<PAGE> 1
[PREFERRED GROUP LOGO]
THE PREFERRED GROUP
OF MUTUAL FUNDS
SEMIANNUAL REPORT
DECEMBER 31, 1995
(Unaudited)
<PAGE> 2
December 31, 1995 (unaudited)
TABLE OF CONTENTS
Our Message to You ........................................... 1
Performance Information and Benchmarks ....................... 3
Investment Review ............................................ 4
Statements of Assets & Liabilities ........................... 22
Statements of Operations ..................................... 24
Statements of Changes in Net Assets .......................... 26
Financial Highlights ......................................... 28
Schedules of Investments...................................... 32
Notes to Financial Statements................................. 52
PERFORMANCE DATA FOR SIX MONTHS ENDED 12-31-95 (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
BEGINNING ENDING TOTAL CURRENT INCOME GAINS
FUND NAME NAV NAV RETURN* YIELD+ DIVIDENDS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C>
Growth $16.63 $16.90 4.90% -- $.0076 $.5379
Value 13.82 15.02 12.30 -- .2063 .2940
International 12.24 12.55 4.00 -- .1683 .0118
Small Cap++ 10.00 10.49 5.06*** -- .0156 --
Asset Allocation 11.97 12.45 12.53 -- .1992 .8145
Balanced 10.00 10.50 7.44**** -- .1478 .0936
Fixed Income 10.30 10.58 6.16 5.37% .2929 .0517
S.T. Gov't. Securities 9.80 9.87 3.51 4.99 .2697 --
Money Market 1.00 1.00 2.80** 5.21 .0276 .0001
</TABLE>
*Total return includes reinvestment of dividends and capital gains
distributions for the periods indicated.
**Prior to 11/1/95, the advisor was temporarily waiving a portion of its
management fees (0.15%) for the Money Market Fund. Total return for the Money
Market Fund would have been 2.75% if a portion of the fee had not been waived.
***The advisor is temporarily waiving a portion of its management fee (0.35%)
for the Small Cap Fund. Total return for the Small Cap Fund would have been
5.00% if a portion of the fee had not been waived.
****The advisor is temporarily capping the Balanced Fund expenses at 1.15% of
the Fund's average net assets. Total return for the Balanced Fund would have
been 6.11% if expenses were not capped.
+The yield shown for the Fixed Income and Short-Term Government Securities Funds
is the 30-day current yield as of 12/31/95. The yield shown for the Money
Market Fund is a seven-day current yield as of 12/31/95, in accordance with
Securities and Exchange Commission rules for reporting yields of money market
funds. Prior to 11/1/95, the advisor was temporarily waiving a portion of its
management fees (0.15%) for the Money Market Fund. As the advisor was not
waiving a portion of its management fees as of 12/31/95, there is no impact to
the reported seven-day current yield as of 12/31/95.
++Inception date: 11/1/95.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate so that,
when redeemed, an investor's shares may be worth more or less than their
original cost.
For more information about any of the Funds, call 1-800-662-GROW for a
prospectus. Please read it carefully before you invest.
<PAGE> 3
THE PREFERRED GROUP OF MUTUAL FUNDS
OUR MESSAGE TO YOU
DEAR PREFERRED GROUP SHAREHOLDER:
We are pleased to present you with the semiannual report for The
Preferred Group for the six-month period ended December 31, 1995. This report
includes performance, portfolio holdings and financial statements, in addition
to commentary from each portfolio manager.
MARKET REVIEW
During the last six months of the year, the financial markets continued
their strong momentum. Low inflation, moderate economic growth, strong
corporate earnings and lower interest rates all buoyed the U.S. stock and bond
markets. The Dow Jones Industrial Average broke many records during the year,
perhaps the most significant milestone occurring in mid-November when the index
broke through the 5000 barrier.
The Standard & Poor's 500 Index, a common benchmark for the U.S. stock
market, gained 14.4% for the six months ended December 31. The Preferred Group
equity funds performed positively during this period as well, although some
earlier gains on some portfolio holdings were reversed slightly as technology
stocks slumped late in the year.
Fixed income investors participated in one of the strongest periods of
bond market performance in years. The Federal Reserve's action to lower
interest rates twice during the period, first in July and then again in
December, continued to buoy the returns of both short and long maturity bonds.
For the six-month period, the yield on the U.S. Treasury two-year note
decreased from 5.79% on June 30 to 5.15% on December 31. Long-term interest
rates, as measured by the Treasury's 30-year bond, decreased from 6.62% to
5.95% by year end. As a result, bond prices soared, and all of The Preferred
Group's fixed income funds posted positive returns for the period.
Foreign equities generally did not perform as well as U.S. stocks for
the period, although many international holdings posted solid gains. Falling
interest rates, subdued inflation, and a fourth quarter rally in the Japanese
stock market were all factors in the positive returns of many overseas markets.
The EAFE Index, a common benchmark for international investing, returned 8.6%
for the six-month period.
As we move ahead, it seems unlikely that 1996 will produce the same
level of returns as 1995. We believe, however, that the long-term outlook is
positive. Long-term investors should stay the course and remember that time is
on their side.
1
<PAGE> 4
December 31, 1995 (unaudited)
OUR MESSAGE TO YOU
PREFERRED GROUP HIGHLIGHTS
In our report to you a year ago, we mentioned the possibility of new
fund offerings in 1995. On July 1, The Preferred Group introduced the
Preferred Balanced Fund. The Fund's subadvisor is Jennison Associates Capital
Corp., which also is the subadvisor to the Preferred Growth Fund. In addition,
on November 1, we launched the Preferred Small Cap Fund, bringing the number of
Preferred Group's equity funds to four. The Fund is advised by Caterpillar
Investment Management Ltd., which also advises the Preferred Short-Term
Government Securities Fund. We are confident that the addition of these new
funds will add value to The Preferred Group and provide greater diversification
to shareholders in managing their investment portfolios.
Finally, during this period of dramatic change, we are pleased to
report that The Preferred Group reached an important milestone -- $1 billion
in assets under management. We especially appreciate your continued support
and confidence in us as we continue to grow and provide solid performance.
We have a strong commitment to quality in our products and services and
look forward to serving you and your long-term investment needs. Thank you for
investing in The Preferred Group.
Sincerely,
Michael Pond
P. Michael Pond, CFA
President
The Preferred Group of Mutual Funds
Preferred Growth Fund
Preferred Value Fund
Preferred International Fund
NEW Preferred Small Cap Fund
Preferred Asset Allocation Fund
NEW Preferred Balanced Fund
Preferred Fixed Income Fund
Preferred Short-Term Gov't. Securities Fund
Preferred Money Market Fund
2
<PAGE> 5
THE PREFERRED GROUP OF MUTUAL FUNDS
PERFORMANCE INFORMATION
HISTORICAL PERFORMANCE:
Historical performance can be evaluated in several ways. At the end of each
Fund's Discussion & Analysis section, we have provided a look at the total
percentage change in value, the average annual percentage change, and the
growth of a hypothetical $10,000 investment. Comparison of this historical
data to an appropriate benchmark is also provided. These performance figures
include changes in a Fund's share price, plus reinvestment of any dividends (or
income) and any capital gains (profits the Fund earns when it sells securities
that have grown in value).
CUMULATIVE TOTAL RETURNS:
Cumulative total returns reflect the Fund's actual performance over a set
period - six months, one year, or since inception.
AVERAGE ANNUAL TOTAL RETURNS:
Average annual total returns are hypothetical. A Fund's actual (or cumulative)
return indicates what would have happened if the Fund had performed at a
constant rate each year. For your information, all Funds must provide average
annual total returns as of the most recent calendar quarter - in this case,
December 31, 1995. This allows you to compare funds from different complexes
on an equal basis.
$10,000 HYPOTHETICAL INVESTMENT:
The "$10,000 investment since inception" illustrates the value of your
investment as of December 31, 1995, had you invested $10,000 when the Fund
started.
BENCHMARKS - WHAT ARE THEY AND WHAT DO THEY TELL ME?
Benchmarks are simply a "point of reference for comparison". Mutual funds
typically compare themselves to a suitable stock or bond market index to gauge
their performance over the long term (3-5 years). An index is really a
fictitious unmanaged portfolio. It does not trade or incur any expenses. In
that sense, an investment fund must actually outperform its benchmark (gross
return) by the amount of its management fees and other expenses in order for
its reported performance (net of fees) to match its benchmark. Because the
Funds are managed portfolios investing in a wide range of securities, the
securities owned by a Fund will not match those included in the relevant
benchmark. (Please refer to the Investment Review section of this report for
detailed descriptions of each Fund's benchmark.)
PREFERRED GROWTH FUND
S&P 500 Index
PREFERRED VALUE FUND
S&P 500 Index
PREFERRED INTERNATIONAL FUND
EAFE Index
PREFERRED SMALL CAP FUND
Russell 2000 Index
PREFERRED FIXED INCOME FUND
Salomon Brothers Broad Investment Grade (BIG) Index
PREFERRED ASSET ALLOCATION FUND
65% - S&P 500 Index
30% - Lehman Brothers Long-Term Treasury Index
5% - 90-day Treasury Bills
PREFERRED BALANCED FUND
55% - S&P 500 Index
35% - Lehman Government/Corporate Bond Index
10% - 90-day Treasury Bills
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
Merrill Lynch 1-3 Year Treasury Index
PREFERRED MONEY MARKET FUND
Donoghue's Taxable Money Market Fund Average
3
<PAGE> 6
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED GROWTH FUND
INVESTMENT OBJECTIVE:
The Preferred Growth Fund seeks long-term capital appreciation by investing its
assets primarily in equity securities believed to offer the potential for
capital appreciation, including stocks of companies experiencing rapid earnings
growth.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: Lulu C. Wang, CFA
Title: Executive Vice President/Director,
Jennison Associates Capital Corp.
Last Five Years' Experience: Portfolio Manager at Jennison Associates. Lulu
has managed the Preferred Growth Fund since its inception on July 1, 1992.
Education: B.A. - Wellesley College; MBA - Columbia University; Chartered
Financial Analyst.
DISCUSSION & ANALYSIS:
During the six months ended December 31, 1995, the Preferred Growth Fund
advanced by 4.9%, compared with a gain of 14.4% by the S&P 500 Index. Since
inception, the Fund has an average annual total return of 17.4%, versus 15.6%
for the Index.
The Fund ended the third quarter of 1995 with a solid lead over the S&P 500,
paced by strong gains in its technology and healthcare holdings. The Fund's
relative position dramatically reversed in the fourth quarter of 1995.
Technology suffered a sell-off, and large cap energy and financial stocks,
fueled by cold weather and lower interest rates, respectively, led the market
to new highs. Hampered by the downdraft in technology and underweighted in
energy and financial stocks, the Fund trailed the S&P 500 at the close of the
year.
During 1996, we believe the economy will continue to slow and stock advances
will be more selectively paced by earnings growth. Wall Street has been
revising earnings estimates down to more realistic levels, and on these more
modest projections, technology companies still offer very attractive growth
opportunities. The strongest technology companies such as Hewlett-Packard
(3.7% of net assets), Cisco Systems (3.2%), Intel (3.0%), and Motorola (1.4%)
are still multi-year growth stories and should, from current pullback levels,
move on to new highs in 1996. Higher growth healthcare (Phycor 1.6%), capital
goods (Boeing 3.4%), and specialty retailers (Autozone 2.1%) could also enjoy
positive performance this year, as they are currently priced at moderate
valuations and could be able to exhibit above-average earnings growth. Though
unlikely to match last year's gains, 1996 should still offer solid
opportunities in a more selective equity market.
- Jennison Associates
<TABLE>
<CAPTION>
TOP TEN HOLDINGS: (% of net assets)
- ---------------------------------------------------
<S> <C> <C>
1. Hewlett-Packard 3.7
2. Boeing 3.4
3. Ascend Communications 3.2
4. Cisco Systems 3.1
5. Intel 3.0
6. Applied Materials 2.4
7. Smithkline Beecham 2.4
8. Diebold 2.4
9. Astra 2.3
10. Walt Disney 2.2
</TABLE>
4
<PAGE> 7
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PERFORMANCE:
The following information illustrates the historical performance of the
Preferred Growth Fund compared with the S&P 500 INDEX. The S&P 500 Index is
the most common index for the overall U.S. stock market. It is comprised of
500 of the largest U.S. companies representing all major industries.
Note: Past performance is not necessarily indicative of future results.
Investment return and principal value will fluctuate, so that, when redeemed,
an investor's shares may be worth more or less than their original cost. The
Preferred Growth Fund's inception date was July 1, 1992. This report will
provide five and ten year performance history in the future as the Fund
matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark by the
amount of its management fees and other expenses for its reported performance
to match its benchmark.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN:
- --------------------------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED GROWTH FUND 4.90% 28.37% 75.54%
- --------------------------------------------------------------------------------
S&P 500 Index 14.40% 37.48% 65.99%
- --------------------------------------------------------------------------------
* JULY 1, 1992
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
PAST SINCE
1 YEAR INCEPTION*
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED GROWTH FUND 28.37% 17.42%
- --------------------------------------------------------------------------------
S&P 500 Index 37.48% 15.58%
- --------------------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Preferred Growth S&P 500
Fund Index
<S> <C> <C>
07/01/92 10000 10000
12/31/92 11915 10837
08/30/93 12425 11359
12/31/93 13828 11921
06/30/94 12468 11514
12/31/94 13676 12074
06/30/95 16733 14510
12/31/95 17554 16599
</TABLE>
5
<PAGE> 8
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED VALUE FUND
INVESTMENT OBJECTIVE:
The Preferred Value Fund seeks capital appreciation and current income. The
Fund invests primarily in equity securities that are believed to be undervalued
and that offer above-average potential for capital appreciation.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: John G. Lindenthal
Title: Managing Director of Oppenheimer Capital
Last Five Years' Experience: Portfolio Manager at Oppenheimer Capital. John
has managed the Preferred Value Fund since its inception on July 1, 1992.
Education: B.S., MBA - University of Santa Clara
DISCUSSION & ANALYSIS:
During the six months ended December 31, 1995, the Preferred Value Fund
returned 12.3%, as compared with the 14.4% advance recorded by the S&P 500
Index. Since its inception, the Fund has delivered an annualized return of
15.4%, versus the 15.6% average return for the S&P 500 Index for the same
period.
The Fund's philosophy in buying stocks is to purchase quality companies
at reasonable prices. We believe the single most important determinant of
whether a stock will increase in value is the rate of return on invested
capital within the company. In our view, companies with high returns can
compound their capital and increase their value for extended periods.
Therefore, we look for companies with above-average returns where those returns
are protected by strong competitive positions. Moreover, we want these
companies to use their cash flow to benefit shareholders - through stock
buybacks or astute acquisitions, for instance. We stick with good companies
until their value is reflected in the stock prices or until we find companies
that offer even better value.
During the six-month period ended December 31, 1995, the Fund's
performance was driven by its substantial holdings of financial stocks, which
were among the market leaders for the period. These holdings represented
approximately 31.0% of the Fund's net assets as of December 31, 1995.
Positions in this group included First Interstate Bancorp (4.1% of net assets),
Travelers Group (3.7%), Federal Home Loan Mortgage Corporation (4.0%), Citicorp
(3.4%), Excel Ltd. (3.4%), American International Group (2.8%), Transamerica
(2.4%), and Aflac (2.3%). Importantly, we did not own these companies as
interest rate proxies or for other "top-down" considerations. Most have been
investments of long standing that appeared undervalued to us regardless of the
interest rate environment, although the decline in rates during the period
helped to fuel their superior performance.
The Fund's focus on corporate restructuring and free cash flow also
produced some large gains among industrial stocks. Notable during the
six-month period ended December 31, 1995, were Hercules (2.7%) and Monsanto
(3.5%), both chemical companies with strong management teams identified as
turnaround candidates a few years ago. Similarly, McDonnell Douglas (3.6%),
produced positive results. Several of our major holdings, including Sprint
(3.1%), Freeport McMoRan (1.6%), Freeport McMoRan Copper and Gold (2.6%), and
Dole Food (2.3%), which have announced that they would sell or spin off to
shareholders a portion of their businesses, registered strong gains during the
period.
The Fund's performance was negatively impacted by the short-term
earnings disappointment in two technology-related companies, Motorola (1.5%)
and Nokia (1.7%), both of which announced a slowing in the rate of growth in
the cellular phone business. Also, the stock prices of Intel (2.1%) and Arrow
Electronics (2.2%) were hurt by fears that the poorer business environment
might lead
6
<PAGE> 9
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
to reduced demand for semiconductors. We continue to believe that
these companies enjoy superior industrial positions, generate high returns on
capital, and have attractive reinvestment opportunities.
Some of the Fund's holdings could benefit from industry consolidations,
which are expected to be a major phenomenon over the next several years. These
industries include: banking, finance, retail, and defense/aerospace. Looking
forward, we believe the probabilities favor modest market gains in 1996.
Earnings disappointments may become more prevalent after five years of growth
and expanding margins. We continue to find individual stocks that we believe
offer good value.
- - Oppenheimer Capital
<TABLE>
<CAPTION>
TOP TEN HOLDINGS: (% of net assets)
- ------------------------------------------------------------
<S> <C>
1. First Interstate Bancorp 4.1
- ------------------------------------------------------------
2. Federal Home Loan Mortgage 4.0
- ------------------------------------------------------------
3. Travelers Group 3.7
- ------------------------------------------------------------
4. McDonnell Douglas 3.6
- ------------------------------------------------------------
5. Monsanto 3.5
- ------------------------------------------------------------
6. Excel Ltd. 3.4
- ------------------------------------------------------------
7. Lockheed Martin 3.4
- ------------------------------------------------------------
8. Citicorp 3.4
- ------------------------------------------------------------
9. General Electric 3.1
- ------------------------------------------------------------
10. Sprint 3.1
- ------------------------------------------------------------
</TABLE>
PERFORMANCE:
The following information illustrates the historical performance of the
Preferred Value Fund compared with the S&P 500 INDEX. The S&P 500 Index is the
most common index for the overall U.S. stock market. It is comprised of 500
of the largest U.S. companies representing all major industries.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN:
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- -------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED VALUE FUND 12.30% 37.71% 65.28%
- -------------------------------------------------------------------
S&P 500 Index 14.40% 37.48% 65.99%
- -------------------------------------------------------------------
* JULY 1, 1992
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
PAST SINCE
1 YEAR INCEPTION*
- -------------------------------------------------------------------
<S> <C> <C>
PREFERRED VALUE FUND 37.71% 15.42%
- -------------------------------------------------------------------
S&P 500 Index 37.48% 15.58%
- -------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
A $10,000 INVESTMENT SINCE INCEPITON:
[GRAPH CHART]
<TABLE>
Preferred Value S&P 500
Fund Index
<S> <C> <C>
07/01/92 10000 10000
12/31/92 10980 10837
06/30/93 11673 11359
12/31/93 11945 11921
06/30/94 11707 11514
12/31/94 12001 12074
06/30/95 14718 14510
12/31/95 16258 16599
</TABLE>
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so that, when
redeemed, an investor's shares may be worth more or less than their original
cost. The Preferred Value Fund's inception date was July 1, 1992. This report
will provide five and ten year performance history in the future as the Fund
matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark by the
amount of its management fees and other expenses for its reported performance
to match its benchmark.
7
<PAGE> 10
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED INTERNATIONAL FUND
INVESTMENT OBJECTIVE:
The Preferred International Fund seeks long-term capital appreciation
by investing its assets primarily in equity securities traded
principally on markets outside the United States.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: Peter F. Spano, CFA
Title: Managing Director of Mercator Asset Management, L.P.
Last Five Years' Experience: Portfolio Manager at Mercator. Pete has
managed the Preferred International Fund since its inception on July
1, 1992.
Education: BBA - St. John's University; MBA - Baruch College (City
University of New York); Chartered Financial Analyst
DISCUSSION & ANALYSIS:
The Preferred International Fund returned 4.0% for the six-month
period ended December 31, 1995 compared with 8.6% for the EAFE Index.
During the period, interest rates continued their downward trend with
current rates at levels we haven't seen for almost two years. We
believe there is room for further decline. The inflation outlook
continues to be positive as both raw material and labor costs present
no problems. Currencies were generally quiet, although the U.S.
dollar rallied strongly against the Japanese yen earlier in the
period.
Investors are concerned with the economic outlook, specifically,
whether there will be a pause in economic growth or something more
negative. This has put pressure on a number of basic
industry/cyclical stocks, whose earnings are very sensitive to the
economic outlook. A number of these stocks are now more attractively
priced than was the case in early 1995. Some consumer-related/non-
cyclical issues have become less attractive as investors have bid
their prices up. Stocks in general have been sensitive to corporate
earnings reports; we expect this situation to continue, particularly
if interest rates bottom out.
The benchmark EAFE Index performed well due to the rally in the
Japanese stock market. Preferred International Fund, with its
significant under-weighting in Japan, was hurt relative to the Index.
Additionally, we were negatively impacted by our basic
industry/cyclical stocks, which were quite weak. We increased
positions in the United Kingdom, Japan, Australia, France, and Canada.
Bargain-priced stocks were purchased in non-cyclical and, to a lesser
degree, cyclical areas in these markets. Little was sold, as positive
cash flow gave us the opportunity to add new companies and increase
some existing positions.
Looking ahead, we expect that foreign stocks will begin to perform
better; they have clearly underperformed U.S. stocks for a long time
and at some point, that should change. Valuation levels are very
attractive relative to U.S. stocks, and we believe that investors
should begin to focus on this opportunity as we move into 1996.
