computers - 0.9% Food Producers - 7.2%
IBM Credit Campbell Soup Co.
5.720% due 1/20/00 $ 10,000 $ 9,873 5.290% due 12/21/99 $ $20,000 $ 19,853
Dean Foods Co.
Drugs - 2.1% 5.280% due 11/3/99 2,500 2,499
American Home Products 5.340% due 11/8/99 6,000 5,994
6.070% due 1/21/00 10,000 9,865 5.350% due 11/30/99 10,000 9,957
5.980% due 2/4/00 15,000 14,763 5.330% due 12/13/99 10,000 9,938
-------- 5.950% due 2/22/00 5,000 4,907
24,628 Sara Lee Corp
Electrical Equipment - 3.5% 5.280% due 11/8/99 20,000 19,979
General Electric Capital Corp. 5.270% due 11/12/99 10,000 9,984
5.310% due 12/8/99 5,000 4,973 ---------
5.310% due 12/9/99 10,000 9,944 83,111
5.130% due 12/10/99 5,000 4,972 Insurance - 9.8%
5.310% due 12/13/99 5,000 4,969 Aegon Funding Corp.
Emerson Electric Co. 5.720% due 2/15/00 7,000 6,882
5.270% due 1/18/00 15,000 14,829 5.870% due 2/15/00 15,000 14,741
-------- American General Corporation
39,687 5.320% due 11/1/99 16,000 16,000
Finance - 7.8% 5.320% due 12/9/99 15,000 14,916
American Express 5.330% due 12/16/99 10,000 9,933
5.220% due 11/1/99 10,000 10,000 Lincoln National Corp.
5.210% due 11/8/99 20,000 19,980 5.280% due 11/17/99 25,000 24,941
5.120% due 12/17/99 10,000 9,935 Prudential Funding Corp.
Associates Corp North America 5.300% due 11/4/99 5,000 4,998
5.200% due 12/14/99 5,000 4,969 5.160% due 12/2/99 5,000 4,978
5.270% due 12/15/99 5,000 4,968 5.310% due 12/8/99 10,000 9,945
Associates First Capital Corp. 6.030% due 1/21/00 5,000 4,932
5.310% due 12/20/99 15,000 14,892 ---------
Household Finance Corp. 112,266
5.310% due 12/10/99 15,000 14,914
5.300% due 1/3/00 10,000 9,907
--------
89,565
See accompanying notes to the financial statements
15
<PAGE>
Money Market Fund
Schedule of Investments
October 31, 1999
Principal Principal
In thousands Amount Value Amount Value
----------- ------- ----------- -------
Oil & Gas Integrated - 3.4% Bell Atlantic Financial
Exxon Corporation 5.310% due 11/3/99 $ 10,000 $ 9,997
5.230% due 12/29/99 $ 8,000 $ 7,933 5.290% due 11/18/99 10,000 9,975
5.230% due 12/30/99 20,000 19,829 5.300% due 11/29/99 10,000 9,959
Mobil Corporation Bell South Capital Funding Corp.
5.300% due 11/8/99 11,043 11,032 5.230% due 11/2/99 10,000 9,999
-------- 5.250% due 11/2/99 10,000 9,999
38,794 5.260% due 11/3/99 5,352 5,350
Photography - 2.2% 5.500% due 1/10/00 5,000 4,946
Eastman Kodak Company ---------
5.330% due 11/19/99 20,000 19,947 86,291
5.820% due 1/20/00 5,000 4,935 Trucks & Parts - 0.9%
-------- Paccar Finance Co.
24,882 5.200% due 11/5/99 5,000 4,997
Printing & Publishing - 4.2% 5.250% due 11/10/99 5,000 4,993
Gannett Co., Inc. ---------
5.850% due 1/14/00 10,000 9,880 9,990
McGraw Hill Cos, Inc. Utilities - Electric - 5.9%
5.300% due 11/9/99 20,000 19,976 Alliant Energy Corp.
5.300% due 11/22/99 8,120 8,095 5.320% due 11/12/99 5,000 4,992
Times Mirror Co. 5.790% due 1/31/00 20,000 19,707
5.250% due 11/8/99 10,000 9,990 IPALCO Enterprises
-------- 5.350% due 11/16/99 5,000 4,989
47,941 5.340% due 11/30/99 10,000 9,957
Retail - 3.5% 5.750% due 1/28/00 13,000 12,817
May Department Stores 6.010% due 1/28/00 5,000 4,927
5.280% due 11/29/99 15,000 14,938 Northern States Power Co.
Wal-Mart Stores, Inc. 5.900% due 1/28/00 10,000 9,856
5.290% due 11/8/99 10,000 9,990 ---------
5.300% due 11/15/99 15,000 14,969 67,245
-------- ---------
39,897
Telecommunication - 7.5% Total Commercial Paper - 88.1% 1,009,023
AT&T Capital Corp.
