<PAGE>
Annual Report
[Logo of The Griffin Funds]
September 30, 1997
<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 ...................................... 18
The Griffin California Tax-Free Fund ................................. 23
The Griffin Growth & Income Fund ..................................... 27
The Griffin Growth Fund .............................................. 31
Financial Statements
Statements of Assets and Liabilities ................................. 37
Statements of Operations ............................................. 39
Statements of Changes in Net Assets .................................. 41
Financial Highlights ................................................. 43
Notes to Financial Statements ........................................ 46
Report of Independent Auditor ........................................ 53
Special Message to Shareholders ...................................... 54
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, 1997. 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, as well as 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 four 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 make the daily buy and sell decisions on behalf of the
Funds. An additional level of management and supervision is provided by Griffin
Financial Investment Advisers to make certain that each Fund stays true to our
investment philosophy and the Funds' investment objectives. We believe this
two-tiered approach provides consistent and responsible investment management,
supported by broad experience and multiple perspectives.
Market Overview
Over the twelve month period ended September 30, 1997, the financial markets
benefited from stable economic growth and low inflation. The equity markets
continued the rally that began three years ago, and the fixed income markets
gained in response to declining interest rates.
Stocks of large companies posted the strongest and most consistent results -
spurred by outstanding economic conditions domestically and strong foreign
markets. The common stock of smaller, faster growing companies also experienced
healthy gains, with somewhat more volatility along the way. Overall, value
stocks outperformed growth stocks, and the financial and energy sectors led the
equity markets to record levels.
Interest rates declined overall by approximately 0.50% for the year, despite a
0.25% increase in the federal funds rate late in March. Long-term interest rates
declined more than short-term rates, and the yield curve flattened during the
reporting period. Investors in longer-term bonds generally gained the most
benefit from the flattened yield curve, as prices normally rise when interest
rates fall. Mortgage-backed securities finished the period as one of the best
performing sectors within the fixed income market. Thanks to low interest rates
and improved credit quality, corporate bonds were also strong performers for the
year.
Short-Term Lesson, Long-Term Strategy
In recent months, many of the major stock market indices have experienced both
record highs and short-term declines. The globalization of the world economy
appears to have increased the correlation of U.S. stock price changes to their
counterparts overseas. This was demonstrated in October when stocks, both in the
U.S. and abroad, lost ground. During the same time period, however, other
securities such as U.S. Treasury bonds appreciated in value. While short periods
of time rarely provide lessons when it comes to choosing a long-term investment
strategy, these recent market ups and downs do underscore the value of
diversification through asset allocation.
In the past we have encouraged investors in The Griffin Funds to regularly
examine whether their current investment portfolio matches their personal risk
tolerance and financial circumstances, and to diversify their holdings among
several different asset classes. This is as important now as it has ever been.
In particular, if you haven't done so recently, I encourage you to contact us to
learn how our Fund family can enhance your long-term investment strategy.
Griffin Financial Services has designed an investment program that provides an
easy way of building a portfolio suited to your personal financial goals and
objectives, called the Griffin Portfolio Builder Account.
As always, we appreciate your selection of The Griffin Funds for your investment
needs. We are committed to doing our best to preserve your confidence and
loyalty.
Sincerely,
s/ William A. Hawkins
William A. Hawkins
Chairman
The Griffin Funds, Inc.
November 14, 1997
-1-
<PAGE>
Performance Highlights of the Funds
The table below provides yield and total return information for the periods
ended September 30, 1997 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 performance information is presented as an average annual
return. Certain fees payable by the Funds have been waived (and/or expenses
reimbursed) during periods up to and including the twelve months ended September
30, 1997, which have reduced operating expenses for shareholders. Without these
reductions, the Funds' yields and returns would have been lower. 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. The Lipper mutual fund averages do not reflect the imposition of sales
charges, but do reflect the reinvest 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, 1997
<TABLE>
<CAPTION>
Seven Day
Seven Day Effective
Yield Yield
----- -----
<S> <C> <C>
Money Market Fund(1) ................... 4.91% 5.03%
Tax-Free Money Market Fund(1) .......... 3.25% 3.30%
Total Return
------------
Class A Class B
---------------------------- ---------------------------
Since Since
Past Six Past Inception Past Six Past Inception
Months Year (10/19/93) Months Year (11/1/94)
------ ---- ---------- ------ ---- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Income Fund ....................... 6.39% 8.62% 5.88% 6.23% 8.06% 8.38%
U.S. Government Income Fund (incl. sales charge)(2) 1.61% 3.73% 4.65% 1.23% 3.06% 7.50%
Lipper General U.S. Govt. Average (192 funds) ..... 6.80% 8.71% n/a 6.80% 8.71% n/a
Bond Fund ......................................... 6.75% 9.19% 4.90% 6.35% 8.63% 8.42%
Bond Fund (incl. sales charge)(2) ................. 1.96% 4.28% 3.68% 1.35% 3.63% 7.54%
Lipper Corporate Debt A Rated Average (137 funds) . 7.41% 9.60% n/a 7.41% 9.60% n/a
California Tax-Free Fund .......................... 6.87% 9.19% 4.33% 6.59% 8.63% 8.85%
California Tax-Free Fund (incl. sales charge)(2) .. 2.07% 4.28% 3.12% 1.59% 3.63% 7.97%
Lipper CA Municipal Debt Average (116 funds) ...... 6.92% 8.84% n/a 6.92% 8.84% n/a
Municipal Bond Fund ............................... 6.62% 8.64% 4.45% 6.34% 7.96% 8.53%
Municipal Bond Fund (incl. sales charge)(2) ....... 1.84% 3.75% 3.24% 1.34% 2.96% 7.64%
Lipper General Municipal Debt Average (255 funds) . 6.54% 8.59% n/a 6.54% 8.59% n/a
Growth & Income Fund ............................. 25.03% 38.78% 22.53% 24.75% 38.08% 28.98%
Growth & Income Fund (incl. sales charge)(2) ..... 19.41% 32.53% 21.12% 19.75% 33.08% 28.35%
Lipper Growth & Income Average (681 funds) ........ 24.63% 35.76% n/a 24.63% 35.76% n/a
<CAPTION>
Class A Class B
---------------------------- ---------------------------
Since Since
Past Six Past Inception Past Six Past Inception
Months Year (6/12/95) Months Year (6/12/95)
------ ---- --------- ------ ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond Fund ............................... 4.57% 6.86% 6.09% 4.18% 6.20% 5.66%
Short-Term Bond Fund (incl. sales charge)(3) ....... 0.92% 3.12% 4.46% 0.18% 2.20% 4.85%
Lipper S.I. Investment Grade Debt Average (90 funds) 4.89% 7.27% n/a 4.89% 7.27% n/a
Growth Fund ........................................ 31.18% 21.66% 25.18% 30.83% 21.09% 24.63%
Growth Fund (incl. sales charge)(4) ................ 25.27% 16.18% 22.70% 25.83% 16.09% 23.65%
Lipper Mid Cap Equity Average (272 funds) .......... 32.59% 26.88% n/a 32.59% 26.88% 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 Money Market
Funds will be able to maintain a stable net asset value of $1.00 per share.
(2) 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, 1997, and 3% with respect to the total return data
presented for the period from inception of the Class on November 1, 1994 to
September 30, 1997) has been factored into these calculations.
(3) 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, 1997, and 2% with respect to the total return data
presented for the period from inception of the Class on June 12, 1995 to
September 30, 1997) has been factored into these calculations.
(4) 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, 1997, and 3% with respect to the total return data
presented for the period from inception of the Class on June 12, 1995 to
September 30, 1997) has been factored into these calculations.
-2-
<PAGE>
Schedule of Investments
Griffin Money Market Fund
September 30, 1997
[PIE CHART APPEARS HERE]
BANK NOTE 4%
CERTIFICATES OF DEPOSIT 6%
COMMERCIAL PAPER 78%
CORPORATE NOTES 7%
U.S. GOVERNMENT AGENCY NOTES 5%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Bank Note (3.6%):
Financial Services (3.6%):
Mercantile Trust, 5.16%, 01/30/98 ............. $ 8,300,000 $ 8,284,790
-----------
Total Bank Note (cost: $8,284,790) ............................ 8,284,790
-----------
Certificate of Deposit (6.5%):
Financial Services (6.5%):
Deutsche Bank, 5.56%, 11/13/97 ................ 10,000,000 10,000,000
Union Bank of California, 5.50%, 10/27/97 ..... 5,000,000 5,000,000
-----------
15,000,000
-----------
Total Certificate of Deposit (cost: $15,000,000) .............. 15,000,000
-----------
Commercial Paper (77.9%):
Electric Utilities (4.3%):
Electricite De France, 5.46%, 11/10/97 (b) .... 10,000,000 9,939,334
-----------
9,939,334
-----------
Financial Services (69.7%):
ABN Amro Bank, 5.44%, 10/20/97 (b) ............ 10,000,000 9,971,315
American Express Credit, 5.58%, 11/13/97 ...... 10,000,000 10,000,000
American General Finance Corporation,
5.56%, 10/29/97 ....................... 10,000,000 10,000,000
Bell Atlantic Financial Services Inc.,
5.50%, 10/30/97 (b) ................... 11,000,000 10,951,264
Canadian Wheat Board, 5.45%, 10/09/97 (b) ..... 10,000,000 9,987,889
Chevron Oil Finance, 5.42%, 10/10/97 (b) ...... 11,000,000 11,000,000
CIT Group Holdings, 5.49%, 12/01/97 (b) ....... 11,000,000 10,897,673
Corestates Capital Corporation,
5.48%, 10/01/97 ....................... 9,000,000 9,000,000
Ford Motor Credit Corporation,
5.54%, 10/27/97 ....................... 10,000,000 10,000,000
General Electric Capital Corporation,
5.58%, 10/15/97 ....................... 9,000,000 9,000,000
International Business Machines
Credit Corporation, 5.48%, 12/10/97 (b) 10,000,000 9,893,444
Paccar Financial, 5.52%, 10/28/97 (b) ......... 11,000,000 10,954,460
Pitney Bowes Credit, 5.48%, 10/03/97 (b) ...... 9,000,000 8,997,260
Toyota Motor Credit Corporation,
5.47%, 10/23/97 (b) ................... 10,000,000 9,966,572
United Bank of Switzerland Financial,
5.50%, 10/06/97 (b) ................... 9,500,000 9,492,743
Xerox Credit Corporation,
5.48%, 11/21/97 (b) ................... 10,000,000 9,922,367
-----------
160,034,987
-----------
Industrial Conglomerate (3.9%):
Coca Cola, 5.46%, 10/06/97 (b) ................ 9,000,000 8,993,175
-----------
Total Commercial Paper (cost: $178,967,496) ................... 178,967,496
-----------
Medium-Term Notes (6.6%):
Financial Services (2.2%):
Norwest Corporation, 6.00%, 10/13/98 .......... 5,000,000 5,007,265
-----------
Industrial Conglomerate (4.4%):
Honeywell Incorporated, 7.15%, 04/15/98 ....... 10,000,000 10,069,995
-----------
Total Medium-Term Note (cost: $15,077,260) .................... 15,077,260
-----------
U.S. Government Agency Securities (4.7%):
Federal Home Loan Bank Notes (0.3%):
5.90%, 10/01/97 (b) ........................... 800,000 800,000
Federal National Mortgage Association Notes (4.4%):
5.42%, 12/16/97 ............................... 10,000,000 9,995,979
-----------
Total U.S. Government Agency Securities
(cost: $10,795,979) ........................... 10,795,979
-----------
Repurchase Agreements (0.0%):
State Street Bank & Trust Co., Master
Repurchase Agreement, 4.25%, dated
9/30/97 due 10/01/97, Collateralized
by U.S. Government Securities
(delivery value $10,372) ...................... 10,371 10,371
-----------
Total Repurchase Agreements (cost: $10,371) ................... 10,371
-----------
Total Investments in Securities
(cost: $228,135,896)(c)(99.3%) ........................ 228,135,896
Other Assets Less Liabilities (0.7%) .......................... 1,638,204
-----------
Net Assets (100.0%) ........................................... $229,774,100
============
</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, 1997.
(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, 1997
[PIE CHART APPEARS HERE]
Commercial Paper 6%
General Obligations 6%
Notes 7%
Other 1%
Revenue Bonds 19%
Variable Rate Demand Notes 61%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ----------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Municipal Short-Term Securities (97.9%):
Alaska (3.1%):
Anchorage, Alaska Electric Utility Revenue,
Series D, 4.15%, 10/01/97 (b) .............. $ 500,000 $ 500,000
----------
California (4.3%):
Los Angeles County, California Tax & Revenue
Anticipation Notes, Series A,
4.50%, 06/30/98 ............................ 600,000 602,798
Los Angeles, California Regional Airports
Improvement Corporation, Lease Revenue,
3.85%, 10/01/97 (b) ........................ 100,000 100,000
----------
702,798
----------
Delaware (6.0%):
Delaware State Economic Development,
3.80%, 11/20/97 (b) ........................ 500,000 500,000
Wilmington, Delaware General Obligation,
5.00%, 10/01/97 ............................ 465,000 465,000
----------
965,000
----------
Florida (6.6%):
Citrus Park Community Development District,
Capital Improvements,
4.10%, 10/01/97 (b) ........................ 600,000 600,000
Florida State Board of Regents, University System
Improvement Revenue, 7.00%, 07/01/98 ....... 470,000 479,787
----------
1,079,787
----------
Illinois (6.2%):
Chicago, Illinois O'Hare International Airport,
General Airport Second Lien, Series C
4.05%, 10/01/97 (b) ........................ 400,000 400,000
Chicago, Illinois O'Hare International Airport,
General Airport Second Lien, Series A
5.00%, 01/01/98 ............................ 100,000 100,210
llinois Health Facilities Authority Revenue,
SSM Health Care Project A,
3.75%, 10/01/97 (b) ........................ 500,000 500,000
----------
1,000,210
----------
Indiana (5.0%):
Indianapolis, Indiana Multi-Family Housing
Revenue, Canal Square Project,
4.10%, 10/01/97 (b) ........................ 800,000 800,000
Kansas (3.1%):
Kansas State Department of Transportation
Highway Revenue, Series B,
4.05%, 10/01/97 (b) ........................ 500,000 500,000
Louisiana (8.0%):
Calcasieu Parish, Louisiana Industrial
Development Board Pollution Control Revenue,
4.15%, 10/01/97 (b) ........................ 500,000 500,000
Louisiana State Offshore Terminal Authority
Deep Water Port Revenue, 4.00%, 10/01/97 (b) 300,000 300,000
South Louisiana Port Community Marine
Terminal Facilities Revenue,
4.00%, 10/01/97 (b) ........................ 500,000 500,000
----------
1,300,000
----------
Maine (3.1%):
Maine Educational Loan Marketing Corporation
Student Loan Revenue, 6.50%, 11/01/97 ...... 500,000 500,972
----------
Michigan (3.1%):
Michigan State Hospital Financing Authority,
4.10%, 10/15/97 ............................ 500,000 500,055
----------
Missouri (3.7%):
Columbia Missouri Special Revenue, Series A,
4.15%, 10/01/97 (b) ........................ 200,000 200,000
Missouri Higher Education Loan Authority
Student Loan Revenue, Series B,
4.10%, 10/01/97 (b) ........................ 400,000 400,000
----------
600,000
----------
Nebraska (2.5%):
Nebraska Higher Education Loan Program,
4.15%, 10/01/97 (b) ........................ 400,000 400,000
----------
Nevada (1.9%):
Clark County, Nevada Airport Improvement
Revenue, Series A-1, 4.10%, 10/01/97 (b) ... 300,000 300,000
----------
North Carolina (6.2%):
North Carolina Educational Facilities Finance
Authority Bowman Gray School,
4.10%, 10/01/97 (b) ........................ 500,000 500,000
Wake County, North Carolina Industrial
Facilities & Pollution Control Financing
Authority Revenue, Carolina Power & Light,
4.10%, 10/01/97 (b) ........................ 500,000 500,000
----------
1,000,000
----------
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
Schedule of Investments
Griffin Tax-Free Money Market Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Ohio (2.5%):
Hamilton County, Ohio Sewer System Revenue,
5.90%, 12/01/97 ............................$ 400,000 $ 401,365
----------
Pennsylvania (3.1%):
Allegheny County, Pennsylvania Hospital
Development Authority Revenue, Series B,
4.00%, 10/01/97 (b) ........................ 500,000 500,000
----------
South Carolina (1.2%):
Orangeburg County, South Carolina Solid Waste
Disposal Facilities Revenue, South
Carolina Electric & Gas, 3.90%, 10/01/97 (b) 200,000 200,000
----------
Tennessee (2.2%):
Metro Government Nashville & Davidson County,
Tennessee Housing & Education Facilities
Board Revenue, 4.50%, 07/01/98 ............. 350,000 351,392
----------
Texas (9.3%):
Guadalupe Blanco River Authority Texas
Pollution Control Revenue, Central Power &
Light Project, 3.80%, 10/01/97 (b) ......... 300,000 300,000
Panhandle-Plains, Texas Higher Education
Authority Student Loan Revenue, Series A,
4.20%, 10/01/97 (b) ........................ 600,000 600,000
Texas State Tax & Revenue Anticipation Notes,
Series A, 4.75%, 08/31/98 .................. 600,000 604,809
----------
1,504,809
----------
Utah (3.1%):
Utah Intermountain Power, 3.70%,
10/01/97 (b) ............................... 500,000 500,000
----------
Washington (4.8%):
Port of Seattle, Washington Revenue,
4.40%, 11/01/97 ............................ 275,000 275,157
Seattle, Washington Water System Revenue,
4.00%, 10/01/97 (b) ........................ 500,000 500,000
----------
775,157
----------
Wisconsin (7.0%):
Wisconsin State General Obligation,
4.75%, 05/01/98 ............................ 500,000 502,182
6.90%, 05/01/98 ............................ 200,000 203,274
Wisconsin State Health & Educational
Facilities Authority Revenue, Meriter Hospital,
4.00%, 12/01/97 ............................ 430,000 429,927
----------
1,135,383
----------
Wyoming (1.9%):
Uinta County, Wyoming Pollution Control
Revenue, Chevron U S A Project,
3.75%, 10/01/97 (b) ........................ 300,000 300,000
----------
Total Municipal Short-Term Securities
(cost: $15,816,928) ........................................ 15,816,928
----------
Other Short-Term Securities (0.5%):
Seven Seas Tax Free Money Market,
3.33%, 10/01/97 .................................... 88,016 $ 88,016
----------
Total Other Short-Term Securities
(cost: $88,016) ............................................ 88,016
----------
Total Investments in Securities
(cost: $15,904,944)(c)(98.4%) .............................. 15,904,944
Other Assets Less Liabilities (1.6%) ............................... 256,113
----------
Net Assets (100.0%) ................................................ $16,161,057
===========
</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 some of the significant market factors that affected performance?
The most significant factor that affected the bond market during the twelve
months ended September 30, 1997 was the strength of the U.S. economy. In
similarly advanced stages of previous business cycles, the strong economic
factors we witnessed this year were generally associated with rising
inflation and, in turn, increased interest rates and lowered bond returns.
However, inflation remained subdued and interest rates actually declined
during the reporting period. It wasn't always a smooth ride throughout the
period, as investors grew concerned that the Federal Reserve Board would
increase short-term interest rates. In the past, the Federal Reserve Board
has tightened interest rates in anticipation of inflation spurred by a
strong economy. To date, the Board has demonstrated restraint in tightening
rates.
What were some of the strategies and techniques implemented during the year?
Our main strategy over the past twelve months entailed overweighting the
corporate sector of the bond market, and maintaining an average portfolio
maturity shorter than three years. Although the corporate sector has been
trading high relative to historical levels, we see few indications-such as
a pending recession or a decline in earnings-which would likely cause price
declines. However, recent developments in overseas markets are a cause for
concern.
We pay a great deal of attention to the issuers of the corporate bonds
we've purchased. We seek companies with positive upside potential that
trade at attractive prices. This strategy has worked well for the Fund over
the past twelve months, as the corporate sector has significantly
outperformed the government sector.
What themes can be seen in the current portfolio (industry weightings) and why?
Our general theme is to periodically overweight the market sectors we feel
are undervalued relative to their long-term potential valuation. Over the
reporting period, overweighted sectors included Utilities and U.S. Agency
Securities.
The Utility industry, particularly electric utilities, has gone through a
period of structural change, allowing some utilities to become attractively
priced relative to their prospects. Similarly, several companies in the
cable and media business have offered some attractively priced bonds.
Finally, in a rising interest rate environment, U.S. Agency mortgage-backed
securities should perform well relative to both corporate and government
bonds.
What individual security holdings changed significantly during the year?
Consistent with our emphasis on Utilities, we added Philadelphia Electric,
Potomac (Electric) Capital Investment and Public Service Electric & Gas to
the portfolio. In the Media sector of the Industrial Conglomerate category,
we added Continental Cablevision and News America Holdings.
What is the strategy for the next six to twelve months?
We plan to continue overweighting both the corporate and mortgage sectors.
The corporate sector should perform well as long as the economy remains
strong and inflation doesn't become a major threat. We believe mortgages
should also perform well, and are keeping a cautionary eye out for
protection against mortgage prepayments. Mortgages should also cushion
price declines in the event that interest rates rise.
