GRAPHIC: THE PREFERRED GROUP
OF MUTUAL FUNDS (R)
ANNUAL REPORT
JUNE 30, 1996
<PAGE>
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
Report of Independent Accountants................................ 59
<TABLE>
PERFORMANCE DATA FOR TWELVE MONTHS ENDED 6/30/96
<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 $18.52 14.96% - $ .0076 $ .5379
==============================================================================================================
Value 13.82 16.65 24.49 - .2063 .2940
==============================================================================================================
International 12.24 13.72 13.70 - .1683 .0118
==============================================================================================================
Small Cap++ 10.00 11.25 12.67*** - .0156 -
==============================================================================================================
Asset Allocation 11.97 12.88 18.23 - .3974 .8145
==============================================================================================================
Balanced 10.00 10.69 12.11**** - .4127 .0936
==============================================================================================================
Fixed Income 10.30 10.09 4.12 6.07% .5802 .0517
==============================================================================================================
S.T. Gov't. Securities 9.80 9.76 5.10 5.51 .5285 -
==============================================================================================================
Money Market 1.00 1.00 5.32** 4.85 .0520 .0001
<FN>
*Total return includes reinvestment of dividends and capital gains
distributions for the periods indicated.
**Prior to 11/1/95, the manager was temporarily waiving a portion of its
management fees (0.15% of average net assets) for the Money Market Fund.
Total return for the Money Market Fund would have been 5.27% if a portion
of the fee had not been waived.
***The manager is temporarily waiving a portion of its management fees
(0.35% of average net assets) for the Small Cap Fund. Total return for
the Small Cap Fund would have been 12.44% if a portion of the fee had not
been waived.
****The manager is temporarily capping the Balanced Fund's expenses at
1.15% of the Fund's average net assets. Total return for the Balanced
Fund would have been 8.89% 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 6/30/96. The yield
shown for the Money Market Fund is a seven-day current yield as of
6/30/96, in accordance with Securities and Exchange Commission rules for
reporting yields of money market funds. Prior to 11/1/95, the manager was
temporarily waiving a portion of its management fees (0.15%) for the
Money Market Fund. As the manager was not waiving a portion of its
management fees as of 6/30/96, there is no impact to the reported
seven-day current yield as of 6/30/96.
++Information shown for the Small Cap Fund is for the period 11/1/95
(Fund's inception date) to 6/30/96.
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.
</FN>
</TABLE>
<PAGE>
OUR MESSAGE TO YOU
DEAR PREFERRED GROUP SHAREHOLDER:
We are pleased to present results for our fourth fiscal year, ended
June 30, 1996. A detailed investment review for each Preferred Group
fund begins on page 4, with performance information and commentary
from each of our portfolio managers.
MARKET REVIEW
During the last twelve months, the financial markets continued
their strong momentum. The Standard & Poor's 500 Composite Stock Price
Index, a common benchmark for the U.S. stock market, gained 26.1% for
the twelve months ended June 30, 1996. The Dow Jones Industrial
Average, another common indicator of stock market performance,
continued to break records, reaching a record high of 5,778 on May 22,
1996. At June 30, 1995, the Dow was approaching 4,500. Many other
market indices also set new record highs during this period.
The first six months of 1996 have been relatively volatile. At
times, the stock market stalled as investors wrestled over concerns
about inflation, higher interest rates, and slowing corporate profits.
The Preferred Group's equity funds posted positive total returns
during this period, although earlier gains on some portfolio holdings
were reversed slightly with the decline in technology stocks.
After last year's strong bond market performance, fixed income
investors were not as fortunate during the first six months of 1996.
Returns suffered as yields on U.S. Treasury securities increased, and
prices, which generally move in the opposite direction of yields,
fell. For the twelve-month period, however, the Preferred Group's
fixed income funds posted positive returns.
Foreign markets performed well in spite of a stronger dollar, which
decreases the U.S. dollar value of investments denominated in foreign
securities. The EAFE Index, a common benchmark for international
investing, returned 13.6% for the twelve-month period ended June 30,
1996. Total return for the Preferred International Fund was 13.7% for
this same period.
MARKET HISTORY
We would like to take this opportunity to remind investors that the
market's strong performance over the past twelve months is not
necessarily indicative of future market performance.
Ups and downs in the market are part of the normal investment cycle.
Investors may have become accustomed to a favorable market environment
overall, in part, because we've been riding a bull market since October,
1990. However, there can be no assurance that this bull market will
continue.
<PAGE>
OUR MESSAGE TO YOU
The accompanying chart shows compound annual returns for various
asset classes over a longer time frame - the past 25 years.
We would like to encourage investors to take a long-term
perspective, if possible. Choosing funds that match your tolerance for
risk and your time horizon for investing can help you invest wisely.
Diversifying your portfolio among stock, bond and money market funds
can help you to weather market turbulence.
PREFERRED GROUP HIGHLIGHTS
During the year, we expanded our fund group with the introduction
of two new funds. The Preferred Balanced Fund, introduced on July 1,
1995, just completed its first fiscal year. Jennison Associates
Capital Corp., the fund's subadvisor, is also subadvisor for the
Preferred Growth Fund. And, on November, 1, 1995, we introduced the
Preferred Small Cap Fund. Caterpillar Investment Management Ltd.,
which also advises the Preferred Short-Term Government Securities
Fund, is the fund's advisor. The addition of these two funds allows us
to offer shareholders a wider range of options in managing their
investment portfolios.
The Preferred Group also reached an important milestone this fiscal
year - $1 billion in assets under management.
We will continue to strive for the highest level of quality in our
products and services. Thank you again for choosing The Preferred
Group. We appreciate your confidence in us.
Sincerely,
P. Michael Pond, CFA
President
<PAGE>
AVERAGE ANNUAL INVESTMENT RETURNS (1971-1995)
GRAPH:
INFLATION 5.6%
U.S. TREASURY BILLS 7.0%
INTERMEDIATE TERM GOV'T. BONDS 9.0%
LARGE COMPANY STOCKS 12.2%
INTERNATIONAL STOCKS 14.2%
SMALL COMPANY STOCKS 15.5%
Sources: Ibbotson Associates SBBI 1996 Yearbook, Morgan Stanley EAFE Index
(International).
Note: Returns shown are those of marked indices, and not those of any
Preferred Group Fund.
<PAGE>
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,
June 30, 1996. 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 June 30, 1996, 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
<PAGE>
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:
For the fiscal year ended June 30, 1996, the Preferred Growth Fund rose by
15.0%, compared with a gain of 26.1% for the S&P 500 Index. Since inception,
the Fund has advanced at an average rate of 17.8% per annum versus 16.3% for
the benchmark.
These past twelve months encompassed a period of extreme volatility, with the
first half marked by rising fears of recession - occasioned by the government
workers strike and unusually harsh winter storms. The second half was
characterized by a stronger-than-expected rebound in the economy, and fears of
recession were replaced by angst over too robust growth and reaccelerating
inflation. In each case, investors retreated to defensive strategies,
abandoning more volatile, though potentially higher performing, growth
sectors. This flight to safety clearly had a negative impact on the relative
performance of the Fund.
Important holdings in the Fund, such as Intel (2.8% of net assets), KLA
Instruments (0.9%), and Dollar General (1.7%) fell sharply from the highs
achieved in the summer of 1995. Offsetting this downdraft was the strong
performance of the Fund's networking stocks (Ascend Communications (2.2%) and
Cisco Systems (3.1%)), capital goods holdings (HBO & Co. (2.4%) and Diebold
(3.1%)), and aerospace holding (Boeing (3.0%)).
As the market has been in a defensive mode for some time now, valuations have
risen quite high for the moderate growth, less volatile stocks (consumer
staples, financials, health care), which have been in favor. In contrast,
higher growth, but more volatile stocks in the out-of-favor sectors such as
technology, specialty retailing and airlines, have sold off to compelling
valuations. If these modest valuations are bolstered by solid earnings
results, particularly in a more difficult environment for corporate profits,
earnings progress should translate into stock price progress.
With the economy likely to slow in the second half of this year, but sustain
modest growth with low inflation, there will be opportunity for further, if
modest, expansion in corporate profits. We believe a selective stock-by-stock
approach to equity investing could be well rewarded going forward. We see
ample opportunity for well above-average earnings growth in the Fund's
holdings; and at current modest valuations, they hold attractive investment
appeal.
- Jennison Associates
<PAGE>
- ------------------------------------------------------------------------------
TOP TEN HOLDINGS: (% of total net assets)
- ------------------------------------------------------------------------------
1. Cisco Systems 3.1
- ------------------------------------------------------------------------------
2. Diebold 3.1
- ------------------------------------------------------------------------------
3. Boeing 3.0
- ------------------------------------------------------------------------------
4. Intel 2.8
- ------------------------------------------------------------------------------
5. Hewlett-Packard 2.8
- ------------------------------------------------------------------------------
6. AutoZone 2.5
- ------------------------------------------------------------------------------
7. Microsoft 2.4
- ------------------------------------------------------------------------------
8. HBO & Co. 2.4
- ------------------------------------------------------------------------------
9. Ascend Communications 2.2
- ------------------------------------------------------------------------------
10. AMR Corp 2.2
- ------------------------------------------------------------------------------
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.
<PAGE>
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED GROWTH FUND 9.59% 14.96% 92.37%
S&P 500 Index 10.19% 26.06% 82.91%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED GROWTH FUND 14.96% 17.77%
S&P 500 Index 26.06% 16.29%
* JULY 1, 1992
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED GROWTH FUND S&P 500 INDEX
7/1/92 10000 10000
12/31/92 11915 10837
6/30/93 12425 11359
12/31/93 13828 11921
6/30/94 12468 11514
12/31/94 13676 12074
6/30/95 16733 14510
12/31/95 17554 16599
6/30/96 19237 18291
</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 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.
<PAGE>
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 fiscal year ended June 30, 1996, the Preferred Value Fund returned
24.5%, as compared to the 26.1% advance recorded by the S&P 500 Index. Since
its inception, the Fund has delivered an average annual return of 16.3%, equal
to that of its benchmark.
During the period, the Fund's return was fueled by the strong performance of
financial stocks. In this group, particularly healthy returns were recorded by
Wells Fargo (4.1% of net assets), Travelers Group (3.5%), Citicorp (3.7%),
Transamerica (3.0%), and Exel Ltd. (3.7%). These stocks are held based on
Oppenheimer's assessment of their individual business characteristics,
including strong industrial position, high and sustainable return on capital,
and shareholder-oriented management, and not as a bet on interest rates.
The Fund's holdings in companies which are restructuring their businesses also
added to performance during the year, notably Monsanto (3.9%), Freeport
McMoRan Inc. Copper & Gold (2.8%), Dole Food (2.6%), and Lockheed Martin
(3.5%).
As a group, large-cap consumer nondurable stocks performed well during the
period. This is an area where we have not found many companies that meet our
investment criteria, and, therefore, relative to the benchmark, the Fund was
underrepresented.
Finally, the Fund's holdings in technology detracted from performance during
the past year, with Nokia (1.5%), Arrow Electronics (2.6%), Motorola (1.5%),
and Intel (2.2%) underperforming the market. When the market indiscriminately
punished all stocks in this sector, with little regard for quality of the
business, we added to the Fund's position in several of these stocks.
The Fund's investment philosophy emphasizes the level and sustainability of a
company's returns on invested capital and the allocation of cash flows among
reinvestment in business, timely acquisitions, share repurchase, dividend
payment, and other uses. We seek to invest in companies that generate high
returns and create value for shareholders through their allocation of those
returns. Such companies can compound their shareholder values for extended
periods, even if the increased value is not immediately reflected in the
market price of the stock.
A large proportion of the Fund is invested in companies whose high capital
returns generate cash flows in excess of their internal needs, leaving them
with large free cash flows. Many of these companies are buying back their own
stock, and often this is a critical element of our investment thesis.
Noteworthy among the portfolio companies in this regard are Becton Dickinson
(2.1%), Exel Ltd. (3.7%), Hercules (2.5%), and Wells Fargo (4.1%), each of
which have bought back about 15% of their shares over the past three years.
Buybacks benefit shareholders by increasing the value of the remaining shares.
We believe our emphasis on cash flow, capital allocation, and reasonable
valuations may drive superior investment results over time.
<PAGE>
While the stock market is highly valued and there are signs of speculative
excesses, the economy continues to expand with low inflation. Further,
liquidity in the financial system, which measures the supply/demand for funds,
remains favorable for financial assets. As we believe it is notoriously
difficult to predict market turns, we will continue to search for stocks
offering good value and solid prospects for profit growth.
- Oppenheimer Capital
TOP TEN HOLDINGS: (% of total net assets)
- ------------------------------------------------------------------------------
1. Wells Fargo & Co. 4.1
- ------------------------------------------------------------------------------
2. Monsanto 3.9
- ------------------------------------------------------------------------------
3. Citicorp 3.7
- ------------------------------------------------------------------------------
4. Exel Ltd 3.7
- ------------------------------------------------------------------------------
5. McDonnell Douglas 3.6
- ------------------------------------------------------------------------------
6. Federal Home Loan 3.5
- ------------------------------------------------------------------------------
7. Lockheed Martin 3.5
- ------------------------------------------------------------------------------
8. Travelers Group 3.5
- ------------------------------------------------------------------------------
9. General Electric 3.2
- ------------------------------------------------------------------------------
10 Sprint 3.1
- ------------------------------------------------------------------------------
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.
<PAGE>
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED VALUE FUND 10.85% 24.49% 83.22%
S&P 500 Index 10.19% 26.06% 82.91%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED VALUE FUND 24.49% 16.34%
S&P 500 Index 26.06% 16.29%
* JULY 1, 1992
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED VALUE FUND S&P 500 INDEX
7/1/92 10000 10000
12/31/92 10980 10837
6/30/93 11673 11359
12/31/93 11945 11921
6/30/94 11707 11514
12/31/94 12001 12074
6/30/95 14718 14510
12/31/95 16258 16599
6/30/96 18322 18291
</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.
<PAGE>
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 fiscal year's return for the Preferred International Fund was 13.7%,
compared to 13.6% for the EAFE Index. Returns were above the historical
average annual rates of return for foreign stocks.
The global economic outlook is somewhat uncertain, particularly in the United
States where the data continues to be mixed. Some statistics indicate that the
U.S. economy is gaining momentum, but doubts persist as to whether the
momentum will be sustainable over the next few quarters. Stronger U.S. growth
will positively impact many foreign economies. European economies recently
have seen slower rates of growth, and Mercator expects higher growth later
this year. While Asia has seen economic growth slow down, it remains
relatively strong compared to the rest of the world. Latin America is slowly
recovering from low rates of growth and recession. Over the first half of the
year, global interest rates trended down. The inflation outlook was positive
with labor and raw material costs under control. During the closing months of
the year, U.S. interest rates began to rise in spite of subdued inflation and
lack of strong credit demand. This has not impacted most foreign markets,
where we believe long-term interest rates may still trend lower. This is
important for stock markets as higher interest rates offer investors other
alternatives for their funds. Currencies were, for the most part, quiet with
the exception of the U.S. dollar/Japanese yen relationship.
The Japanese market was very strong earlier in the year and our underweighting
hurt performance, as did our exposure to the weak basic industry/cyclical
stocks. Eventually, this trend reversed with Japan weakening and cyclicals
strengthening; consequently, performance improved. On balance, the Fund
reduced the exposure to basic industry/cyclical stocks as a number of those
issues became overvalued. Proceeds, for the most part, were invested in
consumer/non-cyclical stocks that were undervalued and offered good long-term
potential. Positions were reduced in Norway, Germany, and Switzerland based on
high valuation levels for those stocks. The Fund's exposure was increased in
the United Kingdom, Japan, France, and Australia, where we purchased
attractively valued stocks. We remain significantly underweighted in Japan and
have no exposure in Germany and Hong Kong, as we have difficulty identifying
bargains in these markets.
Mercator is hopeful that the performance trend of the second half will
continue in the new fiscal year. The valuation characteristics and earnings
growth rate of the portfolio makes us confident that we are well positioned
for the long term.
- Mercator Asset Management, L.P.
<PAGE>
TOP TEN HOLDINGS: (% of total net assets)
- -----------------------------------------------------------------------------
1 Iberdrola Spain 2.4
- -----------------------------------------------------------------------------
2. Sony Japan 2.3
- -----------------------------------------------------------------------------
3. Ciba Geigy Switzerland 2.3
- -----------------------------------------------------------------------------
4. Christian Dior France 2.3
- -----------------------------------------------------------------------------
5. Banco Bilbao Vizcaya Spain 2.3
- -----------------------------------------------------------------------------
6. Mayne Nickless Ltd. Australia 2.2
- -----------------------------------------------------------------------------
7. SMH AG Neunburg Switzerland 2.1
- -----------------------------------------------------------------------------
8. British Telecom United Kingdom 2.1
- -----------------------------------------------------------------------------
9. Lion Nathan Ltd. New Zealand 2.1
- -----------------------------------------------------------------------------
10. Pioneer International Ltd. Australia 2.0
- -----------------------------------------------------------------------------
GEOGRAPHIC ALLOCATION: (% of total net assets)
- ------------------------------------------------------------------------------
United Kingdom 12.2
- ------------------------------------------------------------------------------
Netherlands 10.6
- ------------------------------------------------------------------------------
Switzerland 9.4
- ------------------------------------------------------------------------------
France 7.1
- ------------------------------------------------------------------------------
Sweden 6.7
- ------------------------------------------------------------------------------
Spain 6.3
- ------------------------------------------------------------------------------
Australia 6.1
- ------------------------------------------------------------------------------
Japan 6.1
- ------------------------------------------------------------------------------
New Zealand 5.3
- ------------------------------------------------------------------------------
Italy 5.1
- ------------------------------------------------------------------------------
Canada 5.0
- ------------------------------------------------------------------------------
South Korea 4.8
- ------------------------------------------------------------------------------
Norway 3.8
- ------------------------------------------------------------------------------
Argentina 2.8
- ------------------------------------------------------------------------------
Finland 1.4
- ------------------------------------------------------------------------------
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).
<PAGE>
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED INTERNATIONAL FUND 9.32% 13.70% 47.87%
EAFE Index 4.67% 13.62% 64.00%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED INTERNATIONAL FUND 13.70% 10.27%
EAFE Index 13.62% 13.16%
* JULY 1, 1992
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED INTERNATIONAL FUND EAFE INDEX
7/1/92 10000 10000
12/31/92 8419 9779
6/30/93 9623 12072
12/31/93 11915 12999
6/30/94 12189 14159
12/31/94 12305 14047
6/30/95 13004 14433
12/31/95 13526 15668
6/30/96 14787 16400
</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.
