Building Financial Bridges
Logo: The Preferred Group of Mutual Funds
Annual Report
June 30, 1999
<PAGE>
Performance Data .......................................................... 1
Our Message to You ........................................................ 2
Funds & Investment Objectives ............................................. 4
Performance Information & Benchmarks ...................................... 5
Investment Review ......................................................... 6
Statements of Assets & Liabilities ........................................ 22
Statements of Operations .................................................. 24
Statements of Changes in Net Assets ....................................... 26
Financial Highlights ...................................................... 30
Schedules of Investments .................................................. 34
Notes to Financial Statements ............................................. 54
Report of Independent Accountants ......................................... 62
Shareholder Privileges .................................................... 65
<PAGE>
The Preferred Group of Mutual Funds
Performance Data
<TABLE>
<CAPTION>
YEAR ENDED 6/30/99
BEGINNING ENDING TOTAL CURRENT INCOME CAPITAL GAINS
FUND NAME NAV NAV RETURN* YIELD + DIVIDENDS DISTRIBUTIONS
(PER SHARE) (PER SHARE) (PER SHARE) (PER SHARE)
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Growth $21.97 $22.88 30.56% - - $4.96
===============================================================================================================
Value 26.49 26.80 6.59 - $.26 1.05
===============================================================================================================
International 16.18 16.63 7.21 - .17 .47
===============================================================================================================
Small Cap 15.59 12.05 (19.07) - .02 .57
===============================================================================================================
Asset Allocation 15.65 16.81 17.19 - .46 1.02
===============================================================================================================
Fixed Income 10.42 9.76 1.07 6.19% .59 .19
===============================================================================================================
S.T. Gov't. Securities 9.77 9.61 3.27 5.36 .47 -
===============================================================================================================
Money Market++ 1.00 1.00 4.89 4.56 .05 -
===============================================================================================================
* TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
+ THE YIELD SHOWN FOR THE FIXED INCOME AND SHORT-TERM GOVERNMENT SECURITIES
FUNDS IS THE 30-DAY CURRENT YIELD AS OF 6/30/99. THE YIELD SHOWN FOR THE
MONEY MARKET FUND IS THE SEVEN-DAY CURRENT YIELD AS OF 6/30/99, IN
ACCORDANCE WITH SECURITIES AND EXCHANGE COMMISSION RULES FOR REPORTING
YIELDS OF MONEY MARKET FUNDS.
++ AN INVESTMENT IN THE MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. THE
SEVEN-DAY CURRENT YIELD FOR THE MONEY MARKET FUND MORE CLOSELY REFLECTS THE
CURRENT EARNINGS OF THE FUND THAN DOES THE TOTAL RETURN QUOTATION.
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.
</TABLE>
<PAGE>
June 30, 1999
Our Message To You
Photo of: David L. Bomberger
PRESIDENT
Dear Fellow Preferred Group Shareholder:
I am pleased to present you with The Preferred Group's annual report for the
twelve months ended June 30, 1999. This report provides detailed information on
your Funds including fund holdings, financial and performance data, and
commentary from each of the portfolio managers.
I am especially pleased because this is the first time I have signed off on the
annual report. Before joining Caterpillar Investment Management Ltd. on June 14,
1999, I spent over 20 years in the financial services industry in investment and
financial management positions, including nearly 10 years as a chief investment
officer.
Market Commentary
During the past year, the Dow Jones Industrial Average, the S&P 500 and the
Nasdaq Composite indexes all set new records. But the trip from the beginning to
the end of the fiscal year was anything but uneventful.
In the third quarter of 1998, people were beginning to say "bear market" out
loud. The Dow Jones Industrial Average hit a six-month low of 7,165 on September
10. Then the Federal Reserve responded to the growing global financial crisis by
lowering interest rates to restore liquidity to the financial markets. A small
group of large U.S. stocks began posting strong returns.
These large caps dominated the first quarter of 1999. The major indexes hit new
records, but all of the gains were concentrated in a handful of companies. Then,
in the second quarter of 1999, the market began to broaden. Big technology and
Internet shares faltered as investors showed renewed interest in cyclical
issues. The Russell 2000--a widely accepted measure of small cap
stocks--outperformed the S&P, with the Russell gaining 15.55% vs. 6.95% for the
S&P 500 during the quarter.
International stocks were also volatile during the past year. The Russian debt
default, plus financial turmoil in Asia and Latin America, slashed returns
during the third quarter of 1998, but certain foreign stocks showed signs of a
recovery by early 1999. The EAFE Index gained 7.92% for the 12-month period.
In October, yields on long-term Treasury Bonds fell below 5% for the first time
since 1967. But by the second quarter of 1999, government bond prices were
clearly on the decline. Yields on 30-year Treasury Bonds exceeded 6% as
investors looked at strong economic growth and worried about the potential for a
return of inflation. The Salomon Bros. BIG Index--a common benchmark for
investment grade bonds--was up 3.12% for the 12-month period.
Planning for What's Next
Stocks, especially large stocks, have had a strong five years, far outpacing the
historical 10-11% average annual return of the stock market. Some commentators
contend the metabolism of the market has been reset; that people can expect this
kind of outperformance into the future. However, it is realistic, not
pessimistic, to expect a correction in valuations, or at least a return to
historic averages.
2
<PAGE>
The Preferred Group of Mutual Funds Our Message To You
The best way to plan for the future? Take the long-term approach. Diversify your
portfolio; avoid locking yourself into the gains and losses of a single mutual
fund. Then on a regular basis, review your portfolio and rebalance your
investments. By taking the long-term approach, and ignoring the short-term ups
and downs of the market, you'll help to grow your assets with a minimum of
fuss--and sleep a lot easier.
In keeping with our long-term approach, during the past year, we insisted that a
number of market timers leave our fund group. These active traders operated at
the expense of our long-term shareholders and in conflict with our investment
philosophy.
Diversification is simple with The Preferred Group of Mutual Funds. Each fund in
the Preferred Group is an example of "truth in labeling," to help you make smart
asset allocation choices. When you invest in the Value Fund, for instance, you
get a value fund, not a disguised growth fund.
Preferred Funds as a whole have remarkably little overlap. At the end of the
second quarter of 1999 (June 30, 1999), for example, the Value and Growth funds
held only four stocks in common. This lack of overlap allows you to put together
a well-diversified portfolio and avoid the opposite: a highly concentrated
portfolio with more risk than you may have planned on.
A New Year Ahead
Funny thing about the term "Y2K": So many people are worried about the turn of
the century, they've almost forgotten the fact that a new century will follow.
We believe that it's an exciting time to be alive--and a challenging (and
hopefully rewarding) time to be an investor.
Caterpillar Investment Management Ltd. ("CIML"), a wholly owned subsidiary of
Caterpillar Inc., is working on coordinating Year 2000 efforts on behalf of the
Preferred Group and has implemented the necessary changes. CIML is also actively
working with third party vendors on Year 2000 compliance efforts as they impact
the Preferred Group. In short, CIML is responsible for identifying, evaluating
and implementing changes necessary to achieve Year 2000 readiness with the goal
of having no disruption of business operations or effect on our clients.
As our client, you are the person we must satisfy--today, tomorrow and into the
next millennium. So, how are we doing? Please call Investor Services at
1-800-662-4769 with your suggestions and comments.
Sincerely,
/s/ David L. Bomberger, CFA
David L. Bomberger, CFA
3
<PAGE>
Funds & Investment Objectives June 30, 1999
Preferred Growth Fund
Seeks long-term capital appreciation. The Fund invests primarily in equity
securities believed to offer the potential for capital appreciation, including
stocks of companies experiencing above-average earnings growth.
Preferred Value Fund
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
Seeks long-term capital appreciation by investing primarily in equity securities
traded principally on markets outside the United States.
Preferred Small Cap Fund
Seeks long-term capital appreciation through investments in companies with small
equity capitalizations.
Preferred Asset Allocation Fund
Seeks both capital appreciation and current income by allocating its assets
among stocks, bonds and high quality money market instruments.
Preferred Fixed Income Fund
Seeks a high level of current income consistent with investment in a diversified
portfolio of high quality debt securities.
Preferred Short-Term Government Securities Fund
Seeks high current income consistent with preservation of capital, primarily
through investment in U.S. Government Securities.
Preferred Money Market Fund
Seeks the maximum current income believed to be consistent with preservation of
capital and maintenance of liquidity by investing in short-term, fixed income
instruments.
4
<PAGE>
The Preferred Group of Mutual Funds Performance Information
Historical performance:
Historical performance can be evaluated in several ways. At the end of each
Fund's DISCUSSION & ANALYSIS section, we have provided a look at the total
percentage change in value, the average annual percentage change and the
growth of a hypothetical $10,000 investment. A 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, five years and 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, 1999. 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, 1999, 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, a 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 Asset Allocation Fund
65% - S&P 500 Index
30% - Lehman Brothers Long-Term Treasury Index
5% - 90-Day Treasury Bills
- --------------------------------------------------------------------------------
Preferred Fixed Income Fund
Salomon Brothers Broad Investment Grade (BIG) Index
- --------------------------------------------------------------------------------
Preferred Short-Term Government Securities Fund
Merrill Lynch 1-3 Year Treasury Index
- --------------------------------------------------------------------------------
Preferred Money Market Fund
IBC's Money Fund Report Average/All Taxable
- --------------------------------------------------------------------------------
5
<PAGE>
Investment Review June 30, 1999
Preferred Growth Fund
Investment Objective:
The Preferred Growth Fund seeks long-term capital appreciation. The Fund
invests primarily in equity securities believed to offer the potential for
capital appreciation, including stocks of companies experiencing
above-average earnings growth.
Portfolio Manager Profile:
Portfolio Manager: Kathleen A. McCarragher
- --------------------------------------------------------------------------------
Title: Director, Executive Vice President and Domestic Equity Investment
Strategist
- --------------------------------------------------------------------------------
Last Five Years' Experience: Managing Director and Director of Large Cap Growth
Equities at Weiss, Peck & Greer before joining Jennison in May 1998. Kathleen
assumed management of the Preferred Growth Fund in April 1999.
- --------------------------------------------------------------------------------
Education: B.B.A. in Finance -- University of Wisconsin; M.B.A. -- Harvard
Business School
- --------------------------------------------------------------------------------
Note: Robert B. Corman, CFA, CPA, managed the Preferred Growth Fund through May
1999.
Discussion & Analysis:
For the fiscal year ended June 30, 1999, the Preferred Growth Fund returned
30.56%, compared with a gain of 22.73% for the S&P 500 Index. Since
inception, the Fund has returned an average 23.19% per annum versus 21.61%
for the benchmark.
The last 12 months have been some of the most volatile for financial
markets in recent memory. From a high of nearly 1200 in July 1998, the S&P
500 declined to almost 900 by early October, the result of liquidation
pressures from over-leveraged investors around the world following Russia's
default. All markets were affected. At the same time, long-term U.S.
Government bond yields declined as investors sold stocks and lower quality
bonds in a flight to safety. The U.S. Federal Reserve responded with three
rapid interest rate reductions during the fourth quarter and liquidity was
restored to the markets. In late 1998, expectations of a U.S. recession
were high; however, economic growth continued through the fiscal year. At
the same time, inflation remained at low levels. At the end of the year,
the Federal Reserve raised the short-term interest rate by .25% to keep
inflation at bay.
Despite the market's volatility during the year, the Fund continued to
grow. Communication services and technology drove portfolio performance as
companies and individuals continued buying computers and related equipment.
Companies that benefited included MCI Worldcom, Texas Instruments, Cisco
Systems, International Business Machines, Microsoft, Applied Materials
(2.2% of net assets) and Nokia (1.5%). In the financial sector, the Charles
Schwab Corporation (1.2%) added to performance as individual investors
flocked to invest online.
On the down side, Ciena Corp., 3Com Corp., Platinum Technology
International, Inc. and Parametric Technology Corp. subtracted from
portfolio performance and were eliminated from the portfolio. Other stocks
sold from the portfolio included HBO and Co. (now McKesson HBOC, Inc.),
Merrill Lynch & Co., Inc., Monsanto Company, The Gillette Company,
Schlumberger Limited and Healthsouth Corp. The health care sector was hurt
by the rise in interest rates and concern over legislation that might
affect drug prices. Consumer sectors were mixed with select dominant
retailers performing well.
Looking forward, we believe the increase in stock prices and interest rates
during the past year may lead to some market volatility. However, with our
6
<PAGE>
continued expectations for good corporate profits, and with real interest
rates at historically high levels, we remain optimistic that the markets
rest on a firm foundation.
- JENNISON ASSOCIATES
Top Ten Holdings: (% of total net assets)
- --------------------------------------------------------------------------------
1. MCI Worldcom Inc. 4.3%
- --------------------------------------------------------------------------------
2. Microsoft Corp. 4.2%
- --------------------------------------------------------------------------------
3. Cisco Systems Inc. 3.8%
- --------------------------------------------------------------------------------
4. Texas Instruments Inc. 3.6%
- --------------------------------------------------------------------------------
5. Citigroup Inc. 3.4%
- --------------------------------------------------------------------------------
6. CBS Corp. 3.3%
- --------------------------------------------------------------------------------
7. International Business Machines 3.2%
- --------------------------------------------------------------------------------
8. General Electric Co. 3.2%
- --------------------------------------------------------------------------------
9. Chase Manhattan Corp. 2.9%
- --------------------------------------------------------------------------------
10. Home Depot Inc. 2.7%
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 comprises 500 of the
leading U.S. companies representing major industries.
THE FUND MAY BE MORE CONCENTRATED AND SUBJECT TO GREATER RISK THAN OTHER COMMON
STOCK MUTUAL FUNDS HAVING A GREATER NUMBER OF HOLDINGS.
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 ten-year
performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST PAST PAST SINCE
6 MONTHS 1 YEAR 5 YEARS INCEPTION*
Preferred
Growth Fund 15.79% 30.56% 245.59% 330.88%
S&P 500 Index 12.24% 22.73% 241.69% 293.31%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 5 YEARS INCEPTION*
Preferred
Growth Fund 30.56% 28.15% 23.19%
S&P 500 Index 22.73% 27.86% 21.61%
* JULY 1, 1992
Line Chart:
A $10,000 Investment Since Inception:
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
12/31/96 20868 20429
6/30/97 27732 24612
12/31/97 27385 27218
6/30/98 33003 32046
12/31/99 37129 35043
6/30/99 43088 39331
7
<PAGE>
Investment Review June 30, 1999
Preferred Value Fund
Investment Objective:
The Preferred Value Fund 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.
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., M.B.A. -- University of Santa Clara
Discussion & Analysis:
For the year ended June 30, 1999, the Preferred Value Fund gained 6.59%,
trailing the 22.73% gain in the benchmark S&P 500 Index. Since inception,
the Fund has provided an average annual total return of 18.47%, compared
with 21.61% for the Index.
The S&P was driven primarily by a limited group of technology and growth
issues during the past year. Some of these issues reached price-earnings
ratios of 60 or more, making them vulnerable, in our view, to sizable price
declines. Although the Fund's performance suffered in the short run by
avoiding these stocks, we believe the Fund is well positioned to generate
favorable returns over time.
Stocks that contributed most to the Fund's performance included Citigroup,
our largest position, Sprint and Intel. Citigroup exemplifies our long-term
philosophy. This global financial services company was created in October
1998 through the merger of Citicorp, a leading bank, and Travelers, an
insurance and investment services firm. We believe the merger provides
significant opportunities for cost savings. In addition, while many banks
incurred large overseas losses last year due to global economic turmoil,
Citigroup suffered relatively smaller losses because it participates in the
least risky parts of international banking. The company's earnings have
rebounded strongly in 1999, fueling a sharp rise in the stock price.
Stocks that hurt the Fund's performance included Monsanto (2.6% of net
assets) and Dole Food (1.4%). In Monsanto's case, fears of a European
boycott of biologically altered foods caused the company's stock price to
decline last autumn, even though little of the company's sales came from
Europe. Fund performance was also dampened by holdings of insurance
companies, banks and other financial stocks, which together represent
approximately 37% of net assets. Countrywide Credit Industries (2.6%) and
Ace Ltd. (2.6%) were among declining issues due to investor fears that
rising interest rates might hurt earnings. In addition, the stock price of
Federal Home Loan Mortgage Corp., the Fund's second largest holding, was
down 10% in the last six months of the year, though earnings remain on
track to grow approximately 20% during 1999.
We believe in the intrinsic value of companies as measured by cash flow,
earnings, strength of balance sheet, competitive strengths and other
factors. We also think our long-term perspective and emphasis on buying
businesses believed to be undervalued may provide an advantage in a market
that is often driven by fads and short-term thinking.
- OPPENHEIMER CAPITAL
8
<PAGE>
The Preferred Group of Mutual Funds Investment Review
Top Ten Holdings: (% of total net assets)
- --------------------------------------------------------------------------------
1. Citigroup Inc. 8.3%
- --------------------------------------------------------------------------------
2. Federal Home Loan Mortgage Corp. 4.8%
- --------------------------------------------------------------------------------
3. Sprint Corp. 4.2%
- --------------------------------------------------------------------------------
4. Wells Fargo & Co. 4.0%
- --------------------------------------------------------------------------------
5. Intel Corp. 3.8%
- --------------------------------------------------------------------------------
6. Aflac Inc. 3.7%
- --------------------------------------------------------------------------------
7. Avon Products Inc. 3.6%
- --------------------------------------------------------------------------------
8. Morgan Stanley Dean Witter & Co. 3.2%
- --------------------------------------------------------------------------------
9. XL Capital Ltd. 3.2%
- --------------------------------------------------------------------------------
10. Carnival Corp. 3.0%
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 comprises 500 of the
leading U.S. companies representing major industries.
THE FUND MAY BE MORE CONCENTRATED AND SUBJECT TO GREATER RISK THAN OTHER COMMON
STOCK MUTUAL FUNDS HAVING A GREATER NUMBER OF HOLDINGS.
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 ten-year
performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST PAST PAST SINCE
6 MONTHS 1 YEAR 5 YEARS INCEPTION*
Preferred
Value Fund 8.02% 6.59% 179.87% 227.65%
S&P 500 Index 12.24% 22.73% 241.69% 293.31%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 5 YEARS INCEPTION*
Preferred 6.59% 22.86% 18.47%
Value Fund
S&P 500 Index 22.73% 27.86% 21.61%
* JULY 1, 1992
Line Chart:
A $10,000 Investment Since Inception:
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
12/31/96 20712 20429
6/30/97 24612 24298
12/31/97 27218 26515
6/30/98 30740 32046
12/31/98 30311 35043
6/30/99 32765 39331
9
<PAGE>
Investment Review June 30, 1999
Preferred International Fund
Investment Objective:
The Preferred International Fund seeks long-term capital appreciation by
investing primarily in equity securities traded principally on markets
outside the United States.
Portfolio Manager Profile:
Portfolio Manager: Peter F. Spano, CFA
- --------------------------------------------------------------------------------
Title: President, PXS Corp., General Partner, 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: B.B.A. -- St. John's University; M.B.A. -- Baruch College (City
University of New York); Chartered Financial Analyst
Discussion & Analysis:
The Preferred International Fund advanced 7.21% for the fiscal year,
trailing the EAFE Index, which rose 7.92%. Since inception, the Fund has
returned 11.04% on an average annual basis versus 11.41% for its benchmark.
It was a volatile year for foreign stocks. Investors faced a global economy
that was slowing and in danger of falling into recession. The Index was
driven by the very strong performance of growth stocks; telecommunications
and pharmaceuticals were exceptional. However, as value managers, we were
underweight in these richly priced sectors and more exposed to economically
sensitive stocks that lagged.
Two 1998 events -- the Russian debt default/currency devaluation and the
Long-Term Capital Management implosion -- triggered a global financial
panic that was followed by a very strong rally in most of the world's stock
markets. Later on, the euro -- the combination of the currencies of 11
European nations -- was introduced and to date has proved weaker than
expected. Oil prices rose from very depressed levels and interest rates
climbed. On the positive front, inflation remains subdued, interest rates
are low and consumer confidence continues to rise. Asia has rebounded,
Japan appears to be bottoming and Europe is improving. The outlook for
corporate earnings has improved and is expected to be better in 2000.
We eliminated stocks such as Nissan Motor (Japan), the Coats Viyella (UK)
and Lion Nathan (New Zealand) where the fundamentals had deteriorated
and/or their prices were too high. We reduced the weighting of several
issues on price run-ups. New stocks added to the portfolio, all with
excellent fundamentals and very attractively priced, included Germany's
Adidas-Salomon (2.0% of net assets), United Kingdom's British Airways
(1.7%) and Japan's Oriental Land (1.9%), the operator of Disneyland Tokyo.
We also increased a number of existing positions where prices had come
down, including Matsushita Electric (2.1%), Hitachi Ltd. and Sony, all
based in Japan. We continue to be heavily weighted in Europe and
underweight in the Asia/Pacific area, although we expect to have more
exposure to Asia later in the fiscal year.