-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 and the Lipper Short-Intermediate Investment Grade 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,
and reinvested all dividends, the top chart would track the value of your
investment through the period ended September 30, 1997. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on June
12, 1995, and reinvested all dividends, the bottom chart would track the
performance of your investment through the period ended September 30, 1997
(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 Funds Average is based on a universe of
approximately 90 mutual funds tracked by Lipper Analytical Services, Inc.
that have investment objectives similar to that of the Griffin Short-Term
Bond Fund. It is important to keep in mind that the 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 2% 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 TOTAL RETURNS*
(reflects deduction of 3.5% sales charge)
One year..................................................3.12%
Since Inception...........................................4.46%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Short-Term Merrill Lynch Govt./ Lipper Short-Intermediate
Bond Fund Corp. 1 - 4.99 yrs. Index Investment Grade Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $9,650 Initial $10,000 Initial $10,000
Jun $9,722 Jun $10,065 Jun $10,000
Sep $9,873 Sep $10,218 Sep $10,164
Dec 95 $10,150 Dec 95 $10,522 Dec 95 $10,464
Mar $10,123 Mar $10,513 Mar $10,420
Jun $10,197 Jun $10,600 Jun $10,492
Sep $10,350 Sep $10,780 Sep $10,672
Dec 96 $10,558 Dec 96 $11,008 Dec 96 $10,909
Mar $10,577 Mar $11,050 Mar $10,917
Jun $10,822 Jun $11,325 Jun $11,192
Sep $11,060 Sep $11,582 Sep $11,451
</TABLE>
Griffin Short-Term Bond Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects a sales charge deduction of 4.0% for the one year and 2.0% for
the since inception period)
One year..................................................2.20%
Since Inception...........................................4.85%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Short-Term Merrill Lynch Govt./ Lipper Short-Intermediate
Bond Fund Corp. 1 - 4.99 yrs. Index Investment Grade Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Jun $10,079 Jun $10,065 Jun $10,000
Sep $10,251 Sep $10,218 Sep $10,164
Dec 95 $10,525 Dec 95 $10,522 Dec 95 $10,464
Mar $10,474 Mar $10,513 Mar $10,420
Jun $10,537 Jun $10,600 Jun $10,492
Sep $10,691 Sep $10,780 Sep $10,672
Dec 96 $10,883 Dec 96 $11,008 Dec 96 $10,909
Mar $10,899 Mar $11,050 Mar $10,917
Jun $11,138 Jun $11,325 Jun $11,192
Sep $11,155 Sep $11,582 Sep $11,451
</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, 1997
[PIE CHART APPEARS HERE]
Cash 2%
Corporate Bonds 34%
U.S. Agency Securities 10%
U.S. Treasury Notes 54%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Corporate Bonds (32.7%):
Banking (1.7%):
Bankers Trust - New York, 9.50%, 06/14/00 .. $ 470,000 $ 506,425
First Chicago, 9.00%, 06/15/99 ............. 30,000 31,350
MBNA Corporation, 6.88%, 10/01/99 .......... 210,000 212,100
Northern Trust, 9.00%, 05/15/98 ............ 100,000 101,880
----------
851,755
----------
Financial Services (10.0%):
Associates Corporation, N.A
6.00%, 03/15/00 .................... 250,000 248,750
6.75%, 10/15/99 .................... 16,000 16,200
Bear Stearns Company, 9.13%, 04/15/98 ...... 30,000 30,545
Donaldson Lufkin & Jennrette, 6.38%,
05/26/00 ........................... 1,000,000 1,000,000
Finova Capital Corporation, 6.28%, 11/01/99 1,000,000 1,001,250
Ford Motor Credit Corporation,
9.38%, 12/15/97 .................... 50,000 50,375
General Motors Acceptance Corporation
5.63%, 02/15/01 .................... 200,000 195,750
7.75%, 01/15/99 .................... 500,000 510,625
Golden West Financial, 10.25%, 12/01/00 .... 255,000 283,050
Heller Financial, 9.13%, 08/01/99 .......... 100,000 105,000
Lehman Brothers Holdings Corporation,
8.88%, 11/01/98 .................... 150,000 154,533
Paine Webber Group, 9.25%, 12/15/01 ........ 600,000 653,250
Penske Truck Leasing, 6.65%, 11/01/00 ...... 750,000 759,375
----------
5,008,703
----------
Industrial Conglomerate (10.9%):
Anheuser Busch Company, 8.75%, 12/01/99 .... 100,000 105,375
Boise Cascade Company, 9.90%, 03/15/00 ..... 603,000 649,733
Continental Cablevision, 8.50%, 09/15/01 ... 600,000 640,500
Cox Communications Incorporated - New,
8.55%, 06/01/00 .................... 40,000 42,100
Cox Communications Incorporated,
6.38%, 06/15/00 .................... 100,000 100,000
Eaton Off Shore, 9.00%, 02/15/01 ........... 750,000 810,938
Enron Corporation, 9.13%, 04/01/03 ......... 710,000 790,763
General Motors Acceptance Corporation,
6.88%, 07/15/01 .................... 300,000 304,500
GTE Corporation, 9.38%, 12/01/00 ........... 100,000 108,375
International Paper Company, 9.70%,
03/15/00 ........................... 150,000 161,812
Lockheed Corporation, 9.38%, 10/15/99 ...... 71,000 75,437
Loews Corporation, 8.50%, 04/15/98 ......... 400,000 405,444
News America Holdings, 7.50%, 03/01/00 ..... 1,000,000 1,025,000
Pepsico Incorporated, 7.75%, 10/01/98 ...... 100,000 101,673
Sears Roebuck & Company, 7.32%, 03/20/98 ... 100,000 100,674
Texaco Capital Incorporated, 9.00%, 12/15/99 65,000 68,900
----------
5,491,224
----------
Retailing (1.1%):
Penney J.C. & Company, 6.95%, 04/01/00 ..... 450,000 457,875
Wal-Mart Stores, 6.75%, 05/15/02 ........... 100,000 101,750
----------
559,625
----------
Transportation (0.3%):
Southwest Airlines, 9.40%, 07/01/01 ........ 150,000 163,875
----------
Utilities (8.7%):
Alabama Power Company, 6.38%, 08/01/99 ..... 30,000 30,150
Baltimore Gas & Electric, 8.93%, 07/16/98 .. 100,000 102,375
Consolidated Natural Gas, 8.75%, 06/01/99 .. 465,000 484,181
National Rural Utilities, 6.75%, 09/01/01 .. 300,000 304,125
Orange & Rockland Utility, 9.38%, 03/15/00 . 275,000 293,906
Philadelphia Electric, 8.00%, 04/01/02 ..... 1,000,000 1,058,750
Potomac Capital Investment, 6.80%, 09/12/01 1,000,000 997,500
Public Service Electric & Gas,
8.75%, 07/01/99 .................... 1,000,000 1,041,250
Southern California Edison, 8.25%, 02/01/00 60,000 62,625
----------
4,374,862
----------
Total Corporate Bonds (cost: $16,352,829) .................. 16,450,044
----------
U.S. Government And Agency Securities (60.4%):
U.S. Treasury Notes (51.3%):
5.13%, 11/30/98 ............................ 600,000 596,052
5.50%, 04/15/00 ............................ 1,600,000 1,586,528
5.50%, 12/31/00 ............................ 600,000 592,230
5.88%, 08/15/98 ............................ 1,400,000 1,402,520
5.88%, 11/15/99 ............................ 1,200,000 1,200,720
6.00%, 08/15/99 ............................ 1,750,000 1,754,743
6.25%, 04/30/01 ............................ 1,500,000 1,512,765
6.38%, 01/15/99 ............................ 675,000 680,333
6.63%, 06/30/01 ............................ 350,000 357,196
6.88%, 03/31/00 ............................ 550,000 562,546
7.00%, 04/15/99 ............................ 1,000,000 1,017,830
7.13%, 02/29/00 ............................ 650,000 667,887
7.50%, 10/31/99 ............................ 650,000 670,565
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
Schedule of Investments
Griffin Short-Term Bond Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
7.50%, 05/15/02 .............................. $ 5,050,000 $ 5,350,273
7.75%, 12/31/99 .............................. 1,500,000 1,558,740
7.75%, 01/31/00 .............................. 1,950,000 2,028,156
8.50%, 02/15/00 .............................. 700,000 740,131
8.88%, 05/15/00 .............................. 1,150,000 1,233,295
9.13%, 05/15/99 .............................. 2,200,000 2,311,760
----------
25,824,270
----------
U.S. Agency Securities (9.1%):
Federal Home Loan Bank (0.8%):
5.89%, 07/24/00 ...................... 200,000 199,210
5.94%, 06/13/00 ...................... 200,000 199,582
----------
398,792
----------
Federal Home Loan Mortgage Association (6.8%):
5.50%, 05/01/01 ...................... 223,480 218,731
5.50%, 06/01/01 ...................... 241,462 236,331
6.00%, 04/01/99 ...................... 148,025 146,822
6.00%, 06/01/01 ...................... 89,402 88,675
6.00%, 06/01/01 ...................... 455,262 451,560
6.50%, 01/01/98 ...................... 280,452 281,591
6.50%, 01/01/98 ...................... 309,811 311,068
6.50%, 01/01/98 ...................... 323,947 325,262
6.50%, 12/01/99 ...................... 379,144 381,157
6.50%, 05/01/01 ...................... 435,935 437,705
7.00%, 09/01/01 ...................... 460,896 466,801
7.75%, 11/07/01 ...................... 50,000 52,867
----------
3,398,570
----------
Federal National Mortgage Association (1.5%):
8.25%, 12/18/00 ...................... 225,000 239,024
9.05%, 04/10/00 ...................... 475,000 508,003
----------
747,027
----------
Total U.S. Government And Agency Securities
(cost: $30,177,007) .................................. 30,368,659
----------
Short-Term Securities (1.7%):
Repurchase Agreement (1.7%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.25%, dated
9/30/97 due 10/01/97, Collateralized
by U.S. Government Securities
(delivery value $869,141) ............ $ 869,039 $ 869,039
-----------
Total Short-Term Securities
(cost: $869,039) ..................................... 869,039
----------
Total Investments in Securities
(cost: $47,398,875)(b)(94.8%) ........................ 47,687,742
Other Assets Less Liabilities (5.2%) ......................... 2,640,416
----------
Net Assets (100.0%) .......................................... $50,328,158
===========
</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 were as follows:
Gross unrealized appreciation $306,331
Gross unrealized depreciation (17,464)
--------
Net unrealized appreciation $288,867
========
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 some of the significant market factors that affected performance?
By far the most significant factor was that interest rates declined in response
to continued low inflation and sustained economic growth. This positive
environment kept interest rates on 10-year Treasury bonds between 6 and 7%,
which helped diminish prepayment risk (i.e. the risk that homeowners will
refinance their existing mortgages) and benefited investors in mortgage-backed
securities. As a result of less volatility and declining risk premiums,
mortgage-backed securities emerged as one of the best performing sectors over
the reporting period.
What were some of the strategies and techniques implemented during the year?
A conservative investment strategy was utilized over the past twelve months. We
felt that economic fundamentals did not support an aggressive average maturity
strategy and, as such, we maintained duration (an approximation of the
portfolio's sensitivity to changes in interest rates) between 4.2 and 4.9 years.
We decreased exposure to prepayment risk as interest rates began to decline in
April, and utilized floating-rate Collateralized Mortgage Obligations to
position the Fund to capture any increase in short-term yields. In addition, we
used the new issue or "TBA" market to help the Fund more efficiently purchase
mortgage-backed securities.
What themes can be seen in the current portfolio (industry weightings) and why?
We employed a somewhat conservative theme to protect the portfolio against
prepayment risk due to falling interest rates. To accomplish this, we decreased
exposure to the mortgage pass-through sector and focused on Collateralized
Mortgage Obligations and specific mortgage pool purchases with slower prepayment
tendencies. As an example, we bought GNMA 8.5% mortgage pools that originated in
New York. Because New York state has significant regulatory and tax rules that
diminish the incentive for homeowners to refinance their mortgages, we expect
these securities to experience greater principal stability.
What individual security holdings changed significantly during the year?
We added U.S. Treasury securities with a 6.25% coupon, due to mature 8/31/02 and
8/15/23. These holdings allowed the Fund to experience higher returns in a
declining interest rate environment. Similarly, the Treasury securities will
benefit should interest rates decline further.
What is the strategy for the next six to twelve months?
We believe that real interest rates (nominal yields less inflation) are still at
historically high levels, leaving ample room for interest rates to drop in the
future. In anticipation of lowered interest rates, we are positioning the
portfolio to benefit from a reduced U.S. deficit, healthy spreads between U.S.
interest rates and those of international bond markets, and the positive
implications of continued low inflation.
-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 Fund Index and the Lipper General U.S. Government Funds 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, and reinvested all
dividends, the top chart would track the value of your investment through the
period ended September 30, 1997. If you had invested $10,000 in Class B shares
of the Fund when they were first offered on November 1, 1994, and reinvested all
dividends, the bottom chart would track the performance of your investment
through the period ended September 30, 1997 (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
192 mutual funds tracked by Lipper Analytical Services, Inc. that have
investment objectives similar to that of the Griffin U.S. Government Income
Fund. It is important to keep in mind that the 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 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 U.S. Government Income Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year................................................. 3.73%
Since Inception...........................................4.65%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin U.S. Government Lehman Bros. Government Lipper General U.S. Govt.
Income Fund Bond Index Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000
Dec 93 $9,601 Dec 93 $9,923 Dec 93 $9,929
Mar $9,316 Mar $9,624 Mar $9,608
Jun $9,289 Jun $9,513 Jun $9,445
Sep $9,375 Sep $9,554 Sep $9,451
Dec 94 $9,449 Dec 94 $9,588 Dec 94 $9,475
Mar $9,874 Mar $10,039 Mar $9,908
Jun $10,389 Jun $10,662 Jun $10,473
Sep $10,594 Sep $10,850 Sep $10,659
Dec 95 $11,102 Dec 95 $11,346 Dec 95 $11,129
Mar $10,775 Mar $11,089 Mar $10,830
Jun $10,822 Jun $11,141 Jun $10,834
Sep $11,019 Sep $11,330 Sep $10,998
Dec 96 $11,321 Dec 96 $11,660 Dec 96 $11,313
Mar $11,248 Mar $11,566 Mar $11,199
Jun $11,634 Jun $11,967 Jun $11,592
Sep $11,969 Sep $12,368 Sep $11,960
</TABLE>
Griffin U.S. Government Income Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects a sales charge deduction of 5.0% for the one year and 3.0% for the
since inception period)
One year..................................................3.06%
Since Inception...........................................7.50%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin U.S. Government Lehman Bros. Government Lipper General U.S. Govt.
Income Fund Bond Index Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Dec 94 $10,114 Dec 94 $10,043 Dec 94 $10,053
Mar $10,557 Mar $10,515 Mar $10,512
Jun $11,092 Jun $11,168 Jun $11,112
Sep $11,308 Sep $11,365 Sep $11,309
Dec 95 $11,823 Dec 95 $11,884 Dec 95 $11,808
Mar $11,474 Mar $11,615 Mar $11,490
Jun $11,497 Jun $11,670 Jun $11,495
Sep $11,705 Sep $11,867 Sep $11,669
Dec 96 $11,996 Dec 96 $12,214 Dec 96 $12,003
Mar $11,904 Mar $12,115 Mar $11,882
Jun $12,297 Jun $12,535 Jun $12,299
Sep $12,348 Sep $12,955 Sep $12,690
</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, 1997
[PIE CHART APPEARS HERE]
Mortgage-Backed Securities 61%
U.S. Government Agency Securities 4%
U.S. Treasury Notes & Bonds 35%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Mortgage-Backed Securities (65.6%):
Government National Mortgage Association (22.2%):
7.50%, 03/15/24 - 06/15/27 .............. $ 7,992,558 $ 8,139,085
8.00%, 10/15/24 - 02/15/27 .............. 5,032,602 5,202,452
8.50%, 06/15/27 - 09/15/27 .............. 4,226,636 4,428,795
12.50%, 12/15/10 - 06/15/15 ............. 71,162 82,883
13.00%, 08/15/12 ........................ 35,660 41,710
----------
17,894,925
----------
Federal Home Loan Mortgage Corporation (7.8%):
6.59%, 02/15/21 ......................... 3,550,000 3,639,859
7.00%, 01/15/24 ......................... 2,000,000 2,017,220
9.50%, 12/01/04 ......................... 471,313 494,290
9.50%, 11/01/05 ......................... 109,924 115,283
----------
6,266,652
----------
Federal National Mortgage Association (33.7%):
6.14%, 06/25/19 ......................... 1,747,127 1,757,260
6.29%, 04/25/27 ......................... 4,882,623 4,925,346
6.50%, 10/01/27 ......................... 2,000,000 1,945,000
6.75%, 07/18/19 ......................... 4,000,000 4,046,640
7.00%, 03/01/27 ......................... 4,939,235 4,919,133
7.50%, 09/01/27 (b) ..................... 5,000,000 5,082,800
9.00%, 05/25/20 ......................... 3,000,000 3,269,610
10.00%, 07/01/21 ........................ 1,146,486 1,251,813
----------
27,197,602
----------
Collateralized Mortgage Obligations (1.9%):
L. F. Rothschild Mortgage Trust,
Series 3, Class Z, 9.95%, 09/01/17 ...... 1,343,695 1,507,357
----------
Total Mortgage-Backed Securities
(cost: $52,209,514) ............................. 52,866,536
----------
U.S. Government And Agency Securities (39.3%):
U.S. Treasury Bonds (12.9%):
6.25%, 08/15/23 ......................... 5,000,000 4,852,900
12.00%, 08/15/13 ........................ 3,850,000 5,547,850
----------
10,400,750
----------
U.S. Treasury Notes (25.0%):
6.13%, 12/31/01 ......................... 4,000,000 4,016,960
6.13%, 08/15/07 ......................... 5,000,000 5,001,950
6.25%, 08/31/02 ......................... 11,000,000 11,093,830
----------
20,112,740
----------
Federal National Mortgage Association (1.4%):
8.10%, 08/12/19 ......................... 1,000,000 1,153,020
----------
Total U.S. Government And Agency Securities
(cost: $31,483,352) ............................. 31,666,510
----------
Short-Term Securities (2.5%):
Federal Home Loan Mortgage Corporation (2.5%):
6.05%, 10/01/97 (c) ..................... 2,000,000 2,000,000
----------
Total Short-Term Securities
(cost: $2,000,000) .............................. 2,000,000
----------
Total Investments in Securities
(cost: $85,692,866)(d)(107.4%) .................. 86,533,046
Other Assets Less Liabilities (-7.4%) ................... (5,982,629)
------------
Net Assets (100.0%) ..................................... $ 80,550,417
============
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Settlement is on a delayed delivery or when issued basis with final maturity
to be announced (TBA) in the future. The cost basis of such security is
$5,060,938.
(c) Rate represents annualized yield to maturity at September 30, 1997.
(d) Cost is $85,700,470 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 $904,501
Gross unrealized depreciation (71,925)
-------
Net unrealized appreciation $832,576
========
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 some of the significant market factors that affected performance?
Strength in the U.S. economy and moderate inflation helped create a positive
environment for fixed income investments for the year ended September 30, 1997.
This combination of positive economic factors resulted in a decline in yield on
U.S. Treasury bonds, which dropped by approximately 0.50% over the last twelve
months. As bond prices typically rise when yields fall, the bond market enjoyed
strong performance over the period.
Specifically, corporate bonds and mortgage-backed securities both benefited from
lower interest rates and a strong economy. Increases in productivity, coupled
with economic growth and merger activity, led many U.S. corporations to an
improved financial position. This resulted in credit rating upgrades for several
of the Fund's corporate holdings, including ADT Operations and Fort Howard
Corporation. Mortgage-backed securities also experienced lower prepayment levels
as a result of relatively stable bond yields during the period.
What were some of the strategies and techniques implemented during the year?
Our strategy for selecting bonds for the portfolio continues to be
value-oriented and research-driven. Our goal is to add value to the Fund through
security selection rather than by predicting which direction interest rates will
move. The portfolio is dominated by investment-grade corporate bonds, which
generally comprise about 65% to 70% of the portfolio.
Among the Fund's corporate holdings, our investment process had led to the an
emphasis on financial and industrial corporations. The financial sector has
performed particularly well as a result of low interest rates and positive
credit trends. A select group of industrial holdings have also fared well,
bolstered by the economy's continued expansion.
The Fund's allocation to mortgage-backed securities ranged from 10% to 20%
during the period. These securities appeared more attractively valued versus
other sectors in late 1996, and continued to add value throughout the reporting
period.
What themes can be seen in the current portfolio (industry weightings) and why?
Obviously, the greatest theme is that of corporate bonds. Within this sector,
financials and industrials were the largest components. Given the environment of
low interest rates and strong credit fundamentals, financial holdings such as
Lehman Brothers Incorporated, Donaldson, Lufkin & Jenrette, and Paine Webber
Group bonds have performed well as spreads to treasuries have tightened. Within
the banking sector, Branch Banking & Trust Company, First Security Corporation,
and First Union Corporation bonds also posted strong gains for the Fund.
The second most prevalent theme was that of mortgage-backed securities, a sector
which is we feel is attractively valued after recent weakness. The majority of
our mortgage holdings are seasoned issues that we believe are subject to less
prepayment risk than current issues.
Finally, Yankee bonds, which are dollar-denominated bonds issued by foreign
entities and hold no currency risk, comprised 6% of the portfolio on September
30, 1997. A small portion of the portfolio was invested in government-issued
bonds from Quebec and Columbia, and 11% of the Fund was invested in U.S.
Treasury Securities.
What individual security holdings changed significantly during the year?
We added companies that have enjoyed both business strength and improved balance
sheets. Among these new issues are Federated Department Stores and Fort James
Corp.-the merged company of Fort Howard and James River. Among industrials, we
have increased our stake in the energy sector, adding Noble Drilling Corp. and
Coastal Corp. in response to strong energy prices and oil drilling activity.
Another significant new holding is WorldCom Inc., which we purchased in
anticipation of its credit quality benefiting from market share increases.
What is the strategy for the next six to twelve months?
We will continue our risk averse, value-oriented approach to security selection.
We seek to add value through credit research and by closely tracking the yield
curve and duration characteristics of the broad fixed income market. We utilize
a blend of quantitative analysis and fundamental research to seek out
attractively valued investment-grade corporate bonds.
