<PAGE>
ANNUAL REPORT
[LOGO OF THE GRIFIFN FUNDS]
SEPTEMBER 30, 1996
<PAGE>
Table of Contents
Message to Shareholders ................................................... 1
Performance Highlights of the Funds ....................................... 2
Schedules of Investments and Management Discussions
The Griffin Money Market Fund ............................................. 3
The Griffin Tax-Free Money Market Fund .................................... 4
The Griffin Short-Term Bond Fund .......................................... 6
The Griffin U.S. Government Income Fund ................................... 10
The Griffin Bond Fund ..................................................... 13
The Griffin Municipal Bond Fund ........................................... 17
The Griffin California Tax-Free Fund ...................................... 21
The Griffin Growth & Income Fund .......................................... 25
The Griffin Growth Fund ................................................... 29
Financial Statements
Statements of Assets and Liabilities ...................................... 35
Statements of Operations .................................................. 37
Statements of Changes in Net Assets ....................................... 39
Financial Highlights ...................................................... 41
Notes to Financial Statements ............................................. 43
Report of Independent Auditor ............................................. 50
---------------------
Special Message to Shareholders ........................................... 51
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, HOME SAVINGS OF AMERICA, FSB ("HOME SAVINGS"), SAVINGS OF AMERICA
OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN ANY OF THE FUNDS INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Dear Fellow Shareholder:
We are pleased to present the Annual Report for The Griffin Funds, Inc. for the
twelve months ended September 30, 1996. In the charts and financial statements
that follow this letter you will find a more detailed summary of the performance
of each of The Griffin Funds and a description of the securities held in each of
the portfolios. We hope you will find this information useful as you evaluate
your investments.
The Griffin Funds were created just over three years ago to provide a
consistent, careful and committed approach for those seeking to invest in the
financial markets. We employ some of this country's largest and most respected
investment firms as sub-advisers to manage the individual securities for your
Funds' portfolios. Griffin Financial Investment Advisers provides an additional
level of review and supervision to ensure that each sub-adviser remains true to
the investment objectives defined in the prospectus for each Fund. We believe
that this two-tiered approach to investment management ensures that a consistent
investment philosophy is applied with respect to each Fund by responsible,
experienced managers. Through this approach, The Griffin Funds have posted
consistently strong returns.
Market Overview
Both the stock and bond markets began the twelve months ended September 30, 1996
on a positive note. Early indications suggested that the economy was expanding
at a moderate pace and inflation remained at historically low levels.
Corporations continued to report strong earnings as cost-cutting measures and
stock repurchase programs led to improved profitability. Beginning in February
of 1996, however, concerns that a strengthening economy and rising employment
levels would eventually lead to inflationary growth suddenly changed market
sentiment. The price of longer-term bonds dropped and yields increased in
response to the prospect of higher inflation. Bonds traded in a relatively
narrow range for the remainder of the year as higher inflation failed to
materialize. Many investors remained convinced that the growth in corporate
earnings would outpace inflationary pressures, and continued to invest in the
stock markets, particularly through mutual funds. This cash infusion helped the
equity markets to recover from widespread selling in July, and post historically
strong returns for the twelve month period ended September 30, 1996.
Creating An Investment Plan
The market ups and downs experienced this year are a normal part of long-term
investing. A number of studies in recent years have shown that many investors
who attempt to time these cycles by moving in and out of stocks, bonds or other
financial instruments based on short-term factors often fail to outperform the
market averages. Although it can be tempting to move all of your investments
into the "hottest" performing sectors as they appreciate in value, a more
prudent plan is to establish an investment program that will maintain a level of
risk that is appropriate for your financial goals. Once you've defined this
plan, it is necessary to review your investments periodically to ensure that
your investment portfolio is still consistent with your objectives. We at
Griffin have designed several programs to help simplify the process of making
these important investment decisions. Call us anytime at 800-676-4450 to learn
how we can help you establish an investment plan for your future.
As always, we appreciate your selection of The Griffin Funds for your personal
investment needs. We will do our best to preserve your confidence and loyalty.
Sincerely,
/s/ William A Hawkins
William A. Hawkins
Chairman
The Griffin Funds, Inc.
November 15, 1996
- 1 -
<PAGE>
Performance Highlights of the Funds (Unaudited)
The table below provides yield and total return information for the periods
ended September 30, 1996 for The Griffin Funds. The seven day yields of the
money market funds refer to the income generated by an investment in a Fund over
a seven day period, expressed as an annual percentage rate. The seven day
effective yields are calculated similarly but assume that the income earned from
a Fund is reinvested in the Fund. The total returns indicate the percentage an
investment in a Fund would have changed in value had shares been purchased at
the beginning of each period, with all dividends and capital gains being
reinvested. The table also indicates the average performance of mutual funds
with investment objectives that are similar to each of the respective non-money
market funds of The Griffin Funds. For each of the non-money market funds, the
group average reflects the performance of a universe of mutual funds tracked by
Lipper Analytical Services, Inc. Additional information with respect to the
Lipper group average performance information provided below is included in the
appropriate Fund's "Management Discussion." The Lipper mutual fund averages do
not reflect the imposition of sales charges, but do reflect the reinvestment of
all dividends and capital gains, if any. Of course, past performance is not an
indicator of future results.
For the Periods Ended September 30, 1996
<TABLE>
<CAPTION>
Seven Day
Seven Day Effective
Yield Yield
--------- ---------
<S> <C> <C>
Money Market Fund(1) ................... 4.86% 4.98%
Tax-Free Money Market Fund(1) .......... 3.00% 3.04%
<CAPTION>
Total Return
------------
Class A Class B
-------------------------------- --------------------------------
Since Since
Past Six Past Inception Past Six Past Inception
Months Year (10/19/93)(2) Months Year (11/1/94)(2)
-------- ------ ------------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Income Fund ................................. 2.27% 4.02% 4.97% 2.02% 3.51% 8.55%
U.S. Government Income Fund (incl. sales charge)(3) ......... -2.35% -0.71% 3.33% -2.98% -1.49% 6.60%
Lipper General U.S. Govt. Fund Average (179 funds) .......... 1.56% 3.24% n/a 1.56% 3.24% n/a
Bond Fund ................................................... 1.55% 3.12% 3.48% 1.31% 2.62% 8.32%
Bond Fund (incl. sales charge)(3) ........................... -3.05% -1.48% 1.88% -3.69% -2.38% 6.36%
Lipper Corporate Debt A Rated Fund Average (119 funds) ...... 1.96% 3.91% n/a 1.96% 3.91% n/a
California Tax-Free Fund .................................... 2.37% 5.23% 2.73% 2.12% 4.70% 8.97%
California Tax-Free Fund (incl. sales charge)(3) ............ -2.18% 0.53% 1.15% -2.88% -0.30% 7.02%
Lipper CA Municipal Debt Fund Average (100 funds) ........... 3.39% 6.49% n/a 3.39% 6.49% n/a
Municipal Bond Fund ......................................... 2.10% 4.64% 3.07% 1.96% 4.22% 8.83%
Municipal Bond Fund (incl. sales charge)(3) ................. -2.46% -0.03% 1.47% -3.04% -0.78% 6.89%
Lipper General Municipal Debt Fund Average (238 funds) ...... 2.79% 5.61% n/a 2.79% 5.61% n/a
Growth & Income Fund ....................................... 6.41% 18.08% 17.48% 6.14% 17.48% 24.47%
Growth & Income Fund (incl. sales charge)(3) ............... 1.69% 12.80% 15.66% 1.14% 12.48% 22.76%
Lipper Growth & Income Fund Average (572 funds) ............. 6.40% 17.24% n/a 6.40% 17.24% n/a
<CAPTION>
Class A Class B
-------------------------------- --------------------------------
Since Since
Past Six Past Inception Past Six Past Inception
Months Year (6/12/95)(2) Months Year (6/12/95)(2)
-------- ------ ------------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond Fund ........................................ 2.24% 4.82% 5.50% 2.08% 4.29% 5.25%
Short-Term Bond Fund (incl. sales charge)(4) ................ -1.29% 1.20% 2.69% -1.92% 0.29% 2.98%
Lipper S.I. Investment Grade Debt Fund Average (76 funds) ... 2.42% 5.01% n/a 2.42% 5.01% n/a
Growth Fund ................................................. 9.82% 18.35% 27.94% 9.51% 17.80% 27.41%
Growth Fund (incl. sales charge)(5) ........................ 4.87% 13.02% 23.53% 4.51% 12.80% 24.56%
Lipper Mid Cap Equity Fund Average (169 funds) .............. 8.45% 16.72% n/a 8.45% 16.72% n/a
</TABLE>
- ----------
(1) Investments in the Money Market Funds are neither insured nor guaranteed by
the U.S. Government. There can be no assurance that either of the Money
Market Funds will be able to maintain a stable net asset value of $1.00 per
share.
(2) Annualized.
(3) The deduction of the maximum initial sales charge with respect to Class A
shares (4.5%) and the deduction of the maximum applicable contingent
deferred sales charge with respect to Class B shares (5% with respect to
the total return data presented for the six month and one year periods
ended September 30, 1996, and 4% with respect to the total return data
presented for the period from inception of the Class on November 1, 1994 to
September 30, 1996) has been factored into these calculations.
(4) The deduction of the maximum initial sales charge with respect to Class A
shares (3.5%) and the deduction of the maximum applicable contingent
deferred sales charge with respect to Class B shares (4% with respect to
the total return data presented for the six month and one year periods
ended September 30, 1996, and 3% with respect to the total return data
presented for the period from the inception on June 12, 1995 through
September 30, 1996) has been factored into these calculations.
(5) The deduction of the maximum initial sales charge with respect to Class A
shares (4.5%) and the deduction of the maximum applicable contingent
deferred sales charge with respect to Class B shares (5% with respect to
the total return data presented for the six month and one year periods
ended September 30, 1996, and 4% with respect to the total return data
presented for the period from inception on June 12, 1995 to September 30,
1996) has been factored into these calculations.
- 2 -
<PAGE>
Schedule of Investments
Griffin Money Market Fund
September 30, 1996
[PIE CHART APPEARS HERE]
Certificates of Deposit 4%
Commercial Paper 46%
Corporate Notes 9%
U.S. Agency Discount Notes 41%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Certificate of Deposit (3.8%):
Financial Services (3.8%):
Deustche Bank, 5.46%, 10/07/96 ................ $7,000,000 $7,000,050
----------
Total Certificate of Deposit (cost: $7,000,050) .... 7,000,050
----------
Commercial Paper (46.4%):
Financial Services (36.1%):
American Express Credit, 5.29%, 10/08/96 (b) .. 6,000,000 5,993,828
American General Finance
Corporation, 5.30%, 10/07/96 (b) ............ 6,000,000 5,994,700
American Telephone & Telegraph Capital
Corporation, 5.75%, 10/01/96 (b) ............ 6,000,000 6,000,000
Ford Motor Credit Corporation,
5.38%, 1/09/97 (b) .......................... 9,000,000 8,865,500
Republic Bank of New York,
5.21%, 11/15/96 (b) ......................... 7,000,000 6,954,413
Toronto Dominion, 5.36%, 11/05/96 (b) ......... 7,000,000 6,963,522
Toyota Motor Credit Corporation,
5.36%, 11/12/96 (b) ......................... 6,000,000 5,962,480
Unilever Capital Corporation,
5.20%, 11/25/96 (b) ......................... 4,000,000 3,968,222
Union Bank of California, 5.31%, 11/12/96 (b) 7,000,000 6,956,635
United Bank of Switzerland
Financial, 5.78%, 10/01/96 (b) .............. 9,000,000 9,000,000
----------
66,659,300
----------
Industrial Conglomerate (7.0%):
Amoco Corporation, 5.25%, 10/04/96 (b) ........ 6,000,000 5,997,375
Coca Cola Company, 5.30%, 10/25/96 (b) ........ 7,000,000 6,975,267
----------
12,972,642
----------
Retailing (3.3%):
Wal-Mart Stores, 5.25%, 10/04/96 (b) .......... 6,000,000 5,997,375
----------
Total Commercial Paper (cost: $85,629,317) ......... 85,629,317
----------
Corporate Notes (9.3%):
Financial Services (9.3%):
Bayerische Landesbank, 5.51%, 11/20/96 ........ 5,000,000 5,001,519
Commercial Credit, 6.75%, 1/15/97 ............. 5,100,000 5,120,159
International Business Machines
Credit Corporation, 5.00%, 2/28/97 .......... 4,000,000 3,997,008
Norwest Corporation, 7.88%, 1/30/97 ........... 3,000,000 3,027,742
----------
17,146,428
----------
Total Corporate Notes (Cost: $17,146,428) .......... 17,146,428
----------
U.S. Government Agency Securities (40.9%):
Federal Farm Credit Bank Notes (13.5%):
5.62%, 9/03/97 ................................ 25,000,000 24,935,120
----------
Federal Home Loan Bank Notes (0.4%):
5.45%, 10/01/96 (b) ........................... 800,000 800,000
----------
Federal Home Loan Mortgage Notes (10.8%):
5.23%, 10/10/96 (b) ........................... 10,000,000 9,986,925
5.33%, 10/15/96 (b) ........................... 10,000,000 9,979,272
----------
19,966,197
----------
Federal National Mortgage Association
Notes (16.2%):
5.20%, 11/14/96 (b) ........................... 6,000,000 5,961,867
5.20%, 11/15/96 (b) ........................... 7,000,000 6,954,500
5.29%, 12/06/96 (b) ........................... 7,000,000 6,932,112
5.36%, 10/17/96 (b) ........................... 10,000,000 9,976,177
----------
29,824,656
----------
Total U.S. Government Agency Securities
(cost: $75,525,973) ........................... 75,525,973
----------
Repurchase Agreements (0.0%):
State Street Bank & Trust Co., Master
Repurchase Agreement, 4.0%, dated 9/30/96
due 10/01/96, 102% Collateralized by
U.S. Government Securities (delivery
value $45,005) .............................. 45,000 45,000
----------
Total Repurchase Agreements (cost: $45,000) ........ 45,000
----------
Total Investments In Securities
(cost: $185,346,768) (c) (100.4%) 185,346,768
Other Assets Less Liabilities (-0.4%) (698,637)
-----------
Net Assets (100%) $184,648,131
===========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Rate represents annualized yield to maturity at September 30, 1996.
(c) Cost is the same for federal income tax purposes.
See accompanying notes to financial statements.
- 3 -
<PAGE>
Schedule of Investments
Griffin Tax-Free Money Market Fund
September 30, 1996
[PIE CHART APPEARS HERE]
Variable Rate Demand Notes 48%
Commercial Paper 24%
Pre-refunded 7%
General Obligations 7%
Other 7%
Notes 7%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Municipal Short-Term Securities (98.3%):
Alabama (1.7%):
Phenix County, Alabama Industrial
Development Board Environmental
Improvement Revenue, Mead Coated
Board Project, 3.95%, 10/1/96 (b) ......... $200,000 $200,000
----------
Alaska (1.7%):
Valdez, Alaska Marine Terminal Revenue,
Exxon Pipeline Company
Project, 3.70%, 10/1/96 (b) ............... 200,000 200,000
----------
California (9.5%):
Ascension Parish, Los Angeles
Pollution Control Revenue, Shell
Oil, 3.70%, 10/2/96 (b) ................... 500,000 500,000
California State Revenue
Anticipation Notes, 4.50%, 6/30/97 ........ 300,000 301,139
Kings River Conservation District
of California, Pine Flat Power
Revenue, 7.90%, Prerefunded to 1/01/97 .... 300,000 309,256
----------
1,110,395
----------
Colorado (1.7%):
Colorado Student Obligation
Board Authority Student Loan
Revenue, Series A, 3.80%, 10/2/96 (b) ........... 100,000 100,000
Colorado Student Obligation Board
Authority, Series A, 3.90%, 10/2/96 (b) ......... 100,000 100,000
--------
200,000
--------
Georgia (7.2%):
Atlanta, Georgia Downtown Development
Authority Industrial Authority
Revenue, Underground Atlanta
Project, 7.75%, Prerefunded to 10/01/96 ......... 325,000 331,500
Burke County, Georgia Development
Authority - Oglethorpe Power
Corporation Project, 3.35%, 10/07/96 ............ 400,000 400,000
Georgia Municipal Electric Authority
Power Revenue, 7.75%, Prerefunded to 1/01/97 .... 100,000 102,936
--------
834,436
--------
Illinois (7.7%):
Chicago, Illinois O'Hare International
Airport, General Airport Revenue -
Second Lien, Series B, 3.90%, 10/2/96 (b) ....... 100,000 100,000
Chicago, Illinois O'Hare International
Airport, General Airport Revenue -
Second Lien, Series C, 4.00%, 10/2/96 (b) ....... 400,000 400,000
Illinois Health Facilities Authority
Revenue, SSM Health
Care Project A, 3.85%, 10/2/96 (b) .............. 400,000 400,000
--------
900,000
--------
Indiana (0.9%):
Indianapolis, Indiana Multi-Family
Revenue Housing, Canal Square
Project, 3.90%, 10/2/96 (b) ..................... 100,000 100,000
--------
Kansas (6.9%):
Burlington, Kansas Pollution
Control, Kansas City Power &
Light Project, 3.50%, 11/04/96 .................. 400,000 400,000
Kansas City, Kansas Industrial
Revenue, Adjustable Rate-PQ
Corporation Project, 4.05%, 10/1/96 (b) ......... 100,000 100,000
Kansas State Department Transportation
Highway Revenue, 3.80%, 10/2/96 (b) ............ 300,000 300,000
--------
800,000
--------
Louisiana (1.7%):
East Baton Rouge Parish, Louisiana
Pollution Control Revenue,
Georgia Pacific Corporation,
3.80%, 10/2/96 (b) .............................. 100,000 100,000
Louisiana Public Facilities Authority,
Kenner Hotel, 4.00%, 10/1/96 (b) ................ 100,000 100,000
--------
200,000
--------
Maryland (2.6%):
Montgomery County, Maryland Consumer
Public Improvement, 6.80%, 10/01/96 ......... 300,000 300,000
--------
Massachusetts (7.7%):
Massachusetts State General
Obligation, 4.25%, 6/10/97 .................. 500,000 501,416
Massachusetts State Water Resource
Authority, 3.55%, 11/14/96 .................. 400,000 400,000
--------
901,416
--------
Michigan (6.9%):
Delta County, Michigan Economic
Development Corporation Environmental
Improvement Revenue, Mead Escanaba
Paper Company, 3.30%, 10/08/96 .............. 400,000 400,000
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
Schedule of Investments
Griffin Tax-Free Money Market Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
Delta County, Michigan Economic
Development Corporation Environmental
Improvement Revenue, Mead Escanaba
Paper Company, 3.90%, 10/1/96 (b) ........... $100,000 $100,000
Michigan State Hospital Financing
Authority, 3.80%, 10/2/96 (b) ............... 300,000 300,000
--------
800,000
--------
Minnesota (3.4%):
Rochester, Minnesota Health Care
Facilities - May Foundation/Mayo Medical
Center Revenue, 3.55%, 10/10/96 ............. 400,000 400,000
--------
Missouri (2.6%):
Columbia, Missouri Special Revenue,
Series A, 3.85%, 10/2/96 (b) ................ 200,000 200,000
Missouri State Health & Educational
Facilities Authority Revenue,
3.70%, 10/2/96 (b) .......................... 100,000 100,000
--------
300,000
--------
Nebraska (3.4%):
Nebraska Higher Education Loan
Program, 4.00%, 10/2/96 (b) ................. 400,000 400,000
--------
Nevada (2.6%):
Clark County, Nevada Airport Improvement
Revenue, 3.80%, 10/2/96 (b) ................. 300,000 300,000
--------
New York (1.7%):
New York State Environmental
Facilities Corporation, Resource
Recovery Revenue, OFS Equity of
Huntington Project, 4.00%, 10/1/96 (b) ...... 200,000 200,000
--------
North Carolina (6.0%):
North Carolina Eastern Municipal
Power Agency - Power System
Revenue, 3.60%, 11/12/96 .................... 300,000 300,000
North Carolina Educational Facilities
Finance Authority Bowman
Gray School, 3.90%, 10/2/96 (b) ............. 400,000 400,000
--------
700,000
--------
Ohio (5.2%):
Ohio State General Obligation,
4.80%, 5/15/97 .............................. 500,000 503,612
Student Loan Funding Corporation
Cincinnati, Ohio Student Loan
Revenue, Series A-1, 3.90%, 10/2/96 (b) ..... 100,000 100,000
--------
603,612
--------
Pennsylvania (0.9%):
St. Mary Hospital Authority Langhorne
Pennsylvania Hospital Revenue,
Franciscan Health Sys-C,
3.85%, 10/1/96 (b) .......................... 100,000 100,000
--------
Tennessee (3.4%):
Tennessee Housing Development
Agency, 3.85%, 5/29/97 ...................... 400,000 400,000
--------
Texas (4.3%):
Grapevine, Texas Industrial
Development Corporation, Multiple
Mode - American Airlines,
3.90%, 10/1/96 (b) .......................... 100,000 100,000
Greater East Texas Higher
Education, 3.85%, 5/01/97 ................... 400,000 400,000
--------
500,000
--------
Utah (4.3%):
Intermountain Power Agency Utah
Power Supply Revenue, 3.70%, 1/24/97 ........ 500,000 500,000
--------
Washington (4.3%):
Seattle, Washington Water System
Revenue, 3.90%, 10/2/96 (b) ................. 500,000 500,000
--------
Total Municipal Short-Term Securities
(cost: $11,449,859) 11,449,859
----------
Total Investments In Securities
(cost: $11,449,859) (c) (98.3%) 11,449,859
Other Assets Less Liabilities (1.7%) 201,705
----------
Net Assets (100%) $11,651,564
==========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) These variable rate securities have maturities greater than one year but
are redeemable upon demand. For purposes of calculating the Fund's weighted
average maturity, the length to maturity of these investments is considered
to be the greater of the period until the interest rate is adjusted or
until the principal can be recovered by demand.
(c) Cost is the same for federal income tax purposes.
See accompanying notes to financial statements.
- 5 -
<PAGE>
Management Discussion
Griffin Short-Term Bond Fund
Portfolio Manager: Edmund M. Notzon, III
T. Rowe Price Associates, Inc.
What were the significant market factors that affected performance?
Since the beginning of the fiscal year, interest rates have fluctuated
dramatically across the yield curve. During the last three months of 1995
interest rates moved down over 0.5% in the one-year to five-year part of the
yield curve. Since the beginning of 1996, interest rates have moved up between
0.5% and 1.0% in the same part of the curve. The rate increase was more dramatic
in the first six months of 1996, leveling out during the Fund's fiscal fourth
quarter. During these periods of interest rate change, inflation remained
moderate.
What strategies and techniques were implemented during the year?
We have continued to emphasize corporate bonds and federally-guaranteed
mortgage-backed securities. These overweightings are based on our favorable view
of the economy under which the economy would experience moderate growth and
inflation would increase slowly. Going forward, we will be particularly
interested in the electric utilities which appear relatively inexpensive due to
the turmoil in the industry caused by increasing deregulation. As we further
research their corporate strategies, some of these electric utilities may
represent good value for the Fund. We will also begin to reduce our position in
bonds of financial issuers as these companies are generally more sensitive to
higher interest rates.
What themes can be seen in the current portfolio (industry weightings) and why?
The current portfolio is overweighted in industrial bonds, utility bonds, and
financial bonds. The most significant position is in industrial bonds, which we
think currently offer the best value. This diverse group of corporate bonds
includes such sectors as automobiles, oil and gas - all sectors we feel provide
favorable prospects for the near future.
What individual security holdings changed significantly during the year?
As the Fund continues to grow in size, we added new corporate bonds that we
identified as having good value. This increases the diversification of the
portfolio, providing downside protection should any problems arise with a single
issuer. Recent additions to the Fund include Sears Roebuck & Company,
International Paper Company and Southwest Airlines.
What is the strategy for the next six to twelve months?
The strategy for the next six to twelve months is not to make interest rate
bets, but rather to maintain a relatively neutral duration and to continue to
overweight corporate bonds and mortgages. The main factors that could alter this
strategy would be signs of stronger inflation or of significant earnings
reductions in the corporate sector. Regardless of the direction of interest
rates or corporate earnings, we are unlikely to hold a significant portion of
the Fund's assets in cash.
- 6 -
<PAGE>
Griffin Short-Term Bond Fund
The two charts below show the performance of both classes of shares of the
Griffin Short-Term Bond Fund compared with the Merrill Lynch Govt./Corp. 1-4.99
Year Index, the Lipper Short Investment Grade Debt Funds Average and the Lipper
Short-Intermediate Investment Grade Debt Funds Average. If you had invested
$10,000 in Class A shares of the Griffin Short-Term Bond Fund when the Fund
commenced operations on June 12, 1995, reinvesting all dividends, the top chart
would track the value of your investment through the period ended September 30,
1996. If you had invested $10,000 in Class B shares of the Fund when they were
first offered on June 12, 1995, assuming all dividends were reinvested, the
bottom chart would track the performance of your investment through September
30, 1996 (assuming a complete redemption on that date). The Merrill Lynch
Government/Corporate 1-4.99 Year Index is an unmanaged index of debt obligations
with maturities ranging from one to five years. The Lipper Short-Intermediate
Investment Grade Debt Funds Average is based on a universe of approximately 76
mutual funds tracked by Lipper Analytical Services, Inc. that have investment
objectives similar to the Griffin Short-Term Bond Fund. The Lipper Short
Investment Grade Debt Funds Average is based on a universe of approximately 106
mutual funds tracked by Lipper Analytical Services, Inc. In future reports the
Lipper Short Investment Grade Funds Average will not be presented in the
accompanying line graph, as we feel the investment objectives of the funds
included in the Lipper Short-Intermediate Investment Grade Debt Funds Average
more closely resemble the objective of the Griffin Short-Term Bond Fund. It is
important to keep in mind that Fund performance as depicted in the charts
reflects the deduction of the maximum front-end sales charge of 3.5% with
respect to Class A shares, and the deduction of the maximum applicable
contingent deferred sales charge (CDSC) of 3% with respect to Class B shares,
while no such charges are deducted from the indexes. Of course, past performance
is not an indicator of future results.