- Mercator Asset Management
8
<PAGE> 11
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
<TABLE>
<CAPTION>
TOP TEN HOLDINGS: (% of net assets)
- -----------------------------------------------------------------
<S> <C>
1. Sony Corp. Japan 2.5
- -----------------------------------------------------------------
2. Iberdrolasa S.A. Spain 2.4
- -----------------------------------------------------------------
3. Banco Bilbao Vizcaya Spain 2.3
- -----------------------------------------------------------------
4. Ciba Geigy AG Switzerland 2.3
- -----------------------------------------------------------------
5. Christian Dior France 2.2
- -----------------------------------------------------------------
6. ING Groep NV Netherlands 2.2
- -----------------------------------------------------------------
7. Lloyd's Abbey Life United Kingdom 2.1
- -----------------------------------------------------------------
8. Pioneer International Ltd. Australia 2.1
- -----------------------------------------------------------------
9. Banco Andalucia Spain 2.0
- -----------------------------------------------------------------
10. Lion Nathan Ltd. New Zealand 2.0
- -----------------------------------------------------------------
<CAPTION>
GEOGRAPHIC ALLOCATION: (% of net assets)
- -----------------------------------------------------------------
<S> <C>
Netherlands 11.5
- -----------------------------------------------------------------
Switzerland 11.4
- -----------------------------------------------------------------
United Kingdom 10.1
- -----------------------------------------------------------------
France 7.4
- -----------------------------------------------------------------
Spain 6.8
- -----------------------------------------------------------------
Japan 6.3
- -----------------------------------------------------------------
Sweden 6.2
- -----------------------------------------------------------------
Norway 6.2
- -----------------------------------------------------------------
Australia 6.0
- -----------------------------------------------------------------
South Korea 5.8
- -----------------------------------------------------------------
Canada 5.5
- -----------------------------------------------------------------
New Zealand 5.2
- -----------------------------------------------------------------
Argentina 2.3
- -----------------------------------------------------------------
Italy 1.8
- -----------------------------------------------------------------
Finland 1.5
- -----------------------------------------------------------------
Germany 1.2
- -----------------------------------------------------------------
</TABLE>
PERFORMANCE:
The following information illustrates the historical performance of
the Preferred International Fund compared with the EAFE INDEX. The
Europe, Australia & Far East Index contains over 1000 stocks from 20
different countries with Japan (approx. 40%), the United Kingdom,
France and Germany being the most heavily weighted.
There are special risk considerations associated with foreign
investing, including political and currency risks. (See "Risk Factors
of Foreign Investments" in the current Prospectus).
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN:
- ------------------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- ------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED INTERNATIONAL FUND 4.00% 9.93% 35.26%
- ------------------------------------------------------------------------
EAFE Index 8.55% 11.55% 56.68%
- ------------------------------------------------------------------------
* JULY 1, 1992
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
- ------------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION*
- ------------------------------------------------------------------------
<S> <C> <C>
PREFERRED INTERNATIONAL FUND 9.93% 9.00%
- ------------------------------------------------------------------------
EAFE Index 11.55% 13.69%
- ------------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Peferred International EAFE Index
Fund
<S> <C> <C>
07/01/92 10000 10000
12/31/92 8419 9779
06/30/93 9623 12072
12/31/93 11915 12999
06/30/94 12189 14159
12/31/94 12305 14047
06/30/95 13004 14433
12/31/95 13526 15668
</TABLE>
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so
that, when redeemed, an investor's shares may be worth more or less
than their original cost. The Preferred International Fund's
inception date was July 1, 1992. This report will provide five and
ten year performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark
by the amount of its management fees and other expenses for its
reported performance to match its benchmark.
9
<PAGE> 12
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED SMALL CAP FUND
INVESTMENT OBJECTIVE:
The Preferred Small Cap Fund seeks long-term capital appreciation
through investments in companies with small equity capitalizations.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: Todd M. Sheridan, CFA
Title: Portfolio Manager, Caterpillar Investment Management Ltd.
(CIML)
Last Five Years' Experience: Portfolio Manager at CIML since October
1992 with primary responsibilities for managing a small cap index
fund. Prior to that time, Todd held various positions within
Corporate Treasury Department of Caterpillar Inc. Todd managed the
Preferred Short-Term Government Securities Fund from January 1, 1993
to June 30, 1995 and has managed the Preferred Small Cap Fund since
its inception on November 1, 1995.
Education: B.S. - University of Illinois; Chartered Financial
Analyst.
DISCUSSION & ANALYSIS:
The Preferred Small Cap Fund was launched on November 1, 1995. For
the two-month period ended December 31, 1995, the Fund returned 5.1%,
compared with a 7.0% advance by the Russell 2000 Index. Prices of
small cap stocks started moving higher just as the Fund began
operations; this detracted from performance until the portfolio became
fully invested. Most of the underperformance in the short history of
this Fund is attributable to the costs of starting a new portfolio,
especially in such a strong market.
Performance for the period was led by two of the portfolio's
healthcare holdings. Maxicare Health Plans Inc. (1.8% of net assets)
and Medisense Inc. (1.6%) each increased in value by more than 50%.
The Fund did not escape the late year slump in technology stocks;
fortunately the portfolio only maintained a 13% allocation to the
sector. Even so, technology holdings in Integrated Silicon Solutions
Inc. (0.8%) and Hutchinson Technology Inc. (1.1%) detracted from
performance by declining 46% and 30%, respectively. We typically keep
the portfolio fully invested. At year-end, the Fund's cash position
was only 0.4%.
In selecting stocks for the Fund, we look for companies that have been
successful in the recent past, continue to demonstrate that success in
the present, have good long-term expected returns for the future, and
are selling at fair valuations in the market. The result is that we
get most of the earnings growth available from investing in small
capitalization stocks while only paying about half the earnings
multiple. As of year-end, the average price-earnings ratio of the
stocks in the portfolio was only half of the price-earnings ratio of
the Russell 2000. At the same time, the average long-term earnings
growth rate of the stocks in the portfolio nearly equalled that of the
Russell 2000.
The moderation of economic growth in the U.S. is forcing many
companies to scale back their earnings forecasts. We believe, though,
that the combination of low inflation and gradually decreasing
interest rates will provide the necessary environment for continued
economic growth in 1996. This should allow carefully selected
companies to deliver solid earnings in 1996.
- Caterpillar Investment Management Ltd.
10
<PAGE> 13
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
<TABLE>
<CAPTION>
TOP TEN HOLDINGS: (% of total net assets)
- ----------------------------------------------------------------------
<S> <C>
1. Mercer International Inc. 1.8
- ----------------------------------------------------------------------
2. Maxicare Health Plans Inc. 1.8
- ----------------------------------------------------------------------
3. Kulicke & Soffa Industry 1.7
- ----------------------------------------------------------------------
4. Chesapeake Corp. 1.7
- ----------------------------------------------------------------------
5. Conner Peripherals Inc. 1.7
- ----------------------------------------------------------------------
6. Medisense Inc. 1.6
- ----------------------------------------------------------------------
7. American Business Products Inc. 1.6
- ----------------------------------------------------------------------
8. Castle (A.M.) Co. 1.6
- ----------------------------------------------------------------------
9. Ross Stores Inc. 1.6
- ----------------------------------------------------------------------
10. CWM Mortgage Holdings Inc. 1.5
- ----------------------------------------------------------------------
</TABLE>
PERFORMANCE:
The following information illustrates the historical performance of
the Preferred Small Cap Fund compared with the RUSSELL 2000 INDEX.
The Russell 2000 Index contains the 2000 smallest of the 3000 largest
U.S. domiciled corporations, ranked by market capitalization.
Note: Securities of small-capitalization companies often trade less
frequently and in more limited volume, and may be subject to greater
volatility than securities of larger, more established companies.
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so
that, when redeemed, an investor's shares may be worth more or less
than their original cost. The Preferred Small Cap Fund's inception
date was November 1, 1995. This report will provide one, five and ten
year performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark
by the amount of its management fees and other expenses for its
reported performance to match its benchmark.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN:
- -------------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- -------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED SMALL CAP FUND N/A N/A 5.06%+
- -------------------------------------------------------------------
Russell 2000 Index N/A N/A 6.95%
- -------------------------------------------------------------------
</TABLE>
* NOVEMBER 1, 1995
+TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION
OF THE MANAGEMENT FEE (0.40%) HAD NOT BEEN WAIVED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
- -------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION*
- -------------------------------------------------------------------
<S> <C> <C>
PREFERRED SMALL CAP FUND N/A 5.06%+
- -------------------------------------------------------------------
Russell 2000 Index N/A 6.95%+
- -------------------------------------------------------------------
</TABLE>
* NOVEMBER 1, 1995
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION
OF THE MANAGEMENT FEE (0-40%) HAD NOT BEEN WAIVED.
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Preferred Small Russell 2000
Cap Fund Index
<S> <C> <C>
11/01/95 10000 10000
12/31/95 10506 10695
</TABLE>
11
<PAGE> 14
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED ASSET ALLOCATION FUND
INVESTMENT OBJECTIVE:
The Preferred Asset Allocation Fund seeks both capital appreciation
and current income by allocating its assets among stocks, bonds and
high quality money market instruments.
PORTFOLIO MANAGER PROFILE:
Mellon Capital Management Corporation
Portfolio Manager: Thomas B. Hazuka
Title: Executive Vice President, Mellon Capital Management
Corporation
Last Five Years' Experience: Portfolio Manager at Mellon Capital.
Tom has been involved in the management of the Preferred Asset
Allocation Fund since its inception on July 1, 1992.
Education: B.S. - Stevens Institute of Technology; MBA - University
of Connecticut; PHD - Stanford University
PanAgora Asset Management
Portfolio Manager: Edgar E. Peters
Title: Director, Asset Allocation and Chief Investment Strategist,
PanAgora Asset Management
Last Five Years Experience: Portfolio Manager at PanAgora Asset
Management. Ed has been involved in the management of the Preferred
Asset Allocation Fund since its inception on July 1, 1992.
Education: B.S. - Montclair State College; MBA - Rutgers University
DISCUSSION & ANALYSIS:
For the six-month period ended December 31, 1995, the Preferred Asset
Allocation Fund had a total return of 12.5%. By comparison, the S&P
500 Index earned a total return of 14.4% and the Lehman Brothers Long-
Term Treasury Index returned 10.8%. It should be noted that the
Fund's rate of return was obtained at a lower level of risk (as
measured by the historic relative price volatility of equity and debt)
than that of the stock market.
The asset allocation model utilizes market data input (earnings
projections, historical returns and volatility, and correlation among
asset classes) and other proprietary inputs to calculate: 1) an
expected return for each of the three asset classes - stocks, bonds,
and cash; and 2) the optimal mix of stocks, bonds, and cash given the
expected return and the goal of reducing risk through diversification.
As the model's inputs change over time, so will the Fund's allocation
among stocks, bonds, and money market instruments, as was the case
during the last six months.
The second half of 1995 was characterized by robust markets in both
stocks and bonds. Hitting record levels throughout the year, the
stock market continued its rally that began in December 1994 as
reported, as well as expected corporate earnings generally remained
strong and inflation remained low. Likewise, bonds reacted favorably
to the subdued level of inflation and to the Federal Reserve's
monetary policy. Both markets were spurred by the Federal Reserve's
25 basis point interest rate cut in early July, as well as the second
cut in mid-December.
During the third quarter of 1995, bond yields fluctuated widely as
yields rose substantially in July and August and then fell back in
September. Therefore, as bond yields rose, the asset allocation model
identified bonds as the more attractive asset class and then, as bond
yields fell, the model began to favor equities again. Consequently,
the Fund made several asset allocation moves over the course of the
third quarter. In both July and August, the Fund
12
<PAGE> 15
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
shifted more towards bonds. However, in September, as the spread
between expected return on stocks and bonds increased, the model began
to recommend a shift back to equities, which is where the mix remained
at year-end.
- Mellon Capital Management
- PanAgora Asset Management
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION: (% of portfolio)
- --------------------------------------------------------------
6/30/95* 9/30/95* 12/31/95*
- --------------------------------------------------------------
<S> <C> <C> <C>
Stocks 73 70 71
- --------------------------------------------------------------
Bonds 20 23 10
- --------------------------------------------------------------
Short-Term 7 7 19
(maturities less than
one year)
- --------------------------------------------------------------
*Adjusted for the effect of futures contracts
</TABLE>
PERFORMANCE:
The following information illustrates the historical performance of
the Preferred Asset Allocation Fund compared with a blended benchmark
consisting of: 65% - S&P 500 INDEX; 30% - LEHMAN BROTHERS LONG-
TERM TREASURY INDEX; AND 5% - 90-DAY TREASURY BILLS. The Lehman
Brothers Long-Term Treasury Index is a market weighted index of all
publicly held Treasury issues with maturities greater than 10 years.
The Asset Allocation Fund has a blended benchmark to reflect its
flexibility to invest in stocks, bonds and short term instruments.
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so
that, when redeemed, an investor's shares may be worth more or less
than their original cost. The Preferred Asset Allocation Fund's
inception date was July 1, 1992. This report will provide five and
ten year performance history in the future as the Fund matures.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN:
- --------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- --------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED ASSET ALLOCATION FUND 12.53% 32.79% 53.54%
- --------------------------------------------------------------
65/30/5 Benchmark 12.76% 33.76% 58.49%
- --------------------------------------------------------------
* JULY 1, 1992
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
- --------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION*
- --------------------------------------------------------------
<S> <C> <C>
PREFERRED ASSET ALLOCATION FUND 32.79% 13.02%
- --------------------------------------------------------------
65/30/5 Benchmark 33.76% 14.06%
- --------------------------------------------------------------
* JULY 1, 1992
</TABLE>
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Preferred Asset 65/30/5 Benchmark
Allocation Fund
<S> <C> <C>
07/01/92 10000 10000
12/31/92 10731 10781
06/30/93 11357 11523
12/31/93 11869 12057
06/30/94 11212 11483
12/31/94 11563 11848
06/30/95 13643 14057
12/31/95 15354 15849
</TABLE>
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark
by the amount of its management fees and other expenses for its
reported performance to match its benchmark.
13
<PAGE> 16
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED BALANCED FUND
INVESTMENT OBJECTIVE:
The Preferred Balanced Fund seeks total return through a combination
of capital appreciation and current income. The Fund allocates its
assets among stocks, bonds and short term instruments.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: Bradley L. Goldberg, CFA
Title: Director, Executive Vice President, Jennison Associates
Capital Corp.
Last Five Years' Experience: Portfolio manager at Jennison
Associates. Brad has managed the Preferred Balanced Fund since its
inception on July 1, 1995. Prior to that, Brad was an equity and
balanced portfolio manager and has been chairman of the Asset
Allocation committee at Jennison since 1980.
Education: B.S. - University of Illinois; MBA - New York University;
Chartered Financial Analyst.
DISCUSSION & ANALYSIS:
The six months ended December 31, 1995 was a strong period for both
stocks and bonds. The Preferred Balanced Fund returned 7.4% for the
period, versus 10.5% for the blended benchmark of 55% S&P 500
Index/35% Lehman Government/Corporate Bond Index/and 10% 90-day
Treasury Bills. This underperformance was largely due to
disappointing relative equity returns during the fourth quarter as
well as the portfolio's small equity weighting relative to the
benchmark.
The fourth quarter of 1995 proved to be a particularly difficult
period for companies with cyclically sensitive earnings. Worried
about the economic slowdown, investors bid up consumer and financial
stocks at the expense of technology and other cyclically sensitive
groups. Although our equity holdings lagged for the six-month period,
we believe we have an equity portfolio with favorable relative
earnings growth and very attractive valuation characteristics relative
to the market. Accordingly, we believe this period of relative
underperformance is likely to be short-lived.
The Fund ended the period with an asset allocation mix of 48%
equities, 36% bonds and 16% cash (calculated as % of net assets). It
is the strategy of the Fund to assess the risk/reward outlook for each
asset class on an ongoing basis, and to position the portfolio towards
the most attractive asset class. This is, however, not a precise
science, and the last half of 1995 presented a stronger equity market
than we had expected. Nevertheless, we believe that over the longer
term our active approach to asset allocation will be an important
factor as we attempt to achieve the Fund's objective of achieving
superior returns.
After the very strong stock and bond market performance in recent
months, it is particularly important to reassess the intermediate-term
outlook for the capital markets. Although we believe continued gains
for both stocks and bonds are possible, we also want to acknowledge
what may be a somewhat less friendly environment. On the equity side,
corporate earnings growth is slowing significantly after several years
of above average growth. Also, we believe the equity market is fully
valued according to a number of indicators. On the bond market front,
most signals continue to suggest a positive interest rate outlook,
although rates have experienced a dramatic decline over the past year
on a global basis, and there is uncertainty
14
<PAGE> 17
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
about their future direction. Within this framework the Fund is
maintaining a relatively cautious asset allocation posture. We
believe our year-end cash reserve position of 16% is appropriate given
the mixed outlook.
- Jennison Associates
PERFORMANCE:
The following information illustrates the historical performance of
the Preferred Balanced Fund compared to a blended benchmark consisting
of: 55% - S&P 500 INDEX; 35% - LEHMAN GOVERNMENT/CORPORATE BOND INDEX;
AND 10% - 90-DAY TREASURY BILLS. The Lehman Brothers
Government/Corporate Bond Index is an unmanaged list of publicly
issued U.S. Treasury obligations, debt obligations of the U.S.
Government and its agencies (excluding mortgage-backed securities),
fixed rate, non-convertible, investment-grade corporate debt
securities and U.S. dollar-denominated, SEC-registered non-convertible
debt issued by foreign governmental entities or international agencies
used as a general measure of the performance of fixed income
securities.
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so
that, when redeemed, an investor's shares may be worth more or less
than their original cost. The Preferred Balanced Fund's inception date
was July 1, 1995. This report will provide one, five and ten year
performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark
by the amount of its management fees and other expenses for its
reported performance to match its benchmark.
CUMULATIVE TOTAL RETURN:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- ----------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED BALANCED FUND 7.44% N/A 7.44%+
- ----------------------------------------------------------------
55/35/10 Benchmark 10.49% N/A 10.49%+
- ----------------------------------------------------------------
</TABLE>
* JULY 1, 1995
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF THE MANAGER HAD NOT
AGREED TO LIMIT EXPENSES TO 1.15% OF AVERAGE NET ASSETS.
AVERAGE ANNUAL TOTAL RETURN:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION*
- ----------------------------------------------------------------
<S> <C> <C>
PREFERRED BALANCED FUND N/A 7.44%+
- ----------------------------------------------------------------
55/35/10 Benchmark N/A 10.49%+
- ----------------------------------------------------------------
</TABLE>
* JULY 1, 1995
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF THE MANAGER HAD NOT
AGREED TO LIMIT EXPENSES TO 1.15% OF AVERAGE NET ASSETS.
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Preferred Balanced Fund 55/35/10 Benchmark
<S> <C> <C>
07/01/95 10000 10000
12/31/95 10744 11049
</TABLE>
15
<PAGE> 18
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED FIXED INCOME FUND
INVESTMENT OBJECTIVE:
The Preferred Fixed Income Fund seeks a high level of current income
consistent with investment in a diversified portfolio of high quality
debt securities.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: Paul L. Zemsky, CFA
Title: Vice President, J. P. Morgan Investment Management Inc.
Last Five Years' Experience: Portfolio Manager at J. P. Morgan
Investment. Paul has been involved in the management of the Preferred
Fixed Income Fund since January 1, 1994.
Education: B.S., B.S.E.E. - University of Pennsylvania;Chartered
Financial Analyst
DISCUSSION & ANALYSIS:
The Preferred Fixed Income Fund returned 6.2% for the six-month period
ended December 31, 1995, compared with a gain of 6.3% by the Salomon
Brothers Broad Investment Grade Index. Bonds experienced one of their
best years on record in 1995 with long-term interest rates, which
topped 7.4% in January, ending the year at 5.9%. Declining interest
rates were a primary contributor to the Fund's performance in the
second half of the year. The Federal Reserve, which increased short-
term rates during the first half of 1995, reversed direction and cut
interest rates twice during the year's second half in response to
slowing economic growth and benign inflation news.
In managing the Preferred Fixed Income Fund, there are three key
decisions that we make in order to add value. First, we determine the
Fund's duration, which is a measure of the Fund's sensitivity to
changes in interest rates. Because we believed that the Federal
Reserve was going to cut interest rates in mid-year (which it did), we
gradually lengthened the Fund's duration to take advantage of the
rally in bond prices. This decision proved rewarding and contributed
positively to the Fund's performance during the second half of the
year.
Secondly, we allocated the Fund's assets across broad sectors of the
fixed income market such as governments, corporates, and mortgage-
backed securities. During the second half of 1995, we reduced the
Fund's holdings in Treasuries and added to its holdings in corporate
bonds to take advantage of their higher yields. We increased its
holdings in mortgages from an underweighted to a neutral position, as
valuations became more attractive in this sector. The specific
mortgages in the Fund's portfolio tend to be less prepayment sensitive
and, therefore, less volatile than mortgages that comprise the Index.
The final decision process is to select individual securities for the
Fund. Securities are selected daily with substantial input from
income analysts and traders. During the second half of the Fund's
year, security selection among all sectors of the market continued to
add value. At year-end, its portfolio had an average credit quality
of AAA.
The Fund continues to maintain a slightly longer duration than the
Index, given weak economic data, the positive inflation environment,
and secular factors, including credible deficit reduction talk in
Washington. We also expect to continue our overweighting in mortgages
and corporates, given their yield advantage relative to Treasuries.
- J. P. Morgan Investment Management
16
<PAGE> 19
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS: (as of December 31, 1995)
- ---------------------------------------------------------------------
<S> <C>
Portfolio Holdings 73
- ---------------------------------------------------------------------
Average Maturity 13.2 years
- ---------------------------------------------------------------------
Average Duration 4.69 years
- ---------------------------------------------------------------------
Average Quality AAA
- ---------------------------------------------------------------------
Allocation: (% of portfolio)
- ---------------------------------------------------------------------
Treasury/Agency 26%
- ---------------------------------------------------------------------
Corporates 34%
- ---------------------------------------------------------------------
Mortgages 40%
- ---------------------------------------------------------------------
</TABLE>
PERFORMANCE:
The following information illustrates the historical performance of
the Preferred Fixed Income Fund compared with the SALOMON BROTHERS
BROAD INVESTMENT GRADE (BIG) INDEX. The Index contains 5000 U.S.