-13-
<PAGE>
Griffin Bond Fund
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 and
Lipper Corporate Debt A Rated Funds 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, and reinvested all dividends, the top chart would track the
value of your investment through the period ended September 30, 1997. If you had
invested $10,000 in Class B shares of the Fund when they were first offered on
November 1, 1994, and reinvested all dividends, the bottom chart would track the
performance of your investment through the period ended September 30, 1997
(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 that of the Griffin
Bond Fund. It is important to keep in mind that the 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 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 Bond Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year................................................. 4.28%
Since Inception...........................................3.12%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Bond Fund Lehman Bros. Corporate Lipper Corporate Debt A Rated
Bond Index Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000
Dec 93 $9,412 Dec 93 $9,864 Dec 93 $9,918
Mar $9,139 Mar $9,516 Mar $9,588
Jun $8,981 Jun $9,367 Jun $9,415
Sep $9,025 Sep $9,435 Sep $9,432
Dec 94 $9,034 Dec 94 $9,476 Dec 94 $9,453
Mar $9,452 Mar $10,037 Mar $9,906
Jun $10,034 Jun $10,783 Jun $10,503
Sep $10,247 Sep $11,038 Sep $10,701
Dec 95 $10,746 Dec 95 $11,583 Dec 95 $11,187
Mar $10,405 Mar $11,284 Mar $10,906
Jun $10,388 Jun $11,334 Jun $10,931
Sep $10,567 Sep $11,560 Sep $11,120
Dec 96 $10,879 Dec 96 $11,963 Dec 96 $11,466
Mar $10,808 Mar $11,842 Mar $11,367
Jun $11,177 Jun $12,330 Jun $11,772
Sep $11,537 Sep $12,813 Sep $12,179
</TABLE>
Griffin Bond Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects a sales charge deduction of 5.0% for the one year and 3.0% for the
since inception period)
One year..................................................3.63%
Since Inception...........................................7.54%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Bond Fund Lehman Bros. Corporate Lipper Corporate Debt A Rated
Bond Index Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Dec 94 $10,066 Dec 94 $10,066 Dec 94 $10,050
Mar $10,516 Mar $10,662 Mar $10,532
Jun $11,135 Jun $11,455 Jun $11,167
Sep $11,358 Sep $11,725 Sep $11,377
Dec 95 $11,898 Dec 95 $12,304 Dec 95 $11,894
Mar $11,505 Mar $11,987 Mar $11,595
Jun $11,473 Jun $12,040 Jun $11,622
Sep $11,256 Sep $12,281 Sep $11,823
Dec 96 $11,587 Dec 96 $12,708 Dec 96 $12,190
Mar $11,497 Mar $12,580 Mar $12,085
Jun $11,875 Jun $13,098 Jun $12,516
Sep $12,361 Sep $13,612 Sep $12,949
</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, 1997
[PIE CHART APPEARS HERE]
Corporate Bonds 71%
Other 4%
U.S. Agency Securities 14%
U.S. Treasury Notes & Bonds 11%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Asset Backed Securities (0.0%):
Corporate (0.0%):
General Motor Acceptance Corporation
Grantor Trust, 6.30%, 06/15/99 ..... $ 25,456 $ 25,544
----------
Total Asset Backed Securities (cost: $25,450) .............. 25,544
----------
Corporate Bonds (70.5%):
Banking (11.3%):
Abbey National First Capital
Corporation, 8.20%, 10/15/04 (b) ... 175,000 190,094
ANZ Banking Group, 7.55%, 09/15/06 ......... 130,000 137,150
BankAmerica Corporation,
6.63%, 08/01/07 .................... 1,000,000 987,500
7.50%, 10/15/02 .................... 150,000 156,187
Branch Banking & Trust Corporation,
7.25%, 06/15/07 .................... 625,000 642,968
Capital One Bank, 6.83%, 08/16/99 .......... 300,000 301,874
Chase Manhattan Bank
6.63%, 01/15/98 .................... 130,000 130,351
7.13%, 03/01/05 .................... 400,000 409,000
First National Bank of Boston,
7.38%, 09/15/06 .................... 270,000 279,788
First Security Corporation, 6.88%,
11/15/06 ........................... 220,000 220,550
First Union Corporation, 9.45%,
08/15/01 ........................... 246,000 270,908
Fleet Financial Group, 7.13%, 04/15/06 ..... 335,000 340,863
Golden West Financial, 7.88%, 01/15/02 ..... 250,000 263,125
MBNA Corporation, 6.92%, 05/30/00 .......... 495,000 500,569
Midland Bank PLC, 7.63%,
06/15/06 (b) ....................... 400,000 421,000
NationsBank Corporation
5.38%, 04/15/00 .................... 300,000 294,375
7.25%, 10/15/25 .................... 275,000 275,344
Norwest Corporation, 7.70%, 11/15/97 ....... 200,000 200,518
Shawmut Bank, 8.63%, 02/15/05 .............. 400,000 443,000
----------
6,465,164
----------
Financial Services (24.7%):
Aegon, 8.00%, 08/15/06 (b) ................. 314,000 339,905
American Telephone & Telegraph
Capital Corporation, 5.65%, 01/15/99 390,000 387,563
Associates Corporation, N.A
6.63%, 05/15/01 .................... 80,000 80,700
6.75%, 07/15/01 .................... 60,000 60,825
6.75%, 08/01/01 .................... 55,000 55,688
Bear Stearns Company
6.50%, 06/15/00 .................... 225,000 226,406
7.63%, 09/15/99 .................... 250,000 256,875
BHP Finance U.S.A., 7.00%, 12/01/97 (b) .... 200,000 200,500
CIT Group Holdings, 8.75%, 04/15/98 ........ 110,000 111,768
Commercial Credit, 5.70%, 03/01/98 ......... 175,000 175,121
Donaldson Lufkin & Jenrette, 6.88%,
11/01/05 ........................... 294,000 294,735
Finova Capital Corporation, 5.98%,
02/27/01 ........................... 1,146,000 1,130,243
Ford Motor Credit Corp. ....................
6.85%, 08/15/00 .................... 250,000 254,063
7.40%, 11/01/46 .................... 80,000 81,600
8.20%, 02/15/02 .................... 500,000 533,124
General Motors Acceptance Corporation
6.63%, 09/19/02 .................... 455,000 457,843
6.88%, 07/15/01 .................... 215,000 218,224
9.63%, 05/15/00 .................... 100,000 107,874
9.63%, 12/01/00 .................... 350,000 382,812
Household Finance Company, 6.58%,
05/17/99 ........................... 435,000 437,718
Jefferson-Pilot Capital Trust Cl A,
8.14%, 01/15/46 .................... 500,000 510,624
Jefferson-Pilot Capital Trust Cl B,
8.29%, 03/01/46 .................... 100,000 103,875
Lehman Brothers Incorporated
6.13%, 02/01/01 .................... 550,000 544,500
6.65%, 11/08/00 .................... 502,000 503,883
Lincoln National Corporation, 7.25%,
05/15/05 ........................... 450,000 463,500
Merrill Lynch & Company Incorporated
6.25%, 01/15/06 .................... 230,000 223,675
7.38%, 08/17/02 .................... 200,000 207,750
Morgan J.P. & Company
7.63%, 09/15/04 .................... 250,000 264,063
7.63%, 11/15/98 .................... 250,000 254,243
Morgan Stanley Group, 8.88%, 10/15/01 ...... 300,000 326,625
Paine Webber Group
6.79%, 07/01/03 .................... 375,000 373,594
7.63%, 10/15/08 .................... 40,000 41,900
7.81%, 02/13/17 .................... 165,000 168,919
8.06%, 01/17/17 .................... 255,000 269,344
8.25%, 05/01/02 .................... 200,000 212,250
PNC Institutional Capital Cl B, 8.32%,
05/15/27 ........................... 500,000 519,375
Salomon Incorporated
6.50%, 03/01/00 .................... 182,000 182,683
7.00%, 05/15/99 .................... 280,000 283,850
Smith Barney Holdings Incorporated,
7.13%, 10/01/06 .................... 345,000 351,900
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
Schedule of Investments
Griffin Bond Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Travelers Property Casualty Corp. .....
6.75%, 04/15/01 ............... $ 500,000 $ 506,250
6.75%, 11/15/06 ............... 230,000 230,863
US Leasing International, 8.75%,
12/01/01 ...................... 505,000 547,294
USF&G Corporation, 8.38%, 06/15/01 .... 575,000 605,906
Zurich Capital Trust I, 8.38%, 06/01/37 665,000 710,719
----------
14,201,172
----------
Government National (1.5%):
Quebec Province, 7.13%, 02/09/24 (b) .. 545,000 535,463
Republic of Colombia, 7.63%,
02/15/07 (b) .................. 145,000 141,375
Republic of Indonesia, 7.75%,
08/01/06 (b) .................. 165,000 165,000
----------
841,838
----------
Industrial Conglomerate (30.9%):
Black & Decker
7.00%, 02/01/06 ............... 50,000 50,625
7.50%, 04/01/03 ............... 185,000 192,169
Brunswick Corporation, 7.13%,
08/01/27 ...................... 700,000 684,250
Burlington Industries, 7.25%, 08/01/27 365,000 365,000
Coastal Corporation, 8.13%, 09/15/02 .. 165,000 175,725
Coca Cola Company, 7.88%, 09/15/98 .... 200,000 203,660
Columbia/HCA Healthcare
6.91%, 06/15/05 ............... 300,000 291,374
7.15%, 03/30/04 ............... 250,000 249,062
Comdisco Incorporated, 6.36%,
01/25/99 ...................... 210,000 210,787
ConAgra Incorporated, 6.70%,
08/01/27 ...................... 343,000 341,713
CPC International Incorporated,
6.15%, 01/15/06 ............... 350,000 339,500
CSR America Incorporated, 6.88%,
07/21/05 ...................... 300,000 302,624
Embotelladora Andina SA, 7.00%,
10/01/07 (b) .................. 560,000 559,198
Federated Department Stores, 8.13%,
10/15/02 ...................... 355,000 378,518
Fort Howard Corporation, 9.25%,
03/15/01 ...................... 978,000 1,069,688
Fort James Corporation, 6.88%, 09/15/07 560,000 555,800
Fortune Brands Incorporated, 7.50%,
05/15/99 ...................... 120,000 122,550
GTE Corporation, 8.85%, 03/01/98 ...... 500,000 506,005
GTE South, 6.00%, 02/15/08 ............ 250,000 237,500
Hanson Overseas BV, 6.75%,
09/15/05 (b) .................. 587,000 587,734
Hilton Hotels Corporation, 7.38%,
06/01/02 ...................... 369,000 377,303
Honeywell Incorporated, 6.60%, 04/15/01 350,000 353,063
International Business Machines
Corporation, 6.38%, 06/15/00 .. 200,000 201,250
International Paper Company, 9.70%,
03/15/00 ...................... 160,000 172,600
Lockheed Martin Corporation
7.25%, 05/15/06 ............... 110,000 114,125
7.75%, 05/01/26 ............... 235,000 252,038
News America Holdings
7.50%, 03/01/00 ............... 325,000 333,125
9.13%, 10/15/99 ............... 465,000 491,738
Noble Drilling Corporation, 9.13%,
07/01/06 ...................... 625,000 679,688
Norcen Energy Resources, 7.38%,
05/15/06 ...................... 120,000 123,750
Occidental Petroleum, 7.09%, 09/08/99 . 65,000 66,056
Pepsico Incorporated, 7.75%, 10/01/98 . 300,000 305,019
Potash Corporation Saskatchewan,
7.13%, 06/15/07 (b) ........... 330,000 337,838
Raytheon Co, 6.45%, 08/15/02 .......... 1,070,000 1,068,663
Royal Caribbean Cruises
7.13%, 09/18/02 ............... 426,000 433,988
7.25%, 08/15/06 ............... 111,000 113,220
Sears Roebuck & Company
9.25%, 04/15/98 ............... 165,000 167,906
9.35%, 07/06/98 ............... 100,000 102,474
9.38%, 04/08/98 ............... 300,000 305,250
Staples Incorporated, 7.13%, 08/15/07 . 775,000 777,906
U.S.A. Waste Services, 7.13%, 10/01/07 270,000 273,375
Wal-Mart Stores, 8.63%, 04/01/01 ...... 350,000 375,813
WMX Technology Incorporated
7.70%, 10/01/02 ............... 1,145,000 1,199,388
8.25%, 11/15/99 ............... 200,000 208,250
WorldCom Incorporated
7.55%, 04/01/04 ............... 675,000 702,000
7.75%, 04/01/07 ............... 390,000 410,475
9.38%, 01/15/04 ............... 309,000 334,106
----------
17,703,889
----------
Transportation (1.4%):
Southwest Airlines, 7.88%, 09/01/07 ...... 200,000 216,250
Union Pacific Corporation
6.70%, 12/01/06 .................. 84,000 84,105
7.38%, 05/15/01 .................. 250,000 257,188
9.63%, 12/15/02 .................. 200,000 225,000
----------
782,543
----------
Utilities (0.7%):
Florida Power & Light, 5.38%, 04/01/00 ... 305,000 300,043
Virginia Electric & Power, 8.88%, 06/01/99 125,000 130,313
----------
430,356
----------
Total Corporate Bonds (cost: $39,958,977) ................ 40,424,962
----------
U.S. Government And Agency Securities (25.2%):
U.S. Government Securities (11.4%):
U.S. Treasury Bonds (7.0%):
7.25%, 08/15/22 .................. 3,647,000 3,984,092
----------
U.S. Treasury Notes (4.4%):
5.88%, 11/15/99 .......................... 2,539,000 2,540,523
----------
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
Schedule of Investments
Griffin Bond Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
U.S. Agency Securities (13.8%):
Government National Mortgage Association (7.6%):
7.00%, 11/15/23 ........................ $ 331,511 $ 331,511
7.50%, 12/15/23 ........................ 603,046 615,481
8.00%, 07/15/17 ........................ 347,789 360,831
8.00%, 06/15/27 ........................ 252,755 261,285
8.00%, 08/15/27 ........................ 1,919,684 1,984,473
8.50%, 12/15/21 ........................ 291,914 306,510
9.00%, 12/15/21 ........................ 337,872 361,206
9.00%, 12/15/21 ........................ 125,901 135,579
----------
4,356,876
----------
Federal Home Loan Mortgage Corporation (1.8%):
7.00%, 08/01/12 ........................ 1,020,000 1,029,874
----------
Federal National Mortgage Association (4.4%):
6.00%, 03/01/04 ........................ 376,366 370,367
6.86%, 06/17/11 ........................ 150,000 151,453
7.00%, 08/01/03 ........................ 115,974 117,169
7.00%, 07/01/22 ........................ 79,067 78,746
7.00%, 07/01/23 ........................ 229,213 228,280
7.00%, 08/01/26 ........................ 94,962 94,576
7.00%, 09/01/26 ........................ 170,581 169,887
7.00%, 11/01/26 ........................ 27,553 27,440
7.50%, 09/01/11 ........................ 89,194 91,256
7.54%, 06/01/16 ........................ 322,147 329,192
8.00%, 10/01/25 ........................ 268,321 276,872
8.00%, 05/01/26 ........................ 201,598 208,023
8.00%, 09/01/26 ........................ 366,504 378,185
----------
2,521,446
----------
Total U.S. Government And Agency Securities
(cost: $14,230,852) .................................... 14,432,811
----------
Short-Term Securities (3.6%):
Repurchase Agreement (3.6%):
State Street Bank & Trust Co. ..........................
Master Repurchase Agreement, 4.25%,
dated 9/30/97 due 10/01/97,
Collateralized by U.S. Government
Securities (delivery value $2,062,188) ......... $ 2,061,945 $ 2,061,945
----------
Total Short-Term Securities (cost: $2,061,945) ................. 2,061,945
----------
Total Investments in Securities
(cost: $56,277,224)(c)(99.3%) .......................... 56,945,262
Other Assets Less Liabilities (0.7%) ........................... 410,603
----------
Net Assets (100.0%) ............................................ $ 57,355,865
==========
</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) Cost is the $56,283,957 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 $738,509
Gross unrealized depreciation (77,204)
--------
Net unrealized appreciation $661,305
========
See accompanying notes to financial statements.
-17-
<PAGE>
Management Discussion
Griffin Municipal Bond Fund
Portfolio Managers: Executive Policy Committee
Payden & Rygel Investment Counsel
What were some of the significant market factors that affected performance?
The tax reform portion of the balanced budget bill was a major factor affecting
the general municipal bond market this past year. The proposed bill to eliminate
an allowance for certain corporations to purchase municipal bonds had a chilling
effect on this market during June and July. If this allowance had been repealed,
several large players in the market would have been restricted from buying
municipal bonds, which would have negatively impacted yield levels. However, the
proposal was not passed as part of the general tax legislation, and the
temporary cloud over the market was lifted.
A secondary market factor was interest rate volatility throughout the year,
influenced by an increase in the federal funds rate of 0.25% in March. As a
result, long-term interest rates declined more than short-term rates, and the
yield curve flattened during the reporting period.
What were some of the strategies and techniques implemented during the year?
We began the year with a neutral duration (an approximation of the portfolio's
sensitivity to changes in interest rates) and held that position until
mid-March. In anticipation of an interest rate hike by the Federal Reserve
Board, we then shortened the portfolio's duration to reduce exposure to changes
in interest rates.
When we were unable to find attractive bonds that meet our selection criteria,
we utilized U.S. Treasury futures to manage the portfolio's duration. We also
placed an emphasis on the intermediate portion of the municipal yield curve, and
an underweighting in the longer end of the curve. This helped minimize the
volatility of net asset value movements within the Fund.
What themes can be seen in the current portfolio (industry weightings) and why?
We continue to focus on high-quality issues. We emphasize bonds whose interest
payments are paid by state or local government taxes. Since tax revenues have
been higher than anticipated due to the strong economy, these bonds tend to have
strong repayment features.
What individual security holdings changed significantly during the year?
We made several changes in bonds issued by Massachusetts during the year. In
November, we sold two callable Massachusetts bonds that mature in 2015, and
purchased a non-callable State of Massachusetts General Obligation bond maturing
in 2014. We did this to consolidate our Massachusetts exposure into a larger
position that we believed would have a more stable effective maturity if
interest rates rallied. We sold this bond in March to reduce our interest rate
exposure prior to the federal funds rate increase.
Another change in individual holdings was the pre-refunding of a lower quality
bond during the year. We purchased a BBB-rated bond in March at a yield spread
of 1.0%, compared to higher-quality bonds. In August, the bond was pre-refunded
(U.S. Treasuries were set aside to guarantee the principal and interest
payments) and, as of the end of September, the bond traded at a yield spread of
0.1%, a dramatic price increase.
What is the strategy for the next six to twelve months?
We have modified the structure of the portfolio, which we believe will provide
predictable price behavior in most market conditions. We expect to see credit
spreads remain the same or widen, as opposed to the tightening they have
experienced over the past year. We believe the high-quality focus in the Fund
will help protect shareholders should interests rates rise.
-18-
<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 and the Lipper General Municipal Debt Funds 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, and reinvested all dividends, the top
chart would track the value of your investment through the period ended
September 30, 1997. If you had invested $10,000 in Class B shares of the Fund
when they were first offered on November 1, 1994, and reinvested all dividends,
the bottom chart would track the performance of your investment through the
period ended September 30, 1997 (assuming a complete redemption on that date).
The Lehman Brothers Municipal Bond Index is an unmanaged index of debt
obligations issued by the U.S. states and municipalities. The Lipper General
Municipal Debt Funds Average is based on a universe of approximately 255 mutual
funds tracked by Lipper Analytical Services, Inc. that have investment
objectives similar to that of the Griffin Municipal Bond Fund. It is important
to keep in mind that the 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 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 Municipal Bond Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year................................................. 3.75%
Since Inception...........................................3.24%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Municipal Lehman Bros. Municipal Lipper General Municipal
Bond Fund Bond Index Debt Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $ 9,550 Initial $10,000 Initial $10,000
Dec 93 $ 9,641 Dec 93 $10,005 Dec 93 $10,094
Mar $ 8,941 Mar $ 9,456 Mar $ 9,500
Jun $ 9,006 Jun $ 9,560 Jun $ 9,557
Sep $ 9,058 Sep $ 9,626 Sep $ 9,589
Dec 94 $ 8,888 Dec 94 $ 9,487 Dec 94 $ 9,436
Mar $ 9,548 Mar $10,158 Mar $10,100
Jun $ 9,679 Jun $10,404 Jun $10,296
Sep $ 9,980 Sep $10,703 Sep $10,538
Dec 95 $10,453 Dec 95 $11,144 Dec 95 $11,030
Mar $10,228 Mar $11,010 Mar $10,820
Jun $10,271 Jun $11,094 Jun $10,875
Sep $10,443 Sep $11,350 Sep $11,122
Dec 96 $10,696 Dec 96 $11,639 Dec 96 $11,389
Mar $10,641 Mar $11,612 Mar $11,339
Jun $10,993 Jun $12,013 Jun $11,726
Sep $11,346 Sep $12,376 Sep $12,081
</TABLE>
Griffin Municipal Bond Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects a sales charge deduction of 5.0% for the one year
and 3.0% for the since inception period)
One year..................................................2.96%
Since Inception...........................................7.64%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Municipal Lehman Bros. Municipal Lipper General Municipal
Bond Fund Bond Index Debt Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Dec 94 $10,083 Dec 94 $10,035 Dec 94 $10,033
Mar $10,830 Mar $10,745 Mar $10,739
Jun $10,963 Jun $11,004 Jun $10,947
Sep $11,286 Sep $11,321 Sep $11,204
Dec 95 $11,819 Dec 95 $11,787 Dec 95 $11,727
Mar $11,536 Mar $11,645 Mar $11,505
Jun $11,570 Jun $11,734 Jun $11,563
Sep $11,763 Sep $12,005 Sep $11,826
Dec 96 $12,032 Dec 96 $12,311 Dec 96 $12,109
Mar $11,942 Mar $12,282 Mar $12,056
Jun $12,335 Jun $12,706 Jun $12,467
Sep $12,398 Sep $13,090 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.