5.280% due 11/15/99 15,000 14,969
5.300% due 12/9/99 11,159 11,097
See accompanying notes to the financial statements
16
<PAGE>
Money Market Fund
Schedule of Investments
October 31, 1999
Principal Principal
In thousands Amount Value Amount Value
----------- ------- ----------- -------
U.S. GOVERNMENT SECURITIES CERTIFICATES OF DEPOSIT
U.S. Government Agencies - 11.4% Banking - Domestic - 0.4%
Federal Home Loan Bank Huntington National Bank
5.160% due 11/1/99 $ 24,000 $ 24,000 4.900% due 1/6/00 $ 2,000 $ 2,000
5.220% due 11/4/99 25,000 24,989 National City Bank
5.250% due 12/2/99 20,000 19,910 5.100% due 2/14/00 2,000 2,000
5.230% due 12/17/99 24,096 23,935 ---------
4.900% due 1/14/00 10,000 10,000
5.000% due 2/24/00 10,000 9,997 Total Certificates of Deposit - 0.4% 4,000
--------
112,831 REPURCHASE AGREEMENTS - 0.3%
Federal National Mortgage Association Nesbitt Burns*
5.200% due 11/10/99 10,000 9,987 4.950% due 11/1/99 3,836 3,836
5.230% due 12/10/99 7,000 6,960 ---------
--------
16,947 TOTAL INVESTMENTS - 100.2% 1,146,637
--------
Total U.S. Government Securities - 11.4% 129,778 Liabilities, less other assets - (0.2%) (1,795)
---------
TOTAL NET ASSETS - 100.0% $1,144,842
==========
</TABLE>
* Collateralized by U.S. Treasury Note (5.750% due August 15, 2003); held by
custodian
See accompanying notes to the financial statements
17
<PAGE>
Money Market Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
Selected per share data 10/31/99 10/31/98 10/31/97
---------- ---------- ----------
<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 ....................................... 5.03% 5.54% 5.44%
========== ========== ==========
Ratios and supplemental data:
Net assets, end of year (in thousands).............. $1,144,842 693,667 766,356
Ratio to average net assets of:
Expenses, net of waivers and reimbursements.... 0.19% 0.20% 0.22%
Expenses, before waivers and reimbursements.... 0.39% 0.40% 0.40%
Net investment income, net of waivers
and reimbursements.......................... 4.93% 5.40% 5.34%
Net investment income, before waivers
and reimbursements.......................... 4.73% 5.20% 5.16%
</TABLE>
See accompanying notes to the financial statements
18
<PAGE>
Money Market Fund
Financial Highlights (continued)
<TABLE>
<CAPTION>
Year Year
ended ended
Selected per share data 10/31/96 10/31/95
---------- ----------
<S> <C> <C>
Net asset value, beginning of year.................................. $ 1.00 1.00
Income from investment operations:
Net investment income.......................................... 0.05 0.06
Net realized and unrealized gain............................... 0.00 *
---------- ----------
Total income from investment operations............................. 0.05 0.06
Less distributions:
Dividends from net investment income........................... 0.05 0.06
Distributions from net realized gain........................... 0.00 *
---------- ----------
Total distributions................................................. 0.05 0.06
---------- ----------
Net asset value, end of year........................................ $ 1.00 1.00
========== ==========
Total return........................................................ 5.43% 5.93%
========== ==========
Ratios and supplemental data:
Net assets, end of year (in thousands).............................. $ 395,104 420,094
Ratio to average net assets of:
Expenses, net of waivers and reimbursements.................... 0.23% 0.14%
Expenses, before waivers and reimbursements.................... 0.46% 0.39%
Net investment income, net of waivers and reimbursements....... 5.30% 5.79%
Net investment income, before waivers and reimbursements....... 5.07% 5.54%
- ------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1 cent per share
See accompanying notes to the financial statements
19
<PAGE>
Government Securities Fund
Statement of Assets and Liabilities
October 31, 1999
In thousands, except per share data
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments in securities, at value (cost - $161,623)...... $ 152,321
Interest receivable........................................ 2,741
Receivable for fund shares sold............................ 819
-----------
Total Assets.................................................... 155,881
Liabilities
Dividends payable.......................................... 727
Accrued expenses payable................................... 81
Due to custodian........................................... 40
Investment advisory fees payable........................... 26
Payable for fund shares redeemed........................... 3
-----------
Total Liabilities............................................... 877
-----------
Net Assets...................................................... $ 155,004
===========
Analysis of Net Assets:
Paid in capital............................................ $ 162,602
Accumulated net realized gain.............................. 1,649
Net unrealized depreciation................................ (9,302)
Undistributed net investment income........................ 55
-----------
Net Assets...................................................... $ 155,004
===========
Net Asset Value Per Share (based on net assets of $155,004 and
15,637 shares issued and outstanding)...................... $ 9.91
</TABLE>
See accompanying notes to the financial statements
20
<PAGE>
Government Securities Fund
Statement of Operations
For the year ended October 31, 1999
<TABLE>
<CAPTION>
In thousands
<S> <C>
Investment Income
Interest................................................. $ 9,082
----------
Total Investment Income....................................... 9,082
Expenses
Investment advisory fees................................. 698
Fund administration fees................................. 81
Fund accounting fees..................................... 53
Professional fees........................................ 17
Registration fees........................................ 13
Custodian fees........................................... 13
Transfer agent fees...................................... 13
Trustees fees............................................ 7
Other.................................................... 1
----------
Total Expenses................................................ 896
Less: Fee Waiver............................................. 535
----------
Net Expenses.................................................. 361
----------
Net Investment Income......................................... 8,721
Net Realized and Unrealized Gain (Loss)
Net realized gain on sale of investments................. 1,649
Change in net unrealized depreciation on investments..... (14,607)
----------
Net realized and unrealized (loss)....................... (12,958)
----------
Net Decrease in Net Assets from Operations.................... $ (4,237)
==========
</TABLE>
See accompanying notes to the financial statements
21
<PAGE>
Government Securities Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
ended ended
In thousands 10/31/99 10/31/98
---------- ----------
<S> <C> <C>
Change in net assets from operations
Net investment income.............................. $ 8,721 7,440
Net realized gain ................................. 1,649 5,706
Change in net unrealized appreciation.............. (14,607) 2,243
---------- ----------
Change in net assets from operations............... (4,237) 15,389
Distributions to shareholders from:
Net investment income.............................. (8,695) (7,420)
Net realized gain.................................. (5,263) 0
---------- ----------
Total distributions................................ (13,958) (7,420)
Capital share transactions
Proceeds from sale of shares....................... 17,389 44,216