<PAGE>
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 the 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 commenced operations on November 1, 1995. During
these first eight months, the Fund gained 12.7% versus an 18.0% advance by the
Russell 2000 Index. A significant portion of the fund's initial
underperformance is attributable to the costs of starting a new portfolio,
especially in the strong market environment that existed last November.
Performance for the full period was led by the following holdings which more
than doubled in value: Reliance Steel and Aluminum (1.0% of net assets), JLG
Industries (0%-none held at June 30, 1996), KCS Energy (1.3%), Medisense (0%),
CompUSA (1.5%), and Ross Stores (1.3%). In addition, the following holdings
aided performance by increasing more than 50% in value: USA Waste Services
(0%), Champion Enterprises (1.0%), Jenny Craig (0.7%), Nabors Industries (0%),
Smith International (0.7%), Lincare Holdings (1.0%), Mueller Industries
(0.9%), Tredegar Industries (1.2%), Waban Inc. (0.9%), Redman Industries
(1.0%), Continental Airlines (2.2%), and TNP Enterprises (1.4%). Looking at
economic sector groups, the Fund's performance was led by stocks in the
capital goods, energy, and retail sectors, while holdings of the
semi-conductor stocks in the technology sector detracted from performance.
In selecting securities for the Fund, we utilize a proprietary process that
combines a strong valuation component with a focus on companies that are
experiencing consistent and growing earnings. Implementation of this strategy
is intended to result in a portfolio that has approximately half of the
price/earnings ratio of the Russell 2000 while still providing nearly the same
long-term earnings growth rate.
As we begin the Fund's new fiscal year, the market has paused. Many of the
stocks we hold have dipped along with the market. However, the fundamentals
for these companies remain intact. We believe the market has overreacted with
respect to several of these companies. We feel that as the market begins to
recognize this fact, the stocks we hold should assume a leadership position in
the market. Economic growth remains solid and inflation appears to be
contained in the near term. In this environment we will continue to focus on
companies with solid fundamentals, consistent superior earnings, and
attractive valuations.
- Caterpillar Investment Management Ltd.
<PAGE>
TOP TEN HOLDINGS: (% of total net assets)
- ------------------------------------------------------------------------------
Continental Airlines 2.2
- ------------------------------------------------------------------------------
Texas Industry 1.5
- ------------------------------------------------------------------------------
CompUSA 1.5
- ------------------------------------------------------------------------------
TNP Enterprises 1.4
- ------------------------------------------------------------------------------
US Air Group 1.4
- ------------------------------------------------------------------------------
Tesoro Petroleum Corp. 1.3
- ------------------------------------------------------------------------------
Ross Stores 1.3
- ------------------------------------------------------------------------------
KCS Energy 1.3
- ------------------------------------------------------------------------------
Alex Brown 1.2
- ------------------------------------------------------------------------------
Esterline Technologies 1.2
- ------------------------------------------------------------------------------
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 price 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.
<PAGE>
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED SMALL CAP FUND 7.24%+ N/A 12.67%+
Russell 2000 Index 10.37% N/A 18.04%
* NOVEMBER 1, 1995
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION
OF THE MANAGEMENT FEE (0.35%) HAD NOT BEEN WAIVED.
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED SMALL CAP FUND N/A 12.67%+
Russell 2000 Index N/A 18.04%
* NOVEMBER 1, 1995
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION
OF THE MANAGEMENT FEE (0.35%) HAD NOT BEEN WAIVED.
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED SMALL CAP FUND RUSSELL 2000 INDEX
11/1/95 10000 10000
12/31/95 10506 10695
6/30/96 11267 11804
</TABLE>
<PAGE>
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:
The Preferred Asset Allocation Fund had a total return of 18.2% for the fiscal
year ended June 30, 1996. By comparison, the Fund's blended benchmark
consisting of 65% - S&P 500 Index, 30% - Lehman Brothers Long-Term Treasury
Index, and 5% - 90-day Treasury Bills returned 16.9% for the year. The first
half of the fiscal year saw strong markets in both stocks and bonds. The stock
market continued to rally as reported corporate earnings, as well as expected
earnings, generally remained strong and inflation remained low. Likewise, the
bond market reacted favorably to the subdued level of inflation and the
Federal Reserve's monetary policy.
The second half of the fiscal year had quite a different flavor. Stocks and
bonds initially flourished as a nearly ideal economic scenario seemed to be
developing - namely, moderate growth with subdued inflation as well as ongoing
Federal Reserve monetary easing. As the year progressed, however, economic
data became somewhat mixed, making the underlying economic trends difficult to
discern for market participants. Despite the Federal Reserve's rate cut in
early February, the long end of the bond market dropped in reaction to signs
that the economy was beginning to strengthen. As the fiscal year came to an
end, the bond market bounced back some as investors seemingly regained the
belief that economic activity would moderate in the second half of 1996 and
inflation would remain subdued. The stock market exhibited positive, albeit
volatile, performance as both expected and reported corporate earnings
remained firm and the economy continued its growth.
The Preferred Asset Allocation Fund began the fiscal year with an asset mix of
73% stock, 20% bonds, and 7% cash. During the first half of the fiscal year,
bond yields fluctuated within a wide range as yields rose substantially and
then fell back. Consequently, the Fund made several asset allocation moves,
resulting in the Fund beginning the second half of the fiscal year with an
asset mix of 71% stocks, 10% bonds, and 19% cash. As cash rates fell and bond
yields increased in the second half of the year, the Preferred Asset
Allocation Fund ended the fiscal year at an asset mix of 57% stocks, 34%
bonds, and 9% cash.
- Mellon Capital Management
- PanAgora Asset Management
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION*: (% of portfolio)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
6/30/95 12/31/95 6/30/96
- ------------------------------------------------------------------------------
Stocks 73 71 57
- ------------------------------------------------------------------------------
Bonds 20 10 34
- ------------------------------------------------------------------------------
Short-Term 7 19 9
(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 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. 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 90-day Treasury Bill Index is an
index calculated using a one-bill portfolio containing the most recently
auctioned 90-day Treasury bill.
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.
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>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED ASSET
ALLOCATION FUND 5.06% 18.23% 61.32%
65/30/5 Benchmark 3.66% 16.89% 64.29%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED ASSET ALLOCATION FUND 18.23% 12.70%
65/30/5 Benchmark 16.89% 13.21%
* JULY 1, 1992
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED ASSET ALLOCATION FUND 65/30/5 BENCHMARK
7/1/92 10000 10000
12/31/92 10731 10781
6/30/93 11357 11523
12/31/93 11869 12057
6/30/94 11212 11483
12/31/94 11563 11848
6/30/95 13643 14057
12/31/95 15354 15849
6/30/96 16132 16429
</TABLE>
<PAGE>
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 fiscal year ended June 30, 1996 was a period of strong stock market
performance, with the S&P 500 Index up 26.1%. On the other hand, this was a
period of relatively weak bond market performance, with the Lehman Brothers
Gov't./Corp. Bond Index up only 4.7%. Against this backdrop, the Preferred
Balanced Fund returned 12.1% for the twelve-month period ended June 30, 1996.
This lagged the 55%/35%/10% blended benchmark (55% - S&P 500 Index, 35% -
Lehman Government/Corporate Bond Index, and 10% - 90-day Treasury Bills),
which was up 16.1% for this same period.
In retrospect, our asset allocation posture, which underweighted equities
throughout the period relative to the benchmark, was too conservative. Of
course, we reassess the asset allocation position constantly throughout the
fiscal year. Our analysis, which draws on a multitude of economic,
quantitative, and technical information, convinced us that the stock market
was getting increasingly speculative, and an equity exposure less than that of
the benchmark was warranted. We closed out the fiscal year with 48% in stocks.
Although the equity sector lagged the S&P 500 for the year, we view this as
only a short-term adjustment. Our objective on the equity sector of the
portfolio is to build in earnings growth better than that of the market, at a
reasonable valuation level.
Turning to the bond sector, we maintained a basically neutral weighting
relative to the benchmark throughout the twelve-month period ended June 30,
1996, ending with 37% in bonds. During the year, bonds had an uneven
performance experience with the first half strong and the second half weak.
The deterioration in bonds set in as the economy started to gain strength. Our
view on bonds is that they are currently offering a very attractive real rate
of return, but that it is somewhat too early to take a more aggressive
investment posture. We have maintained an all Treasury portfolio which at
fiscal year-end had a duration of 5.3 years.
Finally, we ended the period with cash reserves of 15%. We believe this
reserve will enable us to take advantage of stock or bond market opportunities
that may surface over the coming months.
- Jennison Associates
<PAGE>
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 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. 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. The 90-day Treasury Bill Index is an index calculated using
a one-bill portfolio containing the most recently auctioned 90-day Treasury
bill.
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED BALANCED FUND 4.35%+ 12.11%+ 12.11%+
55/35/10 Benchmark 5.08% 16.09% 16.09%
* JULY 1, 1995
+TOTAL RETURN WOULD HAVE BEEN LOWER IF THE MANAGER HAD NOT VOLUNTARILY
UNDERTAKEN TO LIMIT EXPENSES TO 1.15% OF AVERAGE NET ASSETS.
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED BALANCED FUND 12.11%+ 12.11%+
55/35/10 Benchmark 16.09% 16.09%
* JULY 1, 1995
+TOTAL RETURN WOULD HAVE BEEN LOWER IF THE MANAGER HAD NOT VOLUNTARILY
UNDERTAKEN TO LIMIT EXPENSES TO 1.15% OF AVERAGE NET ASSETS.
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED BALANCED FUND 55/35/10 BENCHMARK
7/1/95 10000 10000
12/31/95 10744 11049
6/30/96 11211 11609
</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 Balanced Fund's inception date was July 1, 1995. 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.
<PAGE>
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 provided a total return of 4.1% for the fiscal
year ended June 30, 1996, compared with a gain of 5.0% for the Salomon
Brothers Broad Investment Grade Bond Index. While declining interest rates
were a primary contributor to the strong performance of fixed income funds
during the last half of 1995, rising interest rates have detracted from
performance during the first half of 1996. The Federal Reserve cut interest
rates twice during the last half of 1995 and once in January 1996 in response
to slowing economic growth and benign inflation news. Since then, strong
employment numbers and GDP growth reports have increased inflationary fears,
causing interest rates to rise and the fixed income markets to sell off
significantly.
In managing the Preferred Fixed Income Fund, we make three key decisions 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. Anticipating
that the Federal Reserve would cut interest rates during the latter half of
1995, we gradually lengthened the Fund's duration to take advantage of the
expected rally in bond prices. However, this slightly long duration position
detracted from performance during the first half of 1996 as interest rates
again increased.
Secondly, we allocate the Fund's assets across the broad sectors of the fixed
income market, including governments, corporates, and mortgage-backed
securities. During the year, the Fund benefited from our decision to reduce
holdings in Treasury securities and instead overweight higher yielding,
non-Treasury sectors, particularly mortgage-backed securities. Mortgage-backed
securities have outperformed Treasuries as the rise in interest rates has led
to a slowdown in prepayments by homeowners and other mortgagors.
Finally, we select individual securities for the Fund. Securities are selected
on a daily basis by our portfolio managers, with substantial input from our
fixed income analysts and traders. Security selection continued to add value
during this period. The Fund maintained its focus on high-quality issues,
keeping the average credit quality of its holdings between AA and AAA.
Going forward, we presently plan to maintain our overweighting in mortgages.
In addition, we plan to maintain our slight underweighting in investment grade
corporates on concerns that recent increases in wages and interest rates will
put pressure on corporate profit margins. We feel the Federal Reserve is
likely to raise short-term interest rates over the next few months to ensure
that growth declines to trend. We will closely monitor the strength of the
market, and will adjust the Fund's duration position accordingly.
- J. P. Morgan Investment Management
<PAGE>
PORTFOLIO STATISTICS: (as of June 30, 1996)
- ------------------------------------------------------------------------------
Portfolio Holdings 95
- ------------------------------------------------------------------------------
Average Maturity: 13.7 years
- ------------------------------------------------------------------------------
Average Duration: 4.8 years
- ------------------------------------------------------------------------------
Average Quality: AAA
- ------------------------------------------------------------------------------
Allocation: (% of portfolio)
- ------------------------------------------------------------------------------
Treasury/Agency 16
- ------------------------------------------------------------------------------
Corporates 25
- ------------------------------------------------------------------------------
Mortgages/Asset-backed 59
- ------------------------------------------------------------------------------
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).
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED FIXED
INCOME FUND - 1.92% 4.12% 30.09%
Salomon Bros. BIG Index - 1.26% 4.96% 30.71%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED FIXED INCOME FUND 4.12% 6.80%
Salomon Bros. BIG Index 4.96% 6.92%
* JULY 1, 1992
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED FIXED INCOME FUND SALOMON BROS. BIG INDEX
7/1/92 10000 10000
12/31/92 10471 10461
6/30/93 11259 11198
12/31/93 11549 11496
6/30/94 11207 11065
12/31/94 11273 11169
6/30/95 12494 12454
12/31/95 13264 13238
6/30/96 13009 13071
</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 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.
<PAGE>
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:
For the fiscal year ended June 30, 1996, the Fund had a total return of 5.1%,
compared with a 5.5% return for the Merrill Lynch 1-3 Year Treasury Index.
Since inception, the Fund's average annual return is 4.5% versus 5.3% for the
Merrill Lynch 1-3 Year Treasury Index.
The first and second halves of fiscal year 1996 were mirror images with
respect to short-term interest rates. Interest rates continued their 1995
downward trend into January of this year. Fueled by cuts in both the bank
overnight lending rate and discount rate, the three-year Treasury went from
6.2% in August to just below 5% in January. A strengthening economy in the
second half of the fiscal year led the bears to believe inflation was imminent
and by the end of June, the three-year Treasury's yield stood at 6.3%.
The Fund outperformed the benchmark for the first six months of 1996. The
positive performance was due to a lower than benchmark duration and the
addition of better performing securities.
During the 1996 fiscal year, the Fund diversified its holdings, adding several
AAA-rated asset-backed and taxable municipal securities. These securities
outperformed the benchmark, helping Fund performance.
In the last three presidential cycles, bonds have fared less well in election
years. This appears to be due to the market's fear of more deficit spending by
a new Administration. Caterpillar Investment Management Ltd. expects that this
fear, together with wage gain fears, should lift interest rates going forward.
Caterpillar Investment Management Ltd.
PORTFOLIO STATISTICS: (as of June 30, 1996)
- ------------------------------------------------------------------------------
Portfolio Holdings 34
- ------------------------------------------------------------------------------
Average Maturity 1.64 years
- ------------------------------------------------------------------------------
Average Duration 1.47 years
- ------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED SHORT-TERM
GOVERNMENT SECURITIES FUND 1.53% 5.10% 19.14%
ML 1-3 Yr. Treasury Index 1.35% 5.46% 23.03%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED SHORT-TERM
GOVERNMENT SECURITIES FUND 5.10% 4.47%
ML 1-3 Yr. Treasury Index 5.46% 5.32%
* JULY 1, 1992
A $10,000 INVESTMENT SINCE INCEPTION:
GRAPH:
PREFERRED SHORT-TERM GOV'T. SEC. FUND ML 1-3 YR. TREASURY INDEX
7/1/92 10000 10000
12/31/92 10261 10317
6/30/93 10632 10658
12/31/93 10833 10875
6/30/94 10723 10830
12/31/94 10757 10938
6/30/95 11336 11666
12/31/95 11735 12140
6/30/96 11914 12303
</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 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.
<PAGE>
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 5.3% for the fiscal year ended June
30, 1996, compared with a return of 5.2% for the Donoghue's Taxable Money
Market Fund Average.
During the period, the Fund benefited from an inverted money market yield
curve, which was evident throughout 1995 and continued through January of
1996. The inverted curve, in which yields on shorter-maturity Treasuries were
higher than yields on longer-maturity Treasuries, resulted from signs of a
slowing economy, weakening employment and manufacturing statistics, low
inflation, and expectations of future Federal Reserve easings. However, in
February, Federal Reserve Chairman Alan Greenspan's comments to Congress on
renewed economic strength coupled with extraordinary strong employment numbers
quickly dampened expectations of additional Fed easings. Yields on the
one-year Treasury bill rose, and the yield curve returned to an upward sloping
shape. By June 30, 1996, the yield curve had steepened so that one-year
Treasury bills yielded 50 basis points more than three-month Treasury bills.
The Fund's longer average life relative to that of the Donoghue's Taxable
Money Market Fund Average during the last half of 1995 enhanced performance as
the longer end of the money market yield curve benefited from weak economic
signals and positive inflation news. In addition, the Fund benefited from our
holding of Japanese bank obligations. Japanese banks, which have been beset
with problem real estate loans, have been forced to offer a yield premium of
20 to 50 basis points over European and domestic banks in order to attract
funds. Our allocations to these high-quality Japanese CD's and other
securities provided the Fund a yield advantage. The Fund continued to focus on
the highest quality and most liquid securities. All securities are rated at
least A1/P1 or AA or are of comparable credit quality as determined by J. P.
Morgan Investment Management Inc.
We believe the attractive premiums on Japanese bank obligations have been
reduced, and therefore have begun to lessen our emphasis on these securities.
With recent strong employment reports and intensifying wage and cost
pressures, we expect the Federal Reserve will increase short-term interest
rates over the next few months. We believe that higher rates will succeed in
moderating the economy while simultaneously controlling inflation. We expect
to target the average life of the Fund at 40-45 days, and will continue to
take advantage of the higher yields offered by floating rate notes, commercial
paper, and agency sectors.
- J. P. Morgan Investment Management
<PAGE>
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.
<TABLE>
CUMULATIVE TOTAL RETURN:
<CAPTION>
PAST PAST SINCE
6 MONTHS 1 YEAR INCEPTION*
<S> <C> <C> <C>
PREFERRED MONEY
MARKET FUND 2.45%+ 5.32%+ 17.19%+
Donoghue's Taxable Money
Market Fund Average 2.44% 5.16% 16.90%
* JULY 1, 1992
+ 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:
<CAPTION>
PAST SINCE
1 YEAR INCEPTION*
<S> <C> <C>
PREFERRED MONEY MARKET FUND 5.32%+ 4.06%+
Donoghue's Taxable Money
Market Fund Average 5.16% 3.98%
* JULY 1, 1992
+ 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:
PREFERRED MONEY MARKET FUND DONOGHUE'S TAXABLE MONEY
MARKET FUND AVERAGE
7/1/92 10000 10000
12/31/92 10140 10148
6/30/93 10271 10284
12/31/93 10406 10422
6/30/94 10569 10583
12/31/94 10814 10813
6/30/95 11126 11113
12/31/95 11438 11407
6/30/96 11719 11690
</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 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.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS & LIABILITIES
June 30, 1996
GROWTH VALUE INTERNATIONAL SMALL CAP
<S> <C> <C> <C> <C>
ASSETS
Investments at value ............................ $ 405,599,127 $ 247,537,063 $ 146,078,922 $ 45,216,751
Short term obligations at amortized cost ........ 17,947,771 9,886,000 527,839
Cash ............................................ 2,152,692 831
Foreign currency holdings at value .............. 320,212
Receivable for investments sold ................. 5,165,335 1,351,730
Receivable for fund shares sold ................. 1,738,780 870,444 1,074,504
Dividends and interest receivable ............... 223,877 111,194 499,996 33,279
Receivable from investment manager
Prepaid expenses and other assets ............... 489 244 526
------------- ------------- ------------- -------------
Total assets ............................... 414,880,300 267,818,446 157,860,465 45,778,395
------------- ------------- ------------- -------------
LIABILITIES
Payable for investments purchased ............... 2,812,856
Payable for fund shares redeemed ................ 42,708 16,941 39,874 44,007
Payable for distributions........................