Looking ahead, our expectations for Europe are more positive as both
economic growth and corporate earnings improve. Asian stock markets have
been strong and in many instances may be well ahead of the economic
fundamentals. We believe that the portfolio is very well positioned for the
future; however, investors should be prepared for periods of stock
volatility.
- MERCATOR ASSET MANAGEMENT(R), L.P.
10
<PAGE>
The Preferred Group of Mutual Funds Investment Review
Top Ten Holdings: (% of total net assets)
- --------------------------------------------------------------------------------
1. Bouygues France 3.6%
- --------------------------------------------------------------------------------
2. Electrolux AB Sweden 2.8%
- --------------------------------------------------------------------------------
3. Sony Corp. Japan 2.7%
- --------------------------------------------------------------------------------
4. Korea Electric Power South Korea 2.6%
- --------------------------------------------------------------------------------
5. Christian Dior France 2.6%
- --------------------------------------------------------------------------------
6. Rio Tinto United Kingdom 2.6%
- --------------------------------------------------------------------------------
7. National Westminster United Kingdom 2.3%
- --------------------------------------------------------------------------------
8. Hitachi Japan 2.3%
- --------------------------------------------------------------------------------
9. Allied Domecq PLC United Kingdom 2.2%
- --------------------------------------------------------------------------------
10. ING Groep NV Netherlands 2.2%
Geographic Allocation: (% of total net assets)
- --------------------------------------------------------------------------------
United Kingdom 17.0%
- --------------------------------------------------------------------------------
France 10.4%
- --------------------------------------------------------------------------------
Japan 9.0%
- --------------------------------------------------------------------------------
Switzerland 8.9%
- --------------------------------------------------------------------------------
Netherlands 7.8%
- --------------------------------------------------------------------------------
Australia 7.3%
- --------------------------------------------------------------------------------
Sweden 6.9%
- --------------------------------------------------------------------------------
Italy 5.9%
- --------------------------------------------------------------------------------
Spain 5.0%
- --------------------------------------------------------------------------------
Canada 3.7%
- --------------------------------------------------------------------------------
South Korea 3.6%
- --------------------------------------------------------------------------------
Germany 3.3%
- --------------------------------------------------------------------------------
New Zealand 1.6%
- --------------------------------------------------------------------------------
Finland 1.3%
- --------------------------------------------------------------------------------
Argentina 0.9%
- --------------------------------------------------------------------------------
Others 7.4%
- --------------------------------------------------------------------------------
Performance:
The following information illustrates the historical performance of the
Preferred International Fund compared with the Europe, Australasia & Far East
(EAFE) Index. The EAFE Index contains over 1000 stocks from 20 different
countries with Japan (approx. 24%), 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.)
THE FUND MAY BE MORE CONCENTRATED AND SUBJECT TO GREATER RISK THAN OTHER COMMON
STOCK MUTUAL FUNDS HAVING A GREATER NUMBER OF HOLDINGS.
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 ten-year performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST PAST PAST SINCE
6 MONTHS 1 YEAR 5 YEARS INCEPTION*
Preferred
International Fund 11.24% 7.21% 70.77% 108.15%
EAFE Index 4.11% 7.92% 50.48% 113.05%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 5 YEARS INCEPTION*
Preferred
International Fund 7.21% 11.30% 11.04%
EAFE Index 7.92% 8.52% 11.41%
* JULY 1, 1992
Line Chart:
A $10,000 Investment Since Inception:
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
12/31/96 15845 16664
6/30/97 18558 18114
12/31/97 17007 16918
6/30/98 19414 19742
12/31/98 18704 20464
6/30/99 20815 21305
11
<PAGE>
Investment Review June 30, 1999
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: Senior Portfolio Manager, Caterpillar Investment Management Ltd. (CIML)
- --------------------------------------------------------------------------------
Last Five Years' Experience: Portfolio Manager at CIML. Todd 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 lost 19.07% during the fiscal year, compared
to a 1.50% gain in the Russell 2000 benchmark. Since inception, the Fund
has provided an average annual return of 10.72% versus 14.13% for its
benchmark.
The past 12 months were extremely volatile. The roller coaster started last
August with the Russian debt moratorium and the bail-out of Long-Term
Capital, events which drove frightened investors away from stocks and into
the safety of more liquid U.S. Treasury securities. The Federal Reserve
responded by easing monetary policy, which finally restored a measure of
confidence to the markets in October 1998.
Investors returned to stocks with a tight focus on the Internet. Individual
day trading using online brokers became the hot topic. We questioned the
prudence of owning these types of securities at the time, only to see many
high-flying stocks continue their rise during the first quarter of 1999. It
took longer than we thought possible, but investors began questioning the
valuations of such stocks in April. The ensuing rally in cyclical stocks
broadened the market, which greatly benefited small caps and our portfolio.
In general, small cap stocks did very well during the last three months; in
fact, this was the first quarter since September 1997 that the Russell
2000, a small cap index, outperformed the large-cap S&P 500.
We have remained committed to our portfolio discipline through extremely
difficult times. That discipline combines the study of fundamental
valuation with a desire to pursue companies with increasing earnings. We
believe investment in successful, growing companies that trade at
reasonable earnings multiples will create good results over time.
Implementation of this strategy results in portfolios that routinely sport
price/earnings ratios half that of the Russell 2000 while still providing
nearly the same long-term earnings growth rate. Even with the recent
turnaround in the small cap market, we believe prices remain attractive
when compared to historical levels. We also believe the market is slowly
coming around to our point of view. And it is for this reason that we greet
the new fiscal year with optimism.
- CATERPILLAR INVESTMENT MANAGEMENT LTD.
12
<PAGE>
The Preferred Group of Mutual Funds Investment Review
- --------------------------------------------------------------------------------
Top Ten Holdings: (% of total net assets)
- --------------------------------------------------------------------------------
1. NVR Inc. 1.8%
- --------------------------------------------------------------------------------
2. URS Corp. 1.7%
- --------------------------------------------------------------------------------
3. Avis Rent A Car Inc. 1.7%
- --------------------------------------------------------------------------------
4. Fossil Inc. 1.5%
- --------------------------------------------------------------------------------
5. D.R. Horton Inc. 1.4%
- --------------------------------------------------------------------------------
6. Lone Star Industries Inc. 1.4%
- --------------------------------------------------------------------------------
7. Centex Construction Products Inc. 1.4%
- --------------------------------------------------------------------------------
8. RLI Corp. 1.3%
- --------------------------------------------------------------------------------
9. Investment Technology Group 1.3%
- --------------------------------------------------------------------------------
10. Arvin Industries Inc. 1.3%
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 2,000 smallest of the 3,000 largest U.S. domiciled
corporations, ranked by market capitalization.
SECURITIES OF SMALL-CAPITALIZATION COMPANIES OFTEN TRADE LESS FREQUENTLY AND IN
MORE LIMITED VOLUME, AND MAY BE SUBJECT TO GREATER VOLATILITY THAN SECURITIES OF
LARGER, MORE ESTABLISHED COMPANIES.
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 five-
and ten-year performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST PAST PAST SINCE
6 MONTHS 1 YEAR 3 YEARS INCEPTION*
Preferred
Small Cap Fund -8.30% -19.07% 28.88%+ 45.20%+
Russell 2000 Index 9.28% 1.50% 37.56% 62.37%
* NOVEMBER 1, 1995
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION OF THE MANAGEMENT FEE
(0.35%) HAD NOT BEEN WAIVED FOR THE PERIOD NOVEMBER 1, 1995 THROUGH OCTOBER
31, 1996.
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 3 YEARS INCEPTION*
Preferred -19.07% 8.82%+ 10.72%+
Small Cap Fund
Russell 2000 Index 1.50% 11.21% 14.13%
* NOVEMBER 1, 1995
+ TOTAL RETURN WOULD HAVE BEEN LOWER IF A PORTION OF THE MANAGEMENT FEE
(0.35%) HAD NOT BEEN WAIVED FOR THE PERIOD NOVEMBER 1, 1995 THROUGH OCTOBER
31, 1996.
Line Chart:
A $10,000 Investment Since Inception:
Preferred Small Cap Fund Russell 2000 Index
11/1/95 10000 10000
12/31/95 10506 10695
6/30/96 11267 11804
12/31/96 12653 12460
6/30/97 14534 13731
12/31/97 16629 15246
6/30/98 17942 15997
12/31/98 15797 14858
6/30/99 14520 16237
13
<PAGE>
Investment Review June 30, 1999
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 Managers Profiles:
Mellon Capital Management Corporation
Portfolio Manager: Thomas B. Hazuka
- --------------------------------------------------------------------------------
Title: Executive Vice President and Chief Investment Officer, 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; M.B.A. -- University of
Connecticut; Ph.D. -- Stanford University
PanAgora Asset Management
Portfolio Manager: Edgar E. Peters
- --------------------------------------------------------------------------------
Title: Director, Asset Allocation and Chief Investment Strategist, PanAgora
Asset Management, Inc.
- --------------------------------------------------------------------------------
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; M.B.A. -- Rutgers University
Discussion & Analysis:
The Preferred Asset Allocation Fund returned 17.19% for the fiscal year
ended June 30, 1999. 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 15.23%. Since inception, the
Fund has had an average annual return of 15.76% versus 17.08% for its
benchmark.
During the third quarter of 1998, the U.S. equity market suffered its
steepest decline since the third quarter of 1990. The stock market's sharp
sell-off reflected fears that the collapse of Russian financial assets and
the economic crisis in Asia could effect other economies and ultimately,
U.S. corporate profits. To help minimize the effects of the global
financial crisis on the U.S. economy, the Federal Reserve Board lowered the
Federal Funds rate.
Stocks rebounded powerfully during the fourth quarter of 1998, fueled by
two more rate cuts by the Federal Reserve. With the exception of the
manufacturing sector, the U.S. economy grew steadily throughout the period,
benefiting from low inflation as well as buoyant consumer confidence and
spending. Meanwhile the unemployment rate reached 28-year lows.
During the first quarter of 1999, the equity market grew and the bond
market retreated. Even the manufacturing sector, the one weak link among
GDP components, began to show credible signs of strength. Meanwhile,
inflation showed no signs of accelerating.
The U.S. economy continued growing during the final quarter of the fiscal
year, and for the second straight quarter, stocks rose and bonds fell.
During April, consumer prices posted their biggest monthly gain in nine
years, while gasoline prices rose sharply. The expectation that inflation
may have bottomed continued to hurt bond markets in the quarter.
The Fund made several adjustments throughout the fiscal year in response to
the relative valuations of the stock and bond markets.
- MELLON CAPITAL MANAGEMENT
- PANAGORA ASSET MANAGEMENT
14
<PAGE>
The Preferred Group of Mutual Funds Investment Review
Portfolio Allocation* (% of portfolio)
- --------------------------------------------------------------------------------
6/30/99 12/31/98 6/30/98
- --------------------------------------------------------------------------------
Stocks 44% 44% 41%
- --------------------------------------------------------------------------------
Bonds 34% 30% 22%
- --------------------------------------------------------------------------------
Short-Term 22% 26% 37%
(MATURITIES LESS THAN ONE YEAR)
* ALLOCATIONS DO NOT CONSIDER THE EFFECT OF FUTURES CONTRACTS. SEE NOTE 4 OF
THE NOTES TO THE FINANCIAL STATEMENTS FOR OPEN FUTURES CONTRACTS AT JUNE
30, 1999.
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 leading U.S. companies
representing 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 benchmark is a performance
calculation using recently issued 90-Day Treasury Bills.
The Asset Allocation Fund has a blended benchmark to reflect its flexibility to
invest in stocks, bonds and short-term investments.
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
ten-year performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST PAST PAST SINCE
6 MONTHS 1 YEAR 5 YEARS INCEPTION*
Preferred Asset
Allocation Fund 2.64% 17.19% 148.59% 178.72%
65/30/5 Benchmark 5.81% 15.23% 162.60% 201.53%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 5 YEARS INCEPTION*
Preferred Asset
Allocation Fund 17.19% 19.98% 15.76%
65/30/5 Benchmark 15.23% 21.30% 17.08%
* JULY 1, 1992
Line Chart:
A $10,000 Investment Since Inception:
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
12/31/96 17685 18021
6/30/97 19521 20789
12/31/97 21384 23054
6/31/98 23784 26167
12/31/98 27161 28497
6/30/99 27872 30153
15
<PAGE>
Investment Review June 30, 1999
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: Managing Director, J. P. Morgan Investment Management Inc.
- --------------------------------------------------------------------------------
Last Five Years' Experience: Portfolio Manager at J. P. Morgan Investment
Management. Paul has been involved in the management of the Preferred Fixed
Income Fund since January 1, 1994.
- --------------------------------------------------------------------------------
Education: B.S., B.S.E.E. -- University of Pennsylvania; Chartered Financial
Analyst
Discussion & Analysis:
The Preferred Fixed Income Fund returned 1.07% for the fiscal year ended
June 30, 1999, compared to a 3.12% return for the Salomon Brothers Broad
Investment Grade (BIG) Index benchmark. Since inception, the Fund's average
annual return is 6.54% versus 7.06% for the benchmark.
During the first half of the fiscal year, the Asian situation deepened into
a global financial and economic crisis. Led by the prompt and successive
easing moves by the U.S. Federal Reserve, central banks, governments and
supranational institutions around the world collectively responded to the
crisis, calming fears of an uncontrolled unwinding of financial positions.
By the end of December, investors returned to the markets. Concerns about
global financial and economic instability further receded during the second
half of the fiscal year, freeing the Fed to concentrate on domestic price
stability. The yield curve shifted upward and interest rate volatility
increased as expectations of a preemptive tightening by the Fed filtered
into the bond market. On the last day of June, the Fed announced a .25%
increase in the short-term interest rate and a return to a neutral policy
bias, causing a significant "relief rally" at the end of that day's trading
session.
We maintained a long-duration position in the first half of the period.
U.S. Treasuries enhanced performance during the third quarter of 1998. The
Fund was underweight in residential mortgages in the beginning of the
period, which contributed positively to performance. However, the Fund
later became broadly overweight in spread sectors. Interest rates rose
through much of the second half of the fiscal year in anticipation of a Fed
tightening, negatively affecting Fund performance. Toward the end of the
year, mortgages traded to longer durations and underperformed other sectors
due to the accelerating Treasury market sell-off.
We expect global recovery to continue. While we do not expect a sharp
increase in domestic inflation, we believe the trajectory of price changes
will likely shift upward. Despite the Fed's return to a neutral bias, we
believe two additional .25% increases in the short-term interest rate are
likely early in 2000, with more tightening possible should inflation emerge
or growth not slow. Given this view, we expect to maintain a moderately
short duration position relative to the index in the near term. We will
likely continue to maintain an index-like corporate allocation and look to
opportunistically reduce our mortgage exposure, in favor of adding to our
U.S. Treasury positions, thus maintaining a more defensive risk posture.
- J. P. MORGAN INVESTMENT MANAGEMENT
16
<PAGE>
The Preferred Group of Mutual Funds Investment Review
- --------------------------------------------------------------------------------
Portfolio Statistics: (as of June 30, 1999)
- --------------------------------------------------------------------------------
Portfolio Holdings 126
- --------------------------------------------------------------------------------
Average Maturity 15.5 years
- --------------------------------------------------------------------------------
Average Duration 5.2 years
- --------------------------------------------------------------------------------
Average Quality AA+
- --------------------------------------------------------------------------------
Allocation (% of portfolio*):
- --------------------------------------------------------------------------------
Treasury/Agency 20%
- --------------------------------------------------------------------------------
Corporates 20%
- --------------------------------------------------------------------------------
Mortgages/Asset-Backed 51%
- --------------------------------------------------------------------------------
Foreign Corporates & Govt. 1%
- --------------------------------------------------------------------------------
Short-Term 8%
(maturities less than one year)
* ALLOCATIONS DO NOT CONSIDER THE EFFECT OF FUTURES CONTRACTS. SEE NOTE 4 OF
THE NOTES TO THE FINANCIAL STATEMENTS FOR OPEN FUTURES CONTRACTS AT JUNE
30, 1999.
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 5,000 U.S. Treasury, Agency, Mortgage and
Corporate Bonds. Credit quality must be investment grade (AAA-BBB by Standard &
Poor's).
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 ten-year
performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST PAST PAST SINCE
6 MONTHS 1 YEAR 5 YEARS INCEPTION*
Preferred Fixed
Income Fund -1.70% 1.07% 39.02% 55.81%
Salomon Bros.
BIG Index -1.39% 3.12% 45.70% 61.21%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 5 YEARS INCEPTION*
Preferred Fixed
Income Fund 1.07% 6.81% 6.54%
Salomon Bros. 3.12% 7.82% 7.06%
BIG Index
* JULY 1, 1992
Line Chart:
A $10,000 Investment Since Inception:
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
12/31/96 13660 13717
6/30/97 14101 14138
12/31/97 14814 15038
6/30/98 15416 15634
12/31/98 15848 16348
6/30/99 15581 16121
17
<PAGE>
<PAGE>
Investment Review June 30, 1999
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
investment in U.S. Government Securities.
Portfolio Manager Profile:
Portfolio Manager: Todd M. Sheridan, CFA
- --------------------------------------------------------------------------------
Title: Senior Portfolio Manager, Caterpillar Investment Management Ltd. (CIML)
- --------------------------------------------------------------------------------
Last Five Years' Experience: Portfolio Manager at CIML. Todd has managed the
Preferred Short-Term Government Securities Fund since June 1, 1998.
- --------------------------------------------------------------------------------
Education: B.S. -- University of Illinois; Chartered Financial Analyst
Discussion & Analysis:
The Preferred Short-Term Government Securities Fund returned 3.27% for the
twelve months ended June 30, 1999, compared to a 5.08% return for the
Merrill Lynch 1-3 Year Treasury Index. Since inception, the Fund's average
annual return is 4.67% versus 5.67% for its benchmark.
The Fund's performance deficit occurred during last summer's Russian debt
moratorium and the near-collapse of the Long-Term Capital hedge fund. Those
events sent U.S. Treasury security yields to historic lows in a massive
flight to quality, and our portfolio was not structured to take advantage
of the situation. Investors drove up the value of "on-the-run" Treasuries,
not the mortgage-related securities in which the Fund was significantly
invested. As a result, the Fund lost ground as high volatility widened the
yield spread between the two investments. Mortgage-related securities in
the portfolio have tightened since then, but remain wide of our initial
entry points.
On the up side, we did a much better job of managing the Fund's exposures
last fall and through the early part of 1999, producing returns slightly
better than the benchmark. As interest rates in the front portion of the
U.S. Treasury yield curve moved up through 5.25% in mid-May, we extended
the average maturity of the portfolio. That decision detracted slightly
from performance when interest rates mostly continued higher through end of
the fiscal year. At fiscal year-end, the portfolio duration was 2.1 versus
1.7 for the benchmark. The allocation breakdown was 46% Treasury, 38%
mortgage-related and 16% agency.
Some market participants believe the Federal Reserve will add another 25
basis points to short-term interest rates at its August meeting. However,
we anticipate some moderation in domestic economic growth, which should
lend the Federal Reserve some comfort. We also anticipate an automatic
reduction of liquidity created by individuals fearful of Y2K issues. This
would allow the Federal Reserve to have a slightly tighter monetary policy
without taking action. And we believe this points to a trading range market
for the balance of the year, with current short-term rates occupying the
upper portion of the established range.
- CATERPILLAR INVESTMENT MANAGEMENT LTD.
18
<PAGE>
The Preferred Group of Mutual Funds Investment Review
Portfolio Statistics: (as of June 30, 1999)
- --------------------------------------------------------------------------------
Portfolio Holdings 28
- --------------------------------------------------------------------------------
Average Maturity 2.4 years
- --------------------------------------------------------------------------------
Average Duration 2.1 years
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 comprises primarily U.S. Treasury Notes and
Bonds with remaining maturities of one to three years.
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 ten-year performance history in the future as the Fund
matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST PAST PAST SINCE
6 MONTHS 1 YEAR 5 YEARS INCEPTION*
Preferred Short-Term
Government
Securities Fund 0.70% 3.27% 28.34% 37.62%
ML 1-3 Yr.
Treasury Index 1.17% 5.08% 35.87% 47.14%
* JULY 1, 1992
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 5 YEARS INCEPTION*
Preferred Short-Term
Government
Securities Fund 3.27% 5.12% 4.67%
ML 1-3 Yr.
Treasury Index 5.08% 6.32% 5.67%
* JULY 1, 1992
Line Chart:
A $10,000 Investment Since Inception:
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
12/31/96 12287 12744
6/30/97 12606 13111
12/31/97 13046 13593
6/30/98 13327 14003
12/31/98 13667 14544
6/30/99 13762 14714
19
<PAGE>
Investment Review June 30, 1999
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 short-term, fixed income instruments.
Portfolio Manager Profile:
Portfolio Manager: Robert (Skip) R. Johnson
- --------------------------------------------------------------------------------
Title: Vice President, J. P. Morgan Investment Management Inc.