Reinvestment of distributions...................... 13,958 7,420
Cost of shares redeemed............................ (14,460) (7,678)
---------- ----------
Change in net assets from capital transactions..... 16,887 43,958
---------- ----------
Change in net assets.................................... (1,308) 51,927
Net assets at beginning of year......................... 156,312 104,385
---------- ----------
Net assets at end of year............................... $ 155,004 156,312
========== ==========
Undistributed net investment income..................... $ 55 29
========== ==========
</TABLE>
See accompanying notes to the financial statements
22
<PAGE>
Government Securities Fund
Schedule of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Principal
In thousands Amount Value Amount Value
----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES U.S. Treasury Bonds
U.S. Government Agencies - 48.6% 7.500% due 11/15/16 $ 5,000 $ 5,517
A.I.D. Israel 8.125% due 5/15/21 20,000 23,725
5.250% due 9/15/00 $ 5,700 $ 5,663 5.250% due 2/15/29 20,000 17,300
5.890% due 8/15/05 6,500 6,267 ---------
-------- 46,542
11,930
Federal Home Loan Mortgage Corp. U.S. Treasury Inflation Index Security
5.950% due 1/19/06 5,000 4,845 3.875% due 4/15/29 10,151 9,720
5.750% due 3/15/09 10,000 9,344 ---------
6.625% due 9/15/09 10,000 9,944
-------- Total U.S. Government Obligations 77,018
24,133 ---------
Federal National Mortgage Association
4.750% due 11/14/03 10,000 9,412 Total U.S. Government Securities - 98.3% 152,314
5.750% due 6/15/05 3,000 2,898 (cost - $161,616)
5.750% due 2/15/08 20,000 18,847
-------- DEMAND NOTE
31,157 Utility-Electric - 0.0%
Private Export Funding Corp. Wisconsin Electric Demand No
6.310% due 9/30/04 6,000 5,957 4.993% due 11/1/99
Small Business Administration (cost - $7) 7 7
6.000% due 7/25/13 2,119 2,119 ---------
-------- TOTAL INVESTMENTS - 98.3%
(cost - $161,623) 152,321
Total U.S. Government Agency 75,296
U.S. Government Obligations - 49.7% Other assets, less liabilities - 1.7% 2,683
U.S. Treasury Note ---------
6.875% due 5/15/06 20,000 20,756
TOTAL NET ASSETS - 100.0% $ 155,004
=========
</TABLE>
See accompanying notes to the financial statements
23
<PAGE>
Government Securities Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Year
ended ended
Selected per share data 10/31/99 10/31/98
---------- ----------
<S> <C> <C>
Net asset value, beginning of period........................... $ 11.09 10.49
Income from investment operations:
Net investment income..................................... 0.56 0.59
Net realized and unrealized gain (loss)................... (0.82) 0.60
---------- ----------
Total income (loss) from investment operations................. (0.26) 1.19
Less distributions:
Dividends from net investment income...................... 0.56 0.59
Distributions from net realized gain...................... 0.36 0.00
---------- ----------
Total distributions............................................ 0.92 0.59
---------- ----------
Net asset value, end of period................................. $ 9.91 11.09
========== ==========
Total return .................................................. (2.50%) 11.72%
========== ==========
Ratios and supplemental data:
Net assets, end of period (in thousands)....................... $ 155,004 156,312
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............... 0.22% 0.23%
Expenses, before waivers and reimbursements............... 0.55% 0.57%
Net investment income, net of waivers and reimbursements.. 5.38% 5.54%
Net investment income, before waivers and reimbursements.. 5.05% 5.20%
Portfolio turnover rate........................................ 77% 219%
</TABLE>
See accompanying notes to the financial statements
24
<PAGE>
Government Securities Fund
Financial Highlights (continued)
<TABLE>
<CAPTION>
Year 09/03/96
ended through
Selected per share data 10/31/97 10/31/96
---------- ----------
<S> <C> <C>
Net asset value, beginning of period............................. $ 10.21 10.00
Income from investment operations:
Net investment income....................................... 0.59 0.07
Net realized and unrealized gain............................ 0.28 0.21
---------- ----------
Total income from investment operations.......................... 0.87 0.28
Less distributions:
Dividends from net investment income........................ 0.59 0.07
Distributions from net realized gain........................ 0.00 0.00
---------- ----------
Total distributions.............................................. 0.59 0.07
---------- ----------
Net asset value, end of period................................... $ 10.49 10.21
========== ==========
Total return .................................................... 8.86% 2.79%**
========== ==========
Ratios and supplemental data:
Net assets, end of period (in thousands)......................... $ 104,385 40,505
Ratio to average net assets of:
Expenses, net of waivers and reimbursements................. 0.46% 0.89%*
Expenses, before waivers and reimbursements................. 0.65% 0.89%*
Net investment income, net of waivers and reimbursements.... 5.92% 5.59%*
Net investment income, before waivers and reimbursements.... 5.73% 5.59%*
Portfolio turnover rate.......................................... 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, 1999
In thousands, except per share data
Assets
Investments in securities, at value (cost - $133,686)....... $ 164,650
Receivable for securities sold.............................. 711
Interest receivable......................................... 432
Dividends receivable........................................ 85
Cash........................................................ 76
Receivable for fund shares sold............................. 18
----------
Total Assets..................................................... 165,972
Liabilities
Payable for securities purchased............................ 1,140
Payable for fund shares redeemed............................ 253
Accrued expenses payable.................................... 81
Investment advisory fees payable............................ 69
----------
Total Liabilities................................................ 1,543
----------
Net Assets....................................................... $ 164,429
==========
Analysis of Net Assets
Paid in capital............................................. $ 111,617
Accumulated net realized gain .............................. 21,551
Net unrealized appreciation................................. 30,964
Undistributed net investment income......................... 297
----------
Net Assets....................................................... $ 164,429
==========
Net Asset Value Per Share (based on net assets of $164,429 and
9,332 shares issued and outstanding)........................ $ 17.62
==========
See accompanying notes to the financial statements
26
<PAGE>
Asset Allocation Fund
Statement of Operations
For the year ended October 31, 1999
In thousands
Investment Income
Interest................................................. $ 3,114
Dividends................................................ 1,669
Other Income............................................. 7
----------
Total Investment Income....................................... 4,790
Expenses
Investment advisory fees................................. 1,248
Fund administration fees................................. 96
Fund accounting fees..................................... 47
Professional fees........................................ 21
Custodian fees........................................... 20
Transfer agent fees...................................... 15
Trustees fees............................................ 0
Other.................................................... 3
----------
