September 1997
Dear Shareholders:
The investment returns of the Capital Value Fund Portfolios for the six months
ended September 30, 1997, are discussed in the management commentary in the
following pages.
The last six months have been terrific ones for investors in both the U.S. stock
market and bond market. The stock market, as measured by the total return of the
S&P 500 rose 26.26 percent! Bonds also performed very well, with the Lehman
Aggregate Bond Index advancing 7.14 percent during the period.
As discussed more thoroughly in the management commentary, the financial markets
have benefited from an economic scenario featuring continued economic growth,
with few signs of inflation. In such a favorable environment, gains in both the
stock market and the bond market are to be expected.
Your portfolios participated nicely in the overall market advances. A major
contributor to our performance was the return of James Richards to IMG, who took
over management of the Equity Portfolio and the equity portion of the Total
Return Portfolio at the end of April.
Our longer-term outlook for both stocks and bonds remains positive. Short term,
we remain vigilant for signs of the inflationary trends, which so often occur
late in the business cycle. Just a hint of inflation could well bring a jump in
interest rates. Higher interest rates are nearly always negative for the stock
market. Even so, longer term, the current moderate growth environment looks
quite good.
As always, we thank you for your investment in the Capital Value Funds. We
encourage your feedback. If you have any questions or comments please call us at
1-800-798-1819.
Sincerely,
Richard C. Anderson David W. Miles
Chairman and Director, President, Capital Value Fund, Inc.
Capital Value Fund, Inc. Senior Managing Director
Investors Management Group
<PAGE>
CAPITAL VALUE EQUITY PORTFOLIO
For the six-month period ended September 30, 1997, the Equity Portfolio
generated total returns of 16.52 percent and 16.82 percent for Initial and
Select shares, respectively. These returns compare to the 26.26 percent total
return generated by the S&P 500 Index.
Stock returns were robust during the period, particularly during the second
quarter when the S&P 500 Index advanced 17.46 percent, the highest quarterly
return for the S&P 500 since the first quarter of 1987. Despite a softening in
the stock market during August, due to renewed inflation fears sparked by
stronger-than-expected economic growth, stocks ended the period on firmer ground
and poised for further advances.
During the period, the S&P 500 was led by technology, consumer cyclicals,
financials, oil and gas drilling, and transportation. These sectors benefited as
investors rotated to cyclical industry groups in the belief that the
stronger-than-expected economic growth during the period offered the opportunity
to buy increasing earnings growth at cheaper valuations. Lagging sectors
included health care, consumer staples, utilities, capital goods, basic
materials, and consumer services. Large capitalization, economically defensive
stocks particularly underperformed due to high valuations and profit warnings
from high profile companies such as Coca-Cola and Gillette.
As you may recall, I rejoined Investors Management Group at the end of April.
Since that time, we have significantly repositioned the Equity Portfolio. We
have broadened the diversification of the portfolio among a larger number of
stocks and industry groups, raised the beta of the portfolio so it will
participate more consistently in market advances, and increased the portfolio's
exposure to high quality, large capitalization stocks that exhibit consistent
and reliable earnings growth. We strengthened the portfolio's stock holdings by
selling stocks with weaker business fundamentals and replacing them with
fundamentally stronger stocks that have a higher probability of meeting earnings
expectations over the long run. We also eliminated the portfolio's exposure to
electric utility stocks and significantly increased exposure to technology and
capital goods.
The Equity Portfolio's shortfall in performance relative to the S&P 500 occurred
primarily in April, before the repositioning of the portfolio occurred, and in
July when cyclical stocks dramatically outperformed. We were underweighted in
cyclical stocks due to our belief that economic growth would remain moderate.
This was not the case in July and August when economic conditions became much
stronger than expected. However, we believe that the surge in cyclical stocks
may prove to be temporary. The economy will have to show even more strength in
order for the cyclical stocks to achieve further relative gains, an occurrence
we find less and less likely. In fact, the economy began to show signs of
slowing in September, and we believe this may continue into the fourth quarter.
The strong performance of cyclical stocks has already begun to wane in the last
several weeks as the economy has slowed. Likewise, the Equity Portfolio has
performed well since the end of July as noncyclical stocks have slowly begun to
rebound. We are confident the portfolio is favorably positioned and believe that
the expected benefits from the portfolio repositioning will become apparent as
we move into 1998.
Going forward, our strategy will focus on companies that possess strong or
improving business fundamentals combined with earnings that are growing faster
than the broad stock market. We believe corporate earnings growth will slow in
1998, which should create opportunities for companies that exhibit steady and
predictable above-market growth rates to outperform. We favor consumer staples,
health care, and financials. We also favor technology but believe it is
important to be selective as some stocks in the group are fully valued after
strong price gains in July.
Our longer-term outlook for stocks is still positive. The fundamental
environment surrounding the stock market remains favorable. We continue to
believe that moderate, not explosive, economic growth will keep interest rates
under control and higher inflation at bay. As always, we continue to watch for
signs that would suggest this positive environment may be changing. Earnings
growth is slowing but should be in the upper single digit percentage range for
1998. This suggests that stock returns will most likely continue to be positive
but may be closer to the stock market's long-run historical average return of
approximately 10 percent.
JAMES T. RICHARDS
PORTFOLIO MANAGER
<PAGE>
CAPITAL VALUE TOTAL RETURN
For the six-month period ended September 30, 1997, the Total Return Portfolio
increased in value with Initial and Select shares achieving total returns of
11.83 percent and 12.12 percent respectively. For the same period, the benchmark
index, which is comprised of 50 percent of the S&P 500 Index and 50 percent of
the Lehman Aggregate Bond Index, generated a total return of 16.48 percent.
Both stocks and bonds performed well during the period. The financial markets
continue to be buoyed by moderate economic growth and mild inflation. The total
return of the S&P 500 was 26.26 percent and the total return of the Lehman
Aggregate Bond Index was 7.14 percent.
During the period, the allocation to stocks has been increased from 43 percent
to 55 percent of the portfolio, since the fundamental environment surrounding
the stock market is favorable. Although valuations in the stock market are at
the higher end of historical averages, these valuations can be sustained if
economic growth continues to be moderate and inflation remains under control.
Earnings growth is slowing but should be in the upper single digit percentage
range for 1998. This suggests that stock returns will most likely continue to be
positive, but may be closer to the stock market's long-run historical average
return of approximately 10 percent annually.
The equity portion of the portfolio was repositioned during the quarter. The
diversification of the portfolio was broadened among a larger number of industry
groups and companies. An emphasis has been placed on exposure to high quality,
large capitalization stocks that exhibit consistent and reliable earnings
growth. Stocks with weaker business fundamentals were sold and replaced with
stocks that have a stronger earnings outlook. The portfolio's exposure to
electric utility stocks was eliminated. This industry is under considerable
stress due to deregulation. Exposure to the technology and capital goods
industries was increased.
During the period, long-term interest rates declined by nearly 0.75 percent as
fears of inflation due to the strong economic growth of the first quarter
dissipated. The duration of the bond portion of the portfolio was reduced from
10 percent longer than the index to only 5 percent as bonds moved closer to fair
value. The exposure to mortgage-backed securities was increased. Mortgage-backed
securities had underperformed as interest rates fell and thus offered good
value.
The secular outlook for bond investors continues to be positive, since the
differential between long-term interest rates and underlying inflationary trends
is wide relative to historical norms. Our near-term outlook is more cautious.
