<PAGE>
ANNUAL REPORT
[LOGO OF THE GRIFFIN FUNDS]
September 30, 1998
<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 ............................................. 48
Report of Independent Auditors............................................. 55
Special Message to Shareholders............................................ 56
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, 1998. 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.
Market Overview
The past twelve months of this reporting period marked the turn from an aging
bull market to a long-expected market correction. The market decline began like
any other bear market; stocks were priced high and small stocks in particular
showed the first signs of weakening. However, this bear market is unique in that
it was not triggered by the usual forces-rising inflation and interest rates or
an overheated U. S. economy-but rather by deepening world financial problems and
the specter of deflation. Investors began to flee to safety, initially in a few
blue chip companies and then increasingly to bonds, particularly U.S.
Treasuries. What a year it has been for observation and to learn first hand the
resonant impact of a global economy. In the United States,the Standard & Poor's
500 Index increased slightly over the past twelve months from 947.28 to 1017.01
However, the line was anything but straight. The index rose from a low of 876.99
on October 27, 1997, peaked at 1186.75 in late July, and then plunged downward
again to 957.28 on the last day in August. Most of the strength in the equity
market came from a few large capitalization blue chip stocks, with small and
middle capitalization stocks fairing poorer. Over the past year, we have seen a
number of market shifts. The domestic fixed income market was no exception. The
Federal Reserve reduced interest rates a couple of times in the year in an
attempt to bolster the U.S. economy's immune system as it slowed due to global
economic turbulence. A normal up-sloping, yield curve at the beginning of the
period gave way to an inverted yield curve (an inverted yield curve demonstrates
that one will receive a higher yield on a shorter maturity Treasury than of a
longer one) at the end of September. This was a direct result of a number of
macro-factors such as a flight to quality to limit exposure to volatile
investments, interest rate declines, and general uncertainty of the health of
the U. S. economy. Recently, since U. S. interest rates have been falling rather
than rising, there is a good chance that stocks can buoy if the global turmoil
subsides soon. This may be what the markets have been experiencing in the last
few weeks.
Message
The past twelve months have been an interesting time due to the volatility in
the markets, serving as a wake-up call to many. The true nature of the stock
market revealed itself after a long and healthy bull market period. Investors
had become comfortable in equity investing, almost expecting double-digit annual
returns. However, the stock market has a long history of volatility and such
long periods of steady gain should be considered the exception, not the rule. If
there is a bright picture after weathering this experience, it is a reminder of
lessons learned in the past. We believe shareholders of The Griffin Funds have a
long-term outlook, with the tenacity to ride through market volatility, sticking
to an original plan that was based on informed decision making with a longer
time horizon.
Looking to the Future
On October 1, 1998, Washington Mutual, Inc. received approval and finalized the
planned merger with H. F. Ahmanson & Company, the parent company of Griffin
Financial Investment Advisors. This acquisition, originally announced on March
17, 1998, has created one of the largest financial services companies in the
country. The Directors of The Griffin Funds are currently evaluating a proposal
from Washington Mutual regarding the marriage of our fund family with the WM
Group of Funds.There will be separate communications sent to you regarding this
proposal, and you, as a shareholder of The Griffin Funds, will have the
opportunity to express your point of view.I want to emphasize that in the months
leading up to and since the corporate merger, The Griffin Funds have not strayed
from our main objective which is to provide high quality, professional
investment management and the highest level of customer service.The Griffin
Funds were created 5 years ago to provide a consistent, careful and committed
approach for those seeking to invest in the financial markets. We appreciate
your selection of The Griffin Funds for your investment needs. We will do our
best to preserve your continued confidence and loyalty.
Sincerely,
Willism A. Hawkins
Charman
The Griffin Funds, Inc.
November 16, 1998
- 1 -
<PAGE>
Performance Highlights of the Funds
The table below provides yield and total return information for the periods
ended September 30, 1998 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 year ended September 30,
1998, 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 reinvestment of all dividends and capital gains, if
any. Of course, past performance is not an indicator of future results.
For the Periods Ended September 30, 1998
<TABLE>
<CAPTION>
Seven Day
Seven Day Effective
Yield Yield
----- -----
<S> <C> <C>
Money Market Fund(1) 4.85% 4.97%
Tax-Free Money Market Fund(1) 3.02% 2.85%
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 ....................... 7.29% 12.20% 7.12% 6.99% 11.35% 9.13%
U.S. Government Income Fund (incl. sales charge)(2) 2.46% 7.15% 6.13% 1.99% 6.35% 8.53%
Lipper General U.S. Govt. Average (190 funds) ..... 6.99% 11.64% n/a 6.99% 11.64% n/a
Bond Fund ......................................... 5.94% 10.50% 6.01% 5.54% 9.67% 8.74%
Bond Fund (incl. sales charge)(2) ................. 1.17% 5.53% 5.02% 0.54% 4.67% 8.14%
Lipper Corporate Debt A Rated Average (155 funds) . 6.00% 10.39% n/a 6.00% 10.39% n/a
California Tax-Free Fund .......................... 4.92% 8.37% 5.13% 4.40% 7.55% 8.52%
California Tax-Free Fund (incl. sales charge)(2) .. 0.20% 3.49% 4.16% -0.60% 2.55% 7.91%
Lipper CA Municipal Debt Average (107 funds) ...... 4.83% 8.70% n/a 4.83% 8.70% n/a
Municipal Bond Fund ............................... 4.54% 8.13% 5.19% 4.15% 7.36% 8.23%
Municipal Bond Fund (incl. sales charge)(2) ....... -0.16% 3.26% 4.21% -0.85% 2.36% 7.62%
Lipper General Municipal Debt Average (246 funds) . 4.29% 8.20% n/a 4.29% 8.20% n/a
Growth & Income Fund ............................. -16.23% -8.32% 15.57% -16.54% -8.94% 18.02%
Growth & Income Fund (incl. sales charge)(2) ..... -20.00% -12.44% 14.50% -21.54% -13.94% 17.54%
Lipper Growth & Income Average (828funds) ........ -14.04% -1.08% n/a -14.04% -1.08% n/a
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 ............................... 5.25% 8.46% 6.80% 4.85% 7.69% 6.27%
Short-Term Bond Fund (incl. sales charge)(3) ....... 1.57% 4.66% 5.66% 0.85% 3.69% 6.01%
Lipper S.I. Investment Grade Debt Average (98 funds) 4.68% 8.04% n/a 4.68% 8.04% n/a
Growth Fund ........................................ -19.76% -11.71% 12.64% -20.07% -12.36% 12.04%
Growth Fund (incl. sales charge)(4)................. -23.37% -15.68% 11.08% -25.07% -17.36% 11.34%
Lipper Mid Cap Equity Average (353 funds)........... -19.75% -11.95% n/a -19.75% -11.95% n/a
</TABLE>
(1) Investments in the Money Market Funds are neither insured nor guaranteed by
the U.S. Government. There can be no assurance that either of the Money
Market Funds will be able to maintain a stable net asset value of $1.00 per
share.
(2) 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, 1998, 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, 1998) 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, 1998, 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, 1998) 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 30,1998) has been factored into these calculations.
See acconpanying notes to financial statements.
- 2 -
<PAGE>
Schedule of Investments
Griffin Money Market Fund
September 30, 1998
[PIE CHART APPEARS HERE]
Certificates of Deposit 13%
Commercial Paper 59%
Corporate Notes 10%
U.S. Government Agency Notes 18%
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>
Certificates of Deposit (13.5%):
Financial Services (13.5%):
Dresdner Bank, 5.51%, 01/15/99............ $7,000,000 $6,999,219
Morgan Guaranty Trust, 5.71%, 01/08/99.. 5,000,000 4,999,485
Swiss Bank Corporation, 5.69%, 01/07/99.. 11,000,000 10,999,151
Toronto Dominion Bank of New York,
5.64%, 07/14/99...................... 9,000,000 9,026,837
------------
Total Certificates of Deposit (cost: $32,024,692)........ 32,024,692
------------
Commercial Paper (59.2%):
Financial Services (50.4%):
Abbey National, 5.50%, 10/14/98 (b)....... 10,000,000 9,980,139
ABN Amro Finance, 5.50%, 10/13/98 (b)..... 11,000,000 10,979,852
American Express Credit, 5.49%, 10/26/98 (b) 11,000,000 11,000,000
American General Finance Corporation,
5.55%, 10/22/98 (b).................. 11,000,000 11,000,000
Chevron Oil Finance, 5.39%, 11/05/98 (b).. 11,000,000 11,000,000
Ford Motor Credit, 5.56%, 10/13/98 (b).... 11,000,000 11,000,000
General Electric Capital Corporation,
5.48%, 12/02/98 (b).................. 11,000,000 11,000,000
General Motors Acceptance Corporation,
5.01%, 12/28/98 (b).................. 11,000,000 11,000,000
International Lease Finance,
5.49%, 11/05/98 (b).................. 11,000,000 10,941,288
Merrill Lynch, 5.50%, 01/15/99 (b)........ 11,000,000 10,821,861
UBS Finance, 5.50%, 10/06/98 (b........... 11,000,000 10,991,600
------------
119,714,740
------------
Industrial Conglomerate (4.2%):
Shell Oil Company, 5.45%, 10/16/98........ 10,000,000 9,977,292
------------
Manufacturing (4.6%):
Dupont E.I. Nemour, 5.49%, 10/22/98....... 11,000,000 10,964,773
------------
Total Commercial Paper (cost: $140,656,805).............. 140,656,805
------------
Medium-Term Notes (9.6%):
Financial Services (9.6%):
Associates Corporation Note,
6.68%, 09/17/99....................... $8,650,000 $8,765,041
CIT Group Holdings, 6.10%, 08/09/99....... 9,000,000 9,064,084
Norwest Corporation, 6.00%, 10/13/98...... 5,000,000 5,000,231
------------
Total Medium-Term Notes
(cost: $22,829,356)............................. 22,829,356
------------
U.S. Government And Agency Securities (17.7%):
Federal Home Loan Mortgage Corporation (17.7%):
Federal Home Loan Mortgage Corporation,
5.41%, 10/14/98...................... 20,000,000 19,960,928
Federal National Mortgage Association,
5.00%, 10/01/98...................... 11,100,000 11,100,000
Federal National Mortgage Association,
5.41%, 10/16/98...................... 11,000,000 10,975,227
------------
Total U.S. Government And Agency Securities
(cost: $42,036,155)............................ 42,036,155
------------
Repurchase Agreements (0.0%):
State Street Bank & Trust Co., Master
Repurchase Agreement, 4.00%, dated
9/30/98 due 10/1/98, Collateralized
by U.S. Government Securities
(delivery value $43,933).................. 43,927 43,927
------------
Total Repurchase Agreements (cost: $43,927).............. 43,927
------------
Total Investments in Securities
(cost: $237,590,935)(c)(100.0%)................ 237,590,935
Other Assets Less Liabilities (0.0%) (1,158)
------------
Net Assets (100.0%)...................................... $237,589,777
============
</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, 1998.
(c) Cost is the same for federal income tax purposes.
- 3 -
<PAGE>
Schedule of Investments
Griffin Tax-Free Money Market Fund
September 30, 1998
[PIE CHART APPEARS HERE]
Variable Rate Demand Notes 55%
Commercial Paper 4%
Revenue Bonds 11%
General Obligations 19%
Notes 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>
Municipal Short-Term Securities (99.8%)
California (3.5%)
Santa Clara Tax & Revenue Anticipation Notes,
4.75%, 10/01/98................... $800,000 $800,000
---------
Georgia (7.5%)
De Kalb County, Georgia School District,
Series A, 4.25%, 07/01/99......... 1,000,000 1,004,729
MEAG Electric Authority Revenue,
3.45%, 10/01/98 (b)............... 700,000 700,000
---------
1,704,729
---------
Illinois (3.5%)
Illinois Development Financing Authority
Revenue, 3.65%, 10/01/98 (b)..... 800,000 800,000
---------
Indiana (2.6%)
Indiana Health Facility Financing Authority
Hospital Revenue Bond, 3.55%, 10/01/98 600,000 600,000
---------
Louisiana (12.7%)
Ascension Parish, Louisiana Pollution
Control Revenue, Shell Oil,
3.45%, 10/01/98 (b).............. 1,000,000 1,000,000
Calcasieu Parish, Louisiana Industrial
Development Board Pollution Control Revenue,
3.65%, 10/01/98 (b).............. 500,000 500,000
Louisiana Public Facilities Authority Revenue,
Multi-Family Housing, Emberwood Project,
3.55%, 10/01/98 (b).............. 1,000,000 1,000,000
South Louisiana Port Community Marine
Terminal Facilities Revenue,
3.50%, 10/01/98 (b).............. 400,000 400,000
----------
2,900,000
----------
Maryland (4.4%)
Maryland State General Obligation,
5.90%, 03/15/99.................. $1,000,000 $1,010,158
----------
Michigan (13.2%)
Charter County of Wayne, Michigan, Detroit
Metropolitan Wayne County Airport Revenue,
3.55%, 10/01/98 (b).............. 1,000,000 1,000,000
Michigan Municipal Bond Authority Revenue,
Local Government Loan Program,
6.10%, 05/15/99.................. 1,000,000 1,015,021
Michigan State Housing Development
Authority, Limited Obligation Revenue,
3.60%, 10/01/98 (b).............. 1,000,000 1,000,000
----------
3,015,021
----------
Missouri (3.9%)
Kansas City, Missouri Industrial Development
Authority, Hospital Revenue Bond, Baptist
Health System, Series A, 3.95%, 10/01/98 500,000 500,000
Missouri Higher Education Loan Authority
Student Loan Revenue, Series B,
3.65%, 10/01/98 (b)............... 400,000 400,000
--------
900,000
--------
New York (7.9%)
Nassau County, New York Revenue Anticipation
Notes, Series A, 4.00%, 03/10/99.. 1,300,000 1,301,102
New York Municipal Assistance Corporation,
3.30%, 10/01/98 (b)............... 500,000 500,000
----------
1,801,102
----------
Oregon (4.4%)
Oregon State Department of Transportation
Revenue, Regional Light Rail Fund - Westside
Project, 5.38%, 06/01/99......... 1,000,000 1,010,836
----------
Pennsylvania (4.4%)
Delaware Valley, Pennsylvania Regional
Finance Authority Revenue,
3.50%, 10/01/98 (b).............. 500,000 500,000
3.50%, 10/01/98 (b).............. 500,000 500,000
---------
1,000,000
---------
Rhode Island (4.4%)
Rhode Island State Student Loan Authority,
Student Loan Revenue, Series 3,
3.65%, 10/01/98 (b)...................... 1,000,000 1,000,000
----------
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
Schedule of Investments
Griffin Tax-Free Money Market Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ----------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Tennessee (4.4%)
Chattanooga - Hamilton County, Tennessee
Hospital Authority Revenue,
4.20%, 10/01/98 (b).............. $1,000,000 $1,000,000
------------
Texas (4.4%)
Austin, Texas Travis & Williamson Counties
Combined Utility System,
4.20%, 10/07/98.................. 1,000,000 1,000,000
------------
Virginia (8.9%)
King George County, Virginia Industrial
Development Authority Exempt Facility
Revenue, Birchwood Power Partners,
4.25%, 10/01/98 (b).............. 1,000,000 1,000,000
Newport News, Virginia General Obligation,
6.88%, 12/01/98.................. 1,000,000 1,030,282
------------
2,030,282
------------
Washington (2.2%)
Seattle, Washington General Obligation,
4.50%, 03/01/99.................. 500,000 501,808
------------
West Virginia (3.1%)
Marion County, West Virginia Solid Waste
Disposal Facilities Revenue,
3.70%, 10/01/98 (b).............. 700,000 700,000
------------
Wisconsin (4.4%)
Milwaukee County, Wisconsin, Series A,
5.10%, 09/01/99.................. $1,000,000 $1,012,889
Total Municipal Short-Term Securities
(cost: $22,786,825).............................. 22,786,825
------------
Other Short-Term Securities (0.2%)
Seven Seas Tax Free Money Market Fund,
3.30%, 10/01/98.......................... 42,574 42,574
-----------
Total Other Short-Term Securities (cost: $42,574)........ 42,574
-----------
Total Investments in Securities
(cost: $22,829,399)(c)(99.2%).................... 22,829,399
Other Assets Less Liabilities (0.8%)..................... 248,823
-----------
Net Assets (100.0%)...................................... $23,078,222
===========
</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 Short-Term Bond Fund was most affected by the significant reduction in
interest rates. During the third quarter of 1998, the Fund was also affected by
the widening of corporate spreads. In simple terms, a corporate spread is the
difference between the current bid and the current asking price of individual
corporate bonds.
What were some of the strategies and techniques implemented during the year?
A common strategy was implemented throughout the year in the Short-Term Bond
Fund. The technique saw the portfolio reduce its exposure to mortgages. The Fund
also continued to make primary purchases of corporate bonds. However, the
corporate bonds selected were issued by companies that have historically proven
resilient during recessions.
What themes can be seen in the current portfolio.(industry weightings) and why?
The main theme of the Short-Term Bond Fund is to maintain a similar weighting to
its benchmark. However, there is a slight overweighting in two sectors. The
overweighted sectors are U.S. Government agencies and corporate bonds. This is
seen when the Fund's portfolio is compared to the benchmark.
What individual security holdings changed significantly during the year?
Significant purchases were seen in a variety of sectors during the past year.
Some examples of securities added to the portfolio include Fairfax Financial
Holdings, Northern Trust Company, Tyson Foods, Inc., Hertz Corporation, and
Union Pacific Company.
What is the strategy for the next six to twelve months?
During the next six to twelve months, the Short-Term Bond Fund will look to stay
fairly neutral. This is a direct result of current and future interest rate
sensitivity. If interest rates appear to bottom out during this time frame, the
Fund will gradually increase its exposure to mortgage-backed securities.
- 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, reinvesting all dividends,
the top chart would track the value of your investment through the period ended
September 30, 1998. If you had invested $10,000 in Class B of the Fund when they
were first offered on June 12, 1995, assuming all dividends were reinvested, the
bottom chart would track the performance of your investment through the period
ended September 30, 1998 (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 Average is based on a universe of
approximately 99 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 1% 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.
THE GRIFFIN SHORT-TERM BOND FUND CLASS A
{CHART APPEARS HERE}
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 3.5% sales charge)
One year......................................................4.66%
Since Inception...............................................5.66%
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
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
Dec 97 $11,245 Dec 97 $11,795 Dec 97 $11,636
Mar $11,396 Mar $11,977 Mar $11,807
Jun $11,558 Jun $12,178 Jun $11,993
Sep $11,995 Sep $12,632 Sep $12,361
</TABLE>
SHORT-TERM BOND FUND CLASS B
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.......................................................3.69%
Since Inception................................................6.01%
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
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
Dec 97 $11,326 Dec 97 $11,795 Dec 97 $11,636
Mar $11,457 Mar $11,977 Mar $11,807
Jun $11,609 Jun $12,178 Jun $11,993
Sep $11,713 Sep $12,632 Sep $12,361
</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, 1998
[PIE CHART APPEARS HERE]
U.S. Government Agency Securities 25%
U.S. Treasury Notes & Bonds 43%
Corporate Bonds 32%
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 (32.3%)
Banking (2.2%)
Bankers Trust - New York, 9.50%, 06/14/00. $470,000 $502,313
First Chicago, 9.00%, 06/15/99............ 30,000 30,788
MBNA Corporation
6.10%, 12/15/00................... 450,000 457,312
6.88%, 10/01/99................... 210,000 213,150
Northern Trust Company, 6.50%, 05/01/03... 1,000,000 1,061,250
----------
2,264,813
----------
Financial Services (11.4%)
Associates Corporation, N.A.