Griffin Short-Term Bond Fund Class A
[CHART APPEARS HERE]
Average Annual Returns
(reflects deduction of 3.5% sales charge)
One year ..................... 1.20%
Since Inception .............. 2.69%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Merrill Lynch Lipper Short-Intermediate Lipper Short-Term
Short-Term Bond Fund Govt./Corp. 1 - Investment Grade Funds Investment Grade
4.99 yrs. Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $9,650 Initial $10,000
Jun 95 $9,722 Jun 95 $10,065 Jun 95 $10,000 Jun 95 $10,000
Jul $9,758 Jul $10,091 Jul $10,010 Jul $10,027
Aug $9,826 Aug $10,160 Aug $10,093 Aug $10,091
Sep $9,873 Sep $10,218 Sep $10,164 Sep $10,146
Oct $9,970 Oct $10,318 Oct $10,260 Oct $10,224
Nov $10,074 Nov $10,428 Nov $10,368 Nov $10,307
Dec $10,150 Dec $10,522 Dec $10,464 Dec $10,385
Jan 96 $10,236 Jan 96 $10,616 Jan 96 $10,546 Jan 96 $10,463
Feb $10,168 Feb $10,543 Feb $10,455 Feb $10,419
Mar $10,123 Mar $10,513 Mar $10,420 Mar $10,408
Apr $10,106 Apr $10,502 Apr $10,401 Apr $10,412
May $10,111 May $10,509 May $10,400 May $10,428
Jun $10,197 Jun $10,600 Jun $10,492 Jun $10,499
Jul $10,224 Jul $10,637 Jul $10,522 Jul $10,539
Aug $10,251 Aug $10,663 Aug $10,542 Aug $10,571
Sep $10,350 Sep $10,780 Sep $10,672 Sep $10,666
</TABLE>
Griffin Short-Term Bond Fund Class B
[CHART APPEARS HERE]
Average Annual Returns
(One year total return and total return since
inception reflect deduction of 4% and 3%
contingent deferred sales charges, respectively)
One year ..................... 0.29%
Since Inception .............. 2.98%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Short-Term Merrill Lynch Lipper Short-Intermediate Lipper Short-Term
Bond Fund Govt./Corp. 1 - 4.99 Investment Grade Funds Investment Grade
yrs. Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
------ ------- ------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Jun 95 $10,000 Jun 95 $10,000
Jun 95 $10,079 Jun 95 $10,065 Jul $10,010 Jul $10,027
Jul $10,118 Jul $10,091 Aug $10,093 Aug $10,091
Aug $10,192 Aug $10,160 Sep $10,164 Sep $10,146
Sep $10,251 Sep $10,218 Oct $10,260 Oct $10,224
Oct $10,337 Oct $10,318 Nov $10,368 Nov $10,307
Nov $10,440 Nov $10,428 Dec $10,464 Dec $10,385
Dec $10,525 Dec $10,522 Jan 96 $10,546 Jan 96 $10,463
Jan 96 $10,599 Jan 96 $10,616 Feb $10,455 Feb $10,419
Feb $10,525 Feb $10,543 Mar $10,420 Mar $10,408
Mar $10,474 Mar $10,513 Apr $10,401 Apr $10,412
Apr $10,452 Apr $10,502 May $10,400 May $10,428
May $10,452 May $10,509 Jun $10,492 Jun $10,499
Jun $10,537 Jun $10,600 Jul $10,522 Jul $10,539
Jul $10,560 Jul $10,637 Aug $10,542 Aug $10,571
Aug $10,583 Aug $10,663 Sep $10,672 Sep $10,666
Sep $10,391 Sep $10,780
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
- 7 -
<PAGE>
Schedule of Investments
Griffin Short-Term Bond Fund
September 30, 1996
[PIE CHART APPEARS HERE]
Corporate Bonds 23%
U.S. Treasury Notes 59%
U.S. Agency Securities 15%
Cash 3%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Corporate Bonds (22.7%):
Banking (4.4%):
Bankers Trust - New York
7.25%, 11/01/96 ............................... $30,000 $30,041
9.50%, 6/14/00 ................................ 90,000 96,975
First Chicago, 9.00%, 6/15/99 ................... 30,000 31,725
MBNA Corporation
6.88%, 10/01/99 ............................... 210,000 210,525
7.49%, 9/14/99 ................................ 350,000 356,563
Northern Trust, 9.00%, 5/15/98 .................. 100,000 103,875
World Savings & Loan Association,
7.63%, 2/18/97 ................................ 40,000 40,292
-----------
869,996
-----------
Electric Utilities (2.5%):
Alabama Power Company, 6.38%, 8/01/99 ........... 30,000 29,850
Baltimore Gas & Electric, 8.93%, 7/16/98 ........ 100,000 104,125
Orange & Rockland Utility, 9.38%, 3/15/00 ....... 275,000 294,938
Southern California Edison, 8.25%, 2/01/00 ...... 60,000 62,250
-----------
491,163
-----------
Financial Services (6.4%):
Associates Corporation, N.A
6.00%, 3/15/00 ................................ 250,000 244,375
6.75%, 7/15/97 ................................ 37,000 37,241
6.75%, 10/15/99 ............................... 16,000 16,060
Bear Stearns Company, 9.13%, 4/15/98 ............ 30,000 31,200
Ford Motor Credit Corporation,
9.38%, 12/15/97 ............................... 50,000 51,812
General Motors Acceptance Corporation,
5.63%, 2/15/01 ................................ 200,000 190,750
8.38%, 5/01/97 ................................ 30,000 30,418
Golden West Financial, 10.25%, 12/01/00 ......... 255,000 285,281
Heller Financial, 9.13%, 8/01/99 ................ 100,000 106,125
Lehman Brothers Holdings Corporation,
8.88%, 11/01/98 ............................... 150,000 156,188
Paine Webber Group Incorporated,
9.25%, 12/15/01 ............................... 100,000 107,625
-----------
1,257,075
-----------
Industrial Conglomerate (7.9%):
Anheuser Busch Company,
8.75%, 12/01/99 ............................... 100,000 106,250
Cox Communications Incorporated - New,
8.55%, 6/01/00 ................................ 40,000 42,100
Cox Communications Incorporated,
6.38%, 6/15/00 ................................ 100,000 98,250
General Motors Acceptance Corporation,
6.88%, 7/15/01 ................................ 300,000 298,875
GTE Corporation, 9.38%, 12/01/00 ................ 100,000 108,500
International Paper Company,
9.70%, 3/15/00 ................................ 150,000 162,938
Lockheed Corporation, 9.38%, 10/15/99 ........... 71,000 76,414
Mobil Corporation, 6.50%, 2/15/97 ............... 15,000 15,027
Pepsico Incorporated, 7.75%, 10/01/98 ........... 100,000 102,625
Sears Roebuck & Company, 7.32%, 3/20/98 ......... 100,000 101,375
Tele-Communications Incorporated,
9.88%, 4/01/98 ................................ 350,000 364,438
Texaco Capital Incorporated,
9.00%, 12/15/99 ............................... 65,000 69,388
-----------
1,546,180
-----------
Retailing (0.7%):
Wal-Mart Stores
5.50%, 9/15/97 ................................ 30,000 29,840
6.75%, 5/15/02 ................................ 100,000 99,750
-----------
129,590
-----------
Transportation (0.8%):
Southwest Airlines, 9.40%, 7/01/01 ........ 150,000 163,875
-----------
Total Corporate Bonds
(cost: $4,483,444) ...................... 4,457,879
-----------
U.S. Government And Agency Securities (70.8%):
U.S. Treasury Notes (56.6%):
4.75%, 8/31/98 ............................ 1,000,000 975,690
5.13%, 2/28/98 ............................ 1,200,000 1,186,092
5.13%, 11/30/98 ........................... 600,000 587,652
5.88%, 8/15/98 ............................ 1,400,000 1,393,896
6.00%, 12/31/97 ........................... 400,000 400,472
6.00%, 10/15/99 ........................... 400,000 397,144
6.13%, 5/15/98 ............................ 500,000 500,675
6.38%, 1/15/99 ............................ 675,000 678,254
6.88%, 3/31/00 ............................ 350,000 355,355
7.25%, 2/15/98 ............................ 150,000 152,399
7.75%, 12/31/99 ........................... 800,000 832,296
7.75%, 1/31/00 ............................ 950,000 988,969
8.13%, 2/15/98 ............................ 300,000 308,199
8.25%, 7/15/98 ............................ 670,000 694,073
8.88%, 5/15/00 ............................ 150,000 162,015
9.13%, 5/15/99 ............................ 750,000 801,120
9.25%, 8/15/98 ............................ 700,000 738,102
-----------
11,152,403
-----------
</TABLE>
See accompanying notes to financial statements.
- 8 -
<PAGE>
Schedule of Investments
Griffin Short-Term Bond Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Agency Securities (14.2%):
Federal Home Loan Bank (2.0%):
5.89%, 7/24/00 ............................ $200,000 $195,522
5.94%, 6/13/00 ............................ 200,000 195,964
6.84%, 4/20/99 ............................ 13,816 13,817
-----------
405,303
-----------
Federal Home Loan Mortgage Association(8.4%):
6.00%, 4/01/99 ............................ 183,763 179,858
6.00%, 6/01/01 ............................ 493,218 482,737
6.50%, 12/01/99 ........................... 448,000 443,377
6.50%, 5/01/01 ............................ 491,823 488,287
7.75%, 11/07/01 ........................... 50,000 52,343
-----------
1,646,602
-----------
Federal National Mortgage Association (3.8%):
8.25%, 12/18/00 ........................... 225,000 238,552
9.05%, 4/10/00 ............................ 475,000 511,618
-----------
750,170
-----------
Total U.S. Government And Agency Securities
(cost: $14,010,666) ..................... 13,954,478
-----------
Short-Term Securities (3.2%):
Repurchase Agreements (3.2%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.00%, dated
9/30/96 due 10/01/96, 102% Collateralized
by U.S. Government Securities (delivery
value $628,070) ......................... 628,000 628,000
-----------
Total Short-Term Securities
(cost: $628,000) ........................ 628,000
-----------
Total Investments In Securities
(cost: $19,122,110)(b)(96.7%) 19,040,357
Other Assets Less Liabilities (3.3%) 655,990
-----------
Net Assets (100%) $19,696,347
===========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost as follows:
Gross unrealized appreciation ............... $ 23,863
Gross unrealized depreciation ............... (105,616)
--------
Net unrealized depreciation ................. ($ 81,753)
=========
See accompanying notes to financial statements.
- 9 -
<PAGE>
Management Discussion
Griffin U.S. Government Income Fund
Portfolio Managers: Executive Policy Committee
Payden & Rygel Investment Counsel
What were the significant market factors that affected performance?
The rise in interest rates over the past twelve months has been a key
determinant to the performance of the U.S. bond market. Investments in
securities with maturities longer than five years have had their coupon income
offset by declining prices. This has led to minimal returns to investors in
securities with maturities longer than ten years and offered primarily coupon
income to investors in intermediate-term securities. The U.S. Govern-ment Income
Fund's performance for the fiscal year compares favorably to the returns for
longer maturity Treasury securities. Despite a period of easing by the Federal
Reserve Board, culminating in January when the Federal Funds Rate dropped to
5.25%, the general level of interest rates rose from the beginning of February
to April and led to price declines in the fixed income markets. The catalysts
prompting the rate increase were labor reports which portrayed a surprising
number of new jobs being created. The financial markets, which had expected
modest growth, soon anticipated a faster pace of economic expansion as well as
greater likelihood of increased inflation.
What strategies and techniques were implemented during the year?
In response to an environment of higher interest rates, the Fund altered its
portfolio allocation to emphasize mortgage-backed securities. The allocation
enabled the Fund to increase its coupon income which acted as a cushion against
falling bond prices. In addition, the Fund shortened its portfolio duration in
early 1996 and maintained an increasingly defensive posture through the fiscal
year.
What themes can be seen in the current portfolio (industry weightings) and why?
The portfolio's allocation towards mortgage pass-through securities has been
centered around discount and current coupon Government National Mortgage
Association ("GNMA") bonds. Discount and current coupon mortgages provided extra
yield to the portfolio without exposing the Fund to the debilitating affect of
prepayments if interest rates decline. The Fund is currently holding close to
70% in mortgage-backed securities, with 47% of the portfolio invested in GNMA
pass-throughs with coupons in the 7.0% to 8.0% range. The strategy to emphasize
mortgages was particularly effective given the pattern of interest rates over
the last six months. Since last April, interest rates on ten-year U.S. Treasury
notes have remained in a range from 6.5% to 7.0%. Mortgage securities, which
tend to perform better when interest rates remain stable, have performed well
during this period. The increase in mortgage-backed securities was funded by a
decrease in U.S. Treasury securities, specifically longer maturity Treasury
bonds. When interest rates rose in the second quarter, longer maturity bonds
yielded only a slight premium to ten-year Treasury notes. Due to this lackluster
premium, the overall allocation to U.S. Treasury securities was shortened to
include more intermediate Treasury notes, which had the dual effect of selling
relatively expensive securities and moving the portfolio to a more defensive
posture.
What individual security holdings changed significantly during the year?
Over the course of the year the mortgage market has become increasingly
stratified between newly issued mortgage pass-throughs and those that are older
or "seasoned." Older mortgage pass-throughs have increased in value relative to
newer mortgages because they tend to prepay at a slower rate. The Fund
recognized the better value inherent in seasoned mortgages and increased its
holdings in these securities. The Fund currently owns seasoned pass-throughs
with 7.0%, 7.5% and 9.5% coupon rates. The Fund has purchased collateralized
mortgage obligations ("CMOs") when the opportunity to own the collateral
underlying the CMOs was less expensive than purchasing similar collateral
directly in the secondary mortgage market. For example, the Fund recently
purchased a CMO backed by seasoned GNMA 10% coupon mortgage-backed securities
that were less expensive than purchasing the GNMA directly.
What is the strategy for the next six to twelve months?
Our near-term strategy is to maintain existing allocations in the mortgage and
treasury sectors. The market uncertainty regarding the future direction of
interest rates should keep interest rate levels in a narrow range. A range-bound
market should allow mortgage-backed securities to perform well given their yield
advantage. The duration decision, currently neutral, will be dependent on future
economic data. In the short term, if tight labor markets force a resurgence in
wage pressures, the Federal Reserve Board may be forced to raise interest rates
in an effort to maintain control of inflation Under these circumstances the Fund
is poised to return to a defensive posture, similar to its stance at the end of
the third quarter. Over a longer time horizon, if economic growth slows to below
2% in response to the higher interest rate levels seen earlier this year, a more
aggressive portfolio position would be warranted. In this case the Fund may
shift to a longer duration portfolio with a higher concentration of U.S.
Treasury securities.
- 10 -
<PAGE>
Griffin U.S. Government Income Fund
The two charts below show the performance of both classes of shares of the
Griffin U.S. Government Income Fund compared with the Lehman Brothers Government
Bond Index, the Lipper General U.S. Government Funds Average and the Morningstar
U.S. Government Bond Fund Average. If you had invested $10,000 in Class A shares
of the Griffin U.S. Government Income Fund when the Fund commenced operations on
October 19, 1993, reinvesting all dividends, the top chart would track the value
of your investment through the period ended September 30, 1996. If you had
invested $10,000 in Class B shares of the Fund when they were first offered on
November 1, 1994, assuming all dividends were reinvested, the bottom chart would
track the performance of your investment through September 30, 1996 (assuming a
complete redemption on that date). The Lehman Brothers Government Bond Index is
an unmanaged index of debt obligations issued by the U.S. Treasury and its
agencies. The Lipper General U.S. Government Funds Average is based on a
universe of approximately 179 mutual funds tracked by Lipper Analytical
Services, Inc. that have investment objectives similar to the Griffin U.S.
Government Income Fund. The Morningstar U.S. Government Bond Fund Average is
based on a universe of approximately 384 mutual funds tracked by Morningstar,
Inc. that have investment objectives similar to that of the Griffin U.S.
Government Income Fund. In future reports the Morningstar Average will not be
presented in the accompanying line graph, as we feel the categorization of the
funds included in the Lipper Average is a more accurate representation of the
Fund's peer group than that presented by Morningstar. It is important to keep in
mind that Fund performance as depicted in the charts reflects the deduction of
the maximum front-end sales charge of 4.5% with respect to Class A shares and
the deduction of the maximum applicable contingent deferred sales charge (CDSC)
of 4% with respect to Class B shares, while no such charges are deducted from
the indexes. Of course, past performance is not an indicator of future results.
Griffin U.S. Government Income Fund Class A
[CHART APPEARS HERE]
Average Annual Returns
(reflects deduction of 4.5% sales charge)
One year ..................... -0.17%
Since Inception .............. 3.33%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin U.S. Lehman Bros. Lipper General Morningstar
Government Income Government Bond U.S. Govt. Funds U.S. Government Bond
Fund Index Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,530 Nov $9,884 Nov $9,885 Nov $9,919
Dec $9,601 Dec $9,923 Dec $9,929 Dec $9,963
Jan '94 $9,720 Jan '94 $10,059 Jan '94 $10,054 Jan '94 $10,064
Feb $9,586 Feb $9,845 Feb $9,853 Feb $9,903
Mar $9,316 Mar $9,624 Mar $9,608 Mar $9,709
Apr $9,242 Apr $9,548 Apr $9,510 Apr $9,623
May $9,282 May $9,535 May $9,486 May $9,601
Jun $9,289 Jun $9,513 Jun $9,445 Jun $9,575
Jul $9,445 Jul $9,688 Jul $9,604 Jul $9,705
Aug $9,464 Aug $9,690 Aug $9,601 Aug $9,714
Sep $9,375 Sep $9,554 Sep $9,451 Sep $9,600
Oct $9,355 Oct $9,547 Oct $9,425 Oct $9,584
Nov $9,358 Nov $9,530 Nov $9,405 Nov $9,551
Dec $9,449 Dec $9,588 Dec $9,475 Dec $9,603
Jan '95 $9,615 Jan '95 $9,766 Jan '95 $9,645 Jan '95 $9,752
Feb $9,836 Feb $9,976 Feb $9,859 Feb $9,943
Mar $9,874 Mar $10,039 Mar $9,908 Mar $9,993
Apr $9,989 Apr $10,171 Apr $10,028 Apr $10,103
May $10,304 May $10,581 May $10,410 May $10,419
Jun $10,389 Jun $10,662 Jun $10,473 Jun $10,478
Jul $10,332 Jul $10,623 Jul $10,423 Jul $10,451
Aug $10,480 Aug $10,747 Aug $10,552 Aug $10,557
Sep $10,594 Sep $10,850 Sep $10,659 Sep $10,642
Oct $10,743 Oct $11,015 Oct $10,811 Oct $10,768
Nov $10,914 Nov $11,187 Nov $10,970 Nov $10,905
Dec $11,102 Dec $11,346 Dec $11,129 Dec $11,029
Jan $11,124 Jan $11,415 Jan $11,178 Jan $11,090
Feb $10,886 Feb $11,182 Feb $10,929 Feb $10,911
Mar $10,775 Mar $11,089 Mar $10,830 Mar $10,837
Apr $10,710 Apr $11,018 Apr $10,747 Apr $10,780
May $10,694 May $10,999 May $10,709 May $10,755
Jun $10,822 Jun $11,141 Jun $10,834 Jun $10,864
Jul $10,843 Jul $11,169 Jul $10,853 Jul $10,889
Aug $10,853 Aug $11,145 Aug $10,819 Aug $10,874
Sep $11,019 Sep $11,330 Sep $10,998 Sep $11,028
</TABLE>
Griffin U.S. Government Income Class B
[CHART APPEARS HERE]
Average Annual Returns
(One year total return and total return since
inception reflect deduction of 5% and 4%
contingent deferred sales charges, respectively)
One year ..................... -1.49%
Since Inception .............. 6.60%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin U.S. Lehman Bros. Government Lipper General U.S. Morningstar U.S.
Government Income Fund Bond Index Government Funds Government Bond Funds
Average Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000 Initial $10,000
Nov $10,027 Nov $9,982 Nov $9,979 Nov $9,966
Dec $10,114 Dec $10,043 Dec $10,053 Dec $10,020
Jan '95 $10,288 Jan '95 $10,230 Jan '95 $10,233 Jan '95 $10,176
Feb $10,521 Feb $10,450 Feb $10,460 Feb $10,375
Mar $10,557 Mar $10,515 Mar $10,512 Mar $10,427
Apr $10,687 Apr $10,653 Apr $10,639 Apr $10,542
May $11,007 May $11,083 May $11,045 May $10,872
Jun $11,092 Jun $11,168 Jun $11,112 Jun $10,933
Jul $11,039 Jul $11,127 Jul $11,059 Jul $10,905
Aug $11,180 Aug $11,257 Aug $11,196 Aug $11,016
Sep $11,308 Sep $11,365 Sep $11,309 Sep $11,104
Oct $11,462 Oct $11,538 Oct $11,471 Oct $11,236
Nov $11,640 Nov $11,718 Nov $11,639 Nov $11,379
Dec $11,823 Dec $11,884 Dec $11,808 Dec $11,509
Jan $11,855 Jan $11,956 Jan $11,860 Jan $11,572
Feb $11,584 Feb $11,712 Feb $11,596 Feb $11,385
Mar $11,474 Mar $11,615 Mar $11,490 Mar $11,308
Apr $11,400 Apr $11,541 Apr $11,403 Apr $11,248
May $11,378 May $11,521 May $11,362 May $11,222
Jun $11,497 Jun $11,670 Jun $11,495 Jun $11,336
Jul $11,527 Jul $11,699 Jul $11,515 Jul $11,362
Aug $11,533 Aug $11,673 Aug $11,479 Aug $11,347
Sep $11,305 Sep $11,867 Sep $11,669 Sep $11,507
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
- 11 -
<PAGE>
Schedule of Investments
Griffin U.S. Government Income Fund
September 30, 1996
[PIE CHART APPEARS HERE]
U.S. Treasury Notes & Bonds 12%
Mortgage-Backed Securities 68%
U.S. Government Agency Securities 6%
U.S. Government Agency Notes 14%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Mortgage-Backed Securities (68.3%):
Government National Mortgage Association (58.7%):
6.50%, 10/15/23-1/15/24 ....................... $1,818,378 $1,699,601
7.00%, 8/15/23-5/15/26 ........................ 6,946,750 6,697,875
7.50%, 3/15/24-3/15/26 ........................ 6,412,987 6,345,700
8.00%, 10/15/24-8/15/26 ....................... 9,291,577 9,381,520
9.50%, 8/15/09-8/15/20 ........................ 2,885,014 3,091,340
11.00%, 2/15/10-10/15/18 ...................... 290,776 324,942
12.50%, 12/15/10-6/15/15 ...................... 86,850 100,664
13.00%, 8/15/12 ............................... 44,497 51,700
-----------
27,693,342
-----------
Federal Home Loan Mortgage Corporation (1.7%):
9.50%, 12/01/04 ............................... 538,588 562,151
9.50%, 11/01/05 ............................... 215,010 224,417
-----------
786,568
-----------
Federal National Mortgage Association (3.3%):
10.00%, 7/01/21 ............................... 1,449,917 1,578,597
-----------
Collateralized Mortgage Obligations (4.6%):
Federal Home Loan Mortgage Corporation,
Series 80, Class E, 8.60%, 6/15/19 ............ 169,182 171,183
-----------
Federal National Mortgage Association,
Series 1989-48, Class G, 8.00%, 3/25/18 ....... 178,598 180,915
-----------
L. F. Rothschild Mortgage Trust,
Series 3, Class Z, 9.95%, 9/01/17 ............. 1,672,079 1,807,200
-----------
Total Collateralized Mortgage Obligations
(cost: $2,150,654) ............................ 2,159,298
-----------
Total Mortgage-Backed Securities
(cost: $32,115,524) ............................. 32,217,805
-----------
U.S. Government and Agency Securities (18.4%):
U.S. Agency Securities (6.4%):
Private Export Funding Corporation,
5.50%, 3/15/01 ................................ 2,000,000 1,907,500
-----------
Federal National Mortgage Association,
8.10%, 8/12/19 .................................. 1,000,000 1,089,260
-----------
U.S. Government Securities (12.0%):
U.S. Treasury Notes (10.9%):
5.00%, 2/15/99 .................................. 1,000,000 973,600
6.13%, 5/15/98 .................................. 1,000,000 1,001,350
6.25%, 5/31/00 .................................. 3,200,000 3,184,130
-----------
5,159,080
-----------
U.S. Treasury Bonds (1.1%):
7.25%, 8/15/22 .................................. 500,000 510,840
-----------
Total U.S. Government and Agency Securities
(cost: $8,963,890) ................................ 8,666,680
-----------
Short-Term Securities (13.5%):
Federal Home Loan Mortgage Corporation (13.5%):
5.20%, 10/21/96 (b) ............................. 3,000,000 2,991,333
5.65%, 10/01/96 (b) ............................. 3,400,000 3,400,000
-----------
6,391,333
-----------
Total Short-Term Securities (cost: $6,391,333) ....... 6,391,333
-----------
Total Investments In Securities
(cost: $47,470,747)(c)(100.2%) 47,275,818
Other Assets Less Liabilities (-0.2%) (119,263)
-----------
Net Assets (100%) $47,156,555
===========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Rate represents annualized yield to maturity at September 30, 1996.
(c) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation .......... $ 158,557
Gross unrealized depreciation .......... (353,486)
--------
Net unrealized depreciation ............ ($194,929)
=========
See accompanying notes to financial statements.
- 12 -
<PAGE>
Management Discussion
Griffin Bond Fund
Portfolio Managers: Matthew N. Fontaine and
Arthur J. MacBride, The Boston Company Asset Management, Inc.
What were the significant market factors that affected performance?
The fixed income market enjoyed a strong rally during the first quarter of the
fiscal year as the prospect for a balanced budget amendment drove yields on
30-year Treasury bonds down to 5.95%. In January, the market sold off as the
likelihood for a balanced budget amendment decreased and investors began to fear
that strong economic growth would create inflationary pressures. From late April
through the end of September, the yield on 30-year Treasury bonds fluctuated in
a trading range between 6.75% and 7.20% as investors looked to inconclusive
economic data in their attempt to determine the nature of Federal Reserve policy
and the effects of a growing economy on inflation. Throughout the past year, the
yield advantage of corporate bonds to comparable maturity U.S. Treasury
securities has narrowed as the economic expansion continued to lead to improved
credit quality.
What strategies and techniques were implemented during the year?
Throughout the past year, the Fund has maintained a 65-75% allocation to
corporate bonds due to the relative value of this sector. We have avoided bonds
from issuers in cyclical industries such as steel, paper, and chemical issues.
We have, however, found value in financial issuers, which provide good relative
value versus other types of corporate bonds. Throughout the year, the Fund
maintained a 10% weighting in dollar-denominated "Yankee" bonds, which have
offered more attractive spreads over U.S. Treasury securities than similar U.S.
corporate bonds. We have reduced the Fund's mortgage weighting, although we have
selectively found value in this sector. The remainder has been allocated to U.S.
Treasury securities, which comprise approximately 20% of the portfolio.
What themes can be seen in the current portfolio (industry weightings) and why?
We have reduced the Fund's exposure to cyclical industrials as we expect growth
to taper over the next year. Currently, the portfolio maintains a full weighting
in Yankee bonds and financial corporates, which offer solid relative value
versus industrials. Mortgage-backed securities continue to comprise about 10% of
the portfolio, reflecting our belief that they are attractively priced compared
to other asset classes. Currently, the portfolio is positioned with a neutral
duration to the market as we have not identified any clear trend regarding the
level of interest rates.
What individual security holdings changed significantly during the year?
Because the Bond Fund is well diversified, we have not added any new issues
which comprise more than 3% of the portfolio. However, we have initiated
positions in bonds of several domestic financial issuers including First
National Bank of Boston, Sanwa Business Credit and NationsBank Corporation. In
addition, we increased the Fund's exposure to Sears Roebuck & Company and
Merrill Lynch & Company, Inc., which were both subsequently upgraded by the
rating agencies. Two additions in the Yankee sector were Wharf Capital
International and Mass Transit Railway, both located in Hong Kong.