- --------------------------------------------------------------------------------
Last Five Years' Experience: Portfolio Manager at J. P. Morgan Investment
Management. 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 4.89% for the fiscal year ended
June 30, 1999, compared to a 4.67% return for IBC's Money Fund Report
Average/All Taxable. Since inception, the Fund's average annual return has
been 4.51%, outperforming the benchmark's 4.38% return.
During the first half of the year, the ongoing Asian economic crisis raised
liquidity concerns that led investors to seek the relative safety of U.S.
Treasury bonds, which outperformed almost everything except money market
securities. Then the Federal Reserve cut interest rates three times in the
space of six weeks. Such action eased liquidity constraints and helped to
restore investor confidence. In fact, the improving economic outlook led to
an expected .25% increase in short-term interest rates on June 30, 1999.
However, in a surprise move, the Federal Reserve also announced a shift
back to a neutral bias from a tightening one.
Early in the fiscal year, our decision to continue holding floating rate
notes and buy asset-backed commercial paper enhanced the Fund's
performance. The Fund's duration was shortened throughout the period as
domestic growth showed little evidence of slowing. Because we anticipated
June's .25% increase in the short-term interest rate, we positioned the
fund in a more barbelled structure, emphasizing shorter-term securities.
The average maturity was shortened to 51 days. In addition, we slightly
decreased the Fund's holdings in floating rate notes.
We expect an additional .25% upward move by the Fed, most likely in August,
and more tightening may be needed to slow down economic growth. Because we
expect additional Fed tightenings, we will maintain short maturity in the
Fund.
- J. P. MORGAN INVESTMENT MANAGEMENT
20
<PAGE>
The Preferred Group of Mutual Funds Investment Review
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
Performance:
The following information illustrates the historical performance of the
Preferred Money Market Fund compared to IBC's Money Fund Report Average/All
Taxable. This benchmark is used for taxable money market funds.
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 ten-year
performance history in the future as the Fund matures.
An index is a fictitious unmanaged portfolio and does not trade or incur any
expenses. An investment fund must outperform its benchmark by the amount of its
management fees and other expenses for its reported performance to match its
benchmark.
CUMULATIVE TOTAL RETURN:
PAST 7-DAY CURRENT PAST PAST SINCE
6 MONTHS YIELD++ 1 YEAR 5 YEARS INCEPTION*
Preferred Money
Market Fund 2.27% 4.56% 4.89% 28.87%+ 36.21%+
IBC's Money Fund
Report Avg./All Taxable 2.18% 4.35% 4.67% 27.55% 34.99%
* 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.
++ THE SEVEN-DAY CURRENT YIELD FOR THE MONEY MARKET FUND MORE CLOSELY
REFLECTS THE CURRENT EARNINGS OF THE FUND THAN DOES THE TOTAL RETURN
QUOTATION. THE YIELD FOR IBC'S MONEY FUND REPORT AVG./ALL TAXABLE
REPRESENTS THE SEVEN-DAY CURRENT YIELD AS OF JUNE 30, 1999.
AVERAGE ANNUAL TOTAL RETURN:
PAST PAST SINCE
1 YEAR 5 YEARS INCEPTION*
Preferred Money
Market Fund 4.89% 5.20%+ 4.51%+
IBC's Money Fund
Report Avg./All Taxable 4.67% 4.99% 4.38%
* 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.
Line Chart:
A $10,000 Investment Since Inception:
Preferred Money Market Fund IBC's Money Fund Report Avg/
All Taxable
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
12/31/96 12018 11974
6/30/97 12319 12259
12/31/97 12638 12579
6/30/97 12986 12896
12/31/98 13318 13211
6/30/99 13621 13499
21
<PAGE>
<TABLE>
<CAPTION>
Statements of Assets & Liabilities June 30, 1999
Growth Value International Small Cap
<S> <C> <C> <C> <C>
Assets
Investments at value $658,933,610 $397,653,188 $288,963,165 $105,924,405
Short-term obligations at amortized cost 6,733,000 29,071,687 13,743,000 604,849
Cash. 786,873 402
Foreign currency at value 201,631
Receivable for investments sold 8,953,976 1,735,754
Receivable for fund shares sold 1,151,300 696,811 9,972,411 405,118
Receivable for variation margin
Dividends and interest receivable 221,892 173,922 1,090,295 68,195
Prepaid expenses and other assets 29 2,596 4,159
------------ ------------ ------------ ------------
Total assets 676,780,651 427,595,637 313,973,500 108,742,480
------------ ------------ ------------ ------------
Liabilities
Payable for investments purchased 9,455,018 1,210,078 677,275
Payable for fund shares redeemed 378,144 4,476 332,449
Payable for distributions
Payable for variation margin
Payable for:
Management fees 385,414 258,139 236,185 64,759
Audit fees 21,130 17,992 21,865 16,937
Custodian fees 20,312 14,019 85,502 14,649
Legal fees 12,436 7,590 5,008 1,582
Trustees' fees 7,825 4,988 3,640 1,775
Transfer agent fees 47,538 45,690 19,193 6,320
Other fees 50,135 9,267 7,749 8,277
------------ ------------ ------------ ------------
Total liabilities 10,377,952 362,161 1,589,220 1,124,023
------------ ------------ ------------ ------------
Net assets $666,402,699 $427,233,476 $312,384,280 $107,618,457
============ ============ ============ ============
Shares of beneficial interest outstanding 29,122,871 15,939,562 18,785,540 8,929,028
============ ============ ============ ============
Offering and redemption price per share $22.88 $26.80 $16.63 $12.05
============ ============ ============ ============
Composition of Net Assets:
Paid-in capital $385,222,164 $193,564,378 $227,122,157 $107,618,032
Undistributed (Distributions in excess of)
net investment income 1,212,801 3,600,408 101,444
Accumulated net realized gains (losses) on
investments, futures, forwards, and
foreign currency 53,008,065 44,155,795 8,262,198 (15,430,321)
Net unrealized appreciation (depreciation) on:
Investments 228,172,470 188,300,502 73,419,452 15,329,302
Futures
Foreign denominated other assets,
liabilities & currency (19,935)
------------ ------------ ------------ ------------
Net assets $666,402,699 $427,233,476 $312,384,280 $107,618,457
============ ============ ============ ============
Investments and short-term obligations at cost $437,494,140 $238,424,373 $229,286,713 $ 91,199,952
Foreign currency holdings at cost 201,912
22
<PAGE>
<CAPTION>
Asset Fixed Short-Term Money
Allocation Income Government Market
<S> <C> <C> <C> <C>
Assets
Investments at value $185,311,393 $165,064,909 $62,098,511
Short-term obligations at amortized cost 53,579,605 13,559,631 3,828,697 $197,314,051
Cash 103,510 1,364 1,953
Foreign currency at value
Receivable for investments sold 522,763 6,458,631
Receivable for fund shares sold 545,981 354,305 47,805 2,450,947
Receivable for variation margin 347,463
Dividends and interest receivable 1,579,879 1,687,113 631,071 959,849
Prepaid expenses and other assets 317 300 356
------------ ------------ ------------ ------------
Total assets 241,990,911 187,125,953 66,606,384 200,727,156
------------ ------------ ------------ ------------
Liabilities
Payable for investments purchased 107,958 6,881,900
Payable for fund shares redeemed 101,063 1,000 5,797,387
Payable for distributions 16,711 4,289 79 2,070
Payable for variation margin 45,091
Payable for:
Management fees 137,176 73,638 19,039 47,921
Audit fees 20,946 18,373 19,495 15,880
Custodian fees 33,081 16,506 7,743 9,814
Legal fees 4,335 3,567 1,097 3,184
Trustees' fees 2,546 2,486 478 2,341
Transfer agent fees 31,105 16,530 3,534 11,144
Other fees 23,869 14,385 3,546 29,306
------------ ------------ ------------ ------------
Total liabilities 478,790 7,077,765 55,011 5,919,047
------------ ------------ ------------ ------------
Net assets $241,512,121 $180,048,188 $66,551,373 $194,808,109
============ ============ ============ ============
Shares of beneficial interest outstanding 14,363,121 18,444,425 6,923,208 194,808,109
============ ============ ============ ============
Offering and redemption price per share. $16.81 $9.76 $9.61 $1.00
============ ============ ============ ============
Composition of Net Assets:
Paid-in capital. $186,072,298 $187,155,668 $68,562,542 $194,808,109
Undistributed (Distributions in excess of)
net investment income 21,439
Accumulated net realized gains (losses) on
investments, futures, forwards,
and foreign currency 3,263,596 (1,830,666) (885,304)
Net unrealized appreciation (depreciation) on:
Investments 53,487,908 (5,235,857) (1,125,865)
Futures (1,311,681) (62,396)
Foreign denominated other assets,
liabilities & currency
Net assets $241,512,121 $180,048,188 $66,551,373 $194,808,109
------------ ------------ ------------ ------------
Investments and short-term obligations at cost $185,403,090 $183,860,397 $67,053,073 $197,314,051
============ ============ ============ ============
Foreign currency holdings at cost
See notes to financial statements
23
</TABLE>
<PAGE>
<TABLE>
Statements of Operations June 30, 1999
<CAPTION>
Fiscal Year Ended
June 30, 1999 Growth Value International Small Cap
<S> <C> <C> <C> <C>
Investment Income
Dividends $ 3,072,326 $ 5,246,384 $ 7,061,429 $ 1,205,709
Interest 713,552 910,602 993,255
------------ ----------- ----------- -----------
3,785,878 6,156,986 8,054,684 1,205,709
Less foreign taxes withheld at source (8,736) (34,215) (765,187) (1,444)
------------ ----------- ----------- -----------
Total income 3,777,142 6,122,771 7,289,497 1,204,265
------------ ----------- ----------- -----------
Expenses
Management fees 4,114,811 2,963,545 2,634,044 843,965
Audit fees 34,000 30,000 35,000 29,000
Custodian fees 127,000 89,000 505,000 85,000
Registration fees 36,000 4,000 3,000 19,000
Legal fees 42,000 28,000 19,000 9,000
Trustees' fees 15,000 11,000 7,000 5,000
Transfer agent fees 162,000 154,000 88,000 34,000
Insurance fees 13,000 11,000 7,000 4,000
Other expenses 37,000 30,000 17,000 8,000
------------ ----------- ----------- -----------
Total expenses 4,580,811 3,320,545 3,315,044 1,036,965
------------ ----------- ----------- -----------
Net investment income (loss). (803,669) 2,802,226 3,974,453 167,300
------------ ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss)
on Investments, Futures and Foreign
Currency Net realized gain (loss) on:
Investments 63,513,505 49,008,891 8,595,547 (15,467,932)
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency (249,262)
Change in net unrealized appreciation
(depreciation) on:
Investments 88,790,969 (26,632,458) 11,545,590 (10,349,571)
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency (23,074)
------------ ----------- ----------- -----------
Net gain (loss) 152,304,474 22,376,433 19,868,801 (25,817,503)
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $151,500,805 $25,178,659 $23,843,254 ($25,650,203)
============ =========== =========== ===========
24
<PAGE>
<CAPTION>
Fiscal Year Ended Asset Fixed Short-Term Money
June 30, 1999 Allocation Income Government Market
<S> <C> <C> <C> <C>
Investment Income
Dividends $ 1,298,662
Interest 6,483,235 $10,650,501 $ 3,450,984 $ 7,543,566
------------ ----------- ----------- -----------
7,781,897 10,650,501 3,450,984 7,543,566
Less foreign taxes withheld at source (12,448)
------------ ----------- ----------- -----------
Total income 7,769,449 10,650,501 3,450,984 7,543,566
------------ ----------- ----------- -----------
Expenses
Management fees 1,453,421 828,737 222,980 436,917
Audit fees 34,000 32,000 33,000 27,000
Custodian fees 197,000 110,000 49,000 65,000
Registration fees 32,000 8,000 6,000 37,000
Legal fees 18,000 13,000 5,000 11,000
Trustees' fees 6,000 5,000 1,000 3,000
Transfer agent fees 96,000 67,000 26,000 68,000
Insurance fees 4,000 4,000 1,000 2,000
Other expenses 17,000 13,000 5,000 11,000
------------ ----------- ----------- -----------
Total expenses 1,857,421 1,080,737 348,980 660,917
------------ ----------- ----------- -----------
Net investment income (loss) 5,912,028 9,569,764 3,102,004 6,882,649
------------ ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss)
on Investments, Futures and Foreign
Currency Net realized gain (loss) on:
Investments 1,525,975 277,794 46,059
Futures 13,670,729 139,601
Forward contracts (571,343)
Foreign denominated other assets,
liabilities & currency (8,556)
Change in net unrealized appreciation
(depreciation) on:
Investments 12,283,902 (7,864,321) (1,105,009)
Futures (1,921,576) (271,852)
Forward contracts (144,573)
Foreign denominated other assets,
liabilities & currency 2,402
------------ ----------- ----------- -----------
Net gain (loss) 25,559,030 (8,440,848) (1,058,950)
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 31,471,058 $ 1,128,916 $ 2,043,054 $ 6,882,649
============ =========== =========== ===========
See notes to financial statements
25
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
June 30, 1999
<CAPTION>
Growth Value
Year Year Year Year
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
<S> <C> <C> <C> <C>
Increase in net assets
Operations:
Net investment income (loss) ($ 803,669) ($ 410,386) $ 2,802,226 $ 3,996,435
Net realized gain (loss) on:
Investments 63,513,505 143,439,200 49,008,891 39,129,419
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency
Change in net unrealized appreciation (depreciation) on:
Investments 88,790,969 (4,397,983) (26,632,458) 47,165,553
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations 151,500,805 138,630,831 25,178,659 90,291,407
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income (3,999,940) (3,250,000)
Net realized gains (111,232,130) (86,312,238) (15,868,693)
In excess of realized gains
------------ ------------ ------------ ------------
(111,232,130) (86,312,238) (19,868,633) (3,250,000)
------------ ------------ ------------ ------------
Fund share transactions:
Receipts for shares sold 635,081,746 271,215,829 123,051,076 209,248,942
Value of distributions reinvested 110,140,361 85,946,784 19,637,430 3,234,091
Cost of shares redeemed (625,918,574) (357,672,592) (134,374,899) (259,587,965)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from fund share transactions 119,303,533 (509,979) 8,313,607 (47,104,932)
------------ ------------ ------------ ------------
Total increase (decrease) 159,572,208 51,808,614 13,623,633 39,936,475
Net assets
Beginning of period 506,830,491 455,021,877 413,609,843 373,673,368
------------ ------------ ------------ ------------
End of period $666,402,699 $506,830,491 $427,233,476 $413,609,843
============ ============ ============ ============
Undistributed (distributions in excess of)
net investment income at end of period $ 1,212,801 $ 2,410,338
============ ============ ============ ============
Number of fund shares
Sold 30,109,700 12,681,087 4,868,725 8,741,834
Issued for distributions reinvested 5,636,660 4,842,045 802,182 144,310
Redeemed (29,688,185) (16,742,714) (5,345,330) (10,951,287)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding 6,058,175 780,418 325,577 (2,065,143)
Outstanding at:
Beginning of period 23,064,696 22,284,278 15,613,985 17,679,128
------------ ------------ ------------ ------------
End of period 29,122,871 23,064,696 15,939,562 15,613,985
============ ============ ============ ============
26
<PAGE>
<CAPTION>
Statements of Changes in Net Assets June 30, 1999
International Small Cap
Year Year Year Year
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
<S> <C> <C> <C> <C>
Increase in net assets
Operations:
Net investment income (loss) $ 3,974,453 $ 4,619,323 $ 167,300 $ 354,199
Net realized gain (loss) on:
Investments 8,595,547 15,916,879 (15,467,932) 15,998,484
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency (249,262) (260,093)
Change in net unrealized appreciation
(depreciation) on:
Investments 11,545,590 368,326 (10,349,571) 6,609,372
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency (23,074) 11,111
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations 23,843,254 20,655,546 (25,650,203) 22,962,055
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income (2,900,000) (3,800,000) (150,000) (630,000)
Net realized gains (8,299,909) (11,334,089) (5,076,273) (13,550,134)
In excess of realized gains
------------ ------------ ------------ ------------
(11,199,909) (15,134,089) (5,226,273) (14,180,134)
------------ ------------ ------------ ------------
Fund share transactions:
Receipts for shares sold 509,126,412 235,904,014 106,831,536 78,592,510
Value of distributions reinvested 11,065,960 15,067,423 5,207,954 14,167,942
Cost of shares redeemed (504,507,540) (237,729,186) (109,848,020) (50,116,715)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from fund share transactions 15,684,832 13,242,251 2,191,470 42,643,737
------------ ------------ ------------ ------------
Total increase (decrease) 28,328,177 18,763,708 (28,685,006) 51,425,658
Net assets
Beginning of period 284,056,103 265,292,395 136,303,463 84,877,805
------------ ------------ ------------ ------------
End of period $312,384,280 $284,056,103 $107,618,457 $136,303,463
============ ============ ============ ============
Undistributed (distributions in excess of)
net investment income at end of period $ 3,600,408 $ 2,672,340 $ 101,444 $ 125,934
============ ============ ============ ============
Number of fund shares
Sold 33,624,656 15,075,789 8,651,249 4,932,192
Issued for distributions reinvested 747,700 1,072,399 417,639 1,008,381
Redeemed (33,141,675) (15,054,821) (8,884,074) (3,133,590)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding 1,230,681 1,093,367 184,814 2,806,983
Outstanding at:
Beginning of period 17,554,859 16,461,492 8,744,214 5,937,231
------------ ------------ ------------ ------------
End of period 18,785,540 17,554,859 8,929,028 8,744,214
============ ============ ============ ============
<CAPTION>
Statements of Changes in Net Assets
June 30, 1999
Asset Allocation
Year Year
Ended Ended
6/30/99 6/30/98
<S> <C> <C>
Increase in net assets
Operations:
Net investment income (loss) $ 5,912,028 $ 4,660,600
Net realized gain (loss) on:
Investments 1,525,975 3,219,993
Futures 13,670,729 4,179,437
Forward contracts
Foreign denominated other assets,
liabilities & currency
Change in net unrealized appreciation
(depreciation) on:
Investments 12,283,902 17,834,579
Futures (1,921,576) (975,261)
Forward contracts
Foreign denominated other assets,
liabilities & currency
------------ ------------
Net increase (decrease) in net assets
resulting from operations 31,471,058 28,919,348
------------ ------------
Distributions to shareholders from:
Net investment income (5,912,028) (4,660,600)
Net realized gains (12,057,120) (12,219,032)
In excess of realized gains
------------ ------------
(17,969,148) (16,879,632)
------------ ------------
Fund share transactions:
Receipts for shares sold 81,281,375 32,320,319
Value of distributions reinvested 17,848,793 16,807,794
Cost of shares redeemed (42,953,523) (18,219,019)
------------ ------------
Net increase (decrease) in net assets
from fund share transactions 56,176,645 30,909,094
------------ ------------
Total increase (decrease) 69,678,555 42,948,810
Net assets
Beginning of period 171,833,566 128,884,756
------------ ------------
End of period $241,512,121 $171,833,566
============ ============
Undistributed (distributions in excess of)
net investment income at end of period
============ ============
Number of fund shares
Sold 4,918,432 2,147,829
Issued for distributions reinvested 1,079,576 1,159,620
Redeemed (2,615,327) (1,201,202)
------------ ------------
Net increase (decrease) in shares outstanding 3,382,681 2,106,247
Outstanding at:
Beginning of period 10,980,440 8,874,193
------------ ------------
End of period 14,363,121 10,980,440
============ ============
27
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
June 30, 1999
<CAPTION>