6.00%, 03/15/0.................... 250,000 253,750
6.75%, 10/15/99................... 16,000 16,275
Bear Stearns Company Inc.,
6.20%, 03/30/03................... 1,000,000 1,028,750
CIT Group Holdings, 6.38%, 11/15/02....... 1,000,000 1,047,500
Donaldson Lufkin & Jennrette,
6.38%, 05/26/00................... 1,000,000 1,020,000
Fairfax Financial Holdings,
7.75%, 12/15/03................... 1,000,000 1,082,500
Finova Capital Corporation,
6.28%, 11/01/99................... 1,000,000 1,010,750
General Motors Acceptance Corporation
5.63%, 02/15/01................... 200,000 202,750
6.88%, 07/15/01................... 300,000 314,250
7.75%, 01/15/99................... 500,000 503,575
Golden West Financial, 10.25%, 12/01/00 255,000 281,138
Heller Financial, 9.13%, 08/01/99......... 100,000 103,098
Lehman Brothers Holdings Corporation
6.13%, 02/01/01................... 1,000,000 1,001,250
8.88%, 11/01/98................... 150,000 150,377
Paine Webber Group, 9.25%, 12/15/01....... 717,000 802,144
PDVSA Finance, 6.45%, 02/15/04............ 1,200,000 1,135,500
Penske Truck Leasing, 6.65%, 11/01/00..... 750,000 776,250
Salomon Smith Barney Holdings,
6.13%, 01/15/03................... 1,000,000 1,018,750
----------
11,748,607
----------
Food Products (1.0%)
Tyson Foods Incorporated,
6.00%, 01/15/03.................... $1,000,000 $1,031,250
----------
Industrial Conglomerate (11.6%)
Anheuser Busch Company, 8.75%, 12/01/99... 100,000 103,875
Boise Cascade Company, 9.90%, 03/15/00.... 603,000 636,165
Continental Cablevision, 8.50%, 09/15/01.. 600,000 653,250
Cox Communications Incorporated - New,
8.55%, 06/01/00................... 40,000 42,200
Cox Communications Incorporated,
6.38%, 06/15/00................... 100,000 102,125
Dillards Incorporated, 6.43%, 08/01/04.... 1,000,000 1,052,500
Eaton Off Shore, 9.00%, 02/15/01.......... 750,000 819,375
Enron Corporation, 9.13%, 04/01/03........ 710,000 821,825
Hertz Corporation, 7.38%, 06/15/01........ 1,000,000 1,053,750
Ingersoll-Rand, 6.26%, 02/15/01........... 1,000,000 1,031,250
International Paper Company,
9.70%, 03/15/00................... 150,000 159,188
Lockheed Corporation, 9.38%, 10/15/99..... 71,000 73,840
Pepsico Incorporated, 7.75%, 10/01/98..... 100,000 100,000
Philip Morris, 7.50%, 04/01/04............ 2,000,000 2,200,000
Praxair Incorporated, 6.15%, 04/15/03..... 1,000,000 1,028,750
Sony Corporation, 6.13%, 03/04/03......... 1,000,000 1,026,250
Texaco Capital Incorporated,
9.00%, 12/15/99................... 65,000 67,908
Union Texas Petroleum, 6.60%, 12/04/02.... 1,000,000 1,041,250
----------
12,013,501
----------
Retailing (0.6%)
Penney J.C. & Company, 6.95%, 04/01/00.... 450,000 463,500
Wal-Mart Stores, 6.75%, 05/15/02.......... 100,000 106,125
----------
569,625
----------
Transportation (1.3%)
Southwest Airlines, 9.40%, 07/01/01....... 150,000 166,125
Union Pacific Corporation,
9.63%, 12/15/02................. 1,000,000 1,153,750
----------
1,319,875
----------
Utilities (4.2%)
Alabama Power Company, 6.38%, 08/01/99.... 30,000 30,263
Consolidated Natural Gas, 8.75%, 06/01/99. 465,000 474,881
National Rural Utilities, 6.75%, 09/01/01. 300,000 315,000
Orange & Rockland Utility, 9.38%, 03/15/00 275,000 291,844
Philadelphia Electric, 8.00%, 04/01/02.... 1,000,000 1,092,500
Potomac Capital Investment,
6.80%, 09/12/01................... 1,000,000 1,035,000
Public Service Electric & Gas,
8.75%, 07/01/99................... 1,000,000 1,023,750
Southern California Edison,
8.25%, 02/01/00................... 60,000 62,550
----------
4,325,788
----------
Total Corporate Bonds (cost: $32,346,615)................. 33,273,458
----------
</TABLE>
See accompanying notes to financial statements.
- 8 -
<PAGE>
Schedule of Investments
Griffin Short-Term Bond Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government And Agency Securities (67.2%)
U.S. Treasury Notes (42.7%)
5.50%, 04/15/00........................... $1,600,000 $1,624,432
5.50%, 12/31/00........................... 2,800,000 2,864,988
5.50%, 02/28/03........................... 1,000,000 1,045,470
5.75%, 10/31/00........................... 1,100,000 1,129,623
6.13%, 07/31/00........................... 3,500,000 3,604,230
6.25%, 04/30/01........................... 6,550,000 6,843,964
6.63%, 06/30/01........................... 5,650,000 5,971,429
6.63%, 04/30/02........................... 5,500,000 5,901,115
6.88%, 03/31/00........................... 550,000 568,871
7.00%, 04/15/99........................... 1,000,000 1,012,210
7.13%, 02/29/00........................... 650,000 673,088
7.50%, 10/31/99........................... 650,000 669,559
7.50%, 05/15/02........................... 7,050,000 7,773,894
7.75%, 12/31/99........................... 1,500,000 1,556,835
7.75%, 01/31/00........................... 1,950,000 2,030,574
8.50%, 02/15/00........................... 700,000 736,987
-----------
44,007,269
-----------
U.S. Agency Securities
Federal Home Loan Bank (6.3%)
5.50%, 08/13/01................... 6,000,000 6,133,380
5.89%, 07/24/00................... 200,000 204,250
5.94%, 06/13/00................... 200,000 204,284
-----------
6,541,914
-----------
Federal Home Loan Mortgage Corporation (4.8%)
5.50%, 05/01/01........................... 161,664 161,866
5.50%, 06/01/01........................... 147,253 147,437
5.89%, 07/17/03........................... 3,000,000 3,085,890
6.00%, 04/01/99........................... 92,282 93,262
6.00%, 06/01/01........................... 76,461 77,273
6.00%, 06/01/01........................... 319,597 322,991
6.50%, 12/01/99........................... 257,357 263,065
6.50%, 05/01/01........................... 296,093 301,088
7.00%, 09/01/01........................... 218,371 222,395
7.13%, 07/21/99........................... 175,000 177,798
7.75%, 11/07/01........................... 50,000 54,317
----------
4,907,382
----------
Federal National Mortgage Association (13.4%)
5.75%, 04/15/03........................... $5,000,000 $5,201,850
6.00%, 03/01/05........................... 985,790 995,332
6.22%, 07/15/02........................... 5,000,000 5,258,750
7.50%, 02/11/02........................... 1,500,000 1,628,070
8.25%, 12/18/00........................... 225,000 241,583
9.05%, 04/10/00........................... 475,000 505,704
-----------
13,831,289
-----------
Total U.S. Government And Agency Securities
(cost: $67,438,776)............................... 69,287,854
-----------
Short-Term Securities (0.6%)
Repurchase Agreement
State Street Bank & Trust Co., Master
Repurchase Agreement, 4.00%, dated
9/30/98 due 10/1/98, Collateralized by
U.S. Government Securities
(delivery value $590,959)......... 590,894 590,894
-----------
Total Short-Term Securities (cost: $590,894).............. 590,894
-----------
Total Investments in Securities
(cost: $100,376,285)(b)(104.7%)................... 103,152,206
Other Assets Less Liabilities (-4.7%)..................... (4,619,304)
-----------
Net Assets (100.0%)....................................... $98,532,902
===========
</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.......... $2,841,979
Gross unrealized depreciation.......... (66,058)
-----------
Net unrealized appreciation............ $2,775,921
===========
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?
A number of factors affected performance of the U.S. Government Income Fund over
the past year. One of the most significant is the general decline of long-term
interest rates from 6.4% to 5.0%. Global economic volatility also played a major
role, as risk premiums rose across all market segments in response to this
phenomenon. As a result, an increase in the prepayment risk within the mortgage
market had a significant affect on the Fund's performance.
What were some of the strategies and techniques implemented during the year?
The Fund's exposure to longer maturity Treasury notes was increased over the
past year. This placed a greater concentration on well-structured collateralized
mortgage obligations (CMO). A CMO is a mortgage-backed, investment-grade bond
that separates mortgage pools into different maturity classes. This
restructuring allowed the Fund to perform well in the lower interest rate
environment.
What themes can be seen in the current portfolio (industry weightings) and why?
The fund consistently took a defensive stance with regard to prepayment risk
within the mortgage market. Mortgage pass-throughs owned by the Fund included
prepayment penalty bonds and newly issued coupon pass-throughs. A mortgage
pass-through is a security consisting of pooled residential mortgage loans in
which all payments of principal and interest are passed through to investors
each month. Prepayment penalty bonds force consumers to pay a penalty if they
opt to refinance their home loan, and coupon pass-throughs offer no incentive to
refinance give the current level of interest rates.
What individual security holdings changed significantly during the year?
The Fund started out the year with a higher allocation to premium mortgage
coupons (0.8%), which was reduced due to pay-downs. Agency-backed CMOs were
increased from 13% to 27% to increase the prepayment protection within the
overall portfolio. Short average life CMO floating rate notes were held as an
alternative to cash (a floating rate note is a bond whose interest is pegged to
a benchmark, such as the Treasury bill rate, and adjusted periodically).
What is the strategy for the next six to twelve months?
The immediate strategy will be to stay liquid within the Treasury and mortgage
markets. The Fund may extend durations somewhat to take advantage of a still
lower interest rate environment. As the market begins to adjust to lower
interest rates and volatility subsides, the Fund's strategy will be to increase
its mortgage exposure.
- 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, reinvesting all
dividends, the top chart would track the value of your investment through the
period ended September 30, 1998. If you had invested $10,000 in Class B of the
Fund when they were first offered on November 1, 1994, assuming all dividends
were reinvested, the bottom chart would track the performance of your investment
through the period ended September 30, 1998 (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
193 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.
The Griffin U.S. Government Income Fund A
{CHART APPEARS HERE}
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year..................................................... 7.15%
Since Inception...............................................6.13%
<TABLE>
<CAPTION>
Value of $10,000 Invested
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
Dec 97 $12,322 Dec 97 $12,779 Dec 97 $12,320
Mar $12,517 Mar $12,972 Mar $12,479
Jun $12,790 Jun $13,314 Jun $12,766
Sep $13,430 Sep $14,051 Sep $13,350
</TABLE>
U.S. GOVERNMENT INCOME FUND CLASS B
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.......................................................6.35%
Since Inception................................................8.53%
<TABLE>
<CAPTION>
Value of $10,000 Invested
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 $12,347 Sep $12,955 Sep $12,690
Dec 97 $12,688 Dec 97 $13,385 Dec 97 $13,072
Mar $12,850 Mar $13,587 Mar $13,240
Jun $13,119 Jun $13,946 Jun $13,545
Sep $13,749 Sep $14,717 Sep $14,164
</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, 1998
[PIE CHART APPEARS HERE]
U.S. Government Agency Securities 6%
U.S. Treasury Notes & Bonds 17%
Mortgage-Backed Securities 77%
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 (76.8%):
Government National Mortgage Association (21.4%):
6.50%, 09/15/28 (b)........................ $5,000,000 $5,100,000
7.00%, 09/01/28 (b)........................ 7,000,000 7,207,760
7.50%, 03/15/24............................ 2,660,840 2,768,923
7.50%, 03/15/26............................ 733,060 760,088
7.50%, 06/15/27............................ 3,282,688 3,403,721
9.00%, 11/15/21............................ 6,560,115 7,019,323
9.50%, 08/15/21............................ 5,400,650 5,886,709
-----------
32,146,524
-----------
Federal Home Loan Mortgage Corporation (16.8%):
5.75%, 01/15/09............................ 7,000,000 7,078,750
5.94%, 05/15/26............................ 2,781,673 2,783,411
6.00%, 10/15/17............................ 5,000,000 5,098,438
6.29%, 03/15/25............................ 923,698 923,986
6.53%, 02/15/21............................ 3,182,743 3,225,511
7.00%, 07/15/17............................ 4,121,510 4,149,083
7.00%, 01/15/24............................ 2,000,000 2,100,280
-----------
25,359,459
-----------
Federal National Mortgage Association (37.9%):
5.92%, 03/01/28............................ 2,793,504 2,805,725
6.00%, 05/15/08............................ 12,500,000 13,544,000
6.14%, 06/25/19............................ 1,245,470 1,251,136
6.21%, 08/06/38............................ 1,250,000 1,354,000
6.25%, 06/25/19............................ 4,200,000 4,291,266
6.29%, 04/25/27............................ 3,559,565 3,595,160
6.50%, 10/01/13 (b)........................ 7,000,000 7,142,170
6.50%, 03/01/28 (b)........................ 9,000,000 9,132,120
6.75%, 07/18/19............................ 6,000,000 6,131,880
7.00%, 03/01/27............................ 4,710,342 4,857,540
9.00%, 05/25/20............................ 2,711,373 2,910,117
-----------
57,015,114
-----------
Collateralized Mortgage Obligations (0.7%):
L. F. Rothschild Mortgage Trust, Series 3,
Class Z, 9.95%, 09/01/17........... $952,656 $1,074,120
------------
Total Mortgage-Backed Securities (cost: $112,965,874)...... 115,595,217
------------
U.S. Government Securities (17.3%):
U.S. Treasury Bonds (8.7%):
6.25%, 08/15/23............................ 3,000,000 3,434,670
8.13%, 08/15/19............................ 7,000,000 9,594,900
------------
13,029,570
------------
U.S. Treasury Notes (8.7%):
6.13%, 08/15/07........................... 5,000,000 5,593,250
6.50%, 10/15/06........................... 4,000,000 4,537,760
7.00%, 07/15/06........................... 2,500,000 2,910,326
------------
13,041,336
------------
Total U.S. Government Securities
(cost: $23,911,355)............................... 26,070,906
------------
Short-Term Securities (5.9%):
Federal Home Loan Bank (5.9%):
4.95%, 10/01/98 (c)....................... 8,900,000 8,900,000
------------
Total Short-Term Securities (cost: $8,900,000)............ 8,900,000
------------
Total Investments in Securities
(cost: $145,777,229)(d)(132.2%)................... 150,566,123
Other Assets Less Liabilities (-32.2%).................... (36,631,487)
------------
Net Assets (100.0%)....................................... $113,934,636
============
</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 total
cost basis of such securities is $28,384,778.
(c) Rate represents annualized yield to maturity at September 30,
1998. (d) Cost for federal income tax purposes is $145,778,922.
The aggregate gross unrealized appreciation and depreciation of
investments in securities based on this cost were as follows:
Gross unrealized appreciation............$4,896,370
Gross unrealized depreciation............ (109,169)
-----------
Net unrealized appreciation..............$4,787,201
===========
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?
Interest rates experienced a substantial decline during the past year, as
evidenced by the 30-year U.S. Government bond yield dropping from 6.4% to 5.0%.
Investors fled to the relative safety of these government bonds in light of the
international crises. As inflation declined in the U.S., the shape of the yield
curve flattened to lower levels, trading at less than 5% by the end of
September. The subsequent drop in interest rates led to a large supply of new
issues in the corporate market, as companies were able to borrow long-term money
at the lowest interest rates seen in decades.
What were some of the strategies and techniques implemented during the year?
The Bond Fund relied primarily on individual security selection within the
corporate and mortgage-backed securities markets to boost value. The Fund sought
companies with improving quantitative and qualitative factors, including solid
business fundamentals and attractive valuations. The Fund continued its emphasis
on companies expected to achieve a ratings upgrade, which typically leads to the
bond outperforming the broader market. Holdings within the Fund that received
ratings upgrades during the reporting period include 360 Communications, Fleet
Bank, Niagara Mohawk, Staples, USG, and WCOM. In the mortgage market, the Fund
focused on GNMA mortgages, which tend to have lower loan balances and borrowers
less likely to refinance.
What themes can be seen in the current portfolio (industry weightings) and why?
Currently the portfolio's long-term sector weightings are 71% corporates, 16%
mortgages, 13% Treasuries and agencies, and 1% asset backed securities. During
the reporting period, the Fund increased its exposure to corporate securities in
the finance and utility sectors. Due to weakened demand and soft pricing, the
Fund is underweighted in deep commodity cyclicals such as steel, paper, and
chemicals. The Fund's highest concentration is in high quality finance names in
the banking, insurance, and brokerage sector, where opportunities continue to
exist as a result of ongoing consolidation.
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, 1998. 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?
Analysts expect it will take several years before Asia regains financial
stability. As a result, the Fund has reduced its holdings in both Asia and
Asian-related corporate securities. On the other hand, the Fund has increased
its weighting in mortgages from 14% to 16% over the past year. Because analysts
expect 15-year mortgages to have less pre-payment volatility, the Fund has
increased its exposure to these securities from 2% to 5%.
What is the strategy for the next six to twelve months?
Consistent with the Fund's objective to provide high current income without
significant credit risk, it will continue to seek undervalued corporate bonds
with income potential. The Fund currently holds 100 different securities with no
single corporate issuer larger than 4% of the portfolio. Given the attractive
values and the yield premium available in today's corporate market, the Fund
intends to maintain its 71% exposure in corporate securities.
- 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, reinvesting all dividends, the top chart would track the value
of your investment through the period ended September 30, 1998. If you had
invested $10,000 in Class B of the Fund when they were first offered on November
1, 1994, assuming all dividends were reinvested, the bottom chart would track
the performance of your investment through the period ended September 30, 1998
(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 157 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.
The Griffin Bond Fund 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
Bond Index Rated 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
Dec 97 $11,853 Dec 97 $13,187 Dec 97 $12,510
Mar $12,034 Mar $13,389 Mar $12,683
Jun $12,308 Jun $13,734 Jun $12,981
Sep $12,749 Sep $14,233 Sep $13,443
</TABLE>
THE GRIFFIN BOND FUND CLASS B
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.......................................................4.67%
Since Inception................................................8.14%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Bond Fund Lehman Bros. Corporate Lipper Corporate Debt A
Bond Index Rated 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 $12,226 Sep $13,612 Sep $12,949
Dec 97 $12,538 Dec 97 $14,009 Dec 97 $13,301
Mar $12,705 Mar $14,223 Mar $13,484
Jun $12,984 Jun $14,590 Jun $13,801
Sep $13,109 Sep $15,120 Sep $14,293
</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, 1998
[PIE CHART APPEARS HERE]
U.S. Government Agency Securities 10%
U.S. Treasury Notes & Bonds 15%
Corporate Bonds 64%
Other 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 (0.9%):
Banking (0.9%):
Capital Equipment Receivables Trust, 6.28%,
06/15/00............................ $519,000 $523,152
CIT Revenue Trust, 6.20%, 10/15/06.......... 504,000 504,079
----------
Total Asset-Backed Securities (cost: $1,022,786)............ 1,027,231
----------
Corporate Bonds (63.5%):
Autos (5.9%):
Ford Motor Credit Corp.
6.13%, 04/28/03..................... 820,000 847,675
6.85%, 08/15/00..................... 250,000 258,438
7.40%, 11/01/46..................... 825,000 924,000
8.20%, 02/15/02..................... 500,000 548,750
General Motors Acceptance Corporation
6.38%, 05/01/08..................... 680,000 719,100
6.63%, 09/19/02..................... 455,000 480,025
6.88%, 07/15/01..................... 215,000 225,212
7.13%, 05/01/01..................... 2,110,000 2,215,500
9.63%, 05/15/00..................... 100,000 107,125
9.63%, 12/01/00..................... 350,000 382,375
----------
6,708,200
----------
Banking (13.5%):
Abbey National First Capital Corporation,
8.20%, 10/15/04 (b).................. 175,000 198,406
BankAmerica Corporation
6.63%, 08/01/07...................... 1,000,000 1,062,500
7.50%, 10/15/02...................... 150,000 161,812
BankBoston, 6.38%, 03/25/08.................. 1,500,000 1,526,250
Branch Banking & Trust Corporation,
7.25%, 06/15/07...................... 690,000 759,862
Capital One Bank, 6.83%, 08/16/99............ 300,000 303,375
Chase Manhattan Bank
7.13%, 03/01/05...................... 400,000 428,500
8.50%, 02/15/02...................... 1,000,000 1,091,250
Citicorp, 8.00%, 02/01/03.................... 1,000,000 1,085,000
First National Bank of Boston,
7.38%, 09/15/06...................... $370,000 $415,325
First Security Corporation, 6.88%, 11/15/06.. 155,000 168,175
First Union Corporation, 9.45%, 08/15/01..... 246,000 274,905
Fleet Financial Group, 6.88%, 01/15/28....... 995,000 1,026,094
Golden West Financial, 7.88%, 01/15/02....... 250,000 269,688
Key Bank, 6.95%, 02/01/28.................... 1,000,000 1,035,000
MBNA Corporation, 6.92%, 05/30/00............ 495,000 508,612
Morgan J.P. & Company
7.63%, 11/15/98...................... 250,000 250,625
7.63%, 09/15/04...................... 250,000 279,063
NationsBank Corporation
5.38%, 04/15/00...................... 300,000 302,250
6.38%, 02/15/08...................... 680,000 714,850
6.80%, 03/15/28...................... 670,000 691,775
7.25%, 10/15/25...................... 275,000 311,094
Safeco Capital Trust, 8.07%, 07/15/37........ 500,000 547,500
Shawmut Bank, 8.63%, 02/15/05................ 400,000 472,000
Suntrust Bank, 6.25%, 06/01/08............... 1,475,000 1,545,063
-----------
15,428,974
-----------
Communications (2.3%):
360 Communications Company,
7.60%, 04/01/09...................... 100,000 114,750
Avalon Bay Communication, 6.50%, 07/15/03.... 490,000 505,312
GTE South, 6.00%, 02/15/08................... 250,000 262,500
Worldcom Incorporated
6.13%, 08/15/01...................... 996,000 1,019,655
7.55%, 04/01/04...................... 675,000 740,813
------------
2,643,030
------------
Financial Services (20.5%):
Allstate Corporation, 6.75%, 05/15/18........ 310,000 315,813
American Telephone & Telegraph Capital
Corporation
5.65%, 01/15/99...................... 390,000 390,179
6.25%, 05/15/01...................... 1,225,000 1,249,500
Associates Corporation, N.A.