What is the strategy for the next six to twelve months?
Our strategy for the next year will continue to be driven by our value oriented,
research driven, and risk averse approach. The Fund's investment process
utilizes a blend of quantitative analysis as well as fundamental research. For
the remainder of 1996 and the first half of 1997 we expect the economy to
continue to show moderate strength. The inflation outlook remains stable but
concern is rising because the low levels of unemployment are resulting in a very
tight labor market. We continue to be concerned about the low yield advantage
offered by corporate bonds. As a result, we are taking a cautious approach to
security selection and have avoided cyclical issues in particular. Corporate
bond issuance should continue at a torrid pace, and we will take an
opportunistic approach to this sector if spreads widen.
- 13 -
<PAGE>
The two charts below show the performance of both classes of shares of the
Griffin Bond Fund compared with the Lehman Brothers Corporate Bond Index, Lipper
Corporate Debt A Rated Funds Average and the Morningstar Corporate High Quality
Bond Fund Average. If you had invested $10,000 in Class A shares of the Griffin
Bond Fund when the Fund commenced operations on October 19, 1993, reinvesting
all dividends, the top chart would track the value of your investment through
the period ended September 30, 1996. If you had invested $10,000 in Class B
shares of the Fund when they were first offered on November 1, 1994, assuming
all dividends were reinvested, the bottom chart would track the performance of
your investment through September 30, 1996 (assuming a complete redemption on
that date). The Lehman Brothers Corporate Bond Index is an unmanaged index of
only investment grade corporate debt securities. The Lipper Corporate Debt A
Rated Funds Average is based on a universe of approximately 119 mutual funds
tracked by Lipper Analytical Services, Inc. that have investment objectives
similar to the Griffin Bond Fund. The Morningstar Corporate High Quality Bond
Fund Average is based on a universe of approximately 239 mutual funds tracked by
Morningstar, Inc. that have investment objectives similar to that of the Griffin
Bond Fund. In future reports the Morningstar Average will not be presented in
the accompanying line graph, as we feel the categorization of the funds included
in the Lipper Average is a more accurate representation of the Fund's peer group
than that presented by Morningstar. It is important to keep in mind that Fund
performance as depicted in the charts reflects the deduction of the maximum
front-end sales charge of 4.5% with respect to Class A shares and the deduction
of the maximum applicable contingent deferred sales charge (CDSC) of 4% with
respect to Class B shares, while no such charges are deducted from the indexes.
Of course, past performance is not an indicator of future results.
Griffin Bond Fund Class A
[CHART APPEARS HERE]
Average Annual Returns
(reflects deduction of 4.5% sales charge)
One year ..................... -1.48%
Since Inception .............. 1.88%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Morningstar
Griffin Bond Lehman Bros. Lipper Corporate Corporate High
Fund Corporate Bond Debt A Rated Quality Bond Fund
Index Funds Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,361 Nov $9,806 Nov $9,868 Nov $9,931
Dec $9,412 Dec $9,864 Dec $9,918 Dec $9,978
Jan '94 $9,552 Jan '94 $10,055 Jan '94 $10,066 Jan '94 $10,080
Feb $9,381 Feb $9,818 Feb $9,848 Feb $9,943
Mar $9,139 Mar $9,516 Mar $9,588 Mar $9,794
Apr $9,008 Apr $9,425 Apr $9,478 Apr $9,729
May $8,996 May $9,390 May $9,448 May $9,718
Jun $8,981 Jun $9,367 Jun $9,415 Jun $9,708
Jul $9,146 Jul $9,603 Jul $9,582 Jul $9,830
Aug $9,166 Aug $9,614 Aug $9,582 Aug $9,845
Sep $9,025 Sep $9,435 Sep $9,432 Sep $9,765
Oct $9,004 Oct $9,413 Oct $9,406 Oct $9,760
Nov $8,981 Nov $9,398 Nov $9,380 Nov $9,740
Dec $9,034 Dec $9,476 Dec $9,453 Dec $9,782
Jan '95 $9,207 Jan '95 $9,677 Jan '95 $9,615 Jan '95 $9,912
Feb $9,408 Feb $9,956 Feb $9,838 Feb $10,083
Mar $9,452 Mar $10,037 Mar $9,906 Mar $10,146
Apr $9,584 Apr $10,206 Apr $10,039 Apr $10,254
May $9,963 May $10,687 May $10,438 May $10,540
Jun $10,034 Jun $10,783 Jun $10,503 Jun $10,603
Jul $9,984 Jul $10,736 Jul $10,455 Jul $10,592
Aug $10,116 Aug $10,909 Aug $10,590 Aug $10,694
Sep $10,247 Sep $11,038 Sep $10,701 Sep $10,777
Oct $10,394 Oct $11,181 Oct $10,852 Oct $10,894
Nov $10,563 Nov $11,395 Nov $11,020 Nov $11,023
Dec $10,746 Dec $11,583 Dec $11,187 Dec $11,141
Jan 96 $10,802 Jan 96 $11,658 Jan 96 $11,239 Jan 96 $11,212
Feb $10,516 Feb $11,380 Feb $10,994 Feb $11,074
Mar $10,405 Mar $11,284 Mar $10,906 Mar $11,025
Apr $10,293 Apr $11,190 Apr $10,822 Apr $10,984
May $10,264 May $11,170 May $10,801 May $10,981
Jun $10,388 Jun $11,334 Jun $10,931 Jun $11,085
Jul $10,408 Jul $11,356 Jul $10,952 Jul $11,114
Aug $10,368 Aug $11,320 Aug $10,923 Aug $11,117
Sep $10,567 Sep $11,560 Sep $11,120 Sep $11,265
</TABLE>
Griffin Bond Class B
[CHART APPEARS HERE]
Average Annual Returns
(One year total return and total return since
inception reflect deduction of 5% and 4%
contingent deferred sales charges, respectively)
One year ..................... -2.38%
Since Inception .............. 6.36%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Lipper Corporate Morningstar Corporate
Griffin Bond Fund Lehman Bros. Corporate Debt A Rated High Quality Bond
Bond Index Funds Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
- -------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000 Initial $10,000
Nov $10,012 Nov $9,984 Nov $9,973 Nov $9,980
Dec $10,066 Dec $10,066 Dec $10,050 Dec $10,023
Jan '95 $10,240 Jan '95 $10,280 Jan '94 $10,223 Jan '94 $10,156
Feb $10,472 Feb $10,576 Feb $10,460 Feb $10,331
Mar $10,516 Mar $10,662 Mar $10,532 Mar $10,396
Apr $10,659 Apr $10,842 Apr $10,673 Apr $10,506
May $11,076 May $11,353 May $11,098 May $10,799
Jun $11,135 Jun $11,455 Jun $11,167 Jun $10,864
Jul $11,075 Jul $11,405 Jul $11,115 Jul $10,853
Aug $11,230 Aug $11,589 Aug $11,259 Aug $10,957
Sep $11,358 Sep $11,725 Sep $11,377 Sep $11,043
Oct $11,517 Oct $11,878 Oct $11,537 Oct $11,162
Nov $11,713 Nov $12,105 Nov $11,716 Nov $11,295
Dec $11,898 Dec $12,304 Dec $11,894 Dec $11,416
Jan 96 $11,954 Jan 96 $12,384 Jan 96 $11,949 Jan 96 $11,488
Feb $11,645 Feb $12,090 Feb $11,689 Feb $11,346
Mar $11,505 Mar $11,987 Mar $11,595 Mar $11,297
Apr $11,376 Apr $11,887 Apr $11,506 Apr $11,255
May $11,340 May $11,866 May $11,484 May $11,251
Jun $11,473 Jun $12,040 Jun $11,622 Jun $11,358
Jul $11,490 Jul $12,063 Jul $11,644 Jul $11,388
Aug $11,454 Aug $12,026 Aug $11,613 Aug $11,391
Sep $11,256 Sep $12,281 Sep $11,823 Sep $11,543
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
- 14 -
<PAGE>
Schedule of Investments
Griffin Bond Fund
September 30, 1996
[PIE CHART APPEARS HERE]
Corporate Bonds 68%
U.S. Agency Securities 17%
U.S. Treasury Notes & Bonds 14%
Other 1%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Asset Backed Securities (0.2%):
Corporate (0.2%):
General Motors Acceptance Corporation
Grantor Trust, 6.30%, 6/15/99 ............... $63,626 $63,764
-----------
Total Asset Backed Securities (cost $63,603): ...... 63,764
-----------
Corporate Bonds (68.1%):
Banking (11.3%):
Abbey National First Capital
Corporation, 8.20%, 10/15/04 (b) ............ 175,000 185,036
Chase Manhattan Bank
6.63%, 1/15/98 .............................. 130,000 130,488
7.13%, 3/01/05 .............................. 400,000 394,500
First National Bank of Boston,
7.38%, 9/15/06 .............................. 270,000 268,988
First Union Corporation, 9.45%, 8/15/01 ....... 246,000 269,678
Fleet Financial Group, 6.00%, 10/26/98 ........ 315,000 312,518
Golden West Financial, 7.88%, 1/15/02 ......... 250,000 260,000
Malayan Banking Berhad-New York,
7.13%, 9/15/05 (b) .......................... 100,000 97,500
Midland Bank PLC, 7.63%, 6/15/06 (b) .......... 400,000 406,000
NationsBank Corporation
5.38%, 4/15/00 .............................. 300,000 286,587
7.25%, 10/15/25 ............................. 275,000 255,063
7.50%, 9/15/06 .............................. 105,000 105,788
Norwest Corporation, 7.70%, 11/15/97 .......... 200,000 203,200
-----------
3,175,346
-----------
Electric Utilities (2.3%):
Florida Power & Light , 5.38%, 4/01/00 ........ 305,000 291,132
Ohio Edison, 8.75%, 2/15/98 ................... 225,000 230,906
Virginia Electric & Power, 8.88%, 6/01/99 ..... 125,000 131,473
-----------
653,511
-----------
Financial Services (23.6%):
Aegon, 8.00%, 8/15/06 (b) ..................... 314,000 328,387
American Express Credit, 7.88%, 12/01/96 ...... 50,000 50,164
Associates Corporation, N.A ...................
6.63%, 5/15/01 .............................. 80,000 79,100
6.75%, 7/15/01 .............................. 60,000 59,625
6.75%, 8/01/01 .............................. 145,000 144,094
BHP Finance U.S.A .............................
6.69%, 3/01/06 (b) .......................... 204,000 195,840
7.00%, 12/01/97 (b) ......................... 200,000 201,886
CIT Group Holdings, 8.75%, 4/15/98 ............ 110,000 113,850
Commercial Credit, 5.70%, 3/01/98 ............. 175,000 173,688
Countrywide Funding Corporation,
8.25%, 7/15/02 .............................. 166,000 173,885
Donaldson Lufkin & Jenrette,
6.88%, 11/01/05 ............................. 294,000 280,770
Ford Motor Credit Corp. .......................
Ford - Global Bond, 6.25%, 2/26/98 .......... 350,000 349,752
6.85%, 8/15/00 .............................. 250,000 249,688
Lehman Brothers Incorporated
6.65%, 7/14/98 .............................. 225,000 225,000
6.13%, 2/01/01 .............................. 550,000 529,375
Lincoln National Corporation, 7.25%, 5/15/05 .. 450,000 444,938
Merrill Lynch & Company Incorporated
6.00%, 1/15/01 .............................. 150,000 144,375
6.25%, 1/15/06 .............................. 230,000 212,504
7.38%, 5/15/06 .............................. 305,000 305,000
Morgan J.P. & Company
7.63%, 11/15/98 ............................. 250,000 255,403
7.63%, 9/15/04 .............................. 250,000 257,813
Paine Webber Group
7.31%, 8/09/00 .............................. 187,000 187,935
8.25%, 5/01/02 .............................. 200,000 207,250
Prudential Insurance, 7.65%, 7/01/07 .......... 255,000 252,131
Sanwa Business Credit, 7.25%, 9/15/01 (b) ..... 270,000 271,688
Smith Barney Holdings Incorporated,
6.00%, 3/15/97 .............................. 150,000 150,035
Travelers/Aetna Property Casualty Corp. ....... 500,000 496,875
6.75%, 4/15/01
US Leasing International, 8.75%, 12/01/01 ..... 285,000 306,731
-----------
6,647,782
-----------
Industrial Conglomerate (28.6%):
American Brands, 7.50%, 5/15/99 .................. 120,000 122,114
Black & Decker
7.00%, 2/01/06 ................................. 50,000 48,625
7.50%, 4/01/03 ................................. 185,000 187,544
Cardinal Health, 6.00%, 1/15/06 .................. 297,000 272,126
China Global, 7.75%, 7/05/06 (b) ................. 165,000 165,619
Coca Cola Company, 7.88%, 9/15/98 ................ 200,000 205,550
Columbia/HCA Healthcare
6.91%, 6/15/05 ................................. 300,000 293,511
7.15%, 3/30/04 ................................. 250,000 248,438
ConAgra Incorporated, 7.13%, 10/01/26 ............ 205,000 203,719
CPC International Incorporated
6.15%, 1/15/06 ................................. 350,000 326,375
6.88%, 10/15/03 ................................ 35,000 34,785
CSR America Incorporated,
6.88%, 7/21/05 (b) ............................. 300,000 291,375
General Motors Acceptance Corporation,
6.63%, 9/19/02 ................................. 455,000 444,763
6.88%, 7/15/01 ................................. 215,000 214,194
General Motors Corporation,
9.63%, 12/01/00 ................................ 350,000 384,234
GTE Corporation, 8.85%, 3/01/98 .................. 500,000 516,245
</TABLE>
See accompanying notes to financial statements.
- 15 -
<PAGE>
Schedule of Investments
Griffin Bond Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
GTE South, 6.00%, 2/15/08 ........................ $250,000 $225,000
Hanson Overseas BV, 6.75%, 9/15/05 (b) ........... 250,000 241,145
Honeywell Incorporated, 6.60%, 4/15/01 ........... 350,000 345,625
International Business Machines
Corporation, 6.38%, 6/15/00 .................... 200,000 198,146
International Paper Company,
9.70%, 3/15/00 ................................. 160,000 173,462
Lockheed Martin Corporation
7.25%, 5/15/06 ................................. 110,000 109,725
7.75%, 5/01/26 ................................. 310,000 307,675
News America Holdings, 7.50%, 3/01/00 (b) ........ 350,000 354,375
Norcen Energy Resources, 7.38%, 5/15/06 (b) ...... 120,000 118,500
Pepsico Incorporated, 7.75%, 10/01/98 ............ 300,000 306,471
Pohang Iron & Steel Company,
7.38%, 5/15/05 (b) ............................. 225,000 221,906
Sears Roebuck & Company
5.60%, 11/16/98 ................................ 135,000 132,806
5.71%, 2/06/01 ................................. 65,000 61,913
9.25%, 4/15/98 ................................. 165,000 171,935
9.35%, 7/06/98 ................................. 100,000 104,875
9.38%, 4/08/98 ................................. 300,000 312,750
Wal-Mart Stores, 8.63%, 4/01/01 .................. 350,000 374,276
Wharf Capital International,
8.88%, 11/01/04 (b) ............................ 130,000 132,113
WMX Technology Incorporated,
8.25%, 11/15/99 ................................ 200,000 208,424
-----------
8,060,339
-----------
Transportation (2.3%):
Federal Express, 10.00%, 9/01/98 ................. 175,000 185,647
Mass Transit Railway, 7.25%, 10/01/05 (b) ........ 275,000 268,125
Southwest Airlines, 7.88%, 9/01/07 ............... 200,000 207,250
-----------
661,022
-----------
Total Corporate Bonds
(cost: $19,411,122) ............................ 19,198,000
-----------
Collateralized Mortgage Obligations (0.7%):
U.S. Agency (0.5%):
Federal Home Loan Mortgage Corporation (c):
Series 1435, Class FA, LIBOR
floater, 6.80%, 12/15/22 ....................... 114,463 116,352
Series 1439, Class QA, Inverse
COFI floater, 11.58%, 11/15/22 ................. 22,616 20,354
-----------
136,706
-----------
Corporate (0.2%):
Security Pacific National Bank,
9.30%, 8/25/19 ................................. 42,325 42,774
-----------
Total Collateralized Mortgage Obligations
(cost: $181,349) ............................... 179,480
-----------
U.S. Government And Agency Securities (30.7%):
U.S. Government Securities (13.8%):
U.S. Treasury Bonds (13.8%):
7.13%, 2/15/23 ................................. 2,856,000 2,876,963
7.25%, 5/15/16 ................................. 980,000 1,001,286
-----------
3,878,249
-----------
U.S. Agency Securities (16.9%):
Federal National Mortgage Association (16.2%):
6.50%, 9/01/25-8/01/26 ......................... 353,855 332,400
7.00%, 10/01/03-9/01/26 ........................ 1,052,092 1,034,315
7.43%, 8/01/06 ................................. 165,826 167,328
7.50%, 6/01/10-9/01/11 ......................... 579,962 583,400
8.00%, 4/01/10-9/01/26 ......................... 1,467,178 1,487,061
8.50%, 10/01/25-9/01/26 ........................ 428,303 439,545
9.00%, 2/01/25-9/01/26 ......................... 502,005 524,123
-----------
4,568,172
-----------
Government National Mortgage Association (0.7%):
7.00%, 6/20/26 .................................. 209,285 200,390
-----------
Total U.S. Government And Agency Securities
(cost: $8,672,865) .............................. 8,646,811
-----------
Short-Term Securities (0.6%):
Repurchase Agreement (0.6%):
State Street Bank & Trust Co.
Master Repurchase Agreement, 4.00%,
dated 9/30/96 due 10/01/96,
102% Collaterized by U.S. Government
Securities (delivery value $161,018) ............ 161,000 161,000
-----------
Total Short-Term Securities
(cost: $161,000) ................................ 161,000
-----------
Total Investments In Securities
(cost: $28,489,939)(d)(100.3%) .................. 28,249,055
Other Assets Less Liabilities (-0.3%) .................. (75,283)
-----------
Net Assets (100%) ...................................... $28,173,772
===========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) U.S. dollar denominated securities issued by foreign corporations and/or
governments.
(c) Descriptions of certain collateralized mortgage obligations are as follows:
LIBOR - London InterBank Offered Rate.
COFI (11th District) - Cost of Funds Index of the Federal Reserve's 11th
District.
Inverse floater - represents securities that pay interest at rates that
increase (decrease) with a decline (increase) in a specific index.
Interest rate disclosed was in effect on September 30, 1996.
Floater - represents securities that pay interest at rates that increase
(decrease) with an increase (decrease) in a specific index. Interest
rate disclosed was in effect on September 30, 1996.
(d) Cost is $28,648,068 for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation ............ $ 79,521
Gross unrealized depreciation ............ (478,534)
--------
Net unrealized depreciation .............. ($399,013)
=========
See accompanying notes to financial statements.
- 16 -
<PAGE>
Management Discussion
Griffin Municipal Bond Fund
Portfolio Managers: Executive Policy Committee
Payden & Rygel Investment Counsel
What were the significant market factors that affected performance?
There were two significant factors affecting performance in the municipal bond
market this year. The main factor was the change in the direction of interest
rates. The Federal Reserve Board lowered the Federal Funds Rate to 5.25% in
January 1996. In the subsequent months, economic activity began to exhibit signs
of renewed strength, causing market participants to believe that the lowering of
interest rates in January would be the Federal Reserve Board's last move for
some time. This led to a decline in prices of fixed income securities as
investors feared that interest rates would rise. Another factor affecting the
municipal bond market was the reduced probability of radical tax reform. In the
fourth quarter of 1995, municipal bond prices reflected concern over lower tax
rates, and long-term bond yields were unusually high versus the general level of
interest rates. Tax reform fears began to abate as the flat tax proposed by
Republican Presidential candidate Steve Forbes came under attack and the
National Commission on Economic Growth and Tax Reform, appointed by Sen. Dole
and Rep. Gingrich, failed to make specific recommendations for tax reform. The
municipal bond market reacted positively to the sidelining of the tax reform
issue and prices on municipal bonds rose.
What strategies and techniques were implemented during the year?
During the first six months of the Fund's fiscal year the portfolio was
positioned with the outlook that interest rates would decline due to low
inflation. The Fund's duration was longer than its peers because of this
outlook, providing a greater sensitivity to changes in interest rates. As
economic numbers began to portray an economy growing moderately during the
second quarter of 1996, the Fund's duration was reduced. As continued evidence
of strength in the economy, particularly wage-propelled inflation, began to
raise concern over a possible increase in interest rates by the Federal Reserve
Board, we reduced the duration of the Fund to a more conservative position. Due
to the rising interest rate environment, the Fund was positioned more
defensively. Our strategy was to more evenly distribute, or "ladder",
investments along maturity ranges. The Fund is more laddered in the intermediate
to long maturity ranges than during 1995, when the fifteen-year area was
emphasized because of its attractive yield, as well as total return potential.
What themes can be seen in the current portfolio (industry weightings) and why?
The Griffin Municipal Bond Fund is structured to capture the yield available
from longer maturity bonds. Therefore, the Fund invests primarily in securities
with maturities greater than ten years. Another important goal of the Fund
pertains to mitigation of credit risk. The Fund holds geographically diverse
securities, with the greatest single state representation being 11%. General
obligation bonds account for one-third of the Fund's total assets. An improved
economic climate has generated surpluses in many State budgets, improving the
soundness of this type of credit. Revenue bonds, also just over one-third of the
Fund's total assets, are concentrated in bonds backed by user fees for essential
services, which provide strong support for the bonds. Water revenue bonds not
only have enjoyed a sound credit structure, but political consensus is emerging
regarding long-term viable planning for water development which further enhances
their credit-worthiness.
What individual security holdings changed significantly during the year?
The Griffin Municipal Bond Fund is a diversified fund, and currently no issuer
represents more than five percent of the Fund's total assets. Because assets
have remained relatively stable throughout the year, no one security has changed
significantly.
What is the strategy for the next six to twelve months?
It is our plan to maintain the sector and credit quality allocations in the Fund
for the foreseeable future. The Municipal Bond Fund invests in intermediate to
long-term investment grade municipal securities. Its duration is currently
neutral to the market, and will be maintained there given the current moderate
growth economic environment. The duration may be changed depending on the
strength of the economy, as portrayed by a wide set of economic indicators, and
the risk/reward opportunities associated with changes in those indicators.
- 17 -
<PAGE>
Griffin Municipal Bond Fund
The two charts below show the performance of both classes of shares of the
Griffin Municipal Bond Fund compared with the Lehman Brothers Municipal Bond
Index, the Lipper General Municipal Debt Funds Average and the Morningstar
Municipal Bond Fund Average. If you had invested $10,000 in Class A shares of
the Griffin Municipal Bond Fund when the Fund commenced operations on October
19, 1993, reinvesting all dividends, the top chart would track the value of your
investment through the period ended September 30, 1996. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on November
1, 1994, assuming all dividends were reinvested, the bottom chart would track
the performance of your investment through September 30, 1996 (assuming a
complete redemption on that date). The Lehman Brothers Municipal Bond Index is
an unmanaged index of debt obligations issued by U.S. states and municipalities.
The Lipper General Municipal Debt Funds Average is based on a universe of
approximately 238 mutual funds tracked by Lipper Analytical Services, Inc. that
have investment objectives similar to the Griffin Municipal Bond Fund. The
Morningstar Municipal Bond Fund Average is based on a universe of approximately
516 mutual funds tracked by Morningstar, Inc. that have investment objectives
similar to that of the Griffin Municipal Bond Fund. In future reports the
Morningstar Average will not be presented in the accompanying line graph, as we
feel the categorization of the funds included in the Lipper Average is a more
accurate representation of the Fund's peer group than that presented by
Morningstar. It is important to keep in mind that Fund performance as depicted
in the charts reflects the deduction of the maximum front-end sales charge of
4.5% with respect to Class A shares and the deduction of the maximum applicable
contingent deferred sales charge (CDSC) of 4% with respect to Class B shares,
while no such charges are deducted from the indexes. Of course, past performance
is not an indicator of future results.