Fixed Income Short-Term Government
Year Year Year Year
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
<S> <C> <C> <C> <C>
Increase in net assets
Operations:
Net investment income (loss) $ 9,569,764 $ 9,185,129 $ 3,102,004 $ 3,234,893
Net realized gain (loss) on:
Investments 277,794 1,799,943 46,059 (88,914)
Futures 139,601 527,799
Forward contracts (571,343) 48,557
Foreign denominated other assets,
liabilities & currency (8,556) (51,081)
Change in net unrealized appreciation
(depreciation) on:
Investments (7,864,321) 1,515,003 (1,105,009) 3,372
Futures (271,852) 212,014
Forward contracts (144,573) 130,096
Foreign denominated other assets,
liabilities & currency 2,402 (2,410)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations 1,128,916 13,365,050 2,043,054 3,149,351
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income (9,548,818) (9,184,514) (3,102,004) (3,234,893)
Net realized gains (1,463,746) (1,541,898)
In excess of realized gains (1,540,433)
------------ ------------ ------------ ------------
(12,552,997) (10,726,412) (3,102,004) (3,234,893)
------------ ------------ ------------ ------------
Fund share transactions:
Receipts for shares sold 60,839,246 24,788,038 11,307,017 6,856,161
Value of distributions reinvested 12,474,288 10,675,319 3,099,781 3,231,487
Cost of shares redeemed (33,045,539) (27,056,203) (7,032,756) (4,573,234)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from fund share transactions 40,267,995 8,407,154 7,374,042 5,514,414
------------ ------------ ------------ ------------
Total increase (decrease) 28,843,914 11,045,792 6,315,092 5,428,872
Net assets
Beginning of period 151,204,274 140,158,482 60,236,281 54,807,409
------------ ------------ ------------ ------------
End of period $180,048,188 $151,204,274 $66,551,373 $60,236,281
============ ============ ============ ============
Undistributed net investment income
at end of period $ 21,439 $ 104,812
============ ============ ============ ============
Number of fund shares
Sold 5,945,932 2,386,283 1,159,310 699,315
Issued for distributions reinvested 1,224,847 1,028,283 318,373 329,506
Redeemed (3,232,288) (2,600,762) (721,087) (466,213)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding 3,938,491 813,804 756,596 562,608
Outstanding at:
Beginning of period 14,505,934 13,692,130 6,166,612 5,604,004
------------ ------------ ------------ ------------
End of period 18,444,425 14,505,934 6,923,208 6,166,612
============ ============ ============ ============
28
<PAGE>
<CAPTION>
June 30, 1999
Money Market
Year Year
Ended Ended
6/30/99 6/30/98
Increase in net assets
Operations:
Net investment income (loss) $ 6,882,649 $ 5,234,484
Net realized gain (loss) on:
Investments
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency
Change in net unrealized appreciation
(depreciation) on:
Investments
Futures
Forward contracts
Foreign denominated other assets,
liabilities & currency
Net increase (decrease) in net assets
resulting from operations 6,882,649 5,234,484
-------------- ------------
Distributions to shareholders from:
Net investment income (6,882,649) (5,234,484)
Net realized gains
In excess of realized gains
-------------- ------------
(6,882,649) (5,234,484)
-------------- ------------
Fund share transactions:
Receipts for shares sold 1,084,707,427 431,368,703
Value of distributions reinvested 6,597,028 5,149,937
Cost of shares redeemed (1,000,663,870) (442,033,262)
-------------- ------------
Net increase (decrease) in net assets
from fund share transactions 90,640,585 (5,514,622)
-------------- ------------
Total increase (decrease) 90,640,585 (5,514,622)
Net assets
Beginning of period 104,167,524 109,682,146
End of period $ 194,808,109 $104,167,524
============== ============
Undistributed net investment income
at end of period
============== ============
Number of fund shares
Sold 1,084,707,427 431,368,703
Issued for distributions reinvested 6,597,028 5,149,937
Redeemed (1,000,663,870) (442,033,262)
-------------- ------------
Net increase (decrease) in shares outstanding 90,640,585 (5,514,622)
Outstanding at:
Beginning of period 104,167,524 109,682,146
-------------- ------------
End of period 194,808,109 104,167,524
============== ============
See notes to financial statements
29
</TABLE>
<PAGE>
<TABLE>
Financial Highlights June 30, 1999
(Selected data for a share of beneficial interest outstanding throughout
the year)
<CAPTION>
Income (Loss) From Investment Operations
-----------------------------------------------
Net
Net Asset Net Realized Total
Value, Investment and from
Beginning Income Unrealized Investment
of Year (Loss) Gain (Loss) Operations
<S> <C> <C> <C> <C>
Growth
Year Ended June 30,
1995 $12.46 $0.01 $4.24 $4.25
1996 16.63 0.00 2.44 2.44
1997 18.52 0.00 4.76 4.76
1998 20.42 0.00 5.93 5.93
1999 21.97 0.00 5.87 5.87
<CAPTION>
Value
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 11.33 0.21 2.62 2.83
1996 13.82 0.20 3.13 3.33
1997 16.65 0.19 5.10 5.29
1998 21.14 0.28 5.29 5.57
1999 26.49 0.19 1.43 1.62
<CAPTION>
International
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 12.02 0.18 0.60 0.78
1996 12.24 0.19 1.47 1.66
1997 13.72 0.33 2.67 3.00
1998 16.12 0.26 0.76 1.02
1999 16.18 0.21 0.88 1.09
<CAPTION>
Small Cap (Commenced investment operations on November 1, 1995)
<S> <C> <C> <C> <C>
Period Ended June 30,
1996+ 10.00 0.05 1.22 1.27
1997 11.25 0.06 3.18 3.24
1998 14.30 0.03 3.17 3.20
1999 $15.59 $0.01 $(2.96) $(2.95)
<CAPTION>
Less Distributions
----------------------------------------------------------------
From Net Net Asset Total
From Net Realized In Excess Value, Return at
Investment Gains on of Realized Total End of Net Asset Net Assets,
Income Investments Gains Distributions Year Value1 End of Year
<S> <C> <C> <C> <C> <C> <C> <C>
Growth
Year Ended June 30,
1995 $(0.02) $(0.06) $ - $(0.08) $16.63 34.21% $374,592,700
1996 (0.01) (0.54) - (0.55) 18.52 14.96% 411,688,146
1997 - (2.86) - (2.86) 20.42 28.57% 455,021,877
1998 - (4.38) - (4.38) 21.97 33.44% 506,830,491
1999 - (4.96) - (4.96) 22.88 30.56% 666,402,699
<CAPTION>
Value
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1995 (0.20) (0.14) - (0.34) 13.82 25.72% 212,678,363
1996 (0.21) (0.29) - (0.50) 16.65 24.49% 267,581,693
1997 (0.20) (0.58) (0.02) (0.80) 21.14 32.62% 373,673,368
1998 (0.22) - - (0.22) 26.49 26.51% 413,609,843
1999 (0.26) (1.05) - (1.31) 26.80 6.59% 427,233,476
<CAPTION>
International
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1995 (0.13) (0.26) (0.17) (0.56) 12.24 6.70% 118,216,038
1996 (0.17) (0.01) - (0.18) 13.72 13.70% 157,627,409
1997 (0.35) (0.25) - (0.60) 16.12 22.50% 265,292,395
1998 (0.24) (0.72) - (0.96) 16.18 7.18% 284,056,103
1999 (0.17) (0.47) - (0.64) 16.63 7.21% 312,384,280
<CAPTION>
Small Cap (Commenced investment operations on November 1, 1995)
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended June 30,
1996+ (0.02) - - (0.02) 11.25 12.67%*++ 45,692,712
1997 (0.03) (0.16) - (0.19) 14.30 29.00%* 84,877,805
1998 (0.08) (1.83) - (1.91) 15.59 23.45% 136,303,463
1999 $(0.02) $(0.57) $ - $(0.59) $12.05 (19.07%) $107,618,457
30
<PAGE>
<CAPTION>
Ratios to Average Net Assets
-----------------------------------------------
Operating
Expenses Net
Before Investment Portfolio
Operating Voluntary Income Turnover
Expenses Waiver (Loss) Rate
<S> <C> <C> <C> <C>
Growth
Year Ended June 30,
1995 0.87% - 0.13% 55.32%
1996 0.86% - (0.16%) 75.24%
1997 0.84% - (0.13%) 58.31%
1998 0.84% - (0.08%) 70.35%
1999 0.83% - (0.15%) 74.31%
<CAPTION>
Value
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 0.89% - 1.95% 29.02%
1996 0.85% - 1.23% 17.04%
1997 0.85% - 1.06% 7.23%
1998 0.84% - 1.03% 10.14%
1999 0.84% - 0.71% 23.26%
<CAPTION>
International
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 1.32% - 1.65% 29.47%
1996 1.31% - 1.64% 19.61%
1997 1.25% - 2.66% 13.16%
1998 1.22% - 1.76% 17.08%
1999 1.20% - 1.43% 15.31%
<CAPTION>
Small Cap (Commenced investment operations on November 1, 1995)
<S> <C> <C> <C> <C>
Period Ended June 30,
1996+ 0.88%+++ 1.23%+++ 0.75%+++ 65.70%++
1997 0.88% 0.98% 0.66% 104.45%
1998 0.90% - 0.29% 105.32%
1999 0.92% - 0.15% 121.53%
1 Total return at net asset value assumes reinvestment of dividends and
capital gains distributions.
* Total return for Small Cap would have been lower if a portion of the fees
had not been waived/reimbursed by the advisor. + Eight-month period ended
June 30, 1996.
++ Not annualized
+++ Annualized
See notes to financial statements
31
</TABLE>
<PAGE>
<TABLE>
Financial Highlights June 30, 1999
(Selected data for a share of beneficial interest outstanding throughout
the year)
<CAPTION>
Income (Loss) From Investment Operations
--------------------------------------------------
Net
Net Asset Net Realized Total
Value, Investment and from
Beginning Income Unrealized Investment
of Year (Loss) Gain (Loss) Operations
<S> <C> <C> <C> <C>
Asset Allocation
Year Ended June 30,
1995 $10.27 $0.38 $1.79 $2.17
1996 11.97 0.40 1.72 2.12
1997 12.88 0.44 2.17 2.61
1998 14.52 0.47 2.51 2.98
1999 15.65 0.46 2.18 2.64
Fixed Income
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 9.80 0.58 0.50 1.08
1996 10.30 0.58 (0.16) 0.42
1997 10.09 0.64 0.19 0.83
1998 10.24 0.64 0.29 0.93
1999 10.42 0.58 (0.46) 0.12
Short-Term
<S> <C> <C> <C> <C>
Government Securities
Year Ended June 30,
1995 9.77 0.51 0.03 0.54
1996 9.80 0.53 (0.04) 0.49
1997 9.76 0.53 0.02 0.55
1998 9.78 0.56 (0.01) 0.55
1999 9.77 0.47 (0.16) 0.31
Money Market
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 1.00 0.05 - 0.05
1996 1.00 0.05 - 0.05
1997 1.00 0.05 - 0.05
1998 1.00 0.05 - 0.05
1999 $1.00 $0.05 $ - $0.05
<CAPTION>
Less Distributions
-------------------------------------------------------------
From Net Net Asset Total
From Net Realized In Excess Value, Return at
Investment Gains on of Realized Total End of Net Asset Net Assets,
Income Investments Gains Distributions Year Value1 End of Year
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation
Year Ended June 30,
1995 $(0.38) $(0.09) $ - $(0.47) $11.97 21.70% $ 77,745,018
1996 (0.40) (0.81) - (1.21) 12.88 18.23% 96,889,348
1997 (0.44) (0.53) - (0.97) 14.52 21.01% 128,884,756
1998 (0.47) (1.38) - (1.85) 15.65 21.84% 171,833,566
1999 (0.46) (1.02) - (1.48) 16.81 17.19% 241,512,121
<CAPTION>
Fixed Income
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1995 (0.58) - - (0.58) 10.30 11.48% 57,911,899
1996 (0.58) (0.05) - (0.63) 10.09 4.12% 111,184,492
1997 (0.64) (0.04) - (0.68) 10.24 8.39% 140,158,482
1998 (0.64) (0.11) - (0.75) 10.42 9.32% 151,204,274
1999 (0.59) (0.11) (0.08) (0.78) 9.76 1.07% 180,048,188
<CAPTION>
Short-Term
Government Securities
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1995 (0.51) - - (0.51) 9.80 5.71% 32,121,171
1996 (0.53) - - (0.53) 9.76 5.10% 51,755,317
1997 (0.53) - - (0.53) 9.78 5.81% 54,807,409
1998 (0.56) - - (0.56) 9.77 5.72% 60,236,281
1999 (0.47) - - (0.47) 9.61 3.27% 66,551,373
<CAPTION>
Money Market
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended June 30,
1995 (0.05) - - (0.05) 1.00 5.27%* 79,585,753
1996 (0.05) - - (0.05) 1.00 5.32%* 90,482,435
1997 (0.05) - - (0.05) 1.00 5.14% 109,682,146
1998 (0.05) - - (0.05) 1.00 5.40% 104,167,524
1999 $(0.05) $ - $ - $(0.05) $1.00 4.89% $194,808,109
32
<PAGE>
<CAPTION>
Ratios to Average Net Assets
------------------------------------------------------
Operating
Expenses Net
Before Investment Portfolio
Operating Voluntary Income Turnover
Expenses Waiver (Loss) Rate
<S> <C> <C> <C> <C>
Asset Allocation
Year Ended June 30,
1995 1.11% - 3.52% 18.27%
1996 1.04% - 3.21% 38.25%
1997 0.99% - 3.29% 27.73%
1998 0.92% - 3.19% 27.90%
1999 0.89% - 2.85% 5.80%
<CAPTION>
Fixed Income
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 0.95% - 5.94% 330.55%
1996 0.93% - 5.65% 313.51%
1997 0.74% - 6.32% 105.98%
1998 0.67% - 6.16% 143.66%
1999 0.65% - 5.77% 158.46%
<CAPTION>
Short-Term
Government Securities
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 0.71% - 5.27% 256.44%
1996 0.66% - 5.37% 79.04%
1997 0.63% - 5.49% 183.73%
1998 0.60% - 5.67% 263.47%
1999 0.55% - 4.87% 66.64%
<CAPTION>
Money Market
<S> <C> <C> <C> <C>
Year Ended June 30,
1995 0.39% 0.54% 5.24% N/A
1996 0.49% 0.54% 5.25% N/A
1997 0.48% - 5.03% N/A
1998 0.48% - 5.28% N/A
1999 0.45% - 4.73% N/A
1 Total return at net asset value assumes reinvestment of dividends and
capital gains distributions.
* Total return for the Money Market Fund would have been lower if a portion
of the fees had not been waived/reimbursed by the advisor.
See notes to financial statements
33
</TABLE>
<PAGE>
Schedules of Investments June 30, 1999
Preferred Growth Fund
Common Stock -- 98.88% Shares Value
- ------------------------------------------------------
Banks -- 6.28%
Chase Manhattan Corp 224,492 $19,446,620
Citigroup Inc 472,200 22,429,500
- ------------------------------------------------------
41,876,120
- ------------------------------------------------------
Computer Software -- 5.78%
Equant NV * 51,200 4,819,200
Intuit * 63,200 5,695,900
Microsoft Corp * 310,500 28,003,219
- ------------------------------------------------------
38,518,319
- ------------------------------------------------------
Consumer Products -- .98%
Estee Lauder Companies Inc
Class A 130,600 6,546,325
- ------------------------------------------------------
Discount & Fashion Retailing -- 9.36%
Gap Inc 274,650 13,835,494
Home Depot Inc 283,498 18,267,902
Kohls Corp * 187,900 14,503,531
Tiffany & Co 83,400 8,048,100
Wal Mart Stores 159,800 7,710,350
- ------------------------------------------------------
62,365,377
- ------------------------------------------------------
Electrical & Electronics -- 11.44%
Altera Corp * 173,100 6,372,244
General Electric Co 186,300 21,051,900
Intel Corp 212,600 12,649,700
KLA Tencor Corp * 122,000 7,914,750
Motorola Inc 43,800 4,150,050
Texas Instruments Inc 166,200 24,099,000
- ------------------------------------------------------
76,237,644
- ------------------------------------------------------
Finance-Other -- 6.00%
Associates First Capital
Corp Class A 28,100 1,245,181
Goldman Sachs Group Inc 91,600 6,618,100
MBNA Corp 342,262 10,481,774
Morgan Stanley Dean Witter & Co 136,120 13,952,300
Schwab (Charles) Corp 69,950 7,685,756
- ------------------------------------------------------
39,983,111
- ------------------------------------------------------
Health Care -- 12.21%
American Home Products Corp 244,000 14,030,000
Bristol Myers Squibb Co 140,100 9,868,294
CVS Corp 154,000 7,815,500
Eli Lilly & Co 79,000 5,658,375
Glaxo Wellcome PLC ADR 6,300 349,457
Merck & Co Inc 159,200 11,780,800
Pfizer Inc 51,300 5,630,175
Schering Plough Corp 241,700 12,810,100
Warner Lambert Co 193,100 13,396,313
- ------------------------------------------------------
81,339,014
- ------------------------------------------------------
- ------------------------------------------------------
Common Stock Shares Value
- ------------------------------------------------------
Insurance -- 2.97%
Ace Ltd 134,000 $ 3,785,500
American International
Group Inc 136,900 16,025,856
- ------------------------------------------------------
19,811,356
- ------------------------------------------------------
Leisure Time Industries -- 2.19%
McDonalds Corp 352,700 14,570,919
- ------------------------------------------------------
Manufacturing -- 3.22%
Allied Signal Inc 105,300 6,633,900
Applied Materials Inc * 200,700 14,826,713
- ------------------------------------------------------
21,460,613
- ------------------------------------------------------
Office Equipment & Computers -- 16.32%
America Online Inc * 65,000 7,182,500
Cadence Design Systems Inc * 37,500 478,125
Cisco Systems Inc * 389,350 25,088,741
Dell Computer Corp * 254,300 9,409,100
EMC Corp * 177,300 9,751,500
Hewlett Packard Co 136,600 13,728,300
International Business Machines 163,800 21,171,150
Staples Inc * 225,750 6,984,141
Sun Microsystems Inc * 51,000 3,512,625
Xerox Corp 193,200 11,410,875
- ------------------------------------------------------
108,717,057
- ------------------------------------------------------
Publishing & Broadcasting -- 6.85%
CBS Corp * 499,600 21,701,375
Clear Channel Communications * 176,800 12,188,150
Omnicom Group 147,300 11,784,000
- ------------------------------------------------------
45,673,525
- ------------------------------------------------------
Telecommunications -- 15.28%
AT&T Corp Liberty Media
Group Class A * 183,200 6,732,600
Allegiance Telecom Inc * 86,600 4,752,175
Level 3 Communications Inc * 55,900 3,357,494
Lucent Technologies Inc 96,480 6,506,370
MCI Worldcom Inc * 331,100 28,495,294
Nextlink Communications
Inc Class A * 32,800 2,439,500
Nokia Corp ADR 110,300 10,099,344
Qwest Communications
International Inc * 277,200 9,164,925
Tellabs Inc 132,500 8,952,031
Univision Communications
Inc Class A * 175,500 11,583,000
Vodafone Airtouch PLC ADR 49,500 9,751,497
- ------------------------------------------------------
101,834,230
- ------------------------------------------------------
Total Common Stock
(Cost $430,761,140) 658,933,610
======================================================
See notes to financial statements and notes to schedules of investments
34
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Short Term Investments -- 1.01% Par Value
- ------------------------------------------------------
Commercial Paper -- 1.01%
Chevron USA Inc
5.75% July 1, 1999 $ 6,733,000 $ 6,733,000
- ------------------------------------------------------
Total Short Term Investments
(Cost $6,733,000) 6,733,000
======================================================
Total Investments -- 99.89%
(Cost $437,494,140) 665,666,610
======================================================
OTHER ASSETS AND LIABILITIES-- .11% 736,089
======================================================
TOTAL NET ASSETS-- 100% $666,402,699
======================================================
Preferred Value Fund
Common Stock -- 93.08% Shares Value
- ------------------------------------------------------
Aerospace -- 4.25%
Boeing Co 225,000 $ 9,942,188
Lockheed Martin Corp 220,000 8,195,000
- ------------------------------------------------------
18,137,188
- ------------------------------------------------------
Banks -- 7.52%
BankBoston Corp 150,000 7,668,750
Chase Manhattan Corp New 85,000 7,363,125
Wells Fargo & Co 400,000 17,100,000
- ------------------------------------------------------
32,131,875
- ------------------------------------------------------
Chemicals -- 6.10%
Du Pont E I de Nemours & Co 140,000 9,563,750
Hercules Inc 139,000 5,464,438
Monsanto Co 280,000 11,042,500
- ------------------------------------------------------
26,070,688
- ------------------------------------------------------
Computer Software -- 1.29%
Computer Associates
International Inc 100,000 5,500,000
- ------------------------------------------------------
Consumer Products -- 3.64%
Avon Products Inc 280,000 15,540,000
- ------------------------------------------------------
- ------------------------------------------------------
Common Stock Shares Value
- ------------------------------------------------------
Discount & Fashion Retailing -- 2.01%
May Department Stores Co 210,000 $ 8,583,750
- ------------------------------------------------------
Electrical & Electronics -- 6.64%
Emerson Electric Co 120,000 7,545,000
Intel Corp 270,000 16,065,000
Motorola Inc 50,000 4,737,500
- ------------------------------------------------------
28,347,500
- ------------------------------------------------------
Finance-Other -- 23.53%
Citigroup Inc 750,000 35,625,000
Conseco Inc 200,000 6,087,500
Countrywide Credit
Industries Inc 260,000 11,115,000
Federal Home Loan Mortgage Corp 350,000 20,300,000
Morgan Stanley Dean Witter & Co 135,000 13,837,500
XL Capital Ltd Class A 240,000 13,560,000