6.63%, 05/15/01...................... 80,000 83,200
6.75%, 07/15/01...................... 104,000 108,680
Bear Stearns Company
6.50%, 06/15/00...................... 225,000 229,781
7.63%, 09/15/99...................... 250,000 255,945
Donaldson Lufkin & Jenrette
6.50%, 06/01/08...................... 1,520,000 1,537,100
6.88%, 11/01/05...................... 294,000 306,862
Equitable Companies Incorporated,
7.00%, 04/01/28...................... 440,000 474,100
Finova Capital Corporation
5.98%, 02/27/01...................... 1,146,000 1,167,488
6.22%, 03/01/00...................... 745,000 755,244
Household Finance Company,
6.58%, 05/17/99...................... 435,000 438,802
Jefferson-Pilot Capital Trust Cl A,
8.14%, 01/15/46...................... 500,000 542,500
Jefferson-Pilot Capital Trust Cl B,
8.29%, 03/01/46...................... 100,000 115,250
</TABLE>
See accompanying notes to financial statements.
- 15 -
<PAGE>
Schedule of Investments
Griffin Bond Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Lehman Brothers Incorporated
6.13%, 02/01/01...................... $550,000 $550,688
6.65%, 11/08/00...................... 502,000 508,275
8.50%, 05/01/07...................... 950,000 1,028,375
Merrill Lynch & Company Incorporated
6.00%, 02/12/03...................... 1,000,000 1,020,000
6.25%, 01/15/06...................... 230,000 236,038
6.50%, 07/15/18...................... 1,450,000 1,413,750
7.38%, 08/17/02...................... 200,000 214,500
Morgan Stanley Group, 8.88%, 10/15/01........ 300,000 331,125
Paine Webber Group
6.79%, 07/01/03...................... 375,000 396,094
7.39%, 10/16/17...................... 415,000 452,869
7.63%, 10/15/08...................... 265,000 302,762
7.81%, 02/13/17...................... 165,000 186,656
8.06%, 01/17/17...................... 830,000 966,950
8.25%, 05/01/02...................... 200,000 219,750
PNC Institute Capital Cl B, 8.32%, 05/15/27.. 500,000 550,625
Salomon Incorporated
6.50%, 03/01/00...................... 1,382,000 1,409,640
7.00%, 05/15/99...................... 280,000 283,172
7.59%, 01/28/00...................... 300,000 309,750
Salomon Smith Barney Holdings,
7.13%, 10/01/06...................... 375,000 415,781
Sears Roebuck Acceptance
6.00%, 03/20/03...................... 1,075,000 1,107,250
7.00%, 06/15/07...................... 1,000,000 1,097,500
Travelers Property Casualty Corp.,
6.75%, 04/15/01...................... 500,000 517,500
US Leasing International, 8.75%, 12/01/01.... 505,000 559,288
USF&G Corporation, 8.38%, 06/15/01........... 575,000 618,844
Zurich Capital Trust I, 8.38%, 06/01/37...... 665,000 748,124
----------
23,415,750
----------
Industrial Conglomerate (16.9%):
Black & Decker
7.00%, 02/01/06....................... 50,000 53,250
7.50%, 04/01/03....................... 185,000 201,188
Burlington Industries, 7.25%, 08/01/27........ 289,000 317,539
B.F. Goodrich Company, 7.00%, 04/15/38........ 525,000 566,344
Coastal Corporation, 8.13%, 09/15/02.......... 165,000 182,530
ConAgra Incorporated, 6.70%, 08/01/27......... 343,000 382,016
CPC International Incorporated,
6.15%, 01/15/06....................... 350,000 370,125
CSR America Incorporated, 6.88%, 07/21/05..... 300,000 327,750
Embotelladora Andina SA,
7.00%, 10/01/07 (b)................... 560,000 434,700
Federated Department Stores,
8.13%, 10/15/02....................... 355,000 387,838
Fortune Brands Incorporated,
7.50%, 05/15/99....................... 120,000 121,650
Hilton Hotels Corporation, 7.38%, 06/01/02.... 369,000 375,919
Honeywell Incorporated, 6.60%, 04/15/01....... 400,000 416,500
Hyder PLC, 6.75%, 12/15/04 (b)................ 1,000,000 1,061,250
Ingersoll-Rand, 6.26%, 02/15/01............... 675,000 696,094
International Business Machines Corporation,
6.38%, 06/15/00....................... 200,000 205,000
International Paper Company,
9.70%, 03/15/00....................... 160,000 169,800
Lockheed Martin Corporation
7.25%, 05/15/06....................... $145,000 $160,769
7.75%, 05/01/26....................... 520,000 602,550
Nabisco Incorporated, 6.00%, 02/15/01......... 540,000 543,375
Noble Drilling Corporation, 9.13%, 07/01/06... 625,000 642,969
Norcen Energy Resources, 7.38%, 05/15/06...... 120,000 128,100
Pepsico Incorporated, 7.75%, 10/01/98......... 300,000 300,000
Raytheon Co
5.95%, 03/15/01....................... 2,385,000 2,435,681
6.45%, 08/15/02....................... 1,070,000 1,114,138
Royal Caribbean Cruises
7.13%, 09/18/02....................... 426,000 453,158
7.25%, 08/15/06....................... 111,000 120,296
7.50%, 10/15/27....................... 850,000 885,062
Sony Corporation, 6.13%, 03/04/03............. 100,000 102,625
Staples Incorporated, 7.13%, 08/15/07......... 1,630,000 1,793,000
USG Corporation, 9.25%, 09/15/01.............. 1,012,000 1,081,575
U.S.A. Waste Services, 7.13%, 10/01/07........ 495,000 549,450
Wal-Mart Stores, 8.63%, 04/01/01.............. 350,000 381,062
Waste Management, Inc.
7.70%, 10/01/02....................... 1,145,000 1,243,756
Williams Company, 6.20%, 08/01/02............. 275,000 283,594
WMX Technology Incorporated
8.25%, 11/15/99....................... 200,000 205,750
----------
19,296,403
----------
Transportation (1.3%):
Canadian National Railroad, 6.90%, 07/15/28... 764,000 787,875
Southwest Airlines, 7.88%, 09/01/07........... 200,000 234,500
Union Pacific Corporation
7.38%, 05/15/01....................... 250,000 261,250
9.63%, 12/15/02....................... 200,000 230,750
----------
1,514,375
----------
Utilities (2.9%):
Avon Energy Partners Holdings,
6.73%, 12/11/02....................... 300,000 312,000
Florida Power & Light, 5.38%, 04/01/00........ 305,000 307,669
Niagara Mohawk Power, 8.00%, 06/01/04......... 1,500,000 1,689,375
United Utilities, 6.25%, 08/15/05............. 883,000 917,215
Virginia Electric & Power, 8.88%, 06/01/99.... 125,000 127,969
----------
3,354,228
----------
Total Corporate Bonds (cost: $69,668,009)..................... 72,360,960
----------
U.S. Government And Agency Securities (24.9%):
U.S. Government Securities (9.4%)
U.S. Treasury Bonds (5.5%):
7.25%, 08/15/22....................... 4,879,000 6,234,191
----------
U.S. Treasury Notes (3.9%):
5.38%, 01/31/00....................... 411,000 415,620
5.88%, 11/15/99....................... 3,939,000 3,994,776
----------
4,410,396
----------
U.S. Treasury Strips (0.1%):
5.40%, 08/15/22............................... 328,000 91,925
----------
</TABLE>
See accompanying notes to financial statements.
- 16 -
<PAGE>
Schedule of Investments
Griffin Bond Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Agency Securities (15.4%)
Government National Mortgage Association (5.4%)
7.50%, 12/15/23....................... $494,771 $514,869
7.50%, 09/01/28 (c)................... 3,484,000 3,607,020
8.00%, 06/15/27....................... 207,357 215,975
8.00%, 08/15/27....................... 1,730,394 1,802,309
----------
6,140,173
----------
Federal Home Loan Mortgage Corporation (1.7%)
7.50%, 09/01/12....................... 1,931,561 1,987,093
----------
Federal National Mortgage Association (8.3%):
6.00%, 05/15/08....................... 1,449,000 1,570,020
6.00%, 08/01/13....................... 1,419,445 1,433,186
6.00%, 10/01/13 (c)................... 1,327,000 1,337,775
6.86%, 06/17/11....................... 150,000 157,969
7.00%, 07/01/22....................... 67,315 69,124
7.00%, 07/01/23....................... 195,546 200,800
7.00%, 08/01/26....................... 86,879 89,214
7.00%, 09/01/26....................... 145,692 149,607
7.00%, 11/01/26....................... 23,605 24,240
7.54%, 06/01/16....................... 319,272 349,404
8.50%, 12/01/24 (c)................... 1,958,160 2,042,606
8.50%, 08/01/26 (c)................... 1,959,156 2,043,644
----------
9,467,589
----------
Total U.S. Government And Agency Securities
(cost: $27,677,991)................................... 28,331,367
----------
Short-Term Securities (10.7%):
Repurchase Agreement
State Street Bank & Trust Co., Master
Repurchase Agreement, 4.00%, dated
9/30/98 due 10/1/98, Collateralized by
U.S. Government Securities
(delivery value $12,236,219)......... $12,234,859 $12,234,859
-----------
Total Short-Term Securities (cost: $12,234,859).............. 12,234,859
-----------
Total Investments in Securities
(cost: $110,603,723)(d)(118.1%)...................... 113,954,417
Other Assets Less Liabilities (-18.1%)....................... (17,505,274)
------------
Net Assets (100.0%).......................................... $96,449,143
============
</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) Settlement is on a delayed delivery or when issued basis with
final maturity to be announced (TBA) in the future. The total
cost basis of such securities is $9,003,898.
(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...........$3,574,942
Gross unrealized depreciation........... (224,248)
-----------
Net unrealized appreciation.............$3,350,694
===========
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 performance of the Municipal Bond Fund was most affected by the recent flood
of new issues and lower U.S. interest rates. The buoyant U.S. economy over the
last two years has led to strong revenue growth and an abundance of new bond
issues. The number of new bond debt issuance in 1997 ranked third in this
decade. The supply trend has continued throughout 1998, and municipals are
poised to break the total debt issuance record of $292 billion set in 1993.
Another record was already set in May of this year when the Long Island Power
Authority brought the single largest municipal deal in history to market, at
$3.4 billion. As a result of this heavy wave of new issues, the municipal market
felt the weight and prices dropped relative to other securities.
The second market factor, lower U.S. interest rates, was spurred by global
turmoil beginning in Asia in October of 1997. As volatility spread to other less
developed economies, such as Russia and Latin America, the U.S. Treasury market
benefited from a "flight to quality." This rally in the Treasury market carried
over into the municipal market, further resulting in a decline of yields over
the year from 5.40% to 4.80% on the 30-year municipal bond.
What were some of the strategies and techniques implemented during the year?
The focus of the municipal market moved from inflationary pressures to the
Federal Reserve's ability to provide enough liquidity to the market to avoid a
financial meltdown. The Fund remained fully invested over the past year in high
quality, straightforward bonds. The current market environment behooves the Fund
to maintain the liquidity and safety of large, highly-rated issuers. Growth in
the Fund allowed increased exposure to 15 and 18 year maturities, as well as the
opportunity to buy bonds when the new issue supply was particularly heavy. Once
the supply dissipated, the relative attractiveness of these new bonds
materialized.
What themes can be seen in the current portfolio (industry weightings) and why?
The ongoing theme focuses on high quality securities, as increased credit and
liquidity risk cannot justify the premium investors receive on lower quality
bonds. As opportunities arose, the Fund's exposure to "specialty" state paper
increased. In the municipal market, there are often disparities in state bonds
due to individual state income tax code. For instance, there is a higher demand
for state bonds in California because personal income taxes are relatively
higher than in other states. Under these circumstances, the Fund was able to
purchase specialty state bonds at relatively low prices due to higher demand in
that state.
What individual security holdings changed significantly during the year?
The Fund increased its exposure to specialty state bonds, such as those in
California, as prices were relatively low. In addition, the Fund benefited from
a technique called "pre-refunding," which improves the credit quality of
outstanding bond debt. Pre-refunding is the practice of issuing a
longer-maturity bond in order to pay off an earlier bond (usually prior to its
maturity), in order to take advantage of a drop in interest rates. In the Fund's
case, municipal issuers refinanced their debt at lower interest rates utilizing
mostly 10-year Treasury securities. This means that many of the Fund's municipal
bonds are now backed by higher quality Treasuries, and bond prices typically
rise as a result.
What is the strategy for the next six to twelve months?
Inflationary pressures that dominated the economy in the beginning of the year
appear to have subsided. Therefore it is the Fund's strategy to remain fully
invested. The Fund will remain committed to high quality securities, as credit
spreads in the municipal market are at historically low levels and not likely to
compress further. As the market's credit outlook appears stable, the Fund will
continue to selectively take advantage of opportunities to enhance its yield.
- 18 -
<PAGE>
Griffin Municipal Bond Fund
Fund commenced operations on October 19, 1993, reinvesting all dividends, the
top chart would track the value of your investment through the period ended
September 30, 1998. If you had invested $10,000 in Class B of the Fund when they
were first offered on November 1, 1994, assuming all dividends were reinvested,
the bottom chart would track the performance of your investment through the
period ended September 30, 1998 (assuming a complete redemption on that date).
The Lehman Brothers Municipal Bond Index is an unmanaged index debt obligations
issued by the U.S. states and municipalities. The Lipper General Municipal Debt
Funds Average is based on a universe of approximately 253 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.
The Griffin Municipal Bond Fund A
{CHART APPEARS HERE}
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year.....................................................3.26%
Since Inception..............................................4.21%
<TABLE>
<CAPTION>
Griffin Municipal Lehman Bros. Municipal General Municipal Debt
Bond 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 $9,641 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
Dec 97 $11,651 Dec 97 $12,711 Dec 97 $12,419
Mar $11,735 Mar $12,857 Mar $12,532
Jun $11,904 Jun $13,053 Jun $12,699
Sep $12,267 Sep $13,455 Sep $13,068
</TABLE>
THE GRIFFIN MUNICIPAL BOND FUND CLASS B
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.......................................................2.36%
Since Inception................................................7.62%
<TABLE>
<CAPTION>
Griffin Municipal Lehman Bros. Municipal General Municipal Debt
Bond 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 $10,083 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
Dec 97 $13,021 Dec 97 $13,445 Dec 97 $13,205
Mar $13,090 Mar $13,599 Mar $13,325
Jun $13,254 Jun $13,806 Jun $13,502
Sep $13,633 Sep $14,231 Sep $13,895
</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, 1998
[PIE CHART APPEARS HERE]
General Obligations 33%
Transportation 4%
Water 8%
Electric 4%
Sewer 5%
Education 11%
Sales Tax 5%
Pre-refunded 5%
Industrial Development 5%
Other 20%
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 (93.7%):
Alaska (2.2%):
Alaska Student Loan Revenue Bond,
5.25%, 07/01/07................... $500,000 $521,875
----------
Arizona (2.2%):
Arizona State University Revenue System,
7.00%, Pre-refunded to 07/01/02... 250,000 280,313
Phoenix, Arizona, Series A,
6.25%, 07/01/17................... 200,000 239,500
----------
519,813
----------
California (2.6%):
California State Department of Water
Resources, 5.00%, 12/01/22........ 100,000 100,125
State of California, 5.00%, 10/01/18...... 500,000 503,750
----------
603,875
----------
Colorado (0.6%):
Arapahoe County, Colorado Capital Improvement
Trust Fund Highway Revenue,
6.90%, Pre-refunded to 08/31/03... 125,000 150,312
----------
District Of Columbia (3.1%):
District of Columbia Water & Sewer Authority
Public Utility Revenue Bond,
5.50%, 10/01/17................... 500,000 550,000
District of Columbia, American Association
Advancement Science, Revenue Bond,
6.00%, 01/01/09................... 150,000 172,125
----------
722,125
----------
Florida (2.7%):
Dade County, Florida Aviation Revenue,
5.50%, 10/01/07................... $200,000 $217,750
Dade County, Florida General Obligation,
7.70%, 10/01/08................... 200,000 258,000
Florida State Board of Education Capital
Outlay Public Education,
5.75%, 06/01/15................... 150,000 162,938
-----------
638,688
-----------
Georgia (0.8%):
Georgia State General Obligation,
7.20%, 03/01/08................... 150,000 186,562
-----------
Hawaii (0.7%):
State of Hawaii, General Obligation,
6.00%, 09/01/09................... 150,000 172,312
-----------
Idaho (0.9%):
Idaho Housing & Finance Association, Single
Family Mortgage, 5.20%, 07/01/27.. 200,000 205,250
-----------
Illinois (3.6%):
Illinois Educational Facilities Authority
Revenue Bonds, Northwestern University,
5.10%, 11/01/32................... 450,000 478,125
Metropolitan Pier & Exposition Authority
Dedicated State Tax Revenue Bond,
4.30%, 06/15/01 (b)............... 400,000 363,000
----------
841,125
----------
Indiana (0.5%):
Wa-Nee Elementary/High School Building
Corporation, Revenue Bond,
6.50%, Pre-refunded to 01/15/04.. 100,000 113,625
----------
Massachusetts (3.7%):
Massachusetts Bay Transportation Authority
General Transportation System,
5.60%, 03/01/08.................. 200,000 222,500
Massachusetts State General Obligation,
5.00%, 06/01/10.................. 500,000 526,875
Massachusetts State Water Resources Authority
6.00%, 08/01/14.................. 100,000 112,375
----------
861,750
----------
Michigan (5.1%):
Lake Orion, Michigan Community School
District, 5.80%, 05/01/15........ 500,000 539,375
Michigan Municipal Bond Authority Revenue,
6.00%, 10/01/07.................. 200,000 228,000
Michigan State Hospital Financing Authority,
Metropolitan Hospital,
5.88%, 07/01/14.................. 75,000 79,594
Michigan State Underground Storage Tank
Financial Assurance Authority Revenue Bond
6.00%, 05/01/05.................. 300,000 334,875
----------
1,181,844
----------
</TABLE>
See accompanying notes to financial statements.