Griffin Municipal Bond Fund Class A
[CHART APPEARS HERE]
Average Annual Returns
(reflects deduction of 4.5% sales charge)
One year ..................... -0.03%
Since Inception .............. 1.47%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Lehman Bros. Lipper General Morningstar
Municipal Bond Fund Municipal Bond Municipal Debt Municipal Bond
Index Funds Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,423 Nov $9,798 Nov $9,895 Nov $9,917
Dec $9,641 Dec $10,005 Dec $10,094 Dec $10,097
Jan '94 $9,773 Jan '94 $10,119 Jan '94 $10,210 Jan '94 $10,204
Feb $9,465 Feb $9,857 Feb $9,937 Feb $9,967
Mar $8,941 Mar $9,456 Mar $9,500 Mar $9,604
Apr $9,019 Apr $9,536 Apr $9,534 Apr $9,640
May $9,068 May $9,619 May $9,620 May $9,717
Jun $9,006 Jun $9,560 Jun $9,557 Jun $9,671
Jul $9,213 Jul $9,735 Jul $9,726 Jul $9,819
Aug $9,235 Aug $9,769 Aug $9,750 Aug $9,846
Sep $9,058 Sep $9,626 Sep $9,589 Sep $9,716
Oct $8,858 Oct $9,454 Oct $9,405 Oct $9,568
Nov $8,665 Nov $9,283 Nov $9,208 Nov $9,401
Dec $8,888 Dec $9,487 Dec $9,436 Dec $9,590
Jan '95 $9,165 Jan '95 $9,759 Jan '95 $9,719 Jan '95 $9,825
Feb $9,430 Feb $10,043 Feb $10,010 Feb $10,075
Mar $9,548 Mar $10,158 Mar $10,100 Mar $10,160
Apr $9,547 Apr $10,170 Apr $10,100 Apr $10,171
May $9,852 May $10,495 May $10,416 May $10,443
Jun $9,679 Jun $10,404 Jun $10,296 Jun $10,364
Jul $9,774 Jul $10,502 Jul $10,362 Jul $10,436
Aug $9,894 Aug $10,636 Aug $10,476 Aug $10,541
Sep $9,980 Sep $10,703 Sep $10,538 Sep $10,598
Oct $10,134 Oct $10,858 Oct $10,701 Oct $10,733
Nov $10,331 Nov $11,038 Nov $10,908 Nov $10,903
Dec $10,453 Dec $11,144 Dec $11,030 Dec $11,003
Jan '96 $10,530 Jan '96 $11,229 Jan '96 $11,083 Jan '96 $11,067
Feb $10,424 Feb $11,152 Feb $10,996 Feb $11,004
Mar $10,228 Mar $11,010 Mar $10,820 Mar $10,858
Apr $10,189 Apr $10,979 Apr $10,769 Apr $10,821
May $10,173 May $10,975 May $10,774 May $10,826
Jun $10,271 Jun $11,094 Jun $10,875 Jun $10,912
Jul $10,348 Jul $11,195 Jul $10,971 Jul $11,003
Aug $10,321 Aug $11,193 Aug $10,964 Aug $11,003
Sep $10,443 Sep $11,350 Sep $11,122 Sep $11,132
</TABLE>
Griffin Municipal Bond Class B
[CHART APPEARS HERE]
Average Annual Returns
(One year total return and total return since
inception reflect deduction of 5% and 4%
contingent deferred sales charges, respectively)
One year ..................... -0.78%
Since Inception .............. 6.89%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Lipper General Morningstar Municipal
The Griffin Municipal Lehman Bros. Municipal Municipal Debt Bond Funds Average
Bond Fund Bond Index Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
- -------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,846 Nov $9,819 Nov $9,790 Nov $9,826
Dec $10,083 Dec $10,035 Dec $10,033 Dec $10,024
Jan '95 $10,405 Jan '95 $10,322 Jan '95 $10,334 Jan '95 $10,269
Feb $10,701 Feb $10,622 Feb $10,643 Feb $10,530
Mar $10,830 Mar $10,745 Mar $10,739 Mar $10,619
Apr $10,825 Apr $10,757 Apr $10,739 Apr $10,630
May $11,167 May $11,101 May $11,075 May $10,915
Jun $10,963 Jun $11,004 Jun $10,947 Jun $10,832
Jul $11,065 Jul $11,109 Jul $11,017 Jul $10,908
Aug $11,206 Aug $11,250 Aug $11,139 Aug $11,017
Sep $11,286 Sep $11,321 Sep $11,204 Sep $11,076
Oct $11,467 Oct $11,485 Oct $11,378 Oct $11,218
Nov $11,674 Nov $11,675 Nov $11,598 Nov $11,395
Dec $11,819 Dec $11,787 Dec $11,727 Dec $11,500
Jan '96 $11,888 Jan '96 $11,877 Jan '96 $11,784 Jan '96 $11,567
Feb $11,762 Feb $11,796 Feb $11,692 Feb $11,501
Mar $11,536 Mar $11,645 Mar $11,505 Mar $11,348
Apr $11,500 Apr $11,613 Apr $11,451 Apr $11,309
May $11,465 May $11,608 May $11,455 May $11,315
Jun $11,570 Jun $11,734 Jun $11,563 Jun $11,404
Jul $11,652 Jul $11,841 Jul $11,665 Jul $11,500
Aug $11,616 Aug $11,839 Aug $11,658 Aug $11,500
Sep $11,363 Sep $12,005 Sep $11,826 Sep $11,635
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
- 18 -
<PAGE>
Schedule of Investments
Griffin Municipal Bond Fund
September 30, 1996
[PIE CHART APPEARS HERE]
General Obligations 34%
Transportation 15%
Water 13%
Electric 7%
Sewer 8%
Lease 5%
Health care 6%
Housing 6%
Sales Tax 5%
Other 1%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Municipal Long-Term Securities (93.4%):
Arizona (3.2%):
Phoenix, Arizona, Series A, 6.25%, 7/01/17 ....... $200,000 $221,750
----------
California (3.4%):
California State Department of Water Resources
5.00%, 12/01/22 ................................ 100,000 89,500
6.00%, 12/01/06 ................................ 140,000 150,675
----------
240,175
----------
Florida (5.1%):
Dade County, Florida Aviation
Revenue, 5.50%, 10/01/07 ....................... 200,000 202,750
Florida State Board of Education
Capital Outlay Public Education,
5.75%, 6/01/15 ................................. 150,000 151,500
----------
354,250
----------
Georgia (2.5%):
Georgia State General Obligation,
7.20%, 3/01/08 (b) ............................. 150,000 175,125
----------
Illinois (8.1%):
Du Page County, Illinois General
Obligation Revenue Bond,
Stormwater Project, 5.60%, 1/01/21 ............. 250,000 246,875
Metropolitan Pier & Exposition
Authority Dedicated State Tax
Revenue Bond, 0.00%, 6/15/01 (c) ............... 400,000 320,000
----------
566,875
----------
Indiana (1.5%):
Wa-Nee Elementary/High School
Building Corporation, 6.50%, 7/15/10 ........... 100,000 105,500
----------
Massachusetts (8.0%):
Massachusetts Bay Transportation
Authority General Transportation
System, 5.60%, 3/01/08 ......................... 200,000 205,000
Massachusetts State General
Obligation, 5.75%, 2/01/15 ..................... 150,000 150,750
Massachusetts State Water Resources
5.50%, 11/01/15 ................................ 100,000 96,625
6.00%, 8/01/14 ................................. 100,000 102,375
----------
554,750
----------
Michigan (1.0%):
Michigan State Hospital Financing
Authority, 5.88%, 7/01/14 ...................... 75,000 71,531
----------
Nevada (1.5%):
Nevada State General Obligation,
5.80%, 7/15/08 ................................. 100,000 102,250
----------
New Jersey (3.1%):
New Jersey State General Obligation,
6.00%, 2/15/11 ................................. 200,000 213,000
----------
New York (4.5%):
New York State Environmental
Facilities Corporation Pollution Control
Revenue Revolving Fund, 6.80%, 6/15/01 ......... 100,000 108,875
New York, New York General
Obligation, 6.00%, 2/01/04 ..................... 200,000 203,000
----------
311,875
----------
Ohio (7.4%):
Franklin County, Ohio Hospital
Revenue, Holy Cross Health
Systems Corporation, 5.50%, 6/01/01 ............ 300,000 307,875
Ohio State Water Department
Authority Revenue Fresh Water
Series, 5.70%, 6/01/09 ......................... 200,000 206,250
----------
514,125
----------
Oregon (1.5%):
Oregon State Department of Transportation
Revenue, Regional Light Rail
Fund - Westside Project, 6.25%, 6/01/09 ........ 100,000 107,000
----------
Pennsylvania (8.0%):
Commonwealth of Pennsylvania
General Obligation, 5.20%, 6/15/04 ............. 250,000 253,438
Pennsylvania Housing Finance Agency,
Single Family Mortgage, 4.60%, 10/01/98 ........ 300,000 300,375
----------
553,813
----------
</TABLE>
See accompanying notes to financial statements.
- 19 -
<PAGE>
Schedule of Investments
Griffin Municipal Bond Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
Puerto Rico (3.0%):
Puerto Rico Electric Power Authority,
Electric Revenue, 6.13%, 7/01/08 .............. $200,000 $212,000
----------
South Carolina (2.8%):
Columbia, South Carolina Water Works &
Sewer Systems Revenue, 5.38%, 2/01/12 .......... 200,000 197,750
----------
South Dakota (1.5%):
South Dakota Housing Development
Authority, Homeownership
Mortgage, 6.65%, 5/01/14 ....................... 100,000 104,750
----------
Texas (10.2%):
Austin, Texas General Obligation,
5.70%, 9/01/07 ................................. 200,000 207,750
Harris County, Texas Tax and Revenue
Certificate of Obligation, 6.00%, 12/15/10 ..... 200,000 211,000
San Antonio, Texas Electric &
Gas Revenue, 5.00%, 2/01/14 .................... 100,000 92,750
Texas Municipal Power Agency
Revenue, 5.25%, 9/01/08 (b) .................... 200,000 198,250
----------
709,750
----------
Virginia (5.2%):
Virginia State Public Building
Authority Revenue, 5.20%, 8/01/16 .............. 250,000 233,750
Virginia State Transportation Board
Revenue, North Virginia Transportation
District Program, 6.25%, 5/15/12 ............... 120,000 126,000
----------
359,750
----------
Washington (6.3%):
Seattle, Washington Water System
Revenue, 5.25%, 12/01/23 ....................... 250,000 231,250
Washington State General Obligation,
5.75%, 9/01/09 ................................. 200,000 205,500
----------
436,750
----------
Wisconsin (5.6%):
Wisconsin State General Obligation,
5.13%, 11/01/07 (b) ............................ 200,000 197,250
Wisconsin State Transportation,
5.50%, 7/01/14 ................................. 200,000 194,000
----------
391,250
----------
Total Municipal Long-Term Securities
(cost: $6,416,752) .................................. 6,504,019
----------
Municipal Short-Term Securities (4.2%):
Colorado (1.4%):
Colorado Student Obligation Board
Authority Student Loan Revenue,
Series A, 3.80%, 10/02/96 (d) .................. 100,000 100,000
----------
Nevada (1.4%):
Clark County, Nevada Airport
Improvement Revenue, Series A-1,
3.80%, 10/02/96 (d) ............................ 100,000 100,000
----------
Texas (1.4%):
Grapevine, Texas Industrial Development
Corporation, Multiple Mode -
American Airlines, 3.90%, 10/01/96 (d) ......... 100,000 100,000
----------
Total Municipal Short-Term Securities
(cost: $300,000) .................................... 300,000
----------
Total Investments In Securities
(cost: $6,716,752) (e) (97.6%) ...................... 6,804,019
Other Assets Less Liabilities (2.4%) ................... 160,967
----------
Net Assets (100%) ...................................... $6,964,986
==========
</TABLE>
Short Futures Contracts
- -----------------------
Number of Notional Unrealized
Contracts Description Contract Value Appr.(Depr.)
- --------------------------------------------------------------------------------
4 Municipal Bond, December 1996 ($453,750) ($2,000)
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) These securities totaling $570,625 have been placed in a segregated account
with the custodian in connection with futures contracts.
(c) Rate on these zero coupon bonds represents annualized yield to maturity at
September 30, 1996.
(d) These variable rate securities have maturities greater than one year but
are redeemable upon demand. For purposes of calculating the Fund's weighted
average maturity, the length to maturity of these investments is considered
to be the greater of the period until the interest rate is adjusted or
until the principal can be recovered by demand.
(e) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation .... $111,305
Gross unrealized depreciation .... (26,038)
-------
Net unrealized appreciation ...... $85,267
=======
See accompanying notes to financial statements.
- 20 -
<PAGE>
Management Discussion
Griffin California Tax-Free Fund
Portfolio Managers: Executive Policy Committee
Payden & Rygel Investment Counsel
What were the significant market factors that affected performance?
There were two significant factors affecting performance in the municipal bond
market this year. The main factor was the change in the direction of interest
rates. The Federal Reserve Board lowered the Federal Funds Rate to 5.25% in
January 1996. In the subsequent months, economic activity began to exhibit signs
of renewed strength, causing market participants to believe that the rate cut in
January would be the last for some time. This led to a decline in prices in
fixed income securities as investors feared that interest rates would rise in
the near future. The second factor affecting the municipal bond market was the
reduced probability of radical tax reform. In the fourth quarter of 1995,
municipal bond prices reflected concern over lower tax rates, and long-term bond
yields were unusually high versus the general level of interest rates. Tax
reform fears began to abate as the flat tax proposed by Republican Presidential
candidate Steve Forbes came under attack and the National Commission on Economic
Growth and Tax Reform, appointed by Sen. Dole and Rep. Gingrich, failed to make
specific recommendations for tax reform. The municipal bond market reacted
positively to the sidelining of the tax reform issue and prices on municipal
bonds rose. This rise in price relative to alternative investments enabled
municipal bonds to mitigate some of the effects of the rise in yields that
occurred during the year.
What strategies and techniques were implemented during the year?
During the first six months of the Fund's fiscal year the portfolio was
positioned with the outlook that interest rates would decline due to low
inflation. The Fund's duration was longer than its peers because of this
outlook, providing a greater sensitivity to changes in interest rates. As
economic numbers began to portray an economy growing moderately during the
second quarter of 1996, the Fund's duration was reduced. As continued evidence
of strength in the economy, particularly wage-propelled inflation, began to
raise concern over a possible increase in interest rates by the Federal Reserve
Board, we reduced the duration of the Fund to a more conservative position.
What themes can be seen in the current portfolio (industry weightings) and why?
The Fund is comprised of four main types of bonds: general obligation bonds,
insured bonds, pre-refunded bonds and revenue bonds. One theme in the portfolio
is an emphasis on California State General Obligation bonds. The Fund holds a
20% allocation in State General Obligation bonds, and the strengthening economic
picture in the State has led to an improving credit position. Approximately
forty percent of the bonds held by the Fund are insured by third party insurance
providers, whose enhancement allows the bonds to be rated in the highest rating
categories of nationally recognized independent bond rating agencies. A final
area of emphasis is high quality water/sewer bonds. These bonds, which depend on
user fees for essential services, have experienced positive fundamentals. Within
the California water industry, a consensus on water policy has emerged among the
various stakeholders. Going forward, agreement on the direction of water policy,
its implementation, allocation and financing, strengthens the credit quality of
these bonds.
What individual security holdings changed significantly during the year?
The strategy for Fund holdings has been consistent throughout the year. We
increased the Fund's allocation to California State General Obligation bonds to
20%, reflecting our confidence in the economic recovery in the State. The
increased allocation to the State bonds enhanced the performance of the Fund,
when Standard & Poor's investor service raised their credit rating on the State
to A+ from A. As a result, State General Obligation bond yields declined
relative to other issuers bonds. The narrowing of this yield differential
provided positive performance for the Fund.
What is the strategy for the next six to twelve months?
It is our plan to maintain the sector and credit quality allocations in the Fund
for the foreseeable future. The portfolio duration is currently neutral to the
market, and will be maintained given the current moderate growth economic
environment.
- 21 -
<PAGE>
The two charts below show the performance of both classes of shares of the
Griffin California Tax-Free Fund compared with the Lehman Brothers California
Municipal Bond Index, the Lipper CA Municipal Debt Funds Average and the
Morningstar California Municipal Bond Fund Average. If you had invested $10,000
in Class A shares of the Griffin California Tax-Free Fund when the Fund
commenced operations on October 19, 1993, reinvesting all dividends, the top
chart would track the value of your investment through the period ended
September 30, 1996. If you had invested $10,000 in Class B shares of the Fund
when they were first offered on November 1, 1994, assuming all dividends were
reinvested, the bottom chart would track the performance of your investment
through September 30, 1996 (assuming a complete redemption on that date). The
Lehman Brothers California Municipal Bond Index is an unmanaged index of debt
obligations issued by the State of California and its municipalities. The Lipper
CA Municipal Debt Funds Average is based on a universe of approximately 100
mutual funds tracked by Lipper Analytical Services, Inc. that have investment
objectives similar to the Griffin California Tax-Free Fund. The Morningstar
California Municipal Bond Fund Average is based on a universe of approximately
162 mutual funds tracked by Morningstar, Inc. that have investment objectives
similar to that of the Griffin California Tax-Free Fund. In future reports the
Morningstar Average will not be presented in the accompanying line graph, as we
feel the categorization of the funds included in the Lipper Average is a more
accurate representation of the Fund's peer group than that presented by
Morningstar. It is important to keep in mind that Fund performance as depicted
in the charts reflects the deduction of the maximum front-end sales charge of
4.5% with respect to Class A shares and the deduction of the maximum applicable
contingent deferred sales charge (CDSC) of 4% with respect to Class B shares,
while no such charges are deducted from the indexes. Of course, past performance
is not an indicator of future results.
Griffin California Tax-Free Fund Class A
[CHART APPEARS HERE]
Average Annual Returns
(reflects deduction of 4.5% sales charge)
One year ..................... 0.53%
Since Inception .............. 1.15%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Morningstar
Griffin Lehman California Lipper California California
California Tax-Free Municipal Bond Municipal Debt Municipal Bond
Fund Index Funds Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,306 Nov $9,772 Nov $9,883 Nov $9,891
Dec $9,548 Dec $9,984 Dec $10,082 Dec $10,088
Jan '94 $9,645 Jan '94 $10,099 Jan '94 $10,193 Jan '94 $10,195
Feb $9,272 Feb $9,820 Feb $9,938 Feb $9,941
Mar $8,828 Mar $9,376 Mar $9,490 Mar $9,524
Apr $8,872 Apr $9,447 Apr $9,498 Apr $9,545
May $8,928 May $9,532 May $9,583 May $9,623
Jun $8,847 Jun $9,451 Jun $9,518 Jun $9,564
Jul $9,024 Jul $9,637 Jul $9,700 Jul $9,738
Aug $9,050 Aug $9,672 Aug $9,722 Aug $9,760
Sep $8,924 Sep $9,517 Sep $9,562 Sep $9,611
Oct $8,727 Oct $9,340 Oct $9,372 Oct $9,433
Nov $8,590 Nov $9,195 Nov $9,159 Nov $9,242
Dec $8,737 Dec $9,348 Dec $9,326 Dec $9,399
Jan '95 $9,041 Jan '95 $9,660 Jan '95 $9,644 Jan '95 $9,683
Feb $9,332 Feb $9,983 Feb $9,956 Feb $9,969
Mar $9,400 Mar $10,094 Mar $10,049 Mar $10,054
Apr $9,395 Apr $10,095 Apr $10,050 Apr $10,062
May $9,682 May $10,449 May $10,389 May $10,374
Jun $9,495 Jun $10,308 Jun $10,229 Jun $10,236
Jul $9,584 Jul $10,408 Jul $10,284 Jul $10,303
Aug $9,737 Aug $10,539 Aug $10,398 Aug $10,415
Sep $9,828 Sep $10,618 Sep $10,471 Sep $10,486
Oct $10,007 Oct $10,804 Oct $10,659 Oct $10,656
Nov $10,185 Nov $11,024 Nov $10,881 Nov $10,855
Dec $10,328 Dec $11,154 Dec $11,017 Dec $10,975
Jan '96 $10,384 Jan '96 $11,228 Jan '96 $11,059 Jan '96 $11,031
Feb $10,274 Feb $11,153 Feb $10,977 Feb $10,962
Mar $10,102 Mar $10,973 Mar $10,779 Mar $10,780
Apr $10,042 Apr $10,925 Apr $10,738 Apr $10,748
May $10,033 May $10,918 May $10,749 May $10,752
Jun $10,138 Jun $11,052 Jun $10,866 Jun $10,856
Jul $10,245 Jul $11,161 Jul $10,984 Jul $10,968
Aug $10,223 Aug $11,169 Aug $10,983 Aug $10,969
Sep $10,342 Sep $11,338 Sep $11,145 Sep $11,111
</TABLE>
Griffin California Tax-Free Fund Class B
[CHART APPEARS HERE]
Average Annual Returns
(One year total return and total return since
inception reflect deduction of 5% and 4%
contingent deferred sales charges, respectively)
One year ..................... -0.30%
Since Inception .............. 7.02%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Lipper California Morningstar California
Griffin California Lehman California Municipal Debt Municipal Bond
Tax-Free Fund Municipal Bond Index Funds Average Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
- -------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,886 Nov $9,844 Nov $9,773 Nov $9,797
Dec $10,050 Dec $10,008 Dec $9,951 Dec $9,964
Jan '95 $10,382 Jan '95 $10,342 Jan '95 $10,290 Jan '95 $10,264
Feb $10,726 Feb $10,688 Feb $10,624 Feb $10,568
Mar $10,799 Mar $10,807 Mar $10,722 Mar $10,658
Apr $10,775 Apr $10,808 Apr $10,723 Apr $10,667
May $11,114 May $11,187 May $11,085 May $10,997
Jun $10,894 Jun $11,036 Jun $10,914 Jun $10,851
Jul $10,991 Jul $11,143 Jul $10,973 Jul $10,922
Aug $11,162 Aug $11,283 Aug $11,095 Aug $11,041
Sep $11,260 Sep $11,368 Sep $11,173 Sep $11,116
Oct $11,461 Oct $11,567 Oct $11,374 Oct $11,296
Nov $11,660 Nov $11,803 Nov $11,610 Nov $11,507
Dec $11,819 Dec $11,942 Dec $11,755 Dec $11,635
Jan '96 $11,878 Jan '96 $12,021 Jan '96 $11,800 Jan $11,694
Feb $11,747 Feb $11,940 Feb $11,713 Feb $11,620
Mar $11,545 Mar $11,748 Mar $11,502 Mar $11,427
Apr $11,471 Apr $11,696 Apr $11,458 Apr $11,393
May $11,456 May $11,689 May $11,470 May $11,398
Jun $11,587 Jun $11,833 Jun $11,595 Jun $11,508
Jul $11,690 Jul $11,949 Jul $11,720 Jul $11,627
Aug $11,660 Aug $11,957 Aug $11,719 Aug $11,628
Sep $11,390 Sep $12,139 Sep $11,892 Sep $11,778
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
- 22 -
<PAGE>
Schedule of Investments
Griffin California Tax-Free Fund
September 30, 1996
[PIE CHART APPEARS HERE]
General Obligations 30%
Sales Tax 10%
Housing 8%
Water 10%
Airport 4%
Transportation 4%
Electric 7%
Leasing 8%
Education 4%
Sewer 6%
Other 9%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Municipal Long-Term Securities (90.6%):
Airport Revenue (4.2%):
Los Angeles, California Department
of Airports, 5.50%, 5/15/08 ................ $1,000,000 $1,010,000
----------
Electric Revenue (7.0%):
Northern California Transmission
Revenue Bond, Series A,
5.25%, 5/01/20 ............................. 1,000,000 927,500
Puerto Rico Electric Power Authority
Power Revenue, Series U,
6.00%, 7/01/14 ............................. 750,000 757,500
----------
1,685,000
----------
General Obligations (33.5%):
East Bay, California Regional
Park District, Series C, 5.50%, 9/01/00 .... 500,000 518,750
Folsom, California School Facilities
Project - Series B, 6.00%, 8/01/10 ......... 300,000 311,625
Palo Alto, California Unified
School District, 5.25%, 8/01/03 ............ 500,000 513,750
Paramount, California Redevelopment
Agency, 7.35%, 8/01/21 ..................... 1,000,000 1,136,250
Puerto Rico Commonwealth,
5.65%, 7/01/15 ............................. 800,000 802,000
State of California
5.50%, 4/01/13 ............................. 2,000,000 2,002,500
6.00%, 8/01/10 ............................. 550,000 571,312
6.10%, 9/01/04 ............................. 1,000,000 1,073,750
6.60%, 2/01/10 (b) ......................... 1,000,000 1,108,750
----------
8,038,687
----------
Housing Revenue (6.8%):
California Housing Finance Agency
Revenue, Home Mortgage Series F-1,
6.50%, 2/01/08 ............................. 1,060,000 1,118,300
California Housing Finance Agency
Revenue, Multi-Unit Rental
Housing, 6.88%, 8/01/24 .................... 500,000 517,500
----------
1,635,800
----------
Public Improvements (7.6%):
California State Public Works
Board Leasing Revenue, Various
University of California
Projects, 6.60%, 12/01/22 .................. 500,000 560,625
Sacramento, California Certificates of
Participation, Public Facilities Project
6.00%, 7/01/12 ............................. 750,000 754,688
Santa Barbara County, California
Certificates of Participation,
6.40%, 2/01/11 ............................. 500,000 512,500
----------
1,827,813
----------
Sales Tax Revenue (7.2%):
Contra Costa, California Transportation
Authority Sales Tax Revenue
Bond, 5.50%, 3/01/01 ....................... 500,000 516,875
San Diego County, California Regional
Transportation Commission Sales
Tax Revenue, Series A, 4.75%, 4/01/08 ...... 765,000 724,838
San Francisco, California Bay
Area Rapid Transit District Sales
Tax Revenue, 5.35%, 7/01/07 ................ 500,000 502,500
----------
1,744,213
----------
Sewer Revenue (5.4%):
San Francisco, California City & County
Sewer Revenue, 5.90%, 10/01/08 ............. 600,000 620,250
San Jose-Santa Clara, California
Water Authority Sewer Revenue
Bond, Series A, 5.38%, 11/15/20 ............ 700,000 665,000
----------
1,285,250
----------
Transportation Revenue (6.0%):
Long Beach, California Harbor
Revenue Bond, 5.25%, 5/15/25 ............... 1,000,000 917,500
Riverside County, California
Transportation Community Sales
Tax Revenue, Series A, 5.75%, 6/01/08 ...... 500,000 520,625
----------
1,438,125
----------
University/Education Revenue (3.7%):
California Educational Facilities
Authority Revenue Bond, Pooled
College & University Project,
Series A, 5.15%, 12/01/04 .................. 500,000 494,375
University of California Certificate
of Participation, UCLA Center
Chiller/Cogeneration Project,
6.00%, 11/01/21 ............................ 400,000 402,500
----------
896,875
----------
Water Revenue (9.2%):
California State Department of Water Resources
5.00%, 12/01/22 ............................ 300,000 268,500
6.00%, 12/01/06 ............................ 500,000 538,125
</TABLE>
See accompanying notes to financial statements.
- 23 -
<PAGE>
Schedule of Investments
Griffin California Tax-Free Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
Los Angeles, California Department
of Water & Power, Waterworks
Revenue, 6.20%, 7/01/12 .................... $600,000 $627,000
Metropolitan Water District of Southern
California, 5.75%, 7/01/09 (b) ............. 750,000 776,250
----------
2,209,875
----------
Total Municipal Long-Term Securities
(cost: $21,450,818) .......................... 21,771,638
----------
Total Investments In Securities
(cost: $22,652,717) (c) (95.6%) .............. 22,973,537
Other Assets Less Liabilities (4.4%) ............... 1,061,825
----------
Net Assets (100%) .................................. $24,035,362
===========
</TABLE>
Short Futures Contracts
- -----------------------
Number of Notional Unrealized
Contracts Description Contract Value Appr.(Depr.)
- -------------------------------------------------------------------------------
12 Municipal Bond, December 1996 ($1,361,250) ($6,000)
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) These securities totaling $1,885,000 have been placed in a segregated
account with the custodian in connection with futures contracts.
(c) These variable rate securities have maturities greater than one year but
are redeemable upon demand. For purposes of calculating the Fund's weighted
average maturity, the length to maturity of these investments is considered
to be the greater of the period until the interest rate is adjusted or
until the principal can be recovered by demand.
(d) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation .... $397,619
Gross unrealized depreciation .... (82,799)
-------
Net unrealized appreciation ...... $314,820
========
See accompanying notes to financial statements.
- 24 -
<PAGE>
Management Discussion
Griffin Growth & Income Fund
Portfolio Manager: Quinn R. Stills
The Boston Company Asset Management, Inc.
What were the significant market factors that affected performance?
In many respects trends that began in 1995 continued into 1996, driving broader
equities to record levels. The Griffin Growth & Income Fund benefited from these
trends in several ways. First, many companies continued to extend their growth
in earnings. Indeed, financial services, consumer services, technology and
health care companies continued to post strong positive earnings surprises. The
news of higher earnings drove shares in these sectors to higher levels. A second
trend involved interest rates. At the outset of 1996 investors feared that the
economy would strengthen and that interest rates would rise. However, by the
third quarter of 1996 it was clear that the rate of economic growth was slowing
and that interest rates would fall or at least remain relatively low. Falling
rates made equities more attractive in general and made financial services
stocks more attractive in particular. A final trend that affected performance in
1996 involved corporate restructuring. During 1995 and again in 1996 troubled
companies restructured themselves to increase their earnings power or to unlock
values that were overshadowed by an underperforming division. Restructurings
enabled many stocks to perform well even as their underlying business suffered.
What strategies and techniques were implemented during the year?
In 1996 we worked hard to unearth undervalued companies with improving
fundamentals. Our investments in these companies paid handsome dividends to the
Fund. As was the case last year, we took advantage of valuation disparities in
several multi-division companies whose individual subsidiaries were worth more
as separate entities than as single conglomerations. This strategy produced
excellent results in the consumer services sector where several department
stores separated into individually traded securities. More generally, by
investing in the common stock of larger, more established companies that pay
regular dividends to their shareholders the Fund was able to earn current income
and make distributions to shareholders each quarter of the fiscal year.