-19-
<PAGE>
Schedule of Investments
Griffin Municipal Bond Fund
September 30, 1997
[PIE CHART APPEARS HERE]
Airport 5%
Education 5%
Electric 5%
General Obligations 32%
Health Care 8%
Housing 7%
Other 8%
Sales Tax 7%
Sewer 7%
Transportation 8%
Water 8%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Municipal Long-Term Securities (96.1%):
Arizona (5.1%):
Arizona State University Revenue
System, 7.00%, Pre-refunded
to 07/01/02 .............................. $ 250,000 $ 281,563
Phoenix, Arizona, Series A, General
Obligation 6.25%, 07/01/17 ............... 200,000 229,500
----------
511,063
California (1.0%):
California State Department of Water Resources
5.00%, 12/01/22 .......................... 100,000 95,250
-----------
Colorado (1.5%):
Arapahoe County, Colorado Capital
Improvement Trust Fund
Highway Revenue, 6.90%, Pre-refunded
to 08/31/03 .............................. 125,000 146,719
-----------
District of Columbia (1.6%):
District of Columbia, American Association for the
Advancement of Science, Revenue Bond,
6.00%, 01/01/09 .......................... 150,000 163,125
-----------
Florida (6.1%):
Dade County, Florida Aviation
Revenue, 5.50%, 10/01/07 ................. 200,000 211,500
Dade County, Florida General
Obligation, 7.70%, 10/01/08 .............. 200,000 248,750
Florida State Board of Education
Capital Outlay Public Education,
5.75%, 06/01/15 .......................... 150,000 156,000
-----------
616,250
-----------
Georgia (1.8%):
Georgia State General Obligation,
7.20%, 03/01/08 .......................... 150,000 181,875
-----------
Hawaii (1.7%):
State of Hawaii, General Obligation,
6.00%, 09/01/09 .......................... $150,000 $166,125
-----------
Idaho (2.0%):
Idaho Housing & Finance Association,
Single Family Mortgage,
5.20%, 07/01/27 .......................... 200,000 205,250
-----------
Illinois (6.0%):
Du Page County, Illinois General
Obligation Revenue Bond,
Stormwater Project, 5.60%, 01/01/21 ...... 250,000 262,500
Metropolitan Pier & Exposition
Authority Dedicated State Tax
Revenue Bond, 4.35%, 06/15/01 (b)(c) ..... 400,000 341,000
-----------
603,500
-----------
Indiana (1.1%):
Wa-Nee Elementary/High School
Building Corporation,
Revenue Bond, 6.50%, 07/15/10 ............ 100,000 109,375
-----------
Massachusetts (3.2%):
Massachusetts Bay Transportation
Authority General Transportation
System, 5.60%, 03/01/08 .................. 200,000 213,500
Massachusetts State Water Resources
Authority, 6.00%, 08/01/14 ............... 100,000 107,000
-----------
320,500
-----------
Michigan (6.2%):
Michigan Municipal Bond Authority Revenue,
6.00%, 10/01/07 .......................... 200,000 220,750
Michigan State Hospital Financing Authority,
Metropolitan Hospital, 5.88%, 07/01/14 ... 75,000 77,063
Michigan State Underground Storage
Tank Financial Assurance
Revenue Bond, 6.00%, 05/01/05 (c) ........ 300,000 328,125
-----------
625,938
-----------
Minnesota (4.2%):
Minnesota Public Facilities Authority Water
Pollution Control Revenue, 6.00%,
03/01/07 ................................. 200,000 221,000
University of Minnesota, Series A,
Revenue Bond, 4.75%, 07/01/03 ............ 200,000 203,500
-----------
424,500
-----------
Nevada (1.1%):
Nevada State General Obligation,
5.80%, 07/15/08 .......................... 100,000 107,000
-----------
New Jersey (3.9%):
New Jersey State General Obligation,
6.00%, 02/15/11 .......................... 350,000 391,563
-----------
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE>
Schedule of Investments
Griffin Municipal Bond Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
New York (6.2%):
New York State Dormitory Authority
Revenues, Mental Health Services
Facilities, Series A, 5.00%, 02/15/00 . $ 200,000 $ 202,750
New York State Environmental
Facilities Corporation Pollution
Control Revenue Bond, 5.50%, 06/15/09 . 200,000 210,250
New York, New York General
Obligation, 6.00%, 02/01/04 ........... 200,000 213,000
-----------
626,000
-----------
Ohio (8.9%):
Cleveland, Ohio General Obligation,
5.38%, 09/01/09 ....................... 350,000 367,937
Franklin County, Ohio Hospital Revenue,
Holy Cross Health Systems Corporation,
5.50%, 06/01/01 ....................... 300,000 312,000
Ohio State Water Department
Authority Revenue, Fresh Water
Series, 5.70%, 06/01/09 .............. 200,000 213,250
-----------
893,187
-----------
Oregon (1.1%):
Oregon State Department of Transportation
Revenue, Regional Light Rail Fund -
Westside Project, 6.25%, 06/01/09 ..... 100,000 110,375
Pennsylvania (8.5%):
Commonwealth of Pennsylvania
General Obligation, 5.20%, 06/15/04 (c) 250,000 259,687
Pennsylvania Housing Finance Agency,
Single Family Mortgage,
4.60%, 10/01/98 ....................... 300,000 302,027
Pennsylvania State Industrial Development
Authority Revenue Bond, 7.00%, 07/01/06 250,000 292,813
-----------
854,527
-----------
Puerto Rico (2.2%):
Puerto Rico Electric Power Authority,
Electric Revenue, 6.13%, 07/01/08 ..... 200,000 220,250
-----------
South Carolina (2.1%):
Columbia, South Carolina Water
Works & Sewer Systems Revenue,
5.38%, 02/01/12 ....................... 200,000 209,500
-----------
South Dakota (1.1%):
South Dakota Housing Development
Authority, Homeownership
Mortgage, 6.65%, 05/01/14 ............. 100,000 107,875
-----------
Tennessee (2.1%):
Kingsport, Tennessee General Obligation,
5.60%, 09/01/03 ....................... 200,000 210,750
-----------
Texas (7.4%):
Austin, Texas General Obligation,
5.70%, 09/01/07 ....................... 200,000 216,500
Harris County, Texas Tax and
Revenue Certificate of Obligation,
6.00%, 12/15/10 ....................... 200,000 224,000
San Antonio, Texas Electric &
Gas Revenue, 5.00%, 02/01/14 .......... 100,000 96,750
Texas Municipal Power Agency
Revenue, 5.25%, 09/01/08 .............. 200,000 210,000
-----------
747,250
-----------
Virginia (1.3%):
Virginia State Transportation
Board Revenue, North Virginia
Transportation District Program,
6.25%, 05/15/12 ....................... 120,000 129,000
-----------
Washington (4.6%):
Seattle, Washington Water System
Revenue, 5.25%, 12/01/23 .............. 250,000 245,625
Washington State General Obligation,
5.75%, 09/01/09 ....................... 200,000 217,500
-----------
463,125
-----------
Wisconsin (4.1%):
Wisconsin State General Obligation,
5.13%, 11/01/07 ....................... 200,000 207,750
Wisconsin State Transportation,
5.50%, 07/01/14 ....................... 200,000 202,250
-----------
410,000
-----------
Total Municipal Long-Term Securities
(cost: $9,268,966) ................................. 9,649,872
-----------
Municipal Short-Term Securities (6.0%):
Indiana (1.0%):
Indianapolis, Indiana Multi-Family Housing
Revenue, Canal Square Project,
4.10%, 10/01/97 (d) ................ 100,000 100,000
-----------
Oregon (2.0%):
Umatilla County, Oregon Hospital Facilities,
Franciscan Health Systems A,
3.85%, 10/01/97 (d) ................ 200,000 200,000
-----------
Texas (3.0%):
Grapevine, Texas Industrial
Development Corporation,
Multiple Mode, American Airlines,
Series B1, 3.85%, 10/01/97 (d) ..... 300,000 300,000
-----------
Total Municipal Short-Term Securities
(cost: $600,000) ................................... 600,000
-----------
</TABLE>
See accompanying notes to financial statements.
-21-
<PAGE>
Schedule of Investments
Griffin Municipal Bond Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Other Short-Term Securities (0.0%):
Seven Seas Tax Free Money Market,
3.33%, 10/01/97 ......... 3,581 $ 3,581
-----------
Total Other Short-Term Securities
(cost: $3,581) .......................... 3,581
-----------
Total Investments in Securities
(cost: $9,872,547)(e)(102.1%) ........... 10,253,453
Other Assets Less Liabilities (-2.1%) ........... (210,294)
-----------
Net Assets (100.0%) ............................. $ 10,043,159
===========
</TABLE>
Long Futures Contracts
- ----------------------
<TABLE>
<CAPTION>
Number of Notional Unrealized
Contracts Description Contract Value Appr.(Depr.)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 U.S. Treasury Long Bond, 12/97 $344,563 $1,281
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Rate on this zero coupon bond represents annualized yield to maturity at
September 30, 1997.
(c) These securities were placed in a segregated account with the custodian in
connection with futures contracts.
(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 $381,884
Gross unrealized depreciation (978)
--------
Net unrealized appreciation $380,906
========
See accompanying notes to financial statements.
-22-
<PAGE>
Management Discussion
Griffin California Tax-Free Fund
Portfolio Managers: Executive Policy Committee
Payden & Rygel Investment Counsel
What were some of the significant market factors that affected performance?
One of the major factors contributing to the Fund's performance was the lack of
supply of California bonds within the market. Up until September of this year,
the number of California debt issues available for purchase was down almost 20%
compared to the prior year. However, in September, a flood of these issues
brought the number of California debt issues up to the level of last year's
offerings.
Another contributing factor was the rise in short-term interest rates by 0.25%
last March. Thirty-year municipal bond interest rates hovered between 5.80% and
5.15%, as the yield curve flattened by 0.30% over the year. Longer maturity (10+
years) yields declined more than short maturity yields during the same period.
What were some of the strategies and techniques implemented during the year?
Our strategy focused primarily on managing the Fund's duration (exposure to
changes in interest rates) throughout the period. We began the year in a neutral
position, but shortened the duration around mid-March in anticipation of a
federal funds rate increase by the Federal Reserve Board. When we were unable to
find attractive bonds that meet our high quality bias, we utilized U.S. Treasury
futures to control the portfolio duration.
The portfolio was structured to emphasize the intermediate portion of the
municipal yield curve and underweighted the longer end of the curve. We
implemented this strategy to help lessen the volatility of asset values as
interest rates fluctuated during the period.
What themes can be seen in the current portfolio (industry weightings) and why?
We continue to focus on high-quality issues. As of September 30, 1997, we had a
20% weighting in State of California General Obligation bonds, and have a
positive outlook on the credit fundamentals of these State issues. One of the
three major credit rating agencies concurred and raised its assessment of the
State at the end of September (the other agencies are reviewing developments).
The general perception that the State's economic outlook is improving caused
yields spreads to compress during the year, helping the Fund's State General
Obligation holdings to outperform similar bonds issued by local entities.
In terms of portfolio structure, we focused on two main areas; call protection
and strong credit quality. We feel that the compensation to investors for taking
on more credit risk is not attractive based on current levels of yield. We also
believe that higher quality bonds should offer better price protection if yields
spreads revert back to historical levels, and we have therefore maintained a
high quality bias. We also restructured the portfolio in an effort to provide
greater price protection should yields rise. This objective was executed by
selling longer-term bonds with short calls and reinvesting the assets in
non-callable intermediate bonds. Furthermore, we focused on high coupon issues
to provide protection against a potential rise in interest rates.
What individual security holdings changed significantly during the year?
We repositioned our exposure to California General Obligations during the year,
as the demand from retail investors resulted in more expensive shorter maturity
State bonds. We sold bonds maturing in the year 2004 and purchased bonds
maturing in 2009, which were available at reasonable prices. In addition, we
bought insured Los Angeles Unified School District bonds when they came into the
market in July. We believe these bonds provide a more attractive structure and a
higher yield than similarly rated instruments.
What is the strategy for the next six to twelve months?
We do not expect credit spreads to narrow further in the coming year, and will
continue to hold high-quality instruments that we expect can weather the effects
of widening spreads. As always, we will continue to invest in high-quality
municipal bonds that are exempt from California personal income tax.
-23-
<PAGE>
Griffin California Tax-Free Fund
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 and the Lipper California Municipal Debt Funds 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, and reinvested all
dividends, the top chart would track the value of your investment through the
period ended September 30, 1997. If you had invested $10,000 in Class B shares
of the Fund when they were first offered on November 1, 1994, and reinvested all
dividends, the bottom chart would track the performance of your investment
through the period ended September 30, 1997 (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 California Municipal Debt Funds Average is based on a
universe of approximately 116 mutual funds tracked by Lipper Analytical
Services, Inc. that have investment objectives similar to that of the Griffin
California Tax-Free Fund. It is important to keep in mind that the 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 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 California Tax-Free Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year................................................. 4.28%
Since Inception...........................................3.68%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin California Lehman California Lipper California Municipal
Tax-Free Fund Municipal Bond Index Debt Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $ 9,550 Initial $10,000 Initial $10,000
Dec 93 $ 9,548 Dec 93 $ 9,984 Dec 93 $10,082
Mar $ 8,828 Mar $ 9,376 Mar $ 9,490
Jun $ 8,847 Jun $ 9,451 Jun $ 9,518
Sep $ 8,924 Sep $ 9,517 Sep $ 9,562
Dec 94 $ 8,737 Dec 94 $ 9,348 Dec 94 $ 9,326
Mar $ 9,400 Mar $10,094 Mar $10,049
Jun $ 9,495 Jun $10,308 Jun $10,229
Sep $ 9,828 Sep $10,618 Sep $10,471
Dec 95 $10,328 Dec 95 $11,154 Dec 95 $11,017
Mar $10,102 Mar $10,973 Mar $10,779
Jun $10,138 Jun $11,052 Jun $10,866
Sep $10,342 Sep $11,338 Sep $11,145
Dec 96 $10,612 Dec 96 $11,644 Dec 96 $11,423
Mar $10,566 Mar $11,580 Mar $11,343
Jun $10,948 Jun $12,005 Jun $11,743
Sep $11,292 Sep $12,394 Sep $12,127
</TABLE>
Griffin California Tax-Free Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects a sales charge deduction of 5.0% for the one year
and 3.0% for the since inception period)
One year..................................................3.63%
Since Inception...........................................7.97%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin California Lehman California Lipper California Municipal
Tax-Free Fund Municipal Bond Index Debt Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Dec 94 $10,050 Dec 94 $10,008 Dec 94 $ 9,951
Mar $10,799 Mar $10,807 Mar $10,722
Jun $10,894 Jun $11,036 Jun $10,914
Sep $11,260 Sep $11,368 Sep $11,173
Dec 95 $11,819 Dec 95 $11,942 Dec 95 $11,755
Mar $11,545 Mar $11,748 Mar $11,502
Jun $11,587 Jun $11,833 Jun $11,595
Sep $11,790 Sep $12,139 Sep $11,892
Dec 96 $12,084 Dec 96 $12,467 Dec 96 $12,188
Mar $12,016 Mar $12,398 Mar $12,103
Jun $12,435 Jun $12,853 Jun $12,530
Sep $12,507 Sep $13,270 Sep $12,940
</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.
-24-
<PAGE>
Schedule of Investments
Griffin California Tax-Free Fund
September 30, 1997
[PIE CHART APPEARS HERE]
Airport 6%
Education 3%
Electric 3%
General Obligations 35%
Public Improvements 4%
Housing 7%
Other 8%
Sales Tax 10%
Sewer 2%
Transportation 8%
Water 14%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Municipal Long-Term Securities (96.7%):
Airport Revenue (5.8%):
Los Angeles, California Department of
Airports, 5.50%, 05/15/08 ......... $ 1,000,000 $ 1,056,250
San Francisco, California City &
County Airports, Second Series
Issue 12-B, 5.50%, 05/01/09 ....... 705,000 744,655
-----------
1,800,905
-----------
Electric Revenue (2.6%):
Puerto Rico Electric Power Authority
Power Revenue, Series U,
6.00%, 07/01/14 ................... 750,000 790,313
-----------
General Obligations (35.2%):
Folsom, California School Facilities
Project - Series B, 6.00%, 08/01/10 300,000 326,625
Los Angeles, California Unified
School District
6.00%, 07/01/11 ........... 1,000,000 1,112,500
6.00%, 07/01/13 ........... 1,445,000 1,602,143
Puerto Rico Commonwealth,
5.65%, 07/01/15 ................... 800,000 861,000
State of California,
5.50%, 04/01/13 ................... 2,000,000 2,110,000
6.50%, 11/01/09 ................... 2,150,000 2,496,688
6.60%, 02/01/10 ................... 1,000,000 1,162,500
6.75%, 02/01/08 ................... 1,000,000 1,173,750
-----------
10,845,206
-----------
Hospital Revenue (2.6%):
California Health Facilities
Financing Authority Revenue,
Downey Community Hospital,
5.20%, 05/15/03 ................... 500,000 510,000
California Health Facilities
Financing Authority Revenue,
Kaiser Permanente, Series C,
5.60%, 05/01/33 ................... 300,000 301,500
-----------
811,500
-----------
Housing Revenue (7.1%):
California Housing Finance Agency
Revenue, Home Mortgage,
Series B, 5.20%, 08/01/26 .............. 500,000 510,625
California Housing Finance Agency
Revenue, Home Mortgage,
Series F-1, 6.50%, 02/01/08 ............. 1,060,000 1,159,375
California Housing Finance Agency
Revenue, Multi-Unit Rental
Housing, 6.88%, 08/01/24 ................ 500,000 530,625
-----------
2,200,625
-----------
Public Improvements (4.3%):
Sacramento, California Certificate
of Participation, Public
Facilities Project, 6.00%, 07/01/12 ..... 750,000 788,438
Santa Barbara County, California
Certificate of Participation,
6.40%, 02/01/11 ......................... 500,000 536,250
-----------
1,324,688
-----------
Sales Tax Revenue (10.5%):
Contra Costa, California Transportation
Authority Sales Tax Revenue Bond,
6.00%, 03/01/07 ......................... 500,000 554,375
San Diego County, California
Regional Transportation Commission
Sales Tax Revenue, Series A,
4.75%, 04/01/08 ......................... 765,000 770,738
San Francisco, California Bay
Area Rapid Transit District
Sales Tax Revenue, 5.35%, 07/01/07 ...... 500,000 528,125
San Jose, California Redevelopment
Agency Tax Allocation
5.38%, 08/01/11 ................. 250,000 257,812
6.00%, 08/01/10 ................. 1,000,000 1,112,500
-----------
3,223,550
-----------
Sewer Revenue (2.1%):
San Francisco, California City &
County Sewer Revenue
5.90%, 10/01/08 ......................... 600,000 643,500
-----------
Special Tax Assessment Revenue (1.9%):
South Orange County, California Public
Financing Authority Special Tax Revenue,
7.00%, 09/01/08 ......................... 500,000 598,750
-----------
Transportation Revenue (7.8%):
Long Beach, California Harbor
Revenue Bond, 5.25%, 05/15/25 ........... 1,000,000 962,500
Los Angeles, California Harbor
Department Revenue Bond, 5.38%, 11/01/23 250,000 244,375
Riverside County, California
Transportation Community Sales
Tax Revenue, Series A, 5.75%, 06/01/08 .. 500,000 545,000
</TABLE>
See accompanying notes to financial statements.
-25-
<PAGE>
Schedule of Investments
Griffin California Tax-Free Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
San Joaquin Hills, California
Transportation Corridor Agency
Toll Road Revenue, 4.89%, 01/15/07 (b) ...$ 1,000,000 $ 640,000
-----------
2,391,875
-----------
University/Education Revenue (3.0%):
California Educational Facilities
Authority Revenue Bond, Pooled
College & University Project,
Series A, 5.15%, 12/01/04 ................. 500,000 517,500
University of California Certificate of
Participation, UCLA Center
Chiller/Cogeneration Project,
6.00%, 11/01/21 ........................... 400,000 422,000
-----------
939,500
-----------
Water Revenue (13.8%):
California State Department of Water Resources
5.00%, 12/01/22 ........................... 300,000 285,750
6.00%, 12/01/06 ........................... 500,000 556,250
6.00%, 12/01/09 ........................... 500,000 559,375
Los Angeles, California Department of
Water & Power, Water Works
Revenue, 6.20%, 07/01/12 .................. 600,000 651,750
Metropolitan Water District of Southern California
5.00%, 07/01/10 ........................... 200,000 202,000
5.75%, 07/01/09 ........................... 750,000 823,125
6.00%, 07/01/07 ........................... 100,000 111,375
West & Central Basin Financing
Authority, Revenue Bond,
5.00%, 08/01/09 ........................... 1,035,000 1,051,819
-----------
4,241,444
-----------
Total Municipal Long-Term Securities
(cost: $28,603,539) ............................... 29,811,856
-----------
Municipal Short-Term Securities (3.6%):
Hospital Revenue (0.3%):
California Health Facilities Financing,
Sutter Health Series A,
3.65%, 10/01/97 (c) ....................... 100,000 100,000
-----------
Industrial Development Revenue - Pollution Control (1.9%):
California Pollution Control Financing,
Shell Oil Company Project,
3.60%, 10/01/97 (c) ....................... 400,000 400,000
3.60%, 10/01/97 (c) ....................... 100,000 100,000
3.60%, 10/01/97 (c) ....................... 100,000 100,000
-----------
600,000
-----------
Public Improvements (0.7%):
San Jose, California
Redevelopment Agency Revenue,
Merged Area Redevelopment Project,
Series B, 3.60%, 10/01/97 (c) ............. 200,000 200,000
-----------
Tax Revenue Anticipation Notes (0.7%):
Los Angeles County, California
Tax & Revenue Anticipation Notes,
Series A, 4.50%, 06/30/98 ................ 200,000 200,930
-----------
Total Municipal Short-Term Securities
(cost: $1,100,930) ................................ 1,100,930
-----------
Total Investments in Securities
(cost: $29,704,469)(c)(100.3%) .................... 30,912,786
Other Assets Less Liabilities (-0.3%) ............................. (91,690)
-----------
Net Assets (100.0%) .............................................. $ 30,821,096
===========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Rate on this zero coupon bond represents annualized yield to maturity at
September 30, 1997.
(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 $1,222,047
Gross unrealized depreciation (13,730)
----------
Net unrealized appreciation $1,208,317
==========
See accompanying notes to financial statements.
-26-
<PAGE>
Management Discussion
Griffin Growth & Income Fund
Portfolio Manager: Quinn R. Stills
The Boston Company Asset Management, Inc.
What were some of the significant market factors that affected performance?
One year ago, financial markets were gripped by a fear of rising interest rates,
an overheating economy, and a possible decline in market averages. In the
intervening twelve months, interest rates declined, economic growth moderated,
and stocks surged an astonishing 40% in value as measured by the Standard &
Poor's 500 Composite Index.
Other factors affecting the markets included intense merger activity in the
Financial Services, Health Care, Technology, and Hotel sectors. In addition,
corporate restructuring enabled investors to unlock values in many
conglomerates. Finally, strong earnings gains and steady mutual fund inflows
continued to support market advances. These and other factors led to a healthy
rise in the Griffin Growth & Income Fund for the twelve-month period ending
September 30, 1997.
What were some of the strategies and techniques implemented during the year?
The success of the Griffin Growth & Income Fund over the past twelve months can
be traced to our strategy of buying relatively inexpensive companies with
improving fundamentals and positive business momentum. Our execution of this
strategy led to large holdings in Financial Services, meaningful positions in
undervalued American Depositary Receipts ("ADRs") and a significant
underweighting in the volatile Technology sector. As the year progressed, the
Financial Services, Consumer Services, and Energy sectors were the biggest
contributors to the Fund's overall performance.
What themes can be seen in the current portfolio (industry weightings) and why?
The Griffin Growth & Income Fund is well-diversified across both individual
stocks and industry sectors. The Fund is currently overweighted in the Financial
Services, Consumer Services, Basic Industry, and Energy sectors compared to the
Standard & Poor's 500 Composite Index.
The Fund is substantially underweighted in the Technology sector, as we believe
that sector is dominated by expensive companies with relatively inconsistent
rates of return on invested capital. As a result, few companies in this sector
fit our investment discipline. The Fund is also moderately underweighted in the
Utilities, Consumer/Durables, and Capital Goods sectors.
The Fund's sector weightings are the result of an exhaustive stock-by-stock
selection process-an important component of our bottom-up portfolio construction
discipline.