Accrued:
Management fees .............................. 260,054 164,669 122,279 15,648
Audit fees ................................... 19,875 17,058 20,531 19,114
Custodian fees ............................... 12,174 10,088 26,816 992
Legal fees ................................... 17,575 10,041 6,986 1,766
Trustees' fees ............................... 4,323 1,962 1,727 472
Transfer agent fees and other expenses ....... 22,589 15,994 14,843 3,684
------------- ------------- ------------- -------------
Total liabilities ....................... 3,192,154 236,753 233,056 85,683
------------- ------------- ------------- -------------
Net assets ...................................... $ 411,688,146 $ 267,581,693 $ 157,627,409 $ 45,692,712
============= ============= ============= =============
Shares of beneficial interest outstanding ....... 22,231,801 16,068,137 11,488,707 4,062,376
============= ============= ============= =============
Offering and redemption price per share ......... $ 18.52 $ 16.65 $ 13.72 $ 11.25
============= ============= ============= =============
COMPOSITION OF NET ASSETS
Paid-in capital ................................. $ 270,213,156 $ 174,542,675 $ 130,184,069 $ 42,082,525
Undistributed net investment income ............. 1,639,979 1,729,622 138,773
Accumulated net realized gains (losses) on
investments, futures and foreign currency .... 34,337,122 7,479,366 2,378,251 872,024
Net unrealized appreciation (depreciation) on:
Investments .................................. 107,137,868 83,919,673 23,340,530 2,599,390
Futures ......................................
Foreign denominated other assets,
liabilities & currency .................... (5,063)
------------- ------------- ------------- -------------
$ 411,688,146 $ 267,581,693 $ 157,627,409 $ 45,692,712
============= ============= ============= =============
Investments and short term obligations at cost .. $ 298,461,259 $ 181,565,161 $ 132,624,392 $ 43,145,200
Foreign currency holdings at cost ............... 331,237
<PAGE>
<CAPTION>
STATEMENTS OF ASSETS & LIABILITIES
June 30, 1996 ASSET BALANCED FIXED SHORT-TERM MONEY
ALLOCATION INCOME GOVERNMENT MARKET
<S> <C> <C> <C> <C> <C>
ASSETS
Investments at value ................................ $ 76,204,830 $ 3,413,995 $106,379,803 $ 42,227,380
Short term obligations at amortized cost ............ 19,674,467 619,000 3,833,522 5,640,960 $ 90,665,744
Cash ................................................ 525 905 4,505 1,189
Foreign currency holdings at value
Receivable for investments sold ..................... 3,000 6,998 6,191,016 3,032,285
Receivable for fund shares sold ..................... 374,040 226,114 19,913 18,341
Dividends and interest receivable ................... 665,470 31,797 1,049,150 876,915 303,250
Receivable from investment manager .................. 40,789
Prepaid expenses and other assets ................... 73,692 383 18,102 651 1,000
------------ ------------ ------------ ------------ ------------
Total assets ................................... 96,996,024 4,113,867 117,702,212 51,798,104 90,989,524
------------ ------------ ------------ ------------ ------------
LIABILITIES
Payable for investments purchased ................... 51,103 6,413,559
Payable for fund shares redeemed .................... 6,814 452,030
Payable for distributions ........................... 1,083 34,841 365 98 53
Accrued:
Management fees .................................. 54,994 2,469 58,485 14,771 21,766
Audit fees ....................................... 18,731 13,245 17,205 17,602 13,151
Custodian fees ................................... 15,864 2,493 5,715 4,839 6,986
Legal fees ....................................... 3,327 497 3,722 435 3,191
Trustees' fees ................................... 668 110 1,427 580 532
Transfer agent fees and other expenses ........... 12,009 3,116 10,428 4,462 9,380
------------ ------------ ------------ ------------ ------------
Total liabilities ........................... 106,676 107,874 6,517,720 42,787 507,089
------------ ------------ ------------ ------------ ------------
Net assets .......................................... $ 96,889,348 $ 4,005,993 $111,184,492 $ 51,755,317 $ 90,482,435
============ ============ ============ ============ ============
Shares of beneficial interest outstanding ........... 7,520,167 374,637 11,021,259 5,304,037 90,482,435
============ ============ ============ ============ ============
Offering and redemption price per share ............. $ 12.88 $ 10.69 $ 10.09 $ 9.76 $ 1.00
============ ============ ============ ============ ============
COMPOSITION OF NET ASSETS
Paid-in capital ..................................... $ 80,525,812 $ 3,741,269 $111,602,553 $ 52,746,970 $ 90,482,435
Undistributed net investment income ................. 64
Accumulated net realized gains (losses) on
investments, futures and foreign currency ........ 2,130,641 70,625 105,245 (720,872)
Net unrealized appreciation (depreciation on:
Investments ...................................... 13,945,488 194,099 (536,981) (270,845)
Futures .......................................... 287,407 13,675
Foreign denominated other assets,
liabilities & currency.........................
------------ ------------ ------------ ------------ ------------
$ 96,889,348 $ 4,005,993 $111,184,492 $ 51,755,317 $ 90,482,435
============ ============ ============ ============ ============
Investments and short term obligations at cost ...... $ 81,933,809 $ 3,838,896 $110,750,306 $ 48,139,185 $ 90,665,744
Foreign currency holdings at cost
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED JUNE 30, 1996*
GROWTH VALUE INTERNATIONAL SMALL CAP
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends ......................................... $ 2,674,984 $ 3,982,227 $ 4,158,327 $ 315,837
Interest .......................................... 277,564 1,062,522 452,403 65,351
------------ ------------ ------------ ------------
2,952,548 5,044,749 4,610,730 381,188
Less foreign taxes withheld at source ............. (77,301) (38,339) (556,416)
------------ ------------ ------------ ------------
Total income ................................... 2,875,247 5,006,410 4,054,314 381,188
------------ ------------ ------------ ------------
EXPENSES
Management fees ................................... 3,095,694 1,799,524 1,305,859 176,148
Audit fees ........................................ 34,000 31,000 32,000 32,000
Custodian fees .................................... 119,000 77,000 300,000 36,000
Registration fees ................................. 11,000 10,000 11,000 13,000
Legal fees ........................................ 88,000 33,000 35,000 19,000
Trustees' fees .................................... 16,000 4,000 6,000 1,000
Transfer agent fees ............................... 86,000 66,000 65,000 8,000
Insurance fees .................................... 20,000 10,000 7,000
Other expenses .................................... 62,000 14,000 37,000 3,000
------------ ------------ ------------ ------------
Total expenses before waiver or
reimbursement ................................. 3,531,694 2,044,524 1,798,859 288,148
------------ ------------ ------------ ------------
Expenses waived or borne by advisor (Note 2) ...... (82,203)
------------ ------------ ------------ ------------
Net investment income (loss) ................ (656,447) 2,961,886 2,255,455 175,243
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS, FUTURES AND
FOREIGN CURRENCY
Net realized gain (loss) on:
Investments .................................... 45,847,473 11,101,033 6,002,869 872,024
Futures
Foreign denominated other assets,
liabilities and currency ................... (142,034)
Change in net unrealized appreciation
(depreciation) on:
Investments .................................... 13,169,169 37,625,337 10,137,240 2,599,390
Futures
Foreign denominated other assets,
liabilities & currency ...................... (11,109)
------------ ------------ ------------ ------------
Net gain (loss) ........................ 59,016,642 48,726,370 15,986,966 3,471,414
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations ...................... $ 58,360,195 $ 51,688,256 $ 18,242,421 $ 3,646,657
============ ============ ============ ============
<PAGE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996* ASSET BALANCED FIXED SHORT-TERM MONEY
ALLOCATION INCOME GOVERNMENT MARKET
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends ........................................ $ 996,509 $ 31,511
Interest ......................................... 2,745,493 108,198 $ 4,719,794 $ 2,318,768 $ 4,480,191
------------ ------------ ------------ ------------ ------------
3,742,002 139,709 4,719,794 2,318,768 4,480,191
Less foreign taxes withheld at source ............ (6,005) (86)
------------ ------------ ------------ ------------ ------------
Total income .................................. 3,735,997 139,623 4,719,794 2,318,768 4,480,191
------------ ------------ ------------ ------------ ------------
EXPENSES
Management fees .................................. 613,440 26,763 466,424 134,564 236,873
Audit fees ....................................... 32,000 26,000 29,000 30,000 28,000
Custodian fees ................................... 172,000 28,000 72,000 39,000 60,000
Registration fees ................................ 9,000 15,000 9,000 9,000 10,000
Legal fees ....................................... 11,000 47,000 13,000 1,000 18,000
Trustees' fees ................................... 3,000 200 1,000 500 3,000
Transfer agent fees .............................. 48,000 10,000 48,000 23,500 42,000
Insurance fees ................................... 4,000 300 3,000 2,000 4,000
Other expenses ................................... 25,000 2,000 25,000 13,000 23,000
------------ ------------ ------------ ------------ ------------
Total expenses before waiver or reimbursement . 917,440 155,263 666,424 252,564 424,873
------------ ------------ ------------ ------------ ------------
Expenses waived or borne by advisor (Note 2) ..... (114,278) (38,738)
------------ ------------ ------------ ------------ ------------
Net investment income (loss) ............... 2,818,557 98,638 4,053,370 2,066,204 4,094,056
------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS, FUTURES AND
FOREIGN CURRENCY
Net realized gain (loss) on:
Investments ................................... 3,533,395 100,697 797,650 217,718
Futures ....................................... 3,047,390 23,252
Foreign denominated other assets,
liabilities and currency
Change in net unrealized appreciation
(depreciation) on:
Investments ................................... 4,847,237 194,099 (2,116,758) (540,502)
Futures ....................................... (168,975) 13,675
Foreign denominated other assets,
liabilities & currency......................
------------ ------------ ------------ ------------ ------------
Net gain (loss) ....................... 11,259,047 294,796 (1,282,181) (322,784)
------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations ..................... $ 14,077,604 $ 393,434 $ 2,771,189 $ 1,743,420 $ 4,094,056
============ ============ ============ ============ ============
<FN>
*Eight-month period ended June 30, 1996 for Small Cap. (Commenced investment
operations November 1, 1995).
See notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
GROWTH VALUE
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
6-30-96 6-30-95 6-30-96 6-30-95
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss) ........................... ($ 656,447) $ 329,642 $ 2,961,886 $ 3,145,879
Net realized gain (loss) on:
Investments ........................................ 45,847,473 952,282 11,101,033 1,307,784
Futures
Foreign denominated other assets,
liabilities & currency
Change in net unrealized appreciation
(depreciation) on:
Investments ....................................... 13,169,169 79,488,514 37,625,337 35,109,585
Futures
Foreign denominated other assets,
liabilities & currency........................
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ............... 58,360,195 80,770,438 51,688,256 39,563,248
------------- ------------- ------------- -------------
Distributions to shareholders from:
Net investment income ............................. (171,060) (360,028) (3,049,939) (2,570,208)
In excess of net investment income
Net realized gains ................................ (12,083,363) (981,809) (4,345,798) (1,848,676)
In excess of realized gains........................
------------- ------------- ------------- -------------
(12,254,423) (1,341,837) (7,395,737) (4,418,884)
------------- ------------- ------------- -------------
Fund share transactions:
Receipts for shares sold .......................... 135,580,181 192,447,010 82,411,934 85,032,399
Value of distributions reinvested ................. 12,181,842 1,323,959 7,390,214 4,418,455
Cost of shares redeemed ........................... (156,772,349) (70,073,934) (79,191,337) (33,004,985)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
from fund share transactions ................. (9,010,326) 123,697,035 10,610,811 56,445,869
------------- ------------- ------------- -------------
Total increase ......................... 37,095,446 203,125,636 54,903,330 91,590,233
Net assets
Beginning of period ............................... 374,592,700 171,467,064 212,678,363 121,088,130
------------- ------------- ------------- -------------
End of period ..................................... $ 411,688,146 $ 374,592,700 $ 267,581,693 $ 212,678,363
============= ============= ============= =============
Undistributed (distribution in excess of)
net investment income at end of per ............ $ 171,036 $ 1,639,979 $ 1,726,706
============= ============= ============= =============
Number of fund shares
Sold .............................................. 7,749,419 13,604,783 5,426,357 6,951,632
Issued for distributions reinvested ............... 720,817 97,278 496,321 393,082
Redeemed .......................................... (8,758,721) (4,948,067) (5,241,207) (2,647,764)
------------- ------------- ------------- -------------
Net increase (decrease) in shares
outstanding .................................... (288,485) 8,753,994 681,471 4,696,950
Outstanding at:
Beginning of period ............................... 22,520,286 13,766,292 15,386,666 10,689,716
------------- ------------- ------------- -------------
End of period ..................................... 22,231,801 22,520,286 16,068,137 15,386,666
============= ============= ============= =============
<PAGE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
ASSET BALANCED
INTERNATIONAL SMALL CAP ALLOCATION
YEAR YEAR PERIOD+ YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
6-30-96 6-30-95 6-30-96 6-30-96 6-30-95 6-30-96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss) ............ $ 2,255,455 $ 1,813,258 $ 175,243 $ 2,818,557 $ 2,268,126 $ 98,638
Net realized gain (loss on:
Investments ......................... 6,002,869 (2,003,086) 872,024 3,533,395 543,186 100,697
Futures ............................. 3,047,390 39,803
Foreign denominated other assets,
liabilities & currency ........ (142,034) (158,648)
Change in net unrealized appreciation
(depreciation) on:
Investments ........................ 10,137,240 6,501,167 2,599,390 4,847,237 9,677,960 194,099
Futures ............................ (168,975) 612,251
Foreign denominated other assets,
liabilities & currency ........ (11,109) (2,141)
------------ ------------ ----------- ------------ ------------ ----------
Net increase in net assets
resulting from operations
18,242,421 6,150,550 3,646,657 14,077,604 13,141,326 393,434
------------ ------------ ----------- ------------ ------------ ----------
Distributions to shareholders from:
Net investment income .............. (1,800,796) (1,135,218) (40,000) (2,806,264) (2,279,873) (98,638)
In excess of net investment income . (46,028)
Net realized gains ................. (126,594) (2,294,131) (5,044,890) (499,538) (30,072)
In excess of realized gains ........ (1,483,508)
------------ ------------ ----------- ------------ ------------ ----------
(1,927,390) (4,912,857) (40,000) (7,851,154) (2,779,411) (174,738)
------------ ------------ ----------- ------------ ------------ ----------
Fund share transactions:
Receipts for shares sold ........... 68,424,541 56,546,095 45,871,596 29,687,309 14,544,292 4,026,951
Value of distributions reinvested .. 1,924,529 4,827,346 40,000 7,845,238 2,748,107 22,047
Cost of shares redeemed ............ (47,252,730) (39,328,510) (3,825,541) (24,614,667) (8,870,435) (261,701)
------------ ------------ ----------- ------------ ----------- ----------
Net increase (decrease) in
net assets
from fund share transactions .. 23,096,340 22,044,931 42,086,055 12,917,880 8,421,964 3,787,297
------------ ------------ ----------- ------------ ------------ ----------
Total increase .......... 39,411,371 23,282,624 45,692,712 19,144,330 18,783,879 4,005,993
Net assets
Beginning of period ................ 118,216,038 94,933,414 -- 77,745,018 58,961,139 --
------------ ------------ ----------- ------------ ------------ ----------
End of period ...................... $157,627,409 $118,216,038 $45,692,712 $ 96,889,348 $ 77,745,018 $4,005,993
============ ============ =========== ============ ============ ==========
Undistributed (distribution in
excess of) net investment
income at end of period ........... $ 1,729,622 $ 1,317,178 $ 138,773 ($ 12,293)
============ ============ =========== ============ ============ ==========
Number of fund shares
Sold ............................... 5,347,892 4,618,904 4,408,434 2,326,968 1,323,595 397,260
Issued for distributions reinvested 153,348 417,558 3,842 623,923 250,348 2,073
Redeemed ........................... (3,673,667) (3,273,695) (349,900) (1,923,331) (820,174) (24,696)
------------ ------------ ----------- ------------ ------------ ----------
Net increase (decrease) in shares
outstanding .................... 1,827,573 1,762,767 4,062,376 1,027,560 753,769 374,637
Outstanding at:
Beginning of period ................ 9,661,134 7,898,367 -- 6,492,607 5,738,838 --
------------ ------------ ----------- ------------ ------------ ----------
End of period ...................... 11,488,707 9,661,134 4,062,376 7,520,167 6,492,607 374,637
============ ============ =========== ============ ============ ==========
<PAGE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FIXED SHORT-TERM MONEY
INCOME GOVERNMENT MARKET
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
6-30-96 6-30-95 6-30-96 6-30-95 6-30-96 6-30-95
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss) ........... $ 4,053,370 $ 2,973,467 $ 2,066,204 $ 1,589,992 $ 4,094,056 $ 3,174,842
Net realized gain (loss) on:
Investments ........................ 797,650 465,854 217,718 (651,316)
Futures ............................ 23,252 21,358
Foreign denominated other assets,
liabilities & currency
Change in net unrealized appreciation
(depreciation) on:
Investments ....................... (2,116,758) 2,405,683 (540,502) 729,149
Futures 13,675
Foreign denominated other assets,
liabilities & currency......
------------ ------------ ------------ ------------ ------------- ------------
Net increase in net
assets resulting
from operations ......... 2,771,189 5,845,004 1,743,420 1,689,183 4,094,056 3,174,842
------------ ------------ ------------ ------------ ------------- ------------
Distributions to shareholders from:
Net investment income ............. (4,053,370) (2,973,467) (2,066,140) (1,589,992) (4,094,056) (3,174,842)
In excess of net investment
income
Net realized gains ................ (317,329)
In excess of realized gains........