What themes can be seen in the current portfolio (industry weightings) and why?
We build the Griffin Growth & Income Fund from the bottom-up on a stock-by-stock
basis. We do not invest based on any top-down macroeconomic thesis. This
bottom-up approach has led to an overweighted position in financial services,
consumer services and transportation, and an underweighted position in
technology, capital goods and consumer non-durables. Importantly, these sector
weights are driven by our desire to invest in the most outstanding values in the
market at any given point in time.
What individual security holdings changed significantly during the year?
During the year, we realized profits from significant positions in certain
stocks, including General Electric, IBM, Chase Manhattan Bank and Safeway. We
continued to build the Fund's positions in Polaroid Corp., Woolworth, Harcourt
General and Allstate Corp.
What is the strategy for the next six to twelve months?
As we stated previously, we plan to pursue the same strategy that has served us
well in the past: namely, we will invest in companies that we believe are
inexpensive, undervalued and possess an improving set of fundamentals. We will
continue to construct well diversified portfolios to help protect the Fund from
a shortfall from any one company. Finally, we will continue to emphasize
investments in companies where we have identified a clear catalyst that we
expect will unlock the values and propel the shares to higher levels. We must
caution, however, that future returns may not meet current levels of
performance.
- 25 -
<PAGE>
Griffin Growth & Income Fund
The two charts below show the performance of both classes of shares of the
Griffin Growth & Income Fund compared with the Standard & Poor's 500 Composite
Index ("S&P 500"), the Lipper Growth & Income Funds Average and the Morningstar
Growth & Income Funds Average. If you had invested $10,000 in Class A shares of
the Griffin Growth & Income Fund when the Fund commenced operations on October
19, 1993, reinvesting all dividends, the top chart would track the value of your
investment through the period ended September 30, 1996. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on November
1, 1994, assuming all dividends were reinvested, the bottom chart would track
the performance of your investment through September 30, 1996 (assuming a
complete redemption on that date). The S&P 500 is an unmanaged index of 500
large capitalization publicly traded stocks. The Lipper Growth & Income Funds
Average is based on a universe of approximately 572 mutual funds tracked by
Lipper Analytical Services, Inc. that have investment objectives similar to the
Griffin Growth & Income Fund. The Morningstar Growth & Income Funds Average is
based on a universe of approximately 530 mutual funds tracked by Morningstar,
Inc. In future reports the Morningstar Average will not be presented in the
accompanying line graph, as we feel the categorization of the funds included in
the Lipper Average is a more accurate representation of the Fund's peer group
than that presented by Morningstar. It is important to keep in mind that Fund
performance as depicted in the charts reflects the deduction of the maximum
front-end sales charge of 4.5% with respect to Class A shares and the deduction
of the maximum applicable contingent deferred sales charge (CDSC) of 4% with
respect to Class B shares, while no such charges are deducted from the indexes.
Of course, past performance is not an indicator of future results.
Griffin Growth & Income Fund Class A
[CHART APPEARS HERE]
Average Annual Returns
(reflects deduction of 4.5% sales charge)
One year ..................... 12.80%
Since Inception .............. 15.66%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Growth S&P 500 Lipper Growth & Morningstar Growth &
& Income Fund Index Income Funds Average Income Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,619 Nov $9,943 Nov $9,871 Nov $9,873
Dec $9,692 Dec $10,063 Dec $10,087 Dec $10,072
Jan '94 $10,022 Jan '94 $10,405 Jan '94 $10,408 Jan '94 $10,382
Feb $9,761 Feb $10,122 Feb $10,203 Feb $10,164
Mar $9,392 Mar $9,681 Mar $9,783 Mar $9,740
Apr $9,436 Apr $9,805 Apr $9,886 Apr $9,840
May $9,716 May $9,965 May $9,984 May $9,940
Jun $9,489 Jun $9,721 Jun $9,761 Jun $9,707
Jul $9,787 Jul $10,040 Jul $10,036 Jul $9,975
Aug $10,112 Aug $10,452 Aug $10,412 Aug $10,345
Sep $9,865 Sep $10,196 Sep $10,180 Sep $10,113
Oct $10,059 Oct $10,424 Oct $10,296 Oct $10,226
Nov $9,776 Nov $10,045 Nov $9,915 Nov $9,849
Dec $9,928 Dec $10,194 Dec $10,020 Dec $9,951
Jan '95 $10,108 Jan '95 $10,458 Jan '95 $10,169 Jan '95 $10,108
Feb $10,511 Feb $10,865 Feb $10,558 Feb $10,493
Mar $10,879 Mar $11,186 Mar $10,831 Mar $10,767
Apr $11,195 Apr $11,515 Apr $11,088 Apr $11,024
May $11,636 May $11,975 May $11,451 May $11,396
Jun $11,915 Jun $12,251 Jun $11,704 Jun $11,642
Jul $12,368 Jul $12,658 Jul $12,102 Jul $12,031
Aug $12,513 Aug $12,689 Aug $12,190 Aug $12,106
Sep $13,014 Sep $13,225 Sep $12,551 Sep $12,495
Oct $12,723 Oct $13,177 Oct $12,385 Oct $12,358
Nov $13,315 Nov $13,756 Nov $12,926 Nov $12,895
Dec $13,647 Dec $14,021 Dec $13,132 Dec $13,112
Jan '96 $14,048 Jan '96 $14,498 Jan '96 $13,480 Jan '96 $13,484
Feb $14,301 Feb $14,633 Feb $13,665 Feb $13,673
Mar $14,442 Mar $14,773 Mar $13,854 Mar $13,837
Apr $14,704 Apr $14,991 Apr $14,098 Apr $14,057
May $14,957 May $15,378 May $14,365 May $14,337
Jun $15,000 Jun $15,436 Jun $14,320 Jun $14,309
Jul $14,304 Jul $14,754 Jul $13,704 Jul $13,693
Aug $14,774 Aug $15,066 Aug $14,094 Aug $14,064
Sep $15,368 Sep $15,914 Sep $14,741 Sep $14,742
</TABLE>
Griffin Growth & Income Fund Class B
[CHART APPEARS HERE]
Average Annual Returns
(One year total return and total return since
inception reflect deduction of 5% and 4%
contingent deferred sales charges, respectively)
One year ..................... 12.48%
Since Inception .............. 22.76%
Value of $10,000 Invested
<TABLE>
<CAPTION>
The Griffin Growth & S&P 500 Lipper Growth & Morningstar Growth &
Income Fund Index Income Funds Average Income Funds Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,770 Nov $9,636 Nov $9,630 Nov $9,631
Dec $9,917 Dec $9,779 Dec $9,732 Dec $9,730
Jan '95 $10,087 Jan '95 $10,032 Jan '95 $9,877 Jan '95 $9,884
Feb $10,490 Feb $10,423 Feb $10,254 Feb $10,261
Mar $10,852 Mar $10,731 Mar $10,520 Mar $10,528
Apr $11,157 Apr $11,046 Apr $10,769 Apr $10,780
May $11,598 May $11,488 May $11,121 May $11,143
Jun $11,868 Jun $11,753 Jun $11,367 Jun $11,384
Jul $12,329 Jul $12,143 Jul $11,754 Jul $11,764
Aug $12,464 Aug $12,173 Aug $11,840 Aug $11,838
Sep $12,953 Sep $12,687 Sep $12,190 Sep $12,218
Oct $12,663 Oct $12,641 Oct $12,029 Oct $12,084
Nov $13,243 Nov $13,196 Nov $12,555 Nov $12,610
Dec $13,559 Dec $13,451 Dec $12,754 Dec $12,821
Jan '96 $13,968 Jan '96 $13,908 Jan '96 $13,092 Jan '96 $13,185
Feb $14,210 Feb $14,037 Feb $13,272 Feb $13,370
Mar $14,337 Mar $14,173 Mar $13,456 Mar $13,531
Apr $14,598 Apr $14,381 Apr $13,693 Apr $13,746
May $14,841 May $14,752 May $13,952 May $14,019
Jun $14,876 Jun $14,808 Jun $13,909 Jun $13,993
Jul $14,176 Jul $14,154 Jul $13,311 Jul $13,389
Aug $14,643 Aug $14,453 Aug $13,689 Aug $13,752
Sep $14,817 Sep $15,266 Sep $14,317 Sep $14,415
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
- 26 -
<PAGE>
Schedule of Investments
Griffin Growth & Income Fund
September 30, 1996
[PIE CHART APPEARS HERE]
Basic Industries 6%
Capital Goods 5%
Consumer/ Non-Durable 12%
Consumer Services 18%
Energy 7%
Financial Services 15%
Health Care 11%
Technology 4%
Utilities 10%
Cash 5%
Miscellaneous 7%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Common Stocks (95.0%):
Basic Industries (6.3%):
Alumax Inc. (b) ........................ 21,100 $706,850
Bethlehem Steel Corp. (b) .............. 52,900 529,000
Betzdearborn, Inc. ..................... 26,300 1,380,750
Fresenius Medical Care ADR (b) ......... 8,183 190,252
Grace (WR) & Company ................... 7,800 405,600
James River Corp. ...................... 33,000 911,625
Louisiana Pacific Corp. ................ 25,000 568,750
Mallinckrodt Group Inc. ................ 36,300 1,510,988
Reynolds Metals Co. .................... 19,700 1,007,163
Witco Corp. ............................ 9,500 312,313
-----------
7,523,291
-----------
Capital Goods (5.5%):
Alcatel Alsthom ADR .................... 35,000 590,625
Ingersoll-Rand ......................... 12,000 570,000
ITT Industries Inc. .................... 24,900 600,713
Litton Industries Inc. (b) ............. 18,000 886,500
Lockheed Martin Corp. .................. 15,000 1,351,875
Nokia Corp. ADR ........................ 43,500 1,924,875
Raytheon Co. ........................... 10,500 584,063
-----------
6,508,651
-----------
Consumer/ Durable (3.4%):
Black & Decker Corp. ................... 13,200 547,800
Cooper Tire & Rubber ................... 28,000 605,500
Ford Motor Co. ......................... 24,300 759,375
Philips Electronics N.V. ADR ........... 36,900 1,323,788
Snap-On, Inc. .......................... 26,250 843,281
-----------
4,079,744
-----------
Consumer/ Non-Durable (12.4%):
Fruit of the Loom Inc. (b) ............. 37,000 1,147,000
Harcourt General ....................... 26,800 1,480,700
Hasbro Inc. ............................ 31,000 1,150,875
Kimberly Clark Corp. ................... 20,500 1,806,563
Loews Corp. ............................ 10,300 796,963
McGraw-Hill Companies Inc. ............. 26,100 1,112,513
Philip Morris Companies Inc. ........... 14,900 1,337,275
Polaroid Corp. ......................... 37,400 1,645,600
Reebok International ................... 15,000 521,250
RJR Nabisco Holdings Corp. ............. 15,400 400,400
Rubbermaid Inc. ........................ 29,000 710,500
Sara Lee Corp. ......................... 25,000 893,750
Tupperware Corp. ....................... 23,900 1,171,100
Unilever N.V. ADR ...................... 4,100 646,263
-----------
14,820,752
-----------
Consumer Services (18.1%):
American Stores Co. .................... 25,100 1,004,000
Brinker International Inc. (b) ......... 32,600 554,200
Darden Restaurants ..................... 61,300 528,713
Dayton Hudson Corp. .................... 22,600 745,800
Deluxe Corp. ........................... 27,400 1,034,350
Dun & Bradstreet Corp. ................. 30,900 1,842,413
Eckerd Corp. (b) ....................... 25,000 700,000
H & R Block ............................ 20,000 595,000
ITT Corp. (b) .......................... 34,300 1,496,338
Kroger Co. (b) ......................... 42,900 1,919,775
Melville Corp. ......................... 39,500 1,742,938
News Corporation, Ltd. ................. 25,000 521,875
New York Times Class A ................. 34,000 1,147,500
Pittston Brink's Group ................. 30,300 950,663
Pittston Burlington .................... 13,800 250,125
Rite Aid Corp. ......................... 22,100 801,125
Safeway Inc. (b) ....................... 16,900 720,363
Tandy Corp. ............................ 18,000 726,750
Toys R Us Holdings (b) ................. 60,900 1,773,713
Woolworth (b) .......................... 120,400 2,483,250
-----------
21,538,891
-----------
Energy (6.9%):
Amerada Hess Corp. ........................ 21,900 1,157,963
British Petroleum ADR ..................... 5,500 687,500
Coastal Corp. ............................. 14,000 577,500
Dresser Industries Inc .................... 28,400 844,900
ELF Aquitaine ADR ......................... 17,000 669,375
Exxon Corp. ............................... 12,600 1,048,950
Horsham Corp. ADR ......................... 19,100 310,375
Mobil Corp. ............................... 10,400 1,203,800
Repsol SA ADR ............................. 10,100 334,563
Tosco Corp. ............................... 16,000 878,000
Ultramar Corp. ............................ 16,700 505,175
-----------
8,218,101
-----------
Financial Services (14.9%):
Aetna Inc. ................................ 27,500 1,935,313
Allmerica Financial Corp. ................. 17,500 568,750
Allstate Corp. ............................ 30,600 1,507,050
American Express Co. ...................... 20,600 952,750
American International Group Inc. ......... 8,250 831,188
Bancorp Hawaii Inc. ....................... 8,000 312,000
Bank of Boston Corp. ...................... 25,280 1,463,080
BankAmerica Corp. ......................... 13,300 1,092,263
</TABLE>
See accompanying notes to financial statements.
- 27 -
<PAGE>
Schedule of Investments
Griffin Growth & Income Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Shares or
Principal Market
Name of Issuer Amount Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
CIGNA Corp. ............................... 8,000 $959,000
Dean Witter/Discover ...................... 10,400 572,000
Equitable Companies ....................... 30,300 780,225
Everest Reinsurance Holdings .............. 44,800 1,108,800
Great Western Financial Corp. ............. 18,000 477,000
ITT Hartford Group ........................ 5,700 336,300
Morgan, J.P. & Company Inc. ............... 10,500 933,188
NationsBank Corp. ......................... 13,500 1,172,813
Republic New York Corp. ................... 11,300 781,113
SAFECO Corp. .............................. 32,000 1,120,000
Washington Mutual Inc. .................... 23,700 882,825
-----------
17,785,658
-----------
Health Care (10.4%):
Allergan Inc. ............................. 24,900 949,313
Baxter International Inc. ................. 41,600 1,944,800
Biomet Inc. (b) ........................... 32,600 533,825
Bristol-Myers Squibb ...................... 25,900 2,496,113
Ciba-Geigy AG ADR ......................... 8,500 540,813
Columbia/HCA Healthcare Corp. ............. 21,652 1,231,458
Pharmacia & Upjohn Inc. ................... 37,500 1,546,875
Sandoz AG ADR ............................. 7,000 418,250
Schering-Plough Corp. ..................... 18,000 1,107,000
Tenet Healthcare Inc. (b) ................. 54,600 1,214,850
Watson Pharmaceuticals (b) ................ 11,000 412,500
-----------
12,395,797
-----------
Real Estate Investment Trust (1.4%):
Associated Estates Realty ................. 2,100 43,050
Avalon Properties ......................... 14,000 325,500
Camden Property Trust ..................... 2,100 53,813
Equity Residential Properties Trust ....... 11,000 393,250
Highwoods Properties ...................... 14,700 446,513
Liberty Property Trust .................... 15,200 330,600
Oasis Residential Inc. .................... 3,000 65,625
-----------
1,658,351
-----------
Technology (3.6%):
Adobe Systems Inc. ........................ 17,400 648,150
Digital Equipment Corp. (b) ............... 13,900 496,925
Lucent Technologies Inc. .................. 25,700 1,178,988
National Semiconductor (b) ................ 49,000 986,125
Quantum Corp. (b) ......................... 16,200 284,513
Scientific-Atlanta Inc. ................... 7,100 112,713
Seagate Technology Inc. (b) ............... 9,800 547,575
-----------
4,254,989
-----------
Transportation (2.6%):
Canadian Pacific Ltd. ORD PAR ............. 24,100 557,313
CSX Corp. ................................. 12,500 631,250
Union Pacific Corp. ....................... 26,100 1,911,825
-----------
3,100,388
-----------
Utilities (9.5%):
360 Communications Co. (b) ................ 63,533 1,493,026
A T & T Corp. ............................. 33,100 1,729,475
CMS Energy Corp. .......................... 30,400 915,800
GTE Corp. ................................. 27,100 1,043,350
Illinova Corp. ............................ 34,600 916,900
MCI Communications Corp. .................. 49,100 1,258,188
Nynex Corp. ............................... 22,000 957,000
Pacific Enterprises ....................... 12,000 363,000
Pinnacle West Capital Corp. ............... 23,500 696,188
Public Service Company of New Mexico ...... 9,600 187,200
Sprint Corp. .............................. 28,100 1,092,388
Unicom Corp. .............................. 25,000 628,106
-----------
11,280,621
-----------
Total Common Stocks
(cost: $103,505,608) ....................... 113,165,234
-----------
Preferred Stocks (0.0%):
Basic Industries (0.0%):
Fresenius USA Inc. (b) ................. 7,800 0
-----------
Total Preferred Stocks
(cost: $0) ............................. 0
-----------
Short-Term Securities (4.7%):
Repurchase Agreement (4.7%):
State Street Bank & Trust Co., Master
Repurchase Agreement, 4.0%, dated 9/30/96
due 10/01/96, 102% Collateralized by
U.S. Government Securities (delivery
value $5,663,629) ..................... $5,663,000 5,663,000
-----------
Total Short-Term Securities
(cost: $5,663,000) ...................... 5,663,000
-----------
Total Investments in Securities
(cost: $109,168,608)(c)(99.7%) ............. 118,828,234
Other Assets Less Liabilities (0.3%) .......... 315,237
-----------
Net Assets (100%) ............................. $119,143,471
============
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Currently non-income producing.
(c) Cost is $109,391,647 for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation .... $11,761,637
Gross unrealized depreciation .... (2,325,050)
----------
Net unrealized appreciation ...... $9,436,587
==========
See accompanying notes to financial statements.
- 28 -
<PAGE>
Management Discussion
Griffin Growth Fund
Portfolio Manager: Richard T. Whitney, Chairman
Investment Advisory Committee, T. Rowe Price Associates, Inc.
What were the significant market factors that affected performance?
The first nine months of 1996, like 1995 before it, have been a wonderful period
for investing in equities. Good overall economic conditions - low interest
rates, stable economic growth and low inflation - have created an ideal
environment for the stock markets, and strong cash flows into growth-oriented
mutual funds helped provide the catalyst for high returns. In the universe of
smaller growth companies, technology, financial and health care stocks were the
best performers, while the worst sector was utilities. Although market
volatility has picked up in 1996, our expectations of "normal" have been skewed
by the extraordinarily calm years of 1994 and 1995. This year's pattern of
returns - even the summer's correction - has been quite typical by longer term
standards. The Fund has bounced back nicely from the correction, but July's
performance should remind us that prices of rapidly growing companies can be
even more volatile than that of the market as a whole.
What strategies and techniques were implemented during the year?
Our basic strategy for managing the Griffin Growth Fund is to invest in the
common stock of medium-capitalization companies exhibiting (or expected to
exhibit) significantly above average earnings growth. Unlike most mutual fund
managers, we are committed to a strategy of remaining fully invested, since over
the long run equity returns have exceeded those from other investments. In
addition, few funds can show consistent success at timing the market. We also
intend to maintain a very well-diversified portfolio - currently over 280
stocks. This keeps the biggest single holding in the Fund down around 1% of
total assets, which dampens the impact a single stock can have on the portfolio.
When investing in stocks where movements of 20% or more in a single day are not
uncommon, limiting the impact of any one stock helps reduce overall portfolio
volatility.
What themes can be seen in the current portfolio (industry weightings) and why?
The Fund is overweighted in technology, business services and health care
stocks. Under-weighted sectors include natural resources, utilities and
financial stocks. These positions can be explained by the search for companies
capable of posting consistently strong earnings growth. Companies such as
Oracle, a leading vendor of database software, or Cisco Systems, which makes
computer communication equipment typify the style of investment the Fund seeks
to make. Paychex, a payroll processing firm rapidly expanding and gaining market
share is an example from the business services sector. The biggest differences
between the Fund and its benchmark, the S&P MidCap 400 Index, are in technology
and utilities. We underweight utilities because there is simply not much
earnings growth found in this sector. While there may be individual stocks that
can grow, on the whole it is a very mature sector. The technology sector, on the
other hand, includes many stocks that are early in their life cycles. Even the
larger technology stocks in the portfolio are still quite capable of increasing
their sales and earnings as new products are developed or existing products
penetrate new markets.
What individual security holdings changed significantly during the year?
As the Fund's assets have grown rapidly during the past year, our largest
holdings are those we have been most actively purchasing. These include HFS
Inc., which franchises and operates consumer lodging, and Clear Channel
Communications, owner of a nationwide network of radio stations. We made
relatively few sales during the year, as strong cash flows allowed us to buy new
stocks without having to sell others that we thought were reasonably good
holdings. Stocks are sold, however, if their growth prospects fade; an example
of this is Bay Networks, a networking hardware firm facing a difficult product
transition.
What is the strategy for the next six to twelve months?
The Fund invests in the most dynamic sector of the stock market - rapidly
growing companies. Our goal is to capture the performance of this sector and to
do so in a efficient manner - fully invested, with low turnover and high
diversification. We will continue to employ this approach. The past few years
have seen exceptional performance from smaller growth companies, and since its
inception in June of 1995, the Griffin Growth Fund has shared in this good
outcome. We should keep in mind that recent returns for this style of investing
have been significantly better than the long term averages, and therefore
investors should not be surprised if future returns are not as strong.
- 29 -
<PAGE>
Griffin Growth Fund
The two charts below show the performance of both classes of shares of the
Griffin Growth Fund compared with the Standard & Poor's MidCap 400 Index ("S&P
MidCap 400 Index") and the Lipper Mid Cap Equity Funds Average. If you had
invested $10,000 in Class A shares of the Griffin Growth Fund when the Fund
commenced operations on June 12, 1995, reinvesting all dividends, the top chart
would track the value of your investment through the period ended September 30,
1996. If you had invested $10,000 in Class B shares of the Fund when they were
first offered on June 12, 1995, assuming all dividends were reinvested, the
bottom chart would track the performance of your investment through September
30, 1996 (assuming a complete redemption on that date). The S&P MidCap 400 Index
is an unmanaged index of 400 publicly traded, middle capitalization stocks. The
Lipper Mid Cap Equity Funds Average is based on a universe of approximately 169
mutual funds tracked by Lipper Analytical Services, Inc. that have investment
objectives similar to that of the Griffin Growth Fund. It is important to keep
in mind that Fund performance as depicted in the charts reflects the deduction
of the maximum front-end sales charge of 4.5% with respect to Class A shares and
the deduction of the maximum applicable contingent deferred sales charge (CDSC)
of 4% with respect to Class B shares, while no such charges are deducted from
the indexes. Of course, past performance is not an indicator of future results.
Griffin Growth Fund Class A
[CHART APPEARS HERE]
Average Annual Returns
(reflects deduction of 4.5% sales charge)
One year ..................... 13.02%
Since Inception .............. 23.53%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Growth S&P MidCap 400 Lipper Mid Cap
Fund Index Equity Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000
Jun '95 $9,827 Jun '95 $10,265 Jun '95 $10,000
Jul $10,524 Jul $10,800 Jul $10,675
Aug $10,715 Aug $11,000 Aug $10,813
Sep $11,135 Sep $11,266 Sep $11,101
Oct $10,983 Oct $10,976 Oct $10,832
Nov $11,441 Nov $11,454 Nov $11,213
Dec $11,359 Dec $11,425 Dec $11,310
Jan '96 $11,435 Jan '96 $11,592 Jan '96 $11,393
Feb $11,933 Feb $11,985 Feb $11,792
Mar $12,000 Mar $12,129 Mar $11,998
Apr $12,834 Apr $12,500 Apr $12,630
May $13,140 May $12,669 May $12,997
Jun $12,680 Jun $12,479 Jun $12,602
Jul $11,608 Jul $11,636 Jul $11,595
Aug $12,240 Aug $12,308 Aug $12,277
Sep $13,179 Sep $12,845 Sep $13,012
</TABLE>
Griffin Growth Class B
[CHART APPEARS HERE]
Average Annual Returns
(One year total return and total return since
inception reflect deduction of 5% and 4%
contingent deferred sales charges, respectively)
One year ..................... 12.80%
Since Inception .............. 24.56%
Value of $10,000 Invested
<TABLE>
<CAPTION>
S&P MidCap 400 Lipper Mid Cap
The Griffin Growth Fund Index Equity Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- -------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Jun '95 $10,000
Jun '95 $10,270 Jun '95 $10,265 Jul $10,675
Jul $11,020 Jul $10,800 Aug $10,813
Aug $11,220 Aug $11,000 Sep $11,101
Sep $11,650 Sep $11,266 Oct $10,832
Oct $11,490 Oct $10,976 Nov $11,213
Nov $11,970 Nov $11,454 Dec $11,310
Dec $11,871 Dec $11,425 Jan '96 $11,393
Jan '96 $11,951 Jan '96 $11,592 Feb $11,792
Feb $12,472 Feb $11,985 Mar $11,998
Mar $12,532 Mar $12,129 Apr $12,630
Apr $13,403 Apr $12,500 May $12,997
May $13,714 May $12,669 Jun $12,602
Jun $13,233 Jun $12,479 Jul $11,595
Jul $12,111 Jul $11,636 Aug $12,277
Aug $12,762 Aug $12,308 Sep $13,012
Sep $13,325 Sep $12,845
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
- 30 -
<PAGE>
Schedule of Investments
Griffin Growth Fund
September 30, 1996
[PIE CHART APPEARS HERE]
Business Services 8%
Capital Equipment 3%
Consumer Non-Durables 4%
Financial Services 10%
Health Care 16%
Media & Communications 7%
Resources 5%
Retailing 9%
Technology 30%
Cash 3%
Other 5%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value(a)
- --------------------------------------------------------------------------------
(Percentage of each investment category relate to total net assets)
<S> <C> <C>
Common Stocks (100.5%):
Business Services (8.1%):
Accustaff Incorporated (b) ................. 2,500 $64,688
Apollo Group Incorporated (b) .............. 1,500 40,125
Catalina Marketing Corp. (b) ............... 2,300 122,475
Checkpoint Systems Incorporated (b) ........ 3,000 79,500
Concord EFS Incorporated (b) ............... 2,950 75,963
CUC International (b) ...................... 4,212 167,954
Eckerd Corporation (b) ..................... 3,700 103,600
Heritage Media Corp. (b) ................... 3,200 60,400
Interim Services Incorporated (b) .......... 2,000 85,500
Kelly Services CL A ........................ 1,500 42,563
Manpower ................................... 2,000 66,500
Mutual Risk Management LTD ................. 2,800 81,200
Paychex Inc. ............................... 2,100 121,800
Quintiles Transnational Corporation (b) .... 1,000 73,250
Raychem Corp. .............................. 1,200 90,000
Reuters Holdings PLC ADR ................... 1,800 124,650
Robert Half International Inc (b) .......... 2,800 103,250
Romac International (b) .................... 2,200 67,100
Security Capital Pacific Trust ............. 2,500 52,813
Sylvan Learning Systems (b) ................ 1,700 69,700
U.S.A. Waste Services (b) .................. 5,750 181,125
----------
1,874,156
----------
Capital Equipment (3.1%):
Agco Corp. ................................... 2,800 71,400
Alamo Group Inc. .............................. 3,200 46,800
Alco Standard Corp. ........................... 2,100 104,738
Cascade Corp. ................................. 1,000 12,000
Commercial Metals Co. ......................... 2,400 78,600
Danaher Corp. ................................. 1,900 78,613
Greenfield Industries Inc. .................... 2,400 57,600
Kennametal Inc. ............................... 1,300 44,688
Littlelfuse Inc. (b) .......................... 900 34,875
Parker-Hannifin ............................... 1,500 63,000
Teleflex Inc. ................................. 1,700 84,363
U S Office Products (b) ....................... 1,500 53,813
----------
730,490
----------
Consumer Cyclicals (3.0%):
Harley-Davidson Inc. .......................... 1,600 68,800
Harman International Industries ............... 1,210 58,988
Lennar Corp. .................................. 2,200 48,950
Lilly Industries .............................. 3,200 53,200
National Health Investors ..................... 1,700 56,738
Oakwood Homes Corp. ........................... 4,200 115,500
Rouse Company ................................. 2,700 70,200
SDL Incorporated (b) .......................... 1,900 38,950
Sherwin-Williams Co. .......................... 1,400 64,925
Sturm Ruger & Co. Inc. ........................ 2,000 39,250
Williams-Sonoma Inc. (b) ...................... 3,200 90,800
706,301
Consumer/ Non-Durable (4.2%):
Callaway Golf Co. ............................. 1,200 40,950
Carmike Cinemas(b) ............................ 3,800 87,875
Goodmark Foods ................................ 3,300 53,625
Lancaster Colony .............................. 1,565 59,861
Mattel Inc. ................................... 2,825 73,097
Nautica Enterprises (b) ....................... 3,800 122,550
Robert Mondavi Corp (b) ....................... 2,700 88,425
Sealed Air Corp. (b) .......................... 2,000 74,500
Tootsie Roll Industries ....................... 2,430 85,961
Ultratech Stepper (b) ......................... 1,600 30,200
Unifi Inc. .................................... 2,000 55,000
Unitog Co. .................................... 2,900 87,725
Westwood One Inc. (b) ......................... 2,900 53,288
Wolverine World Wide .......................... 2,550 70,763
----------
983,820
----------
Financial Services (10.5%):
Aames Financial Corporation ................... 1,300 65,488
Advanta Corp CL B ............................. 1,900 81,225
Ambac Inc. .................................... 1,600 89,200
Bank of New York Co. Inc. ..................... 2,600 76,375
City National Inc. ............................ 4,600 83,375
Compdent Corporation (b) ...................... 1,500 56,625
Equifax Inc. .................................. 3,800 100,225
Equitable of Iowa Companies ................... 2,000 83,000
Finova Group Inc. ............................. 1,500 90,000
First American Corp., Tennessee ............... 2,300 110,400
First Bank Systems ............................ 1,300 86,938
First USA Inc. ................................ 1,400 77,525
Franklin Resources Inc. ....................... 2,100 139,388
Green Tree Financial Corp. .................... 2,700 105,975
Investment Technology Group (b) ............... 4,900 86,975
JSB Financial Inc. ............................ 2,400 86,700
Mercury Finance Co. ........................... 3,600 43,200
MGIC Investment Corporation ................... 1,200 80,850
Northern Trust Corporation .................... 1,300 85,475
Norwest ....................................... 1,560 63,765
Pioneer Group Insurance ....................... 1,700 44,625
Progressive Corporation ....................... 1,500 85,875
Raymond James Financial Inc. .................. 2,600 63,050
Roosevelt Financial Group Inc. ................ 2,500 42,813
Schwab (Charles) Corp. ........................ 3,700 85,563
</TABLE>
See accompanying notes to financial statements.