- 20 -
<PAGE>
Schedule of Investments
Griffin Municipal Bond Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Minnesota (1.9%):
Minnesota Public Facilities Authority Water
Pollution Control Revenue,
6.00%, 03/01/07................... $200,000 $228,000
University of Minnesota, Series A, Revenue
Bond, 4.75%, 07/01/03............. 200,000 208,250
----------
436,250
----------
Montana (2.5%):
Forsyth, Montana Pollution Control Revenue
Bond, Portland General Electric, Series B,
4.75%, 05/01/33................... 575,000 588,656
----------
Nevada (0.5%):
Nevada State General Obligation,
5.80%, 07/15/08................... 100,000 109,125
----------
New Jersey (1.7%):
New Jersey State General Obligation,
6.00%, 02/15/11................... 350,000 406,875
----------
New York (10.6%):
Long Island Power Authority, New York
Electric System Revenue Bond, Series A,
5.00%, 12/01/18................... 500,000 503,750
New York State Dorm Authority Revenue Bond,
New York Medical College,
5.25%, 07/01/09................... 500,000 540,000
New York State Environmental Facilities
Corporation Pollution Control Revenue Bond,
5.50%, 06/15/09................... 200,000 219,250
New York State Environmental Facilities,
State Clean Water & Drinking, Revolving
Funds, Series C, 5.00%, 06/15/19.. 500,000 504,375
New York, New York City Transitional
Financial Authority Revenue, Series C,
5.00%, 05/01/18................... 500,000 504,375
New York, New York General Obligation,
6.00%, 02/01/04................... 200,000 218,000
----------
2,489,750
----------
Ohio (9.1%):
Cleveland, Ohio General Obligation,
5.38%, 09/01/09................... 350,000 385,875
Ohio State Water Department Authority Revenue
Fresh Water Series, Revenue Bond,
5.70%, 06/01/09................... 200,000 220,000
Ohio State Water Development Authority,
Pollution Control Facilities Revenue, Water
Quality Services, 5.00%, 12/01/15.. 1,000,000 1,018,750
University Cincinnati, Ohio General Receipts,
Series AA, 5.00%, 06/01/18........ 500,000 502,500
----------
2,127,125
----------
Oregon (0.5%):
Oregon State Department of Transportation
Revenue, Regional Light Rail Fund -
Westside Project,
6.25%, 06/01/09.................. $100,000 $112,375
----------
Pennsylvania (11.5%):
Commonwealth of Pennsylvania General
Obligation, 5.20%, 06/15/04...... 250,000 266,875
Lower Bucks County, Pennsylvania Municipal
Authority Sewer & Water Revenue Bond,
5.00%, 11/15/15................. 500,000 506,250
Pennsylvania State Higher Educational
Facilities Authority Revenue, Temple
University First Series,
5.25%, 04/01/09................. 500,000 539,375
Pennsylvania State Industrial Development
Authority Revenue Bond,
7.00%, 07/01/06................. 250,000 297,813
Pennsylvania State University, Series A,
5.25%, 08/15/09................. 1,000,000 1,088,750
----------
2,699,063
----------
Puerto Rico (3.2%):
Puerto Rico Electric Power Authority,
Electric Revenue,
6.13%, 07/01/08.................. 200,000 227,500
Puerto Rico Industrial Tourist Educational
Medical & Environmental Central Facilities,
Inter American University, Series A,
5.00%, 10/01/15.................. 500,000 514,375
---------
741,875
---------
South Carolina (0.9%):
Columbia, South Carolina Water Works & Sewer
Systems Revenue,
5.38%, 02/01/12.................. 200,000 218,000
South Dakota (0.5%):
South Dakota Housing Development Authority,
Homeownership Mortgage,
6.65%, 05/01/14.................. 100,000 108,875
Tennessee (0.9%):
Kingsport, Tennessee General Obligation,
5.60%, 09/01/03.................. 200,000 215,750
Texas (6.1%):
Austin, Texas General Obligation,
5.70%, 09/01/07.................. 200,000 225,750
Harris County, Texas Tax and Revenue
Certificate of Obligation,
6.00%, 12/15/10.................. 200,000 233,500
Houston, Texas Water & Sewer System Revenue
Bond, Jr Lien, Series B,
5.00%, 12/01/06.................. 600,000 638,250
San Antonio, Texas Electric & Gas Revenue,
5.00%, 02/01/14.................. 100,000 100,750
Texas Municipal Power Agency Revenue,
5.25%, 09/01/08.................. 200,000 217,500
----------
1,415,750
----------
</TABLE>
See accompanying notes to financial statements
- 21 -
<PAGE>
Schedule of Investments
Griffin Municipal Bond Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Virginia (4.3%):
Pocahontas Parkway Association, Virginia Toll
Road Revenue, Series A,
5.00%, 08/15/05.................. $1,000,000 $1,015,000
-----------
Washington (2.1%):
Seattle, Washington Water System Revenue,
5.25%, 12/01/23.................. 250,000 255,313
Washington State General Obligation,
5.75%, 09/01/09.................. 200,000 228,000
----------
483,313
----------
West Virginia (2.2%):
West Virginia State, Series A,
5.00%, 11/01/21.................. 500,000 503,750
----------
Wisconsin (6.5%):
Wisconsin State Clean Water Revenue,
Series 2, 5.50%, 06/01/10........ 1,000,000 1,107,500
Wisconsin State General Obligation,
5.13%, 11/01/07.................. 200,000 216,250
Wisconsin State Transportation,
5.50%, 07/01/14.................. 200,000 208,000
----------
1,531,750
----------
Total Municipal Long-Term Securities
(cost: $20,904,178).............................. 21,922,438
----------
Municipal Short-Term Securities (4.7%):
Kansas (0.4%):
Kansas City, Kansas Industrial Revenue,
4.20%, 10/01/98 (c).............. 100,000 100,000
----------
Virginia (4.3%):
King George County, Virginia Industrial
Development Authority Exempt Facilities
Revenue, Birchwood Power Partners,
4.25%, 10/01/98 (c).............. 1,000,000 1,000,000
----------
Total Municipal Short-Term Securities
(cost: $1,100,000)............................... 1,100,000
----------
Other Short-Term Securities (1.6%):
Seven Seas Tax Free Money Market Fund,
3.30%, 10/01/98.......................... 376,048 $376,048
----------
Total Other Short-Term Securities (cost: $376,048)....... 376,048
-----------
Total Investments in Securities
(cost: $22,380,226)(d)(104.4%).................. 23,398,486
Other Assets Less Liabilities (-4.4%)................... (984,438)
-----------
Net Assets (100.0%)..................................... $22,414,048
===========
</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, 1998.
(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 unreal-ized appreciation and depreciation of investments in
securities based on this cost were as follows:
Gross unrealized appreciation ................ $1,018,260
Gross unrealized depreciation ................ 0
----------
Net unrealized appreciation................... $1,018,260
==========
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?
Fund performance was primarily affected by the heavy and sporadic new issues in
the market and by lower interest rates in the U.S. New municipal bond issues
have been up for the past two years, and in 1998 are poised to break the total
debt issuance record of $292 billion originally set in 1993. As a result, the
relative value of municipal bonds and the shape of the municipal yield curve
have changed in light of the new supply. With a heavier supply of municipal
bonds, this market experienced a reduction in prices and, likewise, the portion
of the yield curve that offered the most supply cheapened relative to other
securities.
The second factor, lowered U.S. interest rates, was a consequence of the
uncertainty in global financial markets-particularly Asia, Russia, and Latin
America. Global turmoil pushed a flight to safety by way of the U.S. Treasury
market, which then carried over into the municipal market. The result led to a
decline in 30-year municipal bond yields over the year from 5.40% to 4.80%.
What were some of the strategies and techniques implemented during the year?
The Fund was fully invested in high quality issues throughout the year. This
past year, concerns over inflationary pressures caused by tight labor markets
and the possible rise in interest rates gave way to concerns over whether the
Federal Reserve could provide enough liquidity to the marketplace to avoid a
financial meltdown. As a result, the market environment did not lend itself to
straying from the safety and liquidity of highly rated bonds. The Fund was also
able to take advantage of the steep shape of the municipal yield curve. Early in
the fiscal year, the Fund increased its exposure to intermediate maturities to
enhance its yield potential. In January, purchases were extended slightly
longer, to the 18 to 22-year range, as the global crisis began to have more of
an impact. It avoided longer bonds due to the lack of return potential given the
underlying interest rate risk.
What themes can be seen in the current portfolio (industry weightings) and why?
The Fund has focused on higher quality securities, as the yield premium on lower
quality bonds does not justify the credit risk. In particular, the Fund has
maintained an allocation to California General Obligation debt, which increased
in value as the state's finances improved. Due to California's increased fiscal
credibility and its ability to build a reserve cushion of $1 billion, these
bonds were recently upgraded by one of the three major credit ratings agencies.
In addition, several relative value swaps were made this year to enhance the
Fund's return. This required reducing the Fund's position in California General
Obligation bonds at times when both demand and prices were high. However, the
bonds were repurchased later as the flood of new issues drove prices down. The
shifts in supply and demand allowed the Fund to benefit from yield curve swaps.
What individual security holdings changed significantly during the year?
California General Obligation bonds were actively traded throughout the
reporting period. The Fund benefited from the state's two $1 billion dollar
issue deals this year, selling bonds in advance and repurchasing them later at
lower prices.
What is the strategy for the next six to twelve months?
The Fund plans to continue its bias towards higher quality securities, as credit
spreads in the municipal market are at their lowest historical levels and not
expected to compress further. As it is not likely that there will be a broad
change in the market's credit outlook, the Fund will continue to selectively
take advantage of opportunities to enhance yield. Given the state of global
financial markets and recently reduced inflationary pressures, the Fund should
remain fully invested.
- 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, reinvesting all
dividends, the top chart would track the value of your investment through the
period ended September 30, 1998. If you had invested $10,000 in Class B of the
Fund when they were first offered on November 1, 1994, assuming all dividends
were reinvested, the bottom chart would track the performance of your investment
through the period ended September 30, 1998 (assuming a complete redemption on
that date). The Lehman Brothers California Municipal Bond Index is an unmanaged
index 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 107 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.
The Griffin California Tax-Free Fund A
{CHART APPEARS HERE}
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year......................................................3.49%
Since Inception...............................................4.16%
<TABLE>
<CAPTION>
Griffin California Lehman California Lipper CA 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
Dec 97 $11,556 Dec 97 $12,741 Dec 97 $12,462
Mar $11,664 Mar $12,896 Mar $12,568
Jun $11,832 Jun $13,092 Jun $12,742
Sep $12,238 Sep $13,555 Sep $13,176
</TABLE>
THE GRIFFIN CALIFORNIA TAX-FREE FUND CLASS B
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.......................................................2.55%
Since Inception................................................7.91%
<TABLE>
<CAPTION>
Griffin California Lehman California Lipper CA 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
Dec 97 $12,791 Dec 97 $13,641 Dec 97 $13,297
Mar $12,886 Mar $13,806 Mar $13,410
Jun $13,046 Jun $14,016 Jun $13,596
Sep $13,153 Sep $14,512 Sep $14,059
</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, 1998
[PIE CHART APPEARS HERE]
General Obligations 25%
Water 19%
Education 4%
Sales Tax 13%
Airport 6%
Transportation 5%
Housing 4%
Electric 8%
Other 16%
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 (97.8%):
Airport Revenue (5.7%):
Los Angeles, California Department of
Airports, 5.50%, 05/15/08......... $1,000,000 $1,096,250
San Francisco, California City & County
Airports, Second Series Issue 12-B,
5.50%, 05/01/09................... 705,000 775,500
San Francisco, California City & County
Airport, Community International Airport
Revenue Bonds, Series 15A,
5.00%, 05/01/21.................. 1,000,000 997,500
----------
2,869,250
----------
Electric Revenue (8.2%):
Northern California Power Agency, Public
Power Revenue, Hydroelectric Project,
Series A, 5.00%, 07/01/18......... 1,000,000 1,007,500
Puerto Rico Electric Power Authority Power
Revenue, Series U,
6.00%, 07/01/14................... 750,000 813,750
Sacramento, California Municipal Utilities
District Electric Revenue, Series L,
5.13%, 07/01/22................... 1,000,000 1,016,250
Turlock, California Irrigation District
Revenue Bond, Series A,
5.00%, 01/01/17................... 1,250,000 1,270,312
----------
4,107,812
----------
General Obligations (25.2%):
ABAG Financial Authority for Nonprofit
Corporations, California Certificate of
Participation, Episcopal Homes Foundation,
5.00%, 07/01/07................... 1,100,000 1,142,625
Folsom, California School Facilities Project,
Series B, 6.00%, 08/01/10......... 300,000 336,375
Kern, California High School District,
Series A, 6.20%, 02/01/09......... 1,000,000 1,170,000
Los Angeles, California Unified School
District,
6.00%, 07/01/11................... 1,000,000 1,168,750
6.00%, 07/01/13................... 1,445,000 1,690,650
Puerto Rico Commonwealth,
5.65%, 07/01/15................... $800,000 $903,000
State of California,
5.00%, 10/01/18................... 1,500,000 1,511,250
5.50%, 04/01/13................... 2,000,000 2,230,000
6.60%, 02/01/10................... 1,000,000 1,213,750
6.75%, 02/01/08................... 1,000,000 1,206,250
-----------
12,572,650
-----------
Health Care Services (2.0%):
Monterey County, California Certificate
Participation, Natividad Medical Center
Improvements, Series E,
4.75%, 08/01/17................... 1,000,000 988,750
Hospital Revenue (1.7%):
California Health Facilities Financing
Authority Revenue, Downey Community
Hospital, 5.20%, 05/15/03......... 500,000 523,750
California Health Facilities Financing
Authority Revenue, Kaiser Permanente,
Series C, 5.60%, 05/01/33......... 300,000 306,375
-----------
830,125
-----------
Housing Revenue (4.4%):
California Housing Finance Agency Revenue,
Home Mortgage, Series B,
5.20%, 08/01/26................... 485,000 498,944
Home Mortgage, Series F-1,
6.50%, 02/01/08................... 1,060,000 1,172,625
Multi-Unit Rental Housing,
6.88%, 08/01/24................... 500,000 534,375
----------
2,205,944
----------
Public Improvements (1.6%):
Sacramento, California Certificates of
Participation, Public Facilities Project,
6.00%, 07/01/12................... 750,000 800,625
----------
Sales Tax Revenue (12.8%):
Contra Costa, California Transportation
Authority Sales Tax Revenue Bond,
6.00%, 03/01/07................... 500,000 573,750
Los Angeles County, California Transportation
Commission Sales Tax Revenue, Series A,
7.00%, 07/01/19................... 1,000,000 1,047,910
San Diego County, California Regional
Transportation Commission Sales Tax
Revenue, Series A,
4.75%, 04/01/08................... 765,000 806,119
San Francisco, California Bay Area Rapid
Transit District Sales Tax Revenue,
4.75%, 07/01/23................... 1,000,000 980,000
5.00%, 07/01/28................... 1,000,000 1,002,500
5.35%, 07/01/07................... 500,000 546,875
San Jose, California Redevelopment Agency
Tax Allocation,
5.38%, 08/01/11................... 250,000 272,812
6.00%, 08/01/10................... 1,000,000 1,166,250
----------
6,396,216
----------
</TABLE>
See accompanying notes to financial statements.
- 25 -
<PAGE>
Schedule of Investments
Griffin California Tax-Free Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Sewer Revenue (4.9%):
Puerto Rico Commonwealth Aqueduct & Sewer
Authority Revenue,
6.25%, 07/01/13.................. $1,500,000 $1,790,625
San Francisco, California City & County Sewer
Revenue, 5.90%, 10/01/08.......... 600,000 657,750
-----------
2,448,375
-----------
Special Tax Assessment Revenue (3.3%):
Los Angeles County, California Public Works
Financing Authority Revenue, Park & Open
Space District, Series A,
5.00%, 10/01/16.................. 1,000,000 1,020,000
South Orange County, California Public
Financing Authority Special Tax Revenue,
7.00%, 09/01/08.................. 500,000 618,125
-----------
1,638,125
-----------
Transportation Revenue (5.1%):
Long Beach, California Harbor Revenue Bond,
5.25%, 05/15/25................... 1,000,000 1,018,750
Los Angeles, California Harbor Department
Revenue Bond, 5.38%, 11/01/23..... 250,000 257,812
Riverside County, California Transportation
Community Sales Tax Revenue, Series A,
5.75%, 06/01/08................... 500,000 566,875
San Joaquin Hills, California Transportation
Corridor Agency Toll Road Revenue,
4.90%, 01/15/07................... 1,000,000 717,500
-----------
2,560,937
-----------
University/Education Revenue (4.0%):
California Educational Facilities Authority
Revenue Bond, Pooled College & University
Project, Series A,
5.15%, 12/01/04................... 500,000 537,500
California Educational Facilities Authority
Revenue Bond, University of San Diego,
5.00%, 10/01/22................... 1,000,000 1,002,500
University of California Certificate of
Participation, UCLA Center Chiller/
Cogeneration Project,
6.00%, 11/01/21................... 400,000 436,500
-----------
1,976,500
-----------
Water Revenue (19.0%):
California State Department of Water
Resource
5.00%, 12/01/22.................. 300,000 300,375
6.00%, 12/01/06.................. 500,000 573,750
6.00%, 12/01/09.................. 500,000 581,875
Los Angeles, California Department of Water &
Power, Water Works Revenue,
6.20%, 07/01/12.................. 600,000 676,500
Metropolitan Water District of Southern
California
5.00%, 07/01/10.................. 200,000 212,250
5.75%, 07/01/09.................. 750,000 855,938
6.00%, 07/01/07.................. 100,000 116,375
Metropolitan Water District, Southern
California, Series A,
5.00%, 03/01/04.................. $1,430,000 $1,517,588
San Diego, California Certificates Water
Utilities Fund, Network System Revenue,
5.00%, 08/01/18.................. 2,000,000 2,015,000
West & Central Basin Financing Authority
California Revenue,
5.00%, 08/01/09.................. 1,035,000 1,106,156
5.13%, 08/01/22.................. 1,500,000 1,524,375
----------
9,480,182
----------
Total Municipal Long-Term Securities
(cost: $46,131,488).............................. 48,875,491
----------
Municipal Short-Term Securities (2.2%):
Industrial Development Revenue -
Pollution Control (2.2%)
California Pollution Control Financing, Shell
Oil Company Project,
2.80%, 10/01/98 (b)............... 100,000 100,000
California Pollution Control Financing
Authority Revenue Bond, Pacific Gas &
Electric, Series B,
3.75%, 10/01/98 (b)............... 800,000 800,000
California Statewide Communities Development
Authority, Solid Waste Facilities Revenue,
Chevron USA Project,
3.10%, 10/01/98 (b................ 200,000 200,000
----------
1,100,000
----------
Total Municipal Short-Term Securities
(cost: $1,100,000)................................ 1,100,000
----------
Total Investments in Securities
(cost: $47,231,488)(c)(100.6%).................... 49,975,491
Other Assets Less Liabilities (-0.6%)..................... (296,876)
-----------
Net Assets (100.0%)....................................... $49,678,615
===========
</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. The aggregate
gross unrealized appreciation and depreciation of investments in
securities based on this cost were as follows:
Gross unrealized appreciation............... $2,744,003
Gross unrealized depreciation............... 0
----------
Net unrealized appreciation................. $2,744,003
==========
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?
Fund performance was most affected by trends in both size and value of
individual securities. With respect to size, the 50 largest companies in the
market significantly outperformed most other companies. In fact, this great a
divergence between the largest and all other companies is historically
unprecedented. Likewise, stocks with high P/E ratios significantly outperformed
those with low P/E ratios. "P/E" stands for "price/earnings" and is the most
common measure of a stock price. The ratio is calculated by dividing a stock's
capitalization by its after-tax earnings over a 12-month period. Secondary
factors that affected the Fund's performance include the economic crises in both
Russia and the Far East, the decline of interest rates, the strength of the U.S.
dollar, and the overall weakness in many foreign economies.
What were some of the strategies and techniques implemented during the year?
As the year progressed, the Fund took on a more defensive posture. This was
demonstrated by the purchasing of utilities and consumer staples, as well as
higher quality and larger companies. These purchases were made possible by
selling technology and basic industry shares.
What themes can be seen in the current portfolio (industry weightings) and why?
Currently, the Fund holds significant positions in the financial services and
consumer services sectors. It is relatively underweighted in the health care and
technology sectors.
What individual security holdings changed significantly during the year?
Individual securities that were sold during the reporting period include
Wal-Mart, RJR Nabisco, Toys R Us, and Intel. Stocks that were added to Fund
holdings include General Mills, American International Group, American General
Corp., and Ingersoll Rand.
What is the strategy for the next six to twelve months?
Currently, the market appears extremely anxious about the strength or weakness
of corporate earnings in 1999. In fact, some observers are forecasting a
recession in the upcoming year. Whatever the new year brings, the Fund will
continue its strategy to seek out companies with low valuations (P/E ratios),
sound or improving fundamentals, and positive business momentum-defined as the
perceived strength behind price movement. While this strategy was somewhat
disappointing in 1998, it has proven successful over the past decade and should
continue to deliver strong returns for investors with a long-term perspective.
- 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, reinvesting all dividends, the
top chart would track the value of your investment through the period ended
September 30, 1998. If you had invested $10,000 in Class B of the Fund when they
were first offered on November 1, 1994, assuming all dividends were reinvested,
the bottom chart would track the performance of your investment through the
period ended September 30, 1998 (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 828 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.