Typically, during the last stages of a business expansion inflation rises, as
resources, such as labor and factories, struggle to keep up with demand. The
labor market in the U.S. is tight with the unemployment rate below 5 percent
causing wages to begin to rise. Due to sluggish overseas economies, inflationary
pressures have been contained. Excess capacity overseas has resulted in a
competitive global marketplace, and companies have not had much success raising
prices. We continue to watch carefully for signs of inflation.
In conclusion, the environment for financial assets continues to be positive.
Moderate economic growth and mild inflation provide strong underpinnings for
both stocks and bonds. Stock returns may be closer to 10 percent over the next
year as earnings growth slows. Bond returns are always vulnerable to fears of
rising inflation but may approach 7 percent over the next year.
KATHRYN D. BEYER, CFA JAMES T. RICHARDS
PORTFOLIO MANAGER PORTFOLIO MANAGER
<PAGE>
CAPITAL VALUE FIXED INCOME PORTFOLIO
For the six-month period ended September 30, 1997, the Fixed Income Portfolio
generated total returns of 6.75 percent and 7.00 percent for Initial and Select
shares, respectively. During the same period, the Lehmann Aggregate Bond Index
generated a total return of 7.14 percent.
On the heels of a strong rally in the last quarter, bonds posted another
tremendous quarter. However, this rally tested investors with a number of
temporary retreats before ending the quarter with the 30-year Treasury yield 40
basis points lower. The volatility in the bond market persisted during the
quarter as stronger economic news conflicted with declining inflation data,
creating confusion among investors. All in all, the economy continued to grow at
above-average pace without any obvious inflationary pressure.
Our view that the economy remains strong is supported by a variety of themes.
Consumer confidence remains high, real disposable income is rising, personal
wealth has been enhanced, construction remains strong, and business capital
investment trends are still rising. Companies are still investing in
productivity enhancements, while the consumer is positioned financially for what
could be a very strong holiday season.
However, we remain cautious regarding inflation. This year, we have seen general
inflation measures, the Consumer Price Index and Producer Price Index, drop to
levels not seen since the mid-1960s, set on the back drop of a stronger dollar
and higher productivity. Year over year, the trade-weighted dollar is up over 14
percent, a trend unlikely to continue. Productivity remains strong, but how much
additional benefit can be achieved this late in the expansionary cycle of the
economy? How soon will it be before increases in wage growth outpace
productivity gains and push prices higher? The stronger dollar and higher
productivity have cushioned the impact of inflation over the last 18 months, but
can it be sustained?
Currently, we are managing the bond portfolio with the expectation that we are
in the lower end of a trading range of long-term interest rates. While long term
we believe interest rates will likely move lower, in the short term, we believe
interest rates may move higher on fears of increasing inflation.
Recently, we have shortened the duration of the portfolio, in expectation of
higher rates later this year. We have also increased the portfolio's exposure to
mortgage-backed securities to take advantage of their underperformance as
interest rates declined this quarter. We have postured the maturity distribution
with a slight bias toward a steepening in the yield curve relative to the Lehman
Aggregate Bond Index. This should enhance returns if interest rates retrace last
quarter's move.
JEFFREY D. LORENZEN, CFA
PORTFOLIO MANAGER
<PAGE>
MANAGEMENT TEAM
Ms. Beyer is a fixed income strategist. Prior to joining IMG, she was the
Director of Mortgage-Backed Securities for Central Life Assurance Company with
the responsibility of managing two portfolios which comprised 20 percent of the
company's assets. Prior to her promotion, Kathy was a Senior Fixed Income
Analyst. In this position, she performed research and analysis of corporate
bonds and mortgage-backed securities and formulated specific investment
strategies for the company's total fixed income portfolio of $2 billion. She
received her M.B.A. from Drake University and her B.S. from Iowa State
University. Kathy is a Chartered Financial Analyst.
Mr. Lorenzen serves as a fixed income strategist and portfolio manager for
discretionary and nondiscretionary fixed income portfolios. Prior to joining
IMG, he served as a Senior Analyst for The Statesman Group, responsible for the
analytical and management functions under both the corporate and mortgage-backed
portfolios which totaled over $3 billion. Jeff received his M.B.A. degree from
Drake University and his B.B.A. degree from the University of Iowa. He is a
Chartered Financial Analyst, and an active member of the Association for
Investment Management and Research, where he serves as a CFA exam grader and a
member of the Council of Examiners. He also serves as the Vice President of the
Iowa Society of Financial Analysts.
Mr. Richards is IMG's equity strategist. He returned to IMG in 1997, after
leaving the firm for one year to head the trust investment division of Brenton
Bank. At Brenton, he directed the investment strategy for all discretionary
assets under management which totaled over $500 million. James served as
Managing Director - Equity Strategist for IMG from 1991 to 1995. He originally
joined IMG to expand the firm's equity management effort. Prior to IMG, he
served as Managing Director - Equity Strategist for SCI Capital Management, a
Cedar Rapids, Iowa investment management firm. He received his M.B.A. from the
University of Iowa and his B.A. from Coe College.
<PAGE>
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
COMMON STOCK (98.85%)
UTILITIES (4.66%)
5,400 Ameritech Corp. $ 359,100
5,452 Bell Atlantic Corp. 438,545
------------
797,645
------------
FINANCIAL (20.07%)
3,258 Aegon N.V. 259,621
11,000 Ambac, Inc. 447,563
1,700 American International Group 175,419
5,270 Banc One Corp. 294,132
6,000 Chubb Corp. 426,375
7,900 Freddie Mac 278,475
4,800 J.P. Morgan & Co. 545,400
7,400 Key Corporation 470,825
3,900 NationsBank Corp. 241,313
7,500 Providian Financial Corp. 297,656
------------
3,436,779
------------
CONSUMER STAPLES (25.61%)
11,400 Abbott Laboratories 728,886
12,600 Albertson's, Inc. 439,425
3,500 American Home Products 255,500
5,500 Anheuser-Busch 248,188
4,500 Bristol-Meyers Squibb Co. 372,375
4,200 Conagra, Inc. 277,200
2,400 Gillette Co. 207,150
4,400 Johnson & Johnson 253,550
3,000 Merck & Co., Inc. 299,813
12,200 Newell Company 488,000
4,300 Pepsico, Inc. 174,419
2,400 Procter & Gamble Co. 165,750
5,700 Sara Lee Corp. 293,550
3,500 Schering-Plough Corp. 180,250
------------
4,384,056
------------
CONSUMER SERVICES (2.21%)
2,800 Walt Disney Co. 225,750
3,200 McDonald's Corp. 152,400
------------
378,150
------------
CONSUMER CYCLICAL (7.78%)
5,600 Brunswick Corp. 197,400
3,700 Corning, Inc. 174,825
12,450 Genuine Parts Co. 383,615
6,800 Goodyear Tire & Rubber Co. 467,500
2,100 Home Depot, Inc. 109,463
------------
1,332,803
------------
See notes to financial statements.