Treasury, Agency, Mortgage and Corporate Bonds. Credit quality must
be investment grade (AAA-BBB by Standard & Poor's).
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so
that, when redeemed, an investor's shares may be worth more or less
than their original cost. The Preferred Fixed Income Fund's inception
date was July 1, 1992. This report will provide five and ten year
performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark
by the amount of its management fees and other expenses for its
reported performance to match its benchmark.
CUMULATIVE TOTAL RETURN:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- ---------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED FIXED INCOME FUND 6.16% 17.65% 32.64%
- ---------------------------------------------------------------------
Salomon Bros. BIG Index 6.31% 18.53% 32.38%
- ---------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
AVERAGE ANNUAL TOTAL RETURN:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION*
- ---------------------------------------------------------------------
<S> <C> <C>
PREFERRED FIXED INCOME FUND 17.65% 8.40%
- ---------------------------------------------------------------------
Salomon Bros. BIG Index 18.53% 8.35%
- ---------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Preferred Fixed Salomon Brothers
Income Fund BIG Indx
<S> <C> <C>
07/01/92 10000 10000
12/31/92 10471 10461
06/30/93 11259 11198
12/31/93 11549 11496
06/30/94 11207 11065
12/31/94 11237 11169
06/30/95 12494 12454
12/31/95 13264 13238
</TABLE>
17
<PAGE> 20
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
INVESTMENT OBJECTIVE:
The Preferred Short-Term Government Securities Fund seeks high current
income, consistent with preservation of capital, primarily through
investments in U.S. Government Securities.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: J. Steven Orr, CFA
Title: Portfolio Manager, Caterpillar Investment Management Ltd.
(CIML)
Last Five Years' Experience: Portfolio Manager at CIML since June
1993. Prior to that, Steve held fixed income trading and portfolio
management positions with United Services Advisors, L&N Investment
Co., and MBank Austin. Effective July 1, 1995, Steve assumed
responsibility for management of the Preferred Short-Term Government
Securities Fund.
Education: B.A. - University of Texas; MBA - Southwest Texas State
University; J.D. - St. Mary's University School of Law; Chartered
Financial Analyst
DISCUSSION & ANALYSIS:
The Preferred Short-Term Government Securities Fund had a total return
of 3.5% for the six months ended December 31, 1995, compared with a
4.1% return for the Merrill Lynch 1-3 Year Treasury Index. Since
inception, the Fund's average annual return is 4.7% versus 5.7% for
the Index.
The second half of 1995 saw continued gains for fixed income
securities. The Federal Reserve Open Market Committee cut the
overnight lending rate to banks by one-quarter of a point at the
beginning and end of the period. Anticipation of these rate cuts by
market participants drove bond prices higher throughout the period.
In months when the Fund outperformed the benchmark, the Fund held
securities with a duration slightly longer than the Index. Periods of
underperformance were due to slightly larger cash holdings.
In the summer of 1995, the portfolio held some callable agency
securities. These were sold in the third quarter and replaced by U.S.
Treasuries. Toward the end of 1995, the Fund diversified its
holdings, adding several AAA rated asset-backed and taxable municipal
securities.
1995 was a landmark year in performance for fixed income securities.
Looking forward, we expect slowing growth in the economy and low
inflation to spur the Federal Reserve to continue lowering its lending
rates. Although this backdrop is favorable to bond prices, there is a
degree of uncertainty as to how much lower interest rates can go in
this economic cycle.
Caterpillar Investment Management Ltd.
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS: (as of December 31, 1995)
- ---------------------------------------------------------------------
<S> <C>
Portfolio Holdings 25
- ---------------------------------------------------------------------
Average Maturity 1.90 years
- ---------------------------------------------------------------------
Average Duration 1.74 years
- ---------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PERFORMANCE:
The following information illustrates the historical performance of
the Preferred Short-Term Government Securities Fund compared with the
MERRILL LYNCH 1-3 YEAR TREASURY INDEX. The Index is comprised
primarily of U.S. Treasury Notes and Bonds with remaining maturities
of one to three years.
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so
that, when redeemed, an investor's shares may be worth more or less
than their original cost. The Preferred Short-Term Government
Securities Fund's inception date was July 1, 1992. This report will
provide five and ten year performance history in the future as the
Fund matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark
by the amount of its management fees and other expenses for its
reported performance to match its benchmark.
CUMULATIVE TOTAL RETURN:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- ---------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED SHORT-TERM
GOVERNMENT SECURITIES FUND 3.51% 9.08% 17.35%
- ---------------------------------------------------------------------
ML 1-3 Yr. Treasury Index 4.06% 11.00% 21.40%
- ---------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
AVERAGE ANNUAL TOTAL RETURN:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION*
- ---------------------------------------------------------------------
<S> <C> <C>
PREFERRED SHORT-TERM
GOVERNMENT SECURITIES FUND 9.08% 4.67%
- ---------------------------------------------------------------------
ML 1-3 Yr. Treasury Index 11.00% 5.70%
- ---------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Preferred Short-Term ML 1-3 Yr. Treasury
Gov't Sec Fund Index
<S> <C> <C>
07/01/92 10000 10000
12/31/92 10261 10317
06/30/93 10632 10658
12/31/93 10833 10875
06/30/94 10723 10830
12/31/94 10757 10938
06/30/95 11336 11666
12/31/95 11735 12140
</TABLE>
19
<PAGE> 22
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
PREFERRED MONEY MARKET FUND
INVESTMENT OBJECTIVE:
The Preferred Money Market Fund seeks the maximum current income
believed to be consistent with preservation of capital and maintenance
of liquidity by investing in a portfolio of short-term, fixed income
instruments.
PORTFOLIO MANAGER PROFILE:
Portfolio Manager: Robert R. "Skip" Johnson
Title: Vice President, J. P. Morgan Investment Management Inc.
Last Five Years' Experience: Portfolio Manager at J. P. Morgan
Investment. Skip has been involved with the management of the
Preferred Money Market Fund since its inception on July 1, 1992.
Education: B.A. - Dartmouth College
DISCUSSION & ANALYSIS:
The Preferred Money Market Fund returned 2.8% for the six-month period
ended December 31, 1995, compared with a return of 2.7% for the
Donoghue's Taxable Money Market Fund Average. The primary contributor
to the Fund's performance during the period was the flattening and
eventual inversion of the money market curve, with yields on shorter
maturities becoming higher than those on longer maturities. This
condition was evident in the first half of 1995 and persisted through
the end of the year, and was the result of a slowing economy,
speculation over further Federal Reserve easings, continued low
inflation, and weakening of employment and manufacturing statistics.
Short-term interest rates declined throughout the year. Because we
believed that the Federal Reserve would lower rates in the middle of
the year (which it did), we gradually extended the average life of the
Fund to approximately 50-60 days. We avoided certain instruments,
such as callable CD's, because our analysis determined that they
offered poor value relative to fixed rate commercial paper.
The longer end of the money market yield curve benefited from weaker-
than-expected economic signals as the year progressed and positive
inflation news continued to flow forth. In addition, during the
second half of the year, the Fund shifted more of its assets into
Japanese bank obligations which met our stringent credit standards.
This is because Japanese banks, which have been beleaguered with
problem real estate loans, have been forced to offer a "Japan
premium", a 20 to 50 basis point hike over European and domestic
banks, in order to attract funds. Thus, the Fund's increased holdings
of Japanese CD's and other securities provided the greatest yield
advantage to the Fund during the period.
Although we expect to continue to purchase CD's from Japanese banks,
there will be less emphasis placed on Japanese bank obligations in the
coming year, as we believe the attractive premium has been drastically
reduced. We expect the Fund to maintain an average life of 50-60 days
and to focus on issues of six months or less. Lingering signs of slow
growth in North America are still evident in continued sluggish
production and employment data, as markets appear to be more fearful
of intensifying economic weakness
20
<PAGE> 23
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
rather than a renewed rebound. However, in this region, we expect
growth to rebound and hold steady throughout 1996. We believe that
inflation figures are under control, having possibly bottomed out in
the U.S., poised for upturn in Japan because of a weaker yen, and
remaining low throughout much of Europe.
- J. P. Morgan Investment Management
An investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that
the Fund will be able to maintain a stable Net Asset Value of $1.00
per share.
PERFORMANCE:
The following information illustrates the historical performance of
the Preferred Money Market Fund compared to DONOGHUE'S TAXABLE MONEY
MARKET FUND AVERAGE. This benchmark is used for taxable money market
funds.
Note: Past performance is not necessarily indicative of future
results. Investment return and principal value will fluctuate, so
that, when redeemed, an investor's shares may be worth more or less
than their original cost. The Preferred Money Market Fund's inception
date was July 1, 1992. This report will provide five and ten year
performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio, and does not trade or
incur any expenses. An investment fund must outperform its benchmark
by the amount of its management fees and other expenses for its
reported performance to match its benchmark.
CUMULATIVE TOTAL RETURN:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
- ---------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED MONEY MARKET FUND 2.80%+ 5.77%+ 14.38%+
- ---------------------------------------------------------------------
Donoghue's Taxable Money
Market Fund Average 2.66%+ 5.49%+ 14.07%+
- ---------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION OF
THE MANAGEMENT FEE (0.15%) HAD NOT BEEN WAIVED FOR
THE PERIOD JANUARY 1, 1993 THROUGH OCTOBER 31, 1995.
AVERAGE ANNUAL TOTAL RETURN:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION*
- ---------------------------------------------------------------------
<S> <C> <C>
PREFERRED MONEY MARKET FUND 5.77%+ 3.91%+
- ---------------------------------------------------------------------
Donoghue's Taxable Money
Market Fund Average 5.49%+ 3.83%+
- ---------------------------------------------------------------------
* JULY 1, 1992
</TABLE>
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION OF
THE MANAGEMENT FEE (0.15%) HAD NOT BEEN WAIVED FOR
THE PERIOD JANUARY 1, 1993 THROUGH OCTOBER 31, 1995.
A $10,000 INVESTMENT SINCE INCEPTION:
[GRAPH CHART]
<TABLE>
Preferred Money Donoghue's Taxable Money
Market Fund Market Fund Average
<S> <C> <C>
07/01/92 10000 10000
12/31/92 10140 10148
06/30/93 10271 10284
12/31/93 10406 10422
06/30/94 10569 10583
12/31/94 10814 10813
06/30/95 11126 11113
12/31/95 11438 11407
</TABLE>
21
<PAGE> 24
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS & LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1995 (UNAUDITED) GROWTH VALUE INTERNATIONAL SMALL CAP
<S> <C> <C> <C> <C>
ASSETS
Investments at value................................. $387,157,488 $215,149,999 $130,193,756 $26,760,682
Short-term obligations at amortized cost............. 1,656,000 14,237,910 5,916,000 108,149
Cash................................................. 20,435 1,695 94
Foreign currency holdings at value................... 52,921
Receivable for investments sold...................... 1,944,649
Receivable for fund shares sold...................... 1,364,759 842,817 538,075 895
Dividends and interest receivable.................... 296,737 249,217 382,309 27,853
Prepaid expenses and other assets.................... 39,481 9,938 31,068 13,142
------------ ------------ ------------ -----------
Total assets.................................... 392,479,549 230,491,576 137,114,223 26,910,721
------------ ------------ ------------ -----------
LIABILITIES
Payable for investments purchased.................... 118,032
Payable for fund shares redeemed..................... 88,336 114,670
Payable for variation margin.........................
Accrued:
Management fees.................................... 251,125 144,713 108,439 9,092
Audit fees......................................... 14,852 13,007 16,485 6,030
Custodian fees..................................... 14,719 14,812 48,229 10,041
Legal fees......................................... 1,106 14,833
Trustees' fees..................................... 4,140 339 290
Transfer agent fees and other expenses............. 6,450 6,044 7,816 2,767
------------ ------------ ------------ -----------
Total liabilities............................. 376,588 197,549 414,010 28,220
------------ ------------ ------------ -----------
Net assets........................................... $392,102,961 $230,294,027 $136,700,213 $26,882,501
------------ ------------ ------------ -----------
Shares of beneficial interest outstanding............ 23,196,785 15,331,594 10,895,661 2,561,943
------------ ------------ ------------ -----------
Offering and redemption price per share.............. $16.90 $15.02 $12.55 $10.49
------------ ------------ ------------ -----------
COMPOSITION OF NET ASSETS
Paid-in capital...................................... $291,028,557 $163,679,223 $122,527,873 $25,581,232
Undistributed (Distribution in excess of) net
investment income.................................. (370,744) 6,440 50,109 4,417
Accumulated net realized gains (losses) on
investments, futures and foreign currency.......... 5,938,722 4,904,756 (1,211,900) 258,511
Net unrealized appreciation on:
Investments........................................ 95,506,426 61,703,608 15,329,803 1,038,341
Futures............................................
Foreign denominated other assets, liabilities &
currency........................................ 4,328
------------ ------------ ------------ -----------
$392,102,961 $230,294,027 $136,700,213 $26,882,501
------------ ------------ ------------ -----------
Investments and short-term obligations at cost....... $293,307,062 $167,684,301 $120,779,953 $25,830,490
Foreign currency holdings at cost.................... 52,925
</TABLE>
See notes to financial statements
22
<PAGE> 25
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS & LIABILITIES
<TABLE>
<CAPTION>
ASSET FIXED SHORT-TERM MONEY
ALLOCATION BALANCED INCOME GOVERNMENT MARKET
<S> <C> <C> <C> <C>
$55,579,152 $2,836,986 $63,348,270 $31,354,565
27,175,516 500,000 9,726,609 262,717 $71,757,168
850 321 1,155 819
85,177 5,734
274,956 229,303 213,736 344,663
331,148 23,152 760,954 600,131 270,801
55,065 64,737 26,324 15,054 21,844
----------- ---------- ----------- ----------- -----------
83,501,864 3,430,930 74,092,615 32,446,203 72,395,295
----------- ---------- ----------- ----------- -----------
277,737 5,618 8,234,770
105,208
14,769
48,825 2,161 35,798 9,529 18,455
13,956 9,813 13,815 13,559 9,299
43,384 1,301 8,384 6,339 8,671
6,315 3,414 4,800
618 1,762 1,306
8,356 25,105 5,614 2,798 4,370
----------- ---------- ----------- ----------- -----------
413,342 44,616 8,303,557 38,331 146,003
----------- ---------- ----------- ----------- -----------
$83,088,522 $3,386,314 $65,789,058 $32,407,872 $72,249,292
----------- ---------- ----------- ----------- -----------
6,672,872 322,497 6,220,957 3,282,031 72,249,292
----------- ---------- ----------- ----------- -----------
$12.45 $10.50 $10.58 $9.87 $1.00
----------- ---------- ----------- ----------- -----------
$69,712,586 $3,226,400 $62,878,761 $32,823,861 $72,249,292
519,144 (4,206) 509,587 (751,761)
12,506,132 164,120 2,400,710 335,772
350,660
----------- ---------- ----------- ----------- -----------
$83,088,522 $3,386,314 $65,789,058 $32,407,872 $72,249,292
----------- ---------- ----------- ----------- -----------
$70,248,536 $3,172,866 $70,674,169 $31,281,510 $71,757,168
</TABLE>
23
<PAGE> 26
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
DECEMBER 31, 1995* (UNAUDITED) GROWTH VALUE INTERNATIONAL SMALL CAP*
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................. $1,184,683 $1,864,216 $1,282,893 $60,491
Interest.................................. 159,387 418,978 222,398 28,563
----------- ---------- ----------- ----------
1,344,070 2,283,194 1,505,291 89,054
Less foreign taxes withheld at source..... (15,780) (6,321) (155,401)
----------- ---------- ----------- ----------
Total income........................... 1,328,290 2,276,873 1,349,890 89,054
----------- ---------- ----------- ----------
EXPENSES
Management fees........................... 1,512,284 831,517 597,998 33,338
Audit fees................................ 15,837 14,579 16,088 7,530
Custodian fees............................ 54,038 37,202 136,490 10,041
Registration fees......................... 5,781 5,278 5,529 3,263
Legal fees................................ 33,418 14,830 12,564 1,757
Trustees, fees............................ 7,287 3,771 3,267 502
Transfer agent fees....................... 30,659 25,128 28,148 2,510
Insurance fees............................ 8,796 5,027 3,518
Other expenses............................ 30,910 9,807 12,561 1,255
----------- ---------- ----------- ----------
Total expenses before waiver
or reimbursement................... 1,699,010 947,139 816,163 60,196
----------- ---------- ----------- ----------
Expenses waived or borne by advisor....... (15,559)
----------- ---------- ----------- ----------
Net investment income (loss)........ (370,720) 1,329,734 533,727 44,417
----------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS, FUTURES AND
FOREIGN CURRENCY
Net realized gain (loss) on:
Investments............................ 17,449,049 8,525,095 2,391,476 258,511
Futures................................
Foreign denominated other assets,
liabilities and currency........... (78,639)
Change in net unrealized appreciation
(depreciation) on:
Investments............................ 1,537,727 15,409,272 2,126,513 1,038,341
Futures................................
Foreign denominated other assets,
liabilities & currency.............. (1,718)
----------- ---------- ----------- ----------
Net gain............................... 18,986,776 23,934,367 4,437,632 1,296,852
----------- ---------- ----------- ----------
Net increase in net assets
resulting from operations.............. $18,616,056 $25,264,101 $4,971,359 $1,341,269
----------- ---------- ----------- ----------
</TABLE>
* Two-month period ended December 31, 1995 for Small Cap. (Commenced investment
operations November 1, 1995).
** Commenced investment operations on July 3, 1995
See notes to financial statements
24
<PAGE> 27
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ASSET BALANCED** FIXED SHORT-TERM MONEY
ALLOCATION INCOME GOVERNMENT MARKET
<S> <C> <C> <C> <C>
$501,885 $14,091
1,272,215 51,740 $2,045,895 $992,353 $2,231,674
---------- -------- ---------- ---------- ----------
1,774,100 65,831 2,045,895 992,353 2,231,674
(2,554) (38)
---------- -------- ---------- ---------- ----------
1,771,546 65,793 2,045,895 992,353 2,231,674
---------- -------- ---------- ---------- ----------
289,190 12,372 203,468 56,431 113,079
15,585 11,313 14,077 14,579 12,567
82,940 11,056 32,673 17,595 28,654
5,027 7,289 5,027 5,027 4,523
5,781 15,322 5,027 1,761 7,036
753 672 1,256 754 1,758
20,356 3,270 20,356 11,310 18,093
2,262 336 1,759 1,005 2,262
9,294 1,005 3,266 1,758 7,285
---------- -------- ---------- ---------- ----------
431,188 62,635 286,909 110,220 195,257
---------- -------- ---------- ---------- ----------
(43,664) (38,738)
---------- -------- ---------- ---------- ----------
1,340,358 46,822 1,758,986 882,133 2,075,155
---------- -------- ---------- ---------- ----------
3,365,205 25,866 1,219,731 186,829
1,604,178
3,407,881 164,120 820,933 66,115
(105,722)
---------- -------- ---------- ---------- ----------
8,271,542 189,986 2,040,664 252,944 --
---------- -------- ---------- ---------- ----------
$9,611,900 $236,808 $3,799,650 $1,135,077 $2,075,155
---------- -------- ---------- ---------- ----------
</TABLE>
25
<PAGE> 28
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH VALUE INTERNATIONAL SMALL CAP
PERIOD+ YEAR PERIOD+ YEAR PERIOD+ YEAR PERIOD++
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12-31-95 6-30-95 12-31-95 6-30-95 12-31-95 6-30-95 12-31-95
-------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)..... ($ 370,720) $ 329,642 $ 1,329,734 $ 3,145,879 $ 533,727 $ 1,813,258 $ 44,417
Net realized gain (loss) on:
Investments.................. 17,449,049 952,282 8,525,095 1,307,784 2,391,476 (2,003,086) 258,511
Futures......................
Foreign denominated other
assets, liabilities
& currency................ (78,639) (158,648)
Change in net unrealized
appreciation
(depreciation) on:
Investments................. 1,537,727 79,488,514 15,409,272 35,109,585 2,126,513 6,501,167 1,038,341
Futures.....................
Foreign denominated other
assets, liabilities
& currency................ (1,718) (2,141)
------------ ----------- ------------ ------------ ------------ ------------ -----------
Net increase in net
assets resulting
from operations........ 18,616,056 80,770,438 25,264,101 39,563,248 4,971,359 6,150,550 1,341,269
------------ ----------- ------------ ------------ ------------ ------------ -----------
Distributions to
shareholders from:
Net investment income....... (171,060) (360,028) (3,050,000) (2,570,208) (1,800,796) (1,135,218) (40,000)
Net realized gains.......... (12,083,363) (981,809) (4,345,798) (1,848,676) (126,594) (2,294,131)
In excess of
realized gains......... (1,483,508)
------------ ----------- ------------ ------------ ------------ ------------ -----------
(12,254,423) (1,341,837) (7,395,798) (4,418,884) (1,927,390) (4,912,857) (40,000)
------------ ----------- ------------ ------------ ------------ ------------ -----------
Fund share transactions:
Receipts for shares sold.... 75,522,731 192,447,010 45,503,497 85,032,399 41,559,619 56,546,095 26,502,847
Value of distributions
reinvested ............ 12,181,436 1,323,959 7,389,827 4,418,455 1,924,291 4,827,346 40,000
Cost of shares redeemed..... (76,555,539) (70,073,934) (53,145,963) (33,004,985) (28,043,704) (39,328,510) (961,615)
------------ ----------- ------------ ------------ ------------ ------------ -----------
Net increase (decrease)
in net assets
from fund share
transactions........ 11,148,628 123,697,035 (252,639) 56,445,869 15,440,206 22,044,931 25,581,232
------------ ----------- ------------ ------------ ------------ ------------ -----------
Total increase
(decrease)...... 17,510,261 203,125,636 17,615,664 91,590,233 18,484,175 23,282,624 26,882,501
NET ASSETS
Beginning of period......... 374,592,700 171,467,064 212,678,363 121,088,130 118,216,038 94,933,414 --
------------ ----------- ------------ ------------ ------------ ------------ -----------
End of period............... $392,102,961 $374,592,700 $230,294,027 $212,678,363 $136,700,213 $118,216,038 $26,882,501
------------ ----------- ------------ ------------ ------------ ------------ -----------
Undistributed (distribution
in excess of) net
investment income at
end of period............ ($ 370,744) $ 171,036 $ 6,440 $ 1,726,706 $ 50,109 $ 1,317,178 $ 4,417
------------ ----------- ------------ ------------ ------------ ------------ -----------
NUMBER OF FUND SHARES
Sold........................ 4,268,058 13,604,783 3,081,389 6,951,632 3,301,120 4,618,904 2,650,211
Issued for distributions
reinvested............... 720,794 97,278 496,296 393,082 153,329 417,558 3,842
Redeemed.................... (4,312,353) (4,948,067) (3,632,757) (2,647,764) (2,219,922) (3,273,695) (92,110)
------------ ----------- ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in
shares outstanding.... 676,499 8,753,994 (55,072) 4,696,950 1,234,527 1,762,767 2,561,943
Outstanding at:
Beginning of period......... 22,520,286 13,766,292 15,386,666 10,689,716 9,661,134 7,898,367 --
------------ ----------- ------------ ------------ ------------ ------------ -----------
End of period............... 23,196,785 22,520,286 15,331,594 15,386,666 10,895,661 9,661,134 2,561,943
------------ ----------- ------------ ------------ ------------ ------------ -----------
</TABLE>
+Unaudited six-month period ended December 31, 1995.