Total Expenses................................................ 1,450
Less: Fee Waiver............................................. 768
----------
Net Expenses.................................................. 682
----------
Net Investment Income......................................... 4,108
Net Realized and Unrealized Gain
Net realized gain on sale of investments................. 23,038
Net realized gain on written options..................... 137
Change in net unrealized appreciation on investments..... 414
----------
Net realized and unrealized gain ........................ 23,589
----------
Net Increase in Net Assets from Operations.................... $ 27,697
==========
See accompanying notes to the financial statements
27
<PAGE>
Asset Allocation Fund
Statements of Changes in Net Assets
Year Year
In thousands ended ended
10/31/99 10/31/98
---------- ---------
Change in net assets from operations
Net investment income........................... $ 4,108 5,308
Net realized gain (loss) ....................... 23,175 (1,757)
Change in net unrealized appreciation........... 414 (8,185)
---------- ---------
Change in net assets from operations............ 27,697 (4,634)
Distributions to shareholders from:
Net investment income........................... (4,660) (4,730)
Net realized gain............................... 0 (6,046)
---------- ---------
Total distributions............................. (4,660) (10,776)
Capital share transactions
Proceeds from sale of shares.................... 13,415 115,208
Reinvestment of distributions................... 4,659 10,719
Cost of shares redeemed ........................ (86,312) (65,772)
---------- ---------
Change in net assets from capital transactions.. (68,238) 60,155
---------- ---------
Change in net assets................................. (45,201) 44,745
Net assets at beginning of year...................... 209,630 164,885
---------- ---------
Net assets at end of year............................ $ 164,429 209,630
========== =========
Undistributed net investment income.................. $ 297 849
========== =========
See accompanying notes to the financial statements
28
<PAGE>
Asset Allocation Fund
Schedule of Investments
October 31, 1999
<TABLE>
<CAPTION>
In thousands, except shares Shares Value Shares Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
COMMON STOCKS Manufacturing - Diversified - 1.6%
Common Stocks - Basic Materials Tyco International Ltd 25,000 $ 998
Chemical - 0.5% United Technologies Corp. 28,042 1,697
PPG Industries 15,000 $ 909 ---------
2,695
Paper & Forest Products - 0.5% ---------
Fibermark, Inc.* 60,000 780 Total Common Stocks - Capital
-------- Goods - 6.7% 11,011
Total Common Stocks - Basic Common Stocks - Communication Services
Materials - 1.0% 1,689 Cellular & Wireless - 0.2%
Common Stocks - Capital Goods PanAmSat Corporation 10,000 395
Aerospace & Defense - 0.2%
Kellstrom Industries, Inc.* 33,000 272 Long Distance - 2.2%
AT&T 39,088 1,827
Construction - 0.2% MCI Worldcom, Inc.* 20,000 1,716
McDermott International 20,000 363 ---------
3,543
Container - 0.6% Telephone - 3.4%
AptarGroup, Inc. 15,000 403 Alltel Corp. 25,000 2,081
Owens-Illinois, Inc.* 25,000 598 Centurytel, Inc. 25,000 1,011
-------- Cincinnati Bell 35,000 728
1,001 SBC Communications, Inc. 34,610 1,763
Electrical Equipment - 2.7% ---------
General Electric 32,712 4,435 5,583
---------
Environmental - 1.0% Total Common Stocks - Communication
Allied Waste Industries, Inc.* 75,018 788 Services - 5.8% 9,521
Newpark Resources, Inc.* 100 645
Waste Management, Inc. 7,000 129 Common Stocks - Consumer Cyclical
-------- Commercial/Consumer Services - 0.4%
1,562 Luminant Worldwide Corp.* 17,000 665
Office Equipment - 0.4%
Pitney Bowes, Inc. 15,000 683 Printing & Publishing - 0.7%
Scholastic Corp.* 25,000 1,163
See accompanying notes to the financial statements
29
<PAGE>
Asset Allocation Fund
Schedule of Investments
October 31, 1999
In thousands, except shares Shares Value Shares Value
-------- ------- -------- -------
Leisure Time - 0.5% Household Products/Housewares - 1.0%
Premier Parks, Inc.* 30,000 $ 868 Clorox Company 25,000 $ 1,023
Newell Rubbermaid, Inc. 15,649 542
Lodging/Hotels - 0.3% ---------
Host Marriot Corp. 46,960 423 1,565
Media - TV/Radio/Cable - 8.7%
Retail - General - 0.8% AMFM, Inc.* 40,550 2,839
Dayton Hudson Corp. 20,000 1,293 AT&T - Liberty Media-A* 30,000 1,191
Canwest Global Comm Corp. 65,356 772
Retail Specialty - 1.2% Clear Channel Comms.* 45,076 3,623
Home Depot 19,774 1,493 Emmis Broadcasting Corp.* 18,000 1,298
Saks, Inc.* 25,000 430 Spanish Broadcasting Systems* 500 13
-------- Time Warner, Inc. 49,054 3,418
1,923 TV Azteca SA ADR 72,500 295
-------- Young Broadcasting Corp.* 20,500 951
Total Common Stocks - Consumer ---------
Cyclical - 3.9% 6,335 14,400
---------
Common Stocks - Consumer Staples Total Common Stocks -
Beverages - 1.1% Consumer Staples - 14.5% 23,774
Anheuser-Busch Co. 25,000 1,795
Common Stocks - Energy
Drug Stores - 1.2% Coal, Gas & Pipe - 0.4%
CVS Corporation 45,000 1,955 Talisman Energy, Inc.* 25,000 650
Entertainment - 1.3% Exploration/Drilling - 0.3%
Cinar Corporation* 35,000 608 Core Laboratories N.V.* 29,500 542
Viacom, Inc. A* 23,824 1,085
Viacom, Inc. B* 8,980 402 Oil & Gas - Domestic - 1.2%
-------- Atlantic Richfield 20,000 1,864
2,095
Food Retailers - 1.2%
Kroger Co.* 94,368 1,964 Oil & Gas International - 2.3%
Mobil Corp 20,000 1,930
Shell Transport & Trading 40,000 1,835
---------
3,765
See accompanying notes to the financial statements
30
<PAGE>
Asset Allocation Fund
Schedule of Investments
October 31, 1999
In thousands, except shares Shares Value Shares Value
-------- ------- -------- -------
Oil & Gas Service - 0.6% Drugs - 6.2%
Petroleum Geo Services ADR* 50,000 $ 731 Eli Lilly & Co. 20,000 $ 1,378
Superior Energy Services, Inc.* 50,000 313 Cardinal Health, Inc. 25,000 1,078
-------- Merck & Co. 29,516 2,348
1,044 Schering-Plough Corp. 53,808 2,663
-------- Warner-Lambert Co. 30,000 2,394
Watson Pharmaceuticals, Inc.* 10,000 318
Total Common Stocks - Energy - 4.8% 7,865 ---------
10,179
Common Stocks - Finance Medical Products & Supplies - 2.1%
Banks - 1.2% Johnson & Johnson Co. 27,016 2,830
State Street Corp. 20,000 1,523 Ocular Sciences, Inc.* 35,000 643
Texas Regional Bancshares 19,547 546 ---------
-------- 3,473
2,069 ---------
Financial Services - 1.8% Total Common Stocks -
Associates First Capital Corp. 41,516 1,515 Health Care - 9.3% 15,247
Fannie Mae 20,000 1,415
--------
2,930 Common Stocks - Technology
Insurance - 1.7% Communication Equipment - 3.3%
American International Group 18,660 1,921 ADC Telecommunications* 22,440 1,070
Citigroup, Inc. 16,500 893 L-3 Communications Hldgs* 21,700 915
-------- Lucent Technologies 20,000 1,285
2,814 Nokia Corp. 6,000 693
Real Estate/REITs - 0.5% TEKELEC* 20,000 254
Excel Legacy Corp.* 50,300 211 Tellabs, Inc.* 20,000 1,265
Health Care REIT, Inc. 31,375 561 ---------
-------- 5,482
772 Computer Related - 4.8%
Savings and Loan - 0.7% Compaq Computers Corp. 30,004 570
Washington Mutual, Inc. 31,800 1,143 Comverse Technology* 10,000 1,135
-------- EMC Corp Mass., Inc.* 26,556 1,939
Hewlett-Packard Company 8,000 592
Total Common Stocks - Finance - 5.9% 9,728 Int'L Business Machines 15,000 1,476
Sun Microsystems* 20,248 2,142
Common Stocks - Health Care ---------
Bio-Technology - 1.0% 7,854
Amgen, Inc.* 20,000 1,595
See accompanying notes to the financial statements
31
<PAGE>
Asset Allocation Fund
Schedule of Investments
October 31, 1999
Principal
In thousands, except shares Shares Value Amount Value
-------- ------- ----------- -------
Computer-Internet Related - 0.3% U.S. GOVERNMENT SECURITIES
DSL.net, Inc.* 52,250 $ 503 U.S. Government Agency - 9.4%
Federal Home Loan Mortgage Corp.