------------ ------------ ------------ ------------ ------------- ------------
(4,370,699) (2,973,467) (2,066,140) (1,589,992) (4,094,056) (3,174,842)
------------ ------------ ------------ ------------ ------------- ------------
Fund share transactions:
Receipts for shares sold .......... 65,353,092 17,834,854 23,481,754 5,330,024 150,542,997 112,398,694
Value of distributions reinvested . 4,352,562 2,960,356 2,064,082 1,587,487 4,096,124 3,164,284
Cost of shares redeemed ........... (14,833,551) (11,627,516) (5,588,970) (5,167,066) (143,742,439) (81,582,823)
------------ ------------ ------------ ------------ ------------- ------------
Net increase (decrease) in
net assets from fund
share transactions ........... 54,872,103 9,167,694 19,956,866 1,750,445 10,896,682 33,980,155
------------ ------------ ------------ ------------ ------------- ------------
Total increase ......... 53,272,593 12,039,231 19,634,146 1,849,636 10,896,682 33,980,155
Net assets
Beginning of period ............... 57,911,899 45,872,668 32,121,171 30,271,535 79,585,753 45,605,598
------------ ------------ ------------ ------------ ------------- ------------
End of period ..................... $111,184,492 $ 57,911,899 $ 51,755,317 $ 32,121,171 $ 90,482,435 $ 79,585,753
============ ============ ============ ============ ============= ============
Undistributed (distribution
in excess of) net
investment income at
end of period .................. $ 64
============ ============= ============ ============ ============= ============
Number of fund shares
Sold .............................. 6,413,968 1,806,568 2,384,848 549,544 150,542,997 112,398,694
Issued for distributions reinvested 422,744 300,318 210,694 163,782 4,096,124 3,164,284
Redeemed .......................... (1,440,043) (1,163,969) (570,108) (533,019) (143,742,439) (81,582,823)
------------ ------------- ------------ ------------ ------------- ------------
Net increase (decrease) in
shares outstanding ............. 5,396,669 942,917 2,025,434 180,307 10,896,682 33,980,155
Outstanding at:
Beginning of period ............... 5,624,590 4,681,673 3,278,603 3,098,296 79,585,753 45,605,598
------------ ------------- ------------ ------------ ------------- ------------
End of period ..................... 11,021,259 5,624,590 5,304,037 3,278,603 90,482,435 79,585,753
============ ============= ============ ============ ============= ============
<FN>
+Eight-month period ended June 30, 1996 (Commenced investment operations on
November 1, 1995).
See notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIOD)
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS
Net Total Distributions
Net Asset Net Realized Income Distributions in Excess
Value, Investment and (Loss) from from Net of Net
Beginning Income Unrealized Investment Investment Investment
of Period (Loss) Gain (Loss) Operations Income Income
<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) -
1996 16.63 0.00 2.44 2.44 (0.01) -
<CAPTION>
VALUE
<S> <C> <C> <C> <C> <C> <C>
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) -
1995 11.33 0.21 2.62 2.83 (0.20) -
1996 13.82 0.20 3.13 3.33 (0.21) -
<CAPTION>
INTERNATIONAL
<S> <C> <C> <C> <C> <C> <C>
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) -
1995 12.02 0.18 0.60 0.78 (0.13) -
1996 12.24 0.19 1.47 1.66 (0.17) -
<CAPTION>
SMALL CAP+
<S> <C> <C> <C> <C> <C> <C>
Period Ended June 30, 1996
(Commenced investment
operations on
November 1, 1995)
$10.00 $0.05 $1.22 $1.27 $(0.02) -
<PAGE>
<CAPTION>
DISTRIBUTIONS
Distributions
from Net Distributions Net Asset Total
Realized in Excess Value, Return at
Gains on of Realized Total End of Net Asset
Investments Gains Distributions Period Value***
<S> <C> <C> <C> <C> <C>
GROWTH
Year Ended June 30,
1993 $ - $ - $(0.01) $12.42 24.25%
1994 - - - 12.46 0.34%
1995 (0.06) - (0.08) 16.63 34.21%
1996 (0.54) - (0.55) 18.52 14.96%
<CAPTION>
VALUE
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 - - (0.11) 11.52 16.37%
1994 (0.10) - (0.26) 11.33 0.60%
1995 (0.14) - (0.34) 13.82 25.72%
1996 (0.29) - (0.50) 16.65 24.49%
<CAPTION>
INTERNATIONAL
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 - - (0.03) 9.59 (3.77%)
1994 (0.05) - (0.12) 12.02 26.66%
1995 (0.26) (0.17) (0.56) 12.24 6.70%
1996 (0.01) - (0.18) 13.72 13.70%
<CAPTION>
SMALL CAP+
<S> <C> <C> <C> <C> <C>
Period Ended June 30, 1996
(Commenced investment
operations on November 1, 1995)
$ - $ - $(0.02) $11.25 12.67%*+++
<PAGE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
Operating
Net Expenses Net
Assets, Before Investment Portfolio Average
End of Operating Voluntary Income Turnover Brokerage
Period Expenses Waiver (Loss) Rate Commissions++
<S> <C> <C> <C> <C> <C> <C>
GROWTH
Year Ended June 30,
1993 $117,706,665 1.00% - 0.07% 58.12%
1994 171,467,064 0.91% - 0.13% 51.56%
1995 374,592,700 0.87% - 0.13% 55.32%
1996 411,688,146 0.86% - (0.16%) 75.24% N/A
<CAPTION>
VALUE
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 121,511,090 0.96% - 1.79% 17.77%
1994 121,088,130 0.93% - 1.64% 11.95%
1995 212,678,363 0.89% - 1.95% 29.02%
1996 267,581,693 0.85% - 1.23% 17.04% N/A
<CAPTION>
INTERNATIONAL
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 39,126,841 1.60% - 1.83% 16.21%
1994 94,933,414 1.38% - 1.37% 27.78%
1995 118,216,038 1.32% - 1.65% 29.47%
1996 157,627,409 1.31% - 1.64% 19.61% N/A
<CAPTION>
SMALL CAP+
<S> <C> <C> <C> <C> <C> <C>
Period Ended June 30, 1996
(Commenced investment
operations on
November 1, 1995)
$45,692,712 0.88%** 1.23%** 0.75%** 65.70%+++ $0.047
<FN>
*Total return for the Small Cap Fund would have been lower if a portion of the
fees had not been waived by the manager.
**Annualized.
***Total return at net asset value and assumes reinvestment of dividends and
capital gains distributions.
+ Eight-month period ended June 30, 1996.
++ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades
on which commissions are charged. Small Cap is the only Fund required
to disclose this information for the fiscal year ended June 30, 1996.
+++ Not annualized.
See notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD)
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS
Net Total Distributions
Net Asset Net Realized Income Distributionsin Excess
Value, Investment and (Loss) from from Net of Net
Beginning Income Unrealized Investment Investment Investment
of Period (Loss) Gain (Loss) Operations Income Income
<S> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION
Year Ended June 30,
1993 $10.00 $0.34 $0.99 $1.33 $(0.34) -
1994 10.90 0.30 (0.42) (0.12) (0.30) -
1995 10.27 0.38 1.79 2.17 (0.38) -
1996 11.97 0.40 1.72 2.12 (0.40) -
<CAPTION>
BALANCED
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1996 10.00 0.41 0.78 1.19 (0.28) (0.13)
<CAPTION>
FIXED INCOME
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 10.00 0.51 0.71 1.22 (0.51) -
1994 10.60 0.47 (0.50) (0.03) (0.47) -
1995 9.80 0.58 0.50 1.08 (0.58) -
1996 10.30 0.58 (0.16) 0.42 (0.58) -
<CAPTION>
SHORT-TERM GOVERNMENT
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 10.00 0.39 0.23 0.62 (0.39) -
1994 10.08 0.37 (0.29) 0.08 (0.37) -
1995 9.77 0.51 0.03 0.54 (0.51) -
1996 9.80 0.53 (0.04) 0.49 (0.53) -
<CAPTION>
MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
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) -
1996 $1.00 $0.05 $ - $0.05 $(0.05) -
<PAGE>
<CAPTION>
DISTRIBUTIONS
Distributions
from Net Distributions Net Asset Total Net
Realized in Excess Total Value, Return at Assets,
Gains on of Realized Distri- End of Net Asset End of
Investments Gains butions Period Value** Period
<S> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION
Year Ended June 30,
1993 $(0.09) $ - $(0.43) $10.90 13.57% $48,420,381
1994 (0.21) - (0.51) 10.27 (1.28%) 58,961,139
1995 (0.09) - (0.47) 11.97 21.70% 77,745,018
1996 (0.81) - (1.21) 12.88 18.23% 96,889,348
<CAPTION>
BALANCED
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1996 (0.09) - (0.50) 10.69 12.11%* 4,005,993
<CAPTION>
FIXED INCOME
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 (0.11) - (0.62) 10.60 12.59% 35,889,454
1994 (0.14) (0.16) (0.77) 9.80 (0.46%) 45,872,668
1995 - - (0.58) 10.30 11.48% 57,911,899
1996 (0.05) - (0.63) 10.09 4.12% 111,184,492
<CAPTION>
SHORT-TERM GOVERNMENT
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 (0.15) - (0.54) 10.08 6.32% 27,027,485
1994 - (0.02) (0.39) 9.77 0.86% 30,271,535
1995 - - (0.51) 9.80 5.71% 32,121,171
1996 - - (0.53) 9.76 5.10% 51,755,317
<CAPTION>
MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 - - (0.03) 1.00 2.71%* 18,146,496
1994 - - (0.03) 1.00 2.91%* 45,605,598
1995 - - (0.05) 1.00 5.27%* 79,585,753
1996 $ - $ - $(0.05) $1.00 5.32%* $90,482,435
<PAGE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
Operating
Expenses Net
Before Investment Portfolio Average
Operating Voluntary Income Turnover Brokerage
Expenses Waiver (Loss) Rate Commissions++
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION
Year Ended June 30,
1993 1.27% - 3.25% 34.10%
1994 1.25% - 2.76% 24.71%
1995 1.11% - 3.52% 18.27%
1996 1.04% - 3.21% 38.25% N/A
<CAPTION>
BALANCED
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
1996 1.15% 4.37% 2.77% 48.03% N/A
<CAPTION>
FIXED INCOME
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 1.05% - 4.91% 316.06%
1994 0.97% - 4.53% 254.92%
1995 0.95% - 5.94% 330.55%
1996 0.93% - 5.65% 313.51% N/A
<CAPTION>
SHORT-TERM GOVERNMENT
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 0.78% - 3.87% 268.36%
1994 0.74% - 3.75% 134.34%
1995 0.71% - 5.27% 256.44%
1996 0.66% - 5.37% 79.04% N/A
<CAPTION>
MONEY MARKET
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
1993 0.80% 0.87% 2.67% N/A
1994 0.53% 0.68% 2.97% N/A
1995 0.39% 0.54% 5.24% N/A
1996 0.49% 0.54% 5.25% N/A N/A
<FN>
*Total return for the Balanced and Money Market Funds would have been
lower if a portion of the fees had not been capped or waived by the manager.
**Total return at net asset value and assumes reinvestment of dividends and
capital gains distributions.
++ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on which
commissions are charged. Small Cap is the only Fund required to disclose this
information for the fiscal year ended June 30, 1996.
See notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
June 30, 1996
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
================================================================================
PREFERRED GROWTH FUND
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK - 98.52% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - 3.04%
Boeing Co 143,800 $12,528,573
-----------
BANKS - 1.15%
Chase Manhattan Corp 67,196 4,745,718
-----------
CHEMICALS - 1.04%
Ciba Geigy AG ADR 70,400 4,288,761
-----------
COMPUTER SOFTWARE - 7.24%
Electronic Data System Corp 75,500 4,058,125
First Data Corp 81,900 6,521,287
Macromedia Corp * 125,600 2,747,500
Microsoft Corp * 83,300 10,006,413
SAP AG ADR *** 90,500 4,468,582
Shiva Corp * 25,000 2,000,000
-----------
29,801,907
-----------
CONSUMER PRODUCTS - 3.98%
Gillette Co 83,200 5,189,600
Nike Inc Class B 46,900 4,818,975
Pepsico Inc 180,300 6,378,113
-----------
16,386,688
-----------
DISCOUNT & FASHION RETAILING - 11.49%
AutoZone Inc * 294,300 10,226,925
Dollar General Corp 239,675 7,010,494
Gucci Group NV 88,800 5,727,600
Home Depot Inc 129,133 6,973,182
Kohls Corp * 185,500 6,793,937
Office Max Inc * 189,800 4,531,475
Sunglass Hut International Inc * 247,200 6,025,500
-----------
47,289,113
-----------
ELECTRICAL & ELECTRONICS - 9.48%
Diebold Inc 263,237 12,701,185
Intel Corp 157,600 11,573,750
KLA Instruments Corp * 159,600 3,710,700
LSI Logic Corp * 170,300 4,427,800
Symbol Technologies Inc * 148,300 6,599,350
-----------
39,012,785
-----------
FINANCE - 1.43%
Morgan Stanley Group Inc 119,700 5,880,263
-----------
FUEL - 1.99%
Schlumberger Ltd 97,200 8,189,100
-----------
HEALTH CARE - 13.51%
Astra AB ADR 139,700 6,168,677
Chiron Corp * 50,700 4,968,600
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE (continued)
Eli Lilly & Co 91,100 $ 5,921,500
Healthsouth Corp 184,900 6,656,400
Johnson & Johnson 129,600 6,415,200
Pfizer Inc 95,000 6,780,625
Phycor Inc * 196,350 7,461,300
Smithkline Beecham PLC ADR 116,700 6,345,563
United Healthcare Corp 97,100 4,903,550
----------
55,621,415
----------
LEISURE TIME INDUSTRIES - 6.78%
Harrahs Entertainment Inc * 120,500 3,404,125
Hilton Hotels Corp 57,800 6,502,500
Lone Star Steakhouse & Saloon * 168,100 6,345,775
Promus Hotel Corp * 145,625 4,314,141
Walt Disney Co 116,800 7,343,800
----------
27,910,341
----------
MANUFACTURING - 3.41%
Applied Materials Inc * 131,000 3,995,500
Caterpillar Inc 59,700 4,044,675
Harnischfeger Industries Inc 180,500 6,001,625
----------
14,041,800
----------
OFFICE EQUIPMENT & COMPUTERS - 18.97%
3Com Corp * 185,500 8,486,625
America Online Inc * 152,800 6,685,000
Ascend Communications Inc * 162,000 9,112,500
Cisco Systems Inc * 228,200 12,921,825
Corporate Express Inc * 148,600 5,944,000
Dell Computer Corp * 153,200 7,794,050
HBO & Co 145,800 9,877,950
Hewlett Packard Co 116,000 11,556,500
Micro Warehouse Inc * 36,800 736,000
Seagate Technology * 110,700 4,981,500
----------
78,095,950
----------
PUBLISHING & BROADCASTING - 2.16%
Reuters Holdings PLC
Class B ADR 122,600 8,888,500
----------
SERVICE INDUSTRIES - 4.00%
CUC International Inc * 143,900 5,108,450
Manpower Inc 68,800 2,700,400
Omnicom Group 187,000 8,695,500
----------
16,504,350
----------
TELECOMMUNICATIONS - 5.02%
Ericsson LM Tel Co Class B ADR 195,600 4,205,400
MCI Communications Corp 126,800 3,249,250
Nokia Corp ADR 20,000 740,000
Tellabs Inc * 127,700 8,539,938
Vodafone Group PLC ADR 106,200 3,916,125
----------
20,650,713
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION - 3.83%
AMR Corp * 99,400 $ 9,045,400
Wisconsin Central Trans Corp * 206,700 6,717,750
------------
15,763,150
------------
TOTAL COMMON STOCK
(Cost - $298,461,259) 405,599,127
============
<CAPTION>
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 0% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL SHORT TERM OBLIGATIONS
(Cost - $0) 0
============
TOTAL INVESTMENTS - 98.52%
(Cost - $298,461,259) 405,599,127
------------
OTHER ASSETS AND LIABILITIES - 1.48% 6,089,019
------------
TOTAL NET ASSETS - 100% $411,688,146
============
PREFERRED VALUE FUND
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK - 92.51% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - 7.08%
Lockheed Martin Corp 110,000 $ 9,240,000
McDonnell Douglas Corp 200,000 9,700,000
------------
18,940,000
------------
BANKS - 7.81%
Citicorp 120,000 9,915,000
Wells Fargo & Co 46,000 10,988,250
------------
20,903,250
------------
CHEMICALS - 12.92%
Du Pont E I de Nemours & Co 80,000 6,330,000
Freeport McMoRan Inc 100,000 3,550,000
Freeport McMoRan Inc
Copper & Gold 235,000 7,490,625
Hercules Inc 120,000 6,630,000
Monsanto Co 325,000 10,562,500
------------
34,563,125
------------
CONGLOMERATES - 5.53%
General Electric Co 100,000 8,650,000
Tenneco Inc 120,000 6,135,000
------------
14,785,000
------------
CONSUMER PRODUCTS - 5.41%
Avon Products Inc 160,000 7,220,000
Unilever N V ADR 50,000 7,256,250
------------
14,476,250
------------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
DISCOUNT & FASHION RETAILING - 2.45%
May Dept Stores Co 150,000 $ 6,562,500
-----------
ELECTRICAL & ELECTRONICS - 3.72%
Intel Corp 80,000 5,875,000
Motorola Inc 65,000 4,086,875
-----------
9,961,875
-----------