- 31 -
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
Service Corporation International ............. 3,200 $96,800
State Street Boston Corporation ............... 1,500 86,063
United Asset Management ....................... 3,300 77,963
Vesta Insurance Group ......................... 2,250 86,344
Zurich Reinsurance Centre Holdings ............ 1,700 53,338
----------
2,415,138
----------
Health Care (16.6%):
Drugs & Medicine (6.0%):
Amgen (b) ..................................... 3,500 220,938
Amway Asia Pacific LTD ........................ 1,600 55,400
Biochem Pharma Inc. (b) ....................... 2,000 80,250
Biogen Inc. (b) ............................... 1,400 106,400
Cardinal Health Inc. .......................... 1,600 132,200
Coherent Inc. (b) ............................. 2,100 74,025
Diagnostic Products Corporation ............... 2,400 90,300
Genetics Institute Inc. (b) ................... 1,000 69,500
Gilead Sciences Inc. (b) ...................... 2,600 73,450
Guilford Pharmaceuticals Inc. (b) ............. 2,200 60,500
Human Genome Sciences (b) ..................... 1,800 67,950
Isis Pharmaceuticals(b) ....................... 3,100 49,988
Life Technologies ............................. 3,300 74,250
Matrix Pharmaceutical Incorporated (b) ........ 2,200 17,600
SEQUUS Pharmaceuticals Inc. (b) ............... 3,000 47,250
Target Therapeutics (b) ....................... 2,300 98,325
TheraTech Incorporated (b) .................... 4,300 44,075
Uromed Corporation (b) ........................ 3,000 33,000
----------
1,395,401
----------
Health Care/Non-Drug (2.4%):
Boston Scientific Corporation (b) ............. 1,400 80,500
Guidant Corporation ........................... 1,800 99,450
Medtronic Inc. ................................ 1,500 96,188
Omnicare Inc. ................................. 2,500 76,250
PhyCor Inc. (b) ............................... 3,100 117,994
Sola International (b) ........................ 2,500 93,125
----------
563,507
----------
HMO/Hospital Management (8.2%):
ABR Information Services Incorporated (b) ..... 1,300 93,600
Apria HealthCare Group (b) .................... 2,500 46,875
Health Management Association CL A (b) ........ 4,675 116,291
Health Management Systems (b) ................. 2,900 84,825
Healthcare & Retirement Corp. (b) ............. 3,350 78,725
Lincare Holdings Incorporated (b) ............. 2,100 84,000
MedPartners/Mullikin Incorporated (b) ......... 2,296 52,234
OrNda HealthCorp (b) .......................... 2,900 79,388
Orthodontic Centers of America (b) ............ 3,600 73,350
Oxford Health Plans Inc. (b) .................. 2,200 109,450
PacifiCare Health Systems (b) ................. 1,100 95,150
Physio-Control International Corp. (b) ........ 3,500 88,375
Quorum Health Group Incorporated (b) .......... 3,500 86,625
Sierra Health Services (b) .................... 2,300 79,063
Steris Corporation (b) ........................ 1,674 56,707
Sybron International Corp. (b) ................ 3,200 92,800
Thermedics Incorporated (b) ................... 2,000 52,750
UICI (b) ...................................... 2,600 67,600
United HealthCare Corp. ....................... 2,000 83,250
Universal Health Services (b) ................. 2,300 62,675
Vencor Inc. (b) ............................... 3,400 109,650
Veterinary Centers of America(b) .............. 2,800 61,425
VISX Incorporated(b) .......................... 2,700 72,900
Vivra Incorporated (b) ........................ 1,900 61,988
----------
1,889,696
----------
Total Health Care ................................ 3,848,604
----------
Media & Communications (6.8%):
360 Communications Company(b) ................. 3,000 70,500
Andrew Corp. (b) .............................. 2,600 129,675
Belo (A.H.) ................................... 1,700 58,650
Cellular Communications of Puerto Rico (b) .... 1,100 28,050
Centennial Cellular Corp. (b) ................. 3,100 42,238
Central Newspaper Inc. ........................ 1,300 49,563
CKS Group Incorporated (b) .................... 2,000 47,250
Clear Channel Communications Inc. (b) ......... 2,600 230,100
CommNet Cellular (b) .......................... 2,500 72,188
Cox Communications(b) ......................... 3,500 64,313
Gaylord Entertainment ......................... 2,995 67,762
Heartland Wireless Communications (b) ......... 2,400 60,600
InterCel Incorporated (b) ..................... 2,100 44,100
LCI International Inc. (b) .................... 3,100 97,650
Scholastic Corporation (b) .................... 1,300 94,250
Sitel Corporation (b) ......................... 1,900 84,550
Tellabs (b) ................................... 2,000 141,250
U.S. Cellular Corp. (b) ....................... 1,600 48,400
Vanguard Cellular Systems (b) ................. 3,300 63,938
Vodafone Group PLC ADR ........................ 2,500 85,313
----------
1,580,340
----------
Resources (5.0%):
Airgas Inc. (b) ............................... 7,000 177,625
Apache Corp. .................................. 2,300 68,425
B J Services Co. (b) .......................... 1,100 39,875
Camco International ........................... 2,400 89,700
Devon Energy Corporation ...................... 2,900 73,950
Noble Affiliates .............................. 2,500 105,625
Oil - Dri Corporation of America .............. 900 12,488
Pride Petroleum Services Inc. (b) ............. 4,900 69,213
Smith International (b) ....................... 2,500 87,813
Sonat Inc. .................................... 1,600 70,800
Tosco Corp. ................................... 1,800 98,775
Triton Energy Corp. (b) ....................... 1,400 62,650
United Meridian Corp. (b) ..................... 2,500 113,750
Willamette Industries ......................... 1,400 91,700
----------
1,162,389
----------
Retailing (9.3%):
Applebees International Inc. .................. 1,900 50,350
Autozone Inc. (b) ............................. 2,200 63,800
Bed Bath & Beyond (b) ......................... 4,500 123,188
Borders Group Incorporated (b) ................ 2,400 89,400
Circuit City Stores Inc. ...................... 1,600 57,800
CompUSA Inc. (b) .............................. 1,500 81,000
Corporate Express Inc. (b) .................... 2,300 89,413
Dollar General Corp. .......................... 4,725 147,066
</TABLE>
See accompanying notes to financial statements.
- 32 -
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gymboree Corporation (b) ...................... 2,700 $82,013
HFS Inc. (b) .................................. 4,400 294,250
La Quinta Inns Inc. ........................... 2,400 46,800
Lands' End Inc. (b) ........................... 3,300 70,950
Micro Warehouse Inc. (b) ...................... 2,700 69,525
Mirage Resorts (b) ............................ 3,200 82,000
OfficeMax Incorporated (b) .................... 5,000 70,000
Outback Steakhouse Inc. (b) ................... 2,500 60,313
Pep Boys-Manny, Moe & Jack .................... 1,400 49,875
Safeway Inc. (b) .............................. 2,600 110,825
Sbarro Inc. ................................... 2,300 59,513
Starbucks Corp. (b) ........................... 2,700 89,100
The Men's Wearhouse Inc. (b) .................. 2,600 65,000
Tiffany & Company ............................. 2,600 104,000
Viking Office Products (b) .................... 4,400 132,000
Zale Corp. (b) ................................ 3,300 72,188
----------
2,160,369
----------
Technology (31.5%):
Business Machines (1.9%):
Ceridian Corp. (b) ............................ 2,500 125,000
Compaq Computer Corp. (b) ..................... 800 51,300
Silicon Graphics (b) .......................... 2,000 44,250
Sun Microsystems Inc. (b) ..................... 3,400 211,225
----------
431,775
----------
Communications Equipment (3.6%):
Aspect Telecommunications Corp. (b) ........... 1,200 74,700
Coherent Communications Systems Corp. (b) .... 1,400 26,600
DSP Communications Inc. (b) ................... 1,900 106,163
Ericsson L.M. Telephone Co. ADR (b) ........... 6,600 167,475
Glenayre Technologies Inc. (b) ................ 1,525 35,075
Pairgain Technologies (b) ..................... 2,000 156,250
PanAmSat Corporation (b) ...................... 1,000 27,813
PicureTel (b) ................................. 1,800 63,450
US Robotics Corp. (b) ......................... 2,600 168,025
----------
825,551
----------
Computer Communications (5.6%):
3Com Corp. (b) ................................ 2,100 126,131
Ascend Communications Inc. (b) ................ 2,700 178,538
Cabletron Systems Inc. (b) .................... 1,500 102,563
Cascade Communications (b) .................... 3,000 244,500
Cisco Systems Inc. (b) ........................ 3,600 223,425
Fore Systems (b) .............................. 3,300 136,507
Network General (b) ........................... 3,400 77,775
Premisys Communications Inc. (b) .............. 1,300 47,775
S3 Incorporated (b) ........................... 3,000 59,250
Shiva Corporation (b) ......................... 1,900 109,013
----------
1,305,477
----------
Computer/Electronic Equipment (3.4%):
Cognex Corp. (b) .............................. 1,500 24,375
Cognos Incorporated (b) ....................... 3,200 104,400
EMC Corp-Mass (b) ............................. 2,600 58,825
General Instrument (b) ........................ 1,700 42,075
Input/Output Incorporated (b) ................. 1,700 50,575
KLA Instruments (b) ........................... 1,400 31,500
Lam Research Corp. (b) ........................ 1,700 45,263
Primark Corporation (b) ....................... 2,700 73,913
Security Dynamics Technologies (b) ............ 1,700 121,975
Symbol Technologies (b) ....................... 1,800 82,800
Tektronix Inc. ................................ 1,000 40,875
Teradyne (b) .................................. 2,000 33,250
Thermo Electron Corporation ................... 1,750 70,875
----------
780,701
----------
Computer Services (1.7%):
America Online Inc. (b) ....................... 2,100 74,813
First Data .................................... 1,651 134,763
HBO & Co. ..................................... 2,800 186,900
----------
396,476
----------
Computer Software (10.4%):
Adobe Systems Inc. ............................ 2,000 74,500
Applix Incorporated (b) ....................... 2,500 65,625
BMC Software Inc. (b) ......................... 1,900 151,050
Broderbund Software Inc. (b) .................. 1,100 31,900
Business Objects S.A. ADR (b) ................. 1,800 34,650
Cadence Design Systems (b) .................... 3,050 109,038
CBT Group PLC ADR (b) ......................... 1,600 75,200
Compuware (b) ................................. 1,800 82,350
Electronics for Imaging (b) ................... 1,000 71,750
HCIA Incorporated (b) ......................... 1,300 78,000
Hummingbird Communications(b) ................. 1,400 40,250
IDX Systems Corporation (b) ................... 2,100 73,500
Informix Corp. (b) ............................ 2,900 80,838
Intuit (b) .................................... 1,200 37,800
Macromedia (b) ................................ 2,900 60,175
McAfee Associates Incorporated (b) ............ 1,800 124,200
Medic Computer Systems (b) .................... 2,100 76,388
National Data Corporation ..................... 2,000 87,250
Oracle Corp. (b) .............................. 5,000 212,813
People Soft Inc. (b) .......................... 1,300 108,225
PMT Services Incorporated (b) ................. 3,500 70,875
Rational Software Corporation (b) ............. 3,000 102,375
Remedy Corporation (b) ........................ 1,000 80,000
Reynolds & Reynolds ........................... 3,600 94,050
Shared Medical Systems Corp. .................. 1,800 102,600
Softkey International (b) ..................... 1,485 28,772
Symantec Corp. (b) ............................ 4,200 45,675
Synopsys Inc. (b) ............................. 1,400 64,575
Verifone Incorporated (b) ..................... 1,700 76,075
Visio Corporation (b) ......................... 1,800 81,900
----------
2,422,399
----------
Electronics (4.9%):
ADT Limited (b) ............................... 3,400 65,025
Altera Corporation (b) ........................ 2,000 101,250
Atmel (b) ..................................... 2,800 86,450
Dionex Corporation (b) ........................ 1,720 65,360
International Rectifier Corp. (b) ............. 2,600 36,075
Linear Technology Corp. ....................... 3,700 136,438
LSI Logic Corp. (b) ........................... 1,500 34,875
Maxim Integrated Products (b) ................. 5,900 208,713
Microchip Technology (b) ...................... 1,900 71,013
</TABLE>
See accompanying notes to financial statements.
- 33 -
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1996
<TABLE>
<CAPTION>
Shares or
Principal Market
Name of Issuer Value Value(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
Molex Incorporated CL A ....................... 2,525 $85,219
SCI Systems (b) ............................... 2,200 123,750
Vishay Intertechnology (b) .................... 1,680 38,850
Xilinx Inc. (b) ............................... 2,300 78,200
----------
1,131,218
----------
Total Technology .................................... 7,293,597
----------
Transportation (2.4%):
Air Express International ..................... 2,000 56,500
Atlantic Southeast Airlines ................... 3,000 66,000
Carnival Corp. ................................ 2,700 83,700
Comair Holdings Inc. .......................... 2,850 66,975
Kansas City Southern Industries Inc. .......... 1,700 72,675
M S Carriers Inc. (b) ......................... 2,500 48,125
Werner Enterprises Inc. ....................... 3,550 56,800
Wisconsin Central Transportation (b) .......... 3,000 107,625
----------
558,400
----------
Total Common Stocks
(cost: $20,212,050) ................................ 23,313,604
----------
Short-Term Securities (2.6%):
Repurchase Agreement (2.6%):
State Street Bank & Trust Co., Master
Repurchase Agreement , 4.0%, dated 9/30/96
due 10/01/96, 102% Collateralized by
U.S. Government Securities (delivery
value $612,060) .............................. $612,000 612,000
----------
Total Short-Term Securities
(cost: $612,000) ............................... 612,000
----------
Total Investments in Securities
(cost: $20,824,050)(c)(103.1%) .................... 23,925,604
Other Assets Less Liabilities (-3.1%) ................ (728,069)
----------
Net Assets (100%) .................................... $23,197,535
===========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Currently non-income producing.
(c) Cost is $20,825,691 for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation .... $3,951,110
Gross unrealized depreciation .... (851,197)
--------
Net unrealized appreciation ...... $3,099,913
==========
See accompanying notes to financial statements.
- 34 -
<PAGE>
Statements of Assets and Liabilities
September 30, 1996
<TABLE>
<CAPTION>
Money Tax-Free Short-Term
Market Money Bond
Assets Fund Market Fund Fund
------------ ----------- -----------
<S> <C> <C> <C>
Investments:
In securities, at market value* (note 1) ............... $185,346,768 $11,449,859 $19,040,357
Cash ......................................................... 94 74,074 539
Receivables:
Dividends and interest ................................. 665,684 84,994 292,583
Fund shares sold ....................................... 889,465 79,242 496,864
Investment securities sold ............................. 0 0 0
Other receivables ...................................... 0 0 0
Organization expenses, net of amortization (note 1) .......... 35,065 35,065 18,877
------------ ----------- -----------
Total assets ............................... 186,937,076 11,723,234 19,849,220
------------ ----------- -----------
Liabilities
Distributions to shareholders .......................... 655,408 26,668 84,309
Fund shares redeemed ................................... 1,519,386 39,195 50,019
Payable for securities purchased ....................... 0 0 0
Payable for distribution fees .......................... 24,676 0 57
Payable for administration fees ........................ 25,576 1,182 0
Other accrued expenses ................................. 63,899 4,625 18,488
------------ ----------- -----------
Total liabilities.......................... 2,288,945 71,670 931,843
------------ ----------- -----------
Net Assets ................................ $184,648,131 $11,651,564 $19,143,471
============ =========== ===========
Net assets consist of:
Capital stock, Class A or single class ................. 184,632 11,656 1,958
Capital stock, Class B ................................. N/A N/A 14
Additional paid in capital, Class A or single class .... 184,446,287 11,644,601 19,678,906
Additional paid in capital, Class B .................... N/A N/A 142,255
Undistributed net investment income .................... 17,212 (29) 0
Accumulated net realized gain (loss) on investments
and futures contracts ................................ 0 (4,664) (45,033)
Net unrealized appreciation (depreciation) of
investments and futures contracts .................... 0 0 (81,753)
------------ ----------- -----------
Net Assets ............................... $184,648,131 $11,651,564 $119,143,471
============ =========== ===========
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class .................... $184,648,131 $11,651,564 $19,553,603
Shares outstanding, Class A or single class ............ 184,630,919 11,656,257 1,958,317
Net asset value, Class A or single class ............... $1.00 $1.00 $9.98
Maximum offering price, Class A or single class ........ $1.00 $1.00 $10.34
Net assets, Class B .................................... N/A N/A $142,744
Shares outstanding, Class B ............................ N/A N/A 14,309
Net asset value and offering price, Class B ............ N/A N/A $9.98
* Investments in securities, at identified cost .............. $185,346,768 $11,449,859 $19,122,110
</TABLE>
See accompanying notes to financial statements.
- 35 -
<PAGE>
Statements of Assets and Liabilities
September 30, 1996
<TABLE>
<CAPTION>
U.S. Municipal
Government Bond Bond
Assets Income Fund Fund Fund
----------- ----------- ----------
<S> <C> <C> <C>
Investments:
In securities, at market value* (note 1) ............... $47,275,818 $28,249,055 $6,804,019
Cash ......................................................... 29,123 299 35,719
Receivables:
Dividends and interest ................................. 365,369 468,183 89,030
Fund shares sold ....................................... 294,920 343,281 36,867
Investment securities sold ............................. 0 408,824 0
Other receivables ...................................... 98 541 750
Organization expenses, net of amortization (note 1) .......... 35,065 35,065 35,065
----------- ----------- ----------
Total assets ............................... 48,000,393 29,505,248 7,001,450
----------- ----------- ----------
Liabilities
Distributions to shareholders .......................... 242,270 142,931 26,893
Fund shares redeemed ................................... 568,706 599,418 7,387
Payable for securities purchased ....................... 0 562,676 0
Payable for distribution fees .......................... 1,317 160 161
Payable for administration fees ........................ 5,967 3,271 0
Other accrued expenses ................................. 25,578 23,020 2,023
----------- ----------- ----------
Total liabilities.......................... 843,838 1,331,476 36,464
----------- ----------- ----------
Net Assets ................................ $47,156,555 $28,173,772 $6,964,986
=========== =========== ==========
Net assets consist of:
Capital stock, Class A or single class ................. 4,853 3,189 730
Capital stock, Class B ................................. 381 47 47
Additional paid in capital, Class A or single class .... 44,473,653 28,449,591 6,583,500
Additional paid in capital, Class B .................... 3,528,463 422,476 428,850
Undistributed net investment income .................... 7,583 1,645 568
Accumulated net realized gain (loss) on investments
and futures contracts ................................ (663,449) (462,292) (133,976)
Net unrealized appreciation (depreciation) of
investments and futures contracts .................... (194,929) (240,884) 85,267
----------- ----------- ----------
Net Assets ............................... $47,156,555 $28,173,772 $6,964,986
=========== =========== ==========
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class .................... $43,717,362 $27,761,466 $6,539,641
Shares outstanding, Class A or single class ............ 4,852,691 3,188,670 730,424
Net asset value, Class A or single class ............... $9.01 $8.71 $8.95
Maximum offering price, Class A or single class ........ $9.43 $9.12 $9.37
Net assets, Class B .................................... $3,439,193 $412,306 $425,345
Shares outstanding, Class B ............................ 381,467 47,393 47,497
Net asset value and offering price, Class B ............ $9.02 $8.70 $8.96
* Investments in securities, at identified cost .............. $ 47,470,747 $ 28,489,939 $ 6,716,752
California Growth &
Tax-Free Income Growth
Fund Fund Fund
----------- ------------ -----------
<S> <C> <C> <C>
Investments:
In securities, at market value* (note 1) ............... $22,973,537 $118,828,234 $23,925,604
Cash ......................................................... 38,524 780 113
Receivables:
Dividends and interest ................................. 355,490 174,779 5,980
Fund shares sold ....................................... 128,960 693,340 192,574
Investment securities sold ............................. 665,940 340,179 28,754
Other receivables ...................................... 2,250 2,937 0
Organization expenses, net of amortization (note 1) .......... 35,065 35,065 18,877
----------- ------------ -----------
Total assets ............................... 24,199,766 120,075,314 24,171,902
----------- ------------ -----------
Liabilities
Distributions to shareholders .......................... 93,225 0 0
Fund shares redeemed ................................... 64,795 650,591 587,330
Payable for securities purchased ....................... 0 175,545 361,482
Payable for distribution fees .......................... 1,256 28,170 786
Payable for administration fees ........................ 3,104 17,688 0
Other accrued expenses ................................. 2,024 59,849 24,769
----------- ------------ -----------
Total liabilities.......................... 164,404 931,843 974,367
----------- ------------ -----------
Net Assets ................................ $ 24,035,362 $119,143,471 $23,197,535
=========== ============ ===========
Net assets consist of:
Capital stock, Class A or single class ................. 2,632 6,293 1,528
Capital stock, Class B ................................. 398 1,024 158
Additional paid in capital, Class A or single class .... 20,996,064 86,648,374 18,369,278
Additional paid in capital, Class B .................... 3,151,286 15,267,163 2,005,213
Undistributed net investment income .................... 4,661 30,277 12,110
Accumulated net realized gain (loss) on investments
and futures contracts ................................ (434,499) 7,530,714 (292,306)
Net unrealized appreciation (depreciation) of
investments and futures contracts .................... 314,820 9,659,626 3,101,554
----------- ------------ -----------
Net Assets ............................... $24,035,362 $119,143,471 $23,197,535
=========== ============ ===========
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class .................... $20,876,263 $102,485,224 $21,027,428
Shares outstanding, Class A or single class ............ 2,632,204 6,292,564 1,528,277
Net asset value, Class A or single class ............... $7.93 $16.29 $13.76
Maximum offering price, Class A or single class ........ $8.30 $17.06 $14.41
Net assets, Class B .................................... $3,159,099 $16,658,247 $2,170,107
Shares outstanding, Class B ............................ 398,223 1,024,339 158,347
Net asset value and offering price, Class B ............ $7.93 $16.26 $13.70
* Investments in securities, at identified cost .............. $22,652,717 $109,168,608 $20,824,050
</TABLE>
See accompanying notes to financial statements.