<PAGE>
EQUITY PORTFOLIO (CONT.)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY (13.37%)
3,000 Adaptec, Inc. $ 140,250
2,500 Ascend Communications, Inc. 80,937
3,600 Honeywell, Inc. 241,875
3,800 Intel Corp. 350,788
2,000 Microsoft Corp. 264,625
3,000 Minnesota Mining & Manufacturing. Co. 277,500
2,200 Motorola, Inc. 158,125
5,400 Oracle Corporation 196,763
2,600 Parametric Technology Corp. 114,725
3,600 Pitney Bowes, Inc. 299,475
3,000 TRW, Inc. 164,625
------------
2,289,688
------------
CAPITAL GOODS (7.94%)
2,900 Emerson Electric Co. 167,112
7,900 General Electric 537,694
3,100 Grainger (W.W.), Inc. 275,900
2,700 Illinois Tool Works 135,000
3,000 United Technologies Corp. 243,000
------------
1,358,706
------------
ENERGY (5.49%)
2,000 Central & Southwest Corp. 170,875
2,000 Central Louisiana Electric 166,375
6,000 South Jersey Industries 384,375
2,600 WPS Resources Corp. 218,888
------------
940,513
------------
BASIC INDUSTRIES (11.72%)
5,900 Alliedsignal, Inc. 250,750
6,600 Avery Dennison Corp. 264,000
3,000 Dupont (EI) De Nemours 184,686
7,100 Great Lakes Chemical 350,119
9,600 Kimberly-Clark Corp. 469,800
7,800 Sherwin Williams Co. 229,613
7,800 Sigma-Aldrich 256,913
------------
2,005,881
------------
Total Common Stocks
(Cost $13,970,077) 16,924,221
------------
See notes to financial statements.
<PAGE>
EQUITY PORTFOLIO (CONT.)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
CASH EQUIVALENTS (4.91%)
841,436 Swiss Bank Repurchase Agreement, 6.15%,
10/01/97 (Cost $841,436) $ 841,436
------------
TOTAL INVESTMENTS IN SECURITIES (103.76%)
(Cost $14,811,513) 17,765,657
Other Assets and Liabilities, Net (-3.76%) (644,609)
------------
NET ASSETS 100.0% $17,121,048
============
Based on the cost of investments of $14,811,513 for federal income tax purposes
at September 30, 1997, the aggregate gross unrealized appreciation was
$3,193,306, the aggregate gross unrealized depreciation was $239,162, and the
net unrealized appreciation was $2,954,144.
See notes to financial statements.
<PAGE>
TOTAL RETURN PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
COMMON STOCK (53.87%)
UTILITIES (2.23%)
1,800 Ameritech Corp. $ 119,700
1,536 Bell Atlantic Corp. 123,552
------------
243,252
------------
FINANCIAL (10.47%)
1,346 Aegon N.V. 107,259
4,600 Ambac, Inc. 187,163
600 American International Group 61,913
1,740 Banc One Corp. 97,114
2,900 Chubb Corp. 206,081
2,400 Freddie Mac 84,600
3,000 Key Corporation 190,875
1,400 NationsBank Corp. 86,625
3,100 Providian Financial Corp. 123,031
------------
1,144,661
------------
CONSUMER STAPLES (14.67%)
3,600 Abbott Laboratories 230,174
5,300 Albertson's, Inc. 184,838
1,200 American Home Products 87,600
1,500 Anheuser-Busch 67,688
1,200 Becton Dickinson & Co. 57,450
1,400 Bristol-Meyers Squibb Co. 115,850
1,200 Conagra, Inc. 79,200
800 Gillette Co. 69,050
1,400 Johnson & Johnson 80,675
900 Merck & Co., Inc. 89,944
5,900 Newell Company 236,000
1,300 Pepsico, Inc. 52,731
800 Procter & Gamble Co. 55,250
2,600 Sara Lee Corp. 133,900
1,200 Schering-Plough Corp. 61,800
------------
1,602,150
------------
CONSUMER SERVICES (1.03%)
800 Walt Disney Co. 64,500
1,000 McDonald's Corp. 47,625
------------
112,125
------------
CONSUMER CYCLICAL (6.37%)
1,500 Brunswick Corp. 52,874
1,400 Corning, Inc. 66,150
6,300 Genuine Parts Co. 194,119
3,100 Goodyear Tire & Rubber Co. 213,125
1,500 Home Depot, Inc. 78,188
1,600 Sears, Roebuck & Co. 91,100
------------
695,556
------------
See notes to financial statements.
<PAGE>
TOTAL RETURN PORTFOLIO (CONT.)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY (6.43%)
900 Adaptec, Inc. $ 42,074
750 Ascend Communications, Inc. 24,281
1,200 Honeywell, Inc. 80,625
1,200 Intel Corp. 110,775
600 Microsoft Corp. 79,388
750 Minnesota Mining & Manufacturing. Co. 69,375
700 Motorola, Inc. 50,313
1,650 Oracle Corporation 60,122
1,000 Parametric Technology Corp. 44,125
1,100 Pitney Bowes, Inc. 91,506
900 TRW, Inc. 49,388
------------
701,972
------------
CAPITAL GOODS (4.75%)
1,600 Emerson Electric Co. 92,200
2,400 General Electric 163,350
1,000 Grainger (W.W.), Inc. 89,000
1,700 Illinois Tool Works 85,000
1,100 United Technologies Corp. 89,100
------------
518,650
------------
ENERGY (2.81%)
700 Atlantic Richfield Co. 59,806
700 Chevron Corp. 58,231
1,900 Exxon Corp. 121,719
800 Schlumberger, Ltd. 67,350
------------
307,106
------------
BASIC INDUSTRIES (5.11%)
2,200 Alliedsignal, Inc. 93,500
2,800 Avery Dennison Corp. 112,000
800 Dupont (EI) De Nemours 49,250
2,300 Kimberly-Clark Corp. 112,555
3,800 Sherwin Williams Co. 111,863
2,400 Sigma-Aldrich 79,050
------------
558,218
------------
Total Common Stocks
(Cost $4,988,125) 5,883,690
------------
See notes to financial statements.
<PAGE>
TOTAL RETURN PORTFOLIO (CONT.)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (3.05%)
U.S. TREASURY BONDS (1.22%)
105,000 U.S. T- Bond, 8.88%, 02/15/19 $ 133,795
------------
U.S. TREASURY NOTES (1.83%)
200,000 U.S. T-Note, 5.63%, 11/30/98 199,790
------------
Total Government Securities
(Cost $312,944) 333,585
------------
CORPORATE BONDS (10.93%)
210,000 Hubco, Inc., 7.75%, 01/15/04 215,513
250,000 Hydro-Quebec, 8.25%, 01/15/27 278,750
250,000 Lehman Brothers, 8.05%, 01/15/19 266,400
242,000 Manitoba, 7.75%, 07/17/16 261,360
150,000 Nova Scotia, 8.25%, 11/15/19 171,750
------------
Total Corporate Bonds
(Cost $1,147,388) 1,193,773
------------
TAXABLE MUNICIPAL BONDS (11.47%)
205,000 Berry Creek Met Dist, Co., 6.65%, 12/01/01 203,719
195,000 Fulton, MO, 7.60%, 07/01/11 204,506
200,000 New Orleans, LA Housing Development,
8.00%, 12/01/03 204,500
155,000 Northwest Nazarene College, ID,
6.75%, 11/01/99 156,356
177,723 Oregon Department of Transportation,
9.00%, 6/15/00 122,449
250,000 Portland, OR Multifamily Housing,
7.63%, 12/01/01 247,813
100,000 Texas St. G.O. Taxable, 8.70%, 12/01/09 113,500
------------
Total Municipal Bonds
(Cost $1,210,846) 1,252,843
------------
MORTGAGE-BACKED SECURITIES (15.88%)
COLLATERALIZED MORTGAGE OBLIGATIONS (8.68%)
114,050 Chase Mtge. Finance Corp,
5.75%, 04/25/09 112,830
175,000 Collateralized Mtge. SEC Corp.,
7.00%, 09/20/21 171,859
28,812 FHLMC 91 Series 188 Class F,
7.50%, 05/15/20 28,781
15,425 FNMA 1991-8 E, 7.50%, 06/25/17 15,373
117,233 Green Tree Acceptance 1987B Class A,
9.55%, 05/15/07 118,772
141,827 Housing Securities, Inc. 1992-F F11,
Zero Coupon, 9.06%, 11/25/07** 105,966
186,859 Housing Securities, Inc. 1993-E, E-14,
Zero Coupon, 10.33%, 09/25/08** 137,582
73,563 Residential Funding Mtg. Sec. I Series
1993-S7 Class A6, 7.15%, 02/25/08 73,840
25,780 Resolution Trust Corp. Series 1992-17
Class A1, Variable Rate, 8.86%, 12/25/20* 25,824
227,064 Salomon Mortgage Sec. VII, Zero Coupon,
10.61%, 02/25/25** 156,922
------------
947,749
------------
See notes to financial statements.