FINANCE - 25.92%
Ace Ltd 160,000 7,520,000
Aflac Inc 200,000 5,975,000
American International Group Inc 70,000 6,903,750
Countrywide Credit Industry Inc 300,000 7,425,000
Exel Ltd 140,000 9,870,000
Federal Home Loan Mortgage Corp 110,000 9,405,000
Morgan Stanley Group Inc 100,000 4,912,500
Transamerica Corp 100,000 8,100,000
Travelers Group Inc 202,500 9,239,063
-----------
69,350,313
-----------
FOOD - 2.57%
Dole Food Inc 160,000 6,880,000
-----------
FUEL - 1.32%
Union Texas Pete Holdings Inc 180,500 3,519,750
-----------
HEALTH CARE - 4.15%
Becton Dickinson & Co 70,000 5,617,500
Warner Lambert Co 100,000 5,500,000
-----------
11,117,500
-----------
MANUFACTURING - 2.45%
Shaw Industries Inc 500,000 6,562,500
-----------
PAPER & FOREST PRODUCTS - 1.56%
Champion International Corp 100,000 4,175,000
-----------
SERVICE INDUSTRIES - 2.58%
Arrow Electronics Inc * 160,000 6,900,000
-----------
TELECOMMUNICATIONS - 4.66%
Nokia Corp ADR 110,000 4,070,000
Sprint Corp 200,000 8,400,000
-----------
12,470,000
-----------
TRANSPORTATION - 2.38%
AMR Corp * 70,000 6,370,000
-----------
TOTAL COMMON STOCK
(Cost - $163,617,390) 247,537,063
-----------
<PAGE>
<CAPTION>
PREFERRED VALUE FUND (continued)
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 6.71% PAR/SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER - 6.16%
Associates Corp of North America @ $ 7,000,000 $ 6,989,559
5.37% 11 Jul 1996
Exxon Asset Management @ 5,500,000 5,499,190
5.30% 2 Jul 1996
Norwest Financial Inc @
5.35% 8 Jul 1996 $ 4,000,000 3,995,839
------------
16,484,588
------------
SHORT TERM INVESTMENT FUND - .55%
Seven Seas Money Market Fund 1,463,183 1,463,183
------------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $17,947,771) 17,947,771
------------
TOTAL INVESTMENTS - 99.22%
(Cost - $181,565,161) 265,484,834
------------
OTHER ASSETS AND LIABILITIES - .78% 2,096,859
------------
TOTAL NET ASSETS - 100% $267,581,693
============
<CAPTION>
PREFERRED INTERNATIONAL FUND
- --------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS - 92.6% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA - 2.81%
COMMUNICATION SERVICES - 1.31%
Telecom Argentina Stet France Class B 44,000 $2,062,500
INTERNATIONAL OIL - 1.50%
YPF Sociedad Anonima Class D ADR 105,000 2,362,500
----------
Total Argentina 4,425,000
----------
AUSTRALIA - 6.12%
CONGLOMERATES - 1.87%
CSR Ltd 835,000 2,946,287
CONSTRUCTION MATERIALS - 2.03%
Pioneer International Ltd 1,100,000 3,198,428
TRUCKING & FREIGHT - 2.22%
Mayne Nickless Ltd 600,000 3,503,340
----------
Total Australia 9,648,055
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CANADA - 5.04%
BANKS - 1.85%
Bank Nova Scotia Halifax 120,000 $2,918,040
PAPER - 1.26%
Macmillan Bloedel Ltd 150,000 1,988,574
RETAIL TRADE - 1.93%
Canadian Tire Ltd Class A 240,000 3,041,090
----------
Total Canada 7,947,704
----------
FINLAND - 1.39%
NON-FERROUS METALS - 1.39%
Outokumpuoy 130,000 2,189,308
----------
Total Finland 2,189,308
----------
FRANCE - 7.08%
APPAREL & TEXTILES - 2.57%
Chargeurs International 9,100 407,090
Christian Dior 28,000 3,647,251
----------
4,054,341
----------
AUTOMOBILES - 1.61%
Peugeot S.A 19,000 2,545,105
BROADCASTING - 1.36%
Pathe 9,100 2,137,180
GAS EXPLORATION - 1.54%
Societe Elf Aquitaine 33,000 2,428,999
----------
Total France 11,165,625
----------
ITALY - 5.05%
APPAREL & TEXTILES - 1.60%
Benetton Group SPA 195,000 2,521,469
BANKS - 1.65%
Banca Fideuram SPA 1,200,000 2,601,796
FOOD & BEVERAGES - 1.80%
Parmalat Finanziaria 2,110,000 2,838,596
----------
Total Italy 7,961,861
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - 6.07%
ELECTRICAL EQUIPMENT - 1.78%
Hitachi 300,000 $2,797,970
HOUSEHOLD APPLIANCES - 4.29%
Matsushita Electric Industries 165,000 3,077,767
Sony Corp 56,000 3,691,858
----------
6,769,625
----------
Total Japan 9,567,595
----------
NETHERLANDS - 10.62%
AIR TRAVEL - 1.57%
KLM Royal Dutch Air Lines 77,000 2,465,083
APPAREL & TEXTILES - .76%
Gamma Hldg NV 26,000 1,204,339
CHEMICALS - 1.90%
Akzo Nobel NV 25,000 2,997,655
FINANCIAL SERVICES - 1.89%
ING Groep NV 100,000 2,984,462
INDUSTRIAL MACHINERY - 2.00%
Stork NV 110,000 3,160,363
PAPER - .84%
Koninkljke 55,000 1,318,968
PETROLEUM - 1.66%
Pakhoed NV Kon 100,000 2,609,205
----------
Total Netherlands 16,740,075
----------
NEW ZEALAND - 5.25%
FOOD & BEVERAGES - 2.08%
Lion Nathan Ltd 1,250,000 3,276,574
FOREST PRODUCTS - 1.74%
Carter Holt Harvey 1,200,000 2,749,226
HOUSEHOLD APPLIANCES - 1.43%
Fisher & Paykel 700,000 2,253,870
----------
Total New Zealand 8,279,670
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
NORWAY - 3.77%
CONGLOMERATES - 1.51%
Orkla Borregaard AS Series A 45,000 $2,371,669
DRUGS & HEALTHCARE - .79%
Nycomed ASA Series B 90,000 1,248,247
ELECTRICAL - .36%
Hafslund ASA Series B 90,000 568,645
PAPER - 1.11%
Norske Skogsindust Series B 63,000 1,757,255
----------
Total Norway 5,945,816
----------
SOUTH KOREA - 4.82%
BUILDING CONSTRUCTION - .57%
LG Construction Co 40,801 895,288
CONSTRUCTION & MINING EQUIPMENT - 1.10%
Tongyang Cement 60,070 1,732,788
ELECTRICAL EQUIPMENT - 1.17%
Samsung Electronic 18,024 1,513,109
Samsung Electronic New 4,075 324,011
----------
1,837,120
----------
NON-FERROUS METALS - 1.28%
Korea Zinc 88,000 2,017,751
STEEL - .70%
Pohang Iron & Steel 17,700 1,110,614
----------
Total South Korea 7,593,561
----------
SPAIN - 6.32%
BANKS - 3.94%
Banco Bilbao Vizcaya 88,000 3,567,986
Banco de Andalucia 19,000 2,642,084
----------
6,210,070
----------
ELECTRIC UTILITIES - 2.38%
Iberdrola S.A 365,000 3,749,658
----------
Total Spain 9,959,728
----------
<PAGE>
<CAPTION>
PREFERRED INTERNATIONAL FUND (continued)
- --------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
SWEDEN - 6.65%
AUTOMOBILES - 1.59%
Volvo AB Series B 110,000 $2,509,025
HOUSEHOLD APPLIANCES - 2.01%
Electrolux AB Series B 63,000 3,173,744
INDUSTRIAL MACHINERY - 1.82%
Skf AB Series B 120,500 2,866,837
MINING - 1.23%
Svedala Industrial 102,000 1,933,657
----------
Total Sweden 10,483,263
----------
SWITZERLAND - 9.44%
BANKS - 1.50%
Schweiz Bankverein 12,000 2,370,821
CHEMICALS - 2.32%
Ciba Geigy AG 3,000 3,659,414
INDUSTRIAL MACHINERY - 1.76%
Sulzer AG 4,300 2,765,318
RETAIL TRADE - 1.74%
Valora Holding AG 13,000 2,734,762
TOYS & AMUSEMENTS - 2.12%
SMH AG Neunburg 4,800 3,340,266
----------
Total Switzerland 14,870,581
----------
UNITED KINGDOM - 12.24%
APPAREL & TEXTILES - 1.73%
Coats Viyella 1,025,000 2,730,043
BANKS - 1.27%
National Westminster 210,000 2,002,484
FOOD & BEVERAGES - 2.45%
Allied Domecq Plc 330,769 2,327,044
Whitbread 140,000 1,541,544
----------
3,868,588
----------
HOUSEHOLD PRODUCTS - .54%
Takare 420,000 847,958
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK & EQUIVALENTS SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE - 1.90%
Lloyd's Abbey Life 380,000 $ 2,997,981
LEISURE TIME - 1.05%
Rank Organisation 215,000 1,661,166
RETAIL GROCERY - 1.19%
Tesco 410,000 1,872,030
TELEPHONE - 2.11%
British Telecom 618,000 3,320,830
-----------
Total United Kingdom 19,301,080
-----------
TOTAL COMMON STOCK & EQUIVALENTS
(Cost - $122,738,392) 146,078,922
-----------
<CAPTION>
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 6.27% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS - 6.27%
State Street Repo 4.75% 1 Jul 1996
(Cost - $9,886,000)(Dated 6/28/96,
due 7/1/96, collateralized by $9,945,000
U.S. Treasury Note 5.25%, 12/31/97,
Market Value $10,103,498,
Repurchase Proceeds $9,889,913) $ 9,886,000 9,886,000
------------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $9,886,000) 9,886,000
------------
TOTAL INVESTMENTS - 98.94%
(Cost - $132,624,392) 155,964,922
------------
OTHER ASSETS AND LIABILITIES - 1.06% 1,662,487
------------
TOTAL NET ASSETS - 100% $157,627,409
============
<PAGE>
<CAPTION>
PREFERRED SMALL CAP FUND
- --------------------------------------------------------------------------------
COMMON STOCK - 98.96% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - 1.12%
Thiokol Corp 13,000 $ 513,500
----------
AUTOMOTIVE - .82%
Excel Industry Inc 30,000 375,000
----------
BANKS - 5.30%
BSB Bancorp Inc 7,500 195,000
California Federal Bancorp Inc * 25,300 461,725
City National Corp 15,000 236,250
Colonial Banc Group Inc 4,800 160,800
Cullen Frost Bankers Inc 6,600 183,150
First Indiana Corp 2,920 70,080
MLF Bancorp Inc 7,500 181,875
New York Bancorp Inc 14,000 357,000
North Side Savings Bank 6,000 208,500
Riggs National Corp 12,800 155,200
Zions Bancorp 2,900 210,975
----------
2,420,555
----------
CHEMICALS - .59%
Chemed Corp 7,200 269,100
----------
COMPUTER SOFTWARE - 1.79%
Computervision Corp * 45,000 450,000
PRI Automation Inc 12,000 366,000
----------
816,000
----------
CONSUMER PRODUCTS - 1.96%
American Safety Razor Co * 27,400 277,425
Herbalife International Inc 20,000 295,000
Jenny Craig Inc * 18,100 323,538
----------
895,963
----------
DISCOUNT & FASHION RETAILING - 3.64%
Fabri-Centers of America Class A * 15,500 255,750
Ross Stores Inc 16,800 583,800
Russ Berrie & Co Inc 9,700 178,238
Waban Inc * 16,600 396,325
Zale Corp * 15,000 253,125
----------
1,667,238
----------
ELECTRICAL & ELECTRONICS - 12.13%
Applied Magnetics Corp * 14,500 152,250
Bell Industry * 23,730 397,478
Chips & Technologies Inc * 32,500 316,875
Cohu Inc 23,000 465,750
Credence Systems Corp * 16,800 225,750
Electroglas Inc * 15,400 219,450
Esterline Technologies Corp * 21,800 545,000
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL & ELECTRONICS (continued)
Fusion System Corp * 15,000 $ 371,250
Hadco Corp * 6,500 139,750
Helix Technology Corp 8,000 310,000
International Rectifier Corp * 25,900 417,637
LTX Corp * 58,600 366,250
Logicon Inc 5,000 149,375
Micro Linear Corp * 38,600 289,500
Photronic Inc * 5,900 154,875
SCI System Inc * 8,300 337,187
Sierra Semiconductor Corp * 14,800 172,050
Wyle Electronics 15,500 513,438
----------
5,543,865
----------
FINANCE - 14.97%
Alex Brown Inc 10,000 565,000
Allied Group Inc 3,100 134,850
American Bankers Insurance
Group Inc 9,800 427,525
Americredit Corp * 27,800 434,375
BHC Financial Inc 9,500 133,000
Capital Re Corp 5,000 183,750
Delphi Financial Group Inc * 9,500 256,500
Deposit Guaranty Corp 5,600 246,400
Eaton Vance Corp 9,000 326,250
Enhance Financial Services
Group Inc 17,000 476,000
Fidelity National Financial Inc 16,000 242,000
First Amerian Financial Corp 10,000 337,500
Fremont General Corp 12,750 293,250
Horace Mann Educators Corp 8,600 273,050
Investment Technology
Group Inc * 10,000 135,000
Jefferies Group Inc 12,400 384,400
Lawyers Title Corp 22,600 406,800
Legg Mason Inc 9,100 293,475
McDonald & Co Investments Inc 7,000 138,250
Olympic Financial Ltd * 20,000 460,000
Penncorp Financial Group Inc 9,700 307,975
Presidential Life Corp 20,000 207,500
Protective Life Corp 5,000 175,625
----------
6,838,475
----------
FUEL - 3.49%
Berry Petroleum Co Class A 10,000 113,750
KCS Energy Inc 20,000 575,000
Smith International Inc * 10,600 319,325
Tesoro Petroleum Corp * 51,100 587,650
----------
1,595,725
----------
HEALTH CARE - 7.20%
Bio Rad Laboratories Inc * 9,750 349,781
Collagen Corp 21,400 409,275
ICN Pharmaceuticals Inc 19,600 455,700
Lincare Holdings Inc 11,900 467,075
<PAGE>
<CAPTION>
PREFERRED SMALL CAP FUND (continued)
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE (continued)
Longs Drug Stores Corp 5,400 $ 240,975
Ornda Health Corp * 18,500 444,000
Rotech Medical Corp * 10,000 195,000
Sierra Health Services Inc * 6,000 189,000
Sola International Inc * 8,700 250,125
Universal Health Services
Inc Class B 11,000 287,375
----------
3,288,306
----------
HOUSING & REAL ESTATE - 11.30%
ABT Building Products Corp * 11,000 247,500
CWM Mortgage Holdings Inc 23,700 402,900
Capstead Mortgage Corp 15,650 436,244
Champion Enterprises Inc * 21,200 442,550
Continental Homes Holding Corp 25,300 543,950
Granite Construction Inc 10,950 251,850
Hovnanian Enterprises Inc
Class A * 23,300 138,344
Kaufman & Broad Home Corp 28,500 413,250
Lennar Corp 12,300 307,500
NCI Building Systems Inc * 11,100 374,625
NVR Inc * 30,000 333,750
NAC Re Corp 11,300 378,550
Pulte Corp 7,500 200,625
Redman Industries * 21,600 448,200
Republic Group Inc 17,000 242,250
----------
5,162,088
----------
LEISURE TIME INDUSTRIES - 3.04%
Bally Entertainment Group * 9,000 247,500
Cannondale Corp * 13,000 263,250
Grand Casinos Inc * 12,650 325,738
K2 Inc 6,600 179,025
Sturm Ruger & Co Inc 8,000 372,000
----------
1,387,513
----------
MANUFACTURING - 6.78%
Allied Products Corp 13,000 368,875
Cascade Corp 13,000 173,875
Day Runner Inc * 10,000 258,750
Gleason Corp 10,500 409,500
Global Industrial Technologies Inc * 10,200 163,200
Intermet Corp * 28,000 390,250
Nacco Industry Inc Class A 2,000 110,750
Novellus System Inc * 4,600 165,600
Park-Ohio Industries Inc * 8,900 172,438
Regal Beloit Corp 7,300 144,175
Titan Wheel International Inc 12,500 200,000
Tredegar Industry Inc 17,800 538,450
----------
3,095,863
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
METALS & MINING - 7.05%
Barnes Group Inc 7,100 $ 362,988
Chaparral Steel Co 34,000 446,250
Cleveland Cliffs Inc 6,500 254,312
Kaydon Corp 7,800 335,400
Medusa Corp 8,800 272,800
Mueller Industry Inc * 9,600 398,400
Reliance Steel & Aluminum Co 12,800 467,200
Texas Industry Inc 10,000 686,250
----------
3,223,600
----------
OFFICE EQUIPMENT & COMPUTERS - 3.79%
CompUSA Inc * 20,000 682,500
In Focus System Inc * 4,500 109,125
Inacom Corp * 10,000 187,500
Miller Herman Inc 11,000 336,875
Trident Microsystems Inc * 16,100 203,263
Zero Corp 10,000 213,750
----------
1,733,013
----------
PAPER & FOREST PRODUCTS - 1.36%
Mercer International Inc * 24,000 324,000
Universal Forest Products Inc 28,700 297,763
----------
621,763
----------
PUBLISHING & BROADCASTING - .46%
Harte Hanks Communications 7,500 208,125
----------
SERVICE INDUSTRIES - .85%
Hughes Supply Inc 5,600 194,600
PHH Corp * 3,400 193,800
----------
388,400
----------
TRANSPORTATION - 6.89%
Alaska Air Group Inc * 13,000 355,875
America West Airlines Inc Class B * 24,600 541,200
Avondale Industry Inc * 12,600 226,800
Comair Holdings Inc 14,250 384,750
Continental Airlines Inc Class B * 16,000 988,000
USAir Group Inc * 36,100 649,800
----------
3,146,425
----------
UTILITIES & POWER - 4.43%
Central Vermont Public Service 22,600 288,150
Cilcorp Inc 10,300 440,325
Northwestern Public Service Co 5,100 137,062
Sierra Pacific Resources 5,400 137,025
TNP Enterprises Inc 23,300 661,137
United Illuminating Co 9,700 362,535
----------
2,026,234
----------
TOTAL COMMON STOCK
(Cost - $42,617,361) 45,216,751
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 1.15% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENT FUND - 1.15%
Seven Seas Money Market Fund 527,839 $ 527,839
------------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $527,839) 527,839
------------
TOTAL INVESTMENTS - 100.11%
(Cost - $43,145,200) 45,744,590
------------
OTHER ASSETS AND LIABILITIES - (.11%) (51,878)
------------
TOTAL NET ASSETS - 100% $ 45,692,712
============
<CAPTION>
PREFERRED ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
COMMON STOCK - 47.39% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - .76%
Boeing Co 3,080 $ 268,345
General Dynamics Corp 700 43,400
Lockheed Martin Corp 1,819 152,796
McDonnell Douglas Corp 2,120 102,820
Northrop Grumman Corp 300 20,438
United Technologies Corp 1,290 148,347
----------
736,146
----------
AUTOMOTIVE - 1.17%
Chrysler Corp 3,508 217,496