- 36 -
<PAGE>
Statements of Operations
For the year ended September 30, 1996
<TABLE>
<CAPTION>
Money Tax-Free Short-Term
Market Money Bond
Fund Market Fund Fund
---------- -------- --------
<S> <C> <C> <C>
Investment income:
Interest ...................................................... $8,528,902 $377,586 $667,386
Dividends (net of foreign withholding taxes of
$26,914 and $685 for the Growth & Income
Fund and Growth Fund, respectively) ......................... 0 0 0
---------- -------- --------
Total Income ......................................... 8,528,902 377,586 667,386
---------- -------- --------
Expenses:
Advisory fees (note 2) ........................................ 774,401 53,309 57,125
Administration and accounting fees (note 2) ................... 309,760 21,324 22,850
Distribution fees (note 2) .................................... 309,760 21,324 28,988
Amortization of organization expenses ......................... 17,154 17,154 5,117
Legal and audit fees .......................................... 65,409 20,501 17,737
Registration fees ............................................. 66,802 4,590 6,567
Directors' fees ............................................... 7,112 7,112 10,007
Shareholder reports ........................................... 24,098 1,324 9,597
Insurance expense ............................................. 19,103 1,169 515
Custodian fees ................................................ 8,562 3,579 1,221
Printing and postage .......................................... 84,397 12,342 22,058
---------- -------- --------
Total expenses ....................................... 1,686,558 163,728 181,782
Less:
Waived fees (note 2) .......................................... (791,967) (85,374) (108,679)
Reimbursement from administrator (note 2) ..................... (193) (11,779) (28,021)
Expense reductions (note 5) ................................... (2,637) (1,973) (160)
---------- -------- --------
Net expenses ......................................... 891,761 64,602 44,922
---------- -------- --------
Net investment income ................................ 7,637,141 312,984 622,464
---------- -------- --------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments ............... 9,683 101 (44,897)
Net realized loss on sale of futures contracts ................ 0 0 0
Net change in unrealized appreciation (depreciation)
of investments .............................................. 0 0 (93,004)
Net change in unrealized depreciation of futures
contracts ................................................... 0 0 0
---------- -------- --------
Net realized and unrealized gain (loss) on investments 9,683 101 (137,901)
---------- -------- --------
Net increase in net assets resulting from operations . $7,646,824 $313,085 $484,563
========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
- 37 -
<PAGE>
Statements of Operations
For the year ended September 30, 1996
<TABLE>
<CAPTION>
U.S. Municipal
Government Bond Bond
Income Fund Fund Fund
---------- -------- --------
<S> <C> <C> <C>
Investment income:
Interest ...................................................... $2,728,826 $1,401,037 $333,886
Dividends (net of foreign withholding taxes of
$26,914 and $685 for the Growth & Income
Fund and Growth Fund, respectively) ......................... 0 0 0
---------- -------- --------
Total Income ......................................... 2,728,826 1,401,037 333,886
Expenses:
Advisory fees (note 2) ........................................ 203,770 104,085 31,724
Administration and accounting fees (note 2) ................... 81,508 41,634 12,689
Distribution fees (note 2) .................................... 124,161 54,227 17,806
Amortization of organization expenses ......................... 17,154 17,154 17,154
Legal and audit fees .......................................... 26,662 23,046 19,002
Registration fees ............................................. 10,261 7,587 5,408
Directors' fees ............................................... 7,111 7,112 7,112
Shareholder reports ........................................... 13,081 10,239 888
Insurance expense ............................................. 4,366 1,762 753
Custodian fees ................................................ 14,141 5,083 2,013
Printing and postage .......................................... 44,724 26,659 10,688
---------- -------- --------
Total expenses ....................................... 546,939 298,588 125,237
Less:
Waived fees (note 2) .......................................... (338,647) (187,016) (58,350)
Reimbursement from administrator (note 2) ..................... (4,234) (12,544) (39,494)
Expense reductions (note 5) ................................... (1,830) (484) (1,954)
---------- -------- --------
Net expenses ......................................... 202,228 98,544 25,439
---------- -------- --------
Net investment income ................................ 2,526,598 1,302,493 308,447
---------- -------- --------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments ............... (663,449) (396,666) 20,993
Net realized loss on sale of futures contracts ................ 0 0 (47,853)
Net change in unrealized appreciation (depreciation)
of investments .............................................. (415,895) (381,786) (12,757)
Net change in unrealized depreciation of futures
contracts ................................................... 0 0 375
---------- -------- --------
Net realized and unrealized gain (loss) on investments (1,079,344) (778,452) (39,242)
---------- -------- --------
Net increase in net assets resulting from operations . $1,447,254 $524,041 $269,205
========== ========== =========
<CAPTION>
California Growth &
Tax-Free Income Growth
Fund Fund Fund
---------- -------- --------
<S> <C> <C> <C>
Investment income:
Interest ...................................................... $1,184,084 $205,173 $23,179
Dividends (net of foreign withholding taxes of
$26,914 and $685 for the Growth & Income
Fund and Growth Fund, respectively) ......................... 0 1,566,549 68,430
---------- -------- --------
Total Income ......................................... 1,184,084 1,771,722 91,609
---------- -------- --------
Expenses:
Advisory fees (note 2) ........................................ 110,625 485,966 78,987
Administration and accounting fees (note 2) ................... 44,250 161,988 26,329
Distribution fees (note 2) .................................... 70,167 270,792 39,442
Amortization of organization expenses ......................... 17,154 17,154 5,117
Legal and audit fees .......................................... 22,294 41,972 18,451
Registration fees ............................................. 2,674 28,044 6,877
Directors' fees ............................................... 7,112 7,112 10,007
Shareholder reports ........................................... 2,623 25,796 11,762
Insurance expense ............................................. 3,733 6,110 596
Custodian fees ................................................ 2,882 19,609 13,694
Printing and postage .......................................... 18,675 62,166 17,728
---------- -------- --------
Total expenses ....................................... 302,189 1,126,709 228,990
Less:
Waived fees (note 2) .......................................... (195,419) (518,304) (136,798)
Reimbursement from administrator (note 2) ..................... (10,516) (2,961) (23,094)
Expense reductions (note 5) ................................... (2,275) (292) (72)
---------- -------- --------
Net expenses ......................................... 93,979 605,152 69,026
---------- -------- --------
Net investment income ................................ 1,090,105 1,166,570 22,583
---------- -------- --------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments ............... 249,931 7,926,105 (290,727)
Net realized loss on sale of futures contracts ................ (163,552) 0 0
Net change in unrealized appreciation (depreciation)
of investments .............................................. (69,545) 3,796,225 2,744,987
Net change in unrealized depreciation of futures
contracts ................................................... (4,312) 0 0
---------- -------- --------
Net realized and unrealized gain (loss) on investments 12,522 11,722,330 2,454,260
---------- -------- --------
Net increase in net assets resulting from operations . $1,102,627 $12,888,900 $2,476,843
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
- 38 -
<PAGE>
Statements of Changes in Net Assets
For the periods ended September 30, 1996 and September 30, 1995
<TABLE>
<CAPTION>
Tax-Free
Money Market Fund Money Market Fund
-------------------------- -----------------------
Year Year Year Year
Ended Ended Ended Ended
9/30/96 9/30/95 9/30/96 9/30/95
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income .......... $7,637,141 $3,563,966 $312,984 $317,060
Net realized gain (loss)
on sale of investments ....... 9,683 7,862 101 (4,765)
Net change in unrealized
appreciation (depreciation)
of investments ............... 0 0 0 0
------------ ----------- ----------- ----------
Net increase (decrease)
in net assets resulting
from operations 7,646,824 3,571,828 313,085 312,295
------------ ----------- ----------- ----------
Distributions to shareholders:
From net investment income
Class A or Single Class ... (7,629,613) (3,563,929) (312,984) (317,060)
Class B ................... N/A N/A N/A N/A
From realized gain on
investments
Class A or Single Class ... (7,529) 0 0 0
Class B ................... N/A N/A N/A N/A
------------ ----------- ----------- ----------
Total distributions ... (7,637,142) (3,563,929) (312,984) (317,060)
------------ ----------- ----------- ----------
Net increase in net assets
resulting from capital share
transactions (note 4) 104,674,446 9,968,679 3,030,129 (2,006,540)
------------ ----------- ----------- ----------
Increase in net assets 104,684,128 9,976,578 3,030,230 (2,011,305)
------------ ----------- ----------- ----------
Net assets:
Beginning net assets .......... 79,964,003 9,987,578 8,621,334 10,632,639
------------ ----------- ----------- ----------
Ending net assets .............$184,648,131 $79,964,003 $11,651,564 $8,621,334
============ =========== =========== ==========
<CAPTION>
Short-Term U.S. Government
Bond Fund Income Fund
------------------------ -------------------------
Year Period Year Year
Ended Ended Ended Ended
9/30/96 9/30/95* 9/30/96 9/30/95
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income .......... $622,464 $41,698 $2,526,598 $1,638,235
Net realized gain (loss)
on sale of investments ....... (44,897) (136) (663,449) 90,910
Net change in unrealized
appreciation (depreciation)
of investments ............... (93,004) 11,251 (415,895) 1,217,932
----------- ---------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations 484,563 52,813 1,447,254 2,947,077
----------- ---------- ----------- -----------
Distributions to shareholders:
From net investment income
Class A or Single Class ... (619,703) (41,587) (2,357,864) (1,617,207)
Class B ................... (2,761) (111) (168,735) (17,465)
From realized gain on
investments
Class A or Single Class ... 0 0 (83,304) (7,074)
Class B ................... 0 0 (6,386) (18)
----------- ---------- ----------- -----------
Total distributions ... (622,464) (41,698) (2,616,289) (1,641,764)
----------- ---------- ----------- -----------
Net increase in net assets
resulting from capital share
transactions (note 4) 16,328,690 3,584,443 17,454,019 10,407,829
----------- ---------- ----------- -----------
Increase in net assets 16,100,789 3,595,558 16,284,984 11,713,142
----------- ---------- ----------- -----------
Net assets:
Beginning net assets .......... 3,595,558 0 30,871,571 19,158,429
----------- ---------- ----------- -----------
Ending net assets ............. $19,696,347 $3,595,558 $47,156,555 $30,871,571
=========== ========== =========== ===========
</TABLE>
* Since commencement of operations on June 12, 1995
See accompanying notes to financial statements.
- 39 -
<PAGE>
Statements of Changes in Net Assets
For the periods ended September 30, 1996 and September 30, 1995
<TABLE>
<CAPTION>
California
Bond Fund Municipal Bond Fund Tax-Free Fund
--------------------------- -------------------------- ----------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/96 9/30/95 9/30/96 9/30/95 9/30/96 9/30/95
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ......... $1,302,493 $580,314 $308,447 $212,516 $1,090,105 $881,805
Net realized gain (loss)
on sale of investments ...... (396,666) (36,089) (26,860) (1,240) 86,379 (52,357)
Net change in unrealized
appreciation (depreciation)
of investments .............. (381,786) 567,176 (12,382) 181,323 (73,857) (746,243)
----------- ----------- ---------- ---------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations ......... 524,041 1,111,401 269,205 392,599 1,102,627 1,575,691
----------- ----------- ---------- ---------- ----------- -----------
Distributions to shareholders:
From net investment income
Class A or Single Class .. (1,285,950) (579,743) (297,309) (212,765) (1,002,858) (871,571)
Class B .................. (16,542) (2,096) (11,138) (282) (87,246) (11,133)
From realized gain on
investments
Class A or Single Class .. 0 0 0 0 0 0
Class B .................. 0 0 0 0 0 0
----------- ----------- ---------- ---------- ----------- -----------
Total distributions .. (1,302,492) (581,839) (308,447) (213,047) (1,090,104) (882,704)
----------- ----------- ---------- ---------- ----------- -----------
Net increase in net assets
resulting from capital share
transactions (note 4) .......... 16,780,563 4,103,204 1,436,099 2,778,752 3,765,357 5,749,069
----------- ----------- ---------- ---------- ----------- -----------
Increase in net assets 16,002,112 4,632,766 1,396,857 2,958,304 3,777,880 6,442,056
----------- ----------- ---------- ---------- ----------- -----------
Net assets:
Beginning net assets ......... 12,171,660 7,538,894 5,568,129 2,609,825 20,257,482 13,815,426
----------- ----------- ---------- ---------- ----------- -----------
Ending net assets ............ $28,173,772 $12,171,660 $6,964,986 $5,568,129 $24,035,362 $20,257,482
=========== =========== ========== ========== =========== ===========
<CAPTION>
Growth & Income Fund Growth Fund
---------------------------- ---------------------------
Year Year Year Period
Ended Ended Ended Ended
9/30/96 9/30/95 9/30/96 9/30/95
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income .......... $1,166,570 $539,489 $22,583 $9,708
Net realized gain (loss)
on sale of investments ....... 7,926,105 905,872 (290,727) (503)
Net change in unrealized
appreciation (depreciation)
of investments ............... 3,796,225 5,835,264 2,744,987 356,567
------------ ----------- ----------- ----------
Net increase (decrease)
in net assets resulting
from operations 12,888,900 7,280,625 2,476,843 365,772
------------ ----------- ----------- ----------
Distributions to shareholders:
From net investment income
Class A or Single Class ... (1,046,755) (525,863) (20,757) 0
Class B ................... (97,312) (18,368) (551) 0
From realized gain on
investments
Class A or Single Class ... (1,178,916) (79,572) 0 0
Class B ................... (97,876) (1,498) 0 0
------------ ----------- ----------- ----------
Total distributions ... (2,420,859) (625,301) (21,308) 0
------------ ----------- ----------- ----------
Net increase in net assets
resulting from capital share
transactions (note 4) 67,305,092 20,541,065 16,406,270 3,969,958
------------ ----------- ----------- ----------
Increase in net assets
77,773,133 27,196,389 18,861,805 4,335,730
------------ ----------- ----------- ----------
Net assets:
Beginning net assets .......... 41,370,338 14,173,949 4,335,730 0
------------ ----------- ----------- ----------
Ending net assets .............$119,143,471 $41,370,338 $23,197,535 $4,335,730
============ =========== =========== ==========
</TABLE>
* Since commencement of operations on June 12, 1995.
See accompanying notes to financial statements.
- 40 -
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Money Market Fund U.S. Government Income Fund
Supplemental information for a share =============================== ====================================================
outstanding for the year ended Class A Class B
September 30, 1996 or throughout each ------------------------------ -----------------
year or fiscal period ended September 30. 1996 1995 1994(a) 1996 1995 1994(a) 1996 1995(c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $1.00 $1.00 $1.00 $9.24 $8.77 $9.50 $9.25 $8.67
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.05 0.05 0.03 0.57 0.63 0.56 0.53 0.52
Net realized and unrealized gain (loss)
on investments 0.00 0.00 0.00 (0.21) 0.47 (0.73) (0.21) 0.58
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.05 0.05 0.03 0.36 1.10 (0.17) 0.34 1.10
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.05) (0.05) (0.03) (0.57) (0.63) (0.56) (0.53) (0.52)
Distributions from net realized gain (loss) 0.00 0.00 0.00 (0.02) 0.00 0.00 (0.02) 0.00
Total distributions (0.05) (0.05) (0.03) (0.59) (0.63) (0.56) (0.57) (0.52)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.00 0.00 0.00 (0.23) 0.47 (0.73) (0.23) 0.58
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value - end of period $1.00 $1.00 $1.00 $9.01 $9.24 $8.77 $9.02 $9.25
====================================================================================================================================
Total return (not annualized)(d) 5.05% 5.52% 3.36% 4.02% 13.00% (1.83)% 3.51% 13.08%
====================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $184,648 $79,964 $49,988 $43,717 $29,308 $19,158 $3,439 $1,564
Ratios to average net assets (annualized):
Ratio of net expenses to average net
assets (i) 0.58% 0.42% 0.15% 0.46% 0.21% 0.09% 0.96% 0.79%
Ratio of net investment income to average
net assets (ii) 4.92% 5.40% 4.25% 6.23% 6.93% 6.24% 5.67% 5.71%
(i) Ratio of net expenses to average net
assets prior to waivers and
reimbursements (g) 1.09% 1.29% 1.64% 1.29% 1.63% 1.83% 2.02% 3.19%
(ii) Ratio of net investment income to
average net assets prior to waivers and
reimbursements (g) 4.41% 4.53% 2.76% 5.41% 5.51% 4.49% 4.61% 3.31%
Portfolio Turnover N/A N/A N/A 101.00% 46.96% 28.20% 101.00% 46.96%
Average Commission Rate Paid N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Tax-Free
Money Market Fund Bond Fund
Supplemental information for a share =============================== ====================================================
outstanding for the year ended Class A Class B
September 30, 1996 or throughout each ------------------------------ -----------------
year or fiscal period ended September 30. 1995(c)
1996 1995 1994(a) 1996 1995(e) 1994(a) 1996 (e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $1.00 $1.00 $1.00 $8.99 $8.47 $9.50 $8.98 $8.36
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.03 0.03 0.02 0.56 0.58 0.52 0.51 0.49
Net realized and unrealized gain (loss)
on investments 0.00 0.00 0.00 (0.28) 0.52 (1.03) (0.28) 0.62
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.03 0.02 0.28 1.10 (0.51) 0.23 1.11
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.03) (0.03) (0.02) (0.56) (0.58) (0.52) (0.51) (0.49)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total distributions (0.03) (0.03) (0.02) (0.56) (0.58) (0.52) (0.51) (0.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.00 0.00 0.00 (0.28) 0.52 (1.03) (0.28) 0.62
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value - end of period $1.00 $1.00 $1.00 $8.71 $8.99 $8.47 $8.70 $8.98
====================================================================================================================================
Total return (not annualized)(d) 3.00% 3.44% 2.22% 3.12% 13.53% (5.49)% 2.62% 13.58%
====================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $11,652 $8.621 $10,633 $27,761 $12,022 $7,539 $412 $150
Ratios to average net assets (annualized):
Ratio of net expenses to average net
assets (i) 0.62% 0.44% 0.17% 0.47% 0.21% 0.09% 0.96% 0.78%
Ratio of net investment income to average
net assets (ii) 2.93% 3.39% 2.56% 6.25% 6.69% 6.29% 5.66% 5.56%
(i) Ratio of net expenses to average net
assets prior to waivers and
reimbursements (g) 1.53% 1.90% 2.28% 1.42% 2.20% 2.55% 2.15% 4.00%
(ii) Ratio of net investment income to
average net assets prior to waivers and
reimbursements (g) 2.02% 1.92% 5.29% 5.29% 4.70% 3.83% 4.48% 2.34%
Portfolio Turnover N/A N/A N/A 170.64% 327.31% 26.14% 170.64% 327.31%
Average Commission Rate Paid N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The fund commenced operations on October 19, 1993.
(b) The fund commenced operations on June 12, 1995.
(c) Class B shares were not offered until November 1, 1994.
(d) Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
(e) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when The Boston Company Asset Management, Inc. assumed management
responsibilities.
(f) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when Payden & Rygel Investment Counsel assumed management
responsibilities.
(g) Ratio reflects fees reduced in connection with specific agreements only for
periods ended after September 30, 1995.
- 41 -
See accompanying notes to financial statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Growth & Income Fund
Supplemental information for a share =======================================================
outstanding for the year ended Class A Class B
September 30, 1996 or throughout each ------------------------------ --------------------
year or fiscal period ended September 30. 1996 1995(e) 1994(a) 1996 1995(c)(e)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $14.30 $11.14 $11.00 $11.29 $11.30
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.21 0.27 0.23 0.17 0.23
Net realized and unrealized gain (loss)
on investments 2.32 3.22 0.13 2.28 3.05
- ---------------------------------------------------------------------------------------------------
Total from investment operations 2.53 3.49 0.36 2.45 3.28
- ---------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.21) (0.27) (0.22) (0.15) (0.23)
Distributions from net realized gain (loss) (0.33) (0.06) 0.00 (0.33) (0.06)
Total distributions (0.54) (0.33) (0.22) (0.48) (0.29)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 1.99 3.16 0.14 1.97 2.99
- ---------------------------------------------------------------------------------------------------
Net asset value - end of period $16.29 $14.30 $11.14 $16.26 $14.29
===================================================================================================
Total return (not annualized)(d) 18.08% 31.93% 3.29% 17.48% 29.53%
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $102,485 $38,483 $14,174 $16,658 $2,887
Ratios to average net assets (annualized):
Ratio of net expenses to average net
assets (i) 0.72% 0.43% 0.25% 1.22% 1.01%
Ratio of net investment income to average
net assets (ii) 1.49% 2.30% 2.81% 0.97% 1.64%
(i) Ratio of net expenses to average net
assets prior to waivers and
reimbursements (g) 1.34% 1.80% 2.17% 2.07% 2.92%
(ii) Ratio of net investment income to
average net assets prior to waivers and
reimbursements (g) 0.88% 0.93% 0.89% 0.12% -0.27%
Portfolio Turnover 66.32% 92.01% 13.90% 66.32% 92.01%
Average Commission Rate Paid $0.0498 N/A N/A $0.0498 N/A
- --------------------------------------------------------------------------------------------------
<CAPTION>
Short-Term
Bond Fund Growth Fund
Supplemental information for a share ========================================== ==========================================
outstanding for the year ended Class A Class B Class A Class B
September 30, 1996 or throughout each -------------------- ----------------- -------------------- -----------------
year or fiscal period ended September 30. 1996 1995(b) 1996 1995(b) 1996 1995(b) 1996 1995(b)
- -------------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $10.05 $10.00 $10.05 $10.00 $11.66 $10.00 $11.65 $10.00
- -------------------------------------------------------------------------------------- ------------------------------------------
Income (loss) from investment operations:
Net investment income 0.54 0.18 0.49 0.20 0.01 0.03 (0.02) 0.03
Net realized and unrealized gain (loss)
on investments (0.07) 0.05 (0.07) 0.05 2.12 1.63 2.09 1.62
- -------------------------------------------------------------------------------------- ------------------------------------------
Total from investment operations 0.47 0.23 0.42 0.25 2.13 1.66 2.07 1.65
- -------------------------------------------------------------------------------------- ------------------------------------------
Less distributions:
Distributions from net investment income (0.54) (0.18) (0.49) (0.20) (0.03) 0.00 (0.02) 0.00
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total distributions (0.54) (0.18) (0.49) (0.20) (0.03) 0.00 (0.02) 0.00
- -------------------------------------------------------------------------------------- ------------------------------------------
Net increase (decrease) in net asset value (0.07) 0.05 (0.07) 0.05 2.10 1.66 2.05 1.65
- -------------------------------------------------------------------------------------- ------------------------------------------
Net asset value - end of period $9.98 $10.05 $9.98 $10.05 $13.76 $11.66 $13.70 $11.65
====================================================================================== ==========================================
Total return (not annualized)(d) 4.82% 2.32% 4.29% 2.51% 18.35% 16.60% 17.80% 16.50%
====================================================================================== ==========================================
Ratios/supplemental data:
Net assets, end of period (000) $19,554 $3,582 $143 $13 $21,027 $4,187 $2,170 $149
Ratios to average net assets (annualized):
Ratio of net expenses to average net
assets (i) 0.39% 0.00% 0.90% 0.00% 0.49% 0.00% 1.01% 0.00%
Ratio of net investment income to average
net assets (ii) 5.42% 5.91% 4.81% 5.54% 0.21% 1.20% -0.36% 1.07%
(i) Ratio of net expenses to average net
assets prior to waivers and
reimbursements (g) 1.58% 2.76% 2.29% 3.33% 1.68% 3.46% 2.43% 3.85%
(ii) Ratio of net investment income to
average net assets prior to waivers and
reimbursements (g) 4.23% 3.15% 3.42% 2.21% -0.98% -2.26% -1.78% -2.78%
Portfolio Turnover 29.37% 1.05% 29.37% 1.05% 16.40% 0.06% 16.40% 0.06%
Average Commission Rate Paid N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------- ------------------------------------------
<CAPTION>
Municipal Bond Fund
Supplemental information for a share ====================================================
outstanding for the year ended Class A Class B
September 30, 1996 or throughout each ------------------------------ --------------------
year or fiscal period ended September 30. 1996 1995(f) 1994(a) 1996 1995(c)(f)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $8.98 $8.60 $9.50 $8.98 $8.31
- ----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.44 0.47 0.42 0.40 0.38
Net realized and unrealized gain (loss)
on investments (0.03) 0.38 (0.90) (0.02) 0.67
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.41 0.85 (0.48) 0.38 1.05
- ----------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.44) (0.47) (0.42) (0.40) (0.38)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00
Total distributions (0.44) (0.47) (0.42) (0.40) (0.38)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.03) 0.38 (0.90) (0.02) 0.67
- ----------------------------------------------------------------------------------------------------
Net asset value - end of period $8.95 $8.98 $8.60 $8.96 $8.98
====================================================================================================
Total return (not annualized)(d) 4.64% 10.18% (5.15)% 4.22% 12.86%
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $6,540 $5,512 $2,610 $425 $56
Ratios to average net assets (annualized):
Ratio of net expenses to average net
assets (i) 0.41% 0.40% 0.25% 0.91% 0.90%
Ratio of net investment income to average
net assets (ii) 4.88% 5.26% 5.03% 4.27% 4.26%
(i) Ratio of net expenses to average net
assets prior to waivers and
reimbursements (g) 1.95% 3.30% 3.99% 2.53% 5.56%
(ii) Ratio of net investment income to
average net assets prior to waivers and
reimbursements (g) 3.35% 2.36% 1.29% 2.64% -0.40%
Portfolio Turnover 9.82% 81.90% 81.42% 9.82% 81.90%
Average Commission Rate Paid N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
<CAPTION>
California Tax-Free Fund
Supplemental information for a share ====================================================
outstanding for the year ended Class A Class B
September 30, 1996 or throughout each ------------------------------ -----------------
year or fiscal period ended September 30. 1996 1995(e) 1994(a) 1996 1995(c)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $7.92 $7.59 $8.50 $7.92 $7.35
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.40 0.41 0.36 0.36 0.34
Net realized and unrealized gain (loss)
on investments 0.01 0.33 (0.91) 0.01 0.67
- -------------------------------------------------------------------------------------------------
Total from investment operations 0.41 0.74 (0.55) 0.37 0.91
- -------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.40) (0.41) (0.36) (0.36) (0.34)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00
Total distributions (0.40) (0.41) (0.36) (0.36) (0.34)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.01 0.33 (0.91) 0.01 0.57
- -------------------------------------------------------------------------------------------------
Net asset value - end of period $7.93 $7.92 $7.59 $7.93 $7.92
=================================================================================================
Total return (not annualized)(d) 5.23% 10.13% (6.56)% 4.70% 12.60%
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $20,876 $19,292 $13,815 $3,159 $966
Ratios to average net assets (annualized):
Ratio of net expenses to average net
assets (i) 0.38% 0.32% 0.25% 0.89% 0.84%
Ratio of net investment income to average
net assets (ii) 4.98% 5.36% 4.70% 4.39% 4.47%
(i) Ratio of net expenses to average net
assets prior to waivers and
reimbursements (g) 1.29% 1.65% 2.01% 1.98% 2.97%
(ii) Ratio of net investment income to
average net assets prior to waivers and
reimbursements (g) 4.06% 4.03% 2.94% 3.30% 2.35%
Portfolio Turnover 31.78% 86.69% 73.88% 31.78% 86.69%
Average Commission Rate Paid N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------
</TABLE>
- 42 -
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies
Organization
- ------------
The Griffin Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940 (the "1940 Act"), as amended, as an open-end management
investment company. As described in note 4, the Money Market and Tax-Free Money
Market Funds are authorized to offer one class of shares, and each of the other
series is authorized to issue shares of two classes: Class A and Class B. The
Company commenced operations on October 19, 1993 and consists of a
non-diversified fund, the California Tax-Free Fund, and eight separate
diversified funds (collectively, the "Funds"):
o The Money Market Fund
o The Tax-Free Money Market Fund
o The Short-Term Bond Fund
o The U.S. Government Income Fund
o The Bond Fund
o The Municipal Bond Fund
o The Growth & Income Fund
o The Growth Fund
The Money Market Fund and Tax-Free Money Market Fund commenced offering
shares on October 19, 1993. The U.S. Government Income Fund, Municipal
Bond Fund, California Tax-Free Fund, Bond Fund and Growth & Income Fund
commenced offering Class A shares on October 19, 1993, and offered Class
B shares beginning on November 1, 1994. The Short-Term Bond Fund and
Growth Fund commenced offering Class A shares and Class B shares on June
12, 1995. The two classes of shares differ principally in their
respective sales charges, shareholder servicing fees and distribution
fees. Shareholders of each class may also bear certain expenses that
pertain to each class. All shareholders bear the common expenses of the
Funds, and earn income from the portfolio, pro rata based on the average
daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. Gains are
allocated to each class pro rata based upon net assets of each class on
the date of distribution. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences
in separate class expenses, including distribution and shareholder
servicing fees and from relative weightings of pro rata income and gain
allocations. The California Tax-Free Fund concentrates its investments in
a single state and therefore may have more exposure to credit risk
related to the State of California than a fund with a broader
geographical diversification.