The Griffin Growth & Income Fund A
{CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year..................................................-12.44%
Since Inception............................................14.50%
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
Dec 97 $20,952 Dec 97 $22,993 Dec 97 $20,117
Mar $23,344 Mar $26,200 Mar $22,455
Jun $22,812 Jun $27,065 Jun $22,516
Sep $19,557 Sep $24,372 Sep $19,708
</TABLE>
THE GRIFFIN GROWTH & INCOME FUND CLASS B
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.......................................................-13.94%
Since Inception.................................................17.54%
<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
Dec 97 $20,312 Dec 97 $22,058 Dec 97 $19,539
Mar $22,601 Mar $25,135 Mar $21,809
Jun $22,042 Jun $25,964 Jun $21,868
Sep $18,564 Sep $23,381 Sep $19,141
</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, 1998
[PIE CHART APPEARS HERE]
Consumer Services 17%
Capital Goods 6%
Consumer Non-Durables 10%
Financial Services 20%
Health Care 5%
Energy 10%
Utilities 11%
Technology 6%
Basic Industries 5%
Other 10%
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 (95.5%):
Basic Industries (4.6%):
Bethlehem Steel Corp. (b)................ 120,400 $993,300
British Steel PLC......................... 71,300 1,296,769
Broken Hill Proprietary Company
Limited ADM....................... 136,400 1,952,225
Federal - Mogul Corp...................... 57,200 2,674,100
IMC Global Inc............................ 23,100 447,563
Ingersoll-Rand............................ 29,500 1,119,156
Reynolds Metals Co........................ 50,600 2,571,112
Union Carbide............................. 87,500 3,773,438
-----------
14,827,663
-----------
Capital Goods (6.1%):
Lockheed Martin Corp...................... 55,200 5,564,850
LucasVarity PLC .......................... 50,600 1,581,250
Northrop Grumman Corporation.............. 31,900 2,328,700
Raytheon Company, Series A................ 79,900 4,139,819
United Technologies....................... 77,400 5,916,262
-----------
19,530,881
-----------
Consumer/ Durable (3.2%):
Lear Corporation (b)..................... 99,700 4,361,875
Phillips Electronics N.V. ADR ............ 62,500 3,335,938
Whirlpool Corporation..................... 53,100 2,495,700
----------
10,193,513
----------
Consumer/ Non-Durable (9.7%):
General Mills............................. 49,000 3,430,000
Harcourt General.......................... 115,700 5,596,988
Hasbro Inc................................ 53,900 1,590,050
Kimberly Clark............................ 164,600 6,666,300
Loews Corp................................ 78,400 6,615,000
Philip Morris Companies Inc............... 156,800 7,222,600
----------
31,120,938
----------
Consumer Services (16.5%):
ACNielsen Corporation (b)............... 120,566 $2,682,594
American Stores Company.................. 142,300 4,580,281
Circuit City Stores Inc.................. 132,900 4,427,231
Deluxe Corp.............................. 69,500 1,976,406
Dun & Bradstreet Corp.................... 114,300 3,086,100
Federated Department Stores (b)......... 106,000 3,855,750
McDonald's Corp.......................... 108,300 6,464,156
Republic Industries Inc. (b)............ 264,000 3,844,500
The Limited.............................. 203,800 4,470,863
Tricon Global Restaurants (b)........... 171,000 6,669,000
U.S. Filter Corp. (b)................... 36,100 582,112
Waste Management Inc..................... 167,765 8,063,205
Venator Group, Inc. (b)................. 293,800 2,552,388
-----------
53,254,586
-----------
Energy (10.4%):
ELF Aquitaine ADR........................ 87,800 5,460,062
Exxon Corp............................... 54,600 3,832,238
Mobil Corp............................... 89,800 6,819,188
Phillips Petroleum....................... 125,300 5,654,162
Schlumberger Ltd......................... 64,500 3,245,156
Tosco Corp............................... 148,500 3,192,750
Unocal Corp.............................. 151,300 5,484,625
----------
33,688,181
----------
Financial Services (20.3%):
Allmerica Financial Corp................. 54,000 3,219,750
Allstate Corp............................ 162,000 6,753,375
Ambac Financial Group Inc................ 25,000 1,200,000
American General Corp.................... 57,900 3,698,363
American International Group............. 60,650 4,670,050
Astoria Financial Corporation............ 19,400 817,225
BankAmerica Corp......................... 59,700 3,589,462
Bankers Trust Corp....................... 50,100 2,955,900
Chase Manhattan.......................... 152,000 6,574,000
CIGNA Corp............................... 110,600 7,313,425
Equitable Companies...................... 66,500 2,751,438
Everest Reinsurance Holdings............. 90,100 3,361,856
First Union Corporation.................. 130,670 6,688,670
General RE Corporation................... 12,800 2,598,400
Golden State Bancorp (b)................ 41,600 829,400
NationsBank Corp......................... 102,912 5,505,792
Republic New York Corp................... 76,200 3,009,900
----------
65,537,006
----------
Health Care (4.8%):
Aetna Inc................................ 47,200 3,280,400
Amgen (b)............................... 47,700 3,604,331
Columbia/HCA Healthcare.................. 119,200 2,391,450
Pharmacia & Upjohn Inc................... 68,500 3,437,844
Tenet Healthcare Inc. (b)............... 93,600 2,691,000
----------
15,405,025
----------
</TABLE>
See accompanying notes to financial statements.
- 29 -
<PAGE>
Schedule of Investments
Griffin Growth & Income Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Technology (6.2%):
Compaq Computer Corp..................... 158,200 $5,003,075
First Data............................... 128,300 3,015,050
International Business
Machines Corporation..................... 50,800 6,502,400
Sun Microsystems Inc. (b)............... 108,500 5,404,656
----------
19,925,181
----------
Transportation (2.5%):
Canadian Pacific Limited ORD PAR......... 110,700 2,290,106
Union Pacific............................ 132,300 5,639,288
-----------
7,929,394
-----------
Utilities (11.3%):
Bell Atlantic............................ 77,544 3,756,037
CMS Energy Corp.......................... 99,000 4,312,687
Duke Power............................... 64,200 4,249,238
Edison International..................... 123,300 3,167,269
Entergy Company.......................... 128,300 3,945,225
GTE Corporation.......................... 58,900 3,239,500
Pinnacle West Capital Corp............... 75,400 3,378,862
Southern Company......................... 139,700 4,112,419
Southwestern Bell........................ 140,000 6,221,250
----------
36,382,487
----------
Total Common Stocks (cost: $325,136,815)................. 307,794,855
-----------
Preferred Stocks (1.7%):
Consumer Services (1.7%):
News Corporation, Ltd. ADR............... 248,500 5,560,188
---------
Total Preferred Stocks (cost: $4,650,422)................ 5,560,188
---------
Short-Term Securities (2.8%):
Repurchase Agreement (2.8%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.00% dated
9/30/98 due 10/1/98, Collateralized by
U.S. Government Securities
(delivery value $9,038,555).............. $9,037,551 $9,037,551
----------
Total Short-Term Securities (cost: $9,037,551)........... 9,037,551
----------
Total Investments in Securities
(cost: $338,824,788)(c)(97.8%).................... 322,392,594
Other Assets Less Liabilities (2.2%)...................... 7,291,195
------------
Net Assets (100.0%)....................................... $329,683,789
============
</TABLE>
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in
note 1 to the financial statements.
(b) Currently non-income producing.
(c) Cost for federal income tax purposes is $338,906,125. The
aggregate gross unrealized appreciation and depreciation of
investments in securities based on this cost were as follows:
Gross unrealized appreciation........... $21,538,988
Gross unrealized depreciation........... (38,052,519)
-------------
Net unrealized depreciation.............$(16,513,531)
=============
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?
There were a good many market factors hard at work during the past year. The
U.S. economy began to slow down and the corporate earnings outlook began to
deteriorate. Most stocks have fallen over the past year, with a sharp decline
during the third quarter. In fact, the fastest growing and most highly valued
stocks suffered the worst performance. Smaller companies continue to
underperform larger ones, but remain more attractively valued on a relative
basis. Likewise, those companies with low earnings valuations fared the best.
The technology, capital equipment, and energy sectors all fell by at least 25%
during the reporting period, with semiconductor capital equipment logging in as
the worst performing sector with a 62% decline. In contrast, the fall of
long-term interest rates triggered a demand for quality, with Treasury bonds
posting strong results. Utilities were the best performing sector during the
reporting period, but the Fund held little exposure in this sector due to its
investment mandate.
What were some of the strategies and techniques implemented during the year?
The Fund's strategy has remained consistent since its inception. The Fund is
fully invested and does not attempt to forecast the direction of the market.
History has shown that a fully invested approach has proven more successful over
the long term, and this strategy combined with a quantitative and fundamental
approach to stock selection characterizes the Fund's investment technique. The
Fund maintains a diversified base of about 250 stocks, with the 20 largest
holdings comprising about 18% of the portfolio. This diversified positioning
reduces the inevitable volatility that is inherent to the stock market. The
Fund's buy and hold approach allows its winners the opportunity to rebound from
temporary declines with strong long-term performance.
What themes can be seen in the current portfolio (industry weightings) and why?
The Fund's sector weightings and fundamental characteristics are generally
consistent with those of the Lipper MidCap Index. However, the Fund tends to
achieve a higher return on capital bias, and currently forecasts long-term
earnings growth of about 21% and an investment weighted median market
capitalization of about $3 billion. To give these numbers some perspective, the
S&P 500 Index anticipates growth of 13% and a market capitalization of $40
billion, with a yield that is about four times that of this Fund. When compared
to the S&P MidCap Index (representing companies with a $250 million to $1
billion capitalization), the Fund is overweighted in technology, health care,
and consumer services, and has materially fewer investments in the energy,
process industries, and utility sectors. Currently, the Fund's largest long-term
sector is technology (25%), followed by consumer services (16%) and health care
(14%).
What individual security holdings changed significantly during the year?
The Fund sold several securities that experienced a decline in fundamentals
during the reporting period. As a general rule, the Fund allows its top
performing securities to run their course and add new holdings at modest
weightings. As it is impossible to predict which companies will become
successful long-term holdings, the Fund maintains a diversified base of
securities and continuously evaluates each company's ongoing growth prospects.
What is the strategy for the next six to twelve months?
The Fund's strategy has remained consistent and proven successful under various
market conditions. Key principles of the strategy are to maintain both diversity
and a buy-and-hold approach among its core securities, in an effort to achieve
higher long-term performance within the dynamic equity sector. This approach has
also resulted in a very tax efficient strategy for investors, as evidenced by
the fact that the Growth Fund has never made a capital gains distribuiton.
- 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, reinvesting all dividends, the top chart would track the value of your
investment through the period ended September 30, 1998. If you had invested
$10,000 in Class B of the Fund when they were first offered on June 12, 1995,
assuming all dividends were reinvested, the bottom chart would track the
performance of your investment through the period ended September 30, 1998. 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 353 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.
The Griffin Growth Fund A
{CHART APPEARS HERE}
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year......................................................-15.68%
Since Inception................................................11.08%
Value of $10,000 Invested
<TABLE>
<CAPTION>
Griffin Growth S&P MidCap 400 Lipper Mid-Cap 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
Dec 97 $15,688 Dec 97 $18,017 Dec 97 $16,067
Mar $17,641 Mar $20,000 Mar $18,003
Jun $17,392 Jun $19,572 Jun $17,751
Sep $14,155 Sep $16,742 Sep $14,529
</TABLE>
THE GRIFFIN GROWTH FUND CLASS B
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.......................................................-17.36%
Since Inception................................................ 11.34%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Growth S&P MidCap 400 Lipper Mid-Cap 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 $16,320 Sep $17,868 Sep $16,625
Dec 97 $15,937 Dec 97 $18,017 Dec 97 $16,067
Mar $17,894 Mar $20,000 Mar $18,003
Jun $17,609 Jun $19,572 Jun $17,751
Sep $14,004 Sep $16,742 Sep $14,529
</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 lowe.
- 32 -
<PAGE>
Schedule of Investments
Griffin Growth Fund
September 30, 1998
[PIE CHART APPEARS HERE]
Business Services 11%
Capital Equipment 2%
Consumer Non-Durables 4%
Financial Services 13%
Health Care 14%
Media & Communications 8%
Resources 6%
Retailing 8%
Technology 28%
Cash 2%
Other 4%
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 (98.4%):
Business Services (11.2%):
AccuStaff Inc. (b)...................... 8,500 $123,781
Air Express International................ 11,600 185,600
Apollo Group Incorporated (b)........... 10,500 292,688
Atlantic Southeast Airlines.............. 8,300 294,650
Carnival Corp............................ 14,600 464,462
Catalina Marketing Corp. (b)............ 5,100 239,700
Cintas Corporation....................... 2,000 100,250
Comair Holdings Inc...................... 15,025 431,969
Equifax Inc.............................. 10,200 364,012
Equity Corporation International (b).... 9,200 207,000
IMS Health Incorporated.................. 7,300 452,144
Interim Services Incorporated (b)....... 8,700 178,894
Interpublic Group of Companies Inc....... 6,500 350,594
Kansas City Southern Industries Inc...... 9,800 343,000
LaSalle Partners Incorporated (b)....... 11,300 369,369
Mutual Risk Management LTD............... 18,200 643,825
Omnicom Group Incorporated............... 8,200 369,000
Paychex Inc.............................. 10,050 518,203
Petersen Companies Inc., Class A (b).... 5,500 156,750
Primark Corporation (b)................. 8,400 256,200
Quintiles Transnational Corporation (b).. 7,600 332,500
Robert Half International Inc (b)....... 10,850 468,584
Romac International (b)................. 14,900 268,200
Security Capital Group, Series B (b).... 16,000 288,000
Service Corporation International........ 8,000 255,000
Superior Services (b)................... 12,300 346,706
Sylvan Learning Systems (b)............. 6,525 152,522
The Vincam Group (b).................... 13,250 181,359
Waste Management Inc..................... 12,300 591,169
-----------
9,226,131
-----------
Capital Equipment (2.2%):
Cable Design Technologies (b)........... 8,950 $114,112
Danaher Corp............................. 12,800 384,000
Donaldson Company, Inc................... 11,700 187,200
IDEX Corporation......................... 8,050 213,828
Kennametal Inc........................... 4,900 131,994
Littlelfuse Inc. (b).................... 7,000 139,125
MSC Industrial Direct Company............ 12,300 246,000
Parker-Hannifin.......................... 6,950 206,328
Roper Industries......................... 9,300 161,588
-----------
1,784,175
-----------
Consumer Cyclicals (3.6%):
Bed Bath & Beyond (b)................... 23,400 546,975
Gulfstream Aerospace Corporation (b).... 7,100 285,775
Harley-Davidson Inc...................... 10,800 317,250
Lennar Corp.............................. 7,400 165,112
Lilly Industries......................... 11,800 207,975
LNR Property Corporation................. 6,900 133,256
Oakwood Homes Corp....................... 10,700 140,438
Rouse Company............................ 6,700 180,481
Sherwin-Williams Co...................... 10,600 229,225
Valspar.................................. 13,300 398,169
Williams - Sonoma Inc. (b).............. 16,000 341,000
-----------
2,945,656
-----------
Consumer/ Durable (0.6%):
American Standard Companies (b)......... 6,100 160,888
Leggett & Platt Inc...................... 16,000 332,000
-----------
492,888
-----------
Consumer/ Non-Durable (4.1%):
CVS Corporation.......................... 9,400 411,838
Harcourt Genera.......................... 7,500 362,813
International Multifoods Corporation..... 8,500 139,719
Jones Apparel Grou....................... 9,200 211,025
Lancaster Colony......................... 9,447 290,495
Mattel Inc............................... 9,525 266,700
Nautica Enterprises Inc. (b)............ 8,300 155,106
Pioneer Hi-Bred International............ 8,800 231,000
Quiksilver Incorporated (b)............. 12,000 218,250
Sealed Air Corp. (b).................... 5,800 184,875
Tootsie Roll Industries Inc.............. 11,506 405,587
Unifi Inc................................ 6,500 100,343
Warnaco Group Inc........................ 7,600 175,750
Westwood One Inc. (b)................... 8,500 151,937
Wolverine World Wide..................... 9,600 104,400
-----------
3,409,838
-----------
</TABLE>
See accompanying notes to financial statements.
- 33 -
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1998
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Services (13.1%):
ACE Limited.............................. 14,300 $429,000
ACNielsen Corporation (b)............... 12,000 267,000
Ambac Financial Group Inc................ 8,700 417,600
Amvescap PLC ADR......................... 6,000 174,000
Bank of New York Co. Inc................. 16,200 443,475
Charter One Financial.................... 11,550 287,306
City National Corp....................... 13,100 410,194
Finova Group Inc......................... 9,600 479,400
First America Corp., Tennesee............ 11,600 445,150
Franklin Resources Inc................... 15,100 453,000
Investment Technology Group (b)......... 13,500 367,875
JSB Financial Inc........................ 8,200 420,762
Legg Mason Incorporated.................. 12,200 321,013
Mercantile Bancorporation Inc............ 4,868 235,490
Mercury General Corporation.............. 7,900 296,250
MGIC Investment Corporation.............. 6,400 236,000
Northern Trust Corporation............... 7,900 539,175
Progressive Corporation.................. 4,500 507,375
Protective Life Corporation.............. 12,700 457,200
Providian Financial Corporation.......... 6,500 551,281
Raymond James Financial lnc.............. 16,425 344,925
Schwab (Charles) Corp.................... 13,800 543,375
Silicon Valley Bancshares (b)........... 14,000 224,000
State Street Boston Corporation.......... 9,300 507,431
SunAmerica Incorporated.................. 9,900 603,900
TCF Financial............................ 10,000 198,750
U.S. Bancorp............................. 11,500 408,969
Zions Bancorporation..................... 6,000 244,875
-----------
10,814,771
-----------
Health Care (13.8%):
Drugs & Medicine (5.7%):
Agouron Pharmaceuticals Incorporated(b)... 6,100 210,069
Amgen (b)................................ 5,600 423,150
Biochem Pharma Inc........................ 7,000 128,625
Biogen Inc. (b).......................... 8,400 552,825
Cardinal Health Inc....................... 7,050 727,912
Elan PLC ADR (b)......................... 5,600 403,550
Gilead Sciences Inc. (b)................. 5,800 125,425
Guilford Pharmaceuticals Inc. (b)........ 5,700 79,800
Human Genome Sciences Inc. (b)........... 8,000 240,000
Incyte Pharmaceuticals Incorporated(b).... 7,800 165,750
Isis Pharmaceuticals (b)................. 7,800 88,725
Life Technologies......................... 7,700 256,988
Millennium Pharmaceuticals
Incorporated (b).......................... 15,000 260,625
Protein Design Labs Incorporated (b)...... 5,700 136,800
Sofamor Danek Group Corporation (b)...... 5,000 445,000
Watson Pharmaceuticals Incorporated (b).. 9,000 456,750
-----------
4,701,994
-----------
Health Care/Non-Drug (3.7%):
Arterial Vascular Engineering Inc (b).... 10,600 $392,200
Boston Scientific Corporation (b)....... 4,500 231,188
Guidant Corporation...................... 10,300 764,775
Henry Schein Incorporated................ 8,400 291,900
Medtronic Inc............................ 6,000 347,250
Omnicare Inc............................. 12,000 423,000
Physio-Control International Corp. (b)... 9,900 272,250
Teleflex Inc............................. 8,900 311,500
-----------
3,034,063
-----------
Hmo/Hospital Management (4.5%):
HCR Manor Care (b)...................... 8,950 262,347
Health Management Association CL A(b).... 24,993 456,122
HealthSouth Corp. (b)................... 14,300 151,044
Lincare Holdings Incorporated (b)....... 10,400 403,000
Orthodontic Centers of America Inc.(b)... 11,500 191,906
PacifiCare Health Systems (b)........... 2,100 156,450
Quorum Health Group Incorporated (b).... 12,150 197,438
Tenet Healthcare Corp. (b).............. 10,915 313,806
Total Renal Care Holdings
Incorporated (b)......................... 19,279 462,696
United HealthCare Corp................... 6,100 213,500
Universal Health Services (b)........... 7,800 325,650
VISX Incorporated (b)................... 8,000 536,000
-----------
3,669,959
-----------
Total Health Care................................ 11,406,016
-----------
Media & Communications (7.9%):
Belo (A.H.) Corp......................... 14,200 284,000
Cellular Communications
International Inc........................ 3,500 189,875
Centennial Cellular Corp. (b)........... 5,100 163,200
Central Newspaper Inc.................... 3,600 205,200
Chancellor Media Corporation (b)........ 9,200 307,050
Clear Channel Communications Inc. (b)... 18,600 883,500
Cox Communications (b).................. 9,800 535,325
Emmis Broadcasting Corp. (b)............ 6,400 241,600
ICG Communications Inc. (b)............. 11,000 185,625
Jacor Communications Inc. (b)........... 8,600 435,375
Mcleodusa Incorporated (b).............. 8,900 194,687
Meredith Corporation..................... 9,000 288,000
Outdoor Systems.......................... 29,100 567,450
TCA Cable TV............................. 15,000 421,875
Univision Communications Inc. (b)....... 10,000 297,500
U.S. Cellular Corp. (b)................. 5,500 163,969
Valassis Communications (b)............. 8,700 348,000
Vodafone Group PLC ADR................... 7,100 800,525
-----------
6,512,756
-----------
</TABLE>
See accompanying notes to financial statements.