++Unaudited two-month period ended December 31, 1995
(Commenced investment operations on November 1, 1995).
+++Unaudited six-month period ended December 31, 1995
(Commenced investment operations on July 3, 1995).
See notes to financial statements
26
<PAGE> 29
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ASSET BALANCED FIXED SHORT-TERM MONEY
ALLOCATION INCOME GOVERNMENT MARKET
PERIOD+ YEAR PERIOD+++ PERIOD+ YEAR PERIOD+ YEAR PERIOD+ YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12-31-95 6-30-95 12-31-95 12-31-95 6-30-95 12-31-95 6-30-95 12-31-95 6-30-95
-------- ------- -------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,340,358 $ 2,268,126 $ 46,822 $ 1,758,986 $ 2,973,467 $ 882,133 $ 1,589,992 $2,075,155 $3,174,842
3,365,205 543,186 25,866 1,219,731 465,854 186,829 (651,316)
1,604,178 39,803 21,358
3,407,881 9,677,960 164,120 820,933 2,405,683 66,115 729,149
(105,722) 612,251
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
9,611,900 13,141,326 236,808 3,799,650 5,845,004 1,135,077 1,689,183 2,075,155 3,174,842
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
(1,328,065) (2,279,873) (46,822) (1,758,986) (2,973,467) (882,133) (1,589,992) (2,075,155) (3,174,842)
(5,044,890) (499,538) (30,072) (317,329)
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
(6,372,955) (2,779,411) (76,894) (2,076,315) (2,973,467) (882,133) (1,589,992) (2,075,155) (3,174,842)
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
15,184,571 14,544,292 3,481,551 11,472,455 17,834,854 2,274,661 5,330,024 46,316,411 112,398,694
6,368,522 2,748,107 4,437 2,060,759 2,960,356 881,000 1,587,487 2,075,127 3,164,284
(19,448,534) (8,870,435) (259,588) (7,379,390) (11,627,516) (3,121,904) (5,167,066) (55,727,999) (81,582,823)
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
2,104,559 8,421,964 3,226,400 6,153,824 9,167,694 33,757 1,750,445 (7,336,461) 33,980,155
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
5,343,504 18,783,879 3,386,314 7,877,159 12,039,231 286,701 1,849,636 (7,336,461) 33,980,155
77,745,018 58,961,139 -- 57,911,899 45,872,668 32,121,171 30,271,535 79,585,753 45,605,598
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
$83,088,522 $77,745,018 $3,386,314 $65,789,058 $57,911,899 $32,407,872 $32,121,171 $72,249,292 $79,585,753
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
($ 12,293)
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
1,189,252 1,323,595 346,573 1,104,903 1,806,568 231,727 549,544 46,316,411 112,398,694
508,436 250,348 423 197,858 300,318 89,776 163,782 2,075,092 3,164,284
(1,517,423) (820,174) (24,499) (706,394) (1,163,969) (318,075) (533,019) (55,727,964) (81,582,823)
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
180,265 753,769 322,497 596,367 942,917 3,428 180,307 (7,336,461) 33,980,155
6,492,607 5,738,838 -- 5,624,590 4,681,673 3,278,603 3,098,296 79,585,753 45,605,598
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
6,672,872 6,492,607 322,497 6,220,957 5,624,590 3,282,031 3,278,603 72,249,292 79,585,753
----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
27
<PAGE> 30
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS
---------------------------------------- -------------
(SELECTED DATA FOR A SHARE Net Total Distributions
OF BENEFICIAL INTEREST NET ASSET Net Realized Income Distributions from Net
OUTSTANDING THROUGHOUT VALUE, Investment and (Loss) from from Net Realized
THE PERIOD) BEGINNING Income Unrealized Investment Investment Gains on
OF PERIOD (Loss) Gain (Loss) Operations Income Investments
<S> <C> <C> <C> <C> <C> <C>
GROWTH
Year Ended June 30,
1993 $10.00 $0.01 $2.42 $2.43 $(0.01) $ --
1994 12.42 0.01 0.03 0.04 -- --
1995 12.46 0.01 4.24 4.25 (0.02) (0.06)
Six-Months Ended
December 31, 1995
(Unaudited) 16.63 (0.02) 0.84 0.82 (0.01) (0.54)
VALUE
Year Ended June 30,
1993 10.00 0.19 1.44 1.63 (0.11) --
1994 11.52 0.19 (0.12) 0.07 (0.16) (0.10)
1995 11.33 0.21 2.62 2.83 (0.20) (0.14)
Six-Months Ended
December 31, 1995
(Unaudited) 13.82 0.09 1.61 1.70 (0.21) (0.29)
INTERNATIONAL
Year Ended June 30,
1993 10.00 0.15 (0.53) (0.38) (0.03) --
1994 9.59 0.08 2.47 2.55 (0.07) (0.05)
1995 12.02 0.18 0.60 0.78 (0.13) (0.26)
Six-Months Ended
December 31, 1995
(Unaudited) 12.24 0.04 0.45 0.49 (0.17) (0.01)
SMALL CAP
Two-Months Ended December 31, 1995 (Commenced investment operations on November 1, 1995)
(Unaudited) $10.00 $0.02 $0.49 $0.51 $(0.02) $ --
</TABLE>
*Total return for the Small Cap Fund would have been lower if a portion
of the fees had not been waived by the advisor.
***Total return at net asset value and assumes reinvestment of dividends
and capital gains distributions.
+Not annualized
++Annualized
See notes to financial statements
28
<PAGE> 31
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIOS TO AVERAGE NET ASSETS
- ---------------------------- -----------------------------------------------
Operating
Distributions NET ASSET TOTAL Net Expenses
in Excess VALUE, RETURN AT Assets, Before Net Portfolio
of Realized Total END OF NET ASSET End of Operating Voluntary Investment Turnover
Gains Distributions PERIOD VALUE*** Period Expenses Waiver Income (Loss) Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $(0.01) $12.42 24.25% $117,706,665 1.00% -- 0.07% 58.12%
-- -- 12.46 0.34% 171,467,064 0.91% -- 0.13% 51.56%
-- (0.08) 16.63 34.21% 374,592,700 0.87% -- 0.13% 55.32%
-- (0.55) 16.90 4.90%+ 392,102,961 0.84%++ -- (0.18%)++ 36.37%
-- (0.11) 11.52 16.37% 121,511,090 0.96% -- 1.79% 17.77%
-- (0.26) 11.33 0.60% 121,088,130 0.93% -- 1.64% 11.95%
-- (0.34) 13.82 25.72% 212,678,363 0.89% -- 1.95% 29.02%
-- (0.50) 15.02 12.30%+ 230,294,027 0.85%++ -- 1.20%++ 10.22%
-- (0.03) 9.59 (3.77%) 39,126,841 1.60% -- 1.83% 16.21%
-- (0.12) 12.02 26.66% 94,933,414 1.38% -- 1.37% 27.78%
(0.17) (0.56) 12.24 6.70% 118,216,038 1.32% -- 1.65% 29.47%
-- (0.18) 12.55 4.00%+ 136,700,213 1.30%++ -- 0.85%++ 10.12%
$ -- $(0.02) $10.49 5.06%+* $26,882,501 1.00%++ 1.35%++ 1.00%++ 10.01%
</TABLE>
29
<PAGE> 32
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS
---------------------------------------- ---------------------------
(SELECTED DATA FOR A SHARE Net Total Distributions
OF BENEFICIAL INTEREST NET ASSET Realized Income Distributions from Net
OUTSTANDING THROUGHOUT VALUE, Net and (Loss) from from Net Realized
THE PERIOD) BEGINNING Investment Unrealized Investment Investment Gains on
OF PERIOD Income Gain (Loss) Operations Income Investments
<S> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION
Year Ended June 30,
1993 $10.00 $0.34 $0.99 $1.33 $(0.34) $(0.09)
1994 10.90 0.30 (0.42) (0.12) (0.30) (0.21)
1995 10.27 0.38 1.79 2.17 (0.38) (0.09)
Six-Months Ended
December 31, 1995
(Unaudited) 11.97 0.20 1.29 1.49 (0.20) (0.81)
BALANCED
Six-Months Ended December 31, 1995 (Commenced investment operations on July 3, 1995)
(Unaudited) 10.00 0.15 0.59 0.74 (0.15) (0.09)
FIXED INCOME
Year Ended June 30,
1993 10.00 0.51 0.71 1.22 (0.51) (0.11)
1994 10.60 0.47 (0.50) (0.03) (0.47) (0.14)
1995 9.80 0.58 0.50 1.08 (0.58) --
Six-Months Ended
December 31, 1995
(Unaudited) 10.30 0.29 0.33 0.62 (0.29) (0.05)
SHORT-TERM GOVERNMENT
Year Ended June 30,
1993 10.00 0.39 0.23 0.62 (0.39) (0.15)
1994 10.08 0.37 (0.29) 0.08 (0.37) --
1995 9.77 0.51 0.03 0.54 (0.51) --
Six-Months Ended
December 31, 1995
(Unaudited) 9.80 0.27 0.07 0.34 (0.27) --
MONEY MARKET
Year Ended June 30,
1993 1.00 0.03 -- 0.03 (0.03) --
1994 1.00 0.03 -- 0.03 (0.03) --
1995 1.00 0.05 -- 0.05 (0.05) --
Six-Months Ended
December 31, 1995
(Unaudited) $1.00 $0.03 $ -- $0.03 $(0.03) $ --
</TABLE>
*Total return for the Money Market Fund and Balanced Fund would have been
lower if a portion of the fees had not been waived or borne by the advisor.
**Effective July 3, 1995 and until further notice, the Manager has agreed to
limit expenses to 1.15% of average net assets.
***Total return at net asset value and assumes reinvestment of dividends and
capital gains distributions.
+Not annualized ++Annualized
See notes to financial statements
30
<PAGE> 33
THE PREFERRED GROUP OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIOS TO AVERAGE NET ASSETS
- ----------------------------- -------------------------------------------------------
OPERATING
DISTRIBUTIONS NET ASSET TOTAL NET EXPENSES
IN EXCESS VALUE, RETURN AT ASSETS, BEFORE NET PORTFOLIO
OF REALIZED TOTAL END OF NET ASSET END OF OPERATING VOLUNTARY INVESTMENT TURNOVER
GAINS DISTRIBUTIONS PERIOD VALUE*** PERIOD EXPENSES WAIVER INCOME RATE
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $(0.43) $10.90 13.57% $48,420,381 1.27% -- 3.25% 34.10%
-- (0.51) 10.27 (1.28%) 58,961,139 1.25% -- 2.76% 24.71%
-- (0.47) 11.97 21.70% 77,745,018 1.11% -- 3.52% 18.27%
-- (1.01) 12.45 12.53%+ 83,088,522 1.04%++ -- 3.24%++ 25.85%
===========================================================================================================================
-- (0.24) 10.50 7.44%+* 3,386,314 1.15%++** 3.80%++** 2.84%++ 20.01%
===========================================================================================================================
-- (0.62) 10.60 12.59% 35,889,454 1.05% -- 4.91% 316.06%
(0.16) (0.77) 9.80 (0.46%) 45,872,668 0.97% -- 4.53% 254.92%
-- (0.58) 10.30 11.48% 57,911,899 0.95% -- 5.94% 330.55%
-- (0.34) 10.58 6.16%+ 65,789,058 0.91%++ -- 5.60%++ 155.82%
===========================================================================================================================
-- (0.54) 10.08 6.32% 27,027,485 0.78% -- 3.87% 268.36%
(0.02) (0.39) 9.77 0.86% 30,271,535 0.74% -- 3.75% 134.34%
-- (0.51) 9.80 5.71% 32,121,171 0.71% -- 5.27% 256.44%
-- (0.27) 9.87 3.51%+ 32,407,872 0.68%++ -- 5.46%++ 81.63%
===========================================================================================================================
-- (0.03) 1.00 2.71%* 18,146,496 0.80% 0.87% 2.67% N/A
-- (0.03) 1.00 2.91%* 45,605,598 0.53% 0.68% 2.97% N/A
-- (0.05) 1.00 5.27%+* 79,585,753 0.39% 0.54% 5.24% N/A
$ -- $(0.03) $1.00 2.80%+* $72,249,292 0.42%++ 0.47%++ 5.54%++ N/A
</TABLE>
31
<PAGE> 34
December 31, 1995 (unaudited)
- -------------------------------------------------------------------------
Schedules of Investments
PREFERRED GROWTH FUND
<TABLE>
<CAPTION>
Common Stock - 98.74% Shares Value
- -------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - 3.36%
Boeing Co 168,000 $13,167,000
-----------
COMPUTER SOFTWARE - 8.89%
Adobe Systems Inc 122,500 7,595,000
Autodesk Inc 95,700 3,277,725
First Data Corp 88,400 5,911,750
General Motors Corp Class E 20,200 1,050,400
Intuit* 39,700 3,096,600
Microsoft Corp* 84,000 7,371,000
Sap AG ADR*** 129,700 6,548,177
-----------
34,850,652
-----------
CONSUMER PRODUCTS - 3.25%
Gillette Co 105,600 5,504,400
Heilig Meyers Co 166,300 3,055,763
Pepsico Inc 74,600 4,168,275
-----------
12,728,438
-----------
DISCOUNT & FASHION RETAILING - 8.15%
Autozone Inc* 278,900 8,053,238
Dollar General Corp 145,900 3,027,425
Home Depot Inc 96,533 4,621,517
Kohls Corp* 104,800 5,502,000
Micro Warehouse Inc* 106,800 4,619,100
Sunglass Hut International Inc* 257,800 6,122,750
-----------
31,946,030
-----------
ELECTRICAL & ELECTRONICS - 13.46%
Adflex Solutions Inc* 141,500 3,785,125
Diebold Inc 168,225 9,315,459
Intel Corp 208,600 11,838,050
KLA Instruments Corp* 157,600 4,107,450
LSI Logic Corp* 246,500 8,072,875
Motorola Inc 94,400 5,380,800
Symbol Technologies Inc* 136,800 5,403,600
Texas Instruments Inc 94,500 4,890,375
-----------
52,793,734
-----------
FINANCE - 4.28%
Federal National Mortgage Association 37,900 4,704,338
MGIC Investment Corp 131,200 7,117,600
Morgan Stanley Group Inc 61,600 4,966,500
-----------
16,788,438
-----------
HEALTH CARE - 12.93%
Astra AB ADR 226,000 9,036,972
Chiron Corp* 58,600 6,475,300
Eli Lilly & Co 105,600 5,940,000
Merck & Co Inc 60,700 3,991,025
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
HEALTH CARE (continued)
Pfizer Inc 69,400 $4,372,200
Phycor Inc* 125,200 6,330,425
Smithkline Beecham PLC ADR 170,500 9,462,750
United Healthcare Corp* 77,900 5,102,450
-----------
50,711,122
-----------
LEISURE TIME INDUSTRIES - 4.46%
Lone Star Steakhouse & Saloon* 150,900 5,790,788
Promus Cos Inc* 137,525 3,059,931
Walt Disney Co 146,500 8,643,500
-----------
17,494,219
-----------
MANUFACTURING - 7.08%
Applied Materials Inc* 240,500 9,469,688
Caterpillar Inc 54,000 3,172,500
Duracell International Inc 122,300 6,329,025
Harnischfeger Industries Inc 160,700 5,343,275
Novellus System Inc* 64,100 3,461,400
-----------
27,775,888
-----------
OFFICE EQUIPMENT & COMPUTERS - 15.64%
3Com Corp* 159,100 7,418,038
America Online Inc* 33,400 1,252,500
Bay Networks Inc* 162,450 6,680,756
Cerner Corp* 112,600 2,308,300
Cirrus Logic Inc* 135,000 2,666,250
Cisco Systems Inc* 165,500 12,350,438
Compaq Computer Corp* 88,200 4,233,600
Dell Computer Corp* 119,800 4,148,075
HBO & Co 73,200 5,608,950
Hewlett Packard Co 175,000 14,656,250
-----------
61,323,157
-----------
PUBLISHING & BROADCASTING - 3.74%
Reuters Holdings PLC ADR 146,200 8,059,275
Scholastic Corp* 84,800 6,593,200
-----------
14,652,475
-----------
SERVICE INDUSTRIES - 3.60%
CUC International Inc* 174,800 5,965,050
Omnicom Group 218,400 8,135,400
-----------
14,100,450
-----------
TELECOMMUNICATIONS - 6.62%
Ascend Communications Inc* 153,400 12,444,575
Ericsson LM Tel Co Class B ADR* 153,300 2,989,350
Nokia Corp ADR* 129,900 5,049,863
Vodafone Group PLC 155,500 5,481,375
-----------
25,965,163
-----------
</TABLE>
See notes to financial statements and notes to schedules of investments
32
<PAGE> 35
The Preferred Group of Mutual Funds
- --------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION - 3.28%
AMR Corp* 93,600 $ 6,949,800
Wisconsin Central Trans Corp* 89,900 5,910,922
-----------
12,860,722
-----------
TOTAL COMMON STOCK
(Cost - $291,651,062) 387,157,488
===========
SHORT TERM OBLIGATIONS - .42% PAR VALUE
- --------------------------------------------------------------------------
COMMERCIAL PAPER - .42%
Chevron Oil Finance Co
5.75% 2 Jan 1996 $1,656,000 $1,656,000
----------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $1,656,000) 1,656,000
==========
TOTAL INVESTMENTS - 99.16%
(Cost - $293,307,062) 388,813,488
===========
OTHER ASSETS AND LIABILITIES - .84% 3,289,473
===========
TOTAL NET ASSETS - 100% $392,102,961
============
PREFERRED VALUE FUND
COMMON STOCK - 93.43% SHARES VALUE
- --------------------------------------------------------------------------
AEROSPACE - 7.03%
Lockheed Martin Corp 100,000 $ 7,900,000
McDonnell Douglas Corp 90,000 8,280,000
-----------
16,180,000
-----------
BANKS - 7.51%
Citicorp 115,000 7,733,750
First Interstate Bancorp 70,000 9,555,000
----------
17,288,750
----------
CHEMICALS - 10.18%
Du Pont E I de Nemours & Co 80,000 5,590,000
Freeport McMoRan Inc 100,000 3,700,000
Hercules Inc 110,000 6,201,250
Monsanto Co 65,000 7,962,500
----------
23,453,750
----------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------
CONGLOMERATES - 8.77%
Coltec Industries Inc* 300,000 $ 3,487,500
General Electric Co 100,000 7,200,000
Premark International Inc 70,000 3,543,750
Tenneco Inc 120,000 5,955,000
----------
20,186,250
----------
CONSUMER PRODUCTS - 5.38%
Avon Products Inc 80,000 6,030,000
Unilever N V 45,000 6,333,750
----------
12,363,750
----------
CONTAINERS & PACKING - 2.30%
Temple Inland Inc 120,000 5,295,000
----------
DISCOUNT & FASHION RETAILING - 2.57%
May Dept Stores Co 140,000 5,915,000
----------
ELECTRICAL & ELECTRONICS - 3.58%
Intel Corp 85,000 4,823,750
Motorola Inc 60,000 3,420,000
---------
8,243,750
---------
FINANCE - 21.35%
Aflac Inc 120,000 5,205,000
American International Group Inc 70,000 6,475,000
Countrywide Credit Industry Inc 110,000 2,392,500
Excel Ltd 130,000 7,930,000
Federal Home Loan Mortgage Corp 110,000 9,185,000
Morgan Stanley Group Inc 50,000 4,031,250
Transamerica Corp 75,000 5,465,625
Travelers Group Inc 135,000 8,488,125
----------
49,172,500
----------
FOOD - 2.28%
Dole Food Inc 150,000 5,250,000
----------
FUEL - 2.10%
Union Texas Pete Holdings Inc 250,000 4,843,750
----------
HEALTH CARE - 4.39%
Becton Dickinson & Co 70,000 5,250,000
Warner Lambert Co 50,000 4,856,250
----------
10,106,250
----------
HOUSING & REAL ESTATE - .36%
Castle & Cooke Inc* 50,000 837,499
----------
MANUFACTURING - 4.09%
Shaw Industries Inc 300,000 4,425,000
Tyco International Ltd 140,000 4,987,500
----------
9,412,500
----------
</TABLE>
See notes to financial statements and notes to schedules of investments
33
<PAGE> 36
December 31, 1995 (unaudited)
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
PREFERRED VALUE FUND (continued)
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
=========================================================================
<S> <C> <C>
METALS & MINING - 2.56%
Freeport McMoRan Copper & Gold Class B 210,000 $ 5,906,250
-----------
SERVICE INDUSTRIES - 2.25%
Arrow Electronics Inc* 120,000 5,175,000
-----------
TELECOMMUNICATIONS - 4.80%
Nokia Corp ADR 100,000 3,887,500
Sprint Corp 180,000 7,177,500
-----------
11,065,000
TRANSPORTATION - 1.93%
AMR Corp* 60,000 4,455,000
-----------
TOTAL COMMON STOCK
(Cost - $153,446,391) 215,149,999
-----------
<CAPTION>
SHORT TERM OBLIGATIONS - 6.18% PAR/SHARES VALUE