What individual security holdings changed significantly during the year?
The portfolio's position in Dutch electronics giant Philips Electronics N.V. was
increased throughout the year. Philips is a European conglomerate that was
trading at a steep discount to its net asset value. Its shares increased in
price by 134% over the past twelve months.
A significant position that was eliminated during the reporting period was
Wal-Mart Stores. Wal-Mart was inexpensive when we originated our position in the
company, but was sold later in the year as its price rose substantially.
What is the strategy for the next six to twelve months?
The Griffin Growth & Income Fund utilizes a value-oriented investment style to
achieve its objectives. We determine which stocks to select based on underlying
company value relative to its price. We seek out stocks that are statistically
inexpensive or trading at a discount to the company's net asset value. At the
second stage of our analysis, we examine the company's fundamentals to see if
they are improving. In the final level of our analysis, we seek to determine
whether or not the company has positive business momentum or some other catalyst
that will unlock the values identified in the first two stages.
Historically, our strategy of investing in inexpensive companies with improving
fundamentals and positive business momentum has led to positive results for
shareholders.
-27-
<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") and the Lipper 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, and reinvested all dividends, the
top chart would track the value of your investment through the period ended
September 30, 1997. If you had invested $10,000 in Class B shares of the Fund
when they were first offered on November 1, 1994, and reinvested all dividends,
the bottom chart would track the performance of your investment through the
period ended September 30, 1997 (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 681 mutual funds tracked by Lipper Analytical Services, Inc. that
have investment objectives similar to that of the Griffin Growth & Income Fund.
It is important to keep in mind that the 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 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 Growth & Income Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year................................................. 32.53%
Since Inception...........................................21.12%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Growth & S&P 500 Composite Lipper Growth & Income
Income Fund Index Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $ 9,550 Initial $10,000 Initial $10,000
Dec 93 $ 9,691 Dec 93 $10,063 Dec 93 $10,087
Mar $ 9,391 Mar $ 9,681 Mar $ 9,783
Jun $ 9,487 Jun $ 9,721 Jun $ 9,761
Sep $ 9,864 Sep $10,196 Sep $10,180
Dec 94 $ 9,928 Dec 94 $10,194 Dec 94 $10,020
Mar $10,879 Mar $11,186 Mar $10,831
Jun $11,915 Jun $12,251 Jun $11,704
Sep $13,014 Sep $13,225 Sep $12,551
Dec 95 $13,647 Dec 95 $14,021 Dec 95 $13,132
Mar $14,442 Mar $14,773 Mar $13,854
Jun $15,000 Jun $15,436 Jun $14,320
Sep $15,368 Sep $15,914 Sep $14,741
Dec 96 $16,622 Dec 96 $17,241 Dec 96 $15,836
Mar $17,055 Mar $17,703 Mar $16,015
Jun $19,664 Jun $20,794 Jun $18,305
Sep $21,327 Sep $22,351 Sep $19,960
</TABLE>
Griffin Growth & Income Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects a sales charge deduction of 5.0% for the one year and 3.0%
for the since inception period)
One year..................................................33.08%
Since Inception...........................................28.35%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Growth & S&P 500 Composite Lipper Growth & Income
Income Fund Index Funds Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Dec 94 $ 9,917 Dec 94 $ 9,779 Dec 94 $ 9,732
Mar $10,852 Mar $10,731 Mar $10,520
Jun $11,868 Jun $11,753 Jun $11,367
Sep $12,953 Sep $12,687 Sep $12,190
Dec 95 $13,559 Dec 95 $13,451 Dec 95 $12,754
Mar $14,337 Mar $14,173 Mar $13,456
Jun $14,876 Jun $14,808 Jun $13,909
Sep $15,217 Sep $15,266 Sep $14,317
Dec 96 $16,442 Dec 96 $16,540 Dec 96 $15,381
Mar $16,845 Mar $16,983 Mar $15,554
Jun $19,407 Jun $19,948 Jun $17,779
Sep $20,713 Sep $21,442 Sep $19,386
</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.
-28-
<PAGE>
Schedule of Investments
Griffin Growth & Income Fund
September 30, 1997
[PIE CHART APPEARS HERE]
Basic Industries 7%
Capital Goods 5%
Consumer Durables 6%
Consumer Non-Durables 12%
Consumer Services 12%
Energy 9%
Financial Services 19%
Health Care 11%
Other 5%
Retailing 2%
Technology 6%
Utilities 6%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Common Stocks (95.2%):
Basic Industries (7.4%):
Bethlehem Steel Corp. (b) ......... 84,300 $ 869,344
British Steel PLC .................. 52,000 1,514,500
Crown Cork & Seal .................. 85,100 3,925,238
Fort James Corporation ............. 52,100 2,386,831
Great Lakes Chemical ............... 31,300 1,543,481
IMC Global Inc. .................... 68,000 2,397,000
Imperial Chemical Industries PLC ... 42,400 2,803,700
Louisiana Pacific Corp. ............ 82,300 2,057,500
Reynolds Metals Co ................. 26,700 1,890,694
-----------
19,388,288
-----------
Capital Goods (5.1%):
Alcatel Alsthom ADR ................ 125,100 3,322,969
Litton Industries Inc. (b) ........ 37,700 2,049,938
Lockheed Martin Corp. .............. 28,000 2,985,500
LucasVarity PLC .................... 36,000 1,365,750
Northrop Grumman Corporation ....... 14,100 1,711,388
Raytheon Co. ....................... 33,700 1,992,513
-----------
13,428,058
-----------
Consumer/ Durable (5.7%):
Black & Decker Corp. ............... 28,000 1,043,000
General Motors Corporation ......... 61,000 4,083,188
Lear Corporation (b) .............. 32,000 1,576,000
Philips Electronics N.V. ADR ....... 81,600 6,854,400
Whirlpool Corporation .............. 20,000 1,326,250
-----------
14,882,838
-----------
Consumer/ Non-Durable (11.8%):
Archer Daniels Midland ............. 137,180 3,283,746
Dole Food Company .................. 22,500 1,016,719
Eastman Kodak ...................... 31,600 2,052,025
Fruit of the Loom Inc. (b) ........ 35,600 1,001,250
Harcourt General ................... 80,000 3,965,000
Hasbro Inc. ........................ 65,100 1,830,938
Loews Corp. ........................ 36,200 4,088,338
Philip Morris Companies Inc. ....... 86,600 3,599,313
Polaroid Corp. ..................... 60,100 3,076,369
Reebok International Ltd. .......... 25,000 1,217,188
RJR Nabisco Holdings Corp. ......... 167,200 5,747,500
-----------
30,878,386
-----------
Consumer Services (11.9%):
ACNielsen Corporation (b) ......... 104,066 2,497,584
Browning-Ferris .................... 49,700 1,891,706
Case Corporation ................... 43,600 2,904,850
Circus Circus Enterprises (b) ..... 35,200 886,600
Deluxe Corp. ....................... 63,500 2,131,219
Dun & Bradstreet Corp. ............. 50,000 1,418,750
Fluor .............................. 36,800 1,973,400
H & R Block Inc. ................... 74,200 2,865,975
ITT Corp. (b) ..................... 64,000 4,336,000
Liberty Media Group (b) ........... 29,000 868,188
Reuters Holdings PLC ADR ........... 28,000 1,995,000
Toys R Us Holdings (b) ............ 125,900 4,469,450
Viacom Inc - Class B (b) .......... 97,900 3,096,088
-----------
31,334,810
-----------
Energy (9.2%):
Burlington Resources ............... 27,500 1,411,094
Coastal Corp. ...................... 35,900 2,198,875
ELF Aquitaine ADR .................. 81,300 5,421,694
Exxon Corp. ........................ 18,000 1,153,125
Mobil Corp. ........................ 73,600 5,446,400
Oryx Energy (b) ................... 70,900 1,803,519
Tosco Corp. ........................ 111,000 3,864,188
Unocal Corp. ....................... 69,100 2,988,575
-----------
24,287,470
-----------
Financial Services (19.0%):
Allmerica Financial Corp. .......... 35,900 1,577,356
Allstate Corp. ..................... 39,600 3,182,850
BankAmerica Corp. .................. 86,800 6,363,525
Barnett Banks, Inc. ................ 15,500 1,096,625
CIGNA Corp. ........................ 25,100 4,674,875
Equitable Companies ................ 65,100 2,673,169
Everest Reinsurance Holdings ....... 75,100 3,079,100
First Union Corporation ............ 22,000 1,101,375
General RE Corporation ............. 12,600 2,501,100
Hartford Financial Services Group .. 14,200 1,222,088
Morgan Stanley, Dean Witter,
Discover and Co. ........... 74,700 4,038,469
NationsBank Corp. .................. 49,800 3,081,375
Republic New York Corp. ............ 15,100 1,715,738
SAFECO Corp. ....................... 61,600 3,264,800
SLM Holdings Corp. ................. 34,600 5,345,700
Washington Mutual Inc. ............. 72,930 5,086,855
-----------
50,005,000
-----------
</TABLE>
See accompanying notes to financial statements.
-29-
<PAGE>
Schedule of Investments
Griffin Growth & Income Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Health Care (10.5%):
Aetna Inc. ....................................... 64,900 $ 5,285,294
American Home Products ........................... 32,700 2,387,100
Amgen (b) ....................................... 27,000 1,294,313
Bard, C.R ........................................ 48,300 1,639,181
Bristol-Myers Squibb ............................. 37,500 3,103,125
Columbia/HCA Healthcare .......................... 110,000 3,162,500
Foundation Health Systems (b) ................... 78,450 2,510,400
Johnson & Johnson ................................ 49,000 2,823,625
Tenet Healthcare Inc. (b) ....................... 85,000 2,475,625
Wellpoint Health Networks Incorporated (b) ...... 48,800 2,827,350
-----------
27,508,513
-----------
Retailing (1.6%):
Federated Department Stores (b) ................. 70,000 3,018,750
Footstar Incorporated (b) ....................... 44,735 1,205,049
-----------
4,223,799
-----------
Technology (6.0%):
Cabletron Systems Inc. (b) ...................... 42,000 1,344,000
CommScope Incorporated (b) ...................... 59,333 804,704
International Business Machines Corporation ...... 34,400 3,644,250
NextLevel Systems Incorporated (b) .............. 38,700 648,225
Scientic-Atlanta Inc. ............................ 93,600 2,117,700
Silicon Graphics Inc. (b) ....................... 125,000 3,281,250
Storage Technology Corporation (b) .............. 40,000 1,912,500
Sun Microsystems Inc. (b) ....................... 41,000 1,919,313
-----------
15,671,942
-----------
Transportation (0.7%):
Burlington Northern Santa Fe ..................... 18,500 1,787,563
-----------
1,787,563
-----------
Utilities (6.3%):
Bell Atlantic .................................... 44,772 3,601,348
Century Telephone Enterprises Incorporated ....... 32,000 1,408,000
CMS Energy Corp. ................................. 31,400 1,161,800
Entergy Company .................................. 64,000 1,668,000
Illinova Corp. ................................... 70,600 1,522,313
MCI Communications Corp. ......................... 21,300 625,688
New England Electric System ...................... 35,500 1,393,375
Pinnacle West Capital Corp. ...................... 26,500 891,063
Southern Company ................................. 60,500 1,365,031
Telecomunicacoes Brasileiras ADR ................. 10,000 1,287,500
Unicom Corp. ..................................... 66,100 1,545,088
-----------
16,469,206
-----------
Total Common Stocks
(cost: $213,243,848) ............................. 249,865,873
-----------
Preferred Stocks (0.6%):
Consumer Services (0.6%):
News Corporation, Ltd. ADR ....................... 85,000 1,524,687
-----------
Total Preferred Stocks
(cost: $1,350,411) ............................... 1,524,687
-----------
Short-Term Securities (4.6%):
Repurchase Agreement (4.6%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.25%, dated 9/30/97
due 10/01/97, Collateralized by
U.S. Government Securities
(delivery value $12,288,657) ............. $ 12,287,207 12,287,207
-----------
Total Short-Term Securities
(cost: $12,287,207) .............................. 12,287,207
-----------
Total Investments in Securities
(cost: $226,881,466)(c)(100.4%) .................. 263,677,767
Other Assets Less Liabilities (-0.4%) ............................ (1,084,668)
-----------
Net Assets (100.0%) .............................................. $262,593,099
===========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securites are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Currently non-income producing.
(c) Cost is $226,919,894 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 $39,886,250
Gross unrealized depreciation (3,128,377)
-----------
Net unrealized appreciation $36,757,873
===========
See accompanying notes to financial statements.
-30-
<PAGE>
Management Discussion
Griffin Growth Fund
Portfolio Managers: Richard T. Whitney, Chairman
Investment Advisory Committee, T. Rowe Price Associates, Inc.
What were some of the significant market factors that affected performance?
Stable economic growth and a low inflationary environment during the reporting
period created nearly ideal capital market conditions. The equity markets
remained strong during the last twelve months, but investment style and market
capitalization were major determinants of performance. Specifically, stocks of
the largest companies generally performed the best, while smaller, fast-growing
companies generally demonstrated the poorest performance for the period as a
whole. Among mid-caps, value stocks have outperformed growth stocks. Stocks
within the Financial and Industrial sectors led performance, while the Health
Care and Utilities sectors posted the lowest returns during the reporting
period.
What were some of the strategies and techniques implemented during the year?
Our general strategy has remained consistent since the Fund's inception. We stay
fully invested and do not attempt to time the direction of the market, as
history shows that few can successfully beat a fully-invested approach. The
portfolio is well diversified, currently owning over 250 stocks. The largest
position, Maxim Integrated Products, Incorporated, a maker of integrated
circuits, represented only 0.8% of the portfolio as of September 30, 1997. Our
diversified approach reduces the potential volatility associated with sharp
corrections of individual holdings
What themes can be seen in the current portfolio (industry weightings) and why?
The largest general categories within the portfolio are Technology and Health
Care. Overall, our sector weightings are consistent with those of the Lipper
MidCap Index. However, when compared to the S&P MidCap 400 Index, we have more
exposure to the Technology sector and substantially less in Financials and
Utilities. These weightings represent our belief that many technology companies
display more promising growth rates than other industries, such as Utilities.
Additionally, income is not a primary objective of the Fund.
What individual security holdings changed significantly during the year?
Due to our low turnover investment style, (22.4% for the twelve months ended
September 30, 1997) many of our purchases during this period were companies that
we already owned. Two of the largest new purchases included Sigma-Aldrich
Corporation, a specialty chemical company, and ACE, Limited, an excess liability
insurance company.
Most of our sales resulted from acquisition activity. For example, Bank One
acquired First USA. Bank One is a fine company, but we sold our position because
we feel Bank One no longer met selection parameters for securities in this
portfolio. We sold several securities whose fundamentals faded, as we
continuously evaluate the portfolio in an attempt to ensure that each security
held has strong growth prospects.
By adding to the positions that have performed well for the Fund, and selling
those stocks that fail to meet our expectations, the Fund has been able to
minimize the amount of capital gains realized. This tax efficient approach helps
minimize transaction costs and reduces or eliminates the scope of year-end
capital gain distributions.
What is the strategy for the next six to twelve months?
Our strategy is very consistent. Our goal is to capture the performance of the
ever-dynamic equity sector, utilizing diversification and a buy and hold
investment approach. While the last few years have been extraordinary, we
anticipate growth will continue, but that returns in the future will reflect
more modest performance levels.
-31-
<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 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, and reinvested all dividends, the top chart would track the value of your
investment through the period ended September 30, 1997. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on June 12,
1995, and reinvested all dividends, the bottom chart would track the performance
of your investment through the period ended September 30, 1997. The Standard &
Poor's 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 272 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 the 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 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 Growth Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year................................................. 16.18%
Since Inception...........................................22.70%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Growth S&P MidCap 400 Lipper MidCap Equity
Fund Index Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $ 9,550 Initial $10,000 Initial $10,000
Jun $ 9,827 Jun $10,265 Jun $10,000
Sep $11,135 Sep $11,266 Sep $11,101
Dec $11,359 Dec 95 $11,425 Dec 95 $11,310
Mar $12,000 Mar $12,129 Mar $11,998
Jun $12,680 Jun $12,479 Jun $12,602
Sep $13,178 Sep $12,845 Sep $13,012
Dec $13,341 Dec 96 $13,623 Dec 96 $13,316
Mar $12,221 Mar $13,420 Mar $12,539
Jun $14,289 Jun $15,393 Jun $14,519
Sep $16,032 Sep $17,868 Sep $16,625
</TABLE>
Griffin Growth Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects a sales charge deduction of 5.0% for the one year and 3.0% for the
since inception period)
One year..................................................16.09%
Since Inception...........................................23.65%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Growth S&P MidCap 400 Lipper MidCap Equity
Fund Index Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Jun $10,270 Jun $10,265 Jun $10,000
Sep $11,650 Sep $11,266 Sep $11,101
Dec 95 $11,871 Dec 95 $11,425 Dec 95 $11,310
Mar $12,532 Mar $12,129 Mar $11,998
Jun $13,233 Jun $12,479 Jun $12,602
Sep $13,725 Sep $12,845 Sep $13,012
Dec 96 $13,885 Dec 96 $13,623 Dec 96 $13,316
Mar $12,704 Mar $13,420 Mar $12,539
Jun $14,828 Jun $15,393 Jun $14,519
Sep $16,319 Sep $17,868 Sep $16,625
</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.
-32-
<PAGE>
Schedule of Investments
Griffin Growth Fund
September 30, 1997
[PIE CHART APPEARS HERE]
Business Services 10%
Capital Equipment 5%
Consumer Cyclicals 4%
Consumer Non-Durables 6%
Financial Services 9%
Health Care 12%
Media Communications 6%
Other 6%
Resources 7%
Retailing 9%
Technology 26%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Common Stocks (98.5%):
Business Services (10.6%):
AccuStaff Inc. (b) ....................... 6,800 $ 214,200
Air Express International ................. 8,400 306,600
Apollo Group Incorporated (b) ............ 5,200 220,350
ASA Holdings .............................. 5,900 165,937
Carnival Corp. ............................ 4,800 222,000
Catalina Marketing Corp. (b) ............. 3,600 187,200
CKS Group Incorporated (b) ............... 4,400 165,000
Cognizant Corporation ..................... 5,000 203,750
Comair Holdings Inc. ...................... 7,350 197,531
CUC International Inc. (b) ............... 7,418 229,958
Equifax Inc. .............................. 6,900 216,918
Equity Corporation International (b) ..... 5,400 125,887
Interim Services Incorporated (b) ........ 7,700 216,562
Kansas City Southern Industries Inc. ...... 7,400 254,837
Manpower Inc. ............................. 4,200 165,900
Mutual Risk Management LTD ................ 5,900 299,793
Omnicom Group ............................. 2,500 181,875
Outdoor Systems Inc. (b) ................. 9,100 238,875
Paychex Inc. .............................. 5,100 177,862
Quintiles Transnational Corporation (b) .. 3,300 278,025
The Registry Incorporated (b) ............ 4,160 191,880
Reuters Holdings PLC ADR .................. 2,500 178,125
Robert Half International Inc (b) ........ 7,350 304,106
Romac International (b) .................. 5,600 244,300
Service Corporation International ......... 5,700 183,468
Superior Services (b) .................... 8,000 228,000
Sylvan Learning Systems (b) .............. 4,350 190,856
The Vincam Group (b) ..................... 5,500 158,125
U.S.A. Waste Services Inc. (b) ........... 8,000 319,000
Werner Enterprises Inc. ................... 6,850 166,112
Wisconsin Central Transportation Corp. (b) 5,000 159,062
----------
6,592,094
----------
Capital Equipment (4.9%):
Agco Corp. ................................ 5,600 177,450
Alamo Group Inc. .......................... 5,800 134,487
Danaher Corp. ............................. 4,400 255,200
Donaldson Company, Inc. ................... 4,100 196,800
Greenfield Industries Inc. ................ 4,500 129,375
IDEX Corporation .......................... 6,250 214,843
Kennametal Inc. ........................... 3,900 189,150
Littlelfuse Inc. (b) ..................... 6,000 209,250
MSC Industrial Direct Inc. ................ 4,600 211,600
Parker-Hannifin ........................... 5,250 236,250
Roper Industries Inc. ..................... 7,000 236,250
SPX Corporation ........................... 3,000 175,875
Thermedics Incorporated (b) .............. 8,200 154,775
Tyco International LTD .................... 2,800 229,775
Unisource Worldwide Inc. .................. 5,950 113,050
US Filter Corporation ..................... 3,800 163,637
----------
3,027,767
----------
Consumer Cyclicals (4.4%):
American Standard Companies (b) .......... 3,500 140,437
BE Aerospace Inc. (b) .................... 6,700 241,200
Bed Bath & Beyond (b) .................... 7,900 277,487
Harley-Davidson Inc. ...................... 6,200 180,962
Harman International Industries ........... 3,310 165,706
Lennar Corp. .............................. 4,500 191,250
Lilly Industries Inc. ..................... 7,800 163,800
National Health Investors ................. 4,600 178,825
Oakwood Homes Corp. ....................... 7,100 201,462
Rouse Company ............................. 5,600 173,600
Security Capital Pacific Trust ............ 7,300 171,550
Sherwin-Williams Co. ...................... 6,300 185,456
Sunbeam Oster Corp. ....................... 5,600 248,500
Williams-Sonoma Inc. (b) ................. 5,400 230,850
----------
2,751,085
----------
Consumer/ Non-Durable (6.6%):
Alberto-Culver Company .................... 4,900 149,144
Callaway Golf Co .......................... 3,900 136,013
Ecolab .................................... 5,200 252,525
First Brands Corporation .................. 5,000 133,750
Goodmark Foods ............................ 4,800 82,200
Gucci Group ............................... 3,100 145,313
Gymboree Corporation (b) ................. 4,300 111,800
International Multifoods Corporation ...... 5,800 172,188
Jones Apparel Group Inc. (b) ............. 4,600 248,400
Lancaster Colony Inc. ..................... 4,965 263,766
Mattel Inc. ............................... 6,425 212,828
Nautica Enterprises Inc. (b) ............. 6,500 182,813
Pioneer Hi-Bred International ............. 2,100 191,100
Quiksilver Incorporated (b) .............. 6,000 219,000
Robert Mondavi Corp (b) .................. 5,700 312,075
Sealed Air Corp. (b) ..................... 3,500 192,281
Tootsie Roll Industries Inc. .............. 4,500 228,375
Ultratech Stepper Inc. (b) ............... 4,500 153,000
Unifi Inc. ................................ 4,500 184,214
Warnaco Group Inc. ........................ 5,100 161,925
Westwood One Inc. (b) .................... 6,500 206,375
Wolverine World Wide ...................... 6,800 171,700
----------
4,110,785
----------
</TABLE>
See accompanying notes to financial statements.