Computer Software/Services - 5.4% 5.200% due 11/1/99 $ 3,330 $ 3,330
Ceridian Corporation* 20,000 439 5.100% due 11/9/99 2,215 2,212
Citrix Systems, Inc.* 12,000 769 5.200% due 11/16/99 2,040 2,036
Compuware Corporation* 10,000 278 ---------
Concord EFS, Inc.* 20,000 541 7,578
CSG Systems Intl, Inc.* 43,400 1,489 Federal National Mortgage Association
First Data 27,677 1,264 5.235% due 12/13/99 7,995 7,946
Jack Henry & Associates 7,000 255 ---------
Microsoft Corp.* 20,000 1,851
PC-Tel, Inc.* 8,500 255 Total U.S. Government Agency 15,524
Primark Corp.* 30,000 761
Sungard Data Systems, Inc.* 40,000 978 U.S. Government Obligations - 2.0%
-------- U.S. Treasury Notes
8,880 7.750% due 1/31/00 1,508 1,518
Photography/Imaging - 0.0% 6.500% due 8/31/01 1,727 1,747
Xerox Corp. 4,000 112 ---------
Semiconductors - 1.0% Total U.S. Government Obligations 3,265
American Xtal Tech., Inc.* 5,000 65 ---------
Intel Corp. 20,000 1,549
-------- Total U.S. Government Securities - 11.4% 18,789
1,614 (cost - $18,767)
--------
Total Common Stocks - CORPORATE BONDS
Technology - 14.8% 24,445 Aerospace & Defense - 1.2%
-------- Boeing Capital Corp.
5.960% due 5/25/04 2,000 1,913
Total Common Stocks - 66.7%
(cost - $77,870) 109,615 Agricultural & Industrial Equipment - 0.6%
Case Corp.
6.750% due 10/21/07 1,000 940
See accompanying notes to the financial statements
32
<PAGE>
Asset Allocation Fund
Schedule of Investments
October 31, 1999
Principal Principal
In thousands, except shares Amount Value Amount Value
----------- ------- ----------- -------
Auto & Truck - 1.4% Machinery - 1.2%
Chrysler Finance Corp. John Deere Capital Co.
6.950% due 3/25/02 $ 1,000 $ 1,010 5.850% due 1/15/01 $ 2,000 $ 1,985
General Motors Acceptance Corp.
5.875% due 1/22/03 1,300 1,263 Metal & Mineral - 0.5%
-------- Southdown, Inc.
2,273 10.00% due 3/1/06 788 858
Bank and Bank Holding Company - 1.0%
NationsBank Corp. Non Ferrous Metal - 0.6%
7.500% due 9/15/06 1,576 1,594 Phelps Dodge
6.375% due 11/1/04 1,000 978
Communications & Media - 2.2%
PanAmSat Corporation Oil & Gas International - 0.6%
6.000% due 1/15/03 3,000 2,796 Enron Corp
Tribune Company 6.625% due 11/15/05 1,000 958
6.875% due 11/1/06 800 781
-------- Printing & Publishing - 0.9%
3,577 Times Mirror Co.
Entertainment & Leisure - 0.7% 6.650% due 10/15/01 1,500 1,502
Brunswick Corp.
6.750% due 12/15/06 300 285 Restaurants & Lodging - 0.6%
Royal Caribbean Hilton Hotels Corp.
7.000% due 10/15/07 1,000 947 7.000% due 7/15/04 1,000 949
--------
1,232 Retail - Food and Drugs - 0.6%
Food , Beverage & Tobacco - 1.8% Kroger
Canandaigua Wine 7.650% due 4/15/07 1,000 1,001
8.750% due 12/15/03 100 99
Nabisco, Inc. Waste Management Services - 0.5%
6.125% due 2/1/33 3,000 2,898 Waste Management, Inc.
-------- 6.625% due 7/15/02 1,000 918
2,997
Health Care - 0.5%
Omega Healthcare Investors
6.950% due 8/1/07 1,000 887
See accompanying notes to the financial statements
33
<PAGE>
Asset Allocation Fund
Schedule of Investments
October 31, 1999
Principal Principal
In thousands, except shares Amount Value Amount Value
----------- ------- ----------- -------
Utilities - 0.6% Utilities - Electric - 3.8%
Korea Electric Power Alliant Energy Corp.
7.000% due 10/1/02 $ 1,000 $ 975 5.200% due 11/8/99 $ 3,240 $ 3,237
--------
IPALCO Enterprises
Total Corporate Bonds - 15.5% 5.310% due 11/12/99 3,000 2,995
(cost - $26,340) 25,537 ---------
6,232
COMMERCIAL PAPER ---------
Auto Manufacturers - 0.7% Total Commercial Paper - 6.5%
Ford Motor Credit Co. (cost - $10,643) 10,643
5.327% due 11/9/99 150 150
5.230% due 12/3/99 950 950 DEMAND NOTE
-------- Utility-Electric - 0.0%
1,100 Wisconsin Electric
Asset Backed Securities - 2.0% 4.993% due 11/1/99
Preferred Receivables Funding (cost - $66) 66 66
5.250% due 11/2/99 1,350 1,350 ---------
5.000% due 11/15/99 1,965 1,961 TOTAL INVESTMENTS - 100.1%
-------- (cost - $133,686) 164,650
3,311
Liabilities, less cash and
other assets - (0.1%) (221)
---------
TOTAL NET ASSETS - 100.0% $ 164,429
=========
* Non-income producing security.