- ------------------------------------------------------
100,525,000
- ------------------------------------------------------
Food -- 3.59%
Diageo PLC ADR 220,000 9,460,000
Dole Food Inc 200,000 5,875,000
- ------------------------------------------------------
15,335,000
- ------------------------------------------------------
Health Care -- 1.68%
Becton Dickinson & Co 240,000 7,200,000
- ------------------------------------------------------
Insurance -- 6.28%
Ace Ltd 390,000 11,017,500
Aflac Inc 330,000 15,798,750
- ------------------------------------------------------
26,816,250
- ------------------------------------------------------
Leisure Time Industries -- 4.60%
Carnival Corp 260,000 12,610,000
McDonalds Corp 170,000 7,023,125
- ------------------------------------------------------
19,633,125
- ------------------------------------------------------
Manufacturing -- 4.94%
Caterpillar Inc 150,000 9,000,000
Dover Corp 135,000 4,725,000
Minnesota Mining &
Manufacturing Corp 85,000 7,389,688
- ------------------------------------------------------
21,114,688
- ------------------------------------------------------
Office Equipment & Computers -- 1.11%
Compaq Computer Corp 200,000 4,737,500
- ------------------------------------------------------
35
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Value Fund (CONTINUED)
Common Stock Shares Value
- ------------------------------------------------------
Publishing & Broadcasting -- 3.72%
Chancellor Media Corp * 125,000 $ 6,890,625
News Corp Ltd ADR 200,000 6,312,500
Reed International PLC ADR 100,000 2,706,250
- ------------------------------------------------------
15,909,375
- ------------------------------------------------------
Service Industries -- 3.45%
Arrow Electronics Inc * 295,000 5,605,000
Waste Management Inc 170,000 9,137,500
- ------------------------------------------------------
14,742,500
- ------------------------------------------------------
Telecommunications -- 4.20%
Sprint Corp 340,000 17,956,250
- ------------------------------------------------------
Transportation -- 4.53%
AMR Corp * 180,000 12,285,000
Burlington Northern Santa Fe 75,000 2,325,000
Canadian Pacific Ltd 200,000 4,762,499
- ------------------------------------------------------
19,372,499
- ------------------------------------------------------
Total Common Stock
(Cost $209,352,686) 397,653,188
======================================================
- ------------------------------------------------------
Short Term Investments -- 6.80% Par/Shares Value
- ------------------------------------------------------
Commercial Paper -- 5.84%
CIT Group Holdings Inc
4.68% July 6, 1999 @ $5,000,000 4,996,750
5.00% July 13, 1999 @ 5,000,000 4,991,667
General Electric Capital Corp
5.20% July 15, 1999 @ 4,000,000 3,991,911
Household Finance Corp
4.65% July 1, 1999 6,000,000 6,000,000
4.60% July 8, 1999 @ 5,000,000 4,995,528
- ------------------------------------------------------
24,975,856
- ------------------------------------------------------
Short Term Investment Fund -- .96%
State Street Global Advisors
Money Market Fund 4,095,831 4,095,831
- ------------------------------------------------------
Total Short Term Investments
(Cost $29,071,687) 29,071,687
======================================================
Total Investments -- 99.88%
(Cost $238,424,373) 426,724,875
======================================================
- ------------------------------------------------------
Short Term Investments Value
- ------------------------------------------------------
Other Assets and Liabilities-- .12% $ 508,601
======================================================
Total Net Assets-- 100% $427,233,476
======================================================
Preferred International Fund
Common Stock &
Equivalents -- 92.50% Shares Value
- ------------------------------------------------------
ARGENTINA -- .92%
Communication Services -- .92%
Telecom Argentina Stet
France Class B ADR 108,000 $ 2,889,000
- ------------------------------------------------------
Total Argentina 2,889,000
- ------------------------------------------------------
- ------------------------------------------------------
AUSTRALIA -- 7.30%
Banks -- 2.11%
National Australia Bank 399,000 6,593,973
Conglomerates -- 1.25%
CSR Limited 1,365,000 3,898,079
Construction Materials -- 1.43%
Pioneer International Ltd 1,759,000 4,476,729
Telephone -- 1.25%
Cable & Wireless Optus * 1,715,200 3,900,385
Trucking & Freight -- 1.26%
Mayne Nickless Ltd 1,147,000 3,920,020
- ------------------------------------------------------
Total Australia 22,789,186
======================================================
- ------------------------------------------------------
CANADA -- 3.69%
Aluminum -- 1.85%
Alcan Aluminum Ltd 182,100 5,781,443
Banks -- 1.84%
Bank Nova Scotia Halifax 265,000 5,758,913
- ------------------------------------------------------
Total Canada 11,540,356
======================================================
36
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
FINLAND -- 1.31%
Forest Products -- 1.31%
Stora Enso Oyj Series R 381,400 $ 4,088,929
- ------------------------------------------------------
Total Finland 4,088,929
======================================================
- ------------------------------------------------------
FRANCE -- 10.38%
Apparel & Textiles -- 2.62%
Christian Dior 50,300 8,192,579
Automobiles -- 2.06%
Peugeot SA 40,800 6,434,980
Energy Sources -- 2.11%
Elf Aquitaine 45,000 6,601,050
Homebuilders -- 3.59%
Bouygues 42,000 11,096,691
Bouygues Rights 42,000 111,703
- ------------------------------------------------------
11,208,394
- ------------------------------------------------------
Total France 32,437,003
======================================================
- ------------------------------------------------------
GERMANY -- 3.33%
Apparel & Textiles -- 1.99%
Adidas-Salomon AG 62,500 6,201,209
Consumer Goods -- 1.34%
Continental AG 176,800 4,191,849
- ------------------------------------------------------
Total Germany 10,393,058
======================================================
- ------------------------------------------------------
ITALY -- 5.90%
Apparel & Textiles -- 2.05%
Benetton Group SPA 3,250,000 6,399,003
Banks -- 3.85%
Banca Popolare di Bergamo CV 275,000 6,038,205
Banca Popolare di Brescia 140,000 5,996,456
- ------------------------------------------------------
12,034,661
- ------------------------------------------------------
Total Italy 18,433,664
======================================================
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
JAPAN -- 8.97%
Consumer Services -- 1.90%
Oriental Land Co Ltd 97,500 $ 5,932,049
Electrical Equipment -- 2.30%
Hitachi 764,800 7,175,729
Household Appliances -- 4.77%
Matsushita Electric Industries 340,000 6,604,943
Sony Corp 77,000 8,306,605
- ------------------------------------------------------
14,911,548
- ------------------------------------------------------
Total Japan 28,019,326
======================================================
- ------------------------------------------------------
NETHERLANDS -- 7.77%
Air Travel -- 1.75%
KLM Royal Dutch Air Lines 193,300 5,469,779
Capital Equipment -- .99%
Pakhoed NV Kon 130,400 3,091,726
Chemicals -- 1.89%
Akzo Nobel NV 140,000 5,888,217
Financial Services -- 2.22%
ING Groep NV 128,000 6,927,314
Industrial Machinery -- .92%
Stork NV 126,500 2,881,897
- ------------------------------------------------------
Total Netherlands 24,258,933
======================================================
- ------------------------------------------------------
NEW ZEALAND -- 1.55%
Forest Products -- .84%
Carter Holt Harvey 2,200,000 2,632,426
Household Appliances -- .71%
Fisher & Paykel 700,000 2,223,691
- ------------------------------------------------------
Total New Zealand 4,856,117
======================================================
37
<PAGE>
Schedules of Investments
June 30, 1999
Preferred International Fund (CONTINUED)
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
SOUTH KOREA -- 3.59%
Electric Utilities -- 2.64%
Korea Electric Power 198,400 $ 8,244,527
Steel -- .95%
Pohang Iron & Steel 24,480 2,955,365
- ------------------------------------------------------
Total South Korea 11,199,892
======================================================
- ------------------------------------------------------
SPAIN -- 4.99%
Banks -- 2.79%
Banco Bilbao Vizcaya 380,300 5,492,373
Banco de Andalucia 92,000 3,224,500
- ------------------------------------------------------
8,716,873
- ------------------------------------------------------
Electric Utilities -- 2.20%
Iberdrola SA 452,000 6,881,998
- ------------------------------------------------------
Total Spain 15,598,871
======================================================
- ------------------------------------------------------
SWEDEN -- 6.90%
Capital Equipment -- 1.10%
Svedala Industrial 190,000 3,424,432
Drugs & Health Care -- 1.89%
Pharmacia & UpJohn SDR 106,800 5,913,064
Household Appliances -- 2.75%
Electrolux AB Series B 410,000 8,597,008
Industrial Machinery -- 1.16%
SKF AB Series B 195,000 3,606,432
- ------------------------------------------------------
Total Sweden 21,540,936
======================================================
- ------------------------------------------------------
SWITZERLAND -- 8.89%
Banks -- 1.95%
UBS AG 20,461 6,105,012
Drugs & Health Care -- 1.63%
Novartis AG 3,500 5,108,996
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
SWITZERLAND (CONTINUED)
Industrial Machinery -- 1.56%
Sulzer AG 8,000 $ 4,861,424
Retail Trade -- 1.55%
Valora Holding AG 21,000 4,834,416
Toys & Amusements -- 2.20%
Swatch Group 10,200 6,860,781
- ------------------------------------------------------
Total Switzerland 27,770,629
======================================================
- ------------------------------------------------------
UNITED KINGDOM -- 17.01%
Banks -- 2.34%
National Westminster 345,000 7,314,196
Financial Services -- 2.03%
Royal & Sun Alliance 709,000 6,353,337
Food & Beverages -- 2.23%
Allied Domecq PLC 725,000 6,970,967
Leisure Time -- 1.02%
Rank Group 800,000 3,184,026
Non-Ferrous Metals -- 2.57%
Rio Tinto 480,000 8,042,660
Retail Grocery -- 1.74%
Tesco 2,100,000 5,445,157
Steel -- 1.56%
British Steel 1,877,000 4,859,536
Telephone -- 1.85%
British Telecom 344,300 5,763,506
Transportation -- 1.67%
British Airways 755,200 5,213,880
- ------------------------------------------------------
Total United Kingdom 53,147,265
======================================================
Total Common Stock & Equivalents
(Cost $215,543,713) 288,963,165
======================================================
See notes to financial statements and notes to schedules of investments
38
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Short Term Investments -- 4.40% Par Value
- ------------------------------------------------------
Repurchase Agreements -- 4.40%
State Street Repo 4.25% July 1, 1999
(Dated June 30, 1999, due
July 1, 1999, collateralized by
$13,315,000 U.S. Treasury Note
6.875%, May 15, 2006,
Market Value $14,022,359,
Repurchase Proceeds
$13,744,622) $13,743,000 $ 13,743,000
- ------------------------------------------------------
Total Short Term Investments
(Cost $13,743,000) 13,743,000
======================================================
Total Investments -- 96.90%
(Cost $229,286,713) 302,706,165
======================================================
Other Assets & Liabilities-- 3.10% 9,678,115
======================================================
Total Net Assets-- 100% $312,384,280
======================================================
Preferred Small Cap Fund
Common Stock &
Equivalents -- 98.43% Shares Value
- ------------------------------------------------------
Automotive -- 6.21%
Arvin Industries Inc 37,600 $ 1,424,100
Avis Rent A Car Inc * 62,200 1,811,575
Dollar Thrifty
Automotive Group * 53,900 1,253,175
Midas Inc 18,000 510,750
Standard Motor Products
Inc Class A 35,000 857,500
Tower Automotive Inc * 32,500 826,719
- ------------------------------------------------------
6,683,819
- ------------------------------------------------------
Banks -- .58%
Commonwealth Bank Corp Inc 35,000 627,813
- ------------------------------------------------------
Chemicals -- 1.47%
Albemarle Corp 24,000 555,000
Spartech Corp 32,600 1,030,975
- ------------------------------------------------------
1,585,975
- ------------------------------------------------------
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Computer Software -- 4.22%
3Dfx Interactive Inc* 77,500 $ 1,210,938
Acclaim Entertainment Inc * 85,800 546,975
Pinnacle Systems Inc * 25,000 840,625
Progressive Software Corp * 23,900 675,175
Structural Dynamics
Research Corp Rights * 17,900 332,269
Sunquest Information
Systems Inc * 17,200 277,350
Unigraphics Solutions
Inc Class A * 35,000 658,438
- ------------------------------------------------------
4,541,770
- ------------------------------------------------------
Consumer Products -- 10.08%
Agribrands International Inc * 15,000 593,438
CPI Corp 20,000 660,000
Canadaigua Wine Inc Class A * 15,000 786,563
Chattem Inc * 17,500 556,719
Ethan Allan Interiors Inc 33,600 1,268,400
Fossil Inc * 34,300 1,659,263
Friedmans Inc Class A 43,700 379,644
Haverty Furniture Companies Inc 17,200 606,300
Mikasa Inc 27,500 311,094
Musicland Stores Inc * 79,300 703,788
Oshkosh B'Gosh Inc Class A 37,600 794,300
SLI Inc * 20,000 540,000
Salton Inc * 25,000 1,250,000
Trans World Entertainment Corp * 65,000 731,250
- ------------------------------------------------------
10,840,759
- ------------------------------------------------------
Discount & Fashion Retailing-- 3.53%
Claires Stores Inc 45,000 1,153,125
Deb Shops Inc 6,600 131,175
Guess Inc * 35,000 483,438
Timberland Co Class A * 15,200 1,034,550
Zale Corp * 24,900 996,000
- ------------------------------------------------------
3,798,288
- ------------------------------------------------------
Electrical & Electronics -- 5.46%
CTS Corp 15,000 1,050,000
Calpine Corp * 17,000 918,000
DII Group Inc * 22,000 820,875
Lattice Semiconductor Inc * 12,000 747,000
Park Electrochemical Corp 44,500 1,279,375
Stoneridge Inc * 50,000 675,000
Triumph Group Inc * 14,900 379,950
- ------------------------------------------------------
5,870,200
- ------------------------------------------------------
Finance-Other -- 12.51%
Advanta Corp Class A 67,600 1,221,025
Andover Bancorp Inc 8,500 266,688
Dime Community Bancshares Inc 42,000 976,500
Doral Financial Corp 55,300 953,925
See notes to financial statements and notes to schedules of investments
39
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Small Cap Fund (CONTINUED)
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Finance-Other (CONTINUED)
First Federal Financial Corp * 20,000 $ 385,000
Flagstar Bancorp Inc 29,100 734,775
Gallagher (Arthur J) & Co 23,700 1,173,150
Hambrecht & Quist Group Inc * 10,000 371,250
Investment Technology
Group Inc * 44,000 1,424,500
Jefferies Group Inc * 37,300 1,119,000
John Nuveen Co Class A 20,000 853,750
Metris Companies Inc 25,000 1,018,750
PFF Bancorp Inc * 35,000 656,250
Richmond County Financial Corp 42,500 818,125
Roslyn Bancorp Inc 58,900 1,012,344
Webster Financial Corp 17,500 474,688
- ------------------------------------------------------
13,459,720
- ------------------------------------------------------
Food -- 3.13%
Food Maker Inc * 26,100 740,588
Pilgrims Pride Inc 42,000 1,260,000
Ryans Family Steakhouses Inc * 30,600 355,725
Smithfields Food Inc * 30,400 1,016,500
- ------------------------------------------------------
3,372,813
- ------------------------------------------------------
Health Care -- .26%
Medicis Pharmaceutical Corp
Class A * 11,000 279,125
- ------------------------------------------------------
Housing & Real Estate -- 10.93%
Centex Construction Products Inc 43,600 1,487,850
Centex Corp 34,000 1,277,125
D.R. Horton Inc 93,300 1,551,113
Kaufman & Broad Home Corp 31,800 791,025
Lennar Corp 48,823 1,171,752
M.D.C. Holdings Inc 28,400 610,600
NVR Inc 37,100 1,936,156
New Plan Excel Realty Trust Inc 50,000 900,000
Pulte Corp 32,500 749,531
Schottenstein Homes Inc 23,300 429,594
Standard Pacific Corp 46,500 601,594
Thornburg Mortgage Asset Corp 25,100 251,000
- ------------------------------------------------------
11,757,340
- ------------------------------------------------------
Insurance -- 1.96%
FBL Financial Group Inc Class A 34,600 674,700
RLI Corp 37,000 1,433,750
- ------------------------------------------------------
2,108,450
- ------------------------------------------------------
Leisure Time Industries -- 5.32%
Crestline Capital Corp 45,100 758,244
Meristar Hospitality Corp 50,000 1,121,875
Monaco Coach Corp 31,500 1,332,844
National RV Holdings Inc 30,000 727,500
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Leisure Time Industries (CONTINUED)
Thor Industries Inc 19,200 $ 544,800
Winnebago Industries Inc 55,100 1,239,750
- ------------------------------------------------------
5,725,013
- ------------------------------------------------------
Manufacturing -- 11.34%
Ameron International Corp 26,300 1,160,488
Briggs & Stratton Corp 20,000 1,155,000
Dal Tile International Inc * 35,000 398,125
JLG Industries Inc 58,000 1,181,750
La-Z-Boy Inc 39,000 897,000
Lone Star Industries Inc 40,200 1,510,013
Manitowoc Inc 23,850 992,756
Mohawk Industries Inc * 39,100 1,187,663
Plantronics Inc * 13,700 892,213
Standex International Corp 14,900 407,888
Tecumseh Products Inc Class A 18,900 1,144,631
Terex Corp * 25,700 782,244
Thermo Optek Corp 15,000 155,625
Toro Co 8,700 342,563
- ------------------------------------------------------
12,207,959
- ------------------------------------------------------
Metals & Mining -- 2.10%
Amcol International Corp 45,000 646,875
Florida Rock Industries Inc 18,400 837,200
Reliance Steel & Aluminum Co 20,000 780,000
- ------------------------------------------------------
2,264,075
- ------------------------------------------------------
Office Equipment & Computers -- .83%
O'Sullivan Industries * 52,200 887,400
- ------------------------------------------------------
Publishing & Broadcasting -- 1.06%
Bowne & Co Inc 35,000 455,000
Valassis Communications Inc * 18,750 686,719
- ------------------------------------------------------
1,141,719
- ------------------------------------------------------
Service Industries -- 8.97%
Aaron Rents Inc Class B 25,000 556,250
Advo Inc * 65,400 1,357,050
American Management
Systems Inc * 25,000 801,563
CSG Systems International Inc * 15,000 392,813
Jacobs Engineering Group Inc * 15,000 570,000
MTI Technology Corp * 57,900 756,319
Metzler Group Inc * 26,500 732,063
Pre-Paid Legal Services Inc * 28,100 763,969
Ritchie Bros Auctioneers Inc * 14,700 560,438
Ryland Group Inc 30,000 890,625
SEI Investments Co 5,100 450,075
URS Corp * 62,300 1,826,169
- ------------------------------------------------------
9,657,334
- ------------------------------------------------------
40
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Telecommunications -- 2.80%
Cellstar Corp * 65,000 $ 511,875
Superior TeleCom Inc 52,000 1,300,000
Xircom Inc * 40,000 1,202,500
- ------------------------------------------------------
3,014,375
- ------------------------------------------------------
Transportation -- 5.21%
Alaska Air Group Inc * 21,000 876,750
America West Holding
Corp Class B * 45,000 849,375
American Freightways Corp * 25,000 489,063
Amtran Inc * 26,900 662,413
Consolidated Freightways Corp * 60,300 774,478
US Freightways Corp 22,300 1,032,769
XTRA Corp * 20,000 918,735
- ------------------------------------------------------
5,603,583