-33-
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Financial Services (10.0%):
Aames Financial Corporation ........... 5,150 $ 83,366
ACE Limited ........................... 3,200 300,800
Ambac Financial Group Inc. ............ 6,200 252,263
Bank of New York Co. Inc. ............. 5,600 268,800
City National Corp. ................... 7,800 249,600
Equitable of Iowa Companies ........... 3,500 234,500
Finova Group Inc. ..................... 2,900 274,413
First American Corp., Tennessee ....... 8,600 420,325
Franklin Resources Inc. ............... 5,400 502,875
Green Tree Financial Corp. ............ 5,000 235,000
Investment Technology Group (b) ...... 9,500 258,875
JSB Financial Incorporated ............ 5,100 249,581
Mercantile Bancorporation Inc. ........ 2,312 176,001
Mercury General Corporation ........... 600 52,500
MGIC Investment Corporation ........... 4,600 263,638
Northern Trust Corporation ............ 5,000 295,625
Progressive Corporation ............... 3,000 321,375
Raymond James Financial lnc ........... 7,650 275,400
Schwab (Charles) Corp. ................ 9,900 353,925
State Street Boston Corporation ....... 5,300 322,969
UICI (b) ............................. 5,400 155,250
United Asset Management Corp. ......... 7,100 203,681
U.S. Bancorp .......................... 2,200 212,300
Vesta Insurance Group ................. 4,750 270,750
----------
6,233,812
----------
Health Care (12.2%):
Drugs & Medicine (3.8%):
Amgen (b) ............................ 4,100 196,544
Amway Asia Pacific LTD ................ 4,900 143,631
Biochem Pharma Inc. (b) .............. 6,000 189,000
Biogen Inc. (b) ...................... 3,900 126,506
Cardinal Health Inc. .................. 4,550 323,050
Dura Pharmaceuticals Inc. (b) ........ 3,800 165,775
Elan PLC ADR (b) ..................... 3,000 150,188
Gilead Sciences Inc. (b) ............. 4,300 190,813
Guilford Pharmaceuticals Inc. (b) .... 4,800 141,600
Human Genome Sciences Inc. (b) ....... 4,000 172,250
Isis Pharmaceuticals (b) ............. 5,800 103,313
Life Technologies Inc. ................ 6,700 202,675
Protein Design Labs Incorporated (b) . 4,200 162,750
TheraTech Incorporated (b) ........... 10,600 123,225
----------
2,391,320
----------
Health Care/Non-Drug (3.0%):
Arterial Vascular Engineering Inc. (b) 4,000 222,000
Boston Scientific Corporation (b) .... 6,000 331,125
Guidant Corporation ................... 6,600 369,600
Medtronic Inc. ........................ 4,700 220,900
Omnicare Inc. ......................... 5,200 169,000
Physio-Control International Corp. (b) 6,400 108,400
Sola International Inc. (b) .......... 4,200 144,113
Teleflex Inc. ......................... 5,400 186,975
VISX Incorporated (b) ................ 5,300 135,150
----------
1,887,263
----------
HMO/Hospital Management (5.4%):
Compdent Corporation (b) ............. 5,200 130,000
Genesis Health Ventures (b) .......... 5,100 198,581
Health Management Association CL A (b) 8,575 271,184
Healthcare & Retirement Corp. (b) .... 6,450 239,859
HealthSouth Corp. (b) ................ 3,500 93,406
Lincare Holdings Incorporated (b) .... 3,700 186,619
MedPartners Incorporated New (b) ..... 7,196 154,264
Orthodontic Centers of America (b) ... 7,000 140,000
Oxford Health Plans Inc. (b) ......... 3,800 284,525
PacifiCare Health Systems (b) ........ 1,500 102,188
PhyCor Inc. (b) ...................... 5,500 159,844
Quorum Health Group Incorporated (b) . 10,650 260,259
Renal Treatment Centers (b) .......... 6,700 238,269
Tenet Healthcare Corp. (b) ........... 7,015 204,312
United HealthCare Corp. ............... 3,300 165,000
Universal Health Services (b) ........ 6,200 268,150
Vencor Inc. (b) ...................... 6,000 247,500
----------
3,343,960
----------
Total Health Care ............................. 7,622,543
----------
Media & Communications (6.0%):
360 Communications Company (b) ....... 7,200 150,300
Belo (A.H.) Corp. ..................... 4,600 223,100
Carmike Cinemas Inc. (b) ............. 6,600 198,000
Centennial Cellular Corp. (b) ........ 5,100 87,338
Central Newspaper Inc. ................ 3,100 230,175
Chancellor Media Corporation (b) ..... 3,700 194,713
Clear Channel Communications Inc. (b) 6,800 441,150
CommNet Cellular Inc. (b) ............ 6,200 217,388
Cox Communications (b) ............... 6,500 179,156
Emmis Broadcasting Corp. (b) ......... 4,600 219,650
Jacor Communications Inc. (b) ........ 5,400 238,613
Powertel Incorporated (b) ............ 8,800 167,200
Reynolds & Reynolds ................... 5,400 104,963
U.S. Cellular Corp. (b) .............. 3,900 143,813
Valassis Communications (b) .......... 6,200 197,625
Vodafone Group PLC ADR ................ 5,100 274,125
Wallace Computer Services ............. 5,700 210,188
WorldCom Incorporated (b) ............ 7,700 272,388
----------
3,749,885
----------
Resources (7.0%):
AES Corp. (b) ........................ 7,700 336,875
Airgas Inc. (b) ...................... 9,300 157,519
Apache Corp. .......................... 4,500 192,938
B J Services Co. (b) ................. 2,900 215,325
Barrett Resources Corporation Inc. (b) 4,400 171,325
Camco International Inc. .............. 3,900 272,025
Devon Energy Corporation .............. 5,100 224,400
Noble Affiliates ...................... 4,100 183,475
Noble Drilling Corporation (b) ....... 7,300 235,425
Nuevo Energy Co. (b) ................. 3,100 148,413
Pride International Inc. (b) ......... 8,800 299,200
Sigma-Aldrich Corporation ............. 8,500 279,969
Smith International (b) .............. 4,700 365,131
Sonat Inc. ............................ 3,700 188,238
Sybron International Corp. (b) ....... 5,600 240,450
Tosco Corp. ........................... 8,600 299,388
Triton Energy (b) .................... 3,400 140,888
</TABLE>
See accompanying notes to financial statements.
-34-
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
United Meridian Corp. (b) ............... 4,500 $ 165,375
Valspar Corp. ............................ 8,000 251,000
----------
4,367,359
----------
Retailing (9.6%):
Applebees International Inc. ............. 4,800 120,000
Autozone Inc. (b) ....................... 6,100 183,000
Borders Group Incorporated (b) .......... 9,100 250,250
CDW Computer Centers Inc. (b) ........... 3,000 194,250
Circuit City Stores Inc. ................. 4,600 185,438
CompUSA Inc. (b) ........................ 7,500 262,500
Dollar General Corp. ..................... 13,413 456,880
Extended Stay America Lodging Inc. (b) .. 7,200 108,000
Harcourt General Incorporated ............ 3,000 148,688
HFS Inc. (b) ............................ 4,400 327,525
Host Marriott (b) ....................... 8,300 188,825
La Quinta Inns Inc. ...................... 6,200 146,088
Land's End Inc. (b) ..................... 6,900 212,606
Mirage Resorts Inc. (b) ................. 6,700 201,838
OfficeMax Incorporated (b) .............. 10,300 156,431
Outback Steakhouse Inc. (b) ............. 5,000 138,125
Petco Animal Supplies Inc. (b) .......... 6,400 200,800
Quality Food Centers Inc. (b) ........... 3,100 126,906
Richfood Holdings Inc. ................... 8,600 223,063
Safeway Inc. (b) ........................ 4,700 255,563
Sbarro Inc. .............................. 6,000 168,000
Schein (Henry) Incorporated .............. 6,200 221,650
Starbucks Corp. (b) ..................... 4,500 188,156
The Men's Wearhouse Inc. (b) ............ 6,000 223,500
The Sports Authority (b) ................ 7,400 137,825
Tiffany & Company ........................ 4,600 195,500
TJX Companies Inc. ....................... 7,000 213,938
U.S. Office Products (b) ................ 5,000 176,250
Viking Office Products (b) .............. 7,200 156,600
Zale Corp. (b) .......................... 7,700 199,719
----------
5,967,914
----------
Technology (27.2%):
Communications Equipment (2.1%):
Aspect Telecommunications Corp. (b) ..... 7,000 163,625
Checkpoint Systems Incorporated .......... 6,800 99,450
Coherent Communications Systems Corp. (b) 5,300 150,388
Comverse Technology Incorporated (b) .... 2,800 147,700
DSP Communications Inc. (b) ............. 6,100 127,719
Ericsson L.M. Telephone Co. ADR .......... 4,600 220,513
Tellabs Inc. (b) ........................ 7,400 381,100
----------
1,290,495
----------
Computer Communications (2.7%):
3Com Corp. (b) .......................... 6,500 333,125
Adaptec Incorporated (b) ................ 4,500 210,375
Ascend Communications Inc. (b) .......... 8,930 289,109
Cisco Systems Inc. (b) .................. 3,600 263,025
Electronics for Imaging Inc. (b) ........ 5,500 280,500
Intermedia Communications (b) ........... 4,100 192,444
Network General Corp. (b) ............... 5,900 114,313
----------
1,682,891
----------
Computer/Electronic Equipment (4.1%):
ASM Lithography Holding N.V. (b) ........ 2,000 197,500
Cognex Corp. (b) ........................ 6,000 197,250
Coherent Inc. (b) ....................... 4,600 254,725
Dionex Corporation (b) .................. 3,420 184,466
EMC Corp-Mass (b) ....................... 4,900 286,038
KLA Tencor Corp. (b) .................... 3,300 222,956
Lam Research Corp. (b) .................. 2,700 125,550
Security Dynamics Technologies Inc. (b) . 5,600 207,900
Symbol Technologies Inc. ................. 7,800 342,713
Teradyne Inc. (b) ....................... 3,300 177,581
Thermo Electron Corporation (b) ......... 4,650 186,000
Waters Corporation (b) .................. 4,600 203,263
----------
2,585,942
----------
Computer Services (3.8%):
ABR Information Services Incorporated (b) 6,300 174,038
Affiliated Computer Services (b) ........ 7,500 185,625
America Online Delaware Inc. (b) ........ 3,000 226,313
Cambridge Technology Partners (b) ....... 6,700 239,944
DST Systems Incorporated (b) ............ 4,100 151,700
First Data Corp. ......................... 4,302 161,594
HBO & Co. ................................ 9,800 369,950
Incyte Pharmaceuticals Incorporated (b) . 2,000 168,000
Primark Corporation (b) ................. 6,400 189,200
Saville Systems Ireland PLC (b) ......... 4,500 316,125
Shared Medical Systems Corp .............. 4,000 211,500
----------
2,393,989
----------
Computer Software (7.1%):
Adobe Systems Inc. ................... 4,800 241,800
Baan Company (b) .................... 3,000 213,000
BMC Software Inc. (b) ............... 6,400 414,400
Cadence Design Systems (b) .......... 6,050 323,675
CBT Group PLC ADR (b) ............... 2,900 232,725
Citrix Systems Inc. (b) ............. 3,800 191,306
Compuware Corp. (b) ................. 5,800 350,900
IDX Systems Corporation (b) ......... 5,900 203,919
Intuit (b) .......................... 4,600 147,200
McAfee Associates Incorporated (b) .. 4,800 254,400
Oracle Corp. (b) .................... 8,750 318,828
Parametric Technology Corp. (b) ..... 4,100 180,912
People Soft Inc. (b) ................ 4,700 280,825
Rational Software Corporation (b) ... 3,500 56,000
Remedy Corporation (b) .............. 3,300 113,643
Sterling Commerce Inc. (b) .......... 7,300 262,343
Symantec Corp. (b) .................. 9,300 211,575
Synopsys Inc. (b) ................... 3,800 161,500
Visio Corporation (b) ............... 6,200 258,850
----------
4,417,801
----------
Electronics (5.4%):
Altera Corporation (b) .............. 6,400 328,000
Analog Devices (b) .................. 6,000 201,000
Andrew Corp. (b) .................... 6,900 180,694
Atmel Corp. (b) ..................... 5,000 182,188
Lattice Semiconductor Corporation (b) 2,500 162,813
</TABLE>
See accompanying notes to financial statements.
-35-
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1997
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Linear Technology Corp. ....................... 6,400 $ 440,000
Maxim Integrated Products Inc. (b) ........... 7,100 507,206
Microchip Technology Inc. (b) ................ 4,900 221,266
Molex Inc CL A ................................ 6,781 276,326
Raychem Corp. ................................. 2,500 211,250
SCI Systems Inc. (b) ......................... 6,900 341,981
SDL Incorporated (b) ......................... 5,100 103,275
Xilinx Inc. (b) .............................. 4,200 212,625
----------
3,368,624
----------
Other Technology (2.0%):
Diebold Incorporated .......................... 5,000 236,875
Gateway 2000 (b) ............................. 4,000 125,750
Gulfstream Aerospace Corporation (b) ......... 4,000 116,000
Ikon Office Solutions Inc. .................... 6,200 158,488
Stratus Computer Inc. (b) .................... 2,500 120,938
Sun Microsystems Inc. (b) .................... 9,800 458,763
----------
1,216,814
----------
Total Technology ...................................... 16,956,556
----------
Total Common Stocks
(cost: $46,445,681) ........................... 61,379,800
----------
Short-Term Securities (6.4%):
Repurchase Agreement (6.4%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.25%, dated 9/30/97
due 10/01/97, Collateralized by
U.S. Government Securities
(delivery value $3,962,363) ........... $ 3,961,895 3,961,895
----------
Total Short-Term Securities
(cost: $3,961,895) ............................ 3,961,895
----------
Total Investments in Securities
(cost: $50,407,576)(c)(104.9%) ................ 65,341,695
Other Assets Less Liabilities (-4.9%) ......................... (3,030,171)
----------
Net Assets (100.0%) ........................................... $62,311,524
==========
</TABLE>
- ----------
Notes to Schedule of Investments
(a) Securites are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Currently non-income producing.
(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 $15,888,254
Gross unrealized depreciation (954,135)
----------
Net unrealized appreciation $14,934,119
==========
See accompanying notes to financial statements.
-36-
<PAGE>
Statements of Assets and Liabilities
September 30, 1997
<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) ..................... $228,135,896 $ 15,904,944 $ 47,687,742
Cash ..................................................................... 0 301,998 0
Receivables:
Dividends and Interest ....................................... 1,027,117 125,852 893,944
Fund shares sold ............................................. 2,798,459 229,204 1,979,894
Investment securities sold ................................... 0 0 729,379
Other receivables ............................................ 0 0 119
Organization expenses, net of amortization (note 1) ...................... 17,958 17,958 13,775
------------ ------------ ------------
Total assets ........... 231,979,430 16,579,956 51,304,853
------------ ------------ ------------
Liabilities
Distributions to shareholders ............................................ 937,962 41,144 209,247
Fund shares redeemed ..................................................... 1,090,737 57,052 66,734
Payable for securities purchased ......................................... 0 300,881 652,452
Payable for advisory fees ................................................ 21,429 0 0
Payable for distribution fees ............................................ 36,531 668 104
Payable for administration fees .......................................... 36,531 2,607 6,533
Other accrued expenses ................................................... 82,140 16,547 41,625
----------- ----------- -----------
Total liabilities ...... 2,205,330 418,899 976,695
----------- ----------- -----------
Net Assets ............. $229,774,100 $ 16,161,057 $ 50,328,158
============ ============ ============
Net assets consist of:
Capital stock, Class A or single class ....................... 229,757 16,166 4,972
Capital stock, Class B ....................................... N/A N/A 29
Additional paid in capital, Class A or single class 229,527,176 16,149,584 49,899,176
Additional paid in capital, Class B .......................... N/A N/A 173,039
Undistributed net investment income .......................... 17,212 (29) 0
Accumulated net realized gain (loss) on investments and
futures contracts .......................................... (45) (4,664) (37,925)
Net unrealized appreciation (depreciation) on investments
and futures contracts ...................................... 0 0 288,867
----------- ----------- -----------
Net Assets ............. $229,774,100 $ 16,161,057 $ 50,328,158
============ ============ ============
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class .......................... $229,774,100 $ 16,161,057 $ 50,152,828
Shares outstanding, Class A or single class .................. 229,756,933 16,165,750 4,972,204
Net asset value, Class A or single class ..................... $ 1.00 $ 1.00 $ 10.09
Maximum offering price, Class A or single class .............. $ 1.00 $ 1.00 $ 10.46
Net assets, Class B .......................................... N/A N/A $ 175,330
Shares outstanding, Class B .................................. N/A N/A 17,395
Net asset value and offering price, Class B .................. N/A N/A $ 10.08
* Investments in securities, at identified cost .......................... $228,135,896 $ 15,904,944 $ 47,398,875
</TABLE>
See accompanying notes to financial statements
-37-
<PAGE>
<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) .................... $ 86,533,046 $ 56,945,262 $ 10,253,453
Cash .................................................................... 68,940 0 708
Receivables:
Dividends and Interest ...................................... 577,645 878,524 121,477
Fund shares sold ............................................ 1,105,826 1,178,242 94,970
Investment securities sold .................................. 0 1,738,583 0
Other receivables ........................................... 575 1,414 1,888
Organization expenses, net of amortization (note 1) ..................... 17,958 17,958 17,958
------------ ------------ ------------
Total assets ............................. 88,303,990 60,759,983 10,490,454
------------ ------------ ------------
Liabilities
Distributions to shareholders ........................................... 390,130 266,803 34,257
Fund shares redeemed .................................................... 291,278 177,471 24,242
Payable for securities purchased ........................................ 6,990,736 2,900,705 386,189
Payable for advisory fees ............................................... 0 0 0
Payable for distribution fees ........................................... 17,855 5,040 253
Payable for administration fees ......................................... 12,406 8,687 0
Other accrued expenses .................................................. 51,168 45,412 2,354
------------ ------------ ------------
Total liabilities ........................ 7,753,573 3,404,118 447,295
------------ ------------ ------------
Net Assets ............................... $ 80,550,417 $ 57,355,865 $ 10,043,159
============ ============ ============
Net assets consist of:
Capital stock, Class A or single class ...................... 8,335 6,360 1,035
Capital stock, Class B ...................................... 429 48 46
Additional paid in capital, Class A or single class 76,040,567 56,439,732 9,366,501
Additional paid in capital, Class B ......................... 3,963,366 431,554 419,782
Undistributed net investment income ......................... 7,584 1,645 568
Accumulated net realized gain (loss) on investments and
futures contracts ......................................... (310,044) (191,512) (126,960)
Net unrealized appreciation (depreciation) on investments
and futures contracts ..................................... 840,180 668,038 382,187
----------- ----------- -----------
Net Assets ............................... $ 80,550,417 $ 57,355,865 $ 10,043,159
============ ============ ============
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class ......................... $ 76,604,703 $ 56,923,299 $ 9,612,467
Shares outstanding, Class A or single class ................. 8,334,837 6,359,983 1,035,069
Net asset value, Class A or single class .................... $ 9.19 $ 8.95 $ 9.29
Maximum offering price, Class A or single class ............. $ 9.62 $ 9.37 $ 9.73
Net assets, Class B ......................................... $ 3,945,714 $ 432,566 $ 430,692
Shares outstanding, Class B ................................. 428,981 48,367 46,363
Net asset value and offering price, Class B ................. $ 9.20 $ 8.94 $ 9.29
* Investments in securities, at identified cost ......................... $ 85,692,866 $ 56,277,224 $ 9,872,547
California Growth &
Tax-Free Income Growth
Fund Fund Fund
Assets ============= ============= ============
<S> <C> <C> <C>
Investments:
In securities, at market value* (note 1) .................... $ 30,912,786 $ 263,677,767 $ 65,341,695
Cash .................................................................... 5,315 0 0
Receivables:
Dividends and Interest ...................................... 469,855 345,163 21,888
Fund shares sold ............................................ 214,113 1,664,810 363,538
Investment securities sold .................................. 0 2,280,416 132,613
Other receivables ........................................... 218 25,113 6,558
Organization expenses, net of amortization (note 1) ..................... 17,958 17,958 13,775
------------- ------------- -------------
Total assets ............................. 31,620,245 268,011,227 65,880,067
------------- ------------- -------------
Liabilities
Distributions to shareholders ........................................... 108,756 0 0
Fund shares redeemed .................................................... 19,868 4,793,550 3,325,713
Payable for securities purchased ........................................ 639,550 205,556 116,398
Payable for advisory fees ............................................... 0 200,000 50,000
Payable for distribution fees ........................................... 7,708 73,328 14,812
Payable for administration fees ......................................... 4,789 41,069 9,927
Other accrued expenses .................................................. 18,478 104,625 51,693
------------- ------------- -------------
Total liabilities ........................ 799,149 5,418,128 3,568,543
------------- ------------- -------------
Net Assets ............................... $ 30,821,096 $ 262,593,099 $ 62,311,524
============= ============= =============
Net assets consist of:
Capital stock, Class A or single class ...................... 3,159 10,733 3,475
Capital stock, Class B ...................................... 572 1,824 249
Additional paid in capital, Class A or single class 25,280,576 166,447,106 45,467,806
Additional paid in capital, Class B ......................... 4,549,576 29,741,854 3,241,629
Undistributed net investment income ......................... 4,661 5,222 0
Accumulated net realized gain (loss) on investments and
futures contracts ......................................... (225,765) 29,590,059 (1,335,754)
Net unrealized appreciation (depreciation) on investments
and futures contracts ..................................... 1,208,317 36,796,301 14,934,119
------------- ------------- -------------
Net Assets ............................... $ 30,821,096 $ 262,593,099 $ 62,311,524
============= ============= =============
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class ......................... $ 26,095,857 $ 224,523,943 $ 58,180,003
Shares outstanding, Class A or single class ................. 3,158,932 10,732,969 3,475,205