- 34 -
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Resources (6.0%):
AES Corp. (b)............................ 11,600 $429,925
Allied Waste Industries Inc. (b)......... 13,000 303,875
Apache Corp............................... 9,300 249,356
B J Services Co. (b)..................... 14,300 232,375
Barrett Resources Corporation Inc.(b)..... 5,900 119,106
Cooper Cameron Corporation (b)........... 8,000 225,000
Devon Energy Corporation.................. 6,600 217,388
Ecolab.................................... 12,900 366,844
Noble Affiliates.......................... 6,700 213,562
Noble Drilling Corporation ............... 10,000 147,500
Nuevo Energy Co. (b)..................... 4,600 97,175
Ocean Energy Incorporated (b)............ 8,000 105,000
Pride International Inc. (b)............. 12,000 96,000
Sigma-Aldrich Corporation................. 14,400 415,800
Smith International (b).................. 11,200 307,300
Sybron International Corp. (b)........... 20,400 390,150
Tosco Corp................................ 11,100 238,650
Veritas DGC Incorporated (b)............. 9,000 150,188
Waters Corporation (b)................... 7,500 502,500
Weatherford International (b)............ 5,000 108,125
-----------
4,915,819
-----------
Retailing (8.2%):
Autozone Inc. (b)....................... 14,900 366,912
BJ's Wholesale Club Inc. (b)............ 9,000 330,750
Borders Group Incorporated (b).......... 12,100 269,225
CDW Computer Centers Inc................. 4,000 213,000
Circuit City Stores Inc.................. 8,700 289,819
CompUSA Inc. (b)........................ 9,500 164,469
Consolidated Stores (b)................. 8,600 168,775
Dollar General Corp...................... 29,863 795,102
Fred Meyer Incorporated (b)............. 8,030 312,166
Kohl's Corp. (b)........................ 9,000 351,000
Land's End Inc. (b)..................... 10,800 199,800
Mirage Resorts (b)...................... 8,700 145,725
Office Depot (b)........................ 19,200 430,800
Outback Steakhouse Inc. (b)............. 6,800 179,350
Safeway Inc. (b)........................ 13,400 621,425
Staples Incorporated (b)................ 3,000 88,125
Starbucks Corp. (b)..................... 6,800 246,075
The Men's Wearhouse Inc. (b)............ 13,650 235,462
Tiffany & Company........................ 11,100 348,263
TJX Companies............................ 19,600 349,125
Whole Foods Market Inc. (b)............. 9,000 379,125
Zale Corp. (b).......................... 10,500 269,063
-----------
6,753,556
-----------
Technology (27.7%):
Communications Equipment (2.1%):
Aspect Telecommunications Corp. (b)...... 8,500 $204,000
Comverse Technology Incorporated (b)..... 7,300 298,388
DSP Communications Incorporated (b)...... 8,200 67,650
Ericsson L.M. Telephone Co. ADR........... 11,200 205,800
Nextel Communications Inc., Class A (b).. 14,000 282,625
Powertel Incorporated (b)................ 13,700 185,806
WorldCom Incorporated (b)................ 10,200 498,525
-----------
1,742,794
-----------
Computer Communications (1.6%):
Ascend Communications Inc. (b)........... 7,600 345,800
Cisco Systems Inc. (b)................... 11,100 686,119
Intermedia Communications (b)............ 11,400 280,012
-----------
1,311,931
-----------
Computer/Electronic Equipment (2.4%):
Dionex Corporation (b)................... 9,940 231,105
Sanmina Corporation (b).................. 8,000 225,000
Symbol Technologies....................... 15,450 792,778
Tellabs (b).............................. 15,576 620,120
Teradyne Inc. (b)........................ 4,600 83,950
-----------
1,952,953
-----------
Computer Services (3.9%):
Affiliated Computer Services (b)......... 10,700 326,350
America Online Delaware Inc............... 7,600 845,500
Cambridge Technology Partners............. 9,700 216,431
DST Systems Incorporated (b)............. 6,400 337,600
HBO & Co.................................. 24,600 710,325
Saville Systems Ireland PLC............... 13,700 198,650
Shared Medical Systems Corp............... 5,500 292,531
SunGard Data Systems Incorporated (b).... 9,500 299,250
-----------
3,226,637
-----------
</TABLE>
See accompanying notes to financial statements.
- 35 -
<PAGE>
Schedule of Investments
Griffin Growth Fund (Continued)
September 30, 1998
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Software (8.9%):
Adobe Systems Inc......................... 6,800 $235,875
BMC Software Inc. (b).................... 17,800 1,069,112
Cadence Design Systems (b)............... 17,600 449,900
CBT Group PLC ADR (b).................... 7,600 102,600
Citrix Systems (b)....................... 8,200 582,200
Compuware Corp. (b)...................... 16,500 971,437
Electronic Arts (b)...................... 11,000 482,625
IDX Systems Corporation (b).............. 7,400 392,200
Intuit (b)............................... 7,500 349,219
Keane Incorporated (b)................... 2,000 70,250
Network Associates Incorporated (b)...... 14,287 507,189
Oracle Corp. (b)......................... 12,250 356,781
Parametric Technology Corp. (b........... 10,200 102,638
People Soft Inc. (b)..................... 12,400 404,550
Sterling Commerce Inc. (b)............... 10,500 363,562
Symantec Corp. (b)....................... 13,800 181,988
Synopsys Inc. (b)........................ 4,800 159,900
Veritas Software Corporation (b)......... 6,400 353,600
Visio Corporation (b).................... 8,000 192,500
-----------
7,328,126
-----------
Electronics (5.6%):
Altera Corporation (b)................... 12,000 421,500
Analog Devices (b)....................... 11,800 189,537
Dallas Semiconductor...................... 10,500 283,500
Gateway 2000 Incorporated (b)............ 7,500 390,938
Hubbell Incorporated, Series B ........... 7,000 248,500
Lattice Semiconductor Corporation (b).... 4,000 99,000
Linear Technology Corp.................... 9,200 460,000
Maxim Integrated Products Inc. (b)....... 19,200 535,200
Microchip Technology Inc. (b)............ 7,400 161,875
Molex Inc CL A ........................... 11,726 318,068
Raychem Corp.............................. 7,300 177,938
SCI Systems Inc. (b)..................... 9,700 261,294
SDL Incorporated (b)..................... 7,100 88,750
Tyco International........................ 7,700 425,425
Uniphase Corporation (b)................. 2,000 82,000
Vitesse Semiconductor Corporation (b).... 10,500 248,062
Xilinx Inc. (b).......................... 7,500 262,500
-----------
4,654,087
-----------
Other Technology (3.2%):
Applied Materials Inc. (b)............... 12,000 303,000
BE Aerospace (b)......................... 10,000 220,000
Cognex Corp. (b)......................... 7,500 87,187
Diebold Incorporated...................... 6,500 143,000
EMC Corp-Mass (b)........................ 14,200 812,062
Network Appliance Inc. (b)............... 8,800 445,500
Sun Microsystems Inc. (b)................ 13,200 657,525
-----------
2,668,274
-----------
Total Technology.................................. 22,884,802
-----------
Total Common Stocks (cost: $74,149,778)................... 81,146,408
-----------
Short-Term Securities (1.6%):
Repurchase Agreement (1.6%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.00%, dated
9/30/98 due 10/1/98, Collateralized by
U.S. Government Securities
(delivery value $1,321,745)....... $1,321,745 $1,321,745
-----------
Total Short-Term Securities (cost: $1,321,745)............ 1,321,745
-----------
Total Investments in Securities
(cost: $75,471,523)(c)(92.3%)............ . 82,468,153
-----------
Other Assets Less Liabilities (7.7%)...................... 6,841,420
-----------
Net Assets (100.0%)....................................... $89,309,573
===========
</TABLE>
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Currently non-income producing.
(c) Cost is 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 $15,654,300
Gross unrealized depreciation (8,657,670)
-----------
Net unrealized appreciation $6,996,630
===========
See accompanying notes to financial statements.
- 36 -
<PAGE>
Statements of Assets and Liabilities
September 30, 1998
<TABLE>
<CAPTION>
Money Tax-Free Short-Term
Market Money Bond
Fund Market Fund Fund
---- ----------- ----
<S> <C> <C> <C>
Assets
Investments:
In securities, at market value* (note 1) ....................................... $237,590,935 $22,829,399 $103,152,206
Cash ............................................................................... 0 0 0
Receivables:
Dividends and Interest ......................................................... 1,597,541 203,671 1,845,479
Fund shares sold ............................................................... 3,779,087 1,029,285 2,285,459
Investment securities sold ..................................................... 0 0 0
Other receivables .............................................................. 0 0 0
Organization expenses, net of amortization (note 1) ................................ 850 850 8,672
------------ ------------ ------------
Total assets .......................................... 242,968,413 24,063,205 107,291,816
------------ ------------ ------------
Liabilities
Distributions to shareholders ...................................................... 953,993 53,145 417,175
Fund shares redeemed ............................................................... 4,218,367 869,855 8,226,979
Payable for securities purchased ................................................... 0 0 0
Payable for advisory fees .......................................................... 40,610 0 0
Payable for distribution fees ...................................................... 38,398 4,672 21,459
Payable for administration fees .................................................... 39,583 4,672 17,026
Other Liabilities................................................................... 87,685 52,639 76,275
Total liabilities .......................................... 5,378,636 984,983 8,758,914
------------ ------------ ------------
Net Assets .......................................... $237,589,777 $23,078,222 $98,532,902
============ ============ ============
Net assets consist of:
Capital stock, Class A or single class ......................................... 237,590 23,083 9,457
Capital stock, Class B ......................................................... N/A N/A 34
Additional paid in capital, Class A or single class ............................ 237,352,382 23,060,081 95,172,629
Additional paid in capital, Class B ............................................ N/A N/A 347,771
Undistributed net investment income ............................................ 45 (29) 0
Accumulated net realized gain (loss) on investments and
futures contracts ............................................................ (240) (4,913) 227,090
Net unrealized appreciation on investments
and futures contracts ........................................................ 0 0 2,775,921
------------ ------------ ------------
Net Assets .......................................... $237,589,777 $23,078,222 $98,532,902
============ ============ ============
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class ............................................ $237,589,777 $23,078,222 $98,175,632
Shares outstanding, Class A or single class .................................... 237,589,972 23,083,164 9,457,041
Net asset value, Class A or single class ....................................... $1.00 $1.00 $10.38
Maximum offering price, Class A or single class ................................ $1.00 $1.00 $10.76
Net assets, Class B ............................................................ N/A N/A $357,270
Shares outstanding, Class B .................................................... N/A N/A 34,445
Net asset value and offering price, Class B .................................... N/A N/A $10.37
* Investments in securities, at identified cost $237,590,935 $22,829,399 $100,376,285
</TABLE>
See accompanying notes to financial statements.
- 37 -
<PAGE>
Statements of Assets and Liabilities
September 30, 1998
<TABLE>
<CAPTION>
U.S. Municipal
Government Bond Bond
Income Fund Fund Fund
----------- ---- ----
<S> <C> <C> <C>
Assets
Investments:
In securities, at market value* (note 1) ........................................ $150,566,123 $113,954,417 $23,398,486
Cash ................................................................................ 10,816 0 7,016
Receivables:
Dividends and Interest .......................................................... 1,070,813 1,441,516 330,520
Fund shares sold ................................................................ 902,233 1,250,970 310,675
Investment securities sold ...................................................... 0 8,108,122 0
Other receivables ............................................................... 0 0 6,015
Organization expenses, net of amortization (note 1) ................................. 850 850 850
------------ ------------ ------------
Total assets ........................................... 152,550,835 124,755,875 24,053,562
------------ ------------ ------------
Liabilities
Distributions to shareholders ....................................................... 511,389 443,152 74,632
Fund shares redeemed ................................................................ 9,573,398 7,886,562 1,537,343
Payable for securities purchased .................................................... 28,384,778 19,858,635 0
Payable for advisory fees ........................................................... 11,889 4,190 0
Payable for distribution fees ....................................................... 27,953 21,344 346
Payable for administration fees ..................................................... 19,815 16,760 3,815
Other accrued expenses .............................................................. 86,977 76,089 23,378
Total liabilities ........................................... 38,616,199 28,306,732 1,639,514
------------ ------------ ------------
Net Assets ........................................... $113,934,636 $96,449,143 $22,414,048
============ ============ ============
Net assets consist of:
Capital stock, Class A or single class .......................................... 11,117 10,248 2,267
Capital stock, Class B .......................................................... 583 70 59
Additional paid in capital, Class A or single class ............................. 101,639,690 91,581,907 20,944,650
Additional paid in capital, Class B ............................................. 5,435,554 627,814 537,921
Undistributed net investment income ............................................. 1,296 0 0
Accumulated net realized gain (loss) on investments and
futures contracts ............................................................. 2,057,502 878,410 (89,109)
Net unrealized appreciation on investments
and futures contracts ......................................................... 4,788,894 3,350,694 1,018,260
------------ ------------ ------------
Net Assets ........................................... $113,934,636 $96,449,143 $22,414,048
============ ============ ============
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class ............................................. $108,252,433 $95,793,823 $21,846,376
Shares outstanding, Class A or single class ..................................... 11,116,831 10,248,368 2,266,637
Net asset value, Class A or single class ........................................ $9.74 $9.35 $9.64
Maximum offering price, Class A or single class ................................. $10.20 $9.79 $10.09
Net assets, Class B ............................................................. $5,682,203 $655,320 $567,672
Shares outstanding, Class B ..................................................... 583,016 70,160 58,880
Net asset value and offering price, Class B ..................................... $9.75 $9.34 $9.64
* Investments in securities, at identified cost $145,777,229 $110,603,723 $22,380,226
<CAPTION>
California Growth &
Tax-Free Income Growth
Fund Fund Fund
<S> <C> <C> <C>
Assets
Investments:
In securities, at market value* (note 1) ........................................ $49,975,491 $322,392,594 $82,468,153
Cash ................................................................................ 97,886 0 0
Receivables:
Dividends and Interest .......................................................... 724,357 377,075 31,535
Fund shares sold ................................................................ 415,526 15,229,996 8,126,475
Investment securities sold ...................................................... 1,081,324 626,411 486,500
Other receivables ............................................................... 3,366 52,757 9,087
Organization expenses, net of amortization (note 1) ................................. 850 850 8,672
------------ ------------ ------------
Total assets ........................................... 52,298,800 338,679,683 91,130,422
------------ ------------ ------------
Liabilities
Distributions to shareholders ....................................................... 158,676 0 0
Fund shares redeemed ................................................................ 1,401,041 1,960,469 735,536
Payable for securities purchased .................................................... 1,004,990 6,691,217 961,579
Payable for advisory fees ........................................................... 2,052 66,906 18,919
Payable for distribution fees ....................................................... 15,082 92,642 20,150
Payable for administration fees ..................................................... 8,209 51,881 13,491
Other accrued expenses .............................................................. 30,135 132,779 71,174
Total liabilities ........................................... 2,620,185 8,995,894 1,820,849
------------ ------------ ------------
Net Assets ........................................... $49,678,615 $329,683,789 $89,309,573
============ ============ ============
Net assets consist of:
Capital stock, Class A or single class .......................................... 4,862 16,964 5,684
Capital stock, Class B .......................................................... 927 2,697 364
Additional paid in capital, Class A or single class ............................. 39,480,083 285,585,994 82,420,651
Additional paid in capital, Class B ............................................. 7,521,699 46,549,889 5,169,758
Undistributed net investment income ............................................. 0 720 0
Accumulated net realized gain (loss) on investments and
futures contracts ............................................................. (72,959) 13,959,719 (5,283,514)
Net unrealized appreciation on investments
and futures contracts ......................................................... 2,744,003 (16,432,194) 6,996,630
------------ ------------ ------------
Net Assets ........................................... $49,678,615 $329,683,789 $89,309,573
============ ============ ============
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class ............................................. $41,723,173 $284,576,839 $84,019,642
Shares outstanding, Class A or single class ..................................... 4,862,184 16,964,005 5,684,325
Net asset value, Class A or single class ........................................ $8.58 $16.77 $14.78
Maximum offering price, Class A or single class ................................. $8.98 $17.56 $15.48
Net assets, Class B ............................................................. $7,955,442 $45,106,950 $5,289,931
Shares outstanding, Class B ..................................................... 926,719 2,696,898 363,922
Net asset value and offering price, Class B ..................................... $8.58 $16.73 $14.54
* Investments in securities, at identified cost ..................................... $47,231,488 $338,824,788 $75,471,523
</TABLE>
See accompanying notes to financial statements.
- 38 -
<PAGE>
Statements of Operations
For the six month period ended September 30, 1998
<TABLE>
<CAPTION>
Money Tax-Free Short-Term
Market Money Bond
Fund Market Fund Fund
------------- -------------- ------------
<S> <C> <C> <C>
Investment income:
Interest .................................................... $13,066,598 $889,911 $4,539,805
Dividends (net of foreign withholding taxes of $68,503 and
$2263 for the Growth & Income Fund
and Growth Fund, respectively) ............................ 0 0 0
----------- ----------- -----------
Total income ......................................... 13,066,598 889,911 4,539,805
----------- ----------- -----------
Expenses:
Advisory fees (note 2) ...................................... 1,164,039 123,551 380,026
Administration and accounting fees (note 2) ................. 465,616 49,421 152,010
Distribution fees (note 2) .................................. 465,616 49,421 191,267
Amortization of organization expenses ....................... 17,108 17,108 5,103
Legal and audit fees ........................................ 59,927 31,901 38,818
Registration fees ........................................... 27,103 9,877 29,522
Directors' fees ............................................. 8,834 8,834 8,834
Shareholder reports ......................................... 35,449 2,543 24,846
Insurance expense ........................................... 9,611 678 2,086
Custodian fees .............................................. 10,083 4,125 3,593
Printing and postage ........................................ 98,479 17,065 73,408
----------- ----------- -----------
Total expenses ....................................... 2,361,865 314,524 909,513
----------- ----------- -----------
Less:
Waived fees (note 2) ........................................ (686,020) (132,121) (382,961)
Reimbursement from administrator (note 2).................... 0 0 0
Expense reductions (note 5) ................................. (10) (839) (1,079)
----------- ----------- -----------
Net expenses ......................................... 1,675,835 181,564 525,473
----------- ----------- -----------
Net investment income (loss) ......................... 11,390,763 708,347 4,014,332
----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments ............. (195) (249) 265,015
Net realized gain (loss) on sale of futures contracts ....... 0 0 0
Net change in unrealized appreciation
(depreciation )of investments ................................ 0 0 2,487,054
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments (195) 0 2,752,069
----------- ----------- -----------
Net increase(decrease)in net assets
resulting from operations............................. $11,390,568 $708,098 $6,766,401
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
- 39 -
<PAGE>
Statements of Operations
For the six month period ended September 30, 1998
<TABLE>
<CAPTION>
U.S. Municipal
Government Bond Bond
Income Fund Fund Fund
------------- ------------ -------------
<S> <C> <C> <C>
Investment income:
Interest .................................................... $6,540,533 $5,032,600 $746,626
Dividends (net of foreign withholding taxes of $11,942 and
$462 for the Growth & Income Fund
and Growth Fund, respectively) ............................ 0 0 0
----------- ----------- -----------
Total income ......................................... 6,540,533 5,032,600 746,626
----------- ----------- -----------
Expenses:
Advisory fees (note 2) ...................................... 508,277 398,345 77,514
Administration and accounting fees (note 2) ................. 203,311 159,338 31,005
Distribution fees (note 2) .................................. 286,196 203,580 42,473
Amortization of organization expenses ....................... 17,108 17,108 17,108
Legal and audit fees ........................................ 42,924 39,680 32,347
Registration fees ........................................... 24,225 24,900 8,376
Directors' fees ............................................. 8,834 8,834 8,834
Shareholder reports ......................................... 25,955 24,535 2,252
Insurance expense ........................................... 3,344 2,381 417
Custodian fees .............................................. 10,421 7,454 3,797
Printing and postage ........................................ 69,240 76,662 13,964
----------- ----------- -----------
Total expenses ....................................... 1,199,835 962,817 238,087
Less:
Waived fees (note 2) ........................................ (408,116) (389,770) (125,941)
Reimbursement from administrator (note 2).................... 0 0 (785)
Expense reductions (note 5) ................................. (2,995) (820) (935)
----------- ----------- -----------
Net expenses ......................................... 788,724 572,227 110,426
----------- ----------- -----------
Net investment income (loss) ......................... 5,751,809 4,460,373 636,200
----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments ............. 2,367,546 1,069,922 63,340
Net realized gain on sale of futures contracts .............. 0 0 (25,489)
Net change in unrealized appreciation of investments ........ 3,948,714 2,682,656 636,073
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments 6,316,260 3,752,578 673,924
----------- ----------- -----------
Net increase in net assets resulting from operations . $12,068,069 $8,212,951 $1,310,124
=========== =========== ===========
<CAPTION>
California Growth &
Tax-Free Income Growth
Fund Fund Fund
------------- ------------- --------------
<S> <C> <C> <C>
Investment income:
Interest .................................................... $1,941,382 $587,820 $58,369
Dividends (net of foreign withholding taxes of $11,942 and
$462 for the Growth & Income Fund
and Growth Fund, respectively) ............................ 0 5,001,378 351,670
------------ ------------ ------------
Total income ......................................... 1,941,382 5,589,198 410,039
------------ ------------ ------------
Expenses:
Advisory fees (note 2) ...................................... 197,702 1,915,644 486,160
Administration and accounting fees (note 2) ................. 79,081 638,548 162,053
Distribution fees (note 2) .................................. 145,423 1,149,978 242,670
Amortization of organization expenses ....................... 17,108 17,108 5,103
Legal and audit fees ........................................ 34,816 74,827 52,320
Registration fees ........................................... 7,608 69,385 21,043
Directors' fees ............................................. 8,834 8,834 8,834
Shareholder reports ......................................... 2,964 46,876 32,216
Insurance expense ........................................... 1,276 10,899 2,575
Custodian fees .............................................. 4,644 18,002 14,744
Printing and postage ........................................ 16,638 121,273 77,918
------------ ------------ ------------
Total expenses ....................................... 516,094 4,071,374 1,105,636
Less:
Waived fees (note 2) ........................................ (193,524) (1,094,281) (259,087)
Reimbursement from administrator (note 2).................... 0 0 0
Expense reductions (note 5) ................................. (2,357) (2,050) (158)
------------ ------------ ------------
Net expenses ......................................... 320,213 2,975,043 846,391
----------- ----------- -----------
Net investment income (loss) ......................... 1,621,169 2,614,155 (436,352)
------------ ------------ ------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments ............. 100,860 17,332,380 (3,947,760)
Net realized gain on sale of futures contracts .............. 51,946 0 0
Net change in unrealized appreciation of investments ........ 1,535,686 (53,228,495) (7,937,489)
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 1,688,492 (35,896,115) (11,885,249)
------------ ------------ ------------
Net increase in net assets resulting from operations . $3,309,661 ($33,281,960) ($12,321,601)
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
- 40 -
<PAGE>
Statements of Changes in Net Assets
For the periods ended September 30, 1998 and September 30, 1997
<TABLE>
<CAPTION>
Tax-Free
Money Market Fund Money Market Fund
================================== ============================
Year Ended Year Year Ended Year
Ended Ended Ended Ended
9/30/98 9/30/97 9/30/98 9/30/97
-------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $11,390,763 $10,224,848 $708,347 $406,673
Net realized gain (loss)on sale of
investments and future contracts...... (195) (45) (249) 0
Net change in unrealized appreciation
of investments ....................... 0 0 0 0
Net increase in net
------------- ------------- ------------- -------------
assets resulting from operations 11,390,568 10,224,803 708,098 406,673
------------- ------------- ------------- -------------
Distributions to shareholders:
From net investment income
Class A ................................ (11,407,930) (10,224,848) (708,347) (406,673)
Class B ................................ N/A N/A N/A N/A
From realized gain on investments
Class A ................................ 0 0 0 0
Class B ................................ N/A N/A N/A N/A
------------- ------------- ------------- -------------
Total distributions .............. (11,407,930) (10,224,848) (708,347) (406,673)
------------- ------------- ------------- -------------
Net increase in net assets resulting
from capital share transactions (note 4) ..... 7,833,039 45,126,014 6,917,414 4,509,493
------------- ------------- ------------- -------------
Increase in net assets ........... 7,815,677 45,125,969 6,917,414 4,509,493
------------- ------------- ------------- -------------
Net assets:
Beginning net assets ....................... 229,774,100 184,648,131 16,161,057 11,651,564
------------- ------------- ------------- -------------
Ending net assets* ......................... $237,589,777 $229,774,100 $23,078,222 $16,161,057
============= ============= ============= ============
*Includes undistributed (over
distributed) net investment income ......... $45 $17,212 ($29) ($29)
<CAPTION>
Short-Term U.S. Government
Bond Fund Income Fund
=============================== ============================
Year Ended Year Year Ended Year
Ended Ended Ended Ended
9/30/98 9/30/97 9/30/98 9/30/97
-------------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $4,014,332 $1,800,936 $5,751,809 $3,808,711
Net realized gain (loss)on sale of
investments and future contracts...... 265,015 7,108 2,367,546 353,405
Net change in unrealized appreciation
of investments ....................... 2,487,054 370,620 3,948,714 1,035,109
Net increase in net
------------- ------------ ------------- -------------
assets resulting from operations 6,766,401 2,178,664 12,068,069 5,197,225
------------- ------------ ------------- -------------
Distributions to shareholders:
From net investment income
Class A ................................ (4,006,765) (1,790,243) (5,547,453) (3,597,983)
Class B ................................ (7,567) (10,694) (210,644) (210,727)
From realized gain on investments
Class A ................................ 0 0 0 0
Class B ................................ 0 0 0 0
------------- ------------- ------------ -------------
Total distributions .............. (4,014,332) (1,800,937) (5,758,097) (3,808,710)
Net increase in net assets resulting
from capital share transactions (note 4) ..... 45,452,675 30,254,083 27,074,247 32,005,347
------------- ------------- ------------- -------------
Increase in net assets ........... 48,204,744 30,631,810 33,384,219 33,393,862
------------- ------------- ------------- -------------
Net assets:
Beginning net assets ....................... 50,328,158 19,696,347 80,550,417 47,156,555
------------- ------------- ------------- -------------
Ending net assets* ......................... $98,532,902 $50,328,158 $113,934,636 $80,550,417
============= ============= ============= =============
*Includes undistributed (over
distributed) net investment income ......... $0 $0 $1,296 $7,584
</TABLE>
See accompanying notes to financial statements.