</TABLE>
See accompanying notes to the financial statements
34
<PAGE>
Asset Allocation Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
Selected per share data 10/31/99 10/31/98 10/31/97
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of year................. $ 15.72 16.60 12.75
Income from investment operations:
Net investment income......................... 0.40 0.39 0.27
Net realized and unrealized gain (loss) ...... 1.93 (0.32) 3.85
----------- ---------- ----------
Total income from investment operations............ 2.33 0.07 4.12
Less distributions:
Dividends from net investment income.......... 0.43 0.35 0.24
Distributions from net realized gain.......... 0.00 0.60 0.03
----------- ---------- ----------
Total distributions................................ 0.43 0.95 0.27
----------- ---------- ----------
Net asset value, end of year....................... $ 17.62 15.72 16.60
=========== ========== ==========
Total return....................................... 14.91% 0.21% 32.61%
=========== ========== ==========
Ratios and supplemental data:
Net assets, end of year (in thousands)............. $ 164,429 209,630 164,885
Ratio to average net assets of:
Expenses, net of waivers and reimbursements... 0.36% 0.36% 0.56%
Expenses, before waivers and reimbursements... 0.76% 0.76% 0.78%
Net investment income, net of waivers
and reimbursements......................... 2.14% 2.33% 1.90%
Net investment income, before waivers
and reimbursements......................... 1.74% 1.93% 1.68%
Portfolio turnover rate............................ 46% 64% 64%
</TABLE>
See accompanying notes to the financial statements
35
<PAGE>
Asset Allocation Fund
Financial Highlights (continued)
<TABLE>
<CAPTION>
Year Year
ended ended
Selected per share data 10/31/96 10/31/95
---------- ----------
<S> <C> <C>
Net asset value, beginning of period............................. $ 12.04 9.97
Income from investment operations:
Net investment income....................................... 0.31 0.24
Net realized and unrealized gain............................ 1.01 2.41
----------- -----------
Total income from investment operations.......................... 1.32 2.65
Less distributions:
Dividends from net investment income........................ 0.31 0.24
Distributions from net realized gain........................ 0.30 0.34
----------- -----------
Total distributions.............................................. 0.61 0.58
----------- -----------
Net asset value, end of period................................... $ 12.75 12.04
=========== ===========
Total return..................................................... 11.06% 26.92%
=========== ===========
Ratios and supplemental data:
Net assets, end of year (in thousands)........................... $ 88,280 73,775
Ratio to average net assets of:
Expenses, net of waivers and reimbursements................. 0.87% 0.96%
Expenses, before waivers and reimbursements................. 0.87% 0.96%
Net investment income, net of waivers and reimbursements.... 2.48% 2.73%
Net investment income, before waivers and reimbursements.... 2.48% 2.73%
Portfolio turnover rate.......................................... 120% 95%
</TABLE>
See accompanying notes to the financial statements
36
<PAGE>
REIT Index Fund
Statement of Assets and Liabilities
October 31, 1999
In thousands, except per share data
Assets
Investments in securities, at value (cost - $23,772)..... $ 23,809
Receivable for securities sold........................... 861
Dividends receivable..................................... 69
Receivable for fund shares sold.......................... 11
----------
Total Assets.................................................. 24,750
Liabilities
Payable for fund shares redeemed......................... 1,001
Due to custodian......................................... 30
Accrued expenses payable................................. 27
Investment advisory fees payable......................... 5
----------
Total Liabilities............................................. 1,063
----------
Net Assets.................................................... $ 23,687
==========
Analysis of Net Assets
Paid in capital.......................................... $ 27,305
Accumulated net realized loss............................ (5,978)
Net unrealized appreciation.............................. 37
Undistributed net investment income...................... 2,323
----------
Net Assets.................................................... $ 23,687
==========
Net Asset Value Per Share (based on net assets of $23,687 and
2,349 shares issued and outstanding)..................... 10.08
==========
See accompanying notes to the financial statements
37
<PAGE>
REIT Index Fund
Statement of Operations
For the year ended October 31, 1999
In thousands
Investment Income
Dividends................................................. $ 2,985
Interest.................................................. 27
---------
Total Investment Income........................................ 3,012
Expenses
Investment advisory fees.................................. 315
Fund administration fees.................................. 26
Fund accounting fees...................................... 25
Custodian fees............................................ 13
Transfer agent fees....................................... 13
Professional fees......................................... 5
Registration fees......................................... 5
Trustees fees............................................. 2
Other..................................................... 1
---------
Total Expenses................................................. 405
Less: Fee Waiver.............................................. 263
---------
Net Expenses................................................... 142
---------
Net Investment Income.......................................... 2,870
Net Realized and Unrealized Gain (Loss)
Net realized loss on sale of investments.................. (5,565)
Change in net unrealized appreciation on investments...... 642
---------
Net realized and unrealized gain (loss)................... (4,923)
---------
Net Increase in Net Assets from Operations..................... $ (2,053)
=========
See accompanying notes to the financial statements
38
<PAGE>
REIT Index Fund
Statements of Changes in Net Assets
Year Year
ended ended
In thousands 10/31/99 10/31/98
---------- ----------
Change in net assets from operations
Net investment income............................. $ 2,870 3,942
Net realized loss ................................ (5,565) (317)
Change in net unrealized appreciation............. 642 (13,803)
---------- ----------
Change in net assets from operations.............. (2,053) (10,178)
Distributions to shareholders from:
Net investment income............................. (3,441) (3,370)
Net realized gain................................. 0 (690)
---------- ----------
Total distributions............................... (3,441) (4,060)
Capital share transactions
Proceeds from sale of shares...................... 11,301 14,502
Reinvestment of distributions..................... 3,441 4,059
Cost of shares redeemed........................... (46,551) (43,232)
---------- ----------
Change in net assets from capital transactions.... (31,809) (24,671)
---------- ----------
Change in net assets................................... (37,303) (38,909)
Net assets at beginning of year........................ 60,990 99,899
---------- ----------
Net assets at end of year.............................. $ 23,687 60,990
========== ==========
Undistributed net investment income.................... $ 2,323 2,894
========== ==========
See accompanying notes to the financial statements
39
<PAGE>
REIT Index Fund
Schedule of Investments
October 31, 1999
<TABLE>
<CAPTION>
In thousands, except shares Shares Value Shares Value
-------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS - REAL ESTATE Rouse Co. 15,500 $ 343
INVESTMENT TRUSTS (REITs) Tarragon Realty Inv., Inc. 1,800 26
Apartments - 20.5% Washington REIT 7,670 117
AMLI Residential Properties 3,745 $ 78 ---------
Apartment Invest & Mgmt Co. 14,813 557 1,433
Archstone Communities Trust 30,030 601 Entertainment - 0.2%
Associated Estates Realty 4,670 40 Entertainment Properties Trust 3,200 45
Avalon Bay Communities 13,962 451
BRE Properties 9,580 217 Hotel - 6.4%
Camden Property Trust 8,894 241 Boykin Lodging Co. 3,700 48
Cornerstone Realty Income 8,600 89 Equity Inns, Inc. 8,025 60