Net asset value, Class A or single class .................... $ 8.26 $ 20.92 $ 16.74
Maximum offering price, Class A or single class ............. $ 8.65 $ 21.91 $ 17.53
Net assets, Class B ......................................... $ 4,725,239 $ 38,069,156 $ 4,131,521
Shares outstanding, Class B ................................. 571,839 1,823,989 249,059
Net asset value and offering price, Class B ................. $ 8.26 $ 20.87 $ 16.59
* Investments in securities, at identified cost ......................... $ 29,704,469 $ 226,881,466 $ 50,407,576
</TABLE>
See accompanying notes to financial statements
-38-
<PAGE>
Statements of Operations
For the year ended September 30, 1997
<TABLE>
<CAPTION>
Money Tax-Free Short-Term
Market Money Bond
Fund Market Fund Fund
============ ============ ============
<S> <C> <C> <C>
Investment income:
Interest ................................................. $ 11,312,258 $ 498,448 $ 1,983,158
Dividends (net of foreign withholding taxes of $45,148 and
$1,575 for the Growth & Income Fund
and Growth Fund, respectively) ......................... 0 0 0
------------ ------------ ------------
Total Income ...................... 11,312,258 498,448 1,983,158
------------ ------------ ------------
Expenses:
Advisory fees (note 2) ................................... 1,020,925 68,154 161,913
Administration and accounting fees (note 2) .............. 408,370 27,262 64,765
Distribution fees (note 2) ............................... 408,370 27,262 82,558
Amortization of organization expenses .................... 17,108 17,108 5,103
Legal and audit fees ..................................... 33,621 14,298 19,190
Registration fees ........................................ 30,334 5,045 16,038
Directors' fees .......................................... 7,999 7,999 7,999
Shareholder reports ...................................... 27,787 1,684 17,325
Insurance expense ........................................ 14,547 913 1,509
Custodian fees ........................................... 14,747 6,132 2,323
Printing and postage ..................................... 99,449 17,977 53,994
------------ ------------ ------------
Total expenses .................... 2,083,257 193,834 432,717
Less:
Waived fees (note 2) ..................................... (995,592) (101,360) (248,346)
Reimbursement from administrator (note 2) ................ 0 0 (1,484)
Expense reductions (note 5) .............................. (255) (699) (666)
------------ ------------ ------------
Net expenses ...................... 1,087,410 91,775 182,221
------------ ------------ ------------
Net investment income (loss) ...... 10,224,848 406,673 1,800,937
------------ ------------ ------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments .......... (45) 0 7,108
Net realized gain (loss) on sale of futures contracts .... 0 0 0
Net change in unrealized appreciation of investments ..... 0 0 370,620
Net change in unrealized appreciation of futures contracts 0 0 0
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments ... (45) 0 377,728
------------ ------------ ------------
Net increase in net assets resulting from operations ..... $ 10,224,803 $ 406,673 $ 2,178,665
============ ============ ============
</TABLE>
See accompanying notes to financial statements
-39-
<PAGE>
Statements of Operations
For the year ended September 30, 1997
<TABLE>
<CAPTION>
U.S. Municipal
Government Bond Bond
Income Fund Fund Fund
============= ============= ============
<S> <C> <C> <C>
Investment income:
Interest ................................................. $ 4,217,672 $ 2,715,866 $ 399,855
Dividends (net of foreign withholding taxes of $45,148 and
$1,575 for the Growth & Income Fund
and Growth Fund, respectively) ......................... 0 0 0
----------- ----------- -----------
Total Income ...................... 4,217,672 2,715,866 399,855
----------- ----------- -----------
Expenses:
Advisory fees (note 2) ................................... 303,786 201,308 39,097
Administration and accounting fees (note 2) .............. 121,514 80,523 15,638
Distribution fees (note 2) ............................... 179,280 103,885 22,554
Amortization of organization expenses .................... 17,108 17,108 17,108
Legal and audit fees ..................................... 22,258 19,151 13,165
Registration fees ........................................ 16,189 18,859 5,084
Directors' fees .......................................... 7,999 7,999 7,999
Shareholder reports ...................................... 17,748 15,985 1,362
Insurance expense ........................................ 3,725 2,233 546
Custodian fees ........................................... 13,413 8,501 1,902
Printing and postage ..................................... 64,921 64,736 12,735
----------- ----------- -----------
Total expenses .................... 767,941 540,288 137,190
Less:
Waived fees (note 2) ..................................... (356,750) (271,465) (75,200)
Reimbursement from administrator (note 2) ................ (282) (1,007) (16,629)
Expense reductions (note 5) .............................. (1,948) (2,138) (543)
----------- ----------- -----------
Net expenses ...................... 408,961 265,678 44,818
----------- ----------- -----------
Net investment income (loss) ...... 3,808,711 2,450,188 355,037
----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments .......... 353,405 270,780 14,907
Net realized gain (loss) on sale of futures contracts .... 0 0 (7,891)
Net change in unrealized appreciation of investments ..... 1,035,109 908,922 293,639
Net change in unrealized appreciation of futures contracts 0 0 3,281
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments ... 1,388,514 1,179,702 303,936
----------- ----------- -----------
Net increase in net assets resulting from operations ..... $ 5,197,225 $ 3,629,890 $ 658,973
=========== =========== ===========
<CAPTION>
California Growth &
Tax-Free Income Growth
Fund Fund Fund
============= ============ =============
<S> <C> <C> <C>
Investment income:
Interest ................................................. $ 1,386,704 $ 353,089 $ 43,340
Dividends (net of foreign withholding taxes of $45,148 and
$1,575 for the Growth & Income Fund
and Growth Fund, respectively) ......................... 0 3,037,358 184,132
------------ ------------ ------------
Total Income ...................... 1,386,704 3,390,447 227,472
------------ ------------ ------------
Expenses:
Advisory fees (note 2) ................................... 131,759 1,100,393 249,984
Administration and accounting fees (note 2) .............. 52,704 366,798 83,328
Distribution fees (note 2) ............................... 95,454 649,604 126,912
Amortization of organization expenses .................... 17,108 17,108 5,103
Legal and audit fees ..................................... 15,582 45,802 21,335
Registration fees ........................................ 2,930 48,359 16,836
Directors' fees .......................................... 7,999 7,999 7,999
Shareholder reports ...................................... 3,620 33,443 18,915
Insurance expense ........................................ 1,882 9,354 1,849
Custodian fees ........................................... 2,717 19,953 17,363
Printing and postage ..................................... 18,607 96,453 54,287
------------ ------------ ------------
Total expenses .................... 350,362 2,395,266 603,911
Less:
Waived fees (note 2) ..................................... (183,506) (956,765) (215,165)
Reimbursement from administrator (note 2) ................ 0 0 0
Expense reductions (note 5) .............................. (2,603) (2,596) (232)
------------ ------------ ------------
Net expenses ...................... 164,253 1,435,905 388,514
------------ ------------ ------------
Net investment income (loss) ...... 1,222,451 1,954,542 (161,042)
------------ ------------ ------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments .......... 228,925 31,497,187 (1,043,448)
Net realized gain (loss) on sale of futures contracts .... (20,191) 0 0
Net change in unrealized appreciation of investments ..... 887,497 27,136,675 11,832,565
Net change in unrealized appreciation of futures contracts 6,000 0 0
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments ... 1,102,231 58,633,862 10,789,117
------------ ------------ ------------
Net increase in net assets resulting from operations ..... $ 2,324,682 $ 60,588,404 $ 10,628,075
============ ============ ============
</TABLE>
See accompanying notes to financial statements
-40-
<PAGE>
Statements of Changes in Net Assets
For the years ended September 30, 1997 and September 30, 1996
<TABLE>
<CAPTION>
Tax-Free
Money Market Fund Money Market Fund
============================== ==============================
Year Year Year Year
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $ 10,224,848 $ 7,637,141 $ 406,673 $ 312,984
Net realized gain (loss)
on sale of investments ............... (45) 9,683 0 101
Net change in unrealized appreciation
(depreciation) of investments ........ 0 0 0 0
------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 10,224,803 7,646,824 406,673 313,085
------------- ------------- ------------- -------------
Distributions to shareholders:
From net investment income
Class A ................................ (10,224,848) (7,629,613) (406,673) (312,984)
Class B ................................ N/A N/A N/A N/A
From realized gain on investments
Class A ................................ 0 (7,529) 0 0
Class B ................................ N/A N/A N/A N/A
------------- ------------- ------------- -------------
Total distributions .............. (10,224,848) (7,637,142) (406,673) (312,984)
Net increase in net assets resulting
from capital share transactions (note 4) ..... 45,126,014 104,674,446 4,509,493 3,030,129
------------- ------------- ------------- -------------
Increase in net assets ........... 45,125,969 104,684,128 4,509,493 3,030,230
------------- ------------- ------------- -------------
Net assets:
Beginning net assets ....................... 184,648,131 79,964,003 11,651,564 8,621,334
------------- ------------- ------------- -------------
Ending net assets* ......................... $ 229,774,100 $ 184,648,131 $ 16,161,057 $ 11,651,564
============= ============= ============= =============
*Includes undistributed (over
distributed) net investment income of: ..... $ 17,212 $ 17,212 $ (29) $ (29)
<CAPTION>
Short-Term U.S. Government
Bond Fund Income Fund
=========================== =============================
Year Year Year Year
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $ 1,800,937 $ 622,464 $ 3,808,711 $ 2,526,598
Net realized gain (loss)
on sale of investments ............... 7,108 (44,897) 353,405 (663,449)
Net change in unrealized appreciation
(depreciation) of investments ........ 370,620 (93,004) 1,035,109 (415,895)
------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations 2,178,665 484,563 5,197,225 1,447,254
------------ ------------ ------------ ------------
Distributions to shareholders:
From net investment income
Class A ................................ (1,790,243) (619,703) (3,597,983) (2,357,864)
Class B ................................ (10,694) (2,761) (210,727) (168,735)
From realized gain on investments
Class A ................................ 0 0 0 (83,304)
Class B ................................ 0 0 0 (6,386)
------------ ------------ ------------ ------------
Total distributions .............. (1,800,937) (622,464) (3,808,710) (2,616,289)
Net increase in net assets resulting
from capital share transactions (note 4) ..... 30,254,083 16,238,690 32,005,347 17,454,019
------------ ------------ ------------ ------------
Increase in net assets ........... 30,631,811 16,100,789 33,393,862 16,284,984
------------ ------------ ------------ ------------
Net assets:
Beginning net assets ....................... 19,696,347 3,595,558 47,156,555 30,871,571
------------ ------------ ------------ ------------
Ending net assets* ......................... $ 50,328,158 $ 19,696,347 $ 80,550,417 $ 47,156,555
============ ============ ============ ============
*Includes undistributed (over
distributed) net investment income of: ..... $ 0 $ 0 $ 7,584 $ 7,583
</TABLE>
See accompanying notes to financial statements
-41-
<PAGE>
Statements of Changes in Net Assets
For the years ended September 30, 1997 and September 30, 1996
<TABLE>
<CAPTION>
Bond Fund Municipal Bond Fund
============================= ==============================
Year Year Year Year
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $ 2,450,188 $ 1,302,493 $ 355,037 $ 308,447
Net realized gain (loss)
on sale of investments ............... 270,780 (396,666) 7,016 (26,860)
Net change in unrealized appreciation
(depreciation) of investments ........ 908,922 (381,786) 296,920 (12,382)
------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations 3,629,890 524,041 658,973 269,205
------------ ------------ ------------ ------------
Distributions to shareholders:
From net investment income
Class A ................................ (2,426,201) (1,285,950) (338,814) (297,309)
Class B ................................ (23,987) (16,542) (16,223) (11,138)
From realized gain on investments
Class A ................................ 0 0 0 0
Class B ................................ 0 0 0 0
------------ ------------ ------------ ------------
Total distributions .............. (2,450,188) (1,302,492) (355,037) (308,447)
Net increase in net assets resulting
from capital share transactions (note 4) ..... 28,002,391 16,780,563 2,774,237 1,436,099
------------ ------------ ------------ ------------
Increase in net assets ........... 29,182,093 16,002,112 3,078,173 1,396,857
------------ ------------ ------------ ------------
Net assets:
Beginning net assets ....................... 28,173,772 12,171,660 6,964,986 5,568,129
------------ ------------ ------------ ------------
Ending net assets* ......................... $ 57,355,865 $ 28,173,772 $ 10,043,159 $ 6,964,986
============ ============ ============ ============
*Includes undistributed (over
distributed) net investment income of: ..... $ 1,645 $ 1,645 $ 568 $ 568
<CAPTION>
California
Tax-Free Fund Growth & Income Fund
============================== ===============================
Year Year Year Year
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $ 1,222,451 $ 1,090,105 $ 1,954,542 $ 1,166,570
Net realized gain (loss)
on sale of investments ............... 208,734 86,380 31,497,187 7,926,105
Net change in unrealized appreciation
(depreciation) of investments ........ 893,497 (73,858) 27,136,675 3,796,225
------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 2,324,682 1,102,627 60,588,404 12,888,900
------------- ------------- ------------- -------------
Distributions to shareholders:
From net investment income
Class A ................................ (1,057,532) (1,002,858) (1,816,999) (1,046,755)
Class B ................................ (164,919) (87,246) (162,598) (97,312)
From realized gain on investments
Class A ................................ 0 0 (8,171,142) (1,178,916)
Class B ................................ 0 0 (1,266,700) (97,876)
------------- ------------- ------------- -------------
Total distributions .............. (1,222,451) (1,090,104) (11,417,439) (2,420,859)
Net increase in net assets resulting
from capital share transactions (note 4) ..... 5,683,503 3,765,357 94,278,663 67,305,092
------------- ------------- ------------- -------------
Increase in net assets ........... 6,785,734 3,777,880 143,449,628 77,773,133
------------- ------------- ------------- -------------
Net assets:
Beginning net assets ....................... 24,035,362 20,257,482 119,143,471 41,370,338
------------- ------------- ------------- -------------
Ending net assets* ......................... $ 30,821,096 $ 24,035,362 $ 262,593,099 $ 119,143,471
============= ============= ============= =============
*Includes undistributed (over
distributed) net investment income of: ..... $ 4,661 $ 4,661 $ 5,222 $ 30,277
<CAPTION>
Growth Fund
=============================
Year Year
Ended Ended
9/30/97 9/30/96
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $ (161,042) $ 22,583
Net realized gain (loss)
on sale of investments ............... (1,043,448) (290,727)
Net change in unrealized appreciation
(depreciation) of investments ........ 11,832,565 2,744,987
------------ ------------
Net increase (decrease) in net
assets resulting from operations 10,628,075 2,476,843
------------ ------------
Distributions to shareholders:
From net investment income
Class A ................................ 0 (20,757)
Class B ................................ 0 (551)
From realized gain on investments
Class A ................................ 0 0
Class B ................................ 0 0
------------ ------------
Total distributions .............. 0 (21,308)
Net increase in net assets resulting
from capital share transactions (note 4) ..... 28,485,914 16,406,270
------------ ------------
Increase in net assets ........... 39,113,989 18,861,805
------------ ------------
Net assets:
Beginning net assets ....................... 23,197,535 4,335,730
------------ ------------
Ending net assets* ......................... $ 62,311,524 $ 23,197,535
============ ============
*Includes undistributed (over
distributed) net investment income of: ..... $ 0 $ 12,110
</TABLE>
See accompanying notes to financial statements
-42-
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each Money Market Fund
fiscal year or period ended September 30.
---------------------------------------
1997 1996 1995 1994(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.05 0.05 0.05 0.03
Net realized and unrealized gain (loss) on investments 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 0.05 0.05 0.05 0.03
- ----------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.05) (0.05) (0.05) (0.03)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00
Total distributions (0.05) (0.05) (0.05) (0.03)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Net asset value - end of period $1.00 $1.00 $1.00 $1.00
===========================================================================================================
Total return (not annualized)(d) 5.12% 5.05% 5.52% 3.36%
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $229,774 $184,648 $79,964 $49,988
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) 0.53% 0.58% 0.42% 0.15%
Ratio of net investment income to average net assets (ii) 5.01% 4.92% 5.40% 4.25%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.02% 1.09% 1.29% 1.64%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 4.52% 4.41% 4.53% 2.76%
Portfolio Turnover N/A N/A N/A N/A
Average Commission Rate Paid N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each Tax-Free
fiscal year or period ended September 30. Money Market Fund
-------------------------------------------
1997 1996 1995 1994(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.03 0.03 0.03 0.02
Net realized and unrealized gain (loss) on investments 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.03 0.03 0.02
- -----------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.03) (0.03) (0.03) (0.02)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00
Total distributions (0.03) (0.03) (0.03) (0.02)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Net asset value - end of period $1.00 $1.00 $1.00 $1.00
===========================================================================================================
Total return (not annualized)(d) 3.02% 3.00% 3.44% 2.22%
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $16,161 $11,652 $8,621 $10,633
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) 0.68% 0.62% 0.44% 0.17%
Ratio of net investment income to average net assets (ii) 2.98% 2.93% 3.39% 2.56%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.42% 1.53% 1.90% 2.28%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 2.24% 2.02% 1.92% 0.45%
Portfolio Turnover N/A N/A N/A N/A
Average Commission Rate Paid N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each Bond Fund
fiscal year or period ended September 30. Class A
-------------------------------------------
1997 1996 1995(e) 1994(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $8.71 $8.99 $8.47 $9.50
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.54 0.56 0.58 0.52
Net realized and unrealized gain (loss) on investments 0.24 (0.28) 0.52 (1.03)
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.78 0.28 1.10 (0.51)
- --------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.54) (0.56) (0.58) (0.52)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00
Total distributions (0.54) (0.56) (0.58) (0.52)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.24 (0.28) 0.52 (1.03)
- --------------------------------------------------------------------------------------------------------
Net asset value - end of period $8.95 $8.71 $8.99 $8.47
========================================================================================================
Total return (not annualized)(d) 9.19% 3.12% 13.53% (5.49)%
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $56,923 $27,761 $12,022 $7,539
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets (i) 0.66% 0.47% 0.21% 0.09%
Ratio of net investment income to average net assets (ii) 2.14% 6.25% 6.69% 6.29%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.33% 1.42% 2.20% 2.55%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 1.47% 5.29% 4.70% 3.83%
Portfolio Turnover 117.41% 170.64% 327.31% 26.14%
Average Commission Rate Paid N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each Bond Fund
fiscal year or period ended September 30. Class B
----------------------------------
1997 1996 1995(c)(e)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value - beginning of period $8.70 $8.98 $8.36
- -----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.49 0.51 0.49
Net realized and unrealized gain (loss) on investments 0.24 (0.28) 0.62
- -----------------------------------------------------------------------------------------------
Total from investment operations 0.73 0.23 1.11
- -----------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.49) (0.51) (0.49)
Distributions from net realized gain (loss) 0.00 0.00 0.00
Total distributions (0.49) (0.51) (0.49)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.24 (0.28) 0.62
- -----------------------------------------------------------------------------------------------
Net asset value - end of period $8.94 $8.70 $8.98
===============================================================================================
Total return (not annualized)(d) 8.63% 2.62% 13.58%
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $433 $412 $150
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets (i) 1.13% 0.96% 0.78%
Ratio of net investment income to average net assets (ii) 2.24% 5.66% 5.56%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 2.08% 2.15% 4.00%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 1.33% 4.48% 2.34%
Portfolio Turnover 117.41% 170.64% 327.31%
Average Commission Rate Paid 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 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) Ratio reflects fees reduced in connection with specific agreements only for
periods ended after September 30, 1995.