- ------------------------------------------------------
Utilities & Power -- .46%
Public Service Co of New Mexico 25,000 496,875
- ------------------------------------------------------
Total Common Stock & Equivalents
(Cost $90,595,103) 105,924,405
======================================================
- ------------------------------------------------------
Short Term Investments -- .56% Shares Value
- ------------------------------------------------------
Short Term Investment Fund -- .56%
State Street Global Advisors
Money Market Fund 604,849 604,849
- ------------------------------------------------------
Total Short Term Investments
(Cost $604,849) 604,849
======================================================
Total Investments -- 98.99%
(Cost $91,199,952) 106,529,254
======================================================
Other Assets and Liabilities-- 1.01% 1,089,203
======================================================
Total Net Assets-- 100% $107,618,457
======================================================
Preferred Asset Allocation Fund
Common Stock &
Equivalents -- 43.24% Shares Value
- ------------------------------------------------------
Aerospace -- .51%
Boeing Co 9,262 $ 409,265
General Dynamics Corp 1,400 95,900
Lockheed Martin Corp 3,838 142,966
Northrop Grumman Corp 400 26,525
Raytheon Co 3,000 211,125
United Technologies Corp 4,760 341,233
- ------------------------------------------------------
1,227,014
- ------------------------------------------------------
Automotive -- .61%
Cooper Tire & Rubber Co 500 11,813
Cummins Engine Inc 200 11,425
Dana Corp 1,518 69,923
Delphi Automotive Systems Corp 5,107 94,799
Eaton Corp 870 80,040
Ford Motor Co 11,100 626,456
General Motors Corp 6,450 425,700
Goodyear Tire and Rubber 1,620 95,276
Navistar International
Corp Inc * 410 20,500
Paccar Inc 940 50,173
- ------------------------------------------------------
1,486,105
- ------------------------------------------------------
Banks -- 2.86%
Amsouth Bancorporation 1,650 38,259
BB&T Corp 1,900 69,706
Bank One Corp 10,588 630,648
Bank New York Inc 7,300 267,819
Bank of America Corp 16,342 1,198,073
BankBoston Corp 2,800 143,150
Chase Manhattan Corp 8,142 705,301
Comerica Inc 1,550 92,128
Fifth Third Bancorp 2,300 153,094
First Union Corp 8,948 420,556
Firstar Corp Wisconsin 8,200 229,600
Fleet Financial Group Inc 5,088 225,780
JP Morgan & Co Inc 1,720 241,660
Keycorp 4,500 144,563
MBNA Corp 4,902 150,124
Mellon Bank Corp 5,200 189,150
Mercantile Bancorporation Inc 900 51,413
National City Corp 2,700 176,850
PNC Bank Corp 2,730 157,316
Republic New York Corp 1,300 88,644
Southtrust Corp 1,300 49,888
State Street Corporation 1,600 136,600
Summit Bancorp 1,100 45,994
Suntrust Banks Inc 2,800 194,425
U.S. Bancorp 5,984 203,456
See notes to financial statements and notes to schedules of investments
41
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Asset Allocation Fund (CONTINUED)
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Banks (CONTINUED)
Union Planters Corp 1,500 $ 67,031
Wachovia Corp 1,930 165,136
Wells Fargo & Co 15,990 683,573
- ------------------------------------------------------
6,919,937
- ------------------------------------------------------
Chemicals -- .78%
Air Products & Chemicals Inc 2,260 90,965
BF Goodrich Co 400 17,000
Dow Chemical Co 2,180 276,588
Du Pont E I de Nemours & Co 10,440 713,183
Eastman Chemical Co 875 45,281
Engelhard Corp 1,567 35,453
Freeport McMoRan Copper &
Gold Class B 2,100 37,669
Great Lakes Chemical Corp 670 30,862
Hercules Inc 1,020 40,099
International Flavors &
Fragrances 1,140 50,588
Monsanto Co 5,800 228,738
Nalco Chemical Co 940 48,763
Praxair Inc 1,730 84,662
Rohm & Haas Co 2,617 112,198
Union Carbide Corp 1,320 64,350
WR Grace & Co * 790 14,516
- ------------------------------------------------------
1,890,915
- ------------------------------------------------------
Computer Software -- 2.64%
Adobe Systems Inc 650 53,402
Autodesk Inc 300 8,869
Automatic Data Processing Inc 6,060 266,640
BMC Software Inc * 1,900 102,600
Computer Associates
International Inc 5,268 289,740
Computer Sciences Corp * 1,400 96,863
Compuware Corp * 3,700 117,706
Electronic Data Systems Corp 4,200 237,563
First Data Corp 4,100 200,644
Microsoft Corp * 47,200 4,256,850
Network Appliance Inc * 600 33,525
Novell Inc * 3,800 100,700
Oracle Corp * 13,802 512,399
Parametric Technology Corp * 2,700 37,463
Peoplesoft Inc * 2,150 37,088
Shared Medical System 200 13,050
- ------------------------------------------------------
6,365,102
- ------------------------------------------------------
Conglomerates -- 1.80%
Allied Signal Inc 5,460 343,980
General Electric Co 30,640 3,462,320
Harcourt General Inc 400 20,625
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Conglomerates (CONTINUED)
Household International Inc 3,013 $ 142,741
Pall Corp 733 16,263
Rockwell International Corp 2,000 121,500
TRW Inc 1,300 71,338
Tenneco Inc 1,690 40,349
Textron Inc 1,680 138,285
- ------------------------------------------------------
4,357,401
- ------------------------------------------------------
Consumer Products -- 2.81%
Alberto Culver Co Class B 300 7,988
Anheuser Busch Cos Inc 4,680 331,988
Armstrong World Industries Inc 200 11,563
Avon Products Inc 2,700 149,850
Best Buy Co Inc * 1,200 79,002
Brown Forman Corp Class B 400 26,075
Circuit City Stores Inc 600 55,800
Clorox Co 1,160 123,903
Coca Cola Co 23,180 1,448,750
Coca Cola Enterprises Inc 3,300 98,175
Colgate Palmolive Co 2,720 268,600
Coors Adolph Co Class B 200 9,900
Ecolab Inc 800 34,900
Fortune Brands Inc 1,560 64,545
Fruit of the Loom Inc Class A * 600 5,850
Gillette Co 9,840 403,440
Liz Claiborne Inc 780 28,470
Masco Corp 3,440 99,330
Maytag Corp 600 41,813
Nike Inc Class B 2,680 169,678
Pepsico Inc 14,080 544,720
Philip Morris Cos Inc 22,660 910,649
Proctor & Gamble Co 12,400 1,106,700
Reebok International Ltd * 620 11,548
Russell Corp 200 3,900
Seagram Ltd 3,970 199,989
Tupperware Corp 400 10,200
UST Inc 1,860 54,405
Unilever NV * 5,160 359,910
V F Corp 1,260 53,865
Whirlpool Corp 930 68,820
- ------------------------------------------------------
6,784,326
- ------------------------------------------------------
Containers & Packing -- .06%
Ball Corp 200 8,450
Bemis Inc Rights 300 11,925
Crown Cork & Seal Inc 1,270 36,195
Sealed Air Corp * 615 39,898
Temple Inland Inc 600 40,950
- ------------------------------------------------------
137,418
- ------------------------------------------------------
See notes to financial statements and notes to schedules of investments
42
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Discount & Fashion Retailing -- 2.16%
Autozone Inc * 1,400 $ 42,175
Consolidated Stores Corp * 1,200 32,400
Costco Cos Inc * 2,265 181,342
Dayton Hudson Corp 4,680 304,200
Dillards Inc Class A 1,310 46,014
Dollar General Corp 2,062 59,798
Federated Department Stores Inc * 2,000 105,875
Gap Inc 9,135 460,176
Home Depot Inc 13,956 899,290
JC Penney Inc 2,400 116,550
K Mart Corp * 4,930 81,037
Kohls Corp * 1,500 115,781
Limited Inc 2,128 96,558
Lowes Cos Inc 2,300 130,381
May Department Stores Co 3,615 147,763
Nordstrom Inc 1,720 57,620
Pep Boys-Manny Moe & Jack 400 8,650
Sears Roebuck & Co 3,900 173,794
TJX Cos Inc 1,900 63,294
Toys R Us Inc * 2,670 55,236
Wal Mart Stores Inc 42,220 2,037,115
- ------------------------------------------------------
5,215,049
- ------------------------------------------------------
Electrical & Electronics -- 1.74%
AES Corp * 1,700 98,813
Advanced Micro Devices Inc * 900 16,256
Ameren Corp 1,250 47,969
Consolidated Edison Inc 2,210 100,003
Cooper Industries Inc 1,382 71,864
Emerson Electric Co 4,280 269,105
Harris Corp 500 19,594
Honeywell Inc 1,390 161,066
Intel Corp 31,240 1,858,780
Johnson Controls Inc 500 34,656
KLA Tencor Corp * 800 51,900
LSI Logic Corp * 1,400 64,575
Micron Technology Inc * 2,400 96,750
Millipore Corp 300 12,169
Motorola Inc 5,600 530,600
National Semiconductor Corp * 1,000 25,313
National Service Industries Inc 300 10,800
Raychem Corp 500 18,500
Solectron Corp * 1,400 93,363
Tektronix Inc 350 10,566
Texas Instruments Inc 3,840 556,800
Thermo Electron Corp * 1,600 32,100
Thomas & Betts Corp 300 14,175
- ------------------------------------------------------
4,195,717
- ------------------------------------------------------
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Finance-Other -- 2.59%
American Express Co 4,450 $ 579,056
American General Corp 2,438 183,764
Associates First Capital Corp 6,368 282,182
Bear Stearns Cos Inc 945 44,179
Capital One Financial Corp 1,800 100,238
Cincinnati Financial Corp 1,000 37,563
Citigroup Inc 32,900 1,562,750
Countrywide Credit Industry Inc 1,100 47,025
Dun & Bradstreet Corp 1,630 57,763
Equifax Inc 1,500 53,531
Federal Home Loan Mortgage Corp 6,580 381,640
Federal National Mortgage
Association 9,900 676,913
Golden West Financial Corp 760 74,480
H&R Block Inc 1,260 63,000
Huntington Bancshares Inc 1,290 45,150
Jefferson Pilot Corp 1,240 82,072
Lehman Brothers Holding Corp 1,100 68,475
Merrill Lynch & Co Inc 3,520 281,380
Morgan Stanley Dean Witter & Co 5,263 539,458
Northern Trust Corp 700 67,900
Paine Webber Group Inc 1,300 60,775
Paychex Inc 2,550 81,281
Progressive Corp Ohio 800 116,000
Provident Companies Inc 1,200 48,000
Providian Financial Corp 1,770 165,495
Regions Financial Corp 1,300 49,969
SLM Holding Corp 1,400 64,138
Schwab (Charles) Corp 2,400 263,700
Synovus Financial Corp 1,600 31,800
Washington Mutual Inc 4,450 157,419
- ------------------------------------------------------
6,267,096
- ------------------------------------------------------
Food -- 1.07%
Albertsons Inc 4,588 236,579
Archer Daniels Midland Co 5,626 86,851
Bestfoods 2,700 133,650
Campbell Soup Co 4,300 199,413
ConAgra Inc 4,540 120,878
General Mills Inc 1,530 122,974
Great Atlantic & Pacific Tea Inc 200 6,763
HJ Heinz Co 3,315 166,164
Hershey Foods Corp 1,420 84,313
Kellogg Co 3,920 129,360
Kroger Co * 5,800 162,038
Nabisco Group Holdings Corp * 3,000 58,688
Pioneer Hi-Bred
International Inc 2,412 93,917
Quaker Oats Co 1,360 90,270
Ralston Purina Co 3,130 95,269
See notes to financial statements and notes to schedules of investments
43
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Asset Allocation Fund (CONTINUED)
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Food (CONTINUED)
Safeway Inc * 4,600 $ 227,700
Sara Lee Corp 8,720 197,835
Supervalu Inc 700 17,981
Sysco Corp 3,840 114,480
Tricon Global Restaurants Inc * 1,418 76,749
WM Wrigley Jr Co 1,170 105,300
Winn Dixie Stores Inc 1,540 56,884
- ------------------------------------------------------
2,584,056
- ------------------------------------------------------
Fuel -- 2.58%
Amerada Hess Corp 1,110 66,045
Anadarko Petroleum Corp 1,500 55,219
Apache Corp 900 35,100
Ashland Inc 500 20,063
Atlantic Richfield Co 2,880 240,660
Baker Hughes Inc 2,640 88,440
Burlington Resources Inc 1,655 71,579
Chevron Corp 6,160 586,355
Coastal Corp 2,180 87,200
Exxon Corp 22,840 1,761,535
Halliburton Co 4,670 211,318
Helmerich & Payne Inc 300 7,144
Kerr McGee Corp 886 44,466
Mobil Corp 7,320 724,680
Occidental Petroleum Inc 3,310 69,924
Oneok Inc 200 6,350
Phillips Petroleum Co 2,660 133,831
Rowan Companies Inc 500 9,219
Royal Dutch Petroleum Co 19,600 1,180,900
Schlumberger Ltd 4,960 315,890
Texaco Inc 5,220 326,250
USX Marathon Group 2,900 94,431
Unocal Corp 2,600 103,025
- ------------------------------------------------------
6,239,624
- ------------------------------------------------------
Health Care -- 4.96%
Abbott Labs 14,180 645,190
Allergan Inc 770 85,470
Alza Corp * 1,100 55,963
American Home Products Corp 12,040 692,300
Amgen Inc * 4,960 301,940
Bard (C.R.) Inc 300 14,344
Bausch & Lomb Inc 780 59,670
Baxter International Inc 2,580 156,413
Becton Dickerson & Co 2,620 78,600
Biomet Inc 1,500 59,625
Boston Scientific Corp * 3,800 166,963
Bristol Myers Squibb Co 18,160 1,279,145
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Health Care (CONTINUED)
CVS Corp 3,380 $ 171,535
Cardinal Health Inc 1,600 102,600
Columbia/HCA Healthcare Corp 5,649 128,868
Eli Lilly & Co 9,648 691,038
Guidant Corp 3,200 164,600
HCR Manorcare Inc * 700 16,931
Healthsouth Corp * 3,400 50,788
Humana Inc * 1,600 20,700
IMS Health Inc 3,260 101,875
Johnson & Johnson 12,520 1,226,960
Longs Drug Stores Corp 200 6,913
Mallinckrodt Inc 400 14,550
McKesson HBOC Inc 2,330 74,851
Medtronic Inc 5,240 408,065
Merck & Co Inc 22,260 1,647,240
Pfizer Inc 12,100 1,327,975
Pharmacia & UpJohn Inc 4,853 275,711
Rite Aid Corp 1,600 39,400
Schering Plough Corp 13,960 739,880
Sigma Aldrich 1,200 41,325
St Jude Medical Inc * 1,000 35,625
Tenet Healthcare Corp * 2,760 51,233
United Healthcare Corp 1,900 118,988
Walgreen Co 10,240 300,800
Warner Lambert Co 7,960 552,225
Watson Pharmaceuticals Inc * 600 21,038
Wellpoint Health Networks
Inc Class A * 600 50,925
- ------------------------------------------------------
11,978,262
- ------------------------------------------------------
Housing & Real Estate -- .08%
Centex Corp 400 15,025
Kaufman & Broad Home Corp 200 4,975
Owens Corning 300 10,313
PPG Industries Inc 1,780 105,131
Pulte Corp 300 6,919
Sherwin Williams Co 2,080 57,720
- ------------------------------------------------------
200,083
- ------------------------------------------------------
Insurance -- 1.36%
Aetna Inc 1,466 131,115
Aflac Inc 1,600 76,600
Allstate Corp 8,158 292,668
American International
Group Inc 11,588 1,356,520
Aon Corp 1,575 64,969
Chubb Corp 1,560 108,420
Cigna Corp 2,020 179,780
Conseco Inc 2,798 85,164
Hartford Financial Services Group 2,320 135,285
Lincoln National Corp Inc 1,960 102,533
Loews Corp 1,100 87,038
See notes to financial statements and notes to schedules of investments
44
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Insurance (CONTINUED)
MBIA Inc 600 $ 38,850
MGIC Investment Corp 1,100 53,488
Marsh & McLennan Cos Inc 2,590 195,545
Safeco Corp 1,460 64,423
St. Paul Cos Inc 2,162 68,779
Torchmark Corp 1,700 58,013
Transamerica Corp 1,540 115,500
Unum Corp 1,400 76,650
- ------------------------------------------------------
3,291,340
- ------------------------------------------------------
Leisure Time Industries -- .86%
American Greetings Corp Class A 400 12,050
Brunswick Corp 1,180 32,893
Carnival Corp 5,500 266,750
Darden Restaurants Inc 1,630 35,554
Eastman Kodak Co 3,130 212,058
Fleetwood Enterprises Inc 200 5,288
Harrahs Entertainment Inc * 650 14,300
Hasbro Inc 2,115 59,088
Hilton Hotels Corp 2,520 35,753
King World Productions Inc * 400 13,925
Marriott International Inc
Class A 2,660 99,418
Mattel Inc 4,169 110,218
McDonalds Corp 12,800 528,800
Mirage Resorts Inc * 1,100 18,425
Polaroid Corp 300 8,288
Walt Disney Co 19,180 590,984
Wendy's International Inc 800 22,650
- ------------------------------------------------------
2,066,442
- ------------------------------------------------------
Manufacturing -- 1.14%
Applied Materials Inc * 3,800 280,725
Avery Dennison Corp 700 42,263
Black & Decker Corp 600 37,875
Briggs & Stratton Corp 100 5,775
Case Corp 900 43,313
Caterpillar Inc 3,720 223,200
Corning Inc 2,350 164,794
Crane Co 400 12,575
Danaher Corp 1,200 69,750
Deere & Co 2,560 101,440
Dover Corp 1,400 49,000
FMC Corp * 200 13,663
ITT Industries Inc 960 36,600
Illinois Tool Works Inc 2,520 206,640
Ingersoll Rand Co 1,860 120,203
Jostens Inc 200 4,213
Milacron Inc 200 3,700
Minnesota Mining &
Manufacturing Co 3,960 344,273
Newell Rubbermaid Inc 3,005 139,733
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Manufacturing (CONTINUED)
Owens Illinois Inc * 1,200 $ 39,225
PE Corp 300 34,425
Parker Hannifin Corp 625 28,594
RJ Reynolds Tobacco Holdings Inc * 1 31
Snap On Inc 400 14,475
Springs Industries Inc 100 4,363
Stanley Works 500 16,094
Timken Co 400 7,800
Tyco International Ltd 7,206 682,769
Vulcan Materials Co 600 28,956
- ------------------------------------------------------
2,756,467
- ------------------------------------------------------
Metals & Mining -- .28%
Alcan Aluminum Ltd 2,210 70,582
Alcoa Inc 3,600 222,750
Allegheny Teldyne Inc 1,177 26,630
Asarco Inc 200 3,763
Barrick Gold Corp 3,700 71,688
Battle Mountain Gold Co 2,400 5,850
Bethlehem Steel Corp * 800 6,150
Cyprus Amax Minerals Co 1,160 17,618
Homestake Mining Corp 2,490 20,387
Inco Ltd 1,760 31,680
Newmont Mining Corp 1,018 20,233
Nucor Corp 500 23,719
Phelps Dodge Corp 630 39,021
Placer Dome Inc 2,850 33,666
Reynolds Metals Co 700 41,300
USX US Steel Group 1,100 29,700
Worthington Industries Inc 550 9,041
- ------------------------------------------------------
673,778
- ------------------------------------------------------
Office Equipment & Computers-- 3.98%
3Com Corp * 3,300 88,069
American Online Inc * 9,100 1,005,550
Apple Computer * 1,550 71,784
Cabletron Systems Inc * 1,400 18,200
Ceridian Corp * 800 26,150
Cisco Systems Inc * 29,290 1,887,374
Compaq Computer Corp 15,955 377,934
Data General Corp * 300 4,369
De Luxe Corp 1,150 44,778
Dell Computer Corp * 26,600 984,200
EMC Corp * 9,400 517,000
Gateway 2000 Inc * 1,400 82,600
Hewlett Packard Co 9,720 976,860
Ikon Office Solutions Inc 900 13,500
International Business Machines 17,600 2,274,800
Pitney Bowes Inc 3,100 199,175
Seagate Technology * 2,400 61,500
See notes to financial statements and notes to schedules of investments
45
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Asset Allocation Fund (CONTINUED)
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Office Equipment & Computers (CONTINUED)
Silicon Graphics Inc * 2,000 $ 32,750
Staples Inc * 4,050 125,297
Sun Microsystems Inc * 4,600 316,825
Tandy Corp 1,200 58,650
Unisys Corp * 1,500 58,406
Xerox Corp 6,440 380,363
- ------------------------------------------------------
9,606,134
- ------------------------------------------------------
Paper & Forest Products -- .41%
Boise Cascade Corp 300 12,863
Champion International Corp 1,000 47,875
Fort James Corp 1,300 49,238
Georgia Pacific Group 1,620 76,748
Georgia Pacific Timber Group 310 7,828
International Paper Co 3,964 200,182
Kimberly Clark Corp 5,246 299,022
Louisiana Pacific Corp 1,360 32,300
Mead Corp 600 25,050
Potlatch Corp 200 8,788
Westvaco Corp 1,200 34,800
Weyerhaeuser Co 1,850 127,188
Williamette Industries Inc 1,300 59,881
- ------------------------------------------------------
981,763
- ------------------------------------------------------
Publishing & Broadcasting -- .80%
Comcast Corp Class A 5,700 219,094
Dow Jones & Co Inc 1,170 62,083
Gannett Inc 2,920 208,415
Knight Ridder Inc 1,120 61,530
McGraw Hill Inc 2,120 114,348
Meredith Corp 300 10,388
New York Times Co Class A 1,200 44,175
Time Warner Inc 10,140 745,290
Times Mirror Co Series A 900 53,325
Tribune Co 1,320 115,005
Viacom Inc Class B * 6,900 303,600
- ------------------------------------------------------
1,937,253
- ------------------------------------------------------
Service Industries -- .64%
Browning Ferris Industries Inc 2,000 86,000
Cendant Corp * 7,408 151,864
EG&G Inc 300 10,688
Fluor Corp 850 34,425
Foster Wheeler Corp 200 2,825
Franklin Resources Inc 2,500 101,563
Genuine Parts Co 2,025 70,875
Interpublic Group Cos Inc 800 69,300
McDermott International Inc 400 11,300
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Service Industries (CONTINUED)
Media One Group Inc * 5,470 $ 406,831
Office Depot Inc * 3,300 72,806
Omnicom Group Inc 1,400 112,000
RR Donnelley & Sons Co 1,370 50,776
Service Corp International 1,600 30,800
WW Grainger Inc 600 32,288
Waste Management Inc 5,459 293,421
- ------------------------------------------------------
1,537,762
- ------------------------------------------------------
Telecommunications -- 5.01%
AT&T Corp 30,475 1,700,886
Alltel Corp 2,200 157,300
Ameritech Corp 10,280 755,580
Andrew Corp * 505 9,563
Bell Atlantic Corp 14,452 944,800