=========================================================================
<S> <C> <C>
COMMERCIAL PAPER - 4.34%
Beneficial Corp @
5.83% 11 Jan 1996 $3,000,000 $2,995,142
General Electric Capital Corp @
5.65% 3 Jan 1996 3,000,000 2,999,058
Prudential Funding Corp @
5.65% 9 Jan 1996 2,000,000 1,997,489
5.92% 4 Jan 1996 2,000,000 1,999,013
------------
9,990,702
------------
SHORT TERM INVESTMENT FUND - 1.84%
Seven Seas Money Market Fund 4,247,208 4,247,208
------------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $14,237,910) 14,237,910
------------
TOTAL INVESTMENTS - 99.61%
(Cost - $167,684,301) 229,387,909
------------
OTHER ASSETS AND LIABILITIES - .39% 906,118
------------
TOTAL NET ASSETS - 100% $230,294,027
============
PREFERRED INTERNATIONAL FUND
<CAPTION>
COMMON STOCK & EQUIVALENTS - 95.24% SHARES VALUE
=========================================================================
<S> <C> <C>
ARGENTINA - 2.28%
COMMUNICATION SERVICES - 1.05%
Telecom Argentina Stet France
Class B ADR 30,000 $1,428,750
INTERNATIONAL OIL - 1.23%
YPF Sociedad Anonima Class D ADR 78,000 1,686,750
-----------
Total Argentina 3,115,500
-----------
- -------------------------------------------------------------------------
AUSTRALIA - 6.02%
CONGLOMERATES - 1.99%
CSR Ltd 835,000 2,718,374
CONSTRUCTION MATERIALS - 2.08%
Pioneer International Ltd 1,100,000 2,837,074
TRUCKING & FREIGHT - 1.95%
Mayne Nickless Ltd 600,000 2,675,784
-----------
Total Australia 8,231,232
- -------------------------------------------------------------------------
CANADA - 5.54%
BANKS - 1.91%
Bank Nova Scotia Halifax 120,000 2,614,427
PAPER - 1.72%
Macmillan Bloedel Ltd 190,000 2,348,041
RETAIL TRADE - 1.91%
Canadian Tire Ltd Class A 240,000 2,614,427
-----------
Total Canada 7,576,895
-----------
- -------------------------------------------------------------------------
FINLAND - 1.51%
NON-FERROUS METALS - 1.51%
Outokumpuoy 130,000 2,062,353
-----------
Total Finland 2,062,353
-----------
</TABLE>
See notes to financial statements and notes to schedules of investments
34
<PAGE> 37
The Preferred Group of Mutual Funds
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
FRANCE - 7.40%
APPAREL & TEXTILES - 2.21%
Christian Dior 28,000 $ 3,018,991
AUTOMOBILES - 1.83%
Peugeot S.A. 19,000 2,506,433
CONGLOMERATES - 1.91%
Chargeurs S.A. 13,000 2,606,902
GAS EXPLORATION - 1.45%
Societe Elf Aquitaine 27,000 1,989,300
-----------
Total France 10,121,626
===========
GERMANY - 1.22%
AUTOMOBILES - 1.22%
Volkswagen AG 5,000 1,671,663
-----------
Total Germany 1,671,663
===========
ITALY - 1.79%
APPAREL & TEXTILES - .77%
Benetton Group SPA 89,000 1,058,613
BANKS - 1.02%
Banca Fideuram SPA 1,200,000 1,386,541
-----------
Total Italy 2,445,154
===========
JAPAN - 6.34%
ELECTRICAL EQUIPMENT - 1.92%
Hitachi 260,000 2,618,886
HOUSEHOLD APPLIANCES - 4.42%
Matsushita Electric Industries 165,000 2,684,746
Sony Corp 56,000 3,357,288
-----------
6,042,034
-----------
Total Japan 8,660,920
===========
<CAPTION>
- -------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
NETHERLANDS - 11.48%
AIR TRAVEL - 1.98%
KLM 77,000 $ 2,706,300
APPAREL & TEXTILES - .87%
Gamma Hldg NV 26,000 1,182,776
CHEMICALS - 1.86%
Akzo Nobel NV 22,000 2,544,525
FINANCIAL SERVICES - 2.20%
ING Groep NV 45,000 3,006,169
INDUSTRIAL MACHINERY - 2.00%
Stork NV 110,000 2,728,236
PAPER - 1.03%
Koninkljke 55,000 1,412,102
PETROLEUM SERVICES - 1.54%
Pakhoed NV Kon 77,000 2,116,096
-----------
Total Netherlands 15,696,204
===========
NEW ZEALAND - 5.23%
FOOD & BEVERAGES - 2.02%
Lion Nathan Ltd 1,160,000 2,768,044
FOREST PRODUCTS - 1.66%
Carter Holt Harvey 1,050,000 2,265,298
HOUSEHOLD APPLIANCES - 1.55%
Fisher & Paykel 700,000 2,128,007
-----------
Total New Zealand 7,161,349
===========
NORWAY - 6.17%
CONGLOMERATES - 3.39%
Aker AS Series B 197,300 2,398,462
Orkla Borregaard AS Series A 45,000 2,237,887
-----------
4,636,349
-----------
DRUGS & HEALTH CARE - 1.50%
Hafslund Nycomed Series B 81,000 2,052,462
PAPER - 1.28%
Norske Skogsindust Series B 63,000 1,740,579
-----------
Total Norway 8,429,390
===========
</TABLE>
See notes to financial statements and notes to schedules of investments
35
<PAGE> 38
December 31, 1995 (unaudited)
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
PREFERRED INTERNATIONAL FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
SOUTH KOREA - 5.80%
BUILDING CONSTRUCTION - .58%
LG Construction Co 40,801 $ 794,193
CONSTRUCTION & MINING EQUIPMENT - 1.36%
Tongyang Cement 60,070 1,858,434
ELECTRICAL EQUIPMENT - 1.56%
Samsung Electronic 9,836 1,787,787
Samsung Electronic Rights Expire 3/96 1,946 351,196
---------
2,138,983
---------
NON-FERROUS METALS - 1.58%
Korea Zinc 88,000 2,155,334
---------
STEEL - .72%
Pohang Iron & Steel 15,000 980,342
---------
Total South Korea 7,927,286
=========
SPAIN - 6.79%
BANKS - 4.35%
Banco Bilbao Vizcaya 88,000 3,170,322
Banco de Andalucia 19,000 2,772,465
---------
5,942,787
ELECTRIC UTILITIES - 2.44% ---------
Iberdrolasa S.A. 365,000 3,340,066
---------
Total Spain 9,282,853
===========
SWEDEN - 6.19%
AUTOMOBILES - 1.65%
Volvo AB Series B 110,000 2,253,114
HOUSEHOLD APPLIANCES - 1.89%
Electrolux AB Series B 63,000 2,585,584
INDUSTRIAL MACHINERY - 1.69%
Skf AB Series B 120,500 2,304,848
MINING - .96%
Svedala Industrial 51,000 1,313,463
---------
Total Sweden 8,457,009
===========
<CAPTION>
- ------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND - 11.36%
BANKS - 1.79%
Schw Bankverein 6,000 $ 2,449,935
CHEMICALS - 2.25%
Ciba Geigy AG 3,500 3,079,757
INDUSTRIAL MACHINERY - 1.80%
Sulzer AG 4,300 2,460,338
INSURANCE - 1.75%
Zurich Versicherun 8,000 2,392,718
RETAIL TRADE - 1.93%
Merkur Hldg AG 12,000 2,631,990
TOYS & AMUSEMENTS - 1.84%
SMH AG Neunburg 4,200 2,512,354
---------
Total Switzerland 15,527,092
===========
UNITED KINGDOM - 10.12%
BANKS - .99%
National Westminster 135,000 1,359,644
FOOD & BEVERAGES - 3.60%
Allied Domecq Plc 330,769 2,691,768
Whitbread 210,000 2,219,366
---------
4,911,134
---------
HOUSEHOLD PRODUCTS - .86%
Takare 420,000 1,174,095
INSURANCE - 2.15%
Lloyd's Abbey Life 420,000 2,935,238
LEISURE TIME - 1.14%
Rank Organisation 215,000 1,555,987
RETAIL GROCERY - 1.38%
Tesco 410,000 1,891,132
---------
Total United Kingdom 13,827,230
===========
TOTAL COMMON STOCK & EQUIVALENTS
(Cost - $114,863,953) 130,193,756
===========
</TABLE>
See notes to financial statements and notes to schedules of investments
36
<PAGE> 39
The Preferred Group of Mutual Funds
SCHEDULES OF INVESTMENTS
<TABLE>
<Caption
SHORT TERM OBLIGATIONS - 4.33% PAR VALUE
<S> <C> <C>
REPURCHASE AGREEMENT - 4.33%
State Street Repo 5.00% 2 Jan 1996
(Cost - $5,916,000) (Dated 12/29/95,
due 1/2/96, collateralized by $4,275,000
U.S. Treasury Bond 10.75%, 8/15/05,
Market Value $6,034,604,
Repurchase Proceeds $5,919,287) $5,916,000 $ 5,916,000
-----------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $5,916,000) 5,916,000
-----------
TOTAL INVESTMENTS - 99.57%
(Cost - $120,779,953) 136,109,756
-----------
OTHER ASSETS AND LIABILITIES - .43% 590,457
-----------
TOTAL NET ASSETS - 100% $136,700,213
===========
PREFERRED SMALL CAP FUND
<CAPTION>
COMMON STOCK - 99.55% SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - .26%
Alliant Techsystems Inc 1,400 $ 70,875
-----------
BANKS - 12.77%
BSB Bancorp Inc 7,500 185,625
Banknorth Group Inc 5,300 204,050
California Federal Bank Los Angeles* 13,500 212,625
Chittenden Corp 5,800 185,600
Colonial Banc Group Inc 3,800 122,550
Cullen Frost Bankers Inc 1,000 50,000
First Bank Puerto Rico 7,200 161,100
First Indiana Corp 3,600 92,700
First Western Bancorp Inc 3,450 94,875
Leader Financial Corp 3,800 142,025
Nationsbank Corp 1,412 98,311
Peoples Heritage Financial Group 15,800 359,450
Provident Bancorp Inc 4,300 202,100
RCSB Financial Inc 6,600 156,750
Reliance Bancorp Inc 6,900 100,913
River Forest Bancorp 7,600 193,800
Roosevelt Financial Group Inc 12,100 234,438
St. Francis Capital Corp 4,500 104,625
Summit Bancorporation 3,700 116,550
T R Financial Corp 7,200 183,600
Zions Bancorp 2,900 232,725
-----------
3,434,412
-----------
<CAPTION>
COMMON STOCK SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
CHEMICALS - 1.84%
Cytec Industries Inc* 1,600 $ 99,800
Tredegar Industries Inc 4,000 130,000
Universal Forest Products Inc 28,700 265,475
---------
495,275
---------
CONSUMER PRODUCTS - .60%
CPI Corp 10,000 160,000
---------
DISCOUNT & FASHION RETAILING - 3.62%
Carson Pirie Scott & Co Illinois* 11,500 228,563
Claire S Stores Inc 3,100 54,638
Ross Stores Inc 21,800 416,925
Waban Inc* 14,600 273,750
---------
973,876
---------
ELECTRICAL & ELECTRONICS - 10.90%
Bell Industry* 3,800 85,500
Dallas Semiconductor Corp 1,900 39,425
Dynatech Corp* 4,900 83,300
Electroglas Inc* 5,400 132,300
Esterline Technologies Corp* 13,300 314,213
Harman International Industry Inc 3,200 128,400
Hutchinson Technology Inc* 6,800 287,300
Integrated Silicon Solution* 12,600 210,853
International Rectifier Corp* 5,600 140,000
Kulicke & Soffa Industry* 19,700 458,025
LTX Corp* 3,200 29,200
Logicon Inc 5,000 137,500
Marshall Industry* 8,000 257,000
Measurex Corp 3,700 104,525
Pioneer Standard Electronics Inc. 4,400 58,300
SCI System Inc* 3,600 111,600
Watkins Johnson Co 5,000 218,750
Wyle Electronics 3,800 133,475
---------
2,929,666
---------
FINANCE - 12.64%
Alex Brown Inc 3,400 142,800
Allied Group Inc 3,100 111,600
American Bankers Insurance Group Inc 1,100 42,900
Americredit Corp* 13,300 181,213
BHC Financial Inc 9,500 171,000
Citizens Corp 6,100 113,613
Commerce Group Inc 10,000 206,250
Delphi Financial Group Inc* 9,500 201,875
Enhance Financial Services Group Inc 8,800 234,300
Foremost Corp of America 1,700 86,275
Fremont General Corp 8,500 312,375
Horace Mann Educators Corp 5,600 175,000
North American Mortgage Co 12,400 263,500
</TABLE>
See notes to financial statements and notes to schedules of investments
37
<PAGE> 40
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
================================================================================
PREFERRED SMALL CAP FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Finance (continued)
NYMagic Inc 8,600 $ 146,200
Selective Insurance Group Inc 6,200 220,100
State Auto Financial Corp 9,500 247,000
Transnational Re Corp Class A* 8,400 205,800
Vermont Financial Services 4,900 169,356
Washington National Corp 6,000 165,750
---------
3,396,907
---------
FOOD - 2.42%
Circle K Corp* 10,100 256,288
Flowers Industry Inc 24,800 300,700
Ruddick Corp 8,200 94,300
---------
651,288
---------
FUEL - 3.31%
KCS Energy Inc 25,000 375,000
Nabors Industries Inc* 11,300 125,713
Oneok Inc 6,100 139,538
Smith International Inc* 10,600 249,100
---------
889,351
---------
HEALTH CARE - 5.71%
Bio Rad Laboratories Inc Class A* 1,500 63,750
Integrated Health Services Inc 2,400 60,000
Kinetic Concepts Inc 2,800 33,600
Lincare Holdings Inc* 9,100 227,500
Maxicare Health Plans Inc* 18,300 491,813
Medisense Inc* 13,900 439,588
Universal Health Services Inc Class B* 4,900 217,438
---------
1,533,689
---------
HOUSING & REAL ESTATE - 12.62%
American Buildings Co* 8,100 182,250
Butler Manufacturing Co 5,000 196,250
CWM Mortgage Holdings Inc 23,700 402,900
Capstead Mortgage Corp 5,650 129,244
Champion Enterprises Inc* 10,600 327,275
Continental Homes Holding Corp 7,000 172,375
Granite Construction Inc 7,300 229,950
Lennar Corp 12,300 309,038
NCI Building Systems Inc* 11,100 274,725
NVR Inc* 30,000 300,000
Pulte Corp 2,000 67,250
Redman Industries* 10,800 364,500
Thornburg Mortgage Asset Corp 7,100 111,825
Toll Brothers Inc* 14,100 324,300
---------
3,391,882
---------
<CAPTION>
- -------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
LEISURE TIME INDUSTRIES - 2.10%
Anchor Gaming* 5,700 $ 129,675
Anthony Industry Inc 5,100 117,300
Grand Casinos Inc* 13,650 317,363
---------
564,338
---------
MANUFACTURING - 6.53%
Allied Products Corp 3,000 72,000
Bearings Inc 4,200 122,850
Blount International Inc Class A 1,950 51,188
Cascade Corp 13,000 182,000
Global Industrial Technologies Inc* 10,200 192,525
JLG Industry Inc 2,800 83,300
Kysor Industrial Corp 11,400 276,450
Novellus System Inc* 3,000 162,000
Park-Ohio Industries Inc* 8,900 143,513
Plantronics Inc* 4,300 155,338
Regal Beloit Corp 5,100 110,925
Titan Wheel International Inc 12,500 203,125
---------
1,755,214
---------
METALS & MINING - 8.13%
Carpenter Technology Corp 8,100 333,113
Castle (A.M.) & Co 15,200 427,500
Chaparral Steel Co 10,100 169,175
Mueller Industry Inc* 9,600 280,800
Reliance Steel & Aluminum Co 12,800 265,600
Synalloy Corp 9,600 202,800
Texas Industry Inc 7,000 371,000
WHX Corp* 12,400 134,850
---------
2,184,838
---------
Office Equipment & Computers - 4.99%
American Business Products Inc 15,200 433,200
Conner Peripherals Inc* 21,300 447,300
Ennis Business Forms Inc 8,500 104,125
General Binding Corp 8,400 165,900
In Focus System Inc* 1,800 65,025
Read Rite Corp* 5,400 125,550
---------
1,341,100
---------
PAPER & FOREST PRODUCTS - 3.99%
Caraustar Industry Inc 6,400 128,000
Chesapeake Corp 15,300 453,263
Mercer International Inc* 24,000 492,000
---------
1,073,263
---------
PUBLISHING & BROADCASTING - 1.05%
Devon Group Inc* 7,100 206,344
Pulitzer Publishing Co 1,600 76,400
---------
282,744
---------
</TABLE>
See notes to financial statements and notes to schedules of investments
38
<PAGE> 41
The Preferred Group of Mutual Funds
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
SERVICE INDUSTRIES - .75%
Hughes Supply Inc 1,500 $ 42,375
PHH Corp 3,400 158,950
---------
201,325
---------
TRANSPORTATION - 2.58%
American President Cos Ltd 12,000 276,000
Comair Holdings Inc 2,500 67,188
Continental Airlines Inc Class B* 1,200 52,200
Varlen Corp 13,900 298,850
----------
694,238
----------
UTILITIES & POWER - 2.74%
IES Industry Inc 3,000 79,500
TNP Enterprises Inc 15,700 294,375
United Illuminating Co 9,700 362,526
----------
736,401
----------
TOTAL COMMON STOCK
(Cost - $25,722,341) 26,760,682
----------
<CAPTION>
- -------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - .40% SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENT FUND - .40%
Seven Seas Money Market Fund 108,149 $ 108,149
-----------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $108,149) 108,149
-----------
TOTAL INVESTMENTS - 99.95%
(Cost - $25,830,490) 26,868,831
-----------
OTHER ASSETS AND LIABILITIES - .05% 13,670
-----------
TOTAL NET ASSETS - 100% $26,882,501
===========
PREFERRED ASSET ALLOCATION FUND
<CAPTION>
- -------------------------------------------------------------------------
COMMON STOCK - 50.26% SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - .80%
Boeing Co 3,080 $ 241,395
General Dynamics Corp 700 41,388
Lockheed Martin Corp 1,819 143,701
McDonnell Douglas Corp 1,060 97,520
Northrop Grumman Corp 300 19,200
United Technologies Corp 1,290 122,389
----------
665,593
----------
AUTOMOTIVE - 1.26%
Chrysler Corp 3,508 194,256
Cooper Tire & Rubber 500 12,313
Cummins Engine Inc 200 7,400
Dana Corp 1,340 39,195
Eaton Corp 870 46,654
Echlin Inc 300 10,950
Ford Motor Co 9,600 278,400
General Motors Corp 6,850 362,194
Goodyear Tire & Rubber 1,420 64,433
Navistar International Corp* 410 4,305
Paccar Inc 620 26,118
----------
1,046,218
----------
BANKS - 3.28%
Banc One Corp 3,513 132,616
Bank New York Inc 2,000 97,500
Bank of Boston Corp 600 27,750
Bankamerica Corp 3,350 216,913
Bankers Trust NY Corp 740 49,210
Barnett Banks Inc 1,000 59,000
Boatmens Bancshares Inc 700 28,613
Chase Manhattan Corp 1,790 108,519
Chemical Banking Corp 2,360 138,650
Citicorp 3,650 245,463
Comerica Inc 1,000 40,125
Corestates Financial Corp 1,500 56,813
First Bank System Inc 1,200 59,550
First Chicago NBD Corp 3,143 124,149
First Fidelity Bancorp 850 64,069
First Interstate Bancorp 750 102,375
First Union Corp 1,550 86,219
Fleet Financial Group Inc 2,244 91,443
J P Morgan & Co Inc 1,620 130,005
Keycorp 2,100 76,125
MBNA Corp 850 31,344
Mellon Bank Corp 800 43,000
National City Corp 1,500 49,688
Nationsbank Corp 2,500 174,063
Norwest Corp 3,050 100,650
</TABLE>
See notes to financial statements and notes to schedules of investments
39
<PAGE> 42
December 31, 1995 (unaudited)
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
PREFERRED ASSET ALLOCATION FUND (continued)
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
BANKS (continued)
PNC Bank Corp 2,230 $ 71,918
Republic NY Corp 600 37,275
Suntrust Banks Inc 1,050 71,925
US Bancorp 800 26,900
Wachovia Corp 1,530 69,998
Wells Fargo & Co 510 110,160
---------
2,722,028
---------
CHEMICALS - 1.58%
Air Products & Chemicals Inc 1,130 59,608
B F Goodrich Co 100 6,813
Dow Chemical Co 2,480 174,530
Du Pont E I de Nemours & Co 4,970 347,279
Eastman Chemical Co 875 54,797
Engelhard Corp 1,667 36,257
Freeport McMoRan Copper and Gold
Class B* 2,100 59,063
Great Lakes Chemical Corp 670 48,240
Hercules Inc 1,120 63,140
International Flavours 1,040 49,920
Monsanto Co 1,000 122,500
Morton International Inc 1,510 54,171
Nalco Chemical Co 940 28,318
Praxair Inc 1,530 51,446
Rohm & Haas Co 720 46,350
Union Carbide Corp 1,470 55,125
W R Grace & Co 890 52,621
---------
1,310,178
---------
COMPUTER SOFTWARE - 1.17%
Autodesk Inc 300 10,275
Automatic Data Processing Inc 1,440 106,920