<PAGE>
TOTAL RETURN PORTFOLIO (CONT.)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
FHLMC MORTGAGE-BACKED POOLS (0.36%)
37,390 FHLMC #A00851, 8.50%, 12/01/19 $ 38,910
------------
GNMA MORTGAGE-BACKED POOLS (6.84%)
130,021 GNMA #305975, 9.00%, 07/15/21 137,916
56,448 GNMA #318184, 8.50%, 11/15/21 58,839
85,475 GNMA #359600, 7.50%, 07/15/23 86,864
237,225 GNMA #376218, 7.50%, 08/15/25 241,191
118,471 GNMA #385300, 8.00%, 10/15/24 122,385
96,934 GNMA #376218410049, 8.00%, 07/15/25 100,142
------------
747,337
------------
Total Mortgage-Backed Securities
(Cost $1,701,778) 1,733,996
------------
CASH EQUIVALENTS (7.24%)
REPURCHASE AGREEMENTS (7.08%)
206,738 J.P. Morgan Repurchase Agreement,
5.95%, 10/01/97 206,738
566,500 SBC Warburg Repurchase Agreement,
6.15%, 10/01/97 566,500
------------
773,238
------------
MONEY MARKET MUTUAL FUNDS (0.16%)
17,485 Norwest Cash Investment Fund, 5.37% 17,485
------------
Total Cash Equivalents
Cost ($790,723) 790,723
------------
TOTAL INVESTMENTS IN SECURITIES (102.44%)
(Cost $10,151,804) 11,188,610
Other Assets and Liabilities, Net (-2.44%) (265,902)
------------
NET ASSETS 100.0% $10,922,708
============
Based on the cost of investments of $10,151,804 for federal income tax purposes
at September 30, 1997, the aggregate gross unrealized appreciation was
$1,132,679 the aggregate gross unrealized depreciation was $95,873 and the net
unrealized appreciation was $1,036,806.
See notes to financial statements.
<PAGE>
FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (28.91%)
GOVERNMENT AGENCIES (2.54%)
250,000 FNMA Medium-Term Note, 6.59%, 05/24/01 $ 253,845
------------
U.S. TREASURY BONDS (8.99%)
500,000 U.S. T-Bond, 7.25%, 05/15/16 542,625
300,000 U.S. T-Bond, 8.13%, 05/15/21 358,218
------------
900,843
------------
U.S. TREASURY NOTES (17.38%)
200,000 U.S. T-Note, 6.25%, 02/15/03 201,937
450,000 U.S. T-Note, 6.86%, 03/31/00 460,265
550,000 U.S. T-Note, 6.38%, 08/15/02 558,201
350,000 U.S. T-Note, 5.00%, 02/15/99 346,469
175,000 U.S. T-Note, 5.75%, 10/31/00 174,064
------------
1,740,936
------------
Total Government Securities
(Cost $2,850,355) 2,895,624
------------
CORPORATE BONDS (19.02%)
255,000 Analog Devices, 6.63%, 03/01/00 225,155
350,000 GMAC, 8.88%, 06/01/10 416,938
160,000 Hubco, Inc., 7.75% 01/15/04 164,200
220,000 Lehman Brothers, 8.05%, 01/15/19 234,432
315,000 Manitoba, 7.75%, 07/17/16 340,200
225,000 Naples, City of, Italy, 7.52%, 07/15/06 231,662
255,000 Nova Scotia, 8.25%, 11/15/19 291,975
------------
Total Corporate Bonds
(Cost $1,842,895) 1,904,562
------------
TAXABLE MUNICIPAL BONDS (21.37%)
100,000 Baltimore, MD, 7.40%, 10/15/05 105,000
220,000 Berry Creek Met Dist, CO, 6.85%, 12/01/02 218,350
120,000 Cottonwood County, MN, 7.30%, 02/01/00 121,800
70,000 Iowa Lakes Community College, 7.70%, 06/01/04 71,750
105,000 Iowa Lakes Community College, 7.70%, 06/01/04 111,014
100,000 Kirkwood Community College, 7.65%, 06/01/01 103,844
100,000 Mounds View, MN, 6.00%, 02/01/05 95,875
117,723 Oregon Department of Transportation,
9.00%, 06/15/00 122,449
210,000 Port Benton, WA G.O., 7.00%, 12/01/01 214,200
See notes to financial statements.
<PAGE>
FIXED INCOME PORTFOLIO (CONT.)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (Cont.)
225,000 Portland, OR Multifamily Housing,
7.63%, 12/01/01 $ 223,031
350,000 San Antonio, TX Cert Oblig Taxable,
6.65%, 08/01/09 341,579
165,000 St. Paul, MN Port. Authority, 6.65%, 09/01/99 166,444
75,000 Texas St. G.O. Taxable, 8.70%, 12/01/09 85,125
155,000 Washington State Housing Antioch University,
7.55%, 01/01/03 159,963
------------
Total Municipal Bonds
(Cost 2,101,225) 2,140,424
------------
MORTGAGE-BACKED SECURITIES (27.75%)
COLLATERALIZED MORTGAGE OBLIGATIONS (11.85%)
240,712 Countrywide Funding Corp. 1994-9 A2,
6.50%, 05/25/24 238,137
215,000 FHLMC Series 1561 Class TA, Zero Coupon,
9.24%, 08/15/08* 122,400
250,000 FHLMC 1424 Class PE, 6.10%, 03/15/17 249,296
31,946 FHLMC 91 Series 188 Class F, 7.50%, 05/15/20 31,912
6,552 FNMA Series 1991 Class E, 8.50%, 04/25/05 6,539
47,718 FNMA 1991-91A, Zero Coupon, 7.73%, 07/25/98* 46,173
85,200 FNMA 1992-212, 5.50%, 11/25/99 84,717
99,547 GE Cap. Mtge. Serv. 1994-1 A1, 5.70%, 01/25/24 98,996
126,110 Housing Securities, Inc. 1993-C C3,
Zero Coupon, 9.24%, 05/25/08* 94,528
176,282 Housing Securities, Inc. 1993-E E-14,
Zero Coupon, 10.33%, 09/25/08* 129,795
6,125 Prudential Home Mtge. Securities, 1992-6
Class A3, 7.00%, 04/25/99 6,117
113,532 Salomon Mortgage Sec. VII, Zero Coupon,
10.61%, 02/25/25* 78,461
------------
1,187,071
------------
FHLMC MORTGAGE-BACKED POOLS (.93%)
89,068 FHLMC #C00126, 8.50%, 06/01/22 92,721
------------
GNMA MORTGAGE-BACKED POOLS (14.97%)
146,077 GNMA #315929, 9.00%, 06/15/22 155,618
219,978 GNMA #341681, 8.50%, 01/15/23 229,540
294,627 GNMA #354189, 7.50%, 05/15/23 299,453
287,407 GNMA #376218, 7.50%, 08/15/25 292,212
260,636 GNMA #385300, 8.00%, 10/15/24 269,247
245,513 GNMA #410049, 8.00%, 07/15/25 253,640
------------
1,499,710
------------
Total Mortgage-Backed Securities
(Cost $2,770,909) 2,779,502
------------
*Interest presented for zero coupon bond equates effective yield at date of
purchase.