The following significant accounting policies are consistently followed
by the Company in the preparation of its financial statements, and such
policies are in conformity with generally accepted accounting principles
for investment companies.
Security Valuation
- ------------------
For the Funds other than the Money Market Fund and Tax-Free Money Market
Fund, investments in securities for which the primary market is a
national securities exchange or the NASDAQ National Market are stated at
the last reported sale price on the day of valuation or, if no sale has
occurred, at the latest quoted bid price. U.S. Government securities and
other securities for which current over-the-counter market quotations are
readily available (excluding debt securities maturing in 60 days or less)
are valued at the closing bid prices. If quoted prices are unavailable or
inaccurate, market values are determined based on quotes obtained from
brokers, dealers and/or based on averages of prices obtained from
independent pricing services. Debt securities maturing in 60 days or less
are generally valued at amortized cost, which approximates market value.
Securities and other assets for which current quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors.
The Money Market Fund and Tax-Free Money Market Fund use the amortized
cost method to value their portfolio securities and attempt to maintain
constant net asset values of $1.00 per share. The amortized cost method
involves valuing a security at its cost and amortizing any discount or
premium over the period until maturity, which approximates market value.
Security Transactions
- ---------------------
The Company records security transactions on the trade date. Dividend
income is recognized on the ex-dividend date, and interest income is
recognized on a daily accru-
- 43-
<PAGE>
al basis. Realized gains or losses are reported on the basis of identified cost
of securities delivered. Bond discounts and premiums are amortized as required
by the Internal Revenue Code.
Futures Contracts
- -----------------
Each of the Funds except the Money Market Fund and Tax-Free Money Market
Fund may purchase futures contracts to gain exposure to market changes as
this may be more efficient or cost effective than actually buying the
securities. A futures contract is an agreement between two parties to buy
and sell a security at a set price on a future date and is exchange
traded. Upon entering into such a contract, a Fund is required to pledge
to the broker an amount of cash, U.S. Government securities or other
high-quality debt 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 the value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed. Pursuant
to regulations and/or published positions of the Securities and Exchange
Commission, the Fund is required to segregate cash or high-quality,
liquid debt instruments in connection with futures transactions in an
amount generally equal to the entire value of the underlying contracts.
Risks of entering into futures contracts include the possibility that
there may be an illiquid market and that a change in the value of the
contract may not correlate with changes in the value of the underlying
securities. Futures contracts open at year end, if any, are detailed in
the Schedule of Investments for each of the Funds.
Repurchase Agreements
- ---------------------
Transactions involving purchases of securities under agreements to resell
("repurchase agreements") are treated as collateralized financing
transactions and are recorded at their contracted resale amounts.
Repurchase agreements, if any, are detailed in the Schedule of
Investments for each of the Funds. The prospectuses require that
repurchase agreements be fully collateralized based on values that are
marked to market daily. The collateral is held by an agent bank under a
tri-party agreement. It is the adviser's responsibility to value
collateral daily and to obtain additional collateral as necessary to
maintain market value equal to or greater than the resale price. The
repurchase agreements held in the Funds at September 30, 1996 are
collateralized by U.S. Treasury or federal agency obligations, and were
entered into on September 30, 1996.
Distributions to Shareholders
- -----------------------------
Dividends to shareholders from net investment income are declared daily
and distributed monthly for the Money Market Fund, Tax-Free Money Market
Fund, Short-Term Bond Fund, U.S. Government Income Fund, Municipal Bond
Fund, California Tax-Free Fund and Bond Fund. Dividends to shareholders
from the net investment income of the Growth & Income Fund are declared
and distributed quarterly, and with respect to the Growth Fund, are
declared and distributed annually. Dividends to shareholders are recorded
on the ex-dividend date. Each Fund makes distributions from net realized
gains on investments, if any, once a year.
Federal Income Taxes
- --------------------
The Company's policy for each Fund is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, that are applicable to
regulated investment companies and to distribute substantially all of
their taxable income and any net realized capital gain to its
shareholders. Accordingly, no provisions for income taxes has been made
as sufficient distributions were made or are intended to be made to
eliminate taxable income. The following net capital loss carryforward
amounts are available to the Funds as of September 30, 1996:
Net Capital Loss Date(s) of
Carryforward Expiration
----------------------------------------------------------------------
Tax-Free Money Market Fund .......... $4,664 2004
Short-Term Bond Fund ................ 45,033 2004
Bond Fund ........................... 88,015 2003-2004
Municipal Bond Fund ................. 115,227 2003-2004
California Tax-Free Fund ............ 440,499 2003
Growth Fund ......................... 290,665 2004
Due to the timing of dividend distributions and the differences in
accounting for income and realized gains
- 44 -
<PAGE>
(losses) for financial statement and Federal income tax purposes, the fiscal
year in which amounts are distributed may differ from the year in which the
income and realized gains (losses) were recorded by the fund. The differences
between the income or gains distributed on a book versus tax basis, if any, are
shown as excess distributions of net investment income and net realized gain on
sales of investments in the accompanying Statements of Changes in Net Assets.
The Board of Directors will not declare capital gain distributions until the net
capital loss carryforwards have been utilized.
Organization Expenses
- ---------------------
Griffin Financial Administrators ("GFA"), the Funds' administrator, has
incurred expenses in connection with the organization and initial
registration of the Funds. These expenses were charged to the individual
Funds and are being amortized by the Funds on a straight-line basis over
60 months from the date the Funds commenced operations.
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
(2) Agreements and Other Transactions with Affiliates
The Company has entered into an advisory contract on behalf of the Funds
with Griffin Financial Investment Advisers ("GFIA"). Pursuant to the
contract, GFIA furnishes to the Funds investment guidance and policy
direction in connection with daily portfolio management of the Funds.
Under the contract, the Growth & Income Fund and the Growth Fund pay GFIA
a monthly advisory fee calculated by multiplying each fund's average
daily net assets by 0.60% on an annualized basis. Each of the other Funds
pays a monthly advisory fee to GFIA based on an annualized rate of 0.50%
of each Fund's average daily net assets. GFIA has entered into
sub-advisory agreements with Payden & Rygel Investment Counsel ("Payden &
Rygel") with respect to the Money Market Fund, Tax-Free Money Market
Fund, U.S. Government Income Fund, Municipal Bond Fund and the California
Tax-Free Fund, with The Boston Company Asset Management, Inc. ("TBCAM")
with respect to the Bond Fund and the Growth & Income Fund, and with
T.Rowe Price Associates, Inc. ("T. Rowe Price") with respect to the
Short-Term Bond Fund and the Growth Fund. Pursuant to such sub-advisory
agreements, Payden & Rygel, TBCAM and T. Rowe Price are primarily
responsible for the daily management of the respective Fund's portfolios.
GFIA pays Payden & Rygel, TBCAM and T. Rowe Price sub-advisory fees for
the Funds out of the advisory fees discussed above. For the twelve months
ended September 30, 1996, GFIA has voluntarily waived all of its fees to
limit fund expenses. For the twelve months ended September 30, 1996
advisory fees were incurred by the Funds as follows:
Advisory Waived
Funds fees fees
--------------------------------------------------------------------
Money Market ....................... $774,401 $774,401
Tax-Free Money Market .............. 53,309 53,309
Short-Term Bond .................... 57,125 57,125
U.S. Government Income ............. 203,770 203,770
Bond ............................... 104,085 104,085
Municipal Bond ..................... 31,724 31,724
California Tax-Free ................ 110,625 110,625
Growth & Income .................... 485,966 485,966
Growth ............................. 78,987 78,987
The Company has entered into contracts on behalf of the Funds with GFA whereby
GFA is responsible for providing administration, custody, transfer agency and
portfolio accounting services for the Funds. GFA is compensated for its services
by each of the Funds on a monthly basis based on an annualized rate of 0.20% of
the Fund's average daily net assets. GFA has waived a portion of its fees to
limit fund expenses. For the twelve months ended September 30, 1996
administration fees were incurred by the Funds as follows:
Administration
and Waived
Funds Accounting fees fees
--------------------------------------------------------------------
Money Market ....................... $309,760 $0
Tax-Free Money Market .............. 21,324 10,741
Short-Term Bond .................... 22,850 22,850
U.S. Government Income ............. 81,508 25,567
Bond ............................... 41,634 30,160
Municipal Bond ..................... 12,689 10,116
California Tax-Free ................ 44,250 24,530
Growth & Income .................... 161,988 0
Growth ............................. 26,329 22,723
- 45 -
<PAGE>
In addition, GFA has agreed to reimburse the Funds for certain operating
expenses.
The Company has adopted integrated Distribution and Services Plans pursuant to
Rule 12b-1 under the 1940 Act for the single class of shares of the Money Market
Fund and the Tax-Free Money Market Fund and for the Class A shares of each of
the other Funds. Under these Plans, the Funds may reimburse Griffin Financial
Services ("GFS"), the Funds' distributor, for actual expenses incurred in
preparing and printing prospectuses and other promotional materials for, and for
providing such prospectuses and promotional materials to, propective
shareholders. Payments under the Plans also may be used to compensate or
reimburse the distributor, selling agents and or servicing agents for
distribution, sales support or shareholder support services. Aggregate payments
under the plans may not exceed, on an annualized basis, 0.20% of the average
daily net assets of the Money Market Fund and the Tax-Free Money Market Fund,
and 0.25% of the average daily net assets of the Class A shares of the other
Funds. GFS has waived a portion of its fees to limit fund expenses. For the
period ended September 30, 1996, shares of the Money Market Fund and the
Tax-Free Money Market Fund, and Class A shares of the Non-Money Market Funds
incurred distribution and services fees as follows:
Distribution and Waived
Funds Service Fees Fees
--------------------------------------------------------------------
Money Market ....................... $309,760 $17,566
Tax-Free Money Market .............. 21,324 21,324
Class A Shares
Short-Term Bond .................... 28,420 28,420
U.S. Government Income ............. 94,459 94,459
Bond ............................... 51,314 51,314
Municipal Bond ..................... 15,214 15,214
California Tax-Free ................ 50,361 50,361
Growth & Income .................... 179,717 8,829
Growth ............................. 30,734 30,734
The Company also has adopted separate Distribution and Services Plans
pursuant to Rule 12b-1 under the 1940 Act for the Class B shares of each
of the non-Money Market Funds. Under the Distribution Plans, the Funds may
reimburse GFS for actual expenses incurred in preparing and printing
prospectuses and other promotional materials for, and providing them to,
prospective shareholders. Payments under the Distribution Plans also may
be used to compensate the distributor, selling agents and/or servicing
agents for distribution sales support or shareholder support services.
Payments under the Services Plans are made to servicing agents that
provide shareholder liaison services to Class B shareholders. Aggregate
payments under the Distribution Plans may not exceed 0.75% of the average
daily net assets of each Fund on an annual basis. Aggregate payments under
the Services Plans may not exceed, on an annualized basis, 0.25% of the
average daily net assets of each Fund. GFS has waived a portion of its
fees to limit fund expenses. For the period ended September 30, 1996,
Class B shares of the Funds incurred distribution and servicing fees as
follows:
Distribution and Waived
Funds Service Fees Fees
---------------------------------------------------------------------
Short-Term Bond .................... $ 568 $ 284
U.S. Government Income ............. 29,702 14,851
Bond ............................... 2,913 1,457
Municipal Bond ..................... 2,592 1,296
California Tax-Free ................ 19,806 9,903
Growth & Income .................... 91,075 23,509
Growth ............................. 8,708 4,354
Reimbursed expenses and waived fees continue at the discretion of the
investment advisor, administrator and distributor. All officers and one
director of the Funds are employees of GFS, but received no compensation
from the Company. For the twelve months ended September 30, 1996, GFS was
paid $294,270 in front-end sales charges on sales of Class A shares, and
$37,853 in contingent deferred sales charges on Class B share redemptions.
- 46 -
<PAGE>
(3) Purchases and Sales of Securities Exclusive of Short-Term Investments
<TABLE>
<CAPTION>
U.S. California Growth &
Short-Term Government Municipal Tax-Free Bond Income Growth
Bond Fund Income Fund Bond Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate purchases and sales of:
Common and Preferred Stock:
Purchases at cost ...... $0 $0 $0 $0 $0 $113,434,420 $18,891,692
Sales proceeds ......... 0 0 0 0 0 50,531,542 2,108,869
U.S. Treasury Obligations:
Purchases at cost ...... 11,776,445 18,966,070 0 0 27,784,479 0 0
Sales proceeds ......... 2,927,086 22,682,199 0 0 24,904,795 0 0
U.S. Agency Securities:
Purchases at cost ...... 2,802,347 34,939,204 0 0 6,963,844 0 0
Sales proceeds ......... 256,184 14,924,333 0 0 4,113,404 0 0
Municipal Bonds:
Purchases at cost ...... 0 0 1,940,870 8,721,178 0 0 0
Sales proceeds ......... 0 0 575,788 6,709,923 0 0 0
Other Long-Term Securities:
Purchases at cost ...... 3,945,984 0 0 0 17,246,471 0 0
Sales proceeds ......... 0 0 0 0 5,664,786 0 0
</TABLE>
All Funds not reflected in this schedule traded exclusively in short-term
securities.
(4) Capital Shares Transactions
As of September 30, 1996, the Company was authorized to issue 10 billion shares
of $0.001 par value capital stock. As of September 30, 1996, each Fund, except
the Money Market Fund and the Tax-Free Money Market Fund, was authorized to
issue 250 million shares of $.001 par value capital stock as Class A shares and
250 million shares of $.001 par value capital stock as Class B shares. The Money
Market Fund and the Tax-Free Money Market Fund were each authorized to issue 1
billion shares of $0.001 par value of capital stock of a single class of shares.
Each Non-Money Market Fund except the Short-Term Bond Fund and the Growth Fund
issued Class A shares beginning October 19, 1993, and Class B shares beginning
November 1, 1994. The Short-Term Bond Fund and the Growth Fund issued both Class
A shares and Class B shares beginning June 12, 1995. Transactions in capital
shares were as follows:
<TABLE>
<CAPTION>
Tax-Free
Money Market Fund Money Market Fund
---------------------------- ---------------------------
Shares Amount Shares Amount
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1994: .................................. 49,987,794 $ 49,987,794 10,632,668 $ 10,632,668
Shares sold and exchanged in ...................... 128,270,814 128,270,814 9,117,127 9,117,127
Shares issued in reinvestment of dividends ........ 3,221,262 3,221,262 253,397 253,397
Shares redeemed and exchanged out ................. (101,523,397) (101,523,397) (11,377,064) (11,377,064)
------------ ------------ ----------- -----------
September 30, 1995: .................................. 79,956,473 79,956,473 8,626,128 8,626,128
Shares sold and exchanged in ...................... 237,918,581 237,918,581 15,415,185 15,415,185
Shares issued in reinvestment of dividends ........ 7,146,285 7,146,285 286,582 286,582
Shares redeemed and exchanged out ................. (140,390,420) (140,390,420) (12,671,638) (12,671,638)
------------ ------------- ----------- -----------
September 30, 1996: .................................. 184,630,919 $ 184,630,919 11,656,257 $11,656,257
============ ============= =========== ===========
</TABLE>
- 47 -
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
-------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ ------ --------
<S> <C> <C> <C> <C>
Short-Term Bond Fund
June 12, 1995 ........................................ 0 $ 0 0 $ 0
Shares sold and exchanged in ...................... 357,932 3,587,401 1,308 13,110
Shares issued in reinvestment of dividends ........ 642 6,451 5 51
Shares redeemed and exchanged out ................. (2,247) (22,570) 0 0
---------- ------------ ------ --------
September 30, 1995: .................................. 356,327 3,571,282 1,313 13,161
Shares sold and exchanged in ...................... 1,789,555 17,982,937 16,811 167,013
Shares issued in reinvestment of dividends ........ 46,463 464,975 220 2,191
Shares redeemed and exchanged out ................. (234,028) (2,338,330) (4,035) (40,096)
---------- ------------ ------ --------
September 30, 1996: .................................. 1,958,317 $ 19,680,864 14,309 $142,269
========== ============ ====== ========
<CAPTION>
Class A Class B
------------------------- -----------------------
Shares Amount Shares Amount
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
U.S. Government Income Fund
September 30, 1994: .................................. 2,185,473 $20,145,502 0 $0
Shares sold and exchanged in ...................... 1,497,104 13,426,162 169,026 1,548,141
Shares issued in reinvestment of dividends ........ 94,521 846,597 610 5,594
Shares redeemed and exchanged out ................. (605,179) (5,413,734) (534) (4,931)
--------- ----------- ------- ----------
September 30, 1995: .................................. 3,171,919 29,004,527 169,102 1,548,804
Shares sold and exchanged in ...................... 2,310,366 21,176,958 262,522 2,434,376
Shares issued in reinvestment of dividends ........ 179,960 1,646,434 8,766 80,124
Shares redeemed and exchanged out ................. (809,554) (7,349,413) (58,923) (534,460)
--------- ----------- ------- ----------
September 30, 1996: .................................. 4,852,691 $44,478,506 381,467 $3,528,844
========= =========== ======= ==========
<CAPTION>
Class A Class B
------------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- ------ ---------
<S> <C> <C> <C> <C>
Bond Fund
September 30, 1994: .................................. 890,320 $7,991,536 0 $0
Shares sold and exchanged in ...................... 574,418 5,036,334 16,592 147,685
Shares issued in reinvestment of dividends ........ 37,552 325,866 124 1,097
Shares redeemed and exchanged out ................. (164,839) (1,407,778) 0 0
--------- ----------- ------ --------
September 30, 1995: .................................. 1,337,451 11,945,958 16,716 148,782
Shares sold and exchanged in ...................... 2,257,836 20,078,526 42,483 376,231
Shares issued in reinvestment of dividends ........ 105,774 935,074 1,177 10,399
Shares redeemed and exchanged out ................. (512,391) (4,506,778) (12,983) (112,889)
--------- ----------- ------ --------
September 30, 1996: .................................. 3,188,670 $28,452,780 47,393 $422,523
========= =========== ====== ========
Class A Class B
--------------------- ----------------------
Shares Amount Shares Amount
------- ---------- ------ --------
<S> <C> <C> <C> <C>
Municipal Bond Fund
September 30, 1994: .................................. 303,501 $2,798,276 0 $0
Shares sold and exchanged in ...................... 337,591 2,960,842 6,239 54,649
Shares issued in reinvestment of dividends ....... 11,986 104,877 6 48
Shares redeemed and exchanged out ................. (38,935) (341,664) 0 0
------- ---------- ------ --------
September 30, 1995: .................................. 614,143 5,522,331 6,245 54,697
Shares sold and exchanged in ...................... 193,716 1,753,063 53,010 478,805
Shares issued in reinvestment of dividends ........ 20,895 188,802 764 6,853
Shares redeemed and exchanged out ................. (98,330) (879,966) (12,522) (111,458)
------- ---------- ------ --------
September 30, 1996: .................................. 730,424 $6,584,230 47,497 $428,897
======= ========== ====== ========
</TABLE>
- 48 -
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
-------------------------- -----------------------
Shares Amount Shares Amount
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
California Tax-Free Fund
September 30, 1994: .................................. 1,821,076 $14,635,954 0 $0
Shares sold and exchanged in ...................... 909,928 7,028,365 121,227 949,445
Shares issued in reinvestment of dividends ........ 59,055 452,430 689 5,361
Shares redeemed and exchanged out ................. (353,826) (2,686,532) 0 0
--------- ----------- ------- ----------
September 30, 1995: .................................. 2,436,233 19,430,217 121,916 954,806
Shares sold and exchanged in ...................... 562,419 4,499,150 318,506 2,531,079
Shares issued in reinvestment of dividends ........ 65,286 521,834 6,049 48,127
Shares redeemed and exchanged out ................. (431,734) (3,452,505) (48,248) (382,328)
--------- ----------- ------- ----------
September 30, 1996: .................................. 2,632,204 $20,998,696 398,223 $3,151,684
========= =========== ======= ==========
Class A Class B
-------------------------- -------------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Growth & Income Fund
September 30, 1994: .................................. 1,272,125 $14,076,697 0 $0
Shares sold and exchanged in ...................... 1,585,316 19,955,586 201,975 2,652,912
Shares issued in reinvestment of dividends ........ 44,798 560,011 1,467 19,234
Shares redeemed and exchanged out ................. (210,492) (2,627,185) (1,424) (19,493)
--------- ----------- --------- -----------
September 30, 1995: .................................. 2,691,747 31,965,109 202,018 2,652,653
Shares sold and exchanged in ...................... 4,197,275 63,998,352 847,109 13,004,356
Shares issued in reinvestment of dividends ........ 143,079 2,147,102 12,421 187,362
Shares redeemed and exchanged out ................. (739,537) (11,455,896) (37,209) (576,184)
--------- ----------- --------- -----------
September 30, 1996: .................................. 6,292,564 $86,654,667 1,024,339 $15,268,187
========= =========== ========= ===========
Class A Class B
-------------------------- -----------------------
Shares Amount Shares Amount
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Growth Fund
June 12, 1995 ........................................ 0 $0 0 $0
Shares sold and exchanged in ...................... 363,549 3,880,406 12,806 141,837
Shares issued in reinvestment of dividends ........ 0 0 0 0
Shares redeemed and exchanged out ................. (4,486) (52,285) 0 0
--------- ----------- ------- ----------
September 30, 1995: .................................. 359,063 3,828,121 12,806 141,837
Shares sold and exchanged in ...................... 1,361,488 17,033,507 152,567 1,954,438
Shares issued in reinvestment of dividends ........ 1,358 15,995 51 600
Shares redeemed and exchanged out ................. (193,632) (2,506,817) (7,077) (91,504)
--------- ----------- ------- ----------
September 30, 1996: .................................. 1,528,277 $18,370,806 158,347 $2,005,371
========= =========== ======= ==========
</TABLE>
(5) Custodial Earnings Credits
In accordance with the Custody Agreement between the Company and Investors
Fiduciary Trust Company (the "Custodian"), the Custodian provides credits
("Earnings Credits") that are used to offset custodial expenses. These Earnings
Credits are calculated each month by multiplying the average daily cash balance
of each Fund by three quarters of a money market rate set by State Street Bank &
Trust Co., the Funds' sub-custodian. The amount of such Earnings Credits for the
each of the Funds is reflected in the "Expense Reductions" in the Statements of
Operations. Ratios of expenses to average daily net assets shown in the
Financial Highlights are calculated without the Earnings Credits beginning with
periods ended September 30, 1995.
- 49 -
<PAGE>
The Shareholders and Board of Directors
The Griffin Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of the Griffin Money Market Fund, Griffin Tax-Free
Money Market Fund, Griffin Short-Term Bond Fund, Griffin U.S. Government Income
Fund, Griffin Bond Fund, Griffin Municipal Bond Fund, Griffin California
Tax-Free Fund, Griffin Growth & Income Fund, and the Griffin Growth Fund,
constituting The Griffin Funds, Inc. (the Funds) as of September 30, 1996 and
the related statements of operations for the year then ended, and the statements
of changes in net assets for each of the years in the two-year period ended
September 30, 1996, except for the Griffin Short-Term Bond Fund and the Griffin
Growth Fund which are for the year ended September 30, 1996 and the period from
June 12, 1995 (commencement of operations) to September 30, 1995, and the
financial highlights for each of the years in the two-year period ended
September 30, 1996 and for the period from October 19, 1993 (commencement of
operations) to September 30, 1994, except for the Griffin Short-Term Bond Fund
and the Griffin Growth Fund which are for the year ended September 30, 1996 and
the period from June 12, 1995 to September 30, 1995. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the aforementioned funds constituting The Griffin Funds, Inc. as of
September 30, 1996, the results of their operations, the changes in their net
assets and the financial highlights for the periods indicated above in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
November 15, 1996
- 50 -
<PAGE>
Special Message to Shareholders
The Griffin Funds, Inc.:
Distributions (Unaudited)
The following information for federal income tax purposes is presented below as
an aid to shareholders in reporting the distributions shown below. By early
February 1997, each shareholder will receive a breakdown of income earned by
investment category on a calendar-year basis, as well as a summary of the states
from which the income was earned. Shareholders should consult a tax adviser on
how to report these distributions on state and local levels.
The amount of long term capital gain paid was as follows:
Growth & Income Fund $89,663
Of the distributions made from net investment income the following percentages
represent income derived from municipal securities, and therefore qualify as
exempt interest dividends.
Tax-Free Money Market Fund 100%
Municipal Bond Fund 100%
California Tax-Free Fund 100%
A portion of this income may be subject to the alternative minimum tax.
Of the distributions made by the following funds the corresponding percentage
represents the amount of each distribution which will qualify for the dividends
received deduction available to corporate shareholders.
Growth & Income Fund 79.76%
Growth Fund 70.07%
- 51 -
<PAGE>
The Griffin Funds, Inc.
BOARD OF DIRECTORS
Herschel Cardin
Vincent F. Coviello
William A. Hawkins (Chairman)
Carrol R. McGinnis
Morton O. Schapiro
Officers
William A. Hawkins, President
Richie D. Rowsey, Senior Vice President
Julia D. Whitcup, Senior Vice President & Treasurer
Tim S. Glassett, Secretary
Anne P. Banducci, Assistant Secretary
Herbert L. Botts, Assistant Secretary
Steven P. Muson, Assistant Treasurer
Henry M. Pena, Assistant Secretary
Cheryl A. Rivera, Assistant Secretary
Transfer Agent and Custodian
Investors Fiduciary Trust Company (IFTC)
127 West 10th Street
Kansas City, MO 64105-1716
Investment Adviser
Griffin Financial Investment Advisers
5000 Rivergrade Road
Irwindale, CA 9176
Sub-Advisers
Payden & Rygel Investment Counsel
333 South Grand Avenue
Los Angeles, CA 90071
The Boston Company Asset Management, Inc.
One Boston Place
Boston, MA 02108
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
Legal Counsel
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
This report and the financial statements contained herein are submitted for the
general information of the shareholders of The Griffin Funds, Inc. If this
report is used for promotional purposes, distribution of the report must be
accompanied or preceded by a current prospectus. The prospectus contains more
detailed information about The Griffin Funds, Inc. Read the prospectus carefully
before you invest or send money.