BellSouth Corp 18,020 844,688
CBS Corp * 6,620 287,556
CenturyTel Inc 2,100 83,475
Clear Channel Communications * 2,800 193,025
Frontier Corp 1,000 59,000
GTE Corp 9,010 682,508
General Instrument Corp * 1,300 55,250
Lucent Technologies Inc 28,071 1,893,038
MCI Worldcom Inc * 17,489 1,505,147
Nextel Communications Inc
Class A * 1,700 85,319
Northern Telecom Ltd 6,440 559,073
SBC Communications Inc 18,254 1,058,732
Scientific Atlanta Inc 500 18,000
Sprint Corp * 3,505 200,223
Sprint Corp PCS Series 1 * 8,420 444,681
Tellabs Inc * 4,000 270,250
US West Inc * 4,894 287,523
- ------------------------------------------------------
12,095,617
- ------------------------------------------------------
Transportation -- .47%
AMR Corp * 1,620 110,565
Burlington Northern Santa Fe 4,202 130,262
CSX Corp 2,120 96,063
Delta Airlines Inc 1,520 87,590
FDX Corp * 2,992 162,316
Kansas City Southern
Industries Inc 1,500 95,719
Laidlaw Inc 3,500 25,813
Norfolk Southern Corp 3,650 109,956
Ryder System Inc 400 10,400
Southwest Airlines Co 3,425 106,603
US Airways Group Inc * 400 17,425
Union Pacific Corp 2,230 130,037
Union Pacific Resources Group Inc 2,619 42,722
- ------------------------------------------------------
1,125,471
- ------------------------------------------------------
See notes to financial statements and notes to schedules of investments
46
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Common Stock & Equivalents Shares Value
- ------------------------------------------------------
Utilities & Power -- 1.04%
American Electric Power Inc 1,860 $ 69,866
CMS Energy Corp 900 37,688
Carolina Power & Lighting Co 1,590 68,072
Central & Southwest Corp 2,000 46,750
Cinergy Corp 1,006 32,192
Columbia Energy Corp 500 31,344
Consolidated Natural Gas Co 1,130 68,648
Constellation Energy Group Inc 1,660 49,178
DTE Energy Co 1,580 63,200
Dominion Resources Inc 1,860 80,561
Duke Energy Co 2,851 155,023
Eastern Enterprises 100 3,975
Edison International 3,530 94,428
Enron Corp 3,200 261,600
Entergy Corp 2,180 68,125
FPL Group Inc 1,690 92,316
First Energy Corp 2,250 69,750
Florida Progress Corp 900 37,181
GPU Inc 800 33,750
New Century Energies Inc 1,100 42,694
Niagara Mohawk Power Co * 2,190 35,177
Nicor Inc 300 11,419
Northern Systems Power Co 1,760 42,570
PG&E Corp 3,770 122,525
PP&L Resources Inc 900 27,675
Pacific Corp 2,940 54,023
Peco Energy Co 2,150 90,031
Peoples Energy Corp 200 7,533
Public Services Enterprise Group 2,230 91,146
Reliant Energy Inc 2,472 68,284
Sempra Energy 1,501 33,955
Sonat Inc 700 23,183
Southern Co 6,290 166,680
Sunoco Inc 1,121 33,835
Texas Utilities Co 2,437 100,521
Unicom Corp 2,160 83,290
Williams Cos Inc 2,611 111,082
- ------------------------------------------------------
2,509,270
- ------------------------------------------------------
Total Common Stock & Equivalents
(Cost $48,697,162) 104,429,402
- ------------------------------------------------------
- ------------------------------------------------------
Fixed Income -- 33.49% Par Value
- ------------------------------------------------------
U.S. Treasury -- 33.49%
United States Treasury Bonds
5.50% August 15, 2028 $3,265,000 2,989,499
6.00% February 15, 2026 1,547,000 1,509,532
6.125% November 15, 2027 2,600,000 2,582,528
- ------------------------------------------------------
Fixed Income Par Value
- ------------------------------------------------------
U.S. Treasury (CONTINUED)
6.25% August 15, 2023 $1,020,000 $ 1,024,784
6.375% August 15, 2027 3,610,000 3,699,131
6.50% November 15, 2026 3,026,000 3,143,742
6.875% August 15, 2025 3,300,000 3,577,398
7.125% February 15, 2023 2,900,000 3,214,012
7.25% May 15, 2016 3,795,000 4,173,893
7.25% August 15, 2022 340,000 380,695
7.50% November 15, 2016 2,040,000 2,299,141
7.50% November 15, 2024 1,080,000 1,255,500
7.625% November 15, 2022 1,105,000 1,288,187
7.625% February 15, 2025 2,900,000 3,420,637
8.00% November 15, 2021 # 5,800,000 6,993,524
8.125% August 15, 2019 530,000 640,139
8.125% May 15, 2021 2,059,000 2,507,471
8.125% August 15, 2021 2,495,000 3,041,954
8.50% February 15, 2020 793,000 994,470
8.75% May 15, 2017 1,340,000 1,691,536
8.75% May 15, 2020 1,790,000 2,300,150
8.75% August 15, 2020 # 3,825,000 4,919,906
8.875% August 15, 2017 1,800,000 2,299,500
8.875% February 15, 2019 # 3,969,000 5,115,684
9.00% November 15, 2018 350,000 455,438
9.125% May 15, 2018 125,000 163,848
9.25% February 15, 2016 200,000 260,500
9.875% November 15, 2015 250,000 341,173
10.375% November 15, 2012 2,950,000 3,758,949
10.625% August 15, 2015 2,175,000 3,128,933
11.25% February 15, 2015 1,120,000 1,676,494
11.75% February 15, 2010 295,000 373,682
11.75% November 15, 2014 1,105,000 1,573,421
12.00% August 15, 2013 2,445,000 3,432,927
12.50% August 15, 2014 230,000 338,638
13.875% May 15, 2011 220,000 314,975
- ------------------------------------------------------
80,881,991
- ------------------------------------------------------
Total Fixed Income
(Cost $83,121,758) 80,881,991
- ------------------------------------------------------
- ------------------------------------------------------
Short Term Investments -- 22.18%Par/Shares Value
- ------------------------------------------------------
Commercial Paper -- 10.54%
Abbey National of North America
5.04% September 15, 1999 @ 3,000,000 2,967,300
Associates Corp of North America
5.70% July 1, 1999 2,318,334 2,318,334
BP America Inc
4.91% August 13, 1999 @ 3,000,000 2,982,406
See notes to financial statements and notes to schedules of investments
47
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Asset Allocation Fund (CONTINUED)
Short Term Investments Par/Shares Value
- ------------------------------------------------------
Commercial Credit Co
4.97% August 6, 1999 @ $ 2,500,000 $ 2,487,575
Daimler Benz North America
5.12% September 15, 1999 @ 1,000,000 989,060
Equilon Enterprise
5.01% September 21, 1999 @ 3,000,000 2,964,720
Ford Motor Credit Co
5.16% September 17, 1999 @ 2,650,000 2,620,241
General Electric Capital Corp
4.94% August 24, 1999 @ 2,500,000 2,481,475
Household Finance Corp
4.87% August 17, 1999 @ 1,200,000 1,192,370
KFW International Finance Inc
5.02% September 21, 1999 @ 2,500,000 2,470,275
Xerox Capital (Europe) PLC
5.05% September 3, 1999 @ 2,000,000 1,981,440
- ------------------------------------------------------
25,455,196
- ------------------------------------------------------
Repurchase Agreements -- 9.78%
State Street Repo 4.25%
July 1, 1999 (Cost - $23,634,000)
(Dated June 30, 1999, due
July 1, 1999, collateralized by
$22,895,000 U.S. Treasury
Bond 6.875%, May 15, 2006,
Market Value $24,111,297,
Repurchase Proceeds
$23,636,790) 23,634,000 23,634,000
- ------------------------------------------------------
Short Term Investment Fund -- .31%
State Street Global Advisors
Money Market Fund 748,893 748,893
- ------------------------------------------------------
U.S. Treasury -- 1.55%
United States Treasury Bills
4.45% September 9, 1999 @# 3,275,000 3,245,951
4.54% September 9, 1999 @# 500,000 495,565
- ------------------------------------------------------
3,741,516
- ------------------------------------------------------
Total Short Term Investments
(Cost $53,584,170) 53,579,605
======================================================
Total Investments -- 98.91%
(Cost $185,403,090) 238,890,998
======================================================
Other Assets and Liabilities -- 1.09% 2,621,123
======================================================
Total Net Assets-- 100% $241,512,121
======================================================
Preferred Fixed Income Fund
Fixed Income -- 91.68% Par+ Value
- ------------------------------------------------------
Asset Backed -- 1.96%
MBNA Master Credit Card Trust II
6.45% February 15, 2008 $1,500,000 $ 1,498,594
Sears Credit Account Master Trust
7.00% July 15, 2008 2,000,000 2,031,240
- ------------------------------------------------------
3,529,834
- ------------------------------------------------------
Collateralized Mortgage Obligations -- 11.74%
Comm 1999-1
6.455% September 15, 2008 705,000 676,328
Deutsche Mortgage & Asset
Receiving Corp
6.538% February 15, 2008 3,610,000 3,480,618
Federal Home Loan Mortgage Gtd
6.50% November 15, 2022 5,000,000 4,954,650
7.00% August 15, 2023 1,000,000 1,012,500
Federal National Mortgage Assn Gtd
5.50% December 25, 2008 1,200,000 1,152,744
6.50% May 18, 2011 2,500,000 2,489,825
JP Morgan Commercial Mortgage
Financial Corp **
8.731% November 25, 2027 1,000,000 871,719
MLIC Commercial Mortgage **
6.60% July 25, 2027 279,627 278,491
Merrill Lynch Mortgage Investments Inc
6.96% November 21, 2028 750,000 747,188
7.15% April 25, 2028 2,373,031 2,392,134
Morgan Stanley Capital I Inc
6.17% October 1, 2035 700,000 674,100
6.52% January 15, 2008 340,000 330,024
Nomura Asset Securities Corp
6.59% March 15, 2030 2,135,000 2,075,135
- ------------------------------------------------------
21,135,456
- ------------------------------------------------------
Electric -- 1.23%
Boston Edison Co
7.80% May 15, 2010 530,000 553,278
Calpine Corp
7.625% April 15, 2006 308,000 289,905
Pacific Corp Security Discounted MTN
6.75% July 15, 2004 770,000 776,283
TXU Eastern Funding Co **
6.75% May 15, 2009 625,000 592,811
- ------------------------------------------------------
2,212,277
- ------------------------------------------------------
Federal Agency Pooled -- 3.46%
Federal Home Loan Mortgage Corp
5.125% October 15, 2008 450,000 403,241
6.50% July 15, 2016 1,821,117 1,821,117
6.65% March 15, 2018 35,951 35,874
See notes to financial statements and notes to schedules of investments
48
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
- ------------------------------------------------------
Fixed Income Par+ Value
- ------------------------------------------------------
Federal Agency Pooled (CONTINUED)
Federal Home Loan
7.00% May 1, 2029 $2,398,080 $ 2,342,444
8.00% August 1, 2026 1,322,733 1,359,108
7.00% December 1, 2024 275,704 273,206
- ------------------------------------------------------
6,234,990
- ------------------------------------------------------
Finance & Banking -- 5.71%
AMSouth Bank North America
6.45% February 1, 2018 1,500,000 1,423,110
Associates Corp North America
6.95% November 1, 2018 580,000 551,496
EQCC Home Equity Loan Trust
6.41% December 15, 2004 1,600,000 1,591,024
FCB/NC Capital Trust I
8.05% March 1, 2028 700,000 660,881
Ford Motor Credit Co
5.75% February 23, 2004 1,095,000 1,056,730
Integra Bank Pittsburgh MTN
6.55% June 15, 2000 1,650,000 1,659,785
Keycorp Institutional Capital B
8.25% December 15, 2026 1,000,000 1,034,880
Security Pacific Corp MTN
10.30% May 15, 2001 1,250,000 1,335,875
Toyota Motor Credit Corp
5.625% November 13, 2003 1,000,000 969,880
- ------------------------------------------------------
10,283,661
- ------------------------------------------------------
Foreign Government -- 1.02%
Quebec Providence of Canada
5.75% February 15, 2009 2,000,000 1,840,080
- ------------------------------------------------------
Government Sponsored -- 30.45%
Federal National Mortgage Association
6.00% March 1, 2014 88,078 85,077
6.00% November 1, 2028 82,185 77,202
6.00% December 1, 2099 TBA 5,740,000 5,391,984
6.16% August 7, 2028 840,000 785,660
6.50% March 1, 2013 508,356 500,888
6.50% April 1, 2013 639,014 629,627
6.50% May 1, 2013 590,237 581,566
6.50% July 1, 2013 25,298 24,927
6.50% February 1, 2014 983,486 969,038
6.50% April 1, 2014 996,163 981,529
6.50% May 1, 2014 998,075 983,413
6.50% June 1, 2014 3,444,612 3,394,009
6.50% January 1, 2028 683,887 659,732
6.50% February 1, 2028 311,807 300,793
6.50% March 1, 2028 599,541 578,365
6.50% April 1, 2028 1,863,801 1,797,971
- ------------------------------------------------------
Fixed Income Par+ Value
- ------------------------------------------------------
Government Sponsored (CONTINUED)
6.50% May 1, 2028 $ 742,069 $ 716,917
6.50% June 1, 2028 2,191,150 2,113,758
6.50% August 1, 2028 271,115 261,539
6.50% September 1, 2028 1,310,653 1,264,361
6.50% October 1, 2028 3,771,090 3,637,896
6.50% November 1, 2028 1,419,054 1,368,933
6.50% December 1, 2028 1,424,560 1,374,245
6.50% January 1, 2029 2,468,853 2,381,652
6.50% February 1, 2029 2,943,033 2,839,086
6.50% March 1, 2029 8,247,104 7,955,817
6.50% April, 1 2029 4,125,539 3,990,764
6.50% May 1, 2029 1,795,098 1,731,696
6.925% March 1, 2001 710,923 716,255
7.00% July 1, 2025 151,977 150,220
7.00% August 1, 2025 161,179 159,365
7.00% November 1, 2025 339,949 336,124
7.00% May 1, 2026 182,463 180,354
7.00% June 1, 2026 238,428 235,672
7.00% September 1, 2026 462,511 457,277
7.00% December 1, 2026 464,125 458,755
7.00% October 1, 2027 74,304 73,445
7.00% February 1, 2028 537,492 531,274
7.00% August 1, 2028 769,532 760,629
7.00% October 1, 2028 1,096,909 1,084,264
7.00% November 1, 2028 809,599 800,232
7.00% December 1, 2028 385,200 380,744
7.00% February 1, 2029 631,493 624,187
7.00% March 1, 2029 493,299 487,591
- ------------------------------------------------------
54,814,833
- ------------------------------------------------------
Industrials -- 9.06%
Boston Scientific Corp
6.625% March 15, 2005 1,500,000 1,397,190
Canadian Occidental Petroleum Ltd
7.40% May 1, 2028 2,600,000 2,361,580
Comcast Cable Communications
8.125% May 1, 2004 2,000,000 2,110,100
Energy Group Overseas B V
7.50% October 15, 2027 625,000 597,981
Ford Motor Co
9.00% September 15, 2001 1,695,000 1,789,479
Laidlaw Inc
6.50% May 1, 2005 2,350,000 2,168,204
6.72% October 1, 2027 1,000,000 901,060
Lakehead Pipeline Co Ltd
7.125% October 1, 2028 350,000 312,095
Lasmo U.S.A. Inc
7.30% November 15, 2027 80,000 74,298
Lomak Petroleum Inc
8.75% January 15, 2007 300,000 264,000
See notes to financial statements and notes to schedules of investments
49
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Fixed Income Fund (CONTINUED)
Fixed Income Par+ Value
- ------------------------------------------------------
Industrials (CONTINUED)
Mariner Health Group Inc
9.50% April 1, 2006 $ 400,000 $ 76,000
Occidental Petroleum Corp
8.45% February 15, 2029 70,000 73,251
Oil Purchase Co **
7.10% April 30, 2002 1,054,864 981,424
Philip Morris Cos Inc
6.15% March 15, 2000 600,000 602,382
Plains Resource Inc
10.25% March 15, 2006 400,000 405,000
Ultramar Diamond Shamrock Corp
6.75% October 15, 2037 2,000,000 1,906,780
Westpoint Stevens Inc
7.875% June 15, 2005 300,000 294,000
- ------------------------------------------------------
16,314,824
- ------------------------------------------------------
Mortgage Related-Other Marketable -- 2.13%
Midland Realty Acceptance Corp
7.02% January 25, 2029 1,443,368 1,452,490
Ocwen Residential MBS Corp **
7.00% October 25, 2030 *** 2,413,364 2,381,688
- ------------------------------------------------------
3,834,178
- ------------------------------------------------------
Telephone -- 3.52%
AT&T Corp
6.00% March 15, 2009 1,940,000 1,823,193
Adelphia Communications Corp
7.875% May 1, 2009 200,000 187,000
Aerial Communications Inc **
Zero Coupon February 1,
2008 3,265,000 1,541,188
McLeod USA Inc
9.25% July 15, 2007 235,000 233,238
Telecommunications Inc
7.875% August 1, 2013 1,500,000 1,581,495
US West Capital Funding Inc
6.25% July 15, 2005 1,000,000 969,270
- ------------------------------------------------------
6,335,384
- ------------------------------------------------------
U.S. Government Agency
Mortgage-Backed Securities -- 4.87%
Government National Mortgage Association
7.00% with maturities of June 15, 2028
through July 15, 2029 66,935 66,035
7.50% August 20, 2026 1,530,036 1,538,635
7.50% June 15, 2027 30,143 30,425
7.50% July 15, 2028 4,543,240 4,590,081
8.00% January 15, 2027 2,471,512 2,541,777
- ------------------------------------------------------
8,766,953
- ------------------------------------------------------
- ------------------------------------------------------
Fixed Income Par+ Value
- ------------------------------------------------------
U.S. Treasury -- 16.53%
United States Treasury Bonds
5.25% November 15, 2028 $ 375,000 $ 332,404
5.25% February 15, 2029 1,815,000 1,630,669
5.50% August 15, 2028 790,000 723,340
6.75% August 15, 2026 3,255,000 3,484,868
12.00% August 15, 2013 4,225,000 5,932,154
United States Treasury Notes
4.75% November 15, 2008 390,000 358,129
5.25% August 15, 2003 # 1,300,000 1,277,861
5.50% May 15, 2009 2,950,000 2,881,767
5.625% May 15, 2008 1,600,000 1,567,248
5.875% November 15, 2005 3,468,000 3,468,000
6.125% August 15, 2007 275,000 277,965
6.625% May 15, 2007 1,720,000 1,791,225
6.875% May 15, 2006 5,734,000 6,036,809
- ------------------------------------------------------
29,762,439
- ------------------------------------------------------
Total Fixed Income
(Cost $170,303,453) 165,064,909
======================================================
- ------------------------------------------------------
Short Term Investments -- 7.53% Par+ Value
- ------------------------------------------------------
Collateralized Mortgage Obligations -- 2.78%
Cregem North America Inc
4.81% July 1, 1999 *** 5,000,000 5,000,000
- ------------------------------------------------------
Finance & Banking -- 1.35%
Ford Motor Credit Co
4.95% July 8, 1999 @ 925,000 924,110
General Motors Acceptance Corp
8.00% October 1, 1999 @ 1,500,000 1,508,521
- ------------------------------------------------------
2,432,631
- ------------------------------------------------------
Government Sponsored -- 3.40%
Student Loan Marketing Disc Note
4.60% July 1, 1999 6,127,000 6,127,000
- ------------------------------------------------------
Total Short Term Investments
(Cost $13,556,944) 13,559,631
======================================================
Total Investments -- 99.21%
(Cost $183,860,397) 178,624,540
======================================================
Other Assets and Liabilities-- .79% 1,423,648
======================================================
Total Net Assets-- 100% $180,048,188
======================================================
See notes to financial statements and notes to schedules of investments
50
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
Preferred Short-Term Government Securities Fund
Fixed Income -- 93.31% Par Value
- ------------------------------------------------------
Collateralized Mortgage Obligations -- 19.51%
Federal Home Loan Mortgage Corp
6.00% February 15, 2007 $3,000,000 $ 3,000,000
Federal Home Loan Mortgage Gtd
5.75% January 15, 2006 1,500,885 1,499,474
6.00% April 15, 2005 1,523,189 1,521,757
6.00% August 15, 2016 383,912 383,708
6.00% December 15, 2017 2,020,303 2,018,404
Federal National Mortgage
Association Gtd
5.75% February 25, 2017 1,229,732 1,226,056
Federal National Mortgage
Association REMIC
6.00% November 25, 2016 2,418,517 2,413,221
6.00% November 25, 2018 554,387 552,652
6.65% October 25, 2018 367,475 366,556
- ------------------------------------------------------
12,981,828
- ------------------------------------------------------
Federal Agency Pooled -- 9.62%
Federal Home Loan
6.00% April 1, 2001 709,553 706,268
6.00% December 1, 2000 2,868,062 2,854,782
6.00% January 1, 2001 2,855,674 2,842,452
- ------------------------------------------------------
6,403,502
- ------------------------------------------------------
Government Sponsored -- 18.29%
Federal Home Loan Banks
5.66% January 13, 2003 4,500,000 4,454,280
Federal National Mortgage Association MTN
5.41% February 13, 2001 1,000,000 994,370
7.68% April 24, 2007 1,000,000 1,004,220
Federal National Mortgage Association
5.50% November 1, 2002 862,044 845,406
6.50% December 1, 2000 1,549,716 1,550,693
6.50% April 1, 2003 1,435,553 1,433,486
Overseas Private Investment Corp
6.13% September 15, 2001 1,875,000 1,890,000
- ------------------------------------------------------
12,172,455