See notes to financial statements.
<PAGE>
FIXED INCOME PORTFOLIO (CONT.)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
CASH EQUIVALENTS (2.25%)
COMMERCIAL PAPER (2.24%)
225,000 Merrill Lynch Commercial Paper, 10/01/97 $ 225,000
------------
MONEY MARKET MUTUAL FUNDS (0.01%)
326 Norwest Cash Investment Fund, 5.37% 326
------------
Total Cash Equivalents
Cost ($225,287) 225,326
------------
TOTAL INVESTMENTS IN SECURITIES (99.30%)
(Cost $9,790,671) 9,945,438
Other Assets and Liabilities, Net (.70%) 70,567
------------
NET ASSETS 100.0% $10,016,005
============
Based on the cost of investments of $9,790,671 for federal income tax purposes
at September 30, 1997, the aggregate gross unrealized appreciation was $207,458,
the aggregate gross unrealized depreciation was $52,691 and the net unrealized
appreciation was $154,767.
See notes to financial statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
TOTAL FIXED
EQUITY RETURN INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
ASSETS:
Investment in Securities at Value
(Cost $14,811,513, $10,151,804, $9,790,671, respectively) $17,765,657 $11,188,610 $ 9,945,438
Dividends & Interest Receivable 21,822 68,134 129,290
Investment Securities Sold 13,618 4,136 0
Capital Shares 908 440 800
-----------------------------------------
Total Assets 17,802,005 11,261,320 10,075,528
LIABILITIES:
Income Distribution Payable 31,235 95,738 49,850
Investment Securities Purchased 613,590 225,272 ------
Capital Shares Redeemed ------ ------ ------
Accrued Operating Expenses
and Other Liabilities 36,132 17,602 9,673
----------------------------------------
Total Liabilities 680,957 338,612 59,523
----------------------------------------
NET ASSETS $17,121,048 $10,922,708 $10,016,005
========================================
ANALYSIS OF NET ASSETS
Excess of amounts received from issuance of shares over amounts paid
on redemption of shares $11,796,618 $ 8,646,431 $ 9,754,718
Undistributed net realized gain 2,369,173 1,237,184 105,486
Unrealized appreciation 2,954,144 1,036,806 154,767
Undistributed net investment income 1,113 2,287 1,034
----------------------------------------
Net assets applicable to shares outstanding $17,121,048 $10,922,708 $10,016,005
========================================
PRICING OF INITIAL SHARES
Net assets applicable to initial shares outstanding $3,444,481 $ 651,793 $ 891,279
========================================
Shares outstanding, $.001 par value* 255,382 56,378 86,772
========================================
Net asset value, offering price and redemption price
(subject to contingent deferred sales charge)
per initial shares $ 13.488 $ 11.561 $ 10.272
========================================
PRICING OF SELECT SHARES
Net assets applicable to select shares outstanding $13,676,567 $10,270,915 $ 9,124,726
========================================
Shares outstanding, $.001 par value* 1,015,189 908,905 897,476
========================================
Net asset value, offering price and redemption
per select shares $ 13.472 $ 11.300 $ 10.167
========================================
</TABLE>
* Shares outstanding reflect rounding to the nearest whole share.
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
TOTAL FIXED SHORT-TERM PRIME MONEY
EQUITY RETURN INCOME GOVERNMENT MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME:
Interest Income $ 15,450 $ 215,112 $ 323,501 $ 83,684 $ 82,618
Dividend Income 190,975 61,543 ---- ---- ----
----------------------------------------------------------------
Total Income 206,425 276,655 323,501 83,684 82,618
EXPENSES:
Sub-Advisory Fees-IMG 31,725 20,921 17,474 4,666 2,776
Advisory Fees-WCV 13,839 8,956 7,407 2,599 1,326
Administration Fee 21,493 14,093 11,737 3,427 3,675
Distribution Fee 9,029 1,593 1,970 15 ----
Fund Accounting/Custody Fee 12,896 8,456 4,695 1,371 1,470
Transfer Agent Fee 4,299 2,819 2,347 685 697
Other Expenses 8,597 5,637 4,695 1,371 1,385
----------------------------------------------------------------
Total Expenses 101,878 62,475 50,325 14,134 11,329
----------------------------------------------------------------
NET INVESTMENT INCOME 104,547 214,180 273,176 69,550 71,289
----------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain
(loss) on Investments 1,284,852 415,559 10,426 13,165 (2,078)
Net Change in Unrealized
Appreciation 1,293,455 649,397 339,232 21,650 ----
------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 2,578,307 1,064,956 349,658 34,815 (2,078)
------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $2,682,854 $1,279,136 $ 622,834 $104,365 $ 69,211
==================================================================
</TABLE>
See notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL FIXED
EQUITY RETURN INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 104,547 $ 475,644 $ 214,180 $ 500,211 $ 273,176 $ 282,686
Net Realized Gain (Loss)
on Investments 1,284,852 1,151,823 415,559 473,573 10,426 ( 22,394)
Net Change in Unrealized
Appreciation 1,293,455 (1,318,530) 649,397 (625,783) 339,232 (89,636)
------------------------------------------------------------------------
Increase in Net Assets from
Operations 2,682,854 308,937 1,279,136 348,001 622,834 170,656
------------------------------------------------------------------------
DISTRIBUTIONS:
Dividend Distributions Paid
Initial Shares 16,065 121,452 11,250 75,241 21,005 49,284
Select Shares 90,107 353,561 203,848 427,419 252,290 236,318
Capital Gain Distribution Paid
Initial Shares 0 0 0 0 0 0
Select Shares 0 0 0 0 0 0
-----------------------------------------------------------------------
Total Distributions 106,172 475,013 215,098 502,660 273,295 285,602
-----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Sales- Initial Shares 458,402 868,998 144,284 421,020 345,378 580,916
Select Shares 644,448 1,450,024 557,393 886,295 142,119 251,983
Reinvestments-Initial Shares 30,291 103,803 12,761 69,488 20,478 46,927
Select Shares 142,626 324,043 251,461 400,863 248,623 225,216
Exchanges- Initial Shares 0 0 0 0 2,392 37,459
Select Shares 0 0 0 0 637,190 0
Redemptions- Initial Shares (1,130,682) (474,078) (176,895) (320,566) (251,533) (633,062)
Select Shares (2,377,959) (2,534,368) (3,028,512) (789,302) (300,341) (92,569)
------------------------------------------------------------------------
Increase (Decrease) in Net Assets from
Capital Share Transactions (2,232,874) (261,578) (2,239,508) 667,798 844,306 416,870
-----------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 343,808 (427,654) (1,175,470) 513,139 1,193,845 301,924
NET ASSETS:
Beginning of Period 16,777,240 24,454,834 12,098,178 20,963,247 8,822,160 9,562,393
------------------------------------------------------------------------
End of Period $ 17,121,048 $24,027,180 $10,922,708 $21,476,386 $10,016,005 $9,864,317
=========================================================================
Undistributed net investment
income at end of period $ 1,113 $ 4,812 $ 2,287 $ 5,233 $ 1,034 $ 1,050
=========================================================================
</TABLE>
See notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
SHORT-TERM PRIME
GOVERNMENT MONEY MARKET
PORTFOLIO PORTFOLIO
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 69,550 $ 123,042 $ 71,289 $ 76,927
Net Realized Gain (Loss) on Investments 13,165 (4,418) (2,078) (83)
Net Change in Unrealized Appreciation 21,650 (19,037) 0 0
---------------------------------------------------------
Increase in Net Assets from Operations 104,365 99,587 69,211 76,844
---------------------------------------------------------