- 41 -
<PAGE>
Statements of Changes in Net Assets
For the periods ended September 30, 1998 and September 30, 1997
<TABLE>
<CAPTION>
Bond Fund Municipal Bond Fund
============================== =============================
Year Ended Year Year Ended Year
Ended Ended Ended Ended
9/30/98 9/30/97 9/30/98 9/30/97
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $4,460,373 $2,450,188 $636,200 $355,037
Net realized gain (loss)on sale of
investments and future contracts...... 1,069,922 270,780 37,851 7,016
Net change in unrealized appreciation
of investments ....................... 2,682,656 908,922 636,073 296,920
Net increase in net
------------ ------------ ----------- ------------
assets resulting from operations 8,212,951 3,629,890 1,310,124 658,973
------------ ------------ ----------- ------------
Distributions to shareholders:
From net investment income
Class A ................................ (4,433,688) (2,426,201) (619,920) (338,814)
Class B ................................ (28,330) (23,987) (16,848) (16,223)
From realized gain on investments
Class A ................................ 0 0 0 0
Class B ................................ 0 0 0 0
------------ ------------ ------------ ------------
Total distributions .............. (4,462,018) (2,450,188) (636,768) (355,037)
------------ ------------ ------------ ------------
Net increase in net assets resulting
from capital share transactions (note 4) ..... 35,342,345 28,002,391 11,697,533 2,774,237
------------ ------------ ------------ ------------
Increase in net assets ........... 39,093,278 29,182,093 12,370,889 3,078,173
------------ ------------ ------------ ------------
Net assets:
Beginning net assets ....................... 57,355,865 28,173,772 10,043,159 6,964,986
------------ ------------ ------------ ------------
Ending net assets* ......................... $96,449,143 $57,355,865 $22,414,048 $10,043,159
============ ============ ============ ============
*Includes undistributed (over
distributed) net investment income ......... $0 $1,645 $0 $568
<CAPTION>
California
Tax-Free Fund Growth & Income Fund
============================= =================================
Year Ended Year Year Ended Year
Ended Ended Ended Ended
9/30/98 9/30/97 9/30/98 9/30/97
-------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... $1,621,169 $1,222,451 $2,614,155 $1,954,542
Net realized gain (loss)on sale of
investments and future contracts...... 152,806 208,734 17,332,380 31,497,187
Net change in unrealized appreciation
of investments ....................... 1,535,686 893,497 (53,228,495) 27,136,675
Net increase in net
------------- ----------- ------------- ------------
assets resulting from operations 3,309,661 2,324,682 (33,281,960 60,588,404
------------- ----------- ------------- ------------
Distributions to shareholders:
From net investment income
Class A ................................ (1,411,754) (1,057,532) (2,528,252) (1,816,999)
Class B ................................ (214,076) (164,919) (90,405) (162,598)
From realized gain on investments
Class A ................................ 0 0 (28,149,543) (8,171,142)
Class B ................................ 0 0 (4,813,177) (1,266,700)
------------- ------------- ------------- -------------
Total distributions .............. (1,625,830) (1,222,451) (35,581,377) (11,417,439)
Net increase in net assets resulting
from capital share transactions (note 4) ..... 17,173,688 5,683,503 135,954,027 94,278,663
------------- ------------- ------------- -------------
Increase in net assets ........... 18,857,519 6,785,734 67,090,690 143,449,628
------------- ------------- ------------- -------------
Net assets:
Beginning net assets ....................... 30,821,096 24,035,362 262,593,099 119,143,471
------------- ------------- ------------- -------------
Ending net assets* ......................... $49,678,615 $30,821,096 $329,683,789 $262,593,099
============= ============= ============== =============
*Includes undistributed (over
distributed) net investment income ......... $0 $4,661 $720 $5,222
<CAPTION>
Growth Fund
==============================
Year Ended Year
Ended Ended
9/30/98 9/30/97
-------------- -------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) ........... ($436,352) ($161,042)
Net realized gain (loss)on sale of
investments and future contracts...... (3,947,760) (1,043,448)
Net change in unrealized appreciation
of investments ....................... (7,937,489) 11,832,565
Net increase in net
------------ ------------
assets resulting from operations (12,321,601) 10,628,075
------------ ------------
Distributions to shareholders:
From net investment income
Class A ................................ 0 0
Class B ................................ 0 0
From realized gain on investments
Class A ................................ 0 0
Class B ................................ 0 0
------------ ------------
Total distributions .............. 0 0
------------ ------------
Net increase in net assets resulting
from capital share transactions (note 4) ..... 39,319,650 28,485,914
------------ ------------
Increase in net assets ........... 26,998,049 39,113,989
------------ ------------
Net assets:
Beginning net assets ....................... 62,311,524 23,197,535
------------ ------------
Ending net assets* ......................... $89,309,573 $62,311,524
============ ============
*Includes undistributed (over
distributed) net investment income ......... $ 0 $ 0
</TABLE>
See accompanying notes to financial statements.
- 43 -
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Supplemental information for a share outstanding for the Money Market Fund
six month period ended September 30, 1998 or throughout each ----------------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995 1994(a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.05 0.05 0.05 0.05 0.03
Net realized and unrealized gain (loss) on investments .. 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.05 0.05 0.05 0.05 0.03
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.05) (0.05) (0.05) (0.05) (0.03)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00 0.00
Total distributions .................................. (0.05) (0.05) (0.05) (0.05) (0.03)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $1.00 $1.00 $1.00 $1.00 $1.00
====================================================================================================================
Total return (not annualized)(d) ........................ 5.02% 5.12% 5.05% 5.52% 3.36%
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $237,590 $229,774 $184,648 $79,964 $49,988
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.72% 0.58% 0.58% 0.42% 0.15%
Ratio of net investment income to average net assets (ii) 4.90% 4.92% 4.92% 5.40% 4.25%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 1.02% 1.02% 1.09% 1.29% 1.64%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... 4.60% 4.52% 4.41% 4.53% 2.76%
Portfolio Turnover ...................................... N/A N/A N/A N/A N/A
Average Commission Rate Paid ............................ N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental information for a share outstanding for the Tax-Free Money Market Fund
six month period ended September 30, 1998 or throughout each ------------------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995 1994(a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.03 0.03 0.03 0.03 0.02
Net realized and unrealized gain (loss) on investments .. 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.03 0.03 0.03 0.03 0.02
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.03) (0.03) (0.03) (0.03) (0.02)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00 0.00
Total distributions .................................. (0.03) (0.03) (0.03) (0.03) (0.02)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $1.00 $1.00 $1.00 $1.00 $1.00
====================================================================================================================
Total return (not annualized)(d) ........................ 2.92% 3.02% 3.00% 3.44% 2.22%
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $23.078 $16,161 $11,652 $8,621 $10,633
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.73% 0.68% 0.62% 0.44% 0.17%
Ratio of net investment income to average net assets (ii) 2.83% 2.98% 2.93% 3.39% 2.56%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 1.26% 1.42% 1.53% 1.90% 2.28%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... 2.30% 2.24% 2.02% 1.92% 0.45%
Portfolio Turnover ...................................... N/A N/A N/A N/A N/A
Average Commission Rate Paid ............................ N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The fund commenced operations on October 19, 1993.
(b) The fund commenced operations on June 12, 1995.
(c) Class B shares were not offered until November 1, 1994.
(d) Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charge.
(e) 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>
Financial Highlights
<TABLE>
<CAPTION>
Short-Term Bond Fund
Supplemental information for a share outstanding for the Class A
six month period ended September 30, 1998 or throughout each --------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $10.09 $9.98 $10.05 $10.00
- -----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.54 0.56 0.54 0.18
Net realized and unrealized gain (loss) on investments .. 0.29 0.11 -0.07 0.05
- -----------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.83 0.67 0.47 0.23
- -----------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.54) (0.56) (0.54) (0.18)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00
Total distributions .................................. (0.54) (0.56) (0.54) (0.18)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.29 0.11 (0.07) 0.05
- -----------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $10.38 $10.09 $9.98 $10.05
====================================================================================================
Total return (not annualized)(d) ........................ 8.46% 6.86% 4.82% 2.32%
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $98,176 $50,153 $19,554 $3,582
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.69% 0.56% 0.39% 0.00%
Ratio of net investment income to average net assets (ii) 5.28% 5.55% 5.42% 5.91%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 1.19% 1.33% 1.58% 2.76%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... 4.78% 4.78% 4.23% 3.15%
Portfolio Turnover ...................................... 42.03% 23.67% 29.37% 1.05%
Average Commission Rate Paid ............................ N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Short-Term Bond Fund
Supplemental information for a share outstanding for the Class B
six month period ended September 30, 1998 or throughout each --------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $10.08 $9.98 $10.05 $10.00
- -----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.47 0.50 0.49 0.20
Net realized and unrealized gain (loss) on investments .. 0.29 0.10 -0.07 0.05
- -----------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.76 0.60 0.42 0.25
- -----------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.47) (0.50) (0.49) (0.20)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00
Total distributions .................................. (0.47) (0.50) (0.49) (0.20)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.29 0.10 (0.07) 0.05
- -----------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $10.37 $10.08 $9.98 $10.05
=====================================================================================================
Total return (not annualized)(d) ........................ 7.69% 6.20% 4.29% 2.51
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $357 $175 $143 $13
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 1.48% 1.06% 0.90% 0.00%
Ratio of net investment income to average net assets (ii) ) 4.80% 5.01% 4.81% 5.54%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 2.05% 2.06% 2.29% 3.33%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... 4.22% 4.01% 3.42% 2.21%
Portfolio Turnover ...................................... 42.03% 23.67% 29.37% 1.05%
Average Commission Rate Paid ............................ N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
<CAPTION>
U.S. Government Income Fund
Supplemental information for a share outstanding for the Class A
six month period ended September 30, 1998 or throughout each --------------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995 1994(b)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $9.19 $9.01 $9.24 $8.77 $9.50
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.54 0.57 0.57 0.63 0.56
Net realized and unrealized gain (loss) on investments .. 0.55 0.18 (0.21) 0.47 (0.73)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 1.09 0.75 0.36 1.10 (0.17)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.54) (0.57) (0.57) (0.63) (0.56)
Distributions from net realized gain (loss) ............. 0.00 0.00 -0.02 0.00 0.00
Total distributions .................................. (0.54) (0.57) (0.57) (0.63) (0.56)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.55 0.18 (0.23) 0.47 (0.73)
- ----------------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $ 9.74 $9.19 $9.01 $9.24 $8.77
================================================================================================================
Total return (not annualized)(d) ........................ 12.20% 8.62% 4.02% 13.00% (1.83%)
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $108,252 $76,605 $43,717 $29,308 $19,158
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.75% 0.54% 0.46% 0.21% 0.09%
Ratio of net investment income to average net assets (ii) 5.70% 6.38% 6.23% 6.93% 6.24%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 1.15% 1.22% 1.29% 1.63% 1.83%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... 5.30% 5.71% 5.41% 5.51% 4.49%
Portfolio Turnover ...................................... 108.10% 303.81% 101.00% 46.96% 28.20%
Average Commission Rate Paid ............................ N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S. Government Income Fund
Supplemental information for a share outstanding for the Class B
six month period ended March 31, 1998 or throughout each --------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(c)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $9.20 $9.02 $9.25 $8.67
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.47 0.53 0.53 0.52
Net realized and unrealized gain (loss) on investments .. 0.55 0.18 (0.21) 0.58
- ---------------------------------------------------------------------------------------------------
Total from investment operations ..................... 1.02 0.71 0.32 1.10
- ---------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.47) (0.53) (0.53) (0.52)
Distributions from net realized gain (loss) ............. 0.00 0.00 (0.02) 0.00
Total distributions .................................. (0.47) (0.53) (0.55) (0.52)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.55 0.18 (0.23) 0.58
- ---------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $9.75 $9.20 $9.02 $9.25
===================================================================================================
Total return (not annualized)(d) ........................ 11.35% 8.06% 3.51% 13.08%
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $5,682 $3,946 $3,439 $1,564
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 1.52% 1.16% 0.96% 0.79%
Ratio of net investment income to average net assets (ii) 5.01% 5.77% 5.67% 5.71%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 2.94% 2.18% 2.02% 3.19%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... 3.58% 4.74% 4.61% 3.31%
Portfolio Turnover ...................................... 108.10% 303.81% 101.00% 46.96%
Average Commission Rate Paid ............................ N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
- 44 -
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Bond Fund
Supplemental information for a share outstanding for the Class A
six month period ended September 30, 1998 or throughout each --------------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(d) 1994(a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $8.95 $8.71 $8.99 $8.47 $9.50
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.51 0.54 0.56 0.58 0.52
Net realized and unrealized gain (loss) on investments .. 0.40 0.24 (0.28) 0.52 (1.03)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.91 0.78 0.28 1.10 (0.51)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.51) (0.54) (0.56) (0.58) (0.52)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00 0.00
Total distributions .................................. (0.51) (0.54) (0.56) (0.58) (0.52)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.40 0.24 (0.28) 0.52 (1.03)
- ----------------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $9.35 $8.95 $8.71 $8.99 $8.47
================================================================================================================
Total return (not annualized)(c) ........................ 10.50% 9.19% 3.12% 13.53% (5.49)%
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $95,794 $56,923 $27,761 $12,022 $7,539
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.71% 0.66% 0.47% 0.21% 0.09%
Ratio of net investment income to average net assets (ii) 5.60% 2.14% 6.25% 6.69% 6.29%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) ........... 1.20% 1.33% 1.42% 2.20% 2.55%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) .... 5.11% 1.47% 5.29% 4.70% 3.83%
Portfolio Turnover ...................................... 115.90% 117.41% 170.64% 327.31% 26.14%
Average Commission Rate Paid ............................ N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Bond Fund
Supplemental information for a share outstanding for the Class B
six month period ended September 30, 1998 or throughout each ------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(b)(d)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $8.94 $8.70 $8.98 $8.36
- -------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.44 0.49 0.51 0.49
Net realized and unrealized gain (loss) on investments .. 0.40 0.24 (0.28) 0.62
- -------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.84 0.73 0.23 1.11
- -------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.44) (0.49) (0.51) (0.49)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00
Total distributions .................................. (0.44) (0.49) (0.51) (0.49)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.40 0.24 (0.28) 0.62
- -------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $9.34 $8.94 $8.70 $8.98
=======================================================================================================
Total return (not annualized)(c) ........................ 9.67% 8.63% 2.62% 13.58%
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $655 $433 $412 $150
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 1.46% 1.13% 0.96% 0.78%
Ratio of net investment income to average net assets (ii) 4.83% 2.24% 5.66% 5.56%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) ........... 1.95% 2.08% 2.15% 4.00%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) .... 4.34% 1.33% 4.48% 2.34%
Portfolio Turnover ...................................... 115.90% 117.41% 170.64% 327.31%
Average Commission Rate Paid ............................ N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Municipal Bond Fund
Supplemental information for a share outstanding for the Class A
six month period ended September 30, 1998 or throughout each --------------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(e) 1994(a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $9.29 $8.95 $8.98 $8.60 $9.50
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.39 0.42 0.44 0.47 0.42
Net realized and unrealized gain (loss) on investments .. 0.35 0.34 (0.03) 0.38 (0.90)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.74 0.76 0.41 0.85 (0.48)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.39) (0.42) (0.44) (0.47) (0.42)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00 0.00
Total distributions .................................. (0.39) (0.42) (0.44) (0.47) (0.42)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.35 0.34 (0.03) 0.38 (0.90)
- ----------------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $9.64 $9.29 $8.95 $8.98 $8.60
================================================================================================================
Total return (not annualized)(c) ........................ 8.13% 8.64% 4.64% 10.18% (5.15)%
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $21,846 $9,612 $6,540 $5,512 $2,610
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.70% 0.55% 0.41% 0.40% 0.25%
Ratio of net investment income to average net assets (ii) 4.13% 4.56% 4.88% 5.26% 5.03%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) ........... 1.51% 1.71% 1.95% 3.30% 3.99%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) .... 3.32% 3.40% 3.35% 2.36% 1.29%
Portfolio Turnover ...................................... 23.00% 12.95% 9.82% 81.90% 81.42%
Average Commission Rate Paid ............................ N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Municipal Bond Fund
Supplemental information for a share outstanding for the Class B
six month period ended September 30, 1998 or throughout each ------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(b)(e)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $9.29 $8.96 $8.98 $8.31
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.32 0.37 0.40 0.38
Net realized and unrealized gain (loss) on investments .. 0.35 0.33 (0.02) 0.67
- --------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.67 0.70 0.38 1.05
- --------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.32) (0.37) (0.40) (0.38)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00
Total distributions .................................. (0.32) (0.37) (0.40) (0.38)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.35 0.33 (0.02) 0.67
- --------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $9.64 $9.29 $8.96 $8.98
=======================================================================================================
Total return (not annualized)(c) ........................ 7.36% 7.96% 4.22% 12.86%
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $568 $431 $425 $56
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 1.41% 2.14% 0.91% 0.90%
Ratio of net investment income to average net assets (ii) 3.40% 8.12% 4.27% 4.26%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) ........... 2.26% 4.95% 2.53% 5.56%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) .... 2.55% 2.61% 2.64% (0.40)%
Portfolio Turnover ...................................... 23.00% 12.95% 9.82% 81.90%
Average Commission Rate Paid ............................ 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 The Boston Company Asset Management, Inc. assumed management
responsibilities.