Cooper Tire & Rubber 500 11,125
Cummins Engine Inc 200 8,075
Dana Corp 1,340 41,540
Eaton Corp 870 51,004
Echlin Inc 300 11,363
Ford Motor Co 10,100 326,988
General Motors Corp 6,850 358,768
Goodyear Tire & Rubber 1,420 68,515
Navistar International Corp * 410 4,048
Paccar Inc 620 30,380
----------
1,129,302
----------
BANKS - 3.28%
Banc One Corp 3,864 131,386
Bank New York Inc 2,000 102,500
Bank of Boston Corp 600 29,700
Bankamerica Corp 3,350 253,763
Bankers Trust NY Corp 740 54,668
Barnett Banks Inc 1,000 61,000
Boatmens Bancshares Inc 900 36,113
Chase Manhattan Corp 4,221 298,108
Citicorp 4,250 351,156
Comerica Inc 1,000 44,625
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
BANKS (continued)
Corestates Financial Corp 1,900 $ 73,150
Fifth Third Bancorp 800 43,200
First Bank System Inc 1,200 69,600
First Chicago NBD Corp 3,143 122,970
First Union Corp 2,697 164,180
Fleet Financial Group Inc 2,244 97,614
Keycorp 2,100 81,375
MBNA Corp 1,275 36,338
Mellon Bank Corp 1,300 74,100
J P Morgan & Co Inc 1,620 137,093
National City Corp 1,900 66,738
Nationsbank Corp 2,500 206,562
Norwest Corp 3,050 106,368
PNC Bank Corp 2,830 84,192
Republic NY Corp 600 37,350
Suntrust Banks Inc 2,100 77,700
US Bancorp 800 28,900
Wachovia Corp 1,530 66,937
Wells Fargo & Co 1,009 241,024
----------
3,178,410
----------
CHEMICALS - 1.49%
Air Products & Chemicals Inc 1,130 65,258
B F Goodrich Co 200 7,475
Dow Chemical Co 2,480 188,480
Du Pont E I de Nemours & Co 4,970 393,251
Eastman Chemical Co 875 53,266
Engelhard Corp 1,667 38,341
Freeport McMoRan Copper and
Gold Inc 2,100 66,938
Great Lakes Chemical Corp 670 41,708
Hercules Inc 1,120 61,880
International Flavours 1,040 49,530
Monsanto Co 5,000 162,500
Morton International Inc 1,510 56,248
Nalco Chemical Co 940 29,610
Praxair Inc 1,530 64,643
Rohm & Haas Co 720 45,180
Union Carbide Corp 1,470 58,433
W R Grace & Co 890 63,079
----------
1,445,820
----------
COMPUTER SOFTWARE - 1.44%
Autodesk Inc 300 8,963
Automatic Data Processing Inc 2,880 111,240
Computer Associates
International In 2,275 162,094
Computer Sciences Corp * 300 22,425
First Data Corp 1,900 151,288
Microsoft Corp * 5,350 642,669
Novell Inc * 3,700 51,338
Oracle System Corp * 6,157 242,816
Shared Medical System 100 6,425
----------
1,399,258
----------
<PAGE>
<CAPTION>
PREFERRED ASSET ALLOCATION FUND (continued)
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CONGLOMERATES - 2.11%
Alco Standard Corp 600 $ 27,150
Allied Signal Inc 2,530 144,526
Dial Corp 500 14,313
General Electric 15,420 1,333,830
Harcourt General Inc 400 20,000
Household International Inc 500 38,000
ITT Corp * 1,060 70,225
Ogden Corp 300 5,438
Pall Corp 633 15,271
Rockwell International Corp 2,000 114,500
TRW Inc 800 71,900
Teledyne Inc 300 10,838
Teledyne Inc Preferred Series E 3 46
Tenneco Inc 1,790 91,514
Textron Inc 940 75,083
Whitman Corp 600 14,475
----------
2,047,109
----------
CONSUMER PRODUCTS - 4.74%
Alberto Culver Co Class B 200 9,275
American Brands Inc 1,760 79,860
Anheuser Busch Cos Inc 2,390 179,250
Armstrong World Industries Inc 200 11,525
Avon Products Inc 1,500 67,688
Brown Forman Corp Class B 400 16,000
Circuit City Stores Inc 500 18,063
Clorox Co 630 55,834
Coca Cola Co 23,180 1,132,923
Colgate Palmolive Co 1,360 115,260
Coors Adolph Co Class B 200 3,575
Ecolab Inc 400 13,200
Fruit Of The Loom Inc Class A * 600 15,300
Gillette Co 4,020 250,748
Liz Claiborne 980 33,933
Masco Corp 1,770 53,543
Maytag Corp 600 12,525
Nike Inc Class B 1,490 153,098
Pepsico Inc 14,480 512,230
Philip Morris Cos Inc 7,520 782,080
Procter & Gamble Co 6,150 557,344
Reebok International Ltd 870 29,254
Russell Corp 200 5,525
Seagram Ltd 3,370 113,316
Stride Rite Corp 300 2,475
Tupperware Corp * 300 12,675
UST Inc 1,860 63,705
Unilever N V 1,470 213,334
V F Corp 680 40,545
Whirlpool Corp 830 41,189
----------
4,595,272
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CONTAINERS & PACKING - .10%
Ball Corp 200 $ 5,750
Bemis Inc 300 10,500
Crown Cork & Seal Inc 970 43,650
Stone Container Corp 506 6,958
Temple Inland Inc 600 28,050
----------
94,908
----------
DISCOUNT & FASHION RETAILING - 1.94%
Brown Group Inc 100 1,738
Charming Shoppes Inc * 600 4,238
Dayton Hudson Corp 730 75,281
Dillard Dept Stores Inc Class A 1,210 44,165
Federated Dept Stores Inc * 1,800 61,425
Gap Inc 3,040 97,660
Home Depot Inc 4,486 242,244
J C Penney Inc 2,100 110,250
K Mart Corp * 4,430 54,821
Limited Inc 2,442 52,503
Lowes Companies Inc 900 32,513
May Dept Stores Co 2,410 105,438
Melville Corp 1,190 48,195
Mercantile Stores Inc 200 11,725
Nordstrom Inc 1,110 49,395
Payless ShoeSource Inc 24 762
Pep Boys-Manny Moe & Jack 300 10,200
Price Costco Inc * 2,065 44,656
Sears Roebuck & Co 3,600 175,050
TJX Cos Inc 400 13,500
Toys R Us Inc * 2,670 76,095
Wal Mart Stores Inc 20,910 530,591
Woolworth Corp * 1,700 38,250
----------
1,880,695
----------
ELECTRICAL & ELECTRONICS - 1.88%
Advanced Micro Devices Inc * 600 8,175
Amp Inc 2,228 89,399
Cooper Industries Inc 1,282 53,203
Emerson Electric Co 2,190 197,921
General Instrument Corp * 1,100 31,763
Harris Corp 200 12,200
Honeywell Inc 1,390 75,755
Intel Corp 7,560 555,188
Johnson Controls Inc 200 13,900
LSI Logic Corp * 1,200 31,200
Micron Technology Inc 2,000 51,750
Millipore Corp 200 8,375
Motorola Inc 5,400 339,525
National Semiconductor Corp * 700 10,850
National Service Industries 300 11,738
Perkin Elmer Corp 200 9,650
Raychem Corp 200 14,375
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL & ELECTRONICS (continued)
Raytheon Co 2,500 $ 129,063
Tektronix Inc 200 8,950
Texas Instruments Inc 1,720 85,785
Thomas & Betts Corp 200 7,500
Westinghouse Electric Corp 3,820 71,625
----------
1,817,890
----------
FINANCE - 3.17%
Aetna Life & Casualty Co 1,130 80,795
Alexander & Alexander Services 200 3,950
Allstate Corp 4,029 183,823
American Express Co 4,550 203,044
American General Corp 2,000 72,750
American International Group Inc 4,285 422,608
Aon Corp 600 30,450
Beneficial Corp 300 16,838
Chubb Corp 1,860 92,768
Cigna Corp 740 87,228
Dean Witter Discover & Co 1,589 90,970
Federal Home Loan Mortgage
Associati 1,720 147,060
Federal National Mortgage
Associatio 10,000 335,000
General Reinsurance Corp 740 112,665
Golden West Financial Corp 760 42,560
Great Western Financial Corp 700 16,713
Green Tree Financial Corp 1,300 40,625
H F Ahmanson & Co 600 16,200
H & R Block Inc 1,260 41,108
ITT Hartford Group Inc 1,060 56,445
Jefferson Pilot Corp 960 49,560
Lincoln National Corp 1,130 52,263
Loews Corp 1,000 78,875
Marsh & McLennan Companies 730 70,445
Merrill Lynch & Co Inc 1,710 111,364
Morgan Stanley Group Inc 1,000 49,125
Providian Corp 1,080 46,305
Safeco Corp 1,360 48,110
Salomon Inc 1,100 48,400
St. Paul Companies Inc 940 50,290
Torchmark Inc 800 35,000
Transamerica Corp 770 62,370
Travelers Group Inc 4,608 210,240
USF&G Corp 600 9,825
US Life Corp 225 7,397
Unum Corp 800 49,800
----------
3,072,969
----------
FOOD - 1.59%
Albertsons Inc 2,510 103,851
American Stores Co 1,520 62,700
Archer Daniels Midland Co 4,942 94,516
CPC International Inc 1,300 93,600
Campbell Soup Co 2,300 162,150
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FOOD (continued)
ConAgra Inc 2,220 $ 100,733
Fleming Cos Inc 200 2,875
General Mills Inc 1,530 83,385
Giant Foods Inc Class A 300 10,763
Great Atlantic & Pacific Tea Inc 200 6,575
H J Heinz Co 3,315 100,693
Hershey Foods Corp 660 48,428
Kellogg Co 2,010 147,233
Kroger Co * 700 27,650
Pioneer Hi Bred International
Inc 880 46,530
Quaker Oats Co 1,260 42,998
Ralston Purina Co 1,110 71,179
Sara Lee Corp 4,360 141,155
Supervalu Inc 400 12,600
Sysco Corp 1,920 65,760
Winn Dixie Stores Inc 1,640 58,015
Wrigley Wm Jr Co 1,070 54,035
----------
1,537,424
----------
FUEL - 4.34%
Amerada Hess Corp 1,010 54,161
Amoco Corp 4,360 315,555
Ashland Inc 300 11,888
Atlantic Richfield Co 1,490 176,565
Baker Hughes Inc 1,700 55,888
Burlington Resources Inc 1,400 60,200
Chevron Corp 6,060 357,540
Coastal Corp 1,190 49,683
Dresser Industries Inc 2,150 63,425
Exxon Corp 11,020 957,363
Halliburton Co 1,110 61,605
Helmerich & Payne Inc 100 3,663
Kerr McGee Corp 300 18,263
Louisiana Land & Exploration Co 200 11,525
Mobil Corp 3,610 404,771
Occidental Petroleum Corp 3,310 81,923
Oneok Inc 100 2,500
Oryx Energy Co * 1,590 25,838
Panenergy Corp 800 26,300
Pennzoil Co 760 35,150
Phillips Petroleum Co 2,460 103,013
Rowan Cos Inc * 500 7,375
Royal Dutch Petroleum Co 4,750 730,313
Santa Fe Energy Resources Inc * 500 5,938
Schlumberger Ltd 2,230 187,878
Sun Inc 921 27,975
Texaco Inc 2,460 206,333
USX Marathon Group 3,200 64,400
Unocal Corp 2,400 81,000
Western Atlas Inc * 300 17,475
----------
4,205,506
<PAGE>
<CAPTION>
PREFERRED ASSET ALLOCATION FUND (continued)
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE - 5.03%
Abbott Labs 7,040 $ 306,240
Allergan Inc 770 30,223
Alza Corp * 1,100 30,113
American Home Products Corp 5,420 325,878
Amgen Inc * 2,380 128,520
Bausch & Lomb Inc 780 33,150
Baxter International Inc 2,580 121,905
Becton Dickinson & Co 680 54,570
Beverly Enterprises Inc * 500 6,000
Biomet Inc * 1,400 20,125
Boston Scientific Corp * 1,500 67,500
Bristol Myers Squibb Co 4,440 399,600
C R Bard Inc 300 10,200
Columbia Healthcare Corp 4,066 217,023
Community Psychiatric Centers * 200 1,900
Eli Lilly & Co 4,474 290,810
Humana Inc * 1,500 26,813
Johnson & Johnson 11,620 575,190
Longs Drug Stores Corp 100 4,463
Mallinckrodt Group Inc 400 15,550
Manor Care Inc 300 11,813
Medtronic Inc 2,220 124,320
Merck & Co Inc 11,030 712,814
Pfizer Inc 5,800 413,975
Pharmacia & Upjohn Inc 4,553 202,039
Rite Aid Corp 500 14,875
Schering Plough Corp 3,340 209,585
Sigma Aldrich 600 32,100
St. Jude Medical Inc * 900 30,150
Tenet Healthcare Corp * 2,210 47,239
United Healthcare Corp 1,600 80,800
United States Healthcare Inc 1,500 82,500
United States Surgical Corp 800 24,800
Walgreen Co 2,560 85,760
Warner Lambert Co 2,420 133,100
----------
4,871,643
----------
HOUSING & REAL ESTATE - .18%
Centex Corp 200 6,225
Kaufman & Broad Home Corp 200 2,900
Owens Corning Fiberglass Corp * 300 12,900
PPG Industries Inc 1,980 96,525
Pulte Corp 100 2,675
Sherwin Williams Co 1,040 48,360
----------
169,585
----------
LEISURE TIME INDUSTRIES - 1.24%
American Greetings Corp Class A 400 10,950
Bally Entertainment Group * 300 8,250
Brunswick Corp 1,080 21,600
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LEISURE TIME INDUSTRIES (continued)
Darden Restaurants Inc 1,730 $ 18,598
Eastman Kodak Co 3,130 243,358
Fleetwood Enterprises Inc 200 6,200
Handleman Co 200 1,375
Harrahs Entertainment Inc * 550 15,538
Hasbro Inc 940 33,605
Hilton Hotels Corp 530 59,625
King World Productions Inc * 200 7,275
Lubys Cafeterias Inc 100 2,350
Mattel Inc 2,669 76,400
McDonalds Corp 6,400 299,200
Outboard Marine Corp 100 1,813
Polaroid Corp 200 9,125
Ryans Family Steak Houses Inc * 300 2,775
Shoneys Inc * 200 2,175
Walt Disney Co 5,960 374,735
Wendys International Inc 600 11,175
----------
1,206,122
----------
MANUFACTURING - 1.22%
Applied Materials Inc * 1,800 54,900
Avery Dennison Corp 300 16,463
Black & Decker Corp 500 19,313
Briggs & Stratton Corp 200 8,225
Case Corp 800 38,400
Caterpillar Inc 1,960 132,790
Cincinnati Milacron Inc 200 4,800
Corning Inc 2,250 86,344
Crane Co 200 8,200
Deere & Co 2,760 110,400
Dover Corp 600 27,675
FMC Corp * 200 13,050
General Signal Corp 300 11,363
Giddings & Lewis Inc 200 3,250
Harnischfeger Industries Inc 300 9,975
ITT Industry Inc 1,060 26,633
Illinois Tool Works Inc 1,210 81,826
Ingersoll Rand Co 1,340 58,625
Jostens Inc 200 3,950
Minnesota Mining & Mfg Corp 3,860 266,340
Newell Co 1,660 50,838
Parker Hannifin Corp 450 19,069
Rubbermaid Inc 1,580 43,055
Snap On Inc 200 9,475
Springs Industries Inc 100 5,050
Stanley Works 400 11,900
Timken Co 200 7,750
Trinova Corp 200 6,675
Tyco International Ltd 800 32,600
Varity Corp * 200 9,625
----------
1,178,559
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
METALS & MINING - .61%
Alcan Aluminum Ltd 2,010 $ 61,305
Aluminum Company of America 1,700 97,538
Armco Inc * 600 3,000
Asarco Inc 200 5,525
Barrick Gold Corp 3,300 89,513
Bethleham Steel Corp * 600 7,125
Cyprus Amax Minerals Co 1,060 23,983
Echo Bay Mines Ltd 600 6,450
Homestake Mining Co 1,790 30,654
Inco Ltd 1,260 40,635
Inland Steel Industries Inc 300 5,888
Newmont Mining Corp 474 23,404
Nucor Corp 500 25,313
Phelps Dodge Corp 630 39,296
Placer Dome Inc 2,400 57,300
Reynolds Metals Co 600 31,275
Santa Fe Pacific Gold Corp 700 9,888
USX US Steel 1,000 28,375
Worthington Industries Inc 450 9,394
----------
595,861
----------
OFFICE EQUIPMENT & COMPUTERS - 2.25%
3Com Corp * 1,600 73,200
Amdahl Corp * 1,710 18,383
Apple Computer * 1,250 26,250
Bay Networks Inc * 1,800 46,350
Cabletron Systems Inc * 600 41,175
Ceridian Corp * 400 20,200
Cisco Systems Inc * 5,320 301,245
Compaq Computer Corp * 2,480 122,140
Data General Corp * 200 2,600
De Luxe Corp 1,150 40,825
Digital Equipment Corp * 1,510 67,950
E M C Corp * 2,000 37,250
Hewlett Packard Co 4,760 474,215
Intergraph Corp * 300 3,638
International Business Machines 5,150 509,850
John H Harland Co 200 4,925
Moore Corp Ltd 500 9,438
Pitney Bowes Inc 1,600 76,400
Silicon Graphics Inc * 1,800 43,200
Sun Microsystems Inc * 1,000 58,875
Tandem Computers Inc * 600 7,425
Tandy Corp 400 18,950
Unisys Corp * 900 6,413
Xerox Corp 3,120 166,920
----------
2,177,817
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS - .68%
Boise Cascade Corp 300 $ 10,988
Champion International Corp 1,050 43,838
Georgia Pacific Corp 810 57,510
International Paper Co 2,580 95,138
James River Corp 500 13,188
Kimberly Clark Corp 2,573 198,764
Louisiana Pacific Corp 1,260 27,878
Mead Corp 300 15,563
Potlatch Corp 200 7,825
Union Camp Corp 830 40,463
Westvaco Corp 1,200 35,850
Weyerhaeuser Co 1,900 80,750
Willamette Industries Inc 600 35,700
--------
663,455
--------
PUBLISHING & BROADCASTING - .90%
Comcast Corp Class A 1,350 24,975
Dow Jones & Co Inc 1,070 44,673
Dun & Bradstreet Corp 1,630 101,875
Gannett Inc 1,410 99,758
Knight Ridder Inc 610 44,225
McGraw Hill Inc 1,060 48,495
Meredith Corp 200 8,350
New York Times Co Class A 500 16,313
Tele Communications Inc Series A * 6,140 111,288
Time Warner Inc 3,520 138,160
Times Mirror Co Series A 1,200 52,200
Tribune Co 710 51,564
Viacom Class B * 3,350 130,231
--------
872,107
--------
SERVICE INDUSTRIES - .70%
Browning Ferris Industries Inc 2,100 60,900
CUC International Inc * 2,050 72,775
EG & G Inc 300 6,413
Fluor Corp 850 55,569
Foster Wheeler Corp 200 8,975
Genuine Parts Co 1,550 70,913
Interpublic Group Cos Inc 400 18,750
Laidlaw Inc Class B 3,500 35,438
Marriot International Inc 1,380 74,175
McDermott International Inc 300 6,263
Safety Kleen Corp 1,190 20,825
Service Corp International 600 34,500
R R Donnelley & Sons Co 1,570 54,754
W W Grainger Inc 300 23,250
WMX Technologies Inc 4,230 138,533
--------
682,033
--------
<PAGE>
<CAPTION>
PREFERRED ASSET ALLOCATION FUND (continued)
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS - 3.89%
Airtouch Communications Inc * 4,860 $ 137,295
Alltel Corp 1,500 46,125
American Telephone & Telegraph
Inc 14,240 882,880
Ameritech Corp 4,990 296,281
Andrew Corp * 337 18,114
Bell Atlantic Corp 4,000 255,000
Bellsouth Corp 8,860 375,443
DSC Communications Inc * 600 18,075
GTE Corp 8,710 389,773
MCI Communications Corp 6,400 164,000
Northern Telecom Ltd 2,510 136,481
Nynex Corp 3,870 183,825
Pacific Telesis Group 3,950 133,313