- ------------------------------------------------------
U.S. TREASURY -- 45.89%
United States Treasury Notes
4.25% November 15, 2003 12,500,000 11,802,750
4.625% November 30, 2000 5,000,000 4,946,100
4.875% March 31, 2001 4,500,000 4,454,280
5.25% August 15, 2003 7,500,000 7,372,275
5.25% May 15, 2004 2,000,000 1,965,321
- ------------------------------------------------------
30,540,726
- ------------------------------------------------------
- ------------------------------------------------------
Fixed Income Par Value
- ------------------------------------------------------
Total Fixed Income
(Cost $63,225,354) $62,098,511
======================================================
- ------------------------------------------------------
Short Term Investments -- 5.75% Par/Shares Value
- ------------------------------------------------------
Federal Agency Pooled -- .06%
Federal Home Loan
6.00% July 1, 1999 @ $ 26,003 25,920
6.75% October 1, 1999 @ 19,426 19,505
- ------------------------------------------------------
45,425
- ------------------------------------------------------
Short Term Investment Fund -- 4.18%
State Street Global Advisors
Money Market Funds 2,779,363 2,779,362
- ------------------------------------------------------
U.S. Treasury -- 1.51%
United States Treasury Notes
8.00% August 15, 1999 @ 1,000,000 1,003,910
- ------------------------------------------------------
Total Short Term Investments
(Cost $3,827,719) 3,828,697
======================================================
Total Investments -- 99.06%
(Cost $67,053,073) 65,927,208
======================================================
Other Assets and Liabilities-- .94% 624,165
======================================================
Total Net Assets-- 100% $66,551,373
======================================================
See notes to financial statements and notes to schedules of investments
51
<PAGE>
Schedules of Investments
June 30, 1999
Preferred Money Market Fund
Short Term Investments -- 101.29% Par Value
- ------------------------------------------------------
Certificates of Deposit -- 15.40%
Abbey National Treasury Services
5.22% May 11, 2000 @ $2,000,000 $ 1,999,169
Bank of Nova Scotia
5.15% April 20, 2000 @ 3,000,000 2,998,604
Bayerische Hypo Un
5.15% April 25, 2000 @ 7,000,000 6,996,689
Bayerische Landes Bank
5.115% March 21, 2000 @ 1,000,000 998,963
Dresdner Bank AG New York
4.95% November 9, 1999 @ 3,000,000 2,999,584
Nationsbank Corp of NA Carolinas
5.00% January 5, 2000 @ 4,000,000 3,999,602
Toronto Dominion
5.64% July 14, 1999 @ 2,000,000 1,999,966
5.65% July 26, 1999 @ 1,000,000 999,961
Wachovia Bank of NC
5.02% November 22, 1999 7,000,000 7,000,000
- ------------------------------------------------------
29,992,538
- ------------------------------------------------------
Commercial Paper -- 38.66%
Associates Corp of NA
5.78% July 1, 1999 9,000,000 9,000,000
Bavaria Trr Corp Cp
4.83% July 21, 1999 @ 8,000,000 7,978,533
Caisse D' Amortissement
4.90% November 23, 1999 @ 5,000,000 4,901,319
Cregem North America Inc
4.74% July 19, 1999 @ 5,000,000 4,988,150
Ford Motor Credit Co
5.07% July 8, 1999 @ 7,500,000 7,492,606
Halifax PLC
4.73% July 13, 1999 @ 6,000,000 5,990,540
Koch Industries
5.52% July 1, 1999 9,000,000 9,000,000
Mobil Corp
4.97% July 1, 1999 5,000,000 5,000,000
Morgan Stanley Dean Witter
4.95% July 20, 1999 @ 5,000,000 4,986,938
Salomon Smith Barney Holdings Inc
4.91% July 14, 1999 @ 2,000,000 1,996,454
UBS Finance Delaware Inc
4.72% July 15, 1999 @ 6,000,000 5,988,987
Westpac Capital Corp
4.81% July 16, 1999 @ 8,000,000 7,983,967
- ------------------------------------------------------
75,307,494
- ------------------------------------------------------
Corporate Bonds -- 2.05%
Wells Fargo & Co
5.31% March 31, 2000 @ 4,000,000 3,998,910
- ------------------------------------------------------
- ------------------------------------------------------
Short Term Investments Par Value
- ------------------------------------------------------
Floating Rate Notes -- 26.28%
Abbey National Treasury PLC
5.087% July 20, 1999 @## $ 4,000,000 $ 3,999,835
American Express Centurion Bank
4.931% July 26, 1999 ## 7,000,000 7,000,000
Banc One Corp MTN
5.003% September 15,
1999 @## 3,000,000 2,999,865
CIT Group Inc
4.966% July 20, 1999 @## 3,200,000 3,200,094
Citigroup Inc
5.068% August 3, 1999 @## 5,000,000 5,004,027
Comerica Bank of Detroit
4.965% July 14, 1999 @## 5,000,000 4,999,230
Commerz Bank AG New York
4.936% August 23, 1999 @## 4,000,000 3,998,972
First Chicago Corp MTN
4.932% August 4, 1999 @## 2,000,000 1,999,993
First Union National Bank Charlotte NC
4.969% July 26, 1999 ## 4,000,000 4,000,000
General Motors Acceptance Corp
4.602% July 6, 1999 @## 4,000,000 3,997,628
Key Bank North America MTN
5.016% July 15, 1999 ## 2,000,000 2,000,000
4.891% September 3,
1999 @## 4,000,000 3,999,828
Pepsico Inc MTN
4.729% August 19, 1999 @## 4,000,000 3,999,394
- ------------------------------------------------------
51,198,866
- ------------------------------------------------------
Government Agency -- 18.90%
Federal Home Loan Mortgage
Discount Note
4.85% July 14, 1999 @ 5,000,000 4,991,243
Student Loan Marketing Discount Note
4.60% July 1, 1999 31,825,000 31,825,000
- ------------------------------------------------------
36,816,243
- ------------------------------------------------------
Total Short Term Investments
(Cost $197,314,051) 197,314,051
======================================================
Total Investments -- 101.29%
(Cost $197,314,051) 197,314,051
======================================================
Other Assets and Liabilities -- (1.29%) (2,505,942)
======================================================
Total Net Assets-- 100% $194,808,109
======================================================
See notes to financial statements and notes to schedules of investments
52
<PAGE>
The Preferred Group of Mutual Funds
Schedule of Investments
Notes to Schedules of Investments
* NON-INCOME PRODUCING SECURITY
** PURSUANT TO RULE 144A UNDER THE SECURITIES ACT OF 1933, THESE SECURITIES
MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO
QUALIFIED INSTITUTIONAL BUYERS. AT JUNE 30, 1999, THESE SECURITIES AMOUNTED
TO $6,647,321 OR 3.69% OF THE NET ASSETS OF THE PREFERRED FIXED INCOME
FUND.
*** THESE SECURITIES ARE BEING USED TO COLLATERALIZE TBA CONTRACTS OUTSTANDING
AT JUNE 30, 1999.
# ALL OR A PORTION OF THIS SECURITY IS BEING USED TO COLLATERALIZE FUTURES
CONTRACTS OUTSTANDING AT JUNE 30, 1999. ADDITIONAL SECURITIES ARE EARMAKED
TO COVER THE REMAINING VALUE OF FUTURES CONTRACTS.
## FLOATING RATE NOTE. THE INTEREST RATE SHOWN REFLECTS THE RATE CURRENTLY IN
EFFECT. THE MATURITY DATE SHOWN REFLECTS THE NEXT RESET DATE.
@ YIELDS ARE AT TIME OF PURCHASE (UNAUDITED).
+ PAR IS IN U.S. DOLLARS UNLESS OTHERWISE NOTED.
ABBREVIATIONS:
ADR - American Depository Receipt
MTN - Medium Term Notes
SDR - Swedish Depository Receipt
TBA - To Be Announced
See notes to financial statements.
53
<PAGE>
Notes to Financial Statements June 30, 1999
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 eight
portfolios (the "Funds"):
Preferred Growth Fund ("Growth") - seeks long-term capital appreciation. The
Fund invests 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 primarily in equity securities traded principally
on markets outside the United States.
Preferred Small Cap Fund ("Small Cap") - seeks long-term capital
appreciation through investments in companies with small equity
capitalizations.
Preferred Asset Allocation Fund ("Asset Allocation") - seeks both capital
appreciation and current income by allocating its assets among stocks, bonds
and high quality money market instruments.
Preferred 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 investment 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 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
the reported amounts of income and expenses during the reporting period and
disclosure of contingent assets and liabilities at the date of the financial
statements. 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.
Security Valuations
Portfolio securities 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 market 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. Forward contracts are valued at the mean between the bid and
the offered forward rates as last quoted by a pricing service. Obligations
with a remaining maturity of 60 days or less and holdings in Money Market
are valued at amortized cost which approximates market value. Equity
securities that have reached the limit for aggregate foreign ownership may
trade at a premium to the local share price. The premium is valued based on
prices supplied by a broker. Portfolio positions which cannot be valued as
set forth above are valued at fair value under procedures approved by the
Trustees.
54
<PAGE>
The Preferred Group of Mutual Funds Notes to Financial Statements
Certain investments in securities held by the Funds were valued on the basis
of a price provided by a principal market maker. At June 30, 1999, the total
value of these securities represented 3.00% of net assets of the Fixed
Income Fund. These prices may differ from the value that would have been
used had a broader market for the securities existed.
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, 1999, capital loss carryforwards 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 $ 408,901
SHORT-TERM GOVERNMENT 2004 302,863
SHORT-TERM GOVERNMENT 2005 96,867
SHORT-TERM GOVERNMENT 2007 34,485
SMALL CAP 2007 11,053,418
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
and market discount are accreted to interest income over the life of a
security with a corresponding adjustment in the cost basis; premium is
amortized on debt securities with a corresponding adjustment to the cost
basis. For the Short-Term Government Securities Fund, income earned on
short-term investment funds is included in interest income in the Statement
of Operations. Payments received in kind are recorded at the fair market
value of the securities received.
Distributions to Shareholders
Growth, Value, International and Small Cap declare and pay dividends at
least annually. Dividends are declared and paid quarterly for Asset
Allocation. 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, net operating losses,
losses deferred due to wash sales and post-October 31 losses. 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.
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.
55
<PAGE>
Notes to Financial Statements June 30, 1999
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 Short-Term Government and 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 in the Statement of Assets and Liabilities. 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, which is disclosed in the Statement
of Operations. 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, 1999.
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
declares bankruptcy.
Industry Concentrations
While none of the Funds is permitted to invest more than 25% of its assets
in a particular industry (other than Money Market, 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.
56
<PAGE>
The Preferred Group of Mutual Funds Notes to Financial Statements
Other
Corporate actions (including cash dividends) are recorded on the ex-date
(except for certain foreign securities for which corporate actions are
recorded as soon after the ex-date as the Funds become aware of such), net
of nonrebatable tax withholdings. Where a high level of uncertainty as to
collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
All Funds (except Short-Term Government) may invest in foreign securities.
There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities.
These risks may include foreign currency exchange rate fluctuations, adverse
political and economic developments and the imposition of unfavorable
foreign governmental laws or restrictions, including the possible prevention
of currency exchange. The Funds may be subject to foreign taxes on income
and gains on investments which are accrued based upon the Fund's
understanding of the tax rules and regulations.
57
<PAGE>
Notes to Financial Statements June 30, 1999
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%
FIXED INCOME 0.50%
SHORT-TERM GOVERNMENT 0.35%
MONEY MARKET 0.30%
To assist in carrying out its responsibilities, the Manager has retained
various subadvisors to render advisory services to the Funds:
FUND SUBADVISOR(S)
GROWTH Jennison Associates Capital Corp.
("Jennison")
VALUE Oppenheimer Capital ("Oppenheimer")
INTERNATIONAL Mercator Asset Management(R), L.P.
("Mercator")
SMALL CAP 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")
SHORT-TERM GOVERNMENT None
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, 1999, brokerage commissions were paid to
the following affiliates of the Trust's subadvisors by the following Funds:
GROWTH VALUE
J. P. MORGAN SECURITIES, INC. $52,788 -
PRUDENTIAL SECURITIES, INC. 1,694 -
VECTOR SECURITIES, INC. 187 -
OPPENHEIMER & CO., INC. - $2,750
------- ------
$54,669 $2,750
======= ======
Trustees' Fees
For the fiscal year ended June 30, 1999, 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 $10,000 plus
$1,500 for each Trustees' meeting attended.
58
<PAGE>
The Preferred Group of Mutual Funds Notes to Financial Statements
3. BENEFICIAL INTEREST
As of June 30, 1999, affiliated shareholders beneficially holding more than
5% of total shares outstanding were as follows:
% OF TOTAL SHARES OUTSTANDING
GROUP PREFERRED STABLE
INSURANCE INSURANCE PRINCIPAL
401(K) PLAN* TRUST A & B** RESERVES*** COLLECTIVE TRUST
GROWTH 69.22% - - -
VALUE 70.43% - 5.85% -
INTERNATIONAL 33.65% 38.12% - -
SMALL CAP 33.92% 50.77% 8.78% -
ASSET ALLOCATION 45.60% 24.13% - -
FIXED INCOME 23.08% 23.73% - 39.39%
SHORT-TERM GOVERNMENT 30.59% 29.16% 34.81% -
MONEY MARKET 81.03% - - 7.31%
* 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. The 34.81%
holdings in Short-Term Government Securities are held by American Bankers'
Insurance Company of Florida for the benefit of Caterpillar Insurance
Company Limited.
59
<PAGE>
Notes to Financial Statements June 30, 1999
4. PORTFOLIO INFORMATION
Security Purchases and Sales
During the fiscal year ended June 30, 1999, purchases and sales of long-term
investments (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 $415,847,572 $398,411,978 - -
VALUE 86,508,608 97,505,779 - -
INTERNATIONAL 48,731,753 39,005,759 - -
SMALL CAP 134,828,430 137,371,504 - -
ASSET ALLOCATION 18,242,473 2,316,873 $ 71,315,903 $21,748,721
FIXED INCOME 207,346,822 158,172,039 101,551,132 86,974,047
SHORT-TERM GOVERNMENT 16,556,940 14,085,060 56,403,414 25,084,828
</TABLE>
During the fiscal year ended June 30, 1999, Money Market had purchases and
sales (including maturities and excluding repurchase agreements) of
short-term obligations and U.S. Government Securities of:
<TABLE>
<CAPTION>
OTHER U.S. GOVERNMENT
PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C>
MONEY MARKET $5,175,438,494 $5,081,045,344 $59,931,242 $59,939,000
</TABLE>
Futures Contracts
Asset Allocation and Fixed Income had the following futures contracts open
at June 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION UNDERLYING UNREALIZED
CONTRACTS CONTRACTS DATE FACE VALUE GAIN (LOSS), NET
<S> <C> <C> <C> <C>
ASSET ALLOCATION:
LONG POSITIONS:
S&P 500 76 Sep 99 $26,252,300 $ 1,160,708
U.S. TREASURY BONDS 649 Sep 99 75,223,156 (902,905)
-------------
257,803
-------------
SHORT POSITIONS:
S&P 500 111 Sep 99 (38,342,175) (1,569,484)
-------------
($ 1,311,681)
=============
FIXED INCOME:
LONG POSITIONS:
U.S. TREASURY NOTES 1 Sep 99 109,000 $ 963
U.S. TREASURY BONDS 10 Sep 99 1,159,063 4,003
-------------
4,966
-------------
SHORT POSITIONS:
U.S. TREASURY NOTES 55 Sep 99 (6,115,313) (67,362)
-------------
($ 62,396)
=============
</TABLE>
60
<PAGE>
The Preferred Group of Mutual Funds Notes to Financial Statements
Unrealized Appreciation (Depreciation)
Unrealized appreciation (depreciation) for each Fund at June 30, 1999, based
on cost of both long-term and short-term securities for federal tax purposes
were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED COST FOR
GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/ FEDERAL TAX
FUND APPRECIATION (DEPRECIATION) (DEPRECIATION) PURPOSES
<S> <C> <C> <C> <C>
GROWTH $231,913,314 ($ 4,784,400) $227,128,914 $438,537,696
VALUE 197,610,803 (9,310,301) 188,300,502 238,424,373
INTERNATIONAL 81,656,995 (8,237,543) 73,419,452 229,286,713
SMALL CAP 18,608,332 (3,313,774) 15,294,558 91,234,696
ASSET ALLOCATION 56,974,300 (3,552,318) 53,421,982 185,469,016
FIXED INCOME 584,716 (5,847,276) (5,262,560) 183,887,100
SHORT-TERM GOVERNMENT 23,916 (1,191,969) (1,168,053) 67,095,261
MONEY MARKET - - - 197,314,051
</TABLE>
61
<PAGE>
Report of Independent Accountants June 30, 1999
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 eight Funds
constituting The Preferred Group of Mutual funds (the "Trust") at June 30, 1999,
the results of each of their operations for the year then ended, 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 the 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
AUGUST 16, 1999
62
<PAGE>
The Preferred Group of Mutual Funds Notes to Financial Statements
Income Tax Information (Unaudited)
The Funds which declared and paid a long-term capital gain distribution in
calendar year 1998 (Growth, Value, International, Small Cap, Asset
Allocation and Fixed Income) hereby designate the following amounts as
long-term capital gain distributions:
LONG-TERM
FUND CAPITAL GAINS
GROWTH $104,972,140
VALUE 15,329,006
INTERNATIONAL 8,299,909
SMALL CAP 5,076,273
ASSET ALLOCATION 6,833,057
FIXED INCOME 947,976
63
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The Preferred Group of Mutual Funds June 30, 1999
LOGO: The Preferred Group of Mutual Funds
1-800-662-4769
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.
Officers and Trustees
Gary M. Anna Trustee
William F. Bahl Trustee
F. Lynn McPheeters Trustee
Dixie L. Mills Trustee
Kenneth J. Zika Trustee
David L. Bomberger President
Fred L. Kaufman Vice President and Treasurer
Richard P. Konrath Clerk
Investment Advisor
Caterpillar Investment Management Ltd.
411 Hamilton Boulevard, Suite 1200
Peoria, IL 61602-1104
Distributor
Caterpillar Securities Inc.
411 Hamilton Boulevard, Suite 1200
Peoria, IL 61602-1104
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
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
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The Preferred Group of Mutual Funds 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 Traditional or
Roth IRA account. You may transfer or roll over your current IRA. You may
also convert your current IRA at another institution to a Preferred Roth
IRA. Call 1-800-662-4769 for a free IRA kit.
COMPREHENSIVE INVESTOR SERVICES
You can reach The Preferred Group at 1-800-662-4769 during normal business
hours of 8 a.m. to 6 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 our 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 Group fund.
All of your money goes to work for you immediately.
* THE PREFERRED GROUP IS A NO-LOAD MUTUAL FUND FAMILY AND DOES NOT CHARGE ANY
12B-1 FEES. AS WITH ANY NO-LOAD MUTUAL FUND, HOWEVER, CERTAIN OTHER FEES
AND EXPENSES DO APPLY TO CONTINUED INVESTMENTS IN THE FUNDS. THESE FEES AND
EXPENSES ARE DESCRIBED IN THE FUNDS' CURRENT PROSPECTUS, WHICH SHOULD BE
READ CAREFULLY BEFORE MAKING AN INVESTMENT.
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LOGO: THE PREFERRED GROUP OF MUTUAL FUNDS
P.O. Box 8320
Boston, MA 02266-8320
DISTRIBUTED BY
CATERPILLAR SECURITIES INC.
Annual Report
June 30, 1999
Building Financial Bridges
STANDARD A
U.S. POSTAGE PAID
SOUTH SUBURBAN, IL
PERMIT NO. 3602