(e) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when Payden & Rygel Investment Counsel 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.
See accompanying notes to financial statements.
- 45 -
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
California Tax-Free Fund
Supplemental information for a share outstanding for the Class A
six month period ended September 30, 1998 or throughout each --------------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995 1994(a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $8.26 $7.93 $7.92 $7.59 $8.50
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.36 0.38 0.40 0.41 0.36
Net realized and unrealized gain (loss) on investments .. 0.32 0.33 0.01 0.33 (0.91)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.68 0.71 0.41 0.74 (0.55)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.36) (0.38) (0.40) (0.41) (0.36)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00 0.00
Total distributions .................................. (0.36) (0.38) (0.40) (0.41) (0.36)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.32 0.33 0.01 0.33 (0.91)
- ----------------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $8.58 $8.26 $7.93 $7.92 $7.59
================================================================================================================
Total return (not annualized)(c) ........................ 8.37% 9.19% 5.23% 10.13% (6.56)%
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $41,723 $26,096 $20,876 $19,292 $13,815
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.70% 0.55% 0.38% 0.32% 0.25%
Ratio of net investment income to average net assets (ii) 4.23% 4.72% 4.98% 5.36% 4.70%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) ........... 1.19% 1.22% 1.29% 1.65% 2.01%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) .... 3.74% 4.05% 4.06% 4.03% 2.94%
Portfolio Turnover ...................................... 24.09% 34.88% 31.78% 86.69% 73.88%
Average Commission Rate Paid ............................ N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
California Tax-Free Fund
Supplemental information for a share outstanding for the Class B
six month period ended September 30, 1998 or throughout each ------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(b)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $8.26 $7.93 $7.92 $7.35
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.29 0.34 0.36 0.34
Net realized and unrealized gain (loss) on investments .. 0.32 0.33 0.01 0.57
- --------------------------------------------------------------------------------------------------------
Total from investment operations ..................... 0.61 0.67 0.37 0.91
- --------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.29) (0.34) (0.36) (0.34)
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00
Total distributions .................................. (0.29) (0.34) (0.36) (0.34)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... 0.32 0.33 0.01 0.57
- --------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $8.58 $8.26 $7.93 $7.92
========================================================================================================
Total return (not annualized)(c) ........................ 7.55% 8.63% 4.70% 12.60%
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $7,955 $4,725 $3,159 $966
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 1.45% 1.08% 0.89% 0.84%
Ratio of net investment income to average net assets (ii) 3.45% 4.18% 4.39% 4.47%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (f) ........... 2.94% 2.01% 1.98% 2.97%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (f) .... 1.96% 3.25% 3.30% 2.35%
Portfolio Turnover ...................................... 24.09% 34.88% 31.78% 86.69%
Average Commission Rate Paid ............................ N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Growth & Income Fund
Supplemental information for a share outstanding for the Class A
six month period ended September 30, 1998 or throughout each ------------------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(d) 1994(a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $20.92 $16.29 $14.30 $11.14 $11.00
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.18 0.20 0.21 0.27 0.23
Net realized and unrealized gain (loss) on investments .. (1.78) 5.77 2.32 3.22 0.13
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations ..................... (1.60) 5.97 2.53 3.49 0.36
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.18) (0.21) (0.21) (0.27) (0.22)
Distributions from net realized gain (loss) ............. (2.37) (1.14) (0.33) (0.06) 0.00
Total distributions .................................. (2.55) (1.35) (0.54) (0.33) (0.22)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... (4.15) 4.63 1.99 3.16 0.14
- --------------------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $16.77 $20.92 $16.29 $14.30 $11.14
====================================================================================================================
Total return (not annualized)(c) ........................ (8.32%) 38.78% 18.08% 31.93% 3.29%
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $284,577 $224,524 $102,485 $38,483 $14,174
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.84% 0.73% 0.72% 0.43% 0.25%
Ratio of net investment income to average net assets (ii) 0.92% 1.39% 1.49% 2.30% 2.81%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 1.18% 1.22% 1.34% 1.80% 2.17%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... 0.58% 0.90% 0.88% 0.93% 0.89%
Portfolio Turnover ...................................... 87.14% 93.14% 66.32% 92.01% 13.90%
Average Commission Rate Paid ............................ $0.0533 $0.0577 $0.0498 N/A N/A
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Growth & Income Fund
Supplemental information for a share outstanding for the Class B
six month period ended September 30, 1998 or throughout each ------------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(b)(d)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $20.87 $16.26 $14.29 $11.30
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... 0.04 0.11 0.17 0.23
Net realized and unrealized gain (loss) on investments .. (1.77) 5.76 2.28 3.05
- --------------------------------------------------------------------------------------------------------
Total from investment operations ..................... (1.73) 5.87 2.45 3.28
- --------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ (0.04) (0.12) (0.15) (0.23)
Distributions from net realized gain (loss) ............. (2.37) (1.14) (0.33) (0.06)
Total distributions .................................. (2.41) (1.26) (0.48) (0.29)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... (4.14) 4.61 1.97 2.99
- --------------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $16.73 $20.87 $16.26 $14.29
========================================================================================================
Total return (not annualized)(c) ........................ (8.94%) 38.08% 17.48% 29.53%
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $45,107 $38,069 $16,658 $2,887
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 1.58% 1.26% 1.22% 1.01%
Ratio of net investment income to average net assets (ii) 0.18% 0.60% 0.97% 1.64%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (e) ........... 1.92% 1.97% 2.07% 2.92%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (e) .... (1.54)% (0.21)% 0.12% (0.27)%
Portfolio Turnover ...................................... 87.14% 93.14% 66.32% 92.01%
Average Commission Rate Paid ............................ $0.0533 $0.0577 $0.0498 N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
- 46 -
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Growth Fund
Supplemental information for a share outstanding for the Class A
six month period ended September 30, 1998 or throughout each --------------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $16.74 $13.76 $11.66 $10.00
- -----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... (0.07) (0.08) 0.01 0.03
Net realized and unrealized gain (loss) on investments .. (1.89) 3.06 2.12 1.63
- -----------------------------------------------------------------------------------------------------
Total from investment operations ..................... (1.96) 2.98 2.13 1.66
- -----------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ 0.00 0.00 (0.03) 0.00
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00
Total distributions .................................. 0.00 0.00 (0.03) 0.00
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... (1.96) 2.98 2.10 1.66
- -----------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $14.78 $16.74 $13.76 $11.66
====================================================================================================
Total return (not annualized)(b) ........................ (11.71%) 21.66% 18.35% 16.60%
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $84,020 $58,180 $21,027 $4,187
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 0.99% 1.80% 0.49% 0.00%
Ratio of net investment income to average net assets (ii) (0.48)% (0.25)% 0.21% 1.20%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (c) ........... 1.30% 2.80% 1.68% 3.46%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (c) .... (0.79)% (1.25)% (0.98)% (2.26)%
Portfolio Turnover ...................................... 17.79% 22.37% 16.40% 0.06%
Average Commission Rate Paid ............................ $0.0244 $0.0271 $0.0281 N/A
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Growth Fund
Supplemental information for a share outstanding for the Class B
six month period ended September 30, 1998 or throughout each -----------------------------------
fiscal year or period ended September 30. 1998 1997 1996 1995(a)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $16.59 $13.70 $11.65 $10.00
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................................... (0.18) (0.10) (0.02) 0.03
Net realized and unrealized gain (loss) on investments .. 1.87 2.99 2.09 1.62
- -------------------------------------------------------------------------------------------------
Total from investment operations ..................... (2.05) 2.89 2.07 1.65
- -------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income ................ 0.00 0.00 (0.02) 0.00
Distributions from net realized gain (loss) ............. 0.00 0.00 0.00 0.00
Total distributions .................................. 0.00 0.00 (0.02) 0.00
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value ........... (2.05) 2.89 2.05 1.65
- -------------------------------------------------------------------------------------------------
Net asset value - end of period ...................... $14.54 $16.59 $13.70 $11.65
=================================================================================================
Total return (not annualized)(b) ........................ (12.36%) 21.09% 17.80% 16.50%
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000) ......................... $5,290 $4,132 $2,170 $149
Ratios to average net assets (annualized):
Ratio of net expenses to average net assets(i) .......... 1.73% 2.81% 1.01% 0.00%
Ratio of net investment income to average net assets (ii) (1.23)% (1.71)% (0.36)% 1.07%
(i) Ratio of net expenses to average net assets
prior to waivers and reimbursements (c) ........... 2.05% 4.29% 2.43% 3.85%
(ii) Ratio of net investment income to average net
assets prior to waivers and reimbursements (c) .... (1.54)% (3.20)% (1.78)% (2.78)%
Portfolio Turnover ...................................... 17.79% 22.37% 16.40% 0.06%
Average Commission Rate Paid ............................ $0.0244 $0.0271 $0.0281 N/A
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) The fund commenced operations on June 12, 1995.
(b) Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
(c) Ratio reflects fees reduced in connection with specific agreements only for
periods ended after September 30, 1995.
See accompanying notes to financial statements.
- 47 -
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies
Organization
(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 one non-diversified fund, the California Tax-Free Fund,
and eight separate diversified funds (each, a "Fund" and 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 ("GAAP") 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.
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
- 48 -
<PAGE>
Notes to Financial Statements (Continued)
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.
Mortgage Backed Dollar Rolls
- ----------------------------
The U.S. Government Income and Bond Funds engaged in dollar-roll transactions
with respect to mortgage-related securities issued by GNMA, FNMA, and FHLMC. In
a dollar-roll transaction, a Fund sells a mortgage-related security to a
financial institution, such as a bank or broker/dealer, and simultaneously
agrees to repurchase a substantially similar (i.e., same type, coupon, and
maturity) security from institution at a later date at an agreed-upon price. The
mortgage-related securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment and credit histories.
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
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, 1998 are collateralized
by U.S. Treasury or federal agency obligations, and were entered into on the
same date.
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, dividends are declared and
distributed to shareholders 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 GAAP. 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.
It is the policy of the Funds that the Board of Directors will not declare
capital gain distributions until any net
- 49 -
<PAGE>
Notes to Financial Statements (Continued)
capital loss carryforwards have been utilized. The following net capital loss
carryforward amounts were available to the Funds as of September 30, 1998:
Net Capital Loss Date(s) of
Carryforward Expiration
- ----------------------------------------------------------------
Money Market Fund............. $45 2006
Tax-Free Money Market Fund... 4,664 2003
Municipal Bond Fund........... 89,109 2003-2004
California Tax-Free Fund ..... 72,959 2000-2001
Growth Fund................... 1,300,677 2004-2006
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 GAAP 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"). GFIA is an indirect wholly-owned
subsidiary of H.F. Ahmanson & Company. Effective October 1, 1998, H.F. Ahmanson
was acquired by Washington Mutual Bank, F.A. 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, 1998, GFIA has voluntarily waived a portion of its
fees to limit fund expenses. For the year ended September 30, 1998 advisory fees
were incurred by the Funds as follows:
Advisory Waived
Funds fees fees
- ---------------------------------------------------------------
Money Market................ $1,164,039 $686,020
Tax-Free Money Market....... 123,551 123,551
Short-Term Bond............. 380,026 371,535
U.S. Government Income...... 508,277 408,116
Bond........................ 398,345 389,770
Municipal Bond.............. 77,514 77,514
California Tax-Free ........ 197,702 193,524
Growth & Income............. 1,915,644 1,094,281
Growth...................... 486,160 259,087
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 also an indirect
wholly-owned subsidiary of H. F. Ahmanson & Company. 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 por-
- 50 -
<PAGE>
Notes to Financial Statements (Continued)
tion of its fees to limit fund expenses. For the year ended September 30, 1998
administration fees were incurred by the Funds as follows:
Administration Waived
Funds & Accounting fees fees
- ----------------------------------------------------------------
Money Market.............. $465,616 $0
Tax-Free Money Market..... 49,421 0
Short-Term Bond........... 152,010 0
U.S. Government Income.... 203,311 0
Bond...................... 159,338 0
Municipal Bond............ 31,005 10,379
California Tax-Free....... 79,081 0
Growth & Income........... 638,548 0
Growth.................... 162,053 0
In addition, GFA reimbursed 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, 1998, 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 ............. $465,616 $0
Tax-Free Money Market..... 49,421 8,570
Class A Shares
- --------------
Short-Term Bond........... 189,595 11,326
U.S. Government Income ... 243,453 0
Bond...................... 197,703 0
Municipal Bond ........... 37,518 36,660
California Tax-Free....... 83,327 0
Growth & Income........... 680,920 0
Growth.................... 189,199 0
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, 1998, Class B
shares of the Funds incurred distribution and servicing fees as follows:
Distribution and Waived
Funds Servicing Fees Fees
- ---------------------------------------------------------------------
Short-Term Bond......... $1,672 $100
U.S. Government Income.. 42,743 0
Bond.................... 5,877 0
Municipal Bond.......... 4,955 1,388
California Tax-Free..... 62,096 0
Growth & Income......... 469,058 0
Growth.................. 53,471 0
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 year ended September 30, 1998, GFS was paid $307,745 in front-end sales
charges on sales of Class A shares, and $175,678 in contingent deferred sales
charges on Class B share redemptions.
- 51 -
<PAGE>
Notes to Financial Statements (Continued)
(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 $361,253,123 $45,570,294
Sales proceeds .......... 0 0 0 0 0 263,392,525 13,915,437
U.S. Treasury Obligations:
Purchases at cost ....... 42,911,160 74,999,404 66,296,611 0 0 0 0
Sales proceeds .......... 26,247,000 84,716,270 64,263,738 0 0 0 0
U.S. Agency Securities:
Purchases at cost ....... 7,632,311 99,467,577 59,584,943 0 0 0 0
Sales proceeds .......... 425,195 38,713,189 25,311,357 0 0 0 0
Municipal Bonds:
Purchases at cost ....... 0 0 0 14,926,363 26,513,170 0 0
Sales proceeds .......... 0 0 0 3,336,612 9,039,227 0 0
Other Long-Term Securities:
Purchases at cost ....... 35,098,161 0 9,952,301 0 0 0 0
Sales proceeds .......... 4,600,546 0 17,825,768 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, 1998, the Company was authorized to issue issue 10 billion
shares of $0.001 par value capital stock. As of September 30, 1998, 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: 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, 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
Shares sold and exchanged in.................. 483,211,073 483,211,073 70,683,755 70,683,755
Shares issued in reinvestment of dividends.... 11,340,298 11,340,298 689,736 689,736
Shares redeemed and exchanged out............. (486,718,332) (486,718,332) (64,456,077) (64,456,077)
--------------- --------------- --------------- ---------------
September 30, 1998:........................... 237,589,972 $237,589,972 28,083,164 $23,083,164
=============== =============== =============== ===============
</TABLE>
- 52 -
<PAGE>
Notes to Financial Statements (Continued)
<TABLE>
<CAPTION>
Class A Class B
------------------------------ -----------------------------
Shares Amount Shares Amount
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Short-Term Bond Fund
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
Shares sold and exchanged in.................. 8,127,008 82,452,189 22,784 232,742
Shares issued in reinvestment of dividends.... 361,817 3,668,529 693 7,015
Shares redeemed and exchanged out............. (4,003,988) (40,842,780) (6,427) (65,020)
---------------- --------------- ------------- -------------
September 30, 1998:........................... 9,457,041 $95,182,086 34,445 $347,805
================ =============== ============= =============
<CAPTION>
Class A Class B
------------------------------ -----------------------------
Shares Amount Shares Amount
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Government Income Fund
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
Shares sold and exchanged in................. 7,382,076 69,182,146 248,067 2,353,188
Shares issued in reinvestment of dividends... 517,682 4,843,266 12,634 118,230
Shares redeemed and exchanged out............ (5,117,764) (48,423,507) (106,666) (999,076)
----------------- --------------- -------------- --------------
September 30, 1998:.......................... 11,116,831 $101,650,807 583,016 $5,436,137
================= =============== ============== ==============
<CAPTION>
Class A Class B
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Bond Fund
September 30, 1996:.......................... 3,188,670 $28,452,780 47,393 $422,524
Shares sold and exchanged in................. 4,150,730 36,626,337 12,640 111,011
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
Shares sold and exchanged in................. 7,676,618 69,895,692 42,421 384,099
Shares issued in reinvestment of dividends... 440,535 4,006,068 2,311 20,995
Shares redeemed and exchanged out............ (4,228,768) (38,755,697) (22,939) (208,812)
----------------- -------------- --------------- -------------
September 30, 1998:.......................... 10,248,368 $91,592,155 70,160 $627,884
================= ============== =============== =============
<CAPTION>
Class A Class B
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Municipal Bond Fund
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
Shares sold and exchanged in.................. 1,980,783 18,677,228 11,575 109,300
Shares issued in reinvestment of dividends.... 52,223 492,146 1,229 11,571
Shares redeemed and exchanged out............. (801,438) (7,589,993) (287) (2,719)
---------------- --------------- ------------- --------------
September 30, 1998:........................... 2,266,637 $20,946,917 58,880 $537,980
================ =============== ============= ==============
</TABLE>
- 53 -
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
------------------------------ -----------------------------
Shares Amount Shares Amount
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
California Tax-Free Fund
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
Shares sold and exchanged in ............. 2,739,257 22,926,180 408,476 3,419,695
Shares issued in reinvestment of dividends 113,200 946,071 14,833 124,033
Shares redeemed and exchanged out ........ (1,149,205) (9,671,041) (68,429) (571,250)
------------ ------------ ------------ ------------
September 30, 1998: ......................... 4,862,184 $39,484,945 926,719 7,522,626
============ ============ ============ ============
<CAPTION>
Class A Class B
------------------------------- -------------------------------
Shares Amount Shares Amount
-------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Growth & Income Fund
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
Shares sold and exchanged in ............. 9,139,531 175,93,465 879,422 17,186,216
Shares issued in reinvestment of dividends 1,704,568 30,413,784 273,834 4,858,620
Shares redeemed and exchanged out ........ (4,613,063) (87,204,130) (280,347) (5,235,928)
------------- ------------- ------------- -------------
September 30, 1998: ......................... 16,964,005 $285,602,958 2,696,898 $46,552,586
============= ============= ============= =============
<CAPTION>
Class A Class B
------------------------------ -----------------------------
Shares Amount Shares Amount
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Growth Fund
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
Shares sold and exchanged in ............. 3,733,297 63,183,308 159,127 2,742,241
Shares issued in reinvestment of dividends - - - -
Shares redeemed and exchanged out ........ (1,524,177) (25,858,189) (44,264) (747,710)
------------ ------------ ------------ ------------
September 30, 1998: ......................... 5,684,325 $82,919,345 363,922 $5,262,396
============ ============ ============ ============
</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.
- 54 -
<PAGE>
Report of Independent Auditor
September 30, 1998
THE SHAREHOLDERS AND BOARD OF DIRECTORS
TEH 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, 1998 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 four-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 three-year period ended
September 30, 1998 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, 1998, 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, 1998, 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.
KPMG PEAT MAWICK LLP
LOS ANGELES, CALIFORNIA
NOVEMBER 5, 1998
- 55 -
<PAGE>
Special Message to Shareholders
September 30, 1998
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 1999, 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 stateand local levels.
The amount of long-term capital gain paid was as follows:
Growth & Income Fund $14,186,488
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, 1998: 100%
Dividends paid on or after September 5, 1998: 100%
<PAGE>
Board of Directors
September 30, 1998
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
Herbert L. Botts, 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 91716
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 2120
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.