DISTRIBUTIONS:
Dividend Distributions Paid
Initial Shares 105 6,174 0 0
Select Shares 71,438 118,594 71,289 76,927
Capital Gain Distribution Paid
Initial Shares 0 0 0 0
Select Shares 0 0 (2,028) (83)
---------------------------------------------------------
Total Distributions 71,543 124,768 69,261 76,844
---------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Sales- Initial Shares 1,089 7,155 0 0
Select Shares 63,159 170,954 3,595,008 1,883,146
Reinvestments- Initial Shares 178 6,027 0 0
Select Shares 89,233 112,832 89,448 77,644
Net Exchanges- Initial Shares (2,392) 0 0 0
Select Shares (637,190) 0 0 (37,459)
Redemptions- Initial Shares (19,047) (6,875) 0 0
Select Shares (3,908,191) (179,809) (8,589,343) (1,813,055)
---------------------------------------------------------
Increase (Decrease) in Net Assets from
Capital Share Transactions (4,413,161) 110,284 (4,904,887) 110,276
---------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,380,339) 85,103 (4,904,937) 110,276
NET ASSETS:
Beginning of Period 4,380,339 4,520,912 4,904,937 3,637,446
--------------------------------------------------------
End of Period $ (0) $4,606,015 $ 0 $3,747,722
========================================================
Undistributed net investment
income at end of period $ 0 $ 197 $ 0 $ 0
========================================================
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Capital Value Fund, Inc. (the Fund) was incorporated on October 7, 1992,
and capitalized on May 6, 1993. The Fund is registered under the Investment
Company Act of 1940 (the 1940 Act) as a diversified open-end management
investment company issuing its shares in five series, each series
representing a diversified portfolio with distinct investment objectives
and policies. The Equity Portfolio seeks capital appreciation in a manner
consistent with the preservation of capital through a diversified portfolio
of common stocks and other equity-type securities. The Total Return
Portfolio seeks a high total return from capital appreciation and current
income, consistent with the preservation of capital, through a diversified
portfolio of common stocks, other equity-type securities, bonds and money
market instruments. The Fixed Income Portfolio seeks to provide a high
level of income consistent with the preservation of capital and prudent
investment risk through a diversified portfolio of marketable U.S.
government and corporate debt securities.
During the six-month period ended September 30, 1997, two of the Fund's
portfolios were closed. The Short-Term Government and Prime Money Market
portfolios were liquidated.
The shares of each portfolio are divided into Initial Shares and Select
Shares. The Initial Shares of a portfolio may be purchased directly and may
be subject to a CDSC charge if redeemed within six years. Select Shares are
only available through conversion of Initial Shares after eight years,
except for limited direct sales as defined in the prospectus. Each class of
shares has equal rights as to earnings, assets and voting privileges,
except that the Initial Share Class pays distribution expenses. Each class
of shares has exclusive voting rights with respect to matters that effect
just that class. Income, expenses (other than expenses attributable to a
specific class), and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of increase and decrease in net assets
from operations during the period. Actual results could differ from those
estimates.
SECURITY VALUATION
Equity securities are valued at the last sales price on the national
securities exchange. Fixed Income securities are valued on the basis of
valuations furnished by a pricing service that utilizes electronic data
processing techniques to determine valuations for normal
institutional-sized trading units of Fixed Income securities without regard
to sale or bid prices when such valuations are believed to more accurately
reflect the fair market value of such institutional securities. Otherwise
sale or bid prices are used. Any securities or other assets for which
market quotations are not readily available are valued at fair value as
determined by the Portfolio Manager. Fixed Income securities in a portfolio
having maturities of 60 days or less are valued by the amortized cost
method.
SECURITY TRANSACTIONS
Security transactions are recorded on a trade date basis. Realized gains
and losses are determined on an identified cost basis.
INVESTMENT INCOME
Interest income is recorded on an accrual basis and dividend income is
recorded on the ex-dividend date. Original issue discounts and premiums on
securities purchased are amortized over the expected life of the respective
securities.
DISTRIBUTION OF INCOME AND GAINS
Any dividends from the net income of the Fixed Income Portfolio will be
distributed monthly, and any dividend from the net income of the Equity and
Total Return Portfolios will be distributed quarterly.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
its income to shareholders in amounts that will avoid or minimize federal
income or excise taxes for the funds. Net investment income and net
realized gains (losses) for the funds may differ for financial statement
and tax purposes. The character of distributions made during the year from
net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing
of dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains (losses) were
recorded by the Funds.
2. TRANSACTIONS WITH AFFILIATES
FEES AND EXPENSES
The Fund has entered into an investment advisory agreement with Wellmark
Capital Value, (the Advisor), which, in turn, has entered into a
sub-advisory agreement with Investors Management Group, (the Sub-Advisor),
for management of each portfolio's assets. The annual fees for such
services are 0.53 percent of each of the Fund's average daily net assets.
The Fund will also pay the Sub-Advisor annually the lesser of $24,000 or
0.15 percent of the average daily net assets of each of the Equity and
Total Return Portfolios or 0.10 percent of the average daily net assets of
the Fixed Income Portfolio for fund accounting services. This fee is for
fund accounting and custodial services. The Sub-Advisor will also be paid
annually 0.05 percent of the average daily net assets of each portfolio for
services of Transfer and Dividend Disbursing Agent.
The Fund has also entered into an administrative services agreement with
the Advisor to provide certain information and administrative services to
the Fund. The annual fees for such services are not to exceed 0.25 percent
of average daily net assets of the portfolios of the Fund.
In addition, the Fund is responsible for paying most other operating
expenses including outside directors' fees and expenses; registration fees;
printing and shareholder reports; transfer agent fees and expenses, legal,
auditing, and accounting services; insurance; interest; and other
miscellaneous expenses.
DISTRIBUTION PLAN
The Fund has entered into a distribution agreement, pursuant to Rule 12b-1
under the 1940 Act, with IMG Financial Services, Inc., (the Distributor),
for the marketing and distribution of the Initial Shares of the Fund. The
fees for such services are 0.50 percent of the average daily net assets of
the Initial Shares class of each portfolio.
RELATED SHAREHOLDERS
IASD Health Services Corp., IASD Health Services Savings and Investment
Plan and Investors Management Group 401K/ESOP and Money Purchase Plan are
all shareholders of the Fund as of September 30, 1997. A breakdown of each
of thier holdings is listed below.