Computer Associates International Inc 2,275 129,391
Computer Sciences Corp* 300 21,075
Microsoft Corp* 5,350 469,463
Novell Inc* 3,700 52,725
Oracle System Corp* 4,105 173,949
Shared Medical System 100 5,438
---------
969,236
---------
CONGLOMERATES - 2.08%
Alco Standard Corp 600 27,375
Allied Signal Inc 2,530 120,175
Dial Corp 500 14,813
General Electric Co 15,420 1,110,240
Harcourt General Inc 400 16,750
Household International Inc 500 29,563
ITT Industry Inc* 1,060 25,440
Ogden Corp 300 6,413
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
CONGLOMERATES (continued)
Pall Corp 633 $ 17,012
Premark International Inc 300 15,188
Rockwell International Corp 2,000 105,750
TRW Inc 800 62,000
Teledyne Inc 300 7,688
Teledyne Inc Series E 12 173
Tenneco Inc 1,790 88,829
Textron Inc 940 63,450
Whitman Corp 600 13,950
---------
1,724,809
---------
CONSUMER PRODUCTS - 4.67%
Alberto Culver Co Class B 200 6,875
American Brands Inc 1,760 78,540
Anheuser Busch Cos Inc 2,390 159,831
Armstrong World Industries Inc 200 12,400
Avon Products Inc 750 56,531
Brown Forman Corp Class B 400 14,600
Circuit City Stores Inc 500 13,813
Clorox Co 630 45,124
Coca Cola Co 11,590 860,558
Colgate Palmolive Co 1,360 95,540
Coors Adolph Co Class B 200 4,425
Ecolab Inc 400 12,000
Fruit Of The Loom Inc Class A* 600 14,625
Gillette Co 4,020 209,543
Liz Claiborne 980 27,195
Masco Corp 1,770 55,534
Maytag Corp 600 12,150
Nike Inc Class B 1,490 103,741
Pepsico Inc 7,240 404,535
Philip Morris Cos Inc 7,520 680,560
Proctor & Gamble Co 6,150 510,450
Reebok International Ltd 870 24,578
Russell Corp 200 5,550
Seagram Ltd 3,370 116,686
Stride Rite Corp 300 2,250
UST Inc 1,860 62,078
Unilever N V 1,470 206,903
V F Corp 680 35,870
Whirlpool Corp 830 44,198
---------
3,876,683
---------
CONTAINERS & PACKING - .12%
Ball Corp 200 5,500
Bemis Inc 300 7,688
Crown Cork & Seal Inc* 970 40,498
Federal Paper Board Inc 300 15,563
Stone Container Corp 506 7,274
Temple Inland Inc 600 26,475
---------
102,998
---------
40
See notes to financial statements and notes to schedules of investments
<PAGE> 43
The Preferred Group of Mutual Funds
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
DISCOUNT & FASHION RETAILING - 1.91%
Brown Group Inc 100 $ 1,425
Charming Shoppes Inc 600 1,725
Dayton Hudson Corp 730 54,750
Dillard Dept Stores Inc Class A 1,210 34,485
Federated Dept Stores Inc* 1,800 49,500
Gap Inc 1,520 63,840
Home Depot Inc 4,486 214,767
J C Penney Inc 2,100 100,013
K Mart Corp 4,430 32,118
Limited Inc 3,570 62,029
Lowes Cosmetic Inc 900 30,150
May Dept Stores Co 2,410 101,823
Melville Corp 1,190 36,593
Mercantile Stores Inc 200 9,250
Nordstrom Inc 1,110 44,955
Pep Boys-Manny Moe & Jack 300 7,688
Price Costco Inc* 2,065 31,491
Sears Roebuck & Co 3,600 140,400
TJX Cos Inc 400 7,550
Tandy Corp 400 16,600
Toys R Us Inc* 2,670 58,073
Wal Mart Stores Inc 20,910 467,861
Woolworth Corp* 1,700 22,100
---------
1,589,186
---------
ELECTRICAL & ELECTRONICS - 1.97%
Advanced Micro Devices Inc* 600 9,900
Amp Inc 2,228 85,500
Cooper Industries Inc 1,282 47,114
Emerson Electric Co 2,190 179,033
Harris Corp 200 10,925
Honeywell Inc 1,390 67,589
Intel Corp 7,560 429,030
Johnson Controls Inc 200 13,750
LSI Logic Corp* 1,200 39,300
Loral Corp 900 31,838
Micron Technology Inc 2,000 79,250
Millipore Corp 200 8,225
Motorola Inc 5,400 307,800
National Semiconductor Corp* 700 15,575
National Service Industries 300 9,713
Perkin Elmer Corp 200 7,550
Raychem Corp 200 11,375
Raytheon Co 2,500 118,125
Tektronix Inc 200 9,825
Texas Instruments Inc 1,720 89,010
Thomas & Betts Corp 100 7,375
Westinghouse Electric Corp 3,820 63,030
---------
1,640,832
---------
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
FINANCE - 3.38%
Aetna Life & Casualty Co 1,130 $ 78,253
Alexander & Alexander Services 200 3,800
Allstate Corp 4,029 165,693
American Express Co 4,550 188,256
American General Corp 2,000 69,750
American International Group Inc 4,285 396,363
Beneficial Corp 300 13,988
Chubb Corp 930 89,978
Cigna Corp 740 76,405
Dean Witter Discover & Co 1,589 74,683
Federal Home Loan Mortgage Corp 1,720 143,620
Federal National Mortgage Association 2,500 310,313
General Reinsurance Corp 740 114,700
Golden West Financial Corp 760 41,990
Great Western Financial Corp 700 17,850
H F Ahmanson & Co 600 15,900
H & R Block Inc 1,260 51,030
ITT Hartford Group Inc* 1,060 51,288
Jefferson Pilot Corp 960 44,640
Lincoln National Corp 1,130 60,738
Loews Corp 1,000 78,375
Marsh & McLennan Companies 730 64,788
Merrill Lynch & Co Inc 1,710 87,210
Morgan Stanley Group Inc 500 40,313
Providian Corp 1,080 44,010
Safeco Corp 1,360 46,920
Salomon Inc 1,100 39,050
St. Paul Companies Inc 940 52,288
Torchmark Inc 800 36,200
Transamerica Corp 770 56,114
Transport Holdings Inc Class A 9 367
Travelers Group Inc 3,072 193,152
US Life Corp 225 6,722
USF&G Corp 600 10,125
Unum Corp 800 44,000
---------
2,808,872
---------
FOOD - 1.76%
Albertsons Inc 2,510 82,516
American Stores Co 1,520 40,660
Archer Daniels Midland Co 4,942 88,956
Brunos Inc 11 116
CPC International Inc 1,300 89,213
Campbell Soup Co 2,300 138,000
Conagra Inc 2,220 91,575
Fleming Cos Inc 200 4,125
General Mills Inc 1,530 88,358
Giant Foods Inc Class A 300 9,450
Great Atlantic & Pacific Tea Inc 200 4,600
H J Heinz Co 3,315 109,809
41
See notes to financial statements and notes to schedules of investments
<PAGE> 44
December 31, 1995 (unaudited)
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
PREFERRED ASSET ALLOCATION FUND (continued)
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
FOOD (continued)
Hershey Foods Corp 660 $ 42,900
Kellogg Co 2,010 155,273
Kroger Co* 700 26,250
Pioneer Hi Bred International Inc 880 48,950
Quaker Oats Co 1,260 43,470
Ralston Purina Co 1,110 69,236
Sara Lee Corp 4,360 138,975
Supervalu Inc 400 12,600
Sysco Corp 1,920 62,400
Winn Dixie Stores Inc 1,640 60,475
Wrigley Wm Jr Co 1,070 56,175
---------
1,464,082
---------
FUEL - 4.63%
Amerada Hess Corp 1,010 53,530
Amoco Corp 4,360 313,375
Ashland Inc 300 10,538
Atlantic Richfield Co 1,490 165,018
Baker Hughes Inc 1,700 41,438
Burlington Resources Inc 1,400 54,950
Chevron Corp 6,060 318,150
Coastal Corp 1,190 44,328
Dresser Industries Inc 2,150 52,406
Exxon Corp 11,020 882,978
Halliburton Co 1,110 56,194
Helmerich & Payne Inc 100 2,975
Kerr McGee Corp 300 19,050
Louisiana Land & Exploration Co 200 8,575
Mobil Corp 3,610 404,320
Occidental Pete Corp 3,310 70,751
Oneok Inc 100 2,288
Oryx Energy Co* 1,590 21,266
Pennzoil Co 760 32,110
Phillips Pete Co 2,460 83,948
Pittston Services Group 200 6,275
Rowan Cos Inc* 500 4,938
Royal Dutch Pete Co 4,750 670,344
Santa Fe Energy Resources Inc* 500 4,813
Schlumberger Ltd 2,230 154,428
Sun Inc 921 25,212
Texaco Inc 2,460 193,110
USX Marathon Group 3,200 62,400
Unocal Corp 2,400 69,900
Western Atlas Inc* 300 15,150
---------
3,844,758
---------
<CAPTION>
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE - 5.48%
Abbott Labs 7,040 $ 293,920
Allergan Inc 770 25,025
Alza Corp* 1,100 27,225
American Home Products Corp 2,710 262,870
Amgen Inc* 2,380 141,313
Bausch & Lomb Inc 780 30,908
Baxter International Inc 2,580 108,038
Becton Dickinson & Co 680 51,000
Beverly Enterprises Inc* 500 5,313
Biomet Inc* 1,400 25,025
Boston Scientific Corp* 1,500 73,500
Bristol Myers Squibb Co 4,440 381,285
C R Bard Inc 300 9,675
Columbia Healthcare Corp 4,066 206,350
Community Psychiatric Centers* 200 2,450
Eli Lilly & Co 4,474 251,663
Humana Inc* 1,500 41,063
Johnson & Johnson 5,810 497,481
Longs Drug Stores Corp 100 4,788
Mallinckrodt Group Inc 400 14,550
Manor Care Inc 300 10,500
Medtronic Inc 2,220 124,043
Merck & Co Inc 11,030 725,223
Pfizer Inc 5,800 365,400
Pharmacia & Upjohn Inc* 4,553 176,429
Rite Aid Corp 500 17,125
Schering Plough Corp 3,340 182,865
Sigma Aldrich 600 29,700
St. Jude Medical Inc* 900 38,700
Tenet Healthcare Corp* 2,210 45,858
United Healthcare Corp* 1,600 104,800
United States Healthcare Inc 1,500 69,750
United States Surgical Corp 800 17,100
Walgreen Co 2,560 76,480
Warner Lambert Co 1,210 117,521
---------
4,554,936
---------
HOUSING & REAL ESTATE - .19%
Centex Corp 200 6,950
Kaufman & Broad Home Corp 200 2,975
Owens Corning Fiberglass Corp* 300 13,463
PPG Industries Inc 1,980 90,585
Pulte Corp 100 3,363
Sherwin Williams Co 1,040 42,380
---------
159,716
---------
LEISURE TIME INDUSTRIES - 1.31%
American Greetings Corp Class A 400 11,050
Bally Entertainment Group* 300 4,200
Brunswick Corp 1,080 25,920
</TABLE>
42
<PAGE> 45
The Preferred Group of Mutual Funds
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
LEISURE TIME INDUSTRIES (continued)
Darden Restaurants Inc* 1,730 $ 20,544
Eastman Kodak Co 3,130 209,710
Fleetwood Enterprises Inc 300 7,725
Handleman Co 200 1,150
Harrahs Entertainment Inc* 550 13,338
Hasbro Inc 940 29,140
Hilton Hotels Corp 530 32,595
ITT Corp* 1,060 56,180
King World Productions Inc* 200 7,775
Lubys Cafeterias Inc 100 2,225
Mattel Inc 2,136 65,682
McDonalds Corp 6,400 288,800
Outboard Marine Corp 100 2,038
Polaroid Corp 200 9,475
Ryans Family Steak Houses Inc* 300 2,100
Shoneys Inc* 200 2,050
Walt Disney Co 4,760 280,840
Wendys International Inc 600 12,750
---------
1,085,287
---------
MANUFACTURING - 1.23%
Applied Materials Inc* 1,800 70,875
Avery Dennison Corp 300 15,038
Black & Decker Corp 500 17,625
Briggs & Stratton Corp 200 8,675
Caterpillar Inc 1,960 115,150
Cincinnati Milacron Inc 200 5,250
Corning Inc 2,250 72,000
Crane Co 200 7,375
Deere & Co 2,760 97,290
Dover Corp 600 22,125
FMC Corp* 200 13,525
General Signal Corp 300 9,713
Giddings & Lewis Inc 200 3,300
Harnischfeger Industries Inc 300 9,975
Illinois Tool Works Inc 1,210 71,390
Ingersoll Rand Co 1,340 47,068
Jostens Inc 200 4,850
Minnesota Mining & Mfg Corp 3,860 255,725
Newell Co 1,660 42,953
Parker Hannifin Corp 450 15,413
Rubbermaid Inc 1,580 40,290
Snap On Inc 200 9,050
Springs Industries Inc 100 4,138
Stanley Works 200 10,300
Timken Co 200 7,650
Trinova Corp 200 5,725
Tyco International Ltd 800 28,500
Varity Corp* 200 7,425
---------
1,018,393
---------
<CAPTION>
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
METALS & MINING - .72%
Alcan Aluminum Ltd 2,010 $ 62,561
Aluminum Company of America 1,700 89,888
Armco Inc* 600 3,525
Asarco Inc 200 6,400
Barrick Gold Corp 3,300 87,038
Bethleham Steel Corp* 600 8,400
Cyprus Amax Minerals Co 1,060 27,693
Echo Bay Mines Ltd 600 6,225
Homestake Mining Co 1,790 27,969
Inco Ltd 1,260 41,895
Inland Steel Industries Inc 300 7,538
Newmont Mining Corp 474 21,449
Nucor Corp 500 28,563
Phelps Dodge Corp 630 39,218
Placer Dome Inc 2,400 57,900
Reynolds Metals Co 600 33,975
Santa Fe Pacific Gold Corp* 700 8,488
USX US Steel 1,000 30,750
Worthington Industries Inc 450 9,366
---------
598,841
---------
OFFICE EQUIPMENT & COMPUTERS - 2.31%
3 Com Corp* 700 32,638
Amdahl Corp* 1,710 14,535
Apple Computer 1,250 39,844
Cabletron Systems Inc* 600 48,600
Ceridian Corp* 400 16,500
Cisco Systems Inc* 2,660 198,503
Compaq Computer Corp* 2,480 119,040
Cray Research Inc* 100 2,475
Data General Corp* 200 2,750
Digital Equipment Corp* 1,510 96,829
First Data Corp 1,900 127,063
Hewlett Packard Co 4,760 398,650
Intergraph Corp* 300 4,725
International Business Machines 5,250 481,688
Moore Corp Ltd 500 9,313
Pitney Bowes Inc 1,600 75,200
Silicon Graphics Inc* 1,800 49,500
Sun Microsystems Inc* 1,000 45,625
Tandem Computers Inc* 600 6,375
Unisys Corp* 900 5,063
Xerox Corp 1,040 142,480
---------
1,917,396
---------
PAPER & FOREST PRODUCTS - .80%
Boise Cascade Corp 300 10,388
Champion International Corp 1,050 44,100
Georgia Pacific Corp 810 55,586
International Paper Co 2,380 90,143
</TABLE>
See notes to financial statements and notes to schedules of investments
43
<PAGE> 46
December 31, 1995 (unaudited)
- -------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
PREFERRED ASSET ALLOCATION FUND (continued)
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS (continued)
James River Corp 500 $ 12,063
Kimberly Clark Corp 2,573 212,916
Louisiana Pacific Corp 1,260 30,555
Mead Corp 300 15,675
Potlatch Corp 200 8,000
Union Camp Corp 830 39,529
Westvaco Corp 1,200 33,300
Weyerhaeuser Co 1,900 82,175
Willamette Industries Inc 600 33,750
---------
668,180
---------
PUBLISHING & BROADCASTING - 1.29%
Capital Cities ABC Inc 1,400 172,725
Comcast Corp Class A 1,350 24,553
De Luxe Corp 1,150 33,350
Dow Jones & Co Inc 1,070 42,666
Dun & Bradstreet Corp 1,630 105,543
Gannett Inc 1,410 86,539
Harland (John H.) Co 200 4,175
Knight Ridder Inc 610 38,125
McGraw Hill Inc 530 46,176
Meredith Corp 200 8,375
New York Times Co Class A 500 14,813
Tele Communications Inc Series A* 6,140 122,033
Time Warner Inc 3,520 133,320
Times Mirror Co Series A 1,200 40,650
Tribune Co 710 43,399
Viacom Inc Class B* 3,350 158,706
---------
1,075,148
---------
SERVICE INDUSTRIES - .76%
Browning Ferris Industries Inc 2,100 61,950
CUC International Inc* 2,050 69,956
EG & G Inc 300 7,275
Fluor Corp 850 56,100
Foster Wheeler Corp 200 8,500
Genuine Parts Co 1,550 63,550
Interpublic Group Cos Inc 400 17,350
Laidlaw Inc Class B 3,500 35,875
Marriot International Inc 1,380 52,785
McDermott International Inc 300 6,600
R R Donnelley & Sons Co 1,570 61,819
Safety Kleen Corp 1,190 18,594
Service Corp International 600 26,400
W W Grainger Inc 300 19,875
WMX Technologies Inc 4,230 126,371
---------
633,000
---------
<CAPTION>
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS - 4.59%
Airtouch Communications Inc* 4,860 $ 137,295
Alltel Corp 1,500 44,250
American Telephone & Telegraph Inc 14,240 922,040
Ameritech Corp 4,990 294,410
Andrew Corp* 225 8,606
Bell Atlantic Corp 4,000 267,500
Bellsouth Corp 8,860 385,410
DSC Communications Inc* 600 22,125
GTE Corp 8,710 383,240
MCI Communications Corp 6,400 167,200
Northern Telecom Ltd 2,510 107,930
Nynex Corp 3,870 208,980
Pacific Telesis Group 3,950 132,819
SBC Communications Inc 5,570 320,275
Scientific Atlanta Inc 400 6,000
Sprint Corp 3,310 131,986
Tellabs Inc* 900 33,300
U S West Inc* 8,740 239,258
---------
3,812,624
---------
Transportation - .81%
AMR Corp* 760 56,430
Burlington Northern Santa Fe 1,234 96,252
CSX Corp 2,020 92,163
Conrail Inc 810 56,700
Consolidated Freightways Inc 200 5,300
Delta Airlines Inc 560 41,370
Federal Express Corp* 550 40,631
Norfolk Southern Corp 1,250 99,219
Roadway Services Inc* 370 18,084
Ryder System Inc 400 9,900
Southwest Airlines Co 1,400 32,550
US Air Group Inc* 300 3,975
Union Pacific Corp 1,830 120,780
Yellow Corp 200 2,475
---------
675,829
---------
UTILITIES & POWER - 2.16%
American Electric Power Inc 1,660 67,230
Baltimore Gas & Electric Co 1,560 44,460
Carolina Power & Light Co 1,590 54,855
Central & South West Corp 1,700 47,388
Cinergy Corp 806 24,684
Columbia Gas Systems Inc* 300 13,163
Consolidated Edison Co 2,410 77,120
Consolidated Natural Gas Co 1,030 46,736
Detroit Edison Co 1,480 51,060
Dominion Resources Inc 1,560 64,350
Duke Power Inc 1,720 81,485
Eastern Enterprises 100 3,525
Enron Corp 2,400 91,500
</TABLE>
See notes to financial statements and notes to schedules of investments
44
<PAGE> 47
The Preferred Group of Mutual Funds
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
UTILITIES & POWER (continued)
Enserch Corp 400 $ 6,500
Entergy Corp 1,880 54,990
FPL Group Inc 1,740 80,693
General Public Utilities Corp 600 20,400
Houston Industries Inc 2,100 50,925
Niagara Mohawk Power Corp 1,890 18,191
Nicor Inc 300 8,250
Noram Energy Corp 700 6,213
Northern States Power Co 830 40,774
Ohio Edison Co 1,650 38,775
P P & L Resources Inc 900 22,500
Pacific Enterprises 500 14,125
Pacific Gas & Electric Co 3,770 106,974
Pacificorp 2,740 58,225
Panhandle Eastern Corp 800 22,300
Peco Energy Co 2,150 64,769
Peoples Energy Corp 200 6,350
Public Service Enterprise Group 2,130 65,231
SCE Corp 3,830 67,983
Sonat Inc 500 17,813
Southern Co 5,690 140,116
Texas Utilities Co 1,970 81,016
Unicom Corp 2,060 67,465
Union Electric Co 1,050 43,838
Williams Cos Inc 537 23,501
---------
1,795,473
---------
TOTAL COMMON STOCK
(Cost - $30,867,031) 41,760,296
==========
<CAPTION>
FIXED INCOME - 16.63% PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY - 16.63%
United States Treasury Bonds
6.25% 15 Aug 2023 $ 995,000 $ 1,023,765
7.125% 15 Feb 2023 635,000 726,084
7.25% 15 May 2016 400,000 456,748
7.25% 15 Aug 2022 340,000 393,230
7.50% 15 Nov 2016 200,000 234,500
7.50% 15 Nov 2024 450,000 540,914
7.625% 15 Nov 2022 815,000 984,496
7.875% 15 Nov 2007 175,000 197,012
8.00% 15 Nov 2021 690,000 863,363
8.125% 15 Aug 2019 535,000 672,677
8.125% 15 May 2021 179,000 226,351
8.125% 15 Aug 2021 1,030,000 1,303,589
8.50% 15 Feb 2020 200,000 261,312
8.75% 15 May 2017 550,000 727,375
8.75% 15 May 2020 100,000 133,937
8.75% 15 Aug 2020 600,000 804,564
<CAPTION>
FIXED INCOME PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY (continued)
United States Treasury Bonds
8.875% 15 Aug 2017 $500,000 $ 669,685
8.875% 15 Feb 2019 510,000 687,465
9.00% 15 Nov 2018 100,000 136,203
9.125% 15 May 2009 355,000 434,374
9.125% 15 May 2018 300,000 412,311
9.25% 15 Feb 2016 200,000 274,906
9.875% 15 Nov 2015 250,000 361,603
10.375% 15 Nov 2012 150,000 207,375
11.25% 15 Feb 2015 150,000 240,117
11.75% 15 Feb 2010 110,000 156,853
11.75% 15 Nov 2014 205,000 318,263
12.00% 15 Aug 2013 240,000 369,784