Equity Residential Properties 26,263 1,098 Felcor Lodging Trust, Inc. 14,690 250
Essex Property Trust, Inc. 3,905 127 Hospitality Properties Trust 12,165 257
Gables Residential Trust 5,675 137 Host Marriott Corp. 49,100 442
Grove Property Trust 1,900 23 Innkeepers USA Trust 7,450 64
Home Properties of New York 4,100 109 Jameson Inns, Inc. 2,455 22
Mid-America Apt. Community 4,095 91 LaSalle Hotel Properties 3,300 41
Post Properties, Inc. 8,295 320 Meristar Hospitality Corp 10,283 165
Smith, Charles E. Residential 4,195 143 RFS Hotel Investors, Inc. 5,425 65
Summit Properties, Inc. 6,015 115 Sunstone Hotel Investors, Inc. 8,145 78
Town & Country Trust 3,435 59 Winston Hotels 3,535 29
United Dominion Realty Trust 22,385 245 ---------
Walden Residential Props, Inc. 5,435 117 1,521
-------- Manufactured Homes - 1.7%
4,858 Chateau Properties, Inc. 6,090 155
Diversified - 6.1%
Boston Properties, Inc. 14,600 435 Manufact. Home Community 5,615 131
Colonial Properties Trust 5,310 135 Sun Communities, Inc. 3,735 119
Eastgroup Properties 3,495 64 ---------
Glenborough Realty Trust, Inc. 6,695 87 405
Investors Real Estate Trust 4,300 36 Office Property - 25.3%
Pacific Gulf Properties 4,320 88 Alexandria Real Estate Equities 2,900 83
Penn Real Estate Invest Trust 2,955 55 Arden Realty Group, Inc. 13,600 274
Prime Group Realty Trust 3,300 47 Brandywine Realty Trust 8,155 137
Carramerica Realty Corp. 14,415 321
Cornerstone Properties 27,600 402
Corporate Office Properties 3,600 26
See accompanying notes to the financial statements
40
<PAGE>
REIT Index Fund
Schedule of Investments
October 31, 1999
In thousands, except shares Shares Value Shares Value
-------- ------- -------- -------
Cousins Properties, Inc. 6,940 $ 220 General Growth Industries 11,105 $ 321
Crescent Real Estate 25,815 431 JP Realty, Inc. 3,810 65
Duke-Weeks Realty Corp. 25,223 495 Lexington Corp. Properties 3,645 40
Equity Office Properties 54,189 1,199 Macerich Co. 7,275 146
Great Lakes REIT, Inc. 3,600 52 Prime Retail, Inc. 9,288 74
Highwoods Properties, Inc. 13,320 322 Simon Property Group, Inc. 37,295 860
Kilroy Realty Corp. 5,900 113 Taubman Centers, Inc. 11,480 130
Koger Equity, Inc. 5,700 88 Urban Shopping Centers, Inc. 3,810 98
Liberty Property Trust 14,385 336 ---------
Mack-Cali Realty Corp. 12,795 330 1,887
Mission West Properties 3,600 28 Restaurants - 0.2%
Parkway Properties, Inc. 2,200 67 US Restaurant Properties 3,400 54
Prentiss Properties Trust 8,200 176
PSB Business Parks, Inc. 5,100 115 Shopping Center - 15.1%
Reckson Assoc Realty Corp. 9,670 179 AMB Property Corp 18,600 370
Reckson Assoc Realty Cl B 1,575 32 Bradley Real Estate, Inc. 5,150 86
SL Green Realty Corp. 5,200 95 Burnham Pacific Properties 6,910 69
Spieker Properties, Inc. 13,650 477 Center Trust, Inc. 5,630 58
-------- Developers Diversified 13,200 188
5,998 Equity One, Inc. 2,400 25
Outlet Centers - 1.2% Federal Realty Inv. Trust 8,660 158
Chelsea GCA Realty, Inc. 3,495 108 First Washington Realty Trust 2,000 41
Konover Property Trust 6,600 42 Glimcher Realty Trust 5,150 76
Mills Corp. 5,145 93 IRT Property Co. 7,180 61
Tanger Factory Outlet Center 1,700 37 JDN Realty Corp. 7,105 135
-------- Kimco Realty Corp. 13,050 445
280 Kranzco Realty Trust 2,330 20
Prisons - 1.0% Mid Atlantic Realty Trust 3,100 31
Correctionial Properties Trust 1,600 21 New Plan Excel Realty Trust 19,122 331
Prison Realty Corp 21,300 217 Pan Pacific Retail Properties 4,600 84
-------- Phillips International Realty 1,600 26
238 Ramco - Gershenson Prop. 1,600 22
Regional Mall - 8.0% Regency Realty Corp. 12,805 254
CBL & Associates Properties 5,325 118 Saul Centers, Inc. 2,795 40
CBL & Associates Prop. Rights 11,825 0
Crown American Realty 5,665 35
See accompanying notes to the financial statements
41
<PAGE>
REIT Index Fund
Schedule of Investments
October 31, 1999
Principal
In thousands, except shares Shares Value Amount Value
-------- ------- ----------- -------
Vornado Realty Trust 18,478 $ 586 U.S. GOVERNMENT SECURITIES
Weingarten Realty Investment 5,765 221 U.S. Government Agencies - 1.1%
Western Properties Trust 3,745 39 Federal Home Loan Mortgage Corp.
Westfield America, Inc. 15,800 217 5.130% due 11/23/99
-------- (cost - $249) $ 250 $ 249
3,583
Storage - 4.6% DEMAND NOTE
Public Storage, Inc. 29,398 709 Utility - Electrical - 0.3%
Shurgard Storage Centers 6,265 148 Wisconsin Electric
Sovran Self Storage, Inc. 2,720 58 4.993% due 11/1/99
Storage USA 6,065 177 (cost - $76) 76 76
-------- ---------
1,092
Triple Net Lease - 3.2%
Captec Net Lease Realty, Inc. 2,100 23 TOTAL INVESTMENTS - 100.5%
Capital Automotive Reit 4,600 59 (cost - $23,772) 23,809
Commercial Net Lease Realty 6,515 75
Franchise Finance Corp. 12,060 262 Liabilities, less other assets - (0.5%) (122)
Golf Trust of America 1,700 30 ---------
National Golf Properties 2,795 60
Realty Income Corp. 5,750 129 TOTAL NET ASSETS - 100.0% $ 23,687
Trinet Corporate Realty Trust 5,385 124 =========
--------
762
Warehouse / Industrial - 5.6%
American Industrial Properties 4,500 52
Bedford Property Investors 4,920 86
Cabot Industrial Trust 8,700 174
Centerpoint Properties Corp. 4,385 143
First Industrial Realty Trust 8,205 203
Prologis Trust 34,674 670
--------
1,328
--------
Total Common Stocks - Real Estate
Investment Trusts - 99.1%
(cost - $23,447) 23,484
</TABLE>
See accompanying notes to the financial statements
42
<PAGE>
REIT Index Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Year
ended ended
Selected per share data 10/31/99 10/31/98
---------- ----------
<S> <C> <C>
Net asset value, beginning of period.......................... $ 11.42 13.69
Income (loss) from investment operations:
Net investment income.................................... 1.11 0.68
Net realized and unrealized gain (loss) ................. (1.79) (2.40)
--------- ---------
Total income (loss) from investment operations................ (0.68) (1.72)
Less distributions:
Dividends from net investment income..................... 0.66 0.46
Distributions from net realized gain..................... 0.00 0.09
--------- ---------
Total distributions........................................... 0.66 0.55
--------- ---------
Net asset value, end of period................................ $ 10.08 11.42
========= =========
Total return.................................................. (6.31%) (13.27%)
========= =========
Ratios and supplemental data:
Net assets, end of period (in thousands)...................... $ 23,687 60,990
Ratio to average net assets of:
Expenses, net of waivers and reimbursements.............. 0.27% 0.24%
Expenses, before waivers and reimbursements.............. 0.77% 0.74%
Net investment income, net of waivers and reimbursements. 5.47% 4.80%
Net investment income, before waivers and reimbursements. 4.97% 4.30%
Portfolio turnover rate....................................... 33% 50%
</TABLE>
See accompanying notes to the financial statements
43
<PAGE>
REIT Index Fund
Financial Highlights (continued)
<TABLE>
<CAPTION>
Year 09/03/96
ended through
Selected per share data 10/31/97 10/31/96
---------- ----------
<S> <C> <C>
Net asset value, beginning of period........................... $ 10.44 10.00
Income from investment operations:
Net investment income..................................... 0.41 0.10***
Net realized and unrealized gain.......................... 2.99 0.34
---------- ----------
Total income from investment
operations..................................................... 3.40 0.44
Less distributions:
Dividends from net investment income...................... 0.15 0.00
Distributions from net realized gain...................... 0.00 0.00
---------- ----------
Total distributions............................................ 0.15 0.00
---------- ----------
Net asset value, end of period................................. $ 13.69 10.44
========== ==========
Total return................................................... 32.78% 4.40%**
========== ==========
Ratios and supplemental data:
Net assets, end of period (in thousands)....................... $ 99,899 25,690
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............... 0.51% 1.20%*
Expenses, before waivers and reimbursements............... 0.82% 1.20%*
Net investment income, net of waivers and reimbursements.. 4.42% 5.97%*
Net investment income, before waivers and reimbursements.. 4.11% 5.97%*
Portfolio turnover rate........................................ 22% 0%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