SBC Communications Inc 5,570 274,323
Scientific Atlanta Inc 400 6,200
Sprint Corp 4,010 168,420
Tellabs Inc * 900 60,188
U S West Inc Communications
Group* 4,370 139,294
U S West Inc Media Group* 4,370 79,753
----------
3,764,783
----------
TRANSPORTATION - .75%
AMR Corp * 760 69,160
Burlington Northern Santa Fe 1,234 99,800
CSX Corp 2,020 97,465
Caliber System Inc 370 12,580
Conrail Inc 810 53,764
Consolidated Freightways Inc 200 4,225
Delta Airlines Inc 560 46,480
Federal Express Corp * 550 45,100
Norfolk Sourthern Corp 1,250 105,938
Roadway Services Inc 50 706
Ryder System Inc 400 11,250
Southwest Airlines Co 1,400 40,775
US Air Group Inc * 300 5,400
Union Pacific Corp 1,830 127,871
Yellow Corp * 200 2,650
----------
723,164
----------
UTILITIES & POWER - 1.93%
American Electric Power Inc 1,660 70,758
Baltimore Gas & Electric Co 1,560 44,265
Carolina Power & Light Co 1,590 60,420
Central & South West Corp 1,700 49,300
Cinergy Corp 806 25,792
Columbia Gas Systems Inc 300 15,638
Consolidated Edison Co 2,410 70,493
Consolidated Natural Gas Co 1,030 53,818
DTE Energy Co 1,480 45,695
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES & POWER (continued)
Dominion Resources Inc 1,560 $ 62,400
Duke Power Inc 1,720 88,150
Eastern Enterprises 100 3,325
Edison International 3,830 67,504
Enron Corp 2,400 98,100
Enserch Corp 400 8,700
Entergy Corp 1,880 53,345
FPL Group Inc 1,740 80,040
General Public Utilities Corp 600 21,150
Houston Industries Inc 2,100 51,713
Niagara Mohawk Power Corp * 1,890 14,648
Nicor Inc 300 8,513
Noram Energy Corp 700 7,613
Northern States Power Co 830 40,981
Ohio Edison Co 1,650 36,094
P P & L Resources Inc 900 21,263
Pacific Enterprises 500 14,813
Pacific Gas & Electric Co 3,770 87,653
Pacificorp 2,740 60,965
Peco Energy Co 2,150 55,900
Peoples Energy Corp 200 6,700
Public Service Enterprise Group 2,130 58,309
Sonat Inc 500 22,500
Southern Co 5,690 140,116
Texas Utilities Co 1,970 84,218
Unicom Corp 2,060 57,423
Union Electric Co 1,050 42,263
Williams Cos Inc 537 26,582
Worldcom Inc * 2,000 110,693
----------
1,867,853
----------
TOTAL COMMON STOCK
(Cost - $31,423,664) 45,913,691
----------
<CAPTION>
- --------------------------------------------------------------------------------
FIXED INCOME - 31.26% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY - 31.26%
United States Treasury Bonds
6.25% 15 Aug 2023 # $1,295,000 1,173,995
6.875% 15 Aug 2025 500,000 494,920
7.125% 15 Feb 2023 # 940,000 950,133
7.25% 15 May 2016 # 1,125,000 1,151,370
7.25% 15 Aug 2022 # 340,000 348,129
7.50% 15 Nov 2016 1,590,000 1,670,486
7.50% 15 Nov 2024 1,040,000 1,102,400
7.625% 15 Nov 2022 # 1,560,000 1,668,950
7.625% 15 Feb 2025 1,860,000 2,004,150
7.875% 15 Nov 2007 # 175,000 184,406
8.00% 15 Nov 2021 # 1,530,000 1,701,406
8.125% 15 Aug 2019 # 1,310,000 1,470,475
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
FIXED INCOME PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY (continued)
8.125% 15 May 2021 $ 669,000 $ 753,461
8.125% 15 Aug 2021 # 1,180,000 1,328,786
8.50% 15 Feb 2020 1,160,000 1,352,664
8.75% 15 May 2017 # 860,000 1,020,313
8.75% 15 May 2020 830,000 992,365
8.75% 15 Aug 2020 # 1,225,000 1,465,406
8.875% 15 Aug 2017 # 1,230,000 1,476,763
8.875% 15 Feb 2019 # 880,000 1,060,814
9.00% 15 Nov 2018 # 100,000 121,875
9.125% 15 May 2009 # 355,000 403,869
9.125% 15 May 2018 560,000 689,237
9.25% 15 Feb 2016 # 740,000 915,173
9.875% 15 Nov 2015 # 500,000 650,860
10.375% 15 Nov 2009 30,000 36,689
10.375% 15 Nov 2012 # 215,000 272,949
10.625% 15 Aug 2015 100,000 138,031
11.25% 15 Feb 2015 # 420,000 606,110
11.75% 15 Feb 2010 # 295,000 388,710
11.75% 15 Nov 2014 # 405,000 573,326
12.00% 15 Aug 2013 # 615,000 866,959
12.50% 15 Aug 2014 230,000 338,351
12.75% 15 Nov 2010 440,000 617,857
13.875% 15 May 2011 200,000 299,751
-----------
30,291,139
-----------
TOTAL FIXED INCOME
(Cost - $30,835,678) 30,291,139
-----------
<CAPTION>
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 20.31% PAR/SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMERICAL PAPER - 11.47%
Anheuser Busch Inc @ #
5.27% 6 Sep 1996 1,500,000 1,485,288
Associates Corp of North America #
5.55% 1 Jul 1996 1,435,904 1,435,904
Du Pont E I de Nemours & Co @ #
5.44% 6 Dec 1996 1,000,000 976,124
General Electric Capital Corp @ #
5.49% 2 Dec 1996 1,000,000 973,770
Hertz Corp @ #
5.45% 18 Dec 1996 1,000,000 974,264
International Lease Finance Corp @ #
5.24% 13 Sep 1996 1,900,000 1,879,535
Monsanto Co @ #
5.28% 25 Sep 1996 1,000,000 987,387
Seimens Corp @ #
5.30% 13 Sep 1996 1,000,000 989,106
Transamerica Finance Group Inc @ #
5.22% 24 Sep 1996 1,425,000 1,407,437
----------
11,108,815
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS PAR/SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS - 7.26%
State Street Repo 4.75% 1 Jul 1996
(Cost - $7,034,000)(Dated 6/28/96,
due 7/1/96, collateralized by $7,080,000
U. S. Treasury Note 5.25%, 12/31/97,
Market Value $7,192,838,
Repurchase Proceeds $7,036,784) $7,034,000 $7,034,000
-----------
SHORT TERM INVESTMENT FUND - .33%
Seven Seas Money Market Fund 323,812 323,812
-----------
U.S. TREASURY - 1.25%
United States Treasury Bills @
4.835% 19 Sep 1996 # $ 235,000 232,475
4.98% 19 Sep 1996 # 50,000 49,447
5.09% 26 Sep 1996 # 740,000 730,897
5.24% 19 Dec 1996 # 200,000 195,021
-----------
1,207,840
-----------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $19,674,467) 19,674,467
-----------
TOTAL INVESTMENTS - 98.96%
(Cost - $81,933,809) 95,879,297
-----------
OTHER ASSETS AND LIABILITIES - 1.04% 1,010,051
-----------
TOTAL NET ASSETS - 100% $96,889,348
===========
<CAPTION>
PREFERRED BALANCED FUND
- --------------------------------------------------------------------------------
COMMON STOCK - 48.21% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - .26%
Boeing Co 120 $ 10,455
--------
AUTOMOTIVE - 2.34%
General Motors Corp 1,790 93,751
--------
BANKS - 5.05%
Boatmens Bancshares Inc 1,580 63,398
Chase Manhattan Corp 820 57,913
Fleet Financial Group Inc 1,040 45,240
Hibernia Corp Class A 3,300 35,888
--------
202,439
--------
CHEMICALS - 2.20%
Betz Laboratories Inc 1,200 52,650
Dexter Corp 1,190 35,403
--------
88,053
--------
<CAPTION>
PREFERRED BALANCED FUND (continued)
<S> <C> <C>
COMPUTER SOFTWARE - 1.81%
Adobe System Inc 340 $ 12,198
Compuserve Inc * 1,000 21,125
Geoworks * 1,100 39,050
--------
72,373
--------
CONGLOMERATES - .69%
ITT Corp * 420 27,825
--------
DISCOUNT & FASHION RETAILING - 2.06%
Limited Inc 2,333 50,160
Price Costco Inc * 1,500 32,438
--------
82,598
--------
ELECTRICAL & ELECTRONICS - .98%
Westinghouse Electric Corp 2,100 39,375
--------
FINANCE - 2.50%
Cigna Corp 850 100,194
--------
FUEL - 4.54%
Amerada Hess 400 21,282
Anadarko Petroleum Corp 820 47,560
Dresser Industries Inc 1,880 55,460
Unocal Corp 1,700 57,375
--------
181,677
--------
HEALTH CARE - 1.51%
Chiron Corp * 120 11,760
Smithkline Beecham Plc Class A ADR 430 23,381
Vertex Pharmaceuticals Inc * 840 25,515
--------
60,656
--------
HOUSING & REAL ESTATE - 1.69%
Avalon Properties Inc 2,250 48,938
York International Corp 360 18,630
--------
67,568
--------
LEISURE TIME INDUSTRIES - 1.32%
Hilton Hotels Corp 350 39,375
Interstate Hotels Co * 600 13,350
--------
52,725
--------
MANUFACTURING - .37%
Harnischfeger Industries Inc 450 14,963
--------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
METALS & MINING - 4.24%
J&L Specialty Steel Inc 2,100 $ 31,238
Minerals Technologies Inc 430 14,727
Newmont Mining Corp 980 48,387
Reynolds Metals Co 950 49,518
USX US Steel 920 26,105
---------
169,975
---------
OFFICE EQUIPMENT & COMPUTERS - 2.63%
Hewlett Packard Co 340 33,873
International Business Machines 720 71,280
---------
105,153
---------
PAPER & FOREST PRODUCTS - 1.70%
Champion International Corp 700 29,225
Mead Corp 750 38,906
---------
68,131
---------
PUBLISHING & BROADCASTING - 5.44%
Dow Jones & Co Inc 1,530 63,878
McGraw Hill Co Inc 960 43,920
New York Times Co Class A 2,210 72,101
Tribune Co 520 37,765
---------
217,664
---------
SERVICE INDUSTRIES - 1.31%
CUC International Inc * 640 22,720
Omnicom Group 640 29,760
---------
52,480
---------
TELECOMMUNICATIONS - 1.78%
MCI Communications Corp 2,150 55,094
Vodafone Group Plc ADR 440 16,225
---------
71,319
---------
TRANSPORTATION - 3.79%
Delta Airlines Inc 720 59,760
Ryder System Inc 1,180 33,188
Union Pacific Corp * 350 24,456
Union Pacific Resources Group Inc 1,290 34,507
---------
151,911
---------
TOTAL COMMON STOCK
(Cost - $1,705,475) 1,931,285
---------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
FIXED INCOME - 37.01% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY - 37.01%
United States Treasury Bonds
7.875% 15 Feb 2021 $ 65,000 $ 71,307
10.75% 15 Aug 2005 70,000 88,867
United States Treasury Notes
5.75% 15 Aug 2003 185,000 176,183
6.25% 15 Feb 2003 625,000 613,963
7.50% 15 Nov 2001 510,000 532,390
----------
1,482,710
----------
TOTAL FIXED INCOME
(Cost - $1,514,421) 1,482,710
----------
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 15.45% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS - 15.45%
State Street Repo 4.75% 1 Jul 1996
(Cost - $619,000)(Dated 6/28/96,
due 7/1/96, collateralized by $625,000
U.S. Treasury Note 5.25%, 12/31/97,
Market Value $634,961,
Repurchase Proceeds $619,245) 619,000 619,000
----------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $619,000) 619,000
----------
TOTAL INVESTMENTS - 100.67%
(Cost - $3,838,896) 4,032,995
----------
OTHER ASSETS AND LIABILITIES - (.67%) (27,002)
----------
TOTAL NET ASSETS - 100% $4,005,993
==========
<PAGE>
<CAPTION>
PREFERRED FIXED INCOME FUND
- --------------------------------------------------------------------------------
FIXED INCOME - 95.68% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED - 9.92%
Aegis Auto Receivables Trust ***
8.39% 20 Oct 2001 $ 980,286 $ 992,080
Banc One Auto Trust
6.90% 15 Apr 1998 1,000,000 1,007,810
Chase Manhattan Credit Card Master Trust
7.04% 15 Feb 2004 1,100,000 1,112,716
Chevy Chase Auto Receivables
6.00% 15 Dec 2001 455,762 453,907
First Enterprise ***
6.84% 15 Jun 2001 2,000,000 2,004,688
Ford Credit Auto Loan Master Trust
5.50% 15 Feb 2003 1,000,000 950,000
Reliable Auto Receivable Master Trust
5.80% 15 Jun 2002 917,391 913,951
Sears Credit Account Master Trust
6.50% 15 Oct 2003 3,000,000 2,997,180
Western Financial
6.05% 1 Nov 2000 600,183 598,495
----------
11,030,827
----------
COLLATERALIZED MORTGAGE OBLIGATION - 24.55%
1345 Funding LLC Class C ***
7.993% 25 May 2006 3,000,000 2,980,313
CIT Group Securitization Corp
6.25% 20 May 2006 1,129,000 1,069,728
Crimi Mae Financial Corp
7.00% 1 Jan 2033 995,579 946,111
Eaglemark Trust
6.75% 15 Nov 2002 3,500,000 3,510,938
Federal Home Loan Mortgage Pc Gtd
5.50% 15 Mar 2021 1,000,000 936,560
6.00% 15 Apr 2006 1,000,000 978,430
6.20% 15 Feb 2024 1,500,000 1,472,340
6.50% 15 Nov 2022 5,000,000 4,671,875
Federal National Mortgage Assn Gtd
5.50% 25 Dec 2008 1,200,000 1,070,244
Federal National Mortgage Assn REMIC
5.75% 25 Apr 2019 1,000,000 978,430
6.50% 25 Jan 2023 1,500,000 1,419,840
Green Tree Financial Corp
6.05% 15 Dec 2026 739,597 739,826
MLIC Commercial Mortgage ***
6.60% 25 Jul 2027 1,400,563 1,366,571
Structured Asset Securities Corp
5.751% 25 Feb 2028 490,000 480,047
5.944% 25 Feb 2028 980,000 943,403
Tyron Mortgage Funding Inc
7.55% 20 Dec 2009 3,750,000 3,727,734
----------
27,292,390
----------
<PAGE>
<CAPTION>
PREFERRED FIXED INCOME FUND (continued)
- --------------------------------------------------------------------------------
FIXED INCOME PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC - 3.74%
Boston Edison
7.80% 15 May 2010 $1,375,000 $ 1,295,333
7.80% 15 Mar 2023 500,000 439,315
Houston Lighting & Power Co MTN
6.50% 21 Apr 2003 2,500,000 2,428,200
----------
4,162,848
----------
FEDERAL AGENCY POOLED - 6.09%
Federal Home Loan Mortgage Corp
7.00% 1 Dec 2024 854,688 824,500
7.50% 1 Oct 2025 1,717,379 1,695,912
8.00% 1 Oct 2025 200,756 202,448
8.00% 1 Jan 2026 985,044 993,348
8.00% 1 Jun 2026 3,030,000 3,055,543
----------
6,771,751
----------
FINANCE & BANKING - 6.18%
American General Finance Corp
7.25% 1 Mar 1998 1,000,000 1,012,990
Associates Corp of North America MTN
6.73% 30 Sep 2002 725,000 717,887
General Electric Capital Corp MTN
6.01% 28 Jan 2004 550,000 523,012
General Motors Acceptance Corp
8.00% 1 Oct 1999 1,500,000 1,556,385
Integra Bank Pittsburgh MTN
6.55% 15 Jun 2000 650,000 643,578
Security Pacific Corp MTN
10.30% 15 May 2001 1,250,000 1,421,513
Trans Financial Bank MTN
8.48% 23 Oct 1998 1,000,000 991,470
----------
6,866,835
----------
FOREIGN CORPORATE - 4.98%
Comp de Desarollo Aeropu ***
10.19% 31 May 2011 500,000 503,600
Midland Bank PLC
7.625% 15 Jun 2006 2,000,000 2,004,000
Norddeutsche Landbank Girozen
6.875% 10 Mar 2003 1,000,000 986,875
Sampoerna Intl Finance Co ***
8.375% 15 Jun 2006 1,000,000 1,018,490
Santander Financial Issuances Ltd
7.875% 15 Apr 2005 1,000,000 1,028,940
----------
5,541,905
----------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
FIXED INCOME PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN GOVERNMENT - 6.93%
Italy Republic Yankee Bond
6.875% 27 Sep 2023 $ 1,450,000 $ 1,307,494
Kingdom of Sweden
5.85% 13 Feb 2001 3,000,000 2,893,299
Newfoundland Province Canada
Yankee Bond
9.875% 1 Jun 2020 500,000 601,630
Quebec Province Canada
6.50% 17 Jan 2006 2,000,000 1,874,660
9.00% 1 Apr 2016 950,000 1,027,188
----------
7,704,271
----------
GOVERNMENT SPONSORED - 4.72%
Federal National Mortgage Association
6.50% 1 Feb 2024 167,997 157,655
6.50% 1 Apr 2024 219,495 205,983
6.50% 1 Apr 2024 120,867 113,427
6.50% 1 Jul 2024 310,822 291,688
6.925% 1 Mar 2001 987,856 984,460
7.50% 1 Dec 1999 Jul TBA ** 3,540,000 3,492,422
----------
5,245,635
----------
INDUSTRIALS - 1.56%
Ford Motor Company
9.95% 15 Feb 2032 600,000 750,198
Occidental Pete Corp MTN
5.76% 15 Jun 1998 1,000,000 985,520
----------
1,735,718
----------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES - 13.56%
Government National Mortgage Association
6.50% 15 Sep 2023 520,087 487,581
6.50% 15 Oct 2023 1,961,661 1,839,057
6.50% 15 Oct 2023 256,968 240,669
6.50% 15 Nov 2023 528,405 494,888
6.50% 15 Nov 2023 453,046 424,309
6.50% 15 Nov 2023 59,871 56,129
6.50% 15 Nov 2023 271,494 254,273
6.50% 15 Dec 2023 406,906 381,096
7.00% 15 Nov 2023 3,001,348 2,889,728
7.00% 15 Feb 2024 491,325 473,052
7.00% 15 Feb 2024 70,836 68,201
7.00% 15 Mar 2024 503,894 485,154
7.00% 15 Apr 2024 400,557 385,660
7.00% 15 Apr 2024 434,955 418,779
7.00% 15 Jun 2026 999,900 958,654
7.50% 15 Feb 2023 88,909 88,165
7.50% 15 Jan 2024 467,982 463,302
7.50% 15 Sep 2025 253,452 249,807
7.50% 15 Oct 2025 136,354 134,393
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
FIXED INCOME PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES (continued)
7.50% 15 Nov 2025 $ 134,736 $ 132,799
7.50% 15 Nov 2025 2,013,311 1,984,359
7.50% 15 Jun 2026 202,621 199,709
8.00% 15 Dec 2008 788,590 810,275
8.00% 15 Nov 2009 1,122,936 1,153,816
----------
15,073,855
----------
U.S. TREASURY - 13.45%
United States Treasury Bonds
7.125% 15 Feb 2023 # 2,535,000 2,562,327
8.125% 15 Aug 2019 290,000 325,525
8.50% 15 Feb 2020 # 1,323,000 1,542,737
10.375% 15 Nov 2012 # 2,035,000 2,583,494
United States Treasury Notes
5.75% 15 Aug 2003 2,100,000 1,999,914
6.25% 30 Apr 2001 690,000 683,424
6.75% 30 Apr 2000 # 1,575,000 1,591,490
6.875% 15 May 2006 # 1,250,000 1,263,863
7.50% 15 Nov 2001 # 2,300,000 2,400,994