---------
13,818,856
----------
TOTAL FIXED INCOME
(Cost - $12,205,989) 13,818,856
==========
<CAPTION>
SHORT TERM OBLIGATIONS - 32.71% PAR/SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER - 24.33%
Ameritech Corp @
5.25% 20 Jun 1996 $ 1,500,000 $ 1,462,594
Associates Corp of North America @
5.95% 2 Jan 1996 1,972,034 1,971,708
Bellsouth Telecommunication Inc @
5.72% 4 Jan 1996 1,816,000 1,815,134
Cargill Financial Services Corp @
5.36% 3 Jun 1996 1,500,000 1,465,607
Ciesco L P @
5.65% 16 Feb 1996 1,000,000 992,781
Eli Lilly & Co @
5.59% 20 Mar 1996 1,110,000 1,096,384
Ford Credit Europe Plc @
5.58% 1 Mar 1996 1,500,000 1,486,050
Hewlett-Packard Co @
5.35% 18 Apr 1996 1,500,000 1,475,925
KFW International Finance Inc @
5.70% 26 Jan 1996 1,000,000 996,042
Merrill Lynch & Co Inc @
5.58% 5 Mar 1996 1,500,000 1,485,120
New Center Asset Trust @
5.81% 24 Jan 1996 1,500,000 1,494,432
PHH Corp @
5.75% 5 Jan 1996 2,000,000 1,998,722
Preferred Receivables Funding @
5.68% 2 Feb 1996 1,000,000 994,951
Societe General North America Inc @
5.65% 18 Mar 1996 1,500,000 1,481,872
----------
20,217,322
----------
</TABLE>
See notes to financial statements and notes to schedules of investments
45
<PAGE> 48
December 31, 1995 (unaudited)
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
PREFERRED ASSET ALLOCATION FUND (continued)
<TABLE>
<CAPTION>
SHORT TERM OBLIGATIONS PAR/SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS - 6.73%
State Street Repo 5.00% 2 Jan 1996
(Cost - $5,591,000)(Dated 12/29/95,
due 1/2/96, collateralized by
$4,040,000 U.S. Treasury Bond
10.75%, 8/15/05,
Market Value $5,702,877,
Repurchase Proceeds $5,594,106) $ 5,591,000 $ 5,591,000
-----------
SHORT TERM INVESTMENT FUND - .78%
Seven Seas Money Market Fund 649,737 649,737
-----------
U.S. TREASURY - .87%
United States Treasury Bills @
5.079% 21 Mar 1996 # $ 120,000 118,663
5.195% 27 Jun 1996 # 310,000 302,037
5.205% 30 May 1996 # 25,000 24,458
5.225% 7 Mar 1996 # 60,000 59,425
5.26% 14 Mar 1996 # 40,000 39,573
5.29% 7 Mar 1996 # 160,000 158,448
5.33% 7 Mar 1996 # 15,000 14,853
-----------
717,457
-----------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $27,175,516) 27,175,516
===========
TOTAL INVESTMENTS - 99.60%
(Cost - $70,248,536) 82,754,668
===========
OTHER ASSETS AND LIABILITIES - .40% 333,854
===========
TOTAL NET ASSETS - 100% $83,088,522
===========
PREFERRED BALANCED FUND
- -------------------------------------------------------------------------
<CAPTION>
COMMON STOCK - 48.04% SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - .74%
Boeing Co 320 $ 25,080
-----------
AUTOMOTIVE - 2.17%
General Motors Corp 1,390 73,496
-----------
BANKS - 4.02%
Boatmens Bancshares Inc 1,180 48,233
Chemical Banking Corp 420 24,675
Fleet Financial Group Inc 840 34,230
Hibernia Corp Class A 2,700 29,025
-----------
136,163
-----------
CHEMICALS - 1.87%
Betz Laboratories Inc 800 32,800
Dexter Corp 1,290 30,476
-----------
63,276
-----------
COMPUTER SOFTWARE - 1.59%
Adobe System Inc 440 27,280
Geoworks* 1,400 26,600
-----------
53,880
-----------
CONGLOMERATES - .93%
ITT Industries Inc* 420 10,080
Tenneco Inc 430 21,339
-----------
31,419
-----------
DISCOUNT & FASHION RETAILING - 1.74%
Limited Inc 2,250 39,094
Price Costco Inc* 1,300 19,825
-----------
58,919
-----------
ELECTRICAL & ELECTRONICS - 1.38%
Intel Corp 550 31,213
Texas Instruments Inc 300 15,525
-----------
46,738
-----------
FINANCE - 3.11%
Aetna Life & Casualty Co 110 7,618
Cigna Corp 750 77,438
ITT Hartford Group Inc* 420 20,318
-----------
105,374
-----------
FUEL - 1.43%
Anadarko Petroleum Corp 320 17,320
Dresser Industries Inc 1,280 31,200
-----------
48,520
-----------
</TABLE>
46
See notes to financial statements and notes to schedule of investments
<PAGE> 49
The Preferred Group of Mutual Funds
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE - 1.85%
Chiron Corp* 220 $ 24,310
Smithkline Beecham Plc ADR 430 23,865
Vertex Pharmaceuticals Inc* 540 14,310
---------
62,485
---------
HOUSING & REAL ESTATE - 2.50%
Avalon Properties Inc 2,050 44,075
York International Corp 860 40,420
---------
84,495
---------
LEISURE TIME INDUSTRIES - 2.34%
Brunswick Corp 970 23,280
Hilton Hotels Corp 550 33,825
ITT Corp* 420 22,260
---------
79,365
---------
MANUFACTURING - 1.46%
Duracell International Inc 540 27,945
Harnischfeger Industries Inc 650 21,613
---------
---------
METALS & MINING - 3.45%
Minerals Technologies Inc 430 15,695
Newmont Mining Corp 1,080 48,870
Reynolds Metals Co 750 42,469
USX US Steel 320 9,840
---------
116,874
---------
OFFICE EQUIPMENT & COMPUTERS - 3.52%
Compaq Computer Corp* 420 20,160
Hewlett Packard Co 540 45,225
International Business Machines 420 38,535
Xerox Corp 110 15,070
---------
118,990
---------
PAPER & FOREST PRODUCTS - 2.14%
Champion International Corp 540 22,680
Georgia Pacific Corp 230 15,784
Mead Corp 650 33,963
---------
72,427
---------
PUBLISHING & BROADCASTING - 4.34%
Dow Jones & Co Inc 830 33,096
McGraw Hill Inc 430 37,464
New York Times Co Class A 1,510 44,734
Tribune Co 520 31,785
---------
147,079
---------
SERVICE INDUSTRIES - 1.47%
CUC International Inc* 540 18,428
Omnicom Group 840 31,290
---------
49,718
---------
<CAPTION>
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS - 2.14%
MCI Communications Corp 2,050 $ 53,556
Vodafone Group Plc ADR 540 19,035
---------
72,591
---------
TRANSPORTATION - 3.85%
Delta Airlines Inc 320 23,640
Ryder System Inc 1,180 29,205
UAL Corp* 10 1,785
Union Pacific Corp 650 42,900
Union Pacific Resources Group Inc 1,290 32,729
---------
130,259
---------
TOTAL COMMON STOCK
(Cost - $1,505,621) 1,626,706
=========
<CAPTION>
FIXED INCOME - 35.74% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY - 35.74%
United States Treasury Bonds
7.875% 15 Feb 2021 $ 40,000 $ 49,256
United States Treasury Notes
6.25% 15 Feb 2003 585,000 610,319
7.50% 15 Nov 2001 500,000 550,705
---------
1,210,280
---------
TOTAL FIXED INCOME
(Cost - $1,167,245) 1,210,280
=========
<CAPTION>
SHORT TERM OBLIGATIONS - 14.76% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS - 14.76%
State Street Repo 5.00% 2 Jan 1996
(Cost - $500,000)(Dated 12/29/95,
due 1/2/96, collateralized by $365,000
U.S. Treasury Bond 10.75%, 8/15/05,
Market Value $515,235,
Repurchase Proceeds $500,278) $ 500,000 $ 500,000
---------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $500,000) 500,000
---------
TOTAL INVESTMENTS - 98.54%
(Cost - $3,172,866) 3,336,986
---------
OTHER ASSETS AND LIABILITIES - 1.46% 49,328
---------
TOTAL NET ASSETS - 100% $3,386,314
=========
</TABLE>
See notes to financial statements and notes to schedules of investments
47
<PAGE> 50
December 31, 1995 (unaudited)
- -------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
PREFERRED FIXED INCOME FUND
<TABLE>
<CAPTION>
FIXED INCOME - 96.29% PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED - 5.18%
Banc One Auto Trust
6.90% 15 Apr 1998 $ 1,000,000 $ 1,016,560
Banc One Credit Card Master Trust
6.30% 15 Oct 2002 1,000,000 1,025,310
Chevy Chase Auto Receivables
6.00% 15 Dec 2001 592,644 595,607
Western Financial
6.05% 1 Nov 2000 768,954 771,837
---------
3,409,314
---------
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATION - 22.22%
- -------------------------------------------------------------------------
<S> <C> <C>
CIT Group Securitization Corp
6.25% 20 May 2006 1,129,000 1,140,466
Crimi Mae Financial Corp
7.00% 1 Jan 2033 998,918 995,172
FHLMC Gold 30 Yr Jan TBA**
7.00% 1 Jan 1999 5,780,000 5,832,367
Federal Home Loan Mortgage Pc Gtd
5.50% 15 Mar 2021 1,000,000 965,000
6.00% 15 Apr 2006 1,000,000 1,002,810
6.20% 15 Feb 2024 1,500,000 1,510,305
Federal National Mortgage Assn REMIC
5.50% 25 Dec 2008 1,200,000 1,144,872
5.75% 25 Apr 2019 1,000,000 992,180
Green Tree Financial Corp
6.05% 15 Dec 2026 1,031,202 1,037,617
---------
14,620,789
---------
ELECTRIC - .75%
Boston Edison
7.80% 15 Mar 2023 500,000 494,335
---------
FEDERAL AGENCY POOLED - 9.16%
Federal Home Loan Mortgage Corp.
Gold 30 Yr Jan TBA**
7.50% 1 Jan 1999 1,500,000 1,537,965
7.50% 1 Jan 1999 930,000 953,538
Federal Home Loan Mortgage Corp.
7.00% 1 Dec 2024 884,401 892,414
7.00% 1 Dec 2025 95,700 97,554
7.50% 1 Nov 2025 495,000 514,488
7.50% 1 Dec 2025 498,308 517,926
7.50% 1 Dec 2025 491,692 511,050
8.00% 1 Aug 2025 605,267 627,207
8.00% 1 Aug 2025 364,228 377,431
---------
6,029,573
---------
<CAPTION>
FIXED INCOME PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
FINANCE & BANKING - 20.20%
American General Finance Corp
7.25% 1 Mar 1998 $1,000,000 $1,034,130
Associates Corp of North America
6.73% 30 Sep 2002 725,000 752,876
6.875% 15 Jan 1997 1,000,000 1,011,580
7.75% 1 Nov 1997 600,000 621,000
Auburn Hills Trust
12.00% 1 May 2020 500,000 786,880
First Deposit
5.75% 15 Jun 2001 1,075,000 1,081,719
General Electric Capital Corp MTN
6.01% 28 Jan 2004 550,000 556,155
General Motors Acceptance Corp
8.00% 1 Oct 1999 1,500,000 1,607,010
Integra Bank Pittsburgh MTN
6.55% 15 Jun 2000 650,000 667,921
Sears Roebuck & Co MTN
6.66% 20 May 1997 1,000,000 1,013,860
Security Pacific Corp MTN
10.30% 15 May 2001 1,250,000 1,499,563
Society National Bank
6.875% 15 Oct 1996 1,000,000 1,008,650
Texaco Capital Inc
8.875% 1 Sep 2021 500,000 637,630
Trans Financial Bank MTN
8.48% 23 Oct 1998 1,000,000 1,010,000
---------
13,288,974
---------
FOREIGN CORPORATE - 3.26%
Norddeutsche Landbank Girozen
6.875% 10 Mar 2003 1,000,000 1,040,625
Santander Financial Issuances Ltd
7.875% 15 Apr 2005 1,000,000 1,103,760
---------
2,144,385
---------
FOREIGN GOVERNMENT - 2.38%
Italy Republic Yankee Bond
6.875% 27 Sep 2023 450,000 439,448
Quebec Province Canada
9.00% 1 Apr 2016 950,000 1,125,156
---------
1,564,604
---------
GOVERNMENT SPONSORED - 3.41%
Federal National Mortgage Association
6.50% 1 Feb 2024 173,579 171,517
6.50% 1 Apr 2024 221,506 218,874
6.50% 1 Apr 2024 124,851 123,368
6.50% 1 Jul 2024 322,664 318,831
6.925% 1 Mar 2001 996,026 1,031,510
7.00% 1 Sep 2025 375,249 378,296
---------
2,242,396
---------
</TABLE>
48
See notes to financial statements and notes to schedules of investments
<PAGE> 51
THE PREFERRED GROUP OF MUTUAL FUNDS
- -------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
FIXED INCOME PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIALS - 4.41%
Ford Motor Company
9.95% 15 Feb 2032 $ 600,000 $ 838,224
James River Corp
7.75% 15 Nov 2023 1,000,000 1,059,620
Occidental Pete Corp MTN
5.76% 15 Jun 1998 1,000,000 1,001,150
---------
2,898,994
---------
U.S. TREASURY - 25.32%
United States Treasury Bonds
7.125% 15 Feb 2023 # 1,180,000 1,349,259
8.125% 15 Aug 2019 # 540,000 678,964
8.75% 15 May 2020 # 750,000 1,004,528
10.375% 15 Nov 2012 # 1,300,000 1,797,250
12.00% 15 Aug 2013 # 1,432,000 2,206,397
United States Treasury Notes
5.125% 30 Nov 1998 1,550,000 1,544,916
5.625% 30 Nov 2000 # 2,000,000 2,018,120
6.25% 15 Feb 2003 120,000 125,194
6.75% 30 Apr 2000 2,075,000 2,183,606
7.50% 15 Nov 2002 2,300,000 2,533,243
United States Treasury Stripped
Interest Only 15 May 2002+ 1,710,000 1,213,429
---------
16,654,906
----------
TOTAL FIXED INCOME
(Cost - $60,951,351) 63,348,270
==========
<CAPTION>
SHORT TERM OBLIGATIONS - 14.78% PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
FINANCE - 6.08%
Mitsubishi Euro
6.14% 16 Jan 1996 $ 2,000,000 $2,000,008
Sanwa Bank
6.08% 16 Jan 1996 2,000,000 2,000,000
---------
4,000,008
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.71%
Federal Home Loan Mortgage Discount Notes @
5.50% 18 Jan 1996 1,930,000 1,928,778
Federal National Mortgage Association @
6.46% 27 Mar 1996 1,170,000 1,169,830
---------
3,098,608
---------
U.S. TREASURY - 3.99%
United States Treasury Bills @
4.90% 28 Mar 1996 41,000 40,514
4.985% 14 Mar 1996 611,000 604,824
5.085% 14 Nov 1996 265,000 253,097
5.135% 21 Mar 1996 81,000 80,076
<CAPTION>
SHORT TERM OBLIGATIONS PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY (continued)
5.19% 21 Mar 1996 $ 601,000 $ 594,068
5.205% 21 Mar 1996 47,000 46,456
5.298% 21 Mar 1996 127,000 125,517
5.315% 21 Mar 1996 894,000 883,441
---------
2,627,993
---------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $9,722,818) 9,726,609
=========
TOTAL INVESTMENTS - 111.07%
(Cost - $70,674,169) 73,074,879
==========
OTHER ASSETS AND LIABILITIES - (11.07%) (7,285,821)
==========
TOTAL NET ASSETS - 100% $65,789,058
==========
<CAPTION>
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------------
FIXED INCOME - 96.75% PAR VALUE
<S> <C> <C>
ASSET BACKED - 11.22%
First USA Credit Card Master Trust
5.80% 15 Jun 1998 $ 500,000 $ 499,530
Premier Auto Trust
7.20% 4 Oct 1999 1,000,000 1,032,500
Standard Credit Card Trust
9.375% 10 Jul 1997 2,000,000 2,105,620
---------
3,637,650
---------
COLLATERALIZED MORTGAGE OBLIGATION - 3.09%
Contimortgage Home Equity Loan
6.20% 15 May 2008 1,000,000 1,000,625
---------
GOVERNMENT SPONSORED - 8.74%
Federal Farm Credit Banks MTN
7.51% 13 Feb 1998 2,000,000 2,086,300
Federal National Mortgage Assn MTN
6.72% 27 Apr 1998 730,000 745,082
---------
2,831,382
---------
MUNICIPAL - 9.35%
Bossier LA Public Trust
6.50% 1 Aug 2011 2,000,000 2,022,100
Ventura County CA Pension Obligation
5.74% 1 Nov 1998 1,000,000 1,007,450
---------
3,029,550
---------
</TABLE>
See notes to financial statements and notes to schedules of investments
49
<PAGE> 52
<TABLE>
<CAPTION>
December 31, 1995 (unaudited)
SCHEDULES OF INVESTMENTS
PREFERRED ST GOVT SECURITIES FUND (continued)
FIXED INCOME PAR/SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY - 64.35%
United States Treasury Notes
5.125% 30 Jun 1998 $ 1,520,000 $ 1,516,914
5.125% 31 Dec 1998 1,000,000 996,560
5.50% 31 Jul 1997 1,100,000 1,105,500
5.50% 15 Nov 1998 1,000,000 1,007,340
5.625% 31 Aug 1997 1,000,000 1,006,410
5.875% 15 Aug 1998 1,500,000 1,523,670
6.00% 30 Nov 1997 2,000,000 2,029,380
6.125% 15 May 1998 1,250,000 1,275,000
6.375% 30 Jun 1997 1,000,000 1,016,560
6.50% 15 May 1997 750,000 762,540
6.50% 15 Aug 1997 2,250,000 2,295,000
7.50% 31 Dec 1996 1,000,000 1,021,870
7.875% 15 Apr 1998 1,200,000 1,267,128
8.25% 15 Jul 1998 500,000 535,155
8.50% 15 Jul 1997 1,000,000 1,048,280
8.875% 15 Nov 1997 2,300,000 2,448,051
----------
20,855,358
----------
TOTAL FIXED INCOME
(Cost - $31,018,793) 31,354,565
==========
<CAPTION>
SHORT TERM OBLIGATIONS - .81% SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENT FUND - .81%
Seven Seas Money Market Fund 262,717 262,717
-----------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $262,717) 262,717
-----------
TOTAL INVESTMENTS - 97.56%
(Cost - $31,281,510) 31,617,282
-----------
OTHER ASSETS AND LIABILITIES - 2.44% 790,590
-----------
TOTAL NET ASSETS - 100% $32,407,872
===========
PREFERRED MONEY MARKET FUND
<CAPTION>
SHORT TERM OBLIGATIONS - 99.32% PAR VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATES OF DEPOSIT - 15.22%
Fuji Bank Ltd Yankee CD
6.12% 17 Jan 1996 $ 3,000,000 $ 3,000,000
National Australia Bank @
5.75% 2 Oct 1996 1,000,000 999,063
National Westminster Bank Plc
5.72% 16 Feb 1996 3,000,000 3,000,422
Nationsbank Dallas @
7.55% 9 Jan 1996 1,000,000 999,996
Sumitomo Bank Ltd
5.99% 16 Jan 1996 3,000,000 3,000,049
-----------
10,999,530
-----------
COMMERCIAL PAPER - 38.59%
American Telephone & Telegraph Co @
5.50% 15 Apr 1996 3,500,000 3,443,854
Bank of New York @
5.83% 18 Jan 1996 3,500,000 3,490,364
Bankers Trust NY Corp @
5.67% 14 Mar 1996 2,500,000 2,471,256
Bayerische Vereinsbank AG NY @
6.06% 3 Jan 1996 3,500,000 3,498,822
Deere & Co @
5.77% 30 Jan 1996 3,600,000 3,583,267
Deutsche Bank Finance Inc @
5.655% 2 Feb 1996 3,000,000 2,984,920
Ford Motor Credit Co @
5.85% 5 Jan 1996 1,500,000 1,499,025
Her Majesty in Right of Canada @
5.52% 18 Jan 1996 3,500,000 3,490,877
Nationsbank Corp @
5.35% 12 Jun 1996 3,500,000 3,415,217
-----------
27,877,602
-----------
CORPORATE BONDS - 5.53%
Coamerica Bank Detroit @
5.70% 3 Sep 1996 1,000,000 999,546
Ford Motor Credit @
5.00% 25 Mar 1996 2,000,000 1,995,721
Society National Bank Cleveland @
6.30% 9 May 1996 1,000,000 999,933
---------
3,995,200
=========
</TABLE>
See notes to financial statements and notes to schedules of investments
50
<PAGE> 53
<TABLE>
<CAPTION>
THE PREFERRED GROUP OF MUTUAL FUNDS
SCHEDULES OF INVESTMENTS
SHORT TERM OBLIGATIONS PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY - 38.15%
Federal Home Loan Mortgage Loan Disc Notes @
5.46% 22 Jan 1996 $ 6,000,000 $ 5,980,890
5.50% 18 Jan 1996 3,077,000 3,069,008
5.52% 16 Jan 1996 5,000,000 4,988,500
5.75% 2 Jan 1996 9,049,000 9,047,555
6.06% 21 Mar 1996 1,000,000 986,533
Federal National Mortgage Assn MTN @
5.30% 26 Dec 1996 2,500,000 2,494,787
5.60% 1 Nov 1996 1,000,000 998,642
----------
27,565,915
----------
U.S. TREASURY - 1.83%
United States Treasury Bills @
5.28% 21 Mar 1996 317,000 313,281
United States Treasury Notes
7.375% 15 May 1996 1,000,000 1,005,640
---------
1,318,921
---------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $71,757,168) 71,757,168
----------
TOTAL INVESTMENTS - 99.32%
(Cost - $71,757,168) 71,757,168
----------
OTHER ASSETS AND LIABILITIES - .68% 492,124
----------
TOTAL NET ASSETS - 100% $72,249,292
===========
</TABLE>
<TABLE>
NOTES TO SCHEDULES OF INVESTMENTS
<S> <C>
* Non-income producing security.