*** Calculated based on average shares outstanding throughout the period.
See accompanying notes to the financial statements
44
<PAGE>
Aon Funds
Notes to the Financial Statements
1. Description of Entity
Aon Funds (the "Trust"), a Delaware business trust, is registered under the
Investment Company Act of 1940, as an open-end, diversified, management
investment company. The Trust consists of four Funds: the Money Market Fund, the
Government Securities Fund, the Asset Allocation 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.
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) Distributions to Shareholders - Distributions of net investment income
and net realized gain are determined in accordance with income tax
regulations. 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.
d) 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.
45
<PAGE>
Aon Funds
Notes to the Financial Statements
e) Repurchase Agreement - During the term of a repurchase agreement,
collateral with a market value greater than or equal to the market value of
the repurchase agreement is held by the Fund's custodian.
3. 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; .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
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 .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 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%
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 ended
October 31, 1999, the Trust incurred expenses totaling $64,000 for compensation
of unaffiliated trustees.
46
<PAGE>
Aon Funds
Notes to the Financial Statements
4. Income Taxes
Each Fund intends to qualify as a "regulated investment company" under the
provision of Subchapter 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 REIT Index
Fund has capital loss carryovers of $79,105, for the year ended October 31, 1998
and $5,454,201 for the year ended October 31, 1999 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 and 2007 respectively.
At October 31, 1999, the identified cost of investments for federal income tax
purposes was as follows:
In Thousands
Money Market Fund $ 1,146,637
Government Securities Fund $ 161,623
Asset Allocation Fund $ 134,308
REIT Index Fund $ 24,120
The gross unrealized appreciation and gross unrealized depreciation of
investments for federal income tax purposes at October 31, 1999, were as
follows:
<TABLE>
<CAPTION>
Government Asset REIT
In Thousands Securities Allocation Index
Fund Fund Fund
---------- ---------- --------
<S> <C> <C> <C>
Gross unrealized appreciation $ 18 38,920 1,604
Gross unrealized depreciation (9,320) (8,578) (1,915)
------- ------- -------
Net unrealized appreciation (depreciation) $(9,302) 30,342 (311)
======= ======= =======
</TABLE>
5. Investments
Investment transactions for the year ended October 31, 1999, including
maturities and excluding short-term investments, were as follows:
Proceeds
In Thousands Purchases from sales
----------- ------------
Government Securities Fund $ 130,341 116,443
Asset Allocation Fund $ 82,137 165,513
REIT Index Fund $ 16,532 47,433
47
<PAGE>
Aon Funds
Notes to the Financial Statements
6. Capital Share Transactions
Capital stock transactions were as follows:
<TABLE>
<CAPTION>
Money Market Government Securities
In thousands Fund Fund
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at October 31, 1997 766,356 $ 766,356 9,954 $ 101,757
Shares sold 7,411,667 7,411,667 4,161 44,216
Dividend reinvestments 19,465 19,465 691 7,420
---------- ---------- ---------- ----------
Total issued 7,431,132 7,431,132 4,852 51,636
Shares redeemed (7,503,821) (7,503,821) (714) (7,678)
---------- ---------- ---------- ----------
Net change in shares (72,689) (72,689) 4,138 43,958
---------- ---------- ---------- ----------
Balance at October 31, 1998 693,667 693,667 14,092 145,715
Shares sold 7,682,976 7,682,976 1,639 17,389
Dividend reinvestments 22,647 22,647 1,338 13,958
---------- ---------- ---------- ----------
Total issued 7,705,623 7,705,623 2,977 31,347
Shares redeemed (7,254,448) (7,254,448) (1,432) (14,460)
---------- ---------- ---------- ----------
Net change in shares 451,175 451,175 1,545 16,887
---------- ---------- ---------- ----------
Balance at October 31, 1999 1,144,842 $ 1,144,842 15,637 $ 162,602
========== ========== ========== ==========
</TABLE>
Asset Allocation REIT Index
Fund Fund
Shares Amount Shares Amount
-------- -------- -------- --------
Balance at October 31, 1997 9,934 $ 119,700 7,299 $ 83,785
Shares sold 6,730 115,208 1,068 14,502
Dividend reinvestments 647 10,719 296 4,059
-------- -------- -------- --------
Total issued 7,377 125,927 1,364 18,561
Shares redeemed (3,974) (65,772) (3,323) (43,232)
-------- -------- -------- --------
Net change in shares 3,403 60,155 (1,959) (24,671)
-------- -------- -------- --------
Balance at October 31, 1998 13,337 179,855 5,340 59,114
Shares sold 777 13,415 1,039 11,301
Dividend reinvestments 270 4,659 321 3,441
-------- -------- -------- --------
Total issued 1,047 18,074 1,360 14,742
Shares redeemed (5,052) (86,312) (4,351) (46,551)
-------- -------- -------- --------
Net change in shares (4,005) (68,238) (2,991) (31,809)
-------- -------- -------- --------
Balance at October 31, 1999 9,332 $ 111,617 2,349 $ 27,305
======== ======== ======== ========
48
<PAGE>
Aon Funds
Notes to the Financial Statements
7. Written Covered Call Options
The Asset Allocation Fund engages in portfolio hedging with respect to declining
stock 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 the Fund to generate a higher return.
Transactions in options for the year ending October 31, 1999, were as follows:
Contracts Premiums
----------- -----------
Options outstanding, beginning of year 0 $ 0
Options written 610 303,595
Options exercised (382) (166,863)
Options expired (228) (136,732)
Options closed 0 0
Options assigned 0 0
----------- -----------
Options outstanding, end of year 0 $ 0
=========== ===========
49