IASD Health Services Corp. SELECT SHARES
Equity Portfolio 460,933
Total Return Portfolio 561,173
Fixed Income Portfolio 756,883
IASD Health Services Savings and Investment Plan
Equity Portfolio 476,589
Total Return Portfolio 323,186
Fixed Income Portfolio 108,965
IMG 401K/ESOP and Money Purchase Plan
Equity Portfolio 71,992
Total Return Portfolio 22,721
Fixed Income Portfolio 8,689
3. INVESTMENT TRANSACTIONS
Investment transactions for the period ended September 30, 1997, are as
follows:
FIXED
EQUITY TOTAL RETURN INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
Purchases $ 8,611,660 4,084,117 2,599,518
Proceeds from sales $10,205,498 6,673,700 1,826,083
4. CAPITAL TRANSACTIONS
CONTINGENT DEFERRED SALES CHARGE
The Fund may impose a contingent deferred sales charge against the original
purchase price of all Initial Shares except those acquired by reinvestment
of dividends. There is no charge upon redemption of any share appreciation
or reinvested dividends on Initial Shares, or redemption of any Select
Shares.
For the period ending September 30, 1997, there were no contingent deferred
sales charges.
<PAGE>
4. CAPITAL TRANSACTIONS
SHARE ACTIVITY
The following tables summarize the activity in each class of capital shares
of the Portfolios:
<TABLE>
<CAPTION>
EQUITY TOTAL RETURN FIXED INCOME
INITIAL SHARES PORTFOLIO PORTFOLIO PORTFOLIO
For the period ended
September 30, 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold 36,667 69,778 12,992 37,486 33,945 58,401
Shares issued in reinvest-
ment of dividends 2,504 8,234 1,181 6,159 2,032 4,733
Shares exchanged 0 0 0 0 233 3,805
Shares redeemed (88,441) (38,199) (15,973) (28,677) (25,006)(63,504)
-----------------------------------------------------------------------
Net increase/decrease from
capital share transactions (49,270) 39,813 (1,800) 14,968 11,204 3,435
=======================================================================
<CAPTION>
EQUITY TOTAL RETURN FIXED INCOME
SELECT SHARES PORTFOLIO PORTFOLIO PORTFOLIO
For the period ended
September 30, 1997 1996 1997 1996 1997 1996
Shares sold 52,537 116,496 52,033 80,693 14,271 25,666
Shares issued in reinvest-
ment of dividends 11,807 25,719 23,869 36,202 24,930 22,933
Shares exchanged 0 0 0 0 62,585 0
Shares redeemed (189,214) (204,831) (283,957) (72,264) (29,874) (9,431)
-----------------------------------------------------------------------
Net increase/decrease from
capital share transactions (124,870) (62,616) (208,055) 44,631 71,912 39,168
=======================================================================
</TABLE>
4. CAPITAL TRANSACTIONS, Cont.
SHARE ACTIVITY
The following tables summarize the activity in each class of capital shares
of the Portfolios:
SHORT-TERM
GOVERNMENT
INITIAL SHARES PORTFOLIO
- -------------- -----------
For the period ended
September 30, 1997 1996
---------------
Shares sold 112 734
Shares issued in reinvest-
ment of dividends 18 619
Shares exchanged (244) 0
Shares redeemed (1,949) (705)
------------------
Net increase/decrease from
capital share transactions (2,063) 648
==================
Short-Term Prime
Government Money Market
Select Shares Portfolio Portfolio
- -------------- ------------------------------------------------
For the period ended
September 30, 1997 1996 1997 1996
-------------------------------------------------
Shares sold 6,370 17,291 3,595,008 1,883,146
Shares issued in reinvest-
ment of dividends 9,005 11,421 89,448 77,644
Shares exchanged (64,069) 0 0 (37,459)
Shares redeemed (393,162) (18,224) (8,589,393)(1,813,055)
-------------------------------------------------
Net increase/decrease from
capital share transactions (441,856) 10,488 (4,904,937) 110,276
=================================================
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Initial Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.624 $ 12.559 $ 10.615 $ 10.280 $ 0.000
---------------------------------------------------------------------
Net Investment Income 0.052 0.218 0.137 0.112 0.018
Net Realized and Unrealized Gains
(Losses) on Investments 1.866 (0.067) 1.483 0.230 10.002
--------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.918 0.151 1.620 0.342 10.020
--------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.054 0.226 0.134 0.117 0.018
Distributions from
Net Realized Gains 0.000 0.000 0.000 0.009 0.000
--------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.054 0.226 0.134 0.126 0.018
--------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.488 $ 12.484 $ 12.101 $ 10.496 $ 10.002
====================================================================
Total Return 16.52% 1.20% 7.79% 3.12% 6.82%
Net Assets, End of Period 3,444,481 $6,830,729 $5,641,376 $3,239,338 $ 62,697
Ratio of Expenses
to Average Net Assets 1.58% 1.58% 1.58% 1.57% 1.51%
Ratio of Net Investment Income
to Average Net Assets 0.83% 3.56% 2.37% 2.17% 1.31%
Portfolio Turnover Rate 52.29% 23.57% 25.98% 28.84% 4.56%
Average Commission Paid
to Broker $ 0.6690 $ 0.1002 $ 0.0861 $ 0.0920 $ 0.1015
</TABLE>
*From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Initial Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.518 $ 11.285 $ 10.113 $ 10.131 $ 0.000
-------------------------------------------------------------------
Net Investment Income 0.190 0.236 0.225 0.162 0.043
Net Realized and Unrealized Gains
(Losses) on Investments 1.049 (0.074) 0.932 (0.097) 10.123
-------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.239 0.162 1.157 0.065 10.166
-------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.196 0.237 0.221 0.153 0.042
Distributions from
Net Realized Gains 0.000 0.000 0.000 0.001 0.000
-------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.196 0.237 0.221 0.154 0.042
-------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.561 $ 11.210 $ 11.049 $ 10.042 $10.124
===================================================================
Total Return 11.83% 1.46% 4.36% 0.62% 3.35%
Net Assets, End of Period $ 651,793 $3,580,571 $3,167,131 $2,397,508 $16,201
Ratio of Expenses
to Average Net Assets 1.58% 1.58% 1.58% 1.56% 1.52%
Ratio of Net Investment Income
to Average Net Assets 3.30% 4.26% 4.23% 3.24% 2.04%
Portfolio Turnover Rate 39.15% 16.40% 34.96% 44.53% 20.71%
Average Commission Paid
to Broker $ 0.0631 $ 0.0912 $ 0.0976 $ 0.0962 $0.0913
</TABLE>
*From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Initial Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
FIXED INCOME PORTFOLIO
1997* 1996 1995 1994 1993**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.881 $ 10.081 $ 9.654 $ 9.769 $ 0.000
Net Investment Income 0.264 0.275 0.295 0.234 0.130
Net Realized and Unrealized Gains
(Losses) on Investments 0.395 (0.124) 0.513 (0.303) 10.346
-----------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.659 0.151 0.808 (0.069) 10.476
-----------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.268 0.274 0.290 0.248 0.129
Distributions from
Net Realized Gains 0.000 0.000 0.000 0.010 0.000
-----------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.268 0.274 0.290 0.258 0.129
-----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.272 $ 9.958 $ 10.172 $ 9.442 $10.347
=================================================================
Total Return 6.73% 1.57% 1.51% -0.98% 0.25%
Net Assets, End of Period $891,279 $1,866,977 $1,854,870 $ 622,832 $26,224
Ratio of Expenses
to Average Net Assets 1.53% 1.53% 1.53% 1.51% 1.46%
Ratio of Net Investment Income
to Average Net Assets 5.36% 5.46% 5.80% 5.04% 4.21%
Portfolio Turnover Rate 20.78% 22.37% 35.47% 30.75% 29.41%
</TABLE>
*During the six month period ended September 30, 1997, the fund was liquidated
through shareholder redemptions.