** These securities were purchased on a delayed delivery basis for
settlement at a future date beyond the customary settlement time.
*** Pursuant to Rule 144A of the Securities Act of 1933, this security may
be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 1995, these securities
amounted to $6,548,177 or 1.67% of the Preferred Growth Fund.
# All or a portion of this security is being used to collateralize
delayed delivery securities settling after December 31, 1995 or futures
contracts outstanding at December 31, 1995.
@ Yields are at time of purchase.
+ Interest only securities represent the right to receive the monthly
interest payments. Payments of principal reduce the value of the
interest only holding.
Abbreviations:
ADR - American Depository Receipt
MTN - Medium Term Notes
REMIC - Real Estate Mortgage Investment Conduit
</TABLE>
51
<PAGE> 54
December 31, 1995 (unaudited)
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The Preferred Group of Mutual Funds ("The Preferred Group or "the Trust")
is registered under the Investment Company Act of 1940, as amended, as an
open-end, diversified series management investment company offering nine
portfolios ("Funds"):
PREFERRED GROWTH FUND ("Growth") - seeks long-term capital appreciation
by investing its assets primarily in equity securities believed to offer
the potential for capital appreciation, including stocks of companies
experiencing rapid earnings growth.
PREFERRED VALUE FUND ("Value") - seeks capital appreciation and current
income. The Fund invests primarily in equity securities that are
believed to be undervalued and that offer above-average potential for
capital appreciation.
PREFERRED INTERNATIONAL FUND ("International") - seeks long-term capital
appreciation by investing its assets primarily in equity securities
traded principally on markets outside the United States.
PREFERRED SMALL CAP FUND ("Small Cap") (effective November 1, 1995) -
seeks long-term capital appreciation through investments in companies
with small equity capitalizations.
PREFERRED ASSET ALLOCATION FUND ("Asset Allocation") - seeks both capital
appreciation and current income by allocating its assets among
stocks, bonds and high quality money market instruments.
PREFERRED BALANCED FUND ("Balanced") (effective July 3, 1995) - seeks
total return through a combination of capital appreciation and
current income. The Fund allocates its assets among stocks, bonds and
short term instruments.
PREFERRED FIXED INCOME FUND ("Fixed Income") - seeks a high level of
current income consistent with investment in a diversified portfolio of
high quality debt securities.
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND ("Short-Term Government")
- seeks high current income, consistent with preservation of
capital, primarily through investments in U.S. Government Securities.
PREFERRED MONEY MARKET FUND ("Money Market") - seeks the maximum current
income believed to be consistent with preservation of capital and
maintenance of liquidity by investing in a portfolio of short-term, fixed
income instruments.
The Preferred Group was established in 1991 as a business trust under
Massachusetts law and has an unlimited authorized number of shares of
beneficial interest which may, without shareholder approval, be divided
into an unlimited number of series of such shares.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates. The following significant accounting policies are
consistently followed by the Funds in the preparation of their financial
statements.
52
<PAGE> 55
THE PREFERRED GROUP OF MUTUAL FUNDS
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SECURITY VALUATIONS
Portfolio securities, options and futures for which market quotations are
readily available are valued at market value, which is determined by
using the last reported sale price, or, if no sales are reported, the
last reported bid price. Portfolio debt securities with remaining
maturities greater than sixty days are valued by pricing agents approved
by the Trustees, which prices reflect broker/dealer - supplied valuations
and electronic data processing techniques. If the pricing agents are
unable to provide such quotations, the most recent bid quotation supplied
by a bonafide market maker shall be used. Over-the-counter options are
valued at fair value, as determined in good faith by the Trustees or by
persons acting at their direction based on prices supplied by a broker,
usually the option counter-party. Obligations with a maturity of 60 days
or less and holdings in Money Market are valued at amortized cost which
approximates market value. Portfolio positions which cannot be valued as
set forth above are valued at fair value under procedures approved by the
Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is
determined and gains and losses are based upon the specific
identification method for both financial statement and federal tax
purposes.
FEDERAL TAXES
Consistent with each Fund's policy to qualify as a regulated investment
company and to distribute all of its taxable income and net realized
capital gains to its shareholders, no federal tax has been accrued.
At June 30, 1995, approximate capital loss carryforwards available (to the
extent provided in regulations) to offset future realized gains were as
follows:
YEAR OF CAPITAL LOSS
FUND EXPIRATION CARRYFORWARD
Fixed Income 2003 $311,000
Short-Term Government 2003 $418,000
To the extent the loss carryforwards are used to offset any future
realized gains, it is unlikely that such gains would be distributed.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM
Interest income is recorded on the accrual basis. Original issue discount
is accreted to interest income over the life of a security with a
corresponding adjustment in the cost basis; premium is amortized and
market discount is accreted on debt securities with a corresponding
adjustment to the cost basis.
DISTRIBUTIONS TO SHAREHOLDERS
Growth, Value, International and Small Cap will declare and pay dividends
at least annually. Dividends were declared and recorded monthly and paid
semi-annually for Asset Allocation until July 1, 1995 after which time
dividends will be declared and paid quarterly. Dividends are declared and
paid quarterly for Balanced. Dividends are declared and recorded daily
and paid monthly for Fixed Income, Short-Term Government and Money Market.
Income distributions and capital gain distributions 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, losses deferred
due to wash sales, post October 31 losses and excise tax regulations.
Permanent book and tax differences relating to shareholder distributions
will result in reclassifications in the Funds' capital accounts.
EXPENSES
Expenses specific to an individual Fund are charged to that
Fund. Common expenses are allocated to the Funds based on their relative
net asset values.
53
<PAGE> 56
December 31, 1995 (unaudited)
- ----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are
converted into U.S. dollars at the daily exchange rates.
Net realized gains and losses on foreign denominated other assets,
liabilities and currency transactions disclosed in the Statement of
Operations represent net gains and losses from the disposition of foreign
currencies, currency gains and losses realized between the trade
and settlement dates on securities transactions, and the difference
between the amount of net investment income accrued and the U.S. dollar
amount actually received. Further, the effects of changes in foreign
currency exchange rates on securities are not segregated in the Statement
of Operations from the effects of changes in market prices of those
securities, but rather, are included with the net realized and unrealized
gain or loss on investments.
FORWARD CURRENCY CONTRACTS
All Funds (except Money Market and Short-Term Government) may enter into
forward currency contracts to purchase or sell foreign currencies at
predetermined exchange rates at future dates. The market value of the
contract will fluctuate with changes in currency exchange rates. All
contracts are marked-to-market daily, resulting in unrealized gains or
losses which become realized at the time the forward contracts are closed
or mature. Forward currency contracts do not eliminate fluctuations in
the prices of the Funds portfolio securities. The maximum potential
loss from such contracts is the aggregate face value in U.S. dollars at
the time the contract was opened.
FUTURES CONTRACTS
All Funds (except Money Market) may enter into futures contracts. A
futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. A Fund may use futures
contracts to manage its exposure to the stock and fixed income markets.
Buying futures tends to increase the Fund's exposure to the underlying
instrument. Selling futures tends to decrease the Fund's exposure to the
underlying instrument or hedge other Fund instruments. Upon entering
into such a contract, the Fund is required to pledge to the broker an
amount of cash or investment securities equal to the minimum "initial
margin" requirements of the exchange. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to
the daily fluctuation in value of the contract. Such receipts or
payments are known as "variation margin," and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it
was closed. Futures contracts involve, to varying degrees, risk of loss
in excess of the variation margin disclosed in the Statement of Assets
and Liabilities. Losses may arise from the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are principally traded.
See Note 4 for all open futures contracts held as of December 31, 1995.
DELAYED DELIVERY TRANSACTIONS
All Funds (except Money Market) may purchase or sell securities on a
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transaction. The price of the underlying
securities and the date when the securities will be delivered and paid
for are fixed at the time the transaction is negotiated. The Funds
identify securities as segregated in its custodial records with a value
at least equal to the amount of the purchase commitment.
54
<PAGE> 57
The Preferred Group of Mutual Funds
- ----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
REPURCHASE AGREEMENTS
The Funds' custodian takes possession through the federal book-entry
system of securities collateralizing repurchase agreements. Collateral
is marked-to-market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Funds. The Funds may
experience costs and delays in liquidating the collateral if the issuer
defaults or enters bankruptcy.
DOLLAR ROLL TRANSACTIONS
Dollar roll transactions consist of the sale by a Fund of mortgage-backed
securities, together with a commitment to purchase similar, but not
identical, securities at a future date. If the broker/dealer to whom the
Fund sells the security becomes insolvent, the Fund's commitment to
purchase or repurchase the security may be restricted; the value of the
security may change adversely over the term of the dollar roll; the
security that the Fund is required to repurchase may be worth less than
the security that the Fund originally held, and the return earned by the
Fund with the proceeds of a dollar roll may not exceed transaction costs.
OTHER
Corporate actions (including cash dividends) are recorded on the ex-date
(except for certain foreign securities for which corporate actions are
recorded as soon after the ex-date as the Funds become aware of such),
net of nonrebatable tax withholdings. Where a high level of
uncertainty as to collection exists, income on securities is recorded net
of all tax withholdings with any rebates recorded when received.
All Funds (except Short-Term Government) may invest in foreign
securities. There are certain additional risks involved when investing in
foreign securities that are not inherent with investments in domestic
securities. These risks may include foreign currency exchange rate
fluctuations, adverse political and economic developments and the
imposition of unfavorable foreign governmental laws or restrictions,
including the possible prevention of currency exchange.
The Funds may focus their investments in certain industries, subjecting
them to greater risk than funds that are more diversified.
55
<PAGE> 58
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
Notes to Financial Statements
2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Caterpillar Investment Management Ltd. (The Manager) provides investment
advisory and portfolio management services for the Funds. Each Fund pays
a monthly fee based on the average net assets of the Fund at the following
rates:
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE OF
FUND AVERAGE NET ASSETS
---- --------------------
<S> <C>
Growth.................................. 0.75%
Value................................... 0.75%
International........................... 0.95%
Small Cap............................... 0.75%*
Asset Allocation........................ 0.70%
Balanced................................ 0.75%**
Fixed Income............................ 0.65%
Short-Term Government................... 0.35%
Money Market............................ 0.30%***
</TABLE>
* Effective November 1, 1995 and until further notice, the Manager
agreed to limit the fee to 0.40%.
** Effective July 3, 1995 and until further notice, the manager
agreed to limit expenses to 1.15% of average net assets.
*** The Manager agreed to limit the fee to 0.15% from January 1, 1993
- October 31, 1995.
In order to assist in carrying out its responsibilities, the Manager
has retained various subadvisors to render advisory services to the Funds:
<TABLE>
<CAPTION>
FUND SUBADVISOR (S)
---- --------------
<S> <C>
Growth and Balanced.................... Jennison Associates Capital Corp. ("Jennison")
Value.................................. Oppenheimer Capital ("Oppenheimer")
International.......................... Mercator Asset Management, L.P. ("Mercator")
Small Cap and Short-Term Government ... None
Asset Allocation....................... Mellon Capital Management Corporation ("Mellon") and
PanAgora Asset Management, Inc. ("PanAgora")
Fixed Income and Money Market.......... J. P. Morgan Investment Management, Inc. ("Morgan")
</TABLE>
The subadvisors operate under the supervision of the Manager and The Preferred
Group's Trustees. The Manager pays the fees of each of the subadvisors; the
Funds do not pay subadvisory fees in addition to the management fee paid to the
Manager.
For the six-month period ended December 31, 1995, brokerage commissions
were paid to the following affiliates of the Trust's subadvisors by the
following funds:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROWTH VALUE BALANCED
-------- -------- --------
J.P. Morgan Securities, Inc. $ 1,612 - $ 21
Lehman Bros. 29,582 $ 600 73
Oppenheimer & Co., Inc 298 1,775 45
Prudential Securities, Inc. - 6,000 -
-------- -------- --------
$ 31,492 $ 8,375 $139
======== ======== ========
</TABLE>
Trustees' Fees
The unaffiliated Trustees receive an annual fee of $6,000 plus $1,000 for
each Trustees' meeting attended.
56
<PAGE> 59
The Preferred Group of Mutual Funds
- --------------------------------------------------------------------------------
Notes to Financial Statements
3. BENEFICIAL INTEREST
As of December 31, 1995, related party holdings are as follows:
<TABLE>
<CAPTION>
% OF TOTAL SHARES OUTSTANDING
---------------------------------------------------- ----------------------
GROUP INSURANCE INSURANCE CATERPILLAR INVESTMENT
401(K) PLAN * TRUST A AND B ** RESERVES*** MANAGEMENT LTD.
------------- ---------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Growth 41.62% 8.10% 10.22% --
Value 58.02% 14.86% 17.72% --
International 48.42% 31.79% 8.49% --
Small Cap -- 99.79% --
Asset Allocation 42.45% 40.54% -- --
Balanced -- -- 93.02%
Fixed Income 35.17% 50.19% -- --
Short-Term Government 39.58% 53.56% -- --
Money Market 87.44% -- -- --
* Caterpillar Investment Trust 401(k) Plan.
** Caterpillar Inc. Supplemental Unemployment and Benefits Group Insurance Trust A and Caterpillar Group Insurance
Trust B (Trust A and B).
*** Caterpillar Insurance Company Limited Insurance Reserves.
</TABLE>
4. PORTFOLIO INFORMATION
SECURITY PURCHASES AND SALES
During the six-month period ended December 31, 1995 (two-month period
ended December 31, 1995 for Small Cap), purchases and sales of long-term
investments (other than short-term securities and U.S. Government
securities) and U.S. Government securities (short and long-term),
respectively, were as follows:
<TABLE>
<CAPTION>
LONG-TERM U.S. GOVERNMENT
--------------------------------- ------------------------------
PURCHASES SALES PURCHASES SALES
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Growth $ 142,853,468 $ 142,228,124 -- --
Value 20,979,634 21,781,660 -- --
International 27,646,429 11,880,738 -- --
Small Cap 28,144,402 2,680,572 -- --
Asset Allocation 3,228,506 7,650,721 $ 13,922,083 $ 18,884,480
Balanced 2,018,639 538,884 1,169,733 --
Fixed Income 54,118,359 46,873,872 80,678,534 71,721,460
Short-Term Government 11,182,606 6,755,039 15,520,152 20,150,687
</TABLE>
57
<PAGE> 60
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
Notes to Financial Statements
During the six-month period ended December 31, 1995, Money Market had
purchases and sales (including maturities and excluding repurchase
agreements) of other short-term securities and U.S. Government securities
of:
<TABLE>
<CAPTION>
OTHER U.S. GOVERNMENT
----------------------------------- ---------------------------------
PURCHASES SALES PURCHASES SALES
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Money Market $ 954,431,654 $ 954,525,024 $ 26,667,201 $ 33,432,844
</TABLE>
FUTURES CONTRACTS
Asset Allocation had the following futures contracts open at December 31,
1995:
<TABLE>
Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS CONTRACTS DATE GAIN
------------------- --------------- -------------- --------------
<S> <C> <C> <C>
Long Positions:
S&P 500 36 Mar 96 $516,020
S&P 500 20 Jun 96 (88,125)
-----------
427,895
Short Positions:
U.S. Treasury Bonds 45 Mar 96 77,235
-----------
$350,660
===========
</TABLE>
UNREALIZED APPRECIATION (DEPRECIATION)
Unrealized appreciation (depreciation) for each Fund at December 31, 1995
based on cost of both long-term and short-term securities for federal tax
and financial statement purposes were as follows:
<TABLE>
<CAPTION>
COST FOR
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED FEDERAL TAX
FUND APPRECIATION (DEPRECIATION) APPRECIATION PURPOSES
------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Growth $105,980,181 $(10,815,937) $ 95,164,244 $ 293,649,244
Value 67,274,232 (5,570,624) 61,703,608 167,684,301
International 17,661,458 (2,320,454) 15,341,004 120,768,752
Small Cap 2,249,150 (1,210,821) 1,038,329 25,830,502
Asset Allocation 13,193,269 (707,965) 12,485,304 70,269,364
Balanced 202,422 (38,306) 164,116 3,172,870
Fixed Income 2,410,163 (9,457) 2,400,706 70,674,173
Short-Term Government 340,231 (4,459) 335,772 31,281,510
Money Market - - - 71,757,168
</TABLE>
58
<PAGE> 61
The Preferred Group of Mutual Funds
- --------------------------------------------------------------------------------
FUNDS & INVESTMENT OBJECTIVES
PREFERRED GROWTH FUND
Seeks long-term capital appreciation by investing its assets primarily
in equity securities believed to offer the potential for capital
appreciation, including stocks of companies experiencing rapid
earnings growth.
PREFERRED VALUE FUND
Seeks capital appreciation and current income. The Fund invests
primarily in equity securities that are believed to be undervalued and
that offer above-average potential for capital appreciation.
PREFERRED INTERNATIONAL FUND
Seeks long-term capital appreciation by investing its assets primarily
in equity securities traded principally on markets outside the United
States.
PREFERRED SMALL CAP FUND
Seeks long-term capital appreciation through investments in companies
with small equity capitalizations.
PREFERRED ASSET ALLOCATION FUND
Seeks both capital appreciation and current income by allocating its
assets among stocks, bonds and high quality money market instruments.
PREFERRED BALANCED FUND
Seeks total return through a combination of capital appreciation and
current income. The Fund allocates its assets among stocks, bonds and
short term instruments.
PREFERRED FIXED INCOME FUND
Seeks a high level of current income consistent with investment in a
diversified portfolio of high quality debt securities.
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
Seeks high current income, consistent with preservation of capital,
primarily through investments in U.S. Government Securities.
PREFERRED MONEY MARKET FUND
Seeks the maximum current income believed to be consistent with
preservation of capital and maintenance of liquidity by investing in
a portfolio of short-term, fixed income instruments.
- --------------------------------------------------------------------------------
<PAGE> 62
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
SHAREHOLDER PRIVILEGES
AFFORDABLE MINIMUM INVESTMENT
You may open a Preferred account with an investment of $1,000 or more.
Subsequent investments of $50 or more may be made at any time.
FREE CHECKWRITING
You can write an unlimited number of free checks (minimum $250 per
check) against the assets in your account (Money Market and
Short-Term Government Securities Funds only). You must maintain the
minimum required account balance of $1,000.
SYSTEMATIC SAVINGS PLAN
You may authorize your bank to debit your checking account
automatically and send regular monthly investments of $50 or more to
your fund account. If you select this option, you may open an account
with your first monthly investment of $50.
EXCHANGE PRIVILEGE
Should you wish to change your investment selection, you may move all
or a portion of your assets to another fund. One toll-free call is
all it takes.
IRA PLANS
If you consider a comfortable retirement to be one of your financial
goals, you might be especially interested in opening a Preferred IRA
account. You may also transfer or roll over your current IRA to a
Preferred IRA. Call 1-800-662-GROW for a free IRA Kit.
COMPREHENSIVE INVESTOR SERVICES
You can reach The Preferred Group at 1-800-662-GROW during normal
business hours of 8 a.m. to 8 p.m. Eastern Time to discuss your
questions with our Investor Services representatives. After business
hours you can access pre-recorded information via The Preferred
Tele-Services line. You will also receive easy-to-read account
statements and a comprehensive year-end Summary Statement for your tax
records. High-quality service is a top priority at The Preferred
Group.
100% NO-LOAD
We are a 100% NO-LOAD FUND GROUP. There are no sales commissions,
exchange fees, exit fees, or 12b-1 fees when you invest in a Preferred
Fund. All of your money goes to work for you immediately.
<PAGE> 63
OFFICERS AND TRUSTEES
P. Michael Pond President and Trustee
Gary M. Anna Trustee
William F. Bahl Trustee
James F. Masterson Trustee
Dixie L. Mills Trustee
Carol K. Burns Vice President and
Assistant Clerk
Fred L. Kaufman Vice President and
Treasurer
Richard P. Konrath Clerk
INVESTMENT ADVISOR
Caterpillar Investment Management Ltd.
100 N.E. Adams Street
Peoria, IL 61629-5330
DISTRIBUTOR
Caterpillar Securities Inc.
100 N. E. Adams Street
Peoria, IL 61629-5330
CUSTODIAN
State Street Bank & Trust Co.
P.O. Box 1713
Boston, MA 02101
TRANSFER AGENT AND INVESTOR SERVICES
Boston Financial Data Services, Inc.
The BFDS Building
Two Heritage Drive
Quincy, MA 02171
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110-2624
This report and the financial statements contained herein are submitted
for the general information of the shareholders of The Preferred Group of
Mutual Funds. The report is not intended for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
[PREFERRED GROUP LOGO]
Semiannual
Report
December 31, 1995
(Unaudited)