See accompanying notes to financial statements
-43-
<PAGE>
<TABLE>
<CAPTION>
Supplemental information for a share outstanding for the Short-Term Bond Fund
year ended September 30, 1997 or throughout each Class A Class B
fiscal year or period ended September 30. --------------------------------- -----------------------------
1997 1996 1995(b) 1997 1996 1995(b)
- ---------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $9.98 $10.05 $10.00 $9.98 $10.05 $10.00
- ---------------------------------------------------------------------------------------------- -----------------------------
Income (loss) from investment operations:
Net investment income 0.56 0.54 0.18 0.50 0.49 0.20
Net realized and unrealized gain (loss) on investments 0.11 (0.07) 0.05 0.10 (0.07) 0.05
- ---------------------------------------------------------------------------------------------- -----------------------------
Total from investment operations 0.67 0.47 0.23 0.60 0.42 0.25
- ---------------------------------------------------------------------------------------------- -----------------------------
Less distributions:
Distributions from net investment income (0.56) (0.54) (0.18) (0.50) (0.49) (0.20)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00
Total distributions (0.56) (0.54) (0.18) (0.50) (0.49) (0.20)
- ---------------------------------------------------------------------------------------------- -----------------------------
Net increase (decrease) in net asset value 0.11 (0.07) 0.05 0.10 (0.07) 0.05
- ---------------------------------------------------------------------------------------------- -----------------------------
Net asset value - end of period $10.09 $9.98 $10.05 $10.08 $9.98 $10.05
============================================================================================== =============================
Total return (not annualized)(d) 6.86% 4.82% 2.32% 6.20% 4.29% 2.51%
============================================================================================== =============================
Ratios/supplemental data:
Net assets, end of period (000) $50,153 $19,554 $3,582 $175 $143 $13
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) 0.56% 0.39% 0.00% 1.06% 0.90% 0.00%
Ratio of net investment income to average net assets (ii) 5.55% 5.42% 5.91% 5.01% 4.81% 5.54%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.33% 1.58% 2.76% 2.06% 2.29% 3.33%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 4.78% 4.23% 3.15% 4.01% 3.42% 2.21%
Portfolio Turnover 23.67% 29.37% 1.05% 23.67% 29.37% 1.05%
Average Commission Rate Paid N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------- -----------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each U.S. Government Income Fund
fiscal year or period ended September 30. Class A
-------------------------------------------
1997 1996 1995 1994(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $9.01 $9.24 $8.77 $9.50
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.57 0.57 0.63 0.56
Net realized and unrealized gain (loss) on investments 0.18 (0.21) 0.47 (0.73)
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.75 0.36 1.10 (0.17)
- --------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.57) (0.57) (0.63) (0.56)
Distributions from net realized gain (loss) 0.00 (0.02) 0.00 0.00
Total distributions (0.57) (0.59) (0.63) (0.56)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.18 (0.23) 0.47 (0.73)
- --------------------------------------------------------------------------------------------------------
Net asset value - end of period $9.19 $9.01 $9.24 $8.77
========================================================================================================
Total return (not annualized)(d) 8.62% 4.02% 13.00% (1.83)%
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $76,605 $43,717 $29,308 $19,158
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) 0.54% 0.46% 0.21% 0.09%
Ratio of net investment income to average net assets (ii) 6.38% 6.23% 6.93% 6.24%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.22% 1.29% 1.63% 1.83%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 5.71% 5.41% 5.51% 4.49%
Portfolio Turnover 303.81% 101.00% 46.96% 28.20%
Average Commission Rate Paid N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each U.S. Government Income Fund
fiscal year or period ended September 30. Class B
----------------------------------
1997 1996 1995(c)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value - beginning of period $9.02 $9.25 $8.67
- -----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.53 0.53 0.52
Net realized and unrealized gain (loss) on investments 0.18 (0.21) 0.58
- -----------------------------------------------------------------------------------------------
Total from investment operations 0.71 0.32 1.10
- -----------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.53) (0.53) (0.52)
Distributions from net realized gain (loss) 0.00 (0.02) 0.00
Total distributions (0.53) (0.55) (0.52)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.18 (0.23) 0.58
- -----------------------------------------------------------------------------------------------
Net asset value - end of period $9.20 $9.02 $9.25
===============================================================================================
Total return (not annualized)(d) 8.06% 3.51% 13.08%
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $3,946 $3,439 $1,564
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) 1.16% 0.96% 0.79%
Ratio of net investment income to average net assets (ii) 5.77% 5.67% 5.71%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 2.18% 2.02% 3.19%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 4.74% 4.61% 3.31%
Portfolio Turnover 303.81% 101.00% 46.96%
Average Commission Rate Paid N/A N/A N/A
- -----------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each Growth & Income Fund
fiscal year or period ended September 30. Class A
-------------------------------------------
1997 1996 1995(e) 1994(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $16.29 $14.30 $11.14 $11.00
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.20 0.21 0.27 0.23
Net realized and unrealized gain (loss) on investments 5.77 2.32 3.22 0.13
- --------------------------------------------------------------------------------------------------------
Total from investment operations 5.97 2.53 3.49 0.36
- --------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.20) (0.21) (0.27) (0.22)
Distributions from net realized gain (loss) (1.14) (0.33) (0.06) 0.00
Total distributions (1.34) (0.54) (0.33) (0.22)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 4.63 1.99 3.16 0.14
- --------------------------------------------------------------------------------------------------------
Net asset value - end of period $20.92 $16.29 $14.30 $11.14
========================================================================================================
Total return (not annualized)(d) 38.78% 18.08% 31.93% 3.29%
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $224,524 $102,485 $38,483 $14,174
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets (i) 0.73% 0.72% 0.43% 0.25%
Ratio of net investment income to average net assets (ii) 1.39% 1.49% 2.30% 2.81%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.22% 1.34% 1.80% 2.17%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 0.90% 0.88% 0.93% 0.89%
Portfolio Turnover 93.14% 66.32% 92.01% 13.90%
Average Commission Rate Paid $0.0577 $0.0498 N/A N/A
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each Growth & Income Fund
fiscal year or period ended September 30. Class B
----------------------------------
1997 1996 1995(c)(e)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value - beginning of period $16.26 $14.29 $11.30
- -----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.11 0.17 0.23
Net realized and unrealized gain (loss) on investments 5.76 2.28 3.05
- -----------------------------------------------------------------------------------------------
Total from investment operations 5.87 2.45 3.28
- -----------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.12) (0.15) (0.23)
Distributions from net realized gain (loss) (1.14) (0.33) (0.06)
Total distributions (1.26) (0.48) (0.29)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value 4.61 1.97 2.99
- -----------------------------------------------------------------------------------------------
Net asset value - end of period $20.87 $16.26 $14.29
===============================================================================================
Total return (not annualized)(d) 38.08% 17.48% 29.53%
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000) $38,069 $16,658 $2,887
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets (i) 1.26% 1.22% 1.01%
Ratio of net investment income to average net assets (ii) 0.60% 0.97% 1.64%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.97% 2.07% 2.92%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) (0.11)% 0.12% (0.27)%
Portfolio Turnover 93.14% 66.32% 92.01%
Average Commission Rate Paid $0.0577 $0.0498 N/A
- -----------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the
year ended September 30, 1997 or throughout each Growth Fund
fiscal year or period ended September 30. Class A Class B
-------------------------------- ------------------------------
1997 1996 1995(b) 1997 1996 1995(b)
- --------------------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $13.76 $11.66 $10.00 $13.70 $11.65 $10.00
- --------------------------------------------------------------------------------------------- ------------------------------
Income (loss) from investment operations:
Net investment income (0.04) 0.01 0.03 (0.10) (0.02) 0.03
Net realized and unrealized gain (loss) on investments 3.02 2.12 1.63 2.99 2.09 1.62
- --------------------------------------------------------------------------------------------- ------------------------------
Total from investment operations 2.98 2.13 1.66 2.89 2.07 1.65
- --------------------------------------------------------------------------------------------- ------------------------------
Less distributions:
Distributions from net investment income 0.00 (0.03) 0.00 0.00 (0.02) 0.00
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00
Total distributions 0.00 (0.03) 0.00 0.00 (0.02) 0.00
- --------------------------------------------------------------------------------------------- ------------------------------
Net increase (decrease) in net asset value 2.98 2.10 1.66 2.89 2.05 1.65
- --------------------------------------------------------------------------------------------- ------------------------------
Net asset value - end of period $16.74 $13.76 $11.66 $16.59 $13.70 $11.65
============================================================================================= ==============================
Total return (not annualized)(d) 21.66% 18.35% 16.60% 21.09% 17.80% 16.50%
============================================================================================= ==============================
Ratios/supplemental data:
Net assets, end of period (000) $58,180 $21,027 $4,187 $4,132 $2,170 $149
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets (i) 0.90% 0.49% 0.00% 1.40% 1.01% 0.00%
Ratio of net investment income to average net assets (ii) (0.13)% 0.21% 1.20% (0.85)% (0.36)% 1.07%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.39% 1.68% 3.46% 2.14% 2.43% 3.85%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) (0.62)% (0.98)% (2.26)% (1.59)% (1.78)% (2.78)%
Portfolio Turnover 22.37% 16.40% 0.06% 22.37% 16.40% 0.06%
Average Commission Rate Paid $0.0271 $0.0281 N/A $0.0271 $0.0281 N/A
- --------------------------------------------------------------------------------------------- ------------------------------
</TABLE>
See accompanying notes to financial statements
-44-
<PAGE>
<TABLE>
<CAPTION>
Supplemental information for a share outstanding for the Municipal Bond Fund
year ended September 30, 1997 or throughout each Class A Class B
fiscal year or period ended September 30. ------------------------------------------- ---------------------------
1997 1996 1995 1994(a) 1997 1996 1995(b)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $8.95 $8.98 $8.60 $9.50 $8.96 $8.98 $8.31
- -------------------------------------------------------------------------------------------------------- ---------------------------
Income (loss) from investment operations:
Net investment income 0.42 0.44 0.47 0.42 0.37 0.40 0.38
Net realized and unrealized gain (loss) on investments 0.34 (0.03) 0.38 (0.90) 0.33 (0.02) 0.67
- -------------------------------------------------------------------------------------------------------- ---------------------------
Total from investment operations 0.76 0.41 0.85 (0.48) 0.70 0.38 1.05
- -------------------------------------------------------------------------------------------------------- ---------------------------
Less distributions:
Distributions from net investment income (0.42) (0.44) (0.47) (0.42) (0.37) (0.40) (0.38)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total distributions (0.42) (0.44) (0.47) (0.42) (0.37) (0.40) (0.38)
- -------------------------------------------------------------------------------------------------------- ---------------------------
Net increase (decrease) in net asset value 0.34 (0.03) 0.38 (0.90) 0.33 (0.02) 0.67
- -------------------------------------------------------------------------------------------------------- ---------------------------
Net asset value - end of period $9.29 $8.95 $8.98 $8.60 $9.29 $8.96 $8.98
======================================================================================================== ===========================
Total return (not annualized)(d) 8.64% 4.64% 10.18% (5.15)% 7.96% 4.22% 12.86%
======================================================================================================== ===========================
Ratios/supplemental data:
Net assets, end of period (000) $9,612 $6,540 $5,512 $2,610 $431 $425 $56
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) 0.55% 0.41% 0.40% 0.25% 1.07% 0.91% 0.90%
Ratio of net investment income to average net assets (ii) 4.56% 4.88% 5.26% 5.03% 4.05% 4.27% 4.26%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.71% 1.95% 3.30% 3.99% 2.47% 2.53% 5.56%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 3.40% 3.35% 2.36% 1.29% 2.61% 2.64% (0.40)%
Portfolio Turnover 12.95% 9.82% 81.90% 81.42% 12.95% 9.82% 81.90%
Average Commission Rate Paid N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
California Tax-Free Fund
Supplemental information for a share outstanding for the Class A Class B
year ended September 30, 1997 or throughout each ----------------------------------------- -----------------------------
fiscal year or period ended September 30. 1997 1996 1995 1994(a) 1997 1996 1995(b)
- ------------------------------------------------------------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $7.93 $7.92 $7.59 $8.50 $7.93 $7.92 $7.35
- ------------------------------------------------------------------------------------------------------ -----------------------------
Income (loss) from investment operations:
Net investment income $0.38 $0.40 $0.41 $0.36 $0.34 $0.36 0.34
Net realized and unrealized gain (loss) on investments 0.33 0.01 0.33 (0.91) 0.33 0.01 0.57
- ------------------------------------------------------------------------------------------------------ -----------------------------
Total from investment operations 0.71 0.41 0.74 (0.55) 0.67 0.37 0.91
- ------------------------------------------------------------------------------------------------------ -----------------------------
Less distributions:
Distributions from net investment income (0.38) (0.40) (0.41) (0.36) (0.34) (0.36) (0.34)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total distributions (0.38) (0.40) (0.41) (0.36) (0.34) (0.36) (0.34)
- ------------------------------------------------------------------------------------------------------ -----------------------------
Net increase (decrease) in net asset value 0.33 0.01 0.33 (0.91) 0.33 0.01 0.57
- ------------------------------------------------------------------------------------------------------ -----------------------------
Net asset value - end of period $8.26 $7.93 $7.92 $7.59 $8.26 $7.93 $7.92
====================================================================================================== =============================
Total return (not annualized)(d) 9.19% 5.23% 10.13% (6.56)% 8.63% 4.70% 12.60%
====================================================================================================== =============================
Ratios/supplemental data:
Net assets, end of period (000) $26,096 $20,876 $19,292 $13,815 $4,725 $3,159 $966
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) 0.55% 0.38% 0.32% 0.25% 1.08% 0.89% 0.84%
Ratio of net investment income to average net assets (ii) 4.72% 4.98% 5.36% 4.70% 4.18% 4.39% 4.47%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) 1.22% 1.29% 1.65% 2.01% 2.01% 1.98% 2.97%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) 4.05% 4.06% 4.03% 2.94% 3.25% 3.30% 2.35%
Portfolio Turnover 34.88% 31.78% 86.69% 73.88% 34.88% 31.78% 86.69%
Average Commission Rate Paid 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) Class B shares were not offered until November 1, 1994.
(c) Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
(d) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when Payden & Rygel Investment Counsel assumed management
responsibilities.
(e) Ratio reflects fees reduced in connection with specific agreements only for
periods ended after September 30, 1995.
See accompanying notes to financial statements
-45-
<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"):
* The Money Market Fund
* The Tax-Free Money Market Fund
* The Short-Term Bond Fund
* The U.S. Government Income Fund
* The Municipal Bond Fund
* The Bond Fund
* The Growth & Income Fund
* 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 commenced offering 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 in a
Fund bear the common expenses of the Fund, 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 determined 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 System 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 latest 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 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
accrual 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.
-46-
<PAGE>
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 custodian'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. A risk involved with
repurchase agreements is that the counterparty to the agreement may default on
their obligation. If the counterparty defaults, a Fund might incur a loss or
delay in the realization of proceeds if the value of the collateral securing the
repurchase agreement declines and it might incur disposition costs in
liquidating the collateral. The repurchase agreements held in the Funds at
September 30, 1997 are collateralized by U.S. Treasury or federal agency
obligations, and were entered into on September 30, 1997.
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 gains to their shareholders. Accordingly, no
provisions for income taxes have been made as sufficient distributions were made
or are intended to be made to eliminate taxable income. Distributions from net
investment income or net realized capital gains determined in accordance with
federal income tax regulations may differ from generally accepted accounting
principles. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require such reclassification.
For the year ended September 30, 1997 certain permanent differences, totaling
$(148,932), have been reclassified from undistributed net investment income to
paid in capital for the Growth Fund.
It is the policy of the Funds that the Board of Directors will not declare
capital gain distributions until any net capital loss carryforwards have been
utilized. The following net capital loss carryforward amounts are available to
the Funds as of September 30, 1997:
-47-
<PAGE>
Net Capital Loss Date(s) of
Carryforward Expiration
- -----------------------------------------------------------------------
Tax-Free Money Market Fund ........ $ 4,664 2004
Short-Term Bond Fund .............. 37,925 2004
U.S. Government Income Fund ....... 302,440 2005
Bond Fund ......................... 184,779 2003-2005
Municipal Bond Fund ............... 125,678 2003-2004
California Tax-Free Fund .......... 225,765 2004
Growth Fund ....................... 297,325 2004-2005
Due to the timing of dividend distributions and the differences in accounting
for income and realized gains (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.
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.
Use of Estimates
- ----------------
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 Advisors ("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 year ended September 30, 1997, GFIA has voluntarily waived a portion of its
fees to limit fund expenses. For the year ended September 30, 1997 advisory fees
were incurred by the Funds as follows:
Advisory Waived
Funds fees fees
- -----------------------------------------------------------------------
Money Market ........................... $1,020,925 $ 995,592
Tax-Free Money Market .................. 68,154 68,154
Short-Term Bond ........................ 161,913 161,913
U.S. Government Income ................. 303,786 303,786
Bond ................................... 201,308 201,308
Municipal Bond ......................... 39,097 39,097
California Tax-Free .................... 131,759 131,759
Growth & Income ........................ 1,100,393 900,393
Growth ................................. 249,984 199,984
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 year ended September 30, 1997 administration and
accounting fees were incurred by the Funds as follows:
-48-
<PAGE>
Administration
and Waived
Funds Accounting fees fees
- -----------------------------------------------------------------------
Money Market ......................... $408,370 $ 0
Tax-Free Money Market ................ 27,262 8,174
Short-Term Bond ...................... 64,765 8,666
U.S. Government Income ............... 121,514 839
Bond ................................. 80,523 546
Municipal Bond ....................... 15,638 15,638
California Tax-Free .................. 52,704 4,971
Growth & Income ...................... 366,798 0
Growth ............................... 83,328 508
In addition, to limit fund expenses GFA reimbursed the Short-Term Bond Fund,
U.S. Government Income Fund, Bond Fund and the Municipal Bond Fund 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, prospective
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 Non-Money
Market Funds. GFS has waived a portion of its fees to limit fund expenses. For
the year ended September 30, 1997, 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 Servicing Fees Fees
- -----------------------------------------------------------------------
Money Market ......................... $408,370 $ 0
Tax-Free Money Market ................ 27,262 25,032
Class A Shares:
Short-Term Bond ...................... 80,423 76,763
U.S. Government Income ............... 142,764 40,716
Bond ................................. 99,576 67,859
Municipal Bond ....................... 18,546 18,546
California Tax-Free .................. 56,021 32,308
Growth & Income ...................... 394,795 0
Growth ............................... 96,576 7,224
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 year ended September 30, 1997, Class B
shares of the Funds incurred distribution and servicing fees as follows:
Distribution and Waived
Funds Servicing Fees Fees
- -----------------------------------------------------------------------
Short-Term Bond ...................... $ 2,135 $ 1,004
U.S. Government Income ............... 36,516 11,409
Bond ................................. 4,309 1,752
Municipal Bond ....................... 4,008 1,919
California Tax-Free .................. 39,433 14,468
Growth & Income ...................... 254,809 56,372
Growth ............................... 30,336 7,449
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, 1997, GFS was paid $262,631 in front-end
sales charges on sales of Class A shares, and $86,787 in contingent deferred
sales charges on Class B share redemptions.
-49-
<PAGE>
(3) Purchases and Sales of Securities Exclusive of Short-Term Investments
<TABLE>
<CAPTION>
U.S. California Growth &
Short-Term Government Bond Municipal Tax-Free Income Growth
Bond Fund Income Fund Fund Bond 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 $242,793,582 $36,401,284
Sales proceeds 0 0 0 0 0 163,202,750 9,124,205
U.S. Treasury Obligations:
Purchases at cost 20,058,789 121,586,855 33,653,602 0 0 0 0
Sales proceeds 5,520,524 100,315,555 31,581,495 0 0 0 0
U.S. Agency Securities:
Purchases at cost 3,103,411 107,120,279 9,708,762 0 0 0 0
Sales proceeds 1,015,913 84,759,910 6,408,469 0 0 0 0
Municipal Bonds:
Purchases at cost 0 0 0 3,806,962 15,795,718 0 0
Sales proceeds 0 0 0 989,134 8,948,442 0 0
Other Long-Term Securities:
Purchases at cost 12,849,863 1,011,434 31,473,408 0 0 0 0
Sales proceeds 925,664 943,614 11,743,737 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All Funds not reflected in this schedule traded exclusively in short-term
securities.
(4) Capital Shares Transactions
As of September 30, 1997, the Company was authorized to issue 10 billion shares
of $0.001 par value capital stock. As of September 30, 1997, each Fund, except
the Money Market Fund and the Tax-Free Money Market Fund, was authorized to
issue 250 million shares of $0.001 par value capital stock as Class A shares and
250 million shares of $0.001 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 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, 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
Shares sold and exchanged in ............. 377,824,042 377,824,042 21,135,288 21,135,288
Shares issued in reinvestment of dividends 9,784,791 9,784,791 376,989 376,989
Shares redeemed and exchanged out ........ (342,482,819) (342,482,819) (17,002,784) (17,002,784)
------------- ------------- ------------- -------------
September 30, 1997: ......................... 229,756,933 $ 229,756,933 16,165,750 $ 16,165,750
============================== ==============================
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
----------------------------- ---------------------------
Short-Term Bond Fund Shares Amount Shares Amount
----------------------------- ---------------------------
<S> <C> <C> <C> <C>
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
Shares sold and exchanged in ............. 3,948,575 39,591,843 16,298 162,998
Shares issued in reinvestment of dividends 155,367 1,557,388 1,029 10,304
Shares redeemed and exchanged out ........ (1,090,055) (10,925,947) (14,241) (142,503)
--------------------------- --------------------------
September 30, 1997: .................................. 4,972,204 $ 49,904,148 17,395 $ 173,068
=========================== ============================
<CAPTION>
Class A Class B
------------------------------ ----------------------------
U.S. Government Income Fund Shares Amount Shares Amount
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
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
Shares sold and exchanged in ............. 4,772,208 43,274,806 95,320 868,466
Shares issued in reinvestment of dividends 309,586 2,809,716 12,152 110,352
Shares redeemed and exchanged out ........ (1,599,648) (14,514,126) (59,958) (543,867)
--------------------------- --------------------------
September 30, 1997: .................................. 8,334,837 $ 76,048,902 428,981 $ 3,963,795
=========================== ==========================
<CAPTION>
Class A Class B
----------------------------- ----------------------------
Bond Fund Shares Amount Shares Amount
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
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
Shares sold and exchanged in ............. 4,150,730 36,626,337 12,640 111,012
Shares issued in reinvestment of dividends 230,369 2,030,893 1,901 16,746
Shares redeemed and exchanged out ........ (1,209,786) (10,663,918) (13,567) (118,679)
--------------------------- --------------------------
September 30, 1997: .................................. 6,359,983 $ 56,446,092 48,367 $ 431,602
=========================== ==========================
<CAPTION>
Class A Class B
------------------------------ -------------------------
Municipal Bond Fund Shares Amount Shares Amount
------------------------------ -------------------------
<S> <C> <C> <C> <C>
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
Shares sold and exchanged in ............. 454,447 4,139,861 11,948 108,637
Shares issued in reinvestment of dividends 26,502 240,493 1,146 10,397
Shares redeemed and exchanged out ........ (176,304) (1,597,048) (14,228) (128,103)
------------------------- -------------------------
September 30, 1997: .................................. 1,035,069 $ 9,367,536 46,363 $ 419,828
========================== =========================
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
----------------------------- --------------------------
California Tax-Free Fund Shares Amount Shares Amount
----------------------------- --------------------------
<S> <C> <C> <C> <C>
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
Shares sold and exchanged in ............. 953,669 7,730,742 228,961 1,842,384
Shares issued in reinvestment of dividends 72,141 581,289 11,814 95,171
Shares redeemed and exchanged out ........ (499,082) (4,026,992) (67,159) (539,091)
-------------------------- -------------------------
September 30, 1997: .................................. 3,158,932 $ 25,283,735 571,839 $ 4,550,148
========================== =========================
<CAPTION>
Class A Class B
-------------------------------- -----------------------------
Growth & Income Fund Shares Amount Shares Amount
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
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
Shares sold and exchanged in ............. 6,046,362 110,044,808 824,740 15,027,177
Shares issued in reinvestment of dividends 583,472 9,864,463 84,273 1,410,147
Shares redeemed and exchanged out ........ (2,189,429) (40,106,099) (109,363) (1,961,833)
---------------------------- ----------------------------
September 30, 1997: .................................. 10,732,969 $ 166,457,839 1,823,989 $ 29,743,678
============================= ============================
<CAPTION>
Class A Class B
-------------------------------- ------------------------------
Growth Fund Shares Amount Shares Amount
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
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
Shares sold and exchanged in ............. 2,767,036 39,554,274 110,567 1,547,328
Shares issued in reinvestment of dividends 31 433 5 75
Shares redeemed and exchanged out ........ (820,139) (12,331,287) (19,860) (284,909)
--------------------------- --------------------------
September 30, 1997: .................................. 3,475,205 $ 45,594,226 249,059 $ 3,267,865
=========================== ==========================
</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") which are used to offset custodial expenses. These Earnings
Credits are calculated each month by multiplying the average daily cash balance
in 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
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.
-52-
<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, 1997 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 then ended
and the financial highlights for each of the years in the three-year period then
ended 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 each of the years in the two-year period ended
September 30, 1997 and the period from June 12, 1995 (commencement of
operations) 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, 1997, 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, 1997, 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 7, 1997
-53-
<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 1998, 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 $3,811,437
Of the distributions made by the below-listed Funds 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 fund the corresponding percentage
represents the amount of each distribution which will qualify for the dividends
received deduction available to corporate shareholders.
Growth & Income Fund
Dividends paid before September 5, 1997: 100%
Dividends paid on or after September 5, 1997: 100%
-54-
<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
Herbert L. Botts, Assistant Secretary
Steven P. Muson, Assistant Treasurer
Henry M. Pena, Assistant Secretary
Diana J. Veloz, 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.