**From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Initial Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
SHORT-TERM GOVERNMENT PORTFOLIO
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.727 $ 9.816 $ 9.649 $ 9.765 $ 0.000
-------------------------------------------------------------------
Net Investment Income 0.352 0.241 0.274 0.198 0.052
Net Realized and Unrealized Gains
(Losses) on Investments (9.929) (0.050) 0.185 (0.140) 9.941
-------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (9.577) 0.191 0.459 0.058 9.993
-------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.150 0.249 0.276 0.207 0.051
Distributions from
Net Realized Gains 0.000 0.000 0.000 0.006 0.000
-------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.150 0.249 0.276 0.213 0.051
-------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 0.000 $ 9.758 $ 9.832 $ 9.610 $ 9.942
===================================================================
Total Return 2.48% 2.00% 1.41% 0.51% 0.41%
Net Assets, End of Period $ 0 $ 242,415 $ 224,519 $ 265,719 $ 6,468
Ratio of Expenses
to Average Net Assets 1.54% 1.53% 1.53% 1.51% 1.47%
Ratio of Net Investment Income
to Average Net Assets 4.56% 4.92% 5.55% 4.36% 2.69%
Portfolio Turnover Rate 0.00% 19.92% 125.88% 44.61% 19.39%
</TABLE>
*From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to a Select Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.610 $ 12.548 $ 10.603 $ 10.266 $ 10.000
--------------------------------------------------------------------
Net Investment Income 0.086 0.259 0.162 0.132 0.049
Net Realized and Unrealized Gains (Losses)
on Investments 1.863 (0.076) 1.485 0.212 0.030
--------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.949 0.183 1.647 0.344 0.079
--------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.087 0.256 0.162 0.127 0.049
--------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.087 0.256 0.162 0.127 0.049
--------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.472 $ 12.474 $ 12.088 $ 10.483 $ 10.030
====================================================================
Total Return 16.82% 1.46% 7.92% 3.37% 7.90%
Net Assets, End of Period $13,676,567 $ 17,196,450 $15,477,179 $11,593,898 $ 9,101,541
Ratio of Expenses
to Average Net Assets 1.08% 1.08% 1.08% 1.05% 1.02%
Ratio of Net Investment Income
to Average Net Assets 1.32% 4.07% 2.87% 2.54% 1.53%
Portfolio Turnover Rate 52.29% 23.57% 25.98% 28.84% 4.56%
Average Commission Paid
to Broker $ 0.0669 $ 0.1002 $ 0.0867 $ 0.0920 $ 0.1015
</TABLE>
*From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total Return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to a Select Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.284 $ 11.075 $ 9.932 $ 9.966 $ 10.000
-------------------------------------------------------------------
Net Investment Income 0.221 0.262 0.248 0.183 0.093
Net Realized and Unrealized Gains
(Losses) on Investments 1.019 (0.076) 0.916 (0.097) (0.001)
-------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.240 0.186 1.164 0.086 0.092
-------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.224 0.264 0.247 0.182 0.092
-------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.224 0.264 0.247 0.182 0.092
-------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.300 $ 10.997 $ 10.849 $ 9.870 $ 10.000
===================================================================
Total Return 12.12% 1.71% 4.49% 0.87% 3.06%
Net Assets, End of Period $10,270,915 $17,895,815 $15,905,252 $13,083,175 $ 11,434,625
Ratio of Expenses
to Average Net Assets 1.08% 1.08% 1.08% 1.05% 1.02%
Ratio of Net Investment Income
to Average Net Assets 3.81% 4.76% 4.74% 3.67% 2.65%
Portfolio Turnover Rate 39.15% 16.40% 34.96% 44.53% 20.71%
Average Commission Paid
to Broker $ 0.0631 $ 0.0912 $ 0.0976 $ 0.0962 $ 0.0913
</TABLE>
*From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to a Select Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
FIXED INCOME PORTFOLIO
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.782 $ 9.987 $ 9.566 $ 9.682 $ 10.000
-------------------------------------------------------------------
Net Investment Income 0.292 0.293 0.314 0.257 0.179
Net Realized and Unrealized Gains
(Losses) on Investments 0.385 (0.120) 0.511 (0.325) 0.300
-------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.677 0.173 0.825 (0.068) 0.479
-------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.292 0.298 0.313 0.256 0.178
-------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.292 0.298 0.313 0.256 0.178
-------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.167 $ 9.862 $ 10.078 $ 9.358 $ 10.301
===================================================================
Total Return 7.00% 1.83% 1.63% -0.72% 0.46%
Net Assets, End of Period $9,124,726 $7,997,341 $7,373,764 $6,269,610 $6,314,336
Ratio of Expenses
to Average Net Assets 1.03% 1.03% 1.03% 1.00% 0.97%
Ratio of Net Investment Income
to Average Net Assets 5.86% 5.96% 6.30% 5.36% 4.78%
Portfolio Turnover Rate 20.78% 22.37% 35.47% 30.75% 29.41%
</TABLE>
*From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to a Select Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
1997* 1996 1995 1994 1993**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.868 $ 9.954 $ 9.776 $ 9.886 $ 10.000
-------------------------------------------------------------------
Net Investment Income 0.168 0.269 0.302 0.228 0.114
Net Realized and Unrealized Gains
(Losses) on Investments (9.866) (0.051) 0.188 (0.153) 0.080
--------------------------------------------------------------------
Total from Investment Operations (9.698) 0.218 0.490 0.075 0.194
--------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.170 0.273 0.300 0.227 0.113
-------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.170 0.273 0.300 0.227 0.113
-------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 0.000 $ 9.899 $ 9.966 $ 9.734 $ 10.081
===================================================================
Total Return 2.67% 2.26% 1.54% 0.76% 2.82%
Net Assets, End of Period $ 0 $4,363,600 $4,002,810 $3,618,530 $3,435,995
Ratio of Expenses
to Average Net Assets 1.04% 1.03% 1.03% 1.00% 0.97%
Ratio of Net Investment Income
to Average Net Assets 5.25% 5.42% 6.05% 4.63% 3.18%
Portfolio Turnover Rate 0.00% 19.92% 125.88% 44.61% 19.39%
</TABLE>
*During the six month period ended September 30, 1997, the fund was liquidated
through shareholder redemptions.
**From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to a Select Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
PRIME MONEY MARKET PORTFOLIO
1997* 1996 1995 1994 1993**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------
Net Investment Income 0.016 0.024 0.026 0.018 0.009
Net Realized and Unrealized Gains
(Losses) on Investments (1.000) 0.000 0.000 0.000 0.000
-------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.984) 0.024 0.026 0.018 0.009
-------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.016 0.024 0.026 0.018 0.009
-------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.016 0.024 0.026 0.018 0.009
-------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 0.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
===================================================================
Total Return 1.60% 2.40% 2.60% 1.79% 2.90%
Net Assets, End of Period $ 0 $3,747,722 $6,936,582 $5,288,801 $5,054,147
Ratio of Expenses
to Average Net Assets 0.78% 0.78% 7.79% 0.75% 0.75%
Ratio of Net Investment Income
to Average Net Assets 4.89% 4.69% 5.27% 3.58% 2.46%
Portfolio Turnover Rate 0.00% 0.00% 0.00% 22.84% 0.00%
</TABLE>
*During the six month period ended September 30, 1997, the fund was liquidated
through shareholder redemptions.
**From inception of the Fund May 20, 1993.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year and does not
reflect the effect of any deferred sales charges.
<PAGE>