----------
14,953,768
----------
TOTAL FIXED INCOME
(Cost - $106,920,336) 106,379,803
-----------
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 3.45% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY - 2.55%
United States Treasury Bills @
4.94% 25 Jul 1996 # 2,351,000 2,343,257
5.16% 19 Sep 1996 76,000 75,140
5.30% 14 Nov 1996 # 421,000 412,825
------------
2,831,222
------------
FINANCE & BANKING - .90%
Society National Bank @
6.875% 15 Oct 1996 1,000,000 1,002,300
------------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $3,829,970) 3,833,522
------------
TOTAL INVESTMENTS - 99.13%
(Cost - $110,750,306) 110,213,325
------------
OTHER ASSETS AND LIABILITIES - .87% 971,167
------------
TOTAL NET ASSETS - 100% $111,184,492
============
<PAGE>
<CAPTION>
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
FIXED INCOME - 81.59% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED - 7.70%
First USA Credit Card Master Trust
5.80% 15 Jun 1998 $ 500,000 $ 498,750
Orix Credit Alliance Owner Trust
6.05% 15 Jun 1999 410,814 410,296
Premier Auto Trust
7.20% 4 Oct 1999 1,000,000 1,014,060
Standard Credit Card Trust
9.375% 10 Jul 1997 2,000,000 2,060,000
------------
3,983,106
------------
COLLATERALIZED MORTGAGE OBLIGATION - 3.29%
Contimortgage Home Equity Loan
6.20% 15 May 2008 777,838 776,380
IMC Home Equity Loan Trust
6.61% 25 Aug 2010 927,359 925,620
------------
1,702,000
------------
GOVERNMENT SPONSORED - 25.02%
Federal Agricultural Mortgage Corp MTN
7.15% 15 Jul 1998 1,000,000 1,017,030
Federal Farm Credit Banks MTN
7.51% 13 Feb 1998 2,000,000 2,041,560
Federal Home Loan Mortgage Corp
6.035% 6 Nov 1998 2,750,000 2,731,080
Federal National Mortgage Assn MTN
5.27% 28 Jul 1998 4,000,000 3,927,480
6.72% 27 Apr 1998 730,000 734,227
SLM Student Loan Trust +
5.595% 25 Oct 2004 2,500,000 2,500,000
------------
12,951,377
------------
MUNICIPAL - 8.79%
Bossier LA Public Trust
6.50% 1 Aug 2011 1,830,000 1,797,353
Jacksonville FLA US Government Gtd Note
8.40% 1 Aug 1997 1,700,000 1,768,493
Ventura County CA Pension Obligation
5.74% 1 Nov 1998 1,000,000 984,700
------------
4,550,546
------------
U.S. TREASURY - 36.79%
United States Treasury Notes
5.00% 15 Feb 1999 1,200,000 1,164,192
5.125% 30 Jun 1998 1,300,000 1,275,833
5.125% 31 Dec 1998 1,625,000 1,584,115
5.50% 31 Jul 1997 1,100,000 1,095,875
5.50% 15 Nov 1998 1,000,000 984,220
5.625% 31 Aug 1997 1,000,000 996,870
5.875% 15 Aug 1998 1,500,000 1,490,865
<PAGE>
<CAPTION>
PREFERRED S.T. GOV'T. SEC. FUND (continued)
- --------------------------------------------------------------------------------
FIXED INCOME PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY (continued)
6.00% 30 Nov 1997 $2,000,000 $2,000,320
6.125% 15 May 1998 1,250,000 1,250,000
6.50% 15 Aug 1997 2,250,000 2,264,760
6.875% 31 Aug 1999 1,500,000 1,521,330
8.50% 15 Jul 1997 1,000,000 1,026,090
8.875% 15 Nov 1997 2,300,000 2,385,881
------------
19,040,351
------------
TOTAL FIXED INCOME
(Cost - $42,499,414) 42,227,380
------------
<CAPTION>
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 10.90% PAR/SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT SPONSORED - .49%
Twelve Fed Land Banks @
7.95% 21 Oct 1996 $ 250,000 251,717
------------
MUNICIPAL - 3.85%
Sacramento CA Utility District Electric @
5.25% 15 Nov 1996 2,000,000 1,995,156
------------
SHORT TERM INVESTMENT FUND - 1.21%
Seven Seas Money Market Fund 624,119 624,119
------------
U.S. TREASURY - 5.35%
United States Treasury Notes
6.375% 30 Jun 1997 $1,000,000 1,005,470
6.50% 15 May 1997 750,000 754,808
7.50% 31 Dec 1996 1,000,000 1,009,690
------------
2,769,968
------------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $5,639,771) 5,640,960
------------
TOTAL INVESTMENTS - 92.49%
(Cost - $48,139,185) 47,868,340
------------
OTHER ASSETS AND LIABILITIES - 7.51% 3,886,977
------------
TOTAL NET ASSETS - 100% $51,755,317
============
<PAGE>
<CAPTION>
PREFERRED MONEY MARKET FUND
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 100.20% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATES OF DEPOSIT - 36.47%
Bank of Montreal (Chicago)
5.30% 2 Jul 1996 $3,000,000 $3,000,000
Bank of New York @
5.55% 1 Apr 1997 1,000,000 999,477
Banque Natl de Paris Yankee CD
5.38% 7 Aug 1996 3,000,000 3,000,000
Bayerische Vereinsbank AG NY
5.32% 23 Jul 1996 4,000,000 4,000,000
Canadian Imperial
5.41% 26 Aug 1996 3,000,000 3,000,000
NBD Bank Detroit MTN
5.48% 12 Sep 1996 3,000,000 3,000,000
National Australia Bank @
5.75% 2 Oct 1996 1,000,000 999,683
National Westminster Bank @
5.40% 20 Aug 1996 3,000,000 3,000,041
Royal Bank of Canada @
5.81% 13 May 1997 4,000,000 3,999,668
Sanwa Bank Ltd @
5.50% 15 Jul 1996 5,000,000 5,000,104
Societe Generale New York @
5.35% 8 Jul 1996 3,000,000 3,000,012
------------
32,998,985
------------
COMMERCIAL PAPER - 46.06%
AIG Funding @
5.33% 16 Jul 1996 4,027,000 4,018,057
Bell Atlantic Network Funding @
5.34% 8 Jul 1996 4,000,000 3,995,847
Chevron Oil Finance Co @
5.27% 9 Jul 1996 4,000,000 3,995,316
Ford Motor Credit Co @
5.34% 16 Jul 1996 3,000,000 2,993,325
General Electric Capital Corp @
5.37% 10 Jul 1996 3,500,000 3,495,301
McGraw Hill Inc @
4.90% 1 Aug 1996 3,500,000 3,485,232
National Australia Funding @
5.36% 25 Jul 1996 1,000,000 996,427
Paccar Financial Corp @
5.30% 16 Jul 1996 3,250,000 3,242,850
Pepsico Inc @
5.35% 12 Aug 1996 4,000,000 3,975,033
Seagram Joseph E & Sons Inc @
5.40% 30 Jul 1996 4,000,000 3,982,600
Southern Company @
5.40% 2 Jul 1996 3,500,000 3,499,475
UBS Finance Delaware Inc
5.55% 1 Jul 1996 4,000,000 4,000,000
------------
41,679,463
------------
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS - 1.11%
Coamerica Bank Detroit Mich MTN @
5.70% 3 Sep 1996 $1,000,000 $999,882
------------
U.S. GOVERNMENT AGENCY - 16.28%
Federal Home Loan Mortgage Loan Disc Notes
5.28% 22 Jul 1996 @ 2,500,000 2,492,300
5.52% 1 Jul 1996 4,750,000 4,750,000
Federal National Mortgage Assn MTN @
5.30% 26 Dec 1996 2,500,000 2,497,422
5.55% 11 Jun 1997 4,000,000 3,997,071
5.60% 1 Nov 1996 1,000,000 999,452
------------
14,736,245
------------
U.S. TREASURY - .28%
United States Treasury Bills
4.95% 25 Jul 1996 @ 252,000 251,169
------------
TOTAL SHORT TERM OBLIGATIONS
(Cost - $90,665,744) 90,665,744
------------
TOTAL INVESTMENTS - 100.20%
(Cost - $90,665,744) 90,665,744
------------
OTHER ASSETS AND LIABILITIES - (.20%) (183,309)
------------
TOTAL NET ASSETS - 100% $90,482,435
============
<FN>
NOTES TO SCHEDULES OF INVESTMENTS
* Non-income producing security.
** This security was 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, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At June 30, 1996, these securities
amounted to $4,468,582 or 1.09% of the net assets of the Growth Fund
and $8,865,742 or 7.97% of the net assets of the Fixed Income Fund.
# All or a portion of this security is being used to collateralize
delayed delivery securities settling after June 30, 1996 or futures
contracts outstanding at June 30, 1996.
+ Variable rate coupon. The stated rate represents the rate at
June 30, 1996.
@ Yields are at time of purchase.
ABBREVIATIONS:
ADR - American Depository Receipt
MTN - Medium Term Notes
REMIC - Real Estate Mortgage Investment Conduit
</FN>
</TABLE>
<PAGE>
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 above-average earnings growth.
PREFERRED VALUE FUND ("Value") - seeks capital appreciation and current
income. The Fund invests primarily in equity securities 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") (commenced operations on 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 money market instruments.
PREFERRED BALANCED FUND ("Balanced") (commenced operations on July 1,
1995) - seeks total return through a combination of capital appreciation
and current income. The Fund allocates its assets among stocks, bonds and
money market 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.
<PAGE>
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, 1996, approximate capital loss carry-forwards available (to
the extent provided in federal income tax regulations) to offset future
realized gains were as follows:
YEAR OF CAPITAL LOSS
FUND EXPIRATION CARRYFORWARD
Short-Term Government 2003 $418,000
Short-Term Government 2004 $303,000
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 were 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 of 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.
<PAGE>
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 Short-Term Government and Money Market) 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
settled. 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 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. Losses may arise from the changes in the
value of the underlying instrument, the illiquidity of the secondary
market for the contracts, or the failure of counterparties to perform
under the contract terms. See Note 4 for all open futures contracts held
as of June 30, 1996.
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 Fund identifies
securities as segregated in its custodial records with a value at least
equal to the amount of the purchase commitment.
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.
<PAGE>
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.
INDUSTRY CONCENTRATIONS
While none of the Funds are permitted to invest more than 25% of its
assets in a particular industry (other than the Money Market Fund, which
may concentrate in the domestic banking industry), each fund may, from
time to time, "focus" its investments (generally considered to include
investing more than 10% of its assets) in certain industries. This may
subject a Fund to greater risk than funds that are not so focused.
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.
<PAGE>
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:
ANNUAL PERCENTAGE OF
FUND AVERAGE NET ASSETS
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%***
* Effective November 1, 1995 and until further notice, the Manager has
voluntarily undertaken to waive its fee in excess of 0.40% from November
1, 1995.
** Effective July 1, 1995 and until further notice, the Manager has
voluntarily undertaken to waive a portion of its fee to the extent
necessary to ensure that expenses of such Fund do not exceed 1.15% of
average net assets..
*** The Manager had voluntarily undertaken to waive its fee in excess of
0.15% from January 1, 1993 - October 31, 1995.
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 fiscal year ended June 30, 1996, brokerage commissions were paid
to the following affiliates of the Trust's subadvisors by the following
funds:
<TABLE>
<CAPTION>
GROWTH VALUE BALANCED
<S> <C> <C> <C>
J.P. Morgan Securities, Inc. $ 4,115 - $ 86
Lehman Bros. 49,378 $ 6,072 165
Oppenheimer & Co., Inc 584 5,650 52
Prudential Securities, Inc. - 6,600 -
------- ------- ----
$54,077 $18,322 $303
======= ======= ====
TRUSTEES' FEES
In 1995, the Trustees who were not "interested persons" of The Preferred
Group, as defined in the Investment Company Act of 1940, as amended,
received an annual fee of $6,000 plus $1,000 for each Trustees' meeting
attended. Effective July 1, 1996, such Trustees will receive an annual fee
of $10,000 plus $1,500 for each Trustees' meeting attended.
</TABLE>
<PAGE>
3. BENEFICIAL INTEREST
As of June 30, 1996, shareholders holding more than 5% of total shares
outstanding are as follows:
<TABLE>
<CAPTION>
% OF TOTAL SHARES OUTSTANDING
GROUP CATERPILLAR PREFERRED STABLE AMERICAN
INSURANCE INSURANCE INVESTMENT PRINCIPAL BANKER'S
401(K) PLAN* TRUST A & B** RESERVES*** MGMT. LTD. COLLECTIVE TRUST INSURANCE CO.
<S> <C> <C> <C> <C> <C> <C>
Growth 43.98% 8.45% 8.82% - - -
Value 59.41% 14.18% 14.16% - - -
International 49.93% 30.15% 6.32% - - -
Small Cap 35.22% 62.93% - - -
Asset Allocation 42.99% 36.53% - - - -
Balanced - - 80.08% - -
Fixed Income 19.22% 29.13% - - 40.81% -
Short-Term Government 24.74% 34.03% - - - 36.98%
Money Market 73.70% - - - 16.81% -
<FN>
* 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.
</FN>
</TABLE>
<PAGE>
4. PORTFOLIO INFORMATION
SECURITY PURCHASES AND SALES
During the fiscal year ended June 30, 1996 (eight-month period ended June
30, 1996 for Small Cap), purchases and sales of long term investments
(other than short term obligations 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 $ 305,435,051 $ 326,397,935 - -
Value 44,414,693 37,621,897 - -
International 45,191,367 25,162,596 - -
Small Cap 65,187,865 23,442,528 - -
Asset Allocation 3,903,543 7,937,410 $ 34,825,480 $ 20,662,988
Balanced 2,884,874 1,279,112 1,657,236 137,809
Fixed Income 149,058,443 88,875,250 187,849,746 191,672,855
Short-Term Government 26,899,231 7,255,203 25,983,556 29,356,172
</TABLE>
<PAGE>
<TABLE>
During the fiscal year ended June 30, 1996, Money Market had purchases and
sales (including maturities and excluding repurchase agreements) of other
short term obligations and U.S. Government securities of:
<CAPTION>
OTHER U.S. GOVERNMENT
PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C>
Money Market $ 2,165,670,205 $ 2,147,222,148 $ 48,346,458 $ 56,224,355
FUTURES CONTRACTS
Asset Allocation and Fixed Income had the following futures contracts open at June 30, 1996:
<CAPTION>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS CONTRACTS DATE GAIN (LOSS)
<S> <C> <C> <C>
ASSET ALLOCATION:
Long Positions:
S&P 500 22 Sept 96 $285,850
S&P 500 12 Dec 96 (125)
U.S. Treasury Bonds 23 Sept 96 24,254
--------
309,979
Short Positions:
S&P 500 9 Sept 96 (22,572)
--------
$287,407
========
FIXED INCOME:
Long Positions:
U.S. Treasury Notes 10 Sept 96 $13,675
========
UNREALIZED APPRECIATION (DEPRECIATION)
Unrealized appreciation (depreciation) for each Fund at June 30, 1996
based on cost of both long term and short term securities for federal tax
purposes were as follows:
<CAPTION>
NET UNREALIZED COST FOR
GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/ FEDERAL TAX
FUND APPRECIATION (DEPRECIATION) (DEPRECIATION) PURPOSES
<S> <C> <C> <C> <C>
$115,710,215 ($9,222,017) $ 106,488,198 $ 299,110,929
Value 88,021,170 (4,101,497) 83,919,673 181,565,161
International 27,532,327 (4,191,797) 23,340,530 132,624,392
Small Cap 4,887,891 (2,288,501) 2,599,390 43,145,200
Asset Allocation 15,340,860 (1,475,188) 13,865,672 82,013,625
Balanced 262,889 (74,071) 188,818 3,844,177
Fixed Income 625,040 (1,173,128) (548,088) 110,761,413
Short-Term Government 71,700 (342,545) (270,845) 48,139,185
Money Market - - - 90,665,744
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF THE PREFERRED GROUP OF MUTUAL FUNDS:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of each of the nine
Funds constituting The Preferred Group of Mutual Funds (the "Trust") at June
30, 1996, the results of each of their operations, the changes in each of
their net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1996 by correspondence with the
custodian and brokers, and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
August 20, 1996
<PAGE>
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>
GRAPHIC: THE PREFERRED GROUP
OF MUTUAL FUNDS (R)
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
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.
1-800-662-GROW
<PAGE>
GRAPHIC: THE PREFERRED GROUP
OF MUTUAL FUNDS (R)
P.O.BOX 8320
BOSTON, MA 02266-8320
ANNUAL REPORT
JUNE 30, 1996
BULK RATE
U.S. POSTAGE
PAID
BERWYN, IL
PERMIT NO. 150
